Regional REIT Limited

and welcome to the regional REIT limited investor presentation. Throughout recorded presentation, investors will be enlisted in any mode. Questions are encouraged and they can be submitted at any time by the Q&A tab situated in the right corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives in the meeting itself. Have the company can view the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Chief Executive Officer, Stephen Inglis. Good morning, sir.

Good morning everyone and thank you for attending. I very much appreciate it. This is a presentation of the half year results for regional REIT for the period ending 30th of June 2025. I will run through in a few seconds the half year results and then spend just a bit of time updating you on the progress that is being made towards our strategic goals, which to remind you are increasing net income and growing the MTA by adding value to the portfolio, also continuing to pay a strong uncovered dividend, and finally, further debt reduction. The business has, in my opinion, a great opportunity ahead as we strategically reposition our portfolio to drive long-term value. As mentioned just a few seconds ago, there will be time for Q&A at the end of this presentation, and therefore questions will be at the end. If I can introduce those on from the company, I'm Stephen Ingalls, CEO. Alongside me this morning, Simon Marriott, the Property Fund Manager, Alastair Hewitt, who you can also see on screen, the Finance Fund Manager, and Adam Dickinson, our Investor Relations Manager, who will deal with all questions submitted. There has been a huge amount of work undertaken by the team. And as I will demonstrate, a great deal of progress has been made, which will produce increased returns for the company in the short to medium term. I'm encouraged that our occupational market seems to have reached an inflection point with yield having been stable during the past half year period. Unfortunately, we have experienced some unexpected tenant breaks. which shall act as a headwind for our income and which directly caused the 1.03% like for like net asset value decline at property level at these half year results. Excluding these specific assets, our portfolio saw asset value stability for the first time since before COVID. Because of these 10 breaks, the company has been prudent and guided down market consensus for this year's income. However, we will still hold our dividend in absolute terms, expecting to be 10 pence per share, which importantly shall remain covered. I am, however, confident on the income side, looking just a little further out as we are making strong progress on a pipeline of material new letting opportunities, even if their contributions are expected to benefit our next financial year. Further, we are making good progress on the CAPEX programme, an essential part of our strategy to improve the quality of the estate and capture the increase in occupier interest we are witnessing. We're also making good progress on sales, a little bit more detail in a few minutes, and we will be repaying debt. Finally, progress is also being made with our lending partners on our August 2026 debt maturity, which Alistair will discuss later. Okay, so let me take you through the salient points for the half year to 30th of June. following which, as I say, I will spend a little time looking at the key initiatives and providing some insight on what we are seeing in the markets, both occupational and investment, and what we might expect to see moving forward. H1 2025 has been about working towards repositioning the portfolio. This includes continuing and increasing the number of CapEx projects, increasing sales to reduce debt and selling non-core assets, underperforming assets and assets at the end of their business plan to reduce the void costs of the portfolio. There does, however, remain huge uncertainty created by, in part, geopolitical conditions and closer to home the perceived shambles of the current UK government. And this has played out in the real estate markets and delays the decision-making and little improvement in the investment markets as the number of sellers continues to outweigh the number of investors actively buying. So in terms of the portfolio, we have invested 6 million pounds in CapEx. In the first six months, this compares to 8.2 million in the entire year 2024. There are currently five projects on site and a further 18 in transition, and we will commence on as many projects as practical in the coming months. We've sold five assets for a total of £7.3 million. Undoubtedly, the pace of sales completing has been slower than we anticipated. However, there is an element of timing as we have sold a further five assets for a further £15.6 million. And there's a further 10 assets either contracted or in legals that we should complete between now and the year end. We had planned at the beginning of the year to sell a total of £40 to £50 million of assets in this year and we're on track to achieve this. New lettings have continued and whilst there has been a slow market, we have achieved 20 new lettings in H1. Encouragingly, we're still achieving rentals in excess of ERV. The level of interest from prospective tenants has increased considerably across the portfolio, and this increase in requirements and inspections will flow through to an increase in leasing activity in H2. But as I stated back in March, we do not expect this to be reflected in our numbers until 2026. Whilst the upper occupancy is marginally up, this is not reflective of true occupancy, which owing to some unexpected breaks and expiries, we have lost tenants and this has impacted gross rental. The reason that EPRA occupancy is up is because of our increased capex activity to provide better quality space and to reduce void costs. So this is the reason that rental income is down whilst EPRA occupancy is showing an improvement as a quirk of the EPRA system. As you can see, earnings per share on an EPRA basis is 5.2 pence per share. So dividend of 5 pence per share in the first half of the