Regional REIT - Revision history

95.149.241.133 at 15:20, 20 August 2022

2022-08-20T15:20:07Z

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			__INDEX__

>Jeff at 13:16, 22 July 2022

2022-07-22T13:16:21Z

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172.18.0.2 at 12:57, 22 July 2022

2022-07-22T12:57:09Z

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	== Notes ==		== Notes ==
			<references />
			[[Category:Thesis]]

>Ryan: /* Income-led total returns */

2022-06-07T09:38:45Z

Income-led total returns

← Older revision		Revision as of 10:38, 7 June 2022
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	\|5.8%		\|5.8%
	\|}		\|}
	Accounting total ~~return1~~ has been positive in each year since listing other than in FY20 due to the pandemic. Total return up to end-FY21 amounts to 41.2% or an average annual return of 5.8%. Reflecting RGL’s strong income focus, its returns have all been generated by dividends paid with a good level of consistency, as shown in Exhibit 2.		Accounting total return<ref>The change in EPRA NTA/NAV plus dividends paid.</ref> has been positive in each year since listing other than in FY20 due to the pandemic. Total return up to end-FY21 amounts to 41.2% or an average annual return of 5.8%. Reflecting RGL’s strong income focus, its returns have all been generated by dividends paid with a good level of consistency, as shown in Exhibit 2.

	'''Exhibit 2: Trend in dividend return and capital return'''<ref>Source: Regional REIT data, Edison Investment Research.</ref>		'''Exhibit 2: Trend in dividend return and capital return'''<ref>Source: Regional REIT data, Edison Investment Research.</ref>
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	\|101.3%		\|101.3%
	\|}		\|}
	Interest rate risk is virtually ~~eliminated2~~ with a weighted average effective interest rate, including hedging costs, of 3.4% at end-Q122. Net loan to value ratio (LTV) was 40.3%3 at end-Q122, a reduction from 42.4% at end-FY21, primarily benefiting from disposals in the period. Gross borrowings were £434.1m and cash and equivalent balances were £82.3m.		Interest rate risk is virtually eliminated<ref>There is a small interest rate exposure on the c £66m notional value of caps which we estimate represents a maximum uplift to total borrowing costs of c 4bp.</ref> with a weighted average effective interest rate, including hedging costs, of 3.4% at end-Q122. Net loan to value ratio (LTV) was 40.3%<ref>Net borrowings as a percentage of the FY21 externally assessed property value adjusted for subsequent property transactions and capex.</ref> at end-Q122, a reduction from 42.4% at end-FY21, primarily benefiting from disposals in the period. Gross borrowings were £434.1m and cash and equivalent balances were £82.3m.

	== Inflation hedge characteristics ==		== Inflation hedge characteristics ==
	In Exhibit 2, Edison Investment Research showed the relative stability of the income returns generated by RGL. A similar pattern has historically been evident for portfolio ~~returns4~~ across the broad commercial real estate sector, although with a lower average level of income return. Edison Investment Research therefore believes it reasonable to expect medium-term rental growth to broadly match inflation. Over shorter periods, this may not be the case as the relationship will be influenced by the incidence and nature of rent reviews as well as the timing of lease maturities. For RGL, it is the relationship between office rents and inflation that is key, and Edison Investment Research discusses this in detail below.		In Exhibit 2, Edison Investment Research showed the relative stability of the income returns generated by RGL. A similar pattern has historically been evident for portfolio returns<ref>The return generated at portfolio level before the impact of gearing and excluding corporate costs.</ref> across the broad commercial real estate sector, although with a lower average level of income return. Edison Investment Research therefore believes it reasonable to expect medium-term rental growth to broadly match inflation. Over shorter periods, this may not be the case as the relationship will be influenced by the incidence and nature of rent reviews as well as the timing of lease maturities. For RGL, it is the relationship between office rents and inflation that is key, and Edison Investment Research discusses this in detail below.

