Regional REIT’s annual results for 2024 highlighted both the severe headwinds the company is facing and the early effects of the turnaround strategy it has put in place.
The numbers do not make for easy reading, with the EPRA net tangible assets (NTA) down just over 40% to 210.2p per share from its restated 2023 figure (during the year the company offered 15 new ordinary shares for every seven existing shares and completed a a 10 for 1 share split) mainly due to its discounted rights issue. The portfolio value also fell 8.2% on a like-for-like basis to £622.5m.
The financial engineering, which raised £110.5m, proved a lifeline for the company. It paid off corporate bonds that matured during the period, further reduced debt levels and has earmarked capital to enhance the portfolio quality and value through alternative use planning. It sold 18 assets for £28.6m in the year and has identified £107m of further sales.
Dividends for the year were 7.8p (2023: 5.25p) fully covered by EPRA earnings of 19.2p per share (2023: restated 33.1p).
Gross borrowings have reduced to £316.7m (2023: £420.8m), with net LTV at 41.8% (2023: 55.1%). The weighted average cost of debt was 3.4% (2023: 3.5%), with a weight average expiry of 2.9 years (2023: 3.5 years).
Portfolio strategy update
The company provided the following update on the portfolio strategy: “Following the successful equity raise completed in the period, the company announced that £28.4m of the proceeds would be used to fund accretive capital expenditure projects, including securing planning consents to reposition assets ahead of sales. Significant progress has already been made in identifying priority sites and preparing the pipeline.
“Over the next four years, c.20 sites have been identified where planning applications will be submitted to change the use to alternatives such as student accommodation, residential or hotel use ahead of a sale, to maximise value for shareholders. It is anticipated that this programme will deliver good shareholder value over the medium term. This is in addition to the 43 sites marked for nearer-term disposal.
“Along with £371.2m core assets that are well positioned to deliver income on an ongoing basis, there are a further £126.5m of assets strategically located in areas of high office demand where capex is required to bring the sites up to a grade A or B standard.
“Currently, there are seven capital projects underway for £5.4m, 11 projects scheduled to commence on-site works by the end of H1 ’25 for £7.9m and 10 projects that have been identified for £8.9m. This amounts to a total investment of £22.2m.”
Stephen Inglis, head of the asset manager, said:
“While 2024 was another challenging year for both the property market and the regional office sector in particular, Regional REIT continued to deliver a strong operational performance, and the successful completion of the £110.5m equity raise has transformed the Company’s balance sheet. With this increased flexibility, Regional REIT is well placed to take advantage of the significant opportunities for value creation within the portfolio. We now have the capital to refurbish assets to drive rental income growth while simultaneously pursuing accretive initiatives, such as securing planning consents ahead of sales, and this has the potential to deliver good shareholder value over the medium term.
“We fully recognise that we remain at the start of the pathway to recovery and the company remains laser-focused on continuing to further reduce its LTV. There is a lot of work to do, and this will remain a priority through 2025, with £18.6m of disposals already in legal due diligence.
“It is clear that we are starting to see an improvement in sentiment in the UK office market, albeit there will be a lag before we see this reflected in the Company’s financial performance. There continues to be occupational headwinds, however the diversified nature of Regional REIT’s tenant base combined with the high-quality nature of its occupiers and its competitive rents significantly mitigates any risk. With supportive fundamentals, extensive scope for value creation within the portfolio, and increased balance sheet flexibility, Regional REIT can look to the future with optimism.”
