Regional REIT — Quarterly DPS increased by 7%

Regional REIT (LSE: RGL)

Last close As at 20/11/2024

GBP1.26

0.00 (0.00%)

Market capitalisation

GBP205m

More on this equity

Research: Real Estate

Regional REIT — Quarterly DPS increased by 7%

Regional REIT (RGL) has published a trading update for the three months ended 31 March 2021 (Q121), including a 7% increase in the quarterly rate of DPS backed by continuing strong rent collection from its diversified portfolio of attractively yielding regional property assets. With the lockdown restrictions relaxing, RGL says it is seeing increasing engagement with potential occupiers.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Regional REIT

Quarterly DPS increased by 7%

Trading update and DPS

Real estate

20 May 2021

Price

87.5p

Market cap

£378m

Net debt (£m) at 31 March 2021

303.2

Net LTV as at 31 March 2021

41.3%

Shares in issue

431.5m

Free float

99%

Code

RGL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.7

15

16.2

Rel (local)

4.5

9.3

(3.2)

52-week high/low

87.5p

59.8p

Business description

Regional REIT owns a highly diversified commercial property portfolio of predominantly office assets located in the regional centres of the UK. It is actively managed and targets a total shareholder return of at least 10% with a strong focus on income

Next events

Q121 DPS paid

16 July 2021

Analyst

Martyn King

+44 (0)20 3077 5745

Regional REIT is a research client of Edison Investment Research Limited

Regional REIT (RGL) has published a trading update for the three months ended 31 March 2021 (Q121), including a 7% increase in the quarterly rate of DPS backed by continuing strong rent collection from its diversified portfolio of attractively yielding regional property assets. With the lockdown restrictions relaxing, RGL says it is seeing increasing engagement with potential occupiers.

Year end

Net rental
income (£m)

EPRA
earnings* (£m)

EPRA
EPS* (p)

EPRA NTA**/
share (p)

DPS
(p)

P/NTA
(x)

Yield
(%)

12/19

55.0

31.0

7.8

112.6

8.25

0.78

9.4

12/20

53.3

27.9

6.5

98.6

6.40

0.89

7.3

12/21e

53.6

28.9

6.7

99.1

6.60

0.88

7.5

12/22e

55.3

30.4

7.0

99.4

6.90

0.88

7.9

Note: *EPRA earnings exclude revaluation movements, gains/losses on disposal and other non-recurring items. EPRA EPS is fully diluted. **EPRA net tangible assets per share. EPS and NTA are fully diluted.

DPS increase supported by strong rent collection

RGL has declared a Q121 DPS of 1.6p compared with 1.5p in Q420. Our forecast assumes three quarterly payments of 1.6p and an increased Q4 DPS of 1.8p (total for the year 6.6p versus 6.4p), consistent with the company’s plans to revert to distributions in line with its normal pattern. Rent collection remains strong and as at 14 May it had collected 96.1% of Q121 rents (comprising 93.8% received, monthly rent of 1.2% and agreed collection plans of 1.1%), which compares favourably with the 89.6% collected at the same point in 2020. Retention rates remain above 70% and completed lease renewals achieved an average uplift in rents of 6.4%. New lettings will also add £0.9m pa to rent roll when fully occupied, although gross rent roll of £62.8m and EPRA occupancy of 87.8% were slightly below end-FY20 (£64.3m and 89.4% respectively). The end-Q121 portfolio value of £734.7m (end-FY20: £732.4m) is adjusted for capex and one small disposal only, with the next revaluation due at 30 June 2021. Our forecasts are unchanged.

Regional office opportunity

RGL believes strongly in the future for offices in the commercial market universe, especially good-quality regional assets with affordable rents, the focus of investment as RGL becomes a pure-play regional office REIT. The existing office portfolio contains significant reversionary income potential (c £12m at end-FY20) and RGL is seeking to take full advantage of a strong pipeline of further regional office investment opportunities and what it believes to be a mispricing of quality assets, brought into sharper contrast by strong investor enthusiasm for the industrial sector. Not reflected in our forecasts, a sale of the industrial assets above book value is possible, with the proceeds recycled into offices at an increased yield.

Valuation: High yield and fully covered dividend

RGL continues to offer one of the highest yields in the UK REIT sector, with dividends fully covered by EPRA earnings. Despite a rise in the share price the FY21e yield is 7.5%, significantly above close peers, with an 11% discount to FY20 NTA.