	Returning to the broad commercial property sector, as inflation rates have increased, investment flows into those companies with long, inflation-linked leases have remained strong. These generally provide a high level of income growth certainty and although indexed rent increases are typically capped at around 4%, below current inflation levels, this does have the additional advantage of ensuring rent levels remain affordable to tenants.		Returning to the broad commercial property sector, as inflation rates have increased, investment flows into those companies with long, inflation-linked leases have remained strong. These generally provide a high level of income growth certainty and although indexed rent increases are typically capped at around 4%, below current inflation levels, this does have the additional advantage of ensuring rent levels remain affordable to tenants.
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	=== Reversionary upside adds to income potential ===		=== Reversionary upside adds to income potential ===
	The externally estimated rental value (ERV) of RGL’s office portfolio was £86.3m at end-FY21, £22.4m or 35% above contracted rents,5 representing significant potential to increase income. Most of this reversionary income potential (c £17m) related to occupancy improvement and the balance relates to the gap between existing rents and ERV as well as lease incentive run-off.		The externally estimated rental value (ERV) of RGL’s office portfolio was £86.3m at end-FY21, £22.4m or 35% above contracted rents,<ref>For the portfolio as a whole, ERV of £94.6m was similarly £22.5m ahead of £72.1m of contracted rent.</ref> representing significant potential to increase income. Most of this reversionary income potential (c £17m) related to occupancy improvement and the balance relates to the gap between existing rents and ERV as well as lease incentive run-off.

	Although leasing activity has been challenging through the pandemic, it has begun to recover and RGL expects this to accelerate as the ‘return to the office’ gathers pace and as post-pandemic models for office usage become clearer. During Q122, RGL completed a number of lease renewals, achieving average rental uplifts of 13.6% versus previous rents and an average 11.7% uplift against ERV. Of the 44 units that came up for renewal in the period, 31 remain let (70.5%). Since 1 January 2022, it has exchanged on 20 new leases which, when fully occupied, will provide c £1.0m pa of rental income.		Although leasing activity has been challenging through the pandemic, it has begun to recover and RGL expects this to accelerate as the ‘return to the office’ gathers pace and as post-pandemic models for office usage become clearer. During Q122, RGL completed a number of lease renewals, achieving average rental uplifts of 13.6% versus previous rents and an average 11.7% uplift against ERV. Of the 44 units that came up for renewal in the period, 31 remain let (70.5%). Since 1 January 2022, it has exchanged on 20 new leases which, when fully occupied, will provide c £1.0m pa of rental income.
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	RGL’s ESG Working Party was formed in 2020. In addition to preparing the company’s sustainability policy and its relevant key performance indicators, in 2021 the working party oversaw its response to the Task Force on Climate-Related Financial Disclosures (TCFD) and prepared its first GRESB Standing Investment Assessment. The first GRESB assessment resulted in RGL being awarded one green star and, building on this work, the 2022 GRESB submission is currently in progress. RGL is additionally working towards an EPRA Sustainability Best Practice report and continues to engage with accredited bodies with the intention of ensuring that all relevant data are taken into consideration by them.		RGL’s ESG Working Party was formed in 2020. In addition to preparing the company’s sustainability policy and its relevant key performance indicators, in 2021 the working party oversaw its response to the Task Force on Climate-Related Financial Disclosures (TCFD) and prepared its first GRESB Standing Investment Assessment. The first GRESB assessment resulted in RGL being awarded one green star and, building on this work, the 2022 GRESB submission is currently in progress. RGL is additionally working towards an EPRA Sustainability Best Practice report and continues to engage with accredited bodies with the intention of ensuring that all relevant data are taken into consideration by them.

