TIDMRGL
RNS Number : 5658V
Regional REIT Limited
19 April 2016
19 April 2016
Regional REIT Limited
Strong regional property market driving our opportunity
Conservative financial position underpins growth prospects
Regional REIT Limited (LSE: RGL) ("Regional REIT" or the
"Group"), today announces its maiden results for the period ended
31 December 2015.
Highlights to end December 2015 (Audited)
-- The Group's shares were successfully admitted to the premium
segment of the Official List and to trading on the London Stock
Exchange on 6 November 2015.
-- At 31 December 2015:
o Gross property assets GBP403.7m; net initial yield 7.6%.
o Over 120 properties, in excess of 710 units and over 530
tenants; occupancy 83.9%.
o Debt outstanding GBP128.6m; average cost 4.5% pa; net
loan-to-value ratio 25.4%.
o Net asset value 107.7p per share; EPRA NAV 107.8p per
share.
-- For the financial reporting period 6 November to 31 December 2015:
o Operating profit (before gains/losses on property assets/other
investments and exceptional item Launch costs) GBP3.3m;
o Profit attributable to equity shareholders GBP21.1m.
o Earnings per Share 7.7p; EPRA EpS loss (1.1)p.
o Dividend of 1p per share (including 0.6572 pps PID).
Summary of Key Developments to end March 2016 (Unaudited)
-- Entry to the FTSE All Share Index on 21 March 2016.
-- Acquisitions of GBP120.5m since listing, including two
regional office and industrial portfolios.
-- Non-core property disposals since listing of GBP27.4m, generating profits of GBP5.1m.
-- As at 31 March 2016 c. 130 properties, around 970 units and
approximately 700 tenants, amounting to c. GBP500m; contracted rent
roll c. GBP43.5m.
-- As at 31 March 2016 offices (by value) were 59.1% of the
portfolio (IPO 58.4%) and industrial 29.0% (25.3%).
-- Net loan-to-value ratio of c. 40%; cost of debt reduced to c. 3.7% pa.
Kevin McGrath, Chairman, commented: "We aim to provide our
Shareholders with an attractive return on a sustained and
consistent basis from investing in, predominantly, office and
industrial property in the main regional centres of the UK. In a
business environment which increasingly bears out our belief in
this opportunity, we are delivering on the strategy and commitments
we made at the time of our recent listing. For the year ahead our
outlook is focused on the continued strong growth of the
business."
Stephen Inglis, Group Property Director and Chief Investment
Officer of London & Scottish Investments Limited, commented:
"Active and close management of the property portfolio, significant
acquisition opportunities that we continue to find in the UK's
regions and a recycling of capital through profitable disposals,
are delivering a strong operational performance and underpin our
results and outlook. We continue to be positive on the opportunity
for commercial property in the regions and for the future
development of our business where we are increasingly focusing on a
core of offices and light industrial sites and a broader
geographical mix."
A meeting for investors and analysts will be held at 09.30
(London time, BST) today at the offices of Headland. If you would
like to attend the meeting please contact Jamie Perriam, +44 (0) 20
3805 4855 or jperriam@headlandconsultancy.com. The presentation
slides from the meeting will shortly be available to download from
the investors section of the Group's website at
www.regionalreit.com.
Note: Regional REIT Limited was incorporated on 22 June 2015 but
did not begin trading until 6 November 2015 when an acquisition was
completed and the shares were admitted to trading on the Premium
segment of the London Stock Exchange.
Enquiries:
Regional REIT Limited
Press enquiries through Headland
London & Scottish Investments Tel: +44 (0) 141 248 4155
Asset Manager to the Group
Stephen Inglis
Derek McDonald
Toscafund Asset Management Tel: +44 (0) 20 7845 6100
Investment Manager to the Group
James S Johnson
Nigel Gliksten
Headland Tel: +44 (0)20 7367 5222
Financial PR
Francesca Tuckett
About Regional REIT (Unaudited)
Regional REIT Limited (LSE: RGL) is a London Stock Exchange Main
Market listed specialist real estate investment company focused on
office and industrial property interests in the principal regional
locations of the United Kingdom outside of the Greater London
area.
Regional REIT is managed by London & Scottish Investments,
the Asset Manager, and Toscafund Asset Management, the Investment
Manager, and was formed by the combination of two existing funds
created by the Managers as a differentiated play on the expected
recovery in UK regional property, to deliver an attractive total
return to shareholders and with a strong focus on income.
The Group's investment portfolio, as at 31 December 2015, is
spread across more than 120 regional properties, in excess of 710
units and over 530 tenants. As at 31 December 2015, the investment
portfolio had a value of GBP403.7m and a net initial yield of 7.6%.
The weighted average unexpired lease term was just under six
years.
The Group's shares joined the Official List of the UK's
Financial Conduct Authority ("FCA") and admitted to trading on the
London Stock Exchange ("LSE") on 6 November 2015 as LSE: RGL. For
more information, please visit the Group's website at
www.regionalreit.com.
Cautionary Statement
These Results have been prepared solely to provide additional
information to shareholders to assess the Group's performance in
relation to its operations and growth potential. These Results
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 report.
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.
Chairman's Statement
It gives me great pleasure to report the Group's first results
since its Admission to the London Stock Exchange (LSE) on 6
November 2015. Regional REIT's Shares have performed relatively
strongly, despite turbulence in the wider stockmarket, its
proposition underpinned by the strength and experience of its
Managers and its central thesis; the investment opportunity for
commercial property in the regional centres of the United Kingdom
outside of the M25 motorway. Into 2016 we have delivered on our
strategy and the commitments we made at the time of the listing, of
significant acquisitions, asset management initiatives including
disposals and reducing the cost of our debt financing.
Admission and Listing
The decision to combine the underlying Toscafund property funds
and create the Company, convert to REIT status and to seek a
stockmarket listing reflects a number of factors, as well as the
widespread support of the property funds' investors. The Managers'
view was that there was a far greater and a longer-term opportunity
to invest in regional property and that a listing would offer
liquidity, access to a wider pool of investors and additional
funding flexibility. In addition, opting for REIT status provides a
more tax efficient corporate structure.
In early-November 2015 Regional REIT's Initial Public Offering
(IPO) of 274.2m Shares at 100p per share provided it with Admission
to the premium segment of the Official List of the Financial
Conduct Authority and to trading on the main market of the LSE. The
offering included the Placing of 80m Shares, sold by existing
Shareholders, but with no new monies raised, resulting in a free
float (as defined by the FTSE) of approximately 76% with the
remainder being held by the Managers. The Managers' shareholdings
are subject to lock-in periods of between 6 months and 1 year.
The initial highly-diversified portfolio was seeded with
GBP386.1m of properties (128 properties; 713 units), with a net
initial yield of 8.25%, and an extensive (517) tenant base.
Business Environment
The Group believes that the UK regional commercial property
market is in the midst of an upturn. Early in 2016, the evidence is
that, although growth in the property market as a whole may have
paused, the market's weakness is in London and funds have continued
to flow towards the UK's regions with rising interest from
institutional and international investors.
Management concur with the many property market forecasts that
expect regional commercial property to achieve better than high
single-digit total returns growth in 2016. Although competition for
property assets is increasing, the Group's established presence,
strong reputation and expertise will ensure that it maintains a
strong market position.
Strategy
The overriding objective of the Board is to deliver an
attractive total return to Shareholders. The Group's aim is to
invest in high-quality secondary commercial properties in the main
regional centres of the UK with an emphasis on offices - 59% (by
value) of the portfolio at 31 December 2015 - and industrial units
(25%), and on strong income and value-add characteristics. The
focus on the Group's core business areas of office and industrial
properties continued, along with sales of retail properties and
non-core assets and including a reduction in the value and number
of assets in Scotland. This sale process is highly structured and
assets will only be sold where an adequate price can be secured and
the asset's business project having achieved the planned result, so
maximising returns for our Shareholders. A most recent example of
this is the sale of Blythswood House, Glasgow, announced in
early-April 2016.
(MORE TO FOLLOW) Dow Jones Newswires
April 19, 2016 02:00 ET (06:00 GMT)
The Group believes that this is "the right time for the
regions", as they gather an increasing share of investment flows,
with secondary commercial property set to outperform London and
prime regional property as a strong UK economy underpins
occupational demand in regional towns and cities with very limited
supply. The Asset Manager's view is that valuation differentials
between the regions and London have only recently started to narrow
and remain well above the long-term average.
To support the organic growth of the business and enhance the
asset base, the Asset Manager is actively involved in a granular
approach to the property portfolio and maintains a close engagement
with tenants and prospective clients. All of this is underpinned by
the proven experience and competency of the Asset Manager's team.
In addition, the Group will pursue an opportunistic approach to
acquisitions - and to holding and selling assets - where it
believes assets are mispriced and/or where there are good capital
and rental income growth prospects. Although the market is
tightening the Asset Manager still sees a number of good deal
opportunities.
Into 2016 the Group has executed on its strategy, acquiring a
number of strong growth opportunities in the regional commercial
property market that we had already identified at the time of
listing, amounting to some GBP120.5m. At the very end of 2015 we
announced the GBP37.5m acquisition of 4 office buildings and an
industrial business park. In February we announced the GBP80m
purchase of a portfolio of 5 offices and 7 industrial sites.
Including acquisitions in the first quarter of 2016, the portfolio
now amounts to c.130 properties, around 970 units and approximately
700 tenants as at 31 March 2016.
Portfolio Valuation and Net Asset Value
As at 31 December 2015 the value of the Group's property
portfolio was GBP403.7m, compared to a valuation at 30 June 2015 of
GBP386.1m. This increase included property disposals of GBP8.8m for
a profit of GBP2.4m, demonstrating management's ability to secure
good gains on the investment. Into the second-half of 2015 the
management team was focused on the listing and new investment
activity was reduced, although deal opportunities continued to be
identified. As mentioned previously, we have announced several
significant portfolio acquisitions early in 2016.
On Admission the Group had an EPRA net asset value (as at 30
June 2015) of GBP274.2m and 100p per share. By 31 December 2015 the
EPRA net asset value had grown to GBP295.7m, an increase of 7.8%,
after charging GBP5.3m of listing expenses.
Financial Position
At 31 December 2015 the Group had a number of drawn loan
facilities amounting to GBP128.6m, at an average interest cost of
4.5% and with a weighted average maturity of just over 3 years. At
the year end the net loan-to-value ("LTV") ratio was 25.4%. The
Group has a good relationship with its main banks, which supports
asset acquisition and management activities, and aims to manage its
average loan maturity broadly in line with the average lease term
on the portfolio. The Group currently maintains a 90% minimum
hedging strategy on its loan book. Accounting for activity since
the year end the net LTV ratio as at 31 March 2016 was
approximately 40% and the cost of debt had declined to around 3.7%.
The Group has a conservative approach to its balance sheet,
targeting a 35% net LTV ratio, with a limit of 50%.
Share Price, Dividends and Target Returns
At Admission the Group's Ordinary Shares were listed at 100p and
as at 31 December 2015 the price had risen to 104.75p per Share;
over the same period the FTSE EPRA/NAREIT UK Index fell 4.3%. In
the first-quarter of 2016 (to 31 March) the share price declined
1.0% versus the FTSE EPRA/NAREIT UK Index falling 7.8%.
At Admission it was the Group's intention to target a dividend
yield of 7-8% per annum, on the IPO price of 100p per share covered
by recurring earnings, and to pay dividends on a bi-annual basis.
The Board reconsidered the frequency of dividend payments in the
light of market practice in the sector, the Board's perception of
Shareholders' preferences and following discussions with its
advisors. In February 2016, we announced we would change to paying
dividends quarterly. More recently we declared our first dividend
of 1 pence per share, for the period between Admission and 31
December 2015. Going forward our dividend policy will reflect the
high income potential of the business. The Group has a total
returns target - dividends and capital appreciation - of 10-15% per
annum.
Board and Management Team
The Board are working together very effectively and have
established a good relationship with the Managers. We are committed
to the success of the Group and to ensuring that the best standards
of corporate governance are in place. The people at our Asset
Manager, in offices around the UK, and at our Investment Manager
successfully delivered us as a listed company and will remain key
to our success in managing and growing our asset base. The
competencies and experience the Managers offer are critical assets
of the business. In addition, thanks should be extended to all of
our advisors who worked hard to deliver the Group to the
Market.
The Board is in the process of considering what would be an
appropriate set of key performance indicators ("KPIs") for the
business to adopt and will update Shareholders in due course.
Outlook
The UK economy is still expected to continue to perform well,
although uncertainties have increased and growth forecasts have
been reduced, with the Office for Budget Responsibility (March
2016) projecting GDP growth of 2.0% for 2016 and 2.2% for 2017,
from the 2.3% estimated for 2015. The continuing looseness of
monetary policy also helps with the prospect of 'lower-for-longer'
interest rates as do reduced energy prices. It is also apparent
that the service sector, and office employment, have continued to
grow. Government policy towards the regions also remains
supportive. There are global and Eurozone macroeconomic
uncertainties but, whilst growth continues and confidence remains
high in the UK, their impact is likely to be limited in the near
term.
Prospects for the UK regional commercial property market are
strong and there is a continuing investment inflow in a search for
yield; regional office investment in particular is rising well
above its average of the last 5-years. Occupancy demand, office and
industrial, is also good and with a constrained supply. In
contrast, London commercial property saw a marked downturn in the
second-half of 2015, being the most beset by the retrenchment of
international investment and heightened economic and geo-political
uncertainties as well as the already low level of yields.
We remain positive on the prospects for the Group in 2016, with
sustained growth in rental income and tight control of costs,
accompanied by some further growth in assets and an active
management of the portfolio mix. We see a strong underpinning for
longer-term NAV growth and returns to Shareholders.
Kevin McGrath
Chairman
18 April 2016
Asset and Investment Managers' Report
Market Overview
The Asset Manager's view is that the UK regional commercial
property market continues to perform strongly. There is continuing
interest and heightened activity from an increasing number of
investors, both from the UK and overseas, seeking 'value' and
yield. The shift in investors' focus away from London started with
prime regional assets but is now firmly focused on good secondary
commercial property, and the Asset Manager expects this shift to
continue.
This weight of capital is reflected in a yield shift and as an
increasing amount of capital invests in the regions inevitably
yields will continue their decline. However, with most market
sectors now witnessing real rental growth - which looks set to
continue with strong occupancy demand and limited supply and very
little new build - we anticipate further rent increases. We believe
that this will be particularly evident in the secondary commercial
property market, with the differential between prime and secondary
yields set to narrow to be more in line with the long-term
average.
It is noteworthy that much of the capital chasing regional
property assets is for 'stabilised-income' rather than the
intensive asset management opportunities sought by the Group.
Investors are proceeding mainly on a macro basis; that these
markets offer good value, that yields will continue to close to
long-term averages and rental growth will further bolster
performance. All of this is likely, but the strategy of Regional
REIT is at a more micro level; it acquires property assets, from
distressed vendors or less asset management intensive
organisations, which require significant time and resources to
manage, and produces a stable income stream. Investors benefit from
this but it is also consistent with the goals of the macro player,
as is being recognised by ongoing capital inflows.
Yields continue to fall for the 'stabilised-income' property
assets, driven by the weight of money from investors now seeking
opportunities in the UK's regions. However, the intensive asset
management opportunities sought by the Group are not witnessing the
same levels of interest. This gives the Group a significant
arbitrage opportunity as we continue to identify good opportunities
for our Shareholders.
Investment Activity in UK Commercial Property
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April 19, 2016 02:00 ET (06:00 GMT)
In 2015, investment in UK commercial property reached a record
level of GBP61.5bn. There is evidence of a continued rise in
investment in the UK's regional markets, as the Asset Manager
predicted in 2012, with investors beginning to recognise the
opportunity for better returns outside of London. Regional
commercial property markets are now in the driving seat, reaching a
record investment volume of GBP39.5bn in 2015. This is set to
continue, which will drive further outperformance in the regional
markets. CoStar estimates that Central London received 31% of all
UK investment in 2015, down from a high of 46% in 2012, its lowest
share since the financial crisis.
