TIDMRGL
RNS Number : 2344Z
Regional REIT Limited
17 September 2020
17 September 2020
Regional REIT Limited
("Regional REIT", the "Group" or the "Company")
Half Year Results for the Six Months Ended 30 June 2020
Resilient performance, strong rent collection and continued
dividends
Regional REIT Limited (LSE: RGL), the regional real estate
investment specialist, focused on building a diverse portfolio of
income producing regional UK core and core plus office and
industrial property assets, today announces its half year results
for the six months ended 30 June 2020.
Financial highlights:
-- EPRA total return of 37.3% since listing on 6 November 2015
to 30 June 2020; representing 7% annualised returns for
shareholders;
-- Resilient rental and property income in the period of
GBP29.4m, excluding recoverable service charge income and other
similar items (six months to 30 June 2019: GBP29.9m), with total
rent roll of GBP62.9m (30 June 2019: GBP57.8m);
-- EPRA adjusted EPS of 2.6p per share ("pps") (30 June 2019:
3.8pps) lower as expected, in part reflecting the increased costs
and associated impact on the current income from the GBP30.7m
drawdown of debt in the period;
-- EPRA NRV* per share of 102.6pps (30 June 2019: 114.3pps per
share); EPRA NTA of 102.5pps (30 June 2019:114.1pps); the decrease
can largely be attributed to the unrealised change in the fair
value of the portfolio on a like-for-like basis of 4.3% due to
COVID-19 uncertainty;
-- Cash and cash equivalent balances amounted to GBP67.9m as at
30 June 2020 (30 June 2019: GBP53.8m);
-- Net LTV maintained within 40% target, at 39.7% (30 June 2019: 39.9%);
-- Group weighted average cost of debt decreased to 3.4% (30 June 2019: 3.5%);
-- Weighted average debt duration 6.8 years (30 June 2019: 7.8 years); and
-- H1 dividend for the period of 3.4pps (30 June 2019: 3.8pps) -
targeting an expected full year dividend of 6.4pps.
* Under the prior methodology, EPRA NAV of 102.6pps (30 June
2019: 114.3pps).
Operational highlights - Asset Management initiatives continue
to drive income
-- Rent collection remained strong with 97.6% of the rent
invoiced for the period to 30 June 2020 being collected as at 11
September 2020. This comprises 94.1% of occupiers which have paid
rent, 0.4% which have agreed to pay monthly and collection plans
agreed with occupiers amounting to a further 3.1%; the Company
remains in discussions with occupiers regarding the remainder of
the outstanding rent and expects to collect the vast majority of
this;
-- Completed 21 new lettings in the first six months of 2020,
totalling 155,636 sq. ft., which when fully occupied, will provide
a gross rental income of c. GBP1.1m;
-- Undertaken 30 renewals during the period, totalling 198,185
sq.ft., producing a rental income of c.GBP992,000, an average
uplift of 3.2% from the previous passing rent;
-- Group portfolio totalled 151 properties (30 June 2019: 149);
comprising 1,249 units (30 June 2019: 1,178) and servicing 876
tenants (30 June 2019: 828);
-- Attractive regional office and industrial property assets
represent 94.2% of the Group portfolio by value; 79.9% in office
(30 June 2019: 78.2%) and 14.3% in industrial (30 June 2019:
14.3%); by income: 79.8% from offices (30 June 2019: 77.7%) and
12.3% from industrial property (30 June 2019: 12.8%);
-- The WAULT on the portfolio has marginally decreased to 5.3 years (30 June 2019: 5.5 years);
-- EPRA Occupancy rate remained stable at 89.0% (30 June 2019:
87.5%); and on an EPRA like for like basis at 88.3% (30 June 2019:
87.7%); and
-- 51% of rental income being secured against tenants designated
by the Government as essential services.
Post period Operational Highlights:
-- Disposals of non-core properties since 30 June 2020 amounted
to GBP2,015,000 (before costs):
o Marston Moor Business Park, Tockwith, York: Disposal of part
of the business park to the occupier by way of a very long lease
for GBP980,000;
o Royal Burgh House, 380 King Street, Rutherglen, Glasgow: A
contract has been completed for the sale of the vacant office
building for GBP665,000; and
o Unit 12, Miller Court, Tewkesbury: A contract has been signed
for the sale of this vacant office for owner occupation for
GBP370,000.
-- Since 30 June 2020, the Company has made a number of new
successful lettings and lease renewals:
o Miller Court, Tewkesbury: A new lease has been signed for
10,070 sq. ft. at a rent of GBP151,050 (GBP15.00/sq. ft.). The
lease is for five years until August 2025 with a break option in
August 2023;
o Telford Court Dunkirk Lea, Chester: A lease renewal has been
signed with the occupier for 5,083 sq. ft.. The lease is for 10
years until August 2030 at a rent of GBP75,000 (GBP14.76/sq. ft.)
with a rent review and break option in 2025;
o The Courtyard, Catherine Street, Macclesfield: A lease renewal
has been signed with East Cheshire Housing Consortium for 1,770 sq.
ft. at a rent of GBP29,000 (GBP16.38/sq. ft.). The lease is for two
years until July 2022 with a break option in 2021; and
o Elmbridge Court, Gloucester: A new tenancy agreement has been
signed with Buyline Ltd for 1,610 sq. ft. at a rent of GBP29,785
(GBP18.50/sq. ft.). The lease is for five years until July
2025.
Stephen Inglis, CEO of London & Scottish Property Investment
Management Limited, the Asset Manager of Regional REIT Limited
commented: "I am very pleased with the robust performance and
resilience of the Group in what has been, and remains, very
difficult times with the full implications of Covid-19 and Brexit
still unknown. The robust performance announced today is a result
of the Company's highly diversified portfolio and active asset
management initiatives, which are integral parts of the Company's
long-term risk mitigation strategy. I can report that rent
collection has remained strong throughout the period and as a
result the Company has subsequently been able to maintain an
uninterrupted attractive quarterly dividend. Whilst earnings were
impacted as expected during the period, in part by the additional
debt drawdown and by the Company holding a larger cash balance
which would normally be invested in income producing assets, the
Company continues to perform in line with our expectations.
We have constructed a resilient business, with high quality
assets in excellent locations, financially strong occupiers and a
robust balance sheet, making us well placed to weather any ongoing
economic disruption from Covid-19 and Brexit. Our close
relationships with all our occupiers and the ongoing asset
management opportunities embedded within the portfolio should
underpin continued income performance for our shareholders."
Analysts' Briefing
A meeting for analysts will be held via conference call at
09.30am (London time, BST) on Thursday, 17 September 2020 via
Arkadin. If you would like to attend the meeting please contact the
Buchanan team on +44 (0) 207 466 5000 or
georgeb@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 .
-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 Tel: +44 (0) 141 248
Management 4155
Asset Manager to the Group
Stephen Inglis
Buchanan Communications Tel: +44 (0) 20 7466
5000
Financial PR regional@buchanan.uk.com
Charles Ryland / Henry Wilson / George
Beale
About Regional REIT
Regional REIT Limited ("Regional REIT" or the "Company") and its
subsidiaries (the "Group") is a United Kingdom ("UK") based real
estate investment trust that launched in November 2015. It is
managed by London & Scottish Property Investment Management
Limited, the Asset Manager, and Toscafund Asset Management LLP, the
Investment Manager.
Regional REIT's commercial property portfolio is comprised
wholly of income producing UK assets and comprises, predominantly,
offices and industrial units located in the regional centres
outside of the M25 motorway. The portfolio is highly diversified,
with 151 properties as at 30 June 2020, with a valuation of
GBP742.3m.
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
Regional REIT Limited
Regional REIT Limited(1) (the "Company") and its subsidiaries
(together the "Group") is a UK-listed real estate investment trust
("REIT"), which pursues its investment objective by investing in,
actively managing and disposing of regional Core Property and Core
Plus Property assets. The commercial property portfolio is
comprised wholly of UK assets and comprises, predominantly, offices
and industrial units located in the regional centres outside of the
M25 motorway.
(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 adopted by the European
Union ("EU"). Unless otherwise stated, the text of this Half-Yearly
Report does not distinguish between the activities of the Company
and those of its subsidiaries.
HIGHLIGHTS
For the six months to 30 June 2020
Financial Highlights
Income focused - opportunistic buying and strategic selling,
coupled with intensive asset management, continues to secure
long-term income
IFRS NAV per share 101.4p
Dividend per share 3.4p
Weighted Average Cost of Debt* 3.4%
Portfolio Valuation GBP742.3m
EPRA NAV per share 102.6p
Net to Loan to Value Ratio* 39.7%
Weighted Average Debt Duration* 6.8 years
Operational Highlights
Deliberately diversified portfolio by location and tenant -
regions remain strong
Portfolio by region and sector (by value)
Units 1,249
Rent Roll GBP62.9m
Office & Industrial 94.2%
EPRA Occupancy Rate* 89.0%
WAULT to expiry 5.3 years
Properties 151
Tenants 876
England & Wales 82.3%
Properties disposed 9
Property disposal proceeds (net GBP15.1m
of costs)
WAULT to first break 3.4 years
* Alternative Performance Measures. Details are provided in the
Glossary of Terms within the full Half Year Report.
CHAIRMAN'S STATEMENT
The Chairman's Statement covers the period ended 30 June
2020.
I am pleased to report that the Group performed relatively well
despite the challenging economic backdrop caused by COVID-19. Our
strategy of having a large number of occupiers, currently 876,
proactively managed by the Asset Manager across a diverse range of
151 properties throughout the UK and outside of the M25, has
contributed to our resilient performance through the period. This
performance is further strengthened by having over 51% of occupiers
that were classified as Government designated essential services
and were able to continue operations during the lock-down period
with minimal disruption. Overall, we have maintained robust rental
collections, being one of our primary objectives, and thus ensured
the payment of an uninterrupted quarterly dividend to our
shareholders throughout the period, albeit at a reduced level in
the interest of prudence.
The Asset Manager's specialist model, which is underpinned by 61
personnel who are proactively involved with asset and property
management, research, legal, corporate finance, finance and credit
control, continued to operate successfully and at full capacity
throughout this turbulent period, ensuring close contact with our
occupiers. As testament to these close relationships and successful
strategy, rent collection remained strong with 97.6% of the rent
invoiced(2) being collected as at 11 September 2020. This comprised
94.1% of tenants which have paid rent, 0.4% which have agreed to
pay monthly and collection plans agreed with occupiers amounting to
a further 3.1%. This is an encouraging achievement.
Notwithstanding this strong performance (particularly relative
to our peers), the value of the investment properties under
management inevitably suffered a decline as the valuers try to make
sense of the emerging economic landscape. Our portfolio value has
decreased by GBP45.6m (5.8%) to GBP742.3m, from GBP787.9m as at 31
December 2019. This is due to disposals of GBP15.1m (net of costs),
the loss of GBP2.0m on the disposals, capital expenditure of
GBP4.5m, which is still to be fully captured in the valuations, and
a decrease in the change in fair value of the portfolio amounting
to GBP33.2m. It is valid to note the GBP33.2m decrease is an as yet
'unrealised' valuation decline and was ostensibly attributable to
COVID uncertainty. This represents a like-for-like valuation
reduction of 4.3%. As described further below, transactional
activity has been somewhat limited during the period, as a result
of which the valuation of the property portfolio was subject to an
industry wide material uncertainty clause. It is the view of our
Asset Manager that certain investment property types are currently
being valued lower based broadly on sentiment rather than
transactional evidence. I believe it is important to distinguish
that despite the valuation change in the fair value of the
portfolio which is accounted for as a 'loss', the rental income
that supports our ability to pay dividends remains in sound health
and its collection is being well managed by the Asset Manager.
