TIDMRGL
RNS Number : 2494U
Regional REIT Limited
28 March 2019
28 March 2019
REGIONAL REIT Limited
("Regional REIT", the "Group" or the "Company")
Preliminary Announcement of the Audited Full Year Results
for the Year Ended 31 December 2018
Record Total Returns Achieved
Regional REIT Limited (LSE: RGL), the REIT focused on income
producing regional UK core and core plus office and industrial
property assets, today announces its audited results for the year
ended 31 December 2018.
Financial highlights:
3% increase in dividend, with active portfolio management
increasing the NAV 9%
-- Total shareholder return of 37.5% since IPO in November 2015;
2018 16.6%; representing 10.6% annualised returns for
shareholders
-- Record net profit of GBP67.4m significantly increased by 149% (2017: GBP27.1m)
-- Net rental income up 19% to GBP54.4m (2017: GBP45.8m)
-- EPRA NAV per share increased 9% to 115.5p (2017: 105.9p)
-- EPRA adjusted EPS of 7.5p following asset disposals (2017: 8.6p)
-- Group cost of debt reduced to 3.5% as at 9 January 2019 (2017: 3.8%)
-- Net LTV reduced below target of c.40% to 38.3% (2017: 45.0%)
-- Weighted average debt duration increased to 7.1 years as at 9 January 2019 (2017: 6.0 years)
-- Total dividend increased c.3% to 8.05p (2017: 7.85p); an 8.7%
yield to the share price at 31 December 2018
-- Adjusted EPRA EPS dividend cover of 93%, plan to return to fully covered during 2019
Operational Highlights:
Strong demand continues for the diversified regional
portfolio
-- 2018 a successful year with much strategic progress achieved
-- Strong performance in transactional activity with GBP73.3m
(before costs) invested in new acquisitions and GBP149.3m (net of
costs) received from strategic disposals
-- Diversified portfolio of 150 properties (2017: 164), 1,192
units (2017: 1,368) and 874 tenants (2017: 1,026)
-- Core and core plus regional office and industrial property
assets, an asset class increasingly sought after in the UK,
represents 91.6% of portfolio by value (with 76.1% in offices and
15.5% in industrial sites)
-- EPRA Occupancy rates improved further to 89.4% (2017: 88.2%); by value 87.3% (2017: 85.0%)
Post period end
-- GBP39.9m repayment of Regional REIT ZDP plc preference
shares; reducing the weighted average cost of debt to c.3.5% as at
9 January 2019 (2017: c.3.8%)
-- Acquisition of Norfolk House, Birmingham for GBP20.0m, with a net yield of 7.9%
Stephen Inglis, Chief Executive Officer of London & Scottish
Investments, commented: "I am delighted to announce that 2018 was a
good year for Regional REIT as the company exceeded all of its
objectives and achieved significant strategic progress. We
continued with our proactive property management strategy which
included the sale of 30 properties and the acquisition of 16
others, with EPRA occupancy levels increasing to 89.4% across a
highly diversified tenant base. Additionally, we continued to
reduce the portfolio exposure to Scotland, which now comprises less
than a fifth of the portfolio. The net loan to value fell below our
c. 40% target to 38.3%, and from 9 January 2019 the cost of debt
was reduced by 30 bps."
"Looking ahead occupational demand in our markets remains
robust. We are seeing no shortage of opportunities, and the Board
continues to pursue a progressive dividend policy."
-S -
Enquiries:
Regional REIT Limited
Press enquiries through Buchanan
Toscafund Asset Management Tel: +44 (0) 20 7845
6100
Investment Manager to the Group
Adam Dickinson, Investor Relations, Regional
REIT Limited
London & Scottish Investments Tel: +44 (0) 141
248 4155
Asset Manager to the Group
Stephen Inglis
Buchanan Communications Tel: +44 (0) 20 7466
5000
Financial PR
Charles Ryland / Victoria Hayns / Henry
Wilson
About Regional REIT
Regional REIT Limited ("Regional REIT" or the "Company") and its
subsidiaries([1]) (the "Group") is a United Kingdom ("UK") based
real estate investment trust that launched in November 2015. It is
managed by London & Scottish Investments Limited ("LSI"), the
Asset Manager, and Toscafund Asset Management LLP ("Tosca"), the
Investment Manager.
Regional REIT's commercial property portfolio is comprised
wholly of income producing UK assets and comprises, predominantly,
offices and industrial units located in the regional centres
outside of the M25 motorway. The portfolio is highly diversified,
with 150 properties, 1,192 units and 874 tenants as at 31 December
2018, with a valuation of GBP718.4m.
Regional REIT pursues its investment objective by investing in,
actively managing and disposing of regional core and core plus
property assets. It aims to deliver an attractive total return to
its Shareholders, targeting greater than 10% per annum, with a
strong focus on income supported by additional capital growth
prospects.
The Company's shares were admitted to the Official List of the
UK's Financial Conduct Authority and to trading on the London Stock
Exchange on 6 November 2015. For more information, please visit the
Group's website at www.regionalreit.com.
Cautionary Statement
This document has been prepared solely to provide additional
information to Shareholders to assess the Group's performance in
relation to its operations and growth potential. The document
should not be relied upon by any other party or for any other
reason. Any forward looking statements made in this document are
done so by the Directors in good faith based on the information
available to them up to the time of their approval of this
document. However, such statements should be treated with caution
due to the inherent uncertainties, including both economic and
business risk factors, underlying any such forward-looking
information.
ESMA Legal Entity Identifier ("LEI"): (549300D8G4NKLRIKBX73)
Chairman's Statement
"2018 was a good year for Regional REIT, generating a record
profit of GBP67.4m. We have again delivered to our shareholders a
sector leading dividend with an attractive total return. In line
with our strategic objectives, we have refreshed the portfolio and
further increased occupancy, whilst significantly reducing the
loan-to-value figure and the cost of our debt. We have created a
strong platform which should underpin our momentum through both the
economic and geopolitical uncertainty in the year ahead". Kevin
McGrath, Chairman
It gives me great pleasure to report that the Group had another
very active year and continued to achieve strong positive growth,
with Group profit after tax of GBP67.4m (up 149% on 2017). EPRA
company adjusted diluted earnings per share were 7.5 pence per
share ("pps") (2017: 8.6pps), IFRS earnings 18.1pps (2017: 9.1pps)
with a total dividend for the year of 8.05pps, an increase of c.3%
on the 7.85pps dividend for 2017. We have worked closely with our
tenants via our unique offering of integrated asset, property and
finance teams, which add value to both rental income and capital
appreciation.
We have continued to execute our strategy of acquiring
properties where our asset management initiatives can be best
employed, whilst deliberately ensuring the portfolio remains
diversified both geographically and by tenant type. Occupancy rates
by value continue to remain steady at 87.3% compared with 85.0% in
2017. During the year, the Group made opportunistic disposals of a
substantial portion of its industrial assets and of properties
which had met their individual asset management objectives to
maximise realised returns. We have also promptly recycled much of
the capital that has been generated into high quality income
producing assets to minimise any potential cash drag effect going
forward.
2018 was a very active year for transactions, with the vast
majority completing in the first half of the year as targeted. The
Group acquired properties with an aggregate value of GBP73.3m
(before costs), disposed of properties for an aggregate value of
GBP149.3m (net of costs), and undertook GBP7.0m of capital
expenditure.
We executed the latest phase of our borrowing strategy in the
earlier part of 2018. This has resulted in a reduction in the
average cost of debt; increased and staggered maturity dates; and
increased flexibility, whilst mitigating the risk of interest rate
increases. In August 2018, the Group further diversified its
funding base by the issue of a 4.5% retail eligible bond quoted on
the London Stock Exchange Retail Bonds platform. The Group
successfully raised GBP50.0m through the issue of this bond, which
is due August 2024.
The proceeds from the bond issuance have since been deployed in
part to settle the GBP39.9m 6.5% Zero Dividend Preference Shares
("ZDPs") issued by the Company's indirect subsidiary, Regional REIT
ZDP Plc, which matured on 9 January 2019, and also the early
repayment of the Company's GBP65m ICG Longbow facility. The
remaining GBP13m balance of the ICG Longbow facility, at a rate of
5.0%, was repaid during the year with a new GBP36.0m 10-year
facility from Scottish Widows at a rate of 3.4% and proceeds from
property disposals.
