Find value in this Reit specialising in regional offices

This Reit focusing on opportunities in commercial property outside London looks appealing.

Manchester © iStockphotos

Press coverage of the office property market focuses on eye-catching new-builds. But the main market is "secondary": the purchase, refurbishment, re-letting and management of existing buildings. This is the focus of real estate investment trust Regional Reit (LSE: RGL). It floated four years ago.

RGL's commitment to a progressive 8% yield plus a bit of capital return was treated with scepticism at first but the target for this year, 8.25p a share, is 8% ahead of the initial dividend. The total returnof 10% per annum sincelaunch makes its performance among the best in the sector. This impressive record has facilitated two fundraisings and resulted in a company with a £450m market value and £720m of assets.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

Some of that success is the result of a strong in-house team, resulting in intensive management of properties, tenants and debt. There has also been a shrewd evolution of the portfolio, with the office component rising from 58% at launch to 78% .

Eyeing up regional offices

Despite strong tenant demand and higher rents, RGL is finding a ready supply of high-quality opportunities from forced sellers. Inglis is convinced that in time "capital will be attracted back into regional offices, with rates of return for investors of 15% easily achievable". Meanwhile, RGL has a £500m pipeline of opportunities. £20m was invested in the first half and a further £26m recently. In current market conditions and with rents rising, sales are unusual, although a Sheffield property was sold for a 25% profit in the first half.

Advertisement
Advertisement - Article continues below

To enhance the investment return, the portfolio is financed by debt up to a limit of 40% of value. With secured debt of £292m at an average cost of 3.5% fixed for eight years, RGL is bumping against its ceiling and there is also a £50m unsecured bond issue. The loan covenants look secure, though the pipeline of opportunities suggests further equity issuance,which makes it hard to see the 9% discount of the share price to net asset value narrowing much.

Despite this, the record, strategy and prospects for RGL in its core market, with rents rising and values depressed, make it an attractive investment.

Advertisement

Recommended

Visit/investments/funds/investment-trusts/600757/why-investment-trusts-are-the-best-vehicle-for-your
Sponsored

Why investment trusts are the best vehicle for your money

Max King explains the advantages of investment trusts – sometimes called closed-ended funds – over their open-ended counterparts (or Oeics).
11 Feb 2020
Visit/investments/stocks-and-shares/share-tips/600641/share-tips-of-the-week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
17 Jan 2020
Visit/520115/investment-trusts-the-cinderella-of-investment-arrives-at-the-ball
Funds

Investment trusts: the Cinderella of investment arrives at the ball

Investors should look beyond the market noise of a single year and examine the bigger picture. Max King explains what we can learn from 25 years of in…
8 Jan 2020
Visit/519913/share-tips-8-stocks-for-robust-returns
Share tips

Share tips: eight stocks that should deliver robust returns

Ryan Ermey of US publication Kiplinger’s Personal Finance chooses his favourite stocks for the next decade, which should be able to grow for years.
28 Dec 2019

Most Popular

Visit/investments/stocks-and-shares/600863/sirius-minerals-anglo-american-takeover
Stocks and shares

Do you own shares in Sirius Minerals? Here’s what you need to do now

Mining giant Anglo American has proposed a cash takeover of Yorkshire-based minnow Sirius Minerals. Unhappy shareholders must decide whether to accept…
20 Feb 2020
Visit/currencies/600842/eur-usd-euro-slide-against-us-dollar
Currencies

The euro’s slide against the US dollar looks set to continue

The euro has been in a bear market against the US dollar for two years now. And on a broader scale since 2008. A decline like that is telling us somet…
19 Feb 2020
Visit/economy/uk-economy/600862/britains-economy-might-spring-a-surprise-on-the-doomsayers-this-year
UK Economy

Britain’s economy might spring a surprise on the doomsayers this year

The UK economy is looking pretty good – we’re more at risk of a boom than a bust, says John Stepek. Here’s why, and what it means for your portfolio.
20 Feb 2020
Visit/investments/commodities/600729/the-rare-earth-metal-that-wont-be-a-secret-for-long
Sponsored

The rare earth metal that won't be a secret for long

SPONSORED CONTENT – You can’t keep a good thing hidden forever; now is the time to consider Pensana Rare Earths and the rare earth metals NdPr.
31 Jan 2020