TIDMRGL
RNS Number : 4100T
Regional REIT Limited
25 March 2021
25 March 2021
Regional REIT Limited
("Regional REIT", the "Group" or the "Company")
2020 Final Results
Rent Collection for 2020 Underlines Strength of Business
Model
Regional REIT (LSE: RGL), the regional real estate investment
specialist focused on building a geographically diverse portfolio
of income producing regional UK core and core plus office assets,
today announces its full year results for the year ended 31
December 2020.
Financial highlights:
Income focused - A robust performance and strong level of rent
collection during 2020 from a geographically diversified and
defensive portfolio coupled with best-in-class active asset
management
-- EPRA Total return of 36.3% since IPO in November 2015;
representing 6.2% annualised returns for shareholders.
-- Total rent collection or within terms for 2020 was 98.2%* of
rent due, similar to the 99.4% of rent collected for the equivalent
period in 2019.
-- Rent roll remained stable at GBP64.2m (2019: GBP64.3m).
-- EPRA EPS of 6.5pps (2019: 7.8pps); IFRS EPS (7.2pps) (2019: 6.6pps)
-- Fully covered 2020 dividend of 6.40pps (2019: 8.25pps).
-- EPRA NTA per share of 98.6pps (2019: 112.6pps); IFRS NAV 97.5pps (2019: 112.1pps).
-- Group's cost of debt decreased to 3.3% (2019: 3.5%).
-- Net LTV of 40.8% (2019: 38.9%).
-- Weighted average debt duration remains comfortable at 6.4 years (2019: 7.3 years).
-- Fair value reduction in the portfolio valuation to GBP732.4m (2019: GBP787.9m).
-- Adjusted EPRA EPS dividend cover of 102% (2019: 95%).
*As at 12 March 2021, rent collections to 31 December 2020
amounted to 98.2%; actual rent collected 96.1%, monthly rents 0.5%
and deals agreed of 1.6%.
Operational highlights:
A defensive and geographically diversified portfolio -
generating attractive dividends through a tumultuous year
-- Another year of robust trading, demonstrating the strength of
our asset management capability and the resilience of our occupier
base. As at 31 December 2020, 52% of occupiers were classified as
Government designated essential services and were able to continue
operations during the lockdown periods with minimal disruption.
-- Planned exit of all industrial and retail holdings to focus
entirely on the core regional offices which the Asset Manager
believes will provide the best return for shareholders over the
coming years.
-- A diversified portfolio of 153 properties (2019: 160), 1,245
units (2019: 1,251) and 898 occupiers (2019: 904).
-- The Group made disposals amounting to GBP53.4m (net of costs)
during 2020. The proceeds from these disposals were recycled into
acquiring properties with an aggregate value of GBP42.4m (before
costs), further diversifying our occupier base by standard
industrial classification.
-- At the period end, 83.5% (2019: 79.9%) of the portfolio by
market value was offices and 11.1% (2019: 13.7%) was
industrial.
-- At the period end, the portfolio valuation split by region
was as follows: England 78.3% (2019: 79.5%), Scotland 17.3% (2019:
18.0%) and the balance of 4.4% (2019: 2.5%) was in Wales.
-- Increased retention of income to 74.4% (by value) for leases
that came up for renewal in 2020, up from 65.9% in December
2019.
-- EPRA Occupancy rates remained stable at 89.4% (2019: 89.4%)
due to active asset management and our resilient occupier base.
Post period end
-- Continued momentum through active asset management, securing
GBP1m of lettings across eight new lease agreements.
-- On 25 February 2021, the Company declared the Q4 2020
dividend of 1.50pps would be paid to shareholders on 9 April
2021.
-- The Royal Bank of Scotland has agreed to extend the GBP55.0m
facility for one year from June 2024 to June 2025. This will extend
the Group's weighted average debt duration to 6.5 years from 6.4
years as at 31 December 2020, with the Group cost of debt remaining
unchanged at 3.3%.
Stephen Inglis, CEO of London and Scottish Property Investment
Management, the Asset Manager, commented:
"I am very pleased to report that the Company achieved a robust
performance in 2020 despite the effects of COVID-19 on working
habits. With this in mind, we are pleased to have continued to
deliver a strong dividend income for our shareholders, from a
portfolio that is well-positioned for the anticipated UK economic
recovery.
The quality and diversity of our office properties, alongside
the strength of the occupier register, were instrumental to this
performance. This was evidenced by our strong rent collection with
98.2% of rent due for the year collected. One of our clearest
differentiators continues to be our maintained dividend
distributions, which are a significant component of total
shareholder returns. During the difficult twelve months of 2020,
where many REITs cancelled or suspended dividends for a time, we
achieved uninterrupted distributions, paying out a total of 6.4pps
for 2020, which was fully covered by earnings.
We have taken significant steps to capitalise on the changing
landscape in our market by tilting the Group's focus to take full
advantage of the mispricing that we are seeing in quality regional
offices.
We look forward to updating shareholders on further progress as
we continue to reposition the portfolio to take full advantage of
our active pipeline of compelling regional office
opportunities."
A meeting for analysts will be held via a conference call
facility at 9.30am (London time, GMT) on Thursday, 25 March 2021 .
If you would like the conference call details please contact George
Beale at georgeb@buchanan.uk.com or Henry Wilson at
henryw@buchanan.uk.com.
The presentation slides for the meeting will shortly be
available to download from the Investors section of the Group's
website at www.regionalreit.com .
Forthcoming Events
19 May 2021 Q1 2021 Trading Update
TBC* Annual General Meeting
16 September 2021 2021 Interim Results Announcement
11 November 2021 Q3 2021 Trading Update
Note: all future dates are provisional and subject to change
* The Board has made the decision to delay the Company's 2021
Annual General Meeting until later in the year with the hope that
shareholders will be able to attend in person.
-S -
Enquiries:
Regional REIT Limited
Toscafund Asset Management Tel: +44 (0) 20 7845
6100
Investment Manager to the Group
Adam Dickinson, Investor Relations, Regional
REIT Limited
London & Scottish Property Investment Management Tel: +44 (0) 141
248 4155
Asset Manager to the Group
Stephen Inglis
Buchanan Communications Tel: +44 (0) 20 7466
5000
Financial PR regional@buchanan.uk.com
Charles Ryland /Henry Wilson / George Beale
About Regional REIT
Regional REIT Limited ("Regional REIT" or the "Company") and its
subsidiaries (the "Group") is a United Kingdom ("UK") based real
estate investment trust that launched in November 2015. It is
managed by London & Scottish Property Investment Management
Limited, the Asset Manager, and Toscafund Asset Management LLP, the
Investment Manager.
Regional REIT's commercial property portfolio is comprised
wholly of income producing UK assets and comprises, predominantly
of offices located in the regional centres outside of the M25
motorway. The portfolio is geographically diversified, with 153
properties, 898 occupiers as at 31 December 2020, with a valuation
of GBP732.4m.
Regional REIT pursues its investment objective by investing in,
actively managing and disposing of regional core and core plus
property assets. It aims to deliver an attractive total return to
its Shareholders, targeting greater than 10% per annum, with a
strong focus on income supported by additional capital growth
prospects.
The Company's shares were admitted to the Official List of the
UK's Financial Conduct Authority and to trading on the London Stock
Exchange on 6 November 2015. For more information, please visit the
Group's website at www.regionalreit.com .
Cautionary Statement
This document has been prepared solely to provide additional
information to Shareholders to assess the Group's performance in
relation to its operations and growth potential. The document
should not be relied upon by any other party or for any other
reason. Any forward looking statements made in this document are
done so by the Directors in good faith based on the information
available to them up to the time of their approval of this
document. However, such statements should be treated with caution
due to the inherent uncertainties, including both economic and
business risk factors, underlying any such forward-looking
information.
ESMA Legal Entity Identifier ("LEI"): 549300D8G4NKLRIKBX73
Financial Highlights
Year ending 31 December 2020
Income focused - opportunistic buying and strategic selling,
coupled with intensive asset management, continues to secure
long-term income
Portfolio Valuation GBP732.4 million
IFRS NAV per Share 97.5 pence
EPRA NTA per Share 98.6 pence
Dividend per Share 6.4 pence
Net Loan to Value Ratio 40.8%
Weighted Average Cost of Debt 3.3%
Weighted Average Debt Duration 6.4 years
Operational Highlights
Year ending 31 December 2020
Deliberately diversified portfolio by location and tenant -
regions remain strong
Properties 153
Units 1,245
Occupiers 898
Rent Roll GBP64.2 million
Portfolio by region and sector (by value)
England & Wales 82.7%
Office 83.5%
Property acquisitions (before costs) GBP42.4 million
Number of properties 5
Property disposal proceeds (net of costs) GBP53.4 million
Number of properties 12
Active management building occupancy by
EPRA ERV* 89.4%
WAULT to expiry 5.1 years
WAULT to first break 3.2 years
Performance Highlights
Year ending 31 December 2020
The high dividend distributions are a major component of the
total return
Dividends declared per share: Pence
2020 6.40
2019 8.25
2018 8.05
2017 7.85
2016 7.65
2015 1.00
EPRA
EPRA Total Return attributable to Shareholders since
Admission ^ 36.3%
EPRA Annual Total Return attributable to Shareholders 6.2%
^Admission: 6 November 2015
Member of FTSE All-Share Index since March 2016
Member of FTSE EPRA NAREIT UK Index since June 2016
Total EPRA Return (from IPO)
(EPRA NTA and dividend declared)
Pence per share
IPO Nov 2015 100
Dec 2015 107.8
Dec 2016 113.2
Dec 2017 119.9
Dec 2018 137.5
Dec 2019 142.9
Dec 2020 136.3
Chairman's Statement
"We are confident that our geographically diversified portfolio,
which offers vibrant spaces for a broad range of occupier types,
will create long term shareholder value with a strong yield,
particularly as we increasingly focus our strategy towards the
regional office sector."
Kevin McGrath , Chairman
Overview
Regional REIT performed relatively well during 2020, despite the
challenging and unprecedented environment imposed by the COVID-19
pandemic. Our strategy of having a large number of occupiers
operating across a range of industries in growth regions outside
the M25 motorway has resulted in a defensive portfolio. Our active
asset management team continued to maintain strong working
relationships with our 898 occupiers (2019: 904), providing support
as required. These actions have continued to underpin the robust
rent collections of 98.2%* (2019: 99.4%) and EPRA** occupancy rate
of 89.4% (2019: 89.4%), which the Company has achieved during the
year under review.
*As at 12 March 2021, rent collections to 31 December 2020
amounted to 98.2%; actual rent collected 96.1%, monthly rents 0.5%
and deals agreed of 1.6%.
** Alternative Performance Measures. Details are provided in the
Glossary of Terms and the EPRA Performance Measures within the full
Annual Report .
Whilst 2020 was an eventful year, the Company's rent collection
remained strong through-out and resulted in EPRA diluted earnings
of 6.5 pence per share ("pps") (2019: 7.8pps). IFRS diluted losses
per share were 7.2pps (2019: earnings per share of 6.6pps). The
full year 2020 dividend of 6.4pps was fully covered.
Our investment portfolio was not immune to the challenges posed
by the COVID-19 pandemic, with the overall value of the portfolio
reducing to GBP732.4 million as at 31 December 2020 from GBP787.9
million as at 31 December 2019. The decrease was predominately due
to the uncertain economic backdrop resulting in a reduction in the
fair value of the portfolio of GBP54.8 million, albeit this was an
'unrealised' decline.
During the year, the Group made disposals amounting to GBP53.4
million (net of costs). The proceeds from these disposals were
recycled into acquiring properties with an aggregate value of
GBP42.4 million (before costs), further diversifying our occupier
base, as well as providing good opportunities to add value through
asset management initiatives. Our rolling capital expenditure
programme amounted to GBP8.8 million.
Our priorities throughout the year were to maintain occupancy
levels, provide safe and vibrant spaces in which our occupiers
could thrive and increase our overall occupier and geographic
diversification, whilst continuing to source earning enhancing
opportunities in the challenging commercial property market.
COVID-19 Response
From the onset of the COVID-19 pandemic in early 2020, the Asset
Manager reassigned staff to focus upon supporting our occupiers and
prioritised cash flow. A full review of all our c. 900 occupiers'
financial data was undertaken to ensure the best possible
assistance could be provided as required in a timely manner. In
addition, increased control reporting was instigated providing
actionable data to maintain the robust rent collection which
ensured the uninterrupted quarterly dividend.
Financial Resources
Importantly in the current environment, the Company continues to
be in a financially strong position with an EPRA NTA* of GBP425.6
million (2019: GBP485.7 million) and a cash balance of GBP67.4
million as at 31 December 2020 (2019: GBP37.3 million), of which
GBP55.0 million is unrestricted (2019: GBP34.7 million). Our
approach to debt management, which is to simplify, extend and
engineer flexibility into the debt profile, has ensured that the
Company was well positioned for the economic turbulence encountered
throughout 2020. These attributes remain evident going forward with
no need to refinance until 2024.
* In October 2019, EPRA issued new best practice recommendations
that replaced EPRA net asset value (NAV) with three new measures of
net asset value. The Group has determined that EPRA net tangible
assets (NTA) is the most relevant measure hence this is now
reported in place of EPRA NAV. Prior year comparatives are stated
under the new definition on EPRA NTA.
Furthermore, with net borrowings at 40.8%, which is in line with
our long-term target of c. 40%, and with our debt facilities
maintaining ample headroom against their respective covenants, the
Company is in a robust position to withstand any future economic
uncertainty.
Market Environment
Lambert Smith Hampton(1) research notes that 2020 total UK
commercial property investment amounted to GBP38.5 billion, which
is 21.9% lower than the 2019 total of GBP49.3 billion. However,
there are signs that investment activity is increasing, with total
UK investment in the final quarter of 2020 reaching GBP12.2
billion, a marked improvement of 50.6% on Q3 and only 5.0% below
the five-year quarterly average. The rise in activity in the final
months of 2020 indicates renewed confidence in the office market
following fears regarding the impact that working from home would
have on occupational demand. Cushman & Wakefield(2) research
highlights that many businesses have now stated that offices remain
important despite changing working practices. More details can be
found in the Asset Manager's Report of the Annual Report.
1 Lambert Smith Hampton, UKIT Q4 2020
2 Cushman & Wakefield, Office Market, Q4 2020
Strategy
As announced on 12 November 2020, the Board undertook an
internal strategic review of the Company's investment objectives to
ensure the maximisation of total Shareholder's returns.
The Board is convinced that the supply and demand imbalance of
the regional office sector, coupled with the Asset Manager's
specialist operating platform and experience, will produce
attractive total Shareholder returns over the long-term. For the
foreseeable future, the Board decided that the Company would focus
its investment solely on properties in the office sector in the
main regional centres of the UK outside of the M25 motorway.
The Company will in due course seek to exit all other commercial
property sector investments, including its industrial and remaining
retail assets, and promptly recycle the capital into regional
offices, whilst giving due consideration to reducing the borrowing
facilities and buying back the Company's shares. This will ensure
that the Group is able to maximise its investment objectives of
delivering an attractive and sustainable income-focused total
return to Shareholders over the long-term.
Dividends
The dividend is the major component of total shareholder
returns. Over the year under review, the Company declared total
dividends of 6.40pps for the year (2019: 8.25 pps), comprising one
dividend of 1.90pps and three quarterly dividends of 1.50pps each.
This represented a yield of 7.8% at a share price of 82.50pps at
the close of 31 December 2020. Since inception, the Company has
declared dividends amounting to 39.20pps.
It should be highlighted that, looking ahead, there is a clear
aspiration by the Board to maintain its record of uninterrupted
quarterly dividend payments, especially through this period of
continuing uncertainty. This is predicated on the strength of the
Company's balance sheet and the strong rent collections received
throughout the year.
Performance
Since Listing on 6 November 2015, the Company's EPRA Total
Return was 36.3% and the annualised EPRA Total Return was 6.2%. The
Total Shareholder Return was 20.6%, compared to the FTSE EPRA
NAREIT UK Total Return Index, which has generated a return of
(5.4%) over the same period.
For the year under review, the Company's Total Shareholder
Return was (20.7%), versus the return of (15.9%) for the FTSE EPRA
NAREIT UK Total Return Index over the same period.
In accordance with the management arrangements, the Asset
Manager and Investment Manager are each entitled to a 50% share of
a performance fee of 15% of the EPRA Total Return in excess of an
annual hurdle rate of 8%. A performance fee did not crystallise for
the period from 1 January 2020 to 31 December 2020 (2019:
none).
Integrating a more sustainable approach
We were pleased to launch our commitment to a sustainability
strategy in 2020. The Group has always been cognisant of its
environmental impact, the importance of a transparent governance
structure and its social responsibility. However, the Company has
now committed to a more formal approach with the intention to join
Global Real Estate Sustainability Benchmark ("GRESB") in 2021. This
will be used as a platform from which sustainability policies and
actions will be built upon over the coming years.
Annual General Meeting
The Company had planned to hold its 2021 Annual General Meeting
("AGM") on Thursday, 19 May 2021. In light of the ongoing COVID-19
situation, in particular the compulsory stay at home measures
published by the UK Government on 4 January 2021 currently
prohibiting public gatherings of more than two people, the Board
has made the decision to delay the Company's 2021 AGM until later
in the year with the hope that Shareholders will be able to attend
in person. Notice of a revised time and date for the 2021 AGM will
be published on our website and by RNS announcement as soon as
practicable. The notice of the AGM will be circulated to
Shareholders in accordance with the requirements of the Company's
Articles of Incorporation.
Shareholder and Stakeholder Engagement
Our priority throughout 2020 has pivoted from first and foremost
providing vibrant workspaces which are in demand by businesses, to
providing assistance to our occupiers to navigate the economic
turmoil.
I would like to take this opportunity to thank all the asset
management teams, from the property management, research, legal,
corporate finance, finance to credit control, who transitioned to
working from home whilst seamlessly continuing to support our
occupiers throughout this challenging period.
On 3 November 2020, the Company was pleased to hold its first
capital markets webcast, which was well attended by current and
potential investors and stakeholders. The webcast of the event can
be found on the Company's website at
https://www.regionalreit.com/investors/results-and-presentations/2020
.
Outlook
The Board continues to be encouraged by the robust level of rent
collections which support the investment property capital values
and the Company's long-term total return prospects. For the
remainder of 2021, the Group is confident of maintaining high rent
collections and accelerating the momentum on the asset management
initiatives, which should continue to deliver income for our
Shareholders.
We remain mindful of the challenges to be faced in a
structurally evolving property market, which will inevitably
continue to be impacted by the COVID-19 pandemic and the aftermath
of Brexit. However, our confidence for the long-term remains. It is
underpinned by the Group's focus on asset management initiatives to
promptly recycle underperforming capital into office opportunities
that continue to de-risk the portfolio, whilst increasing the
number, quality and quantum of income streams.
Kevin McGrath
Chairman
24 March 2021
Investment Strategy
Investment Strategy
The Group will invest in and, actively manage a portfolio of
mainly office properties or debt portfolios secured on such
properties located predominantly in the regional centres of the UK
outside of the M25 motorway.
The Group aims to build a portfolio of interests that, together,
offer Shareholders a diversification of investment risk by
investing in a range of geographical areas and across a number of
high-quality assets and tenants, and through letting properties,
where possible, to low-risk tenants.
The Group will use gearing, borrowings and other sources of
leverage to implement its investment strategy and enhance equity
returns.
Investment Policy
The Group will invest predominately in office properties that
are situated in the UK and outside of the M25 motorway*.
The Group may also invest in property portfolios in which up to
50% of the properties (by market value) are situated inside the M25
motorway.
In the ordinary course of business, no single property will
exceed 10% of the Group's Gross Investment Properties Value at the
time of the investment; exceptionally, the Board may consider
taking this up to 20%.
The normal minimum value for a single property investment is
GBP5m, except where an asset is within a portfolio of properties
for which there shall be no such minimum.
No more than 20% of the Gross Investment Properties Value shall
be exposed to any one tenant or group undertaking of that
tenant.
Speculative development (properties under construction, but
excluding refurbishment, which have not been pre-let) is
prohibited. Any other development is restricted to an aggregate
maximum of 15% of Gross Investment Properties Value at investment
or commencement.
Investment Objective
The Investment Objective of the Company is to deliver an
attractive total return to Shareholders of greater than 10% per
annum, with a strong focus on income from investing in UK
commercial property, predominantly in the office sector in major
regional centres and urban areas outside of the M25 motorway*.
Borrowings
The Group targets a ratio of net borrowings to Gross Investment
Properties Value of 40% over the longer term, with a maximum limit
of 50%.
* The Investment Policy and Objective were amended on 26 October
2020.
Asset and Investment Managers' Report
"We are pleased to report that the Company delivered a robust
performance in 2020 despite the impact of COVID-19 on all our daily
lives and, in turn, the commercial property market. Notwithstanding
the challenges presented, we continued to deliver an uninterrupted
quarterly dividend, ever mindful of our commitment to our
Shareholders.
I would like to take this opportunity to thank my focused and
hardworking team who adapted and responded seamlessly to assist our
occupiers through this most challenging period. Responding to
occupiers' needs prior to, and during, this period was key to
maintaining strong rent collection of 98.2%* over the course of
2020. As normal life comes into sight, and indicators are
anticipating a prompt economic recovery, we view our regional
portfolio as well positioned to benefit.
Following the Board's strategic review, we continue to move the
portfolio to focus on regional offices. We are convinced that in
future, regional, high quality offices with affordable rents will
continue to see demand from occupiers and, given limited supply,
there remains a strong rental growth story. We see a compelling
opportunity to further leverage the experience of our asset
management platform to unlock value from the regional office sector
over the long term, whilst continuing to deliver yield."