These successful initiatives resulted in a reduction in the
Group's weighted average cost of debt including hedging costs, from
c.3.8% at 31 December 2018 (31 December 2017: 3.8%) to 3.5%
following the repayment of the ZDPs on 9 January 2019.
In line with the Group's strategy for the year, we reduced our
overall net borrowings to 38.3% of gross investments properties as
at 31 December 2018. This was considerably lower than the year end
comparative for 2017 of 45.0% and was predominately as a result of
the realised gains on the disposal of properties, coupled with the
increase in property valuations. We continue to target a ratio of
approximately 40%.
The combination of the above initiatives has positioned the
Group well for the next stage of its development over the short to
medium term as it continues to successfully execute its proven
business model.
Market Environment
Following a strong start to the year, investment in the regional
markets continued at pace in the second half of 2018. In the final
quarter of 2018, investment volumes in the regions outside of
London reached GBP5.6 billion, up 8% on the previous quarter and
13% above the quarterly average. This brought total investment in
the regional markets in 2018 to GBP21.3 billion, the highest figure
recorded since 2006.
Increased investment has been underpinned by strong occupier
fundamentals in both the office and industrial markets, with both
markets witnessing record levels of up-take in 2018. Overseas
investment in the UK property markets accounted for almost half
(49%) of total investment in 2018, according to data from
CoStar[2]. Despite ongoing uncertainty surrounding Brexit, overseas
investors continued to take advantage of favourable exchange rates,
with investment in the final quarter of 2018 reaching GBP8.1
billion, 16% higher than the five-year average.
The Asset Manager continues to see robust occupational demand in
the regional office markets with high rates of tenant retention as
well as good levels of rental growth. The Asset Manager has taken
advantage of historically strong pricing for light industrial
assets with tactical and opportunistic sales. The proceeds of
disposals have been recycled into regional office assets which
complement the diversity of the tenant base.
Given the overarching backdrop of the Brexit negotiations, the
Board remains supportive of the Asset Manager's vigilant and
opportunistic approach to acquisitions and disposals, whilst
continuing to grow underlying rental income and responding to the
needs of our tenants.
Dividends
The dividend is the major generator of the total return. The
Company declared total dividends of 8.05pps for the year,
comprising of three quarterly dividends of 1.85pps each, and a
fourth quarterly dividend of 2.50pps, an increase of c.3% on the
previous year's total dividend. This represented a yield of 8.7% at
a share price of 92.50p on the close of 31 December 2018.
In the absence of unforeseen circumstances, it remains the
Board's intention to pursue a progressive covered dividend policy
and continue to pay quarterly dividends.
Shareholder Engagement
The Company has continued to develop its relations with
investors, engaging closely with its Shareholders. The Company's
website (www.regionalreit.com) was updated during the latter half
of 2018 to further enhance communications with Shareholders.
Board of Directors
I am grateful to my fellow Directors for their skills and
expertise through this very active year, during which we welcomed
Frances Daley as an Independent Non-Executive Director on 1
February 2018. Frances has brought extensive financial PLC
experience to the Board.
Following an internal review of the Board's effectiveness and as
part of a drive to ensure we evolve appropriately with the
development of the Group, on 20 June 2018 Frances replaced William
Eason as the Chair of the Audit Committee. William was appointed as
the Chair of the Company's Management, Engagement and Remuneration
Committee and remains the Senior Independent Non-Executive
Director. No other significant changes occurred during the year and
the view of the Board is that the governance structure of the Group
operates effectively with a positive and open culture. Corporate
governance remains a key focus of the Board and I am satisfied that
we continue to comply with the 2016 edition of the Association of
Investment Companies Code of Corporate Governance (the "AIC Code").
Further details on the Company's compliance with the AIC Code can
be found in the Corporate Governance Statement in the full Annual
Report and Accounts 2018.
The Board, with the assistance of the Company Secretary, will be
undertaking a full review of our governance against the 2019
version of the AIC Code, published in February 2019, which applies
to our financial year commencing 1 January 2019, and we will report
further in due course.
The Board has been pleased with the performance of both the
Asset Manager and Investment Manager, as well as the timing and
execution of both property transactions and borrowings in an
uncertain political and economic environment.
Strong Relationships
We are a long-term business and ultimately the experience of our
tenants, suppliers and the communities in which we operate will
influence our performance. Our overriding aim is to meet the needs
and expectations of our customers, coupled with endeavouring to
maintain strong working relationships with our suppliers, whilst
ensuring we are mindful of our environmental impact.
Performance
The EPRA total accounting return performance since listing on 6
November 2015 has amounted to 37.5%. The Company has generated an
annualised total shareholder return of 10.6% with a 2018 total
shareholder return of 16.6%. Total shareholder return for 2018 was
achieved by our successful individual asset management plans coming
to fruition and associated profits being realised, together with
unrealised investment property gains.
In accordance with the management arrangements, the Asset
Manager and Investment Manager are each entitled to a 50% share of
a performance fee of 15% of total shareholder return in excess of
an annual hurdle rate of 8%. The initial performance fee period ran
from 6 November 2015 to 31 December 2018 resulting in an inaugural
performance fee crystallisation of GBP8.9m. Further details of the
performance fee can be found in the full Annual Report and Accounts
2018.
Subsequent Events
On 10 January 2019, the Company announced the repayment of the
Regional REIT ZDP Plc 6.5% ZDP shares in full, totalling GBP39.9m,
and in accordance with its Articles of Association has been placed
into liquidation. This resulted in a reduction in the weighted
average cost of borrowing (including hedging costs) from c. 3.8% to
c. 3.5%.
On 4 February 2019, the Company announced the acquisition of
Norfolk House in Birmingham for GBP20.0m, with a net initial yield
of 7.9%. The building is 98.8% occupied with a net income of c.
GBP1.69m.
Outlook
The outlook for the Group remains positive. We are a long-term
business and whilst we remain mindful of the uncertain political
and economic backdrop, we are also conscious of market cycles and
customers' trends, and our confidence is underpinned by the
positioning of our diversified asset base and customer orientated
business model.
For the remainder of 2019, the Group is confident of achieving
good returns for Shareholders, by maintaining the momentum of asset
management initiatives and continuing to grow income streams, all
of which should provide further opportunities for capital value
enhancement. The Group remains alert to the opportunities for
potential acquisitions or disposals which may arise in the near
future.
Kevin McGrath
Chairman and Independent Non-Executive Director
27 March 2019
Asset and Investment Managers' Report
"Regional REIT has had another strong year. Our strategic
decision to sell c.47% of our industrial portfolio into what we
identified as an overheated market, together with some non-core
assets, has generated substantial profits (c. 21%) over our
December 2017 valuation. We continue to identify off-market
acquisition targets offering value and have been able to re-invest
in quality assets with additional asset management opportunities.
We continue to increase the geographic spread of our assets and
remain focussed on creating as wide a spread as possible in the
quality and diversity of our tenants. We have in the year
successfully delivered a number of asset management projects, most
notably the refurbishment of the office building at Aztec West, and
we have recently announced lettings for c. 86% of the building.
We continue to implement our successful approach to intensive
asset management with our initiatives again achieving increased
occupancy. We have yet to see any notable difference to occupier
demand for our assets as a result of the continuing Brexit
negotiations but are monitoring events and can react if necessary
to maintain and improve occupancy of the Company's assets. Our
unique management platform ensures that we will be better placed to
deal with any changes resulting from this better than our rivals
and peer group. We remain confident that our continuing strategy
and the strength of our core regional office and light industrial
property markets will continue to deliver strong income and capital
growth opportunities for our investor." Stephen Inglis, Chief
Executive Officer of London & Scottish Investments, the Asset
Manager of Regional REIT Limited.
Highlights from 2018:
-- Occupancy rate (by value) up 2.7% to 87.3% as at 31 December
2018, an increase from 85.0% from the previous 12 months.
-- Average rent by let sq. ft. up by 14.9% from GBP8.18 per sq.
ft. in December 2017 to GBP9.40 per sq. ft. in December 2018.
-- Valuation increase of 4.5% on a like-for-like basis from the
prior year, adjusting for capital expenditure and disposals during
the period.
-- Increase of retention of income to 74% (by value) as at 31
December 2018, up from 64% in December 2017.
-- The lease renewals throughout 2018 achieved an uplift in contracted rental income of 4.2%.
