31 August 2021

REGIONAL REIT Limited

("Regional REIT", the "Group" or the "Company")

£236m Regional Office Portfolio Acquisition

31 Assets Acquired at a NIY of 7.8%

Regional REIT Limited (LSE: RGL), the UK regional office specialist, is pleased to announce

that it is has acquired a major portfolio of 31 high quality, predominately multi-let office assets, (the "Portfolio") from Squarestone Growth LLP (the "Vendor"), for a consideration price of £236.0m* (the "Acquisition").

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

o The Company's portfolio was valued at £732.4m as at 31 December 2020, of which offices amounted to £611.2m (83.5%)

·    Increases diversification of the Group's portfolio by geography, tenant and income streams

·    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."

Call for Sell Side Analysts

There will be a call for sell side analysts at 3pm today to discuss the transaction and answer any questions. Please contact [email protected] for details.

Forthcoming Events

16 September 2021                 2021 Interim Results Announcement

11 November 2021                 Q3 Trading Update

Note: All dates are provisional and subject to change

Appendix 1 - The Portfolio

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

- ENDS - 

Enquiries:

About Regional REIT

Regional REIT Limited ("Regional REIT" or the "Company") and its subsidiaries (the "Group") is a United Kingdom ("UK") based real estate investment trust that launched in November 2015. It is managed by London & Scottish Property Investment Management Limited, the Asset Manager, and Toscafund Asset Management LLP, the Investment Manager.

Regional REIT's commercial property portfolio is comprised wholly of income producing UK assets and comprises, predominantly of offices located in the regional centres outside of the M25 motorway. The portfolio is geographically diversified, with 153 properties, 874 occupiers as at 31 March 2021, with a valuation of £734.7m.

Regional REIT pursues its investment objective by investing in, actively managing and disposing of regional core and core plus property assets. It aims to deliver an attractive total return to its Shareholders, targeting greater than 10% per annum, with a strong focus on income supported by additional capital growth prospects.

The Company's shares were admitted to the Official List of the UK's Financial Conduct Authority and to trading on the London Stock Exchange on 6 November 2015. For more information, please visit the Group's website at www.regionalreit.com.

Cautionary Statement

This document has been prepared solely to provide additional information to Shareholders to assess the Group's performance in relation to its operations and growth potential. The document should not be relied upon by any other party or for any other reason. Any forward looking statements made in this document are done so by the Directors in good faith based on the information available to them up to the time of their approval of this document. However, such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

This announcement includes inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014 and is being released on behalf of Regional REIT Limited by Adam Dickinson, Investor Relations.

ESMA Legal Entity Identifier ("LEI"): 549300D8G4NKLRIKBX73