Investor Presentation - Year to 31 December 2017 March 2018 High dividend distribution UK REIT, offering exposure to the regional commercial property market with active management by an experienced Asset Manager www.regionalreit.com
Agenda and Presentation Team Stephen Inglis Chief Executive Officer • Headlines London and Scottish Investments, Asset Manager to Regional REIT • Financials and Portfolio Derek McDonald • Market Overview and Outlook Managing Director London and Scottish Investments, Asset Manager to Regional REIT 2
Headlines 3
Strong momentum in achieving key objectives Strong returns with a progressive dividend policy – DPS for 2017: 7.85p, up 3% from 2016 and total returns to shareholders • since IPO of 19.9%. Property Portfolio up 47% to £737.3m as REIT continue to build scale and deliver on commitments made at IPO • Targeted and opportunistic acquisitions to expand and diversify portfolio, including three major portfolios supported by • corporate transactions Growing the revenue stream and improving occupancy though active asset management – Contracted Rent Roll up 41% to • £61.9m and Rental Income up 22% to £52.3m. Portfolio further diversified across the UK, 164 properties (2016: 123), 1,026 tenants (2016: 717), 1,368 units (2016: 941) • Balance sheet simplified and maturity of debt extended to 6.0 years (from 2.9yr) • LSI team and presence across the UK strengthened to support ongoing growth of the REIT • Buildings 2 & 3 HBOS Campus, Aylesbury Columbus House, Coventry Wardpark Industrial Estate, Cumbernauld 4
Financials and Portfolio 5
Delivery on our Strategy Dec 2016 De 2016 Dec 2017 De 2017 Chang ange* e* Portfolio change - Investment Property £502.4m £737.3m £234.9m targeted and opportunistic Acquisitions before costs £133.6m £228.1m £94.5m acquisitions Acquisition NetInitial Yield 8.6% 7.9% (70bps) Disposals net £44.9m £16.9m (£28.0m) Disposal NetInitial Yield 6.8% 6.3% (50bps) Portfolio exposure - reduced exposure to Office and Industrial 92.7% 90.6% (210bps) Scotland by value Scotland 26.8% 22.4% (440bps) Debt - WeightedAverage Cost of 3.7% 3.8% (10bps) duration and flexibility Debt Weighted Average Duration 2.9yr 6.0yr 3.1yrs managed Total Accounting Return 13.2% 19.9% 670bps Return - since IPO** strong returns with a Total Annual Accounting 11.3% 8.8% (250bps) Return progressive dividend policy Dividends declared 7.65pps 7.85pps 0.20pps *Rounded to whole numbers **IPO 6 November 2015 - NAV plus dividend 6
Diversified Property Portfolio Property - £737.3m gross investment properties WAULT LT to to first b t break (years) & & Voi oids ds ( (%) Gross pr prope perty assets by by va value (% (%)* )* Valu luati tion on yields lds ( (%)* 10% 9.5% 100% 4 90% 9.2% 3.6 3.5 88% 9% 90% 4 86% 8% 80% 23.3% 29.4% 3 85.0% 6.7% 84% 70% 7% 6.5% 3 82% 60% 6% 82.7% 2 80% 50% 5% 78% 40% 2 4% 67.3% 76% 63.3% 30% 1 3% 74% 20% 2% 1 72% 10% 1% 0 70% 0% 31-Dec-16 31-Dec-17 0% 31-Dec-16 31-Dec-17 31-Dec-16 31-Dec-17 Years to first break (lhs) Office Industrial Net Initial Reversionary Occupancy by value (rhs) 8.1% - Retai ail (31 Dec’16, 7.2%) 5.4 year ars WA WAULT to to le lease exp expiry (31 Equivalen Eq ent: 8.3% • • • Dec’16, 5.2) 1.3% - Ot Other (31 Dec’16, 0.1%) (31 Dec’16, 8.6%) • Con ontrac acted ren ent roll ll – c. £61 61.9m • (31 Dec’16, £44.0m) *Figures based on Cushman & Wakefield and JLL valuations as at 31 December 2017 7
£737.3m Property Portfolio as at 31 December 2017 Diversified office-led portfolio – unrivalled exposure to the UK regional property market (% by value) - and broad base of business activity SEC ECTO TOR SPLIT ( T (% b by v val alue) e) TENAN TEN ANTS TS BY S SIC C CODES ES (% o of gross r rent ent) 1.3% 8.1% (0.1%) (7.2%) 14.2% 13.8% Wholesale and retail trade (12.4%) (13.7%) Office 2.9% Professional, scientific and (3.3%) technical activities 23.3% Industrial (29.4%) Manufacturing 10.6% Retail 3.5% (11.4%) Other (3.6%) Public Sector 67.3% 3.5% Administrative and support service (63.3%) (4.2%) activities Information and communication 4.4% 3.6% REGIO IONA NAL SPLIT IT (% (% by by va value) Financial and insurance activities 7.8% (6.2%) (3.5%) (Other) (4.9%) 9.2% 27.0% (11.7%) Construction (20.4%) 11.2% South East 4.6% (12.3%) Banking (2.5%) Scotland Midlands Education 8.9% 7.6% (10.2%) North East (12.1%) Transportation and storage 13.0% North West (16.4%) 8.0% 8.7% South West (4.4%) (7.0%) Electricity, gas, steam and air conditioning supply Wales 22.4% Other (26.8%) 15.2% (15.7%) Charts may not sum due to rounding (data relates to 2016) 8
