TIDMRGL
RNS Number : 2563A
Regional REIT Limited
23 March 2017
23 March 2017
Regional REIT Limited
Audited Preliminary Full Year Results for the Year Ended 31
December 2016
Delivery on investment strategy and commitments in first full
year as a REIT
Regional REIT Limited (LSE: RGL) ("Regional REIT", "the Group"
or "the Company"), the regional office and industrial property
focused REIT, today announces its audited preliminary results for
the year ended 31 December 2016.
Financial Highlights for the year ending 31 December 2016:
-- Gross properties value increased to GBP502.4m (31 Dec 2015:
GBP403.7m), up 2.25% like-for-like.
-- Acquisitions of GBP133.6m successfully completed, with an
average net initial yield of 8.6%; disposals GBP44.9m net, of
mature and non-core assets, at 6.8%. Capital expenditure of GBP9.1m
net.
-- Gross bank borrowings of GBP220.1m (31 Dec 2015: GBP128.6m)
increased to fund acquisitions, which equates to a net LTV of
40.6%. Borrowings and refinancings in H1'16 reduced the average
cost of debt (including hedging) to 3.7% (31 Dec 2015: 4.5%) with
the new loans maturing in 2021.
-- EPRA NAV of 106.9 pence per share ("pps") (31 Dec 2015:
107.8pps), after dividends declared in 2016, affected by the
additional Stamp Duty and Wing/Rainbow acquisitions costs (2.5pps)
and by capex yet to be reflected in the portfolio valuation.
-- Operating profit before gains and losses of GBP29.9m and
Profit Before Tax of GBP13.4m, with rental income of GBP43.0m and
an EPRA costs ratio of 30.4%. Fully diluted EPRA Earnings per Share
of 7.7p (IFRS EpS 4.9p); Dividends per Share in respect of 2016
amounted to 7.65p.
Operational Highlights included:
-- The Group continued its approach of active asset management -
to improve and generate additional income through lease renewals,
re-gears and new lettings - and delivered on its strategy and the
commitments made at the time of the IPO (November 2015).
-- A diversified portfolio of 123 properties (31 Dec 2015: 123),
941 units (2015: 712) and 717 tenants (2015: 531).
-- Occupancy (by area) of 83.8% (31 Dec 2015: 83.9%). A marked
increase from the Q1 2016 occupancy rate of 80.9%, following the
then recently completed Wing and Rainbow portfolio
acquisitions.
-- Portfolio further rebalanced towards offices (63.3% by value)
and industrial sites (29.4%) across the UK, with an increased share
in England & Wales (73.2%).
-- Joined FTSE All Share Index (March 2016) and FTSE EPRA NAREIT
Developed Europe Index (June).
-- Total shareholder return since IPO of +13.2%.
After the year end:
-- Conditional 'off-market' acquisition of a c. GBP129m office,
industrial, retail and leisure portfolio from Conygar, announced on
23 February 2017; expected to close by the end of March.
Stephen Inglis, Group Property Director and Chief Investment
Officer of London & Scottish Investments Limited, commented:
"It has been a very active year for Regional REIT with significant
acquisitions, continuing our strategy of non-core disposals,
increasing our geographic spread of properties and growing the
number and diversity of our tenants. We continue to implement our
successful approach to active asset management with our initiatives
achieving increased occupancy. We remain optimistic in respect of
our strategy and in the strength of our core regional office and
light industrial property markets".
A meeting for investors and analysts will be held at 09.30
(London time) on 23 March 2017 at the offices of Peel Hunt. If you
would like to attend the meeting please contact Jamie Perriam, +44
(0) 20 3805 4855 or jperriam@headlandconsultancy.com. The
presentation slides for the meeting will shortly be available to
download from the Investors section of the Group's website at
www.regionalreit.com.
This announcement contains inside information which is disclosed
in accordance with the Market Abuse Regulation that came into
effect on 3 July 2016.
Enquiries:
Regional REIT Limited
Press enquiries through Headland PR
Toscafund Asset Management LLP Tel: +44 (0) 20 7845 6100
Investment Manager to the Group
James S Johnson, Investor Relations, Regional REIT Limited
London & Scottish Investments Limited Tel: +44 (0) 141 248 4155
Asset Manager to the Group
Stephen Inglis
Headland PR Consultancy LLP Tel: +44 (0) 20 7367 5222
Financial PR
Francesca Tuckett
About Regional REIT
Regional REIT Limited (LSE: RGL) is a London Stock Exchange Main
Market traded specialist real estate investment trust focused on
office and industrial property interests in the principal regional
locations of the United Kingdom outside of the M25 motorway.
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
previously 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 2016, was
spread across 123 regional properties, 941 units and 717 tenants.
As at 31 December 2016, the investment portfolio had a value of
GBP502.4m and a net initial yield of 6.7%. The weighted average
unexpired lease term to first break was 3.6 years.
The Company's shares were admitted to the Official List of the
UK's Financial Conduct Authority and to trading on the London Stock
Exchange on 6 November 2015. For more information, please visit the
Group's website at www.regionalreit.com.
Cautionary Statement
This document has been prepared solely to provide additional
information to Shareholders to assess the Group's performance in
relation to its operations and growth potential. The document
should not be relied upon by any other party or for any other
reason. Any forward looking statements made in this document are
done so by the Directors in good faith based on the information
available to them up to the time of their approval of this
document. However, such statements should be treated with caution
due to the inherent uncertainties, including both economic and
business risk factors, underlying any such forward-looking
information.
CHAIRMAN'S STATEMENT
"We have delivered to our Shareholders, since our IPO just over
a year ago, an attractive total return including a significant
dividend income. We have continued to build our investment in,
predominantly, regional offices and industrial properties to
provide a sustainable and consistent business base. The business
environment remains positive for regional commercial property and
our strategy remains consistent for the year ahead."
Kevin McGrath, Chairman and Independent Non-Executive
Director
At the end of the Group's first full year of operations as a
listed company it gives me great pleasure to report on our progress
in delivering on our strategy and the commitments made at the time
of our listing in November 2015. I am confident of the progress
made in building our record of delivery: first, of significant
acquisitions, asset management initiatives including disposals and
reducing the cost of debt financing; and, secondly, in establishing
the strength of our regional commercial property proposition and of
the recurring income base. By the end of 2016, despite the
turbulence in the sector during the year, the gross value of our
Investment Properties had increased to GBP502.4m including
like-for-like valuation growth of 2.25%.
In the course of 2016 the Group successfully acquired properties
totalling GBP133.6m, on an average net initial yield of c.8.6%,
disposed of GBP44.9m (net of costs) at 6.8% yield and undertook
GBP9.1m of net capital expenditure in accordance with our
commitment to recycle and invest capital. The Asset Manager was
particularly focused on further building the portfolio in the
first-half of 2016, along with an extensive programme of
refinancing's and new borrowings. In the second-half the emphasis
was to successfully navigate the post EU referendum environment and
on active management bedding-in the new property portfolios, as
well as maintaining progress with the existing assets. In addition,
the Managers were heavily engaged in our bid for the multi-asset
portfolio of c. GBP129m that was announced in February 2017 (see
below).
It is our belief that Regional REIT offers a distinctive
portfolio of UK regional offices and light industrial sites,
focusing on acquiring undermanaged or unloved assets. The
uniqueness of its asset management is that by doing so much more
in-house we ensure the thoroughness of our due diligence,
consistently high standards for our assets and tenants and
prioritise our own Shareholders' interests. It is the scale and
diversity of the portfolio and its tenant base, as well as the
experienced active asset management, which secure attractive
portfolio fundamentals and mitigate risk. At the same time we avoid
the cyclical pressures of speculative development as it detracts
from what we believe should be the income focus of the REIT. Both
the net initial yield on the portfolio and the dividend yield on
the shares are significantly ahead of other asset classes and
should underpin the confidence of our Shareholders.
Business Environment
Occupational demand for offices and industrial sites in the UK's
regions remained robust over the year. For us this has been
evidenced by the steady volume of new lettings and regears, notably
since the Brexit vote, and in the progress we achieved with the
active asset management of the Wing and Rainbow portfolios, in line
with our business plans, since their acquisitions in the
first-quarter of 2016.
With the present limited new supply of regional offices and
industrial sites, and the prospects for continued economic growth
and trends in 'north-shoring', the regions appear well set to
continue to grow rentals and narrow the yield differential versus
London and of secondary property versus prime. This is further
underpinned by property valuations remaining well below replacement
cost. Market optimism remains strongest for industrial sites and
positive but more nuanced for regional offices, being more focused
on specific locations and tempered by some improvements to come in
the supply outlook. In our view, both of these sectors continue to
offer later-in-cycle benefits, underpinning our enduring strategy
and income growth prospects.
In the second-half of 2016 a challenge for us was the
comparative quietness of investment property markets, where we had
expected more assets to become available. We saw that there were
deals to be done in the regional markets and in small to
medium-sized lots, but asset prices did not weaken as much as we
expected. Consequently transaction volumes are down, as sellers and
buyers wait to reconcile to the new equilibrium. The Group's
preference remains for off-market transactions where its consistent
track record of delivering on deals provides it with an
advantage.
We continue to appraise substantive acquisition opportunities
and are confident that there are a number of accretive deals to be
done. The Board will consider the Company's options to maintain an
appropriate growth strategy.
Shareholders
A major part of the total return to our Shareholders is the
dividend. The Company declared total dividends of 7.65pps for 2016,
comprising three quarterly dividends of 1.75pps and a fourth
quarter dividend of 2.40pps. This distribution is fully covered by
earnings per share.
Notwithstanding the Market's volatility, and the pressures on
many listed property companies that arose around the EU referendum,
we believe that the comparative strengths of our own business have
proved attractive to investors. These strengths reflect the
fundamentals of our strategy, delivering a sustainable and strong
income base with the potential to grow through active asset
management as the basis for our dividend. That we have declared
dividends for the full year 2016, in line with our stated
commitment of 7-8% on the 100p listing price, was important in
building the credibility of the Group.
In the course of 2016 the Group's shares were included in the
FTSE All Share Index (March) and the FTSE EPRA NAREIT Developed
Europe Index (June).
Board and the Asset and Investment Managers
The Board made great progress in the last year to establish its
effective working and I am grateful to all of my fellow Directors
who have contributed to the rigorous discussions on the development
of the business. We have undertaken an internal review of Board
effectiveness to gauge our progress and to ensure that the Board
evolves appropriately with the development of the Group. I am
delighted to confirm that no significant issues were raised and the
view of the Board is that the governance structure, together with
the Board and its Committees, all continue to operate effectively,
with a positive and open culture. Corporate governance has been a
key focus of the Board and I am extremely satisfied that we
continue to enhance our compliance with the The Association of
Investment Companies ("AIC") Code of Corporate Governance. As part
of our planned development I am pleased that Bill Eason was willing
to assume the role of Senior Independent Non-Executive Director, an
additional point of contact for Shareholders.
The Board are also pleased with the work of the external Asset
and Investment Managers, whose competencies and experience, along
with a proven ability to get the most from our properties, are
critical to our success.
The Board determined that given the total returns performance to
date, amounting to 13.2% since listing to 31 December 2016, it is
now appropriate for the Group to commence accruing the Managers'
Performance Fee for the initial performance period ending December
2018.
Subsequent Events
The Group is committed to an opportunistic acquisitive growth
strategy and management has continued to explore a number of asset
opportunities. I am pleased that we were able to announce in late
February 2017 that we had reached agreement with The Conygar
Investment Company PLC as to the conditional acquisition of a
portfolio of 31 regional office, industrial, retail and leisure
properties with a gross investment value of c. GBP129m.
This is a quality investment portfolio secured 'off market',
offering substantial asset management opportunities and income
growth potential. The transaction is expected to be earnings
accretive to Regional REIT, with significant upside potential. The
deal is complementary to the existing asset base of our Company and
aligns well with the expertise and experience of the Asset Manager,
whilst the spread of properties and tenants further underpins the
strength of the Group's income base. Subject to securing all
necessary approvals we anticipate the deal closing in late
March.
Outlook
For 2017 the Group expects a continuation of the positive
occupancy trends in the regional office and light industrial
markets in the UK with the potential for rental income to grow. In
the UK's regions outside of the M25 motorway the fundamentals of
supply and, as yet, occupier demand, have changed little, but we
remain alert to the uncertainties that persist. However, we are
confident that across our portfolio we can maintain the pace of new
lettings and regears to improve occupancy and yield. The
performance for the year ahead is expected to combine improved
rental income - with occupancy expected to rise to around 90% - and
a reduction in the costs ratio from increased scale and lower
voids.
Our strategy, notwithstanding Brexit ambiguities, remains
unchanged. This is based on the longer term business trends we see
underpinning the regions as well as the opportunities of 'the
Northern Powerhouse', the 'Midlands Engine', infrastructure spend,
elected mayors and the new business rates structure, all of which
should benefit the regions. This is reinforced by the prospect of
continued UK economic growth.
The Board retains confidence in our selective approach to
regional commercial property having regard to the implications of
the EU referendum as they emerge. In the current market a key
priority for investors is certainty and quality of income. This is
central to the Regional REIT proposition.
Kevin McGrath
Chairman and Independent Non-Executive Director
22 March 2017
ASSET AND INVESTMENT MANAGERS' REPORT
"It has been a very active year for Regional REIT with
significant acquisitions, continuing our strategy of non-core
disposals, increasing our geographic spread of properties and
growing the number and diversity of our tenants. We continue to
implement our successful approach to active asset management with
our initiatives achieving increased occupancy. We remain optimistic
in respect of our strategy and in the strength of our core regional
office and light industrial property markets."
Stephen Inglis, Group Property Director and Chief Investment
Officer of London & Scottish Investments, the Asset Manager of
Regional REIT Limited
Market Overview
The market in regional commercial real estate remains robust,
from both the occupational and investment perspectives. Whilst
investment volumes were down in 2016, part of this was already
anticipated as a 'hangover' following a record 2015, however, this
was then combined with the market's inactivity in the run-up to and
then post the EU referendum. The commercial property market only
really began to show signs of recovery in the fourth-quarter of
2016.
In the view of the Asset Manager, this undoubtedly held back any
hardening of yields. We witnessed a very thin market with little
transactional activity and with retail property funds and valuers
reactively heavily marking-down values across the board; only for
them to change their views as the market held up and vendors and
purchasers alike regained their self-confidence. For the Asset
Manager, part of the issue in the third-quarter of 2016 was a
mismatch in expectations between purchasers - believing that there
should be a pricing discount in light of the EU referendum vote -
and vendors - who being under no immediate financial pressures were
happy to hold on to properties when they could not secure the 'full
value'.
Commercial property continues to offer a higher yielding
investment class than most equities and other asset classes, with
some certainty of income from leases. As such we, and other market
commentators, expect to see increased investment activity in
2017-18 which could well result in a resumption in the narrowing of
the yield gap between prime and secondary regional properties.
Regional commercial property occupancy remains robust and we
expect this to continue, given the continuing beneficial
supply-demand dynamics of our core markets, and with elements of
our portfolio potentially witnessing headline rental growth for the
first time in several years.
Regional REIT has been active and opportunistic throughout 2016.
The Group undertook property acquisitions of GBP133.6m, with an
average net initial yield of c. 8.6%; disposals amounted to
GBP44.9m net (GBP45.9m before costs), at an average net initial
yield of c. 6.8%. Occupancy increased to 83.8%, from a low of 80.9%
post the acquisition of the Wing and Rainbow portfolios in Q1 2016,
mainly as a result of completing 116 new leases in 2016, totalling
728,382 sq. ft.; when fully occupied these will provide
approximately c. GBP5m pa of contracted rental income. In addition,
the Group has completed 62 lease renewals, c. 67% of the leases
that have come up for renewal in the period. Including these
renewals and the acquisition of new replacement tenants, c. 76% of
the units with lease renewals remain occupied.
