Regional Reit Ltd. · LSE:RGL
Regional Reit — H1 2017 Earnings Presentation
45 slides from Regional Reit's earnings presentation, September 2017
Slide 1: Investor Presentation – Half Year to 30 June 2017
Investor Presentation – Half Year to 30 June 2017 September 2017 High dividend distribution UK REIT, offering an unrivalled exposure to the regional commercial property market with active management by an experienced Asset Manager
Slide 2: Progress Against Objectives: H1 2017
Progress Against Objectives: H1 2017 • Ongoing active and intensive management of the property portfolio, delivering lettings and regears and increasing rental income - momentum for the full year • Tenant activity in the regions remains robust – strength is in industrials with regional offices remai
Slide 3: An Attractive Opportunity: regional office and industrial
An Attractive Opportunity: regional office and industrial • Yield differential between the regions and London remains above long-term average; continuing capital investment flows to the regions fuelled by overseas interest • Regions retain attraction of lower rentals and capital values and are still
Slide 4: Our Focus: growing revenues; momentum to the business
Our Focus: growing revenues; momentum to the business Upside from 46 new lettings as at 30 June 2017 New lettings of c. 173,000 sq. ft.; when fully income producing to provide rents of c. £1.6m pa Recurring income from regears 63 leases came up for renewal over the period, totalling 407,229 sq. ft..
Slide 5: Our Focus: broad business base; sustainable activity
Our Focus: broad business base; sustainable activity Diversified business base 150 properties, 1,093 units and 823 tenants Lease renewal managed by active asset management and large and diverse portfolio Office/Industrial mix; balancing the regions Office/Industrial exposure 88.8% (by value); increa
Slide 6: Diversified £640.4m Property Portfolio
Diversified £640.4m Property Portfolio Diversified office-led portfolio – unrivalled exposure to the UK regional property market - and broad base of tenant business activity, 30 June 2017 9.7% 1.5% Sector split (by value) Standard industrial classification mix (% of gross rent) Wholesale and retail
Slide 7: Momentum to H2'17 Rental Income
Momentum to H2’17 Rental Income Half year ending 30 June 2017 Half year ending 30 June 2016 Gross rental income £22.964m £19.699m EPRA Costs ratio 37.7% 31.8% Adjusted costs ratio (exc Performance Fee) 33.7% 31.8% Operating profit before gains/losses on property assets/other £14.318m £13.436m invest
Slide 8: Financial Position Remains Strong
Financial Position Remains Strong As at 30 June 2017 As at 31 December 2016 Investment Property portfolio valuation £640.4m £502.4m NAV (fully diluted) 107.0pps 106.3pps EPRA NAV (fully diluted) 107.3pps 106.9pps Debt finance outstandings (inc ZDP shares)* £335.0m £220.1m Total cost of debt (inc hed
Slide 9: Delivering Returns to Shareholders, NAV per share
Delivering Returns to Shareholders, NAV per share Net Asset Value Bridge 30 June 2017 125 120 115 4.0 6.5 (1.5) (1.8) 110 (1.4) Pence per share 0.3 107.3 107.0 106.3 105.6 (0.2) Change in fair value of (4.2) 105 investment properties IPO 100p (Nov 2015) (98.1p excluding IPO costs) 100 95 90 30-Jun-1
Slide 10: Delivering Scale and Value from the Property Portfolio in H1 2017
Delivering Scale and Value from the Property Portfolio in H1 2017 £m 10
Slide 11: Progressing the Property Portfolio
Progressing the Property Portfolio Mix of property assets and average property size WAULT to first break & occupancy (by value) Valuation yields (£m) £m Years 100% 5 5 90% 4.3 10% 90% 4.1 4.4 3.9 3.8 years exc Blythswood House (April 2016) 8.5% 8.6% 80% 4 8.3% 8.3% 4 7.6% 3.3 3.6 3.6 3.5 85% 8% 70%
Slide 12: H1'17 Acquisition of c. £129m of Commercial Properties
H1’17 Acquisition of c. £129m of Commercial Properties ‘NAV-for-NAV’ acquisition for shares; complementary to existing assets and aligns well with the expertise and experience of the Asset Manager • 31 mixed-use property assets (1,280,980 sq. ft.); 153 units and 115 tenants. • Offices 60% (by value)
Slide 13: Disciplined Value Accretive Approach to Capital Expenditure
Disciplined Value Accretive Approach to Capital Expenditure 800 Aztec West, Bristol Completion expected Q1/Q2 2018 Capex evaluation • Core property holding, ie, office or industrial • Lettability of property without capex • Vacant period required for capex works • Potential benefits of capex - reduc
Slide 14: Portfolio Income Security with Positive Outlook