2018 has been another incredibly active year for the Company,
which has been reflected in a strong set of results. Disposals in
2018 totalled GBP149.3m (net of costs) at an average net initial
yield of c. 5.7% (December 2017: 6.3%). The Group took a
countercyclical view regarding our industrial portfolio and
continued our proactive sales programme by disposing of 23
industrial properties during the year. We have also continued to
redeploy proceeds throughout 2018 and carefully select assets where
we can add value and drive yields, with property acquisitions in
2018 of GBP73.3m (before costs), with a weighted average net
initial yield of c. 8.7% (December 2017: 7.9%). As a result, we
have demonstrated our ability to identify arbitrage opportunities
between disposal yields and acquisition yields, whilst maintaining
our income accretive strategy. Our outlook for 2019 is optimistic,
despite wider political and economic uncertainty and, looking
forward, the Company will continue to identify value in the market
with a focus on income.
Investment Activity in UK Commercial Property
Investment in the UK commercial property market reached GBP61.8
billion in 2018, according to research from Lambert Smith Hampton
("LSH")[3], 3% higher than 2017 volumes and 4% above the five-year
average, resulting in the second largest annual figure in a decade
(after 2015). Although investment in the final quarter of 2018 was
slightly lower than Q3 2018 volumes, investment in H2 2018 reached
GBP33.6 billion, indicating an increase of 19% when compared to H1
2018, which helped boost overall investment figures for 2018. 2018
proved to be another strong year for investment in portfolio deals,
with investment totalling GBP14.0 billion in 2018, up 3% on 2017.
Investment in portfolios was particularly strong in the final
quarter of 2018, reaching GBP4.0 billion, 10% higher than the
five-year quarterly average.
Following a strong start to the year, investment in the regional
markets continued at pace in the second half of 2018. In the final
quarter of 2018, investment volumes in the regions outside of
London reached GBP5.6 billion, up 8% on the previous quarter and
13% above the quarterly average. This brought total investment in
the regional markets in 2018 to GBP21.3 billion, the highest figure
recorded since 2006. LSH research notes that annual investment in
2018 was above the average volume in each of the UK's regional
markets, with the largest increase in regional investment occurring
in the North East and the East Midlands, with 2018 investment
volumes 61% and 52% above average, respectively.
The previous evidence of strong regional investment throughout
2018 has been followed by muted investment at the beginning of
2019. The expected pre -Brexit "rush to market" appears to be
followed by the expected period of potential investors taking a
"wait and see" position. Provisional figures from Property Data
shows a sharp decline of 43% in the volume of UK investment deals
in the first two months of 2019 when compared to the same period in
2018([4]) . Overall, Property Data recorded GBP4.29 billion of
deals in the first two months of 2019, with the decline in
investment volumes more significant in the central London office
market. Additionally, data from Calastone reveals that real estate
funds saw an outflow of GBP1.1 billion in the five months ending
February 2019([5]) .
Overseas investment in the UK property markets accounted for
almost half (49%) of total investment in 2018, according to data
from CoStar[6]. Despite ongoing uncertainty surrounding Brexit,
overseas investors continued to take advantage of favourable
exchange rates, with investment in the final quarter of 2018
reaching GBP8.1 billion, 16% higher than the five-year average.
Figures from CoStar indicate that 2018 was a record year for
capital inflows from South Korea and Singapore, which helped
support overall Far East investment during the year despite a fall
in spend from China/Hong Kong. Conversely, North American investors
became net sellers in 2018. LSH estimate that total overseas
investment for 2018 reached GBP27.9 billion, 33% higher than the
10-year average.
Research from CBRE indicates that regional offices have
outperformed in comparison to central London offices, delivering
superior returns of 11.5% in 2018 in comparison to central London
office returns of 5.3% - a trend that has been witnessed over the
past three years. Outperformance reflected better capital returns
(driven by rental growth) as well as rental growth of 2.2% in the
regions, which was above the 1.1% witnessed in the Central London
office market. The Asset Manager expects this trend to continue,
enabling Regional REIT to capitalise on greater returns as a result
of the Group's size and spread of assets throughout the UK's
regional markets.
Occupational Demand in the UK Regional Office Market
Savills estimates that take-up of office space across nine
regional office markets[7] reached 7 million sq. ft., 3% higher
than the 6.8 million sq. ft. recorded in 2017, and 25% above the
10-year average. Occupational demand was driven by the public
sector, with another strong year of take-up from Central
Government, which included the final two Government Property Unit
(GPU) deals[8], resulting in the public sector accounting for the
highest proportion of take-up at 18%. Following the public sector,
the technology, media & telecoms sector and the business &
consumer services sector accounted for the second and third largest
proportion of take-up in the regional cities, accounting for 11%
and 10% respectively. Demand for regional office space also grew
within the flexible workspace sector; Cushman & Wakefield
expect this trend to continue, with flexibility becoming a key
driver of leasing activity[9]. Additionally, GVA predicts that
take-up in the flexible workspace sector will be over 0.5 million
sq. ft. in 2019 for the third year in a row.
According to Cushman & Wakefield, a lack of quality stock in
the regional cities will continue to put a downward pressure on
vacancy levels. The supply of offices in the core regional markets
remains low. Savills[10] research indicates that occupier demand
continues to reduce availability, with total availability falling
by 14% in 2018 to 11.5 million sq. ft. across nine regional office
markets, 27% below the 10-year average. This marks the fifth
consecutive year that supply of office stock has declined.
The most recent Deloitte Crane Survey (January 2019), suggests
heightened construction activity in certain regional cities
(Birmingham, Manchester, Leeds and Belfast); with a total of
approximately 4.7m sq. ft. of office space currently under
construction. However, although the supply of office stock is
likely to increase, a considerable proportion of office buildings
currently under construction are already pre-let. Therefore, there
is likely to remain a shortage of office stock, with Cushman &
Wakefield[11] highlighting that the vacancy rate for new and
refurbished stock in the regions is only 1.9%, which has driven
pre-let activity. The expectation is that demand for pre-lets will
increase across the regional markets. According to GVA, build cost
inflation and future economic uncertainty are continuing to
restrict new development[12].
The Asset Manager believes that the current supply/demand
dynamics within the regional office markets will remain unchanged
and that the lack of supply for prime stock will continue to drive
demand for recently refurbished and good quality core and core plus
office space in good locations throughout the regional markets.
Rental Growth in the UK Regional Office Market
A lack of availability in the Big Nine regional markets has put
an upward pressure on headline rents as well as a downward pressure
on rent incentives, which has led to an increase of 4.1% in city
centre net effective rents over the last 12 months, according to
GVA[13].
The CBRE Monthly Index shows that rental value growth for the
rest of UK office markets in the 12 months ending December 2018 was
2.2%, higher than the 1.1% rental growth for central London
offices. Cushman and Wakefield expect rental growth in the regions
to continue to be fuelled by strong demand, but anticipate that
rents in core London markets will remain under pressure[14].
Similarly, Colliers International expects the rest of the UK and
South East office markets to sustain positive rental growth over
the 2019-2022 period[15]. The Asset Manager believes regional
office markets will continue to experience rental growth and that
supply shortages for Grade A space will result in an uplift in
rents for good quality core and core plus properties.
Regional REIT's Office Assets
Occupancy by value of the Group's regional offices rose to 86.5%
(31 December 2017: 83.2%); occupancy by area was 84.4% (31 December
2017: 82.4%). A like-for-like comparison of the Group's regional
offices occupancy by value, 31 December 2018 versus 31 December
2017, shows that occupancy increased to 85.3% (31 December 2017:
84.1%). WAULT to first-break was 3.0 years (31 December 2017: 3.1
years); like-for-like WAULT to first break was 2.9 years (31
December 2017: 3.1 years).
Occupier Demand Strengthens in the UK Industrial Market
Take-up in the final quarter of 2018 totalled 11.1 million sq.
ft., pushing annual take-up during 2018 to 35.9 million sq. ft., a
30% increase from 2017 levels and the highest annual take-up
recorded since 2008. Although the same number of deals took place
in both 2018 and 2017, take-up increased by 30% due to a number of
large 'built to suit' deals increasing the average deal size to
191,000 sq. ft.. CBRE[16] research shows that 37% of take-up was
within the East Midlands - the highest proportion for a region
since 2006. Following this, Yorkshire, North East, and South East
all recorded a strong performance in terms of take-up throughout
2018.
Occupier demand within the industrial market continues to
benefit from growth in online shopping, as online retailing
currently accounts for 18.8% of total retail sales in the UK,
according to the ONS[17]. Cushman and Wakefield research highlights
that eRetailers were the most active in terms of take-up throughout
2018, accounting for 26% of annual take-up.
