Regional REIT LON: RGL

Can the Share price recover ?

Dear reader,

This week I want to dive into a REIT that looks underpriced and pays a good dividend with growth potential. I think its always important to have some of your portfolio In dividend stocks and reinvest this as this will compound and help grow your capital.

The stock is called Regional REIT (RGL).

Regional have an impressive portfolio. All of their buildings are outside of the M25 and located in high growth areas such as Manchester, Birmingham & Glasgow.  150 properties with 1038 tenants shows a strong income and portfolio. What more in Q4 2023 we saw 97.3% of rent payed and compared to the average in 2022 was 95.6%.

Lets first take a look at the share price:

If you were a investor 3 years ago, you would have lost 70% of your value. That’s very high numbers. But reader we are on the hunt for cheap stocks with great value. And like many stocks especially REITS have had an absolute hammering. When looking for a value company we should look at the price to NAV and currently this is at -70.97% discount to NAV.

This year we have the share price fall 39%. Possibly priced in from the fall of their properties valuation where they reported a 5.9 % fall in their assets. The latest NAV that was published shows it at 64.4p

Regional are 99.999% not going to pay their current yield of c.25%. However, for dividend investors, investing in a REIT has it benefits as at least 90% of their net earnings must be paid out to their shareholders as dividends. What can we expect? Well, I would expect a huge drop in the yield and once we know what the company are going to pay (hopefully) then we can make sure this is priced in.

The Debt

This brings me to talk about the main problem at the moment and one topic that is making the forums all the time. The debt that regional has is considerate and requires some investigating.

When there is a drop in NAV (Net Asset Value) this can increase the LTV (loan to value)  

The LTV ratio provides insights into how much debt the REIT has relative to the value of its property portfolio. A lower LTV ratio indicates that the REIT has less debt compared to the value of its assets, suggesting lower financial risk and greater financial stability. On the other hand, a higher LTV ratio indicates higher leverage, which can increase the REIT's financial risk

Regionals LTV is at 55.1% and the company has said their debt is fully hedged. Regional have had to start selling properties to lower their debt and if they can do this successfully then I think we could see a return to a stronger share price. They currently have around c£700m of property on the books.

The group have a £50m retail bond which is due for repayment in August 2024. Therefore, we expect more sales of offices to be coming through.  

The Sale

On the 9^th November 2023, RGL had completed their sales of some of its offices named Venlaw and Elmbank garden offices for £6.25m. In June 2023 it was valued a lot lower and thus has now shown a uplift of 26.3% of the original valuation.

Whilst this is good news my attention was drawn to the end of the page on the RNS. CEO of London & Scottish Property investment management firm (Stephen Inglis) commented:

"This sale brings total disposals to £26.0m in the financial year to date (before costs) equating to 2% above their last valuation. We continue to remain committed to a programme of asset sales to reduce net borrowings back to the Company's long term c.40% LTV target, whilst maintaining the quarterly dividend."

This is what I like to see. When a company takes on too much debt and wants to start selling down their debt and are getting good prices for their assets. And as we mentioned above they are around 55.1% LTV and the group want to be at 40% LTV. The management team have sold 6 assets over the second half 2023 where they received £26.1 m.

The largest share holder.

We can see the regional have large institutional share holders which have large positions in the company. There are some big names such as Old Mital, AXA & M&G. Overall this is positive, and we would want to see increases in their positions. Definitely at these low prices regional are currently at.

Vacancies:

“We absolutely believe we can get back to pre-pandemic levels of vacancies of about 13pc,” Stephen Inglis, the head of Regional’s management company, How? There are two ways to do it – sell buildings with too much vacant space or find tenants for that space – and we are doing both.”

This is a good snip from a question that was posed to the head of regional REIT. This shows their strategy of selling more vacant properties and finding new tenants.

Q3 Highlights:

Summary of Portfolio Highlights as of September 30, 2023:

- Portfolio consists of 150 properties, 1,533 units, and 1,021 tenants, valued at around £752.9 million.

- Dominated by offices (92.9%), with retail (3.5%), industrial (2.1%), and other (1.5%) properties making up the rest.

- Debt costs are fixed at 3.5% per annum, ensuring no exceeding costs.

- Rent roll is £68.0 million, with an Estimated Rental Value (ERV) of £88.7 million.

- Majority of the portfolio (83.5%) located in England & Wales, with the remainder in Scotland.

- EPRA Occupancy by ERV at 80.7%, showing a slight decline from the previous period.

- Average lot size is approximately £5.0 million.

- Net loan-to-value ratio is around 52.6%.

- Cash and cash equivalents balance is £32.6 million.

- Gross borrowings amount to £428.5 million.

Key Dates:

Insider buying:

The end:

Overall reader, the times are troubling for Regional REIT. I see a lot of noise about the debt. But if we can see Regional start selling properties and lowering this, then we hopefully are in for a good time. On the other hand, this seems to have been priced into the share price and with such  a large discount to NAV, the long term outcomes look promising.

Let me today leave you with one quote that I feel like applies to regional. “Catching a falling Knife”. When a stock is falling and you want to buy it, it can feel like catching a falling knife, because you don’t know where you are going to catch it and don’t want to get hurt if you catch it too early.

Remember reader these are some starting points to look into Regional REIT and do not take this as investment advice. There are many other points you can look into, and I would always encourage you to do your own investment research. I am always intrested in what you think and if you own Regional REIT, let me know down below.

Thanks for reading, 1Trueinvesting