Slide 1: Investor Presentation - Half Year to 30 June 2016
Investor Presentation - Half Year to 30 June 2016 September 2016
Slide 2: Introduction to Regional REIT Limited
Introduction to Regional REIT Limited • Listed in November 2015; initial portfolio of £386m - 128 properties, 512 tenants and 713 units • Combination of 2 commercial property investment funds • Joint venture between London & Scottish Investments and Toscafund Asset Management • Strategy is to take a
Slide 3: Highlights – First-half 2016
Highlights – First-half 2016 • Business performing well – delivering good income growth • Strong dividend return for Shareholders • Repositioning of the portfolio - completed £128.1 million of acquisitions, with £41.2 million of disposals • Ongoing active and intensive management of the property por
Slide 4: Acquisitions Growth in the First-half 2016
Acquisitions Growth in the First-half 2016 2 major portfolio acquisitions of 17 properties (£117.5m); total acquisitions (19) of £128.1m • Targeted acquisitions strategy • Deals remain under active consideration with risks and opportunities identified and managed • Wing and Rainbow office/industrial
Slide 5: Active and Intensive Management of the Portfolio
Active and Intensive Management of the Portfolio 67 new lettings this year (20 since 23 June) New lettings of c. 474,155 sq. ft. When fully income producing will provide a rental of c. £3.9m pa Quality enhancement programme for assets Capital expenditure of £7.8m net year to Growing the revenue date
Slide 6: Delivering on our IPO Commitments
Delivering on our IPO Commitments Diversified business base 128 properties, 974 units and 719 tenants Office/Industrial focus; balancing the regions Rebalancing the Increased Office/Industrial exposure to 91.6% (by value) (IPO, 83.7%); increased England & portfolio Wales exposure to 73.5% (IPO, 64.6
Slide 7: Full Year 2016
Full Year 2016 Major letting at Tay House and improving portfolio voids Increased occupancy through Q2 2016; like- for-like anticipated to be around 85% by year end – towards target of 90% 2016 H2 business Funding growth Further bank refinancings in prospect momentum Funding options under considerat
Slide 8: Diversified Investment Portfolio
Diversified Investment Portfolio UK property portfolio provides high returns in a stable structure (30 June 2016) Property £501.3m gross property assets WAULT & Voids High valuation yields* • 62.5% - Offices (31 Dec’15, 59.4%; IPO, • 5.0 years to lease expiry • Net initial: 7.1% 58.4%) (31 Dec’15, 6
Slide 9: Financial Position Secures Income
Financial Position Secures Income Six months ending 30 June 2016 Period ending 31 December 2015* Rental income £19.699m (6 months) £5.361m (56 days) Costs ratio 32% 39% Operating profit before gains/losses on property £13.436m £3.255m assets/other investments EpS 2.2pps 7.7pps EPRA EpS (loss) 3.3pps
Slide 10: Financial Position Underpins Strength
Financial Position Underpins Strength As at 30 June 2016 As at 31 December 2015* Gross property asset value £501.3m £403.7m NAV 107.1pps 107.7pps EPRA NAV 108.0pps 107.8pps Bank borrowings** £217.8m £128.6m Net Loan-to-value 38.1% 25.4% Occupancy like-for-like 83.0% 82.7% • Gross property asset valu
Slide 11: £501.3m Property Portfolio as at 30 June 2016
£501.3m Property Portfolio as at 30 June 2016 Diversified office-led portfolio – unique exposure to the UK regional property market (split by value) 8.0% 0.4% Office Industrial Retail Other 29.1% 62.5% 5.0% 3.6% Scotland 11.9% 26.5% South East North East Midlands North West South West 16.1% Wales 20
Slide 12: Continued Opportunities in UK Regional Commercial Property
Continued Opportunities in UK Regional Commercial Property • Opportunities to scale the business Pipeline of • Group remains opportunistic and pro-active in its approach in the current environment potential • Will seek EpS accretion and medium-term NAV growth with acquisitions acquisitions • Group i
Slide 13: Summary
Summary • Yield differential between the regions and London remains well above average; continuing capital inflows to the regions Attractive • Regional economic opportunities – business fundamentals remain strong investment and structural factors provide support opportunity • Tenant interest in regi
Slide 14: Appendix 1 Debt Financing and Summary Financials
Appendix 1 Debt Financing and Summary Financials 14
Slide 15: Debt Profile and LTVs as at 30 June 2016
Debt Profile and LTVs as at 30 June 2016 Additional borrowing and refinancings substantially reduce cost of debt Lender Original Outstanding Maturity LTV Annual Interest Rate Amortisation Facility Debt* Date Hedging and Swaps:Notional Amounts/Rates** Mandatory Santander UK £48,300 £45,669 Dec-18 43.
