TIDMRGL
RNS Number : 9205L
Regional REIT Limited
16 September 2021
16 September 2021
Regional REIT Limited
("Regional REIT", the "Group" or the "Company")
2021 Interim Results
Portfolio transition to office focus largely completed, well
positioned to deliver capital growth
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 half year results for the six months ended 30
June 2021.
Financial highlights:
Income focused - A robust performance from an increasingly
diversified and growing regional office portfolio, positioned
extremely well to benefit from 'the return to the office'
-- Total shareholder return of 7.9% for the period
-- Total rent collection for the period was 99.0%* of rent due,
ahead of the 93.7% of rent collected for the equivalent period in
2020
-- Rent roll remained stable at GBP61.1m (31 December 2020: GBP64.2m)
-- Net initial yield was 6.7% (31 December 2020: 6.9%)
-- EPRA EPS increased to 3.0p per share ("pps") for the period (30 June 2020: 2.6pps)
-- H1 dividend declared of 3.2pps (30 June 2020: 3.4pps),
targeting an expected full year dividend of 6.5pps
-- EPRA NTA per share of 99.1pps (31 December 2020: 98.6pps);
IFRS NAV of 98.5pps (31 December 2020: 97.5pps)
-- Group's cost of debt 3.3% (31 December 2020: 3.3%)
-- Net LTV of 39.8% (31 December 2020: 40.8%), slightly below target of 40%
-- Weighted average debt duration in line with objectives at 6.0
years (31 December 2020: 6.4 years)
-- Fair value of the portfolio valuation GBP729.1m (31 December 2020: GBP732.4m)
-- Operating profit before gains and losses on property assets
and other investments for the period amounted to GBP19.9m (30 June
2020: GBP18.1m)
*As at 10 September 2021, rent collections to 30 June 2021
amounted to 99.0%; actual rent collected 96.8%, monthly rents 0.4%
and deals agreed of 1.8%.
Operational highlights:
Increasing office exposure and generating attractive
dividends
-- Another period of strong operational performance,
demonstrating the capabilities of our active asset management
approach and the quality of our occupier base
-- Prioritising the maintenance of occupancy levels, while
providing safe and vibrant spaces for occupiers to thrive
within
-- Post the period end, significant progress made in exiting
industrial and retail holdings to focus entirely on core regional
offices. At the period end, 83.2% (31 December 2020: 83.5%) of the
portfolio by valuation was offices, 11.3% industrial (31 December
2020: 11.1%), 4.1% retail (31 December 2020: 4.1%) and 1.4% other
(31 December 2020:1.3%)
-- By income, office assets accounted for 82.5% of gross rental
income (31 December 2020: 82.3%) and industrial assets for 9.8% (31
December 2020: 10.3%)
-- A diversified portfolio of 151 properties (31 December 2020:
153), 1,214 units (31 December 2020: 1,245) and 847 occupiers (31
December 2020: 898)
-- The Group made disposals amounting to GBP10.8m (net of costs)
during the period. The proceeds from these disposals have since
been recycled into acquiring properties to further diversify the
occupier base
-- At the period end, the portfolio valuation split by region
was as follows: England 77.7% (31 December 2020: 78.3%), Scotland
17.9% (31 December 2020: 17.3%) and the balance of 4.4% (31
December 2020: 4.4%) was in Wales
-- EPRA Occupancy rates decreased to 85.7% (31 December 2020: 89.4%)
-- During the period, the Company completed 25 new lettings.
Once fully occupied, these will provide an additional gross rental
income of c. GBP1.3m
Post period end
-- On 26 August 2021, the Company declared the Q2 2021 dividend
of 1.60pps, to be paid to shareholders on 15 October 2021
-- On 31 August 2021, the Company acquired a significant
regional office portfolio for GBP236m, comprised of 31 high quality
multi-let offices, reflecting a NIY of 7.8% and a reversionary
yield of 11.0%
-- Several disposals were also made post period end, including:
o Arena Point - Sold for GBP10.65m, representing a substantial
uplift of 15.8% against the valuation as at 31 December 2020
o Industrial portfolio - Sold for GBP45.0m, reflecting an uplift
of 7.5% above the valuation as at 31 December 2020
o Trident Retail Park, Birmingham - Sold for GBP3.52m reflecting
an uplift of 63.7% above the valuation as at 31 December 2020
o Crompton Way, Irvine - Sold for GBP1.85m in August 2021,
reflecting an uplift of 85.0% against the valuation as at 31
December 2020
o Freebournes Drive, Witham - The contracted GBP3.4m sale is
expected to complete by the end of September 2021, reflecting an
uplift of 20.1% above the valuation as at 31 December 2020
-- Following the completion of the post-period end acquisitions
and disposals, the estimated current weightings based upon
valuations as at 30 June 2021 were approximately 90.6% offices and
9.4% non-core assets
Since 30 June 2021, the Company has made a number of successful
new lettings and lease renewals:
-- Cyan Building, Rotherham - A lease has been signed with
National Westminster Bank Plc for 67,458 sq. ft.. The lease is for
two years with a break option any time after December 2022 at a
rental income of GBP425,000 per annum ("pa") (GBP6.20/ sq.
ft.).
-- Ashby Business Park, Ashby De La Zouch - Hill Rom UK Ltd.
renewed its lease for 29,358 sq. ft. for a further 12 months at a
rental income of GBP366,975 pa (GBP12.50/ sq. ft.).
-- The Coach Works, Leeds - A new lease has been signed with
Pentest People Ltd. for 3,304 sq. ft.. The lease is for five years
with a break option in August 2024 at a rental income of GBP84,600
pa (GBP25.61/ sq. ft.) plus an additional GBP4,000 pa for two car
parking spaces.
-- Advantage, Reading - 3,255 sq. ft. of previously vacant space
has been let to Barrett & Co Solicitors LLP. The new lease is
for 10 years with a break option in November 2027 at a rent of
GBP87,288 pa (GBP26.82/ sq. ft.).
-- Genesis Business Park, Woking - A new lease has been signed
with Metamark (UK) Ltd. for 2,622 sq. ft.. The lease is for five
years with a break option in July 2024 at a rent of GBP61,617 pa
(GBP23.50/ sq. ft.).
-- Mandale Business Park, Durham - A new lease has been signed
with Partner Construction Ltd. for 5,000 sq. ft.. The lease is for
five years with a break option in August 2024 at a rent of
GBP57,500 pa (GBP11.50/sq. ft.).
Stephen Inglis, CEO of London and Scottish Property Investment
Management, the Asset Manager, commented:
"I am pleased to report that the Company has once again
demonstrated the resilience of its business model and it performed
well during the first half of 2021, against the testing market
environment. Regional REIT is now poised to benefit from an
anticipated change in sentiment as most employees return to their
offices.
I would particularly like to thank our team for their ongoing
commitment in assisting occupiers throughout this challenging
period and who are continuing to successfully implement the
identified asset management initiatives across the portfolio.
The Company continued to execute on its strategic objective of
focusing on regional office assets with a number of significant
non-core disposals providing considerable uplifts from valuation.
Capital was swiftly redeployed into value accretive acquisition
opportunities in line with the renewed objectives. This culminated,
post period end, in the purchase of a portfolio of 31 high quality,
predominately multi-let office assets from Squarestone Growth
LLP.
The Company is in a strong financial position. It has produced a
total shareholder return of 7.9% for the period, whilst maintaining
its record of quarterly dividends. Furthermore, the strong rent
collections have resulted in EPRA earnings of 3.0 pence per share
for the six months to 30 June 2021.
We would like to thank our shareholders for their continued
support as we look forwards with renewed optimism as the full
return to the office becomes ever more evident. The portfolio is in
an exceptional position to capitalise on the next stage of 'the
return to the office', with significant upside potential in
occupational and rental growth and in turn the portfolio
valuation."
A meeting for analysts and sales teams will be held via a
conference call facility at 9.30am (London time, GMT) on Thursday,
16 September 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 .
The full Half-Yearly Report and Financials Statements can be
accessed via the Company's website at www.regionalreit.com
-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 (1) (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 151
properties, 847 occupiers as at 30 June 2021, with a valuation of
GBP729.1m.
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
(1) Regional REIT Limited is the parent Company of a number of
subsidiaries which together comprise a group within the definition
of The Companies (Guernsey) Law 2008, as amended (the "Law") and
the International Financial Reporting Standard ("IFRS") 10,
'Consolidated Financial Statements', as issued by the International
Accounting Standards Board ("IASB") and as contained in UK-adopted
International Accounting Standards. Unless otherwise stated, the
text of the Half-Yearly Report does not distinguish between the
activities of the Company and those of its subsidiaries.
Financial Highlights
Income focused - opportunistic buying and strategic selling,
coupled with intensive asset management, continues to secure
long-term income
30 June 30 December
2021 2020
Portfolio Valuation GBP729.1m GBP732.4
IFRS NAV per share 98.5p 97.5p
EPRA NTA per share 99.1p 98.6p
Net Loan To Value Ratio* 39.8% 40.8%
Weighted Average Cost of Debt* 3.3% 3.3%
Weighted Average Debt Duration* 6.0 years 6.4 years
Dividend declared per share for the six months
ended 30 June 2021 3.2p
Dividend declared per share for the six months
ended 30 June 2020 3.4p
* Alternative Performance Measure. Details are provided in the
Glossary of Terms and the EPRA Performance Measures in the full
half-yearly report.
CHAIRMAN'S STATEMENT
The Chairman's Statement covers the period ended 30 June
2021.
"I am pleased to report that Regional REIT has once again
demonstrated the resilience of its business model and it has
performed relatively well during the first half of 2021. As the
wider economy awakens from the Government imposed pandemic
restrictions, our geographically diversified portfolio is well
positioned to support current and future occupiers as they capture
the unfolding growth opportunities."
Kevin McGrath
Chairman
OVERVIEW
Despite the challenging backdrop created by the pandemic, our
strategy of having a defensive portfolio composed of a large number
of occupiers operating across different industries in a range of
growth regions outside the M25 motorway has resulted in a
relatively good performance. Our active Asset Manager, comprising
of 62 professionals, continued to maintain strong working
relationships with our 847 occupiers (31 December 2020: 898), which
underpinned our strong rent collections and resulted in EPRA
earnings of 3.0 pence per share ("pps") (six months to 30 June
2020: 2.6pps). IFRS diluted earnings per share were 4.2pps (six
months to 30 June 2020: diluted loss of 6.2pps). We have declared a
total dividend of 3.2pps for the period.
Our portfolio held up well given the on-going challenges posed
by the pandemic and Brexit, with its overall value marginally
reducing to GBP729.1m from GBP732.4m as at 31 December 2020. During
the period, disposals amounted to GBP10.8m (net of costs). The
proceeds from these disposals will be recycled into acquiring
properties to further diversify our occupier base, as well as
providing good opportunities to add value through asset management
initiatives. Our rolling capital expenditure programme amounted to
GBP4.3m.
Our priorities throughout the period 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 revenue enhancing
opportunities in the challenging commercial property market.
FINANCIAL RESOURCES
The Group continues to be in a financially strong position with
an EPRA NTA* of GBP427.7m (31 December 2020: GBP425.6m) and a cash
balance of GBP75.3m as at 30 June 2021 (31 December 2020:
GBP67.4m), of which GBP61.3m is unrestricted (31 December 2020:
GBP55.0m).
Our disciplined approach to debt management continues to focus
upon ensuring the debt profile remains flexible as the signs of the
economic recovery are evidenced. There is no requirement to
refinance until 2024.
Furthermore, net borrowings stand at 39.8% (31 December 2020:
40.8%), which is in line with our long-term target of c.40%. Our
debt facilities maintain ample headroom against their respective
covenants.
* Alternative Performance Measure. Details are provided in the
Glossary of Terms and the EPRA Performance Measures in the full
half-yearly report.
MARKET ENVIRONMENT
Lambert Smith Hampton (LSH)(2) research shows that investment
volumes reached GBP13.9 billion in the second quarter of 2021,
23.8% higher than Q1 2021 and 6.9% above the five-year quarterly
average. Consequently, this resulted in strong overall investment
in H1 2021 relative to trend. At GBP25.1 billion, volumes in the
first half of 2021 were 37.4% above the same period in 2020, up
25.1% when compared to the pre-pandemic levels recorded in the
first half of 2019, and 5.2% higher than the five-year average.
