Regional Reit Regulatory News (RGL)

23 May 2019

Regional REIT Limited

("Regional REIT", the "Group" or the "Company")

Trading Update, Dividend Announcement and Outlook Statement

Continued robust demand and strong performance

Increased Q1 2019 dividend 1.90pps

Regional REIT (LSE: RGL), the REIT focused on income producing regional UK core and core plus office and industrial property assets, in advance of its Annual General Meeting today, announces its trading update for the year to date, its dividend declaration for the first quarter of 2019, and provides a statement on the Group's Outlook for the full year 2019.

Trading Update

The Group has continued to trade well in a market where demand for its assets remains strong and the potential deal pipeline is very healthy and diverse. Regional REIT is achieving its strategy of providing investors with an attractive return on a sustained and consistent basis from investing in and managing, predominantly, offices and light industrial property in the main regional centres of the UK outside of the M25 motorway.

Since 1 January 2019 to date, the Group has exchanged on 19 new leases, totalling 116,443sq. ft.; when fully occupied these will provide approximately £0.8m pa of rental income.

Capital expenditure year-to-date is £2.2m net.

Portfolio as at 31 March 2019:

Strong progress has been achieved and all key metrics were met:

· 151 properties, 1,223 units and 884 tenants, amounting to £741.0m of gross property assets; a contracted rent roll run-rate of c. £60.5m pa.

· Core and core plus offices (by value) were 76.7% of the portfolio (31 December 2018: 76.1%) and industrial sites 15.0% (31 December 2018: 15.5%); England & Wales represented 82.6% (31 December 2018: 82.0%) of the portfolio.

· EPRA Occupancy 88.6%, versus 89.4% at 31 December 2018; 31 March 2019 like-for-like occupancy was 88.3% (versus 89.4% as at 31 December 2018).

· Average lot size increased to c. £4.9m (31 December 2018: £4.8m).

Net loan-to-value ratio c. 40% (31 December 2018: 38.3%). Gross borrowings £340.3m; cash and cash equivalent balances £42.6m. Cost of debt (including hedging) of 3.5% pa (31 December 2018: 3.5% pa).

Active asset management activity highlights:

The Group has continued to focus on its successful active asset management strategy:

· Century Way, Thorpe Park, Leeds - the second floor (10,748 sq. ft.) was let to Countryside Properties Plc for 10 years with no break option. The letting provides a headline rental income of £204,212pa (c. £19psf). The letting of this previously vacant unit resulted in an increase in occupancy (by value) from 38.9% (31 December 2018) to 70.8% (31 March 2019).

· Tay House, Glasgow - removal of the University of Glasgow's (20,094 sq. ft.) break option in September 2019 extending occupation to September 2029 subject to tenant break option in September 2024. Half of the first floor (9,791 sq. ft.) was let to University of Glasgow on a new lease from February 2019 for 10 years, subject to a break option in September 2024. The lease provides a rental income of £181,134pa (c. £19psf). The letting of this previously vacant unit resulted in an increase in occupancy (by value) from 87.5% (31 December 2018) to 93.9% (31 March 2019). The lease provides an 18-month rent free period from the start date of the lease.

· Miller Court, Tewkesbury - a new 10-year lease was agreed with XQ Digital Resilience Ltd with a break option in 2022 at a headline rent of £85,400pa for 6,100 sq. ft. (£14psf). Additionally, existing lease to TRL Technology (10,070 sq. ft.) was regeared for a further 2-year term, achieving a 33.3% uplift in headline rent to £161,120pa (c. £16psf).

· Equinox North, Almondsbury, Bristol - regear of existing lease to Qualcomm Technologies Int Ltd completed for 6,477 sq. ft. for a further 5-year term, subject to a break option at the third anniversary, achieving a 16.0% uplift in headline rent to £93,917pa (c. £15psf).

· Delta 1200, Delta Business Park, Swindon - regear of existing lease to Cherwell Software Ltd completed for 4,857 sq. ft. for a further 3-year term, achieving a 30.8% uplift in headline rent to £82,569pa (c. £17psf).

· Trident Retail Park, Birmingham - letting of 8,000 sq. ft. of space to S&T Audio Ltd on a 15-year lease commencing February 2019, subject to two break options in 2026 and 2029 at a headline rent of £69,000pa (c. £9psf). The letting of this previously vacant unit resulted in an increase in occupancy (by value) from 61.9% (31 December 2018) to 85.0% (31 March 2019).

· St James Court, Bristol - final available space in Building B let to an existing tenant, Semtech EMEA Ltd, for a 5-year term, subject to a break option at the third anniversary. Semtech EMEA Ltd took an additional 3,626 sq. ft. of space at a headline rent of £60,640pa (c. £17psf). The lease provides a 6-month rent free period from the start date of the lease.

· The Courtyard, Falkirk - letting of 4,914 sq. ft. of space to Russel + Aitken (Falkirk) + Alloa) Ltd on a 10-year lease commencing in February 2019, subject to a break option at the fifth anniversary. The lease provides a headline rental income of £43,800pa (c. £9psf).