Stephen Inglis, CEO of London & Scottish Property Investment
Management, Asset Manager.
*As at 12 March 2021, rent collections to 31 December 2020
amounted to 98.2%; actual rent collected 96.1%, monthly rents 0.5%
and deals agreed of 1.6%.
Highlights from 2020
-- Achieved high levels of rent collection. As at 12 March 2021,
the rent collections continued to strengthen, with FY 2020
collections increasing to 96.1%, adjusting for monthly rent and
agreed collection plans, stands at 98.2%, which is similar to the
equivalent date in 2019 when 99.4% had been collected.
-- Disposals during 2020 totalled GBP53.4 million (net of
costs), reflecting an average net initial yield of 5.1% (5.6%
excluding vacant properties).
-- Acquisitions in 2020 totalled GBP42.4 million (before costs)
for five properties, reflecting an average net initial yield of
9.8%.
-- Increase of retention of income to 74.4% (by value) for
leases that came up for renewal in 2020, up from 65.9% in December
2019.
-- Completed 53 new lettings in 2020, totalling 177,883 sq. ft.;
when fully occupied, these will provide a gross rental income of
c.GBP2.0 million.
-- Average rent by let sq. ft. increased by 2.6% from GBP10.17
per sq. ft. in December 2019 to GBP10.44 per sq. ft. in December
2020.
Investment Activity in the UK Commercial Property Market
According to research from Lambert Smith Hampton ("LSH")(3) in
2020 total investment in the UK commercial property market amounted
to GBP38.5 billion, 24.9% below the five-year average and 21.9%
lower than the 2019 volume of GBP49.3 billion. However, there are
signs that investment activity is increasing, with total UK
investment in the final quarter of 2020 reaching GBP12.2 billion, a
marked improvement of 50.6% on Q3 and only 5.0% below the five-year
quarterly average. The rise in activity in the final months of 2020
indicates renewed confidence in the office market following fears
regarding the impact that working from home would have on
occupational demand. Cushman & Wakefield research highlights
that many businesses have now stated that offices remain important
despite changing working practices(4) .
(3) Lambert Smith Hampton, UKIT Q4 2020
4 Cushman & Wakefield, Office Market, Q4 2020
Following muted investment at the beginning of 2020, the UK
regions outside of London attracted GBP4.5 billion in investment
during the final quarter of 2020 - just 1.6% below the five year
quarterly average. This brought investment in the second half of
2020 to GBP8.4 billion, 78.6% higher than the first half of 2020.
Annual investment in the regional markets reached GBP13.0 billion
in 2020. LSH research notes that the improvement in investment
volumes in Q4 2020 was reflected across the majority of UK regions,
with seven of the 11 regions recording a volume higher than their
respective five-year quarterly averages.
Quarterly Investment Volumes (GBPbn)
Total
2016 Q1 13.24
2016 Q2 10.90
2016 Q3 9.83
2016 Q4 13.13
2017 Q1 12.98
2017 Q2 14.33
2017 Q3 15.77
2017 Q4 16.90
2018 Q1 14.13
2018 Q2 14.07
2018 Q3 17.04
2018 Q4 16.33
2019 Q1 11.26
2019 Q2 8.78
2019 Q3 13.85
2019 Q4 15.45
2020 Q1 13.89
2020 Q2 4.36
2020 Q3 8.09
2020 Q4 12.19
Source: Lambert Smith Hampton Research (February 2021)
Overseas investment in the UK property markets accounted for
just over half (52.8%) of total investment in 2020 according to
data from LSH(5) . LSH estimate that total overseas investment for
2020 reached GBP20.4 billion, 14.1% lower than the 10-year average.
Overseas investment in Q4 2020 reached GBP6.5 billion, more than
double Q3's level and 9.7% higher than the five-year quarterly
average, suggesting that struggles with COVID-19 and Brexit
uncertainty have been offset by favourable exchange rates and
attractive yields. Figures indicate that Europe, Far East, Middle
East and North America were all net investors in the final quarter
of 2020.
(5) CoStar, Investment Volumes, Q4 2019
Research from CBRE(6) indicates that regional offices have
outperformed in comparison to central London offices, delivering
superior income returns of 5.9% in 2020 in comparison to central
London office returns of 4.1% - a trend that has been witnessed
over the past seven years. Total returns in 2020 for regional
offices and central London were broadly in-line at 0.6% and 0.7%
respectively.
(6) CBRE Monthly Index, Q4 2020
Central London & Regional Office Income Returns (12 months
to December 2020)
Central London Rest of UK Offices
Offices
2014 3.9% 7.8%
2015 3.2% 6.4%
2016 3.3% 6.2%
2017 3.7% 6.4%
2018 3.8% 5.9%
2019 3.8% 5.8%
2020 4.1% 5.9%
Source: CBRE (February 2021)
Occupational Demand in the UK Regional Office Market
Avison Young estimates that take-up of office space across nine
regional office markets(7) totalled 5.6 million sq. ft. in 2020;
36.7% below the level of take-up recorded in 2019, and 33.1% lower
than the 10-year average. Both the city centre and out-of-town
markets were affected by COVID-19, with a decline in take-up
volumes of 38.9% and 32.6%, respectively. Occupational demand was
driven by the technology, media & telecoms sector, which
accounted for the highest proportion of take-up at 26% in 2020.
Following the technology, media & telecoms sector, the
insurance & financial sector and the public services, education
& health sector accounted for the second and third largest
proportion of take-up in the regional cities, accounting for 18%
and 9% respectively.
According to Savills, there was a rise in availability for
regional office stock across nine regional UK markets(8) , with
total availability rising by 18.9% in 2020 to 12.6 million sq. ft..
Despite the uptick in availability and supply the total supply
remains 11.3% below the 10-year average. This marks the first year
that supply of office stock has increased over the last decade,
having gradually fallen each year since 2009. The overall vacancy
rate for regional offices ticked upwards from 9.6% in 2019 to 11.4%
in 2020 but remains 15.4% below the 10-year average(9) .
(7) Nine regional office markets mentioned by Avison Young
includes: Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds,
Liverpool, Manchester & Newcastle
(8) Savills: The Regional Office Market Overview, Q4 2020
(9) Savills: The Regional Office Market Overview, Q4 2020
Furthermore, it is estimated that approximately 5.6 million sq.
ft. of office space is currently under construction in the Big Nine
regional markets, with Manchester, Glasgow and Bristol accounting
for 29.9%, 24.4% and 11.1%, respectively. 49.4% of office buildings
currently under construction are already pre-let.
Regional Demand: Annual Office Take-Up
Regional Total 10-year average
2009 6,256,766 8,405,305
2010 6,736,616 8,405,305
2011 6,505,505 8,405,305
2012 7,043,471 8,405,305
2013 7,900,191 8,405,305
2014 8,955,458 8,405,305
2015 9,537,118 8,405,305
2016 8,783,403 8,405,305
2017 10,094,299 8,405,305
2018 10,728,026 8,405,305
2019 8,882,888 8,405,305
2020 5,622,693 8,405,305
Source: Avison Young (February 2021)
Regional Supply: Annual Office Supply
Regional Total 10-year Average
2009 19,135,027 14,211,989
2010 17,980,865 14,211,989
2011 17,255,549 14,211,989
2012 17,097,330 14,211,989
2013 15,394,964 14,211,989
2014 15,357,235 14,211,989
2015 14,672,187 14,211,989
2016 14,248,602 14,211,989
2017 13,404,442 14,211,989
2018 11,477,265 14,211,989
2019 10,603,600 14,211,989
2020 12,608,720 14,211,989
Source: Savills (February 2021)
Rental Growth in the UK Regional Office Market
A lack of availability in the Big Nine regional markets has
supported headline rents in 2020, though some rent free periods
have moved out slightly, according to research from Avison Young.
The CBRE Monthly Index shows that rental value growth held up
better for the rest of UK office markets in the 12 months ended
December 2020 with modest growth of 0.1%. Conversely, central
London offices and all UK property rents have declined by -1.2% and
-2.5%, respectively.
Colliers International expects this trend to continue in 2021,
estimating that average rents in the London office market will see
larger declines than the regional markets. However, their research
suggests that the majority of rental decline will occur in the
first half of 2021, and the sector should stabilise in the second
half of the year as workers return to the office following the
vaccine rollout and easing of UK Government restrictions.
Future Office Demand
Although the COVID-19 pandemic has forced the adoption of
alternative ways of working, it can be argued that the pandemic
merely accelerated changes that were already occurring in terms of
both digital transformation and flexible working. However, in
accelerating the working from home trend, the pandemic also
highlighted its limitations in terms of collaborative working,
training and productivity, to name a few. To date, there has been
considerable speculation regarding the future of the office. The
office has long provided a place for concentrated work and
increasingly a place for collaboration, connection, innovation and
social interaction, and the desire for these characteristics has
not diminished. Research by JLL found that 70% of employees believe
the office environment is more conducive to team building and
creative collaboration, with 74% of respondents indicating that
they were looking forward to the opportunity to return to the
office.
The Asset Manager believes that the office will continue to play
a vital role in working life, and that going forward, many
occupiers will require more space per employee as greater
importance is placed on health and wellbeing. The average office
space per employee has reduced drastically since the 1990s, with
typical densities of just c.85 sq. ft. per employee(10) .
Therefore, de-densification of floorplates will likely take place
as offices are transformed to encourage teamworking, innovation and
education. Additionally, preferences for increased distance between
workstations, more private offices, more defined private space, and
a reduction in hot desking, may result in increased demand for
space(11) .
(10) WSP, Demand for Office Space
(11) Brookfield Research, Gensler U.S. Work From Home Survey
2020
Regional REIT's Office Assets
EPRA occupancy of the Group's regional offices rose to 88.6%
(2019: 88.4%). A like-for-like comparison of the Group's regional
offices' EPRA occupancy, 31 December 2020 versus 31 December 2019,
shows occupancy of 88.0% (2019: 88.4%). WAULT to first break was
2.6 years (2019: 3.0 years); like-for-like WAULT to first break of
2.5 years (2019: 3.0 years).
Occupier Demand in the UK Industrial Market
Take-up in the final quarter of 2020 reached 14.3 million sq.
ft., pushing annual take-up during 2020 to 50.4 million sq. ft.; a
49.7% increase from 2019 levels, 44.8% above the 10-year average
and 35.8% above the five-year average(12) . The increase in take-up
throughout 2020 resulted in a 14% fall in availability, with some
regions now met with growing shortages of suitable supply. CBRE(13)
research shows that 49.4% of take-up was within the East Midlands
and South East as the M1 corridor remains the most attractive
location for occupiers. Following this, Yorkshire & North East,
and West Midlands accounted for 20.5% and 13.7% of take-up in 2020,
respectively.
Occupier demand within the industrial market continues to
benefit from growth in online shopping, as online retailing
currently accounts for 35.2% of total retail sales in the UK,
according to the Office for National Statistics ("ONS")(14) . This
is considerably higher than the 19.5% recorded in January 2020. BNP
Paribas Real Estate research shows that online retailers were the
most active in terms of take-up throughout 2020, accounting for
37.5% of annual take-up. Following this, 3PL/ Distribution and
General Retail accounted for 22.4% and 18.5% of take-up in 2020,
respectively(15) .
In terms of development, 8.2 million sq. ft. of speculative
development was delivered in 2020. Cushman & Wakefield
highlight that just under six million sq. ft of committed
speculative development is due to be delivered in 2021 across 43
units.
(12) Cushman & Wakefield, Industrial Marketbeat Q4 2020
(13) CBRE, Market Summary, Q4 2020
(14) ONS, Retail Sales, Great Britain, January 2021
(15) BNP Paribas, Industrial & Logistics Insider, Q4
2020
Rental Growth in the Industrial Market
Research by BNP Paribas Real Estate illustrates that competition
for industrial space led to rental growth in 2020. The research
compared data from the monthly MSCI Index for December 2020, which
showed rental growth of 2.3% for the 12 months to the end of
December 2020, compared to a 2.3% decline for all property types.
BNP Paribas Real Estate estimates that rental growth in the
industrial market is likely to remain positive during 2021(16)
.
The Investment Property Forum UK Consensus Forecast, November
2020, anticipates rental growth in the industrial sector of 1.0% in
2021, providing evidence of sustained growth. Additionally, the IPF
UK Consensus Forecast predicts 2.2% and 1.8% average rental growth
rates respectively for 2022 and 2020/24. In comparison, the IPF UK
Consensus Forecast predicts that there will be a decline for the
All Property average rents in 2021 of 2.8%.
(16) Industrial & Logistics Insider Q4 2020
Regional REIT's Industrial Assets
EPRA occupancy of the Group's industrial sites was 94.6% (2019:
95.5%). A like-for-like comparison of the Group's industrial
offices' EPRA occupancy as at 31 December 2020 versus 31 December
2019, shows occupancy of 93.4% (2019: 94.5%). WAULT to first break
increased to 6.2 years (2019: 5.8 years); like-for-like WAULT to
first break of 6.7 years (2019: 7.2 years).
Property Portfolio
As at 31 December 2020, the Group's property portfolio was
valued at GBP732.4 million (2019: GBP787.9 million), with rent roll
of GBP64.2 million (2019: GBP64.3 million), and an EPRA occupancy
of 89.4% (2019: 89.4%).
On a like-for-like basis, 31 December 2020 versus 31 December
2019, EPRA occupancy was 88.7% (2019: 89.0%).
There were 153 properties (2019: 160) in the portfolio, with
1,245 units (2019: 1,251) and 898 tenants (2019: 904). If the
portfolio was fully occupied at Cushman & Wakefield's view of
market rents, the rental income would be GBP76.6 million per annum
as at 31 December 2020 (2019: GBP77.2 million).
As at 31 December 2020, the net initial yield on the portfolio
was 6.9% (2019: 6.2%), the equivalent yield was 8.8% (2019: 8.3%)
and the reversionary yield was 9.4% (2019: 9.1%).
Property Portfolio by Sector
Sector Properties Valuation % by Sq. Occupancy WAULT Gross Average ERV Capital Yield (%)
valuation ft. (EPRA) to rental rent rate
first income
break
(GBPmillion) (mil) (%) (yrs) (GBPmillion) (GBPpsf) (GBPmillion) (GBPpsf) Net Equivalent Reversionary
initial
Office 115 611.2 83.5 4.7 88.6 2.6 52.9 13.26 64.5 129.10 6.8 8.8 9.6
Industrial 16 81.3 11.1 1.9 94.6 6.2 6.6 3.90 7.4 42.87 7.0 8.1 8.0
Retail 20 30.0 4.1 0.4 93.1 3.7 3.9 9.58 3.9 67.41 9.9 10.8 11.2
Other 2 9.9 1.3 0.1 89.0 14.8 0.9 12.82 0.8 115.03 7.8 9.9 7.3
Total 153 732.4 100.0 7.2 89.4 3.2 64.2 10.44 76.6 102.26 6.9 8.8 9.4
Property Portfolio by Region
Region Properties Valuation % by Sq. Occupancy WAULT Gross Average ERV Capital Yield (%)
valuation ft. (EPRA) to rental rent rate
first income
break
(GBPmillion) (mil) (%) (yrs) (GBPmillion) (GBPpsf) (GBPmillion) (GBPpsf) Net Equivalent Reversionary
initial
Scotland 39 127.0 17.3 1.5 86.7 3.6 13.1 10.42 15.0 85.19 8.4 10.1 10.8
South
East 31 184.6 25.2 1.3 87.5 2.5 14.9 13.29 18.5 138.64 6.3 8.2 8.9
North
East 20 79.8 10.9 0.9 85.8 2.7 6.8 8.81 8.4 87.72 5.9 9.4 9.9
Midlands 28 139.9 19.1 1.5 93.6 3.4 12.6 8.85 13.7 91.80 7.7 8.4 8.9
North
West 16 88.9 12.1 1.0 86.9 4.6 6.6 8.36 9.6 87.89 5.5 9.1 9.4
South
West 14 80.2 11.0 0.5 96.8 2.4 7.0 15.87 8.0 160.59 6.7 8.3 9.1
Wales 5 32.0 4.4 0.4 93.1 4.6 3.2 9.28 3.4 81.02 8.8 9.0 9.4
Total 153 732.4 100.0 7.2 89.4 3.2 64.2 10.44 76.6 102.26 6.9 8.8 9.4
============ =========== ============= ========== ====== ========== ====== ============= ========= ============= ========= ======== =========== =============
* Table may not sum due to rounding.
Top 15 Investments (market value) as at 31 December 2020
Property Sector Anchor tenants Market % of Lettable EPRA Annualised % of WAULT
value portfolio area Occupancy gross gross to
rent rental first
income break
(years)
(GBPmillion) (Sq Ft) (%) (GBPmillion)
Barclays Execution
Services
Tay House, Ltd, University of
Glasgow Office Glasgow 28.0 3.8 156,853 94.2 2.7 4.2 2.0
Nuvias (UK &
Ireland) Ltd,
Fernox Ltd,
McCarthy &
Genesis Stone Retirement
Business Lifestyles
Park, Ltd, Walk The Walk
Woking Office Worldwide 23.9 3.3 98,359 80.6 1.3 2.1 3.1
Bank Of Scotland
Plc, Utmost
Buildings 2 Life and Pensions
& 3 HBOS Ltd,
Campus, Agria Pet Insurance
Aylesbury Office Ltd 23.5 3.2 140,791 95.7 2.3 3.5 2.4
Aviva Central
Services
UK Ltd, National
Westminster
Bank Plc, Utilita
Hampshire Energy
Corporate Ltd, Digital
Park, Wholesale
Eastleigh Office Solutions Ltd 19.5 2.7 85,422 99.8 1.5 2.4 2.6
Edvance SAS, The
800 Aztec Secretary
West, of State for
Bristol Office Defence 19.2 2.6 73,292 100.0 1.5 2.4 2.6
Norfolk Secretary of State
House, for
Smallbrook Communities & Local
Queensway, Government,
Birmingham Office Spark44 Ltd 18.9 2.6 114,982 97.4 1.6 2.5 1.7
Metropolitan Housing
Trust
Ltd, SMS
Electronics Ltd,
Beeston Worldwide Clinical
Business Trials
Park, Office/ Ltd, Heart Internet
Nottingham Industrial Ltd 18.0 2.5 215,330 100.0 1.8 2.8 6.3
Road 4
Winsford
Industrial
Estate,
Winsford Industrial Jiffy Packaging Ltd 16.3 2.2 246,209 100.0 1.0 1.6 13.8
One & Two
Newstead
Court,
Nottingham Office E.ON UK Plc 15.7 2.1 146,262 100.0 1.4 2.2 2.9
Darwin Loan
Solutions Ltd,
New College
Manchester
Portland Ltd, Mott MacDonald
Street, Ltd,
Manchester Office Simard Ltd 15.1 2.1 55,787 98.8 0.9 1.5 3.1
Ceva Logistics Ltd,
Brush
Ashby Park, Electrical Machines
Ashby De Ltd,
La Zouch Office Hill Rom UK Ltd 12.6 1.7 91,034 100.0 1.1 1.8 2.7
Columbus TUI Northern Europe
House, Ltd
Coventry Office (Shell Energy) 12.0 1.6 53,253 100.0 1.4 2.1 3.0
The Scottish
Ministers,
The Scottish Sports
Templeton Council,
On The Heidi Beers Ltd,
Green, Cornerstone
Glasgow Office Community Care 11.7 1.6 142,512 89.9 1.2 1.9 3.4
Please Hold (UK)
Ltd, HSS
Hire Service Group
Ltd,
CVS (Commercial
Valuers
Oakland & Surveyors) Ltd,
House, Rentsmart
Manchester Office Ltd 10.8 1.5 160,975 88.1 1.1 1.8 2.9
St James's Place
Chancellor Wealth
Court, Management Group
Leeds Office Plc 10.1 1.4 41,666 99.0 0.3 0.5 0.8
Total 255.2 34.8 1,822,727 95.5 21.3 33.2 3.4
================================================= ============= ========== ========== ========== ============= ======= ========
*Table may not sum due to rounding.
Top 15 Tenants (share of rental income) as at 31 December
2020
Tenant Property Sector WAULT Lettable Annualised % of
to first area gross Gross
break (Sq Ft) rent (GBPmillion) rental
(years) income
Barclays Execution Administrative and
Services support
Ltd Tay House, Glasgow service activities 0.8 108,386 2.2 3.5
Waterfront Business
Park,
Fleet
Secretary of State
for Communities
& Local 1 Burgage Square,
Government Wakefield Public sector 2.4 173,735 2.0 3.2
Bennett House,
Stoke-On-Trent
Cromwell House,
Tritton
Road, Lincoln
Norfolk House,
Birmingham
Oakland House,
Manchester
Waterside Business
Park,
Swansea
Buildings 3 HBOS
Bank of Scotland Campus,
Plc Aylesbury Banking 1.4 92,978 1.5 2.3
High Street/Bank
Street,
Dumfries
Electricity, gas,
steam
One & Two Newstead and air
Court, conditioning
E.ON UK Plc Nottingham supply 2.9 146,262 1.4 2.2
Professional,
TUI Northern scientific
Europe Ltd (Shell Columbus House, and technical
Energy) Coventry activities 3.0 53,253 1.4 2.1
The Scottish Calton House,
Ministers Edinburgh Public sector 1.6 111,076 1.3 2.1
Quadrant House,
Dundee
Templeton On The
Green,
Glasgow
The Courtyard,
Falkirk
Road 4 Winsford
Jiffy Packaging Industrial
Ltd Estate, Winsford Manufacturing 13.8 246,209 1.0 1.6
Electricity, gas,
steam
and air
800 Aztec West, conditioning
Edvance SAS Bristol supply 2.4 41,285 0.9 1.4
Professional,
scientific
2 Lochside Avenue, and technical
John Menzies Plc Edinburgh activities 2.6 43,780 0.9 1.4
The Royal Bank of
Scotland Cyan Building,
Plc Rotherham Banking 0.5 67,458 0.9 1.3
Professional,
Clearblue scientific
SPD Development Co Innovation and technical
Ltd Centre, Bedford activities 4.8 58,167 0.8 1.3
Hampshire Corporate
Aviva Central Park,
Services UK Chilworth House, Other service
Ltd Eastleigh activities 3.9 42,612 0.8 1.2
James Howden & Howden Site,
Company Ltd Renfrew Manufacturing 4.1 204,414 0.8 1.2
Kingscourt Leisure
Complex, Information and
Odeon Cinemas Ltd Dundee communication 14.8 41,542 0.7 1.1
The Secretary of
State for 800 Aztec West,
Defence Bristol Public sector 3.0 32,007 0.6 1.0
Total 3.5 1,463,164 17.3 26.9
=============================================================== ========== ========== =================== ========
*Table may not sum due to rounding.