The UK regions outside of London attracted GBP5.6 billion in Q2
2021, the highest figure recorded since Q1 2018, 21.0% above the
five-year quarterly average, and a 34.0% increase from the previous
quarter. Investment in the second quarter brought the H1 2021 total
to GBP9.7 billion, the highest figure recorded since H1 2018 and
double the level recorded in the same period in 2020. Research by
LSH highlights the importance of the regional markets in driving
Q2's recovery, with the regions outperforming when compared to
London. At GBP4.8 billion, investment in Greater London was 9.1%
below the five-year quarterly average.
More details can be found in the Asset and Investment Managers'
Report below.
(2) LSH, UKIT Q2 2021, August 2021
STRATEGY UPDATE - POSITIONED FOR GROWTH
Following our announcement on 12 November 2020 that the Company
would focus its investments solely on properties in the office
sector in the main regional centers of the UK outside of the M25
motorway and exit all other commercial property sector investments,
a number of significant none core disposals have been completed.
(See Note 22). The Board remains 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 Shareholder returns over the long-term.
DIVIDS
The dividend is the major component of total shareholder
returns. The Company declared a total dividend of 3.2pps for the
period ended 30 June 2021, comprising of two quarterly dividends of
1.6pps each.
It remains the Board's intention to maintain its uninterrupted
record of 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 to date.
PERFORMANCE
Since listing on 6 November 2015, the Company's EPRA Total
Return was 39.9% with an annualised EPRA Total Return of 6.1%. The
total shareholder return since listing was 30.1%, compared to the
FTSE EPRA NAREIT UK Total Return Index, which has generated a
return of 4.7% over the same period. Over the reporting period, the
Company's total shareholder return was 7.9%, versus the return of
10.7% for the FTSE EPRA NAREIT UK Total Return Index.
INTEGRATING A MORE SUSTAINABLE APPROACH
As previously announced, and in accordance with the Group's
commitment to a sustainability strategy, the inaugural submission
to the Global Real Estate Sustainability Benchmark ("GRESB") has
been completed. This will be used as a platform from which
sustainability policies and actions will be built upon over the
coming years.
SUBSEQUENT EVENTS
On 2 July 2021, the Company announced the sale of an industrial
site for GBP8.6m, with a net initial yield of 7.2% and a 4.9%
premium to the 31 December 2020 valuation.
On 12 July 2021, the Company announced the disposal of an office
for GBP10.65m, representing a 15.8% uplift to the 31 December 2020
valuation.
On 21 July 2021, the Company announced the exchange for the sale
of a portfolio of seven industrial properties for GBP45m, with a
net initial yield of 6.75% and a 7.5% premium to the 31 December
2020 valuation.
On 31 August 2021, the Company announced the acquisition of 31
high quality, predominately multi-let office assets for a
consideration price of GBP236.0m, reflecting a net initial yield of
7.8%. The consideration was satisfied by three components: the
issuance of 84,230,000 new ordinary shares in the Company at 98.6
pence per share (being the EPRA Net Tangible Asset Value per share
as at 31 December 2020) equivalent to GBP83.1m, GBP76.7m of
existing cash resources and additional borrowings of GBP76.2m.
Following the acquisition, the Company estimates (based on its own
Consolidated Balance Sheet as at 31 December 2020) that it has a
net LTV-ratio of c. 43.8% (31 December 2020: 40.8%); and weighted
average cost of debt of 3.3% (31 December 2020: 3.3%).
OUTLOOK
The successful national vaccine programme has resulted in the
Government rescinding the imposed pandemic restrictions. This has
been accompanied by a strong rebound in most sectors of the UK
economy. The economic activity augurs well for the remainder of
2021.
Though we remain mindful of the challenges to be faced in a
structurally evolving property market, which will inevitably
continue to be impacted by the pandemic and the aftermath of
Brexit, our confidence for the long-term remains. It is under
pinned by our deliberately geographically diversified portfolio,
coupled with robust levels of rent collections, which have
continued to maintain quarterly dividends to our Shareholders.
The Group continues to focus on asset management initiatives to
promptly recycle capital into office opportunities that de-risk the
portfolio, whilst increasing the number, quality and quantum of
income streams.
Kevin McGrath
Chairman
15 September 2021
ASSET AND INVESTMENT MANAGERS' REPORT
"It brings me great pleasure to report that the Company
performed relatively well during the six months ended June 2021.
The performance can in part be attributable to my tenacious team
for their ongoing commitment in assisting occupiers through this
challenging period and continuing to implement the identified
programme of asset management initiatives across the portfolio.
The Company is in a strong financial position. It has produced a
total shareholder return of 7.9% for the period, while maintaining
its record of quarterly dividends. Furthermore, the strong rent
collections have resulted in EPRA earnings of 3.0 pence per share,
a 15% increase over the six months to 30 June 2020.
During the period, the Company has continued to execute its
strategic objective of focusing on regional office assets with a
number of significant non-core disposals providing considerable
uplifts from valuation. Capital was swiftly redeployed into value
accretive acquisition opportunities in line with the renewed
objectives. This has culminated, post period end, in the purchase
of a portfolio of 31 high quality, predominately multi-let office
assets from Squarestone Growth LLP.
We would like to thank our shareholders for their continued
support as we look forwards with renewed optimism as the full
return to the office becomes ever more evident. The portfolio is in
an exceptional position to capitalise on the economic recovery,
with significant upside potential in both rental growth and
portfolio valuation.
During the first half of 2021, the Company completed 25 new
lettings, totaling 116,815 sq. ft.. When fully occupied, these will
provide an additional gross rental income of c. GBP1.3m. Given the
end of many pandemic restrictions and the successful vaccine
programme, we anticipate a pick-up in activity over the coming
months as more and more companies return to the office."
Stephen Inglis
CEO and Founder of London & Scottish Property Investment
Management
Asset Manager of Regional REIT
Investment Activity in the UK Commercial Property Market
The COVID-19 pandemic had a considerable impact on investment in
the UK commercial property market throughout 2020 with investment
levels falling by 17.6% from 2019 levels and total investment in
2020 dropping to GBP40.7 billion, according to research from
Lambert Smith Hampton ("LSH") (3) . Although the pandemic continues
to impact the UK commercial property market, the end of many legal
restrictions throughout the UK has resulted in a clear rise in
investment volumes reflecting improved business confidence. The
most recent data from LSH shows that investment volumes reached
GBP13.9 billion in the second quarter of 2021, 23.8% higher than Q1
2021 and 6.9% above the five-year quarterly average. Consequently,
this resulted in strong overall investment in the first half of
2021 relative to trend. At GBP25.1billion volumes in the first half
of 2021 were 37.4% above the same period in 2020, up 25.1% when
compared to the pre-pandemic levels recorded in the first half of
2019, and 5.2% higher than the five-year average.
(3) LSH UKIT Q2 2021, August 2021
The UK regions outside of London attracted GBP5.6 billion in Q2
2021, the highest figure recorded since Q1 2018, 21.0% above the
five-year quarterly average, and a 34.0% increase from the previous
quarter. Investment in the second quarter brought the H1 2021 total
to GBP9.7 billion, the highest figure recorded since H1 2018 and
double the level recorded in the same period in 2020. Research by
LSH highlights the importance of the regional markets in driving
Q2's recovery, with the regions outperforming when compared to
London. At GBP4.8 billion, investment in Greater London was 9.1%
below the five-year quarterly average. Both East Midlands and West
Midlands performed strongly in Q2. Total investment in East
Midlands reached GBP868 million, 129.6% above the five-year
quarterly average - the strongest regional performance relative to
trend. Data from LSH shows that the West Midlands accounted for the
highest proportion of regional investment (19.4%) with GBP1.1
billion invested, 94.4% above the five-year quarterly average.
Other regional markets that performed well relative to trend
include: North West, South West, East, and Yorkshire & the
Humber.
Overseas investment in the UK commercial property market
accounted for 55.6% of total investment in Q2 2021. Figures
indicate that overseas investment reached GBP7.7 billion in Q2
2021, 20.0% above the five-year quarterly average. Strong
international investment in the second quarter of the year brought
the H1 2021 total to GBP13.8 billion - 40.2% higher than the
pre-pandemic level recorded in H1 2019. Higher levels of capital
inflows from international investors highlights the resilience of
UK commercial property and suggests that global investors continue
to view the UK as a safe haven for capital. LSH research suggests
that North American investors were the most acquisitive net buyers
at GBP2.8 billion. Figures indicate that Europe, Far East, and
Middle East were all net investors in the second quarter of
2021.
Research from CBRE (4) indicates that regional offices have
outperformed in comparison to central London offices, delivering
marginally greater returns of 3.3% in the 12 months ending June
2021 in comparison to central London office returns of 3.2% - a
trend that has been witnessed over the last five years.
(4) CBRE Monthly Index, Q2 2021
Occupational Demand in the UK Regional Office Market
Avison Young estimate that take-up of office space across the
Big Nine regional markets (5) in Q2 2021 reached 1.5 million sq.
ft., bringing the half year total to 3.0 million sq. ft. Although
take-up in the first half of 2021 is 10.6% higher than the same
period in 2020, it is 31.4% below the pre-pandemic levels recorded
in the first half of 2019 (6) City Centre activity accounted for
the highest proportion of take-up (65.2%) in Q2 2021 at 1.0 million
sq. ft., with 0.5 million sq. ft. transacted in the out of town
market. Avison Young expect demand throughout Q3 2021 to remain
broadly in-line with current levels.
(5) Nine Regional Office Markets mentioned by Avison Young
Include: Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds,
Liverpool, Manchester, Newcastle
(6) Avison Young, Big Nine, Q2 2021
According to Savills, strong occupational demand came from
public services, with education and health accounting for the
highest proportion of take-up of all regional offices at 16% in the
first half of 2021. Moreover, the technology, media & telecoms
sector, and serviced offices accounted for the second and third
largest proportion of take-up in the regional cities, accounting
for 13% and 10% respectively.
In terms of speculative development, it is estimated that
approximately 5.3 million sq. ft. of office space is currently
under construction in the Big Nine regional markets, with
Manchester, Glasgow and Birmingham accounting for 24.3%, 22.2% and
11.1%, respectively. Approximately 44.7% of office buildings
currently under construction are already pre-let.
The COVID-19 pandemic accelerated the adoption of alternative
ways of working, in doing so the pandemic also highlighted the
limitations of remote working in terms of collaboration, training
and productivity, to name a few. Research by CBRE found that only
1% of occupiers expect fully remote working going forward and only
an additional 15% anticipate a mostly remote solution (7) . One
trend that the Asset Manager believes will continue is improvements
to the office environment as greater importance is placed on health
and wellbeing. 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. However, transformations
to offices will be required not only to encourage existing staff to
return to the office but also to attract and retain new talent.
Research shows that the average office space per employee has
reduced drastically since the 1990s, with typical densities of just
c.85 sq. ft. per employee (8) . Therefore, de-densification of
floorplates will likely take place as offices are transformed to
include versatile breakout areas and quiet work areas.
Additionally, preferences for increased distance between
workstations, more private offices, and a reduction in hot desking
may result in increased demand for space.
(7) CBRE, EMEA Occupier survey, June 2021
(8) WSP, Demand for Office Space
Rental Growth in the UK Regional Office Market
A lack of availability in the Big Nine regional markets has
supported headline rents in the first half of 2021. Average
regional rents have been resilient throughout 2021 with data from
the MSCI monthly index highlighting rental growth of 0.2% in the
first six months of the year.
The CBRE Monthly Index shows that rental value growth held up
better for the rest of UK office markets in the 12 months ended
July 2021 with modest growth of 0.2%. Conversely, central London
offices and all UK property rents have declined by -1.0% and -0.5%
respectively. Colliers International expects rental growth to
continue as encouraging demand levels continue in the second half
of 2021.
Regional REIT's Office Assets
EPRA occupancy of the Group's regional offices decreased to
84.3% (30 June 2020: 88.4%). A like-for-like comparison of the
Group's regional offices EPRA occupancy, 30 June 2021 versus 30
June 2020, shows that occupancy decreased to 83.5% (30 June 2020:
88.5%). WAULT to first break was 2.6 years (30 June 2020: 2.8
years); like-for-like WAULT to first break was 2.5 years (30 June
2020: 2.8 years).