· Forge Street, Sheffield - a 5-year lease was agreed with Betafence Ltd with a break option in 2022 at a headline rent of £31,400pa for 2,515 sq. ft. of space (£12psf). The letting of this previously vacant unit resulted in an increase in occupancy (by value) from 74.6% (31 December 2018) to 100.0% (31 March 2019).

Acquisitions

On 4 February 2019, Regional REIT exchanged and completed on contracts to purchase Norfolk House, Smallbrook Queensway, Birmingham, for a consideration of £20m with a current net initial yield of 7.92%, in an off market transaction.

The 119,687 sq. ft. freehold property is in a key commercial location in the centre of Birmingham; situated adjacent to Birmingham New Street Station, the Bullring Shopping Centre and close to the proposed new HS2 station, which will better link Birmingham to both London and Manchester. The building comprises 12 retail units amounting to 27,433 sq. ft. and office accommodation of 92,254 sq. ft.. The main office tenant is HMRC occupying 49% of the property. The building is 98.75% occupied with a net income of c. £1.69m. 

Sales

There were no sales in the period 1 January 2019 to 31 March 2019.

Outlook

The Group continues to see robust performance in the office and industrial occupancy markets of the UK's regions. The Group continues to trade in line with management's expectations for the year and management remains confident as to the Group's ability to return to a fully covered dividend during 2019. This is underpinned by the Group's active asset management which is achieving good results with both recent acquisitions and the established portfolio.

First Quarter 2019 Dividend Declaration

The Company will pay an increased dividend of c. 3% 1.90 pence per share ("pps") for the period 1 January 2019 to 31 March 2019 (1 January 2018 to 31 March 2018: 1.85 pps). The dividend payment will be made on 12 July 2019 to shareholders on the register as at 7 June 2019. The ex-dividend date will be 6 June 2019. The dividend will be paid as 1.90 pps as a REIT property income distribution ("PID").

It is the Company's intention to pay three quarterly dividends at approximately this level in relation to the financial year 2019, of which this is the first, and then a fourth quarter dividend to at least manage compliance with the REIT distribution requirement.

The level of future payment of dividends will be determined by the Board having regard to, among other things, the financial position and performance of the Group at the relevant time, UK REIT requirements and the interests of Shareholders.

Stephen Inglis, Chief Executive Officer of London & Scottish Property Investment Management Limited, the Asset Manager commented: "During the first quarter of 2019, the Group saw no shortage of opportunities for making further earnings accretive acquisitions. Demand for high quality office and industrial assets, outside of London continued to grow and the returns that the Group can achieve from its portfolio has also risen even further to meet this increasing demand.

"With little or no new assets under development in our local regional markets, the supply/demand dynamics are even more compelling to the REIT and its investment strategy. This can best be demonstrated by the rental increases we achieved on renewals in 2018 where in our office portfolio, rents increased by an average of 11.8% on the leases which were renewed. With today's announcement it is evident that this trend is continuing and we are seeing clear signs of rental growth across our office portfolio. Our unique regional offering, of an integrated asset, property and finance management platform focused on core and core plus assets further underpins our confidence in delivering on our strategy in the year ahead, building on the very strong performance of the Company in 2018 that delivered 16.6% EPRA accounting returns to shareholders.

"The potential deal pipeline is considerable and diverse. As announced on the 17 May 2019, the Company is considering an equity fundraise to ensure that we best take advantage of the growing near-term pipeline of opportunities for the benefit of our shareholders. We continue to identify strong buying opportunities and look forward to updating shareholders on further value-enhancing investment, asset and portfolio management activities." 

- ENDS -

Enquiries:

About Regional REIT

Regional REIT Limited ("Regional REIT" or the "Company") and its subsidiaries (the "Group") is a United Kingdom ("UK") based real estate investment trust that launched in November 2015. It is managed by London & Scottish Property Investment Management Limited ("LSPIM"), the Asset Manager, and Toscafund Asset Management LLP, the Investment Manager

.

Regional REIT's commercial property portfolio is comprised wholly of income producing UK assets and comprises, predominantly, offices and industrial units located in the regional centres outside of the M25 motorway. The portfolio is highly diversified, with 150 properties, 1,192 units and 874 tenants as at 31 December 2018, with a valuation of £718.4m.

Regional REIT pursues its investment objective by investing in, actively managing and disposing of regional core and core plus property assets. It aims to deliver an attractive total return to its Shareholders, targeting greater than 10% per annum, with a strong focus on income supported by additional capital growth prospects.

The Company's shares were admitted to the Official List of the UK's Financial Conduct Authority and to trading on the London Stock Exchange on 6 November 2015. For more information, please visit the Group's website at www.regionalreit.com.

Cautionary Statement

This document has been prepared solely to provide additional information to Shareholders to assess the Group's performance in relation to its operations and growth potential. The document should not be relied upon by any other party or for any other reason. Any forward looking statements made in this document are done so by the Directors in good faith based on the information available to them up to the time of their approval of this document. However, such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

ESMA Legal Entity Identifier ("LEI"): (549300D8G4NKLRIKBX73)