year is fully covered. The company will pay a dividend of 10 pence per share in the year, which we would fully anticipate will be covered by earnings. Net LTV is slightly up, reflective of the drop in value linked to the loss in income and a couple of additional breaks being exercised. that will impact H2. Valuation was like for like 1.03% down, but 2% down when you include the capex not yet reflected in the values as projects are midway to completion. I suggested that the full year results announcement that we were at or very near the bottom of the market. If you analyse yields on the individual assets, then yields have not moved, suggesting the market, in the valuers' view at least, has bottomed out. I would concur with that. It's the income difference that has reduced our total valuation number. Otherwise, we would have been flat, as I had suggested in the full year results in March. Gross borrowings have reduced by a further 6.7 million as we continue to repay debt. the company has produced a total return for the period as at the half year of 9.6 percent so very slightly ahead of the index okay so looking at the chart on the left you can see the average rate has been slowly increasing with average office rents now 15 pounds 25. This will increase further as new lettings are undertaken on better quality space and with the majority of renewals and lettings now achieving in excess of £20 per square foot. Just next to that, you'll see the yields column and the bar chart there. You'll notice the yields from the December 24 and June 25 are almost identical. As I mentioned, these haven't moved, suggesting the yields have stabilised and indeed that we have now seen the bottom of the market. Each market is different, but we are seeing a number of larger requirements and interest from some of our larger spaces. And that's a slight change from last year when the majority of interest was in smaller spaces. We're not yet convinced that this is a trend. and may well be just a point in time, but it is something we will monitor closely as it does influence decisions whether to create smaller or larger spaces for the occupier market when undertaking refurbishment projects. We also remain an office focused business with offices accounting for 90.4% of the value of the portfolio. And as mentioned previously, 20 new lettings undertaken, which will create a £1.4 million rent rule. And importantly, it reduces void on these assets, again, achieving in excess of ERV. As rental growth, which we have witnessed over the last three periods, continues. It's a busy slide, but you'll see from the slide the activity over the period. And you'll see this is literally from Glasgow to Bristol and many places in between. There is an increasing activity across all of the major conurbations. Just looking at some of the office rents achieved, Milton Keynes at £21 per square foot, Bristol at £20 per square foot, Capital Park Leeds at £24, Coach Work Leeds £30 per square foot. And you can see for that better quality space that we're creating, we're achieving rents well over £20 a foot. And we expect that to continue and continue to improve. Let's now take a moment to look at what's happening in the marketplace from an occupational viewpoint. On the demand side, we are seeing demand improving. You will note top left, the big nine markets have shown the strongest take up in terms of numbers since 2019. and an average rental growth across the market of 3%. This is in line with what we have achieved on average 4.2% ahead of ERV. Looking at the top right graph, you'll see rental growth through UK regional markets, again, outperforming London after a short-term reversal in 2024. Of course, much lower base rents, therefore any improvement has a bigger impact. On the supply side, we continue to see a contraction both in new developments, and the bottom right graph shows this in stark numbers, but also total stock repurposing, as many office buildings are repurposed for alternative uses. And when combined, this will lead to a supply issue. So little in the way of new development coming on. You'll see numbers falling dramatically in terms of deliveries for 26, 27, 28. and literally nothing coming out 29, 30. And if you think that from start to finish on a new development, it's probably in the order of 36 months, we will see a period with little or no new space in the regional markets being delivered. That combined, as I say, with continuing repurposing of buildings that have reached the end of their economic life, and we will see further contraction in the supply. I think it's highly unlikely we'll see any new development in the short term of any scale, just given the fundamentals of that market. Increasing costs, a lack of available finance and the relatively thin investment market all makes it extremely difficult to make financially viable developments. My development colleagues tell me that we need to achieve somewhere between 55 and 60 pounds a square foot for it to be a financially viable market. This will lead to an increase in rental growth on existing good quality stock. And this will accelerate further when combined with EPC requirements, the closer we get to the next requirement, 2027, and more specifically the requirement for EPC A or B by a deadline in 2030. As part of the asset strategic review, we undertook a segmentation exercise looking at the assets we want to retain, referred to here as core and cap extra core. And those assets we will dispose of being the right hand two columns comprising of assets at the end of their business plan. non-performing and sales post value add initiatives, which we hope to achieve increased pricing based on suitability for alternative uses. So in effect, we draw a line down the middle, everything on the left, we want to retain for longer term rental growth. Everything on the right, we want to sell in terms of both current sales and value add, which will be longer term. And that splits quite nearly to 75% we want to retain, 25% we want to sell by value. If we then look at the occupancy levels of the various tranches, you'll