OCCUPATIONAL DEMAND IN THE UK INDUSTRIAL OFFICE MARKET
Cushman & Wakefield estimate that take-up in the first half
of 2021 totalled 32.3 million sq. ft., 67.1% higher than the same
period in 2020 and 86.8% above 2019 levels (9) Take-up in Q1 2021
was 123.6% higher than the same quarter in 2020 at 13.0 million sq.
ft. Demand increased in Q2 2021 reaching 19.2 million sq. ft.,
47.8% above the level of take-up in Q1 2021 and 42.7% higher than
the same period in 2020. In addition, research by Colliers
International suggests that availability fell by c. 26%
year-on-year resulting in a vacancy rate of just 4.3% in Q2 2021.
In response to low levels of supply developers have announced a
range of speculative development. Approximately 16.8 million sq.
ft. of speculative development space is currently under
construction, according to Savills - the highest level since before
the global financial crisis. However, it is worth noting that build
costs are expected to increase in the short-term due to low levels
of supply of materials such as cladding, steel and concrete (10)
.
Occupier demand within the industrial market continues to be
highly driven by e-commerce. Online sales increased to 27.9% of
total retail sales in July 2021, up from 27.1% in June 2021 and a
substantial increase from 19.8% in February 2020 (pre-coronavirus
pandemic). (11) However, data from the ONS indicates that the
percentage of retail spend online is beginning to decrease from
highs of just over 30% at the beginning of 2021 in line with the
easing of national COVID-19 lockdown restrictions.
(9) Cushman & Wakefield, Industrial Marketbeat, August
2021
(10) Savills, Market in Minutes, July 2021
(11) Office for National Statistics, Retail Sales, Great
Britain, July 2021
RENTAL GROWTH IN THE UK INDUSTRIAL MARKET
Data from MSCI index shows that rental growth in Q2 2021
increased by 1.7% - the highest quarterly rental growth over the
last 20 years(12) . Rental growth in Q2 2021 brings the 12-month
average rental growth (in the 12 months to June 2021) to 2.9%,
according to data from MSCI (13) .
Rental growth in the UK industrial market looks set to continue
as accelerated demand outstrips new supply. According to research
from Savills, the most recent rental growth forecasts from RealFor
suggests that the industrial and logistics market should expect
rental growth of 2.7% per annum until 2025.
(12) Colliers International, Property Snapshot, August 2021
(13) BNP Paribas Real Estate, Industrial Logistics Insider, Q2
2021
Regional REIT's Industrial Assets
EPRA occupancy of the Group's industrial sites increased to
94.3% (30 June 2020: 91.5%). A like-for-like comparison of the
Group's industrial EPRA occupancy, 30 June 2021 versus 30 June
2020, shows that occupancy increased to 92.8% (30 June 2020:
92.7%). WAULT to first break was 6.7 years (30 June 2020: 5.7
years); like-for-like WAULT to first break was 6.4 years (30 June
2020: 7.2 years).
Property Portfolio
As at 30 June 2021, the Group's property portfolio was valued at
GBP729.1m (30 June 2020: GBP742.3m; 31 December 2020: GBP732.4m),
with rent roll of GBP61.1m (30 June 2020: GBP62.9m; 31 December
2020: GBP64.2m), and an EPRA occupancy rate of 85.7% (30 June 2020:
89.0%; 31 December 2020: 89.4%). On a like-for-like basis, 30 June
2021 versus 30 June 2020 EPRA occupancy was 84.8% (30 June 2020:
89.1%).
As at 30 June 2021, there were 151 properties (30 June 2020:
151; 31 December 2020: 153), in the portfolio, with 1,214 units (30
June 2020: 1,249; 31 December 2020: 1,245) and 847 tenants (30 June
2020: 876; 31 December 2020: 898). If the portfolio was fully
occupied at Cushman & Wakefield's view of market rents, rental
income would be GBP75.1m per annum (30 June 2020: GBP75.2m; 31
December 2020: GBP76.6m).
As at 30 June 2021, the net initial yield on the portfolio was
6.7% (30 June 2020: 6.4%; 31 December 2020: 6.9%), the equivalent
yield was 8.8% (30 June 2020: 8.7%; 31 December 2020: 8.8%) and the
reversionary yield was 9.3% (30 June 2020: 9.2%; 31 December 2020:
9.4%).
As At 30 June 2021
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
============ ====================================
(GBPm) (%) (mil) (%) (yrs) (GBPm) (GBPpsf) (GBPm) (GBPpsf) Net Equivalent Reversionary
initial
============ =========== ========== ========== ====== ========== ====== ======= ========= ======= ========= ======== =========== =============
Office 114 607.0 83.2 4.6 84.3 2.6 50.4 13.78 63.9 132.23 6.5 8.8 9.5
----------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Industrial 15 82.6 11.3 1.7 94.3 6.7 6.0 4.06 6.7 49.57 6.8 7.6 6.8
----------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Retail 20 29.7 4.1 0.4 93.5 3.4 3.8 9.47 3.8 66.77 10.8 10.7 11.0
----------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Other 2 9.9 1.4 0.1 89.0 14.3 0.9 12.82 0.8 115.03 7.1 8.3 7.8
----------- ========== ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Total 151 729.1 100.0 6.8 85.7 3.2 61.1 10.91 75.1 107.43 6.7 8.8 9.3
----------- ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
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
============ ====================================
(GBPm) (%) (%) (%) (yrs) (GBPm) (GBPpsf) (GBPm) (GBPpsf) Net Equivalent Reversionary
initial
============ =========== ========== ========== ====== ========== ====== ======= ========= ======= ========= ======== =========== =============
Scotland 39 130.2 17.9 1.5 84.5 3.8 12.5 10.29 15.0 87.34 7.8 9.9 10.3
----------- ---------- ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
South East 31 183.8 25.2 1.3 86.8 2.2 14.3 13.31 18.4 139.28 5.9 8.1 8.9
----------- ---------- ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
North East 19 73.1 10.0 0.6 73.5 3.0 5.8 11.92 7.6 113.96 5.7 9.3 9.8
----------- ---------- ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Midlands 27 138.7 19.0 1.5 86.2 3.5 11.8 9.14 13.5 94.82 6.7 8.3 8.8
----------- ---------- ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
North West 16 90.9 12.5 1.0 85.4 4.4 6.6 8.67 9.2 92.75 6.1 9.0 9.3
----------- ---------- ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
South West 14 80.3 11.0 0.5 94.2 2.2 6.9 16.02 8.1 161.42 7.1 8.3 9.1
----------- ---------- ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Wales 5 32.1 4.4 0.4 93.0 4.1 3.2 9.29 3.3 81.30 9.3 8.8 9.3
============ =========== ========== ========== ====== ========== ====== ======= ========= ======= ========= ======== =========== =============
Total 151 729.1 100.0 6.8 85.7 3.2 61.1 10.91 75.1 107.43 6.7 8.8 9.3
----------- ---------- ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Tables may not sum due to rounding.
Top 15 Investments (by market value) as at 30 June 2021
Property Sector Anchor tenants Market % of Lettable EPRA Annualised % of WAULT
value portfolio area occupancy gross gross to
rent rental first
income break
============= ============ ================ =======
(GBPm) (%) (Sq. (%) (GBPm) (years)
Ft.)
============= ============ ================ ======= ========== ========== ========== =========== ======= ========
Barclays
Execution
Services Ltd,
Tay House, University
Glasgow Office of Glasgow 27.0 3.7 156,853 94.3 2.7 4.4 1.5
Nuvias (UK
& Ireland)
Ltd, Fernox
Ltd, McCarthy
& Stone
Genesis Retirement
Business Lifestyles
Park, Ltd, Walk The
Woking Office Walk Worldwide 23.8 3.3 98,359 80.7 1.3 2.2 2.7
Bank Of
Scotland
Buildings Plc, Utmost
2 & 3, Life and
Bear Brook Pensions
Office Ltd, Agria
Park, Pet Insurance
Aylesbury Office Ltd 23.3 3.2 140,791 95.7 2.3 3.7 1.9
Aviva Central
Services UK
Ltd, National
Westminster
Bank Plc,
Utilita
Hampshire Energy Ltd,
Corporate Digital
Park, Wholesale
Eastleigh Office Solutions Ltd 19.2 2.6 85,422 99.8 1.5 2.5 2.1
Metropolitan
Housing Trust
Ltd, SMS
Electronics
Ltd, Worldwide
Beeston Clinical
Business Trials
Park, Office/ Ltd, Heart
Nottingham Industrial Internet Ltd 18.4 2.5 215,330 100.0 1.8 2.9 5.8
Edvance SAS,
800 Aztec NNB Generation
West, Company (HPC)
Bristol Office Ltd 18.3 2.5 73,292 100.0 1.5 2.5 2.1
Secretary of
Norfolk State for
House, Communities
Smallbrook & Local
Queensway, Government,
Birmingham Office Spark44 Ltd 18.0 2.5 114,982 85.8 1.4 2.3 1.6
Road 4
Winsford
Industrial
Estate, Jiffy Packaging
Winsford Industrial Ltd 15.8 2.2 246,209 100.0 1.0 1.7 13.2
One & Two
Newstead
Court,
Notting-ham Office E.ON UK Plc 15.2 2.1 146,262 68.1 0.9 1.5 3.8
Darwin Loan
Solutions Ltd,
New College
Manchester
Ltd, Mott
Portland MacDonald
Street, Ltd, Simard
Manchester Office Ltd 15.2 2.1 55,787 98.7 0.9 1.5 2.8
Ceva Logistics
Ltd, Brush
Electrical
Ashby Park, Machines Ltd,
Ashby De Hill Rom UK
La Zouch Office Ltd 13.4 1.8 91,034 89.4 1.0 1.6 4.5
The Scottish
Ministers,
The Scottish
Sports
Council,
Templeton Noah Beers
On The Ltd,
Green, Cornerstone
Glasgow Office Community Care 12.7 1.7 142,512 87.2 1.2 1.9 4.2
St James's
The Coach Place Wealth
Works, Management
Leeds Office Group Plc 11.9 1.6 41,666 41.7 0.5 0.7 3.2
Columbus TUI Northern
House, Europe Ltd
Coventry Office (Shell Energy) 11.4 1.6 53,253 100.0 1.4 2.3 2.5
Please Hold
(UK) Ltd, A.M.
London Fashion
Ltd, HSS Hire
Service
Finance
Ltd, CVS
(Commercial
Oakland Valuers &
House, Surveyors)
Manchester Office Ltd 10.8 1.5 161,057 93.6 1.3 2.1 2.2
------- ---------- ---------- ---------- ----------- ------- --------
Total 254.2 34.9 1,822,809 89.7 20.7 33.9 3.3
Table may not sum due to rounding
Top 15 Tenants (by share of rental income) as at 30 June
2021
Tenant Property Sector WAULT Lettable Annualised % of
to first area gross Gross
break rent rental
income
(years) (Sq. Ft) (GBPm)
Tay House, Glasgow Administrative
Barclays Execution Waterfront Business and support
Services Ltd Park, Fleet service activities 0.4 108,386 2.2 3.7
1 Burgage Square,
Wakefield Albert
Edward House,
Preston
Bennett House,
Stoke-On-Trent
Norfolk House,
Birmingham
Secretary of Oakland House,
State for Manchester
Communities Waterside Business
& Local Government Park, Swansea Public sector 2.1 164,819 2.0 3.2
Buildings 3, Bear
Brook Office Park,
Aylesbury, High
Bank Of Scotland Street/Bank Street,
Plc Dumfries Banking 1.0 92,978 1.5 2.4
Professional,
TUI Northern scientific
Europe Ltd (Shell Columbus House, and technical
Energy) Coventry activities 2.5 53,253 1.4 2.3
Calton House,
Edinburgh,
Edinburgh Quadrant
House, Dundee
Templeton
The Scottish on the Green,
Ministers Glasgow Public sector 2.2 106,511 1.3 2.1
Road 4 Winsford
Jiffy Packaging Industrial Estate,
Ltd Winsford Manufacturing 13.2 246,209 1.0 1.7
Electricity,
gas, steam
Two Newstead court and air conditioning
EON UK Plc Nottingham supply 3.8 99,142 0.9 1.5
Electricity,
gas, steam
800 Aztec West, and air conditioning
Edvance SAS Bristol supply 1.9 41,285 0.9 1.5
Professional,
scientific
John Menzies 2 Lochside Avenue, and technical
Plc Edinburgh activities 2.1 43,780 0.9 1.4
The Royal Bank Cyan Building,
Of Scotland Plc Rotherham Banking 0.0 67,458 0.9 1.4
Professional,
scientific
SPD Development Clearblue Innovation and technical
Co Ltd Centre, Bedford activities 4.3 58,167 0.8 1.4
Hampshire Corporate
Aviva Central Park, Chilworth Other services
Services UK Limited House, Eastleigh activities 3.4 42,612 0.8 1.3
James Howden
&
Company Ltd Howden Site, Renfrew Manufacturing 10.4 204,414 0.8 1.2
Odeon Cinemas Kingscourt Leisure Information
Ltd Complex, Dundee and communication 14.3 41,542 0.7 1.2
Electricity,
NNB Generation gas, steam
Company (HPC) 800 Aztec West, and air conditioning
Ltd Bristol supply 2.5 32,007 0.6 1.0
---------- ----------- ----------- --------
Total 3.6 1,402,563 16.7 27.3
Table may not sum due to rounding
PROPERTY PORTFOLIO SECTOR AND REGION SPLITS BY VALUATION AND
INCOME
By Valuation
As at 30 June 2021, 83.2% (30 June 2020: 79.9%, 31 December
2020: 83.5%) of the portfolio by market value was offices and 11.3%
(30 June 2020: 14.3%, 31 December 2020: 11.1%) was industrial. The
balance was made up of retail, 4.1% (30 June 2020: 4.3%, 31
December 2020: 4.1%) and other, 1.4% (30 June 2020: 1.5%, 31
December 2020: 1.3%). By UK region, as at 30 June 2021, Scotland
represented 17.9% (30 June 2020: 17.7%, 31 December 2020: 17.3%) of
the portfolio and England 77.7% (30 June 2020: 79.8%, 31 December
2020: 78.3%) the balance of 4.4% (30 June 2020: 2.5%, 31 December
2020: 4.4%) was in Wales. In England, the largest regions were the
South East, the Midlands and the North West.
