29 March 2022

Regional REIT Limited

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

2021 Full Year Results

Portfolio growth and dividend drives shareholder value

Regional REIT (LSE: RGL), the regional real estate investment specialist focused on building a geographically diverse portfolio of income producing regional UK core and core plus office assets, today announces its full year results for the year ended 31 December 2021.

Financial highlights:

A strong performance and significant increase in both portfolio valuation and rent roll, providing shareholders with an attractive yield

·    Significant portfolio value increase of 23.7% to £906.1m (2020: £732.4m), following the £236m portfolio acquisition August 2021

·    Valuation per share remains resilient: IFRS NAV per share of 97.4p (2020: 97.5p); EPRA NTA per share of 97.2p (2020: 98.6p)

·    EPRA total return of 41.2% since IPO in November 2015; representing 5.8% annualised returns for shareholders

·    Total rent collection or within terms for 2021 was 99.2%* of rent due, improved against the 95.9% of rent collected for the equivalent period in 2020

·    Rent roll increased by 12.3% to £72.1m (2020: £64.2m)

·    EPRA EPS of 6.6pps (2020: 6.5pps); IFRS EPS 6.3pps (2020: loss 7.2pps)

·    Net initial yield was 5.6% (2020: 6.9%)

·    2021 dividend, of 6.50pps (2020: 6.40pps), fully covered by EPRA earnings

·    Group's cost of debt remained the same at 3.3% (2020: 3.3%)

·    Net LTV of 42.4% (2020: 40.8%)

·    Weighted average debt duration remains robust at 5.5 years (2020: 6.4 years)

*As at 18 March 2022, rent collections to 31 December 2021 amounted to 99.2%; actual rent collected 97.9%, monthly rents 0.2% and deals agreed of 1.1%.

Operational highlights:

A growing portfolio of geographically diversified assets - generating attractive income and a substantial yield throughout a challenging year

·    Rental income generated from a large spread of tenants and industries across a growing and geographically diversified portfolio of 168 properties (2020: 153), 1,511 units (2020: 1,245) and 1,077 occupiers (2020: 898)

·    The Asset Manager continued to deliver on exiting all industrial and retail holdings to focus entirely on the core regional offices which the Asset Manager believes will provide the best return for shareholders over the coming years.

·    The Group made disposals amounting to £76.9m (net of costs) during 2021. The proceeds from these disposals were promptly recycled into acquiring higher yielding properties

·    A significant acquisition was completed in August 2021, when the Group acquired a £236.0m (before costs) portfolio comprising of predominately office assets, in exchange for the issuance of 84,230,000 of the Company's shares, £76.7m of existing cash resources, and additional borrowings of £76.2m. The acquired portfolio further de-risked the Company's offering increasing diversification by geography, occupier and type of income streams

·    At the period end, 89.8% (2020: 83.5%) of the portfolio by market value was offices and 5.1% (2020: 11.1%) was industrial. The balance was made up of retail 3.7% (2020: 4.1%) and other, 1.4% (2020: 1.3%)

·    Portfolio valuation split by region was: England 75.7% (2020: 78.3%), Scotland 19.0% (2020: 17.3%) and the balance of 5.3% was in Wales (2020: 4.4%). In England, the largest regions were the South East, Midlands and the North West

·    EPRA Occupancy (by ERV) was 81.8% (2020: 89.4%) as expected. EPRA Occupancy has been impacted by the £236.0m (before costs) portfolio acquisition made in Q3 2021. Asset management plans are in place to improve occupancy

·    Completed 55 new lettings in 2021, totalling 194,716 sq. ft., which when fully occupied will provide a gross rental income of c. £2.5m

Post period end

·    Post 31 December 2021, the Company has disposed of separately: eight non-core properties for a total consideration of £33.5m, at a 1.3% premium to the 31 December 2021 valuation, with a net initial yield of 5.1% (6.3% excluding vacant properties)

·    Good momentum through active asset management, securing £0.7m of lettings across nine new lease agreements

·    On 24 February 2022, the Company declared the Q4 2021 dividend of 1.70pps, which will be paid to shareholders on 8 April 2022

Stephen Inglis, CEO of London and Scottish Property Investment Management, the Asset Manager, commented:

"We are delighted to report that the Company performed well in 2021, despite the underlying difficulties in the office sector caused by COVID-19 during the reporting period. Our track record of distributing a quarterly dividend to shareholders since IPO remains uninterrupted, achieved through a defensive and geographically diversified portfolio of assets, which is poised to benefit from the UK's return to the office in 2022.