Investment Activity in UK Commercial property
In 2016, the total investment in UK commercial property was
GBP48.9bn, 27% lower than in 2015. Investment slowed in the
first-half of 2016 ahead of the EU referendum and then retrenched
further in Q3 2016 following the UK's vote to leave, in the face of
heightened uncertainty and diminished confidence. CoStar estimates
that investment in London property fell by approximately 29%; in
comparison the rest of the UK showed more resilience with an
average year-on-year decline of c. 12%. Investment activity
improved in the final quarter of 2016 (GBP16bn), buoyed by overseas
buyers attracted by the exchange rate advantage and by some
recovery in domestic confidence as the occupier market remained
steady.
Following a recovery in overseas investment in UK commercial
property from 2014-15, overseas investment fell in 2016 by
approximately 33% to GBP19bn. However, overseas investment
increased in the UK's regions, such as Scotland (up 50% y-o-y), the
Midlands (up 23% y-o-y) and the North West (up 19% y-o-y). In
comparison, London experienced its lowest level of overseas
investment spend since 2012.
For the Asset Manager, a key metric is the yield spreads between
prime and secondary properties in the UK's regions, which have
continued to fall over the last 12 months from the historic highs
of 2013-14. The yield spread still remains above its long-term
average, by approximately 1.7 percentage points, indicating that
there continue to be significant opportunities with secondary
properties set to outperform in the short-to medium-term.
Occupational Demand in the UK Regional Office Market
The uncertainty surrounding the EU referendum resulted in lower
levels of take-up ahead of the referendum which then continued
directly after the UK voted to leave. However, an increase in the
level of activity in the fourth-quarter of 2016 boosted letting
activity in the main regional markets.
Take-up of office space reached 5.1 million sq. ft. in 2016,
slightly lower than the 5.6 million sq. ft. recorded in 2015.
Occupational demand was particularly robust in Manchester, Cardiff,
Bristol and Glasgow, mainly as a result of large pre-lets.
Professional services continued to dominate the take-up of office
space throughout 2016, although an increasing amount of office
space was taken by the public sector, accounting for some 20% in
the core regional centres. JLL predicts that the public sector will
continue to drive take-up as the year progresses. Knight Frank
expects occupational demand for office space in the UK to remain
robust throughout 2017.
The supply of offices in the core regional markets remains low,
with occupier demand continuing to reduce availability,
particularly for grade A offices. This has resulted in an increase
in pre-lets signed (developments under construction) in 2016, which
in turn has limited the amount of space being released to market.
Research from Cushman & Wakefield shows that approximately 43%
of new development space was let by completion.
Some activity surveys, such as the recent Deloitte Crane Survey
(January 2017), suggest heightened construction activity in certain
regional urban centres (Birmingham, Manchester, Leeds and Belfast);
a total of approximately 3.7m sq. ft. of office space is currently
under construction. Consequently, in the medium-term, we are likely
to see some increase in regional office supply. Commentators
continue to suggest that a supply-demand imbalance will remain even
when office space currently under construction is complete.
Rental Growth in the UK Regional Office Market
According to JLL, prime rental growth across the core 8 regional
office markets averaged 3.3% (year-on-year) in 2016. However,
increased rent free incentives that were evident in the second-half
of 2016 were indicative of weaker sentiment as a result of
uncertainty likely due to the EU referendum result.
JLL expects headline rental growth for the core 8 regional
office markets to remain well supported throughout 2017, with
falling supply levels for prime properties in the UK's cities to
result in an uplift in rents as the year progresses.
The Asset Manager anticipates that increased occupier activity
in the final quarter of 2016 will continue throughout 2017, with
critically a low supply of prime properties resulting in rising
demand for high-quality secondary properties. In turn, this will
likely put an upward pressure on rents and a downward pressure on
rent incentives.
Regional REIT's Office Assets
A like-for-like comparison of the Group's regional offices from
December 2015 to December 2016, shows that occupancy (by area) rose
to 88.7% (31 December 2015: 83.7%). The like-for-like WAULT to
first break was 3.4 years (31 December 2015: 3.0 years).
Occupier Demand Strengthens in the UK Industrial Market
Take-up in the UK industrial market in 2016 totalled 37.9
million sq. ft., a 6.5% increase from 2015. The industrial sector
was robust in most of the UK's regions throughout 2016, with
particularly strong occupier demand in the Midlands, London and the
South East.
The continued growth in online shopping, which has seen internet
sales grow to a 16% market share, resulted in increased demand for
both big-box and mid-size industrial/warehouse space in urban
areas. Rising demand can also be attributed to variety of other
sectors, including: manufacturing, automotive, pharmaceuticals,
food and engineering.
Development remained focused on Grade A space, with strong
development activity in the South East, the Midlands and the North
West, resulting in stable supply levels for Grade A industrial in
these regions. However, development outside the North-South trunk
roads (namely the M1 and M6 corridor) has increased, with
increasing activity along routes such as the M4, M5 and M62.
The Asset Manager anticipates the combination of growing demand
and limited supply for multi-sized, multi-let industrial sites,
will result in rental growth in 2017.
According to Cushman & Wakefield, some markets may
experience an outward pressure on yields in 2017 as a result of
investors seeking greater risk premiums due to increased
uncertainty.
Industrial Rental Growth Continues
The industrial market, essentially the regions outside London,
experienced the highest rental value growth in 2016, showing a c.
4% increase according to IPD. In comparison, all property average
annual rental value growth was c.2%. The Investment Property Forum
UK Consensus Forecast, February 2017, shows 1.8% and 1.1% average
rental growth rates respectively for 2017 and 2018.
Research by Cushman & Wakefield indicates that limited land
availability will become a major problem, and subsequently moderate
speculative development. Consequently, the supply-demand imbalance
will result in an upward pressure in prime industrial rents
throughout 2017.
Regional REIT's Industrial Assets
Increased occupier demand for industrial space was reflected in
occupancy (by area) for the Group's industrial assets. A
like-for-like comparison of the Group's industrial assets from
December 2015 to December 2016, shows occupancy of 85.7% (31
December 2015: 85.6%). The like-for-like WAULT to first break was
4.2 years (31 December 2015: 5.6 years).
Rental and Capital Value Growth Forecasts (Whole UK)
Rental value Capital value
growth growth Total return
-------------- ----------------------------- ----------------------------- -----------------------------
2017 2018 2019 2017/21 2017 2018 2019 2017/21 2017 2018 2019 2017/21
-------------- ----- ----- ----- -------- ----- ----- ----- -------- ----- ----- ----- --------
Office -1.3 -1.2 0.3 0.2 -3.2 -2.2 0.1 -0.6 1.5 2.5 4.8 4.1
-------------- ----- ----- ----- -------- ----- ----- ----- -------- ----- ----- ----- --------
Industrial 1.8 1.1 1.4 1.5 1.3 0.7 1.0 1.0 6.6 6.1 6.5 6.4
-------------- ----- ----- ----- -------- ----- ----- ----- -------- ----- ----- ----- --------
Standard
Retail 0.7 0.4 0.9 1.0 -1.1 -0.2 1.1 0.6 3.6 4.6 6.0 5.4
-------------- ----- ----- ----- -------- ----- ----- ----- -------- ----- ----- ----- --------
Shopping
Centre 0.4 0.2 0.7 0.8 -2.2 -0.9 0.6 0.0 2.8 4.4 6.0 5.2
-------------- ----- ----- ----- -------- ----- ----- ----- -------- ----- ----- ----- --------
Retail
Warehouse 0.2 0.1 0.6 0.7 -1.8 -0.6 0.5 0.0 3.8 5.2 6.4 5.8
-------------- ----- ----- ----- -------- ----- ----- ----- -------- ----- ----- ----- --------
All Property 0.2 0.1 0.8 0.8 -1.6 -0.7 0.8 0.2 3.2 4.3 5.8 5.2
-------------- ----- ----- ----- -------- ----- ----- ----- -------- ----- ----- ----- --------
Source; Investment Property Forum UK Consensus Forecasts,
ipf.org.uk, Feb 2017
Property Portfolio
As at 31 December 2016, the Group's property portfolio was
valued at GBP502.4m (31 December 2015: GBP403.7m), with contracted
rental income of GBP44.0m (31 December 2015: GBP35.9m), and a
vacancy rate of 16.2% (31 December 2015: 16.1%). There were 123
properties (31 December 2015: 123) in the portfolio, with 941 units
(31 December 2015: 712) and 717 tenants (31 December 2015: 531),
following the acquisition of 20 properties.
If the portfolio was fully occupied at Cushman & Wakefield's
view of market rents, the gross rental income would be GBP53.1
million per annum as at 31 December 2016 (31 December 2015:
GBP40.4m).
As at 31 December 2016 the net initial yield on the portfolio
was 6.7% (31 December 2015: 7.6%), the equivalent yield was 8.6%
(31 December 2015: 8.3%), and the reversionary yield was 9.5% (31
December 2015: 9.0%).
Properties Valuation % by Sq. Occupancy WAULT Gross Net Average ERV Capital Yield (%)
valuation ft. % to rental rental rent rate
first income income GBPpsf
break GBPm GBPm
(yrs)
------------ ----------- ---------- ---------- ------ ---------- ------ ------- ------- -------- ----- -------- ------------------------------------
GBPm (mil) GBPm GBPpsf Net Equivalent Reversionary
initial
Office 61 318.2 63.3% 2.72 82.2% 3.5 28.0 23.4 12.52 34.6 116.95 6.6% 8.6% 9.7%
Industrial 35 147.5 29.4% 4.06 85.3% 3.5 12.9 10.9 3.72 14.9 36.35 6.9% 8.7% 9.3%
Retail 26 36.4 7.2% 0.32 87.5% 4.9 3.1 2.3 11.10 3.5 113.05 6.2% 8.3% 8.7%
Other 1 0.4 0.1% 0.04 2.7% 18.7 0.0 0.0 9.85 0.0 10.30 1.7% 9.8% 5.1%
Total 123 502.4 100.0% 7.14 83.8% 3.6 44.0 36.7 7.36 53.1 70.37 6.7% 8.6% 9.5%
Properties Valuation % by Sq. Occupancy WAULT Gross Net Average ERV Capital Yield (%)
valuation ft. % to rental rental rent rate
(mil) first income income GBPpsf
break GBPm GBPm
(yrs)
------------ ----------- ---------- ------ ---------- ------ ------- ------- --------
GBPm GBPm GBPpsf Net Equivalent Reversionary
initial
------------ ----------- ---------- ---------- ------ ---------- ------ ------- ------- -------- ----- -------- -------- ----------- -------------
Scotland 40 134.7 26.8% 2.41 82.2% 3.5 12.7 11.1 6.43 15.5 55.86 7.8% 9.7% 10.7%
South
East 18 102.6 20.4% 0.95 84.3% 3.6 8.9 7.1 11.17 10.1 108.54 6.2% 7.4% 8.4%
North
East 19 82.3 16.4% 1.36 86.7% 2.5 7.0 5.8 6.00 8.3 60.69 6.7% 8.5% 9.4%
Midlands 22 79.1 15.7% 0.97 81.5% 3.6 6.7 5.9 8.52 7.7 81.58 6.6% 8.2% 8.5%
North
West 15 61.6 12.3% 1.02 89.9% 5.3 5.5 4.9 6.05 6.6 60.41 7.3% 9.1% 9.7%
South
West 7 24.6 4.9% 0.22 58.4% 3.0 1.5 0.7 11.47 3.3 110.83 2.4% 8.5% 10.8%
Wales 2 17.5 3.5% 0.21 88.1% 4.8 1.5 1.1 8.17 1.7 81.46 6.2% 8.4% 9.0%
Total 123 502.4 100.0% 7.14 83.8% 3.6 44.0 36.7 7.36 53.1 70.37 6.7% 8.6% 9.5%
Tables may not sum due to rounding.
Top 15 Investments (market value) as at 31 December 2016
Property Sector Anchor tenants Market % of Lettable Let Annualised WAULT
value portfolio area by area gross to first
(GBPm) rent break
---------------- ------------ --------------- -------- -----------
(sq. ft.) (%) (GBPm) (years)
---------------- ------------ --------------- -------- -----------
Barclays Bank
Tay House, Plc, Glasgow
Glasgow Office University 32.3 6.4% 156,933 87.7% 2.2 4.5
Schenker Ltd,
Vanguard
Logistics
Services Ltd,
Telent
Technology
Services
Ltd, Tigers
Global
Juniper Logistics
Park, Basildon Industrial Ltd 21.8 4.3% 296,100 70.0% 1.5 1.2
Scottish
Widows
Limited,
Buildings The Equitable
2 & 3 HBOS Life
Campus, Assurance
Aylesbury Office Society 20.3 4.0% 146,936 73.9% 1.8 5.2
Thomson Pettie
Limited,
Cummins
Limited,
Balfour
Beatty
WorkSmart
Wardpark Limited,
Industrial Bott Ltd,
Estate, Bunzl UK
Cumbernauld Industrial Limited 19.9 4.0% 707,775 90.7% 2.4 2.3
Hampshire Aviva Health
Corporate UK Limited,
Park, Royal Bank of
Chandler's Scotland
Ford Office plc 15.4 3.1% 85,422 97.8% 1.4 5.0
One & Two
Newstead
Court,
Annesley Office E.ON UK plc 15.4 3.1% 146,262 100.0% 1.4 3.6
Columbus TUI Northern
House, Europe
Coventry Office Limited 14.6 2.9% 53,253 100.0% 1.1 7.0
Road 4
Winsford
Industrial Jiffy
Estate, Packaging
Winsford Industrial Limited 13.5 2.7% 246,209 100.0% 0.9 17.7
Steinhoff UK
Group
Property
Limited, Wren
Living
1-4 Llansamlet Limited,
Retail Halfords
Park, Swansea Retail Limited 12.0 2.4% 71,615 100.0% 1.0 6.3
JD Wetherspoon
PlC, Expotel
Hotel
Arena Point, Reservations
Leeds Office Ltd 12.0 2.4% 98,856 66.8% 0.6 2.2
See Woo Foods
(Glasgow)
Limited,
Howden
Joinery
Properties
Limited, Euro
The Point, Car Parts
Glasgow Industrial Limited 11.6 2.3% 183,690 100.0% 0.9 6.2
Mott MacDonald
Portland Limited,
Street, New College
Manchester Office Manchester 10.8 2.2% 54,959 100.0% 0.8 3.1
HSS Hire
Oaklands Service Group
House, Limited,
Manchester Office Rentsmart Ltd 10.4 2.1% 161,768 80.0% 1.1 3.8
Aviva
CGU House, Insurance
Leeds Office Limited 9.1 1.8% 50,763 100.0% 1.0 0.7
Evolution
Recruitment
Solutions
Ltd,
Environment
Partnership
(TEP) Ltd,
The Genesis Zentek
Centre, Engineering
Warrington Office (UK) Ltd 9.0 1.8% 95,544 64.8% 0.9 1.5
---------------- ------------ --------------- -------- ----------- ---------- --------- ----------- ----------
Total 228.0 45.4% 2,556,085 19.0
Table may not sum due to rounding.