By Income
As at 30 June 2021, 82.5% (30 June 2020: 79.8%, 31 December
2020: 82.3%) of the portfolio by income was offices and 9.8% (30
June 2020: 12.3%, 31 December 2020: 10.3%) was industrial. The
balance was made up of retail, 6.3% (30 June 2020: 6.6%, 31
December 2020: 6.0%), and other, 1.4% (30 June 2020: 1.4%, 31
December 2020: 1.3%). By UK region, as at 30 June 2021, Scotland
represented 20.5% (30 June 2020: 20.6%, 31 December 2020: 20.4%) of
the portfolio and England 74.3% (30 June 2020: 76.4%, 31 December
2020: 74.6%); the balance of 5.2% was in Wales (30 June 2020: 3.0%,
31 December 2020: 5.0%). In England, the largest regions were the
South East, the Midlands and the South West.
LEASE EXPIRY PROFILE
The WAULT on the portfolio is 5.0 years (30 June 2020: 5.3
years; 31 December 2020: 5.1 years); WAULT to first break is 3.2
years (30 June 2020: 3.4 years; 31 December 2020: 3.2 years). As at
30 June 2021, 14.6% (30 June 2020: 6.3%; 31 December 2020: 14.2%)
of income was from leases, which will expire within one year, 10.1%
(30 June 2020: 14.9%; 31 December 2020: 9.1%) between one and two
years, 34.1% (30 June 2020: 34.5%; 31 December 2020: 35.8%) between
two and five years and 41.2% (30 June 2020: 44.3%; 31 December
2020: 40.9%) after five years.
Lease Expiry Profile
0-1 year 14.6%
1-2 years 10.1%
2-5 years 34.1%
5+ years 41.2%
Tenants by Standard Industrial Classification
As at 30 June 2021, 14.0% of income was from tenants in the
professional, scientific and technical activities sector (30 June
2020: 13.0%; 31 December 2020: 13.5%), 13.2% from the
administrative and support service activities sector (30 June 2020:
12.8%; 31 December 2020: 12.9%), 10.1% from the manufacturing
sector (30 June 2020: 8.9%; 31 December 2020: 10.3%), 8.7% from the
information and communication sector (30 June 2020: 8.3%; 31
December 2020: 8.3%), and 8.0% from the public sector (30 June
2020: 8.1%; 31 December 2020: 8.8%). The remaining exposure is
broadly spread.
Tenants by SIC Codes (% of gross rent)
Professional, scientific and
technical activities 14.0%
Administrative and support service
activities 13.2%
Manufacturing 10.1%
Information and communication 8.7%
Public sector 8.0%
Financial and insurance activities 7.9%
Wholesale and retail trade 7.7%
Banking 5.3%
Electricity, gas, steam and air
conditioning supply 4.7%
Other service activities 3.5%
Human health and social work
activities 2.7%
Other* 14.1%
*Other - Accommodation and food service activities, activities
of extraterritorial organisations and bodies, arts, entertainment
and recreation, charity, construction, education, mining and
quarrying, not specified, public administration and defence;
compulsory social security. real estate activities, registered
society, residential, transportation and storage, water supply,
sewerage, waste management and remediation activities.
Tables may not sum due to rounding.
No tenant represents more than 4% of the Group's gross rent roll
as at 30 June 2021, the largest being 3.7%. (30 June 2020: 3.6%; 31
December 2020: 3.5%).
Financial Review
Net Asset Value
Between 1 January 2021 and 30 June 2021, the EPRA NTA* of the
Group increased to GBP427.7m (IFRS: GBP425.2m) from GBP425.6m
(IFRS: GBP420.6m) as at 31 December 2020, resulting in an increase
of the EPRA NTA to 99.1pps (30 June 2020: 102.5pps; 31 December
2020: 98.6pps). This is after the declaration of dividends in the
period amounting to 3.10pps.
* Alternative Performance Measure. Details are provided in the
Glossary of Terms and the EPRA Performance Measures in the full
half-yearly report.
In the six months to 30 June 2021, the investment property
revaluation amounted to GBP2.0m for the properties held as at 30
June 2021. Net capital expenditure amounted to GBP4.3m, which is
yet to be fully reflected in the valuation and the realised gain of
GBP0.6m on the disposal of investment properties.
The investment property portfolio was valued at a total of
GBP729.1m as at 30 June 2021 (30 June 2020: GBP742.3m; 31 December
2020: GBP732.4m). The marginal decrease since the 2020 year-end is
primarily attributable to property disposals of GBP10.2m, which are
offset by an unrecognised investment property portfolio revaluation
of GBP2.0m and net capital expenditure of GBP4.3m. Overall, on a
like-for-like basis, the portfolio increased by 0.4%.
The table below sets out the acquisitions, disposals and capital
expenditure for the respective periods:
Six months Six months Year ended
to 30 June to June 31 December
2021 2020 2020
GBPm GBPm GBPm
Acquisitions
Net (after costs) 0.6 0.1 45.0
Gross (before costs) - - 42.4
Disposals
Net (after costs) 10.8 15.1 53.4
Gross (before costs) 11.2 15.5 56.4
Capital Expenditure
Net (after dilapidations) 4.3 4.5 8.8
Gross (before dilapidations) 4.9 5.5 13.1
The diluted EPRA NAV per share increased to 99.1pps (31 December
2020: 98.6pps) over the period. The EPRA NTA is reconciled in the
table below:
Six months to 30 June
2021
pence per
GBPm share
Opening EPRA NTA (31 December
2020) 425.6 98.6
Net rental and property income 25.4 5.9
Administration and other expenses (5.5) (1.3)
Gain on the disposal of investment
properties 0.6 0.1
Change in the fair value of investment
properties 2.0 0.5
Change in value of right of use (0.1) -
------- ------------------------------------------------
EPRA NTA after operating profit 448.0 103.8
Net finance expense (6.9) (1.6)
Taxation - -
------- ------------------------------------------------
EPRA NTA before dividends paid 441.1 102.2
Dividends paid (13.4) (3.1)
------- ------------------------------------------------
Closing EPRA NTA (30 June 2021) 427.7 99.1
------- ------------------------------------------------
Table may not sum due to rounding.
INCOME STATEMENT
Operating profit before gains and losses on property assets and
other investments for the six months ended 30 June 2021 amounted to
GBP19.9m (six months to 30 June 2020: GBP18.1m). Profit after
finance items and before taxation was GBP18.0m (six months to 30
June 2020: loss GBP27.0m). This increase is predominately the
result of two factors: firstly, a gain in the fair value of
investment properties in the six months to June 2021; and secondly,
a gain on the disposal of investment properties. The six months to
30 June 2021 included a full rent roll for properties held as at 31
December 2020, plus the partial rent roll for properties disposed
of during the period.
Rental and property income amounted to GBP29.5m, excluding
recoverable service charge income and other similar items (six
months to 30 June 2020: GBP29.4m).
Currently more than 80% of rental income is collected within 30
days of the due date and bad debts in the period were GBP0.6m (six
months to 30 June 2020: GBP0.6m).
Non-recoverable property costs, excluding recoverable service
charge income and other similar costs, amounted to GBP4.2m (six
months to 30 June 2020: GBP5.4m) and the rent roll decreased to
GBP61.1m (six months to 30 June 2020: GBP62.9m).
The realised gain on the disposal of investment properties
amounted to GBP0.6m (six months to 30 June 2020: loss GBP2.0m). The
disposal gains were from the aggregate disposal of four properties
in the period, on which individual asset management plans had been
completed.
The change in the fair value of investment properties amounted
to a gain of GBP2.0m (six months to 30 June 2020: loss of
GBP33.2m). The change in value of right of use asset amounted to a
charge of GBP0.1m (six months to 30 June 2020: GBP0.1m); with a
minimal gain on the associated disposal of a right of use.
Finance expenses amounted to GBP6.9m (six months to 30 June
2020: GBP7.1m). The Group continued to hold a larger than usual
cash balance during the period, ensuring ample liquidity during the
current period of economic uncertainty.
The EPRA cost ratio, including direct vacancy costs, was 32.6%
(six months to 30 June 2020: 38.4%). The decrease in the cost ratio
is ostensibly a reflection of the decrease in non recoverable
property costs. The EPRA cost ratio, excluding direct vacancy costs
was 19.9% (six months to 30 June 2020: 21.4%).
The ongoing charges for the period ended 30 June 2021 were 4.6%
(30 June 2020: 4.9%).
The EPRA Total Return from 6 November 2015 (date of IPO) to 30
June 2021 was 39.9% (30 June 2020: 37.3%), an annualised rate of
6.1% pa (30 June 2020: 7.0% pa).
Dividend
During the period from 1 January 2021 to 30 June 2021, the
Company declared dividends totalling 3.10pps (2020: 4.45pps). Since
the end of the period, the Company has declared a dividend for the
second quarter of 2021 of 1.60pps. A schedule of dividends can be
found in the Report.
DEBT FINANCING AND GEARING
Borrowings comprise third-party bank debt which is secured over
properties owned by the Group and repayable over the next 3 to 8
years, with a weighted average maturity of 6.0 years (six months to
30 June 2020: 6.8 years; 31 December 2020 6.4 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 30 June 2021 amounted to GBP315.7m (30 June
2020: GBP312.7m; 31 December 2020: GBP316.2m) (before unamortised
debt issuance costs), with GBP6.2m available to be drawn.
During the period, the maturity date of the Company's facility
with the Royal Bank of Scotland was extended from June 2024 to June
2025 by invoking a pre-agreed extension option.
In addition to bank borrowings, the Group has a GBP50m 4.5%
retail eligible bond which is due for repayment in August 2024. In
aggregate, the total debt available at 30 June 2021 amounted to
GBP371.9m (30 June 2020: GBP371.9m; 31 December 2020:
GBP371.9m).
At 30 June 2021, the Group's cash and cash equivalent balances
amounted to GBP75.3m (30 June 2020: GBP67.9m; 31 December 2020:
GBP67.4m).
The Group's net LTV ratio stands at 39.8% (30 June 2020: 39.7%;
31 December 2020: 40.8%) before unamortised costs. The Board
continues to target a net LTV ratio of 40%, with a maximum limit of
50%.
