Regional Reit to brighten up offices with solar panels

The office investor will install solar panels on 19 assets in a joint venture with Sunbird Solar to boost its environmental credentials and increase its attraction to tenants.

Regional Reit (RGL ) plans to install solar panels on 19 of its office buildings as part of a joint venture with Sunbird Solar International, which the property investor hopes will make them more attractive to prospective tenants.

The £370m real estate investment trust (Reit), which invests in offices outside the M25 orbital road and currently yields 6.7%, saw its shares tick 3.5% higher earlier this week after it made the announcement, but they have since tumbled 3.3%.

The first stage of the tie-up will see solar panels installed on 19 properties over the next year, generating a total of 4,173 kilowatts (kW) of energy, with Regional investing alongside Sunbird to complete the installations.

Regional said that the addition of solar panels will enhance the energy performance certificate (EPC) credentials of the respective buildings, supplement and provide on-site green electricity to common parts and continue the ongoing momentum of reducing CO2 emissions by some 713 tonnes across the portfolio.

The annual solar output for the first phase of the joint venture is the equivalent of reducing the electricity usage of 1,270 average UK households, said the trust.

Stephen Inglis, manager of the 6.9%-yielder and founder of London & Scottish Property Investment, said the link-up with Sunbird ‘reflects the company’s significant ambition to deliver meaningful environment enhancements.’

‘This important programme will reduce our portfolio’s carbon footprint and enable the properties to benefit from both lower maintenance and energy costs,’ he said.

As well as being good for the environment, Inglis is hoping the prospect of a greener office space will be attractive to new tenants.

EPC ratings have been in focus over recent years, with commercial landlords now required by law to ensure that their properties reach higher levels of energy efficiency. From next year, all leased commercial properties will need a valid EPC, and by 2027 all buildings will need to achieve a minimum rating of C.

Office investors have come under pressure since Covid encouraged and normalised working from home. Alongside a general downbeat sentiment towards property investing in light of higher interest rates and UK government bond yields, office-focused Reits have been hit with a double-whammy downturn.

Regional Reit was forced into a heavily discounted share issue in July in a bid to tackle its enlarged debt pile. The remaining cash is being used by Inglis to change planning consents for non-core assets, turning offices into residential homes, industrial workspaces and student accommodation, all of which are currently more valuable than office space.

Shore Capital analyst Andrew Saunders said the new strategy ‘will run alongside traditional capex in upgrading selected existing assets’ and the ‘restructured balance sheet and reduced leverage also come as a welcome move’.

‘While wider challenges remain with regional offices, particularly for those outside of the UK’s main cities and with poor EPC credentials, [the joint venture] announcement is a further step in the right direction for Regional Reit and its portfolio quality,’ Saunders said.

Over the past five years, Regional Reit has seen its net asset value drop 69.3%, with the vast majority of the fall (65.9%) happening over the past year. Its shares have slid even further, losing more than three-quarters of their value over the past five years and leaving the trust on a 42% discount.