Global capital targeting the UK continued to rise, with more
investors now investing in UK regions. According to CoStar, 2015
was a record year for foreign investment with GBP27.8bn flowing
into UK commercial real estate, a 6% increase on 2014.
For the Asset Manager, a key metric is that yield spreads
between prime and secondary properties have fallen in the last
12-18 months from the historic highs of 2013 and 2014. The yield
spread remains well above its long-term average levels, which
indicates that there remain significant opportunities for high
quality secondary properties to outperform in the short to medium
term.
Offices - Occupational Demand
A record UK employment rate in 2015, and an increase in office
employment, has had a direct impact on take-up in the office
market. Take-up of office space reached 5.6 million sq. ft. in 2015
within the main regional markets (40% of this was in Manchester and
Birmingham as a result of inward movers drawn to their city
centres), the second highest volume on record after 2014.
Professional services firms continued to dominate the take-up of
office space in 2015 within the core regional markets, accounting
for 29%. Demand for office space remains robust: there is 9.7m sq.
ft. of active demand within the core 8 UK regional markets,
dominated by the professional and public administration
sectors.
Office supply remained constrained in the main regional markets,
with a shortfall in developments. There was a decline in
availability and vacancy rates across all grades as high levels of
take-up have continued.
Rental Growth Accelerating in the UK Regional Office Market
Against a backdrop of rising demand and limited supply and
availability, all regional office markets are showing nascent signs
of rental growth. According to JLL, prime rental growth across the
core 8 regional office markets increased by an average of 5.3% in
2015.
JLL's research expects headline rental growth across UK cities
to average 2.8% per annum for the period 2016 to 2020. With the
very low vacancy rates within prime properties, the Asset Manager
anticipates the demand for high quality secondary properties to
increase, which will put upward pressure on rents and downward
pressure on rent incentives.
Industrial - Occupational Demand
Take up in 2015 totalled 29.7 million sq. ft., a 15% decrease
from 2014. The reduced take-up was seen across most UK regions as
occupiers became more cautious due to global economic concerns,
weaker export numbers and the upcoming EU referendum.
The growth of online spending means that e-tailing is now the
most influential sector in the industrial market, accounting for
38% of overall take up in 2015.
With development focussed on Grade A space and pre-let
situations for large distribution units close to the main
North-South trunk roads, namely the M1, M6 and around the M25,
there is very little additional supply to the multi- sized,
multi-let industrial estates. The Asset Manager predicts that this
will continue to be the case, which will result in a demand-supply
imbalance in this market driving rental growth.
According to Cushman & Wakefield, the stronger UK regional
markets experienced the greatest yield compression in 2015.
Industrial Rental Growth
Industrial rents are now in a sustained period of growth due to
the demand-supply imbalance in the market, with the rest of UK
industrial showing a c. 4% increase in 2015 according to IPD. The
Investment Property Forum UK Consensus Forecasts, February 2016,
show average 3.5% and 2.9% rental growth for 2016 and 2017
respectively. The Asset Manager predicts that rental growth in
Grade B space in a number of good locations will outperform these
averages.
Bank Lending to UK Property
The recovery in the lending market and increased lending
appetite is also supporting property investment. From research
published by De Montfort University in December 2015, GBP24.7bn of
new lending was recorded in the first half of 2015, a 26% increase
year-on-year. In the first half of 2015, half of all new loans were
issued by just six banks.
According to Cushman & Wakefield, in a survey of lenders in
December 2015, 91% of lenders expect lending activity to increase
or remain static compared with 2015 levels, with the balance evenly
split, therefore loan books are set to expand further. The Asset
Manager believes that increased market diversification and
competition within the lending market bodes well for the property
market, and has helped to drive down the cost of borrowing.
The aforementioned factors can be seen in the investment market
where yields have continued to fall in the year to December 2015
from their historic highs in 2013. This has been supported by a
more favourable economic environment for property investment, in
particular persistent low interest rates.
Economic Overview
UK GDP grew 2.3% in 2015, down from 2.9% in 2014. The slowdown
was largely due to weaker net trade and a moderation in
construction and public spending. Despite worries about the
slowdown in China, the fall in oil prices due to oversupply and the
uncertainty created by the forthcoming EU referendum, the consensus
published by HM Treasury in March 2016 shows GDP growing 2.0% in
2016 and 2.1% in 2017.
Inflation ("CPI") forecasts remain below the Bank of England's
2% target, with the fall in commodity prices, the continued slack
in the economy and a moderate increase in core inflation. Consensus
estimates now indicate that it will probably be 2017 at the
earliest before we see an increase in interest rates.
Employment levels have continued to rise. The unemployment rate
(December 2015) was 5.1% (5.7% in December 2014) and the employment
rate was 74.1% which, according to the Office for National
Statistics ("ONS"), is the highest since comparable records began
in 1971.
The service sector, which accounts for more than three-quarters
of the UK economy, continues to expand according to the Markit/CIPS
UK Services Purchasing Managers' Index (February 2016). This
expansion, which has increased employment growth, has had a
knock-on effect on the level of take-up in the office market and
prospects for future rental growth.
In the retail sector, the ONS estimates that sales volumes grew
for the 34(th) consecutive month in February 2016, increasing by
3.8% compared with February 2015.
According to the ONS, business investment also continued to grow
in 2015.
Asset Manager Summary
-- Weight of capital continues with record levels of investment
in UK regional commercial property assets in 2015
-- Focus of capital moving towards the UK regions from
London
-- Expect to see continued growth in 2016 in regional office and
light industrial assets
-- Secondary to continue to outperform prime property as yield
spread narrows towards long-term average
The Investment Property Forum UK Consensus Forecasts published
in February 2016 are in Tables 1 and 2 below.
Sector Total Return 2016 Total Return 2017
------------ ------------------ ------------------
Office 9.2% 5.1%
Industrial 9.3% 6.4%
Table 1: Investment Property Forum UK Consensus Forecasts, Feb
2016
These are market averages and the Asset Manager expects the
secondary regional markets to perform in excess of these
levels.
Summary average by sector
Retail value growth Capital value growth Total return (%)
(%) (%)
2016 2017 2018 2016/20 2016 2017 2018 2016/20 2016 2017 2018 2016/20
-------------- ----- ----- ----- -------- ----- ----- ----- -------- ----- ----- ----- --------
Office 5.2 3.1 1.8 2.1 4.9 0.8 -0.5 0.5 9.2 5.1 3.9 4.9
Industrial 3.5 2.9 2.3 2.3 3.9 1.1 1.0 1.2 9.3 6.4 6.3 6.6
Standard
Retail 2.5 2.4 2.2 2.1 2.7 0.6 0.8 0.9 7.4 5.2 5.5 5.7
Shopping
Centre 1.2 1.8 1.8 1.7 1.6 -0.2 0.3 0.3 6.7 4.9 5.3 5.4
Retail
Warehouse 1.5 1.8 1.8 1.8 1.2 -0.1 0.2 0.3 6.7 5.4 5.8 5.9
-------------- ----- ----- ----- -------- ----- ----- ----- -------- ----- ----- ----- --------
All Property 3.2 2.6 2.0 2.1 3.0 0.5 0.2 0.7 7.9 5.4 5.2 5.6
Table 2: Investment Property Forum UK Consensus Forecasts, Feb
2016
Net Asset Value
In the period since listing, 6 November 2015 to 31 December
2015, the EPRA ("European Public Real Estate Association") Net
Asset Value ("NAV") of the Group rose to GBP295.7m, from GBP274.2m,
an increase of 7.8 pence per share ("pps").
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The Net Asset Value increased to 107.7pps, from 100.0pps, over
the same period. The Launch costs of the listing amounted to
1.9pps.
Pence per
share
EPRA NAV as at Admission 6 November 2015 100.0
Net rental income 1.7
Administration and other expenses (0.5)
Gain on the disposal of investment properties 0.0
Change in the fair value of investment properties 8.7
---------------------
Operating profit before exceptional items 109.9
Exceptional Items (Launch costs) (1.9)
---------------------
Operating profit after exceptional items 108.0
Finance expenses (0.3)
Operating profit after finance item 107.7
---------------------
Taxation 0.0
NAV per share as at 31 December 2015 107.7
---------------------
Gain on derivative financial instruments 0.1
EPRA NAV per share as at 31 December 2015 107.8
---------------------
Income Statement
There was an operating profit before gains and losses on
property assets and other investments for the period 6 November
2015 to 31 December 2015 of GBP3.3m. Certain costs incurred in the
56 day operating period would normally be charged for a full
accounting period, including auditors fees and legal and
professional fees. Profit after the finance items and before
taxation was GBP21.1m. This included an exceptional item for the
launch costs, of GBP5.3m, which were incurred as a result of the
Group's Admission to the London Stock Exchange ("LSE").
Dividend
The Group announced a dividend for the period 6 November 2015 to
31 December 2015 of 1pps on 7 March 2016, which was paid on 15
April 2016.
The dividend consisted of 0.6572pps designated as a property
income distribution ("PID") and 0.3428pps as a non-PID.
Debt Financing and Gearing
Borrowings comprise third-party bank debt which is secured over
properties owned by the Group and repayable over the next 2 to 4
years, with a weighted average maturity of 3.4 years. The Group's
borrowing facilities were with Santander UK, Royal Bank of Scotland
and ICG Longbow Ltd, and were largely drawn down at the year end.
Total bank borrowing at 31 December 2015 amounted to GBP128.6m
(including unamortised debt issuance costs).
At 31 December 2015 the Group's cash and cash equivalent
balances amounted to GBP24.0m.
The Group's net loan-to-value ratio stands at 25.4%. The Board
targets a Group net loan-to-value ratio of 35% with a maximum of
50%.The table below sets out the borrowings the Group had in place
as at 31 December 2015:
Lender Original Outstanding Maturity LTV Interest Amortisation Hedging and
Facility Debt* Date Cost per Swaps:Notional
annum Amounts/Rates**
---------- --------------- --------------- --------- ------ ----------- ------------- ----------------
Mandatory
Santander 2.7% over Prepayment
UK GBP35,000,000 GBP31,605,902 Dec-18 29.2% 3mth LIBOR basis GBP11m/1.867%
Mandatory
Santander 2.7% over Prepayment
UK GBP13,500,000 GBP9,587,485 Dec-18 17.7% 3mth LIBOR basis GBP4.65m/2.246%
Royal
Bank of 2.75% over
Scotland GBP15,600,000 GBP15,600,000 Jun-19 29.7% 3mth LIBOR None GBP14.04m/1.79%
ICG Longbow 5% pa for
Ltd GBP65,000,000 GBP65,000,000 Aug-19 48.9% term None n/a
Santander 2% over GBP50,000
UK GBP7,000,000 GBP6,850,000 Feb-18 46.2% 3mth LIBOR per qtr GBP5.48m/1.444%
--------------- ---------------
GBP136,100,000 GBP128,643,387
*Including unamortised debt issue costs and fair valuation
adjustment at period end.
**Hedging arrangements: As at 31 December 2015, the swap
notional amount was GBP35.2m. Under the swap agreements, the
notional amount reduces on a quarterly basis.
The net gearing ratio, net debt to equity, of the Group was
34.8% as at 31 December 2015.
Hedging
The Group applies a hedging strategy that is aligned to the
property management strategy. Borrowings are currently 90% hedged
against interest rate risk: of all borrowings 51% are at a fixed
rate; 27% have interest rate swaps to fix the variable LIBOR
portion of the interest rate applicable; and 12% have interest rate
caps which place an upper limit on the variable LIBOR portion of
the interest rate applicable.
The Weighted Average Effective Interest Rate on the borrowings
at 31 December 2015, including the hedging cost, was 4.5%.
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.
Events After the Reporting Period
In the first quarter of 2016 the Group completed a number of
significant acquisitions and a refinancing.
As at 31 March 2016 the Group's property assets amounted to
approximately c. GBP500m. As at 31 March 2016 Group borrowings
amounted to c. GBP226m with a weighted average effective interest
rate on the borrowings, including the hedging cost, of 3.7%.
Property Portfolio
As at 31 December 2015, the Group's property portfolio was
valued at GBP403.7 million, with contracted rental income of
GBP35.9m, and a vacancy rate of 16.1%. There were 123 properties in
the portfolio:
-- By segment:
o 52 office (GBP239.8m), 29 industrial (GBP99.6m), 37 retail
(GBP45.0m), 1 student accommodation (GBP17.4m), and 4 other
(including residential)
-- By region:
o 49 Scotland (GBP144.9m), 22 Midlands (GBP66.6m), 15 South East
(GBP66.1m), 15 North East (GBP57.0m), 12 North West (GBP37.1m), 2
Wales (GBP16.6m), and 8 South West (GBP15.5m)
If the portfolio was fully occupied at Cushman & Wakefield's
view of market rents, the gross rental income would be GBP40.4
million per annum as at 31 December 2015.
As at 31 December 2015 the net initial yield on the portfolio
was 7.6%, the equivalent yield was 8.3% and the reversionary yield
was 9.0%.