Debt Profile and Loan-to-Value Ratios as at 30 June 2021
Lender Original Outstanding Maturity Gross Annual interest
facility debt* date loan-to-value** rate
GBP'000 GBP'000 % %
----------------- ---------- ------------ --------- ----------------- ----------------
2.15 over
Royal Bank of 3 months
Scotland 55,000 51,024 Jun-2025 40.3 GBP LIBOR
Scottish Widows
Ltd & Aviva
Investors Real
Estate Finance 165,000 165,000 Dec-2027 46.6 3.28 Fixed
Scottish Widows 36,000 36,000 Dec-2028 40.9 3.37 Fixed
2.20 over
3 months
Santander UK 65,870 63,686 Jun-2029 38.1 GBP LIBOR
---------- ------------
321,870 315,710
---------- ------------
Retail Eligible
Bond 50,000 50,000 Aug-2024 N/A 4.50 Fixed
---------- ------------
Total 371,870 365,710
---------- ------------
* Before unamortised debt issue costs
** Based on Cushman & Wakefield property valuations
Table may not sum due to rounding.
The Managers continue to monitor the borrowing requirements of
the Group. As at 30 June 2021, the Group had substantial headroom
against its applicable borrowing covenants.
The net gearing ratio (net debt to Ordinary Shareholders' equity
(diluted)) of the Group was 68.3% as at 30 June 2021 (30 June 2020:
67.4%; 31 December 2020: 71.0%).
Interest cover, excluding amortised costs and finance lease
interest, stands at 3.3 times (30 June 2020: 2.9 times; 31 December
2020: 3.4 times) and including amortised and finance lease interest
costs stands at 2.9 times (30 June 2020: 2.5 times; 31 December
2020: 3.0 times).
Hedging
The Group applies an interest rate 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.
Six months Six months
ended ended Year ended
30 Jun 30 Jun 31 Dec
2021 2020 2020
(%) (%) (%)
Borrowings interest rate hedged 101.7 102.5 101.6
Thereof :
Fixed 68.6 69.2 68.6
Swap 16.5 16.7 16.5
Cap 16.5 16.7 16.5
WACD* 3.3 3.4 3.3
(*) Weighted Average Cost of Debt - Weighted Average Effective
Interest Rate including the cost of hedging
Table may not sum due to rounding.
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 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.
At 30 June 2021, the Group recognised a nil tax balance.
DIRECTORS' STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES
For Regional REIT, effective risk management is a cornerstone of
delivering our strategy and integral to the achievement of our
objective of delivering long term value through active asset
management across the portfolio. The principal risks and
uncertainties the Group faces are summarised below and described in
detail on pages 47 to 57 of the 2020 Annual Report, which is
available on the Group's website: www.regionalreit.com - Annual
Report 2020. The Audit Committee, which assists the Board with its
responsibilities for managing risk, considers that there have been
no substantial changes to these principal risks. However, several
principal risks continue to be elevated (as set out in the 2020
Annual Report & Accounts), as a result of COVID-19 restrictions
and the level of economic uncertainty associated with the UK's
departure from the European Union.
A summary of the Group's principal risks for the second half of
the year is provided below.
Strategic
Investment decisions could result in lower dividend income and
capital returns to our Shareholders.
Valuation
The valuation of the Group's portfolio, undertaken by the
external valuer, Cushman & Wakefield, could impact the Group's
profitability and net assets.
COVID-19
The economic disruption resulting from COVID-19 could further
impact rental incomes, the Group's property portfolio valuations,
the ability to access funding at competitive rates, maintain a
progressive dividend policy, and adhere to the HMRC REIT regime
requirements, especially if restrictions remain in place for a
prolonged period of time.
Economic and political
The macro-health of the UK economy could impact on borrowing and
hedging costs, demand by tenants for suitable properties and the
quality of the tenants. There is a risk that the UK's departure
from the European Union could impact property valuations whilst
this period of uncertainty is navigated.
Funding
The Group may not be able to secure further debt on acceptable
terms, which could impinge upon investment opportunities and the
ability to grow the Group. Bank reference rates maybe set to rise
accompanying higher inflation.
Tenant
Structural changes in the occupational markets, coupled with the
type and concentration of tenants could result in a lower rental
income. A higher concentration of lease term maturity and/or break
options, could result in a more volatile rental income.
Financial and tax change
Changes to UK financial legislation and the tax regime could
result in lower earnings.
Operational
Business disruption could impinge on normal operations of the
Group.
Accounting, legal and regulatory
Changes to accounting, legal and regulatory requirements could
affect current operating processes and the Board's ability to
achieve the investment objectives and provide favourable returns to
our Shareholders.
Environmental and energy efficiency standards
Changes to the environment and associated legal requirements
could impact upon the Group's cost base, operations and legal
requirements, which need to be adhered too. All of these risks
could impinge upon the profitability of the Group.
INTERIM MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITY
STATEMENT
Interim Management Report
The important events that have occurred during the period under
review, the principal risks and uncertainties and the key factors
influencing the financial statements for the remaining six months
of the year are set out in the Chairman's Statement and the Asset
and Investment Managers' Report.
The principal risks and uncertainties faced by the Group are
substantially unchanged since the date of the Annual Report and
Accounts for the year ended 31 December 2020 and are summarised
above.
The condensed consolidated financial statements for the period
from 1 January 2021 to 30 June 2021 have not been audited or
reviewed by auditors pursuant to the Financial Reporting Council
guidance on Review of Interim Financial Information and do not
constitute annual statutory accounts for the purposes of the
Law.
Going Concern
The financial statements continue to be prepared on a going
concern basis. The Directors have reviewed areas of potential
financial risk and cash flow forecasts. No material uncertainties
have been detected which would influence the Group's ability to
continue as a going concern for a period of not less than 12
months. Accordingly, the Board of Directors continue to adopt the
going concern basis in preparing the condensed consolidated
financial statements.
Further detail on the assessment of going concern can be found
in note 2.3 below.
Responsibility Statement of the Directors in respect of the
Half-Yearly Report
In accordance with Disclosure Guidance and Transparency Rule
4.2.10R we, the Directors of the Company (whose names are listed in
full below), confirm that to the best of their knowledge:
-- the condensed set of consolidated financial statements has
been prepared in accordance with International Accounting Standard
(IAS) 34, "Interim Financial Reporting", as contained in UK-adopted
International Accounting Standards, as required by Disclosure
Guidance and Transparency Rule DTR 4.2.4R, and gives a true and
fair view of the assets, liabilities, financial position and profit
of the Group;
-- this Half-Yearly Report includes a fair review, required
under DTR 4.2.7R, of the important events that have occurred during
the first six months of the financial year, their impact on the
condensed set of consolidated financial statements and a
description of the principal risks and uncertainties for the
remaining six months of the financial year; and
-- this Half-Yearly Report includes a fair review, required
under DTR 4.2.8R, of related party transactions that have taken
place in the first six months of the current financial year and
that have materially affected the financial position and or
performance of the Group during that period; and any changes in the
related party transaction described in the last Annual Report that
could do so.
This Half-Yearly Report was approved and authorised for issue by
the Board of Directors on 15 September 2021 and the above
responsibility statement was signed on its behalf by:
Kevin McGrath
Chairman
15 September 2021
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
Notes GBP'000 GBP'000 GBP'000
Continuing Operations
Revenue
Rental and property income 5 36,335 36,964 75,941
Property costs 6 (10,966) (12,886) (22,662)
--------------- --------------
Net rental and property income 25,369 24,078 53,279
Administrative and other expenses 7 (5,477) (5,945) (11,329)
--------------- --------------
Operating profit before gains
and losses on property assets
and other investments 19,892 18,133 41,950
Gain/(loss) on disposal of
investment properties 13 585 (1,965) (1,073)
Change in fair value of investment
properties 13 1,985 (33,218) (54,793)
Gain on disposal of right 2 - -
of use assets
Change in fair value of right
of use assets (97) (98) (195)
--------------- --------------
Operating profit/(loss) 22,367 (17,148) (14,111)
Finance income 8 10 80 99
Finance expenses 9 (6,927) (7,117) (14,108)
Impairment of goodwill 14 - (279) (558)
Net movement in fair value
of derivative financial instruments 17 2,563 (2,562) (2,523)
--------------- --------------
Profit/(loss) before tax 18,013 (27,026) (31,201)
Taxation 10 - 65 203
-------------- --------------- --------------
Total comprehensive income/(loss)
for the period (attributable to
owners of the parent Company) 18,013 (26,961) (30,998)
-------------- --------------- --------------
Total comprehensive income arises from continuing
operations.
Earnings/(losses) per share
- basic and diluted 11 4.2p (6.2)p (7.2)p
----- ------- -------
The notes below are an integral part of these condensed
consolidated financial statements.
Condensed Consolidated Statement of Financial Position
As at 30 June 2021
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
Notes GBP'000 GBP'000 GBP'000
Assets
Non-current assets
Investment properties 13 729,115 742,300 732,380
Right of use assets 15,956 16,253 16,156
Goodwill 14 - 279 -
Non-current receivables
on tenant loan 915 1,108 1,011
745,986 759,940 749,547
Current assets
Trade and other receivables 30,819 35,973 33,690
Cash and cash equivalents 75,331 67,913 67,373
------------- ------------- ------------
106,150 103,886 101,063
Total assets 852,136 863,826 850,610
------------- ------------- ------------
Liabilities
Current liabilities
Trade and other payables (37,838) (36,071) (33,809)
Deferred income (10,359) (12,408) (14,584)
Taxation liabilities (690) (633) (690)
(48,887) (49,112) (49,083)
Non-current liabilities
Bank and loan borrowings 15 (310,388) (306,917) (310,692)
Retail eligible bonds 16 (49,518) (49,363) (49,441)
Derivative financial instruments 17 (1,776) (4,378) (4,339)
Lease liabilities (16,349) (16,491) (16,473)
(378,041) (377,149) (380,945)
Total liabilities (426,918) (426,261) (430,028)
------------- ------------- ------------
Net assets 425,218 437,565 420,582
------------- ------------- ------------
Equity
Stated capital 18 430,819 430,819 430,819
(Accumulated losses)/retained
earnings (5,601) 6,746 (10,237)
------------- ------------- ------------
Total equity attributable to owners
of the parent Company 425,218 437,565 420,582
------------- ------------- ------------
Net asset value per share
- basic and diluted 19 98.5p 101.4p 97.5p
------ -------- -------
The notes below are an integral part of these condensed
consolidated financial statements.
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 2021
Attributable to owners of
the parent company
Stated Accumulated
capital losses Total
Notes GBP'000 GBP'000 GBP'000
Balance at 1 January 2021 430,819 (10,237) 420,582
Total comprehensive income - 18,013 18,013
Dividends paid 12 - (13,377) (13,377)
--------- ------------ ----------
Balance at 30 June 2021 430,819 (5,601) 425,218
--------- ------------ ----------
For the six months ended 30 June 2020
Attributable to owners of
the parent company
Stated Retained
capital earnings Total
Notes GBP'000 GBP'000 GBP'000
Balance at 1 January 2020 430,819 52,909 483,728
Total comprehensive loss - (26,961) (26,961)
Dividends paid 12 - (19,202) (19,202)
---------- ----------
Balance at 30 June 2020 430,819 6,746 437,565
--------- ---------- ----------
For the year ended 31 December 2020
Attributable to owners of
the parent company
Retained
earnings/
Notes Stated (Accumulated
capital losses Total
GBP'000 GBP'000 GBP'000
Balance at 1 January 2020 430,819 52,909 483,728
Total comprehensive loss - (30,998) (30,998)
Dividends paid 12 - (32,148) (32,148)
---------
Balance at 31 December
2020 430,819 (10,237) 420,582
--------- -------------- ----------
The notes below are an integral part of these condensed
consolidated financial statements.