In terms of development, CBRE indicates that availability levels
rose in 2018 due to an increase in speculative development schemes.
Cushman & Wakefield research suggests that for 2019, there is
approximately 6.9 million sq. ft. of space under construction, 17%
above the five-year average.
Industrial Rental Growth Continues
Research by BNP Paribas Real Estate illustrates that competition
for standard industrial space led to rental growth in 2018. The
research compared data from the monthly MSCI Index for December
2018, which showed rental growth of 4.6% for the 12 months to the
end of December 2018, indicating acceleration from the 1.3% rental
growth recorded for the three months to June 2018. Colliers
International estimate that further rental growth in the industrial
market during 2019 is likely[18].
The Investment Property Forum UK Consensus Forecast, February
2019, anticipates rental growth in the industrial sector of 2.0% in
2019, providing evidence of sustained growth. Additionally, the IPF
UK Consensus Forecast predicts 2.2% and 2.0% average rental growth
rates respectively for 2020 and 2021. In comparison, the IPF UK
Consensus Forecast predicts that the All Property average annual
rental value growth expected for 2019 is 0.2%.
Regional REIT's Industrial Assets
Occupancy by value of the Group's industrial sites increased to
88.6% (31 December 2017: 87.9%); occupancy by area also increased
to 88.0% (31 December 2017: 86.4%). A like-for-like comparison of
the Group's industrial sites' occupancy by value, 31 December 2018
versus 31 December 2017, shows that occupancy fell to 87.7% (31
December 2017: 89.1%). In part, this reduction in like-for-like
occupancy is due to the Group's sales programme during the year,
which included the disposal of some fully let mature assets as well
as some vacant properties. The reduction can also be attributed to
one lease expiry at Southview/Southstar, Aberdeen (20,825 sq. ft),
which was fully anticipated in our projections. WAULT to first
break was 5.4 years (31 December 2017: 4.1 years); like-for-like
WAULT to first break was 5.1 years (31 December 2017: 5.1
years).
Property Portfolio
As at 31 December 2018, the Group's property portfolio was
valued at GBP718.4m (31 December 2017: GBP737.3), with contracted
rental income of GBP59.7m (31 December 2017: GBP61.9m), and an
occupancy rate by value of 87.3% (31 December 2017: 85.0%).
Occupancy by area amounted to 85.5% (31 December 2017: 84.3%). EPRA
occupancy increased to 89.4% (31 December 2017: 88.2%).
On a like-for-like basis, 31 December 2018 versus 31 December
2017, occupancy by value was 86.4% (31 December 2017: 85.5%) and
occupancy by area was 84.6% (31 December 2017: 84.4%).
There were 150 properties (31 December 2017: 164), in the
portfolio, with 1,192 units (31 December 2017: 1,368) units and 874
tenants (31 December 2017: 1,026). If the portfolio was fully
occupied at Cushman & Wakefield's and Jones Lang LaSalle's view
of market rents, the contracted rental income would be GBP70.0m per
annum as at 31 December 2018 (31 December 2017: GBP73.8m).
As at 31 December 2018, the net initial yield on the portfolio
was 6.5% (31 December 2017: 6.5%), the equivalent yield was 8.2%
(31 December 2017: 8.3%), and the reversionary yield was 8.8% (31
December 2017: 9.2%).
Sector Properties Valuation % by Sq. Occupancy Occupancy Occupancy WAULT Gross Average ERV Capital Yield
valuation ft. (by value) (by area) (EPRA) to rental rent rate
first income
break
------------------------------------
Net
(GBPm) (mil) (%) (%) (%) (yrs) (GBPm) (GBPpsf) (GBPm) (GBPpsf) initial Equivalent Reversionary
----------- ---------- ---------- ------ ----------- ---------- ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Office 106 546.4 76.1% 4.32 86.5% 84.4% 88.2% 3.0 46.2 12.66 55.0 126.35 6.6% 8.4% 9.2%
----------- ---------- ---------- ------ ----------- ---------- ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Industrial 17 111.3 15.5% 2.46 88.6% 88.0% 94.5% 5.4 7.9 3.63 9.1 45.18 5.1% 7.2% 7.2%
----------- ---------- ---------- ------ ----------- ---------- ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Retail 25 50.8 7.1% 0.52 92.1% 89.8% 92.3% 3.9 5.0 10.55 5.1 97.22 8.3% 8.5% 8.8%
----------- ---------- ---------- ------ ----------- ---------- ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Other 2 9.9 1.4% 0.12 94.9% 59.1% 95.0% 8.3 0.7 9.85 0.8 80.28 6.3% 7.4% 7.3%
----------- ---------- ---------- ------ ----------- ---------- ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Total 150 718.4 100.0% 7.43 87.3% 85.5% 89.4% 3.4 59.7 9.40 70.0 96.64 6.5% 8.2% 8.8%
----------- ---------- ---------- ------ ----------- ---------- ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Sector Properties Valuation % by Sq. Occupancy Occupancy Occupancy WAULT Gross Average ERV Capital Yield
valuation ft. (by value) (by area) (EPRA) to rental rent rate
first income
break
------------------------------------
Net
(GBPm) (mil) (%) (%) (%) (yrs) (GBPm) (GBPpsf) (GBPm) (GBPpsf) initial Equivalent Reversionary
----------- ---------- ---------- ------ ----------- ---------- ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Scotland 40 129.0 18.0% 1.66 84.6% 78.6% 84.6% 3.4 12.0 9.22 14.6 77.62 7.1% 9.3% 10.6%
----------- ---------- ---------- ------ ----------- ---------- ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
South
East 30 213.0 29.7% 1.55 94.2% 94.9% 95.8% 3.0 17.4 11.83 18.9 137.54 6.9% 7.4% 7.5%
----------- ---------- ---------- ------ ----------- ---------- ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
North
East 22 98.9 13.8% 1.31 82.6% 87.6% 87.5% 3.1 7.9 6.88 10.0 75.36 6.1% 8.7% 9.4%
----------- ---------- ---------- ------ ----------- ---------- ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Midlands 30 111.8 15.6% 1.28 90.0% 88.9% 90.5% 3.1 9.6 8.47 10.1 87.55 6.7% 8.0% 8.2%
----------- ---------- ---------- ------ ----------- ---------- ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
North
West 14 76.4 10.6% 0.94 75.1% 74.7% 82.8% 5.6 5.3 7.52 7.8 81.43 5.0% 8.8% 9.4%
----------- ---------- ---------- ------ ----------- ---------- ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
South
West 12 69.5 9.7% 0.45 88.8% 89.7% 90.0% 3.3 5.9 14.66 6.8 154.62 6.0% 8.1% 9.1%
----------- ---------- ---------- ------ ----------- ---------- ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Wales 2 19.7 2.7% 0.25 88.5% 78.7% 87.9% 6.5 1.6 8.33 1.7 80.43 7.3% 7.5% 7.8%
----------- ---------- ---------- ------ ----------- ---------- ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Total 150 718.4 100.0% 7.43 87.3% 85.5% 89.4% 3.4 59.7 9.40 70.0 96.64 6.5% 8.2% 8.8%
----------- ---------- ---------- ------ ----------- ---------- ---------- ------ ------- --------- ------- --------- -------- ----------- -------------
Tables may not sum due to rounding
Top 15 Investments (market value) as at 31 December 2018
Property Sector Anchor tenants Market % of Lettable Let by Let by Annualised % of WAULT
value portfolio area area rental gross Gross to
(GBPm) (Sq Ft) (%) value rent rental first
(%) (GBPm) income break
(years)
Barclays Bank
Plc,
Tay House, University
Glasgow Office of Glasgow 33.2 4.6% 156,933 87.7% 87.5% 2.5 4.2% 3.2
------------ --------------- ------- ---------- ---------- ------- ------- ----------- ------- --------
Schenker Ltd,
A Share
& Sons Ltd,
Juniper Vanguard
Park, Logistics
Basildon Industrial Services Ltd 29.3 4.1% 277,228 98.4% 97.0% 2.0 3.4% 1.3