Though we must treat the coming period with some necessary caution,
I am confident the diversity of our rental income will prove its
resilience and underpin our valuation as we emerge from this
difficult period.
During the period, the Group generated EPRA earnings of GBP11.0m
(six months to 30 June 2019: GBP14.2m), or 2.6 pence per share
("pps") (six months to 30 June 2019: 3.8pps). The decrease was in
part due to increased costs associated with the drawdown of the
available borrowing facility headroom. Given the challenging
environment, the Board has adopted a conservative approach and
continues to hold more cash than it would normally, which together
with vacant space, impacts on current income.
Net borrowings were maintained in line with our target level of
40% and as at 30 June 2020 were 39.7% of gross investment in
properties (31 December 2019: 38.9%). During the period, the Group
drew down GBP30.7m of available borrowing headroom to further
strengthen the balance sheet. The Company's cash balance as at 30
June 2020 was GBP67.9m (31 December 2019: GBP37.2m.). The weighted
average cost of debt reduced from 3.5% at 31 December 2019 to 3.4%
as at 30 June 2020, with a weighted average debt to maturity of 6.8
years. Currently, c.69% of the Group's debt is fixed and the
balance hedged.
We are confident that the actions taken by the Asset Manager
over the preceding years have resulted in a highly diversified and
resilient portfolio as well as ensuring an in-depth understanding
of our occupiers' needs. The strong balance sheet leaves us well
positioned to navigate risks as future events unfold, whilst
sufficiently flexible to unlock the value in our portfolio by
continuing to execute our proven business model.
(2) Quarterly rental invoices included contractual rent for the
proceeding quarter.
Dividends
The Board declared a dividend of 1.50pps for the period 1 April
2020 to 30 June 2020 (1 April 2019 to 30 June 2019: 1.90pps),
reflecting the resilient tenant base. A total dividend of 3.40pps
(six months to 30 June 2019: 3.80pps) has been declared for the
period. For the remainder of the financial year, the Board is
aiming to maintain the dividend at the level declared for the
period 1 April to 30 June 2020.
Performance
The EPRA Total Accounting Return since Listing in 2015 has
amounted to 37.3% and an annualised EPRA Total Accounting Return of
7.0%.
Since Listing and to the end of the period, the Total
Shareholder Return was (0.1%), compared to the FTSE EPRA NAREIT UK
Index, which has generated a return of (14.6%) over the same
period. Over the reporting period, the Company's Total Shareholder
Return was (34.3%), versus the return of (24.1%) for the FTSE EPRA
NAREIT UK Index over the same period.
Subsequent Events
There have been no subsequent events since 30 June 2020.
Outlook
The last six months have proved the underlying strength and
resilience of the business model, encompassing a highly diversified
portfolio of both properties and occupiers managed by an
experienced and fully integrated Asset Manager, focused upon
delivering vibrant spaces with terms occupiers require in both the
short and long term.
We remain mindful of the challenges the remainder of 2020 will
bring, including the economic impact of the pandemic, which are
likely to be exacerbated by BREXIT uncertainty. However, the
Group's focus remains the same: to concentrate on our occupiers'
needs and execute the individual property asset management plans,
to deliver both income and capital returns for our shareholders in
the long term, and take advantage of opportunities as they
arise.
Kevin McGrath
Chairman
16 September 2020
ASSET AND INVESTMENT MANAGERS' REPORT
"In very difficult circumstances, the Company has performed well
during the first half of the year, delivering high levels of rent
collection, stable earnings and uninterrupted quarterly dividends
to shareholders despite Covid-19 creating a challenging backdrop
for UK commercial property.
I am very pleased to add that notwithstanding the current
economic uncertainty, the Company's rent collection remained strong
with 97.6% of the rent invoiced for the period ended 30 June 2020
having been collected as at 11 September 2020. This comprised 94.1%
of occupiers which have paid rent, 0.4% which have agreed to pay
monthly and collection plans agreed with occupiers amounting to a
further 3.1%. This is encouraging, especially in view of the
current Government restrictions on landlord remedies to enforce
rent collection. Our rent collection remained strong, particularly
in comparison with our peer group, mainly due to the quality of our
occupiers across the portfolio and the effectiveness of the
integrated management platform that we, the Asset Manager, provide
within a single organisation. I would like to take this opportunity
to thank my colleagues at London & Scottish for their efforts
over the lockdown period.
The Company has taken a prudent approach to cash management and
is accordingly maintaining a higher cash position, which usually
would have been invested in income producing assets. Thus, as
previously stated, total income is down but we continue to believe
that this is the appropriate approach. The Company continues to
manage the LTV to a level around 40%.
During the first half of 2020, the Company completed 21 new
lettings, totalling 155,636 sq. ft.. When fully occupied, these
will provide an additional gross rental income of c. GBP1.1m.
Clearly, given social distancing rules and the lockdown, viewings
and therefore potential lettings of vacant space has slowed
considerably and we anticipate a pick-up in activity over the
coming months as more and more companies return to the office.
However, the immediate future remains an unknown entity and our
view is that companies may well take a 'wait and see' stance before
making any major decisions on occupational requirements.
Whilst our performance during the first half of the year
provides reassurance, with the UK experiencing the sharpest
reduction in GDP since the 1970s, we believe it is appropriate to
continue to maintain a cautious approach in the long-term interest
of shareholders, while delivering the highest possible level of
quarterly income."
Stephen Inglis
Chief Executive Officer
London & Scottish Property Investment Management Limited
Asset Manager
Asset Management Update
Investment Activity in the UK Commercial Property Market
Investment in the UK commercial property reached GBP49.3bn in
2019, according to research from Lambert Smith Hampton ("LSH").
This has been followed by a progressive slowdown in the general
level of investment activity during the first half of 2020, which
can largely be attributed to the COVID-19 pandemic. The most recent
data from LSH shows that investment in UK commercial property
slowed to the lowest quarterly figure over the last twenty years at
GBP3.6bn in Q2 2020, 72% below the GBP12.9bn recorded in Q1 2020
and 73% below the five-year average. Consequently, this resulted in
weak overall investment in the first half of 2020 relative to
trend. At GBP16.5bn, volumes in the first half of 2020 were 18%
below the same period in 2019(3) . Colliers International estimates
that GBP2.0bn was invested in UK commercial property in July 2020.
Although this is in line with June 2020 figures, it is 60% below
the corresponding volume for June 2019 (GBP5.6bn)(4) . The GBP2.0bn
transacted in July brings total investment in 2020 to GBP20.2bn,
down from GBP25.8bn during the same period in 2019. Savills latest
research highlights that COVID-19 has led to a delay in vendors
bringing assets to market but suggests that there is still
considerable demand from investors. As a result, Savills anticipate
that competitive pricing and a strong buyer pool will result in
increased activity in Q3 as assets are brought to market(5) .
Although overseas investors remain the largest buyers of UK real
estate in Q2 2020, overseas investment in the UK property markets
fell to GBP1.5bn in Q2 2020, 77% below the five-year average,
according to data from LSH(6) . The lower level of capital inflows
from international investors is in line with the overall reduction
in UK commercial property investment. Far East investment accounted
for the largest proportion of overseas investment at GBP347m. This
was followed by North American investors, with GBP342m.
Research from CBRE indicates that regional offices have
outperformed in comparison to central London offices, delivering
superior returns of 3.0% in the 12 months ended June 2020, in
comparison to central London office total returns of 2.7% - a trend
that has been witnessed over the last four years.
(3) Lambert Smith Hampton, UKIT, Q2 2020
(4) Colliers International, Property Snapshot, August 2020
(5) Savills, Market in Minutes, August 2020
(6) Lambert Smith Hampton, UKIT, Q2 2020
Occupational Demand in the UK Regional Office Market
Avison Young estimates that take-up of office space across the
Big Nine regional office markets(7) in Q2 2020 reached 0.8m sq.
ft., bringing the half year total to 2.7bn sq. ft. - 38% below the
same period in 2019(8) . Despite the fall in take-up, CBRE research
suggests that Q2 is likely to be a low point in 2020 and anticipate
that Q3 will mark the beginning of a gradual recovery(9) .
Similarly, take-up has declined year-on-year in the London office
market in the first half of 2020, with take-up also down 38% from
5.7m sq. ft. in the first half 2019 to 3.5m sq. ft. during the same
period in 2020.
According to Cushman & Wakefield, strong occupational demand
came from the public sector, accounting for the highest proportion
of take-up of all regional offices at 37% in Q2 2020. Following the
public sector, IT & technology and banking & finance
accounted for the second and third largest proportion of take-up in
the regional cities, accounting for 14% and 13% respectively.
According to Savills, demand for regional office stock led to a
decline in availability, with total available office supply in the
UK regional markets falling by 17% to 11.3m sq. ft.. Furthermore,
it is estimated that approximately 5m sq. ft. of office space is
currently under construction in the Big Nine regional markets, with
Manchester, Birmingham and Glasgow accounting for 36%, 23% and 12%,
respectively. However, over half of office buildings currently
under construction are already pre-let. Therefore, the supply
pipeline is likely to remain constrained, which in turn will help
the regional office market absorb increases in grey space returning
to the market.
(7) Nine regional office markets mentioned by Avison Young
include: Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds,
Liverpool, Manchester, Newcastle.
(8) Avison Young, Q2 2020, The Big Nine.
(9) CBRE, UK Office Snapshot, Q2 2020
Rental Growth in the UK Regional Office Market
The CBRE Monthly Index shows that rental value growth for the
rest of UK office markets in the 12 months ended June 2020 was
1.5%, marginally higher than growth of 1.4% recorded for the same
period in 2019. Colliers International expects regional central
business districts (CBDs) to experience rental growth beyond the
COVID-19 impact(10) .
Although research suggests that some grey space has returned to
the office market, the supply pipeline remains constrained. Avison
Young estimate that net effective rents have increased by 3.4%
year-on-year to GBP26.41 per sq. ft. in Q2 2020 despite an increase
in rent free incentives to compensate for delayed decision making
by occupiers as a result of COVID-19 uncertainty.
(10) Colliers International, August 2020, United Kingdom
Property Snapshot.
Regional REIT's Office Assets
EPRA occupancy of the Group's regional offices increased to
88.4% (30 June 2019: 85.8%). A like-for-like comparison of the
Group's regional offices' EPRA occupancy, 30 June 2020 versus 30
June 2019, shows that occupancy increased to 87.6% (30 June 2019:
86.1%). WAULT to first break was 2.8 years (30 June 2019: 3.0
years; 31 December 2019: 3.0 years); like-for-like WAULT to first
break was 2.8 years (30 June 2019: 2.8 years; 31 December 2019: 3.0
years).