Portfolio Income Security with Positive Outlook • Momentum to revenue income and cost ratio benefits anticipated for H2 2017 • Active pace of lettings and regears into second-half 2017, with potential to improve occupancy – progressing towards longer-term level of c. 90% • Active, experienced and pr
Slide 15: Appendix 1: Debt Financing and Summary Financials
Appendix 1 Debt Financing and Summary Financials 15
Slide 16: Debt Profile and LTVs as at 30 June 2017
Debt Profile and LTVs as at 30 June 2017 Additional bank borrowing reduced average cost of loans Lender Original Outstanding Maturity Annual Interest Rate Amortisation Hedging and Swaps:Notional Facility Debt** Date Amounts/Rates**** £'000 £'000 Mandatory Santander UK £48,300 £48,298 Dec-18 2.00% ov
Slide 17: Financials – Summary Group Income Statement
Financials – Summary Group Income Statement 1 January 2017 to 30 June 2017 1 January 2016 to 30 June 2016 Change £'000 Rental income 22,964 19,699 16.6% Non recoverable property costs (3,480) (2,328) 49.5% Net rental income 19,484 17,371 12.2% Administrative & other expenses (5,166) (3,935) 31.3% Op
Slide 18: Financials – Summary Group Balance Sheet and Debt Financing
Financials – Summary Group Balance Sheet and Debt Financing As at 30 June As at 31 December As at 30 June As at 31 December Change 2017 2016 Change 2017 2016 £'000 £'000 Assets Liabilities Non-current Assets Investment properties 640,405 502,425 27.5% Current liabilities Goodwill 1,950 2,229 -12.5%
Slide 19: Appendix 2: Time to Invest in Regional Property
Appendix 2 Time to Invest in Regional Property 19
Slide 20: Expecting Regional Property Returns to Outperform
Expecting Regional Property Returns to Outperform Average property total returns forecast for the whole UK market (including London)*: Offices 5.0% for 2017 2.2% for 2018 3.6% for 2019 Industrial 12.2% for 2017 7.1% for 2018 6.1% for 2019 • Summer 2017 report indicated that total returns forecast fo
Slide 21: 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 historic highs of 2013-14 • Spread remains above long-term average • Potential for high quality regional secondary properties to ach
Slide 22: Opportunity for Regional Offices
4) Opportunity for Regional Offices Availability of office by region (million sq. ft.) Demand for refurbished office space likely to continue throughout 2017 • Take-up of office space across ten key regional cities reached 2.8 million sq. ft. in H1 2017, 5% lower than in the same period in 2016 • De
Slide 23: Opportunity for Regional Offices (continued)
4) Opportunity for Regional Offices (continued) UK office rental growth (Q2 2017) – The JLL Property Clock1 Rental growth accelerating in regional markets • Prime rental growth across the core 8 regional office markets increased by an average of 3.3% year-on-year in 2016 • According to JLL: • Headli
Slide 24: Opportunity for Regional Industrial
5) Opportunity for Regional Industrial Demand increasing – Supply limited Take-up (50,000 sq. ft. plus) • According to Knight Frank, take-up on units over 50,000 sq. ft. in the UK’s industrial and logistics markets totalled 16.5 million sq. ft. in H1 2017 • Take-up in H1 2017 was 2% higher than the
Slide 25: Appendix 3: Regional REIT UK Property Portfolio
Appendix 3 Regional REIT UK Property Portfolio 25
Slide 26: High Yielding Portfolio set for UK Regional Market Recovery
High Yielding Portfolio set for UK Regional Market Recovery Portfolio details at 30 June 2017 Properties Valuation % by Sq. ft. Occupancy (by Occupancy (by WAULT to Gross Net rental Average ERV Capital valuation value) area) first break rental income rent £psf rate Yield (%) income £m (mil) (%) (%)
Slide 27: Top 15 Investments (market value) as at 30 June 2017
Top 15 Investments (market value) as at 30 June 2017 Property Sector Anchor tenants Market % of Lettable Let by Annualised WAULT to value portfolio area area gross rent first break (£m) (Sq. Ft.) (%) (£m) (years) Tay House, Glasgow Office Barclays Bank Plc, Glasgow University 32.3 5.0% 157,525 87.4%
Slide 28: Stable Income Profile - Lease Expiries as at 30 June 2017
Stable Income Profile - Lease Expiries as at 30 June 2017 A large number of tenants offers income diversification and security of lease renewals Lease Expiry Income Profile • Number of units: 1,093 9.6% 18.6% • Number of tenants: 823 0-1 years • Contracted rent roll: £54.6m 1-3 years • WAULT of 5.3
Slide 29: Top 15 Tenants (share of rental income) as at 30 June 2017