------------ --------------- ------- ---------- ---------- ------- ------- ----------- ------- --------
Wick Hill Ltd,
Alpha
Assembly
Solutions UK
Ltd, McCarthy
Genesis & Stone
Business Retirement
Park, Lifestyles
Woking Office Ltd 24.9 3.5% 98,359 100.0% 100.0% 1.9 3.3% 2.7
------------ --------------- ------- ---------- ---------- ------- ------- ----------- ------- --------
Bank of
Scotland Plc,
The Equitable
Life
Assurance
Buildings 2 Society,
& 3 HBOS Agria Pet
Campus, Insurance
Aylesbury Office Ltd 24.7 3.4% 140,676 92.5% 92.6% 2.2 3.6% 4.0
------------ --------------- ------- ---------- ---------- ------- ------- ----------- ------- --------
Aviva Health
UK Ltd,
The Royal
Bank of
Scotland
Plc, Daisy
Hampshire Wholesale
Corporate Ltd, Utilita
Park, Energy
Eastleigh Office Ltd 19.7 2.7% 85,422 99.2% 99.5% 1.4 2.4% 1.7
------------ --------------- ------- ---------- ---------- ------- ------- ----------- ------- --------
Edvance SAS,
800 Aztec The Secretary
West, of State for
Bristol Office Defence 17.2 2.4% 73,292 86.7% 86.3% 1.3 2.2% 4.2
------------ --------------- ------- ---------- ---------- ------- ------- ----------- ------- --------
One & Two
Newstead
Court,
Annesley Office E.ON UK Plc 16.4 2.3% 146,262 100.0% 100.0% 1.4 2.4% 1.6
------------ --------------- ------- ---------- ---------- ------- ------- ----------- ------- --------
Road 4
Winsford
Industrial
Estate, Jiffy
Winsford Industrial Packaging Ltd 15.6 2.2% 246,209 100.0% 100.0% 1.0 1.6% 15.7
------------ --------------- ------- ---------- ---------- ------- ------- ----------- ------- --------
Columbus TUI Northern
House, Europe
Coventry Office Ltd 13.5 1.9% 53,253 100.0% 100.0% 1.4 2.3% 5.0
------------ --------------- ------- ---------- ---------- ------- ------- ----------- ------- --------
Ceva Logistics
Ashby Park, Ltd,
Ashby Hill Rom UK
De La Ltd, Alstom
Zouch Office Power Ltd 13.3 1.9% 91,752 100.0% 100.0% 1.1 1.8% 1.8
------------ --------------- ------- ---------- ---------- ------- ------- ----------- ------- --------
New College
Manchester
Ltd, Mott
MacDonald
Ltd, Darwin
Portland Loan
Street, Solutions
Manchester Office Ltd 13.3 1.8% 54,959 100.0% 96.9% 0.8 1.3% 2.5
------------ --------------- ------- ---------- ---------- ------- ------- ----------- ------- --------
QDOS
Entertainment
(Pantomimes)
Ltd, Sargent
Tokenspire Electrical
Business Services Ltd,
Park, TAPCO
Beverley Industrial Europe Ltd 11.0 1.5% 322,211 97.4% 96.7% 0.9 1.4% 0.9
------------ --------------- ------- ---------- ---------- ------- ------- ----------- ------- --------
The Scottish
Ministers,
The Scottish
Sports
Templeton Council,
On The Heidi Beers
Green, Ltd, Fore
Glasgow Office Digital Ltd 11.0 1.5% 141,320 93.7% 92.7% 1.2 2.0% 4.3
------------ --------------- ------- ---------- ---------- ------- ------- ----------- ------- --------
HSS Hire
Service Group
Ltd, Please
Hold (UK)
Ltd, CVS
(Commercial
Valuers &
Oakland Surveyors)
House, Ltd,
Manchester Office Rentsmart Ltd 10.7 1.5% 167,247 77.9% 77.1% 1.0 1.8% 4.1
------------ --------------- ------- ---------- ---------- ------- ------- ----------- ------- --------
Wilkinson
Hardware
Stores
Ltd,
Poundland
Ltd,
The Brunel Boots The
Centre, Chemist Ltd,
Bletchley Retail WHSmith Plc 10.4 1.5% 98,351 90.8% 94.0% 1.0 1.6% 3.4
------------ --------------- ------- ---------- ---------- ------- ------- ----------- ------- --------
Total 264.0 36.7% 2,153,474 95.0% 94.0% 21.0 35.2% 3.5
------- ---------- ---------- ------- ------- ----------- ------- --------
*Tables may not sum due to rounding
Top 15 Tenants (share of rental income) as at 31 December
2018
Tenant Property Sector WAULT Lettable Annualised % of Gross
to first area gross rent(GBPm) rental
break (Sq Ft) income
(years)
Financial and
insurance
Barclays Bank Plc Tay House, Glasgow activities 2.9 78,044 1.6 2.7%
------------------- ------------------- ---------- ---------- ------------------ -----------
Buildings 3 HBOS
Campus,
Aylesbury Financial and
Bank of Scotland High Street, insurance
Plc Dumfries activities 3.2 92,978 1.5 2.4%
------------------- ------------------- ---------- ---------- ------------------ -----------
Electricity, gas,
steam
One & Two Newstead and air
Court, conditioning
E.ON UK Plc Annesley supply 1.6 146,262 1.4 2.4%
------------------- ------------------- ---------- ---------- ------------------ -----------
Professional,
TUI Northern scientific
Europe Columbus House, and technical
Ltd Coventry activities 5.0 53,253 1.4 2.3%
------------------- ------------------- ---------- ---------- ------------------ -----------
Calton House,
Edinburgh
Quadrant House,
Dundee
Templeton On The
Green,
Glasgow
The Scottish The Courtyard,
Ministers Falkirk Public sector 2.5 111,076 1.3 2.2%
------------------- ------------------- ---------- ---------- ------------------ -----------
Hampshire
Corporate
The Royal Bank of Park, Eastleigh Financial and
Scotland Cyan Building, insurance
Plc Rotherham activities 2.7 88,394 1.2 2.0%
------------------- ------------------- ---------- ---------- ------------------ -----------
Road 4 Winsford
Jiffy Packaging Industrial
Ltd Estate, Winsford Manufacturing 15.7 246,209 1.0 1.6%
------------------- ------------------- ---------- ---------- ------------------ -----------
Professional,
Clearblue scientific
SPD Development Co Innovation and technical
Ltd Centre, Bedford activities 6.8 58,167 0.8 1.4%
------------------- ------------------- ---------- ---------- ------------------ -----------
Bennett House,
Hanley
Cromwell House,
Sec of State for Lincoln
Communities Oakland House,
& Local Govt Manchester Public sector 0.5 67,882 0.8 1.3%
------------------- ------------------- ---------- ---------- ------------------ -----------
Brennan House,
Fluor Limited Farnborough Construction 0.4 29,707 0.8 1.3%
------------------- ------------------- ---------- ---------- ------------------ -----------
Festival Court,
Glasgow
The Secretary of St Brendans
State Court,
for Transport Bristol Public sector 3.0 55,586 0.7 1.2%
------------------- ------------------- ---------- ---------- ------------------ -----------
1-4 Llansamlet
Retail
Park, Swansea
Juniper Park, Wholesale and
A Share & Sons Ltd Basildon retail trade 5.4 75,791 0.7 1.1%
------------------- ------------------- ---------- ---------- ------------------ -----------
Electricity, gas,
steam
and air
800 Aztec West, conditioning
Edvance SAS Bristol supply 3.5 31,549 0.7 1.1%
------------------- ------------------- ---------- ---------- ------------------ -----------
Victory House
Meeting Financial and
House Lane, insurance
Lloyds Bank Plc Chatham activities 0.0 48,372 0.7 1.1%
------------------- ------------------- ---------- ---------- ------------------ -----------
Hampshire Financial and
Aviva Health UK Corporate insurance
Ltd Park, Eastleigh activities 0.0 42,612 0.7 1.1%
------------------- ------------------- ---------- ---------- ------------------ -----------
Total 3.6 1,225,882 15.1 25.3%
---------- ---------- ------------------ -----------
Property Portfolio Sector and Region Splits by Valuation and
Income
By Valuation
As at 31 December 2018, 76.1% (2017: 67.3%) of the portfolio by
market value was offices and 15.5% (2017: 23.3%) was industrial.
The balance was made up of retail, 7.1%, and other, 1.4% (2017:
retail and other 9.4%). By UK region, as at 31 December 2018,
Scotland represented 18.0% (2017: 22.4%) of the portfolio and
England 79.3% (2017: 74.0%); the balance of 2.7% (2017: 3.6%) was
in Wales. In England, the largest regions were the South East, the
Midlands and the North East.