Occupier Demand in the UK Industrial Market
Cushman & Wakefield estimate that take-up in the first half
of 2020 totalled 18.9m sq. ft., 19% higher than the same period in
2019 and 12.9% higher than the 10-year average of 16.7m sq. ft.(11)
. Take-up in Q1 2020 was 23% lower than the same quarter in 2019 at
5.4m sq. ft. However, demand increased in Q2 2020, reaching 13.4m
sq. ft., more than double the level of take-up Q1 2020 and 52.3%
higher than the same period in 2019. In addition to the 13.4m sq.
ft. recorded in Q2 2020, there was a further 3.5m sq. ft. of
short-term deals.
Occupier demand within the industrial market continues to be
highly driven by e-commerce as consumers rely on online platforms
for non-essential purchases during lockdown. As a result, online
sales now account for 33% of total retail sales, a substantial
increase from 21% at the beginning of 2020. The importance of
supply chains has been even more prevalent during the pandemic, not
only to feed the nation during lockdown but also providing
essential services such as allocating and delivering PPE as well as
establishing temporary hospitals(12) . BNP Paribas Real Estate
predicts that although online sales will fall as shops re-open,
lockdown has resulted in a lasting change with regards to
e-commerce, particularly with regards to online grocery shopping
which was low prior to lockdown(13) .
(11) Cushman & Wakefield, Q2 2020, United Kingdom Industrial
Market Snapshot.
(12) Savills, UK Big Shed Briefing, July 2020
(13) BNP Paribas Real Estate, Industrial and Logistics Insider,
Q2 2020
Industrial Rental Growth Continues
Research by Colliers illustrates that rents are holding in the
first half of 2020, reflecting continued demand coupled with stable
supply. BNP Paribas indicates that occupiers are increasing space
requirements as online sales increase and the COVID-19 crisis
highlights the importance of supply chains.
Data from CBRE Monthly Index shows rental growth of 2.5% in the
12 months to the end of June 2020, indicating that rental growth
slowed from 3.5% for the 12 months to the end of June 2019.
Regional REIT's Industrial Assets
EPRA occupancy of the Group's industrial sites decreased to
91.5% (30 June 2019: 96.0%). A like-for-like comparison of the
Group's regional industrial EPRA occupancy, 30 June 2020 versus 30
June 2019, shows that occupancy decreased to 91.2% (30 June 2019:
96.8%). This reduction in occupancy can largely be attributed to
space at Mayne House, Juniper Park, Basildon becoming vacant. As
expected, the tenant vacated in February 2020 after exercising a
valid break notice. Mayne House presents well, and we are currently
exploring the opportunity to convert part of the space (following
refurbishment) and re-let as smaller suites to fit the local demand
profile.
WAULT to first break was 5.7 years (30 June 2019: 5.9 years; 31
December 2019: 5.8 years); like-for-like WAULT to first break was
5.7 years (30 June 2019: 5.9 years; 31 December 2019: 5.7
years).
Property Portfolio
As at 30 June 2020, the Group's property portfolio was valued at
GBP742.3 (30 June 2019: GBP721.7m; 31 December 2019: GBP787.9m),
with rent roll of GBP62.9m (30 June 2019: GBP57.8m; 31 December
2019: GBP64.3m), and an EPRA occupancy rate of 89.0% (30 June 2019:
87.5%; 31 December 2019: 89.4%). On a like-for-like basis, 30 June
2020 versus 30 June 2019 EPRA occupancy was 88.3% (30 June 2019:
87.7%).
There were 151 properties (30 June 2019: 149; 31 December 2019:
160), in the portfolio, with 1,249 units (30 June 2019: 1,178; 31
December 2019: 1,251) and 876 tenants (30 June 2019: 828; 31
December 2019: 904). If the portfolio was fully occupied at Cushman
& Wakefield's view of market rents, the rental income would be
GBP75.2m per annum (30 June 2019: GBP71.4m; 31 December 2019:
GBP77.2m).
As at 30 June 2020, the net initial yield on the portfolio was
6.4% (30 June 2019: 6.1%; 31 December 2019: 6.2%), the equivalent
yield was 8.7% (30 June 2019: 8.3%; 31 December 2019: 8.3%) and the
reversionary yield was 9.2% (30 June 2019: 9.0%; 31 December 2019:
9.1%).
Property Portfolio by 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 112 593.4 79.9 4.5 88.4 2.8 50.2 13.24 6.19 131.35 6.3 8.8 9.4
----------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Industrial 17 105.8 14.3 2.2 91.5 5.7 7.7 4.02 8.6 49.18 5.1 7.4 7.5
----------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Retail 20 32.2 4.3 0.4 92.6 4.2 4.1 10.21 3.9 72.22 10.6 10.6 10.6
----------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Other 2 10.9 1.5 0.1 89.0 15.2 0.9 12.82 0.8 126.70 7.1 8.2 6.7
----------- ========== ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Total 151 742.3 100.0 7.2 89.0 3.4 62.9 10.18 75.2 103.08 6.4 8.7 9.2
----------- ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Property
Portfolio
by 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 40 131.6 17.7 1.6 86.7 3.7 13.0 9.59 14.8 82.37 7.8 10.0 10.6
----------- ---------- ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
South East 32 224.1 30.2 1.6 87.1 2.9 17.1 12.32 20.9 139.24 5.7 7.8 8.4
----------- ---------- ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
North East 20 78.6 10.6 0.9 87.5 2.6 7.0 8.74 8.4 84.48 6.0 9.6 10.1
----------- ---------- ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Midlands 27 124.1 16.7 1.3 93.3 3.4 10.9 8.91 12.0 94.85 7.0 8.3 8.7
----------- ---------- ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
North West 16 89.3 12.0 1.0 89.3 4.8 6.7 8.36 9.7 88.31 5.1 9.0 9.2
----------- ---------- ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
South West 13 76.3 10.3 0.5 93.4 2.8 6.4 15.69 7.6 159.23 6.5 8.4 9.0
----------- ---------- ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Wales 3 18.3 2.5 0.3 87.6 6.1 1.9 8.78 1.9 69.08 8.4 9.4 9.3
============ =========== ========== ========== ====== ========== ====== ======= ========= ======= ========= ======== =========== =============
Total 151 742.3 100.0 7.2 89.0 3.4 62.9 10.18 75.2 103.08 6.4 8.7 9.2
----------- ---------- ---------- ------ ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Tables may not sum due to rounding.
Top 15 Investments (by market value) as at 30 June 2020
Property Sector Anchor Market % of Lettable EPRA Annualised % of WAULT
tenants value portfolio area occupancy gross gross to
rent rental first
income break
============ ============ ============= =======
(GBPm) (%) (Sq. (%) (GBPm) (yrs)
Ft.)
============ ============ ============= ======= ========== ========== ========== =========== ======= ======
Schenker
Ltd,
A Share &
Sons
Ltd,
Vanguard
Juniper Logistics
Park, Services
Basildon Industrial Ltd 31.5 4.2 2,77,760 85.3 2.0 3.1 2.8
Barclays
Execution
Services
Ltd,
University
Tay House, of
Glasgow Office Glasgow 30.2 4.1 156,853 94.2 2.7 4.3 1.9
Nuvias (UK &
Ireland)
Ltd,
Fernox Ltd,
McCarthy
Genesis & Stone
Business Retirement
Park, Lifestyles
Woking Office Ltd 25.6 3.4 98,359 82.7 1.5 2.4 3.2
Bank of
Scotland
Plc, The
Equitable
Life
Assurance
Society,
Buildings Agria
2 & 3 HBOS Pet
Campus, Insurance
Aylesbury Office Ltd 24.3 3.3 140,791 95.7 2.3 3.6 2.9
Aviva Health
UK Ltd,
Hampshire National
Corporate Westminster
Park, Bank
Eastleigh Office Plc, 19.8 2.7 85,422 99.8 1.5 2.4 3.1
Secretary of
State for
Communities
Norfolk & Local
House, Government,
Birmingham Office Spark44 Ltd 19.5 2.6 114,982 97.4 1.6 2.6 2.1
Edvance SAS,
The
Secretary
800 Aztec of State
West, for
Bristol Office Defence 18.9 2.5 73,292 100 1.5 2.5 3.1
One & Two
Newstead
Court,
Annesley Office E.ON UK Plc 16.2 2.2 146,262 100.0 1.4 2.3 3.4
Road 4
Winsford
Industrial Jiffy
Estate, Packaging
Winsford Industrial Ltd 15.7 2.1 246,209 100 1.0 1.6 14.2
New College
Manchester
Ltd, Mott
MacDonald
Ltd, Darwin
Portland Loan
Street, Solutions
Manchester Office Ltd 15.0 2.0 54,959 97.6 0.8 1.3 2.5
Ceva
Logistics
Ltd, Brush
Electrical
Machines
Ashby Park, Ltd,
Ashby De Hill Rom UK
La Zouch Office Ltd 12.9 1.7 91,034 100.0 1.1 1.7 3.2
Columbus
House, TUI Northern
Coventry Office Europe Ltd 12.1 1.6 53,253 100.0 1.4 2.2 3.5
The Scottish
Ministers,
The
Scottish
Templeton Sports
On The Council,
Green, Heidi
Glasgow Office Beers Ltd, 11.3 1.5 142,512 89.7 1.2 1.9 3.8
HSS Hire
Service
Group Ltd,
Please
Hold (UK)
Ltd,
CVS
(Commercial
Oakland Valuers &
House, Surveyors)
Manchester Office Ltd, 10.8 1.4 160,975 89.9 1.1 1.8 3.4
Odeon
Cimemas
Kingscourt Lltd , Jag
Leisure Leisure
Conplex,Du (Scotland)
ndee Other Ltd 10.5 1.4 83,780 88.8 0.9 1.4 15.4
============ ============ ============= ======= ========== ========== ========== =========== ======= ======
Total 274.0 36.9 1,922,443 94.2 22.1 35.1 3.9
Top 15 Tenants (by share of rental income) as at 30 June
2020
Tenant Property Sector WAULT Lettable Annualised % of
to area gross Gross
first rent rental
break income
========
(yrs) (Sq. Ft) (GBPm)
======================= ====================== ======================= ======== =========== =========== ========
Tay House, Glasgow Administrative
Barclays Execution Waterfront Business and support
Services Ltd Park, Fleet service activities 1.4 108,386 2.2 3.6
Bank of Scotland Buildings 3 HBOS
Plc Campus, Aylesbury Banking 2.0 92,978 1.5 2.3
High Street, Dumfries
Secretary of State
for Communities
& Local Government Bennett House, Hanley Public sector 1.7 115,753 1.4 2.3
Cromwell House,
Lincoln
Norfolk House, Birmingham
Oakland House, Manchester
Electricity,
gas, steam
One & Two Newstead and air conditioning
E.ON UK Plc Court, Annesley supply 3.4 146,262 1.4 2.3
Professional,
scientific
TUI Northern Europe Columbus House, and technical
Ltd Coventry activities 3.5 53,253 1.4 2.2
Calton House,
The Scottish Ministers Edinburgh Public sector 2.1 111,076 1.3 2.1
Quadrant House,
Dundee
Templeton On The
Green, Glasgow
The Courtyard, Falkirk
Road 4 Winsford
Jiffy Packaging Industrial Estate,
Ltd Winsford Manufacturing 14.2 246,209 1.0 1.6
---------------------- ----------------------- -------- ----------- ----------- --------
Electricity,
gas, steam
800 Aztec West, and air conditioning
Edvance SAS Bristol supply 2.9 41,285 0.9 1.4
---------------------- ----------------------- -------- ----------- ----------- --------
Professional,
scientific
2 Lochside Avenue, and technical
John Menzies Plc Edinburgh activities 3.1 43,780 0.9 1.4
---------------------- ----------------------- -------- ----------- ----------- --------
The Royal Bank Cyan Building,
Of Scotland Plc Rotherham Banking 1.0 67,458 0.9 1.4
---------------------- ----------------------- -------- ----------- ----------- --------
Professional,
scientific
SPD Development Clearblue Innovation and technical
Co Ltd Centre, Bedford activities 5.3 58,167 0.8 1.3
---------------------- ----------------------- -------- ----------- ----------- --------
Hampshire Corporate
Aviva Central Park, Chilworth Other services
Services UK Limited House, Eastleigh activities 4.4 42,612 0.8 1.2
---------------------- ----------------------- -------- ----------- ----------- --------
Odeon Cinemas Kingscourt Leisure information
Ltd Complex and communication 15.3 41,542 0.7 1.2
----------------------- -------- ----------- ----------- --------
Dundee
---------------------- -------- ----------- ----------- --------
1-4 Llansamlet Retail Wholesale
A Share & Sons Park, Nantyffin and retail
Ltd Rd,Swansea trade 3.9 75,791 0.7 1.1
Juniper Park, Basildon
Juniper Park, Transportation
Schenker Ltd Basildon and storage 2.6 87,040 0.6 1.0
---------------------- ----------------------- -------- ----------- ----------- --------
Total 3.9 1,331,592 16.6 26.4
Property Portfolio Sector and Region by Valuation and Income
By Valuation
Sector
Office 79.9%
Industrial 14.3%
Retail 4.3%
Other 1.5%
UK Region
South East 30.2%
Scotland 17.7%
Midlands 16.7%
North West 12.0%
North East 10.6%
South West 10.3%
Wales 2.5%
By Income
Sector
Office 79.8%
Industrial 12.3%
Retail 6.6%
Other 1.4%
UK Region
South East 27.2%
Scotland 20.6%
Midlands 17.3%
North West 11.1%
North East 10.7%
South West 10.2%
Wales 3.0%
Lease Expiry Profile
0-1 year 6.3%
1-2 years 14.9%
2-5 years 34.5%
5+ years 44.3%
Tenants by Standard Industrial Classification
As at 30 June 2020:
Professional, scientific and technical
activities 13.0%
Administrative and support service
activities 12.8%
Manufacturing 8.9%
Wholesale and retail trade 8.4%
Information and communication 8.3%
Public sector 8.1%
Financial and insurance activities 7.1%
Banking 5.4%
Electricity, gas, steam and air
conditioning supply 4.3%
Transportation and storage 3.5%
Other* 20.3%
*Other service activities: Not specified, Human Health and
Social Work Activities, Real Estate Activities, Education,
Construction, Accommodation and Food Service Activities, Arts,
Entertainment and Recreation, Water Supply, Sewerage, Waste
Management and Remediation Activities, Public Administration and
Defence; Compulsory Social Security, Charity, Activities of
Extraterritorial Organisations and Bodies, Wholesale and Retail
Trade; Repair of Motor Vehicles and Motorcycles, Mining and
Quarrying and Residential.
