Regional Reit Ltd. · LSE:RGL
Regional Reit — Investor Day (November 2020)
64 slides from Regional Reit's investor day presentation, Nov 3, 2020
Slide 1: Regional REIT: Economic & Regional Office Update
Regional REIT: Economic & Regional Office Update regionalreit.com regionalreit.com 03 November 2020
Slide 2: Introduction
Introduction Stephen Inglis UK Economy Chief Executive Officer Regional REIT Portfolio Overview Occupational Market Simon Marriott Investment Market Investment Director Summary Savvas Savouri Chief Economist regionalreit.com Offices held at London and Scottish Property Investment Management Asset Ma
Slide 3: UK Economy
UK Economy regionalreit.com
Slide 4: UK Real GDP – The shape of recovery isn't alphabetical but logical
UK Real GDP – The shape of recovery isn’t alphabetical but logical 600 15 Equivalent to a one-off GDP UK Real GDP nominal loss of c£380bn Real GDP (constant price), £ Billion 10 550 2013 2.1 2014 2.6 5 Quarter on quarter, % change 2015 2.4 500 0 2016 1.9 2017 1.9 450 -5 2018 1.3 2019 1.4 -10 Toscafu
Slide 5: UK Employment powering higher through shocks
UK Employment powering higher through shocks Million 35 900 '79 GE '84 Miners 9/11 '08 EU Covid-19 Thousand Election Strike Crash Referendum 33 Three-Day Lawson '92 ERM 800 Week Winter bust Exit 31 700 29 600 27 500 25 400 23 300 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 2026 2031 Peopl
Slide 6: UK public sector office workers, with forecasts
UK public sector office workers, with forecasts 6.2 Workers, thousand 6 5.8 5.6 5.4 5.2 5 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Public Sector employment excluding major reclassifications regionalreit.com 5
Slide 7: Well-protected UK private sector office workers, with forecasts
Well-protected UK private sector office workers, with forecasts 14 13 Workers, million Categories included: 12 Professional, scientific and technical activities Financial and insurance 11 activities Information and 10 communication Education 9 8 7 1996 2000 2004 2008 2012 2016 2020 2024 regionalreit
Slide 8: UK jobs in new e-forms of finance vs old
UK jobs in new e-forms of finance vs old 1.7 1.6 Workers, million 1.5 1.4 1.3 1.2 1.1 1.0 2007 2009 2011 2013 2015 2017 2019 2021 IT incl New Financial (Fintech) Old Financial/Insurance activities regionalreit.com Source: ONS, Toscafund 7
Slide 9: UK jobs in new e-forms of consumerism vs old
UK jobs in new e-forms of consumerism vs old 3.5 Workers, million 3 2.5 2 2007 2009 2011 2013 2015 2017 2019 2021 New 'come to' consumer Old consumer 'go to' New ‘come to’ consumer Old consumer ‘go to’ Wholesale of food, beverages and tobacco Retail sale in non-specialised stores, food, beverages an
Slide 10: Regional REIT portfolio Overview
Regional REIT portfolio Overview regionalreit.com
Slide 11: regionalreit.com regionalreit.com
regionalreit.com regionalreit.com
Slide 12: Tenants
Tenants regionalreit.com 11
Slide 13: Tenants
Tenants regionalreit.com 12
Slide 14: Tenants
Tenants regionalreit.com 13
Slide 15: Tenants
Tenants regionalreit.com 14
Slide 16: Tenants
Tenants regionalreit.com 15
Slide 17: Tenants
Tenants regionalreit.com 16
Slide 18: Tenants
Tenants regionalreit.com 17
Slide 19: Tenants
Tenants regionalreit.com 18
Slide 20: Diversified Office Focussed Portfolio in the UK Regions
Diversified Office Focussed Portfolio in the UK Regions Regional REIT office assets: Regional REIT Capital Rate vs Average Rent £psf Capital Rate £psf Construction Costs* £psf 160.00 14 250 140.00 13.15 13.24 12 12.69 197.88 200 135.34 120.00 129.20 131.35 10 100.00 150 131.35 8 80.00 6 100 60.00 4
Slide 21: Highly Diversified Portfolio
Highly Diversified Portfolio Diversified Tenant Base Tenants by SIC code, as a % of rent roll • Diversified income - large tenant mix with 876 tenants and 1,249 units Professional, scientific and technical activities 13.0% 20.3% • Large spread of tenants businesses Administrative and support service
Slide 22: COVID-19 & Our Occupiers