Top 15 Tenants (share of rental income) as at 31 December
2016
Tenant Property Sector WAULT Lettable %
to area of
first Gross
break rental
(years) income
----------------------- -------------------------- ----------------------- --------- --------
(sq.
ft.)
----------------------- -------------------------- ----------------------- --------- --------
Financial
Barclays Bank and insurance
Plc Tay House, Glasgow activities 4.9 78,044 3.7%
Electricity,
gas, steam
One & Two Newstead and air conditioning
E.ON UK Plc Court, Annesley supply 3.6 146,262 3.3%
Financial
Scottish Widows Buildings 2 & 3, and insurance
Limited Aylesbury activities 4.9 80,103 3.1%
Professional,
scientific
TUI Northern Columbus House, and technical
Europe Ltd Coventry activities 7.0 53,253 2.5%
Financial
Aviva Insurance and insurance
Ltd CGU House, Leeds activities 0.7 50,763 2.3%
Bennett House, Hanley,
Sec of State Sheldon Court, Solihull
for Communities and Oakland House,
& Local Govt Manchester Public Sector 0.6 74,886 2.1%
Road 4 Winsford
Jiffy Packaging Industrial Estate,
Ltd Winsford Manufacturing 17.7 246,209 2.0%
The Secretary St Brendans Court,
of State for Bristol, & Festival
Transport Court, Glasgow Public Sector 3.5 55,586 1.6%
Financial
Lloyds Bank Victory House, Meeting and insurance
Plc House Lane, Chatham activities 1.4 48,372 1.5%
Hampshire Corporate Financial
Aviva Health Park, Chandler's and insurance
UK Ltd Ford, Eastleigh activities 2.0 42,612 1.5%
The Scottish
Ministers, c/o
Scottish Prison Calton House, Edinburgh Public Sector 0.8 51,914 1.4%
Administrative
Europcar Group and support
UK Ltd James House, Leicester service activities 4.5 66,436 1.4%
Transportation
Schenker Ltd Juniper Park, Basildon and storage 0.5 86,548 1.3%
Wholesale
Office Depot Niceday House, Meridian and retail
UK Limited Park, Andover trade 2.1 34,262 1.3%
Professional,
scientific
W S Atkins (Services) Century Way, Thorpe and technical
Ltd Park, Leeds activities 1.6 32,647 1.2%
----------------------- -------------------------- ----------------------- --------- ---------- --------
Total 1,147,897 30.3%
Table may not sum due to rounding.
Property Portfolio Sector and Region by Valuation and Income
By Valuation
As at 31 December 2016 63.3% (2015: 59.4%) of the portfolio by
market value was offices and 29.4% (2015: 24.7%) was industrial.
The balance was made up of retail, 7.2% and other, 0.1% (2015:
retail and other 15.9%). By UK region, as at 31 December 2016,
Scotland represented 26.8% (2015: 35.9%) of the portfolio and
England 69.7% (2015: 60.0%); the balance of 3.5% (2015: 4.1%) was
in Wales. In England the largest regions were the South East, the
North East and the Midlands.
By Income
As at 31 December 2016 63.6% (2015: 61.8%) of the portfolio by
income was offices and 29.2% (2015: 24.7%) was industrial. The
balance was made up of retail, 7.1% and other, 0.02% (2015: retail
and other 13.3%). By UK region, as at 31 December 2016, Scotland
represented 29.0% (2015: 35.7%) of the portfolio and England 67.5%
(2015: 60.6%); the balance of 3.5% was in Wales (2015: 3.7%). In
England, the largest regions were the South East, the North East
and the Midlands.
Lease Expiry Profile
The WAULT on the portfolio is 5.2 years (2015: 6.1 years; 5.6
years excluding Blythswood House); WAULT to first break is 3.6
years (2015: 4.4 years; 3.8 years excluding Blythswood House). As
at 31 December 2016, 15.2% (2015: 12.8%) of income was leases which
will expire within 1 year, 22.5% (2015: 31.1%) between 1 and 3
years, 19.2% (2015: 15.6%) between 3 and 5 years and 43.1% (2015:
40.5%) after 5 years.
Tenants by Standard Industrial Classification as at 31 December
2016
As at 31 December 2016, 13.7% of income was from tenants in the
wholesale and retail trade sector, 12.1% Finance and insurance
activities (other) (excluding banking) sector, 11.7% from the
manufacturing and 11.4% from the professional, scientific and
technical activities sector. The remaining exposure is broadly
spread.
No tenant represents more than 5% of the Group's contracted rent
roll as at 31 December 2016, the largest being 3.7%.
Net Asset Value
In the year to 31 December 2016, the EPRA Net Asset Value
("NAV") of the Group decreased marginally to GBP293.2m (31 December
2015: GBP295.7m), equating to a decrease of 0.9pps to 106.9pps (31
December 2015: 107.8pps) after the declaration of dividends in 2016
amounting to 6.25pps.
The Investment Property portfolio valuation was GBP502.4m (2015:
GBP403.7m). In the year to 31 December 2016 the valuation increased
on a like-for-like basis 2.25%, whilst for the period 1 July 2016
to 31 December 2016 on a like-for-like basis the valuation grew
0.03%. The property portfolios acquired in the first-quarter of
2016 were revalued higher at the year-end, however, this was more
than offset by their associated acquisition costs and the impact of
the increase in Stamp Duty on these properties, which together
amounted to 2.5pps in the period.
The marginal reduction in the EPRA NAV over the year was
predominately derived from the pace of capital expenditure,
amounting to GBP9.1m net, which was not fully reflected in the
portfolio valuation. In addition, there was the impairment of the
goodwill, which resulted in a GBP0.6m charge, and an initial
Performance Fee provision of GBP0.3m, as well as dividends declared
amounting to GBP17.1m, all of which had a particular impact in the
second-half of 2016. These more than offset gains from the
valuation of properties, net rental income and disposal gains.
In the year to 31 December 2016 the Group completed property
acquisitions of GBP133.6m (gross, including transaction costs,
GBP140.7m), and disposals of GBP44.9m (gross, before transaction
costs, GBP45.9m) and capital expenditure of GBP9.1m net.
The NAV decreased to 106.4pps (31 December 2015: 107.7pps) over
the same period. The EPRA NAV is reconciled in the table below.
2016 2015
Pence Pence
per Share per Share
EPRA NAV as at 1 January 2016
(2015 : 6 November 2015) 107.8 100.0
Net rental income 13.9 1.7
Administration and other expenses (3.0) (0.5)
Gain on the disposal of investment
properties 0.2 0.0
Change in the fair value of investment
properties (2.5) 8.7
Operating profit before exceptional
items 116.4 109.9
Exceptional Item (2015: Launch
Costs) 0.0 (1.9)
----------- -----------
Operating profit after exceptional
items 116.4 108.0
Net Finance expense (3.1) (0.3)
Impairment of Goodwill (0.2) 0.0
Net movement in fair value of
derivative financial instruments (0.4) 0.0
Operating profit after finance
item 112.7 107.7
Income tax 0.0 0.0
Operating profit after taxation 112.7 107.7
Dividends paid (6.3) 0.0
Net Asset Value 106.4 107.7
GainLoss in fair value of derivative
financial instruments 0.5 0.1
EPRA NAV per share as at 31 December
2016 106.9 107.8
----------- -----------
Income Statement
The 2015 comparative period was 56 days, being 6 November 2015
to 31 December 2015. (inclusive).
Operating profit before exceptional items and gains and losses
on property assets and other investments for the year ended 31
December 2016 amounted to GBP29.9m (2015: 56 days, GBP3.3m). Profit
after finance items and before taxation was GBP13.4m (2015: 56
days, GBP21.1m). 2016 included a full rent roll of properties held
as at 31 December 2015, plus the partial rent roll for properties
acquired during 2016. 2015 included an exceptional item for launch
costs, of GBP5.3m, which were incurred as a result of the Group's
Admission to the London Stock Exchange ("LSE"), as well as a
GBP23.8m gain in the fair value of investment properties.
Rental income amounted to GBP43.0m (2015: 56 days, GBP5.4m).
More than 80% of the rental income is collected within 28 days of
the due date and bad debts in the year were minimal (2015: 56 days:
minimal).
The EPRA cost ratio was 30.4% (2015: 56 days, 39.3%) which is
the result of, as expected, higher void costs, additional expenses
arising from property acquisitions, legal and professional fees
associated with the refinancing's and expenses associated with
establishing a listed company. The increased void costs were a
consequence of the significant property portfolio acquisitions in
the first-quarter of 2016, with higher void rates than the Group's
then portfolio. The costs ratio in the second-half of 2016 was
lower, largely a consequence of the reduced acquisitions and
refinancing activity. It is anticipated that the underlying costs
ratio is trending down, with the benefit of the increasing scale of
the Group's business and as it matures as a public company. The
costs ratio in 2015 included the effects of certain costs incurred
in the 56-day accounting period that would have normally been
charged for a full year, for example, auditor's fees and legal and
professional fees.
Administrative expenses include, for the first time, an initial
accrual for the Performance Fee for the period 6 November 2015 to
31 December 2018. As at 31 December 2016 the aggregate accrual was
GBP0.25m, all of which was charged in the year; as noted previously
the Group had identified but not accrued GBP0.1m for the 56 days of
2015. The total return from 6 November 2015 to 31 December 2016 was
13.2%, an annualised rate of 11.5%.
Finance expense increased due to increased debt and costs
arising on the significant refinancing activity in the first-half
of 2016 when refinancing costs amounted to GBP1.7.m. The Group's
percentage cost of debt (interest cost and hedging expense)
nonetheless decreased, a combination of the favourable financing
environment and its status as a listed Company which improved the
Company's access to banking facilities.
Dividend
In relation to the period 1 January 2016 to 31 December 2016,
the Company declared dividends totalling 7.65pps (2015: 56 days:
1pps).
Period Announcement Record Pence
Covered Date Ex-Date Date Paid Date Per Share
-------------- -------------- --------- -------- ----------- -----------
6 Nov 2015
to 31 Dec 17 Mar 18 Mar 15 Apr
2015 7 Mar 2016 2016 2016 2016 1.00p
-------------- -------------- --------- -------- ----------- -----------
1 Jan 2016
to 31 Mar 9 Jun 10 Jun 8 Jul
2016 27 May 2016 2016 2016 2016 1.75p
-------------- -------------- --------- -------- ----------- -----------
1 Apr to 8 Sep 9 Sep 7 Oct
30 Jun 2016 1 Sep 2016 2016 2016 2016 1.75p
-------------- -------------- --------- -------- ----------- -----------
1 Jul to 24 Nov 25 Nov 22 Dec
30 Sep 2016 17 Nov 2016 2016 2016 2016 1.75p
-------------- -------------- --------- -------- ----------- -----------
1 Oct to 2 Mar 3 Mar 13 Apr
31 Dec 2016 23 Feb 2017 2017 2017 2017 2.40p
-------------- -------------- --------- -------- ----------- -----------
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-5
years, with a weighted average maturity of 2.9 years (31 December
2015: 3.4 years).
The Group's borrowing facilities are with Santander UK, Royal
Bank of Scotland and ICG Longbow Ltd, and have been fully drawn
down. During the period properties have been sold, resulting in
debt repayment where debt substitution was not possible. Total bank
borrowing at 31 December 2016 amounted to GBP220.1m (31 December
2015: GBP128.6m) (before unamortised debt issuance costs).
At 31 December 2016 the Group's cash and cash equivalent
balances amounted to GBP16.2m (31 December 2015: GBP24.0m).
The Group's net loan-to-value ratio stands at 40.6% (31 December
2015: 25.4%). The Board targets a Group net loan-to-value ratio of
35%, with a maximum limit of 50%.
The table below sets out the borrowings the Group had in place
as at 31 December 2016:
Lender Original Outstanding Maturity GROSS Annual Interest Amortisation Hedging and Swaps:
Facility Debt* Date LTV*** Rate Notional
Amounts/Rates**
------------- ----------- ------------ --------- -------- ---------------- ------------- ----------------------
Mandatory
Santander 2.00% over Prepayment GBP6m/1.867% &
UK GBP48,300 GBP45,432 Dec-18 43.0% 3mth LIBOR basis GBP18.15m/1.014%
Mandatory
Santander 2.00% over Prepayment GBP3.40m/2.246% &
UK GBP25,343 GBP14,340 Dec-18 34.2% 3mth LIBOR basis GBP9.271m/1.010%
Royal Bank 2.15% over GBP12.48m/1.790% &
of Scotland GBP25,000 GBP24,450 Jun-19 42.1% 3mth LIBOR None GBP0.02m/1.110%
ICG Longbow 5.00% pa for
Ltd GBP65,000 GBP65,000 Aug-19 44.3% term None n/a
Mandatory
GBP9.375m/1.086% &
Santander 2.15% over Prepayment GBP6.920m/1.203%
UK GBP30,990 GBP30,990 Jan-21 48.1% 3mth LIBOR basis & GBP5.280m/1.444%
Royal Bank 2.40% over Prepayment
of Scotland GBP40,000 GBP39,848 Mar-21 50.2% 3mth LIBOR basis GBP19.9m/1.395%
GBP234,633 GBP220,060
*Including unamortised
debt issue costs
**Hedging arrangements : As at 31 December 2016, the swap notional arrangements
was GBP90.8m (31 December 2015: GBP35.2m ). Under the swap agreements, the notional
amount
reduces on a
quarterly basis.
*** Based upon Cushman & Wakefield
property valuations.
As at 31 December 2016, the Group has substantial headroom
against its borrowing covenants. The Group has the capacity to
utilise further borrowings, if available, in excess of 20% of its
current NAV.
The net gearing ratio, net debt to ordinary shareholders' equity
(basic), of the Group was 69.9% as at 31 December 2016 (31 December
2015: 34.8%).
Hedging
The Group applies a hedging strategy that is aligned to the
property management strategy. At the year-end borrowings were
106.5% hedged against interest rate risk: of all borrowings 29.5%
are at a fixed rate; 41.3% have interest rate swaps to fix the
variable LIBOR portion of the interest rate applicable; and 35.7%
have interest rate caps which place an upper limit on the variable
LIBOR portion of the interest rate applicable.
The over-hedged position of 106.5% was the result of property
disposals. Further to a management review, since the year end the
position has been addressed with the over-hedged position reduced
to 101.6%.
The weighted average effective interest rate on bank borrowings
as at 31 December 2016, including the cost of hedging, was 3.7% (31
December 2015: 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.
At 31 December 2016 the Group's taxation was a credit of
GBP0.02m, due to a release of a historic accrual (2015: 56 days,
nil).
Subsequent Events after the Reporting Period - Acquisitions and
Disposals
On 23 February 2017, the Group announced that it had reached an
agreement with The Conygar Investment Company PLC. ("Conygar") to
acquire regional office, industrial, retail and leisure properties.
The 31 properties will be acquired by way of the Special Purpose
Vehicles that own the assets, which are geographically spread
across England and Wales. As at 30 September 2016, the mixed-use
portfolio had a gross investment value of c. GBP129m totalled
1,280,980 sq. ft., serviced 115 tenants and had a contracted rent
roll of GBP9.7m per annum with a net initial yield of 7%.
The consideration of c. GBP28m will be satisfied by the issuance
of approximately 26.3m Regional REIT Limited ordinary shares, at an
agreed adjusted EPRA NAV of 106.347 pence per share, the assumption
of GBP69.5m of bank borrowings, and the acquisition of Conygar ZDP
PLC, whose obligations total c. GBP35.7m at the expected completion
date of the acquisition in late March 2017.