Regional REIT Property Portfolio by Segment and Region
Segment
Properties Valuation % by Sq. Occupancy WAULT(1) Gross Net rental Average ERV(2) Capital
GBPm valuation ft. % to first rental income rent rate
break income GBPm GBPpsf
(yrs) GBPm
(mil) GBPm GBPpsf
=========== ========== ========= ========= ====== ========= ======== ====== ========== ======= ====== ========
Office 52 239.85 59.4% 1.98 84.4% 2.9 22.2 21.5 13.3 24.9 121.14
----------- ---------- --------- --------- ------ --------- -------- ------ ---------- ------- ------ --------
Industrial 29 99.62 24.7% 3.15 83.9% 5.5 8.9 8.0 3.3 10.2 31.63
----------- ---------- --------- --------- ------ --------- -------- ------ ---------- ------- ------ --------
Retail 37 45.03 11.2% 0.42 88.4% 5.4 3.8 3.3 10.5 4.3 107.21
----------- ---------- --------- --------- ------ --------- -------- ------ ---------- ------- ------ --------
Student
Accomm. 1 17.40 4.3% 0.03 100.0% 24.7 0.9 0.9 28.9 0.9 n/a
----------- ---------- --------- --------- ------ --------- -------- ------ ---------- ------- ------ --------
Other 4 1.80 0.4% 0.04 7.4% 4.4 0.1 0.1 18.6 0.1 n/a
=========== ========== ========= ========= ====== ========= ======== ====== ========== ======= ====== ========
Total 123 403.7 100.0% 5.62 83.9% 4.4 35.9 33.8 7.6 40.4 71.83
----------- ---------- --------- --------- ------ --------- -------- ------ ---------- ------- ------ --------
Region
----------- ---------- --------- --------- ------ --------- -------- ------ ---------- ------- ------ --------
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Properties Valuation % by Sq. Occupancy WAULT Gross Net rental Average ERV Capital
GBPm valuation ft. % to first rental income rent GBPm rate
(mil) break income GBPm GBPpsf GBPpsf
(yrs) GBPm
=========== ========== ========= ========= ====== ========= ======== ====== ========== ======= ====== ========
Scotland 49 144.91 35.9% 2.31 83.7% 5.0 12.8 12.5 6.6 15.1 62.73
----------- ---------- --------- --------- ------ --------- -------- ------ ---------- ------- ------ --------
Midlands 22 66.59 16.5% 0.90 76.4% 3.2 6.3 6.1 9.1 6.4 73.99
----------- ---------- --------- --------- ------ --------- -------- ------ ---------- ------- ------ --------
South
East 15 66.05 16.4% 0.61 93.5% 2.1 6.5 6.1 11.3 6.9 108.28
----------- ---------- --------- --------- ------ --------- -------- ------ ---------- ------- ------ --------
North
East 15 57.01 14.1% 0.83 83.2% 4.6 4.9 4.8 7.1 5.6 68.69
----------- ---------- --------- --------- ------ --------- -------- ------ ---------- ------- ------ --------
North
West 12 37.13 9.2% 0.63 89.9% 8.3 3.0 2.4 5.3 3.1 58.94
----------- ---------- --------- --------- ------ --------- -------- ------ ---------- ------- ------ --------
Wales 2 16.55 4.1% 0.19 94.5% 6.6 1.3 1.0 7.7 1.4 87.11
----------- ---------- --------- --------- ------ --------- -------- ------ ---------- ------- ------ --------
South
West 8 15.46 3.8% 0.15 60.2% 2.3 1.1 0.9 12.3 1.9 103.07
=========== ========== ========= ========= ====== ========= ======== ====== ========== ======= ====== ========
Total 123 403.7 100.0% 5.62 83.9% 4.4 35.9 33.8 7.6 40.4 71.83
----------- ---------- --------- --------- ------ --------- -------- ------ ---------- ------- ------ --------
(1) WAULT - weighted average unexpired lease term
(2) ERV - estimated rental value
Top 15 Investments (market value) as at 31 December 2015
Property Sector Anchor tenants Market % of Lettable Let by area Annualised WAULT
value portfolio area (%) gross (years)
(GBPm) (ft(2) ) rent
(GBPm)
------------- ----------- -------------------- ---------- ---------- --------- ----------- ---------- --------
Tay House, Barclays Bank Plc,
Glasgow Office Glasgow University 30.5 7.6% 156,933 69.1% 2.2 9.2
Wardpark Balfour Beatty
Industrial Utility Solutions
Estate, Limited, Cummins
Cumbernauld Industrial Limited 19.1 4.7% 709,816 88.1% 2.3 3.9
Blythswood
House, Student The Glasgow School
Glasgow(1) Accom. of Art 17.4 4.3% 32,000 100.0% 0.9 24.7
Hampshire
Corporate
Park,
Chandler's Aviva Health UK
Ford, Limited, Royal Bank
Eastleigh Office of Scotland plc 14.8 3.7% 85,422 100.0% 1.4 3.1
One and Two
Newstead
Court,
Nottingham Office E.On UK plc 14.7 3.6% 146,063 100.0% 1.5 6.2
Columbus
House, TUI Northern Europe
Coventry Office Limited 14.7 3.6% 53,253 100.0% 1.1 8.0
Winsford
Industrial
Estate, Jiffy Packaging
Winsford Industrial Limited 13.1 3.2% 246,209 100.0% 0.9 18.8
Steinhoff UK Group
1-4 Property Limited,
Llansamlet Wren Living
Retail Park, Limited, Halfords
Swansea Retail Limited 12.5 3.1% 71,615 85.7% 1.0 9.8
Churchill
Plaza,
Basingstoke2 Office Barclays Bank Plc 11.0 2.7% 135,362 100.0% 1.4 1.0
Howden Joinery
Properties Limited,
The Point, Euro Car Parts
Glasgow Mixed use Limited 10.5 2.6% 183,861 93.9% 0.8 11.4
The Scottish
Ministers, The
Templeton on Scottish Sports
the Green, Council, Heidi
Glasgow Office Beers Limited 10.2 2.5% 142,758 87.4% 1.0 10.4
CGU House, Aviva Insurance
Leeds Office Limited 9.9 2.5% 50,763 100.0% 1.0 1.7
9 Portland Mott MacDonald
Street, Limited, New
Manchester Office College Manchester 9.2 2.3% 54,959 89.8% 0.7 6.7
St James Place
Wealth Management
Chancellor Group plc, The
Court, Leeds Office Legal Aid Agency 9.0 2.2% 41,818 100.0% 0.8 3.6
Marston Stage One Creative
Business Services Limited,
Park, AJ Marshall
Tockwith, (Specialist Steels)
Wetherby Industrial Limited 6.6 1.6% 223,043 76.7% 0.6 15.0
------------- ----------- -------------------- ---------- ---------- --------- ----------- ---------- --------
Total 203.2 50.2% 2,333,875 17.6
(1) Sold April 2016
(2) Sold February 2016
Top 15 Tenants (share of rental income) as at 31 December
2015
Tenant Property Sector WAULT Sq Ft % of Gross rental
(break if applicable) income
years
-------------------- ------------------- -------------------- ---------------------- -------- -------------------
Churchill Plaza,
Basingstoke(1) &
Tay House,
Barclays Bank Plc Glasgow Banking 5.8 213,406 8.2%
-------------------- ------------------- -------------------- ---------------------- -------- -------------------
One & Two Newstead
E.ON UK Plc Court, Annesley Energy 6.2 (3.1) 146,063 4.3%
-------------------- ------------------- -------------------- ---------------------- -------- -------------------
TUI Northern Europe Columbus House,
Ltd Coventry Travel and tourism 8.0 53,253 3.1%
-------------------- ------------------- -------------------- ---------------------- -------- -------------------
Hampshire
Corporate Park,
Chandler's Ford,
Aviva Health UK Ltd Eastleigh Insurance 2.3 64,486 2.9%
-------------------- ------------------- -------------------- ---------------------- -------- -------------------
Aviva Insurance Ltd CGU House, Leeds Insurance 1.7 50,763 2.8%
-------------------- ------------------- -------------------- ---------------------- -------- -------------------
The Glasgow School Blythswood House,
of Art Glasgow(2) Education 24.7 32,000 2.6%
-------------------- ------------------- -------------------- ---------------------- -------- -------------------
Road 4 Winsford
Industrial Manufacturer of
Jiffy Packaging Ltd Estate, Winsford PE/PP foam 18.8 246,209 2.5%
-------------------- ------------------- -------------------- ---------------------- -------- -------------------
The Secretary of Bennett House,
State for Hanley & Sheldon
Communities Court, Solihull Government 3.1 (1.6) 69,436 2.3%
-------------------- ------------------- -------------------- ---------------------- -------- -------------------
Victory House,
Meeting House
Lloyds Bank Plc Lane, Chatham Banking 2.4 48,372 1.9%
-------------------- ------------------- -------------------- ---------------------- -------- -------------------
The Scottish
Ministers
c/o Scottish Calton House,
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Prison Edinburgh Government 1.8 51,914 1.7%
-------------------- ------------------- -------------------- ---------------------- -------- -------------------
Niceday House,
Office Depot UK Meridian Park, Retailer of office
Limited Andover supplies 3.1 34,262 1.6%
-------------------- ------------------- -------------------- ---------------------- -------- -------------------
Severn Trent Water 2800 The Crescent,
Limited Solihull Utilities (water) 0.2 29,935 1.5%
-------------------- ------------------- -------------------- ---------------------- -------- -------------------
Century Way,
W S Atkins Thorpe Park, Consultancy
(Services) Ltd Leeds (engineering) 2.6 32,647 1.4%
-------------------- ------------------- -------------------- ---------------------- -------- -------------------
Royal Burgh House,
South Lanarkshire 380 King Street,
Council Glasgow Government 2.4 24,600 1.4%
-------------------- ------------------- -------------------- ---------------------- -------- -------------------
Minton Place,
Level 3 Swindon &
Communications Rosalind House,
Limited Basingstoke Telecommunications 4.5 (1.7) 28,120 1.3%
==================== =================== ==================== ====================== ======== ===================
(1) Sold February 2016
(2) Sold April 2016
Property Portfolio Segment and Region by Valuation and
Income
By Valuation
As at 31 December 2015 59.4% of the portfolio by market value
was offices and 24.7% was industrial. The balance was made up of
retail (11.2%), student accommodation (4.3%) and other. With the
acquisitions and disposals in the first quarter of 2016 the
proportion of offices and industrial amounted to c. 88% as at 31
March 2016. By UK region, as at 31 December 2015, Scotland
represented 35.9% of the portfolio and England 60.0%; the balance
of 4.1% was in Wales. In England the largest regions were the
Midlands, the South East and the North East. With the acquisitions
and disposals in the first quarter of 2016 the proportion in
England amounted to c. 67% as at 31 March 2016.
By Income
As at 31 December 2015 61.8% of the portfolio by income was
offices and 24.7% was industrial. The balance was made up of retail
(10.7%), student accommodation (2.6%) and other. With the
acquisitions and disposals in the first quarter of 2016 the
proportion of offices and industrial amounted to c. 90% as at 31
March 2016. By UK region, as at 31 December 2015, Scotland
represented 35.7% of the portfolio and England 60.6%; the balance
of 3.7% was in Wales. In England, the largest regions were the
South East, the Midlands and the North East. With the acquisitions
and disposals in the first quarter of 2016 the proportion in
England amounted to c. 66% as at 31 March 2016.
Lease Expiry Profile
The weighted average unexpired lease term ("WAULT") on the
portfolio is 6.1 years (5.6 years excluding Blythswood House);
WAULT to first break is 4.4 years (3.8 years excluding Blythswood
House). As at 31 December 2015, 12.8% of income was leases which
will expire within 1 year, 31.1% between 1 and 3 years, 15.6%
between 3 and 5 years, and 40.5% after 5 years.
Events after the Reporting Period - Acquisitions and
Disposals
On 30 December 2015, the Group announced it had exchanged
contracts on the Wing portfolio of four multi--let office buildings
and a multi-let industrial estate for a purchase price of GBP37.5m.
The portfolio is located in Basingstoke, Leeds, Leicester and
Manchester and an industrial business park in Beverley and totals
c. 703,000 sq. ft., providing a net income of GBP3.38 million per
annum. This equates to a net initial yield of 8.5%. The deal
completed on a phased basis, stage 1 being 22 January 2016 for the
freehold assets with stage 2, the leasehold assets of Basingstoke
and Beverley, completing on 22 March 2016.
On 6 January 2016, the Group announced it had completed the
acquisition of Rosalind House in Basingstoke for an acquisition
price of GBP3m. The office building, 26,448 sq. ft. let until 2020,
provides a net annual income of GBP396,000, equating to a net
initial yield of 12.48%. Subsequently the Group agreed a lease
surrender for a reverse premium of GBP888,000 and back-to-back
letting following refurbishment to New Voice Media on a new 10 year
lease at GBP394,755 per annum.
On 9 February 2016, the Group announced that it had exchanged
contracts to buy the Rainbow Portfolio for GBP80.0m. The portfolio
comprises 12 assets, five offices and seven industrial sites,
totalling 1.15m sq. ft., which are geographically spread throughout
the UK in major regional urban areas, including Bristol,
Manchester, Cardiff, Sheffield and the West Midlands. Income from
offices amounts to 55% of the portfolio; 86% of the income is from
England. The portfolio produces a net yield of 8.2% at a capital
rate of GBP70 per sq. ft. The deal completed on 9 March 2016.
These acquisitions were funded by a combination of capital
resources and additional bank borrowing.
The Group also announced, on 9 February 2016, a number of
disposals:
-- Churchill Plaza, Basingstoke sold for GBP12m, the property
having been acquired in August 2014 for GBP7.5m. The sale price
represented a 52% increase on the June 2015 value and a 9% increase
on the December 2015 valuation.
-- Five retail assets sold for a total consideration of GBP4.8m,
marginally ahead of the December 2015 valuation.
-- An office building in Kirkcaldy has also been sold for
GBP0.9m, 50% ahead of the June 2015 valuation and in line with the
December 2015 valuation. An office building in Glasgow, 21
Blythswood Square, sold just before the December 2015 valuation for
GBP1.5m, in line with valuation.
These disposals are consistent with the Group's policy of
selling where real value has been created and to reduce risk,
specifically development and retail properties where good value can
be achieved.
In a number of other deals, the Group has continued to
demonstrate its focus on its existing portfolio and has completed
several active asset management projects in recent weeks,
generating additional income through new lettings and maintaining
and improving income through lease renewals and re-gears.
-- Glasgow: At Tay House, the Grade A office building in
Glasgow, the Group completed a deal with Barclays Bank plc, the
major tenant of the building, occupying 78,044 sq. ft., to provide
guaranteed income until October 2021. In addition, refurbishment
works have commenced on the first and second floors, amounting to
48,533 sq. ft..
-- Leeds: At Chancellor Court, The Calls, the Group has
negotiated a five-year extension from September 2016 with the
current tenant St James Place Wealth Management Limited. The lease
consists of 17,896 sq. ft. of office space over two floors,
providing a rent of GBP268,440 per annum.
-- Bristol: The Group completed an agreement to let the ground
and second floors of Building A at St James Court, Bristol. The
deal will see South West Ambulance Service Trust (NHS) occupying
20,071 sq. ft. for a term of 15 years at GBP301,065 per annum. The
Group is also in advanced negotiations on three quarters of the
17,641 sq. ft. Building B. This accommodation only ceased to be
income-producing when vacated by EE on 24 December 2015 and
demonstrates the Group's active asset management and strength of
the Bristol market.
-- Bath: the Group agreed with the BBC the surrender of the
lease of St James Court for the sum of GBP1.1 million, and has
completed refurbishment and partial remodelling of the ground and
first floors. Agents have been appointed to find new tenants and a
rental income of around GBP20 per sq. ft. is expected for the
building. The Group has completed the extension of the letting of
the second floor, extending occupation from 2017 to 2022.
-- Nottingham: At Sherwood Park the Group agreed a new 10-year
lease with E.ON UK plc on 2 Newstead Court, comprising 99,142 sq.
ft., at a rent of GBP946,425 per annum. E.ON has occupied the
property since 2004. E.ON also occupy the adjacent Regional REIT
asset at 1 Newstead Court where they have recently completed a c.
GBP1.2m refurbishment of the top floor.
On 6 April 2016, the Group announced the sale of Blythswood
House, Glasgow for GBP17.4m in line with the valuation at 30 June
2015. Also Unit A, Spectrum Business Park, Wrexham was sold for
GBP4.1m, 22% higher than the valuation at 30 June 2015. The Group
also confirmed it had a new 10-year agreement with Regus for 30,000
sq. ft of floor space at Tay House, Glasgow.
Principal Risks and Uncertainties
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The Board has carried out a robust assessment of the current and
future principal risks and uncertainties facing the Group and
identified a number of risks which could have a material impact on
the Group's performance if not monitored and controlled. The list
below sets out the current identified principal risks which the
Board is monitoring, but this does not purport to be an exhaustive
list of all the risks faced by the Group. The Board is aware that
material new risks will arise which, to date, are not deemed
material nor warrant significant resources to monitor. As and when
such risks are identified the Group will put in place controls to
monitor and mitigate.
Investment Risk
Cause Risk Mitigation
Investment decisions
and deviation * The Board will acquire portfolio interests that
from the investment together offer Shareholders diversification of
strategy could investment risk by investing in a range of
result in lower geographical areas and a large number of assets.
income and capital
returns to Shareholders
* The Board will only invest in office and industrial
properties that are situated in the United Kingdom
and outside the M25 motorway. However, the Group may
invest in property portfolios in which up to 50% of
the properties (by market value) are situated within
the M25 motorway.
* No single property, in the ordinary course, is
expected to exceed 10% of the Group's Gross Asset
Value. However, the Board may, in exceptional
circumstances, consider a property having a value of
up to 20% of the Gross Asset Value at the time of
investment.
* No more than 20% of the Group's Gross Asset Value
shall be exposed to any single tenant or group
undertaking of that tenant.
* Speculative development (ie, properties under
construction, but excluding any refurbishment works,
which have not been pre-let) is prohibited.
* Development, other than such speculative development,
is restricted to an aggregate maximum of 15% of the
Group's Gross Asset Value at the time of investment
or commencement of the development.
* The value of the assets is protected by active
property management and this is regularly reviewed
against the initial business plan for the
acquisition.
Tenant Risk
Cause Risk Mitigation
Type and concentration
of tenant could * The income risk has been diversified by letting
result in lower properties, where possible, to a large number of low
income risk tenants across a number of different business
sectors throughout the United Kingdom.
Economic and Political Risk
Cause Risk Mitigation
The macro health
of the UK economy * The Board has instigated a policy of hedging any
will impact on variable interest rate borrowings.
borrowing costs,
demand by tenants
for suitable * The anticipated requirement for suitable tenants and
property and the quality of the tenant is managed by the
the quality of experienced asset management team who maintain close
the tenants relationships with our current tenants and with
prospective tenants.
* The Board receives advice on macro-economic risks
from the Investment Manager and other advisors and
will act accordingly.
Financial and Tax Change Risk
Cause Risk Mitigation
Changes to the
UK tax regime * The REIT regime, tax and financial legislative
and financial changes may have an adverse impact on the Group. The
legislation Board receives advice on these changes where
appropriate and will act accordingly.