Condensed Consolidated Statement of Cash Flows
For the six months ended 30 June 2021
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Profit/(loss) for the period before taxation 18,013 (27,026) (31,201)
- Change in fair value of investment properties (1,985) 33,218 54,793
- Change in fair value of financial derivative
instruments (2,563) 2,562 2,523
- (Gain)/loss on disposal of investment
properties (585) 1,965 1,073
- Gain on disposal of right of use assets (2) - -
- Change in fair value of right of use
assets 97 97 195
Impairment of goodwill - 279 558
Finance income (10) (80) (99)
Finance expenses 6,927 7,117 14,108
Decrease/(Increase) in trade and other
receivables 2,967 (5,244) (2,821)
(Decrease)/increase in trade and other
payables and deferred income (631) 6,754 8,878
------------- ------------- -------------
Cash generated from operations 22,228 19,642 48,007
(12,515
Finance costs (6,109) (6,325) )
Taxation received - 32 174
------------- ------------- -------------
Net cash flow generated from operating
activities 16,119 13,349 35,666
------------- ------------- -------------
Investing activities
Purchase of investment properties and subsequent
expenditure (4,993) (4,625) (53,759)
Sale of investment properties 10,828 15,057 53,428
Interest received 11 73 101
------------- ------------- -------------
Net cash flow generated from/(used in)
investing activities 5,846 10,505 (230)
------------- ------------- -------------
Financing activities
Dividends paid (12,943) (11,516) (26,672)
Bank borrowings advanced 1,109 30,698 39,200
Bank borrowings repaid (1,570) (11,967) (17,029)
Bank borrowing costs
paid (296) (95) (192)
Lease repayments (307) (309) (618)
------------- ------------- -------------
Net cash flow (used in)/ generated financing
activities (14,007) 6,811 (5,311)
------------- ------------- -------------
Net increase in cash and cash equivalents
for the period 7,958 30,665 30,125
Cash and cash equivalents at the start
of the period 67,373 37,248 37,248
------------- ------------- -------------
Cash and cash equivalents at the end of
the period 75,331 67,913 67,373
------------- ------------- -------------
The notes below are an integral part of these condensed
consolidated financial statements.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 30 June 2021
1. Corporate information
The condensed consolidated financial statements of the Group for
the six months ended 30 June 2021 comprise the results of the
Company and its subsidiaries (together constituting the "Group")
and were approved by the Board and authorised for issue on 15
September 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, and, traded
on the Official List of 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 its
shares were admitted to trading on the LSE.
The nature of the Group's operations and its principal
activities are set out in the Chairman's Statement.
The address of the registered office is: Mont Crevelt House,
Bulwer Avenue, St. Sampson, Guernsey, GY2 4LH.
2. Basis of preparation
The condensed consolidated financial statements for the six
months ended 30 June 2021 have been prepared on a going concern
basis in accordance with the Disclosure Guidance and Transparency
Rules of the FCA and with IAS 34, Interim Financial Reporting, as
contained in UK-adopted International Accounting Standards.
The condensed consolidated financial statements have been
prepared on a historical cost basis, as modified for the Group's
investment properties and certain financial assets and financial
liabilities (including derivative instruments) at fair value
through profit or loss.
The condensed consolidated interim financial information should
be read in conjunction with the Group's audited financial
statements for the year ended 31 December 2020, which have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") as contained in UK-adopted International
Accounting Standards.
2.1. Comparative period
The comparative financial information presented herein for the
six months ended 30 June 2020 and year ended 31 December 2020 do
not constitute full statutory accounts within the meaning of the
Law. The Group's Annual Report and Accounts for the year ended 31
December 2020 were delivered to the Guernsey Financial Services
Commission. The Group's independent Auditor's report on those
Accounts was unqualified and did not include references to any
matters to which the Auditors drew attention by way of emphasis
without qualifying their report.
2.2. Functional and presentation currency
The consolidated financial information is presented in Pounds
Sterling which is also the Group's functional currency, and all
values are rounded to the nearest thousand (GBP'000s) pounds,
except where otherwise indicated.
2.3. Going concern
The Directors have made an assessment of the Group's ability to
continue as a going concern. This assessment included consideration
of the current uncertainties created by COVID-19, coupled with the
Group's cash resources, borrowing facilities, rental income,
acquisition and disposals of investment properties, elective and
committed capital expenditure and dividend distributions.
The Group ended the period under review with GBP75.3m of cash
and cash equivalents, of which GBP61.3m was unrestricted cash,
providing ample liquidity.
Borrowing facilities decreased from GBP366.2m at 31 December
2020 to GBP365.7m as at 30 June 2021, with an LTV of 39.8%, based
upon the value of Company's investment properties as at 30 June
2021. In respect of the Company's borrowings, the first of its
facilities to mature is for GBP55.0m in June 2025, which is held
with the Royal Bank of Scotland.
Following the subsequent event on 31 August 2021 of the GBP236m
property acquisition (see Note 22), the Directors are satisfied
that the Company has adequate resources to continue in operational
existence for a period no less than 12 months from the date of
these Financial Statements. This is underpinned by the robust rent
collections and the limited level of committed capital expenditure
in the forthcoming 12 months.
Furthermore, the Directors are not aware of any material
uncertainties that may cast significant doubt upon the Group's
ability to continue as a going concern. Accordingly, the Directors
consider that it is appropriate to prepare the Financial Statements
on a going concern basis.
2.4. 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.
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.
3. Significant accounting judgements, estimates and
assumptions
The preparation of the condensed consolidated 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 GBP729,115,000 (30 June 2020:
GBP742,300,000; 31 December 2020: GBP732,380,000) 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 Investment
Property and IFRS 13 Fair Value Measurement.
The valuations have been prepared in accordance with the
requirements of the RICS Valuation - Global Standards which
incorporate the International Valuation Standards ("IVS") and the
RICS Valuation UK National Supplement (the "RICS Red Book") edition
current at the Valuation Date. It follows that the valuations are
compliant with "IVS". Factors reflected include current market
conditions, annual rentals, lease lengths and location. The
significant methods and assumptions used by valuers in estimating
the fair value of investment property are set out in note 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
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 outbreak of Novel Coronavirus (COVID-19), which was
declared by the World Health Organisation as a "Global Pandemic" on
the 11 March 2020, continues 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 enough 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
The Group values its interest rate derivatives at fair value.
The fair values are estimated by the loan counterparty with a
revaluation occurring on a quarterly basis. The counterparties will
use a number of assumptions in determining the fair values
including estimates of 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 a liability of GBP1,776,000 (30 June 2020:
GBP4,378,000; 31 December 2020: GBP4,339,000), as set out on Note
17.
3.1.3. 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.
3.1.4. Operating lease contracts - 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 30 June
2021, there were 13 leases with the range of the period left to run
being 45 and 104 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.
3.2. 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 condensed
consolidated financial statements:
3.2.1 Leases - the group as lessee
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. Performance fee
The Asset Manager and the Investment Manager are each entitled
to 50% of the 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 performance period 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 performance
period.
A performance fee is only payable in respect of a performance
period where the EPRA NAV per Ordinary Share exceeds the highwater
mark which is equal to the greater of the highest year-end EPRA NAV
per Ordinary Share in any previous performance period or the
placing price (100p per Ordinary Share). The performance fee was
calculated initially on 31 December 2018 and will be calculated
annually thereafter.
In the period to date, the Group has not met the criteria for a
performance fee. However, future circumstances may dictate that a
performance fee is ultimately due. Further details are disclosed in
note 21
3.2.3. 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.
3.3. 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.
4. Summary of significant accounting policies
With the exception of new accounting standards listed below, the
accounting policies adopted in this report are consistent with
those applied in the Group's statutory accounts for the year ended
31 December 2020 and are expected to be consistently applied for
the current year ending 31 December 2021. The changes to the
condensed consolidated financial statements arising from accounting
standards effective for the first time are noted below:
Interest Rate Benchmark Reform-Phase 2:
Amendments to IFRS 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.
5. Rental and property income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Rental income - freehold property 26,636 26,407 55,382
Rental income - long leasehold
property 2,891 3,033 6,695
Recoverable service charge
income and other similar items 6,808 7,524 13,864
------------- -------------- -------------
Total 36,335 36,964 75,941
------------- -------------- -------------
6. Property costs
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Other property expenses and
irrecoverable costs 4,158 5,362 8,798
Recoverable service charge
income and other similar costs 6,808 7,524 13,864
------------- -------------- -------------
Total 10,966 12,886 22,662
------------- -------------- -------------
Property costs represent direct operating expenses which arise
on investment properties generating rental income.
7. Administrative and other expenses
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Investment management fees 1,137 1,413 2,577
Property management fees 1,183 1,127 2,266
Asset management fees 1,139 1,430 2,579
Directors' remuneration 125 125 255
Administration fees 339 296 634
Legal and professional fees 839 823 1,674
Marketing and promotion 35 30 69
Other administrative costs
(including bad debts) 658 690 1,257
------------- ------------- -------------
Bank charges 22 11 18
------------- ------------- -------------
Total 5,477 5,945 11,329
------------- ------------- -------------
8. Finance income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Interest income 10 80 99
------------- ------------- -------------
Total 10 80 99
------------- ------------- -------------
9. Finance expenses
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Interest payable on bank borrowings 4,980 5,208 10,257
Amortisation of loan arrangement
fees 453 425 857
Bond interest 1,125 1,113 2,250
Bond issue costs amortised 77 77 155
Bond expenses 4 4 8
Lease interest 288 290 581
------------- ------------- -------------
Total 6,927 7,117 14,108
------------- ------------- -------------
10. Taxation
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Corporation tax - (26) (157)
(Decrease)/increase in deferred
tax creditor - (39) (46)
-------------- ------------- -------------
Total - (65) (203)
-------------- ------------- -------------
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 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.
Income tax, corporation tax and deferred tax above arise on
entities which form part of the Group's condensed 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 unpredictability of future taxable profits.
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.
11. Earnings per share
Earnings per share ("EPS") amounts are calculated by dividing
profits for the period attributable to ordinary equity holders of
the Company by the weighted average number of Ordinary Shares in
issue during the period.
The calculation of basic and diluted earnings per share is based
on the following:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Calculation of earnings per share
Net profit/(loss) attributable
to Ordinary Shareholders 18,013 (26,961) (30,998)
Adjustments to remove:
Changes in value of investment
properties (1,985) 33,218 54,793
Changes in fair value of interest
rate derivatives
and financial assets (2,563) 2,562 2,523
(Gain)/loss on disposal of investment
property (585) 1,965 1,073
Impairment of goodwill - 279 558
Deferred tax credit - (39) (46)
EPRA net profit attributable
to Ordinary Shareholders 12,880 11,024 27,903
Add performance fee - - -
------------- ------------- -------------
Company specific adjusted
earnings 12,880 11,024 27,903
------------- ------------- -------------
Weighted average number of Ordinary
Shares 431,506,583 431,506,583 431,506,583
Earnings/(Losses) per share -
basic and diluted 4.2p (6.2p) (7.2)p
EPRA Earnings per share - basic
and diluted 3.0p 2.6p 6.5p
Company specific adjusted earnings
per share:
- basic and diluted 3.0p 2.6p 6.5p
The Company specific adjusted earnings per share excludes the
performance fee.
12. Dividends
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Dividends
Dividend of 1.50 (2020 2.55) pence
per Ordinary share for the period
1 October - 31 December 6,473 11,004 11,004
Dividend of 1.60 (2020: 1.90)
pence per Ordinary share for the
period 1 January - 31 March 6,904 8,198 8,198
Dividend of - (2020: 1.50 pence
per Ordinary share
for the period 1 April - 30 June - - 6,473
Dividend of - (2020: 1.50) per
Ordinary share
for the period 1 July - 30 September - - 6,473
------------- ------------- -------------
Total 13,377 19,202 32,148
------------- ------------- -------------
On 25 February 2021, the Company declared a dividend of 1.50
pence per share in respect of the period 1 October 2020 to 31
December 2020. The dividend payment was made on 9 April 2021 to
Shareholders on the register as at 5 March 2021.
On 19 May 2021, the Company declared a dividend of 1.60 pence
per share in respect of the period 1 January 2021 to 31 March 2021.
The dividend payment was made on 16 July 2021 to Shareholders on
the register as at 28 May 2021.
On 25 August 2021, the Company declared a dividend in respect of
the period 1 April 2021 to 30 June 2021 of 1.60 pence per share,
which will be paid on 15 October 2021 to Shareholders on the
register as at 10 September 2021. These condensed consolidated
financial statements do not reflect this dividend.
13. INVESTMENT PROPERTIES
In accordance with International Accounting Standard, IAS 40,
'Investment Property', investment property has been independently
valued at fair value by Cushman & Wakefield, a Chartered
Surveyor who is 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 valuation has been prepared in accordance with the Red
Book and incorporates 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 outbreak of Novel Coronavirus (COVID-19), which was
declared by the World Health Organisation as a "Global Pandemic" on
the 11 March 2020, continues 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 enough 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 valuation is 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 period have been treated
as properties purchased rather than business combinations.