Tables may not sum due to rounding.
No tenant represents more than 4% of the Group's gross rent roll
as at 30 June 2020, the largest being 3.6%.
Stephen Inglis
London & Scottish Property Investment Management Limited
Asset Manager
16 September 2020
Net Asset Value
During the period to 30 June 2020, the EPRA NAV* of the Group
decreased to GBP442.6m (IFRS: GBP437.6m) from GBP486.3m (IFRS:
GBP483.7m) as at 31 December 2019, equating to a decrease in the
diluted EPRA NAV of 10.1pps to 102.6pps (30 June 2019: 114.3pps; 31
December 2019: 112.7pps). This includes dividends declared in the
period amounting to 4.45pps.
The EPRA NAV decrease of circa GBP43.6m since 31 December 2019
was predominately due to a GBP33.2m revaluation of the property
portfolio held at 30 June 2020, after capital expenditure amounting
to GBP4.5m, the amount of which is yet to be fully captured in the
valuation, and a realised loss of GBP2.0m on the disposal of
investment properties.
As at 30 June 2020, the property portfolio was valued at a total
of GBP742.3m (30 June 2019: GBP721.7m; 31 December 2019:
GBP787.9m). The decrease over the period is a reflection of the
aforementioned unrealised downward revaluation from the year end,
unrecognised capital expenditure and realised disposal losses.
Overall, on a like-for-like basis, the portfolio decreased by 4.3%
over the six months.
* EPRA Net Reinstatement Value (EPRA NRV): 30 June 2020: 102.6p
(30 June 2019: 114.3p; 31 December 2019: 112.7p). EPRA Net Tangible
Asset (EPRA NTA): 30 June 2020:102.5p (30 June 2019: 114.1p; 31
December 2019: 112.6p).
The below table 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
2020 2019 2019
GBPm GBPm GBPm
Acquisitions
Net (after costs) 0.1 20.4 89.9
Gross (before costs) - 20.0 87.1
Disposals
Net (after costs) 15.1 19.7 24.3
Gross (before costs) 15.5 20.3 24.9
Capital Expenditure
Net (after dilapidations) 4.5 3.9 5.8
Gross (before dilapidations) 5.5 5.3 8.0
The diluted EPRA NAV per share decreased to 102.6pps (31
December 2019: 112.7pps) over the period. The EPRA NAV is
reconciled in the table below:
Six months Six months
to 30 June to 30 June
2020 2020
pence per
GBPm share
Opening EPRA NAV (31 December
2019) 486.3 112.7
Net rental and property income 24.1 5.6
Administration and other expenses (5.9) (1.4)
Loss on the disposal of investment
properties (2.0) (0.5)
Change in the fair value of investment
properties (33.2) (7.7)
Change in value of right of use (0.1) -
------------ -------------------------------------------------
EPRA NAV after operating profit 469.1 108.7
Net finance expense (7.0) (1.6)
Impairment of goodwill (0.3) (0.1)
Taxation - -
------------ -------------------------------------------------
EPRA NAV before dividends paid 461.8 107.0
Dividends paid (19.2) (4.4)
Closing EPRA NAV (30 June 2020) 442.6 102.6
------------ -------------------------------------------------
Tables may not sum due to rounding.
INCOME STATEMENT
Operating profit before gains and losses on property assets and
other investments for the period amounted to GBP18.1m (six months
to 30 June 2019: GBP20.6m). The Company incurred a loss of GBP27.0m
(six months to 30 June 2019: gain GBP10.7m) after finance items and
before taxation. This reduction is predominately the result of two
factors: firstly, a loss on the disposal of investment properties;
and secondly, a loss in the fair value of investment properties
over the period as a result of the impact of COVID-19 on the
property market. The six months to 30 June 2020 included a full
rent roll for properties held as at 31 December 2019, plus the
partial rent roll for properties disposed of during the period.
Rental and property income amounted to GBP29.4m, excluding
recoverable service charge income and other similar items (six
months to 30 June 2019: GBP29.9m). The decrease was primarily the
result of the decrease in the rent roll being held over the
six-month period to 30 June 2020.
Currently more than 80% of the rental income is collected within
28 days of the due date and bad debts in the period were GBP0.6m
(six months to 30 June 2019: GBP0.4m).
Non-recoverable property costs, excluding recoverable service
charge income and other similar costs, amounted to GBP5.4m (six
months to 30 June 2019: GBP3.9m), and the rent roll increased to
GBP62.9m (six months to 30 June 2019: GBP57.8m).
The Company incurred a realised loss on disposal of investment
properties of GBP2.0m (six months to 30 June 2019: gain GBP1.7m)
during the period. These losses were incurred on smaller lot-size
vacant properties so to mitigate future on-going operating costs.
The change in the fair value of investment properties amounted to a
loss of GBP33.2m (six months to 30 June 2019: loss of GBP2.9m). The
change in value of right of use asset amounted to a charge of
GBP0.1m (six months to 30 June 2019: GBP0.1m).
Finance expenses amount to GBP7.2m (six months to 30 June 2019:
GBP6.9m). The increase is primarily due to the drawdown of the
available borrowing headroom. On 26 March 2020, the Group drew down
GBP30.7m of headroom from the Santander and Royal Bank of Scotland
facilities, ensuring ample liquidity.
The EPRA cost ratio, including direct vacancy costs, was 38.4%
(six months to 30 June 2019: 31.3%). The increase in the cost ratio
is ostensibly a reflection of the increase in non-recoverable
property costs. The EPRA cost ratio, excluding direct vacancy costs
was 21.4% (six months to 30 June 2019: 20.1%).
The ongoing charges for the period ended 30 June 2020 were 4.9%
(30 June 2019: 4.4%).
The EPRA Total Return since Listing to 30 June 2020 was 37.3%
(30 June 2019: 40.8%), an annualised rate of 7.0% pa (30 June 2019:
9.8% pa).
Dividend
During the period to 30 June 2020, the Company declared
dividends totalling 4.45pps (2019: 4.40pps). Since the period end,
the Company has declared a dividend for the second quarter of 2020
of 1.50pps.
Announcement Payment Pence per
Period covered date Ex-date date share
1 Jan 2020 to 31 17 Jul
Mar 2020 21 May 2020 4 Jun 2020 2020 1.90
1 Apr 2020 to 30 16 Oct
Jun 2020 26 Aug 2020 3 Sep 2020 2020 1.50
------------------ -------------- ------------ ------------ ----------
1 Jan 2019 to 31 12 Jul
Mar 2019 23 May 2019 6 Jun 2019 2019 1.90
1 Apr 2019 to 30 15 Oct
Jun 2019 29 Aug 2019 5 Sep 2019 2019 1.90
1 Jul 2019 to 30 21 Nov 19 Dec
Sep 2019 14 Nov 2019 2019 2019 1.90
1 Oct 2019 to 31
Dec 2019 27 Feb 2020 5 Mar 2020 9 Apr 2020 2.55
------------------ -------------- ------------ ------------ ----------
1 Jan 2018 to 31 24 May 13 Jul
Mar 2018 17 May 2018 2018 2018 1.85
1 Apr 2018 to 30 13 Sep 15 Oct
Jun 2018 31 Aug 2018 2018 2018 1.85
1 Jul 2018 to 30 22 Nov 21 Dec
Sep 2018 15 Nov 2018 2018 2018 1.85
1 Oct 2018 to 31 28 Feb 11 Apr
Dec 2018 21 Feb 2019 2019 2019 2.50
------------------ -------------- ------------ ------------ ----------
DEBT FINANCING AND GEARING
Borrowings comprise third-party bank debt, which is secured over
properties owned by the Group, and repayable over the next four to
nine years, with a weighted average maturity of 6.8 years (six
months to 30 June 2019: 7.8 years; 31 December 2019 7.3 years).
The Group's borrowing facilities are with the Royal Bank of
Scotland, Scottish Widows Limited & Aviva Investors Real Estate
Finance, Scottish Widows Limited and Santander UK. Total bank
borrowing facilities at 30 June 2020 amounted to GBP312.7m (31
December 2019: GBP294.0m) (before unamortised debt issuance costs),
with GBP9.1m available to be drawn upon. In addition to the 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 2020 amounted to GBP371.9m (31 December 2019:
GBP371.9m).