Slide 16: Financials - Group Income Statement
Financials - Group Income Statement Group Income Statement 1 January 2016 to 30 June 2016 22 June 2015 to 31 December 2015* £'000 Rental income 19,699 5,361 Non recoverable property costs (2,328) (753) Net rental income 17,371 4,608 Administrative & other expenses (3,935) (1,353) Operating profit (l
Slide 17: Financials - Group Balance Sheet
Financials - Group Balance Sheet As at 30 June 2016 As at 31 December 2015* Group Balance Sheet £'000 As at 30 June As at 31 December 2016 2015* Liabilities £'000 Current liabilities Assets Bank and loan borrowings - current - 200 Non-current Assets Other current liabilities 31,717 21,285 Investment
Slide 18: Appendix 2 Time to Invest in Regional Property
Appendix 2 Time to Invest in Regional Property 18
Slide 19: Expecting Regional Property Returns to Outperform
Expecting Regional Property Returns to Outperform Average property total returns forecast for the UK market (including London)*: Offices -1.4% for 2016 -1.9% for 2017 +4.5% for 2018 Industrial +2.4% for 2016 +2.6% for 2017 +7.0% for 2018 The outcome of the EU referendum resulted in a decline in the
Slide 20: 1) Capital Inflows into the Regions
1) Capital Inflows into the Regions • There has been a slowdown in the level of investment activity over the course of the first half of 2016, with investor caution being attributable to the mounting uncertainty generated by the EU referendum • In H1 2016, total investment in commercial property rea
Slide 21: 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 has fallen from the historic highs of 2013-14 • However, the spread still remains well above long-term average levels • There remains significant op
Slide 22: 3) Stronger UK-wide Economy
3) Stronger UK-wide Economy Consensus GDP and inflation (CPI) Forecasts %* Supports strong tenant demand 2.5 There is growing tenant demand for regional property: 2 2.2 • UK economy continues to grow - consensus forecasts published by HM 1.5 Treasury have GDP rising 1.6% in 2016 and 0.7% in 2017 1.6
Slide 23: 4) Opportunity for Regional Offices
4) Opportunity for Regional Offices Demand increasing – Supply limited Availability of office by grade (million sq. ft.) • Research from Cushman & Wakefield indicates positive market sentiment following the EU referendum across regional markets, with no sign of deals collapsing at the beginning of Q
Slide 24: 4) Opportunity for Regional Offices (continued)
4) Opportunity for Regional Offices (continued) UK office rental growth (Q2 2016) – The JLL Property Clock SM Rental growth accelerating in regional markets • Against a backdrop of rising demand and limited supply all regional office markets were showing nascent signs of rental growth. However, JLL
Slide 25: 5) Opportunity for Regional Industrial
5) Opportunity for Regional Industrial Demand increasing – Supply limited Capital and rental growth – Rest of UK Industrial • Limited supply of multi-let industrial estates under 20 development, mainly large Grade A pre-let space. Very little additional supply of multi-sized, multi-let 15 industrial
Slide 26: 6) 'Northern Powerhouse'
6) ‘Northern Powerhouse’ UK Regional Rates of Unemployment (ILO Definition) ‘Northern Powerhouse’ – regional prospects 12 • England’s Midlands and Northern regions growth case 10 • Sectoral exposure to more competitive Sterling 8 • Car manufacturing and export-focused % engineering 6 • Production ou
Slide 27: Appendix 3 Regional REIT UK Property Portfolio
Appendix 3 Regional REIT UK Property Portfolio 27
Slide 28: High Yielding Portfolio set for UK Regional Market Recovery
High Yielding Portfolio set for UK Regional Market Recovery Portfolio details at 30 June 2016 WAULT Gross Net Sq. ft. ERV Capital rate Yield (%) Valuation % by to first rental rental Properties Occupancy % Average rent £psf £m valuation break income income (mil) £m £psf Net initial Equivalent Revers
Slide 29: Top 15 Investments (market value) as at 30 June 2016
Top 15 Investments (market value) as at 30 June 2016 Property Sector Anchor tenants Market value % of portfolio Lettable Let by area Annualised WAULT to first (£m) area gross break (ft2) (%) rent (£m) (years) Tay House, Glasgow Office Barclays Bank Plc, Glasgow University 32.9 6.60% 156,933 69.10% 2
Slide 30: Stable Income Profile - Lease Expiries as at 30 June 2016
Stable Income Profile - Lease Expiries as at 30 June 2016 Having a large number of tenants offers income diversification and security • Number of units: 974 • Number of tenants: 719 • Combined contracted rent roll: £43.7m • WAULT of 5.0 years • WAULT to first break of 3.6 years Lease expiry to first
Slide 31: Top 15 Tenants (share of rental income) as at 30 June 2016
Top 15 Tenants (share of rental income) as at 30 June 2016 Stable income profile - income protection core to management objectives WAULT % of Gross Tenant Property Sector Sq. ft. (break if applicable) years rental income Banking/ Scottish Widows Limited Buildings 2 & 3, Aylesbury 3.3 146,936 5.30% I