By Income
As at 31 December 2018, 77.3% (2017: 66.9%) of the portfolio by
income was offices and 13.2% (2017: 23.2%) was industrial. The
balance was made up of retail, 8.3%, and other, 1.2% (2017: retail
and other 10.0%). By UK region, as at 31 December 2018, Scotland
represented 20.1% (2017: 25.7%) of the portfolio and England 77.2%
(2017: 70.7%); the balance of 2.7% was in Wales (2017: 3.6%). In
England, the largest regions were the South East, the Midlands and
the North East.
Lease Expiry Profile
The WAULT on the portfolio is 5.4 years (2017: 5.4 years); WAULT
to first break is 3.4 years (2017: 3.5 years). As at 31 December
2018, 10.1% (2017: 14.1%) of income was from leases, which will
expire within 1 year, 4.4% (2017: 10.4%) between 1 and 2 years,
34.0% (2017: 29.7%) between 2 and 5 years and 51.6% (2017: 45.8%)
after 5 years.
Tenants by Standard Industrial Classification as at 31 December
2018
As at 31 December 2018, 11.5% of income was from tenants in the
professional, scientific and technical activities sector (2017:
10.6%), 10.4% from the administrative and support service
activities sector (2017: 8.7%), 10.1% from the wholesale and retail
trade sector (2017: 13.8%), 9.6% from the public sector (2017:
8.9%) and 9.3% from the banking sector (2017: 4.4%). The remaining
exposure is broadly spread.
No tenant represents more than 3.0% of the Group's contracted
rent roll as at 31 December 2018, the largest being 2.7%.
Net Asset Value
In the year ended 31 December 2018, the EPRA NAV of the Group
rose to GBP430.5m (IFRS: GBP429.5m) from GBP395.7m (IFRS:
GBP392.9m) as at 31 December 2017, which equates to an increase in
diluted NAV of 9.6pps to 115.5pps (31 December 2017: 105.9pps).
This is after the payment of dividends in the period amounting to
8.00pps.
The EPRA NAV increase of some GBP34.8m since 31 December 2017 is
predominately sourced from the revaluation of investment properties
held at 31 December 2017 amounting to GBP23.9m, and the gain on
disposal of investment properties of GBP23.1m.
The investment property portfolio valuation as at 31 December
2018 totalled GBP718.4m, (31 December 2017: GBP737.3m). The
decrease since the December 2017 year end is largely a reflection
of the aforementioned investment property valuations offset by
realised property disposals. In the 12 months to 31 December 2018,
the valuation increased on a like-for-like basis by 4.5%.
The below table sets out the acquisitions, disposals and capital
expenditure for the respective periods:
Year ended Year ended
31 December 31December
2018 2017
GBPm GBPm
Acquisitions
Net (after costs) 76.3 231.3
Gross (before costs) 73.3 228.1
Disposals
Net (after costs) 149.3 16.9
Gross (before costs) 152.5 17.4
Capital Expenditure
Net (after dilapidations) 7.0 13.4
Gross (before dilapidations) 9.8 14.8
The diluted EPRA NAV per share increased to 115.5pps (31
December 2017: 105.9pps). The EPRA NAV is reconciled in the table
below.
Year ending Year ending
2018 2018
Pence per
GBPm Share
Opening EPRA NAV 395.7 105.9
31 Dec 2017 dilution reversal 0.2
Opening EPRA NAV 395.7 106.1
Net rental income 54.4 14.6
Administration and other expenses (17.6) (4.7)
Gain on the disposal of investment
properties 23.1 6.2
Change in the fair value of investment
properties 23.9 6.4
EPRA NAV after Operating profit 479.5 128.6
Net finance expense (15.7) (4.2)
Impairment of goodwill (0.6) (0.1)
Taxation (2.0) (0.5)
EPRA NAV before Dividends paid 461.2 123.7
Dividends paid (29.8) (8.0)
Performance Fee Shares (0.9) (0.2)
Closing EPRA NAV 430.5 115.5
Table may not sum due to rounding
Income Statement
Operating profit before gains and losses on property assets and
other investments for the year ended 31 December 2018 amounted to
GBP36.8m (31 December 2017: GBP36.4m). Profit after finance items
and before taxation was GBP67.9m (31 December 2017: GBP28.7m). 2018
included a full rent roll for properties held as at 31 December
2017, plus the partial rent roll for properties acquired and
disposed of during the period.
Realised gain on disposal of investment properties amounted to
GBP23.1m (31 December 2017: GBP1.2m). The change in the fair value
of investment properties amounted to a gain of GBP23.9m (31
December 2017: GBP5.9m). These gains were primarily driven by asset
management initiatives, and the opportunistic disposal of a
substantial portion of the industrial portfolio, including
properties which had met their individual asset plans to maximise
returns.
Rental income amounted to GBP62.1m (31 December 2017: GBP52.3m):
the increase was primarily the result of the enlarged investment
property portfolio held in 2018.
Currently more than 80% of the rental income is collected within
28 days of the due date and bad debts in the period were GBP0.4m
(31 December 2017: GBP0.5m).
The EPRA cost ratio, including direct vacancy costs, was 40.1%
(31 December 2017: 29.7%), adjusting for ground rent. The increase
in the cost ratio is ostensibly a reflection of the realised gains
from the disposal of investment properties in the period, coupled
with the change in the fair value of the investment properties,
resulting in a performance fee of GBP7.0m (31 December 2017:
GBP1.6m). The EPRA cost ratio, including direct vacancy costs and
excluding the performance fee, was 28.6% (31 December 2017:
26.6%).
Non-recoverable property costs amounted to GBP7.7m (31 December
2017: GBP6.5m), and the contracted rental income reduced to
GBP59.7m (31 December 2017: GBP61.9m).
Finance expenses amount to GBP16.0m (31 December 2017:
GBP14.7m). In part, the increase is a result of the issuance of a
GBP50m 4.5% Retail Eligible Bond 2024 (the "Retail Bond") issued on
6 August 2018 to fund the repayment of the GBP30m 6.5% zero
dividend preference shares ("ZDP shares") on 9 January 2019.
The Company is a member of the Association of Investment
Companies ("AIC"). In accordance with the AIC Code of Corporate
Governance, the ongoing charges for the period ending 31 December
2018 were 4.4% (31 December 2017: 4.5%). The Total EPRA Return to
Shareholders from 6 November 2015 to 31 December 2018 was 37.5% (31
December 2017: 19.9%), an annualised rate of 10.6% pa (31 December
2017: 8.8% pa).
Dividend
In relation to the period from 1 January 2018 to 31 December
2018, the Company declared dividends totalling 8.05pps (2017:
7.85pps). Since the end of the period, the Company has declared a
dividend for the fourth quarter of 2018 of 2.50pps.
Announcement Pence Per
Period Covered Date Ex-Date Payment Date Share
1 Jan 2017 to 31
Mar 2017 25 May 2017 8 Jun 2017 14 Jul 2017 1.80p
1 Apr 2017 to 30
Jun 2017 31 Aug 2017 7 Sep 2017 13 Oct 2017 1.80p
1 Jul 2017 to 30
Sep 2017 14 Nov 2017 23 Nov 2017 22 Dec 2017 1.80p
1 Oct 2017 to 31
Dec 2017 22 Feb 2018 1 Mar 2018 12 Apr 2018 2.45p
1 Jan 2018 to 31
Mar 2018 17 May 2018 24 May 2018 13 Jul 2018 1.85p
1 Apr 2018 to 30
Jun 2018 31 Aug 2018 13 Sep 2018 15 Oct 2018 1.85p
1 Jul 2018 to 30 22 Nov
Sep 2018 15 Nov 2018 2018 21 Dec 2018 1.85p
1 Oct 2018 to 31
Dec 2018 21 Feb 2019 28 Feb 2019 11 Apr 2019 2.50p
Debt Financing and Gearing
Borrowings comprise third-party bank debt which is secured over
properties owned by the Group and repayable over the next
one-to-ten years, with a weighted average maturity of 6.4 years (31
December 2017: 6.0 years).
