Edison issues initiation on Regional REIT
Regional REIT (RGL) provides a focused exposure to UK regional commercial real estate, predominantly secondary assets. The regional property recovery began later than in London and we believe RGL offers the potential for above average late-cycle income and capital growth. It has an established and diversified high-yielding portfolio that already supports the attractive 8.1% prospective yield. RGL's focus on underexploited properties provides additional internally driven potential from asset management initiatives, with potential for accretive asset growth. Brexit has raised uncertainty about the pace of UK economic growth, investor appetite and future occupier demand, but particularly for City of London offices, while sterling's devaluation may provide a boost to regionally focused industry. Meanwhile, interest rates show no sign of increasing.
RGL's prospective dividend yield of 8.1% is the highest among UK REIT sector constituents and it is also fully covered. As we show in the financial section on page 11, we believe there is scope for accretive acquisition activity to further increase DPS above our forecasts. The shares are at a c 13% discount to our 2016e EPRA NAV, which assumes no valuation yield tightening.
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