2021 was an active year for us, as we undertook substantial transactional activity in line with our strategy to focus the portfolio exclusively on the regional office sector and exit all other areas of commercial property.

Additionally, the portfolio's valuation has increased considerably during 2021, owing primarily to the significant acquisition made in August, which included 31 high quality assets for £236m.

Our performance has been maintained primarily through the strength of our occupier base and our strong relationships with those tenants, where we have received 99.2% of rents due for the year, and our intensive asset management initiatives, helping us realise additional value in the portfolio.

As we look forward, we are confident in the Company's prospects of maximising shareholder value through the strategic repositioning of the portfolio in high quality regional office assets, while continuing to deliver a significant yield."

Forthcoming Events

Note: All dates are provisional and subject to change.

- 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 168 properties, 1,077 occupiers as at 31 December 2021, with a valuation of c.£906.1m.

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.

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

Financial Highlights

Year ending 31 December 2021

Income focused - opportunistic buying and strategic selling, coupled with intensive asset management, continues to secure long-term income

* The European Public Real Estate Association (EPRA)

** Alternative Performance Measures. Details are provided in the full Annual Report.

The European Public Real Estate Association

The EPRA's mission is to promote, develop and represent the European public real estate sector. As an EPRA member, we fully support the EPRA Best Practices Recommendations. Specific EPRA metrics can be found in the Company's financial and operational highlights, with further disclosures and supporting calculations can be found within the full Annual Report.

Operational Highlights

Year ending 31 December 2021

Deliberately diversified and strengthened portfolio by location and tenant - regions primed for growth

* Alternative Performance Measures. Details are provided in the full Annual Report.

Performance Highlights

Year ending 31 December 2021

The high dividend distributions are a major component of the total return

EPRA

^Admission: 6 November 2015

Member of FTSE All-Share Index since March 2016

Member of FTSE EPRA NAREIT UK Index since June 2016

Total EPRA Return (from IPO)

(EPRA NTA and dividend declared)

Chairman's Statement

"The Company is in a strong position to create significant long-term value with a high dividend distribution."

                                                                                                                                Kevin McGrath, Chairman

Overview

Our progress this year reflects the growing maturity and strength of Regional REIT. The transition to being a pure regional office specialist gained substantial momentum in the year with the acquisition of a £236.0million (before costs) portfolio of predominately office assets from Squarestone Growth LLP. Overall, the Company continued to perform well during 2021, despite the challenging environment.

We continued to execute our successful strategy of having a large number of occupiers operating across a range of industries in properties located in the growth regions outside the M25 motorway. Driving this strategy forward has been in no small part due to our strong working relationships and understanding of our occupiers' needs and requirements. This has ensured continued robust rent collections throughout the year. Currently, rent collection for 2021 amounted to 99.2%* (2020: equivalent period 95.9%). In addition, our exceptional network of contacts continues to provide a pipeline of asset acquisition and disposal opportunities to create long-term value.

Whilst 2021 was a challenging year due to the myriad of restrictions and guidance issued by the respective United Kingdom Government bodies, our strong rent collection resulted in EPRA diluted earnings of 6.6 pence per share ("pps") (2020: 6.5pps). IFRS diluted earnings per share were 6.3pps (2020: loss per share of 7.2pps). The dividend was fully covered by EPRA earnings.

During the year, the overall value of the portfolio increased by 23.7% to £906.1 million from £732.4 million as at 31 December 2020, reflecting the acquisition of the Squarestone Growth LLP office portfolio, positioning the REIT for further long term asset growth. The Company made disposals amounting to £76.9 million (net of costs). As usual the proceeds from these disposals have been promptly recycled into acquiring higher yielding properties. The Squarestone Growth LLP acquisition was completed in August, when the Group acquired a £236.0 million (before costs) portfolio comprising of predominately office assets, in exchange for the issuance of 84,230,000 of the Company's shares, £76.7 million of existing cash resources, and additional borrowings of £76.2 million. The acquired portfolio increased diversification of the Company's portfolio by geography, occupier and the standard industrial classification type of income streams, and it aligns well with the expertise, experience and unique strengths of the Asset Manager. While generating an attractive yield, it also offers a multitude of longer-term asset management opportunities.

