Regional REIT Limited (RGLL.XC) Earnings Call Transcript & Summary

Good morning, and welcome to the Regional REIT Limited Investor Presentation. [Operator Instructions] 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. Very much appreciated. 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 NTA by adding value to the portfolio, also continuing to pay a strong and covered 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 Inglis, CEO. Alongside me this morning, Simon Marriott, the Property Fund Manager; Alistair Hewitt, 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 yields 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 tenant 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 10p per share, which unfortunately 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 in a little bit more detail in a few minutes, and we'll 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 said, 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 noncore 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 U.K. 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 GBP 6 million in Capex in the first 6 months, this compares to GBP 8.2 million in the entire year 2024. There are currently 5 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 5 projects and a further -- we've sold 5 assets rather for a total of GBP 7.3 million. Undoubtedly, the pace of sales completing has been slower than we anticipated. However, there's an element of timing as we have sold a further 5 assets for a further GBP 15.6 million. And there are 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 GBP 40 million to GBP 50 million of assets in this year, and we're already trying to achieve this. New lettings have continued. And while there has been a slow market, we have achieved 20 new lettings in H1. Encouragingly, we are 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. While EPRA 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 while EPRA occupancy is showing an improvement is the core of the EPRA system. As you can see, earnings per share on an EPRA basis is 5.2p per share, so the dividend of 5p per share in the first half of the year is fully covered. The company will pay a dividend of 10p 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 at the full year results announcement that we were at or very near the bottom of the market. If you analyze yields of individual assets and yields have not moved, suggesting the market and the values view at least has bottomed out. I 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 GBP 6.7 million as we continue to repay debt and the company has produced a total return for the period as at the half year of 9.6%, so very slightly ahead of the index. Okay. So looking at the chart on the left, you can see the average rent has been slowly increasing with average office rents now GBP 15.25 per square foot. 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 GBP 20 per square foot. Just next to that, you'll see the yields column and the bar chart there. You'll notice that yields from the December '24 and June '25 are almost identical. As I mentioned, these haven't moved, suggesting yields have stabilized 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 on 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 this is a trend and may well be disappoint 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 GBP 1.4 million rent roll and importantly, reduces void on these assets, again, achieving in excess of ERV as rental growth, which has -- we have witnessed over the last 3 periods continues. It's a [indiscernible] 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 increase in activity across all of the major conurbations. Just looking at some of the office rents achieved, Milton Keynes at GBP 21 per square foot; Bristol at GBP 20 per square foot; Capitol, Leeds at GBP 24 per square foot; Coach Works, Leeds GBP 30 per square foot. And you can see for that better quality space that we're creating, we're achieving rents well over GBP 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 the 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 in U.K. 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 the 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 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 GBP 55 and GBP 60 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 in 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 Capex to Core. And those assets we will dispose of being the right-hand 2 columns comprising of assets at the end of the business plan, nonperforming 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 know the core portfolio on an EPRA basis just under 88%. Capex to 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 as you'd expect, much lower occupancy numbers in terms of the value added 65% and the assets in the current sales at 55%. So 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 noncore assets to reduce void costs. As mentioned earlier in the period, we sold 5 assets for GBP 7.8 million. This slide was produced obviously for the half year, so there's a further 4 at GBP 6.8 million. You have read that we sold a further asset last week at GBP 8.8 million. So as mentioned earlier, we have sold now in the order of GBP 23.2 million or thereabouts of assets. A further 10 assets totaling over GBP 40 million either contracted, agreed or in advanced negotiation and could well complete before the year-end. Certainly, we would anticipate reaching our GBP 40 million of sales in the year and somewhere between GBP 40 million and GBP 50 million, which was the intention at the beginning of the year. Now looking at Operational Capex, we continue to make progress. In 2025, we've completed 9 projects, a further 5 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 in 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 in principle or indeed a full planning consent. Each stage of that produces an increase in value. And 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 2 projects. The one on the left, we announced last week as a sale, sold to one of the French SCPIs. This is a refurbishment project that we refurbished around the sitting tenants. So 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 the sale was twofold. One, it generated a profit that wasn't being realized in terms of valuation, values and the markets quite often have different views. Secondly, achieved part of our strategic goal to sell at the end of business plan and the need to reduce debt, and Alistair 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. You see the works have been completed and again, taking improvement to EPC and obviously, increasing the value by undertaking the Capex. So GBP 700,000 turned into a value improvement of GBP 1.6 million. Look at the next one. This is, again, just a refurbishment project we undertook increasing rents from GBP 17 to GBP 23 per square foot, EPC improvement D to B, and this was led during the improvement works to Harron Homes on new 10-year lease. And again, you'll see the improvement in value. One more Thorpe Park, Leeds, very strong business park. Again, we've improved the rents here from GBP 22 to GBP 24 per square foot. We've taken it from a D to an A grade, and you'll see the likely value uplift of GBP 1.35 million. At the moment, we've been attributed GBP 1 million by the valuers as the final space is under offer, not quite signed in the half year, we'll see the additional improvement in value once that lease is signed. One more on the Ipswich, again, EPC D to A. And by undertaking these works, we have then been successful in leasing up 1 of the 2 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 one of the Value Add assets, this is the largest urban development site that we have in the portfolio, [indiscernible] 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 1,000 additional units. So a very large-scale site at the moment is a distribution facility for Asda, although they use it as a Asda training center for the supermarkets. And we have 5 office buildings surrounding that. So the entire island site. The bottom right-hand thumbnail is a building we bought in. So the only acquisition we've made, which was to complete the development site, so only part of the development site we didn't own, and therefore, it was prudent for us to buy that. ESG remains a very, very important part of the overall business, specifically EPC ratings. And despite the sentiment in some parts of the U.S., it does continue to be very important in the U.K., 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 U.K. 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 improvement in 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 1 has been completed with Phase 2 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 will have an upgraded EPC rating. Our 4D installation programme, as you'll see, is so far installed at 41 locations with the next phase about to commence. From our very initial monitoring, the efficiencies identified on just 3 properties are in the region of GBP 123,000 per annum. This is very substantial when you look at it in context of only 3 assets. The benefit is for the asset. 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 systems that improves EPC rating, but does, as you will see from above, the GBP 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, I mean we have had an element of flexible offices in our portfolio for some time, some managed by third parties and various different guys within the portfolio managed by ourselves. We were keen to identify the best way for us to be in the flexible market. 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 the 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, NewFlex to look at the portfolio -- our own portfolio, what would 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 1 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 GBP 45.50 net against our traditional rent of GBP 17.50. Now the pilot site was 100% let 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 28.53 and will be rolling this programme out over the course of the next 24 months. Some key metrics. I mean this is a summary of what we've discussed earlier just there in a simplified form for [indiscernible] a look at. Okay. Alistair, can I hand over to you to talk about the debt and specifically the August '26 expiring.