Exhibit 1: Financial summary

Year end 31 December

£m

2016

2017

2018

2019

2020

2021e

2022e

2023e

INCOME STATEMENT

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

Rental & other income

43.0

52.3

62.1

64.4

62.1

62.6

64.3

65.0

Non-recoverable property costs

0.0

(6.5)

(7.7)

(9.4)

(8.8)

(9.0)

(9.0)

(9.0)

Net rental & related income

 

 

43.0

45.8

54.4

55.0

53.3

53.6

55.3

56.0

Administrative expenses (excluding performance fees)

(8.0)

(7.8)

(10.5)

(10.9)

(11.3)

(10.8)

(10.8)

(10.8)

Performance fees

(0.2)

(1.6)

(7.0)

0.0

0.0

0.0

0.0

0.0

EBITDA

 

 

34.8

36.4

36.8

44.1

42.0

42.8

44.5

45.2

EPRA cost ratio

N/A

29.7%

40.1%

31.6%

32.4%

31.6%

30.8%

30.5%

EPRA cost ratio excluding performance fee

N/A

26.6%

28.6%

31.6%

32.4%

31.6%

30.8%

30.5%

Gain on disposal of investment properties

0.5

1.2

23.1

1.7

(1.1)

0.0

0.0

0.0

Change in fair value of investment properties

(6.8)

5.9

23.9

(3.5)

(54.8)

0.0

0.0

0.0

Change in fair value of right to use asset

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

Operating Profit (before amort. and except.)

 

 

28.5

43.5

83.8

42.0

(14.1)

42.6

44.3

45.0

Net finance expense

(8.6)

(14.5)

(15.7)

(13.7)

(14.0)

(13.7)

(13.9)

(13.9)

Net movement in the fair value of derivative financial investments and impairment of goodwill

(1.7)

(0.3)

(0.1)

(2.0)

(3.1)

0.0

0.0

0.0

Profit Before Tax

 

 

18.3

28.7

67.9

26.3

(31.2)

28.9

30.4

31.1

Tax

0.0

(1.6)

(0.6)

0.3

0.2

0.0

0.0

0.0

Profit After Tax (FRS 3)

 

 

18.3

27.1

67.4

26.5

(31.0)

28.9

30.4

31.1

Adjusted for the following:

Net gain/(loss) on revaluation/disposal of investment properties

6.2

(7.1)

(47.0)

1.9

55.9

0.0

0.0

0.0

Other EPRA adjustments

(3.4)

4.1

0.5

2.6

3.0

0.0

0.0

0.0

EPRA earnings

 

 

21.1

24.0

20.9

31.0

27.9

28.9

30.4

31.1

Performance fees

0.2

1.6

7.0

0.0

0.0

0.0

0.0

0.0

Adjusted earnings

 

 

21.3

25.6

27.9

31.0

27.9

28.9

30.4

31.1

Period end number of shares (m)

274.2

372.8

372.8

431.5

431.5

431.5

431.5

431.5

Fully diluted average number of shares outstanding (m)

274.3

297.7

372.8

398.9

431.5

431.5

431.5

431.5

IFRS EPS - fully diluted (p)

 

 

4.9

9.1

18.1

6.6

(7.2)

6.7

7.0

7.2

EPRA EPS, fully diluted (p)

 

 

7.7

8.1

5.6

7.8

6.5

6.7

7.0

7.2

Adjusted EPS (p)

 

 

7.8

8.6

7.5

7.8

6.5

6.7

7.0

7.2

Dividend per share (p)

 

 

7.65

7.85

8.05

8.25

6.40

6.60

6.90

7.20

Dividend cover

101.6%

109.7%

93.1%

94.2%

101.0%

101.6%

102.1%

100.1%

BALANCE SHEET

Non-current assets

 

 

506.4

740.9

720.9

806.0

749.5

755.4

761.2

767.0

Investment properties

502.4

737.3

718.4

787.9

732.4

738.4

744.4

750.4

Other non-current assets

4.0

3.6

2.5

18.1

17.2

17.0

16.8

16.6

Current Assets

 

 

27.6

66.6

127.0

69.4

101.1

90.9

87.4

81.6

Other current assets

11.4

21.9

22.2

32.2

33.7

26.3

24.5

24.7

Cash and equivalents

16.2

44.6

104.8

37.2

67.4

64.6

63.0

56.8

Current Liabilities

 

 

(23.3)

(42.6)

(83.7)

(36.2)

(49.1)

(43.4)

(44.9)

(45.3)

Borrowings

0.0

(0.4)

(0.4)

0.0

0.0

0.0

0.0

0.0

Other current liabilities

(23.3)

(42.2)

(83.3)

(36.2)

(49.1)

(43.4)

(44.9)

(45.3)

Non-current liabilities

 

 

(219.0)

(372.0)