The Group's borrowing facilities are with Scottish Widows Ltd.,
Royal Bank of Scotland, HSBC and Santander UK, and Aviva Investors
Real Estate Finance. In addition to the bank borrowing, the Group
had GBP30m 6.5% ZDP shares in issue as at 31 December 2018, and a
GBP50m 4.5% Retail Eligible Bond 2024. In aggregate the total debt
available at 31 December 2018 amounted to GBP380.4m (31 December
2017: GBP376.5m)
Total bank borrowing facilities at 31 December 2018 amounted to
GBP290.5m (31 December 2017: GBP339.1m) (before unamortised debt
issuance costs), having been fully drawn down. The total amount
payable on the ZDP shares amounted to GBP39.9m (31 December 2017:
GBP37.4m). The GBP50.0m Retail Eligible Bond was raised on 6 August
2018 to fund the repayment of the ZDP shares and to part fund early
repayment of the 5% GBP65m ICG Longbow Ltd. facility.
At 31 December 2018, the Group's cash and cash equivalent
balances amounted to GBP104.8m (31 December 2017: GBP44.6m), which
includes proceeds from the aforementioned Retail Bond.
The Group's net loan-to-value ratio stands at 38.3% (31 December
2017: 45.0%) before unamortised costs. The Board continues to
target a net loan-to-value ratio of 40%, with a maximum limit of
50%.
Debt Profile and Loan-to-Value Ratios as at 31 December 2018
Lender Original Outstanding Maturity Gross Annual Interest
Facility Debt* Date Loan Rate
to Value**
GBP'000 GBP'000
Scottish Widows
Ltd GBP36,000 GBP36,000 Dec-28 38.8% 3.37% Fixed
Royal Bank of over 3mth
Scotland GBP26,458 GBP26,458 Dec-21 45.9% 2.00% GBP LIBOR
over 3mth
HSBC GBP19,003 GBP19,003 Dec-21 51.4% 2.15% GBP LIBOR
over 3mth
Santander UK GBP44,026 GBP44,026 Nov-22 36.7% 2.15% GBP LIBOR
Scottish Widows
Ltd. & Aviva
Investors Real
Estate Finance GBP165,000 GBP165,000 Dec-27 45.4% 3.28% Fixed
290,487 290,487
Zero Dividend
Preference Shares 39,879 39,820 Jan-19 N/A 6.50% Fixed
Retail Eligible
Bond 50,000 50,000 Aug-24 N/A 4.50% Fixed
380,366 380,307
* Before unamortised debt issue costs
** Based on Cushman and Wakefield and Jones Lang LaSalle property
valuations
*** Table may not sum due to rounding
Both the Asset and Investment Managers continue to monitor the
borrowing requirements of the Group. As at 31 December 2018, the
Group had substantial headroom against its borrowing covenants.
The net gearing ratio (net debt to ordinary Shareholders' equity
(diluted)) of the Group was 64.1% as at 31 December 2018 (31
December 2017: 84.5%). The decrease is predominantly a result of
the reflection of the realised gains from the disposal of
investment properties in the period, coupled with the change in the
fair value of the investment properties.
Interest cover stands, including amortised costs, at 2.3 times
(31 December 2017: 3.0 times) including the ZDP, and 2.7 times
excluding the ZDP shares (31 December 2017: 3.5 times). The
reduction is due to the temporary increase in borrowing, which
reduced on repayment of the ZDP shares on 9 January 2019.
Hedging
The Group applies an interest hedging strategy that is aligned
to the property management strategy and aims to mitigate interest
rate volatility on at least 90% of the debt exposure.
31 December 31 December
2018 2017
Borrowings interest rate hedged
(incl. ZDP) 102.0% 89.8%
Thereof:
Fixed 76.5% 71.0%
Swap 12.8% 9.4%
Cap 12.8% 9.4%
WACD(1) 3.8% 3.8%
WACD - Excluding the ZDPs(2) 3.5% 3.5%
(1) WACD - Weighted Average Interest Rate including the
cost of hedging
(2) Zero Dividend Preference Shares which were assumed
on 24th March 2017
The over hedged position has arisen due to the debt repayments
during 2018.
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.
On 9 January 2018, the Company registered for VAT purposes in
England. Following developments in case law, HMRC have updated
their policy and have published new guidance on the circumstances
in which VAT can be recovered. In accordance with the new
guidelines, and in consultation with the Company's advisors, the
Company has registered for VAT and intends to recover VAT which it
incurs in the future as well as that which it has incurred since
November 2015, when it first became active.
At 31 December 2018, the Group's taxation charge amounted to
GBP0.6m, which comprised of corporation tax of GBP1.6m for the sale
of a property held for trading within the Hamilton Hill Estates
Ltd, an offsetting GBP1.4m of deferred tax raised in the prior year
for the same property subsequently released in 2018, and GBP0.4m of
tax on revenue incurred by activity external to the REIT
regime.
Subsequent Events after the Reporting Period
Please see note 36 below.
Principal Risks and Uncertainties
The Board recognises that effective risk management is essential
to the Group achieving its strategy and has carried out a robust
assessment of the principal risks facing the Group, including those
that would threaten its business model and future performance,
solvency or liquidity.
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 where possible, rather than eliminating them. The Audit
Committee reviews the risk management matrix on a six-monthly
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.
Strategic Risks
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT UNCHANGED
An
inappropriate * An annual review of the investment strategy. * The property portfolio remains balanced across a
investment range of geographical areas and large number of
strategy investment properties.
could result * A defined and rigorous investment appraisal process.
in lower
income
and capital * Acquire portfolios which offer Shareholders
returns to diversification of investment risk by investing in a
Shareholders. range of geographical areas and number of properties
.
---------------------------------------------------------------- ------------------------------------------------------------
* Only acquiring office and industrial properties in * The Group continues to purchase properties in the UK
the UK and outside of the M25 motorway. However, the outside the M25 motorway.
Group may invest in property portfolios in which up
to 50% of the properties (by market value) are
situated within the M25 motorway.
---------------------------------------------------------------- ------------------------------------------------------------
* No single property, in the ordinary course of * Tay House is the highest valued property, which
business, is expected to exceed 10% of the Group's equates to 4.6% of the Group's investment properties.
aggregate 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 20% of the Group's investment property * The Group's largest single tenant exposure is 2.7% of
value shall be exposed to any single tenant or group gross rental income, being Barclays Bank PLC.
undertaking of that tenant.
---------------------------------------------------------------- ------------------------------------------------------------
* Speculative development (i.e., properties under * No speculative construction was undertaken in the
construction, but excluding any refurbishment works, year.
which have not been pre-let) is prohibited.
---------------------------------------------------------------- ------------------------------------------------------------
* The value of the assets is protected by an active * The Asset Manager continues to actively manage the
asset management programme, which is regularly investment properties in accordance with market
reviewed against the business plan for each property. conditions and the individual asset programme.
---------------------------------------------------------------- ------------------------------------------------------------
Valuation Risk
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT TRING UPWARDS
The valuation
of the * External valuers, Cushman & Wakefield and Jones Lang * There has been no change in the external valuers.
Group's Lasalle, provide independent valuations for all
portfolio properties.
affects
its
profitability * The Audit Committee discuss with the external valuers
and net the basis of their valuations.
assets.
------------------------------------------------------------ --------------------------------------------------------
Economic and Political Risk
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT TRING UPWARDS
Significant
political * The Group operates with a sole focus on the UK * Following the triggering of Article 50, there remains
events, regions, with no foreign currency exchange exposure. a risk that property valuations and the occupancy
including It remains well positioned with a deliberately market may be impacted while this period of
the diverse standard industry classification of tenants uncertainty is negotiated.
decision generating in excess of 800 income streams which are
to leave located in areas of expected economic growth.
the
EU and the
triggering * The Board receives advice on macro-economic risks
of Article from the Investment Manager and other advisors and
50 will act accordingly.
of the
Lisbon
Treaty,
could
impact the
health
of the UK
economy,
resulting
in
borrowing
constraints
,
change in
demand
by tenants
for
suitable
properties,
the quality
of
the
tenants,
and
ultimately
the
portfolio
value.
----------------------------------------------------------- ------------------------------------------------------------
Funding Risk
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT TRING UPWARDS
The Group may
not be able * Borrowings are currently provided by a range of * Weighted average debt term increased to 6.4 years
to institutions with targeted staggered maturities. from 6.0 years in 2017 and increased to 7.1 years
secure following settlement of the ZDPs on 9 January 2019.
further
debt on * Strong relationships with key long-term lenders.
acceptable * Weighted average cost of capital, including hedging
terms, which costs was 3.8% (31 December 2017 3.8%) and following
may impinge * Funding options are constantly reviewed with an settlement of the ZDPs on 9 January 2019 reduces to
upon emphasis on reducing the weighted average cost of 3.5%.
investment capital and lengthening the weighted average debt to
opportunities maturity.
and the * Loan to value decreased to 38.3% from 45.0% at 31
ability December 2017.
to grow the * Continual monitoring of loan to value.