Yes. Okay. So this slide shows the breakdown of facilities as at the 30th of June, 4 facilities with total debt of GBP 310 million. Stephen mentioned, we repaid GBP 6.7 million in H1. To date, we've repaid [GBP 6.4 million] in H2 from sales with another GBP 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 2-3 months. If all the sales complete that we anticipate completing this year, the 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 of Scotland & Barclays, which is the first one in that row table -- sorry, first row of that table. Current balance is about GBP 96 million. This facility has been the focus of a lot of sales activities, and we anticipate the balance on refinance to be near GBP 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 the 2.4%, but we will see an increase in the net 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 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 of 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 GBP 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 on market rate from day 1 and retain those funds for further Capex investment and working capital. I think that's all I have to say, Stephen.

[indiscernible] some questions on this later, but thank you for this now. Okay. So just a reminder of our strategic priorities and repositioning of portfolio and as such, reposition the attractiveness of the company. We remain committed to reducing debt, as Alistair just said, and aim to have debt below 40% in the near term, hopefully, by the end of this year. We continue to focus on driving income at headline level by creating better quality spaces and driving leasing, but also on a net basis by reducing void costs by a combination of new lettings and sale of lower occupancy nonperforming assets. We continue to improve our EPC numbers and our overall ESG rating. We are pursuing opportunities to add value in some of the assets by fully investigating change of use options. And we are, of course, committed to paying an attractive fully covered and sustainable dividend, so they are the key strategic priorities. Okay. So now I have provided you with where we are currently. Hopefully, some insight as to the immediate outlook and longer-term outlook. What I would also like to say is that I am for the first time in a long time, feeling far more optimistic about the outlook for the office market generally and specifically for regional REIT. And that optimism has come really because of the improvement in the occupational markets and my strong belief that we will have an issue in terms of the supply-demand dynamics for regional offices coming down the track given current requirements of occupiers. And that requirement is for grade A space conforming to EPC A and B. And that's exactly the type of space that we are providing for occupiers. Second part of that optimism is we have seen stability in the valuation market. So while you are seem to have settled on the basis of yield, so we are at the bottom of the market, in my opinion. We did see, of course, consistent falls and increasing yields on asset values right away from 2020 COVID until December '24. June '25 being the first time that we saw stability. So that, again, gives me a little bit of optimism for the future. And some of the key components to that optimism also previously predicted are now becoming a reality. I would say that we're seeing the majority of people back in the office for the majority of time. That's now beginning to be more widely seen. We have, for some time, looked at our own numbers, and we're back to pre-pandemic occupancy numbers on average 4 days out of 5 in the office a week across our regional portfolio. I know there's various differences in the Southeast, specifically London. But I think we are seeing more and more people coming back. A move to better quality space. I've used this many times, but why would we expect people to work in an environment worse than their own home. So the majority of demand is, as I just mentioned, for Grade A space conforming to those EPC ratings. And that will continue, that flight to quality will continue. And that quality doesn't mean ivory towers. It doesn't mean brand new glass buildings in the city of London. Just bear in mind that, that is only a small percentage of occupiers who require or prepared to pay for that and likewise in the regional markets. The supply would reduce given the slowdown in development and demolition repurposing of existing buildings for alternative uses. I've touched on this earlier, but this is happening and has been happening for some time. If you have no new supply coming into the market and supply being repurposed, then clearly, total market reduces in size. Therefore, it's all down to demand. And therefore, what is going to happen with demand? Well, we're seeing upsizing in many instances of companies who had previously