Regional REIT has acquired a portfolio of 31 multi-let offices for £236m.
The group, which recently changed its investment strategy to be purely focused on UK offices, said the consideration to be paid to the vendor (Squarestone Growth LLP) will be satisfied by three components: the issuance of 84,230,000 new ordinary shares in the company at 98.6 pence per share (being the EPRA Net Tangible Asset Value per share as at 31 December 2020) equivalent to £83.1m, £76.7m of existing cash resources and additional borrowings of £76.2m.
The board said it expects the acquisition to be earnings accretive, with significant additional value being achieved over the coming years from the company’s active management initiatives.
Portfolio highlights
The portfolio comprises 27 office assets providing over 1.6m sq ft for 192 tenants; 2 industrial units (120,020 sq ft) with three tenants; a residential asset with 12 tenants (10,672 sq ft); and a Tim Horton’s Drive-Thru restaurant (2,010 sq ft) for a single tenant.
Regional offices (by value) constitute 93.3% of the portfolio; industrial 4.9%; residential 1.1%; retail 0.7%. The portfolio is located entirely outside of the M25, 78.2% in England; 17.1% in Scotland; and the remaining 4.7% in Wales.
It has been acquired at a net initial yield of 7.8% and a reversionary yield of 11.0%, with a contracted rent roll of £21.9m per annum. EPRA occupancy is at 78.4% and the weighted average unexpired lease term (WAULT) to expiry is 4.0 years; WAULT to first break is 2.6 years.
The group said the small number of non-regional office assets in the portfolio will be earmarked for disposal and proceeds recycled into regional office opportunities.
Financing Summary
Regional REIT will issue the vendor 84,230,000 new ordinary shares at 98.6 pence per share, equivalent to £83.1m (with the balance of the consideration price settled from existing cash resources of £76.7m and additional borrowings of £76.2m). The new shares will represent 16.3% of the ordinary shares in issue
The shares will be subject to certain lock-in periods (of nine months 15 months and 21 months), commencing on the date of completion of the acquisition.
On completion of the acquisition, the group estimates that it would have a net LTV-ratio of 43.8% (31 December 2020: 40.8%).
Management comments
Stephen Inglis, CEO of London & Scottish Property Investment Management, the asset manager of Regional REIT said: “This large and high-quality acquisition encompasses all the criteria which our experienced Asset Management platform seeks: income growth opportunities coupled with asset management potential for long-term accretive shareholder value.
“Our Asset Management platform comprises of 62 professionals across a number of disciplines from asset and property management, research, legal, corporate finance to credit control located in Glasgow, Leeds, Manchester and London. They are looking forward to integrating the properties into the current portfolio.
“This is a major milestone for the Company, the scale and diversity added to the Company’s portfolio through this transaction will be accretive for all shareholders. The sourcing of this major portfolio acquisition is a testament to the strength of our network and central position in the regional office market and further builds upon our strategic objective of being the regional office space provider of choice.”
Marius Barnett, representative for the Squarestone LLP members, added: “We are excited to complete this transaction and to partner with Regional REIT in this next chapter. This has been a complex and detailed transaction given the number and geographical spread of the properties.
“Over the period of the transaction we have established a good working relationship with the Regional REIT team and look forward to a strong long term alliance going forward.”
RGL : Regional REIT acquires £236m portfolio