Property Portfolio Sector and Region Splits by Valuation and
Income
By Valuation
As at 31 December 2020, 83.5 % (2019: 79.9%) of the portfolio by
market value was offices and 11.1% (2019: 13.7%) was industrial.
The balance was made up of retail, 4.1 % (2019: 5.0%) and other,
1.3% (2019: 1.4%). By UK region, as at 31 December 2020, Scotland
represented 17.3 % (2019: 18.0%) of the portfolio and England 78.3
% (2019: 79.5%); the balance of 4.4 % (2019: 2.5%) was in Wales. In
England, the largest regions were the South East, the Midlands and
the North West.
By Income
As at 31 December 2020, 82.3 % (2019: 79.7%) of the portfolio by
income was offices and 10.3% (2019: 12.4%) was industrial. The
balance was made up of retail, 6.0 % (2019: 6.7%), and other, 1.3 %
(2019: 1.2%). By UK region, as at 31 December 2020, Scotland
represented 20.4 % (2019: 19.9%) of the portfolio and England 74.6
% (2019: 77.2%); the balance of 5.0 % was in Wales (2019: 2.9%). In
England, the largest regions were the South East, the Midlands and
the South West.
Lease Expiry Profile
The WAULT on the portfolio is 5.1 years (2019: 5.5 years); WAULT
to first break is 3.2 years (2019: 3.5 years). As at 31 December
2020, 14.2% (2019: 5.5%) of income was from leases, which will
expire within one year, 9.1% (2019: 14.2%) between one and two
years, 35.8% (2019: 33.0%) between two and five years and 40.9%
(2019: 47.4%) after five years.
Lease Expiry Income Profile % of rent
0-1 years 14.2%
1-2 years 9.1%
2-5 years 35.8%
5+ years 40.9%
Total 100.0%
Source: LSPIM
Lease Expiry Income Profile GBPm
by year
2021 8.9
2022 5.7
2023 7.1
2024 7.2
2025 8.3
2026 4.6
2027 2.9
2028 4.8
2029 5.8
2030+ 7.6
Total 62.9
Source: LSPIM
Lease expiry to first break GBPm
income profile by year
2021 16.2
2022 11.3
2023 9.2
2024 10.7
2025 6.8
2026 1.8
2027 0.4
2028 0.8
2029 0.8
2030+ 4.9
Total 62.9
Source: LSPIM
Tenants by Standard Industrial Classification as at 31 December
2020
As at 31 December 2020, 13.5 % of income was from tenants in the
professional, scientific and technical activities sector (2019:
13.0%), 12.9 % from the administrative and support service
activities sector (2019: 12.0%), 10.3% from the manufacturing
sector (2019: 8.7%), 8.8 % from the public sector (2019: 8.4%) and
8.4 % from the financial and insurance activities (other) sector
(2019: 7.2%). The remaining exposure is broadly spread.
No tenant represents more than 4% of the Group's rent roll as at
31 December 2020, the largest being 3.5 % (2019: 2.5%).
Top 15 Properties
Tay House, Glasgow Market value (GBPmillion) 28.0
Sector Office
Annualised gross rent
(GBPmillion) 2.7
Lettable area (Sq.
Ft.) 156,853
Anchor tenants Barclays Execution
Services Ltd, University
of Glasgow
EPRA Occupancy (%) 94.2
WAULT (years) (to first 5.4 (2.0)
break)
Landmark Grade A office building offering column free floor
plates of 10,000 - 30,000 sq. ft. in Glasgow's city centre. The
building underwent an extensive refurbishment during 2008-10 and,
in 2016, the first and second floors were comprehensively
refurbished.
Genesis Business Park,
Woking Market value (GBPmillion) 23.9
Sector Office
Annualised gross rent
(GBPmillion) 1.3
Lettable area (Sq.
Ft.) 98,359
Anchor tenants Nuvias (UK & Ireland)
Ltd, Fernox Ltd, McCarthy
& Stone Retirement
Lifestyles Ltd, Walk
The Walk Worldwide
EPRA Occupancy (%) 80.6
WAULT (years) (to first 6.5 (3.1)
break)
---------------------------------------------------- ---------------------------
Business park consisting of eight detached buildings extending
in total to 98,359 sq. ft.. Genesis is the premier out of town
office park situated approximately one mile from Woking's town
centre. It is located within the south west quadrant of London's
M25 commuter belt, within five miles of Junction 11.
Buildings 2 & 3 HBOS
Campus, Aylesbury Market value (GBPmillion) 23.5
Sector Office
Annualised gross rent
(GBPmillion) 2.3
Lettable area (Sq.
Ft.) 140,791
Anchor tenants Bank Of Scotland Plc,
Utmost Life and Pensions
Ltd, Agria Pet Insurance
Ltd
EPRA Occupancy (%) 95.7
WAULT (years) (to first 3.2 (2.4)
break)
-------------------------------------------------- --------------------------
Campus of two buildings, including the "Blue Leanie", acquired
in March 2016 as part of the larger Rainbow Portfolio. The campus
development is situated on the south east corner of the town
centre. The property is located approximately 44 miles northwest of
central London, 23 miles from Oxford and 15 miles south of Milton
Keynes. The property has recently been rebranded as Bear Brook
Office Park to appeal to a wider range of potential occupiers.
Hampshire Corporate
Park, Eastleigh Market value (GBPmillion) 19.5
Sector Office
Annualised gross rent
(GBPmillion) 1.5
Lettable area (Sq.
Ft.) 85,422
Anchor tenants Aviva Central Services
UK Ltd, National Westminster
Bank Plc, Utilita Energy
Ltd, Digital Wholesale
Solutions Ltd
EPRA Occupancy (%) 99.8
WAULT (years) (to first 6.5 (2.6)
break)
------------------------------------------------- ------------------------------
Acquired in January 2015, two office buildings named Chilworth
House and Hampshire House. The offices are within one of Chandler's
Ford's most prestigious office parks on the south coast. Since
acquisition, Hampshire House has undergone an interior and exterior
refurbishment as part of the Company's capital expenditure
programme. The offices benefit from excellent transport links with
Junctions 13 and 14 of the M3 motorway and Junction 5 of the M27
motorway. Southampton International Airport is approximately two
miles away and train stations are available in Eastleigh,
Southampton Parkway and Chandler's Ford.
800 Aztec West,
Bristol Market value (GBPmillion) 19.2
Sector Office
Annualised gross rent (GBPmillion) 1.5
Lettable area (Sq. Ft.) 73,292
Anchor tenants Edvance SAS, The Secretary
of State for Defence
EPRA Occupancy (%) 100.0
WAULT (years) (to first 7.8 (2.6)
break)
------------------------------------------------------ ---------------------------
Acquired vacant in January 2016 as part of the Rainbow
Portfolio. This property consists of 73,292 sq. ft. of office space
consisting of the ground floor and two upper floors with 330
parking spaces on a premier out of town business park to the north
west of Bristol's city centre. The property is located within close
proximity to the M5 motorway. The building underwent remodelling
and refurbishment resulting in revised approach, frontage, and
foyer, opening up of floor plates, creation of roof terrace,
replacement of all cladding/glazing and replacement of M & E
resulting in an EPC improvement from an E to a B energy rating.
Norfolk House,
Smallbrook Queensway,
Birmingham Market value (GBPmillion) 18.9
Sector Office
Annualised gross rent (GBPmillion) 1.6
Lettable area (Sq. Ft.) 114,982
Anchor tenants Secretary of State
for Communities & Local
Government, Spark44
Ltd
EPRA Occupancy (%) 97.4
WAULT (years) (to first 3.4 (1.7)
break)
------------------------------------------------------------- -------------------------
Acquired in February 2019, Norfolk House occupies a 0.52-acre
island site in the centre of Birmingham in close proximity to
Birmingham New Street Train Station and adjacent to the Bullring
Shopping Centre. The building is split over six floors with 12
retail units on the ground floor level totalling 26,099 sq. ft. and
88,883 sq. ft. of office accommodation on the ground floor and
above.
Beeston Business
Park, Nottingham Market value (GBPmillion) 18.0
Sector Office/ Industrial
Annualised gross rent (GBPmillion) 1.8
Lettable area (Sq. Ft.) 215,330
Anchor tenants Metropolitan Housing
Trust Ltd, SMS Electronics
Ltd, Worldwide Clinical
Trials Ltd, Heart Internet
Ltd
EPRA Occupancy (%) 100.0
WAULT (years) (to first 9.2 (6.3)
break)
-------------------------------------------------------- ----------------------------
Acquired in December 2020, Beeston Business Park is located four
miles south west of Nottingham's city centre in a prominent
location, adjoining Beeston Train Station, offering direct
connectivity to London St Pancras International. The park comprises
215,330 sq. ft. across one multi-let office building, three single
let industrial buildings, a vacant development plot and sporting
fields on a total site area of 26.53 acres. The property is fully
let.
Road Four Winsford
Industrial Estate,
Winsford Market value (GBPmillion) 16.3
Sector Industrial
Annualised gross rent
(GBPmillion) 1.0
Lettable area (Sq. Ft.) 246,209
Anchor tenants Jiffy Packaging Ltd
EPRA Occupancy (%) 100.0
WAULT (years) (to first 13.8 (13.8)
break)
------------------------------------------------- --------------------
Acquired in August 2014. Let to Jiffy Packaging until 2034,
246,209 sq. ft. industrial asset providing combination of high bay
warehouse space, stand-alone industrial unit, offices, yard and car
parking. The industrial estate is located on road four in Winsford
with the A54 providing access to the M6 motorway. Winsford Railway
Station is approximately 0.54 miles from the industrial estate.
One & Two Newstead
Court, Nottingham Market value (GBPmillion) 15.7
Sector Office
Annualised gross rent (GBPmillion) 1.4
Lettable area (Sq. Ft.) 146,262
Anchor tenants E.ON UK Plc
EPRA Occupancy (%) 100.0
WAULT (years) (to first 4.6 (2.9)
break)
--------------------------------------------------------- ------------
Acquired from receivership in May 2014. Two modern, high quality
large office pavilions let to E.ON on an established business park,
located north of Nottingham. Road connections are accessed at
Junction 27 of the M1 motorway via the A608, providing links to the
UK National Motorway Network. The nearest railway station is
Nottingham.
Portland Street,
Manchester Market value (GBPmillion) 15.1
Sector Office
Annualised gross rent (GBPmillion) 0.9
Lettable area (Sq. Ft.) 55,787
Anchor tenants Darwin Loan Solutions
Ltd, New College Manchester
Ltd, Mott MacDonald
Ltd, Simard Ltd
EPRA Occupancy (%) 98.8
WAULT (years) (to first 5.2 (3.1)
break)
------------------------------------------------------- -----------------------------
Acquired from receivership in December 2013. Refurbished vacant
modern offices behind a retained listed façade consisting of the
ground floor and six upper floors extending to 55,787 sq. ft..
Since acquisition, c. GBP1m has been spent on remedial works.
Following successful completion of works, the building re-launched
into letting market. The property is located on Portland Street at
the junction with Piccadilly. The property is at the epicentre of
Manchester's transport infrastructure with adjacent access to the
Piccadilly Gardens Bus Station and Metrolink tram and bus station
whilst Piccadilly Railway Station is within close proximity.
Ashby Park,
Ashby De La
Zouch Market value (GBPmillion) 12.6
Sector Office
Annualised gross rent (GBPmillion) 1.1
Lettable area (Sq. Ft.) 91,034
Anchor tenants Ceva Logistics Ltd,
Brush Electrical Machines
Ltd, Hill Rom UK Ltd
EPRA Occupancy (%) 100.0
WAULT (years) (to first 2.7 (2.7)
break)
--------------------------------------------------- ---------------------------
Acquired in March 2017 from The Conygar Investment Company PLC
as part of a larger property portfolio, the property comprises of
three detached office buildings constructed in the mid 1990's, with
a combined floor area of 91,034 sq. ft. of space. The property is
fully let to five occupiers. The location has excellent motorway
access. East Midlands Airport is eight miles to the north. The
nearest railway station is Burton Upon Trent.
Columbus House,
Coventry Market value (GBPmillion) 12.0
Sector Office
Annualised gross rent (GBPmillion) 1.4
Lettable area (Sq. Ft.) 53,253
Anchor tenants TUI Northern Europe
Ltd (Shell Energy)
EPRA Occupancy (%) 100.0
WAULT (years) (to first 3.0 (3.0)
break)
------------------------------------------------------ --------------------
Acquired in August 2014. A high specification purpose-built HQ
style building in an established and popular business park let on a
long-term FRI lease to Tui who have sub-let the entire space to
First Utility that provides an underpinning to the rent. The
property comprises a purpose-built office building of masonry
construction, arranged over three floors. The property is located
on Westwood Way, with great transport links to the city and close
to the A45, north & southbound.
Templeton On
The Green, Glasgow Market value (GBPmillion) 11.7
Sector Office
Annualised gross rent (GBPmillion) 1.2
Lettable area (Sq. Ft.) 142,512
Anchor tenants The Scottish Ministers,
The Scottish Sports
Council, Heidi Beers
Ltd, Cornerstone Community
Care
EPRA Occupancy (%) 89.9
WAULT (years) (to first 6.6 (3.4)
break)
---------------------------------------------------------- ----------------------------
Acquired in 2013, the property comprises of a former landmark
factory building of traditional brick construction which consists
of five buildings offering a varied range of unit sizes. The
property is located on Glasgow Green, just off London Road, which
is a main thoroughfare to the east of Glasgow's city centre,
providing excellent access to local bus routes and train network
via the adjacent Bridgeton station.
Oakland House,
Manchester Market value (GBPmillion) 10.8
Sector Office
Annualised gross rent (GBPmillion) 1.1
Lettable area (Sq. Ft.) 160,975
Anchor tenants Please Hold (UK) Ltd,
HSS Hire Service Group
Ltd, CVS (Commercial
Valuers & Surveyors)
Ltd, Rentsmart Ltd
EPRA Occupancy (%) 88.1
WAULT (years) (to first 4.2 (2.9)
break)
----------------------------------------------------- ------------------------
Acquired in March 2016 as part of the larger Wing Portfolio, a
15-storey office block which is prominently located on Talbot Road,
one of the main arterial routes in the Old Trafford area of
Manchester. The property offers easy access to the city centre with
two Metrolink stops within a short walk. Additionally, both the M60
and M602 motorways are within a short distance.
Chancellor Court,
Leeds Market value (GBPmillion) 10.1
Sector Office
Annualised gross rent
(GBPmillion) 0.3
Lettable area (Sq. Ft.) 41,666
Anchor tenants St James's Place
Wealth Management
Group Plc
EPRA Occupancy (%) 99.0
WAULT (years) (to first 0.8 (0.8)
break)
----------------------------------------------- -------------------
Two self-contained office buildings with combined floor area of
41,666 sq. ft.. Currently being extensively refurbished in order to
reposition the property in the local market, the property will
shortly be rebranded as The Coachworks. The property comprises two
detached office buildings of brick construction arranged over four
floors. The property is located on The Calls at its junction with
Crown Street, in the south western fringes of Leeds's city centre.
The property lies within close proximity to Leeds's Railway
Station.
Financial Review
Net Asset Value
In the year ended 31 December 2020, the EPRA NTA of the Group
decreased to GBP425.6 million (IFRS NAV: GBP420.6 million) from
GBP485.7 million (IFRS NAV: GBP483.7 million) as at 31 December
2019, equating to a decrease in the diluted EPRA NTA of 14.0pps
(IFRS: 14.6pps) to 98.6pps (IFRS: 97.5pps). This is after the
dividends declared in the year amounting to 7.45pps.
The EPRA NTA decrease of some GBP60.1 million since 31 December
2019 was predominately due to a GBP54.8 million revaluation of the
property portfolio held at 31 December 2020, after capital
expenditure amounting to GBP8.8 million, the amount of which is yet
to be fully captured in the valuation, and a realised loss of
GBP1.1 million on the disposal of investment properties.
The investment property portfolio valuation as at 31 December
2020 amounted to GBP732.4 million (2019: GBP787.9 million). The
decrease over the period is a reflection of the aforementioned
unrealised downward revaluation from the prior year end,
unrecognised capital expenditure and disposals. Overall, on a
like-for-like basis, the portfolio value decreased by 7.2% during
the year.
The table below sets out the acquisitions, disposals and capital
expenditure for the respective periods:
Year ended Year ended
31 December 31 December
2020 2019
(GBPmillion) (GBPmillion)
Acquisitions
Net (after costs) 45.0 89.9
Gross (before costs) 42.4 87.1
Disposals
Net (after costs) 53.4 24.3
Gross (before costs) 56.4 24.9
Capital Expenditure
Net (after dilapidations) 8.8 5.8
Gross (before dilapidations) 13.1 8.0
The diluted EPRA NTA per share decreased to 98.6 pps (2019:
112.6pps). The EPRA NTA is reconciled in the table below:
Pence
GBPmillion per share
Opening EPRA NTA (31 December 2019) 485.7 112.6
Net rental and property income 53.3 12.3
Administration and other expenses (11.3) (2.6)
Loss on the disposal of investment
properties (1.1) (0.2)
Change in the fair value of investment
properties (54.8) (12.7)
Change in value of right of use (0.2) (0.0)
----------- -----------
EPRA NTA after operating profit 471.6 109.3
Net finance expense (14.0) (3.2)
Taxation 0.2 0.0
EPRA NTA before dividends paid 457.8 106.1
Dividends paid (32.1) (7.4)
----------- -----------
Closing EPRA NTA (31 December 2020) 425.6 98.6
=========== ===========
Table may not sum due to rounding
Income Statement
Operating profit before gains and losses on property assets and
other investments for the year ended 31 December 2020 amounted to
GBP42.0 million (2019: GBP44.1 million). The Company incurred a
loss after finance items and before taxation of GBP31.2 million
(2019: gain GBP26.3 million). This reduction is predominately the
result of two factors: firstly, a loss in the fair value of
investment properties over the year as a result of the impact of
the COVID-19 pandemic on the property market and secondly a loss on
the disposal of investment properties. 2020 included the rent roll
for properties held from the 31 December 2019, plus the partial
rent roll for properties disposed or acquired during the year.
Rental and property income amounted to GBP 62.1 million,
excluding recoverable service charge income and other similar items
(2019: GBP64.4 million). The decrease was primarily the result of
the decrease in the rent roll being held over the year to 31
December 2020.
Currently more than 80 % of the rental income is collected
within 30 days of the due date and bad debts in the year were GBP
1.1 million (2019: GBP0.5 million).
Non-recoverable property costs, excluding recoverable service
charge income and other similar costs, amounted to GBP 8.8 million
(2019: GBP9.4 million), and the rent roll decreased to GBP 64.2
million (2019: GBP64.3 million).
Realised loss on the disposal of investment properties amounted
to GBP1.1 million (2019: gain GBP1.7 million). These losses were
incurred on smaller lot-size vacant properties so to mitigate
future on - going operating costs, and to allow the redeployment of
under-performing capital. The change in the fair value of
investment properties amounted to a loss of GBP54.8 million (2019:
loss of GBP3.5 million). Net capital expenditure amounted to GBP8.8
million (2019: GBP5.8 million). The change in value of right of use
asset amounted to a charge of GBP0.2 million (2019: GBP0.2
million).
Finance expenses amount to GBP14.1 million (2019: GBP13.9
million). The increase is primarily due to the drawdown of the
available borrowing headroom. On 26 March 2020, the Group drew down
GBP30.7 million from the Santander and Royal Bank of Scotland
facilities, ensuring ample liquidity.
The EPRA cost ratio, including direct vacancy costs, was 32.4%
(2019: 31.6%). The EPRA cost ratio, excluding direct vacancy costs
was 19.6% (2019: 18.7%). The ongoing charges for the year ending 31
December 2020 were 4.6% (2019: 4.5%).
The EPRA Total Return from 6 November 2015 to 31 December 2020
was 36.3% (2019: 43.0%), an annualised rate of 6.2% pa (2019: 9.0%
pa).
Dividend
In relation to the year from 1 January 2020 to 31 December 2020,
the Company declared dividends totalling 6.40pps (2019: 8.25pps).