Movement in investment properties Freehold Long Leasehold
for the property property Total
six months ended 30 June 2021 GBP'000 GBP'000 GBP'000
Valuation at 1 January 2021 659,432 72,948 732,380
Property additions - acquisitions 645 - 645
Property additions - subsequent
expenditure 2,341 2,007 4,348
Property disposals (10,828) - (10,828)
Gain on the disposal of investment
properties 585 - 585
Change in fair value during the
period 1,394 591 1,985
---------- --------------- ----------
Valuation at 30 June 2021 (unaudited) 653,569 75,546 729,115
---------- --------------- ----------
Movement in investment properties Freehold Long Leasehold
for the property property Total
six months ended 30 June 2020 GBP'000 GBP'000 GBP'000
Valuation at 1 January 2020 697,908 90,007 787,915
Property additions - acquisitions 83 - 83
Property additions - subsequent
expenditure 4,519 23 4,542
Property disposals (14,793) (264) (15,057)
Loss on the disposal of investment
properties (1,714) (251) (1,965)
Change in fair value during the
period (26,223) (6,995) (33,218)
---------- --------------- ----------
Valuation at 30 June 2020 (unaudited) 659,780 82,520 742,300
---------- --------------- ----------
Movement in investment properties Freehold Long Leasehold
for the year ended 31 December 2020 property property Total
GBP'000 GBP'000 GBP'000
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)
Gain/(Loss) on the disposal of investment
properties (1,128) 55 (1,073)
Change in fair value during the
period (43,715) (11,078) (54,793)
---------- --------------- ----------
Valuation at 31 December 2020 (audited) 659,432 72,948 732,380
---------- --------------- ----------
The historic cost of the properties was GBP752,029,000 (30 June
2020: GBP739,576,000, 31 December 2020: GBP759,705,000).
The following table provides the fair value measurement
hierarchy for investment properties:
Significant Significant
Quoted observable unobservable
active prices inputs inputs
Total (level 1) (level 2) (level 3)
Date of valuation: GBP'000 GBP'000 GBP'000 GBP'000
30 June 2021 729,115 - - 729,115
---------- ---------------- ------------ --------------
30 June 2020 742,300 - - 742,300
---------- ---------------- ------------ --------------
31 December 2020 732,380 - - 732,380
---------- ---------------- ------------ --------------
The hierarchy levels are defined in note 17.
It has been determined that the entire investment properties
portfolio should be classified under the level 3 category.
There have been no transfers between levels during the
period.
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.
In arriving at their estimates of fair values as at 30 June
2021, the valuers used their market knowledge and professional
judgement and did not rely solely on historical transactional
comparables.
Techniques used for valuing investment properties
The following descriptions and definitions relate to valuation
techniques and key unobservable 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: GBP9,000 - GBP3,087,591
per annum (30 June 2020: GBP9,000 - GBP3,092,291 per annum; 31
December 2020: GBP9,000 - GBP3,092,291 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
Observable Input: net initial yield
The initial net income from a property at the accounting date,
expressed as a percentage of the gross purchase price including the
costs of purchase (range: 0% - 27.26%; (30 June 2020: 0% - 23.90%;
31 December 2020: 0.00% to 25.64%)).
Unobservable inputs:
The significant unobservable input (level 3) are sensitive to
the changes in the estimated future cash flows from investment
properties such as increases and decreases in contract rents,
operating expenses and capital expenditure, plus transactional
activity in the real estate market.
As set out within the significant accounting estimates and
judgements above, 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.
14. Goodwill
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
At start of period - 558 558
Impairment - (279) (558)
-------------- ------------- ------------
At end of period - 279 -
-------------- ------------- ------------
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 is 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
Condensed Consolidated 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 had been fully impaired.
15. Bank and loan borrowings
Bank borrowings are secured by charges over individual
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 period end are offset against amounts drawn on the facilities
as shown in the table below:
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Bank borrowings drawn at start
of period 316,171 294,000 294,000
Bank borrowings drawn 1,109 30,698 39,200
Bank borrowings repaid (1,570) (11,967) (17,029)
------------- ------------- ------------
Bank borrowings drawn at end
of period 315,710 312,731 316,171
Less: unamortised costs at
start of period (5,479) (6,144) (6,144)
Less: loan issue costs incurred
in the period (296) (95) (192)
Add: loan issue costs amortised
in the period 453 425 857
------------- ------------- ------------
At end of period 310,388 306,917 310,692
------------- ------------- ------------
Maturity of bank borrowings
Repayable within 1 year - - -
Repayable between 1 to 2 years - - -
Repayable between 2 to 5 years 51,024 53,328 52,349
Repayable after more than
5 years 264,686 259,403 263,822
Unamortised loan issue costs (5,322) (5,814) (5,479)
------------- ------------- ------------
310,388 306,917 310,692
------------- ------------- ------------
The table below lists the Group's borrowings.
Gross
Lender Original Outstanding Maturity Loan to Annual interest
facility debt* date Value** rate Amortisation
GBP'000 GBP'000 % %
2.15 over
Royal Bank of 3 months Mandatory
Scotland 55,000 51,024 Jun 2025 40.3 GBP LIBOR prepayment
Scottish Widows
Ltd. & Aviva
Investors Real
Estate Finance 165,000 165,000 Dec 2027 46.6 3.28 Fixed None
Scottish Widows
Ltd 36,000 36,000 Dec 2028 40.9 3.37 Fixed None
2.20 over
3
months GBP Mandatory
Santander UK 65,870 63,686 Jun 2029 38.1 LIBOR prepayment
----------- --------------
Total bank borrowings 321,870 315,710
----------- --------------
Retail eligible
bond 50,000 50,000 Aug 2024 n/a 4.50 Fixed none
----------- --------------
Total 371,870 365,710
----------- --------------
LIBOR = London Interbank Offered Rate (Sterling)
* Before unamortised debt issue costs.
** Based upon the Cushman & Wakefield property
valuation.
The weighted average term to maturity of the Group's debt at the
period end was 6.0 years (30 June 2020: 6.8 years; 31 December
2020: 6.4 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% per annum (30 June 2020: 3.2% per annum; 31
December 2020: 3.1% per annum).
The Group has been in compliance with all of the financial
covenants of the above facilities as applicable throughout the
period covered by these condensed consolidated financial
statements. Each facility has distinct covenants which generally
include: historic interest cover, projected interest cover,
loan-to-value cover and debt to rent 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 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 17, the Group uses a combination of interest
rate swaps and fixed rate bearing loans to hedge against 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.
16. Retail eligible bonds
The Company launched GBP50,000,000 of 4.5% retail eligible bonds
with a maturity date of 6 August 2024. The bonds are listed on the
LSE ORB platform.
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Broad principal at start of
period 50,000 50,000 50,000
Unamortised issue costs at start
of period (559) (714) (714)
Amortisation of issue costs 77 77 155
------------- ------------- ------------
At end of period 49,518 49,363 49,441
------------- ------------- ------------
17. 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.
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Fair value at start of period (4,339) (1,816) (1,816)
Revaluation in the period 2,563 (2,562) (2,523)
------------- ------------- ------------
Fair value at end of period (1,776) (4,378) (4,339)
------------- ------------- ------------
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 fair value of interest rate caps and swaps represents the
net present value of the difference between the cash flows produced
by the contracted rate and the current market rate over the life of
the instrument.
The table below details the hedging and swap notional amounts
and rates against the details of the Group's loan facilities.
Lender Annual
Original Outstanding Maturity interest Notional
facility debt date rate amount Rate
GBP'000 GBP'000 % GBP'000 %
Swap GBP27,500 1.26
2.15 over
3 months
Royal Bank of Scotland 55,000 51,024 Jun 2025 GBP LIBOR Cap GBP27,500 1.26
Scottish Widows Ltd.
& Aviva Investors
Real Estate Finance 165,000 165,000 Dec 2027 3.28 Fixed n/a n/a
Scottish Widows Ltd 36,000 36,000 Dec 2028 3.37 Fixed n/a n/a
Swap GBP32,935 1.45
2.20 over
3 months
Santander UK 65,870 63,686 Jun 2029 GBP LIBOR Cap GBP32,935 1.45
---------- --------------
Total bank borrowings 321,870 315,710
---------- --------------
LIBOR = London Interbank Offered Rate (Sterling)
As at 30 June 2021, the swap and the cap notional arrangements
were GBP60.44m (30 June 2020: GBP60.44m; 31 December 2020:
GBP60.44m).
The Group weighted average cost of debt of 3.3%, (30 June 2020:
3.4%; 31 December 2020: 3.3%) is 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 loan
portfolio using fixed-rate facilities or interest rate derivatives.
The hedging on all of the facilities matches the term. As at the
period end date, the total proportion of hedged debt equated to
102.0% (30 June 2020: 102.9%; 31 December 2020: 101.8%), as shown
below.
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Total bank borrowings 315,710 312,731 316,171
------------- ------------- ------------
Notional value of interest
rate caps and swaps 120,870 120,870 120,870
Value of fixed rate debts 201,000 201,000 201,000
------------- ------------- ------------
321,870 321,870 321,870
------------- ------------- ------------
Proportion of hedged debt 102.0% 102.9% 101.8%
------------- ------------- ------------
Fair value hierarchy
The following table provides the fair value measurement
hierarchy for interest rate derivatives. 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 condensed
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.
Significant Significant
Quoted active observable unobservable
prices inputs inputs
Total (level 1) (level 2) (level
Date of valuation: GBP'000 GBP'000 GBP'000 3)
GBP'000
30 June 2021 (1,776) - (1,776) -
---------- ---------------- ------------ --------------
30 June 2020 (4,378) - (4,378) -
---------- ---------------- ------------ --------------
31 December 2020 (4,339) - (4,399) -
---------- ---------------- ------------ --------------
The fair values of these contracts are recorded in the Condensed
Consolidated Statement of Financial Position and are determined by
forming an expectation that interest rates will exceed strike rates
and by discounting these future cash flows at the prevailing market
rates as at the period end.
There have been no transfers between levels during the
period.
The Group has not adopted hedge accounting.
18. Stated capital
Stated capital represents the consideration received by the
Company for the issue of Ordinary shares.
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Issued and fully paid shares
at no par value
At start of the period 430,819 430,819 430,819
At end of the period 430,819 430,819 430,819
------------- ------------- ------------
Number of shares in issue
At start of the period 431,506,583 431,506,583 431,506,583
------------- ------------- ------------
At end of the period 431,506,583 431,506,583 431,506,583
------------- ------------- ------------
19. Net asset value per share (NAV)
Basic NAV per share is calculated by dividing the net assets in
the Condensed Consolidated Statement of Financial Position
attributable to ordinary equity holders of the parent by the number
of Ordinary Shares in issue at the end of the period.
EPRA NAV is a key performance measure used in the real estate
industry which highlights the fair value of net assets on an
ongoing long-term basis. Assets and liabilities that are not
expected to crystallise in normal circumstances such as the fair
value of derivatives and deferred taxes on property valuation
surpluses are therefore excluded.
Net asset values have been calculated as follows:
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Net asset value per Condensed
Consolidated Statement of Financial
Position 425,218 437,565 420,582
Adjustment for calculating EPRA
Net Tangible Assets:
Derivative financial instruments 1,776 4,378 4,339
Deferred tax liability 690 698 690
Goodwill - (279) -
EPRA Net Tangible Assets 427,684 442,362 425,611
-------------- ------------- ------------
Number of Ordinary Shares in
issue 431,506,583 431,506,583 431,506,583
Net asset value per share -
basic and diluted 98.5p 101.4p 97.5p
EPRA net tangible assets per
share - basic and diluted 99.1p 102.5p 98.6p
20. Segmental information
After a review of the information provided for management
purposes, it was determined that the Group had one operating
segment and therefore segmental information is not disclosed in
these condensed consolidated financial statements.
21. Transactions with related parties
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 the Company, 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 NAV, 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.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Asset management fees charged(*) 1,139 1,430 2,579
Property management fees charged(*) 1,183 1,127 2,266
Performance fee - - -
------------- ------------- -------------
Total 2,322 2,557 4,845
------------- ------------- -------------
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Total fees outstanding* 1,186 1,347 612
------------- ------------- -------------
* 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 period and the
amount outstanding at the end of the period:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Investment management fees
charged 1,137 1,413 2,577
Performance fees charged - - -
------------- ------------- -------------
Total 1,137 1,413 2,577
------------- ------------- -------------
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Total fees outstanding 584 665 1,190
------------- ------------- -------------
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 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 six months ending 30
June 2021 or 30 June 2020 or the year ending 31 December 2020
22. Subsequent events
On 31 August 2021, the Company announced the acquisition of 31
high quality, predominately multi-let office assets for a
consideration price of GBP236.0m, reflecting a net initial yield of
7.8%. The consideration was satisfied by three components: the
issuance of 84,230,000 new ordinary shares in the Company at 98.6
pence per share (being the EPRA Net Tangible Asset Value per share
as at 31 December 2020) equivalent to GBP83.1m, GBP76.7m of
existing cash resources and additional borrowings of GBP76.2m.