Momentum of Rental Income Year ending 31 December 2016 Year ending 31 December 2017 Rental income £43.0m £52.3m EPRA cost ratio 29.6% 29.7% Adj. EPRA costs ratio (excl. Performance Fee) 29.0% 26.6% Operating profit before gains/losses on property £29.9m £36.4m assets/other investments EPS (fully diluted) 4.9pps 9.1pps EPRA EPS (fully diluted) 7.7pps 8.1pps 7.65pps 7.85pps Dividend declared for the period H2'16: 4.15p H2'17: 4.25pps Rental income momentum building in 2017. Rent roll at the end 2017 on full occupation of £73.8m pa. (2016 : £53.1m pa.) • EPRA cost ratio 2017 vs 2016 impacted by 2 one-off events. Firstly, the refinancing costs for the 10yr £165m borrowing of (£2.5m), and secondly registering for VAT • resulting in a one-off credit of £0.8m in 2017. Profit before tax £28.7m (year ending 2016: £13.4m) including change in fair value of investment properties £5.9m (2016: (£6.8m)) • EPRA EPS – diluted 8.1pps paying a fully EPRA covered dividend of 7.85pps, up from 7.7pps in 2016 • 9
Financial Position Remains Strong As at 31 December 2016 As at 31 December 2017 Gross property asset value £502.4m £737.3m NAV (fully diluted) 106.3pps 105.1pps EPRA NAV (fully diluted) 106.9pps 105.9pps Bank borrowings(incl. zero dividend preference shares)* £220.1m £376.5m Weighted average cost of debt (inc. hedging) 3.7% 3.8% Net Loan-to-value 40.6% 45.0% Occupancy by value 82.7% 85.0% Occupancy like-for-like 83.4% 84.1% Contracted rent roll like-for-like £43.0m £44.0m Gross investment property value includes +2.60% like-for-like valuation improvement, adjusting for capital expenditure, acquisitions of £228.1m (before costs) and • disposals of £16.9m net. Adjusted EPRA NAV impacted by £2.5m (0.7pps) for the £165m 10yr refinancing costs and £2.6m (0.7pps) fund raising costs. • Bank borrowings and Net LTV increased as a result of acquisitions. Post Conygar acquisition in late March 2017 Net LTV was c. 49% and has subsequently been • managed down to 45%. Occupancy increased by property management initiatives by the experienced Asset Manager. • Total Returns to Shareholders since IPO of 19.9%. • *Before unamortised loan arrangement fees 10
Debt - LTV Management 800 48% 47.3% 737.3 700 46% 640.4 600 45.0% 44% 502.4 500 £ millions 400 42% 300 40.6% 40% 376.5 200 220.1 335.0 38% 100 44.6 32.2 16.2 0 36% Dec-16 Jun-17 Dec-17 Cash Borrowings Investment Properties Net LTV (rhs) 11
Debt - Profile and LTVs as at 31 December 2017 Borrowing rationalised, duration extended, hedging costs reduced, coupled with flexibility and increased headroom Lender Original Outstanding Maturity Gross Loan Annual Interest Rate Amortisation Swaps\Caps: Swap Rates Facility Debt* Date to Value** Notional Amounts £'000 £'000 ICG Longbow Ltd £65,000 £65,000 Aug-19 44.6% 5.00% Fixed None n/a Royal Bank of Scotland £19,336 £17,376 Dec-20 40.0% 2.00% over 3mth £ LIBOR Mandatory Prepayment - Mandatory Prepayment plus qtly HSBC £20,998 £20,998 Dec-21 53.2% 2.15% over 3mth £ LIBOR - instalments of £100,000 Santander UK £70,700 £70,700 Nov-22 43.4% 2.15% over 3mth £ LIBOR Mandatory Prepayment 35,350 1.605% 35,350 1.605% Scottish Widows Ltd. & Aviva £165,000 £165,000 Dec-27 48.9% 3.28% Fixed Mandatory Prepayment n/a Investors Real Estate Finance £341,034 £339,074 Zero Dividend Preference Shares £39,879 £37,388 Jan-19 NA 6.50% Fixed None n/a £380,913 £376,462 * Before unamortised debt issue costs ** Based on Cushman and Wakefield and Jones and Lang LaSalle property valuations 12
Market Overview and Outlook 13
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