Regional REIT Limited (LSE: RGL), the UK regional office specialist, has announced that it has acquired a major portfolio of 31 high quality, predominately multi-let office assets, from Squarestone Growth LLP, for a consideration price of £236.0m.

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The Board’s expectation is for the Acquisition to be earnings accretive, with significant additional value being achieved over the coming years from the Company’s active management initiatives. The Acquisition will also add further significant scale and diversification to the Company’s portfolio to the benefit of all shareholders.

The consideration to be paid to the Vendor will be satisfied by three components: the issuance of 84,230,000 new ordinary shares in the Company at 98.6 pence per share (being the EPRA Net Tangible Asset Value per share as at 31 December 2020) equivalent to £83.1m, £76.7m of existing cash resources and additional borrowings of £76.2m.

Portfolio Highlights

  • The £236.0m* Portfolio comprises: 27 office assets providing over 1.6m sq. ft. for 192 tenants; 2 industrial units (120,020 sq. ft.) with 3 tenants; a residential asset with 12 tenants (10,672 sq. ft.); and a Tim Horton’s Drive-Thru restaurant (2,010 sq. ft.) for a single tenant. (See appendix 1 below for full details of the Portfolio)
  • Regional offices (by value) constitute 93.3% of the Portfolio; industrial 4.9%; residential 1.1%; retail 0.7%
  • The Portfolio is located entirely outside of the M25, 78.2% in England; 17.1% in Scotland; and the remaining 4.7% in Wales
  • Net initial yield of 7.8%, and a reversionary yield of 11.0%
  • Contracted rent roll amounts to £21.9m per annum
  • EPRA occupancy (by ERV) of 78.4%
  • The highest valued single asset is Capitol Park, Leeds at £22.2m
  • The Portfolio’s weighted average unexpired lease term to expiry is 4.0 years; WAULT to first break is 2.6 years; office WAULT is 3.9 years and WAULT to first break is 2.4 years

*One property Quantum Court valued at £5.4m is awaiting consent to transfer and is expected to complete at the end of September 2021.

Strategic Rationale for the Acquisition

  • Builds on Regional REIT’s strategy of focusing its investment activity on properties in the regional office sector
  • The Portfolio is highly complementary to the existing asset base of the Company and aligns well with the expertise and experience of the asset manager
  • Company’s portfolio was valued at £732.4m as at 31 December 2020, of which offices amounted to £611.2m (83.5%) Benefits include: portfolio scale and increased diversification of risk
  • Extensive active asset management opportunities have been identified to unlock the reversionary yield potential from the Portfolio
  • The small number of non-regional office acquisitions that form part of the Portfolio will then be earmarked for the ongoing strategic disposals programme to recycle capital into compelling regional office opportunities

Financing Summary

  • Regional REIT will issue to the Vendor 84,230,000 new ordinary shares (“Consideration Shares”), at 98.6 pence per share (being the Group’s EPRA NTA per share as at 31 December 2020) equivalent to £83.1m, with the balance of the consideration price settled from existing cash resources of £76.7m and additional borrowings of £76.2m
  • The Consideration Shares will rank pari passu with existing ordinary shares in issue
  • Following admission, the Consideration Shares will represent 16.3% of the ordinary shares in issue and will rank for the Company’s second quarter dividend of 2021, declared on the 26 August 2021
  • 74,603,961 Consideration Shares will be subject to a lock-in of nine months for the first one-third, 15 months for the second-third and 21 months for final-third, commencing on the date of completion of the Acquisition
  • Application has been made for the admission of the new ordinary shares to the Official List of the UK Financial Conduct Authority (the “FCA”) and to trading on the premium segment of the London Stock Exchange’s main market for listed securities. It is expected that admission and commencement of dealings in the new ordinary shares will become effective at 8.00 a.m. on 1 September 2021
  • On completion of the Acquisition, the Group estimates (based on its own Consolidated Balance Sheet as at 31 December 2020) that it would have a net LTV-ratio of c. 43.8% (31 December 2020: 40.8%); and weighted average cost of debt of 3.3% (31 December 2020: 3.3%)

Stephen Inglis, CEO of London & Scottish Property Investment Management, the Asset Manager of Regional REIT commented:

“This large and high-quality acquisition encompasses all the criteria which our experienced Asset Management platform seeks: income growth opportunities coupled with asset management potential for long-term accretive shareholder value.

Our Asset Management platform comprises of 62 professionals across a number of disciplines from asset and property management, research, legal, corporate finance to credit control located in Glasgow, Leeds, Manchester and London. They are looking forward to integrating the properties into the current portfolio.

This is a major milestone for the Company, the scale and diversity added to the Company’s portfolio through this transaction will be accretive for all shareholders. The sourcing of this major portfolio acquisition is a testament to the strength of our network and central position in the regional office market and further builds upon our strategic objective of being the regional office space provider of choice.

 We look forward to welcoming and working with the new shareholders.”

Marius Barnett, representative for the Squarestone LLP members commented: 

“We are excited to complete this transaction and to partner with Regional REIT in this next chapter. This has been a complex and detailed transaction given the number and geographical spread of the properties.

Over the period of the transaction we have established a good working relationship with the Regional REIT team and look forward to a strong long term alliance going forward.”

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