downsized, so that's encouraging. And we're seeing lots of new requirements come from specific industries, technology industries, defense, a big one, where we're seeing a number of inquiries, energy, number of inquiries. So we are seeing demand from certain sectors in the market increasing. I thought there would be a demand-supply imbalance going forward, and that will increase, I think, as we get closer to 2030. And that increase in that supply-demand imbalance will create increasing rental growth. I do suspect that we will see -- we've seen rental growth over the last 3 periods. In any event, I think that will increase in scale as 2 things happen. One, we'll have more demand for less space and just the quality of space will not be available to occupiers. Refurbishment and development stripping back to shell would become more prevalent. I think that is going to be the case going forward. I think there will be restrictions both in terms of financial restrictions and making things financially viable and in terms of planning, trying to get carbon footprints to a sensible level. And therefore, I think refurbishments will be the way forward rather than new builds in many instances. And then it would take some time for investors to show interest again in offices and we need to see sustained improvement in the occupier demand to attract more investment. I think that remains my position. I don't see -- while I'm seeing good strides and encouraging signs on the occupational market, I don't anticipate a huge improvement in the investment market until such time as we've seen periods of sustained improvement from the occupational side. I think that's what we'll have to see to attract in any substantial investment. We are seeing slightly more interest from investors, but these are not sustained. These are one-off purchases in many instances, not people coming in wholescale to our sector. But I do anticipate that will happen, just it will take some time to come through. So I think that's the end of what I'd like to say this morning in terms of presentation and obviously very happy to take any questions.

[Operator Instructions] Recording of this presentation along with a copy of slides and the published Q&A can be accessed via investor dashboards. As you can see, we have received a number of questions, both pre-submitted and throughout today's live presentation. And Adam, if I could hand over to you to chair the Q&A, that would be great, and then I'll pick up from you at the end.

Thanks Alexander, thanks Stephen, for that comprehensive presentation. We see quite a few questions. I just kind of group them together if I may. The first one, so the sale of Clearblue, which was announced last week, was at 11% premium. And should we expect similar pricing across the pipeline? And what does that mean for the debt reduction?

Yes, I think we can deal with 2 questions here at the same time. So selling prime assets with good rent, but presumably is also reflective of the Clearblue deal. I think I mentioned in the presentation, that asset was at the end of business plan, which was to improve the quality of the building we took it from EPC D to B and sign a new 10-year lease. That clearly, at this point in time, add value to the market, and we're obviously looking to reduce our debt ahead of the refinance [indiscernible] 40.28 mentioned earlier. So 2 reasons for selling, one, end of business plan; second, to reduce debt. On the 11% premium, should we expect similar pricing across the pipeline? Well, the vast majority of assets we're selling just now are the poor-quality assets, those assets with less income. And as far as I'd like to think so, we have been able to achieve at least value. And indeed, of the GBP 50 million of assets that we are likely to sell, if not by the end of this year, early part of next year, they will be slightly ahead of value on current pricing. So we're hoping to achieve just ahead of value on the poorer quality assets. And of course, the intention is to retain as many of our higher growth assets, better quality assets as we can.

Thank you. Another question just in terms of disposals -- most of the assets seems to be -- disposal seem to be in Scotland. What has changed fundamentally in Scotland since you initially built the portfolio?

Yes, that's not deliberate. It's just coincidental, so there's no real political change in Scotland, as you have noted. The market in Scotland behaves very, very similarly to those in England. These just happen to be coincidence that we have a number of small assets in Scotland that we want to sell, so it's the numbers rather than the scale. So the numbers of assets are higher rather than necessarily the value -- total value, so no changes to speak of just coincident.

In terms of the assets that have been disposed of, the size of the assets is that having any bearing on the disposal?