(334.7)

(355.5)

(380.9)

(380.5)

(380.1)

(379.6)

Borrowings

(217.4)

(371.2)

(285.2)

(287.9)

(310.7)

(311.3)

(311.9)

(312.5)

Other non-current liabilities

(1.5)

(0.8)

(49.5)

(67.6)

(70.3)

(69.2)

(68.2)

(67.1)

Net Assets

 

 

291.7

392.9

429.5

483.7

420.6

422.3

423.6

423.6

Derivative interest rate swaps & deferred tax liability

1.5

2.8

1.0

2.6

5.0

5.2

5.2

5.2

EPRA net assets

 

 

293.2

395.7

430.5

486.3

425.6

427.5

428.8

428.8

IFRS NAV per share (p)

106.4

105.4

115.2

112.1

97.5

97.9

98.2

98.2

Fully diluted EPRA NTA per share (p)

106.1

105.4

115.2

112.6

98.6

99.1

99.4

99.4

CASH FLOW

Cash (used in)/generated from operations

 

 

31.4

40.3

38.8

26.0

48.0

44.6

47.8

45.2

Net finance expense

(6.6)

(9.2)

(11.9)

(12.2)

(12.5)

(12.8)

(12.9)

(12.9)

Tax paid

(1.7)

(0.2)

(1.5)

(0.8)

0.2

0.0

0.0

0.0

Net cash flow from operations

 

 

23.1

30.8

25.4

13.0

35.7

31.8

34.9

32.3

Net investment in investment properties

(99.3)

(8.3)

100.6

(25.6)

(0.3)

(6.0)

(6.0)

(6.0)

Acquisition of subsidiaries, net of cash acquired

(5.6)

(51.9)

(32.6)

(43.9)

0.0

0.0

0.0

0.0

Other investing activity

0.1

0.0

0.2

0.2

0.1

0.0

0.0

0.0

Net cash flow from investing activities

 

 

(104.8)

(60.1)

68.2

(69.4)

(0.2)

(6.0)

(6.0)

(6.0)

Equity dividends paid

(15.7)

(23.3)

(29.4)

(32.5)

(26.7)

(27.2)

(29.1)

(31.1)

Debt drawn/(repaid) - including bonds and ZDP

91.4

13.9

(50.5)

3.5

22.2

0.0

0.0

0.0

Net equity issuance

0.0

71.3

(1.2)

60.5

0.0

0.0

0.0

0.0

Other financing activity

(1.7)

(4.2)

47.7

(42.7)

(0.8)

(1.4)

(1.4)

(1.4)

Net cash flow from financing activity

 

 

74.0

57.7

(33.4)

(11.2)

(5.3)

(28.6)

(30.5)

(32.5)

Net Cash Flow

 

 

(7.8)

28.4

60.2

(67.6)

30.1

(2.8)

(1.6)

(6.2)

Opening cash

24.0

16.2

44.6

104.8

37.2

67.4

64.6

63.0

Closing cash

 

 

16.2

44.6

104.8

37.2

67.4

64.6

63.0

56.8

Balance sheet debt

(217.4)

(371.6)

(374.6)

(337.1)

(360.1)

(360.9)

(361.6)

(362.4)

Unamortised debt costs

(2.6)

(4.8)

(5.8)

(6.9)

(6.0)

(5.3)

(4.5)

(3.8)

Closing net debt

 

 

(203.9)

(331.8)

(275.5)

(306.8)

(298.8)

(301.6)

(303.2)

(309.3)

LTV

40.6%

45.0%

38.3%

38.9%

40.8%

40.8%

40.7%

41.2%

Source: Regional REIT historical data, Edison Investment Research forecasts


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General disclaimer and copyright

This report has been commissioned by Regional REIT and prepared and issued by Edison, in consideration of a fee payable by Regional REIT. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Deutsche Grundstücksauktionen — Reaching new heights

Despite the macro headwinds, Deutsche Grundstücksauktionen (DGA) reported record-high auction sales in FY20 of €142.7m (significantly above the €100.1m in FY19) and commission income of €12.7m (versus €10.1m in FY19). DGA continued its strong performance in Q121, reporting turnover of €37.9m – the second-highest quarterly result in its history (only behind Q320), with €47.8m group sales. The group benefits from agreements with government institutions, which offer high-volume properties for sale and fueled a 51.3% y-o-y increase in average sale price across the group to €96.6k. On the other hand, due to a regressive commission scale, the average commission rate declined from 10.1% to 8.9% in FY20. Management expects a slight decline in transaction volume in FY21, as the FY20 figure was inflated by significant one-off transactions.

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