Investor Presentation - Year to 31 December 2016 March 2017 Hig High h div dividend dis distr tributi tion UK K REIT REIT, , offering an an un unrivalled ex exposure to to the the regi egional commercial pr property ty mar arket t with with ac acti tive man anagement t by by an an ex experienced As Asset t Man anager
Highlights – Full Year 2016 • Business performing well – delivering good income growth with H2 momentum • Occupier activity remained robust – investment market now showing signs of increasing activity • Repositioning the portfolio - completed £133.6 million of acquisitions; disposals of £44.9 million net • Ongoing active and intensive management of the property portfolio – increasing rental income • c . £ 129 million Conygar investment property portfolio acquisition • Strong dividend return for Shareholders – yield amongst the best in the sector Hig High h div dividend dis distr tributi tion UK K REIT REIT, , offering an an un unrivalled ex exposure to to the the regi egional commercial pr property ty mar arket t with with ac acti tive man anagement t by by an an ex experienced As Asset t Man anager 2
Delivering on our IPO Commitments At the IPO (November 2015) we made a number of commitments for the year ahead: Prop operty ass assets s inc ncreased c. c. 30%* Targeted acquisitions in 2016 amounted to £133.6m; Targeted acquisitions net initial yield c. 8.6% H2’16 management focus on Conygar deal (Feb’17) Prop operty disp sposals s of of c . £50m Disposals of non-core assets Disposals in 2016 of £44.9m net of costs (£45.9m gross); net initial yield c. 6.8% Offic Of fice and and ind ndustrial ex expos osure incr ncreased Increased office and industrial 9.0 per ercentage poi oints exposure 92.7% (by value) versus 83.7% at IPO Scottish exp Scot expos osure red educed 8.6 Continued reduction of Scottish per erce centage poi oints exposure 26.8% (by value) versus 35.4% at IPO Cost of Cost of ban ank debt ebt fi fina nancing g red educed 1.1 Reducing cost of debt per erce centage poi oints 3.7% versus 4.8% at IPO Si Since IPO, IPO, 13.2% Tota Total Re Return Attractive Total Return to Shareholders 7.65p of dividends declared for 2016 of 10-15% pa; with 7-8% 2016 dividend 11.5% annualised Total Return *Based on IPO gross investment property valuation 3
Active and Intensive Management of the Portfolio in 2016 11 116 6 ne new lett lettings gs thi his ye year (69 69 sinc since 30 30 Ju June ne) New lettings of c. 728,382 sq. ft. When fully income producing provide rents of c. £5m pa Qual ality en enhancement pr programme for for ass assets Growing the revenue Capital expenditure of £9.1m net; to increase achievable rents and reduce periods of void stream; underpinning values Disposal of £44.9m net of no non-core ass assets ts Sale of Blythswood House for £17.4m. Exited on 5.0% yield; 83% gain on invested capital Recycling of capital to higher yields Low ren Low ents and and cap capita tal va valu lues vs. vs. ben enchmarks Offices (average): £12.5psf, £117psf Industrial sites (average): £3.7psf, £36psf Borrowings increased to c. £220m Increased borrowings Cost of debt reduced to 3.7%; most recent loan maturities to 2021 and improved terms Net LTV of 40.6%; limit of 50% 4
Risk Limited by Scale and Diversification Diversifi Di fied busi siness base ase 123 properties, 941 units and 717 tenants Lease renewal managed by active asset management and large and diverse portfolio Offic ffice/Industr trial mix ix; ; bala alancing the he reg egions Increased Office/Industrial exposure to 92.7% (by value) (IPO, 83.7%); increased England & Wales exposure to 73.2% (IPO, 64.6%) Low risk proposition; Lim Limite ted sing single exp exposure Largest tenant 3.7% (by rental income); largest property ensuring 6.4% (by value) sustainability of the income base Broad bas ase of of busi siness acti activity ty Diversified mix of tenants: largest is wholesale & retail trade (13.7% of rental income); financial & insurance (exc banking) c. 12%; manufacturing c. 12% Ac Acti tive ass asset t man anagement t thro hroughout t the he ye year Occupancy to 83.8%, off year low of 80.9% (31 Mar’16) Completed 62 lease renewals, c. 67% arising in the period c. 76% of units with renewals remain occupied 5
