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

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