The proposed acquisition is conditional upon the approval of
Conygar ordinary shareholders, the holders of the Conygar ZDP PLC
preference shares, and the two banks currently providing secured
lending to Conygar.
On 28 February 2017, the Group increased its borrowings from
Santander UK by GBP10.0m, taking advantage of the competitive
borrowing environment.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board acknowledges that it faces a number of risks which
could impact its ability to achieve its strategy. While it is not
possible to identify or anticipate every risk due to the changing
business environment, the Group has established a risk management
process to monitor and mitigate identifiable risks. The Board and
the Audit Committee robustly reviews the risk management plan on a
bi-annual basis. The below list sets out the current identifiable
principal risks in no particular order which the Board is
monitoring, but 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.
RISK IMPACT MITIGATION MOVEMENT IN
THE PERIOD
----------------- ---------------------- ------------------------- ----------------------
Investment Investment The Board [UNCHANGED]
in Commercial decisions will acquire The property
Property Assets and deviation a portfolio portfolio
from the investment of interests remains balanced
strategy could that together across a range
result in offer Shareholders of geographical
lower income diversification areas and
and capital of investment large number
returns to risk by investing of investment
Shareholders. in a range properties.
of geographical
areas and
a large number
of assets.
----------------- ---------------------- ------------------------- ----------------------
The Board [UNCHANGED]
will only The Group
invest in continues
office and to purchase
industrial properties
properties outside the
that are situated M25 motorway.
in the United
Kingdom and
outside of
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 [UNCHANGED]
property, Tay House
in the ordinary is the highest
course of valued property
business, which equates
is expected to 6.4% of
to exceed the Group's
10% of the investment
Group's aggregate properties.
Investment
Properties.
However, the
Board may,
in exceptional
circumstances,
consider a
property having
a value of
up to 20%
of the Group's
Investment
Property value
at the time
of investment.
----------------- ---------------------- ------------------------- ----------------------
No more than [UNCHANGED]
20% of the The Group's
Group's Investment largest single
Property value tenant exposure
shall be exposed is 3.7%.
to any single
tenant or
group undertaking
of that tenant.
----------------- ---------------------- ------------------------- ----------------------
Speculative [UNCHANGED]
development No speculative
(ie, properties construction
under construction, was undertaken
but excluding in the year.
any refurbishment
works, which
have not been
pre-let) is
prohibited.
----------------- ---------------------- ------------------------- ----------------------
The value [UNCHANGED]
of the assets The Asset
is protected Manager continues
by an active to actively
property management manage the
programme investment
and this is properties
regularly in accordance
reviewed against with market
the business conditions
plan for the and individual
acquisition. asset programme.
----------------- ---------------------- ------------------------- ----------------------
Economic and The macro The Board [TRING
Political health of receives advice UPWARDS]
Risk the UK economy on macro-economic Following
could impact risks from the vote to
on borrowing the Investment end the UK's
costs, demand Manager and membership
by tenants other advisors of the EU
for suitable and will act on 23 June
properties accordingly. 2016, there
and the quality remains a
of the tenants. risk that
property valuations
and the occupancy
market may
be impacted
while this
period of
uncertainty
is negotiated.
----------------- ---------------------- ------------------------- ----------------------
Bank reference The Board [UNCHANGED]
interest rates has instigated Continued
may be set a policy of adherence
to rise accompanying hedging at to the hedging
higher inflation. least 90% policy.
of variable
interest rate
borrowings.
----------------- ---------------------- ------------------------- ----------------------
The Bank of The Group's [UNCHANGED]
England Financial borrowings The lending
Stability are currently institutions
Report, November provided by continue to
2016, notes a range of lend to established
there is a institutions customers
risk of further with varying within agreed
adjustment maturities. limits.
in the commercial The Board
real estate is constantly
market, given reviewing
the reliance funding options
of the sector with an emphasis
on inflows on the lengthening
of foreign the maturity
capital, and of borrowings.
some incidences
of stretched
valuations.
Further price
falls could
reduce access
to finance
----------------- ---------------------- ------------------------- ----------------------
Tenant Risk Type of tenant Income risk [UNCHANGED]
and concentration has been diversified The tenant
of tenant by letting mix and their
could result properties, underlying
in lower income where possible, activity business
from reduced to a large remains diversified,
lettings or number of and the number
defaults. low risk tenants of tenants
across a wide has risen
range of different to 717 as
business sectors at 31 December
throughout 2016.
the United
Kingdom.
----------------- ---------------------- ------------------------- ----------------------
A high concentration The portfolio [UNCHANGED]
of lease term lease and The WAULT
maturity and/or maturity concentrations to first break
break options. are monitored as at 31 December
by the experienced 2016 was 3.6
Asset Manager years. The
to minimise largest tenant
concentration. is 3.7% of
With a focus the gross
on securing rental income.
early renewals
and increased
lease period.
----------------- ---------------------- ------------------------- ----------------------
The requirement [UNCHANGED}
for suitable The Asset
tenants and Management
the quality team remains
of the tenant vigilant to
is managed the health
by the experienced of current
Asset Manager tenants and
which maintains continues
close relationships to liaise
with current with occupiers
tenants and and agents.
with letting
agents.
----------------- ---------------------- ------------------------- ----------------------
Financial Changes to The REIT regime, [UNCHANGED]
and Tax Change the UK REIT, tax and financial The Group
Risk tax and financial legislative continues
legislation. changes may to receive
have an adverse advice from
impact on a number of
the Group. corporate
The Board advisors and
receives advice adapts to
on these changes changes as
where appropriate required.
and will act
accordingly.
----------------- ---------------------- ------------------------- ----------------------
Operational Business disruption The Asset [UNCHANGED]
Risk could impinge Manager and Both the Asset
on the normal Investment Manager and
operations Manager each Investment
of the Group. have contingency Manager annually
plans in place review their
to ensure Disaster and
there are Business Continuity
no disruptions Plans.
to the core
infrastructure,
including
cyber security
measures,
which would
impinge on
the normal
operations
of the Group.
----------------- ---------------------- ------------------------- ----------------------
An annual [UNCHANGED]
due diligence Annual due
exercise is diligence
carried out visits were
on all principal undertaken
vendors. with the Company's
principal
vendors.
----------------- ---------------------- ------------------------- ----------------------
As an externally [UNCHANGED]
managed Company, Both the Asset
there is a Manager and
continued Investment
reliance on Manager are
the Asset viable long-term
Manager and concerns.
Investment
Manager.
----------------- ---------------------- ------------------------- ----------------------
Accounting, Changes to The Group [UNCHANGED]
Legal and the accounting has robust The Group
Regulatory legal and/or processes continues
Risk regulatory in place to to receive
legislation ensure adherence advice from
to accounting, its corporate
tax, legal advisors and
and regulatory has incorporated
requirements. changes where
required.
----------------- ---------------------- ------------------------- ----------------------
All contracts [UNCHANGED]
are reviewed The Group
by the Group's continues
legal advisors. to receive
advice from
its corporate
advisors and
has incorporated
changes where
required.
----------------- ---------------------- ------------------------- ----------------------
The Group [UNCHANGED]
has processes The Administrator
in place to continues
ensure compliance to attend
with the applicable all Board
Listing Rules meetings and
for a Premium advise on
Listed company. Listing Rules
The Administrator, in conjunction
in its capacity with the Financial
as Group Accountant Advisor and
and the Company Broker.
Secretary
attends all
Board meetings
to be aware
of all announcements
that need
to be made.
All compliance
issues are
raised with
the Financial
Advisor and
Broker
----------------- ---------------------- ------------------------- ----------------------
RESPONSIBILITY STATEMENT
The following statement will be contained in the 2016 Annual
Report and Accounts:
The Directors are responsible for preparing the Annual Report
and the Group and Company Financial Statements in accordance with
applicable law and regulations.
The 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
("FCA") to prepare group financial statements in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union ("EU") and have elected under the 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 are required to:
-- select suitable accounting policies and then apply them consistently;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- make judgements and estimates that are reasonable and prudent;
-- state that the Group has complied with IFRS, subject to any
material departures disclosed and explained in the financial
statements; 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 Law 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
Company's website.
Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Each of the Directors confirms that to the best of each person's
knowledge:
-- The Financial Statements, prepared in accordance with the
International Financial Reporting Standards as adopted by the EU
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole;
-- The Asset Manager's and Investment Manager' Report include a
fair review of the development and performance of the business and
the position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principle risks and uncertainties they face; and
-- The Annual Report and Accounts, taken as a whole, are fair
balanced and understandable and provide the information necessary
for shareholders to assess the Company's and Group's performance,
business model and strategy.
This responsibility statement was approved by the Board of
Directors on 22 March 2017 and signed on its behalf by:
Kevin McGrath
Chairman and Independent Non-Executive Director
22 March 2017
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2016
The comparative period starts from 22 June 2015 the date of
incorporation; however trading did not commence until 6 November
2015.
Year ended 22 June
31 December 2015 to
Notes 2016 31 December
GBP'000 2015
GBP'000
Continuing Operations
Revenue
Rental income 5a 42,994 5,361
Non recoverable property
costs 6 (4,866) (753)
Net rental income 38,128 4,608
Administrative and other
expenses 7 (8,217) (1,353)
Operating profit before
gains and losses on property
assets and other investments 29,911 3,255
Gain on disposal of investment
properties 15 518 86
Change in fair value of
investment properties 15 (6,751) 23,784
Operating profit before
exceptional items 23,678 27,125
Exceptional items 9 - (5,296)
Operating profit after
exceptional items 23,678 21,829
Finance income 10 193 177
Finance expense 11 (8,822) (997)
Impairment of goodwill 17 (557) -
Net movement in fair value
of derivative financial
instruments 25 (1,097) 115
Profit before tax 13,395 21,124
Taxation 12 23 -
Profit for the year after
tax
(attributable to owners
of the parent) 13,418 21,124
Other comprehensive income - -
Total comprehensive income
for the year 13,418 21,124
Attributable to:
Owners of the parent 13,418 21,124
Non-controlling interests - -
13,418 21,124
Total comprehensive income arises from continuing
operations.
Earnings per share attributable
to owners of the parent
- basic 13 4.9p 7.7p
Earnings per share attributable
to owners of the parent
- diluted 13 4.9p 7.7p
EPRA earnings/(losses)
per share attributable
to owners of the parent
- basic 13 7.7p (1.1)p
EPRA earnings/(losses)
per share attributable
to owners of the parent
- diluted 13 7.7p (1.1)p
The notes below are an integral part of these consolidated
financial statements.
Consolidated Statement of Financial Position
As at 31 December 2016
The comparative period starts from 22 June 2015 the date of
incorporation; however trading did not commence until 6 November
2015.
31 December 31 December
2016 2015
Notes GBP'000 GBP'000
Assets
Non-current assets
Investment properties 15 502,425 403,702
Goodwill 17 2,229 2,786
Non-current receivables
on lease surrender 18a 206 1,004
Non-current receivables
on tenant loan 18b 1,541 -
506,401 407,492
Current assets
Trade and other receivables 19 11,375 11,848
Cash and cash equivalents 20 16,199 23,955
27,574 35,803
Total assets 533,975 443,295
Liabilities
Current liabilities
Trade and other payables 21 (14,601) (12,576)
Deferred income 22 (8,022) (5,906)
Taxation liabilities 23 (662) (2,387)
Bank and loan borrowings 24 - (200)
(23,285) (21,069)
Non-current liabilities
Bank and loan borrowings 24 (217,442) (126,469)
Derivative financial
instruments 25 (1,513) (416)
(218,955) (126,885)
Total liabilities (242,240) (147,954)
Net assets 291,735 295,341
Equity
Stated capital 28 274,217 274,217
Retained earnings 17,518 21,124
Total equity attributable
to owners of the parent 291,735 295,341
Net assets per share
- basic 29 106.4p 107.7p
Net assets per share
- diluted 29 106.3p 107.7p
EPRA net assets per share
- basic 29 106.9p 107.8p
EPRA net assets per share
- diluted 29 106.9p 107.8p
These consolidated group financial statements were approved by
the Board of Directors and authorised for issue on 22 March 2017
and signed on its behalf by:
Kevin McGrath,
Chairman and Independent Non-Executive Director
22 March 2017
Consolidated Statement of Changes in Equity
For the year ended 31 December 2016
Attributable to owners
of the parent
Note Stated Retained
capital earnings Total
GBP'000 GBP'000 GBP'000
Balance at 1 January
2016 274,217 21,124 295,341
Total comprehensive
income - 13,418 13,418
Share based payments 32 - 115 115
Dividends paid 14 - (17,139) (17,139)
Total transactions
with owners, recognised
directly in equity - (17,024) (17,024)
Balance at 31 December
2016 274,217 17,518 291,735
Consolidated Statement of Changes in Equity
For the period 22 June 2015 to 31 December 2015
The comparative period starts from 22 June 2015 the date of
incorporation; however trading did not commence until 6 November
2015.
Attributable to owners
of the parent
Note Stated Retained
capital earnings Total
GBP'000 GBP'000 GBP'000
Balance at 22 - - -
June 2015
Total comprehensive
income - 21,124 21,124
Issue of Shares
at no par value 28 274,217 - 274,217
Total transactions
with owners, recognised
directly in equity 274,217 - 274,217
Balance at 31
December 2015 274,217 21,124 295,341
Consolidated Statement of Cash Flows
For the year ended 31 December 2016
The comparative period starts from 22 June 2015 the date of
incorporation; however trading did not commence until 6 November
2015.
22 June
Year ended 2015 to
31 December 31 December
2016 2015
GBP'000 GBP'000
Cash flows from operating
activities
Profit for the year after
taxation 13,418 21,124
- Change in fair value of
investment properties 6,751 (23,784)
- Change in fair value of
financial derivative instruments 1,097 (115)
- Gain on disposal of investment
properties (518) (86)
Impairment of goodwill 557 -
Finance income (193) (177)
Finance expense 8,822 997
Share based payments 115 -
Taxation (23) -
Increase in trade and other
receivables (716) (5,358)
Increase in trade and other
payables and deferred income 2,124 5,167
Cash generated from/(used
in) operations 31,434 (2,232)
Financial income 988 247
Finance costs (7,614) (671)
Taxation paid (1,715) -
Net cash flow generated
from/(used in) operating
activities 23,093 (2,656)
Investing activities
Purchase of investment
properties (144,143) (4,190)
Sale of investment properties 44,857 5,347
Interest received 60 12
Acquisition of subsidiaries,
net of cash acquired (5,573) 26,659
Net cash flow (used in)/generated
from investing activities (104,799) 27,828
Financing activities
Dividends paid (15,723) -
Bank borrowings advanced 107,762 -
Bank borrowings repaid (16,345) (1,217)
Bank borrowing costs paid (1,744) -
Net cash flow generated
from/(used in) financing
activities 73,950 (1,217)
Net (decrease)/increase in
cash and cash equivalents
for the year (7,756) 23,955
Cash and cash equivalents 23,955 -
at the start of the year
Cash and cash equivalents
at the end of the year 16,199 23,955
Company Statement of Comprehensive Income
For the year ended 31 December 2016
The comparative period starts from 22 June 2015 the date of
incorporation; however trading did not commence until 6 November
2015.
22 June
Year ended 2015 to
31 December 31 December
Notes 2016 2015
GBP'000 GBP'000
Revenue
Amounts charged to group
entities 5b 837 -
Administrative and other
expenses 7 (3,343) (700)
Operating loss before
exceptional items (2,506) (700)
Exceptional items 9 - (5,296)
Operating loss after exceptional
items (2,506) (5,996)
Finance income 10 19,061 5,150
Profit/(loss) before tax 16,555 (846)
Taxation 12 - -
Profit/(loss) for the
year after tax
(attributable to equity
shareholders) 16,555 (846)
Other comprehensive income - -
Total comprehensive income/(loss)
for the year 16,555 (846)
Attributable to:
Equity shareholders 16,555 (846)
16,555 (846)
Total comprehensive income arises from continuing
operations.
