Slide 1: Regional REIT Limited Investor Presentation, Full Year 2015
Regional REIT Limited Investor Presentation, Full Year 2015 April 2016
Slide 2: Disclaimer
Disclaimer This document (“Document”) (references to which shall be deemed to include any information which has been made or may be supplied orally in connection with this Document or in connection with any further enquiries) has been prepared by and is the sole responsibility of Toscafund Asset Man
Slide 3: Right Time to Invest in Regional Commercial Property
Right Time to Invest in Regional Commercial Property • Valuation re-rating; yield differential between London and the regions Attractive remains well above average Investment • Underlying UK domestic economy remains strong Opportunity • Tenant and investor interest in UK regional property continues
Slide 4: Financial Position Underpins Income and Capital Growth
Financial Position Underpins Income and Capital Growth For the period ending/as at 31 December 2015 Rental income £5.361m (56 days) Adjusted costs ratio c. 26%* Operating profit before exceptionals £3.255m Exceptional item Launch costs £5.296m Profit before tax (including fair value gain on investme
Slide 5: Delivering on our Commitments
Delivering on our Commitments At the IPO (November 2015) we made a number of commitments for the year ahead: Property asset base increased c. 31%* 6 targeted acquisitions of up to c. £250m 3 targeted acquisitions since IPO amounting to £120.5m Profit on property disposals of c. 23%* Disposal of some
Slide 6: Overview - Investment Opportunity
Overview - Investment Opportunity Unique exposure to the dynamic UK regional high-yielding commercial property market The market The right time for the regions Valuations yet to re-rate Strong future outlook • Capital inflows to the regions • Yield differential between London and • Forecast total re
Slide 7: Overview – Investment Portfolio
Overview – Investment Portfolio Diversified UK property portfolio to provide high returns in a stable structure Property c. £500m portfolio (31 Mar’16) WAULT & Voids (31 Mar’16) High valuation yields (31 Dec’15)* • 59.1% - Offices (31 Dec’15, 59.4%; IPO, 58.4%) • 5.8 years to expiry • Net initial: 7
Slide 8: £403.7m Property Portfolio as at 31 December 2015
£403.7m Property Portfolio as at 31 December 2015 Diversified office-led portfolio – unique exposure in the UK listed property market 4.3% 0.4% 11.2% Office Industrial Retail Student Accommodation 24.7% Other 59.4% 4.1% 3.8% 35.9% Scotland 9.2% Midlands South East 14.1% North East North West 16.4% W
Slide 9: Strong Growth Opportunities
Strong Growth Opportunities Potential acquisitions pipeline under review • Currently reviewing a large number of deals. Group remains opportunistic and pro-active in its approach • Untapped firepower from cash and leverage. Much reduced cost of borrowing • Potential sales of some existing non-core a
Slide 10: Strategy, Management and Shareholder Returns
Strategy, Management and Shareholder Returns Concept • Invest in high quality commercial properties in the principal UK regions, outside of the M25 motorway • Focus on UK offices and light industrial sites • Opportunistic timing in a distressed market, now showing clear signs of improvement • Divers
Slide 11: Appendix 1 Debt Financing and Summary Financials
Appendix 1 Debt Financing and Summary Financials
Slide 12: Debt Profile and LTVs as at 31 December 2015
Debt Profile and LTVs as at 31 December 2015 Listing expected to bring further sources of finance * Including unamortised debt issue costs ** Hedging arrangements: As at 31 December 2015, the swap notional amount was £35.2m. Under the swap agreements, the notional amount reduces on a quarterly basis
Slide 13: Financials - Group Income Statement
Financials - Group Income Statement – 6 Nov’15 to 31 Dec’15 Regional REIT Limited was incorporated on 22/06/15 but did not begin trading Group 22 June 2015 to until 06/11/15 31 December 2015 £'000 Rental income 5,361 Non recoverable property costs (754) Net rental income 4,608 Administrative & other
Slide 14: Financials - Group Balance Sheet – 31 December 2015
Financials - Group Balance Sheet – 31 December 2015 Regional REIT Limited was incorporated on 22/06/15 Group as at 31 Group as at 31 but did not begin trading until 06/11/15 December 2015 December 2015 £'000 £'000 Assets Liabilities Non-current Assets Current liabilities Investment properties 403,70
Slide 15: Financials - Cost Efficiency
Financials - Cost Efficiency Cost efficiency despite number and spread of properties and in-house management Total costs to gross rent / EPRA cost ratio 60% 54% 48% 49% 50% 45% 39% 40% 32% 30% 30% 26% 26% 25% 25% 20% 18% 18% 18% 18% 10% 0% Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Regional Pe