During the period, the available borrowing headroom of GBP30.7m
was drawn down on 26 March 2020 from the Santander UK and Royal
Bank of Scotland facilities. This was to ensure ample liquidity
following the implementation of the Government COVID-19
regulations.
At 30 June 2020, the Group's cash and cash equivalent balances
amounted to GBP67.9m (30 June 2019: GBP53.8m; 31 December 2019:
GBP37.2m).
The Group's net LTV ratio stands at 39.7% (31 December 2019:
38.9%) before unamortised costs. The Board continues to target a
net LTV ratio of 40%, with a maximum limit of 50%.
Debt Profile and Loan-to-Value Ratios as at 30 June 2020
Lender Original Outstanding Maturity Gross Annual Interest
facility debt* date Loan-to-Value** Rate
GBP'000 GBP'000 % %
----------------- ---------- ------------ --------- ----------------- ----------------
2.15 over
The Royal Bank 3 months
of Scotland 55,000 53,328 Jun-2024 45.2 GBP LIBOR
Scottish Widows
Ltd & Aviva
Investors Real
Estate Finance 165,000 165,000 Dec-2027 46.9 3.28 Fixed
Scottish Widows
Ltd 36,000 36,000 Dec-2028 41.1 3.37 Fixed
2.20 over
3 months
Santander UK 65,870 58,403 Jun-2029 37.0 GBP LIBOR
---------- ------------
321,870 312,731
---------- ------------
Retail Bond 50,000 50,000 Aug-2024 N/A 4.50 Fixed
---------- ------------
Total 371,870 362,731
---------- ------------
* Before unamortised debt issue costs
** Based on Cushman & Wakefield property valuation
Table may not sum due to rounding.
The Managers continue to monitor the borrowing requirements of
the Group. As at 30 June 2020, 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 67.4% as at 30 June 2020 (30 June 2019:
67.9%; 31 December 2019: 63.4%).
Interest cover, excluding amortised costs and finance lease
interest, stands at 2.9 times (30 June 2019: 3.5 times; 31 December
2019: 3.6 times) and including amortised and finance lease interest
costs stands at 2.5 times (30 June 2019: 3.0 times; 31 December
2019: 3.2 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
2020 2019* 2019*
(%) (%) (%)
Borrowings interest rate hedged 102.5 108.9 108.1
Thereof :
Fixed 69.2 73.5 73.0
Swap 16.7 17.7 17.6
Cap 16.7 17.7 17.6
WACD* 3.4 3.5 3.5
WACD - Excluding the ZDPs** 3.4 3.5 3.5
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.
(*) Weighted Average Cost of Debt - Weighted Average Effective
Interest Rate including the cost of hedging
(**) Zero Dividend Preference Shares, which were assumed on 24
March 2017 and were fully repaid on 9 January 2019
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 2020, the Group recognised a tax credit of GBP0.1m,
which comprised tax provisions for the year offset by the release
of tax previously provided for in prior years, which are now
concluded and not payable.
Toscafund Asset Management LLP
Investment Manager
16 September 2020
DIRECTORS' STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES
Effective risk management is a cornerstone in the delivery of
the Company's strategy and integral to the achievement of its
objective of delivering long term value through active asset
management across a highly diversified portfolio. The principal
risks and uncertainties that the Group faces are summarised below
and described in detail on pages 50 to 55 of the 2020 Annual
Report, which is available on the Group's website at
www.regionalreit.com - Annual Report 2020. The Audit Committee,
which assists the Board with its responsibility for managing risk,
considers that there have been no substantial changes to these
principal risks. However, several principal risks are currently
elevated (as set out in the 2020 Annual Report & Accounts), as
a result of Covid-19 restrictions and potential economic
uncertainty associated with the UK's departure from the EU.
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.
COVID-19
The economic disruption resulting from Covid-19 could further
impact rental incomes, the valuation of the Group's property
portfolio, the ability to access funding at competitive rates, the
Company's ability to maintain a dividend and adherence to the HMRC
REIT regime requirements, especially if restrictions remain in
place for a prolonged period of time. In particular, Government
restrictions on the use of landlord remedies may impact the
Company's ability to operate as effectively as usual.
Valuation
The valuation of the Group's portfolio, undertaken by the
external valuer, Cushman & Wakefield, could impact the Group's
profitability and net assets.
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. The run-up to the Brexit transition period
at the end of 2020 and the subsequent period is likely to see
increased disruption in the UK economy.
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 interest reference rates maybe set
to rise accompanying higher inflation.
Tenant
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 rental income.
Operational
Business disruption could result in lower rental income.
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 objective and provide favourable returns to
our Shareholders.
Environmental and energy efficiency standards
Changes in the regulatory environment 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 2019 and are summarised
above.
The condensed consolidated financial statements for the period
from 1 January 2020 to 30 June 2020 are unaudited 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.
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:
a) the condensed set of consolidated financial statements has
been prepared in accordance with International Accounting Standard
(IAS) 34, "Interim Financial Reporting", as adopted by the European
Union, 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 loss of the Group;
b) 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
c) 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 16 September 2020 and the above
responsibility statement was signed on its behalf by:
Kevin McGrath
Chairman.
16 September 2020
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2020
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
Notes GBP'000 GBP'000 GBP'000
Continuing Operations
Revenue
Rental and property income 5 36,964 35,411 75,645
Property costs 6 (12,886) (9,399) (20,681)
Net rental and property income 24,078 26,012 54,964
Administrative and other expenses 7 (5,945) (5,430) (10,904)
Operating profit before gains
and losses on property assets
and other investments 18,133 20,582 44,060
(Loss)/gain on disposal of
investment properties 13 (1,965) 1,653 1,662
Change in fair value of investment
properties 13 (33,218) (2,883) (3,513)
Change in fair value of right
of use assets (98) (105) (194)
Operating (loss)/profit (17,148) 19,247 42,015
Finance income 8 80 65 155
Finance expense 9 (7,117) (6,860) (13,880)
Impairment of goodwill 14 (279) (279) (557)
Net movement in fair value
of derivative financial instruments 17 (2,562) (1,436) (1,479)
(Loss)/profit before tax (27,026) 10,737 26,254
Taxation 10 65 (49) 257
Total comprehensive (loss)/income
for the period (attributable to
owners of the parent Company) (26,961) 10,688 26,511
-------------- --------------- ----------------------
Total comprehensive income arises from continuing
operations.
(Losses)/earnings per share
- basic and diluted 11 (6.2p) 2.9p 6.6p
The notes below are an integral part of these condensed
consolidated financial statements.
Condensed Consolidated Statement of Financial Position
As at 30 June 2020
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
Notes GBP'000 GBP'000 GBP'000
Assets
Non-current assets
Investment properties 13 742,300 721,695 787,915
Right of use assets 16,253 15,989 16,351
Goodwill 14 279 836 558
Non-current receivables
on tenant loan 1,108 1,274 1,156
759,940 739,794 805,980
Current assets
Trade and other receivables 35,973 27,571 32,158
Cash and cash equivalents 67,913 53,834 37,248
103,886 81,405 69,406
Total assets 863,826 821,199 875,386
------------- ------------- ------------
Liabilities
Current liabilities
Trade and other payables (36,071) (34,143) (22,153)
Deferred income (12,408) (9,601) (13,301)
Taxation liabilities (633) (968) (736)
(49,112) (44,712) (36,190)
Non-current liabilities
Bank and loan borrowings 15 (306,917) (285,633) (287,856)
Retail eligible bonds 16 (49,363) (49,214) (49,286)
Derivative financial instruments 17 (4,378) (1,773) (1,816)
Lease liabilities (16,491) (16,068) (16,510)
(377,149) (352,688) (355,468)
Total liabilities (426,261) (397,400) (391,658)
Net assets 437,565 423,799 483,728
------------- ------------- ------------
Equity
Stated capital 18 430,819 370,316 430,819
Retained earnings 6,746 53,483 52,909
Total equity attributable to owners
of the parent Company 437,565 423,799 483,728
Net asset value per share
- basic and diluted 19 101.4p 113.7p 112.1p
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 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
--------- ---------- ----------
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 2019
Attributable to owners of
the parent company
Stated Retained
capital earnings Total
Notes GBP'000 GBP'000 GBP'000
Balance at 1 January 2019 370,316 59,199 429,515
Total comprehensive income - 10,688 10,688
Dividends paid 12 - (16,404) (16,404)
Balance at 30 June 2019 370,316 53,483 423,799
--------- ---------- ----------
Condensed Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
Attributable to owners of
the parent company
Stated Retained
capital earnings Total
Notes GBP'000 GBP'000 GBP'000
Balance at 1 January 2019 370,316 59,199 429,515
Total comprehensive income - 26,511 26,511
Issue of share capital 18 62,500 - 62,500
Share issue costs 18 (1,997) - (1,997)
Dividends paid 12 - (32,801) (32,801)
--------- ---------- ----------
Balance at 31 December
2019 430,819 52,909 483,728
--------- ---------- ----------
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 2020
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Cash flows from operating activities
(Loss)/profit for the period before taxation (27,026) 10,737 26,254
- Change in fair value of investment properties 33,218 2,883 3,513
- Change in fair value of financial derivative
instruments 2,562 1,436 1,479
- Loss/(gain) on disposal of investment
properties 1,965 (1,653) (1,662)
- Change in fair value of right of use
assets 97 105 194
Impairment of goodwill 279 279 557
Finance income (80) (65) (155)
Finance expenses 7,117 6,860 13,880
Increase in trade and other receivables (5,244) (4,898) (7,881)
Increase/(decrease) in trade and other
payables and deferred income 6,754 (5,233) (10,157)
------------- ------------- -------------
Cash generated from operations 19,642 10,451 26,022
------------- ------------- -------------
Finance costs (6,325) (6,236) (12,165)
Payment for the interest portion of the
lease liability (290) - (583)
Taxation received/(paid) 32 (844) (839)
------------- ------------- -------------
Net cash flow generated from operating
activities 13,059 3,371 12,435
------------- ------------- -------------
Investing activities
Purchase of investment properties and subsequent
expenditure (4,625) (4,273) (49,917)
Sale of investment properties 15,057 19,703 24,294
Interest received 73 76 163
Acquisition of subsidiaries, net of cash
acquired - (19,769) (43,943)
Net cash flow generated from/(used in)
investing activities 10,505 (4,263) (69,403)
------------- ------------- -------------
Financing activities
Proceeds from the issue
of shares - - 62,500
Share issue costs - - (1,997)
Dividends paid (11,516) (9,741) (32,534)
Zero Dividend Preference Shareholders repaid - (39,879) (39,879)
Bank borrowings advanced 30,698 20,246 22,911
Bank borrowings repaid (11,967) (19,103) (19,398)
Bank borrowing costs
paid (95) (1,620) (2,168)
Bond issue costs paid - - (7)
Lease repayments (19) - (35)
------------- ------------- -------------
Net cash flow generated from/(used in)
financing activities 7,101 (50,097) (10,607)
------------- ------------- -------------
Net increase/(decrease) in cash and cash
equivalents for
the period 30,665 (50,989) (67,575)
Cash and cash equivalents at the start
of the period 37,248 104,823 104,823
------------- ------------- -------------
Cash and cash equivalents at the end of
the period 67,913 53,834 37,248
------------- ------------- -------------
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 2020
1. Corporate information
The condensed consolidated financial statements of the Group for
the six months ended 30 June 2020 comprise the results of the
Company and its subsidiaries (together constituting the "Group")
and were approved by the Board and authorised for issue on 16
September 2020.