Since the end of the year, the Company has declared a dividend for
the fourth quarter of 2020 of 1.50pps. A schedule of dividends can
be found on the Company's website:
https://www.regionalreit.com//media/Files/R/Regional-Reit/investor-docs/Dividend/regional-reit-dividend-payments-since-launch-q42020-3mar21.pdf
.
Debt Financing and Gearing
Borrowings comprise third-party bank debt which is secured over
properties owned by the Group and repayable over the next four to
nine years, with a weighted average maturity of 6.4 years (2019:
7.3 years).
The Group's borrowing facilities are with the Royal Bank of
Scotland, Scottish Widows Limited & Aviva Investors Real Estate
Finance, Scottish Widows Limited and Santander UK. Total bank
borrowing facilities at 31 December 2020 amounted to GBP316.2
million (2019: GBP294.0m) (before unamortised debt issuance costs),
with GBP5.7 million available to be drawn, and in addition to the
bank borrowings, the Group has a GBP50 million 4.5% retail eligible
bond which is due for repayment in August 2024. In aggregate, the
total debt available at 31 December 2020 amounted to GBP371.9
million (2019: GBP371.9 million).
To ensure the Group retained ample liquidity following the
implementation of the Government COVID-19 regulations, GBP30.7
million was drawn down on 26 March 2020 from the Santander UK and
the Royal Bank of Scotland facilities.
At 31 December 2020, the Group's cash and cash equivalent
balances amounted to GBP67.4 million (2019: GBP37.3 million), of
which GBP55.0 million (2019: GBP34.7 million) was unrestricted
cash.
The Group's net loan to value ("LTV") ratio stands at 40.8%
(2019: 38.9%) before unamortised costs. The Board continues to
target a net LTV ratio of 40%, with a maximum limit of 50%.
Debt Profile and LTV Ratios as at 31 December 2020
Lender Original Outstanding Maturity Gross Annual interest
facility debt* date loan rate
to value**
GBP'000 GBP'000 % %
Royal Bank over 3 months
of Scotland 55,000 52,349 Jun-24 45.7 2.15 GBP LIBOR
Scottish Widows
& Aviva Investors
Real Estate
Finance 165,000 165,000 Dec-27 47.4 3.28 Fixed
Scottish Widows 36,000 36,000 Dec-28 41.0 3.37 Fixed
over 3 months
Santander UK 65,870 62,822 Jun-29 39.8 2.20 GBP LIBOR
========== ============
321,870 316,171
Retail eligible
bond 50,000 50,000 Aug-24 NA 4.50 Fixed
========== ============
371,870 366,171
* Before unamortised debt issue costs
** Based on Cushman and Wakefield property valuations
Table may not sum due to rounding
The Managers continue to monitor the borrowing requirements of
the Group. As at 31 December 2020, the Group had substantial
headroom against its borrowing covenants.
The net gearing ratio (net debt to Ordinary Shareholders' equity
(diluted)) of the Group was 71.0 % as at 31 December 2020 (2019:
63.4%).
Interest cover, excluding amortised costs, stands at 3.4 times
(2019: 3.6 times) and including amortised costs, stands at 3.0
times (2019: 3.2 times).
Hedging
The Group applies an interest hedging strategy that is aligned
to the property management strategy and aims to mitigate interest
rate volatility on at least 90% of the debt exposure.
31 December 31 December
2020 2019
% %
Borrowings interest rate hedged 101.6 108.1
Thereof:
Fixed 68.6 73.0
Swap 16.5 17.6
Cap 16.5 17.6
WACD(1) 3.3 3.5
Table may not sum due to rounding
(1) WACD - Weighted Average Effective Interest Rate including
the cost of hedging
The over hedged position has arisen due to the entire Royal Bank
of Scotland and Santander UK facilities, including any undrawn
balances, being hedged by interest rate cap derivatives which have
no ongoing cost to the Group.
Tax
The Group entered the UK REIT regime on 7 November 2015 and all
of the Group's UK property rental operations became exempt from UK
corporation tax from that date. The exemption remains subject to
the Group's continuing compliance with the UK REIT rules.
On 9 January 2018, the Company registered for VAT purposes in
England.
During 2020, the Group recognised a tax credit of GBP0.2 million
(2019: GBP0.3 million), which comprised tax provisions for the year
offset by releases of tax previously provided for in prior years
which are now concluded and not payable.
Principal Risks and Uncertainties
Risk Framework
The Board has overall responsibility for the Company's system of
risk management and internal controls and for ensuring their
effectiveness. The Board recognises the importance of identifying
and actively monitoring its strategic, valuation, tenant,
financial, operational, regulatory, environmental risks and any
other long-term emerging threats, trends and challenges facing the
business. The Audit Committee supports the Board in the management
of risk and is responsible for determining the principal risks
facing the business and reviewing, at least annually, the
effectiveness of the Company's financial control, risk management
and internal control processes.
Identification, Evaluation and Mitigation
The identification of risk, its evaluation and management is an
ongoing process. The Company maintains a detailed and formal matrix
of current principal risks, which uses risk scoring to evaluate
risks consistently. This allows the risks to be monitored and
mitigated as part of a risk management process with the Audit
Committee undertaking at a minimum on a six-monthly basis, or more
frequently if required, a robust evaluation of these risks facing
the Group.
Risks are identified and weighted according to their potential
impact on the Company and to their likelihood of occurrence. The
Audit Committee uses the risk matrix to prioritise individual
risks, allocating scores to each risk for both the likelihood of
its occurrence and the severity of its impact. The combined scores
are then colour coded, applying a traffic light system of green,
amber and red to emphasise those posing the greatest threats to the
Company. Those with the highest gross rating in terms of impact are
highlighted as top risks within the matrix and are defined as
principal risks.
While the Board believes that it has a robust framework of
internal controls in place, this can provide only reasonable, and
not absolute, assurance against material financial misstatement or
loss and is designed to manage, not eliminate risk.
Risk Appetite
Risk appetite will vary over time but the Board is responsible
for defining the level and type of risk that the Company takes on
in accordance with the strategy. The Board, in conjunction with the
Asset Manager and Investment Manager, regularly reviews the risk
appetite of the Company in association with the latest information
available and the Company is able to assess and respond quickly to
new and emerging risks.
Emerging Risks
The Board is cognisant of emerging risks defined as potential
trends, sudden events or changing risks which are characterised by
a high degree of uncertainty in terms of probability of occurrence
and possible effects on the Company. Once emerging risks become
sufficiently clear, they may be classed as a principal risk and
added to the risk matrix.
To help manage emerging risks and discuss other wider matters
affecting property, the Board has an annual strategy meeting. The
Board considers having a clear strategy is the key to managing and
mitigating emerging risk.
COVID-19
During 2020, the principal risks and uncertainties faced by the
Company were exacerbated by the impact of the Government's reaction
to the COVID-19 pandemic. As uncertainty increased, the Board has
worked even closer with the Asset Manager, Investment Manager and
its third-party suppliers to maintain resilience in the operations
of the Company and management of the property portfolio. The
primary aim being to preserve and enhance the Company's net income
and capital values, meeting all regulatory and stakeholder
obligations, whilst looking to the longer term to identify
strategic opportunities.
This threat has an ongoing effect on many of our principal risks
and the Board meet regularly with the Asset and Investment Managers
to assess these risks and how they can be managed.
The below list, in no particular order, sets out the current
identifiable principal and emerging risks, including their impact
and the actions taken by the Company to mitigate them. It does not
purport to be an exhaustive list of all the risks faced by the
Group.
Principal Risk Summary
Principal Risk Evolution of the
trend during the
year
1. Strategic ó
2. Valuation ó
3. COVID-19 ö
4. Economic and political ó
5. Funding ó
6. Tenant ó
7. Financial and tax changes ó
8. Operational ö
9. Accounting, legal and regulatory ó
10. Environmental and energy efficiency standards ö
1. Strategic
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ó
An
inappropriate * A clearly defined investment strategy which is * The property portfolio remains balanced across a
investment reviewed annually. range of geographical areas and large number of
strategy, investment properties.
and/or
failure * A defined and rigorous investment appraisal process.
to implement
the strategy
could result * Acquire portfolios which offer Shareholders.
in lower diversification of investment risk by investing in a
income range of geographical areas and number of properties
and capital .
returns to
Shareholders.
* Supply and demand market information is reviewed
continuously to assist in acquisitions and disposals
.
* All the above steps are monitored to ensure the
strategy is implemented.
---------------------------------------------------------------- ------------------------------------------------------------
* Predominately, acquiring office properties in the UK * The Group continues to purchase properties in the UK
and outside of the M25 motorway. However, the Group outside the M25 motorway.
may invest in property portfolios in which up to 50%
of the properties (by market value) are situated
within the M25 motorway.
---------------------------------------------------------------- ------------------------------------------------------------
* No single property, in the ordinary course of * Tay House (2019: Tay House) is the highest valued
business, is expected to exceed 10% of the Group's property, which equates to 3.8% (2019: 4.3%) of the
aggregate Investment Properties valuation. However, Group's investment properties.
the Board may, in exceptional circumstances, consider
a property having a value of up to 20% of the Group's
investment property value at the time of investment.
---------------------------------------------------------------- ------------------------------------------------------------
* No more than 20% of the Group's investment property * The Group's largest single tenant exposure is 3.5%
value shall be exposed to any single tenant or group (2019: 2.5%) of gross rental income, being Barclays
undertaking of that tenant. Execution Services Ltd. (2019: Barclays Execution
Services Ltd.).
---------------------------------------------------------------- ------------------------------------------------------------
* Speculative development (i.e., properties under * No speculative construction was undertaken during the
construction, but excluding any refurbishment works, year under review.
which have not been pre-let) is prohibited.
---------------------------------------------------------------- ------------------------------------------------------------
* The value of the properties is protected as far as * The Asset Manager continues to actively manage the
possible by an active asset management programme, investment properties in accordance with market
which is regularly reviewed against the business plan conditions and the individual asset programme.
for each property.
---------------------------------------------------------------- ------------------------------------------------------------
2. Valuation
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ó
The valuation
of the * The Company's external valuer, Cushman & Wakefield, * Cushman & Wakefield independently provide the
Group's provide independent valuations for all properties on valuation for the entire portfolio, valuing e
portfolio a six-monthly basis in accordance with the RICS Red ach
affects Book. individual asset.
its
profitability
and net * The Audit Committee has the opportunity to discuss
assets. the basis of the valuations with the external valuer
.
The Audit Committee membership includes an
experienced chartered surveyor.
* The Asset Manager's experience and extensive
knowledge of the property market. The Asset Manager
is able to challenge the external valuers' findings.
* The Company's Auditor engages an independent third
party to evaluate the Cushman & Wakefield valuation.
----------------------------------------------------------- ----------------------------------------------------
3. COVID-19
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ö
The economic
disruption * The Asset Manager continues to adapt, as required, to * The Group has continued to scrutinise all current
resulting support tenants in accessing UK Government financial risk mitigation approaches employed and to work
from the assistance. closely with all parties through this disruptive
COVID-19 period.
virus could
continue * The Asset Manager, where appropriate, has put in
to impact place social distancing measures as advised by the UK
rental Government.
income, the
ability
to access * The property portfolio has been deliberately
funding constituted to ensure a diverse range of tenants by
at standard industrial classification comprised of 52%
competitive of government designated essential services.
rates,
adherence
to banking * A large proportion of the available borrowing
covenants, facility headroom was drawn down from Santander UK
maintain a and the Royal Bank of Scotland ensuring substantial
progressive working capital was available.
dividend
policy,
and adhere to * Close relationships with lenders ensuring continued
the HMRC REIT dialogue around covenants and ability to access
regime funding as required at competitive rates.
requirements,
especially if
associated * Initial vetting of all third-party providers with
restrictions annual due diligence reviews, including the review of
remain in business continuity capabilities to minimise when
place remote working has been necessitated.
for a
significant
period.
------------------------------------------------------------ -------------------------------------------------------------
4. Economic and political
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ó
Significant
political * The Group operates with a sole focus on the UK * There remains a risk that property valuations and the
events regions, with no foreign currency exchange exposure occupancy market may be impacted by the post Brexit
could . transition period.
impact the It remains well positioned with a deliberately
health diverse standard industry classification of tenants
of the UK generating 898 (2019: 904) income streams which are
economy, located in areas of expected economic growth.
resulting
in
borrowing * The Board receives advice on macro-economic risks,
constraints including Brexit, from the Investment Manager and
, other advisers and acts accordingly.
changes in
demand
by tenants
for
suitable
properties,
the quality
of
the
tenants,
and
ultimately
the
property
portfolio
value.
---------------------------------------------------------- ------------------------------------------------------------
5. Funding
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ó
The Group may
not be able * The Asset Manager has a Corporate Finance team * Weighted average debt term decreased to 6.4 years
to dedicated to optimising the Group's funding from 7.3 years in 2019.
secure requirements.
further
debt or on * Weighted average cost of capital, including hedging
acceptable * Funding options are constantly reviewed with an costs was 3.3% (2019: 3.5%).
terms, which emphasis on reducing the weighted average cost of
may impinge capital and lengthening the weighted average debt to
upon maturity. * LTV increased to 40.8% from 38.9% as at 31 December
investment 2019.
opportunities
and the * Borrowings are currently provided by a range of
ability institutions with targeted staggered maturities.
to grow the
Group.
* Strong relationships with key long-term lenders.
* Continual monitoring of LTV.
---------------------------------------------------------------- ----------------------------------------------------------
Bank
reference * Policy of hedging at least 90% of variable interest * Continued adherence to the hedging policy.
interest rate borrowings.
rates
may be set to
rise * Borrowings are currently provided by a range of
accompanying institutions with targeted staggered maturities.
higher
inflation.
---------------------------------------------------------------- ----------------------------------------------------------
Breach of
covenants * The Asset Manager's Corporate Finance team reviews * The Group continues to have substantial headroom
within the the applicable covenants on a regular basis and are against the applicable borrowing covenants.
Group's considered in future operational decisions.
funding
structure
could lead to * Compliance certificates and requested reports are
a prepared as scheduled.
cancellation
of debt
funding
if the
Company
is unable to
service the
debt.
---------------------------------------------------------------- ----------------------------------------------------------
6. Tenant
POTENTIAL IMPACT MITIGATION MOVEMENT IN THE PERIOD
ó
Type of tenant
and * An active asset management programme with a focus on * This risk remains stable in view of the increasing
concentration of the Asset Manager working with individual tenants to diversification of properties, tenants and
tenant could assess any occupational issues and to manage any geographies in the portfolio.
result potential bad debts.
in lower income
from reduced * The tenant mix and their underlying activity has
lettings * Diversified portfolio of properties let, where continued to increasingly diversify, with the number
or defaults. possible, to a large number of low-risk tenants of tenants amounting to 898 at the year-end (2019:
across a wide range of standard industrial 904).
classifications throughout the UK.
* Potential acquisitions are reviewed for tenant
overlap and potential disposals are similarly
reviewed for tenant standard industrial
classification concentration.
------------------------------------------------------------------ -----------------------------------------------------------------
A high
concentration * The portfolio lease and maturity concentrations are * The WAULT to first break as at 31 December 2020 was
of lease term monitored by the experienced Asset Manager to 3.2 years (2019: 3.5 years).
maturity minimise concentration.
and/or break
options * The largest tenant is 3.5% (2019: 2.5%) of the gross
could result in * There is a focus on securing early renewals and rental income, being Barclays Execution Services Ltd.
a more volatile increased lease periods.
contracted rent
roll. * The Asset Management team remains vigilant to the
* The requirement for suitable tenants and the quality financial wellbeing of our current tenants and
of the tenant is managed by the experienced Asset continues to liaise with occupiers and agents.
Manager which maintains close relationships with
current tenants and with letting agents.
------------------------------------------------------------------ -----------------------------------------------------------------
7. Financial and Tax Changes
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ó
Changes to
the * The Board receives advice on these changes where * Advice is received from several corporate advisers,
UK REIT and appropriate and will act accordingly. including tax adviser Grant Thornton UK LLP and the
non-REIT Group adapts to changes as required.
regimes
tax and
financial
legislation.
------------------------------------------------------- ----------------------------------------------------------
8. Operational
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ö
Business
disruption * The Asset and Investment Managers each have * Both the Asset and Investment Managers annually
could impinge contingency plans in place to ensure there are no review their Disaster and Business Continuity Plans.
on the normal disruptions to the core infrastructure which would
operations of impinge on the normal operations of the Group. These
the Group. plans have been implemented in adherence to COVID-19
Government guidelines, with limited disruption to
operations.
--------------------------------------------------------------- ----------------------------------------------------------------
* An annual due diligence exercise is carried out on * The annual due diligence visits were curtailed due to
all principal third-party service providers. government restrictions. However, assurances were
received as required from third party service
providers.
* No concerns were identified.
--------------------------------------------------------------- ----------------------------------------------------------------
* As an externally managed investment Company, there i * Both the Asset and Investment Manager are viable
s going concerns.
a continued reliance on the Asset and Investment
Managers and other third-party service providers.
--------------------------------------------------------------- ----------------------------------------------------------------
* All acquisitions undergo a rigorous due diligence * The Asset Manager continues to monitor changes in
process and all multi-let properties undergo an Health and Safety regulations, including, where
annual comprehensive fire risk. required, COVID-19 social distancing measures.
* The impact of physical damage and destruction to * The Asset Manager reviews the adequacy of insurance
investment properties is mitigated by ensuring all cover on an ongoing basis.
are covered by a comprehensive building, loss of ren
t
and service charge plus terrorism insurance with the
exception of a small number of "self-insure"
arrangements covered under leases.
--------------------------------------------------------------- ----------------------------------------------------------------
Information
security * The Asset and Investment Manager each has a dedicated * The Managers review the respective Information
and cyber Information Technology team which monitors Technology polices and the material third party
threat information security, privacy risk and cyber threats service suppliers on as required basis to ensure they
resulting in ensuring their respective operations are not reflect current and possible future threats.
data loss, or interrupted.
negative
regulatory,
reputational, * As required the building management systems are
operational reviewed for cyber security risk.
(including
GDPR), or
financial
impact.
--------------------------------------------------------------- ----------------------------------------------------------------
9. Accounting, Legal, and Regulatory
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ó
Changes to
accounting, * Robust processes are in place to ensure adherence to * The Group continues to receive advice from its
legal accounting, legal, regulatory requirements, and corporate advisers and has incorporated changes where
and/or Listing Rules. required.
regulatory
legislation
could * All contracts are reviewed by the Group's legal * The Administrator and Company Secretary continue to
result advisers. attend all Board meetings and advise on Listing Rule
in changes requirements in conjunction with the Corporate Broker
to and Financial Adviser.
current * The Administrator, in its capacity as Group
operating Accountant, and the Company Secretary attend all
processes. Board meetings in order to be aware of all
announcements that need to be made.
* All compliance issues are raised with the Financial
Adviser.
----------------------------------------------------------- ----------------------------------------------------------------
Loss of
REIT * The HMRC REIT regime requirements are monitored by * The Group continues to receive advice from external
status. the Asset and Investment Manager, and external advisers on any anticipated future changes to the
advisors including the Company's tax adviser Grant REIT regime.
Thornton UK LLP and its sub-administrator Link
Alternative Fund Administrators Limited.
----------------------------------------------------------- ----------------------------------------------------------------
10. Environmental and Energy Efficiency Standards
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ö
The Group's
cost base * The Board receives regular updates on environmental, * Additional attention is currently being devoted in
could social, governance and potential legislation changes this area to ensure the appropriate approach is
be impacted, (e.g. the Government Green Finance Strategy July applied and embedded in Group activities.
and 2019) from its advisers.
management
time
diverted, * The Group has engaged an environmental consultancy to
due to assist with achieving the Global Real Industry
climate Sustainability Benchmark (GRESB). This will provide a
changes and platform from which improved sustainability
associated activities can be built upon.
legislation.
---------------------------------------------------------------- ----------------------------------------------------------
Changes to
the * Property acquisitions undergo a rigorous due * The rigour of the environmental assessments process
environment diligence process, including an environmental continues to be reviewed with the aim of enhancing
could impact assessment. it.
upon the
operations
of the * The Asset Manager monitors the portfolio for any
Group. detrimental environmental impact, by way of frequent
inspections of the properties, and the annual
insurance review process.
---------------------------------------------------------------- ----------------------------------------------------------
An Energy
Performance * The Group continues to review each property to ensure * The Asset Manager is continually reviewing the
Rating of E adherence with Energy Performance Rating feasibility of enhancing Energy Performance Ratings
and below requirements. to exceed the minimum requirement.
may
impact the
Group's * The energy efficiency of investment acquisitions is
ability to fully considered as part of the due diligence process
sell for the acquisition of a property.
or lease an
asset.
---------------------------------------------------------------- ----------------------------------------------------------
Changes to the Principal Risks and Uncertainties
The Board, via the Audit Committee, has agreed the movement
during the period under review to each of the identified principal
risks and uncertainties following review of these risks, having
considered the characteristics of these and the economic and
geo-political factors. Any impact of these risks to the Company's
future strategy is considered on an ongoing basis.
Extracts of the Report of the Directors
Share Capital
As at 31 December 2020, the Company's total issued share capital
was 431,506,583 Ordinary Shares (2019: 431,506,583).
All of the Company's Ordinary Shares are listed on the premium
segment of the London Stock Exchange and each Ordinary Share
carries one vote.
There is only one class of Ordinary Shares in issue for the
Company, in adherence to the REIT requirements. The only other
shares the Company may issue are particular types of non-voting
restricted preference shares, of which none (2019: none ) are
currently in issue.