Slide 16: Appendix 2 Time to Invest in Regional Property
Appendix 2 Time to Invest in Regional Property
Slide 17: Expecting Regional Property Returns to Outperform
Expecting Regional Property Returns to Outperform Average property total returns forecast for the UK market (including London)*: Offices +9% for 2016 and +5% for 2017 Industrial +9% for 2016 and +6% for 2017 We expect the secondary regional commercial property markets to outperform these levels: 1)
Slide 18: 1) Growing Capital Inflows into the Regions
1) Growing Capital Inflows into the Regions • As the Asset Manager had predicted, there has been a significant rise in investment into the regional commercial property markets. This followed years of stagnation, as investors recognised the opportunity for better returns outside of London • Weight of
Slide 19: 2) Secondary Set to Outperform Prime
2) Secondary Set to Outperform Prime Yield spread narrows towards long-term average • The spread between prime and secondary commercial property yields started to fall in the last 12-18 months from historic highs in 2013-14 • However, the spread still remains well above long-term average levels • Th
Slide 20: 3) Stronger UK-wide Economy
3) Stronger UK-wide Economy Supports strong tenant demand Consensus GDP and inflation (CPI) Forecasts - %* There is growing tenant demand for regional property: 2.5 • UK economy continues to grow, with average consensus 2.0 2.1 2.0 forecasts published by HM Treasury predicting GDP will rise 1.5 1.9
Slide 21: 4) Opportunity for Regional Offices
4) Opportunity for Regional Offices Demand increasing – Supply limited Availability of office by grade (million sq. ft.) • Record UK employment rate in 2015 and increase in office employment has had a direct impact on take-up in the office market • Take-up of office space reached 5.6 million sq. ft.
Slide 22: 4) Opportunity for Regional Offices (continued)
4) Opportunity for Regional Offices (continued) Rental growth accelerating in regional markets UK office rental growth (Q4 2015) – The JLL Property Clock SM • Against a backdrop of rising demand and limited supply and availability, all regional office markets are showing nascent signs of rental grow
Slide 23: 5) Opportunity for Regional Industrial
5) Opportunity for Regional Industrial Demand increasing – Supply limited 2015 capital and rental growth – Rest of UK Industrial • There is a limited supply of multi-let industrial estates under development, mainly large Grade A pre-let 110 space 108 • Occupier activity from manufacturers, particula
Slide 24: Appendix 3 Regional REIT UK Property Portfolio
Appendix 3 Regional REIT UK Property Portfolio
Slide 25: High Yielding Portfolio set for UK Regional Market Recovery
High Yielding Portfolio set for UK Regional Market Recovery Portfolio details at 31 December 2015 Properties Valuation £m % by valuation Sq. ft. Occupancy % WAULT to Gross rental Net rental Average rent ERV Capital rate Yield (%) (mil) first break income £m income £m £psf £m £psf (yrs) Net initial E
Slide 26: Top 15 Investments (market value) as at 31 December 2015
Top 15 Investments (market value) as at 31 December 2015 Property Sector Anchor tenants Market % of Lettable Let by area Annualised WAULT value (£m) portfolio area (%) gross (years) (Sq. ft.) rent (£m) Tay House, Glasgow Office Barclays Bank Plc, Glasgow University 30.5 7.6% 156,933 69.1% 2.2 9.2 Wa
Slide 27: Stable Income Profile - Lease Expiries as at 31 December 2015
Stable Income Profile - Lease Expiries as at 31 December 2015 Having a large number of tenants offers income diversification and security • Number of units: 712 • Number of tenants: 531 • Combined contracted rent roll: £35.9m • WAULT of 6.1 years (5.6 years excluding Blythswood House) • WAULT to fir
Slide 28: Top 15 Tenants (share of rental income)
Top 15 Tenants (share of rental income) as at 31 December 2015 Stable income profile - income protection core to management objectives Tenant Property Sector WAULT Sq. ft. % of Gross rental income (break if applicable) years Churchill Plaza, Basingstoke & Tay House, Barclays Bank Plc Banking 5.8 213
Slide 29: Case Study – Office: Portland Street, Manchester
Case Study – Office: Portland Street, Manchester Record of delivering value from our asset base Adding value through intensive asset management Investment Overview • Acquired vacant from receivership in December 2013 • Ground and six upper floors are modern offices behind listed retained stone facad