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
2015 .
The Company did not begin trading until 6 November 2015 when the
shares were admitted to trading on the LSE.
The nature of the Group's operations and its principal
activities are set out in the 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 2020 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
adopted by the EU.
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 2019, which have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the EU.
2.1. Comparative period
The comparative financial information presented herein for the
six months ended 30 June 2019 and year ended 31 December 2019 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 2019 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 GBP67.9m of cash
and cash equivalents, of which GBP50.8m was unrestricted cash. In
light of the challenges presented by COVID-19 and to ensure ample
liquidity, the Directors decided to draw down available borrowing
headroom. On 26 March 2020, the Group drew down GBP30.7m of
available borrowing headroom from the Santander UK and the Royal
Bank of Scotland facilities. As a result of the drawdown and
combined with repayments, the borrowing facilities increased from
GBP344.0m at 31 December 2019 to GBP362.7m as at 30 June 2020, with
an LTV of 39.7%, based upon the value of Company's investment
properties as at 30 June 2020. In respect of the Company's
borrowings, the first of its facilities to mature is for GBP55.0m
in June 2024, which is held with the Royal Bank of Scotland.
As at 11 September 2020, the first half 2020 rent collected was
97.6%, only 180bps reduced from the position as at the same date in
the first half 2019.
Given the substantial amount of unrestricted cash currently held
by the Group and the limited level of committed capital expenditure
in the forthcoming 12 months, 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.
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.
2.5. Leases
IFRS 16, is effective for accounting periods beginning on or
after 1 January 2019. Under IFRS 16, most leased assets are
capitalised as "right of use assets" by recognising the present
value of the lease payments as an asset and a financial liability
representing the obligation to make future lease payments.
The Group has a number of leases concerning the long-term lease
of land associated with its long leasehold investment properties.
At 30 June 2020, there was GBP26,407,000 of ground rent committed
under these leases (30 June 2019: GBP25,272,000; 31 December 2019:
GBP50,054,000) and the charge for ground rent for the period ended
30 June 2020 was GBP309,000 (30 June 2019: GBP309,000 and for the
year 31 December 2018: GBP618,000).
Under IFRS 16, the Group recognises the right of use asset in
the Consolidated Statement of Financial Position and this is valued
at fair value as the underlying asset is an Investment Property.
The change in fair value is recognised in the Consolidated
Statement of Comprehensive Income. In addition, a financial
liability is recognised in the Consolidated Statement of Financial
Position which is valued at the present value of future lease
payments using the Group's incremental borrowing rate. Lease
payments (also known as ground rent) which were previously
recognised within non-recoverable property costs, now upon payment,
reduce the financial liability. The financial liability is
recalculated at each reporting date, lease payments reduce the
financial liability and interest on the financial liability is
recognised in finance costs. IFRS 16 has been applied from 1
January 2019 and the modified retrospective approach to measure the
right of use asset at the same value as the financial liability has
been taken and comparatives have not been restated. At 1 January
2019, a right of use asset and the financial liability of
GBP16,545,000 and GBP16,545,000 respectively were recognised.
The right of use asset and the financial liability were measured
at the present value of the remaining lease payments, discounted
using the Group's incremental borrowing rate as of 1 January 2019.
The incremental borrowing rate used to determine the right of use
asset has been determined with consideration to the rate at which
the Group would pay on its borrowings to acquire an asset of
similar value to the right of use asset. The Group considers this
to be equivalent to the Group's weighted average cost of debt,
being 3.5%. This single discount rate has been applied across the
whole portfolio of leases.
At 30 June 2020, the financial liability was adjusted for the
interest as the lease liability is carried at fair value, with
amounts recognised within finance costs for movements on the
finance liability. The right of use asset was calculated at fair
value with the change in fair value charged to the Consolidated
Statement of Comprehensive Income. Under the modified retrospective
approach in IFRS 16, comparative information is not required to be
restated
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 GBP742,300,000 (30 June 2019:
GBP721,695,000; 31 December 2019: GBP787,915,000) is determined, by
independent property valuation experts, to be the estimated amount
for which a property should exchange on the date of the valuation
in an arm's length transaction. Properties have been valued on an
individual basis. The valuation experts use recognised valuation
techniques applying the principles of both IAS 40 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.
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 ongoing negotiations with regards to
the terms of the UK's exit from the EU has meant that property
market remains uncertain, however there is further uncertainty
concerning the impact of COVID 19.
Included within the valuation report is the following COVID 19
Material Valuation Uncertainty clause:
"The outbreak of the Novel Coronavirus (COVID-19), declared by
the World Health Organisation as a 'Global Pandemic' on the 11
March 2020, has impacted many aspects of daily life and the global
economy - with some real estate markets experiencing significantly
lower levels of transactional activity and liquidity.
As at the valuation date, in the case of those properties
expressly highlighted in an Appendix of this report there is a
shortage of market evidence for comparison purposes, to inform
opinions of value. Our valuation of these properties is therefore
reported as being subject to 'material valuation uncertainty' as
set out in VPS 3 and VPGA 10 of the RICS Valuation - Global
Standards. Consequently, less certainty - and a higher degree of
caution - should be attached to our valuation than would normally
be the case.
For the avoidance of doubt, the inclusion of the 'material
valuation uncertainty' declaration above does not mean that the
valuation cannot be relied upon. Rather, the declaration has been
included to ensure transparency of the fact that - in the current
extraordinary circumstances - less certainty can be attached to the
valuation than would otherwise be the case. The material
uncertainty clause is to serve as a precaution and does not
invalidate the valuation. Given the unknown future impact that
COVID-19 might have on the real estate market and the difficulty in
differentiating between short term impacts and long-term structural
changes, we recommend that you keep the valuations contained within
this report under frequent review."
3.1.2. Fair valuation of interest rate derivatives
In accordance with IFRS 9 Financial Instruments, 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 GBP4,378,000 (30 June 2019: GBP1,773,000; 31 December 2019:
GBP1,816,000).
3.1.3. Estimated impairment of goodwill
The Group tests annually whether goodwill has suffered any
impairment. The recoverable amounts of cash generating units have
been determined based on value-in-use calculations. These
calculations require the use of estimates. The carrying value of
the goodwill at the reporting date was GBP279,000 (30 June 2019;
GBP836,000; 31 December 2019: GBP558,000).
3.1.4. Dilapidation income
The Group recognises dilapidation income in the Group's
Statement of Comprehensive Income when the right to receive the
income arises. In determining accrued dilapidations, the Group has
considered historic recovery rates, while also factoring in
expected costs associated with recovery.
3.1.5. Operating lease contracts - the group as lessee
The Group holds a number of leases concerning the long-term
lease of land. Under IFRS 16, most leased assets are capitalised as
"right of use assets" by recognising the present value of the lease
payments as an asset and a financial liability representing the
obligation to make future lease payments. Assumptions and estimates
for the calculation of the value of the right of use asset and
financial liability are outlined in note 2.5.
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. Operating lease contracts - the Group as lessor
The Group has acquired investment properties that are subject to
commercial property leases with tenants. The Group has determined,
based on an evaluation of the terms and conditions of the
arrangements, particularly the duration of the lease terms and
minimum lease payments, that it retains all of the significant
risks and rewards of ownership of these properties and so accounts
for the leases as operating leases.
3.2.2. 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 (previously known as
Credential Investment Holdings Limited) and its 27 subsidiaries
(the "Credential Sub Group") by virtue of the amended and restated
Call Option Agreement dated 3 November 2015. Following a
restructure of the Credential Sub Group, the majority of properties
held within the Credential Sub Group were transferred into two new
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
controls 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 2019 and are expected to be consistently applied for
the current year ending 31 December 2020. The changes to the
condensed consolidated financial statements arising from accounting
standards effective for the first time are noted below:
Amendments to IFRS 3 'Business Combinations' (effective where
the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after 1 January 2020) -
makes amendments to clarify the definition of a business to help
companies determine whether an acquisition is of a business or a
group of assets. The amendments are expected to result in more
acquisitions being accounted for as asset acquisitions.
As detailed in note 2.4, careful consideration is given to the
accounting treatment for each acquisition. Most acquisitions made
by the Group are treated as the acquisition of a group of assets,
so the amendments to this standard have not had any impact on the
financial statements.
Amendments to IAS 1 'Presentation of Financial Statements' and
IAS 8 'Accounting Policies, Changes in Accounting Estimates and
Errors' (effective for annual periods beginning on or after 1
January 2020) - make amendments to clarify the definition of
'material'. The amendments make IFRSs more consistent but are not
expected to have a significant impact on the preparation of the
financial statements.
5. Rental and property income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Rental income - freehold
property 26,407 25,272 53,404
Rental income - long leasehold
property 3,033 4,668 10,989
Recoverable service charge
income and other similar
items 7,524 5,471 11,252
-------------- -------------- --------------
Total 36,964 35,411 75,645
-------------- -------------- --------------
6. Property costs
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Other property expenses and
irrecoverable costs 5,362 3,928 9,429
Recoverable service charge
income and other similar costs 7,524 5,471 11,252
-------------- -------------- --------------
Total 12,886 9,399 20,681
-------------- -------------- --------------
Non-recoverable property costs represent direct operating
expenses which arise on investment properties generating rental
income.
Operating lease expenses are now accounted for under IFRS 16 as
detailed in note 2.5
7. Administrative and other expenses
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Investment management fees 1,413 1,180 2,356
Property management fees 1,127 1,122 2,280
Asset management fees 1,430 1,180 2,356
Directors' remuneration 125 125 255
Administration fees 296 320 746
Legal and professional fees 823 930 2,107
Marketing and promotion 30 50 96
Other administrative costs 690 485 657
(including bad debts)
Bank charges 11 38 51
Total 5,945 5,430 10,904
------------- ------------- -------------
8. Finance income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Interest income 80 65 155
Total 80 65 155
------------- ------------- -------------
9. Finance expenses
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Interest payable on bank borrowings 5,208 4,820 9,904
Accrued capital entitlement
on ZDP shares - 60 60
Amortisation of loan arrangement
fees 425 510 912
Amortisation of ZDP share
acquisition costs - 3 3
Bond interest 1,113 1,106 2,250
Bond issue costs amortised 77 78 157
Bond expenses 4 - 11
Lease interest 290 283 583
------------- ------------- -------------
Total 7,117 6,860 13,880
------------- ------------- -------------
10. Taxation
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Corporation tax (credit)/charge (26) 10 (359)
(Decrease)/increase in deferred
tax creditor (39) 39 102
------------- ------------- -------------
Total (65) 49 (257)
------------- ------------- -------------
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 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.