* As at 18 March 2022, rent collections to 31 December 2021 amounted to 99.2%; actual rent collected 97.9%, monthly rents 0.2% and deals agreed of 1.1%.

** Alternative Performance Measures. Details are provided in the full Annual Report.

During the year, our rolling capital expenditure programme amounted to £6.8 million (2020: £8.8 million). Our priorities throughout the year were to maintain occupancy levels, provide safe and vibrant spaces in which our occupiers could thrive and grow and provide long-term capital value growth for our Shareholders.

Financial Resources

The Company continues to be in a financially strong position with an EPRA NTA of £501.4 million (2020: £425.6 million) and a cash balance of £56.1 million as at 31 December 2021 (2020: £67.4 million), of which £49.9 million is unrestricted (2020: £55.0 million).

One of the Company's key achievements has been its defensive debt positioning. The simple and flexible debt profile with strong lender relationships continued to ensure that the Company was well positioned for any further economic turbulence. These attributes remain evident going forward with no requirement to refinance until 2024.

Following the £236.0 million (before costs) portfolio acquisition in August 2021, the net borrowings as at 31 December 2021 amounted to 42.4%. A programme of asset management initiatives is in train to ensure the net borrowing reverts to our long-term target of c. 40%. Our debt facilities have sufficient headroom against their respective covenants, and the Company is in a robust position to withstand any future economic uncertainty.

Market Environment

Investment in the UK commercial property market reached £57.0 billion in 2021, according to research by Lambert Smith Hampton ("LSH")¹, 6.1% above the five-year average, 40.1% higher than the volume recorded in 2020, and 15.4% above pre-COVID-19 levels in 2019. Investor sentiment remained positive in the final quarter of 2021, despite concerns surrounding Omicron, and the quarterly investment was £17.3 billion, the highest level recorded since Q2 2015.

Savills research highlights that investor sentiment in the regional office market has improved throughout 2021². Regional office investment totalled £7.2 billion in 2021, 34.8% higher than 2020 figures, and marginally above the five-year average³. Investment in office parks in 2021 reached £2.8 billion, the highest level reported since 2017, and 31.6% above the five-year average. Optimism in the regional office market has been supported by strong employment growth. The most recent data from the ONS shows that the UK employment rate rose to 75.5% in the three months to November 2021, up from 74.9% for the same period in 2020⁴.

¹ Lambert Smith Hampton, UKIT Q4 2021

² Savills, UK Regional Investment Market Watch - December 2021

³ Lambert Smith Hampton, UKIT Q4 2021

⁴ ONS, Labour Market Overview, UK - January 2022

More details can be found in the Asset Manager's Report in the full Annual Report.

Strategy Update - Positioned for Growth

As announced on 12 November 2020, the Company has focused its investment on properties in the office sector in the main regional centres of the UK outside of the M25 motorway. The Company continued to exit all other commercial property sector investments. During 2021, non-core disposals amounted to £76.9 million (net of costs) and regional office acquisitions totalled £220.2 million.

The Board remains convinced that the supply and demand imbalance of the regional office sector coupled with the Asset Manager's specialist operating platform and experience will produce an attractive Total Shareholder Return over the long term.

Dividends

The dividend is the major component of Total Shareholder Returns. For the year under review, the Company declared total dividends of 6.50pps for the year (2020: 6.40pps), comprising three quarterly dividends of 1.60pps each and a fourth dividend of 1.70pps. This represented a yield of 6.9% at a share price of 93.90pps at the close of 31 December 2021. Since inception, the Company has declared dividends amounting to 45.7pps.

Looking ahead, there is a clear aspiration by the Board to maintain its record of uninterrupted quarterly dividend payments. This is predicated on the strength of the Company's balance sheet and the strong rent collections received throughout the year.

Performance

Since listing on 6 November 2015, the Company's EPRA Total Return was 41.2% and the annualised EPRA Total Return was 5.8%. The Total Shareholder Return was 47.6%, compared with the FTSE EPRA NAREIT UK Total Return Index, which has generated a return of 21.9% over the same period.

For the year under review, the Company's Total Shareholder Return was 22.4%, versus the return of 28.9% for the FTSE EPRA NAREIT UK Total Return Index over the same period.

Integrating a More Sustainable Approach

The Company has always been cognisant of its environmental impact, transparent governance structure and its social responsibility. With the Company's commitment to a more focused and formal approach, the Company joined the Real Estate Sustainability Benchmark ("GRESB"), achieving a green star for 2021. The Company has continued with a programme of integrating environmental, social and governance through its decision making. More details are set out in the full Annual Report.

