Regional REIT boss Stephen Inglis has expressed “absolute confidence” in his company’s strategy, as it looks to dispose of a fifth of its portfolio ahead of an expected market upturn over the next year.
Speaking after the company published its results for 2024, Inglis admitted there had been some difficulties over the year.
The company’s portfolio valuation finished the year at £622.5m, down from £700.7m in 2023 following £28.6m of disposals and an 8.2% like-for-like decrease on its remaining assets.
The company posted a loss of just over £39.5m for the year, down from almost £67.5m the year before.
In that same period, the company reduced its loan-to-value ratio from 55.1% to 41.8% following a £110.5m capital raise in the summer, which enabled it to repay its £50m retail bond.
“The focus just now remains on de-gearing,” said Inglis, when asked if the company would consider making acquisitions over the next year.
“The intention is to continue to build down those non-core assets, pay down debt and get that gearing into the 30s,” he explained, “because even at 41.8%, while in property terms that’s low leverage, in the investment trust world that still looks on the higher end of the spectrum of REITs, and therefore we’re conscious of that.”
He added: “Obviously, the whole REIT market and property market is depressed but that will turn, it’s not going to be an overnight journey. It is the start of a journey, and it will be slow and steady, but I think we will see positive signs over the course of the next 12 months.”
Assets identified
To prepare itself for that upturn, Inglis said the company would continue disposals, for which it has identified assets totalling around £107m.
It has identified 43 sites for nearer-term disposal, as well as around 20 sites for which it plans to submit change-of-use planning applications to increase their value before disposal.
In doing so, the company has identified a fifth of its £622.5m portfolio for sale – or half of its 126 total assets.
A quarter of those assets for sale are underperforming, non-core assets, while the remaining three quarters have been identified as assets with potential for increasing value through planning applications for alternative uses.
The proposals include an 825-flat residential development at The Lighthouse in Salford Quay, with a potential GDV of more than £200m, as well as plans for a 401-flat scheme at Oakland House in Trafford, which could have a GDV of more than £100m.
“We would love to have sold more last year. It was just a difficult market to sell into. We want to sell, but I’m not going to sell them for 50p to a pound. So, if you like, the increased sales programme is the legacy of not having sold enough in the last couple of years,” said Inglis.
EPC-ready
The company is also committed to around £371.2m of its core assets, which it considers well-positioned to deliver rental income, as well as a further £126.5m of core assets on which it is set to spend £22.2m to upgrade them to EPC A or B.
Already, 57.7% of the company’s assets attained an EPC B or above and the company is focusing its resources to push that figure even higher ahead of the statutory deadline for buildings to conform to an EPC B standard by 2030.
“Our portfolio is already just under 60% EPC A or B against a market where only 25% of buildings conform. So we’re already well ahead of the market, and we believe we are seeing the benefits of that in terms of interest in our buildings and lease up,” said Inglis, pointing to the 61 new lettings secured last year at 13.5% above 2023 ERV, totalling £3.2m in rent.
Of the company’s sites earmarked for capital expenditure, seven are already under way for £5.4m, including £700,000 of EPC improvement works at Clearblue Innovation Centre in Bedford and £700,000 of site improvements at Linford Wood at Libra House in Milton Keynes.
Another 11 are scheduled to start works by the end of H1 for £7.9m and a further 10 have been identified for future works which will amount to £8.9m.
“We’re now five years out from legislation. Occupiers are now saying, ‘If we’re going to sign up for a 10-year lease or a five-year break, or a five-year lease, which is kind of the standard leases in regional markets, I’m not going to occupy space that is non-conforming,’” said Inglis.
“So, as long as our space is of sufficient quality – which it is, once we operate and refurbish it – we’ll let out what we have. We have absolute confidence.”
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