Slide 30: Case Study – Industrial: Wardpark Industrial Estate, Cumbernauld
Case Study – Industrial: Wardpark Industrial Estate, Cumbernauld Record of delivering value from our asset base Adding value through intensive asset management Investment Overview • Acquired in November 2013 as part of the Credential acquisition, for £16.5m • Strategically located industrial estate
Slide 31: Portfolio Acquisition Q1 2016: Wing Portfolio
Portfolio Acquisition Q1 2016: Wing Portfolio Investment Overview • The portfolio consists of four multi-let office buildings in Basingstoke, Leeds, Leicester and Manchester and an industrial business park in Beverley • Manchester, Leicester, and Beverley completed January 2016. Leeds and Basingstok
Slide 32: Portfolio Acquisition Q1 2016: Rainbow Portfolio
Portfolio Acquisition Q1 2016: Rainbow Portfolio Investment Overview • Portfolio comprises 12 assets - 5 offices and 7 industrial sites - totalling 1.15m sq. ft. • Completed March 2016 • Approximately 45% of income is derived from the industrial assets with offices accounting for the remaining 55% B
Slide 33: Appendix 4 Commercial Property Sector Exposures
Appendix 4 Commercial Property Sector Exposures
Slide 34: Regional Offices – 59.4% of portfolio at 31 December 2015
Regional Offices – 59.4% of portfolio at 31 December 2015 Properties Valuation Sq. ft. Occupancy Average Net rental Average rent ERV Capital rate Yield (%) % Lease length income £m £psf £m £psf Net initial Equivalent Reversionary 52 £239.9m 2.0m 84.4% 4.7yrs 21.5 £13.3psf £24.9m 121.14 7.92% 8.14% 9
Slide 35: Regional Industrial – 24.7% of portfolio at 31 December 2015
Regional Industrial – 24.7% of portfolio at 31 December 2015 Properties Valuation Sq. ft. Occupancy % Average Lease Net rental income £m Average rent £psf ERV Capital rate length £m £psf 29 £99.6m 3.2m 83.9% 7.2yrs 8.0 £3.3psf £10.2m 31.63 Description • 3.2m sq. ft. of UK industrial property • 226 u
Slide 36: Regional Retail & Other – 15.9% of portfolio at 31 December 2015
Regional Retail & Other – 15.9% of portfolio at 31 December 2015 Properties Valuation Sq. ft. Occupancy % Average Lease Net rental Average rent ERV ERV length income £m £psf £m £psf Retail 37 £45m 0.4m 88.4% 7.0yrs 3.3 £10.5psf £4.3m £10.3psf Student 1 £17.4m 0.03m 100.0% 24.7yrs 0.9 £28.9psf £0.9m
Slide 37: Appendix 5 Regional REIT Top Commercial Property Assets
Appendix 5 Regional REIT Top 15 Commercial Property Assets as at 31 December 2015
Slide 38: Tay House, Glasgow
Tay House, Glasgow Investment Overview • Grade A city building offering column free floor plates of 20,000 to 30,000 sq. ft. in Glasgow city centre • Building underwent extensive refurbishment in 2008-2010. Opportunity to let vacant sixth floor • Remodelling of entrance and foyer to provide full acc
Slide 39: Wardpark Industrial Estate, Cumbernauld
Wardpark Industrial Estate, Cumbernauld Investment Overview • Acquired in November 2013 • Strategically located industrial estate with direct access to Central Scotland's motorway triangle being the most recognised industrial and business area on the M80 with over 2m sq. ft. of space of which we own
Slide 40: Blythswood House, Glasgow
Blythswood House, Glasgow Investment Overview • Acquired in November 2013 • 1970's office building with remaining leases to HMRC to break in 2021 but with the tenant in limited occupation Investment Strategy • Successfully secured surrender of leases with HMRC and back-to- Market value (£m) 31 Dec ‘
Slide 41: Hampshire Corporate Park, Eastleigh
Hampshire Corporate Park, Eastleigh Investment Overview • Acquired in January 2015 • Opportunity to re-gear leases with Aviva and RBS or to refurbish NatWest House given strong letting market and limited supply Investment Strategy • Potential to increase car parking for Aviva at Chilworth House and
Slide 42: One and Two Newstead Court, Nottingham
One and Two Newstead Court, Nottingham Investment Overview • Acquired in May 2014 out of receivership • Two modern high quality large office pavilions on an established business park • Let to E.ON • Larger building of 33,000 sq. ft. floor plates let by way of three leases with staggered expiries in
Slide 43: Columbus House, Coventry
Columbus House, Coventry Investment Overview • Acquired in August 2014 • Provides good quality building on recognised office park with improving tenant demand • Let to Tui until 2024 on geared lease with fixed annual uplifts. Tui have now sublet 2/3rds of space to First Utility underpinning rent. Tu
Slide 44: Road 4 Winsford Industrial Estate, Winsford