Operational Risk
Cause Risk Mitigation
Business disruption
* The Asset Manager and Investment Manager have
contingency plans in place to ensure there are no
disruptions to its core infrastructure which would
impinge on the normal operations of the Group.
* An annual due diligence exercise is carried out on
all principal vendors.
Accounting, Legal and Regulatory Risk
Cause Risk Mitigation
Changes to the
accounting, legal * The Group has robust processes in place to ensure
and regulatory adherence to accounting, tax, legal and regulatory
legislation requirements.
* All contracts are reviewed by the Group's legal
advisors.
* The Group has processes in place to ensure compliance
with the applicable Listing Rules for a Premium
Listed company. The Administrator, in its capacity as
Group Accountant, and the Company Secretary attends
all Board meetings to be aware of all announcements
that need to be made.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Directors'
Report and the financial statements in accordance with applicable
law and regulations.
Guernsey company law requires the Directors to prepare group and
company financial statements for each financial year in accordance
with generally accepted accounting principles. The Directors are
required under the Listing Rules of the Financial Conduct Authority
to prepare group financial statements in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union ("EU") and have elected under Guernsey company
law to prepare the Company's financial statements in accordance
with IFRS as adopted by the EU.
The financial statements are required by law to give a true and
fair view of the state of the Group's and the Company's affairs at
the end of the financial period and of the profit or loss of the
Group and the company for that period and are required by IFRS
adopted by the EU to present fairly the financial position of the
Group and the Company and the financial performance of the Group
and the Company.
In preparing the Group and the Company financial statements, the
Directors should:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with IFRSs adopted by the EU; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and the
company will continue in business.
The Directors are responsible for keeping accounting records
which are sufficient to show and explain the Group's and the
Company's transactions and are such as to disclose with reasonable
accuracy at any time the financial position of the Group and the
company and enable them to ensure that the financial statements
comply with the requirements of The Companies (Guernsey) Law 2008
and, as regards the Group financial statements, Article 4 of the
IAS Regulation. They are also responsible for safeguarding the
assets of the Group and the Company and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Regional
REIT Limited website.
Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Responsibility Statement of the Directors in respect of the
Consolidated Annual Report
Each of the Directors, whose names and functions are listed in
the Annual Report confirm that to the best of each person's
knowledge:
-- The financial statements, prepared in accordance with the
applicable set of accounting standards (as detailed above) and the
Companies Law, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the issuer
and the undertakings included in the consolidation taken as a
whole;
-- The management report includes a fair review of the
development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as
a whole, together with a description of the principle risks and
uncertainties they face; and
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-- The annual report and accounts as a whole, is fair balanced
and understandable and provides the information necessary for
Shareholders to assess the Group's performance, business model and
strategy.
For and on behalf of the Board
Kevin McGrath
Chairman
18 April 2016
Statement of Comprehensive Income
For the period from 22 June 2015 to 31 December 2015
Regional REIT Limited was incorporated on 22 June 2015 but did
not begin trading until 6 November 2015 when an acquisition was
completed and the shares were admitted to trading on the Premium
segment of the London Stock Exchange.
Group Company
22 June
2015
22 June to
2015 to 31
31 December December
2015 2015
Continuing
operations Notes GBP GBP
Revenue
Rental income 5 5,361,420 -
Non recoverable property
costs 6 (753,607) -
Net rental
income 4,607,813 -
Administrative and
other expenses 7 (1,353,183) (699,866)
Operating profit/(loss) before gains and losses
on property assets & other investments 3,254,630 (699,866)
Gain on the disposal of
investment properties 15 86,865 -
Change in fair value of
investment properties 15 23,784,070 -
Operating profit/(loss) before exceptional
items 27,125,565 (699,866)
Exceptional
items 9 (5,296,368) (5,296,368)
Operating profit/(loss) after exceptional
items 21,829,197 (5,996,234)
Finance income 10 176,648 5,150,000
Finance expense 11 (996,710) -
Net movement in fair value of derivative
financial instruments 25 114,888 -
Profit/(loss) before
tax 21,124,023 (846,234)
Income tax
expense 12 - -
Profit/(loss) for the period after tax (attributable
to equity shareholders) 21,124,023 (846,234)
============= ============
Other comprehensive
income - -
Total comprehensive income/(loss) for the
period 21,124,023 (846,234)
============= ============
Attributable
to:
-Owners of
the parent 21,124,023 (846,234)
-Non-controlling
interests - -
21,124,023 (846,234)
============= ============
The total comprehensive income arises from
continuing operations
Earnings/(losses) per share (pps) to owners
of the parent - basic and diluted 13 7.7p (0.3)p
EPRA earnings/(losses) per share (pps) to
owners of the parent- basic and diluted 13 (1.1)p (0.3)p
The notes below are an integral part of these consolidated
financial statements.
Statement of Financial Position
As at 31 December 2015
Regional REIT Limited was incorporated on 22 June 2015 but did
not begin trading until 6 November 2015 when an acquisition was
completed and the shares were admitted to trading on the Premium
segment of the London Stock Exchange.
Group Company
31 December 31 December
2015 2015
Assets Notes GBP GBP
Non-current
assets
Investment
properties 15 403,702,500 -
Investment in subsidiaries 16 - 274,217,264
Goodwill 17 2,785,758 -
Non current
receivable 18 1,004,000 -
407,492,258 274,217,264
Current assets
Trade and other receivables 19 11,848,352 3,333
Cash and cash equivalents 20 23,954,492 18,362
35,802,844 21,695
Total assets 443,295,102 274,238,959
-------------- ------------
Liabilities
Current liabilities
Trade and other payables 21 (12,575,818) (867,929)
Deferred income 22 (5,906,387) -
Taxation 23 (2,387,388) -
Bank and loan borrowings
- current 24 (200,000) -
Derivative financial
instruments 25 (415,527) -
(21,485,120) (867,929)
Non-current
liabilities
Bank and loan borrowings
- non current 24 (126,468,695) -
(126,468,695) -
Total liabilities (147,953,815) (867,929)
-------------- ------------
Net assets 295,341,287 273,371,030
============== ============
Equity
Share capital 28 - -
Share premium 28 274,217,264 274,217,264
Retained earnings/(accumulated
losses) 21,124,023 (846,234)
Total equity 295,341,287 273,371,030
============== ============
Net assets per share
(pps) 29 107.7p 99.7p
EPRA net assets per share
(pps) 29 107.8p 99.7p
The financial statements were authorised for issue by the Board
of Directors on 18 April 2016 and were signed on its behalf by:
Kevin McGrath
Chairman
18 April 2016
The notes below are an integral part of these consolidated
financial statements.
Statement of Changes in Equity
For the period from 22 June 2015 to 31 December 2015
Regional REIT Limited was incorporated on 22 June 2015 but did
not begin trading until 6 November 2015 when an acquisition was
completed and the shares were admitted to trading on the Premium
segment of the London Stock Exchange.
Attributable to owners of the parent
--------------------------------------------------------------------
Share capital Share premium Retained Total
Earnings
GBP GBP GBP GBP
Group
Balance at 22 June
2015 - - - -
Issue of Shares at
no par value - 274,217,264 - 274,217,264
Total transactions
with owners , recognised
directly in equity - 274,217,264 - 274,217,264
Total comprehensive
income - - 21,124,023 21,124,023
Balance at 31 December
2015 - 274,217,264 21,124,023 295,341,287
------------------- ----------------- ------------- -------------
Share capital Share premium Accumulated Total
Losses
GBP GBP GBP GBP
Company
Issue of Shares at
no par value - 274,217,264 - 274,217,264
Total transactions
with owners recognised
directly in equity - 274,217,264 - 274,217,264
Total comprehensive
income - - (846,234) (846,234)
Balance at 31 December
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2015 - 274,217,264 (846,234) 273,371,030
------------------- ----------------- ------------- -------------
The issued share capital consists of 274,217,264 Ordinary shares
issued at a premium of 100 pence each. These shares have no par
value.
The notes below are an integral part of these consolidated
financial statement
Statement of Cash Flows
For the period from 22 June 2015 to 31 December 2015
Regional REIT Limited was incorporated on 22 June 2015 but did
not begin trading until 6 November 2015 when an acquisition was
completed and the shares were admitted to trading on the Premium
segment of the London Stock Exchange.
Group Company
22 June 22 June
2015 to 2015 to
31 December 31 December
2015 2015
GBP GBP
Cash flows from operating activities
Profit/(loss) for the period before taxation 21,124,023 (846,234)
- Change in fair value of investment
properties (23,784,070) -
- Change in fair value of financial derivative
instruments (114,888) -
- profit on disposal of investment properties (86,865) -
Finance income (176,648) -
Finance expense 996,710 -
Increase in trade and other receivables (5,358,066) (3,333)
Increase in VAT and other taxes payable 359,679 -
Increase in trade, other payables & deferred
income 4,807,715 867,929
-------------
Cash (used in) / generated from operations (2,232,410) 18,362
Financial income 246,875 -
Finance costs (670,746) -
Net cash flow (used in) / generated from
operating activities (2,656,281) 18,362
------------- -------------
Investing activities
Purchase of investment properties (4,190,680) -
Sale of investment properties 5,347,520 -
Interest received 12,530 -
Acquisition of subsidiaries, net of cash
acquired - Note 16 26,658,785 -
Net cash flow from investing activities 27,828,155 -
------------- -------------
Financing activities
Bank borrowings repaid (1,217,382) -
Net cash flow (used in) financing activities (1,217,382) -
------------- -------------
Net increase in cash and cash equivalents
for the period 23,954,492 18,362
Cash and cash equivalents at the start
of the period - -
Cash and cash equivalents at the end
of the period 23,954,492 18,362
------------- -------------
The notes below are an integral part of these consolidated
financial statements.
Notes to the Financial Statements
For the period from 22 June 2015 to 31 December 2015
Regional REIT Limited was incorporated on 22 June 2015 but did
not begin trading until 6 November 2015 when an acquisition was
completed and the shares were admitted to trading on the Premium
segment of the London Stock Exchange.
1. Corporate information
The consolidated financial statements of the Group for the
period from 22 June 2015 to 31 December 2015 comprise the results
of the Company and its subsidiaries (together constituting "the
Group") and were approved by the Board and authorised for issue on
18 April 2016. Regional REIT Limited ("the Company") is a company
limited by shares incorporated in Guernsey under The Companies
(Guernsey) Law, 2008, as amended. The Company's Ordinary Shares are
admitted to the Official List of the UK Listing Authority ("UKLA"),
a division of the Financial Conduct Authority ("FCA"), and traded
on the London Stock Exchange ("LSE").
Regional REIT Limited 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 RCIS Rules.
Regional REIT Limited did not begin trading until 6 November
2015 when the shares were admitted to trading on the London Stock
Exchange.
The nature of the Group's operations and its principal
activities are set out in the Chairman's Statement above.
The address of the registered office is: Mont Crevelt House
Bulwer Avenue St. Sampson Guernsey, GY2 4LH.
Accounting policies
2. Basis of preparation
In accordance with Section 244 of The Companies (Guernsey) Law
2008, the Group confirms that the financial information for the
period ended 31 December 2015 are derived from the Group's audited
financial statements and that these are not statutory accounts and,
as such, do not contain all information required to be disclosed in
the financial statements prepared in accordance with International
Financial Reporting Standards ("IFRS").
The statutory accounts for the period ended 31 December 2015
have been audited and approved, but have not yet been filed.
The Group's audited financial statements for the period ended 31
December 2015 received an unqualified audit opinion and the
auditor's report contained no statement under section 263(2) or
263(3) of The Companies (Guernsey) Law 2008
The financial information contained within this preliminary
statement was approved and authorised for issue by the Board on 18
April 2016.
These are the Group's first financial statement since
incorporation. Consequently, there are no comparatives for a
previous period.
2.1 Functional and presentation currency
The consolidated financial statements are presented in Pounds
Sterling, which is also the Group's functional currency, and all
values are rounded to the nearest pound, except where otherwise
indicated.
2.2 Going concern
The Directors have carefully reviewed areas of potential
financial risk and have reviewed cash flow forecasts. No material
uncertainties have been detected which would influence the Group or
the Company's ability to continue as a going concern for a period
of not less than 12 months. The Directors have satisfied themselves
that the Group and the Company have adequate financial resources to
continue in operational existence for the foreseeable future.
Accordingly, the Board of Directors considers that it is
appropriate to prepare the Group and Company financial statements
on a going concern basis.
2.3 Business combinations
The Group acquires subsidiaries that own investment properties.
At the time of acquisition, the Group considers whether each
acquisition represents the acquisition of a business or the
acquisition of an asset. The Group accounts for an acquisition as a
business combination where an integrated set of activities is
acquired in addition to the property.
Where such acquisitions are not judged to be the acquisition of
a business, they are not treated as business combinations. Rather,
the cost to acquire the corporate entity is allocated between the
identifiable assets and liabilities of the entity based upon their
relative fair values at the acquisition date. Accordingly, no
goodwill or additional deferred tax arises.
2.4 New standards and interpretations
These are the first financial statements presented by the Group
and, therefore, all relevant standards have been adopted with
immediate effect.
2.5 New standards, amendments and interpretations effective
after 1 January 2016 and have not been early adopted by the
Group
A number of new standards, amendments to standards and
interpretations are effective for annual periods beginning after 1
January 2016, and have not been applied in preparing these
financial statements. These are:
IFRS 9, 'Financial Instruments', effective for annual periods
beginning on or after 1 January 2018 addresses the classification,
measurement and recognition of financial assets and financial
liabilities. IFRS 9 was issued in November 2009 and October 2010.
It replaces the parts of IAS 39 that relate to the classification
and measurement of financial instruments. IFRS 9 requires financial
assets to be classified into two measurement categories: those
measured as at fair value and those measured at amortised cost. The
determination is made at initial recognition. The classification
depends on the entity's business model for managing its financial
instruments and the contractual cash flow characteristics of the
instrument. For financial liabilities, the standard retains most of
the IAS 39 requirements. The main change is that, in cases where
the fair value option is taken for financial liabilities, the part
of a fair value change due to an entity's own credit risk is
recorded in other comprehensive income rather than the income
statement, unless this creates an accounting mismatch. The Group is
yet to assess IFRS 9's full impact and intends to adopt IFRS 9 no
later than the accounting period beginning on or after 1 January
2018.
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IFRS 15, 'Revenue from contracts with customers', is effective
for accounting periods beginning on or after 1 January 2018. IFRS
15 provides a single, principles based five-step model to be
applied to all contracts with customers.
The five steps in the model are as follows:
-- Identify the contract with the customer
-- Identify the performance obligations in the contract
-- Determine the transaction price
-- Allocate the transaction price to the performance obligations
in the contracts
-- Recognise revenue when (or as) the entity satisfies a
performance obligation
The Group has yet to asses IFRS 15's full impact and intends to
adopt IFRS 15 no later than the accounting period beginning on or
after 1 January 2018.
3. Significant accounting judgements, estimates and
assumptions
The preparation of the Group's 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 of GBP403,702,500 at the reporting date, is determined, by
independent property valuation experts to be the estimated amount
for which a property should exchange on the date of the valuation
in an arm's length transaction. Properties have been valued on an
individual basis. The valuation experts use recognised valuation
techniques applying the principles of both IAS 40 and IFRS 13.
The valuations have been prepared in accordance with the Royal
Institution of Chartered Surveyors ("RICS") Valuation -
Professional Standards January 2014 ("the Red Book"). 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 15.
3.1.2 Fair valuation of interest rate derivatives
In accordance with IAS 39, the Group values its interest rate
derivatives at fair value. The fair values are estimated by the
loan counterparty with revaluation occurring on a quarterly basis.
The counter parties will use a number of assumptions in determining
the fair values including estimations over future interest rates
and therefore future cash flows. The fair value represents the net
present value of the difference between the cash flows produced by
the contracted rate and the valuation rate. The carrying value of
the derivatives at the reporting date was GBP415,527.