Annual General Meeting

The Company plans to hold its 2022 Annual General Meeting ("AGM") in person on Wednesday, 25 May 2022. The notice for the 2022 AGM will be published on our website and will be circulated to Shareholders in accordance with the requirements of the Company's Articles of Incorporation.

In the absence of any reimposition of restrictions, the Board very much looks forward to meeting with Shareholders at the AGM.

Shareholder and Stakeholder Engagement

Our priority throughout 2021 remained first and foremost to provide vibrant workspaces where collaborative and collegiate environments can be built by our occupiers to face market challenges. We have stood ready to support and guide our occupiers, if required, throughout this challenging period and this remains the case.

I would like to take this opportunity to thank all the asset management teams, from property management, research, legal, corporate finance and finance to credit control, who have continued to support our occupiers through this unprecedented period.

Board and Governance

I am pleased to announce that in 2021 a Nomination Committee was constituted by the Board. The Committee's Terms of Reference can be found on the Company's website. The Committee comprises all of the independent Non-Executive Directors. More details can be found in the full Annual Report.

Outlook

The outlook for the Company remains positive. With the robust level of rent collections, the geographical and occupier diversification of the portfolio and strong finances, the Company is well positioned to continue to grow and take the opportunities that will inevitably arise in the coming years.

For the remainder of 2022, though we remain mindful of the challenges to be faced, the Company is confident of maintaining high rent collections and accelerating the momentum on the asset management initiatives. The Board believes this will result in the continued de-risking of the portfolio, whilst continuing to deliver income and long-term total returns for our Shareholders.

Kevin McGrath

Chairman

28 March 2022

Asset and Investment Managers' Report
 

"We are pleased to report that the Company performed well in 2021, despite the underlying challenges caused by COVID-19. Since IPO, we have consistently provided a quarterly dividend to our Shareholders. This has been achieved through a defensive and geographically diversified portfolio of assets, which is poised to benefit from the UK's return to the office in 2022.

2021 was an active year for us, as we undertook substantial transactional activity in line with our strategy to be opportunistic and focus the portfolio on the regional office sector. We continue to progress with a planned exit for all other non-core assets.

In addition, the portfolio's valuation increased considerably during 2021, owing primarily to the significant off-market acquisition made in August, when the Company acquired a predominately multi-let office portfolio for £236 million. This acquisition, one of the largest regional office acquisitions in the UK in 2021, was an excellent fit with our existing portfolio given its complementary spread of quality assets and a differentiated occupier base, and results in 90% of the portfolio being in the office sector. The portfolio presents a major opportunity for Regional REIT to implement its proven asset management strategy to generate additional Shareholder value on a large-scale portfolio over the coming years.

Our good income performance has been maintained primarily through the strength of our occupier base and our strong relationships with these occupiers. We received 99.2% of rents due for the year. We expect to continue to collect the outstanding amounts over the coming months.

Our consistent quarterly dividends throughout the challenging period of the pandemic have further strengthened the Company's well-attested credentials as a reliable source of high income.  We believe we are well placed in the current inflationary environment, given our high level of rent collection, regular rent reviews, and asset backed valuations.

As we look forward, we are confident in the Company's prospects of maximising Shareholder value through the strategic repositioning of the portfolio in high quality regional office assets, whilst continuing to deliver a significant dividend yield."

Stephen Inglis, CEO of London & Scottish Property Investment Management, Asset Manager. 

Highlights from 2021

·    Achieved a high level of rent collection. As at 18 March 2022, rent collection continued to strengthen, with FY 2021 collections increasing to 99.2%, adjusting for monthly rent and agreed collections plans, which is similar to the equivalent date in 2020 when 95.9% had been collected.

·    Completed 55 new lettings in 2021, totalling 194,716 sq. ft., which when fully occupied will provide a gross rental income of c. £2.5 million.

·    Acquisitions in 2021 totalled £236.0 million (before costs) for 31 assets, reflecting an average net initial yield of 7.8%, and a reversionary yield of 11.0%.

·    Disposals during 2021 totalled £76.9 million (net of costs), reflecting an average net initial yield of 6.5% (6.6% excluding vacant properties).

·    Average rent by let sq. ft. increased by 22.2% from £10.44 per sq. ft. in December 2020 to £12.75 per sq. ft. in December 2021.