	Within its overall ESG framework, RGL is targeting an EPC ~~rating6~~ of B or better for all properties by 2030. To this end, it is undertaking a portfolio-wide updated EPC audit, following which individual EPC property plans will be revised and implemented. RGL already requires an independent environment report for all potential acquisitions.		Within its overall ESG framework, RGL is targeting an EPC rating<ref>Energy Performance Certificate.</ref> of B or better for all properties by 2030. To this end, it is undertaking a portfolio-wide updated EPC audit, following which individual EPC property plans will be revised and implemented. RGL already requires an independent environment report for all potential acquisitions.
	{\| class="wikitable"		{\| class="wikitable"
	\|+Exhibit 7: 2021 EPC ratings<ref>Source: Regional REIT. Note: *Other includes areas that are non-rated, in most cases reflecting recently acquired or earmarked for disposal.</ref>		\|+Exhibit 7: 2021 EPC ratings<ref>Source: Regional REIT. Note: *Other includes areas that are non-rated, in most cases reflecting recently acquired or earmarked for disposal.</ref>
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	[[File:High portfolio yield maintained.png\|400px]]		[[File:High portfolio yield maintained.png\|400px]]

	While these core elements of strategy have remained unchanged, from late 2020 the company repositioned itself as a specialist regional office investor. This change of focus reflected RGL’s continuing positive outlook for relative returns in the regional office sector, and a desire to capitalise on the investment manager’s strong expertise and operational platform while providing a clear proposition to investors. The office sector now represents 91.4%7 of the portfolio by value compared with 58.4% at IPO. Also in line with post-IPO strategy, a significant c 35% weighting to Scotland has been reduced to c 17%, with a corresponding increase in England and Wales from c 65% to c 83%.		While these core elements of strategy have remained unchanged, from late 2020 the company repositioned itself as a specialist regional office investor. This change of focus reflected RGL’s continuing positive outlook for relative returns in the regional office sector, and a desire to capitalise on the investment manager’s strong expertise and operational platform while providing a clear proposition to investors. The office sector now represents 91.4%<ref>As at Q122.</ref> of the portfolio by value compared with 58.4% at IPO. Also in line with post-IPO strategy, a significant c 35% weighting to Scotland has been reduced to c 17%, with a corresponding increase in England and Wales from c 65% to c 83%.

	'''Exhibit 10: Sector positioning by value at IPO'''<ref>Source: Regional REIT.</ref>		'''Exhibit 10: Sector positioning by value at IPO'''<ref>Source: Regional REIT.</ref>
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	=== Portfolio overview ===		=== Portfolio overview ===
	The portfolio was externally valued at end-FY21 at £906.1m and on a pro forma ~~basis8~~ was c £874m at end-Q122. Q122 included £33.5m (before costs) of disposals. Subsequent transactions have taken the year-to-date total for disposals to £69.2m with acquisitions amounting to £48.2m. The blended net initial yield on disposals of 5.9% compares with 8.7% on acquisitions, locking in an accretive yield spread.		The portfolio was externally valued at end-FY21 at £906.1m and on a pro forma basis<ref>Adjusted for acquisitions, disposals and capex but excluding any revaluation.</ref> was c £874m at end-Q122. Q122 included £33.5m (before costs) of disposals. Subsequent transactions have taken the year-to-date total for disposals to £69.2m with acquisitions amounting to £48.2m. The blended net initial yield on disposals of 5.9% compares with 8.7% on acquisitions, locking in an accretive yield spread.
	{\| class="wikitable"		{\| class="wikitable"
	\|+Exhibit 12: Key portfolio data<ref>Source: Regional REIT.</ref>		\|+Exhibit 12: Key portfolio data<ref>Source: Regional REIT.</ref>
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	\|(2.8)		\|(2.8)
	\|}		\|}
	Edison Investment Research continues to assume no net acquisitions and disposals for the year, but within this reflect the year-to-date transactions and the positive yield spread that these have locked in.9 The driver of its forecasts is net rental income, where in FY22 and FY23 Edison Investment Research now assumes a slower benefit from letting activity but offset in FY22 by the positive impact of transactions. Edison Investment Research continues to forecast a relatively modest increase in EPRA ~~occupancy10~~ (to c 84% by end-FY23) but note that this excludes properties under refurbishment and development. Edison Investment Research expects refurbishment activity to increase during the forecast ~~period11~~ as RGL continues to enhance the attractiveness of its assets and meet its energy performance targets, in line with sector trends.		Edison Investment Research continues to assume no net acquisitions and disposals for the year, but within this reflect the year-to-date transactions and the positive yield spread that these have locked in.<ref>This includes £69.2m of reported disposals at a 5.9% net initial yield (NIY), £48.2m of reported acquisitions at an 8.7% NIY and c £20m of assumed acquisitions at an NIY of 8.5%.</ref> The driver of its forecasts is net rental income, where in FY22 and FY23 Edison Investment Research now assumes a slower benefit from letting activity but offset in FY22 by the positive impact of transactions. Edison Investment Research continues to forecast a relatively modest increase in EPRA occupancy<ref>The ERV of occupied space versus total ERV.</ref> (to c 84% by end-FY23) but note that this excludes properties under refurbishment and development. Edison Investment Research expects refurbishment activity to increase during the forecast period<ref>Our assumption of increased refurbishment activity has a positive impact on EPRA occupancy by reducing EPRA ERV, although the properties are unavailable to let during the period.</ref> as RGL continues to enhance the attractiveness of its assets and meet its energy performance targets, in line with sector trends.