EPRA PERFORMANCE MEASURES
The Group is a member of the European Public Real Estate
Association ("EPRA").
EPRA has developed and defined the following performance
measures to give transparency, comparability and relevance of
financial reporting across entities which may use different
accounting standards. The Group is pleased to disclose the
following measures which are calculated in accordance with EPRA
guidance:
EPRA Performance Definition EPRA Performance Measure 30 June 31 December
Measure 2021 2020
EPRA EARNINGS Earnings from
operational EPRA Earnings GBP12,881,000 GBP27,903,000
activities
EPRA Earnings per
share (basic and diluted) 3.0p 6.5p
Company Adjusted Company Specific
Earnings Earnings Measure Adjusted Earnings GBP12,881,000 GBP27,903,000
which adds back
the performance
fee charged
in the accounts
EPRA Earnings per
share (basic and diluted) 3.0p 6.5p
The EPRA NAV set of metrics make adjustments to the NAV per the IFRS
financial statements to provide stakeholders with the most relevant
information on the fair value of the assets and liabilities of a
real estate investment company, under different scenarios.
EPRA Net EPRA Net Reinstatement GBP425,611,000
Reinstatement Value GBP427,684,000
Value
EPRA NAV metric
which assumes
that entities
never sell assets
and aims to
represent the
value
required to
rebuild the EPRA Net Reinstatement
entity. Value per share (diluted) 99.1p 98.6p
EPRA Net
Tangible GBP425,611,000
Assets EPRA Net Tangible GBP427,684,000
Assets
EPRA NAV metric
which assumes
that entities
buy and sell
assets, thereby
crystallising
certain levels EPRA Net Tangible
of unavoidable Assets per share
deferred tax. (diluted) 99.1p 98.6p
EPRA Net EPRA NAV metric
Disposal which represents EPRA Net Disposal
Value the Value GBP404,365,000
Shareholders'
value under GBP415,303,000
a disposal scenario,
where deferred
tax, financial
instruments
and certain
other adjustments
are calculated
to the full
extent of their
liability, net
of any resulting
tax.
EPRA Net Disposal
Value per share (diluted) 96.2p 93.7p
Annualised rental
income based
on the cash
rents passing
at the balance
sheet date,
less non-recoverable
property operating
expenses, divided
by the market
value of the
property with
(estimated)
EPRA Net purchasers' EPRA Net Initial
Initial Yield costs. Yield 6.7% 6.9%
This measure
incorporates
an adjustment
to the
ERA NIY in respect
of the expiration
of rent-free-periods
(or other unexpired
lease incentives
such as discounted
rent periods
EPRA 'Topped-up' and stepped EPRA 'Topped-up'
NIY rents). Net Initial Yield 6.8% 7.4%
Estimated Market
Rental Value
(ERV) of vacancy
space divided
EPRA Vacancy by ERV of the
Rate whole portfolio EPRA Vacancy Rate 14.3% 10.6%
Administrative
and operating
costs (including
and excluding
costs of direct
vacancy) divided
EPRA Costs by gross rental
Ratio income EPRA Costs Ratio 32.6% 32.4%
EPRA Costs Ratio
(excluding direct
vacancy costs) 19.9% 19.6%
NOTES TO THE CALCULATION OF THE EPRA PERFORMANCE MEASURES
1. EPRA earnings
For calculations, please refer to note 11 to the financial
statements.
2. EPRA Net Reinstatement Value
30 June 31 December
2021 2020
GBP'000 GBP'000
NAV per the financial statements 425,218 420,582
Fair value of derivative financial
instruments 1,776 4,339
Deferred tax liability 690 690
------------ ------------
EPRA Net Reinstatement Value 427,684 425,611
------------ ------------
Dilutive number of shares 431,506,583 431,506,583
EPRA Net Reinstatement Value per share 99.1p 98.6p
------------ ------------
3. EPRA Net Tangible Assets
30 June 31 December
2021 2020
GBP'000 GBP'000
NAV per the financial statements 425,218 420,582
Fair value of derivative financial instruments 1,776 4,339
Deferred tax liability 690 690
------------ ------------
EPRA Net Tangible Assets 427,684 425,611
------------ ------------
Dilutive number of shares 431,506,583 431,506,583
EPRA Net Tangible Assets per share 99.1p 98.6p
------------ ------------
4. EPRA Net Disposal Value
30 June 31 December
2021 2020
GBP'000 GBP'000
NAV per the financial statements 425,218 420,582
Adjustment for the fair value of bank
borrowings (8,850) (16,717)
Adjustment for the fair value of retail
eligible bonds (1,065) 500
------------ ------------
EPRA Net Disposal Value 415,303 404,365
------------ ------------
Dilutive number of shares 431,506,583 431,506,583
EPRA Net Disposal Value per share 96.2p 93.7p
------------ ------------
5. EPRA Net Initial Yield
Calculated as the value of investment properties divided by
annualised net rents:
30 June 31 December
2021 2020
GBP'000 GBP'000
Investment properties 729,115 732,380
Purchaser costs 47,897 48,068
--------- ------------
777,012 780,448
Annualised cash passing rental income 58,252 59,754
Property outgoings (6,279) (5,586)
--------- ------------
Annualised net rents 51, 973 54,168
Add notional rent expiration of rent
free periods or other lease incentives 591 3,198
--------- ------------
Topped-up net annualised rent 52, 564 57,366
--------- ------------
EPRA NIY 6.7% 6.9%
--------- ------------
EPRA topped up NIY 6.8% 7.4%
--------- ------------
6. EPRA Vacancy Rate
30 June 31 December
2021 2020
GBP'000 GBP'000
Estimated Market Rental Value (ERV) of
vacant space 10,230 7,733
--------- ------------
Estimated Market Rental value (ERV) of
whole portfolio 71,549 72,874
--------- ------------
EPRA Vacancy Rate 14.3% 10.6%
--------- ------------
7. EPRA Cost Ratios
30 June 31 December
2021 2020
GBP'000 GBP'000
Property costs 10,966 22,662
Less recoverable service charge income
and other similar costs (6,809) (13,864)
Add administrative and other expenses 5,477 11,329
--------- ------------
EPRA costs (including direct vacancy
costs) 9,634 20,127
Direct vacancy costs (3,766) (7,967)
--------- ------------
EPRA costs (excluding direct vacancy
costs) 5,868 12,160
--------- ------------
Gross rental income 36,335 75,941
Less recoverable service charge income
and other similar items (6,809) (13,864)
--------- ------------
Gross rental income less ground rents 29,526 62,077
--------- ------------
EPRA Cost Ratio (including direct vacancy
costs) 32.6% 32.4%
--------- ------------
EPRA Cost Ratio (excluding direct vacancy
costs) 19.9% 19.6%
--------- ------------
The Group has not capitalised any overhead or operating expenses
in the accounting years disclosed above.
PROPERTY RELATED CAPITAL EXPENDITURE ANALYSIS
30 June 31 December
2021 2020
GBP'000 GBP'000
Acquisitions 645 44,956
Subsequent capital expenditure 4,348 8,803
--------- ------------
Total capital expenditure 4,993 53,759
--------- ------------
Acquisitions - this represents the purchase cost of investment
properties and associated incidental purchase expenses such as
stamp duty land tax, legal fees, agents' fees, valuations and
surveys.
Subsequent capital expenditure - this represents capital
expenditure which has taken place post the initial acquisition of
an investment property.
SHAREHOLDER INFORMATION
Share register enquiries: Link Group.
For any questions about:
-- Changing your address or other details;
-- Questions about your shares;
-- Buying and selling shares.
Phone: 0371 664 0300
Calls are charged at the standard geographic rate and will vary
by provider. Calls outside the United Kingdom will be charged at
the applicable international rate. The Registrar is open between
9.00am - 5.30pm, Monday to Friday excluding public holidays in
England and Wales. For Shareholder enquiries please email
enquiries@linkgroup.co.uk .
POSTAL ADDRESS
Link Group
Shareholder Services
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Electronic Communications from the Company
Shareholders now have the opportunity to be notified by email
when the Company's annual reports, interim reports and other formal
communications are available on the Company's website, instead of
receiving printed copies by post. This has environmental benefits
in the reduction of paper, printing, energy and water usage, as
well as reducing costs to the Company. If you have not already
elected to receive electronic communications from the Company and
wish to do so, visit www.signalshares.com. To register, you will
need your investor
code, which can be found on your share certificate.
Alternatively, you can contact Link's Customer Support Centre,
which is available to answer any queries you have in relation to
your shareholding:
By phone: call +44 (0) 371 664 0300. Calls from outside the UK
will be charged at the applicable international rate. Lines are
open between 9.00am and 5.30pm, Monday to Friday (excluding public
holidays in England and Wales).
By email: enquiries@linkgroup.co.uk
By post:
Link Group
Shareholder Services
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Forthcoming events
October 2021 Q2 2021 Dividend Payment
November 2021 Q3 2021 Trading Update and Dividend Declaration
February 2022 Q4 2021 Dividend Declaration
March 2022 2021 Preliminary Results
May 2022 Q1 2022 Trading Update and Dividend Declaration
Note: all future dates are provisional and subject to
change.
Website: www.regionalreit.com
Other Information
Listing (ticker): LSE Main Market (RGL)
Date of listing: 6 November 2015
Joint Brokers: Peel Hunt LLP and Panmure Gordon (UK) Limited
Financial PR: Buchanan Communications
Incorporated: Guernsey
ISIN: GG00BYV2ZQ34
SEDOL: BYV2ZQ3
Legal Entity Identifier: 549300D8G4NKLRIKBX73
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 and Audit
Committee Chairman)
Stephen Inglis (Non-Executive Director)
Timothy Bee (Non-Executive Director)
Administrator Independent Auditor Registrar
Jupiter Fund Services RSM UK Audit LLP Link Market Services
Limited Third Floor (Guernsey)
Mont Crevelt House Centenary House Limited
Bulwer Avenue 69 Wellington Street The Registry
St. Sampson Glasgow G2 6HG 34 Beckenham Road
Guernsey GY2 4LH Beckenham
Kent BR3 4TU
Asset Manager Investment Manager Sub-Administrator
London & Scottish Property Toscafund Asset Management Link Alternative Fund
Investment Management LLP Administrators Limited
Limited 5th Floor Beaufort House
Venlaw 15 Marylebone Road 51 New North Road
349 Bath Street London NW1 5JD Exeter
Glasgow G2 4AA Devon EX4 4EP
Company Secretary Legal Adviser to the Tax Adviser
Link Company Matters Company Grant Thornton UK LLP
Limited Macfarlanes LLP 110 Queen Street
Beaufort House 20 Cursitor Street Glasgow GI 3BX
51 New North Road London EC4A 1LT
Exeter
Devon EX4 4EP
Depositary Public Relations Registered office
Ocorian Depositary (UK) Buchanan Communications Regional REIT Limited
Limited Limited Mont Crevelt House
20 Fenchurch Street 107 Cheapside Bulwer Avenue
London London EC2V 6DN St. Sampson
EC3M 3BY Guernsey GY2 4LH
Financial Adviser and Joint Broker Property Valuers
Joint Broker Panmure Gordon Cushman & Wakefield
Peel Hunt LLP 1 New Change Debenham
Moor House London Tie Leung Limited (trading
120 London Wall EC4M 9AF as Cushman & Wakefield)
London EC2Y 5ET 125 Old Broad Street
London EC2N 2BQ
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of this
announcement.
National Storage Mechanism
A copy of the Half-Yearly Report will be submitted shortly to
the National Storage Mechanism ("NSM") and will be available for
inspection at the NSM, which is situated at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR SFWFMIEFSEDU
(END) Dow Jones Newswires
September 16, 2021 02:00 ET (06:00 GMT)
Regional Reit (LSE:RGL)
Gráfica de Acción Histórica
De Feb 2024 a Mar 2024
Regional Reit (LSE:RGL)
Gráfica de Acción Histórica
De Mar 2023 a Mar 2024