Road 4 Winsford Industrial Estate, Winsford Investment Overview • Acquired in August 2014 • Let to Jiffy Packaging Limited until 2034 Investment Strategy • Seek to sell with an improvement in tenant covenant Market value (£m) 31 Dec ‘15 13.10 Sector Industrial Annualised gross rental (£m) 0.90 Letta
Slide 45: 1-4 Llansamlet Retail Park, Swansea
1-4 Llansamlet Retail Park, Swansea Investment Overview • Acquired in August 2014 • A modern retail warehouse park containing 6 retail units • 2 of 3 remaining vacant units under offer to Steinhoff UK Group Property Ltd trading as Harveys and Wren Living Ltd at acquisition Investment Strategy • Let
Slide 46: Churchill Plaza, Basingstoke
Churchill Plaza, Basingstoke Investment Overview • Acquired August 2014 • Landmark modern office development over 13 floors and high parking ratio • Let to Barclays Bank PLC Investment Strategy • Sold in February 2016 for £12m, 9.1% above the 31 December Market value (£m) 31 Dec ‘15 11.00 2015 valua
Slide 47: The Point, Glasgow
The Point, Glasgow Investment Overview • Part of Tosca Scotland acquisition (November 2013) • Retail warehouse and trade counter development located just one mile north of Glasgow City Centre Investment Strategy Market value (£m) 31 Dec ‘15 10.50 Sector Mixed use (trade • Opportunity to increase ren
Slide 48: Templeton on the Green, Glasgow
Templeton on the Green, Glasgow Investment Overview • Iconic Glasgow development providing c. 142,000 sq. ft. of office, studio and leisure space Investment Strategy • In discussion to re-gear leases to The Scottish Ministers, given Market value (£m) 31 Dec ‘15 10.20 lease breaks in 2016 and 2017 Se
Slide 49: CGU House, Leeds
CGU House, Leeds Investment Overview • Acquired in November 2013 • Prominent seven storey office building with ground floor retail element, situated in close proximity to Leeds railway station • Let to Aviva Insurance until 2017 Investment Strategy • Refurbishing the upper floors upon Aviva’s exit i
Slide 50: 9 Portland Street, Manchester
9 Portland Street, Manchester Investment Overview • Acquired vacant from receivership in December 2013 • Ground and six upper floors modern offices behind listed retained stone facade extending to 54,959 sq. ft. • Let to various tenants, including Mott MacDonald Limited and New College Manchester In
Slide 51: Chancellor Court, Leeds
Chancellor Court, Leeds Investment Overview • Acquired October 2013 • Modern multi let office development over two buildings with good parking ratio of 1:740 sq. ft. for Leeds city centre • Let to various tenants including St James Place Wealth Management Group plc, The Legal Aid Agency Investment S
Slide 52: Marston Business Park, Tockwith, Wetherby
Marston Business Park, Tockwith, Wetherby Investment Overview • Acquired August 2014 • Established industrial estate providing 223,000 sq. ft. across a range of units • Let to various tenants including Stage One Creative Services Limited, AJ Marshall (Specialist Steels) Limited and Biffa Waste Servi
Slide 53: Appendix 6 External Managers
Appendix 6 External Managers
Slide 54: Asset and Investment Managers
Asset and Investment Managers Highly experienced with in-depth knowledge of tenants, assets and the property market London & Scottish Investments: Asset Manager • Co-founder and significant shareholder • Day-to-day management of the properties • Identifying potential acquisitions or disposals • Cons
Slide 55: Management Contract
Management Contract Term Initial period: Fixed for 5 years with 12-month notice period (ie, notice period will run from end of year 5 for 12 months) Thereafter: 3 years with 12-month minimum notice period (ie, notice has to be given before the end of year 2) Management Fees 1.1% of NAV up to £500m;
Slide 56: Asset Manager, Investment Criteria and Management Approach
Asset Manager, Investment Criteria and Management Approach Highly experienced management with strict investment criteria and a hands-on approach London & Scottish Investments – Asset Manager • A long established property investment management company • Senior management collectively have 150+ years
Slide 57: Managers’ Track Records
Managers’ Track Records London & Scottish Investments Ltd, Asset Manager • A long established property investment management company, employing 36 (31 December 2015) people • Senior management collectively have over 150-years of property experience with an in-depth knowledge of construction and deve
Slide 58: Regional REIT Limited Contact Information
Regional REIT Limited Contact Information Website: www.regionalreit.com Investor Relations: James S Johnson +44 (0) 20 7845 6107/+44 (0) 7342 994 390 jjohnson@regionalreit.com or investor@regionalreit.com Regional REIT 58