	With EPRA earnings distributed in full and acquisitions and disposals matched by value, Edison Investment Research's property revaluation assumptions (1.5% pa gross of acquisition costs and capex) leave year-end LTV at approximately 42%. A reduction in LTV towards RGL’s medium-term target of c 40% would appear to require a stronger revaluation uplift than Edison Investment Research assumes or additional net property disposals. Revaluation gains may benefit from leasing progress and/or an improvement in external valuer sentiment as improving investment volumes provide more transactional evidence of underlying market valuations. Disposals would be likely to reduce the rental base.		With EPRA earnings distributed in full and acquisitions and disposals matched by value, Edison Investment Research's property revaluation assumptions (1.5% pa gross of acquisition costs and capex) leave year-end LTV at approximately 42%. A reduction in LTV towards RGL’s medium-term target of c 40% would appear to require a stronger revaluation uplift than Edison Investment Research assumes or additional net property disposals. Revaluation gains may benefit from leasing progress and/or an improvement in external valuer sentiment as improving investment volumes provide more transactional evidence of underlying market valuations. Disposals would be likely to reduce the rental base.

>Ryan: /* Notes */

2022-06-07T08:39:50Z

Notes

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			==Actions==

			To invest in Regional REIT, click [mailto:investor@regionalreit.com here].

			To contact Regional REIT, click [mailto:investor@regionalreit.com here].

	== Notes ==		== Notes ==

>Ryan at 08:35, 7 June 2022

2022-06-07T08:35:43Z

Show changes

>Ryan: /* Investment strategy and portfolio overview */

2022-06-07T08:29:41Z

Investment strategy and portfolio overview

← Older revision		Revision as of 09:29, 7 June 2022
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	'''Exhibit 8: Active capital recycling'''<ref>Source: Regional REIT data, Edison Investment Research.</ref>		'''Exhibit 8: Active capital recycling'''<ref>Source: Regional REIT data, Edison Investment Research.</ref>

	[[File:Active capital recycling.png\|~~600px~~]		[[File:Active capital recycling.png\|400px]]

	'''Exhibit 9: High portfolio yield maintained'''<ref>Source: Regional REIT data, Edison Investment Research.</ref>		'''Exhibit 9: High portfolio yield maintained'''<ref>Source: Regional REIT data, Edison Investment Research.</ref>

	[[File:High portfolio yield maintained.png\|~~600px~~]		[[File:High portfolio yield maintained.png\|400px]]

