Regional REIT has announced it will sell all non-office assets after a strategic review by the board.
The group’s portfolio consists of 150 properties worth £739.9m, 80.3% weighted to offices located outside of London. It will look to dispose of its industrial assets (13.9% of the portfolio), retail (4.3%) and other sectors (1.5%), valued at around £146m.
It said it would recycle the proceeds into acquiring office assets in the main regional centres of the UK, as well as potentially undertaking a share buyback programme.
Following the internal strategic review, the board said it was “convinced that the supply and demand imbalance of the office sector, coupled with the asset manager’s specialist operating platform and experience, will maximise total shareholders returns”.
It added: “For the foreseeable future, the board has decided that the company will focus its investment solely on properties in the office sector in the main regional centres of the UK outside of the M25 motorway. The company will in due course seek to exit all other commercial property sector investments, including its industrial and remaining retail sites, while promptly recycling the capital into regional offices. This will ensure the group is able to maximise its investment objectives of delivering shareholders an attractive and sustainable income focused total return over the long term.”
Given the company’s discount to net asset value (NAV) – currently around 25% – the board said it may undertake a buyback of its own shares using proceeds from the asset sales.
The group has declared a dividend of 1.5p for the quarter to the end of September 2020 (less than the 1.9p declared in the same period in 2019), meaning it will pay a dividend of 6.4p for the full year 2020, equating to an annualised dividend yield of 8.3% at last night’s closing price. It said it expects the dividend to be fully covered by EPRA earnings.
Q3 trading update
The group has exchanged on eight new leasing deals since 30 June 2020, totalling 16,202 square foot, worth £0.2m per annum of rental income. That brings the overall number of new leases this year to 29 across 171,838 square foot, worth £1.4m per annum of rental income.
It also completed a number of lease renewals during the quarter, achieving rental uplifts of 12.2% versus previous rent.
Stephen Inglis, asset manager, said:
“The conclusion of the board’s internal strategic review to dispose in due course of the remaining non-office assets in order to focus investment in the regional office market, will allow the company to take full advantage of the current sector inefficiencies being observed. It is envisaged that the company’s decision to focus solely on quality office assets for the foreseeable future will drive considerable value creation for shareholders by leveraging the manager’s key expertise whilst also serving as a major factor of differentiation for the company from existing London listed REITs.
“In light of the company’ performance throughout COVID-19, the board is of the opinion that the market is undervaluing the company. Should a persistent and significant share discount rating be observed, the board will take a balanced approach to the buyback of the company’s own shares where it is considered accretive to do so, using proceeds from asset sales, versus the opportunities in the regional office market which offer income and growth for our shareholders over the long term.”
RGL : Regional REIT to sell all non-office assets after strategic review