Restrictions on Voting Rights
The Company does not have any restrictions on Shareholder voting
rights.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and the Group Financial Statements in accordance with applicable
law and regulations.
Guernsey company law requires the directors to prepare financial
statements for each financial year. The Directors are required
under the Listing Rules of the Financial Conduct Authority to
prepare the group financial statements in accordance with
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European
Union.
The financial statements of the Group are required by law to
give a true and fair view of the state of the Group's affairs at
the end of the financial period and of the profit or loss of the
Group for that period and are required by international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union to present fairly the
financial position and performance of the Group.
In preparing each of the Group financial statements, the
Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European
Union;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group will continue
in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group's
transactions and disclose with reasonable accuracy at any time the
financial position of the group and enable them to ensure that the
financial statements comply with the requirements of The Companies
(Guernsey) Law 2008 and, as regards the Group financial statements,
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union.
They are also responsible for safeguarding the assets of the group
and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on Regional
REIT's website.
Legislation in the Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
CONSOLIDATED ANNUAL REPORT
Each of the Directors, whose names and functions are listed
within the full Annual Report , confirms that to the best of each
person's knowledge:
-- the financial statements, prepared in accordance with
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union,
give a true and fair view of the assets, liabilities, financial
position and loss of the Group and the undertakings included in the
consolidation taken as a whole;
-- the Strategic Report, including the Asset and Investment
Managers' Report, includes a fair review of the development and
performance of the business and the position of the Group and the
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties they face; and
-- the Annual Report and Accounts, taken as a whole, are fair,
balanced and understandable and provide the information necessary
for Shareholders to assess the Group's position, performance,
business model and strategy.
This responsibility statement was approved by the Board of
Directors on 24 March 2021 and signed on its behalf by:
Kevin McGrath
Chairman
24 March 2021
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
Notes GBP'000 GBP'000
Continuing Operations
Revenue
Rental and property income 5 75,941 75,645
Property costs 6 (22,662) (20,681)
------------- -------------
Net rental and property income 53,279 54,964
Administrative and other expenses 7 (11,329) (10,904)
-------------
Operating profit before gains and
losses on property assets and other
investments 41,950 44,060
(Loss)/gain on disposal of investment
properties 14 (1,073) 1,662
Change in fair value of investment
properties 14 (54,793) (3,513)
Change in fair value of right of
use assets 27 (195) (194)
------------- -------------
Operating (loss)/profit (14,111) 42,015
Finance income 9 99 155
Finance expenses 10 (14,108) (13,880)
Impairment of goodwill 16 (558) (557)
Net movement in fair value of derivative
financial instruments 26 (2,523) (1,479)
-------------
(Loss)/profit before tax (31,201) 26,254
Taxation 11 203 257
------------- -------------
Total comprehensive (loss)/ income
for the year
(attributable to owners of the parent
Company) (30,998) 26,511
------------- -------------
Total comprehensive income arises from continuing
operations.
(Losses)/earnings per share - basic
and diluted 12 (7.2)p 6.6p
The notes below are an integral part of these consolidated
financial statements.
Consolidated Statement of Financial Position
As at 31 December 2020
31 December 31 December
2020 2019
Notes GBP'000 GBP'000
Assets
Non-current assets
Investment properties 14 732,380 787,915
Right of use assets 27 16,156 16,351
Goodwill 16 - 558
Non-current receivables on tenant
loan 17 1,011 1,156
------------ ------------
749,547 805,980
Current assets
Trade and other receivables 18 33,690 32,158
Cash and cash equivalents 19 67,373 37,248
------------ ------------
101,063 69,406
Total assets 850,610 875,386
------------ ------------
Liabilities
Current liabilities
Trade and other payables 20 (33,809) (22,153)
Deferred income 21 (14,584) (13,301)
Deferred tax liabilities 22 (690) (736)
(49,083) (36,190)
Non-current liabilities
Bank and loan borrowings 23 (310,692) (287,856)
Retail eligible bonds 25 (49,441) (49,286)
Derivative financial instruments 26 (4,339) (1,816)
Lease liabilities 27 (16,473) (16,510)
------------ ------------
(380,945) (355,468)
Total liabilities (430,028) (391,658)
------------ ------------
Net assets 420,582 483,728
------------ ------------
Equity
Stated capital 28 430,819 430,819
(Accumulated losses)/retained earnings (10,237) 52,909
------------ ------------
Total equity attributable to owners of
the parent Company 420,582 483,728
------------ ------------
Net asset value per share - basic
and diluted 29 97.5p 112.1p
The notes below are an integral part of these consolidated
financial statements.
These consolidated group financial statements were approved by
the Board of Directors and authorised for issue on 24 March 2021
and signed on its behalf by:
Kevin McGrath,
Chairman
24 March 2021
Consolidated Statement of Changes in Equity
For the year ended 31 December 2020
Attributable to owners of the
parent company
Stated Retained
capital earnings/ Total
Notes GBP'000 (Accumulated GBP'000
losses)
GBP'000
Balance at 1 January
2020 430,819 52,909 483,728
Total comprehensive
loss - (30,998) (30,998)
Dividends paid 13 - (32,148) (32,148)
------------------------------ -------------- ----------
Balance at 31 December
2020 430,819 (10,237) 420,582
------------------------------ -------------- ----------
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
Attributable to owners of the
parent company
Notes Stated Retained
capital earnings Total
GBP'000 GBP'000 GBP'000
Balance at 1 January
2019 370,316 59,199 429,515
Total comprehensive
income - 26,511 26,511
Issue of share capital 28 62,500 - 62,500
Share issue costs 28 (1,997) - (1,997)
Dividends paid 13 - (32,801) (32,801)
---------- ---------- ----------
Balance at 31 December
2019 430,819 52,909 483,728
---------- ---------- ----------
The notes below are an integral part of these consolidated
financial statements.
Consolidated Statement of Cash Flows
For the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Cash flows from operating activities
(Loss)/profit for the year before taxation (31,201) 26,254
- Change in fair value of investment
properties 54,793 3,513
- Change in fair value of financial
derivative instruments 2,523 1,479
- Loss/(gain) on disposal of investment
properties 1,073 (1,662)
- Change in fair value of right of use
assets 195 194
Impairment of goodwill 558 557
Finance income (99) (155)
Finance expenses 14,108 13,880
Increase in trade and other receivables (2,821) (7,881)
Increase/(decrease) in trade and other
payables 7,595 (12,416)
Increase in deferred income 1,283 2,259
------------- -------------
Cash generated from operations 48,007 26,022
Finance costs (12,515) (12,165)
Taxation received/(paid) 174 (839)
------------- -------------
Net cash flow generated from operating
activities 35,666 13,018
------------- -------------
Investing activities
Purchase of investment properties (53,759) (49,917)
Sale of investment properties 53,428 24,294
Interest received 101 163
Acquisition of subsidiaries, net
of cash acquired - (43,943)
------------- -------------
Net cash flow used in investing
activities (230) (69,403)
------------- -------------
Financing activities
Proceeds from the issue of shares - 62,500
Share issue costs - (1,997)
Dividends paid (26,672) (32,534)
Zero Dividend Preference Shareholders
repaid - (39,879)
Bank borrowings advanced 39,200 22,911
Bank borrowings repaid (17,029) (19,398)
Bank borrowing costs paid (192) (2,168)
Bond issue costs paid - (7)
Lease repayments (618) (618)
------------- -------------
Net cash flow used in financing
activities (5,311) (11,190)
------------- -------------
Net increase/(decrease) in cash and
cash equivalents 30,125 (67,575)
Cash and cash equivalents at the start
of the year 37,248 104,823
------------- -------------
Cash and cash equivalents at the end
of the year 67,373 37,248
------------- -------------
The notes below are an integral part of these consolidated
financial statements.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2020
1. Corporate Information
The Group's consolidated financial statements for the year ended
31 December 2020 comprise the results of the Co mpany and its
subsidiaries (together constituting the "Group") and were approved
by the Board and authorised for
issue on 24 March 2021.
The Company is a company limited by shares incorporated in
Guernsey under The Companies (Guernsey) Law, 2008, as amended (the
"Law"). The Company's Ordinary Shares are admitted to the Official
List of the Financial Conduct Authority ("FCA") and traded on the
London Stock Exchange ("LSE").
The Company was incorporated on 22 June 2015 and is registered
with the Guernsey Financial Services Commission as a Registered
Closed-Ended Collective Investment Scheme pursuant to The
Protection of Investors (Bailiwick of Guernsey) Law, 1987, as
amended, and the Registered Collective Investment Schemes Rules
2018.
The Company did not begin trading until 6 November 2015 when the
shares were admitted to trading on the LSE.
The nature of the Group's operations and its principal
activities are set out in the Strategic Report within the full
Annual Report.
The address of the registered office is Mont Crevelt House,
Bulwer Avenue, St. Sampson, Guernsey GY2 4LH.
2. Basis of preparation
In accordance with Section 244 of The Companies (Guernsey) Law
2008, the Group confirms that the financial information for the
year ended 31 December 2020 are derived from the Group's audited
financial statements and that these are not statutory accounts and,
as such, do not contain all information required to be disclosed in
the financial statements prepared in accordance with International
Financial Reporting Standards ("IFRS").
The statutory accounts for the year ended 31 December 2020 have
been audited and approved, but have not yet been filed.
The Group's audited financial statements for the year ended 31
December 2020 received an unqualified audit opinion and the
auditor's report contained no statement under section 263(2) or
263(3) of The Companies (Guernsey) Law 2008.
The financial information contained within this preliminary
statement was approved and authorised for issue by the Board on 24
March 2021.
2.1 Functional and presentation currency
The financial information is presented in Pounds Sterling, which
is also the functional currency, and all values are rounded to the
nearest thousand (GBP'000) pound, except where otherwise
indicated.
2.2 Going concern
The Directors have carefully considered areas of potential
financial risk and have reviewed cash flow forecasts, evaluating a
number of scenarios which included extreme downside sensitivities
in relation to rental cash collection, no property acquisitions, no
elective capital expenditure, REIT regime compliance, and no
dividends. A range of scenarios of up to 12 months of nil rental
cash collection were considered, and taking into account mitigating
management actions, the company had adequate resources to continue
is operations. Further effects of the COVID-19 outbreak are
documented in the going concern and viability statements above and
within principal and emerging risks above .
No material uncertainties have been detected which would
influence the Group's ability to continue as a going concern for a
period of at least 12 months from the approval of these financial
statements. The Directors have satisfied themselves that the Group
has adequate financial resources to continue in operational
existence for this period.
Accordingly, the Board of Directors continue to adopt the going
concern basis in preparing the financial statements.
2.3 Business combinations
At the time of acquisition, the Group considers whether each
acquisition represents the acquisition of a business or the
acquisition of an asset. For an acquisition of a business where an
integrated set of activities are acquired in addition to the
property, the Group accounts for the acquisition as a business
combination under IFRS 3 Business Combinations ("IFRS 3").
Where such acquisitions are not judged to be the acquisition of
a business, they are not treated as business combinations. Rather,
the cost to acquire the corporate entity is allocated between the
identifiable assets and liabilities of the entity based upon their
relative fair values at the acquisition date. Accordingly, no
goodwill or additional deferred tax arises.
2.4 New standards, amendments and interpretations
New standards, amendments to standards and interpretations which
came into effect for accounting periods starting on or after 1
January 2020 and have had an impact on the financial statements are
as follows:
Amendments to IFRS 3 'Business Combinations' (effective where
the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after 1 January 2020) -
makes amendments to clarify the definition of a business to help
companies determine whether an acquisition is of a business or a
group of assets. The amendments are expected to result in more
acquisitions being accounted for as asset acquisitions. As detailed
in note 2.3, careful consideration is given to the accounting
treatment for each acquisition. Most acquisitions made by the Group
are treated as the acquisition of a group of assets, so the
amendments to this standard have not had any impact on the
financial statements.
Amendments to IAS 1 'Presentation of Financial Statements' and
IAS 8 'Accounting Policies, Changes in Accounting Estimates and
Errors' (effective for annual periods beginning on or after 1
January 2020) - make amendments to clarify the definition of
'material'. The amendments make IFRSs more consistent but are not
expected to have a significant impact on the preparation of the
financial statements .
Amendments to IFRS16 'Leases' (effective from June 2020 onwards)
- were issued in response to the COVID-19 pandemic to address
accounting treatment for rent concessions granted to lessees as a
direct result of the pandemic. The Group has not received any rent
concessions for its long leasehold investment properties and
therefore accounting treatment has not been affected.
2.5 New standards, amendments and interpretations effective for
future accounting periods
A number of new standards, amendments to standards and
interpretations are effective for periods beginning on or after 1
January 2021 and have not been applied in preparing these financial
statements. These are:
Interest Rate Benchmark Reform-Phase 2:
Amendments to I FRS 9 'Financial Instruments', IAS 39 'Financial
Instruments; Recognition and Measurement', IFRS 7 'Financial
Instruments: Disclosures', IFRS 4 'Insurance Contracts' and IFRS 16
'Leases' (effective for periods beginning on or after 1 January
2021) These amendments address issues that might affect financial
reporting when an existing interest rate benchmark is replaced with
an alternative benchmark interest rate.
The Group's borrowings with Royal Bank of Scotland and Santander
UK will be transitioning from the London Interbank Offer Rate
(LIBOR) benchmark to Sterling Overnight Index Average (SONIA)
benchmark by 31 December 2021. There is expected to be negligible
cost involved in the borrowing facility transition and the
respective hedge instrument amendments.
The Directors are currently assessing the impact of the changes
in accounting standards but as the Group does not apply hedge
accounting, it is anticipated that the accounting standard
amendments will not have a significant impact on the preparation of
the financial statements.
Amendments to IAS 1 'Presentation of Financial Statements'
(effective for periods beginning on or after 1 January 2023) -
clarifies that liabilities are classified as either current or
non-current, depending on the rights that exist at the end of the
reporting period and not expectations of or actual events after the
reporting date. The amendments also give clarification to the
definition of settlement of a liability. The amendments are not
expected to have a significant impact on the preparation of the
financial statements.
Amendments to IFRS 3 'Business Combinations' (effective for
periods beginning on or after 1 January 2022) - gives clarification
on the recognition of contingent liabilities at acquisition and
clarifies that contingent assets should not be recognised at the
acquisition date. The amendments are not expected to have a
significant impact on the preparation of the financial
statements.
3. Significant accounting judgements, estimates and
assumptions
The preparation of the financial statements requires management
to make judgements, estimates and assumptions that affect the
reported amounts of revenues, expenses, assets and liabilities and
the disclosure of contingent liabilities at the reporting date.
However, uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the
carrying amount of the asset or liability affected in future
periods.
3.1. Critical accounting estimates and assumptions
The principal estimates that may be material to the carrying
amount of assets and liabilities are as follows:
3.1.1 Valuation of investment property
The fair value of investment property, which has a carrying
value at the reporting date of GBP 732,380,000 (31 December 2019:
GBP787,915,000), is determined by independent property valuation
experts to be the estimated amount for which a property should
exchange on the date of the valuation in an arm's length
transaction. Properties have been valued on an individual basis.
The valuation experts use recognised valuation techniques applying
the principles of both IAS 40 and IFRS 13.
The value of the properties has been assessed in accordance with
the relevant parts of the current RICS Red Book. In particular, we
have assessed the fair value as referred to in VPS4 item 7 of the
RICS Red Book. Under these provisions, the term "Fair Value" means
the definition adopted by the International Accounting Standards
Board ("IASB") in IFRS 13, namely "The price that would be received
to sell an asset, or paid to transfer a liability in an orderly
transaction between market participants at the measurement date".
Factors reflected include current market conditions, annual
rentals, lease lengths and location. The significant methods and
assumptions used by the valuers in estimating the fair value of
investment property are set out in note 14.
In relation to Brexit, the recently completed negotiations with
regards to the terms of the UK's exit from the EU has meant that
property market remains uncertain. There is some uncertainty
concerning the impact of COVID 19 however the independent valuers
note the following in their report.
"The pandemic and the measures taken to tackle COVID-19 continue
to affect economies and real estate markets globally. Nevertheless,
as at the valuation date property markets are mostly functioning
again, with transaction volumes and other relevant evidence at
levels where an adequate quantum of market evidence exists upon
which to base opinions of value. Accordingly, and for the avoidance
of doubt, our valuation is not reported as being subject to
'material valuation uncertainty' as defined by VPS 3 and VPGA 10 of
the RICS Valuation - Global Standards. "
3.1.2 Fair valuation of interest rate derivatives
In accordance with IFRS 13, the Group values its interest rate
derivatives at fair value. The fair values are estimated by the
respective counterparties with revaluation occurring on a quarterly
basis. The counterparties will use a number of assumptions in
determining the fair values, including estimations over future
interest rates and therefore future cash flows. The fair value
represents the net present value of the difference between the cash
flows produced by the contracted rate and the valuation rate. The
carrying value of the derivatives at the reporting date was GBP
4,339,000 liability (31 December 2019: GBP1,816,000 liability). The
significant methods and assumptions used in estimating the fair
value of the interest rate derivatives are set out in note 26.
3.1.3 Leases - the Group as lessee
The Group has a number of leases concerning the long-term lease
of land associated with its long leasehold investment properties.
Under IFRS16, the Group calculates the lease liability at each
reporting date and at the inception of each lease and at 1 January
2019 when the standard was first adopted. The liability is
calculated using present value of future lease payments using the
Group's incremental borrowing rate as the discount rate. At 31
December 2020, there were 13 leases with the range of the period
left to run being 46 and 105 years. The Directors have determined
that the discount rate to use in the calculation for each lease is
3.5 % being the Group's weighted average cost of debt at the date
of transition.
3.1.4 Dilapidation income
The Group recognises dilapidation income in the Group's
Statement of Comprehensive Income when the right to receive the
income arises. In determining accrued dilapidations, the Group has
considered historic recovery rates, while also factoring in
expected costs associated with recovery.
3.2. Critical judgements in applying the Group's accounting
policies
In the process of applying the Group's accounting policies,
management has made the following judgements, which have the most
significant effect on the amounts recognised in the financial
statements:
3.2.1 Operating lease contracts - the Group as lessor
The Group has acquired investment properties that are subject to
commercial property leases with tenants. The Group has determined,
based on an evaluation of the terms and conditions of the
arrangements, particularly the duration of the lease terms and
minimum lease payments, that it retains all of the significant
risks and rewards of ownership of these properties and so accounts
for the leases as operating leases.
3.2.2 Consolidation of entities in which the Group holds less
than 50%
Management considered that up until 9 November 2018, the Group
had de facto control of View Castle Limited and its 27 subsidiaries
(the "View Castle Sub Group") by virtue of the amended and restated
Call Option Agreement dated 3 November 2015. Following a
restructure of the View Castle Sub Group, the majority of
properties held within the View Castle Sub Group were transferred
into two new special purpose vehicles ("SPVs") with two additional
properties to be transferred into these SPVs at a later date. A new
call option was entered into dated 9 November 2018 with View Castle
Limited and five of its subsidiaries (the "View Castle Group"). As
per the previous amended and restated Call Option Agreement, under
this new option the Group may acquire any of the properties held by
the View Castle Group for a fixed nominal consideration. Despite
having no equity holding, the Group is deemed to have control over
the View Castle Group as the Option Agreement means that the Group
is exposed to, and has rights to, variable returns from its
involvement with the View Castle Group, through its power to
control.
3.2.3 Acquisitions of subsidiary companies
For each acquisition, the Directors consider whether the
acquisition met the definition of the acquisition of a business or
the acquisition of a group of assets and liabilities.
A business is defined in IFRS 3 as an integrated set of
activities and assets that is capable of being conducted and
managed for the purpose of providing a return in the form of
dividends, lower costs or other economic benefits directly to
investors or other owners, members or participants. Furthermore, a
business consists of inputs and processes applied to those inputs
that have the ability to create outputs.
The companies acquired in the year have comprised portfolios of
investment properties and existing leases with multiple tenants
over varying periods, with little in the way of processes acquired.
It has therefore concluded in each case that the acquisitions did
not meet the criteria for the acquisition of a business as outlined
above.
3.2.4 Recognition of income
Service charges and other similar receipts are included in net
rental and property income gross of the related costs as the
Directors consider the Group acts as principal in this respect.
4. Summary of significant accounting policies
The accounting policies adopted in this report are consistent
with those applied in the financial statements for the year ended
31 December 2019 and have been consistently applied for the year
ended 31 December 2020.
4.1. Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and its subsidiaries as at the date of
the Statement of Financial Position.
4.2 Subsidiaries
Subsidiaries are all entities (including structured entities)
over which the Group has control. The Group controls an entity when
the Group is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group. They are deconsolidated from the date that control
ceases.
The Group applies the acquisition method to account for business
combinations. The consideration transferred for the acquisition of
a subsidiary is the fair value of the assets transferred, the
liabilities incurred to the former owners of the acquiree and the
equity interests issued by the Group. Identifiable assets and
liabilities acquired, and contingent liabilities assumed, in a
business combination are measured initially at their fair values at
the acquisition date. The Group recognises any non-controlling
interest in the acquiree on an acquisition-by-acquisition basis,
either at fair value or at the non-controlling interest's
proportionate share of the recognised amounts of the acquiree's
identifiable net assets. Acquisition-related costs are expensed as
incurred.
Any contingent consideration to be transferred by the Group is
recognised at fair value at the acquisition date. Subsequent
changes to the fair value of the contingent consideration are
recognised in profit or loss. Contingent consideration that is
classified as equity is not re-measured, and its subsequent
settlement is accounted for within equity.
