Regional REIT's (LON:RGLR) interim results show strong growth in assets, with the portfolio reaching £640m compared with £386m at the time of the IPO in November 2015. Rental income during the period was solid but lacked some of the momentum we had hoped for given the continuing positive supply-demand situation in regional commercial property markets. This should accelerate in H2 and through next year as recently acquired assets contribute fully and as occupancy increases, including the launch of several key refurbishment projects. RGL’s dividend yield, fully covered by earnings, is highly attractive, while its regional focus should prove more resilient to macroeconomic headwinds than London real estate.
H1 asset growth with earnings to follow
H117 contracted rent rose from £44.0m at end-2016 to £54.6m, primarily reflecting a significant expansion of the asset base but also active letting activity. Occupancy (by value) rose to 83.3% (end-2016: 82.7%) but was slightly lower on a like-for-like basis. Continuing refurbishments were more of a drag in H1 than we had allowed for, dampening rental income and increasing void costs, but the managers are confident of increasing momentum in H2, when four major refurbishment projects are due to complete, and when recently acquired assets make a full period contribution.
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