COVID-19 & Our Occupiers Essential Services Breakdown by SIC Tenants as a % of gross rent 1% 1% 2% 7% 3% 17% 2% 1% 3% 7% 4% 5% 8% 16% 6% 11% 7% 16% 14% Manufacturing 9% Information and communication 51% Public Sector 9% Financial and insurance activities (Other) Banking Essential Services Large UK L
Slide 23: Strong Rent Collection
Strong Rent Collection Rent Collection Q1, Q2 & Q3 Combined Strong levels of rent collection continue 2020 • Rent collection has continued to strengthen*: Paid o Q1 increasing to 99.2% (2019: 99.4%) Adjusted for 97% monthly rents/ deals agreed o Q2 increasing to 97.0% (2019: 100.0%) Unpaid o Q3 stan
Slide 24: Rent Collection Peer Comparison
Rent Collection Peer Comparison REIT rent collection outperforms against peer group • Regional REIT has continued to outperform when compared to the average peer group each of the three quarters in 2020 • We continue to work closely with our tenants and anticipate receipts will continue to increase
Slide 25: Rent Collection by SIC
Rent Collection by SIC £6.5m £4.4m £8.0m £6.6m £4.5m £1.4m £4.6m £3.3m £2.4m £4.0m £2.7m 100% 100% 100% 100% 98% 99% 99% 95% 96% 96% 89% Professional, Wholesale and Other Administrative Information and Transportation Manufacturing Financial and Electricity, gas, Public Sector Banking scientific and
Slide 26: Property Portfolio
Property Portfolio Portfolio details as at 30 June 2020 • Offices represent 79.9% of the portfolio – the majority of offices (60%) are located on business parks • The majority of the portfolio by value has between 1-3 floors. Only 2 properties have over 10 floors, which accounts for 2% of the portfo
Slide 27: Occupational Market
Occupational Market regionalreit.com
Slide 28: Occupier Market - Supply
Occupier Market - Supply Supply of good second hand office space has continued to decrease in H1 2020 • Despite an increase in vacancy rates in Q1 2020 to 7.2%, vacancy rates fell to 6.9% in Q2 2020 • Supply remains limited, hence rents are relatively stable given the substantial COVID-19 impact. •
Slide 29: Occupier Market – Supply
Occupier Market – Supply Regional Office Market Grade B & C Supply Office Market Supply 44% less than 2008-09 levels 25.0 20.0 • Supply in UK’s regional office markets in 2008-09 (the last time the country was in recession) reached 20.4 Million Sq. Ft 15.0 million sq. ft. following years of rigorous
Slide 30: Occupier Market – Demand
Occupier Market – Demand Total Take Up (8 Regional Markets*) 7.0 • Take-up in H1 2020 reached 1.6 6.0 million sq. ft. 5.0 Q4 Q3 Million Sq Ft 4.0 • 12-month rolling take-up Q2 amounted to 4.2 million sq. ft. - 3.0 Q1 Down 25% on five-year annual 2.0 5 year H1 average 0f 5.6 million sq. ft. average 1
Slide 31: Assessing Future Office Demand
Assessing Future Office Demand Current assumptions are overly simplified • The assumption that a rise in working from home will directly result in lower demand for office space is too simplistic • JLL research highlights that the office provides a much broader role in company culture and productivit
Slide 32: Impact of WFH on Office Density
Impact of WFH on Office Density Floor area let will remain stable • COVID-19 has changed the way both employers and employees view space o Although going forward many employers will allow adopt a more flexible approach to working from home, all employees will still come into the office some. This me
Slide 33: Impact of WFH on Office Density
Impact of WFH on Office Density An increase in personal space could supply fall further • The below chart show the impact of a rise in floor area against supply in the big 8 regional office markets 25 20 Million Sq. Ft. 15 10 5 0 Supply (Q2 2020) 5% increase in let space 10% increase in let 15% incr
Slide 34: Impact of WFH on Office Density
Impact of WFH on Office Density Anticipated shift toward providing employees with more personal space • UBS research highlights that the requirement for more personal space will remain in a post-vaccine environment as both employers and employees require lower density per employee as fears remain an
Slide 35: Hot Desking Trend to be Reversed