3.1.3 Estimated impairment of goodwill
The Group tests annually whether goodwill has suffered any
impairment, in accordance with the accounting policy stated in note
4.5. 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 GBP2,785,758
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 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 Application of acquisition accounting to the transaction
which took place on 6 November 2015.
The Directors have considered the accounting treatment of the
acquisition on 6 November 2015 by Regional REIT Limited, and its
subsidiary Regional Commercial MidCo Limited ("MidCo") of the
issued share capital of 75 special purpose vehicles ("SPVs") and
the application of IFRS 3, 'Business Combinations', and IFRS 10,
'Consolidated Financial Statements'.
Taking these reporting standards into consideration the
Directors have concluded that the consolidated financial statements
should be prepared on the acquisition accounting basis. In the
consolidated accounts, all the assets and liabilities of the Group
are shown as analysed on a line by line basis with the activities
of the subsidiaries being consolidated from the acquisition date of
6 November 2015. A description of the transaction is outlined
below:
-- The general partners of the four Limited Partnership Funds
(Tosca Commercial Property Fund LP, Tosca Commercial II, Tosca UK
Commercial Property II LP and TUKCLP Jersey LP) transferred their
assets to MidCo, a Jersey incorporated and tax resident company,
(see note 16 for a breakdown of assets transferred). In
consideration for the transfer, MidCo issued 274,217,260 ordinary
shares at a price of 100 pence each to the general partners of the
Funds, in proportion to their respective interests in the assets
(the "First Issue") per share. The General Partners of the Funds
already held one share each in the capital of MidCo which, together
with the shares issued pursuant to the First Issue, comprise the
"MidCo Shares".
-- After completion of the First Issue, the General Partners of
the Funds transferred the MidCo Shares to the Company. In
consideration for such transfer, the Company issued 274,217,260
Ordinary Shares ("the Consideration Shares") to the general
partners of the Funds, in proportion to their respective interests
in the MidCo Shares (the "Second Issue").
-- Upon completion of the Second Issue, each of the Funds was
terminated in accordance with the terms of their respective limited
partnership agreements. Upon such termination, the General Partners
of the Funds (as liquidating trustees) distributed the
Consideration Shares to the investors in the Funds, in proportion
to such investors' respective interests in the assets of those
Funds.
-- Immediately after and conditional upon completion of the
Second Issue, the Asset Management Agreement and the Investment
Management Agreement took effect in accordance with their
terms.
The reason for the adoption of acquisition accounting was that
the four Limited Partnership funds referred to above were
previously under the control of Toscafund Asset Management LLP
("Toscafund") but control was relinquished on the listing of the
Company's shares when the roles previously undertaken by Toscafund
came to an end. Toscafund's control arose by virtue of its equity
holdings, its role as general partner, and its contractual rights
and obligations.
3.3 Consolidation of entities in which the Group holds less than
50%
Management considers the Group has de facto control of
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. Under this option the
Group may acquire any of the properties held by the Credential
Group for a nominal consideration. Despite having no equity holding
the Group controls the Credential Group as the option agreement
means that the Group is exposed to, and has rights to, variable
returns from its involvement with the Credential Group through its
power to control. The Credential Sub group has a deficiency of
shareholders' funds and for this reason the non-controlling
interest in the Group's results for the year and in the net assets
of the Group are nil. There is no recourse to the non-controlling
interest.
4. Summary of significant accounting policies
4.1. Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and its subsidiaries, as at the date of
the Statement of Financial Position.
4.2 Subsidiaries
Subsidiaries are all entities (including structured entities)
over which the Group has control. The Group controls an entity when
the Group is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group. They are deconsolidated from the date that control
ceases.
The Group applies the acquisition method to account for business
combinations. The consideration transferred for the acquisition of
a subsidiary is the fair values of the assets transferred, the
liabilities incurred to the former owners of the acquiree and the
equity interests issued by the Group. The consideration transferred
includes the fair value of any asset or liability resulting from a
contingent consideration arrangement. Identifiable assets and
liabilities acquired and contingent liabilities assumed in a
business combination are measured initially at their fair values at
the acquisition date. The Group recognises any non-controlling
interest in the acquiree on an acquisition-by-acquisition basis,
either at fair value or at the non-controlling interest's
proportionate share of the recognised amounts of acquiree's
identifiable net assets. Acquisition-related costs are expensed as
incurred.
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Any contingent consideration to be transferred by the Group is
recognised at fair value at the acquisition date. Subsequent
changes to the fair value of the contingent consideration that is
deemed to be an asset or liability is recognised in accordance with
IAS 39 either in profit or loss or as a change to Other
Comprehensive Income. Contingent consideration that is classified
as equity is not re-measured, and its subsequent settlement is
accounted for within equity.
For acquisitions of subsidiaries not meeting the definition of a
business, the Group allocates the cost between the individual
identifiable assets and liabilities in the Group based on their
relative fair values at the date of acquisition. Such transactions
or events do not give rise to goodwill.
Inter-company transactions, balances and unrealised gains and
losses on transactions between Group companies are eliminated in
full. When necessary, amounts reported by subsidiaries have been
adjusted to conform with the Groups accounting policies.
The excess of the consideration transferred, and the amount of
any non-controlling interest in the acquiree over the fair value of
the identifiable net assets acquired is recognised as goodwill.
At Company level, the investments in subsidiary companies are
included in the Statement of Financial Position at cost less
impairment.
4.2.1. Disposal of subsidiaries
When the Group ceases to have control over an entity any
retained interest in the entity is re-measured to its fair value at
the date when control is lost, with the change in carrying amount
recognised in profit or loss. The fair value is the initial
carrying amount for the purposes of subsequently accounting for the
retained interest as an associate, joint venture or financial
asset. In addition, any amounts previously recognised in other
comprehensive income in respect of that entity are accounted for as
if the Group had directly disposed of the related assets or
liabilities. This may mean that amounts previously recognised in
other comprehensive income are reclassified to profit or loss.
4.3. Segmental information
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker is the person or group that
allocates resources to and assesses the performance of the
operating segments of an entity. The Group has determined that its
chief operating decision-maker is the Asset Manager, London &
Scottish Investments Limited.
4.4. Investment property
Investment property comprises freehold or leasehold property
that is held to earn rentals or for capital appreciation, or both.
rather than for sale in the ordinary course of business or for use
in production or administrative functions.
Investment property is recognised, usually on legal completion,
when the risks and rewards of ownership have been transferred and
is measured initially at cost including transaction costs.
Transaction costs include transfer taxes, professional fees for
legal services and other costs incurred in order to bring the
property to the condition necessary for it to be capable of being
utilised in the manner intended. Subsequent to initial recognition,
investment property is stated at fair value. Gains or losses
arising from changes in the fair values are included in the Group
Statement of Comprehensive Income in the period in which they arise
under IAS 40, 'Investment Property'.
Additions to investment property include costs of a capital
nature only. Expenditure is classified as capital when it results
in identifiable future economic benefits, which are expected to
accrue to the Group. All other property expenditure is charged in
the Group Statement of Comprehensive Income as incurred.
Investment properties cease to be recognised when they have been
disposed of or withdrawn permanently from use and no future
economic benefit is expected. The difference between the net
disposal proceeds and the carrying amount of the asset would result
in either gains or losses at the retirement or disposal of
investment property. Any gains or losses are recognised in the
Group's Statement of Comprehensive Income in the period of
retirement or disposal.
4.5. Goodwill
Goodwill arises on the acquisition of subsidiaries and
represents the excess of the consideration transferred over the
Group's interest in the fair value of the net identifiable assets,
liabilities and contingent liabilities of the acquiree and the fair
value of the non-controlling interest of the acquiree.
For the purpose of impairment testing, goodwill acquired in a
business combination is allocated to each of the subsidiaries, or
groups of subsidiaries, that is expected to benefit from the
synergies of the combination. Each subsidiary or group of
subsidiaries, to which the goodwill is allocated, represents the
lowest level within the entity at which the goodwill is monitored
for internal management purposes. Goodwill is monitored at the
operating segment level.
Goodwill impairment reviews are undertaken annually or more
frequently if events or changes in circumstances indicate a
potential impairment. The carrying value of goodwill is compared to
the recoverable amount, which is the higher of value in use and the
fair value less costs of disposal. Any impairment is recognised
immediately as an expense and is not subsequently reversed.
4.6. Derivative financial instruments
Derivative financial instruments, comprising interest rate caps
and swaps for hedging purposes, are initially recognised at fair
value at acquisition and are subsequently measured at fair value
being the estimated amount that the Group would receive or pay to
terminate the agreement at the period end date, taking into account
current interest rate expectations and the current credit rating of
the lender and its counterparties. The gain or loss at each fair
value remeasurement date is recognised in the Group's Statement of
Comprehensive Income. Premiums payable under such arrangements are
initially capitalised into the Group's Statement of Financial
Position, subsequently they are remeasured and held at their fair
values.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data is available to measure
fair value, maximising the use of relevant observable inputs and
minimising the use of unobservable inputs significant to the fair
value measurement as a whole.
4.7 Financial assets
The Group classifies its financial assets at initial recognition
either as at fair value through profit or loss or loans and
receivables. The Group has no available for sale financial assets
or assets at fair value through profit or loss.
Loans and receivables are non-derivative financial assets with
fixed or determinate payments that are not quoted in an active
market. They are included in current assets, except for maturities
of greater than twelve months from the end of the reporting
period.
The Group's loans and receivables comprise 'trade and other
receivables' and 'cash and cash equivalents'.
4.8. Trade and other receivables
Trade and other receivables are recognised initially at fair
value, being carried at the lower of their original invoiced value
and recoverable amount. Where the time value of money is material,
receivables are carried at amortised cost using the effective
interest method. A provision for impairment is made when there is
objective evidence that the Group will not be able to recover
balances in full. Balances are written-off when identified. Lease
premiums and other lease incentives provided to tenants are
recognised as an asset and amortised over the period from date of
lease commencement to termination date.
4.9. Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held
at banks with original maturities of three months or less. Cash
also includes amounts held in restricted accounts that are
unavailable for everyday use.
4.10. Trade payables
Trade payables are initially recognised at their fair value;
being at their invoiced value inclusive of any VAT that may be
applicable. Payables are subsequently measured at amortised cost
using the effective interest method.
4.11. Bank and other borrowings
All bank and other borrowings are initially recognised at cost
net of attributable transaction costs. Any attributable transaction
costs relating to the issue of the bank borrowings are amortised
through the Group Statement of Comprehensive Income over the life
of the debt instrument on a straight-line basis. After initial
recognition, all bank and other borrowings are measured at
amortised cost, using the effective interest method.
4.12. Dividends payable to Shareholders
Equity dividends are recognised when they become legally
payable. Interim equity dividends are recognised when paid. Final
equity dividends are recognised when approved by the Shareholders
at an annual general meeting.
4.13 Rental income
Rental income arising from operating leases on investment
property is accounted for on a straight-line basis over the lease
terms and is included in gross rental income in the Group's
Statement of Comprehensive Income. Initial direct costs incurred in
negotiating and arranging an operating lease are recognised as an
expense over the lease term on the same basis as the lease
income.
For leases which contain fixed or minimum uplifts, the rental
income arising from such uplifts is recognised on a straight-line
basis over the lease term.
Tenant lease incentives are recognised as a reduction of rental
revenue on a straight-line basis over the term of the lease. The
lease term is the non-cancellable period of the lease together with
any further term for which the tenant has the option to continue
the lease where, at the inception of the lease, the Directors are
reasonably certain that the tenant will exercise that option.
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Surrender premiums received from tenants to terminate leases or
surrender premises are recognised in the Group's Statement of
Comprehensive Income when the right to receive them arises.
When the Group is acting as an agent, the commission, rather
than gross income, is recorded as revenue.
4.14 Non recoverable property costs - service and management
charges
Service and management charges are recognised in the accounting
period in which the services are rendered.
4.15 Exceptional items
Exceptional items are those items of an income or expense of a
non-recurring nature which are shown separately in the Consolidated
Statement of Comprehensive Income by virtue of their nature, size
or incidence.
4.16. Interest income
Interest income is recognised as interest accrues on cash
balances held by the Group. Interest charged to a tenant on any
overdue rental income is also recognised within interest
income.
4.17. Dividend income
Dividend income is recognised when the right to receive payment
is established.
4.18. Finance costs
Any finance costs that are separately identifiable and directly
attributable to the acquisition or construction of an asset that
takes a period of time to complete are capitalised as part of the
cost of the asset. All other finance costs are expensed in the
period in which they occur. Finance costs consist of interest and
other costs that an entity incurs in connection with bank and other
borrowings.
4.19. Taxation
As Regional REIT Limited is managed and controlled in the UK, it
is considered to be tax resident in the UK.
The tax currently payable is based on the taxable profit for the
period. Taxable profit differs from net profit as reported in the
income statement because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The Group's
liability for current and deferred tax is calculated using tax
rates that have been enacted or substantively enacted at the
Statement of Financial Position date.
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.
4.20. Deferred tax
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit The amount of deferred tax
provided is based on the expected manner of realisation or
settlement of the carrying amount of assets and liabilities, using
tax rates that are expected to apply in the period when the
liability is settled or the asset is realised. A deferred tax asset
is recognised only to the extent that it is probable that future
profits will be available for offset.
Reductions in UK Corporation tax have been enacted, reducing the
rate to 19% with effect from 1 April 2017 and 18% with effect from
1 April 2020. It has further been announced, but not yet enacted,
that the rate will be reduced to 17% from 1 April 2020.
4.21. Share capital
Ordinary shares are classed as equity.
4.22. Share based payments
The Group has entered into performance fee arrangements with the
Asset Manager and the Investment Manager which depend on the growth
in the net asset value of the Group exceeding a hurdle rate of
return over a period of time. The fee will be partly settled in
cash and partly in equity, and the equity portion is therefore a
cash settled share-based payment arrangement. The fair value of the
obligation is measured at each reporting, and the cost recognised
as an expense. The part of the obligation to be settled in shares
is credited to equity.
5. Rental income
Group Company
22 June 22 June
2015 to 2015 to
31 December 31 December
2015 2015
GBP GBP
Rental Income-freehold property 4,500,266 -
Rental Income-long term leasehold
property 861,154 -
Gross rental income 5,361,420 -
---------------------------------- ------------- -------------
6. Non-recoverable property costs
Group Company
22 June 22 June
2015 to 2015 to
31 December 31 December
2015 2015
GBP GBP
Property insurance expense 37,599 -
Other property expenses and irrecoverable
costs 716,008 -
Non recoverable property costs 753,607 -
------------------------------------------ ------------- -------------
7. Administrative and other expenses
Group Company
22 June 2015 22 June 2015
to to
31 December 31 December
2015 2015
GBP GBP
Investment management fees 263,542 218,104
Property management fees 202,979 -
Asset management fees 231,727 -
Directors' remuneration (see below) 48,365 48,365
Administration fees 118,341 33,726
Legal & professional fees 389,641 288,372
Marketing & promotion 14,940 14,940
Other administrative costs 82,164 96,299
Bank charges 1,484 60
Total 1,353,183 699,866
============= =============
The number of persons employed by the Group and Company in the
period was 5, being the Directors, whose remuneration is set out in
note 8.
Services provided by the Company's auditor and its
associates
The Group has obtained the following services from the Company's
auditor and its associates:
Group
-------------------------------------------------- ----------------
22 June 2015
to 31 December
2015
-------------------------------------------------- ----------------
GBP
-------------------------------------------------- ----------------
Fee for the audit of the consolidated
and parent company financial statements 86,500
-------------------------------------------------- ----------------
Fees payable to the Company's auditor
and its associates for other services
-------------------------------------------------- ----------------
Fee for the audit of the subsidiaries
for their respective periods of account
ended 31 December 2015 105,000
-------------------------------------------------- ----------------
Corporate finance services in connection
with the flotation 250,255
-------------------------------------------------- ----------------
Tax compliance services provided to subsidiaries 69,000
-------------------------------------------------- ----------------
Total 511,255
-------------------------------------------------- ----------------
8. Key management compensation
Group Company
22 June 22 June
2015 to 2015 to
31 December 31 December
2015 2015
GBP GBP
Directors' fees 42,500 42,500
Employers National Insurance 5,865 5,865
48,365 48,365
------------------------------ ------------- -------------
Key management comprises the Directors of the Company. The
Directors were paid a full quarter's fee, from 1 October 2015,
because they were involved in the listing process of the
Company.
