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Regional REIT
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=== High-yielding portfolio with returns enhanced by active asset management and capital recycling === Since it listed in November 2015, RGL’s consistent strategy has been to build a highly diversified portfolio of higher-yielding investments in the regions, outside the M25 motorway which, including gearing (target LTV of c 40%), would provide progressive, regular dividends with the potential for capital growth. Active asset management and capital recycling are key elements in sustaining asset yields. RGL seeks to acquire under-managed properties where there are opportunities to create additional value through lease renewals and rent increases, minimising voids through effective marketing of vacant space, enhancing the tenant mix and covenant strength, and through refurbishment, extension or change of use. When properties have met their return objectives they are assessed for sale (or to hold if their income and capital growth outlook looks strong). By definition, capital recycling tends to suppress reported occupancy but provides the opportunity to reallocate resources to new value-creating investments. Exhibit 8 shows the extent of capital recycling, which Edison Investment Research notes 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|400px]] '''Exhibit 9: High portfolio yield maintained'''<ref>Source: Regional REIT data, Edison Investment Research.</ref> [[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%<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> [[File:Sector positioning by value at IPO.png|400px]] '''Exhibit 11: Sector positioning by value at Q122'''<ref>Source: Regional REIT.</ref> [[File:Sector positioning by value at Q122.png|400px]]
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