Earnings per share attributable
to owners of the parent
- basic 13 6.0p (0.3)p
Earnings per share attributable
to owners of the parent
- diluted 13 6.0p (0.3)p
Company Statement of Financial Position
As at 31 December 2016
The comparative period starts from 22 June 2015 the date of
incorporation; however trading did not commence until 6 November
2015.
31 December 31 December
2016 2015
Notes GBP'000 GBP'000
Assets
Non-current assets
Investment in subsidiaries 16 274,286 274,217
274,286 274,217
Current assets
Trade and other receivables 19 870 3
Cash and cash equivalents 20 65 19
935 22
Total assets 275,221 274,239
Liabilities
Current liabilities
Trade and other payables 21 (2,319) (868)
Total liabilities (2,319) (868)
Net assets 272,902 273,371
Equity
Stated capital 28 274,217 274,217
Accumulated losses (1,315) (846)
Total equity 272,902 273,371
Net assets per share -
basic 29 99.5p 99.7p
Net assets per share -
diluted 29 99.5p 99.7p
These financial statements were approved by the Board of
Directors and authorised for issue on 22 March 2017 and signed on
its behalf by:
Kevin McGrath,
Chairman and Independent Non-Executive Director
22 March 2017
Company Statement of Changes in Equity
For the year ended 31 December 2016
Note Stated Accumulated
capital losses Total
GBP'000 GBP'000 GBP'000
Balance at 1 January
2016 274,217 (846) 273,371
Total comprehensive
income - 16,555 16,555
Share based payments 32 - 115 115
Dividends paid 14 - (17,139) (17,139)
Total transactions
with owners, recognised
directly in equity - (17,024) (17,024)
Balance at 31
December 2016 274,217 (1,315) (272,902)
Company Statement of Changes in Equity
For the period 22 June 2015 to 31 December 2015
The comparative period starts from 22 June 2015 the date of
incorporation; however trading did not commence until 6 November
2015.
Note Stated Accumulated
capital losses Total
GBP'000 GBP'000 GBP'000
Balance at 22 - - -
June 2015
Total comprehensive
loss - (846) (846)
Issue of Shares
at no par value 28 274,217 - 274,217
Total transactions
with owners, recognised
directly in equity 274,217 - 274,217
Balance at 31
December 2015 274,217 (846) 273,371
Company Statement of Cash Flows
For the year ended 31 December 2016
The comparative period starts from 22 June 2015 the date of
incorporation; however trading did not commence until 6 November
2015.
22 June
Year ended 2015 to
31 December 31 December
2016 2015
GBP'000 GBP'000
Cash flows from operating
activities
Profit/(loss) for the year
after taxation 16,555 (846)
Share based payments 46 -
Increase in trade and other
receivables (867) (3)
Increase in trade and other
payables and deferred income 35 868
Cash generated from operations 15,769 19
Financial income - -
Net cash flow generated
from operating activities 15,769 19
Investing activities
Acquisition of subsidiaries - -
Net cash flow used in
investing activities - -
Financing activities
Dividends paid (15,723) -
Net cash flow used in
financing activities (15,723) -
Net increase in cash and
cash equivalents for the
year 46 19
Cash and cash equivalents 19 -
at the start of the year
Cash and cash equivalents
at the end of the year 65 19
Notes to the Financial Statements
For the year ended 31 December 2016
1. Corporate Information
The Group's consolidated financial statements for the year ended
31 December 2016 comprise the results of the Company and its
subsidiaries (together constituting "the Group") and, together with
the Company's financial statements, were approved by the Board and
authorised for issue on 22 March 2017.
Regional REIT Limited ("the Company") is a company limited by
shares incorporated in Guernsey under The Companies (Guernsey) Law,
2008, as amended (the "Law"). The Company's Ordinary Shares are
admitted to the Official List of the UK Listing Authority ("UKLA"),
a division of the Financial Conduct Authority ("FCA"), and traded
on the London Stock Exchange ("LSE").
The Company was incorporated on 22 June 2015 and is registered
with the Guernsey Financial Services Commission as a Registered
Closed-Ended Collective Investment Scheme pursuant to The
Protection of Investors (Bailiwick of Guernsey) Law, 1987, as
amended, and the Registered Collective Investment Schemes Rules
2015.
The Company did not begin trading until 6 November 2015 when the
shares were admitted to trading on the LSE.
The nature of the Group's operations and its principal
activities are set out in the Chairman's Statement.
The address of the registered office is: Mont Crevelt House,
Bulwer Avenue, St. Sampson, Guernsey, GY2 4LH.
2. Basis of preparation
In accordance with Section 244 of The Companies (Guernsey) Law
2008, the Group confirms that the financial information for the
year ended 31 December 2016 are derived from the Group's audited
financial statements and that these are not statutory accounts and,
as such, do not contain all information required to be disclosed in
the financial statements prepared in accordance with International
Financial Reporting Standards ("IFRS").
The statutory accounts for the year ended 31 December 2016 have
been audited and approved, but have not yet been filed.
The Group's audited financial statements for the year ended 31
December 2016 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 22
March 2017.
2.1 Comparative period
The comparative period reported in these financial statements is
not a full year as the Group was not in existence for that period,
but represents the period disclosed in the preceding financial
statements from 22 June 2015 to 31 December 2015, however, trading
did not commence until 6 November 2015.
2.2 Functional and presentation currency
The financial information is presented in Pounds Sterling which
is also the functional currency, and all values are rounded to the
nearest thousand (GBP'000s) pound, except where otherwise
indicated.
2.3 Going concern
The assessments of going concern are prepared in accordance with
the FRC Guidance issued September 2014.
The Directors have carefully considered 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 has adequate financial resources to
continue in operational existence for the foreseeable future.
Accordingly, the Board of Directors continue to adopt the going
concern basis in preparing the financial statements.
2.4 Business combinations
The Group may acquire 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. For an acquisition of a business where an
integrated set of activities are acquired in addition to the
property the Group accounts for the acquisition as a business
combination under IFRS 3.
Where such acquisitions are not judged to be the acquisition of
a business they are not treated as business combinations. Rather,
the cost to acquire the corporate entity is allocated between the
identifiable assets and liabilities of the entity based upon their
relative fair values at the acquisition date. Accordingly, no
goodwill or additional deferred tax arises.
2.5 New standards, amendments and interpretations
New standards, amendments to standards and interpretations which
came into effect for accounting periods starting on or after 1
January 2016 have not had a significant impact on the preparation
of these financial statements.
2.6 New standards, amendments and interpretations effective for
future accounting periods
A number of new standards, amendments to standards and
interpretations are effective for periods beginning on or after 1
January 2017, and have not been applied in preparing these
financial statements. These are:
Amendments to IAS 7 'Statement of Cash Flows', is effective for
annual period beginning on or after a January 2017. The amendments
require the disclosure of cash and non-cash changes in liabilities
arising from financing activities.
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 July 2014. 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. Other changes include changes
to the model for impairments from "expected loss" to "incurred
loss".
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.
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 assess IFRS 15's full impact and intends to
adopt IFRS 15 no later than the accounting period beginning on or
after 1 January 2018.
Amendment to IFRS 2, 'Classification and measurement of
share-based payment transactions', is effective for annual periods
beginning on or after 1 January 2018. Amendments to IFRS 2 are
intended to eliminate diversity in practice in three main
areas:
-- The effects of vesting conditions on the measurement of a
cash-settled share-based payment transaction.
-- The classification of a share-based payment transaction with
net settlement features for withholding tax obligations.
-- The accounting where a modification to the terms and
conditions of a share-based payment transaction changes its
classification from cash-settled to equity-settled.
The Group has yet to assess the full impact of the amendments to
IFRS 2 and intends to adopt them no later than the accounting
period beginning on or after 1 January 2018.
IFRS 16, 'Leases', is effective for accounting periods beginning
on or after 1 January 2019. Under IFRS 16, most leased assets are
capitalised as "right-to-use-assets" by recognising the present
value of the lease payments as an asset and a financial liability
representing the obligation to make future lease payments. This is
a significant change for the lessee, however IFRS 16 substantially
carries forward existing lessor accounting from IAS 17.
The Group has yet to assess the full impact of IFRS 16 and
intends to adopt the standard no later than the accounting period
beginning on or after 1 January 2019.
3. Significant accounting judgements, estimates and
assumptions
The preparation of the financial statements requires management
to make judgements, estimates and assumptions that affect the
reported amounts of revenues, expenses, assets and liabilities and
the disclosure of contingent liabilities at the reporting date.
However, uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the
carrying amount of the asset or liability affected in future
periods.
3.1. Critical accounting estimates and assumptions
The principal estimates that may be material to the carrying
amount of assets and liabilities are as follows:
3.1.1 Valuation of investment property
The fair value of investment property, which has a carrying
value at the reporting date of GBP502,425,000 (31 December 2015:
GBP403,702,000), is determined by independent property valuation
experts to be the estimated amount for which a property should
exchange on the date of the valuation in an arm's length
transaction. Properties have been valued on an individual basis.
The valuation experts use recognised valuation techniques applying
the principles of both IAS 40 and IFRS 13.
The 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
respective counterparties with revaluation occurring on a quarterly
basis. The counterparties will use a number of assumptions in
determining the fair values including estimations over future
interest rates and therefore future cash flows. The fair value
represents the net present value of the difference between the cash
flows produced by the contracted rate and the valuation rate. The
carrying value of the derivatives at the reporting date was
GBP1,513,000 (31 December 2015: GBP416,000). The significant
methods and assumptions used in estimating the fair value of the
interest rate derivatives are set out in note 25.
3.1.3 Estimated impairment of goodwill
The Group tests annually whether goodwill has suffered any
impairment. The recoverable amounts of cash generating units have
been determined based on value-in-use calculations. These
calculations require the use of estimates. The carrying value of
the goodwill at the reporting date was GBP2,229,000 (31 December
2015: GBP2,786,000).
3.2. Critical judgements in applying the Group's accounting
policies
In the process of applying the Group's accounting policies,
management has made the following judgements, which have the most
significant effect on the amounts recognised in the financial
statements.
3.2.1 Operating lease contracts - the Group as lessor
The Group has acquired investment properties that are subject to
commercial property leases with tenants. The Group has determined,
based on an evaluation of the terms and conditions of the
arrangements, particularly the duration of the lease terms and
minimum lease payments, that it retains all of the significant
risks and rewards of ownership of these properties and so accounts
for the leases as operating leases.
3.2.2 Performance Fee
The Asset Manager and the Investment Manager are each entitled
to 50% of a Performance Fee. The fee is calculated at a rate of 15%
of Shareholder Returns in excess of the Hurdle Rate of 8% for the
relevant performance period. Shareholder Returns for any
performance period consists of the sum of any increase or decrease
in EPRA NAV per Ordinary Share and the total dividends per Ordinary
Share declared in the performance period.
A Performance Fee is only payable in respect of a performance
period where the EPRA NAV per Ordinary Share exceeds the High-water
mark which is equal to the greater of the highest year-end EPRA NAV
Ordinary Share in any previous performance period or the Placing
price (100p per Ordinary Share). The Performance Fee is to be
calculated initially on 31 December 2018, and annually thereafter.
Full details of the Managers' Performance Fees are given on pages
183-85 of the IPO Prospectus.
In the period from incorporation to date, the Group has met the
criteria of the Performance Fee, however, future circumstances may
dictate that no Performance Fee is ultimately due. Management have
modelled a number of scenarios for the Performance Fee calculation
and has concluded that it is appropriate for a liability to be
accrued in the consolidated financial statements. Further details
are disclosed in note 32.
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
which 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. Further details are disclosed in note
16.
4. Summary of significant accounting policies
The accounting policies adopted in this report are consistent
with those applied in the financial statements for the period ended
31 December 2015 and have been consistently applied for the year
ended 31 December 2016. There are no significant changes to the
financial statements arising from accounting standards effective
for the first time.
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. 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.
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 is
recognised in profit or loss. Contingent consideration that is
classified as equity is not re-measured, and its subsequent
settlement is accounted for within equity.
For acquisitions of subsidiaries not meeting the definition of a
business, the Group allocates the cost between the individual
identifiable assets and liabilities in the Group based on their
relative fair values at the date of acquisition. Such transactions
or events do not give rise to goodwill.
Inter-company transactions, balances and unrealised gains and
losses on transactions between Group companies are eliminated in
full. When necessary, amounts reported by subsidiaries have been
adjusted to conform to the Group's accounting policies.
The excess of the consideration transferred, and the amount of
any non-controlling interest in the acquiree over the fair value of
the identifiable net assets acquired is recognised as goodwill.
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 the carrying
amount recognised in profit or loss. The fair value is the initial
carrying amount for the purposes of subsequently accounting for the
retained interest as an associate, joint venture or financial
asset. In addition, any amounts previously recognised in other
comprehensive income in respect of that entity are accounted for as
if the Group had directly disposed of the related assets or
liabilities. This may mean that amounts previously recognised in
other comprehensive income are reclassified to profit or loss.
4.3. Segmental information
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker is the person or group that
allocates resources to and assesses the performance of the
operating segments of an entity. The Group has determined that its
chief operating decision-maker is the Board of Directors.
After a review of the information provided for management
purposes, it was determined that the Group has one operating
segment and therefore segmental information is not disclosed in
these consolidated financial statements.
4.4. Investment property
Investment property comprises freehold or leasehold properties
that are held to earn rentals or for capital appreciation, or both
rather than for sale in the ordinary course of business or for use
in production or administrative functions.
Investment property is recognised, usually, on legal completion,
when the risks and rewards of ownership have been transferred and
is measured initially at cost including transaction costs.
Transaction costs include transfer taxes, professional fees for
legal services and other costs incurred in order to bring the
property to the condition necessary for it to be capable of being
utilised in the manner intended. Subsequent to initial recognition
investment property is stated at fair value. Gains or losses
arising from changes in the fair values are included in the Group's
Consolidated Statement of Comprehensive Income in the period in
which they arise under IAS 40, 'Investment Property'.
Additions to investment property include costs of a capital
nature only. Expenditure is classified as capital when it results
in identifiable future economic benefits, which are expected to
accrue to the Group. All other property expenditure is charged in
the Group's Consolidated Statement of Comprehensive Income as
incurred.
Investment properties cease to be recognised when they have been
disposed of or withdrawn permanently from use and no future
economic benefit is expected. The difference between the net
disposal proceeds and the carrying amount of the asset (being the
fair value at the start of the financial year) would result in
either gains or losses at the retirement or disposal of investment
property. Any gains or losses are recognised in the Group's
Consolidated Statement of Comprehensive Income in the period of
retirement or disposal.
4.5. Goodwill
Goodwill arises on the acquisition of subsidiaries and
represents the excess of the consideration transferred over the
Group's interest in the fair value of the net identifiable assets,
liabilities and contingent liabilities of the acquiree plus the
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 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
sell or transfer the agreement at the period end date, taking into
account current interest rate expectations and the current credit
rating of the lender and its counterparties. The gain or loss at
each fair value remeasurement date is recognised in the Group's
Consolidated Statement of Comprehensive Income. Premiums payable
under such arrangements are initially capitalised into the Group's
Consolidated 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.