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
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Calculation of earnings per share
Net (loss)/profit attributable
to Ordinary Shareholders (26,961) 10,688 26,511
Adjustments to remove:
Changes in value of investment
properties 33,218 2,883 3,513
Changes in fair value of interest
rate derivatives
and financial assets 2,562 1,436 1,479
(Loss)/gain on disposal of investment
property 1,965 (1,653) (1,662)
Impairment of goodwill 279 279 557
Deferred tax (credit)/charge (39) - 102
Income tax charged on disposal -
profits 39 -
Close out costs on borrowings
and derivatives - 487 487
EPRA net profit attributable
to Ordinary Shareholders 11,024 14,159 30,987
Add performance fee - - -
------------- ------------- -----------------------
Company specific adjusted
earnings 11,024 14,159 30,987
------------- ------------- -----------------------
Weighted average number of Ordinary
Shares 431,506,583 327,821,136 398,867,828
------------- ------------- -----------------------
(Losses)/earnings per share -
basic and diluted (6.2p) 2.9p 6.6p
EPRA Earnings per share - basic
and diluted 2.6p 3.8p 7.8p
Company specific adjusted earnings
per share:
- basic and diluted 2.6p 3.8p 7.8p
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
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Dividends
Dividend of 2.55 (2019: 2.50)
pence per Ordinary share for the
period 1 October - 31 December 11,004 9,320 9,231
Dividend of 1.90 (2019: 1.90)
pence per Ordinary share for the
period 1 January - 31 March 8,198 7,084 7,084
Dividend of nil (2019: 1.90 pence
per Ordinary share
for the period 1 April - 30 June - - 8,198
Dividend of nil (2019: 1.90) per
Ordinary share
for the period 1 July - 30 September - - 8,198
------------- ------------- -------------
Total 19,202 16,404 32,801
------------- ------------- -------------
On 27 February 2020, the Company announced a dividend of 2.55
pence per share in respect of the period 1 October 2019 to 31
December 2019. The dividend payment was made on 9 April 2020 to
Shareholders on the register as at 6 March 2020.
On 21 May 2020, the Company announced a dividend of 1.90 pence
per share in respect of the period 1 January 2020 to 31 March 2020.
The dividend payment was made on 17 July 2020 to Shareholders on
the register as at 5 June 2020.
On 26 August 2020, the Company announced a dividend in respect
of the period 1 April 2020 to 30 June 2020 of 1.50 pence per share,
which will be paid on 16 October 2020 to Shareholders on the
register as at 4 September 2020. 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.
The valuers have included a materiality uncertainty clause in
their valuation report concerning the impact of COVID 19. Please
refer to note 3.1.1 for full details.
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 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 property property Total
six months ended 30 June 2019 GBP'000 GBP'000 GBP'000
Valuation at 1 January 2019 625,020 93,355 718,375
Property additions - acquisitions 20,389 - 20,389
Property additions - subsequent
expenditure 3,660 204 3,864
Property disposals (19,703) - (19,703)
Gain on the disposal of investment
properties 1,653 - 1,653
Change in fair value during the
period (3,582) 699 (2,883)
----------- ----------------- ----------
Valuation at 30 June 2019 (unaudited) 627,437 94,258 721,695
----------- ----------------- ----------
Movement in investment properties Freehold Long Leasehold
for the property property Total
year ended 31 December 2019 GBP'000 GBP'000 GBP'000
Valuation at 1 January 2019 625,020 93,355 718,375
Property additions - acquisitions 89,920 - 89,920
Property additions - subsequent
expenditure 5,527 238 5,765
Property disposals (24,003) (291) (24,294)
Gain/(Loss) on the disposal of investment
properties 1,679 (17) 1,662
Change in fair value during the
year (235) (3,278) (3,513)
----------- ----------------- ----------
Valuation at 31 December 2019 (audited) 697,908 90,007 787,915
----------- ----------------- ----------
The historic cost of the properties was GBP739,576,000 (30 June
2019: GBP682,011,000; 31 December 2019: GBP751,638,000).
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 2020 742,300 - - 742,300
---------- ---------------- ------------ --------------
30 June 2019 721,695 - - 721,695
---------- ---------------- ------------ --------------
31 December 2019 787,915 - - 787,915
---------- ---------------- ------------ --------------
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.
The current volatility in the global financial system is
reflected in commercial real estate markets. In arriving at their
estimates of fair values as at 30 June 2019, the valuers used their
market knowledge and professional judgement and did not rely solely
on historical transactional comparables. With greater volatility in
the global financial system, there was a greater degree of
uncertainty in estimating the fair values of investments than would
exist in a more stable market.
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 - GBP3,092,291
per annum (30 June 2019: GBP6,000- GBP3,100,291 per annum; 31
December 2019: GBP6,000 - 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
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% - 23.90%; (30 June 2019: 0% - 26.91%;
31 December 2019: 0% to 28.70%)).
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
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
At start of period 558 1,115 1,115
Impairment (279) (279) (557)
------------- ------------- ------------
At end of period 279 836 558
------------- ------------- ------------
Goodwill arises on the acquisition of subsidiaries and
represents the excess of the consideration transferred, the amount
of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the
acquiree over the fair value of the identifiable net assets
acquired. If the total of consideration 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.
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
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Bank borrowings drawn at start
of period 294,000 290,487 290,487
Bank borrowings drawn 30,698 20,246 22,911
Bank borrowings repaid (11,967) (19,103) (19,398)
------------- ------------- ------------
Bank borrowings drawn at end
of period 312,731 291,630 294,000
------------- ------------- ------------
Less: unamortised costs at
start of period (6,144) (4,888) (4,888)
Less: loan issue costs incurred
in the period (95) (1,620) (2,168)
Add: loan issue costs amortised
in the period 425 511 912
------------- ------------- ------------
At end of period 306,917 285,633 287,856
------------- ------------- ------------
Maturity of bank borrowings
Repayable within 1 year - - -
Repayable between 1 to 2 years - - -
Repayable between 2 to 5 years 53,328 45,919 48,584
Repayable after more than
5 years 259,403 245,711 245,416
Amortised loan issue costs (5,814) (5,997) (6,144)
------------- ------------- ------------
306,917 285,633 287,856
------------- ------------- ------------
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 53,328 Jun 2024 45.2 GBP LIBOR prepayment
Scottish Widows
Ltd. & Aviva
Investors Real
Estate Finance 165,000 165,000 Dec 2027 46.9 3.28 Fixed None
Scottish Widows
Ltd 36,000 36,000 Dec 2028 41.1 3.37 Fixed None
2.20 over
3 Mandatory
Santander UK 65,870 58,403 Jun 2029 37.0 mth GBP LIBOR prepayment
----------- --------------
Total bank borrowings 321,870 312,731
----------- --------------
Retail eligible
bond 50,000 50,000 Aug 2024 n/a 4.50 Fixed none
----------- --------------
Total 371,870 362,731
----------- --------------
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 6.8 years (30 June 2019: 7.8 years; 31 December
2019: 7.3 years). The weighted average interest rate payable by the
Group on its debt portfolio, excluding hedging costs, as at the
period end was 3.2% per annum (30 June 2019: 3.4% per annum; 31
December 2019: 3.4% 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 service cover. A breach of agreed
covenant levels would typically result in an event of default of
the respective facility, giving the lender the right, but not the
obligation, to declare the loan immediately due and payable. Where
a loan is repaid in these circumstances, early repayment fees will
apply, which are generally based on 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.
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
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Principal at start of period 50,000 50,000 50,000
Unamortised issue costs at start
of period (714) (864) (864)
Issue costs - - (7)
Amortisation of issue costs 77 78 157
------------- ------------- ------------
Fair value at end of period 49,363 49,214 49,286
------------- ------------- ------------
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
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Fair value at start of period (1,816) (337) (337)
Revaluation in the period (2,562) (1,436) (1,479)
------------- ------------- ------------
Fair value at end of period (4,378) (1,773) (1,816)
------------- ------------- ------------
The calculation of fair value of interest rate caps and swaps is
based on the following calculation: the notional amount multiplied
by the difference between the swap rate and the current market rate
and then multiplied by the number of years remaining on the
contract and discounted
The 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
3mth GBP
Royal Bank of Scotland 55,000 53,328 Jun 2024 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 1.80
2.20 over
3mth GBP
Santander UK 65,870 58,403 Jun 2029 LIBOR Cap GBP32,935 1.80
---------- --------------
Total bank borrowings 321,870 312,731
LIBOR = London Interbank Offered Rate (Sterling)
As at 30 June 2020, the swap notional arrangements were GBP60.4m
(30 June 2019: GBP60.5m; 31 December 2019: GBP60.5m).
The Group weighted average cost of debt rate of 3.4%, (30 June
2019: 3.5%; 31 December 2019: 3.5%) 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.
As at the period end date, the total proportion of hedged debt
equated to 102.9% (30 June 2019: 110.4%; 31 December 2019: 109.5%),
as shown below.
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Total bank borrowings 312,731 291,630 294,000
------------- ------------- ------------
Notional value of interest
rate caps and swaps 120,870 121,000 121,000
Value of fixed rate debts 201,000 201,000 201,000
------------- ------------- ------------
321,870 322,000 322,000
------------- ------------- ------------
Proportion of hedged debt 102.9% 110.4% 109.5%
------------- ------------- ------------
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
Interest rate derivatives GBP'000 GBP'000 GBP'000 3)
GBP'000
30 June 2020 (4,378) - (4,378) -
---------- ---------------- ------------ --------------
30 June 2019 (1,773) - (1,773) -
---------- ---------------- ------------ --------------
31 December 2019 (1,816) - (1,816) -
---------- ---------------- ------------ --------------
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
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Issued and fully paid shares
at no par value
At start of the period 430,819 370,316 370,316
Shares issued 23 July 2019 - - 62,500
Share issue costs - - (1,997)
------------- ------------- ------------
At end of the period 430,819 370,316 430,819
------------- ------------- ------------
Number of shares in issue
At start of the period 431,506,583 372,821,136 372,821,136
Shares issued 23 July 2019 - - 58,685,447
------------- ------------- ------------
At end of the period 431,506,583 372,821,136 431,506,583
------------- ------------- ------------
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
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Net asset value per Condensed
Consolidated Statement of Financial
Position 437,565 423,799 483,728
Adjustment for calculating EPRA
net replacement value
Derivative financial instruments 4,378 1,773 1,816
Deferred tax liability 698 673 736
-------------- ------------- ------------
EPRA net asset value 442,641 426,245 486,280
-------------- ------------- ------------
Number of Ordinary Shares in
issue 431,506,583 372,821,136 431,506,583
Net asset value per share -
basic and diluted 101.4p 113.7p 112.1p
EPRA net asset value per share
- basic and diluted 102.6p 114.3p 112.7p
New EPRA NAV performance metrics have recently been introduced.
These are disclosed in the table of EPRA performance measures in
appendix below. The table above refers to the old EPRA NAV measure
which is used in the calculation of fees as disclosed in note
21.
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 LSPAM
is appointed as the Property Manager. A property management fee of
4% per annum is charged by the Property Manager on a quarterly
basis: 31 March, 30 June, 30 September and 31 December, based upon
the gross rental yield. Gross rental yield means the rents due
under the property's lease for the peaceful enjoyment of the
property, including any value paid in respect of rental
renunciations, but excluding any sums paid in connection with
service charges or insurance costs.
The Asset Manager is also entitled to a performance fee. Details
of the performance fee are given below.