A summary of the Directors' emoluments, is set out in the
Directors' Remuneration Report in the Annual Report and
Accounts.
9. Exceptional items
Exceptional items are those items which are of a non-recurring
nature and, in the judgement of the Directors, need to be disclosed
separately by virtue of their nature, size or incidence.
Exceptional items comprise the professional fees and regulatory
costs associated with the acquisition and the listing of the shares
on the London Stock Exchange.
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10. Finance income
Group Company
22 June 2015 22 June 2015
to to
31 December 31 December
2015 2015
GBP GBP
Group dividend income - 5,150,000
Interest income 12,530 -
Other finance income 99,243 -
Unwinding of discount on financial asset 64,875 -
-------------
Total finance income 176,648 5,150,000
------------------------------------------ ------------- -------------
11. Finance expense
Group Company
22 June 22 June
2015 to 2015 to
31 December 31 December
2015 2015
GBP GBP
Interest payable on bank borrowings 910,039 -
Amortisation of loan arrangement fees 86,671 -
------------- -------------
996,710 -
-------------------------------------- ------------- -------------
12. Income tax expense
Income tax expense in the Statement of
Comprehensive Income Group Company
22 June 22 June
2015 to 2015 to
31 December 31 December
2015 2015
GBP GBP
Income tax expense - -
============= =============
The current tax is reduced by the Real Estate Investment
Trust (REIT) exemptions.
The tax charge for the period can be reconciled to the profit/(loss)
in the Statement of Comprehensive Income as
follows:
Profit/(loss) before taxation 21,124,023 (846,234)
------------- -------------
UK Corporation tax rate for the period 20% 20%
Theoretical tax at UK Corporation tax
rate 4,224,804 (169,247)
------------- -------------
Effects of:
Revaluation gain on investment properties,
not taxable (4,756,814) -
Profits from the tax exempt business (359,049) -
Permanent differences 1,023,273 169,247
Utilisation of losses brought forward (132,214) -
Tax charge - -
============= =============
Reductions in the rate of UK Corporation Tax have been enacted,
reducing the rate to 19% with effect from 1 April 2017 and 18% with
effect from 1 April 2020. It has been further announced, but not
yet enacted, that the rate will be reduced to 17% from 1 April
2020. Deferred tax has been measured in accordance with the enacted
rates expected to apply to the period of reversal of temporary
differences.
13. Earnings/(losses) per share
Earnings/(losses) per share (EPS) amounts are calculated by
dividing profit/(losses) for the period attributable to ordinary
equity holders of the Company by the weighted average number of
Ordinary Shares in issue during the period. As there are no
dilutive instruments outstanding, basic and diluted
earnings/(losses) per share are identical.
The calculation of basic and diluted earnings per share is based
on the following:
Net profit Net profit
attributable attributable Weighted
to Ordinary to Ordinary average
Shareholders Shareholders number Earnings/(losses) Earnings/(losses)
before after of Ordinary per share before per share
exceptional exceptional Shares' exceptional after exceptional
items items Number item item
GBP GBP
Group
For the period
from
22 June 2015 to 31
December 2015
Net profit
attributable
to Ordinary
Shareholders 21,124,023 21,124,023
add back
Exceptional
items 5,296,368 -
-------------- --------------
Basic and diluted
earnings per share 26,420,391 21,124,023 274,217,264 9.6p 7.7p
Adjustment to
remove
Changes in value
of investment
properties (23,784,070) (23,784,070) - - -
Changes in fair
value
of interest rate
derivatives and
financial
asset (179,763) (179,763) - - -
Profit on disposal
of investment
property (86,865) (86,865) - - -
EPRA basic and
diluted
earnings/(losses)
per share 2,369,693 (2,926,675) 274,217,264 0.9p (1.1)p
-------------------- -------------- -------------- ------------- ------------------ ---------------------
Company
For the period
from
22 June 2015 to 31
December 2015
Net loss
attributable
to Ordinary
Shareholders (846,234) (846,234)
add back
Exceptional
items 5,296,368 -
-------------- --------------
Profit before
Exceptional
items 4,450,134 (846,234)
Basic and diluted
losses per share 4,450,134 (846,234) 274,217,264 1.6p (0.3)p
-------------------- -------------- -------------- ------------- ------------------ ---------------------
As described in note 9, there was an exceptional item for GBP5.296,368
during the period.
--------------------------------------------------------------------------------------------------------------
The earnings per share figures
before the exceptional items are
as follows: Group Company
Earnings/(losses) per share (pps) attributable to owners of
the parent- basic and diluted before exceptional item 9.6p 1.6p
EPRA earnings/(losses) per share (pps) to owners of the parent-
basic and diluted before exceptional item 0.9p 1.6p
As described in note 9, there was an exceptional item for
GBP5,296,368 during the period.
14. Dividends paid after the reporting date
Group Company
31 December 31 December
2015 2015
GBP GBP
Dividend of 1 pence per 274,217,264
Ordinary shares
------------ ------------
Total dividends 2,742,173 2,742,173
-------------------------------------
Total dividends per share 1.0p 1.0p
------------------------------------- ------------ ------------
The dividend was declared on 7 March 2016 and was paid on 15
April 2016. These financial statements do not reflect this
dividend.
15. Investment properties
In accordance with International Accounting Standard, IAS 40,
'Investment Property', investment property has been independently
valued at fair value by Cushman & Wakefield, Chartered
Surveyors, an accredited independent valuer with a recognised and
relevant professional qualification and with recent experience in
the locations and categories of the investment properties being
valued. The valuations have been prepared in accordance with the
RICS Valuation - Professional Standards (January 2014) ("the Red
Book") and incorporate the recommendations of the International
Valuation Standards Committee which are consistent with the
principles set out in IFRS 13.
The valuations are the ultimate responsibility of the Directors.
Accordingly, the critical assumptions used in establishing the
independent valuation are reviewed by the Board.
All corporate acquisitions during the period have been treated
as business combinations because they are considered to be
acquisitions of businesses, rather than properties purchased.
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Group only
Freehold Long Leasehold
Property Property Total
GBP GBP GBP
On acquisition of subsidiaries 319,540,681 61,447,724 380,988,405
Property additions 1,020,242 3,170,438 4,190,680
Property disposals (5,347,520) - (5,347,520)
Gain on the disposal of investment
properties 86,865 - 86,865
Change in fair value during the
period 16,752,232 7,031,838 23,784,070
------------------------------------
As at 31 December 2015 332,052,500 71,650,000 403,702,500
------------------------------------ ------------ --------------- ------------
The valuation summary is set out above in the Asset and
Investment Manager's Report.
The historic cost of the properties was GBP349,535,000.
Fair value hierarchy
The following table provides the fair value measurement
hierarchy for investment property:
Quoted
active Significant Significant
prices observable unobservable
(level inputs (level inputs (level
Date of valuation Total 1) 2) 3)
GBP GBP GBP GBP
Assets measured
at fair value:
-------------------
31 December
Investment properties 2015 403,702,500 - 403,702,500 -
----------------------- ------------------- ------------ -------- --------------- ---------------
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 assets (such as lettings, tenants'
profiles, future revenue streams, capital values of fixtures and
fittings, plant and machinery, 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 ("ERV")
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.
Volatility in the global financial system is reflected in
commercial real estate markets. In arriving at their estimates of
market values as at 31 December 2015, valuers used their market
knowledge and professional judgement and did not rely solely on
historical transactional comparables. In these circumstances, there
was a greater degree of uncertainty in estimating the market values
of investments than would exist in a more active 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: Passing rent
The rent at which space could be let in the market conditions
prevailing at the date of valuation (range: GBP1 - GBP1,350,000 per
annum)
Observable Input: Rental growth
The estimated average increase in rent is based on both market
estimations and contractual agreements.
Observable Input: net initial yield
The initial Net Income from a property at the date of purchase,
expressed as a percentage of the gross purchase price including the
costs of purchase (range:1.84% - 23.05%)
Sensitivities of measurement if significant observable
inputs
As set out within significant accounting estimates and judgement
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.
As a result, the following sensitivity analysis has been
prepared:
Net rent Nominal equivalent
yield
------------------------------- ---------- --------------------------
Variation in input measures -5% +5% -5% +5%
GBP GBP GBP GBP
Effect on income statement (1,663,929) 1,663,929 (13,739,000) 14,056,000
------------------------------- ---------- ------------- -----------
A reconciliation of the valuation carried out by the external
valuers to the carrying amount in the Statement of Financial
Position is as follows:
Group Company
31 December 31 December
2015 2015
GBP GBP
As set out in Cushman & Wakefield's valuation
report 405,422,500 -
Adjustment in respect of Blythswood House
disposal post year end (1,720,000) -
As shown in the Statement of Financial
Position 403,702,500 -
---------------------------------------------- ------------ ------------
The adjustment reflects a value determined in a sales
transaction shortly after the period end.
16. Investment in subsidiaries
Company only
31 December
2015
GBP
As at 22 June 2015 -
Acquisition of subsidiaries during the period 274,217,264
As at 31 December 2015 274,217,264
------------------------------------------------ ------------
Investment in subsidiaries is recorded at cost, which is the
fair value of the consideration paid.
16.1 Subsidiary companies
List of subsidiaries that are 100% owned
and controlled by the Group
Country of incorporation Ownership %
---------------------------------- -------------------------- ------------
Tosca Rosalind Ltd Jersey 100%
Tosca Chandlers Ford Limited Jersey 100%
Tosca Churchill Way Limited Jersey 100%
Tosca Faraday Close Limited Jersey 100%
Tosca Garnet Limited Jersey 100%
Tosca Midlands Limited Jersey 100%
Tosca North East Limited Jersey 100%
Tosca North West Limited Jersey 100%
Tosca Scotland Limited Jersey 100%
Tosca South East Limited Jersey 100%
Tosca South West Limited Jersey 100%
Tosca Swansea Limited Jersey 100%
Tosca Thorpe Park Limited Jersey 100%
Tosca Victory House Limited Jersey 100%
Tosca Winsford Limited Jersey 100%
Toscafund Blythswood Ltd Jersey 100%
Toscafund Chancellor Court
Ltd Jersey 100%
Toscafund Milburn House Ltd Jersey 100%
Toscafund Minton Place Limited Jersey 100%
Toscafund Sheldon Court Limited Jersey 100%
Toscafund St James Court Limited Jersey 100%
Toscafund Westminster House
Limited Jersey 100%
Toscafund Portland Street
Ltd Jersey 100%
Toscafund Bishopgate Street
Limited Jersey 100%
Toscafund Wallington Limited Jersey 100%
Toscafund Bennett House Limited Jersey 100%
Toscafund Brand Street Limited Jersey 100%
Toscafund Crompton Way Limited Jersey 100%
Toscafund Espedair Limited Jersey 100%
Toscafund Harvest Limited Jersey 100%
Toscafund St Georges House
Limited Jersey 100%
Toscafund Newstead Court Limited Jersey 100%
Toscafund Fairfax House Limited Jersey 100%
Toscafund South Gyle Limited Jersey 100%
Toscafund North Esplanade
Limited Jersey 100%
Toscafund Welton Road Limited Jersey 100%
Tay Properties Ltd Jersey 100%
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Blythswood House LLP United Kingdom 100%
Toscafund Hareness Road Ltd Jersey 100%
TCP Channel Limited Jersey 100%
List of subsidiaries that are 100% owned and controlled
by the Group (continued)
Country of incorporation Ownership %
---------------------------------- -------------------------- ------------
TCP Arbos Limited Jersey 100%
TCPF FinCo Limited Jersey 100%
Tosca UK CP II Limited Jersey 100%
Tosca UK CP Limited Jersey 100%
Tosca UKCP II FinCo Limited Jersey 100%
Regional Commercial MIDCO
Limited Jersey 100%
Toscafund Glasgow Limited Jersey 100%
Tosca Glasgow II Limited United Kingdom 100%
All the above subsidiaries were acquired on 6 November 2015.
All the above entities have been included in the Group financial
statements from 6 November 2015.
In the opinion of the Directors the value of the subsidiary
undertakings is not less than the book amount.
By virtue of the Amended and restated Call Option Agreement,
dated 3 November 2015, the Directors consider that the Group has de
facto control of Credential Investment Holdings Limited, and its 27
subsidiaries.
Under this option the Group may acquire any of the properties
held by the Credential Group for a nominal consideration. Despite
having no equity holding the Group controls the Credential Group as
the option agreement means that the Group is exposed to, and has
rights to, variable returns from its involvement with the
Credential Group through its power to control.
The list of these subsidiaries is as per below:
Country of incorporation De facto control
%
---------------------------------- -------------------------- -----------------
Squeeze Newco 2 Limited United Kingdom 100%
Credential Tay House Limited United Kingdom 100%
The Legal Services Centre
Limited United Kingdom 100%
Dumbarton Road Limited United Kingdom 100%
Old Rutherglen Road Limited United Kingdom 100%
Credential (Peterborough)
Limited United Kingdom 100%
Hamiltonhill Estates Limited United Kingdom 100%
Douglas Shelf Seven Limited United Kingdom 100%
Credential Charing Cross Limited United Kingdom 100%
Credential Bath Street Limited United Kingdom 100%
Credential Muirhouse Limited United Kingdom 100%
Credential Estates Limited United Kingdom 100%
Old Mill Studios Limited United Kingdom 100%
Credential SHOP Limited United Kingdom 100%
Credential (Greenock) Limited United Kingdom 100%
Credential (Baillieston) Limited United Kingdom 100%
Credential (Wardpark North)
Limited United Kingdom 100%
Credential (Wardpark South)
Limited United Kingdom 100%
Squeeze Newco (Elmbank) Limited United Kingdom 100%
Caststop Limited United Kingdom 100%
Stock Residential Lettings
Limited United Kingdom 100%
Credential Residential Finance
Limited United Kingdom 100%
Lilybank Terrace Limited United Kingdom 100%
Lilybank Church Limited United Kingdom 100%
Rocket Unit Trust Jersey 100%
London & Scottish Property
Management Limited United Kingdom 100%
Castlestream Limited United Kingdom 100%
All the above subsidiaries were deemed to have been acquired on
6 November 2015.
All the above entities have been included in the Group financial
statements from 6 November 2015.
In the opinion of the Directors the value of the subsidiary
undertakings is not less than the book amount.
The above subsidiaries have been consolidated at 100% by the
Group.
16.2 Business combination
On 6 November 2015 the company acquired Regional Commercial
MidCo Limited for GBP274,217,264, which included 100% of the issued
share capital of 47 special purpose vehicles. On the same day, one
of the subsidiaries, Toscafund Glasgow Limited, acquired control of
Credential Investment Holdings Limited and its 26 subsidiaries, by
virtue of a Call Option Agreement dated 3 November 2015.
The reason for the acquisition was to obtain a listing which
will offer shareholders a public market for the shares and increase
the strategic flexibility of the Group. The goodwill of
GBP2,785,758 arising from the acquisition is attributable to the
cost saving synergies available to the enlarged group, particularly
access to lower borrowing rates. The fair value of trade and other
receivables is GBP2,991,486, including GBP1,195,959 for trade
receivables. The gross contractual amount of trade receivables as
at 31 December 2015 is GBP1,423,731 of which GBP227,772 is expected
to be uncollectable.
The following table summarises the consideration paid for the
acquisition, the fair value of assets acquired, liabilities assumed
and the non-controlling interest at the acquisition date.
Consideration at 6 November
2015
GBP
Ordinary shares issued 274,217,264
Total consideration transferred 274,217,264
---------------
Recognised amounts of identifiable assets
acquired and liabilities assumed
Investment property 380,988,405
Trade receivables 1,195,959
Other receivables 1,795,527
Financial asset - within
one year 745,000
Financial asset - after
one year 1,197,000
Prepayments & accrued income 2,742,801
Cash at bank 26,658,785
Unamortised debt issue costs 1,962,120
Trade payables ( 2,473,976)
Other payables ( 4,073,815)
Taxation ( 2,387,388)
VAT, PAYE & NI ( 817,599)
Accruals & deferred income ( 5,710,129)
Borrowings ( 129,860,769)
Interest rate derivatives ( 530,415)
271,431,506
Goodwill on acquisition 2,785,758
Non-controlling interest -
Total 274,217,264
---------------
The contributions made by the subsidiaries were GBP27,190,214 in
the profit after tax and net assets of the Group since acquisition.
