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Regional REIT clocks up record returns

Demand for regional office space is as strong as ever
March 28, 2019

Regional REIT (RGL) achieved a total shareholder return of 16.6 per cent in 2018, one of the strongest in the real estate sector. Its success in achieving record returns reflected efficient capital recycling, selling off mature assets and investing in under-achieving assets.

IC TIP: Buy at 103.8p

Headline profits were boosted by a £23.1m gain on disposals, up from £1.2m a year earlier, while the investment portfolio benefited from a £23.9m valuation uplift compared with £5.9m in 2017. These, together with a 19 per cent increase in net rental income, helped to lift adjusted net asset value (NAV) by 9 per cent to 115.5p per share.

Regional offices and industrial properties make up 91.6 per cent of the portfolio by value, and occupancy rates rose from 88.2 per cent to 89.4 per cent. Continued demand helped to underpin a rise in average rents from £8.18 per square foot to £9.40.

Finances remain in good condition, too, with the loan-to-value ratio dropping from 45 per cent to 38.3 per cent. And after the year-end Regional REIT also repaid £39.9m of preference shares inherited from the portfolio it acquired from Conygar. This has reduced the weighted average cost of debt from 3.8 per cent to 3.5 per cent.

Analysts at Peel Hunt are forecasting adjusted NAV at the December 2019 year-end of 121.5p a share.

REGIONAL REIT (RGL)  
ORD PRICE:103.8pMARKET VALUE:£387m
TOUCH:103.8-104.6p12-MONTH HIGH:106pLOW: 89p
DIVIDEND YIELD:7.8%TRADING PROPERTIES:nil
DISCOUNT  TO NAV:10%NET DEBT:48%
INVESTMENT PROPERTIES:£718m   
Year to 31 DecNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2015*10821.17.71.00
201610613.44.97.65
201710528.79.17.85
201811567.918.18.05**
% change+9+137+99+3
Ex-div:28 Feb   
Payment:11 Apr   
*Covers the period from 22 Jun 2015 to 31 Dec 2015 **Dividends paid quarterly. Payment date refers to fourth-quarter dividend of 2.5p