·    Capital value per sq. ft. increased by 21.9% from £102.26 per sq. ft. in December 2020 to £124.70 per sq. ft.

Investment Activity in the UK Commercial Property Market

Investment in the UK commercial property market reached £57.0 billion in 2021, according to research by Lambert Smith Hampton ("LSH")⁵, 6.1% above the five-year average, 40.0% higher than the volume recorded in 2020, and 15.4% above pre-COVID-19 levels in 2019. Investor sentiment remained positive in the final quarter of 2021, despite concerns surrounding the Omicron variant, with a quarterly investment of £17.3 billion - the highest level recorded since Q2 2015. Investment in Q4 2021 marked an improvement of 23.4% on Q3 2021 and was 28.7% above the five-year quarterly average. 2021 proved to be a strong year for investment in portfolio deals, with investment totalling £15.6 billion, 50.9% above 2020 figures and 20.1% above the pre-pandemic level recorded in 2019. The commercial property market is well positioned for a positive 2022. Savills forecast that investment will increase by 10% over the next 12 months, with growth expected to be underpinned by occupational factors such as falling unemployment and companies reporting strong employment intentions⁶.

The strength of the UK regional markets was particularly pronounced in 2021, with annual investment reaching £21.3 billion, 12.0% above the five-year average and 54.2% higher than 2020 investment volumes. Conversely, London volumes were down relative to trend with 2021 volumes falling 6.0% below the five-year average at £20.1 billion. LSH research notes that a rise in investment levels was reflected across the majority of UK regions, with seven of the 11 regions recording a volume above the respective five-year averages. The largest increase in regional investment in 2021 relative to the five-year average occurred in the East, West Midlands, North West, South East and Northern Ireland.

Savills research highlights that investor sentiment in the regional office market improved throughout 2021⁷. Regional office investment totalled £7.2 billion in 2021, 34.8% higher than 2020 figures, and marginally above the five-year average⁸. Investment in office parks in 2021 reached £2.8 billion, the highest level reported since 2017, and 31.6% above the five-year average. Optimism in the regional office market has been supported by strong employment growth. The most recent data from the ONS shows that the UK employment rate rose to 75.5% in the three months to November 2021, up from 74.9% for the same period in 2020⁹. Moreover, a survey by Deloitte shows that 74% of CFOs plan to increase employee numbers over the next 12 months. This is in stark contrast to the same quarter in 2020, in which less than a quarter of CFOs planned to increase headcount and approximately 50% planned to reduce staff numbers¹⁰. Strong employment rates and encouraging levels of recruitment are positive indicators for occupational demand.

The Asset Manager's strong opinion is that the office will continue to play a vital role in working life regardless of whether hybrid or more traditional working practices are adopted. It is their opinion that many occupiers will require more office accommodation in future due to both employment growth and the improvement in the working environment by employers including de-densification.

⁵ Lambert Smith Hampton, UKIT Q4 2021
⁶ Savills, MIM, UK Commercial - January 2022
⁷ Savills, UK Regional Investment Market Watch - December 2021
⁸ Lambert Smith Hampton, UKIT Q4 2021
⁹ ONS, Labour Market Overview, UK - January 2022
¹⁰ Deloitte, CFO Survey, Q4 2021
 

Quarterly Investment Volumes (£bn)

Source: Lambert Smith Hampton Research (February 2022)

Overseas investment in the UK property market accounted for just under half (49.3%) of total investment in 2021, according to data from LSH. LSH estimates that total overseas investment for 2021 reached £28.1 billion, 32.0% higher than 2020, and 6.8% above than the five-year average. Overseas investment in Q4 2021 reached £7.5 billion, up 14.1% on Q3's level and 13.4% higher than the five-year quarterly average. North America and the Middle East were net investors in the final quarter of 2021. Conversely, European investors were net sellers in Q4 2021, c. 30% below the Q4 average despite strong demand from German investors.

Research from CBRE¹¹ indicates that regional offices have outperformed in comparison to central London offices, delivering superior income returns of 5.7% in 2021 in comparison to central London office returns of 3.6% - a trend that has been witnessed over the past seven years. With a total return of 7.7% for regional offices, 2021 marked a significant improvement on 2020 performance, in which a total return of 0.6% was reported.