It is not practicable to provide a theoretical result as though the
acquisition had been made on 22 June 2015. Any costs related to the
acquisitions have been charged to exceptional items in the
Statement of Comprehensive Income above. The fair value of the
274,217,264 shares issued as consideration was100 pence each, being
the placing price of the initial public offering.
16.3 Credential subgroup
The fair value of the non-controlling interest in Credential
Investment Holdings Limited is nil because of the net liabilities
as shown below.
Summarised financial information of Credential subgroup:
Credential Statement of Comprehensive income
for the period from 6 November 2015 to 31
December 2015
GBP
Revenue
Rental income 1,122,384
Non recoverable property costs (136,326)
Net rental income 986,058
Administrative and other expenses 21,407
Operating profit before gains and
losses on property assets & other
investments 1,007,465
Loss on the disposal of investment
properties (3,700)
Change in fair value of investment
properties 7,893,065
Operating profit 8,896,830
Finance income 4,198
Finance expense (877,805)
Profit after finance item 8,023,223
Taxation -
Profit for the period after taxation 8,023,223
============
Other comprehensive income -
Attributable to Regional REIT Ltd
Group (8,023,223)
Total comprehensive income/(loss)
(attributable to equity shareholders) -
============
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The Statement of Financial Position of the Credential subgroup
was as follows:
31 December
2015
GBP
Non current asset
Investment properties 78,532,500
78,532,500
--------------
Current assets
Trade receivables 1,269,768
Other receivables 319,171
Prepayments 876,757
Bank 1,148,406
3,614,102
--------------
Total assets 82,146,602
--------------
Liabilities
Current liabilities
Trade payables ( 369,271)
Other payables ( 978,094)
Value Added Tax ( 443,686)
Accruals & deferred income (16,232,148)
Loans from Regional REIT Ltd group (109,872,758)
Taxation (611,749)
Total liabilities (128,507,706)
--------------
Net liabilities (46,361,104)
--------------
Equity
Called up share capital 5,724,036
Capital redemption reserve 4,301,029
Goodwill 140,916
Other reserves 6,167,614
Accumulated losses (62,694,699)
Net liabilities (46,361,104)
--------------
17. Goodwill
Group Company
31 December 31 December
2015 2015
GBP GBP
At 6 November 2015 and 31 December
2015 2,785,758 -
----------------------------------- ------------ ------------
Goodwill arises on the acquisition of subsidiaries and
represents the excess of the consideration transferred, the amount
of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the
acquiree over the fair value of the identifiable net assets
acquired. If the total of consideration transferred,
non-controlling interest recognised and previously held interest
measured at fair value is less than the fair value of the net
assets of the subsidiary acquired in the case of a bargain
purchase, the difference is recognised directly in the income
statement.
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. Any
impairment is recognised immediately as an expense and is not
subsequently reversed. The impairment review is based on pretax-tax
cash flow projections of cost savings to the Group as a whole as a
single cash generating unit, using a discount rate of 3%.
18. Non-current receivable
Group only
Group
31 December
2015
GBP
On acquisition 1,942,000
Movement in period (246,875)
Unwinding of discount 64,875
Balance at 31 December
2015 1,760,000
============
Asset due within 1
year 756,000
Asset due after 1 year 1,004,000
1,760,000
============
In May 2014, the tenant of one of the subsidiaries (Blythswood
House) surrendered their lease resulting in a lease surrender
premium to be paid by the tenant in equal instalments over 4 years.
The amount due was recognised initially at fair value and
subsequently recorded at amortised cost using the effective
interest method. The unwinding of the discount is included in
finance income.
19. Trade and other receivables
Group Company
31 December 31 December
2015 2015
GBP GBP
Gross amount receivable from
tenants 3,246,121 -
Less provision for
impairment (227,772) -
------------ ------------
Net amount receivable from
tenants 3,018,349 -
Current portion of receivables
(note 18) 756,000
Other receivables 5,257,441 -
Prepayments and accrued income 2,816,562 3,333
11,848,352 3,333
------------ ------------
At 31 December 2015, the aged analysis of tenant invoice
receivables was as follows:
Group
31 December
2015
GBP
Current 1,484,732
< 30 days 570,502
30 - 60 days 550,418
> 60 days 640,469
3,246,121
Provision for impairment (227,772)
3,018,349
============
The Directors consider the fair value of receivables equals
their carrying amount. As at 31 December 2015, trade receivables of
GBP3,018,349 were past due but not impaired. These relate to
tenants for whom there is no recent history of default. The age
analysis of these trade receivables is as follows:
Group
Period GBP
3-6 months 222,772
Over 6 months -
Movements on the Group's provision for impairment of trade
receivables are as follows:
Group
22 June 2015
to 31 December
2015
GBP
Acquired with subsidiaries 227,772
Provision for impairment in the period -
Receivables written off as uncollectable -
Unused provision reversed -
------------------------------------------ ----------------
As at 31 December 2015 227,772
----------------
The other categories within trade and other receivables do not
include impaired assets.
The maximum exposure to credit risk at the reporting date is the
carrying value of the amounts disclosed above. The Group does not
hold any collateral as security.
20. Cash and cash equivalents
Group Company
31 December 31 December
2015 2015
GBP GBP
Cash held at bank 15,154,445 18,362
Restricted cash 8,800,047 -
23,954,492 18,362
------------ ------------
Restricted cash balances of the Group comprise:
-- GBP6,348,568 of funds held in blocked bank accounts which are
controlled by one of the Group's lenders and are released to free
cash once certain loan conditions are met. The restricted funds
arose on net proceeds from investment property disposals and were
released after the year end, before 31 March 2016.
-- GBP2,171,439 of funds which represent service charge income
received from tenants for settlement of future service charge
expenditure.
-- GBP280,040 of funds which represent tenants' rental deposits.
21. Trade and other payables
Group Company
31 December 31 December
2015 2015
GBP GBP
Trade payables 2,513,046 -
Other payables 5,095,340 -
Value added tax 1,091,798 -
Accruals 3,875,634 867,929
12,575,818 867,929
------------ ------------
22. Deferred income
Deferred rental income is rent received in advance from
tenants.
23. Taxation liabilities
Group
31 December
2015
Income tax GBP
Balance at acquisition and at
31 December 2015 2,387,388
===================
The taxation liabilities of GBP2,387,388 represent payables at
the date of the acquisitions by the Group on 6 November 2015.
24. Bank and loan borrowings
The Group acquired bank debt of GBP130m when it entered into the
business combination described in note 16. All available debt
facilities are fully drawn at the reporting date and there are no
committed but undrawn facilities. The weighted average term to
maturity of the Group's debt as at the period end was 3.4
years.
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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:
31 December
Group only 2015
GBP
Bank borrowings drawn 128,643,387
Less: unamortised costs (1,875,449)
Less: adjustment through finance income (99,243)
126,668,695
----------------------------------------- ------------
Maturity of bank borrowings
Repayable within 1 year 200,000
------------
Repayable between 1 and 2 years 200,000
Repayable between 2 and 5 years 126,268,695
------------
126,468,695
------------
126,668,695
----------------------------------------- ------------
All of the Group's five borrowing facilities contain options for
extension. There were four facilities with an extension option of
one year and the fifth facility has extension option of two years
(split into two, one year extensions). The extension options
require the agreement of both the Group and counterparty bank in
order to be exercised. Details of the individual facilities can be
found in the Asset and Investment Managers' Report.
Four of the Group's facilities have an interest charge which is
payable quarterly based on a margin above 3 month LIBOR. The fifth
facility carries a fixed rate of interest. The weighted average
interest rate payable by the Group on its debt portfolio, excluding
hedging costs, as at the period end was 4.1%.
The Group has been in compliance with all of the financial
covenants of the above facilities as applicable throughout the
period covered by these financial statements.
As shown in note 25, the Group uses a combination of interest
rate swaps and fixed rate bearing loans to hedge against interest
rate risks. Its exposure to volatility is virtually nil.
25. Derivative financial instruments
To mitigate the interest rate risk that arises as a result of
entering into variable rate borrowings, the Group entered into a
number of interest rate caps, swaps and swaptions during the
period. The weighted average cap, swap and swaption rate for the
Group as at the period end was 4.4%, with a Group weighted average
effective interest rate of 4.5% inclusive of hedging costs.
Group
31 December
2015
GBP
On acquisition (530,415)
Revaluation
in period 114,888
Total (415,527)
============
Further, the Group has entered into the following interest rate
caps, swaps and swaptions.
Lender Original Outstanding Maturity LTV Interest Amortisation Hedging and
Facility Debt Date Cost per Swaps: Notional
annum Amounts/Rates
GBP GBP Mandatory
Santander 2.7% over Prepayment
UK 35,000,000 31,605,902 01/12/2018 0.292 3mth LIBOR basis GBP11m/1.867%
Mandatory
Santander 2.7% over Prepayment
UK 13,500,000 9,587,485 01/12/2018 0.177 3mth LIBOR basis GBP4.65m/2.246%
Royal
Bank
of 2.75% over
Scotland 15,600,000 15,600,000 01/06/2019 0.297 3mth LIBOR None GBP14.04m/1.79%
ICG Longbow 5% pa
Ltd 65,000,000 65,000,000 01/08/2019 0.489 for term None n/a
Santander 2% over GBP50,000
UK 7,000,000 6,850,000 01/02/2018 0.462 3mth LIBOR per qtr GBP5.48m/1.444%
136,100,000 128,643,387
------------ ------------
The interest rate derivatives were acquired from the
subsidiaries at acquisition and are marked to market by the
relevant counterparty banks on a quarterly basis in accordance with
IAS 39, 'Financial Instruments; Recognition and Measurement'. Any
movement in the mark to market values of the derivatives are taken
to the Group's Statement of Comprehensive Income.
The maximum exposure to credit risk at the reporting date is the
fair value of the derivative liabilities.
It is the Group's target to hedge at least 90% of the total debt
portfolio using interest rate derivatives. As at the period end
date the total proportion of hedged debt equated to 90%, as shown
below.
Group
31 December
2015
GBP
Total bank borrowings 128,643,387
Notional value of Interest rate derivatives
(for variable rate loans) 50,825,000
Value of fixed rate
debts 65,000,000
------------
115,825,000
------------
Proportion of hedged
debt 90.1%
25.1 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 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.
Group only
Quoted
prices Significant
in active observable Significant
Date markets input unobservable
of valuation Total (level1) (level2) input (level3)
GBP GBP GBP GBP
Assets measured at fair
value:
Interest rate derivatives
at 31 December 2015 (415,527) - (415,527)
-------------------------------------------- ---------- ----------- ------------ ----------------
The fair value of these contracts are recorded in the Group
Statement of Financial Position and is determined by forming an
expectation that interest rates will exceed strike rates and
discounting these future cash flows at the prevailing market rates
as at the period end.
There have been no transfers between levels during the
period.
There were no interest rate risk derivative instruments at
Company level.
The Group has not adopted hedge accounting.
26. Financial risk management
26.1 Financial instruments
The Group's principal financial assets and liabilities are those
that arise directly from its operations: trade and other
receivables, trade and other payables and cash and cash
equivalents. The Group's other principal financial liabilities are
bank and other loan borrowings, the main purpose of which is to
finance the acquisition and development of the Group's investment
property portfolio.
Set out below is a comparison by class of the carrying amounts
and fair value of the Group's financial instruments that are
carried in the financial statements:
Group Company
31 December
31 December 2015 2015
Fair
Book value Fair Value Book value Value
GBP GBP GBP GBP
Financial assets
Trade and other receivables 10,035,790 10,035,790 - -
Cash and short-term deposits 23,954,492 23,954,492 18,362 18,362
Financial liabilities
Trade and other payables (18,897,732) (18,897,732) (867,929) (867,929)
Bank and loan borrowings (126,668,695) (126,668,695) - -
------------------------------ -------------- -------------- ----------- ----------
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All financial assets and liabilities are classified as 'loans
and receivables' except for interest rate derivatives which are
described as 'at fair value through profit or loss'.
26.2 Risk management
The Group is exposed to market risk (including interest rate
risk), credit risk and liquidity risk. The Board of Directors
oversees the management of these risks. The Board of Directors
reviews and agrees policies for managing each of these risks that
are summarised below.
26.3 Market risk
Market risk is the risk that the fair values of financial
instruments will fluctuate because of changes in market prices. The
financial instruments held by the Group that are affected by market
risk are principally the Group's bank balances along with a number
of interest rate swaps entered into to mitigate interest rate
risk.
The Group's interest rate risk arises from long term borrowings
issued at variable rates, which expose the Group to cash flow
interest rate risk. Borrowings issued at fixed rates expose the
Group to fair value interest rate risk.
The Group manages its cash flow interest rate risk by using
floating to fixed interest rate swaps, interest rate caps and
interest rate swaptions. Interest rate swaps have the economic
effect of converting borrowings from floating rates to fixed rates.
Interest rate caps limit the exposure to a known level.
26.4 Credit risk
Credit risk is the risk that a counterparty will not meet its
obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risk
from both its leasing activities and financing activities,
including deposits with banks and financial institutions. Credit
risk is mitigated by tenants being required to pay rentals in
advance under their lease obligations. The credit quality of the
tenant is assessed based on an extensive credit rating scorecard at
the time of entering into a lease agreement.
Outstanding trade receivables are regularly monitored. The
maximum exposure to credit risk at the reporting date is the
carrying value of each class of financial asset.
26.5 Credit risk related to trade receivables
Trade receivables, primarily tenant rentals, are presented in
the balance sheet net of provisions for impairment. Credit risk is
primarily managed by requiring tenants to pay rentals in advance
and performing tests around strength of covenant prior to
acquisition. Any trade receivables past due as at the period end
were received shortly after the period end.
26.6 Credit risk related to financial instruments and cash
deposits
One of the principal credit risks of the Group arises with the
banks and financial institutions. The Board of Directors believes
that the credit risk on short-term deposits and current account
cash balances are limited because the counterparties are banks, who
are committed lenders to the Group, with high credit ratings
assigned by international credit-rating agencies.
The list of bankers for the Group, with their Fitch credit
ratings, was as follows:
Bankers Fitch Ratings
Barclays Baa3
Royal Bank of Scotland Ba1
Santander UK A
26.7 Liquidity risk
Liquidity risk arises from the Group's management of working
capital and, going forward, the finance charges and principal
repayments on its borrowings. It is the risk that the Group will
encounter difficulty in meeting its financial obligations as they
fall due, as the majority of the Group's assets are investment
properties and are therefore not readily realisable. The Group's
objective is to ensure it has sufficient available funds for its
operations and to fund its capital expenditure. This is achieved by
continuous monitoring of forecast and actual cash flows by
management.
The table below summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted
payments:
Between
Within 2 to 5 After 5
1 year years years Total
Group GBP GBP GBP GBP
31 December 2015
Bank borrowings (200,000) (126,468,695) - (126,668,695)
Trade and other
payables (18,897,732) - - (18,897,732)
------------------- -------------- --------
(19,097,732) (126,468,695) - (145,566,427)
------------------ ------------- -------------- -------- --------------
Within Before After 5
1 year 5 years years Total
Company GBP GBP GBP GBP
31 December 2015
Trade and other
payables (867,929) - - (867,929)
------------------- ------------- -------------- -------- --------------
Derivative instrument interest rate swaps and caps with a
negative fair value are included within the less than one year
category.
27. Capital management
The primary objective of the Group's capital management is to
ensure that it remains a going concern and continues to qualify for
UK REIT status.
The Board, with the assistance of the Investment Manager,
monitors and reviews the Group's capital so as to promote the
long-term success of the business, facilitate expansion and to
maintain sustainable returns for Shareholders.
