Regional REIT, the UK office investor, says the regional office market is primed for growth in annual results to 31 December 2021.
The group said it had seen an increase in demand from tenants for greater customer care, space that encourages collaboration, and a focus on health and well-being, as businesses return to the office.
Take-up in the regional UK markets in the final quarter of 2021 was 21.9% above the five-year average at 2.7m sq ft, marking the highest quarterly take-up figure in over three years and highlighting a return to ‘normal’ demand levels.
Availability of regional offices ticked upwards from 11.4% in 2020 to 12.6% in 2021, but remains 2.2% below the 10-year average.
Financial highlights
- Portfolio value increase of 23.7% to £906.1m (2020: £732.4m), following a £236m portfolio acquisition August 2021
- IFRS NAV per share of 97.4p (2020: 97.5p); EPRA NTA per share of 97.2p (2020: 98.6p)
- EPRA total return of 41.2% since IPO in November 2015; representing 5.8% annualised returns for shareholders
- Total rent collection or within terms for 2021 was 99.2% of rent due, improved against the 95.9% of rent collected for the equivalent period in 2020
- Rent roll increased by 12.3% to £72.1m (2020: £64.2m)
- EPRA EPS of 6.6pps (2020: 6.5pps); IFRS EPS 6.3pps (2020: loss 7.2pps)
- 2021 dividend, of 6.50p (2020: 6.40p), fully covered by EPRA earnings
- Net LTV of 42.4% (2020: 40.8%)
- Group’s cost of debt remained the same at 3.3% (2020: 3.3%)
- Weighted average debt duration of 5.5 years (2020: 6.4 years)
Operational highlights
- Diversified portfolio of 168 properties (2020: 153), 1,511 units (2020: 1,245) and 1,077 occupiers (2020: 898)
- Continued strategy to exit all industrial and retail holdings to focus entirely on the core regional offices, making disposals of £76.9m (net of costs) during 2021. The proceeds from these disposals were recycled into acquiring higher yielding office properties
- Significant acquisition was completed in August 2021, when the group acquired a £236.0m (before costs) portfolio comprising of predominately office assets, in exchange for the issuance of 84,230,000 of the company’s shares, £76.7m of existing cash resources, and additional borrowings of £76.2m.
- At the period end, 89.8% (2020: 83.5%) of the portfolio by market value was offices and 5.1% (2020: 11.1%) was industrial. The balance was made up of retail 3.7% (2020: 4.1%) and other, 1.4% (2020: 1.3%)
- Portfolio valuation split by region was: England 75.7% (2020: 78.3%), Scotland 19.0% (2020: 17.3%) and the balance of 5.3% was in Wales (2020: 4.4%). In England, the largest regions were the South East, Midlands and the North West
- EPRA Occupancy (by ERV) was 81.8% (2020: 89.4%). EPRA Occupancy was impacted by the £236.0m portfolio acquisition. Asset management plans are in place to improve occupancy
- Completed 55 new lettings in 2021, totalling 194,716 sq ft, which when fully occupied will provide a gross rental income of around £2.5m
Post period end
- The company has disposed of eight non-core properties for a total consideration of £33.5m, at a 1.3% premium to the 31 December 2021 valuation, with a net initial yield of 5.1%
- Asset management has secured £0.7m of lettings across nine new lease agreements
Stephen Inglis, chief executive of the asset manager, said:
“We are delighted to report that the Company performed well in 2021, despite the underlying difficulties in the office sector caused by COVID-19 during the reporting period. Our track record of distributing a quarterly dividend to shareholders since IPO remains uninterrupted, achieved through a defensive and geographically diversified portfolio of assets, which is poised to benefit from the UK’s return to the office in 2022.
“2021 was an active year for us, as we undertook substantial transactional activity in line with our strategy to focus the portfolio exclusively on the regional office sector and exit all other areas of commercial property.
“Additionally, the portfolio’s valuation has increased considerably during 2021, owing primarily to the significant acquisition made in August, which included 31 high quality assets for £236m.
“Our performance has been maintained primarily through the strength of our occupier base and our strong relationships with those tenants, where we have received 99.2% of rents due for the year, and our intensive asset management initiatives, helping us realise additional value in the portfolio.
“As we look forward, we are confident in the Company’s prospects of maximising shareholder value through the strategic repositioning of the portfolio in high quality regional office assets, while continuing to deliver a significant yield.“
RGL : Regional REIT “primed for growth”