note the core portfolio and EPRA base is just under 88%. CapEx, the core, just under 80%. But that's obviously excluding those under refurbishment. The number is closer to 65% in terms of true occupancy. And then I should expect much lower occupancy numbers in terms of the value added, 65%. the assets in the current sales at 55%. These are assets not contributing in a positive way to income. Part of the strategy clearly is to reduce gearing and undertake sales to reduce overall debt and to sell more non-core assets to reduce white costs. As mentioned earlier in the period, we sold five assets for 7.8. This slide was produced obviously for the half year, so there's a further four at 6.8. You have read that we sold a further asset last week at 8.8 million. as mentioned earlier we we have sold now in the order of 23.2 million pounds or thereabouts of assets a further 10 assets totaling over 40 million pounds either contracted agreed or an advanced negotiation and could well complete before the year end certainly we would anticipate reaching our 40 million of sales in the year, and somewhere between 40 and 50, which was the intention at the beginning of the year. Looking at operational CapEx, we continue to make progress. In 2025, we've completed nine projects, a further five on-site, and a further 18 that are various stages of advancement. We're committed to bringing forward as many projects as practical as soon as we can to ensure that we give ourselves the best chance of increasing occupancy given the improving leasing market. And move to quality that we're witnessing. Just a reminder of our strategy in respect of the assets identified as potentially suitable for value add alternative uses. Just running through the stages, obviously feasibility studies at the first stage, looking at the financial feasibility of each site. Then assuming they are financially feasible, we undertake planning initiatives for change of use. That could be pre-planning inquiry level. or planning and principle, or indeed a full planning consent. Each stage of that produces an increase in value. Of course, we're looking to dispose of these. We are not intending developing directly. Therefore, we will be looking to dispose of these once we have achieved some form of planning uplift and therefore valuation uplift. Just having a quick review of these two projects. The one on the left we announced last week as a sale to one of the French SCPIs. This was a refurbishment project that we refurbished around the sitting tenant. We have obviously increased EPC from D to B. and the tenant on the basis of our refurbishment works agreed to sign a new long-term lease. So the reason for this sale was twofold. One, it generated a profit that wasn't being realized in terms of valuation. Valuers and the markets quite often have different views. Secondly, achieved part of our strategic goal to sell at the end of business plan and indeed to reduce debt. And Alice will talk more about the debt facility. This is in a few seconds. On the right hand side, again, this was in our full year results, just to see the works have been completed. And again, taking improvement to EPC and obviously increasing the value by undertaking the CapEx. So 700,000 turned into a value improvement of 1.6 million. Just looking at the next one, this is, again, just a refurbishment project. We undertook increasing rents from £17 to £23, EPC improvement D to B. And this was late during the improvement works to Harenholmes on the new 10-year lease. And again, you'll see the improvement in value One more, Thorpe Park Leeds, a very strong business park. Again, we've improved the rents here from £22 to £24. We've taken it from a D to an A grade, and you'll see the likely value uplift of £1.35 million. At the moment, we've been attributed a million by the valuators as the final space is under offer, not quite signed at the half year. We'll see the additional improvement in value once that lease is signed. One more, this time Ipswich, again, EPC D2A. And by undertaking these works, we have then been successful in leasing up one of the two buildings we have in Ipswich. The other building is likely to go for alternative use, just given limited demand in terms of the Ipswich office market. And then one of the value add assets. This is the largest urban development site that we have in the portfolio. Bang in the middle of Leeds and lots of redevelopment ongoing around. This has been identified as suitable for beds and likely to be residential of up to 1000 additional units. So a very large scale site at the moment is distribution facility for ASDA, although they use it as a training centre for their supermarkets. And we have five office buildings surrounding that. So the entire island site, the bottom right hand thumbnail was a building we bought in. So the only acquisition we've made, which was to complete the development site, it's the only part of the development site we didn't own. And therefore it was prudent for us to buy that in. ESG remains a very, very important part of the overall business, specifically EPC ratings. And despite sentiment in some parts of the US, it does continue to be very important to the UK, both for occupiers and investors. You may well be aware of the EPC targets and deadlines, but the entire market is continuing to focus on EPC A or B by 2030. We previously reported estimates that in terms of the regional UK office market, only 20 to 25% of assets conform to those standards. You'll see there in the slide, the latest research from the British Property Federation estimates that on an overall basis, only 17% of commercial buildings currently comply with the 2030 target. So only 17%, 83% of existing buildings in the commercial world do not comply to that standard. I mean, regardless of the various parties estimates, this remains a massive issue for the industry. I'm pleased to say we continue to make progress and currently have just under 60% of our portfolio complying with those EPC A or B, and obviously with our continuing CapEx and refurbishment programme, have plans