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's Statement of Comprehensive Income over the life
of the debt instrument on a straight-line basis. After initial
recognition, all bank and other borrowings are measured at
amortised cost, using the effective interest method.
4.12. Dividends payable to Shareholders
Equity dividends are recognised when paid.
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
Consolidated Statement of Comprehensive Income. Initial direct
costs incurred in negotiating and arranging an operating lease are
added to the carrying amount of the lease asset and are recognised
as an expense over the lease term on the same basis as the lease
income.
For leases which contain fixed or minimum uplifts, the rental
income arising from such uplifts is recognised on a straight-line
basis over the lease term.
Tenant lease incentives are recognised as a reduction of rental
revenue on a straight-line basis over the term of the lease. The
lease term is the non-cancellable period of the lease together with
any further term for which the tenant has the option to continue
the lease where, at the inception of the lease, the Directors are
reasonably certain that the tenant will exercise that option.
Surrender premiums received from tenants to terminate leases or
surrender premises are recognised in the Group's Statement of
Comprehensive Income when the right to receive them arises.
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 Group's
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
Finance costs are expensed in the period in which they occur.
Finance costs consist of interest and other costs, such as
arrangement fees, that an entity incurs in connection with bank and
other borrowings.
4.19. Taxation
As the Company is managed and controlled in the UK, it is
considered to be tax resident in the UK.
The tax currently payable is based on the taxable profit for the
period. Taxable profit differs from net profit as reported in the
Consolidated Statement of Comprehensive Income because it excludes
items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or
deductible. The Group's liability for current and deferred tax is
calculated using tax rates that have been enacted or substantively
enacted at the date of the Statement of Financial Position.
The Group elected to be treated as a UK REIT with effect from 7
November 2015. The UK REIT rules exempt the profits of the Group's
UK property rental business from UK Corporation Tax. Gains on UK
properties are also exempt from tax, provided that they are not
held for trading or sold in the three years after completion of
development. The Group is otherwise subject to UK Corporation
Tax.
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 based on tax rates
(and tax laws) enacted or subsequently enacted at the date of the
Statement of Financial Position. A deferred tax asset is recognised
only to the extent that it is probable that future profits will be
available for offset.
The current rate of UK Corporation Tax is 20%. 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 been enacted that the rate will be further reduced to 17% from
1 April 2020.
4.21. Stated capital
Stated capital (previously described as share premium)
represents the consideration received by the Company for the issue
of Ordinary shares. Ordinary shares are classed as equity.
4.22. Share based payments
The Group has entered into Performance Fee arrangements with the
Asset Manager and Investment Managers which depend on the growth in
the net asset value of the Group exceeding a Hurdle Rate of return
over a Performance Period. The fee will be partly settled in cash
and partly in equity, and the equity portion is therefore a
share-based payment arrangement. The fair value of the obligation
is measured at each reporting period, and the cost recognised as an
expense. The part of the obligation to be settled in shares is
credited to Equity reserves.
Where the Company has an obligation to issue shares under the
Performance Fee arrangements and the Performance Fee cost is
recognised in a subsidiary company, the Company should recognise an
increase in the investment of the subsidiary and the obligation to
settle shares, where this arises, should be credited to equity.
5. Revenue
5a. Rental income
22 June
Year ended 2015 to
31 December 31 December
2016 2015
GBP'000 GBP'000
Group
Rental income - freehold property 36,233 4,500
Rental income - long leasehold
property 6,761 861
Total 42,994 5,361
5b. Amounts charged to group entities
Amounts charged to group entities of GBP837,000 (2015: GBPnil)
represent investment management fees and Performance Fees which
have been recharged from Regional REIT Limited down to its
subsidiary companies.
6. Non recoverable property costs
22 June
Year ended 2015 to
31 December 31 December
2016 2015
GBP'000 GBP'000
Group
Property insurance expense - 37
Other property expenses and
irrecoverable costs 4,866 716
Total 4,866 753
Non recoverable property costs represent direct operating
expenses which arise on investment properties generating rental
income.
7. Administrative and other expenses
22 June
Year ended 2015 to
31 December 31 December
2016 2015
GBP'000 GBP'000
Group
Investment management fees 1,914 264
Property management fees 1,698 203
Performance fees 249 -
Asset management fees 1,675 232
Directors' remuneration (see
note 8) 186 48
Administration fees 543 118
Legal and professional fees 1,671 390
Marketing and promotion 73 15
Other administrative costs 184 82
Bank charges 24 1
Total 8,217 1,353
Company
Investment management fees 1,584 218
Performance fees 110 -
Directors' remuneration (see
note 8) 186 48
Administration fees 222 34
Legal and professional fees 1,009 289
Marketing and promotion 73 15
Other administrative costs 159 96
Total 3,343 700
The number of persons employed by the Group and Company in the
year 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:
22 June
Year ended 2015 to
31 December 31 December
2016 2015
GBP'000 GBP'000
Group
Audit of the annual financial
statements 63 87
Review of the half year financial 25 -
statements
Audit of the subsidiaries
for their respective periods
of account 131 105
Corporate finance services
in connection with the flotation - 250
Tax compliance services provided
to the subsidiaries 112 69
Total 331 511
8. Directors' remuneration
Key management comprises the Directors of the Company. A summary
of the Directors' emoluments is set out in the Directors'
Remuneration Report in the full Annual Report and Accounts.
22 June
Year ended 2015 to
31 December 31 December
2016 2015
GBP'000 GBP'000
Group & Company
Directors' fees 170 42
Employers National Insurance
contributions 16 6
Total 186 48
9. Exceptional items
There were no exceptional items recognised in the year ended 31
December 2016. Exceptional items of GBP5,296,000 recognised in the
period 22 June 2015 to 31 December 2015 comprise the professional
fees and regulatory costs associated with the acquisition and the
listing of the shares on the London Stock Exchange.
10. Finance income
22 June
Year ended 2015 to
31 December 31 December
2016 2015
GBP'000 GBP'000
Group
Interest income 60 13
Other finance income (99) 99
Unwinding of the discount
on financial assets 232 65
Total 193 177
Company
Group dividend income 19,061 5,150
Total 19,061 5,150
11. Finance expense
22 June
Year ended 2015 to
31 December 31 December
2016 2015
GBP'000 GBP'000
Group
Interest payable on bank borrowings 7,821 910
Amortisation of loan arrangement
fees 1,001 87
Total 8,822 997
12. Taxation
22 June
Year ended 2015 to
31 December 31 December
2016 2015
GBP'000 GBP'000
Group
Income tax credit (36) -
Increase in deferred tax creditor 13 -
Total (23) -
The current tax charge/(credit) is reduced by the UK REIT tax
exemptions. The Tax credit is due to the release of a historic
accrual. The tax charge/(credit) for the year can be reconciled to
the profit/(loss) in the Statement of Comprehensive Income as
follows:
Group
Profit before taxation 13,395 21,124
UK Corporation tax rate 20% 20%
Theoretical tax at UK Corporation
tax rate 2,679 4,225
Effects of:
Revaluation loss/(gain) on
investment properties 1,350 (4,757)
Profits from tax exempt business - (359)
Permanent differences (3,601) 1,023
Utilisation of losses brought
forward 14 (132)
Taxation losses and other (343) -
timing differences
Prior year adjustment (122) -
Total (23) -
Permanent differences are the differences between
an entity's taxable profits and its results as
stated in the financial statements. These arise
because certain types of income and expenditure
are non-taxable or disallowable, or because certain
tax charges or allowances have no corresponding
amount in the financial statements.
Company
Profit/(loss) before taxation 16,555 (846)
UK Corporation tax rate 20% 20%
Theoretical tax at UK Corporation
tax rate 3,311 (169)
Effects of:
Permanent differences (3,311) 169
Total - -
13. Earnings per share
Earnings per share ("EPS") amounts are calculated by dividing
profits for the year attributable to ordinary equity holders of the
Company by the weighted average number of Ordinary Shares in issue
during the year. As there are dilutive instruments outstanding both
basic and diluted earnings per share are disclosed below.
Dilutive instruments relate to the partial settlement of the
Performance Fee by the issue of Ordinary shares. As detailed in
note 32, an estimate of Performance Fee for the period from
commencement of trading to 31 December 2016 has been recognised in
the financial statements. An estimate has been made of the number
of shares that would be issued based on the EPRA NAV at 31 December
2016. It should be noted that the first Performance Fee charge runs
for the period from 6 November 2015 to 31 December 2018 and the
number of shares to be issued to settle the charge will be based on
the diluted EPRA NAV as at 31 December 2018.
Group
The calculation of basic and diluted earnings per share is based
on the following:
22 June
Year ended 2015 to
31 December 31 December
2016 2015
GBP'000 GBP'000
Calculation of Earnings per
share
Net profit attributable to
Ordinary Shareholders 13,418 21,124
Adjustments to remove:
Changes in value of investment
properties 6,751 (23,784)
Changes in fair value of
interest rate derivatives
and financial assets 865 (180)
Gain on disposal of investment
property (518) (86)
Impairment of goodwill 557 -
EPRA Net profit/(loss) attributable
to Ordinary Shareholders 21,073 (2,926)
Add back exceptional
items - 5,296
Adjusted Net profit
before exceptional items
attributable to Ordinary
Shareholders 21,073 2,370
Weighted average number
of Ordinary Shares 274,217,264 274,217,264
Dilutive instruments 107,729 -
Adjusted weighted average
number of Ordinary Shares 274,324,993 274,217,264
Earnings per share -
basic 4.9p 7.7p
Earnings per share -
diluted 4.9p 7.7p
EPRA Earnings/(loss)
per share - basic 7.7p (1.1)p
EPRA Earnings/(loss) per
share - diluted 7.7p (1.1)p
Adjusted Earnings per share
before exceptional items
- basic 7.7p 0.9p
Adjusted Earnings per share
before exceptional items
- diluted 7.7p 0.9p
Company
The calculation of basic and diluted earnings per share is based
on the following:
22 June
Year ended 2015 to
31 December 31 December
2016 2015
GBP'000 GBP'000
Calculation of Earnings per
share
Net profit/(loss) attributable
to Ordinary Shareholders 16,555 (846)
Add back exceptional items - 5,296
Net profit attributable to
Ordinary Shareholders before
exceptional items 16,555 4,450
Weighted average number
of Ordinary Shares 274,217,264 274,217,264
Dilutive instruments 107,729 -
Adjusted weighted average
number of Ordinary Shares 274,324,993 274,217,264
Earnings/(loss) per
share - basic 6.0p (0.3)p
Earnings/(loss) per
share - diluted 6.0p (0.3)p
Earnings per share before
exceptional items
- basic 6.0p 1.6p
Earnings per share before
exceptional items
- diluted 6.0p 1.6p
14. Dividends
22 June
Year ended 2015 to
31 December 31 December
2016 2015
GBP'000 GBP'000
Group and Company
Dividend of 1.00 pence per
Ordinary share 2,742 -
(for the period 6 Nov 2015
- 31 Dec 2015)
Dividend of 1.75 pence per
Ordinary share 4,799 -
(for the period 1 Jan 2016
- 31 Mar 2016)
Dividend of 1.75 pence per
Ordinary share 4,799 -
(for the period 1 Apr 2016
- 30 Jun 2016)
Dividend of 1.75 pence per
Ordinary share 4,799 -
(for the period 1 Oct 2016
- 30 Sep 2016)
17,139 -
On 7 March 2016 the Company announced a dividend of 1.00 pence
per share in respect of the period 6 November 2015 to 31 December
2015. The dividend payment was made on 15 April 2016 to
shareholders on the register as at 18 March 2016.
On 27 May 2016 the Company announced a dividend of 1.75 pence
per share in respect of the period 1 January 2016 to 31 March 2016.
The dividend payment was made on 8 July 2016 to shareholders on the
register as at 10 June 2016.
On 1 September 2016 the Company announced a dividend of 1.75
pence per share in respect of the period 1 April 2016 to 30 June
2016. The dividend payment was made on 7 October 2016 to
shareholders on the register as at 9 September 2016.
On 17 November 2016 the Company announced a dividend of 1.75
pence per share in respect of the period 1 July 2016 to 30
September 2016. The dividend payment was made on 22 December 2016
to shareholders on the register as at 25 November 2016.
On 23 February 2017 the Company announced a dividend of 2.40
pence per share in respect of the period 1 October 2016 to 31
December 2016. The dividend will be paid on 13 April 2017 to
shareholders on the register as at 3 March 2017. The 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 year have been treated as
properties purchased rather than business combinations.
Group Long Leasehold
Freehold Property
Movement in investment Property GBP'000 Total
properties for the year GBP'000 GBP'000
ended 31 December 2016
Valuation at 1 January
2016 332,052 71,650 403,702
Property additions - acquisitions 132,827 7,883 140,710
Property additions - subsequent
expenditure 5,848 3,255 9,103
Property disposals (41,907) (2,950) (44,857)
Gain/(loss) on the disposal
of investment properties 538 (20) 518
Change in fair value during
the year (5,048) (1,703) (6,751)
Valuation at 31 December
2016 424,310 78,115 502,425
Movement in investment
properties for the period
22 June 2015 to 31 December
2015
Upon acquisition of subsidiaries 319,541 61,448 380,989
Property additions 1,020 3,170 4,190
Property disposals (5,347) - (5,347)
Gain on the disposal of
investment properties 86 - 86
Change in fair value during
the period 16,752 7,032 23,784
Valuation at 31 December
2015 332,052 71,650 403,702
The historic cost of the properties is GBP488,104,000 (31
December 2015: GBP379,918,000).
A reconciliation of the valuation carried out by the external
valuers to the carrying amount in the Group's Consolidated
Statement of Financial Position is as follows:
31 December 31 December
2016 2015
GBP'000 GBP'000
As set out in Cushman & Wakefield's
valuation report 502,425 405,422
Adjustment in respect of Blythswood
House disposal after period
end - (1,720)
As shown in the Consolidated
Statement of Financial Position 502,425 403,702
The adjustment reflects a value determined in a sales
transaction shortly after the comparative period end.
The following table provides the fair value measurement
hierarchy for investment property:
Significant Significant
Quoted observable unobservable
active inputs inputs
Total prices (level (level
Date of valuation: GBP'000 (level 2) 3)
1) GBP'000 GBP'000
GBP'000
31 December 2016 502,425 - 502,425 -
31 December 2015 403,702 - 403,702 -
The hierarchy levels are defined in note 25.
There have been no transfers between levels during the year.
The determination of Fair Value of the investment properties
requires the analysis of current and future cash flows from assets
(taking into account current income, void holding costs, comparable
evidence, tenant covenant strength and potential capital
expenditure) and the appropriate capitalisation rates for those
assets.
Future revenue streams comprise contracted rent (passing rent),
estimated rental value ("ERV") and Market Rental value. In
calculating ERV and Market Rent, 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 2016, the 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 observable inputs made in determining the fair
values:-
Valuation technique: market comparable method
Under the market comparable method (or market approach), a
property fair value is estimated based on comparable transactions
in the market.
Observable Input: Market Rental
The rent at which space could be let in the market conditions
prevailing at the date of valuation (range: GBP3,100 - GBP3,119,381
per annum) (2015: 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: 0.28%-29.23%) (2015: 1.84%-23.05%).
As set out within the significant accounting estimates and
judgements above, the Group's property portfolio valuation is open
to judgement and is inherently subjective by nature, and actual
values can only be determined in a sales transaction.
