Regional REIT Limited (LSE: RGL), the regional real estate investment specialist, focused on building a diverse portfolio of income producing regional UK core and core plus office and industrial property assets, today announces its trading update for the period from 1 July to 30 September 2019, and its dividend declaration for the third quarter of 2019.
Q3 2019 TRADING UPDATE
The Group continues to pursue its strategy of providing investors with an attractive and sustainable income focused return from investing and asset managing, in predominantly, offices and light industrial properties in the main regional centres of the UK outside of the M25 motorway.
The Group has exchanged on 50 leases to new tenants since 1 January 2019, totalling 239,374 sq. ft., of which 15 leases have been exchanged since 30 June 2019, totalling 151,995 sq. ft.. When fully occupied, these 50 new leases will provide an additional £2.2m pa of rental income. The 15 leases acquired since 30 June 2019 will provide £1.1m of rental income pa. The Group also completed a number of lease renewals during the quarter. Retention of income remains high at 88.3% (by value) as 85.2% of the units with lease renewals remain occupied.
In the quarter to 30 September 2019, the Group acquired seven properties for an aggregate value of £28.4m (before costs), disposed of one unit for £1.0m (net of costs), and capital expenditure amounted to £0.8m.
PORTFOLIO AS AT 30 SEPTEMBER 2019:
- 156 properties, 1,224 units and 864 tenants, totalling c. £749.7m* of gross property assets; with a gross rent roll of c. £60.2m pa
- Offices (by value) were 78.5% of the portfolio (31 December 2018: 76.1%), industrial sites 14.1% (31 December 2018: 15.5%), retail 6.0% (31 December 2018: 7.1%), and Other 1.4% (31 December 2018: 1.4%)
- England & Wales represented 82.6% (31 December 2018: 82.0%) of the portfolio with the remainder in Scotland
- EPRA Occupancy (by ERV) increased to 88.5% versus 87.5% at 30 June 2019; 30 September 2019 like-for-like (versus 30 September 2018) EPRA occupancy increased to 87.7% (87.5%)
- Average lot size c. £4.8m (31 December 2018: c. £4.8m)
- Net loan-to-value ratio c. 34.2%* (31 December 2018: 38.3%). Gross borrowings £344.3m; cash and cash equivalent balances £86.2m. Cost of debt (including hedging) of 3.5% pa (31 December 2018: 3.8% pa)
*Gross property assets based upon 30 June 2019 C&W valuations, adjusted for subsequent acquisitions, disposals and capital expenditure in the period.
Q3 2019 DIVIDEND DECLARATION
The Company will pay a dividend of 1.90 pence per share ("pps") for the period 1 July 2019 to 30 September 2019, an increase of c. 3% (1 July 2018 to 30 September 2018: 1.85pps). The dividend payment will be made on 19 December 2019 to shareholders on the register as at 22 November 2019. The ex-dividend date will be 21 November 2019. The entire dividend will be paid as a REIT property income distribution ("PID"). The payment of dividends will remain subject to market conditions, the Company's performance, its financial position, UK REIT requirements and the business outlook.
The outlook for the Group is positive. We continue to invest the proceeds from the oversubscribed July 2019 equity capital raise and expect the proceeds to be fully deployed on schedule.
Despite the wider political uncertainty, our confidence is underpinned by our diversified regional, tenant and sector portfolio, supported by the Group's strong financial position. These strengths will enable us to continue to deliver strong returns for shareholders reinforced by the strength of our recurring income.
Stephen Inglis, CEO of London & Scottish Property Investment Management, the Asset Manager of Regional REIT commented:
"The Company has continued to achieve considerable success resulting in another period of positive momentum throughout 2019. During the first three quarters, we executed significant positive re-letting activities and completed a number of attractive acquisitions to increase further the scale and diversified income of our portfolio."
"We are confident that we will invest the remaining proceeds from our over-subscribed capital raise, as well as capital recycled from strategic disposals in attractive, income producing assets with robust tenancies in major regional centres. We see continued strong demand for our existing assets with a high level of letting renewals to existing tenancies at strong rental levels. In particular, the outlook for regional offices is strong as returns continue to strengthen."
"Once again, the Company has demonstrated the success of the active asset management strategy to ensure robust and diverse income streams to provide regular high dividend returns to our shareholders."