Hot Desking Trend to be Reversed COVID-19 looks likely to push hot-desking down the agenda • Even if companies are able to reduce the number of desks in an office, the cost savings are likely to be smaller than expected once the inefficiencies of hot-desking are taken into account • It is typically
Slide 36: What Leaders are Saying about WFH
What Leaders are Saying about WFH “Prolonged remote working could threaten productivity and creativity in the long term” “I do not miss the commute. But I feel acutely the loss of working relationships and external stimuli – the chance conversations, listening to very different people with very diff
Slide 37: What Leaders are Saying about WFH
What Leaders are Saying about WFH “I can’t wait for everybody to be able to come back into the office” “In all candor, it’s not like being together physically. And so I can’t wait for everybody to be able to come back into the office.” Tim Cook, CEO, Apple Inc “Most of us are not hermits” “Most of u
Slide 38: What Leaders are Saying about WFH
What Leaders are Saying about WFH “That unplanned kind of interaction that contributes so much to how we build relationships with people and how we build culture, those things are what are missing.” Andi Owen, CEO, Herman Miller Inc “I am concerned that we would somehow believe that we can basically
Slide 39: What Leaders are Saying about WFH
What Leaders are Saying about WFH “I don’t see any positives” “Not being able to get together in person, particularly internationally, is a pure negative.” Reed Hastings, Co-Chief Executive, Netflix Inc regionalreit.com 38
Slide 40: Strong Affinity for the Office Amongst Employees
Strong Affinity for the Office Amongst Employees Enhancing the employee experience will be key moving forward • A recent global survey carried out by JLL showed that office users have a strong affinity for the office • Evidence from this illustrated the need amongst employees for human and social in
Slide 41: Overall implications for the future of the office
Overall implications for the future of the office When asked which spaces that they did NOT currently have access to would have the greatest impact on Additional findings from research carried out by JLL: Productivity, they highlighted: • A JLL survey of over 7,000 office users globally identified c
Slide 42: Other Potential Issues: Work From Home
Other Potential Issues: Work From Home • The FICC* markets standard board report about widely distributed remote workforces in relation to WFH identified over forty specific risks to companies. o Mental health o Cyber security o Confidentiality o Productivity o Quality control o Training o Identity
Slide 43: Tenant Survey Results
Tenant Survey Results regionalreit.com
Slide 44: Response Level To Date
Response Level To Date Response Demographic Standard Industrial Classification Accommodation and food service activities • Survey was conducted over a 5 week Activities of extraterritorial organisations and bodies period across September and October Administrative and support service activities 2020
Slide 45: Returned to Premises
Returned to Premises Tenants that have returned (as a % of rental income) 15.5% 84% of tenants have returned to premises • The vast majority of tenants have returned to their premises Yes No • The percentage of staff working from these premises varies as shown in below chart • 50% (as a % of rental
Slide 46: Returned to Premises by SIC Code
Returned to Premises by SIC Code Tenants that have returned (as a % of rental income) Yes No Professional, scientific and technical activities 83.4% Administrative and support service activities 78.5% Manufacturing 97.1% Public Sector 80.4% Information and communication 70.7% Financial and insurance
Slide 47: Returned to Premises
Returned to Premises Ultimate level of occupancy tenant expect (as a % of rental income) On-site staff levels will increase going forward 90 - 100% 46.5% 80 - 90% 9.9% 70 - 80% 7.5% • From those that have not already fully 60 - 70% 2.3% returned to their premises, 46.5% of tenants 50 - 60% 13.0% exp
Slide 48: Biggest factors influencing tenants decision to fully reoccupy?