16. Investment in subsidiaries
31 December 31 December
2016 2015
GBP'000 GBP'000
Company
Cost at start of year 274,217 -
Acquisitions of subsidiaries
during the year 69 274,217
Cost at end of year 274,286 274,217
Investment in subsidiaries is recorded at cost, which is the
fair value of the consideration paid.
In the opinion of the Directors the value of the subsidiary
undertakings is not less than the book amount.
List of subsidiaries which are 100% owned and controlled by the
Group
Country Ownership
of incorporation %
United
Blythswood House LLP Kingdom 100%
Regional Commercial MIDCO
Limited Jersey 100%
RR Aspect Court Limited Jersey 100%
RR Hounds Gate Limited Jersey 100%
RR Rainbow (Aylesbury) Limited Jersey 100%
RR Rainbow (North) Limited Jersey 100%
RR Rainbow (South) Limited Jersey 100%
RR Wing Portfolio Limited Jersey 100%
Tay Properties Limited Jersey 100%
TCP Arbos Limited Jersey 100%
TCP Channel Limited 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%
United
Tosca Glasgow II Limited Kingdom 100%
Tosca Midlands Limited Jersey 100%
Tosca North East Limited Jersey 100%
Tosca North West Limited Jersey 100%
Tosca Rosalind Ltd 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 UK CP II Limited Jersey 100%
Tosca UK CP Limited Jersey 100%
Tosca Victory House Limited Jersey 100%
Tosca Winsford Limited Jersey 100%
Toscafund Bennett House Limited Jersey 100%
Toscafund Bishopgate Street
Limited Jersey 100%
Toscafund Blythswood Limited Jersey 100%
Toscafund Brand Street Limited Jersey 100%
Toscafund Chancellor Court
Limited Jersey 100%
Toscafund Crompton Way Limited Jersey 100%
Toscafund Espedair Limited Jersey 100%
Toscafund Fairfax House Limited Jersey 100%
Toscafund Glasgow Limited Jersey 100%
Toscafund Milburn House Limited Jersey 100%
Toscafund Minton Place Limited Jersey 100%
Toscafund North Esplanade
Limited Jersey 100%
Toscafund Sheldon Court Limited Jersey 100%
Toscafund St Georges House
Limited Jersey 100%
Toscafund St James Court Limited Jersey 100%
Toscafund Strathclyde BP Limited Jersey 100%
Toscafund Wallington Limited Jersey 100%
Toscafund Welton Road Limited Jersey 100%
Toscafund Westminster House
Limited Jersey 100%
United
Blythswood House LLP Kingdom 100%
Regional Commercial MIDCO
Limited Jersey 100%
RR Aspect Court Limited Jersey 100%
RR Hounds Gate Limited Jersey 100%
All of the above entities have been included in the Group's
consolidated financial statements.
By virtue of the Amended and Restated Call Option Agreement,
dated 3 November 2015, the Directors consider that the Group has
control of Credential Investment Holdings Limited and its 27
subsidiaries ("the Credential Group").
Under this option, the Group may acquire any of the properties
held by the Credential Group by issuing an option notice for a
nominal consideration of GBP1. The recipient of the option notice
is obliged to convey its title within one month after receipt of
the option notice. The option may be exercised in whole by serving
one option notice in respect of all the remaining relevant assets
or on any number of occasions by servicing any number of separate
option notices.
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 companies which make up the Credential Group are as
follows:
List of subsidiaries that are controlled by the Group:
Country Effective
of incorporation Ownership
%
United
Castlestream Limited Kingdom 100%
United
Caststop Limited Kingdom 100%
United
Credential (Baillieston) Limited Kingdom 100%
United
Credential (Greenock) Limited Kingdom 100%
Credential (Peterborough) United
Limited Kingdom 100%
Credential (Wardpark North) United
Limited Kingdom 100%
Credential (Wardpark South) United
Limited Kingdom 100%
United
Credential Bath Street Limited Kingdom 100%
Credential Charring Cross United
Limited Kingdom 100%
United
Credential Estates Limited Kingdom 100%
Credential Investment Holdings United
Limited Kingdom 100%
United
Credential Muirhouse Limited Kingdom 100%
Credential Residential Finance United
Limited Kingdom 100%
United
Credential SHOP Limited Kingdom 100%
United
Credential Tay House Limited Kingdom 100%
United
Douglas Shelf Seven Limited Kingdom 100%
United
Dumbarton Road Limited Kingdom 100%
United
Hamiltonhill Estates Limited Kingdom 100%
United
Lilybank Church Limited Kingdom 100%
United
Lilybank Terrace Limited Kingdom 100%
London & Scottish Property United
Management Limited Kingdom 100%
United
Old Mill Studios Limited Kingdom 100%
United
Old Rutherglen Road Limited Kingdom 100%
Rocket Unit Trust Jersey 100%
United
Squeeze Newco (Elmbank) Limited Kingdom 100%
United
Squeeze Newco 2 Limited Kingdom 100%
Stock Residential Lettings United
Limited Kingdom 100%
The Legal Services Centre United
Limited Kingdom 100%
All of the above entities have been included in the Group's
consolidated financial statements.
Business Combinations
There have been no new business combinations entered into in the
financial year.
During the year there was only one subsidiary company
acquisition. The acquisition of Toscafund Strathclyde BP Limited
took place in order for the Group to acquire the investment
property owned by that company. This acquisition has not been
treated as a business combination. For further details please refer
to the Group's basis of preparation note 2.4.
17. Goodwill
31 December 31 December
2016 2015
GBP'000 GBP'000
Group
At start of year 2,786 -
Goodwill arising on acquisition
of subsidiaries - 2,786
Impairment (557) -
At end of year 2,229 2,786
Goodwill arises on the acquisition of subsidiaries and
represents the excess of the consideration transferred, the amount
of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the
acquiree over the fair value of the identifiable net assets
acquired. If the total of consideration transferred,
non-controlling interest recognised and previously held interest
measured at fair value is less than the fair value of the net
assets of the subsidiary acquired in the case of a bargain
purchase, the difference is recognised directly in the Group's
Statement of Comprehensive Income.
Goodwill impairment reviews are undertaken annually or more
frequently if events or changes in circumstances indicate a
potential impairment. The goodwill is compared to the recoverable
amount, which is the higher of value in use and the fair value less
costs of disposal. Any impairment is recognised immediately as an
expense and is not subsequently reversed. The impairment review is
based on group pre-tax-tax cash flow projections of cost savings of
the Group as a whole as a single cash generating unit, using a
discount factor of 2.3%, which is based on the borrowing margins
currently available. If a reasonable change occurs in a key
assumption the recoverable amount of goodwill would still be
expected to be equal to the carrying value. The impairment review
was conducted over a five-year period, which is predominately
derived from the borrowings facility terms, and will result in a
nil terminal value.
18. Non-current receivables
18a. Non-current receivables on lease surrender premium
31 December 31 December
2016 2015
GBP'000 GBP'000
Group
At start of year 1,760 -
Arising on acquisition of
subsidiaries - 1,942
Movement in year (988) (247)
Unwinding of discount 232 65
At end of year 1,004 1,760
Assets due within 1 year 798 756
Assets due after 1 year 206 1,004
1,004 1,760
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
with the final instalment to be paid in the quarter ending 31 March
2018. 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.
18b. Non-current receivables on tenant loans
31 December 31 December
2016 2015
GBP'000 GBP'000
Group
At start of year - -
Amounts loaned in the year 1,926 -
At end of year 1,926 -
Asset due within 1 year 385 -
Asset due after 1 year 1,541 -
1,926 -
During 2016 the Group entered into a loan agreement with a
tenant for GBP1,926,000. The loan is subject to interest of 4%
above the base rate of the Bank of Scotland and is repayable in
instalments over 10-years.
19. Trade and other receivables
31 December 31 December
2016 2015
GBP'000 GBP'000
Group
Gross amount receivable from
tenants 4,384 3,246
Less provision for impairment (258) (228)
Net amount receivable from
tenants 4,126 3,018
Current receivables - surrender
premium (note 18a) 798 756
Current receivables - tenant 385 -
loans (note 18b)
Other receivables 2,487 5,257
Prepayments 3,579 2,817
11,375 11,848
31 December 31 December
2016 2015
GBP'000 GBP'000
Company
Other debtors 837 -
Prepayments 33 3
870 3
The maximum exposure to credit risk at the reporting date is the
carrying value of the amounts disclosed above. The Group does not
hold any collateral as security.
The aged analysis of trade receivables that are past due but not
impaired was as follows:
31 December 31 December
2016 2015
GBP'000 GBP'000
Current 1,176 1,485
< 30 days 1,692 571
30-60 days 806 550
> 60 days 710 640
4,384 3,246
Less provision for impairment (258) (228)
4,126 3,018
The Directors consider the fair value of receivables equals
their carrying amount.
The table above shows the aged analysis of trade receivables
included in the table above which are past due but not impaired.
These relate to tenants for whom there is no recent history of
default.
Provision for impairment of trade receivables movement as
follows:
31 December 31 December
2016 2015
GBP'000 GBP'000
Group
At start of year 228 -
Arising on acquisition of
subsidiaries - 228
Provision for impairment in 184 -
the year
Receivables written off as (7) -
uncollectable
Unused provision reversed (147) -
At end of year 258 228
Other categories within trade and other receivables do not
include impaired assets.
20. Cash and cash equivalents
31 December 31 December
2016 2015
GBP'000 GBP'000
Group
Cash held at bank 10,850 15,155
Restricted cash held at bank 5,349 8,800
At end of year 16,199 23,955
31 December 31 December
2016 2015
GBP'000 GBP'000
Company
Cash held at bank 65 19
Restricted cash held at bank - -
At end of year 65 19
Restricted cash balances of the Group comprise:
-- GBP2,000 (2015: GBP6,349,000) 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.
-- GBP4,025,000 (2015: GBP2,171,000) of funds which represent
service charge income received from tenants for settlement of
future service charge expenditure.
-- GBP1,322,000 (2015: GBP280,000) of funds which represent tenants' rental deposits.
All restricted cash balances will be available before 31 March
2017.
21. Trade and other payables
31 December 31 December
2016 2015
GBP'000 GBP'000
Group
Withholding tax due on dividends 1,416 -
paid
Trade payables 3,381 2,513
Other payables 5,164 5,095
Value added tax 1,136 1,092
Accruals 3,504 3,876
At end of year 14,601 12,576
31 December 31 December
2016 2015
GBP'000 GBP'000
Company
Withholding tax due on dividends 1,416 -
paid
Accruals 903 868
At end of year 2,319 868
22. Deferred income
Deferred rental income represents rent received in advance from
tenants.
23. Taxation liabilities
31 December 31 December
2016 2015
GBP'000 GBP'000
Group
Income tax 36 1,775
Deferred tax 626 612
662 2,387
24. Bank and loan borrowings
Bank borrowings are secured by charges over individual
investment properties held by certain asset-holding subsidiaries.
The banks also hold charges over the shares of certain subsidiaries
and any intermediary holding companies of those subsidiaries. Any
associated fees in arranging the bank borrowings unamortised as at
the year end are offset against amounts drawn on the facilities as
shown in the table below:
31 December 31 December
2016 2015
GBP'000 GBP'000
Group
Bank borrowings drawn at start 128,643 -
of year
Bank borrowings drawn 107,762 128,643
Bank borrowings repaid (16,345) -
Bank borrowings drawn at end
of year 220,060 128,643
Less: unamortised costs (874) (1,875)
Less: loan issue costs incurred (1,744) -
in the period
Less: adjustment through finance
income - (99)
At end of year 217,442 126,669
Maturity of bank borrowings
Repayable within 1 year - 200
Repayable between 1 to 2 years 58,960 200
Repayable between 2 to 5 years 158,482 126,269
217,442 126,669
During the year, largely to fund property acquisitions, the
Group increased its borrowings and refinanced existing facilities.
The total outstanding debt drawn is less than the total of the
original facility due to the repayment of debt following the sale
of one of the assets on which borrowings were secured. At 31
December 2016 the amount of undrawn debt was GBPnil (31 December
2015: GBPnil). The weighted average term to maturity of the Group's
debt at the year end was 2.9 years (31 December 2015: 3.4 years).
The weighted average interest rate payable by the Group on its debt
portfolio, excluding hedging costs, as at the year end was 3.3% (31
December 2015: 4.1%).
Original Outstanding
Facility Debt Maturity Gross Interest
Lender GBP'000 GBP'000 Date LTV cost per Amortisation
annum
Santander Dec 2% over Mandatory
UK 48,300 45,432 -18 43.0% 3mth LIBOR prepayment
Santander Dec 2% over Mandatory
UK 25,343 14,340 -18 34.2% 3mth LIBOR prepayment
Royal 2.15%
Bank of Jun over 3mth
Scotland 25,000 24,450 -19 42.1% LIBOR None
ICG Longbow Aug 5% par
Limited 65,000 65,000 -19 44.3% for term None
Royal
Bank of Mar 2.4% over Mandatory
Scotland 40,000 39,848 -21 50.2% 3mth LIBOR prepayment
2.15%
Santander Jan over 3mth Mandatory
UK 30,990 30,990 - 21 48.1% LIBOR prepayment
234,633 220,060
The Group has been in compliance with all of the financial
covenants of the above facilities as applicable throughout the year
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. The Group's exposure to interest rate volatility is
minimal.
25. Derivative financial instruments
Interest rate caps and swaps are in place to mitigate the
interest rate risk that arises as a result of entering into
variable rate borrowings.
31 December 31 December
2016 2015
GBP'000 GBP'000
Group
Fair value at start of year (416) -
Fair value of derivative financial
instruments arising on the
acquisition of subsidiaries - (531)
Fair value (loss)/gain (1,097) 115
Fair value at end of year (1,513) (416)
The calculation of fair value of interest rate caps and swaps is
based on the following calculation: the notional amount multiplied
by the difference between the swap rate and the current market rate
and then multiplied by the number of years remaining on the
contract.
The fair value of derivative financial instruments has decreased
in the year due to the Group entering into a number of interest
rate caps and swaps in the year as detailed below:
Loan Details Swap Details
Original Outstanding Notional
Facility Debt Maturity Interest Amount Rate
Lender GBP'000 GBP'000 Date cost GBP'000 %
per annum
2% over
3mth
LIBOR 6,000 1.867
Santander Dec
UK 48,300 45,432 -18 18,150 1.014
2% over
3mth
LIBOR 3,400 2.246
Santander Dec
UK 25,343 14,340 -18 9,271 1.010
2.15%
over
Royal Bank 3mth
of Scotland LIBOR 12,480 1.790
Jun
25,000 24,450 -19 20 1.110
ICG Longbow Aug 5% par
Limited 65,000 65,000 -19 for term n/a n/a
2.4%
over
Royal Bank Mar 3mth
of Scotland 40,000 39,848 -21 LIBOR 19,900 1.395
9,375 1.086
2.15%
over
3mth
LIBOR 6,920 1.203
Santander Jan
UK 30,990 30,990 - 21 5,280 1.444
234,633 220,060 90,796
The weighted average cap and swap rate for the Group as at the
year-end was 3.5% (31 December 2015: 4.4%), with a Group weighted
average effective interest rate of 3.7% (31 December 2015: 4.5%)
inclusive of hedging costs.
The maximum exposure to credit risk at the reporting date is the
fair value of the derivative liabilities.
It is the Group's target to hedge at least 90% of the total debt
portfolio using interest rate derivatives and fixed-rate
facilities. As at the year end the total proportion of hedged debt
equated to 106.5% (31 December 2015: 90.1%), as shown below. The
over-hedge at 31 December 2016 is the result of a property disposal
and the hedging position was under review, subsequent to the year
end the over hedged position has been reduced to 101.6%.
