Regional REIT reports on busy period

By Paul Norman - Thursday, September 14, 2017 9:28

Regional REIT, the UK regional office and industrial property focused REIT, has posted significant lifts in operating profits and the value of its portfolio following a busy acquisitions period in results for the six months ended 30 June 2017.

The gross investment property portfolio stands at £640.4m (31 Dec 2016: £502.4m) with a valuation increase of £7.5m. The like-for-like value increased 2.2%.

In a 'NAV-for NAV' transaction during the period the group acquired a mixed portfolio of office, industrial, retail and leisure properties for circa £129m.

Gross bank borrowings were £298.7m (31 Dec 2016: £220.1m), the increase part-funding the portfolio acquisition.

The cost of bank debt declined to 3.3% pa (including hedging costs). As part of the acquisition the group also acquired Zero Dividend Preference Shares. There is £36.2m outstanding as at 30 June 2017.

Net LTV reduced to 47.3%, from circa 49% following the acquisition, and will continue to be managed down towards the group's long-term target.

Operating profit increased to £21.8m (H1 2016: £12.1m) including the £7.5m investment property gain. Operating profit before property gain increased to £14.3m (H1 2016: £13.4m).

Fully diluted EPRA NAV was 107.3p per share. with the property valuation gain in the first-half offset by the Q4 2016 dividend and the Performance Fee accrual.

Dividends declared in relation to H1 2017 amounted to 3.60pps, an increase of 2.9% on H1 2016.

Operationally the group continued its "approach of active asset management - to improve and generate additional income through lease renewals, re-gears and new lettings - and delivered on its strategy and the commitments made at the time of the IPO (November 2015)".

It said it now has a diversified portfolio of 150 properties (31 Dec 2016: 123), 1,093 units (31 Dec 2016: 941) and 823 tenants (31 Dec 2016: 717); with the acquisition of a further 31 properties in March 2017.

It reported occupancy (by value) of 83.3% (31 Dec 2016: 82.7%) and (by area) 83.1% (31 Dec 2016: 83.8%), reflecting significant property refurbishment programmes.

Offices amount to 62.8% (by value) of the portfolio and industrial sites 26.0%, post the recent acquisition, with an increased share in England and Wales to 75.1% (31 Dec 2016: 73.2%). Retail and other, at 11.2%, remain non-core to the Group.

It said the portfolio continues to be based on a broad mix of business activities, with a limited exposure to finance activities, reflecting the UK-wide economy. The largest single tenant is 3% of gross rental income and the largest property 5% of the portfolio.

The total shareholder return since IPO is 17.8%, an annualised rate of 10.7% (excluding IPO launch costs, 20.0% and 12.1%).

After the period end it bought Woodlands Court, Bristol, for £6.55m, and sold St James House, Bath, for £4.6m.

The managers are in advanced refinancing discussions for long-term funding.

Stephen Inglis, Group Property Director and Chief Investment Officer of London & Scottish Investments Limited, said: "It has been a very active period for the Group. We have seized the opportunity to expand our portfolio, increasing the scale and diversity of our business across the UK's regions. We are reassured by the steady level of tenant interest for offices and light industrial sites, which can be expected to increase occupancy. In addition, we are seeing momentum in rentals, particularly for industrial properties. Whilst we remain alert to increasing economic uncertainty we remain committed to our strategy and confident in the strength of our business model."

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