Top 15 Tenants (share of rental income) as at 30 June 2017 Stable income profile - income security core to management aims Tenant Property Sector WAULT to Lettable % of Gross first break area rental income (Years) (Sq Ft) Barclays Bank Plc Tay House, Glasgow Financial and insurance 4.4 78,044 3.0% a
Slide 30: Case Study Update - Portfolio Acquisition Q1 2016: Wing Portfolio
Case Study Update - Portfolio Acquisition Q1 2016: Wing Portfolio • 4 offices/1 industrial site; 82.4%/17.6% (value) • Purchased for £37.5m - 8.5% net initial yield • Refurbishments and letting vacant space, change of use application ongoing • Occupancy (by area): acquisition, 78.2%; H1’17, 84.5% •
Slide 31: Case Study - Portfolio Acquisition Q1 2016: Rainbow Portfolio
Case Study - Portfolio Acquisition Q1 2016: Rainbow Portfolio • 5 offices/7 industrial sites; 47.5%/52.5% (value) • Purchased for £80.0m - 8.2% net initial yield • Lease re-gears and lettings and refurbishments of vacant space • Occupancy (by area): acquisition: 77.2%; H1’17, 75.3% • Current rental
Slide 32: Case Study – Offices: Hampshire House, Hampshire Court, Eastleigh
Case Study – Offices: Hampshire House, Hampshire Court, Eastleigh Lease termination with re-let and refurbishment, enhancing the capital value Investment Overview • 42,810 sq. ft. out-of-town modern office building • Let to Aviva until December 2016 and to Royal Bank of Scotland to December 2021 wit
Slide 33: Case Study – Offices: St. James House, The Square, Bath
Case Study – Offices: St. James House, The Square, Bath Investment Overview • Modern office development (1991) over ground and three upper floors totalling 14,507 sq. ft. with 30 parking spaces, situated to the south of Bath city centre • Acquired August 2014 as part of a portfolio - apportioned pri
Slide 34: Case Study – Industrial: Tokenspire Business Park, Beverley
Case Study – Industrial: Tokenspire Business Park , Beverley Active asset management by way of a refurbishment programme and tenant engagement, to enhance attractiveness of the property and improve lettability Investment Overview • Acquired in March 2016 as part of the “Wing” portfolio; total floor
Slide 35: Case Study – Industrial: Grecian Crescent, Bolton
Case Study – Industrial: Grecian Crescent, Bolton New letting following refurbishment, enhancing the capital value Investment Overview • Acquired in August 2014 as part of the “Empire” portfolio, with a total floor area of 25,550 sq. ft.. Let to Wolseley to December 2015 at £106,000 pa (£4.15 psf).
Slide 36: Case Study – Offices: Brennan House, Farnborough
Case Study – Offices: Brennan House, Farnborough Property vacant upon acquisition, now fully occupied and income producing following completion of letting to Fluor Limited Investment Overview • Self-contained office building arranged over ground and two upper floors, constructed in the early 1990’s
Slide 37: Case Study – Offices: Buildings 2 & 3, HBOS Campus, Aylesbury
Case Study – Offices: Buildings 2 & 3, HBOS Campus, Aylesbury Adding value through new lettings, refurbishment and upgrading of voids Investment Overview • Two imposing HQ-style office buildings situated on extensive self-contained campus-style grounds • Building 2 is a 66,833 sq. ft. five-storey st
Slide 38: Case Study – Industrial: Thames Trading Estate, Irlam
Case Study – Industrial: Thames Trading Estate, Irlam Adding value through intensive asset management Investment Overview • 36,000 sq. ft. industrial site acquired with the “Empire” portfolio, August 2014 • At acquisition the Estate had occupancy (by area) of 54% and a net rental income of only £76,
Slide 39: Case Study – Offices: Arena Point, Leeds
Case Study – Offices: Arena Point, Leeds Adding value through intensive asset management Investment Overview • Acquired in March 2016 as part of the “Wing” portfolio, with a total floor area of 98,852 sq. ft. • Rebranded (formerly ‘Tower North Central’), with new high-level illuminated signage and t
Slide 40: Appendix 4: Introduction to Regional REIT & External Management
Appendix 4 Introduction to Regional REIT & External Management 40
Slide 41: Introduction to Regional REIT Limited
Introduction to Regional REIT Limited • Listed in November 2015; initial portfolio £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 adva
Slide 42: 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 EPRA NAV up to £5
Slide 43: 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 44: 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 45: 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 45