Biggest factors influencing tenants decision to fully reoccupy? • Government guidance • Availability of a vaccine • Infection rates • Staff safety regionalreit.com 47
Slide 49: Returned to Premises
Returned to Premises Space requirements going forward (as a % of rental income) Space requirements will not change for the 5.1% majority of tenants Increase/ Remain the same • 73.4% of tenants expect their space 21.5% Decrease requirements to increase or remain unchanged going forward. Don't know •
Slide 50: Tenants that have not returned
Tenants that have not returned Ultimate level of occupancy tenant expect (as a % of rental income) Majority of tenants plan to return in 2021 90 - 100% 42.1% 80 - 90% 2.6% 70 - 80% 1.5% • From the 15.5% that have not already returned, 79.4% 60 - 70% 0.3% 50 - 60% 13.8% expect to return to their prem
Slide 51: Investment Market
Investment Market regionalreit.com
Slide 52: Investment Market
Investment Market Uptick in investment in Q3 2020 • Investment across all sectors reached £6.2 billion in Q3 2020, 34% higher than Q2 2020, but 56% less than the volume recorded in Q3 2019 • This brings total investment in 2020 to £26.3 billion – 26% below the same period in 2019 • Investment in reg
Slide 53: Recently Purchased
Recently Purchased Combined purchase price of £10.2m (NIY: 10.1%) Waterside Business Park Swansea • Floor Area: 68,535 sq. ft. • Rent: £0.7m pa • WAULT: 4.5 years • NIY: 11.7% • Key Tenants: Secretary of State for Communities & Waterside Business Park Swansea Local Government and JCP Solicitors Ltd
Slide 54: Recently Purchased
Recently Purchased Global Reach, Cardiff • Price: £8.4m • NIY: 8.9% • Floor Area: 61,641 sq. ft. • Rent: £0.8m pa (£13.02 psf) • WAULT: 2.6 years to breaks and 5.0 years to expiry • 100% occupied and multi - let to 6 tenants • Key Tenants: Relx UK Ltd, NFU Mutual Insurance, The British Global Reach,
Slide 55: Disposals
Disposals Significant £32.7m disposal - 59.4% above acquisition price • Price: £32.7m • Floor Area: 277,760 sq. ft. • Rent: £2.0m pa • WAULT: 2.8 years to break and 4.5 years to expiry • This disposal reflects an uplift of 59.4% from the acquisition price, including subsequent capital expenditure, a
Slide 56: regionalreit.com
regionalreit.com 55
Slide 57: Century Way, Thorpe Park, Leeds
Century Way, Thorpe Park, Leeds Before After Acquired in 2014 The property comprises a modern good quality office pavilion over three storeys providing a combined floor area of 31,805 sq. ft. The building was previously 100% let to WS Atkins Dilapidations settled at £710,000 Entire first floor of 10
Slide 58: Summary
Summary regionalreit.com 57
Slide 59: What of the Future?
What of the Future? • The current position is creating issues and challenges in the immediate term but we will come through it in the relative short term • The office has a secure future as a workplace in the 21st century • Occupiers will return to their office either in full time work mode or in so
Slide 60: What of the Future?
What of the Future? • The regions will benefit from additional Government requirements and a decentralisation/Hub and spoke models being adopted by many occupiers • We expect demand not to be confined to the big 8 regional cities CBD’s but more widely spread across conurbations • Office buildings in
Slide 61: Summary
Summary • We think the death of the office is vastly overstated • There will be challenges in the immediate term • There will be change – landlords will need to be flexible and adjust to changes • The supply side of our marketplace is constrained • Demand to recover and will increase overall • Const
Slide 62: Regional REIT well placed to benefit from predicted changes to the office market
Summary Regional REIT well placed to benefit from predicted changes to the office market regionalreit.com 61
Slide 63: Q&A
Q&A regionalreit.com 62
Slide 64: 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