The Group's policy on borrowings is as follows:
-the level of borrowing will be on a prudent basis for the asset
class, and will seek to achieve a low cost of funds, while
maintaining flexibility in the underlying security requirements,
and the structure of both the portfolio and of Regional REIT.
Based on current market conditions, the Board will target Group
net borrowings of 35 per cent. of Gross Asset Value at any time.
However, the Board may modify the Company's borrowing policy
(including the level of gearing) from time to time in light of then
current economic conditions, relative costs of debt and equity
capital, fair value of the Company's assets, growth and acquisition
opportunities or other factors the Board deems appropriate. The
Group's net borrowings may not exceed 50 per cent of the Gross
Asset Value at any time.
Debt will be secured at the asset level subject to the
assessment of the optimal financing structure for the Group and
having consideration to key metrics including lender diversity,
debt type and maturity profile.
28. Share capital and Share premium
Company
31 December
2015
Company Number
Issued and fully paid at GBP1
each-no par value 274,217,264
============
At 22 June 2015 1
Shares issued 274,217,263
At 31 December 2015 274,217,264
-------------------------------------- ------------
The Company was incorporated on 22 June 2015 and issued one
ordinary share of no par value at a price of 100 pence to the sole
subscriber.
On 16 October 2015 a further 3 ordinary shares of no par value
were issued at a price of 100 pence each. The shares issued have
the same rights as the subscriber share.
On 6 November 2016 the Company issued 274,217,260 ordinary
shares of no par value to the general partners of four Limited
Partnership Funds (Tosca Commercial Property Fund LP, Tosca
Commercial II, Tosca UK Commercial Property II LP and TUKCLP Jersey
LP) in consideration for their shares in Regional Commercial Midco
Limited thereby acquiring a number of property owning special
purpose vehicles as described more fully in note 16.
The fair value of the shares issued amounted to GBP274,217,260
and the shares issued have the same rights as the other shares in
issue.
On 6 November 2015, the Group announced that its entire share
capital of 274,217,264 Ordinary Shares had been admitted
to the premium listing segment of the Official List of the UK
Listing Authority and to trading on the main market for listed
securities of the London Stock Exchange.
29. Net asset value per share (NAV)
Basic NAV per share is calculated by dividing net assets in the
Group's Statement of Financial Position attributable to ordinary
equity holders of the parent by the number of Ordinary Shares
outstanding at the end of the period. As there are no dilutive
instruments issued, basic and diluted NAV per share are
identical.
Net asset values have been calculated as follows:
Group Company
31 December 31 December
2015 2015
GBP GBP
Net asset value per Statement of Financial
Position 295,341,287 273,371,030
Adjustment for calculating
EPRA net assets
Derivative financial
instruments 415,527 -
EPRA net assets 295,756,814 273,371,030
------------ ------------
Issued share capital - number
of ordinary shares 274,217,264 274,217,264
------------ ------------
Basic and diluted net asset
value per share 107.7p 99.7p
EPRA net asset per
share 107.8p 99.7p
30. Operating leases
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The future minimum lease payments under non-cancellable
operating leases receivable by the Group in respect of its property
portfolio for a range of terms from less than one year to 10 years
are as follows:
Within Between After 5 Total
1 year 2 to 5 years years
GBP GBP GBP GBP
Amount receivable 3,842,453 55,957,973 87,373,542 147,173,968
Total 3,842,453 55,957,973 87,373,542 147,173,968
-------------------- ---------- -------------- ----------- ------------
31. Segment information
Information reported to the Asset Manager who is the chief
operating decision maker for the purposes of resource allocation
and assessment of segment performance is focused on the different
revenue streams that exist within the Group. The Group's principal
reportable segments under IFRS 8 are therefore as follows:
-- Industrial
-- Office
-- Retail
-- Residential
All revenues are earned in the United Kingdom with property and
administrative expenses also incurred in the
United Kingdom.
All of the Group's revenues are derived from external customers
and there are no inter-segment revenues.
There were no tenants providing more than 10% of revenues.
Residential/ Unallocated
Student assets
Industrial Office Retail accommodation & liabilities Total
GBP GBP GBP GBP GBP GBP
Investment properties 99,620,000 239,850,000 45,030,000 19,202,500 - 403,702,500
Goodwill 2,785,758 2,785,758
Other assets 35,046,845 35,046,845
Financial asset 1,760,000 1,760,000
Liabilities (145,566,428) (145,566,428)
Tax liabilities (2,387,388) (2,387,388)
Net assets/(liabilities) 99,620,000 239,850,000 45,030,000 19,202,500 (108,361,213) 295,341,287
----------- ------------ ----------- --------------- --------------- --------------
Residential/
Student Unallocated
Industrial Office Retail accommodation costs Total
GBP GBP GBP GBP GBP GBP
Rental income 1,354,133 3,227,687 621,826 157,774 5,361,420
Property expenses (168,368) (439,952) (128,202) (17,085) (753,607)
Profit on disposal
of investment
properties 4,300 74,207 7,208 1,150 86,865
Investment property
revaluations 4,208,427 18,724,818 796,790 54,035 23,784,070
Exceptional items (5,296,368) (5,296,368)
Other expenses (1,353,183) (1,353,183)
Profit before
interest and taxation 5,398,492 21,586,760 1,297,622 195,874 (6,649,551) 21,829,197
----------- ------------ ----------- --------------- --------------- --------------
Financial income 176,648
Net financial
costs (996,710)
Net movement in
fair value of
derivatives 114,888
Taxation -
Total comprehensive
income for the
period 21,124,023
--------------
The measure of segment result is considered to be profit before
interest and taxation.
Assets which have not been allocated to segments include cash,
receivables and financial assets which are centrally managed.
Liabilities are only reviewed at group level and are not
allocated to segments.
32. Transactions with related parties
Transactions with the Asset Manager, London & Scottish
Investments Limited and the Property Manager, London & Scottish
Property Asset Management Limited.
Stephen Inglis is a non-executive Director of Regional REIT
Limited, Stephen is also the Property Director and Chief Investment
Officer of London & Scottish Investments Limited and a director
of London and 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 EPRA
net asset value (NAV), reducing to 0.9% on assets over
GBP500,000,000. The fee shall be payable in cash quarterly in
arrears. On any date upon which payment of the management fee is
due.
In respect of each portfolio property, the Asset Manager has
procured and shall, with the Company in future procure that London
& Scottish Property Asset Management Limited is appointed as
the property manager. A property management fee of 4 per cent. 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.
For the period ended 31 December 2015, the asset management fee
charged in the Group's Statement of Comprehensive Income was
GBP231,727 for the Group and GBPnil for the Company.
The property management fees charged at 31 December 2015 was
GBP165,446 for the Group and GBPnil for the Company.
The asset management and property fees payable at 31 December
2015 were GBP231,727 and GBP165,446 respectively for the Group.
Transactions with the Investment Manager, Toscafund Asset
Management LLP.
Martin McKay is a non-executive Director of Regional REIT
Limited and is the Chief Financial Officer of Toscafund Asset
Management LLP. The LLP is also the discretionary Investment
Manager of Tosca Opportunity, Tosca Mid Cap and The Pegasus Fund
Limited which own shares in Regional REIT Limited. Toscafund Asset
Management LLP has been contracted as the Investment Manager of the
Group.
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 EPRA net asset value (NAV), reducing to 0.9% on assets over
GBP500,000,000. The fee is payable in cash quarterly in arrears. On
any date upon which payment of the management fee is due.
For the period ended 31 December 2015, the investment management
fee charged in the Group's Statement of Comprehensive Income was
GBP263,542 for the Group and GBP218,104 for the Company.
The investment management fees payable at 31 December 2015 was
GBP263,542 for the Group and GBP218,104 for the Company.
In addition the Investment Manager and the Asset Manager are
entitled to 50% of each of a performance fee at a rate of 15% of
the amount by which the EPRA Net Asset Value exceeds a hurdle
annual rate of return to shareholders of 8%, the fee to be
calculated initially on 31 December 2018, and annually
thereafter.
The fee for the first period to 31 December 2018 is payable as
to 50% in cash, and 50% in Ordinary Shares, the shares to be issued
at the prevailing price per ordinary share at the date of
issue.
The fee for subsequent periods is payable as to 34% in cash and
66% in ordinary shares, again at the prevailing price per
share.
Based on the EPRA net asset value of the group as at 31 December
2015 and assuming the hurdle annual rate of return is exceeded on
average over the remainder of the period to 31 December 2018 the
performance fee has estimated at GBP95,000.
33. Operating lease commitments
After
Within Between Between 5
1 year 1-2 years 2-5 years years
GBP GBP GBP GBP
Operating lease commitments
in respect of land & buildings
at 31 December 2015 are:
Annual commitments - leases
expiring after more than 5
years 261,106 261,106 783,318 18,240,190
34. Capital commitments
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On 30 December 2015, the Group announced it had exchanged
contracts on a portfolio of four multi-let office buildings for a
purchase price of GBP37.5m. The portfolio of multi-let offices is
located in Basingstoke, Leeds, Leicester and Manchester with an
industrial business park in Beverley. The portfolio totals c.703,
000 sq. ft., providing a net income of GBP3.4 million per annum,
which equates to a yield of 8.25%.
35. Subsequent events
On 30 December 2015, the Group announced it had exchanged
contracts on the Wing portfolio of four multi--let office buildings
and a multi-let industrial estate for a purchase price of GBP37.5m.
The portfolio is located in Basingstoke, Leeds, Leicester and
Manchester and an industrial business park in Beverley and totals
c. 703,000 sq. ft., providing a net income of GBP3.38 million per
annum. This equates to a net initial yield of 8.5%. The deal
completed on a phased basis, stage 1 being 22 January for the
freehold assets with stage 2, the leasehold assets of Basingstoke
and Beverley, completing on 22 March.
On 6 January 2016, the Group announced it had completed the
acquisition of Rosalind House in Basingstoke for an acquisition
price of GBP3m. The office building, 26,448 sq. ft. let until 2020,
provides a net annual income of GBP396,000, equating to a net
initial yield of 12.48%. Subsequently the Group agreed a lease
surrender for a reverse premium of GBP888,000 and back-to-back
letting following refurbishment to New Voice Media on a new 10 year
lease at GBP394,755 per annum.
On 9 February 2016, the Group announced that it had exchanged
contracts to buy the Rainbow Portfolio for GBP80.0m. The portfolio
comprises 12 assets, five offices and seven industrial sites,
totalling 1.15m sq. ft., which are geographically spread throughout
the UK in major regional urban areas, including Bristol,
Manchester, Cardiff, Sheffield and the West Midlands. Income from
offices amounts to 55% of the portfolio; 86% of the income is from
England. The portfolio produces a net yield of 8.2% at a capital
rate of GBP70 per sq. ft. The deal completed on 9 March.
The acquisitions were financed by additional bank debt of
GBP99.8m, secured on the assets of the Group, and at margins
between 2% and 2.15%.
The Group also announced, on 9 February 2016, a number of
disposals:
-- Churchill Plaza, Basingstoke sold for GBP12m, the property
having been acquired in August 2014 for GBP7.5m. The sale price
represented a 52% increase on the June 2015 value and a 9% increase
on the December 2015 valuation.
-- Five retail assets sold for a total consideration of GBP4.8m,
marginally ahead of the December 2015 valuation.
-- An office building in Kirkcaldy has also been sold for
GBP0.9m, 50% ahead of the June 2015 valuation and in line with the
December 2015 valuation. An office building in Glasgow, 21
Blythswood Square, sold just before the December 2015 valuation for
GBP1.5m, in line with valuation.
These disposals are consistent with the Group's policy of
selling where real value has been created and to reduce risk,
specifically realising development and retail properties where good
value can be achieved.
On 6 April 2016, the Group announced the disposal of Blythswood
House, Glasgow for GBP17.4 m, and of a standalone industrial unit
at Spectrum Business Park, Wrexham for GBP4.1m.
Glossary
AIF - Alternative Investment Fund.
AIFM - Alternative Investment Fund Manager.
Break Option - A clause in a Lease which provides the landlord
or tenant with an ability to terminate the Lease before its
contractual expiry date.
Cost of Debt - Total cost of debt including the interest cost,
arrangement fees and unamortised hedging cost.
EPRA - European Public Real Estate Association, the industry
body for European REITs.
EPRA earnings - Profit after tax excluding revaluations and
gains and losses on disposals and associated taxation (if any).
EPRA NAV per share - EPRA NAV divided by the diluted number of
Shares in issue at the period end.
EPRA net assets (EPRA NAV) - IFRS assets excluding the mark to
market on effective cash flow hedges and related debt instruments
and deferred taxation revaluations.
Equivalent yield - Weighted average of the initial yield and
reversionary yield, representing the return that a property will
produce based on the occupancy data of the tenant leases.
Estimated Rental Value (ERV) - External valuers' opinion as to
what is the open market rental value of the property is on the
valuation date, and what could reasonably be expected to be the
rent obtainable on a new letting on that property on the valuation
date.
External Valuer - Independent external valuer of a property. The
Group's External Valuer is Cushman & Wakefield.
Gross property assets/Gross asset value - Investment Properties
encompasses the entire property portfolio of freehold and leasehold
properties.
Gross rental income - Accounting based rental income under IFRS.
When the Group provides incentives to its tenants the incentives
are recognised over the lease term on a straight-line basis in
accordance with IFRS. Gross rental income is therefore the cash
passing rent as adjusted for the spreading of these incentives.
Initial Yield - Annualised rents of a property expressed as a
percentage of the property's value.
IPO - Initial Public Offering.
Lease - A legally binding contract between a landlord and a
tenant which sets out the basis on which the tenant is permitted to
occupy a property, including the Lease length.
Lease Incentive - A payment used to encourage a tenant to take
on a new Lease, for example by a landlord paying a tenant a sum of
money to contribute to the cost of a tenant's fit-out of a property
or by allowing a rent free period.
Lease Re-gear - Renegotiation of a Lease during the term and
often linked to another Lease event, for example a Break Option or
Rent Review.
Lease Renewal - Renegotiation of a Lease with the existing
Tenant at its contractual expiry.
Lease Surrender - An agreement whereby the landlord and tenant
bring a Lease to an end other than by contractual expiry or the
exercise of a Break Option. This will frequently involve the
negotiation of a surrender premium by one party to the other.
Loan to Value - Gross Borrowings / Value of Investment
Properties.
Manager - The Group's Asset (property) Manager is London &
Scottish Investments Limited ("LSI") and its Investment Manager is
Toscafund Asset Management LLP ("Toscafund").
Net Assets (or Shareholders' Funds) - Calculated as the value of
the investments and other assets of an investment company, plus
cash and debtors, less borrowings and any other creditors. It
represents the underlying value of an Investment Company at a point
in time.
Net Asset Value ('NAV') per Ordinary Share - Calculated as the
net assets of a company divided by the number of Shares in issue,
excluding those Shares held in treasury.
Net Gearing - Borrowings less cash and cash equivalents divided
by the total value of issued share capital plus retained
earnings
Net Initial Yield - Initial Net Income from a property at the
date of purchase, expressed as a percentage of the gross purchase
price including the cost of purchase.
Passing Rent - Rent payable on a property at any particular
time.
Occupancy percentage - Percentage of the total area of all
properties and units currently let to tenants.
Over rented - When the contracted rent is higher than the
ERV.
Property Income Distributions (PIDs) - Dividends distributed by
a REIT that are subject to taxation in the hands of the
Shareholders. Normal withholding tax still applies in most
cases.
REIT - Real Estate Investment Trust as set out under section 705
(e) of the Finance Act 2013.
Rent Review - Periodic review of rent during the term of a
Lease, as provided for within a Lease agreement.
Reversion - Increase in rent estimated by a company's External
Valuer, where the passing rent is below the ERV. The increases to
rent arise on rent reviews and lettings.
Reversionary yield - Anticipated yield to which the initial
yield will rise (or fall) once the rent reaches the ERV.
Voids - Vacant unlet space.
The Company's Annual Report and Accounts for the period to 31
December 2015 will be available to view shortly on the Company's
website www.regionalreit.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR IPMRTMBBBBRF
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