- What Regional REIT posts profit hike in interim results
- Why Active asset management driving performance
- What next Regional REIT has £65m of cash to deploy in subdued market
Regional REIT has posted solid interim results with lease renewals and lettings boosting underlying profits – and a recent raise providing £65m of capital to take advantage of a lack of competition in the market.
The regional investment specialist revealed a 17.0% increase in operating profit to £20.6m, up from £17.6m in H1 2018. While rental income remained broadly similar at £29.9m, this was achieved across a lower number of assets.
The portfolio has benefited from an uplift of 19.5% in gross rent roll derived from lease renewals and the completion of 39 new lettings across the first six months, which will provide another £1.6m of income.
UK regions offering better capital returns than London
Stephen Inglis, CEO of London & Scottish Property Investment Management Limited, the asset manager of Regional REIT Limited commented: “It has been a very active and successful period for the group as we continue to strengthen our corporate foundations and portfolio composition to take advantage of the considerable and growing opportunities that we are seeing in our markets.
“The UK regions continue to outperform the London commercial property market with superior capital returns over the last three years. Strong occupational demand remains for the UK regional commercial markets while a lack of availability continues to drive rental growth. “
Investment property value were largely flat on a like-for-like valuation at £721.7m, but the EPRA net asset value decreased to £426.2m from £430.5m as at 31 December 2018. The NAV drop is attributed to £3.9m capital expenditure and a £7.6m write down in retail valuations, which form a small proportion of the REIT’s portfolio.
“The retail proportion of our portfolio has fallen 15%. No-one knows where the base rents are and there are no new entrants in the market. We’ll be looking to dispose of retail stock when the market improves,” Inglis said. “However, in the regions, office rental growth is now overtaking the industrial sector and that will translate into capital value growth.”
Cash buyer in a subdued market
Following a successful capital raise of £62.5m from private wealth managers and investment trusts, Regional REIT is well positioned to take advantage of a lack of competition in the regional markets to supplement its core and core-plus portfolio with a series of acquisitions. The elongated discussions on Brexit and associated political instability will provide opportunities over the next three months.
Inglis adds: “We have around £65m in cash and can inject some debt into the mix. The current political situation is why we raised. The market lacks cash buyers, putting us in an advantageous position. We will continue to buy under-loved, poorly managed assets and deliver value from our asset management strategy.”