Yes. I think the more liquid assets are smaller or assets with income. So Clearblue sale, we had some decent interest and obviously achieved a decent price. Most of the assets we're trying to dispose of are at the smaller end in terms of by value, sub [GBP 5 million]. And that market has a bit more liquidity given that it's not as reliant on debt. A lot of private individuals, small property companies, small-scale developers buying from us at that end and [indiscernible] occupiers. So I think you'll continue to see the majority of sales being of small lot sizes.

And in terms of the current discount to NAV, what do you think is causing that at the current time?

I think we've got 2 discounts. I think we have a REIT discount. And if you look across the REIT sector, the vast majority of REITs are trading at a discount. That in part is down to the generous investment market looking for different types of investment. A lot of money has come out on the stocks and that has created that reduction and size and scale of the discount. And then for us, we've got a second discount because we're in the office sector. I think part of it definitely is sector driven. I think the first thing in my opinion that will happen is that sector discount will disappear. I think as the office market continues its strides forward from a very low base, I would add, I mean, it has been the [indiscernible] of the marketplace since COVID, but there's definitely signs of improvement. I think a lot of people are now taking note of the office market and all of the doomsday scenarios that were muted at COVID are one by one disappearing in terms of return to office and indeed office space being required. So I think that second discount will disappear first, in my opinion. And then we have a general improvement in market sentiment for the REIT discount to improve. I think part of it is that investors don't truly believe the values. And I think in our particular case, I think our values are understated. They've been hit very, very hard. But nonetheless, I can understand investors looking at stocks that have intrinsic value such as real estate stocks and saying, are these values actually true values. In the absence of any real investment market, that's difficult. As investment markets begin to improve and as those values are demonstrated to be real, then you should see a discount closing towards NTA.

And in terms of -- we recently saw you acquire some shares in your own name, and we've seen in the past that David Hunter, the Chairman acquire shares in his name. Is this a confidence in Regional REIT.

Yes. It's as simple as that. I wouldn't -- I mean I already -- I'm a decent shareholder of my family; therefore, we took the view that as a family they offered a very, very healthy dividend and that the discount is far too large. So from a total return point of view, you've got a great running income return and you would hope a capital upside to come as the discount begins to close. So yes, I think it's exactly that confidence in what we're managing.

And more on the occupational side questions. When do you think occupancy will start to increase again across the portfolio?

As soon as possible, I think we -- I mentioned and alluded to in my presentation there that we are in discussions with a number of decent sized occupiers ranging from 20,000 square feet to 150,000 square feet. One or two of those landing makes a substantial difference to the occupancy of the portfolio. Added to which we are selling down those assets, which are on the whole, the smaller assets, which are poorly occupied. So the combination of those sales and hopefully more letting activity, particularly of the bigger spaces will make a substantial difference to our occupancy. And that increased income will go quite some way to offset the increased interest costs that we're going to have on the refi. And that's a key part. It's fine getting rid of void costs that get rid of half of your issue. But if we can let space, it's almost double and let me explain that. So for every pound of income, we receive roughly GBP 1.85 to the bottom line because we're then getting rid of the void costs that we incur as a landlord on vacant space being insurance service charges and all other costs, so we have substantial cost of landlord making up about 85p. And actually, the building I'm in just now, we undertook a 14,000 square foot letting earlier this year, and that was almost pound per pound. So GBP 22 a square foot rent, GBP 20 additional income to us on the void cost. So that's worth GBP 42 to us in terms of letting. So that's -- if we can lease up space, it has a double effect. If we sell space, obviously, we get rid of the void costs, so combination of both will improve the overall occupancy of the portfolio. I can't hear you, Adam are you on mute?

Thank you, Stephen. That covers the questions. Alexandra, if I may hand back to you.

Yes, of course. Well, thank you very much for answering those questions. Of course, the company can review questions submitted today and publish responses on the Investor Meet Company platform. Just before redirecting, investors provide you with their feedback, which is particularly important to the company, Stephen, can I just ask you for a few closing comments?

Yes. Thank you very much everybody for attending this morning. It's very much appreciated. We obviously underwent a restructuring of the business last summer with REITs, which has put us in a position now to go forward with our strategic priorities, and we're making good progress against those, so the priority for this year was sales and reduce debt, look at an increased net income and those void costs will come down hopefully before the end of this year and get LTV to sub 40%, all of which we would hope to be able to do prior to the end of this year. So I think we've made good steps forward, but we've got to improve upon that. The benefits of the Capex programme, I think I said in March, I did say in March, will not really be seen until 2026. And the reason for that is by the time you go on site, undertake the works and then let the space, there's just a time frame there and therefore, any new income really will benefit us in 2026, not 2025. So that remains our position. So that, I think, is all I'd like to say. So again, just wrapping up, thank you very much for attendance.

That's great. Well, thank you once again for updating investors today. Could I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations. On behalf of the management team of Regional REIT Limited, we'd like to thank you for attending today's presentation, and good afternoon to you all.

Thank you very much.