¹¹ CBRE Monthly Index, Q4 2021

Central London & Regional Office Income Returns (12 months to December 2021)

Source: CBRE (February 2022)

Occupational Demand in the UK Regional Office Market

Avison Young estimates that take-up of office space across nine regional office markets¹² totalled 8.1 million sq. ft. in 2021; 41.9% above the level of take-up recorded in 2020, and 5.0% lower than the 10-year average. Take-up in the final quarter of 2021 was 21.9% above the five-year average at 2.7 million sq. ft., marking the highest quarterly take-up figure in over three years. This highlighted a return to 'normal' demand levels in the second half of 2021 with take-up in H2 totalling 5.0 million sq. ft. Avison Young highlights that that there is increased demand for greater customer care, space that encourages collaboration, and a focus on health and well-being.

Occupational demand was driven by the technology, media & telecoms sector, which accounted for the highest proportion of take-up at 21.9% in 2020. Following the technology, media & telecoms sector, the public services, education & health sector and the professional sector accounted for the second and third largest proportion of take-up in the regional cities, accounting for 16.9% and 12.7% respectively.

According to Savills, there was a rise in availability for regional office stock across ten regional UK markets ¹³, with total availability rising by 11.3% in 2021 to 14.7 million sq. ft. The uptick in availability over the last two years has pushed supply marginally above the 10-year average by 0.6%. This marks the second year that supply of office stock has increased over the last decade, having gradually fallen each year since 2009. The overall vacancy rate for regional offices ticked upwards from 11.4% in 2020 to 12.6% in 2021 but remains 2.2% below the 10-year average¹⁴.

Furthermore, it is estimated that approximately 4.0 million sq. ft. of office space is currently under construction in the Big Nine regional markets, with Glasgow, Bristol and Leeds accounting for 24.7%, 16.2% and 15.6%, respectively. Approximately 48.3% of office buildings currently under construction are already pre-let.

¹² Nine regional office markets mentioned by Avison Young include: Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Liverpool, Manchester & Newcastle

¹³ Ten regional office markets mentioned by Savills include: Aberdeen, Birmingham, Bristol, Cambridge, Cardiff, Edinburgh, Glasgow, Leeds, Manchester and Oxford

¹⁴ Savills: The Regional Office Market Overview, Q4 2021

Regional Supply: Annual Office Supply

Source: Savills (February 2022)

Rental Growth in the UK Regional Office Market

The CBRE Monthly Index shows that rental value growth held up better for the rest of UK office markets in the 12 months ended December 2021 with growth of 1.4%. Conversely, central London offices experienced modest growth of 0.2% during 2021. According to MSCI, average rents in the regional office market (outside of London and the South East) increased by 1.6% in 2021. Demand for quality office space has put an upward pressure on rents, with growth of 2.3% recorded across the Big Nine regional markets in 2021, with average headline rents now sitting at £32.67 per sq. ft., according to research from Avison Young. Colliers International noted that office park rental growth was particularly encouraging, with an annual increase of 2.1% as reported by MSCI¹⁵.

¹⁵ Colliers International, Property Snapshot, December 2021

Regional REIT's Office Assets

EPRA occupancy of the Group's regional offices was 80.8% (2020: 88.6%). A like-for-like comparison of the Group's regional offices' EPRA occupancy, as at 31 December 2021 versus 31 December 2020, shows occupancy of 81.4% (2020: 89.4%). WAULT to first break was 2.6 years (2020: 2.6 years); like-for-like WAULT to first break of 2.8 years (2020: 2.7 years).

Property Portfolio
 

As at 31 December 2021, the Group's property portfolio was valued at £906.1 million (2020: £732.4 million), with rent roll of £72.1 million (2020: £64.2 million), and an EPRA occupancy of 81.8% (2020: 89.4%). As expected, EPRA Occupancy was impacted by the £236.0m (before costs) portfolio acquisition made in Q3 '2021. Asset management plans are in place to improve occupancy.

On a like-for-like basis, 31 December 2021 versus 31 December 2020, EPRA occupancy was 82.4% (2020: 89.5%).

There were 168 properties (2020: 153) in the portfolio, with 1,511 units (2020: 1,245) and 1,077 tenants (2020: 898). If the portfolio was fully occupied at Cushman & Wakefield's view of market rents, the rental income would be £94.6 million per annum as at 31 December 2021 (2020: £76.6 million).

As at 31 December 2021, the net initial yield on the portfolio was 5.6% (2020: 6.9%), the equivalent yield was 8.7% (2020: 8.8%) and the reversionary yield was 9.4% (2020: 9.4%).