31 December 31 December
2016 2015
GBP'000 GBP'000
Total bank borrowings 220,060 128,643
Notional value of interest
rate caps and swaps 169,441 50,825
Value of fixed rate debts 65,000 65,000
234,441 115,825
Proportion of hedged debt 106.5% 90.1%
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
consolidated financial statements on a recurring basis, the Group
determines whether transfers have occurred between levels in the
hierarchy by reassessing categorisation at the end of each
reporting period.
Quoted Significant Significant
active observable unobservable
prices inputs inputs
Total (level (level (level
Interest rate derivatives GBP'000 1) 2) 3)
GBP'000 GBP'000 GBP'000
31 December 2016 (1,513) - (1,513) -
31 December 2015 (416) - (416) -
The fair value of these contracts are recorded in the
Consolidated Statement of Financial Position and is determined by
forming an expectation that interest rates will exceed strike rates
and discounting these future cash flows at the prevailing market
rates as at the year-end.
There have been no transfers between levels during the year.
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 and interest rate derivatives, the
main purpose of which is to finance the acquisition and development
of the Group's investment property portfolio.
Set out below is a comparison by class of the carrying amounts
and fair value of the Group's financial instruments that are
carried in the financial statements:
Group 31 December 2016 31 December 2015
Book Fair Book Fair
value value value value
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets
- measured at amortised
cost
Trade and other receivables 9,543 9,543 10,035 10,035
Cash and short-term
deposits 16,199 16,199 23,954 23,954
Financial liabilities
- measured at amortised
cost
Trade and other payables (15,263) (15,263) (14,963) (14,963)
Bank and loan borrowings (217,442) (217,442) (126,669) (126,669)
Financial liabilities
- measured at fair
value through profit
or loss
Interest rate derivatives (1,513) (1,513) (416) (416)
Set out below is a comparison by class of the carrying amounts
and fair value of the Company's financial instruments that are
carried in the financial statements:
31 December 2016 31 December 2015
Company Book Fair Book Fair
value value value value
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets
- measured at amortised
cost
Trade and other receivables 837 837 - -
Cash and short-term
deposits 65 65 19 19
Financial liabilities
- measured at amortised
cost
Trade and other payables (2,319) (2,319) (868) (868)
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.
If interest rates were to increase by the following rates, this
would increase the annual interest charge to the Group and thus
reduce profits and net assets as follows:
Interest rate increase Increase to the
annual interest charge
GBP'000
----------------------- ------------------------
0.00% -
----------------------- ------------------------
0.25% 186
----------------------- ------------------------
0.50% 372
----------------------- ------------------------
0.75% 529
----------------------- ------------------------
1.00% 592
----------------------- ------------------------
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. The
Company is exposed to credit risk from its deposits with banks.
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 Group's Statement of Financial Position net of provisions for
impairment. Credit risk is primarily managed by requiring tenants
to pay rentals in advance and performing tests around strength of
covenant prior to acquisition. Any trade receivables past due as at
the year end were received shortly after the year 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 latest Fitch
credit ratings, was as follows:
Fitch
Bankers Ratings
Barclays A
Royal Bank of Scotland BBB+
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:
Group at 31 December Within Between Between
2016 1 year 1 to 2 2 to Total
GBP'000 years 5 years GBP'000
GBP'000 GBP'000
Trade and other payables (15,263) - - (15,263)
Bank borrowings (7,177) (66,093) (164,942) (238,212)
Interest rate derivatives (884) (874) (528) (2,286)
(23,324) (66,967) (165,470) (255,761)
Group at 31 December Within Between Between
2015 1 year 1 to 2 to Total
GBP'000 2 years 5 years GBP'000
GBP'000 GBP'000
Trade and other payables (14,963) - - (14,963)
Bank borrowings (5,275) (5,275) (135,410) (145,960)
Interest rate derivatives (464) (464) (495) (1,423)
(20,702) (5,739) (135,905) (162,346)
Derivative instrument interest rate swaps and caps with a
negative fair value are included within the less than one year
category.
The table below summarises the maturity profile of the Company's
financial liabilities based on contractual undiscounted
payments:
Company at 31 December Within Between Between
2016 1 year 1 to 2 2 to Total
GBP'000 years 5 years GBP'000
GBP'000 GBP'000
Trade and other payables (2,319) - - (2,319)
Company at 31 December Within Between Between
2015 1 year 1 to 2 to Total
GBP'000 2 years 5 years GBP'000
GBP'000 GBP'000
Trade and other payables (868) - - (868)
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 Group's capital is represented by reserves and bank
borrowings. 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% of Investment Property Values 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
Investment Property Values at any time without the prior approval
of Ordinary shareholders in a General Meeting.
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. Stated capital
Stated capital (previously described as share premium)
represents the consideration received by the Company for the issue
of Ordinary shares.
Group & Company 31 December 31 December
2016 2015
GBP'000 GBP'000
Issued and fully paid shares
at GBP1 per share 274,217 274,217
Number of shares in issue
At start of the year 274,217,264 -
Initial issued share capital - 1
Shares issued - 274,217,263
At end of the year 274,217,264 274,217,264
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. 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
Statement of Financial Position attributable to ordinary equity
holders of the parent by the number of Ordinary Shares outstanding
at the end of the year. As there are dilutive instruments
outstanding, basic and diluted NAV per share are disclosed
below.
Dilutive instruments to future the partial settlement of the
Performance Fee by the future issue of Ordinary shares. As detailed
in note 32, an estimate Performance Fee for the period from
commencement of trading to 31 December 2016 has been recognised in
the financial statements. An estimate has been made of the number
of shares that would be issued based on the EPRA NAV at 31 December
2016. It should be noted that the first Performance Fee charge runs
for the period from 6 November 2015 to 31 December 2018 and the
number of shares to be issued to settle the charge will be based on
the diluted EPRA NAV as at 31 December 2018.
Net asset values have been calculated as follows:
Group 31 December 31 December
2016 2015
GBP'000 GBP'000
Net asset value per Consolidated
Statement of Financial Position 291,735 295,341
Adjustment for calculating
EPRA net assets:
Derivative financial instruments 1,513 416
EPRA net assets 293,248 295,757
Number of Ordinary Shares
in issue 274,217,264 274,217,264
Dilutive instruments 107,729 -
Adjusted number of Ordinary
Shares 274,324,993 274,217,264
Net asset value per
share - basic 106.4p 107.7p
Net asset value per
share - diluted 106.3p 107.7p
EPRA net asset value per
share - basic 106.9p 107.8p
EPRA net asset value per
share - diluted 106.9p 107.8p
Company 31 December 31 December
2016 2015
GBP'000 GBP'000
Net asset value per Company
Statement of Financial Position 272,902 273,371
Number of Ordinary Shares
in issue 274,217,264 274,217,264
Dilutive instruments 107,729 -
Adjusted number of Ordinary
Shares 274,324,993 274,217,264
Net asset value per
share - basic 99.5p 99.7p
Net asset value per
share - diluted 99.5p 99.7p
30. Operating leases
The future minimum lease payments receivable under
non-cancellable operating leases in respect of the Group's property
portfolio are as follows:
31 December 31 December
2016 2015
Group GBP'000 GBP'000
Receivable within 1 year 37,950 3,842
Receivable between 1 - 2 - -
years
Receivable between 2 - 5
years 100,292 55,958
Receivable after 5 years 88,243 87,374
226,485 147,174
The Group has in excess of 684 operating leases. The number of
years remaining on these operating leases varies between 1 and 61
years. The amounts disclosed above represent total rental income
receivable up to the next lease break point on each lease. If a
tenant wishes to end a lease prior to the break point a surrender
premium will be charged to cover the shortfall in rental income
received.
31. Segmental information
After a review of the information provided for management
purposes during the current year, it was determined that the Group
had one operating segment and therefore segmental information is
not disclosed in these consolidated financial statements.
Segmental reporting information was disclosed in the previous
annual report and financial statements for the period ending 31
December 2015. This was a short period of trading and at the time
of reporting it was unclear on whether the business would be split
into segments for the purpose of reporting.
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, as well as being the Group Property Director and Chief
Investment Officer of LSI and a director of London & Scottish
Property Asset Management Limited. The former company has been
contracted to act as the Asset Manager of the Group and the latter
as the Property Manager.
In consideration for the provision of services provided, the
Asset Manager is entitled in each financial year (or part thereof)
to 50% of an annual management fee on a scaled rate of 1.1% of the
EPRA net asset value (NAV), reducing to 0.9% on net 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 annum is
charged by the Property Manager on a quarterly basis: 31 March, 30
June, 30 September, and 31 December, based upon the gross rental
yield. Gross rental yield means the rents due under the property's
lease for the peaceful enjoyment of the property, including any
value paid in respect of rental renunciations but excluding any
sums paid in connection with service charges or insurance
costs.
The Asset Manager is also entitled to a Performance Fee. Details
of the Performance Fee are given below.
The following tables show the fees charged in the year and the
amount outstanding at the end of the year:
22 June
Year ended 2015 to
31 December 31 December
2016 2015
GBP'000 GBP'000
Asset management fees charged* 1,675 232
Property management fees charged* 1,698 165
Performance fees charged 115 -
Total 3,488 397
31 December 31 December
2016 2015
GBP'000 GBP'000
Total fees outstanding ** 563 397
*Including irrecoverable VAT charged where appropriate
** Including amounts to be settled by the issue of Ordinary
shares
On 20 September 2016 Regional REIT's wholly-owned subsidiary,
Regional Commercial Midco Limited agreed to acquire from London
& Scottish Investments Limited ("LSI"), the Asset Manager, the
entire issued share capital of Toscafund Strathclyde BP Limited (a
company incorporated in Jersey).
Toscafund Strathclyde BP Limited owns a portfolio of 6 office
pavilions at Strathclyde Business Park, Bellshill, Scotland. The
buildings cover 0.09m sq. ft. and provide a net income of
GBP762,000 per annum with a net initial yield of 12.0% after
deductions of costs. The consideration for the acquisition was
GBP5,500,000 in cash, which represents the fair value of the
portfolio as determined by Knight Frank, an independent valuer. The
Group also paid GBP132,000 to LSI, representing 38.5% of the total
costs incurred by the Asset Manager in the original purchase of the
properties.
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, all of which previously owned 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 the EPRA net asset value (NAV), reducing to 0.9% on net
assets over GBP500,000,000. The fee is payable in cash quarterly in
arrears.
The Investment Manager is also entitled to a Performance Fee.
Details of the Performance Fee are given below.
The following tables show the fees charged in the year and the
amount outstanding at the end of the year:
22 June
Year ended 2015 to
31 December 31 December
2016 2015
GBP'000 GBP'000
Investment management fees
charged* 1,914 264
Performance fees charged 115 -
Irrecoverable VAT on performance 19 -
fees charged
Total 2,048 264
31 December 31 December
2016 2015
GBP'000 GBP'000
Total fees outstanding** 609 264
*Including irrecoverable VAT charged where appropriate
** Including amounts to be settled by the issue of Ordinary
shares
Performance Fee
The Asset Manager and the Investment Manager are each entitled
to 50% of a Performance Fee. The fee is calculated at a rate of 15%
of Shareholder Returns in excess of the Hurdle Rate of 8% for the
relevant performance period. Shareholder Returns for any
performance period consists of the sum of any increase or decrease
in EPRA NAV per Ordinary Share and the total dividends per Ordinary
Share declared in the performance period. A Performance Fee is only
payable in respect of a performance period where the EPRA NAV per
Ordinary Share exceeds the High-water mark which is equal to the
greater of the highest year-end EPRA NAV Ordinary Share in any
previous performance period or the Placing price (100p per Ordinary
Share). The Performance Fee is to be calculated initially on 31
December 2018, and annually thereafter. Full details of the
Managers' Performance Fee are given on pages 183-85 of the IPO
Prospectus.
The Performance Fee for the first period 6 November 2015 to 31
December 2018 is payable 50% in cash, and 50% in Ordinary Shares.
The shares are to be issued at the prevailing price per Ordinary
Share at the date of issue, and are to be locked-in for 1 year.
The Performance Fees for subsequent periods are payable 34% in
cash and 66% in Ordinary Shares, again at the prevailing price per
share, with 50% of the shares locked-in for 1 year and 50% of the
shares are locked-in for 2 years.
Based on the EPRA Net Asset Value of the Group as at 31 December
2016 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 liability, including irrecoverable VAT, for the
period from commencement of trading to 31 December 2016 was
estimated at GBP249,000 (31 December 2015: GBP95,000). This fee has
been accrued in the consolidated financial statements for the year
ended 31 December 2016 but none in the comparative period. To
reflect the nature of the future payment of the performance fee
charge, 50% of the fee along with the irrecoverable VAT thereon of
GBP19,000 has been accrued as a liability of GBP134,000 and the 50%
of the fee which is payable by the issue of Ordinary shares has
been reflected as a share based payment in the Consolidated
Statement of Changes in Equity.
33. Operating lease commitments
Total commitments on operating leases in respect of land and
buildings are as follows:
31 December 31 December
2016 2015
Group GBP'000 GBP'000
Payable within 1 year 485 261
Payable between 1 - 2 years 485 261
Payable between 2 - 5 years 1,456 783
Payable after 5 years 37,794 18,240
40,220 19,545
34. Subsequent events
On 23 February 2017, the Group announced that it had reached an
agreement with The Conygar Investment Company PLC ("Conygar") to
acquire an investment portfolio of 31 regional office, industrial,
retail and leisure properties. The 31 properties will be acquired
by way of the Special Purpose Vehicles that own the assets, which
are geographically spread across England and Wales. As at 30
September 2016, the mixed-use portfolio had a gross investment
value of c. GBP129m totalled 1,280,980 sq. ft., serviced 115
tenants, and had a contracted rent roll of GBP9.7m per annum with a
net initial yield of 7%.
The consideration of c. GBP28m will be satisfied by the issuance
of approximately 26.3m Regional REIT Limited. Ordinary shares, at
an agreed adjusted EPRA NAV of 106.347 pence per share, the
assumption of GBP69.5m of bank borrowings, and the acquisition of
Conygar ZDP PLC, whose obligations on zero dividend preference
shares total c. GBP35.7m at the expected completion date of the
acquisition in late March 2017.
The proposed acquisition is conditional upon the approval of
Conygar ordinary shareholders, the holders of the Conygar ZDP PLC
preference shares and the two banks currently providing secured
lending to Conygar. Once the transaction completes, the Group will
consider if it is to be treated as a business combination under
IFRS 3 or an asset acquisition.
On 28 February 2017, the Group increased its borrowings from
Santander UK by GBP10.0m, taking advantage of the competitive
borrowing environment.
The Company's Annual Report and Accounts for the year to 31
December 2016 will be released on Thursday 13 April 2017.
Forthcoming Events
Q1 2017 Trading Update, AGM Statement 25 May 2017
and Dividend Announcement
2017 Annual General Meeting 25 May 2017
Q2 2017 Dividend Announcement 31 August
2017
2017 Interims Results Announcement 14 September
2017
Q3 2017 Trading Update and Dividend 16 November
Announcement 2017
Note: all future dates are provisional
and subject to change.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR JTMPTMBBTBTR
(END) Dow Jones Newswires
March 23, 2017 03:00 ET (07:00 GMT)
Regional Reit (LSE:RGL)
Historical Stock Chart
From Jun 2024 to Jul 2024
Regional Reit (LSE:RGL)
Historical Stock Chart
From Jul 2023 to Jul 2024