Momentum of Rental Income Year ending 31 December 2016 For period ending 31 December 2015* Gross rental income £43.0m £5.4m (56 days) Costs ratio 30.4% (H2'16: 29.3%) 39.3% (Adj. c. 26%**) Adjusted costs ratio (exc Performance Fee) 29.9% (H2'16: 28.2%) n/a Operating profit before gains/losses on property £29.9m £3.3m assets/other investments EpS (fully diluted) 4.9pps 7.7pps EPRA EpS (fully diluted) (loss) 7.7pps (1.1)pps Dividend declared for the period (of which PID) 7.65pps (6.6537 pps) (H2'16: 4.15p (3.7945p)) 1.0pps (0.6572 pps) • Rental income momentum building in the second-half. Rent roll at end 2016 on full occupation of £ 53.1m pa • 2016 costs ratio impacted by acquisitions and refinancings costs, additional expenses on becoming a public company and initial performance fee. Efficiencies from active asset management realised in H2 ’ 16 • Reduced cost of debt funding • PBT impacted by £ (6.8)m fair value movement on investment properties – valuation increase outweighed by costs and capex • EPRA EpS 7.7p fully covers dividend. DpS at higher end of 7-8% IPO commitment *Regional REIT Limited was incorporated on 22 June 2015 but did not begin trading until 6 November 2015 when the shares were admitted to trading on the Premium segment of the London Stock Exchange **Adjusted costs/rental income ratio is adjusted for certain costs on a pro rata basis. The adjusted cost base (irrecoverable costs and expenses) is estimated by the Group to be c. £1.4m for the 56 day period 6
Financial Position Remains Strong As at 31 December 2016 As at 31 December 2015* Gross property asset value £502.4m £403.7m NAV (fully diluted) 106.3pps 107.7pps EPRA NAV (fully diluted) 106.9pps 107.8pps Bank borrowings** £220.1m £128.6m Cost of debt (inc hedging) 3.7% 4.5% Net Loan-to-value 40.6% 25.4% Occupancy 83.8% 83.9% Occupancy like-for-like 86.2% 84.2% Contracted rent roll like-for-like £32.5m £32.4m • Gross investment property value includes +2.25% like-for- like valuation improvement (H2’16: lfl +0.03%), acquisitions of £133.6m and disposals of £44.9m net • NAV impacted by 2.5pps for Wing/Rainbow acquisition-related costs/increased stamp duty and net capex of £9.1m. H2’16 impacts include dividend uplift, performance fee accrual and goodwill write off • Bank borrowings and LTV increased as a result of acquisitions • Total Returns to Shareholders since IPO of 13.2% (11.5% annualised) *Regional REIT Limited was incorporated on 22 June 2015 but did not begin trading until 6 November 2015 when the shares were admitted to trading on the Premium segment of the London Stock Exchange ** Including unamortised loan arrangement fees 7
Delivering Returns to Shareholders Net Asset Value Bridge 2016 125 25.0 .0 3.4 13.9 6% 45% 120 20.0 .0 (2.9) 40.6% (5.9) 0.2 4.8% 5% 4.5% 40% 115 15.0 .0 (3.1) Change in fair value of 3.7% 4% investment properties 35% Pence per share 110 10.0 .0 107.8 (6.3) 3% 106.9 06.9 (0.2) 30% 105 05.0 .0 2% 26.4% 25.4% 25% 100 00.0 .0 1% 100.0 0% 20% 95. 5.0 IPO 31 Dec '15 31 Dec '16 Average Cost of Debt (lhs) 90. 0.0 IPO (Nov 2015) 31-Dec-15 Net Rental Admin Expenses Valuation Net Capex and Gain on Net Finance Dividends Performance 31-Dec-16 Net LTV Ratio (rhs) Income (exc Perf Fee) Wing/Rainbow Investment Expense Fee, IPO NAV before launch costs of 1.9pps Acquisition Properties Impairment of Costs/Stamp Goodwill and Duty net Derivatives • Draw awn: £ 220.1m • EPR PRA : £ 293.2m (106.9pps ful ully diluted) (31 Dec’ 15, £ 128.6m; IPO, £ 130.2m) • (31 Dec’15: £295.7m, 107.8pps; • IPO, £274.2m, 100pps (pre costs of listing)) • Cash: Cash £ 16 16.2m (31 Dec’ 15, £ 24.0m; IPO, £ 26.2m) • IFRS RS: £291.7m (106.3pps fully diluted) • Mat Maturity: 2.9 years • (31 Dec’15: £295.3m, 107.7pps; (31 Dec’ 15, 3.4 years; IPO, 3.8 years) • IPO, £273.8m, 100.0pps (pre costs of listing) 8
Diversified Property Portfolio Property - £502.4m gross investment properties Gross property assets WAU AULT to to fi first br break & Vo Voids ds Valuati tion yields 100% 12% 5 90% 4.6 90% 4.4 29.4% 9.8% 80% 3.8 years exc Blythswood House (April 2016) 10% 9.5% 25.3% 24.7% 4 9.0% 3.6 85% 84.1% 8.3% 70% 83.9%* 83.8% 7.6% 8% 60% 63.3% 3 6.7% 59.4% 58.4% 50% 80% 6% 40% 2 4% 30% 75% 20% 1 2% 10% 0% 0 70% 0% IPO 31 Dec '15 31 Dec '16 IPO 31 Dec '15 31 Dec '16 IPO 31 Dec '15 31 Dec '16 Offices Industrial Years to first break (lhs) Occupancy (rhs) Net initial Reversionary * 31 Mar’16 post Wing/Rainbow, 80.9% • 7.2% - Retai ail (31 Dec’ 15, 11.2%; IPO, • 5.2 year ars WAULT to to lease expiry • Equivalent: 8.6% 11.3%) (31 Dec’ 15, 6.1 years (5.6 years exc. (31 Dec’ 15, 8.3%; IPO, 8.6%) Blythswood House); IPO, 5.8 years) • 0.1% - Other (31 Dec’ 15, 4.7% - inc Student Accomm; IPO, 5.0%) • Cont Contractedrent nt roll – c. £ 44 44.0m (31 Dec’ 15, £ 35.9m; IPO, £ 37.2m) 9
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