in place to improve this. And then with what I've just commented on, we continue with new initiatives. and some further improvements sustainability goals. In terms of the solar, we announced this some time ago that we'd enter into a joint venture. That's now done and I'm pleased to announce that phase one has been completed with phase two now commenced. None of these actions on solar have yet been included in upgrading our EPC. That will be done when buildings are reassessed. Also, I would add the refurbishment projects we've completed are also not part of the current EPC numbers. Again, those buildings required to be reassessed. And once they are reassessed, they'll have an upgraded EPC rating. Our 4D installation programme, as you'll see, is so far installed in 41 locations, with the next phase about to commence. From our very initial monitoring, the efficiencies identified on just three properties are in the region of £123,000 per annum. This is very substantial when you look at it in context of only three assets. The benefit is for the assets. So in some instances, this will be shared between the occupying tenants and the landlord, but nonetheless is a step in the right direction and also improves our EPC and ESG credentials. 4D is effectively a sophisticated monitoring system of energy subsystems that improves EPC rating, but does, as you will see from above, the 123,000 produce financial benefits too. We're rolling out car charging points across the portfolio, as required in some instances by tenants looking to occupy, but generally across the portfolio, we will be increasing the number of car charging points as EVs become more and more popular. Introducing Reflex. We have had an element of flexible offices in our portfolio for some time, some managed by third parties and various different guises within the portfolio managed by ourselves. We were keen to identify the best way for us to be in the flexible Certainly when we have used third parties, it works for the third parties, but not for us as a landlord, as all costs are passed on effectively to landlords. So overall rentals always underperform what the original business plans have suggested. But we, 18 months ago, brought in a consultant, formerly a chief executive at Nuflex, to look at our own portfolio, what best suits our portfolio. And I'm pleased to say that having run various trials, we have identified Reflex, the pilot at Glasgow as being the best option for us. The main difference is that we are still providing high quality, flexible space and all of the niceties you would expect an office from fresh fruit, breakfast, coffees, et cetera, but staff free. So asset light allows us to create smaller spaces as well as larger spaces. The problem with having fully staffed offices is the cost of those staff and therefore you have to have larger spaces. Our idea is that we can have this as a flexible approach to smaller and larger spaces. And effectively it works exactly as you would expect in a normal office where things are key coded. We can use technology for the booking of meeting rooms, technology for turning on and off of lights and heating and other services. And this is a far more efficient way of running flexible office space. With our intention of creating all things to all people, we want to be able to create one desk for one day or 100,000 square feet for 10 years. But you'll see the interesting numbers in the bottom right-hand corner. Pilot rent there, we're achieving £45.50 net against our traditional rent of £17.50. Now, the pilot site was 100% lead and therefore has gone very, very well. But clearly, this model works on anything of 60% occupancy and above with a market rate of 85% occupancy. So it could be very profitable for us. We've identified the first nine sites that will be rolling this program out over the course of the next 24 months. Some key metrics. I mean, there's a summary of what we've discussed earlier just there in a simplified form for everybody to have a look at. Okay, Alastair, can I hand over to you to talk about the debt and specifically the August 26 expiry?

Yeah, okay. So this slide shows the breakdown of facilities as at the 30th of June. Four facilities with total debt of £310 million. Stephen mentioned that he paid £6.7 million in H1. To date, we've repaid another 6.4 in H2 from sales with another 8 million to come from the sale that was published last week and further repayments to come from sales that will happen over the next two to three months. If all the sales complete that we anticipate completing this year, LTV should move below 40% by the year end. The key focus just now is on the refinancing of the facility we have with RBS Bank Scotland Barclays, which is the first one in that row, that table, sorry, first row of that table. Current balance is about £96 million. This facility has been the focus of a lot of sales activities and we anticipate the balance on refinance to be near £80 million and we're targeting refinancing that by the end of this year. We're not anticipating a big move in the margin. You'll see the margin there is 2.4%, but we will see an increase in the cost of funds because that facility at the moment is fully hedged until August 2026. The cost of funds, the hedged cost of funds is shown on the table there at just under 1%, but that will move to near 4% on the refinancing. So that will increase the cost of funds in that facility by 3%. and that would increase our weighted average cost of debt from 3.4, which is shown in the bullet points at the top of that table, to 4.2%. As I said, it is hedged until August 26, so when we refinance it, we have the option have the opportunity to keep that hedging in place to retain lower interest costs for the next 10 months or so. Or we can break that existing hedging, which will generate just under 3 million of value for us. And we can use that value to either buy down the rate for the refinance term or just pay in the market rate from day one and retain those funds for further CapEx investment and working capital. I think that's all I had to say, Stephen.