Robust performance in ‘challenging year’ for Regional REIT

Manchester Green, part of Regional REIT portfolio

The property firm Regional REIT said it delivered a robust performance with strong rent collections and increased rental income, with a sector leading dividend yield, today.

Announcing its annual results to December 31, 2022, the firm, which has offices in Old Trafford overseeing properties throughout the North West, revealed net rental income increased by 12.2% to £62.6m (2021: £55.8m), reflecting a large portfolio acquisition in August 2021.

However, the business reported a £65.169m loss before tax, compared with a £28.772m pre-tax profit the previous year.

A 2022 dividend of 6.6p per share (2021: 6.5p), is fully covered by EPRA (IFRS profit after tax attributable to shareholders) earnings and currently yielding more than 11.3%.

Primarily as a consequence of macro factors affecting the property sector, the portfolio value decreased to £789.5m, from £906.1m, reflecting a decrease of 12.1% on a like-for-like basis in the year.

The rent roll remained strong at £71.8m (2021: £72.1m) – average rent let by sq ft increased by seven per cent to £13.65.

During the period the group made disposals amounting to £84.1m (net of costs). The proceeds from these disposals were promptly recycled into acquiring £74.7m (before costs) of attractive earnings accretive assets.

It completed 114 new lettings in 2022, totalling 330,173 sq ft, which will provide gross rental income of circa £5.9m.

Stephen Inglis, CEO of London and Scottish Property Investment Management, the asset manager, said: “Following the turmoil of the pandemic, 2022 was an operationally strong year with earnings accretive asset recycling of £84.1m (after costs) of disposals and £74.7m (before costs) of acquisitions in areas identified as growth regions across the UK.

“The macro-economic environment provided significant headwinds for REITs in 2022 and was one of the most challenging years we have seen for the property sector in some time, as inflation has driven costs upwards and the increase in interest rates impacted valuations.

“We have not been immune to these challenges, with rising energy costs putting pressure on net earnings and the portfolio valuation decreasing by 12.9% to £789.5m, versus the MSCI Rest of UK Office decline of 17.3%, reflecting a decrease of 12.1% on a like-for-like basis, after adjusting for acquisitions, disposals and capital expenditure.”

He added: “In spite of all of the challenges, robust rent collections of 99% for the 12 months ended 31 December 2022 enabled the delivery of a covered dividend of 6.6pps, which we had indicated at the beginning of 2022. I would like to take this opportunity to thank my team for all their hard work and yet again delivering for our shareholders.

“As previously announced, a November 2022 study of our tenant’s active occupation noted 99% of our tenant roster had returned to the office in some form, with only 12 tenants still to return, and we are witnessing increasing numbers of employees returning across all regions of the UK.

“I have consistently stated that it will be the end of 2023 and into 2024 before we see any long term trends emerging as companies see employees return to the office in numbers, which will then determine what works best for their business and their employees.

“It is clear there will not be a one size fits all strategy. However, the clear anecdotal evidence convinces me that most businesses will end up with the majority of people in the office the majority of time, which remains supportive for overall demand in our sector.”

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