The following tables show the fees charged in the 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
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Asset management fees charged(*) 1,430 1,180 2,356
Property management fees charged(*) 1,127 1,122 2,280
Performance fee - - -
------------- ------------- -------------
Total 2,557 2,302 4,636
------------- ------------- -------------
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Total fees outstanding* 1,347 870 1,275
------------- ------------- -------------
* Including irrecoverable VAT charged where appropriate
Transactions with the Investment Manager, Toscafund Asset
Management LLP
Tim Bee is a non-executive Director of the Company, as well as
being Chief Legal Counsel of the Investment Manager.
In consideration for the provision of services provided, the
Investment Manager is entitled in each financial year (or part
thereof) to 50% of an annual management fee on a scaled rate of
1.1% of the EPRA NAV 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
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Investment management fees
charged 1,413 1,180 2,356
Performance fee - - -
------------- ------------- -------------
Total 1,413 1,180 2,356
------------- ------------- -------------
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Total fees outstanding 665 590 591
------------- ------------- -------------
Performance fee
The Asset Manager and the Investment Manager are each entitled
to 50% of a performance fee. The fee is calculated at a rate of 15%
of the total shareholder return in excess of the hurdle rate of 8%
per annum for the relevant performance period. Total shareholder
return for any financial year consists of the sum of any increase
or decrease in EPRA NAV per Ordinary Share and the total dividends
per Ordinary Share declared in the financial year. A performance
fee is only payable in respect of a performance period where the
EPRA NAV per Ordinary Share exceeds the high water mark which is
equal to the greater of the highest year-end EPRA NAV Ordinary
Share in any previous performance period. The performance fee was
calculated initially on 31 December 2018 and 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.
Based on the EPRA NAV of the Group as at 30 June 2020 and
assuming the annual hurdle rate of return is exceeded on average
over the remainder of the period to 31 December 2020, the
performance fee liability for the period from 1 January 2020 to 30
June 2020 was estimated at GBPnil (1 January 2019 to 30 June 2019:
GBPnil; 1 January 2019 to 31 December 2019: GBPnil).
22. Subsequent events
There have been no subsequent events between the period year and
the release of this report.
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 2020 2019
EPRA EARNINGS Earnings from
operational
activities. EPRA Earnings GBP11,024,000 GBP30,987,000
EPRA Earnings per
share (basic and diluted) 2.6p 7.8p
Company Adjusted Company Specific
Earnings Earnings Measure
which adds back Adjusted Earnings GBP11,024,000 GBP30,987,000
the performance
fee charged
in the accounts
EPRA Earnings per
share (basic and diluted) 2.6p 7.8p
EPRA Net EPRA Net Reinstatement GBP486,280,000
Reinstatement Value GBP442,641,000
Value
This EPRA Net
Asset Value
Measure
assumes that
entities never
sell
assets and aims
to represent
the
value required
to rebuild the EPRA NRV per share
entity. (diluted) 102.6p 112.7p
EPRA Net
Tangible GBP485,722,000
Assets EPRA Net Tangible GBP442,362,000
Assets
This EPRA Net
Asset Value
Measure assumes
that entities
buy and sell
assets, thereby
crystallising
certain levels
of unavoidable EPRA NTA per share
deferred tax. (diluted) 102.5p 112.6p
EPRA Net This EPRA Net
Disposal Asset Value EPRA Net Disposal
Value Measure represents Value GBP475,135,000
the shareholders'
value under
a disposal scenario, GBP425,504,000
where deferred
tax, financial
instruments
and certain
other adjustments
are calculated
to the full
extent of their
liability, net
of any resulting
tax.
EPRA NDV per share
(diluted) 98.6p 109.7p
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 6.4% 6.2%
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' Net
NIY rents) Initial Yield 7.0% 6.9%
Estimated Market
Rental Value
(ERV) of vacancy
space divided
EPRA Vacancy by ERV of the
Rate whole portfolio EPRA Vacancy Rate 11.0% 10.6%
Administrative
and operating
costs (including
and excluding
costs of direct
vacancy divided
EPRA Costs by gross rental
Ratio income) EPRA Costs Ratio 36.3% 31.6%
EPRA Costs Ratio
(excluding direct
vacancy costs) 21.4% 18.7%
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
2020 2019
GBP'000 GBP'000
NAV per the financial statements 437,565 483,728
Fair value of derivative financial
instruments 4,378 1,816
Deferred tax liability 698 736
------------ ------------
EPRA NRV 442,641 486,280
------------ ------------
Dilutive number of shares 431,506,583 431,506,583
EPRA NRV per share 102.6p 112.7p
------------ ------------
3. EPRA Net Tangible Assets
30 June 31 December
2020 2019
GBP'000 GBP'000
NAV per the financial statements 437,565 483,728
Fair value of derivative financial
instruments 4,378 1,816
Deferred tax liability 698 736
Goodwill (279) (558)
------------ ------------
EPRA NTA 442,362 485,722
------------ ------------
Dilutive number of shares 431,506,583 431,506,583
EPRA NTA per share 102.5p 112.6p
------------ ------------
4. EPRA Net Disposal Value
30 June 31 December
2020 2019
GBP'000 GBP'000
NAV per the financial statements 437,565 483,728
Fair value of bank borrowings (16,432) (7,019)
Fair value of retail eligible bonds 4,650 (2,574)
Goodwill (279) (558)
------------ ------------
EPRA NDV 425,504 473,577
------------ ------------
Dilutive number of shares 431,506,583 431,506,583
EPRA NDV per share 98.6p 109.7p
------------ ------------
5. EPRA Net Initial Yield
Calculated as the value of investment properties divided by
annualised net rents:
30 June 31 December
2020 2019
GBP'000 GBP'000
Investment properties 742,300 787,915
--------- ------------
Annualised cash passing rental income 56,531 57,067
Property outgoings 4,537 5,104
--------- ------------
Annualised net rents 51,994 51,962
Add notional rent expiration of rent
free periods or other lease incentives 5,526 6,157
--------- ------------
Topped-up net annualised rent 57,520 58,119
--------- ------------
EPRA NIY 6.4% 6.2%
--------- ------------
EPRA topped up NIY 7.0% 6.9%
--------- ------------
6. EPRA Vacancy Rate
30 June 31 December
2020 2019
GBP'000 GBP'000
Estimated Market Rental Value (ERV) of
vacant space 7,915 7,853
--------- ------------
Estimated Market Rental value (ERV) of
whole portfolio 71,692 73,897
--------- ------------
EPRA Vacancy Rate 11.0% 10.6%
--------- ------------
7. EPRA Cost Ratios
30 June 31 December
2020 2019
GBP'000 GBP'000
Property costs 12,886 20,681
Less recoverable service charge income
and other similar costs (7,524) (11,252)
Add administrative and other expenses 5,945 10,904
--------- ------------
EPRA costs (including direct vacancy
costs) 11,307 20,333
Direct vacancy costs (5,006) (8,312)
--------- ------------
EPRA costs (excluding direct vacancy
costs) 6,301 12,021
--------- ------------
Gross rental income 36,964 75,645
Less recoverable service charge income
and other similar items (7,524) (11,252)
Gross rental income less ground rents 29,440 64,393
--------- ------------
EPRA Cost Ratio (including direct vacancy
costs) 38.4% 31.6%
--------- ------------
EPRA Cost Ratio (excluding direct vacancy
costs) 21.4% 18.7%
--------- ------------
The Group has not capitalised any overhead or operating expenses
in the accounting years disclosed above.
PROPERTY RELATED CAPITAL EXPITURE ANALYSIS
30 June 31 December
2020 2019
GBP'000 GBP'000
Acquisitions 83 89,920
Subsequent capital expenditure 4,542 5,765
Total capital expenditure 4,625 95,685
--------- ------------
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
Investing in the Company
The Company's shares are listed on the LSE and can be bought or
sold through a stockbroker or other financial intermediary. The
ticker for the Company is RGL.
Shares are available through saving plans, including Investment
Dealing Accounts, ISAs, Junior ISAs and SIPPs, which facilitate
both regular monthly investments and lump sum investments in the
Company's shares. The Company's shares are also available on
various investment platforms.
Share register enquiries
The Company's share register is maintained by Link Group.
In the event of queries regarding your holding, please contact
the Registrar on 0871 664 0330 or on +44 (0) 371 664 0300 from
outside the UK (calls cost 12p per minute plus your phone company's
access charge; calls outside the UK will be charged at the
applicable international rate). Lines are open 9.00am to 5.30pm,
Monday to Friday, excluding public holidays in England and Wales.
You can also email shareholdersenquiries@linkgroup.co.uk .
Changes of names and/or address must be notified in writing to
the Registrar:
Link Group, Shareholder Services, The Registry, 34 Beckenham
Road, Beckenham, Kent, BR3 4TU.
Forthcoming events
October 2020 Payment of Q2 2020 Dividend
November 2020 Q3 2020 Trading Update and Dividend Declaration
Announcement
March 2021 Full year 2020 Preliminary Results Announcement
Q4 2020 Dividend Declaration Announcement
and Portfolio Valuation
May 2021 Q1 2020 Trading Update and Dividend Declaration
Announcement
Annual General Meeting
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
Shares in issue 431.5m
Joint Broker Peel Hunt LLP and Panmure Gordon (UK) Limited
Financial PR Buchanan Communications
Incorporated Guernsey
ISIN: GG00BYV2ZQ34
SEDOL: BYV2ZQ3
Legal Entity Identifier: 549300D8G4NKLRIKBX73
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 09:00 and 17:30, Monday to Friday (excluding public
holidays in England and Wales).
By email: shareholder.enquiries@linkgroup.co.uk
By post: Link Group, The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4TU, UK
COMPANY INFORMATION
Directors
Kevin McGrath (Chairman and Independent Non-Executive
Director)
William Eason (Senior Independent Non-Executive Director and
Management, Engagement and Remuneration Committee Chairman)
Frances Daley (Independent Non-Executive Director and Audit
Committee Chairman)
Daniel Taylor (Independent Non-Executive Director)
Tim Bee (Non-Executive Director)
Stephen Inglis (Non-Executive Director)
Administrator Independent Auditor Registrar
Jupiter Fund Services RSM UK Audit LLP Link Market Services
Limited 25 Farringdon Street (Guernsey)
Mont Crevelt House London EC4A 4AB Limited
Bulwer Avenue The Registry
St. Sampson 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 7 Floor Beaufort House
Venlaw 90 Long Acre 51 New North Road
349 Bath Street London Exeter
Glasgow WC2E 9RA Devon EX4 4EP
G2 4AA
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
(previously Estera Depositary 107 Cheapside Bulwer Avenue
(UK) Limited) London EC2V 6DN St. Sampson
27-28 Eastcastle Street Guernsey
London W1W 8DH GY2 4LH
Financial Adviser and Property Valuers
Joint Broker Cushman & Wakefield
Peel Hunt LLP Debenham
Moor House Tie Leung Limited (trading
120 London Wall as Cushman & Wakefield)
London EC2Y 5ET 125 Old Broad Street
London EC2N 2BQ
Joint Broker Public Relations
Panmure Gordon (UK) Buchanan Communications
Limited Limited
One New Change 107 Cheapside
London EC4M 9AF London EC2V 6DN
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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END
IR SFUESMESSEFU
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September 17, 2020 02:00 ET (06:00 GMT)
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