	While these core elements of strategy have remained unchanged, from late 2020 the company repositioned itself as a specialist regional office investor. This change of focus reflected RGL’s continuing positive outlook for relative returns in the regional office sector, and a desire to capitalise on the investment manager’s strong expertise and operational platform while providing a clear proposition to investors. The office sector now represents 91.4%7 of the portfolio by value compared with 58.4% at IPO. Also in line with post-IPO strategy, a significant c 35% weighting to Scotland has been reduced to c 17%, with a corresponding increase in England and Wales from c 65% to c 83%.		While these core elements of strategy have remained unchanged, from late 2020 the company repositioned itself as a specialist regional office investor. This change of focus reflected RGL’s continuing positive outlook for relative returns in the regional office sector, and a desire to capitalise on the investment manager’s strong expertise and operational platform while providing a clear proposition to investors. The office sector now represents 91.4%7 of the portfolio by value compared with 58.4% at IPO. Also in line with post-IPO strategy, a significant c 35% weighting to Scotland has been reduced to c 17%, with a corresponding increase in England and Wales from c 65% to c 83%.
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	'''Exhibit 10: Sector positioning by value at IPO'''<ref>Source: Regional REIT.</ref>		'''Exhibit 10: Sector positioning by value at IPO'''<ref>Source: Regional REIT.</ref>

	[[File:Sector positioning by value at IPO.png\|~~600px~~]]		[[File:Sector positioning by value at IPO.png\|400px]]

	'''Exhibit 11: Sector positioning by value at Q122'''<ref>Source: Regional REIT.</ref>		'''Exhibit 11: Sector positioning by value at Q122'''<ref>Source: Regional REIT.</ref>

	[[File:Sector positioning by value at Q122.png\|~~600px~~]]		[[File:Sector positioning by value at Q122.png\|400px]]

	== Financial and portfolio overview ==		== Financial and portfolio overview ==

>Ryan: /* Highly diversified income base mitigates income risks */

2022-06-07T08:28:46Z

Highly diversified income base mitigates income risks

← Older revision		Revision as of 09:28, 7 June 2022
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	In addition to monitoring the industry exposure of tenants (and prospective tenants when assessing acquisitions) at the broad sector level, RGL also undertakes detailed analysis based on Standard Industrial Classification (SIC) codes.		In addition to monitoring the industry exposure of tenants (and prospective tenants when assessing acquisitions) at the broad sector level, RGL also undertakes detailed analysis based on Standard Industrial Classification (SIC) codes.

	'''Exhibit 4: Income diversified by industry exposure (end FY21)'''		'''Exhibit 4: Income diversified by industry exposure (end FY21)'''<ref>Source: Regional REIT.</ref>

	[[File:Income diversified by industry exposure (end FY21).png\|600px]]		[[File:Income diversified by industry exposure (end FY21).png\|600px]]
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	Exhibit 8 shows the extent of capital recycling, which we note is determined primarily by asset management plans and not trading. The reversionary yield on the portfolio, which assumes full occupancy and market-level rents, has been consistently in the range or 9% or more. Lower occupancy and increased non-recoverable property costs reduced the net initial yield in FY21, although the reversionary yield increased.		Exhibit 8 shows the extent of capital recycling, which we note is determined primarily by asset management plans and not trading. The reversionary yield on the portfolio, which assumes full occupancy and market-level rents, has been consistently in the range or 9% or more. Lower occupancy and increased non-recoverable property costs reduced the net initial yield in FY21, although the reversionary yield increased.

			'''Exhibit 8: Active capital recycling'''<ref>Source: Regional REIT data, Edison Investment Research.</ref>

			[[File:Active capital recycling.png\|600px]

			'''Exhibit 9: High portfolio yield maintained'''<ref>Source: Regional REIT data, Edison Investment Research.</ref>

			[[File:High portfolio yield maintained.png\|600px]