For acquisitions of subsidiaries not meeting the definition of a
business, the Group allocates the cost between the individual
identifiable assets and liabilities in the Group based on their
relative fair values at the date of acquisition. Such transactions
or events do not give rise to goodwill.
Inter-company transactions, balances and unrealised gains and
losses on transactions between Group companies are eliminated in
full. When necessary, amounts reported by subsidiaries have been
adjusted to conform to the Group's accounting policies.
The excess of the consideration transferred, and the amount of
any non-controlling interest in the acquiree over the fair value of
the identifiable net assets acquired, is recognised as
goodwill.
4.2.1. Disposal of subsidiaries
When the Group ceases to have control over an entity, any
retained interest in the entity is re-measured to its fair value at
the date when control is lost, with the change in the carrying
amount recognised in profit or loss. The fair value is the initial
carrying amount for the purposes of subsequently accounting for the
retained interest as an associate, joint venture or financial
asset. In addition, any amounts previously recognised in other
comprehensive income in respect of that entity are accounted for as
if the Group had directly disposed of the related assets or
liabilities. This may mean that amounts previously recognised in
other comprehensive income are reclassified to profit or loss.
4.3. Segmental information
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker is the person or group that
allocates resources to and assesses the performance of the
operating segments of an entity. The Group has determined that its
chief operating decision-maker is the Board of Directors.
After a review of the information provided for management
purposes, it was determined that the Group has one operating
segment and therefore segmental information is not disclosed in
these consolidated financial statements.
4.4. Investment property
Investment property comprises freehold or leasehold properties
that are held to earn rentals or for capital appreciation, or both,
rather than for sale in the ordinary course of business or for use
in production or administrative functions.
Investment property is recognised, usually, on legal completion,
when the risks and rewards of ownership have been transferred and,
is measured initially at cost including transaction costs.
Transaction costs include transfer taxes, professional fees for
legal services and other costs incurred in order to bring the
property to the condition necessary for it to be capable of being
utilised in the manner intended. Subsequent to initial recognition,
investment property is stated at fair value. Gains or losses
arising from changes in the fair value are included in the Group's
Consolidated Statement of Comprehensive Income in the period in
which they arise under IAS 40, 'Investment Property'.
Additions to investment property include costs of a capital
nature only. Expenditure is classified as capital when it results
in identifiable future economic benefits, which are expected to
accrue to the Group. All other property expenditure is charged in
the Group's Consolidated Statement of Comprehensive Income as
incurred.
Investment properties cease to be recognised when they have been
disposed of or withdrawn permanently from use and no future
economic benefit is expected. The difference between the net
disposal proceeds and the carrying amount of the asset (being the
fair value at the start of the financial year) would result in
either gains or losses at the retirement or disposal of investment
property. Any gains or losses are recognised in the Group's
Consolidated Statement of Comprehensive Income in the period of
retirement or disposal.
4.5. Goodwill
Goodwill arises on the acquisition of subsidiaries and
represents the excess of the consideration transferred over the
Group's interest in the fair value of the net identifiable assets,
liabilities and contingent liabilities of the acquiree plus the
amount of the non-controlling interest of the acquiree.
For the purpose of impairment testing, goodwill acquired in a
business combination is allocated to each of the subsidiaries, or
groups of subsidiaries, that is expected to benefit from the
synergies of the combination. Each subsidiary or group of
subsidiaries to which the goodwill is allocated represents the
lowest level within the entity at which the goodwill is monitored
for internal management purposes.
Goodwill impairment reviews are undertaken annually, or more
frequently if events or changes in circumstances indicate a
potential impairment. The carrying value of goodwill is compared to
the recoverable amount, which is the higher of the value in use and
the fair value less the costs of disposal. Any impairment is
recognised immediately as an expense and is not subsequently
reversed.
4.6. Derivative financial instruments
Derivative financial instruments, comprising interest rate caps
and swaps for hedging purposes, are initially recognised at fair
value and are subsequently measured at fair value, being the
estimated amount that the Group would receive or pay to sell or
transfer the agreement at the period end date, taking into account
current interest rate expectations and the current credit rating of
the lender and its counterparties. The gain or loss at each fair
value remeasurement date is recognised in the Group's Consolidated
Statement of Comprehensive Income.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data is available to measure
fair value, maximising the use of relevant observable inputs and
minimising the use of unobservable inputs significant to the fair
value measurement as a whole.
4.7 Financial assets
The Group classifies its financial assets as at fair value
through profit or loss or at amortised cost, depending on the
purpose for which the asset was acquired. Currently the Group does
not have any financial assets which it has classified at fair value
through profit or loss.
Assets held at amortised cost arise principally from the
provision of goods and services (e.g. trade receivables), but also
incorporate other financial assets where the objective is to hold
these assets in order to collect contractual cash flows which
comprise the payment of principal and interest. They are initially
recognised at fair value plus transaction costs that are directly
attributable to their acquisition or issue and are subsequently
carried at amortised cost being the effective interest rate method,
less provision for impairment.
The Group's financial assets comprise 'trade and other
receivables', 'tenant loan' and 'cash and cash equivalents'.
The tenant loan relates to a loan made to a tenant which is
subject to interest. The amount receivable has been recognised at
amortised cost using the effective interest method.
4.8. Trade and other receivables
Trade and other receivables are recognised initially at fair
value and subsequently carried at amortised cost less provision for
impairment. Where the time value of money is material, receivables
are carried at amortised cost using the effective interest method.
Impairment provisions are recognised based on the expected credit
loss model detailed within IFRS 9.
The Group recognises a loss allowance for expected credit losses
on trade receivables. The loss allowance is based on lifetime
expected credit losses. The amount of expected credit losses is
updated at each reporting date to reflect changes in credit risk
since initial recognition. The expected credit losses on these
financial assets are estimated based on the Group's historical
credit loss experience, adjusted for factors that are specific to
the debtors, general economic conditions and an assessment of both
the current as well as the forecast direction of conditions at the
reporting date. Impaired balances are reported net, however,
impairment provisions are recorded within a separate provision
account with the loss being recognised within administration costs
within the Consolidated Statement of Comprehensive Income. On
confirmation that the trade receivable will not be collectable, the
gross carrying value of the asset is written off against the
associated provision.
Lease premiums and other lease incentives provided to tenants
are recognised as an asset and amortised over the period from date
of lease commencement to termination date.
4.9. Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held
at banks with original maturities of three months or less. Cash
also includes amounts held in restricted accounts that are
unavailable for everyday use.
4.10. Trade payables
Trade payables are initially recognised at their fair value
being at their invoiced value inclusive of any VAT that may be
applicable. Payables are subsequently measured at amortised cost
using the effective interest method.
4.11. Bank and other borrowings
All bank and other borrowings (comprising bank loans and retail
eligible bonds) are initially recognised at cost net of
attributable transaction costs. Any attributable transaction costs
relating to the issue of the bank borrowings are amortised through
the Group's Statement of Comprehensive Income over the life of the
debt instrument on a straight-line basis. After initial
recognition, all bank and other borrowings are measured at
amortised cost, using the effective interest method.
Bank and other borrowings are derecognised when the obligation
under the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in Group's
Consolidated Statement of Comprehensive Income.
4.12 Zero Dividend Preference Shares
Zero Dividend Preference Shares ("ZDP Shares") are recognised as
liabilities in the Group's Consolidated Statement of Financial
Position in accordance with IAS 32 Financial Instruments:
Presentation. After initial recognition, these liabilities are
measured at amortised cost, which represents the value the
liability is recognised at initial recognition, plus the accrued
interest entitlement to the date of these financial statements.
4.13 Dividends payable to Shareholders
Equity dividends are recognised and accrued from the date
declared and when they are no longer at the discretion of the
Company.
4.14 Rental and property income
Rental income arising from operating leases on investment
property is accounted for on a straight-line basis over the lease
terms and is included in gross rental and property income in the
Group's Consolidated Statement of Comprehensive Income. Initial
direct costs incurred in negotiating and arranging an operating
lease are added to the carrying amount of the lease asset and are
recognised as an expense over the lease term on the same basis as
the lease income.
For leases which contain fixed or minimum uplifts, the rental
income arising from such uplifts is recognised on a straight-line
basis over the lease term.
Tenant lease incentives are recognised as a reduction of rental
revenue on a straight-line basis over the term of the lease. The
lease term is the non-cancellable period of the lease together with
any further term for which the tenant has the option to continue
the lease where, at the inception of the lease, the Directors are
reasonably certain that the tenant will exercise that option.
Surrender premiums received from tenants to terminate leases or
surrender premises are recognised in the Group's Statement of
Comprehensive Income when the right to receive them arises.
Dilapidation income is recognised in the Group's Statement of
Comprehensive Income when the right to receive it arises.
When the Group is acting as an agent, the commission, rather
than gross income, is recorded as revenue.
Income arising from expenses recharged to tenants is recognised
in the year in which the compensation becomes receivable. Service
charges and other similar receipts are included in net rental and
property income gross of the related costs as the Directors
consider the Group acts as principal in this respect.
4.15 Property costs
Non recoverable property costs contain service and management
charges related to empty properties.
Service and management charges are recognised in the accounting
period in which the services are rendered.
Recoverable property costs contain service charges and other
similar costs which are recognised in the accounting period in
which the services are rendered.
4.16. Interest income
Interest income is recognised as interest accrued on cash
balances held by the Group. Interest charged to a tenant on any
overdue rental income is also recognised within interest
income.
4.17. Dividend income
Dividend income is recognised when the right to receive payment
is established.
4.18. Finance costs
Interest costs are expensed in the period in which they occur.
Arrangement fees that a Group entity incurs in connection with bank
and other borrowings are amortised over the term of the loan.
4.19. Taxation
As the Company is managed and controlled in the UK, it is
considered to be tax resident in the UK.
The tax currently payable is based on the taxable profit for the
period. Taxable profit differs from net profit as reported in the
Consolidated Statement of Comprehensive Income because it excludes
items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or
deductible. The Group's liability for current and deferred tax is
calculated using tax rates that have been enacted or substantively
enacted at the date of the Statement of Financial Position.
The Group elected to be treated as a UK REIT with effect from 7
November 2015. The UK REIT rules exempt the profits of the Group's
UK property rental business from UK Corporation Tax. Gains on UK
properties are also exempt from tax, provided that they are not
held for trading or sold in the three years after completion of
development. The Group is otherwise subject to UK Corporation
Tax.
There are a small number of entities within the Group which fall
outside the REIT rules and are subject to UK taxes on profits and
property gains.
4.20 Deferred tax
Deferred tax is provided in full using the liability method on
temporary differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit. The amount of
deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and
liabilities, using tax rates that are expected to apply in the
period when the liability is settled or the asset is realised based
on tax rates (and tax laws) enacted or substantively enacted at the
date of the Statement of Financial Position. A deferred tax asset
is recognised only to the extent that it is probable that future
profits will be available for offset.
The deferred tax liability in relation to investment properties
that is measured at fair value is determined assuming that the
property will be recovered entirely through sale.
Deferred tax has been recognised on the unrealised property
valuation gains of properties owned by Group entities which fall
outside of the REIT tax rules.
The current rate of UK Corporation Tax is 19%.
4.21. Stated capital
Stated capital represents the consideration received by the
Company for the issue of Ordinary Shares. Ordinary Shares are
classed as equity.
4.22. Share-based payments
The Group has entered into Performance Fee arrangements with the
Asset Manager and Investment Manager which depend on the growth in
the net asset value of the Group exceeding a hurdle rate of return
over a performance period. The fee will be partly settled in cash
and partly in equity and the equity portion is therefore a
share-based payment arrangement. The fair value of the obligation
is measured at each reporting period, and the cost recognised as an
expense. The part of the obligation to be settled in shares is
credited to equity reserves. If circumstances change and the fee is
no longer settled by the issue of shares, then the amounts
previously credited to equity reserves are reversed.
4.23 Leased assets
The Group has a number of leases concerning the long-term lease
of land associated with its long leasehold investment properties.
These leased assets are capitalised as "right of use assets" by
recognising the present value of the lease payments as an asset and
a financial liability representing the obligation to make future
lease payments.
Right of use assets are valued at fair value and the change in
fair value is recognised in the Consolidated Statement of
Comprehensive Income.
The associated financial liability is valued at the present
value of future lease payments using the Group's incremental
borrowing rate. The value of the financial liability is revalued at
each reporting date. Lease payments reduce the financial liability
and interest on the financial liability is recognised in finance
costs.
5. Rental and property income
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Rental income - freehold property 55,382 53,404
Rental income - long leasehold property 6,695 10,989
Recoverable service charge income and other
similar items 13,864 11,252
------------- -------------
Total 75,941 75,645
------------- -------------
6. Property costs
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Other property expenses and irrecoverable
costs 8,798 9,429
Recoverable service charge expenditure
and other similar costs 13,864 11,252
-------------
Total 22,662 20,681
------------- -------------
Property costs represent direct operating expenses which arise
on investment properties that generate rental income.
7. Administrative and other expenses
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Investment management fees 2,577 2,356
Property management fees 2,266 2,280
Asset management fees 2,579 2,356
Directors' remuneration (see note 8) 255 255
Administration fees 634 746
Legal and professional fees 1,674 2,107
Marketing and promotion 69 96
Other administrative costs (including bad
debts) 1,257 657
Bank charges 18 51
Total 11,329 10,904
------------- -------------
Services provided by the Company's Auditor and its
associates
The Group has obtained the following services from the Company's
Auditor and its associates:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Fees payable to the Company's auditor for
the audit of the Company's annual accounts* 105 83
Fees payable to the group's auditor and
its associates for the audit of the Company's
subsidiaries 105 114
------------- -------------
Total fees payable for audit services 210 197
Fees payable to the group's auditor and
its associates for other services:
Audit-related services 26 26
Corporate finance services - 80
------------- -------------
Total fees payable to the group's auditor
and its associates 236 303
------------- -------------
*The current year charge includes fees of GBP20,000 in respect
of additional audit work required for the 2019 audit due to the
COVID-19 pandemic.
8. Directors' remuneration
Key management comprises the Directors of the Company. A summary
of the Directors' emoluments is set out in the Directors'
Remuneration Report.
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Directors' fees 231 228
Employers National Insurance contributions 24 27
--------------- --------------
Total 255 255
--------------- --------------
9. Finance income
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Interest income 99 155
Total 99 155
-------------- --------------
10. Finance expenses
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Interest payable on bank borrowings 10,257 9,904
Accrued capital entitlement on ZDP Shares - 60
Amortisation of loan arrangement fees 857 912
Amortisation of ZDP Share acquisition costs - 3
Bond interest 2,250 2,250
Bond issue costs amortised 155 157
Bond expenses 8 11
Lease interest 581 583
-------------- --------------
Total 14,108 13,880
-------------- --------------
11. Taxation
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Corporation tax credit (157) (359)
(Decrease)/increase in deferred tax creditor (46) 102
-------------- --------------
Total (203) (257)
-------------- --------------
The current tax charge is reduced by the UK REIT tax exemptions.
The tax charge for the year can be reconciled to the (loss)/profit
in the Statement of Comprehensive Income as follows:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
(Loss)/profit before taxation (31,201) 26,254
------------- -------------
UK Corporation Tax rate 19% 19%
Theoretical tax at UK Corporation Tax rate (5,928) 4,988
Effects of:
Revaluation of investment property 10,410 668
Permanent differences (363) (556)
Profits from the tax-exempt business (4,276) (5,459)
Deferred tax movement (46) 102
------------- -------------
Total (203) (257)
------------- -------------
Permanent differences are the differences between an entity's
taxable profits and its results as stated in the financial
statements. These arise because certain types of income and
expenditure are non-taxable or disallowable, or because certain tax
charges or allowances have no corresponding amount in the financial
statements.
The Group elected to be treated as a UK REIT with effect from 7
November 2015. The UK REIT rules exempt the profits of the Group's
UK property rental business from corporation tax. Gains on UK
properties are also exempt from tax, provided they are not held for
trading or sold in the three years after completion of development.
The Group is otherwise subject to UK corporation tax and UK income
tax.
As a REIT, Regional REIT Ltd is required to pay PIDs equal to at
least 90% of the Group's exempted net income. To retain UK REIT
status, there are a number of conditions to be met in respect of
the principal company of the Group, the Group's qualifying activity
and its balance of business. The Group continues to meet these
conditions.
UK corporation tax and UK income tax arise on entities which
form part of the Group consolidated accounts but do not form part
of the REIT group.
Due to the Group's REIT status and its intention to continue
meeting the conditions required to obtain approval in the
foreseeable future, no provision has been made for deferred tax on
any capital gains or losses arising on the revaluation or disposal
of investments held by entities within the REIT group.
No deferred tax asset has been recognised in respect of losses
carried forward due to the unpredictability of future taxable
profits.
12. Earnings per share
Earnings per share amounts are calculated by dividing
(losses)/profits for the year attributable to ordinary equity
holders of the Company by the weighted average number of Ordinary
Shares in issue during the year.
The calculation of basic and diluted earnings per share is based
on the following:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Calculation of earnings per share
Net (loss)/profit attributable to Ordinary
Shareholders (30,998) 26,511
Adjustments to remove:
Changes in value of investment properties 54,793 3,513
Changes in fair value of interest rate
derivatives and financial assets 2,523 1,479
Loss/(gain) on disposal of investment property 1,073 (1,662)
Impairment of goodwill 558 557
Deferred tax (credit)/charge (46) 102
Close out costs on borrowings and derivatives - 487
------------- -------------
EPRA net profit attributable to Ordinary
Shareholders 27,903 30,987
Add performance fee - -
------------- -------------
Company specific adjusted earnings figure 27,903 30,987
------------- -------------
Weighted average number of Ordinary Shares 431,506,583 398,867,828
(Loss)/earnings per share - basic and diluted (7.2)p 6.6p
EPRA earnings per share - basic and diluted 6.5p 7.8p
Company specific adjusted earnings per
share - basic and diluted 6.5p 7.8p
13. Dividends
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Dividend of 2.55 (2019: 2.50) pence per
Ordinary Share
for the period 1 October 2019 - 31 December
2019 11,004 9,321
Dividend of 1.90 (2019: 1.90) pence per
Ordinary Share
for the period 1 January 2020- 31 March
2020 8,198 7,084
Dividend of 1.50 (2019: 1.90) pence per
Ordinary Share
for the period 1 April 2020 - 30 June 2020 6,473 8,198
Dividend of 1.50 (2019: 1.90) pence per
Ordinary Share
for the period 1 July 2020 - 30 September
2020 6,473 8,198
-------------- --------------
32,148 32,801
-------------- --------------
On 27 February 2020, the Company announced a dividend of 2.55
pence per share in respect of the period 1 October 2019 to 31
December 2019. The dividend payment was made on 9 April 2020 to
Shareholders on the register as at 6 March 2020.
On 21 May 2020, the Company announced a dividend of 1.90 pence
per share in respect of the period 1 January 2020 to 31 March 2020.
The dividend payment was made on 17 July 2020 to Shareholders on
the register as at 5 June 2020.
On 26 August 2020, the Company announced a dividend of 1.50
pence per share in respect of the period 1 April 2020 to 30 June
2020. The dividend payment was made on 16 October 2020 to
Shareholders on the register as at 4 September 2020.
On 12 November 2020, the Company announced a dividend of 1.50
pence per share in respect of the period 1 July 2020 to 30
September 2020. The dividend payment was made on 8 January 2021 to
Shareholders on the register as at 20 November 2020.
On 25 February 2021, the Company announced a dividend of 1.50
pence per share in respect of the period 1 October 2020 to 31
December 2020. The dividend will be paid on 9 April 2021 to
Shareholders on the register as at 5 March 2021. The financial
statements do not reflect this dividend.
The Board intends to pursue a progressive dividend policy and
continue to pay quarterly dividends. However, in view of ongoing
circumstances, the Company reserves the right to review future
dividend payments.
14. Investment properties
In accordance with International Accounting Standard, IAS 40,
'Investment Property', investment property has been independently
valued at fair value by Cushman & Wakefield Chartered
Surveyors, an accredited independent valuer with recognised and
relevant professional qualifications and with recent experience in
the locations and categories of the investment properties being
valued. The valuations have been prepared in accordance with the
Red Book and incorporate the recommendations of the International
Valuation Standards Committee which are consistent with the
principles set out in IFRS 13.
In relation to Brexit, the recently completed negotiations with
regards to the terms of the UK's exit from the EU has meant that
the property market remains uncertain. There is some uncertainty
concerning the impact of COVID 19 however the independent valuers
note the following in their report.
"The pandemic and the measures taken to tackle COVID-19 continue
to affect economies and real estate markets globally. Nevertheless,
as at the valuation date property markets are mostly functioning
again, with transaction volumes and other relevant evidence at
levels where an adequate quantum of market evidence exists upon
which to base opinions of value. Accordingly, and for the avoidance
of doubt, our valuation is not reported as being subject to
'material valuation uncertainty' as defined by VPS 3 and VPGA 10 of
the RICS Valuation - Global Standards. "
The valuations are the ultimate responsibility of the Directors.
Accordingly, the critical assumptions used in establishing the
independent valuation are reviewed by the Board.
All corporate acquisitions during the year have been treated as
properties purchased rather than business combinations.
