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First half profit drop reflects decline in asset valuations

Regional REIT (RGL) 101.8p

Loss to date: 5.4%

Original entry price: Buy at 107.6p, 4 Jul 2019

The negative sentiment towards UK assets means our positive call on commercial property investor Regional REIT (RGL) is struggling for momentum at present.

First half results (10 Sep) contained few surprises with a drop in profit and rental income due to a year-on-year decline in the value of its portfolio and recent disposals. In a show of confidence the dividend was increased by 2.7%.

While the value of its assets fell compared with the same period a year earlier, it was up from the levels seen at the start of 2019.

The company raised £50m earlier in the summer to take advantage of the opportunities to buy assets at a discount thanks to Brexit uncertainty.

In August the company announced it had acquired a portfolio of six UK office assets for a combined £25.9m. The offices are located in Birmingham, Bristol, Cardiff, Chester, Glasgow and Manchester, reflecting the company’s focus on markets outside London or ‘in the regions’.

Such locations often have a lack of supply in terms of office space thanks to the limited number of new developments built since the financial crisis.

SHARES SAYS: Despite the pressure on the share price we still back Regional REIT’s approach and believe the current 7.4% discount to net asset value should unwind over time.

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