Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Regional REIT shows there is still life in UK property
A £50m fundraise at 106.5p, which is open to retail investors via most investment platforms until 18 July, will enable UK real estate investment trust Regional REIT (RGL) to make some headway on a large pipeline of opportunities in the commercial property space.
We think this move could create significant value for shareholders given the company’s track record and the REIT looks a good buy for income investors offering a prospective yield of 7.7% and a steadily growing stream of dividends.
Stephen Inglis, chief investment officer at London & Scottish Investments which manages Regional REIT, thinks certainty on Brexit in either direction, whether there is a deal or no deal, should see money come into UK assets.
On this basis there is currently a window of opportunity to pick up real estate at a discount, with the focus very much on the regional offices which already dominate the portfolio alongside some industrial properties.
The £500m pipeline identified by London & Scottish comes from two main sources. The first are situations where private equity firms are selling the last few assets from much larger portfolios.
Most of the time the former will have made the majority of their money already and will want to dispose of the remaining assets as quickly as possible, enabling Regional REIT to pick them up at a discount.
The trust’s track record of completing on acquisitions gives it an advantage as vendors are looking for certainty on the sale rather than being driven entirely by price.
The second source comes from open-ended property funds which are being pressured by redemptions to sell assets so they can generate cash to return to investors who want to get out.
Regional REIT looks to add value by managing acquired assets more actively than they probably have been in the past. This might mean undertaking refurbishments, bringing in new tenants and where possible boosting rental income.
The market for regional offices is seen as enjoying attractive dynamics because there have been very few new developments in this space, outside of London, since the financial crisis.
Regional REIT is also likely to continue its opportunistic strategy of disposals when it has worked its magic on an asset. In the past two financial years, it has managed to conclude deals at a substantial premium, around 20% on average above previous asset valuations.