SUMMARY OF ACTIVITY IN THE QUARTER TO 30 SEPTEMBER 2019:
The Group undertook several asset management projects, generating new lettings and maintaining and improving income through lease renewals and re-gears:
- 800 Aztec West, Bristol - The remaining available space was let to Edvance SAS (9,736 sq. ft.) who now occupy 41,285 sq. ft. within the building paying a rent of £902,232 (c. £22/sq. ft.) on a nine-year lease with the option to break in 2022
- Mile End Road, Colwick Nottingham - Hillary's Blinds Limited have leased the entire 82,380 sq. ft. of industrial space at Colwick 80, Mile End Road Colwick, Nottingham for a period of 10 years and six months at a rent of £320,000 pa
- Silver Court, Watchmead, Welwyn Garden City - Unit 6 (4,048 sq. ft.) has been let to Coreix Limited for five-years at a rent of £70,840 pa, 9.3% ahead of ERV. Additionally, Sidel (UK) Limited renewed its lease for 3,794 sq. ft. on the ground floor (unit 3) for a further five-years at a rent of £60,000 pa, 33.3% ahead of the previous headline rent and 2.0% ahead of ERV
- Braidhurt House, Strathclyde Business Park, Bellshill - Wireless Infrastructure Group Limited have leased the first floor of 4,697 sq. ft. for 10 years, subject to a tenant break option after five-years at a rent of £58,713 pa, 4.1% ahead of ERV
- Oakland House, Manchester - A letting has been secured with Please Hold (UK) Limited, which is upsizing in Oakland House, Manchester. The letting over the 10-year term increases the tenant's space by 5,450 sq. ft. at a rent of £68,125 pa
- Witham Park House, Lincoln - Two new lettings have been secured at Witham Park House in Lincoln. The lettings to Anglian Water and Distract Limited represent a combined total of 12,287 sq. ft. at an annual rent of £137,263 pa
- Acorn Business Park, Leeds - Unit 1 has been let to Aegis Leeds East LLP on a new five-year lease at a rent of £20,805 pa. Regional REIT purchased the site at the beginning of 2018 with over 10,000 sq. ft. (58%) of vacant space available and the business park is now fully let
- Juniper Park, Basildon - The lease of Unit 2 of the 16-unit site has successfully been renewed to Vanguard Logistics Services Limited for a five-year period with Vanguard having the option to extend beyond this. A stepped rent has been agreed on the 61,079 sq. ft. unit, increasing to £370,000 pa representing an uplift of 15.4% to the previous rent, and 5.4% ahead of ERV
- Charles House, Northampton - Reed Specialist Recruitment have renewed their three leases for a further two years to September 2021 at a combined rental of £112,700 pa on 11,277 sq. ft., 2.7% ahead of ERV
- Enterprise House, Century Park, Altrincham - Enterprise Software Systems Limited have renewed their lease over the entire building of 6,500 sq. ft. for a further 10 years until September 2029, subject to break option after five-years at a rent of £89,400 pa, 14.6% ahead of ERV
During the period, the Group completed the following acquisitions
- On 21 August 2019, the acquisition of a portfolio of six assets completed for a total consideration of £25.9m. The portfolio comprises six offices located in Birmingham, Bristol, Cardiff, Chester, Glasgow and Manchester. The assets total 172,442 sq. ft. and are expected to provide a net income of approximately £2.36m pa from 27 tenants; equating to a net initial yield of 8.87% and anticipated reversionary yield of 9.54%. The portfolio's weighted average unexpired lease term is 4.9 years. The acquired tenant profile is deliberately diversified across both industry type and geography, with no crossover to existing tenants; and
- On 29 August 2019, a unit on Loreny Industrial Estate, Kilmarnock was acquired for approximately £2.52m, reflecting a net initial yield of 15.2%. The property is 100% let to Matalan (34,040 sq. ft.) at an annual rent of c. £407,000 with an unexpired lease term of 6.6 years
- Carnbroe House, Bellshill ‐ This vacant unrefurbished unit was sold in September 2019 for £1.0m to an owner occupier. The sale forms part of the Group's strategy to reduce exposure to the Scottish market closer to the Group's overall target of 15% (by value). This property was no longer core to the Group
SUBSEQUENT EVENTS POST 30 SEPTEMBER 2019:
Since the quarter end, the Group has successfully completed the following lettings and acquisitions:
- Juniper Park, Basildon - Unit 1 of the 16-unit site has successfully been let to DG International Group Limited for a five-year period. The 30,100 sq. ft. industrial unit has been let for a rental of £240,800 pa representing a notable uplift of 30% from the previous tenancy. The unit was re-let within 11 weeks of the previous lease coming to an end
- Witham Park House, Lincoln - Anglian Water Limited has increased its footprint within the 102,000 sq. ft. multi occupied office complex signing a lease of Units 4 & 7 until January 2032. The combined suites extend to c. 17,000 sq. ft. with an annual headline rent of £220,000 pa
- 2800 The Crescent, Birmingham - The first floor has been successfully leased for 10 years at a rent of £150,876 pa (£22/sq. ft.) subject to a break option on the fifth anniversary. Only 8,369 sq. ft. remains available of the comprehensively refurbished 28,583 sq. ft. building
- Silver Court, Watchmead, Welwyn Garden City - Continuing the recent letting success at this 30,000 sq. ft. business park, a national charity organisation has renewed its lease of Unit 6 (1,933 sq. ft.) for a further three years at a headline rent of £32,861 pa
- On 31 October 2019, Regional REIT completed the acquisition of a portfolio of four office assets for a total consideration of £27.7m from a UK institutional vendor. The portfolio comprises four multi-let offices located in Redhill, Harefield, Bristol and High Wycombe. The assets total circa 131,036 sq. ft. and are expected to provide a net income of approximately £2.59m pa from 24 tenants; equating to a net initial yield of 8.7% and anticipated reversionary yield of 9.7%. The portfolio's weighted average unexpired lease term is 3.1 years and 5.4 years to expiry. The portfolio offers short-term asset management opportunities to enhance value through improvement to income.
27 February 2020 - Q4 2019 Dividend Declaration and Portfolio Valuation
26 March 2020 - Full year 2019 Preliminary Results Announcement
21 May 2020 - May 2020 Trading Update and Outlook Announcement Q1 2020 Dividend Declaration Announcement Annual General Meeting
Note: All dates are provisional and subject to change
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