Group Long Leasehold
Freehold Property
Movement in investment properties Property GBP'000 Total
for the year ended 31 December GBP'000 GBP'000
2020
Valuation at 1 January 2020 697,908 90,007 787,915
Property additions - acquisitions 44,956 - 44,956
Property additions - subsequent
expenditure 8,446 357 8,803
Property disposals (47,035) (6,393) (53,428)
(Loss)/gain on the disposal of investment
properties (1,128) 55 (1,073)
Change in fair value during the
year (43,715) (11,078) (54,793)
----------- --------------- ----------
Valuation at 31 December 2020 659,432 72,948 732,380
----------- --------------- ----------
Movement in investment properties
for the year ended 31 December
2019
Valuation at 1 January 2019 625,020 93,355 718,375
Property additions- acquisitions 89,920 - 89,920
Property additions - subsequent
expenditure 5,527 238 5,765
Property disposals (24,003) (291) (24,294)
Gain/(loss) on the disposal of
investment properties 1,679 (17) 1,662
Change in fair value during the
period (235) (3,278) (3,513)
----------- --------------- ----------
Valuation at 31 December 2019 697,908 90,007 787,915
----------- --------------- ----------
The net book value of properties disposed of during the year
amounted to GBP54,501,000 (2019: GBP22,623,000).
The historic cost of the properties is GBP 759,705,000 (31 December 2019: GBP751,638,000).
Bank borrowings are secured by charges over investment
properties held by certain asset-holding subsidiaries. The banks
also hold charges over the shares of certain subsidiaries and any
intermediary holding companies of those subsidiaries. The value of
investment properties secured at 31 December 2020 was
GBP705,130,000 (31 December 2019: GBP748,715,000).
The following table provides the fair value measurement
hierarchy for investment property:
Significant Significant
Quoted active observable unobservable
prices inputs inputs
Total (level 1) (level 2) (level 3)
Date of valuation: GBP'000 GBP'000 GBP'000 GBP'000
31 December 2020 732,380 - - 732,380
---------- ---------------- ------------ --------------
31 December 2019 787,915 - - 787,915
---------- ---------------- ------------ --------------
The hierarchy levels are defined in note 31 .
It has been determined that the entire investment properties
portfolio should be classified under the level 3 category. The
table below shows the movement in the year on the level 3
category:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Balance at the start of
the year 787,915 718,375
Additions 53,759 95,685
Disposals (53,428) (24,294)
(Loss)/gain on the disposal of
investment properties (1,073) 1,662
Change in fair value during
the year (54,793) (3,513)
-------------- --------------
Balance at the end of the
year 732,380 787,915
-------------- --------------
The determination of the fair value of the investment properties
held by each consolidated subsidiary requires the use of estimates
such as future cash flows from investment properties, which take
into consideration lettings, tenants' profiles, future revenue
streams, capital values of fixtures and fittings, any environmental
matters and the overall repair and condition of the property, and
discount rates applicable to those assets. Future revenue streams
comprise contracted rent (passing rent) and estimated rental value
after the contract period. In calculating ERV, the potential impact
of future lease incentives to be granted to secure new contracts is
taken into consideration. All these estimates are based on local
market conditions existing at the reporting date.
As at 31 December 2020, the estimated fair value of each
property has been primarily derived using comparable recent market
transactions on arm's length terms and, assessed in accordance with
the relevant parts of the RICS Valuation - Global Standards and the
RICS Valuation UK National Supplement.
Techniques used for valuing investment properties
The following descriptions and definitions relate to valuation
techniques and key observable inputs made in determining the fair
values: -
Valuation technique: market comparable method
Under the market comparable method (or market approach), a
property fair value is estimated based on comparable transactions
in the market.
Observable input: market rental
The rent at which space could be let in the market conditions
prevailing at the date of valuation range: GBP 9,000- GBP3,092,291
per annum (2019: GBP 6,000 - GBP 3,092,291 per annum).
Observable input: rental growth
The estimated average increase in rent is based on both market
estimations and contractual agreements.
Observable input: net initial yield
The initial net income from a property at the date of purchase,
expressed as a percentage of the gross purchase price including the
costs of purchase range: 0.00%- 25.64 % (2019: 0.00%-28.70%).
Unobservable inputs:
The significant unobservable inputs (level 3) are sensitive to
changes in the estimated future cash flows from investment
properties such as increases and decreases in contracted rents,
operating expenses and capital expenses, plus transactional
activity in the real estate market.
As set out within the significant accounting estimates and
judgements, the Group's property portfolio valuation is open to
judgement and is inherently subjective by nature, and actual values
can only be determined in a sales transaction.
15. Investment in subsidiaries
List of subsidiaries which are 100% owned and controlled by the
Group
Country of Ownership
incorporation %
Blythswood House LLP (in liquidation) United Kingdom 100%
Regional Commercial MIDCO Ltd Jersey 100%
RR Aspect Court Ltd Jersey 100%
RR Bristol Ltd Jersey 100%
RR Hounds Gate Ltd Jersey 100%
RR Rainbow (Aylesbury) Ltd Jersey 100%
RR Rainbow (North) Ltd Jersey 100%
RR Rainbow (South) Ltd Jersey 100%
RR Range Ltd Jersey 100%
RR Sea Dundee Ltd United Kingdom 100%
RR Sea Hanover Street Ltd United Kingdom 100%
RR Sea Lamont I Ltd Jersey 100%
RR Sea Lamont II Ltd Jersey 100%
RR Sea Lamont III Ltd Jersey 100%
RR Sea St. Helens Ltd United Kingdom 100%
RR Sea Stafford Ltd United Kingdom 100%
RR Sea Strand Ltd United Kingdom 100%
RR Sea TAPP Ltd Guernsey 100%
RR Sea TOPP Bletchley Ltd Guernsey 100%
RR Sea TOPP I Ltd Guernsey 100%
RR UK (Central) Ltd Jersey 100%
RR UK (Cheshunt) Ltd Jersey 100%
RR UK (South) Ltd Jersey 100%
RR UK (Port Solent) Ltd Jersey 100%
RR Wing Portfolio Ltd Jersey 100%
Smallbrook Queensway Limited Jersey 100%
Quay West Estate Company Limited United Kingdom 100%
Tay Properties Ltd Jersey 100%
TCP Arbos Ltd Jersey 100%
TCP Channel Ltd Jersey 100%
Tosca Chandlers Ford Ltd Jersey 100%
Tosca Garnet Ltd Jersey 100%
Tosca Glasgow II Ltd United Kingdom 100%
Tosca Midlands Ltd Jersey 100%
Tosca North East Ltd Jersey 100%
Tosca North West Ltd Jersey 100%
Tosca Scotland Ltd Jersey 100%
RR Star Ltd Jersey 100%
Tosca South West Ltd Jersey 100%
Tosca Swansea Ltd Jersey 100%
Tosca Thorpe Park Ltd Jersey 100%
Tosca UK CP II Ltd Jersey 100%
Tosca UK CP Ltd Jersey 100%
Tosca Victory House Ltd Jersey 100%
Tosca Winsford Ltd Jersey 100%
Toscafund Bennett House Ltd Jersey 100%
Toscafund Bishopgate Street Ltd Jersey 100%
Toscafund Blythswood Ltd Jersey 100%
Toscafund Brand Street Ltd Jersey 100%
Toscafund Chancellor Court Ltd Jersey 100%
Toscafund Crompton Way Ltd Jersey 100%
RR Falcon Ltd Jersey 100%
Toscafund Glasgow Ltd Jersey 100%
Toscafund Harvest Ltd Jersey 100%
Toscafund Milburn House Ltd Jersey 100%
Toscafund Minton Place Ltd Jersey 100%
Toscafund Newstead Court Ltd Jersey 100%
Toscafund Portland Street Ltd Jersey 100%
Toscafund St Georges House Ltd Jersey 100%
Toscafund St James Court Ltd Jersey 100%
Toscafund Strathclyde BP Ltd Jersey 100%
Toscafund Wallington Ltd Jersey 100%
Toscafund Welton Road Ltd Jersey 100%
Toscafund Westminster House Ltd Jersey 100%
Toscafund Sheldon Court Ltd Jersey 100%
RR Skylar Ltd Jersey 100%
All of the above entities have been included in the Group's
consolidated financial statements.
By virtue of an Amended and Restated Call Option Agreement dated
3 November 2015, the Directors consider that the Group has control
of View Castle Limited and its subsidiaries (the "View Castle
Group").
Under this option, the Group has the ability to acquire any of
the properties held by the View Castle Group by issuing an option
notice for a nominal consideration of GBP1. The recipient of the
option notice will be obliged to convey its title within one month
after receipt of the option notice.
Despite having no equity holding, the Group controls the View
Castle Group as the option agreement has the effect that the Group
is exposed to, and has rights to, variable returns from its
involvement with the View Castle Group through its power to
control.
The companies which make up the View Castle Group are as
follows:
List of subsidiaries that are controlled by the Group:
Country of Effective
incorporation Ownership
%
Castlestream Ltd United Kingdom 100%
Caststop Ltd (in liquidation) United Kingdom 100%
Credential (Baillieston) Ltd (in liquidation) United Kingdom 100%
Credential (Greenock) Ltd United Kingdom 100%
Credential (Wardpark North) Ltd United Kingdom 100%
Credential (Wardpark South) Ltd (in
liquidation) United Kingdom 100%
Credential Bath Street Ltd (in liquidation) United Kingdom 100%
Credential Charring Cross Ltd (in
liquidation) United Kingdom 100%
Credential Estates Ltd United Kingdom 100%
View Castle Ltd United Kingdom 100%
Credential Residential Finance Ltd
(in liquidation) United Kingdom 100%
Credential Tay House Ltd (in liquidation) United Kingdom 100%
Hamiltonhill Estates Ltd (in liquidation) United Kingdom 100%
Lilybank Church Ltd (in liquidation) United Kingdom 100%
Lilybank Terrace Ltd (in liquidation) United Kingdom 100%
Old Mill Studios Ltd (in liquidation) United Kingdom 100%
Old Rutherglen Road Ltd United Kingdom 100%
Rocket Unit Trust Jersey 100%
Squeeze Newco (Elmbank) Ltd (in liquidation) United Kingdom 100%
Squeeze Newco 2 Ltd United Kingdom 100%
The Legal Services Centre Ltd United Kingdom 100%
View Castle (Properties) Ltd United Kingdom 100%
View Castle (Milton Keynes) Ltd United Kingdom 100%
All of the above entities have been included in the Group's
consolidated financial statements up to 31 December 2020.
Business Combinations
There have been no new business combinations entered into in the
financial year.
16. Goodwill
31 December 31 December
2020 2019
GBP'000 GBP'000
Group
At start of year 558 1,115
Impairment (558) (557)
------------ ------------
At end of year - 558
------------ ------------
Goodwill arises on the acquisition of subsidiaries and
represents the excess of the consideration transferred, the amount
of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the
acquiree over the fair value of the identifiable net assets
acquired. If the total of consideration transferred,
non-controlling interest recognised and previously held interest
measured at fair value is less than the fair value of the net
assets of the subsidiary acquired in the case of a bargain
purchase, the difference is recognised directly in the Group's
Statement of Comprehensive Income.
Goodwill impairment reviews are undertaken annually or more
frequently if events or changes in circumstances indicate a
potential impairment. The goodwill is compared to the recoverable
amount, which is the higher of value in use and the fair value less
costs of disposal. Any impairment is recognised immediately as an
expense and is not subsequently reversed. As at 31 December 2020
the goodwill has been fully impaired to a nil value.
17. Non-current receivables
Non-current receivables on tenant loans
31 December 31 December
2020 2019
GBP'000 GBP'000
At start of year 1,348 1,926
Amounts repaid in the year (145) (578)
------------ ----------------
At end of year 1,203 1,348
------------ ----------------
Asset due within 1 year (note 18) 192 192
Asset due after 1 year 1,011 1,156
------ ------
1,203 1,348
------ ------
During 2016, the Group entered into a loan agreement with a
tenant for GBP1,926,000. The loan is subject to interest of 4%
above the base rate of the Bank of Scotland on late payments and is
repayable in instalments over ten years.
18. Trade and other receivables
31 December 31 December
2020 2019
GBP'000 GBP'000
Gross amount receivable from tenants 11,768 8,206
Less provision for impairment (1,458) (891)
------------ ----------------
Net amount receivable from tenants 10,310 7,315
Current receivables - tenant loans (note
17 ) 192 192
Value added tax - 1,415
Income tax 52 70
Other receivables 1,458 6,385
Prepayments 21,678 16,781
------------ ----------------
33,690 32,158
------------ ----------------
The maximum exposure to credit risk at the reporting date is the
carrying value of the amounts disclosed above. The Group does not
hold any collateral as security.
The aged analysis of trade receivables that are past due but not
impaired was as follows:
31 December 31 December
2020 2019
GBP'000 GBP'000
< 30 days 6,000 4,369
30-60 days 915 1,055
> 60 days 4,853 2,782
------------ ------------
11,768 8,206
Less provision for impairment (1,458) (891)
------------ ------------
10,310 7,315
------------ ------------
The Directors consider the fair value of receivables equals
their carrying amount.
The table above shows the aged analysis of trade receivables
included in the table above which are past due but not impaired.
These relate to tenants for whom there is no recent history of
default.
Provision for impairment of trade receivables movement as
follows:
31 December 31 December
2020 2019
GBP'000 GBP'000
At start of year 891 1,115
Provision for impairment in the year 1,787 562
Receivables written off as uncollectable (719) (537)
Unused provision reversed (501) (249)
------------ ----------------
At end of year 1,458 891
------------ ----------------
Other categories within trade and other receivables do not
include impaired assets.
19. Cash and cash equivalents
31 December 31 December
2020 2019
GBP'000 GBP'000
Group
Cash held at bank 54,958 34,731
Restricted cash held at bank 12,415 2,517
------------ ------------
At end of year 67,373 37,248
------------ ------------
Restricted cash balances of the Group comprise:
-- GBP 10,752,000 (2019: GBP124,000) of funds held in blocked
bank accounts which are controlled by the Group's lenders and are
released to free cash once certain loan conditions are met. The
restricted funds arose on net proceeds from investment property
disposals and were released after the year end.
-- GBP 1,663,000 (2019: GBP2,312,000) of funds which represent tenants' rental deposits.
-- GBP nil (2019: GBP81,000) is held in other locked accounts.
All restricted cash balances will be available before 31 March
2021.
In addition, GBP7,462,000 (2019 GBP4,225,000) of cash funds
represent service charge income received from tenants for
settlement of future service charge expenditure. These amounts are
not analysed as restricted balances.
20. Trade and other payables
31 December 31 December
2020 2019
GBP'000 GBP'000
Withholding tax due on dividends paid 572 1,569
Dividends announced but not paid 6,473 -
Trade payables 2,262 3,650
Other payables 11,205 8,544
Value added tax 3,662 -
Accruals 9,635 8,390
------------ ----------------
At end of year 33,809 22,153
------------ ----------------
Other payables principally include rent deposits held and
service charge costs.
21. Deferred income
Deferred rental income represents rent received in advance from
tenants.
22. Deferred tax liabilities
31 December 31 December
2020 2019
GBP'000 GBP'000
Deferred tax 690 736
------------ ------------
690 736
------------ ------------
The movement on deferred tax liability
is shown below:
At start of year 736 634
Deferred tax on the valuation of investment
properties (46) 102
------------ --------------
At end of year 690 736
------------ --------------
23. Bank and loan borrowings
Bank borrowings are secured by charges over investment
properties held by certain asset-holding subsidiaries. The banks
also hold charges over the shares of certain subsidiaries and any
intermediary holding companies of those subsidiaries. Any
associated fees in arranging the bank borrowings unamortised as at
the year end are offset against amounts drawn on the facilities as
shown in the table below:
31 December 31 December
2020 2019
GBP'000 GBP'000
Bank borrowings drawn at start of year 294,000 290,487
Bank borrowings drawn 39,200 22,911
Bank borrowings repaid (17,029) (19,398)
------------ ------------
Bank borrowings drawn at end of year 316,171 294,000
Less: unamortised costs at start of year (6,144) (4,888)
Less: loan issue costs incurred in the
year (192) (2,168)
Add: loan issue costs amortised in the
year 857 912
------------ ------------
At end of year 310,692 287,856
------------ ------------
Maturity of bank borrowings
Repayable within 1 year - -
Repayable between 1 to 2 years - -
Repayable between 2 to 5 years 52,349 48,584
Repayable after more than 5 years 263,822 245,416
Unamortised loan issue costs (5,479) (6,144)
------------ ------------
310,692 287,856
------------ ------------
As detailed in note 25, the Group has GBP50,000,000 retail
eligible bonds in issue.
The table below lists the Group's borrowings.
Gross
Lender Original Outstanding Maturity loan to Annual interest Amortisation
facility debt* date value** rate
GBP'000 GBP'000 %
2.15% over
Royal Bank of 3mth GBP Mandatory
Scotland 55,000 52,349 Jun -24 45.7% LIBOR prepayment
Scottish Widows
Ltd & Aviva Investors
Real Estate Finance 165,000 165,000 Dec-27 47.4% 3.28% Fixed None
Scottish Widows
Ltd 36,000 36,000 Dec-28 41.0% 3.37% Fixed None
2.20% over
3mth GBP Mandatory
Santander UK 65,870 62,822 Jun-29 39.8% LIBOR prepayment
Total bank borrowings 321,870 316,171
Retail eligible
bond 50,000 50,000
----------- --------------
Total 371,870 366,171
----------- --------------
LIBOR = London Interbank Offered Rate (Sterling)
MP = Mandatory prepayment
* Before unamortised debt issue costs
** Based upon Cushman & Wakefield property valuations
The weighted average term to maturity of the Group's debt at the
period end was 6.4 years (31 December 2019: 7.3 years). The
weighted average interest rate payable by the Group on its debt
portfolio, excluding hedging costs, as at the period end was 3.1 %
(31 December 2019: 3.4%).
The Group weighted average interest rate, including the retail
eligible bonds and hedging costs at the period end, amounted to 3.3
% per annum (31 December 2019: 3.5% per annum).
The Group has been in compliance with all of the financial
covenants relating to the above facilities as applicable throughout
the year covered by these consolidated financial statements. Each
facility has distinct covenants which generally include: historic
interest cover, projected interest cover, LTV cover and debt
service cover. A breach of agreed covenant levels would typically
result in an event of default of the respective facility, giving
the lender the right, but not the obligation, to declare the loan
immediately due and payable. Where a loan is repaid in these
circumstances, early repayment fees will apply, which are generally
based on a percentage of the loan repaid or calculated with
reference to the interest income foregone by the lenders as a
result of the repayment.
As shown in note 26, the Group uses a combination of interest
rate swaps and fixed rate bearing loans to hedge against cash flow
interest rate risks. The Group's exposure to interest rate
volatility is minimal.
In line with recent announcements from the Bank of England and
the FCA, the Royal Bank of Scotland and Santander UK borrowings
will be transitioning from the London Interbank Offer Rate (LIBOR)
benchmark to Sterling Overnight Index Average (SONIA) benchmark by
31 December 2021. There is expected to be negligible cost involved
in the borrowing facility transition and the respective hedge
instrument amendments.
24. Zero dividend preference shares
31 December 31 December
2020 2019
GBP'000 GBP'000
At start of year - 39,816
Amortisation of acquisition costs - 3
Accrued capital entitlement - 60
Repayment - (39,879)
-------------- ------------
At end of year - -
-------------- ------------
The Group entity, Regional REIT ZDP PLC, had 30,000,000 zero
dividend preference shares ("ZDP shares") in issue, which were
listed on the London Stock Exchange (LSE: RGLZ). The ZDP shares
were issued at 100 pence per share. The ZDP shares had an
entitlement to receive a fixed cash amount on 9 January 2019, being
the maturity date, but did not receive any dividends or income
distributions. Additional capital accrued to the ZDP shares on a
daily basis at a rate equivalent to 6.5% per annum, resulting in a
final capital entitlement of 132.9 pence per share, which was paid
on 9 January 2019.
25. Retail Eligible Bonds
The Company has in issue GBP50,000,000 4.5% Retail Eligible
Bonds with a maturity date of 6 August 2024. These unsecured Bonds
are listed on the London Stock Exchange ORB platform.
31 December 31 December
2020 2019
GBP'000 GBP'000
Bond principal at start of year 50,000 50,000
Unamortised issue costs at start of year (714) (864)
Issue costs - (7)
Amortisation of issue costs 155 157
At end of year 49,441 49,286
------------ ------------
26. Derivative financial instruments
Interest rate caps and swaps are in place to mitigate the
interest rate risk that arises as a result of entering into
variable rate borrowings.
31 December 31 December
2020 2019
GBP'000 GBP'000
Group
Fair value at start of year (1,816) (337)
Revaluation in the year (2,523) (1,479)
------------ ------------
Fair value at end of year (4,339) (1,816)
------------ ------------
The calculation of fair value of interest rate caps and swaps is
based on the following calculation: the notional amount multiplied
by the difference between the swap rate and the current market rate
and then multiplied by the number of years remaining on the
contract and discounted.
The table below details the hedging and swap notional amounts
and rates against the details of the Group's loan facilities.
Lender Original Outstanding Maturity Annual Interest Notional
Facility Debt Date rate Amount Rate
GBP'000 GBP'000 % GBP'000 %
Royal Bank
of Scotland 55,000 52,349 Jun-24 2.15% over GBP27,500 1.26%
3 months
GBP LIBOR GBP27,500 1.26%
Scottish
Widows Ltd.
& Aviva Investors
Real Estate
Finance 165,000 165,000 Dec-27 3.28% Fixed n/a n/a
Scottish
Widows Ltd 36,000 36,000 Dec-28 3.37% Fixed n/a n/a
Santander
UK 65,870 62,822 Jun-29 2.20% over GBP32,935 1.45%
3 months
GBP LIBOR GBP32,935 1.45%
----------- --------------
Total 321,870 316,171
----------- --------------
LIBOR = London Interbank Offered Rate (Sterling)
As at 31 December 2020, the swap notional arrangements were GBP
60.44 m (31 December 2019: GBP60.50m) and the cap notional
arrangements amounted to GBP60.44m (31 December 2019:
GBP60.50m).