Slide 32: Case Study - Portfolio Acquisition Q1 2016: Wing Portfolio
Case Study - Portfolio Acquisition Q1 2016: Wing Portfolio Oakland House, Manchester • Front of house works undertaken to improve immediate presentation to include installation of coffee facility/improvements to washroom facilities/relining all external road areas/creation of external garden/picnic
Slide 33: Case Study - Portfolio Acquisition Q1 2016: Rainbow Portfolio
Case Study - Portfolio Acquisition Q1 2016: Rainbow Portfolio Aylesbury • Building 2 – agreement for lease secured with Equitable Life at £426, 360 pa for the concurrent re-letting of the first and second floors on expiry of the Lloyds Bank Group lease for a 10-year term subject to tenant break opti
Slide 34: Case Study – Offices: Buildings 2 & 3, Aylesbury
Case Study – Offices: Buildings 2 & 3, Aylesbury Into a buoyant local market, adding value through new lettings, refurbishment and upgrading of voids Investment Overview • Acquired in March 2016 as part of Rainbow • Two purpose built high specification ‘HQ-style’ buildings in a ‘campus style’ enviro
Slide 35: Case Study – Offices: Rosalind House, Basingstoke
Case Study – Offices: Rosalind House, Basingstoke Lease surrender with re-let and refurbishment, enhancing the capital value Investment Overview • Acquired in December 2015 • 26,448 sq. ft. out-of-town modern office building • Let to Level 3 Communications (L3C) until September 2020, with a lease br
Slide 36: Case Study – Offices: The Oaks, Westwood Business Park, Coventry
Case Study – Offices: The Oaks, Westwood Business Park, Coventry Lease surrender with re-let and active management of tenant providing enhancement to the capital value Investment Overview • Acquired in February 2015 • Two adjacent standalone ‘HQ-style’ business park offices, Buildings 1 and 2 • Prem
Slide 37: Case Study – Industrial: Thames Trading Estate, Irlam, Manchester
Case Study – Industrial: Thames Trading Estate, Irlam, Manchester Adding value through intensive asset management Investment Overview • Acquired in August 2014 • 18-unit industrial estate with a total area of c. 31,000 sq. ft.. Unit sizes of 1,500 sq. ft. to 2,000 sq.ft. • Estate underperforming at
Slide 38: Case Study – Industrial: Wardpark Industrial Estate, Cumbernauld
Case Study – Industrial: Wardpark Industrial Estate, Cumbernauld Letting and regears. Considering disposal on completion of asset management programme Investment Overview • Strategically located industrial estate with direct access to Central Scotland's motorway triangle • The most recognised indust
Slide 39: Case Study – Retail: Unit 4, The Point, Glasgow
Case Study – Retail: Unit 4, The Point, Glasgow Reconfiguration in response to local market demand Investment Overview • Industrial warehouse unit of 11,250 sq. ft., with Class 1 retail consent. Part of Regional REIT’s larger estate holding of 158,741 sq. ft. • Let on a 25-year lease, with a break i
Slide 40: Case Study – Retail: Llansamlet Retail Park, Swansea
Case Study – Retail: Llansamlet Retail Park, Swansea Completion of asset management plan and preparation for potential disposal Investment Overview • Acquired in August 2014 • Six unit 71,615 sq. ft. retail park with bulky goods only consent. Located on southern edge of the city adjacent to the M4 a
Slide 41: Appendix 4 Commercial Property Sector Exposures
Appendix 4 Commercial Property Sector Exposures 41
Slide 42: Regional Offices – 62.5% of portfolio at 30 June 2016
Regional Offices – 62.5% of portfolio at 30 June 2016 Average WAULT to Capital Valuation % by Sq. ft. Occupancy Gross rental Net rental Average ERV Yield (%) Properties lease length first break rate £m valuation % income £m income £m rent £psf (mil) (yrs) (yrs) £m £psf Net initial Equivalent Reversi
Slide 43: Regional Industrial – 29.1% of portfolio at 30 June 2016
Regional Industrial – 29.1% of portfolio at 30 June 2016 Average lease WAULT to Net rental ERV Capital rate Properties Valuation Sq. ft. Occupancy % Average rent £psf length first break income £m £m £psf 29 £145.9m 4.17m 82.3% 5.12yrs 3.7yrs 11.0 £3.7psf £14.8m 34.97 • 4.17m sq. ft. of UK industrial
Slide 44: Regional Retail & Other – 8.4% of portfolio at 30 June 2016
Regional Retail & Other – 8.4% of portfolio at 30 June 2016 Average lease WAULT to Net rental ERV ERV P roperties Valuation Sq. ft. O c c upanc y % length Average rent £ psf first break inc ome £ m £m £ psf Retail 37 £39.8m 0.34m 84.9% 6.67yrs 5.2yrs 2.5 £11.2psf £3.8m £11.31psf Other 3 £2.2m 0.04m
Slide 45: Appendix 5 External Managers
Appendix 5 External Managers 45
Slide 46: Roles of the Asset Manager and the Investment Manager
Roles of the Asset Manager and the Investment Manager 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 acquisit
Slide 47: 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 48: 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 49: 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 50: 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 50