	While these core elements of strategy have remained unchanged, from late 2020 the company repositioned itself as a specialist regional office investor. This change of focus reflected RGL’s continuing positive outlook for relative returns in the regional office sector, and a desire to capitalise on the investment manager’s strong expertise and operational platform while providing a clear proposition to investors. The office sector now represents 91.4%7 of the portfolio by value compared with 58.4% at IPO. Also in line with post-IPO strategy, a significant c 35% weighting to Scotland has been reduced to c 17%, with a corresponding increase in England and Wales from c 65% to c 83%.		While these core elements of strategy have remained unchanged, from late 2020 the company repositioned itself as a specialist regional office investor. This change of focus reflected RGL’s continuing positive outlook for relative returns in the regional office sector, and a desire to capitalise on the investment manager’s strong expertise and operational platform while providing a clear proposition to investors. The office sector now represents 91.4%7 of the portfolio by value compared with 58.4% at IPO. Also in line with post-IPO strategy, a significant c 35% weighting to Scotland has been reduced to c 17%, with a corresponding increase in England and Wales from c 65% to c 83%.

			'''Exhibit 10: Sector positioning by value at IPO'''<ref>Source: Regional REIT.</ref>

			[[File:Sector positioning by value at IPO.png\|600px]]

			'''Exhibit 11: Sector positioning by value at Q122'''<ref>Source: Regional REIT.</ref>

			[[File:Sector positioning by value at Q122.png\|600px]]

	== Financial and portfolio overview ==		== Financial and portfolio overview ==

>Ryan: /* Income-led total returns */

2022-06-07T08:23:30Z

Income-led total returns

← Older revision		Revision as of 09:23, 7 June 2022
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	\|}		\|}
	Accounting total return1 has been positive in each year since listing other than in FY20 due to the pandemic. Total return up to end-FY21 amounts to 41.2% or an average annual return of 5.8%. Reflecting RGL’s strong income focus, its returns have all been generated by dividends paid with a good level of consistency, as shown in Exhibit 2.		Accounting total return1 has been positive in each year since listing other than in FY20 due to the pandemic. Total return up to end-FY21 amounts to 41.2% or an average annual return of 5.8%. Reflecting RGL’s strong income focus, its returns have all been generated by dividends paid with a good level of consistency, as shown in Exhibit 2.

			'''Exhibit 2: Trend in dividend return and capital return'''<ref>Source: Regional REIT data, Edison Investment Research.</ref>

	[[File:Trend in dividend return and capital return.png\|600px]]		[[File:Trend in dividend return and capital return.png\|600px]]
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	\|}		\|}
	In addition to monitoring the industry exposure of tenants (and prospective tenants when assessing acquisitions) at the broad sector level, RGL also undertakes detailed analysis based on Standard Industrial Classification (SIC) codes.		In addition to monitoring the industry exposure of tenants (and prospective tenants when assessing acquisitions) at the broad sector level, RGL also undertakes detailed analysis based on Standard Industrial Classification (SIC) codes.

			'''Exhibit 4: Income diversified by industry exposure (end FY21)'''

			[[File:Income diversified by industry exposure (end FY21).png\|600px]]

	== Protected against increasing interest rates ==		== Protected against increasing interest rates ==

>Ryan: /* Income-led total returns */

2022-06-07T08:21:28Z

Income-led total returns

← Older revision		Revision as of 09:21, 7 June 2022
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	Accounting total return1 has been positive in each year since listing other than in FY20 due to the pandemic. Total return up to end-FY21 amounts to 41.2% or an average annual return of 5.8%. Reflecting RGL’s strong income focus, its returns have all been generated by dividends paid with a good level of consistency, as shown in Exhibit 2.		Accounting total return1 has been positive in each year since listing other than in FY20 due to the pandemic. Total return up to end-FY21 amounts to 41.2% or an average annual return of 5.8%. Reflecting RGL’s strong income focus, its returns have all been generated by dividends paid with a good level of consistency, as shown in Exhibit 2.

	[[File:Trend in dividend return and capital return.png\|600px]		[[File:Trend in dividend return and capital return.png\|600px]]

	With its Q122 update, RGL announced the introduction of a dividend reinvestment plan, the details of which are available on its website.		With its Q122 update, RGL announced the introduction of a dividend reinvestment plan, the details of which are available on its website.