The Group weighted average effective interest rate was 3.3 % (31
December 2019: 3.5 %) inclusive of hedging costs.
The maximum exposure to credit risk at the reporting date is the
fair value of the derivative liabilities.
It is the Group's target to hedge at least 90% of the total debt
portfolio using interest rate derivatives and fixed-rate
facilities. As at the year end, the total proportion of hedged debt
equated to 101.8 % (31 December 2019: 109.5%), as shown below. The
over hedged position has arisen as a result of the full RBS and
Santander facilities (including headroom) being hedged but that the
excess relates to Interest Rate Caps which have no ongoing cost for
the Group.
31 December 31 December
2020 2019
GBP'000 GBP'000
Total bank borrowings 316,171 294,000
------------ ------------
Notional value of interest rate caps and
swaps 120,870 121,000
Value of fixed rate debts 201,000 201,000
------------ ------------
321,870 322,000
------------ ------------
Proportion of hedged debt 101.8% 109.5%
------------ ------------
The Group has not adopted hedge accounting.
27. Leases
As from 1 January 2019, the Group has adopted IFRS16 accounting
treatment as described in note 2.4.
31 December 31 December
2020 2019
Right of use asset GBP'000 GBP'000
At start of year 16,351 -
Value recognised at 1 January 2020 - 16,545
Fair value movement (195) (194)
16,156 16,351
------------ ------------
31 December 31 December
2020 2019
Lease liability GBP'000 GBP'000
At start of year 16,510 -
Value recognised at 1 January 2020 - 16,545
Lease payments (618) (618)
Interest charges 581 583
16,473 16,510
------------ ------------
The Group's lease commitments which are now represented by the
right of use asset and lease liability are spread across 13
separate leases with the two largest leases at Basingstoke and
Witham making up 39 % of the balance. Total commitments on leases
in respect of land and buildings are as follows:
31 December 31 December
2020 2019
Group GBP'000 GBP'000
Payable within 1 year 618 618
Payable between 1 - 2 years 618 618
Payable between 2 - 5 years 1,854 1,854
Payable after 5 years 50,346 50,964
------------ ------------
53,436 54,054
------------ ------------
28. Stated capital
Stated capital represents the consideration received by the
Company for the issue of Ordinary Shares.
Group 31 December 31 December
2020 2019
Issued and fully GBP'000 GBP'000
paid shares of no
par value
At start of the year 430,819 370,316
Shares issued 23 July 2019 - 62,500
Share issue costs - (1,997)
------------ ------------
At end of the year 430,819 430,819
------------ ------------
Number of shares in issue
At start of the year 431,506,583 372,821,136
Shares issued 23 July 2019 - 58,685,447
At end of the year 431,506,583 431,506,583
------------ ------------
29. Net asset value per share (NAV)
Basic NAV per share is calculated by dividing the net assets in
the Statement of Financial Position attributable to ordinary equity
holders of the parent by the number of Ordinary Shares outstanding
at the end of the year.
In October 2019, EPRA issued new best practice recommendations
that replaced EPRA net asset value (NAV) with three new measures of
net asset value. The Group has determined that EPRA net tangible
assets (NTA) is the most relevant measure hence this is now
reported in place of EPRA NAV. Prior year comparatives are stated
under the new definition on EPRA NTA. Further detail of the new
EPRA performance measures can be found in the appendix within the
full Annual Report .
Net asset values have been calculated as follows:
Group 31 December 31 December
2020 2019
GBP'000 GBP'000
Net asset value per Consolidated Statement
of Financial Position 420,582 483,728
Adjustment for calculating EPRA net tangible
assets:
Derivative financial instruments 4,339 1,816
Deferred tax liability 690 736
Goodwill - (558)
-------------- --------------
EPRA Net Tangible Assets 425,611 485,722
-------------- --------------
Number of Ordinary Shares
in issue 431,506,583 431,506,583
Net asset value per share - basic and diluted 97.5p 112.1p
EPRA Net Tangible Assets per share - basic
and diluted 98.6p 112.6p
30. Notes to the Statement of Cash Flows
Reconciliation of changes in liabilities to cash flows arising
from financing activities
31 December 2020
Bank loans Retail Derivative
and borrowings Eligible financial Lease
GBP'000 Bonds instruments liabilities Total
GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January 2020 287,856 49,286 1,816 16,510 355,468
----------------- ----------- -------------- -------------- ----------
Changes from financing
cash flows:
Bank and Bond borrowings
advanced 39,200 - - - 39,200
Bank borrowings repaid (17,029) - - - (17,029)
Bank and Bond borrowing
costs paid (192) - - - (192)
Lease payments - - - (618) (618)
----------------- ----------- -------------- -------------- ----------
Total changes from financing
cash flows 21,979 - - (618) 21,361
----------------- ----------- -------------- -------------- ----------
Amortisation of issue
costs 857 155 - - 1,012
Unwinding of discount - - - 581 581
Change in fair value - - 2,523 - 2,523
----------------- ----------- -------------- -------------- ----------
Total other changes 857 155 2,523 581 4,116
----------------- ----------- -------------- -------------- ----------
Balance at 31 December
2020 310,692 49,441 4,339 16,473 380,945
----------------- ----------- -------------- -------------- ----------
31 December 2019 Zero dividend
Bank loans preference Retail Derivative
and borrowings shares Eligible financial Lease
GBP'000 GBP'000 Bonds instruments liabilities Total
GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
January
2019 285,599 39,816 49,136 337 16,545 391,433
----------------- -------------- ----------- -------------- ---------------- -----------
Changes from
financing
cash flows:
Zero Dividend
Preference
Shareholders
repaid - (39,879) - - - (39,879)
Bank and Bond
borrowings
advanced 22,911 - - - - 22,911
Bank borrowings
repaid (19,398) - - - - (19,398)
Bank and Bond
borrowing
costs paid (2,168) - (7) - - (2,175)
Lease payments - - - - (618) (618)
----------------- -------------- ----------- -------------- ---------------- -----------
Total changes
from
financing cash
flows 1,345 (39,879) (7) - (618) (39,159)
----------------- -------------- ----------- -------------- ---------------- -----------
Amortisation of
issue costs 912 3 157 - - 1,072
Accrued capital
entitlement - 60 - - - 60
Unwinding of
discount - - - - 583 583
Change in fair
value - - - 1,479 - 1,479
----------------- -------------- ----------- -------------- ---------------- -----------
Total other
changes 912 63 157 1,479 583 3,194
----------------- -------------- ----------- -------------- ---------------- -----------
Balance at 31
December
2019 287,856 - 49,286 1,816 16,510 355,468
----------------- -------------- ----------- -------------- ---------------- -----------
31. Financial risk management
31.1 Financial instruments
The Group's principal financial assets and liabilities are those
that arise directly from its operations: trade and other
receivables, trade and other payables and cash and cash
equivalents. The Group's other principal financial liabilities are
bank and other loan borrowings, amounts due to interest rate
derivatives, the main purpose of which is to finance the
acquisition and development of the Group's investment property
portfolio.
Set out below is a comparison by class of the carrying amounts
of the Group's financial instruments that are carried in the
financial statements and their fair value:
Group 31 December 2020 31 December 2019
Carrying Fair Carrying Fair
value value value value
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets - measured
at amortised cost
Trade and other receivables 12,971 12,971 16,463 16,463
Cash and short-term deposits 67,373 67,373 37,248 37,248
Financial liabilities
- measured at amortised
cost
Trade and other payables (33,237) (33,237) (20,584) (20,584)
Bank and loan borrowings (310,692) (327,409) (287,856) (294,875)
Retail eligible bonds (49,441) (49,500) (49,286) (51,860)
Lease liability (16,473) (16,473) (16,510) (16,510)
Financial liabilities
- measured at fair value
through profit or loss
Interest rate derivatives (4,339) (4,339) (1,816) (1,816)
The following financial liabilities are recorded in the
Consolidated Statement of Financial Position at amortised cost but
their fair value is different as disclosed above. Their fair values
are determined as follows:
-- The fair value of bank and loan borrowings is determined by
reference to mark to market valuations provided by the lenders.
-- The fair value of Retail Eligible Bonds is determined by their published market value.
-- The fair value of the lease liability has been determined as
the present value of future cash flows discounted using the Group's
incremental borrowing rate.
The following financial liabilities are recorded in the
Consolidated Statement of Financial Position at fair value which is
determined as follows:
-- The fair value of interest rate derivatives is recorded in
the Consolidated Statement of Financial Position and is determined
by forming an expectation that interest rates will exceed strike
rates and discounting these future cash flows at the prevailing
market rates as at the year end.
Fair value hierarchy
The following table provides the fair value measurement
hierarchy for financial liabilities measured at fair value through
profit or loss.
Significant Significant
Quoted active observable unobservable
prices inputs inputs
Total (level 1) (level 2) (level 3)
GBP'000 GBP'000 GBP'000 GBP'000
31 December 2020
Interest rate derivatives (4,339) - (4,339) -
31 December 2019
Interest rate derivatives (1,816) - (1,816) -
---------- ---------------- ------------ --------------
The different levels are defined as follows.
Level 1: Quoted (unadjusted) market prices in active markets for
identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable.
For assets and liabilities that are recognised in the
consolidated financial statements on a recurring basis, the Group
determines whether transfers have occurred between levels in the
hierarchy by reassessing categorisation at the end of each
reporting period.
There have been no transfers between levels during the year.
31.2 Risk management
The Group is exposed to market risk (including interest rate
risk), credit risk and liquidity risk. The Board of Directors
oversees the management of these risks. The Board of Directors
reviews and agrees policies for managing each of these risks that
are summarised below.
31.3 Market risk
Market risk is the risk that the fair values of financial
instruments will fluctuate because of changes in market prices. The
financial instruments held by the Group that are affected by market
risk are principally the Group's bank balances along with a number
of interest rate swaps entered into to mitigate interest rate
risk.
The Group's interest rate risk arises from long-term borrowings
issued at variable rates, which expose the Group to cash flow
interest rate risk. Borrowings issued at fixed rates expose the
Group to fair value interest rate risk. The Group manages its cash
flow interest rate risk by using floating to fixed interest rate
swaps, interest rate caps and interest rate swaps. Interest rate
swaps have the economic effect of converting borrowings from
floating rates to fixed rates. Interest rate caps limit the
exposure to a known level.
If interest rates were to increase by the following rates, this
would increase the annual interest charge to the Group and thus
reduce profits and net assets as follows:
Interest rate increase Increase to the annual interest
charge
31 December 31 December
2020 2019
GBP'000 GBP'000
0.00% - -
0.25% 137 81
0.50% 274 155
0.75% 411 184
1.00% 547 212
The Group's borrowings with Royal Bank of Scotland and Santander
UK will be transitioning from the London Interbank Offer Rate
(LIBOR) benchmark to Sterling Overnight Index Average (SONIA)
benchmark by 31 December 2021. There is expected to be negligible
cost involved in the borrowing facility transition and the
respective hedge instrument amendments.
31.4 Credit risk
Credit risk is the risk that a counterparty will not meet its
obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risk
from both its leasing activities and financing activities,
including deposits with banks and financial institutions. Credit
risk is mitigated by tenants being required to pay rentals in
advance under their lease obligations. The credit quality of the
tenant is assessed based on an extensive credit rating scorecard at
the time of entering into a lease agreement.
Outstanding trade receivables are regularly monitored. The
maximum exposure to credit risk at the reporting date is the
carrying value of each class of financial asset.
31.5 Credit risk related to trade receivables
Trade receivables, primarily tenant rentals, are presented in
the Group's Statement of Financial Position net of provisions for
impairment. Credit risk is primarily managed by requiring tenants
to pay rentals in advance and performing tests around strength of
covenant prior to acquisition.
31.6 Credit risk related to financial instruments and cash
deposits
One of the principal credit risks of the Group arises with the
banks and financial institutions. The Board of Directors believes
that the credit risk on short-term deposits and current account
cash balances is limited because the counterparties are banks, who
are committed lenders to the Group, with high credit ratings
assigned by international credit-rating agencies.
The list of bankers for the Group, with their latest Fitch
credit ratings, was as follows:
Bankers Fitch Ratings
Barclays A+ Negative
Royal Bank of Scotland A+ Negative
Santander UK A+ Negative
Aviva A+ Stable
Scottish Widows A+ Negative
Bank of Scotland plc A+ Negative
31.7 Liquidity risk
Liquidity risk arises from the Group's management of working
capital and, going forward, the finance charges and principal
repayments on its borrowings. It is the risk that the Group will
encounter difficulty in meeting its financial obligations as they
fall due, as the majority of the Group's assets are investment
properties and are therefore not readily realisable. The Group's
objective is to ensure that it has sufficient available funds for
its operations and to fund its capital expenditure. This is
achieved by continuous monitoring of forecast and actual cash flows
by management.
The table below summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted
payments:
Group at 31 December Within Between Between After
2020 1 year 1 to 2 years 2 to 5 5 years Total
GBP'000 GBP'000 years GBP'000 GBP'000
GBP'000
Trade and other payables (33,237) - - - (33,237)
Bank borrowings (9,262) (9,262) (79,509) (283,232) (381,265)
Interest rate derivatives (805) (805) (1,898) (1,611) (5,119)
Retail eligible bonds (2,250) (2,250) (54,500) - (59,000)
Lease liability (618) (618) (1,854) (50,346) (53,436)
--------- -------------- -------------- ---------- ----------
(46,172) (12,935) (137,761) (335,189) (532,057)
--------- -------------- -------------- ---------- ----------
Group at 31 December Within Between Between After
2019 1 year 1 to 2 years 2 to 5 years 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade and other payables (20,584) - - - (20,584)
Bank borrowings (9,579) (9,579) (76,588) (273,944) (369,690)
Interest rate derivatives (487) (483) (1,111) - (2,081)
Retail eligible bonds (2,250) (2,250) (56,750) - (61,250)
Lease liability (618) (618) (1,854) (50,964) (54,054)
--------- -------------- -------------- ---------- ----------
(33,518) (12,930) (136,303) (324,908) (507,659)
--------- -------------- -------------- ---------- ----------
The maturity dates of all bank borrowings are disclosed in note
23.
The maturity date of the retail eligible bonds is disclosed in
note 25.
The range of maturity dates of the lease liability payments is
between 10 and 105 years.
32. Capital management
The primary objective of the Group's capital management is to
ensure that it remains a going concern and continues to qualify for
UK REIT status.
The Group's capital is represented by reserves and bank
borrowings. The Board, with the assistance of the Investment and
Asset Managers, monitors and reviews the Group's capital so as to
promote the long-term success of the business, facilitate
expansion, deliver a quarterly dividend distribution and to
maintain sustainable returns for Shareholders.
The Group's policy on borrowings is as follows: the level of
borrowing will be on a prudent basis for the asset class and will
seek to achieve a low cost of funds, while maintaining flexibility
in the underlying security requirements and the structure of both
the portfolio and of Regional REIT.
Based on current market conditions, the Board will target Group
net borrowings of 40% of Investment Property Values at any time.
However, the Board may modify the Group's borrowing policy
(including the level of gearing) from time to time in light of
then-current economic conditions, relative costs of debt and equity
capital, fair value of the Company's assets, growth and acquisition
opportunities or other factors the Board deems appropriate. The
Group's net borrowings may not exceed 50% of the Investment
Property Values at any time without the prior approval of Ordinary
Shareholders in a General Meeting.
The optimal debt financing structure for the Group will have
consideration for key metrics including: fixed or floating interest
rate charged, debt type, maturity profile, substitution rights,
covenant and security requirements, lender type, diversity and the
lender's knowledge and relationship with the property sector.
33. Operating leases
The future minimum lease payments receivable under
non-cancellable operating leases in respect of the Group's property
portfolio are as follows:
31 December 31 December
2020 2019
Group GBP'000 GBP'000
Receivable within 1 year 50,739 50,038
Receivable between 1 - 2 years 38,103 41,696
Receivable between 2 - 5 years 57,404 61,181
Receivable after 5 years 40,102 36,202
------------ ------------
186,348 189,117
------------ ------------
The Group has in excess of 890 operating leases. The number of
years remaining on these operating leases varies between 1 and 80
years. The amounts disclosed above represent total rental income
receivable up to the next lease break point on each lease. If a
tenant wishes to end a lease prior to the break point, a surrender
premium will be charged to cover the shortfall in rental income
received.
34. Segmental information
After a review of the information provided for management
purposes, it was determined that the Group has one operating
segment and therefore segmental information is not disclosed in
these consolidated financial statements.
35. Transactions with related parties
Transactions with the Directors
Directors' remuneration is disclosed within the Remuneration
Report and note 8 to the financial statements. Directors'
beneficial interests in the Ordinary Shares of the Company are
disclosed within the Directors' Report. During the year, the
following dividends were received by the Directors (and their
spouses or minor children) on the holdings:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Kevin McGrath 20 21
William Eason 13 17
Daniel Taylor 42 42
Stephen Inglis 63 103
Frances Daley 3 3
Timothy Bee 14 13
-------------- --------------
Total 155 199
-------------- --------------
Transactions with the Asset Manager, London & Scottish
Property Investment Management Limited and the Property Manager,
London & Scottish Property Asset Management Limited
Stephen Inglis is a non-executive Director of Regional REIT
Limited, as well as being the Chief Executive Officer of London
& Scottish Property Investment Management Limited ("LSPIM") and
a director of London & Scottish Property Asset Management
Limited. The former company has been contracted to act as the Asset
Manager of the Group and the latter as the Property Manager.
In consideration for the provision of services provided, the
Asset Manager is entitled in each financial year (or part thereof)
to 50% of an annual management fee on a scaled rate of 1.1% of the
EPRA net asset value, reducing to 0.9% on net assets over
GBP500,000,000. The fee shall be payable in cash quarterly in
arrears.
In respect of each portfolio property, the Asset Manager has
procured and shall, with the Company in future, procure that London
& Scottish Property Asset Management Limited is appointed as
the Property Manager. A property management fee of 4% per annum is
charged by the Property Manager on a quarterly basis: 31 March, 30
June, 30 September, and 31 December, based upon the gross rental
yield. Gross rental yield means the rents due under the property's
lease for the peaceful enjoyment of the property, including any
value paid in respect of rental renunciations but excluding any
sums paid in connection with service charges or insurance
costs.
The Asset Manager is also entitled to a Performance Fee. Details
of the Performance Fee are given below.
The following tables show the fees charged in the year and the
amount outstanding at the end of the year:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Asset management fees charged* 2,579 2,356
Property management fees charged* 2,266 2,280
Performance fees charged - -
-------------- --------------
Total 4,845 4,636
-------------- --------------
31 December 31 December
2020 2019
GBP'000 GBP'000
Total fees outstanding 1,190 1,275
------------ ------------
* Including irrecoverable VAT charged where appropriate.
Transactions with the Investment Manager, Toscafund Asset
Management LLP
Tim Bee is a non-executive Director of the Company, as well as
being Chief Legal Counsel of the Investment Manager.
In consideration for the provision of services provided, the
Investment Manager is entitled in each financial year (or part
thereof) to 50% of an annual management fee on a scaled rate of
1.1% of the EPRA net asset value, reducing to 0.9% on net assets
over GBP500,000,000. The fee is payable in cash quarterly in
arrears.
The Investment Manager is also entitled to a Performance Fee.
Details of the Performance Fee are given below.
The following tables show the fees charged in the year and the
amount outstanding at the end of the year:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Investment management fees charged 2,577 2,356
Performance fees charged - -
Total 2,577 2,356
-------------- --------------
31 December 31 December
2020 2019
GBP'000 GBP'000
Total fees outstanding 612 591
-------------- --------------
Performance Fee
The Asset Manager and the Investment Manager are each entitled
to 50% of a performance fee. The fee is calculated at a rate of 15%
of the total shareholder return in excess of the hurdle rate of 8%
per annum for the relevant performance period. Total shareholder
return for any financial year consists of the sum of any increase
or decrease in EPRA NAV per Ordinary Share and the total dividends
per Ordinary Share declared in the financial year. A performance
fee is only payable in respect of a performance period where the
EPRA NAV per Ordinary Share exceeds the high-water mark which is
equal to the greater of the highest year-end EPRA NAV Ordinary
Share in any previous performance period. The performance fee was
calculated initially on 31 December 2018 and is assessed annually
thereafter.
The performance fees are now payable 34% in cash and 66% in
Ordinary Shares, at the prevailing price per share, with 50% of the
shares locked-in for one year and 50% of the shares locked-in for
two years
No performance fee has been earned for the years ending 31
December 2020 or 31 December 2019.
Company Information
Directors
Kevin McGrath (Chairman and Independent Non-Executive
Director)
William Eason (Senior Independent Non-Executive Director,
Management Engagement and Remuneration Committee Chairman)
Daniel Taylor (Independent Non-Executive Director)
Frances Daley (Independent Non-Executive Director, Audit
Committee Chairman)
Stephen Inglis (Non-Executive Director)
Timothy Bee (Non-Executive Director)
Registered office
Regional REIT Limited
Mont Crevelt House
Bulwer Avenue
St. Sampson
Guernsey
GY2 4LH
Regional REIT Limited:
ISIN: GG00BYV2ZQ34
SEDOL: BYV2ZQ3
Legal Entity Identifier: 549300D8G4NKLRIKBX73
Company Website
www.regionalreit.com
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