Group.
----------------------------------------------------------- -----------------------------------------------------------
Bank
reference * Policy of hedging at least 90% of variable interest * Continued adherence to the hedging policy.
interest rate borrowings.
rates
may be set to
rise * Borrowings are currently provided by a range of
accompanying institutions with targeted staggered maturities.
higher
inflation.
----------------------------------------------------------- -----------------------------------------------------------
Tenant Risk
POTENTIAL IMPACT MITIGATION MOVEMENT IN THE PERIOD
UNCHANGED
Type of tenant
and * An active asset management programme with a focus on * The tenant mix and their underlying activity remains
concentration the Asset Manager working with individual tenants to diversified, with the number of tenants amounting to
of tenant could assess any occupational issues and to manage any 874 (31 December 2017: 1,026).
result in lower potential bad debts.
income from
reduced
lettings or * Diversified portfolio of properties let, where
defaults. possible, to a large number of low risk tenants
across a wide range of different standard industrial
classifications throughout the UK.
* Potential acquisitions are reviewed for tenant
overlap.
-------------------------------------------------------------- -----------------------------------------------------------------
A high
concentration * The portfolio lease and maturity concentrations are * The WAULT to first break as at 31 December 2018 was
of lease term monitored by the experienced Asset Manager to 3.4 years.
maturity and/or minimise concentration.
break options,
could result in * The largest tenant is 2.7% of the gross rental income,
a more volatile * There is a focus on securing early renewals and being Barclays Bank PLC.
contracted rent increased lease period.
roll.
* The Asset Management team remains vigilant to the
* The requirement for suitable tenants and the quality health of current tenants and continues to liaise
of the tenant is managed by the experienced Asset with occupiers and agents.
Manager which maintains close relationships with
current tenants and with letting agents.
-------------------------------------------------------------- -----------------------------------------------------------------
Financial and Tax Change Risk
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT UNCHANGED
Changes to
the * The Board receives advice on these changes where * Advice is received from a number of corporate
UK REIT and appropriate and will act accordingly. advisors and the Group adapts to changes as required.
non - REIT
regimes,
tax and
financial
legislation.
------------------------------------------------------- ------------------------------------------------------------
Operational Risk
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT UNCHANGED
Business
disruption * The Asset and Investment Managers each have * Both the Asset and Investment Managers annually
could contingency plans in place to ensure there are no review their Disaster and Business Continuity Plans.
impinge disruptions to the core infrastructure, including
on the cyber security measures, which would impinge on the
normal normal operations of the Group.
operations
of
the Group.
------------------------------------------------------------ -----------------------------------------------------------
* An annual due diligence exercise is carried out on * Annual due diligence visits were undertaken with the
all principal suppliers. Company's principal suppliers.
------------------------------------------------------------ -----------------------------------------------------------
* As an externally managed investment Company, there is * Both the Asset and Investment Manager are viable
a continued reliance on the Asset and Investment going concerns.
Managers.
------------------------------------------------------------ -----------------------------------------------------------
* All acquisitions undergo a rigorous due diligence * The Asset Manager remains vigilant to changes in
process and all multi-let properties undergo an Health and Safety regulations.
annual comprehensive fire risk.
* The Asset Manager reviews the adequacy of insurance
* The impact of physical damage and destruction to cover on an ongoing basis.
investment properties is mitigated by ensuring all
are covered by a comprehensive buildings, loss of
rent and service charge plus terrorism insurance with
the exception of a small number of "self-insure"
arrangements covered under leases.
------------------------------------------------------------ -----------------------------------------------------------
Accounting, Legal, and Regulatory
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT UNCHANGED
Changes to
the * Robust processes are in place to ensure adherence to * The Group continues to receive advice from its
accounting accounting, legal, regulatory requirements, and corporate advisors and has incorporated changes where
legal Listing Rules. required.
and/or
regulatory
legislation * All contracts are reviewed by the Group's legal * The Administrator continues to attend all Board
could advisors. meetings and advise on Listing Rules in conjunction
result with the Financial Advisor.
in changes
to * The Administrator, in its capacity as Group
current Accountant, and the Company Secretary attends all
operating Board meetings in order to be aware of all
processes. announcements that need to be made.
* All compliance issues are raised with the Financial
Advisor.
----------------------------------------------------------- ------------------------------------------------------------
Environmental and Energy Efficiency Standards
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT UNCHANGED
Changes to
the * Property acquisitions undergo a rigorous due * The rigour of the environmental assessments process
environment diligence process, including an environmental continues to be reviewed with the aim of enhancing
could assessment. it.
impact
upon the
operations * The Asset Manager monitors the portfolio for any
of the detrimental environmental impact, by way of freq
Group. uent
inspections of the properties, and the annual
insurance review process.
------------------------------------------------------------ ----------------------------------------------------------
An Energy
Performance * The Group continues to review each property to ensure * The Asset Manager is continually reviewing the
Rating of E adherence with Energy Performance Rating feasibility of enhancing Energy Performance Ratings
and below requirements. to exceed the minimum requirement.
is
required
for * The energy efficiency of investment acquisitions is
each asset fully considered as part of the buying due diligence.
in
order to be
let or
sold.
------------------------------------------------------------ ----------------------------------------------------------
On behalf of the Board
Kevin McGrath
Chairman and Independent Non-Executive Director
27 March 2019
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and the Group Financial Statements in accordance with applicable
law and applicable regulations, including the requirements of the
Listing Rules and the Disclosure Guidance and Transparency
Rules.
The Law requires the Directors to prepare financial statements
for each financial year in accordance with generally accepted
accounting principles. The Directors are required under the Listing
Rules of the FCA to prepare group financial statements in
accordance with International Financial Reporting Standards
("IFRS") as adopted by the European Union ("EU").
The financial statements are required by law to give a true and
fair view of the state of the Group's affairs at the end of the
financial period and of the profit or loss of the Group for that
period and are required by IFRS adopted by the EU to present fairly
the financial position of the Group and the financial performance
of the Group.
In preparing the Group 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 Financial Statements have been prepared in
accordance with IFRS as adopted by the EU, 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 will continue
in business.
The Directors are responsible for keeping accounting records
which are sufficient to show and explain the Group's transactions
and are such as to disclose with reasonable accuracy at any time
the financial position of the Group 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 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 Group's
website.
Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
CONSOLIDATED ANNUAL REPORT
Each of the Directors, whose names and functions are listed in
the full Annual Report and Accounts 2018, will confirm 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 of the Group and the undertakings included in
the consolidation taken as a whole;
-- The Asset and Investment Managers' Report include a fair
review of the development and performance of the business and the
position of the Group 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 Group's position and performance,
business model and strategy.
This responsibility statement was approved by the Board of
Directors on 27 March 2019 and signed on its behalf by:
Kevin McGrath
Chairman and Independent Non-Executive Director
27 March 2019
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
Year ended Year ended
31 December 31 December
2018 2017
Notes (restated)
GBP'000 GBP'000
Continuing Operations
Revenue
Rental income 5 74,019 61,610
Property costs 6 (19,644) (15,763)
------------- -------------
Net rental income 54,375 45,847
Administrative and other expenses 7 (17,586) (9,429)
-------------
Operating profit before gains and
losses on property assets and other
investments 36,789 36,418
Gain on disposal of investment properties 14 23,127 1,234
Change in fair value of investment
properties 14 23,881 5,893
------------- -------------
Operating profit 83,797 43,545
Finance income 9 268 215
Finance expense 10 (15,983) (14,728)
Impairment of goodwill 16 (557) (557)
Net movement in fair value of derivative
financial instruments 26 415 217
-------------
Profit before tax 67,940 28,692
Taxation 11 (567) (1,632)
------------- -------------
Total comprehensive income for the
year
(attributable to owners of the parent
company) 67,373 27,060
------------- -------------
Total comprehensive income arises from continuing
operations.
Earnings per share - basic 12 18.1p 9.1p
Earnings per share - diluted 12 18.1p 9.1p
The notes below are an integral part of these consolidated
financial statements.
Consolidated Statement of Financial Position
As at 31 December 2018
31 December 31 December
2018 2017
Notes GBP'000 GBP'000
Assets
Non-current assets
Investment properties 14 718,375 737,330
Goodwill 16 1,115 1,672
Non-current receivables on tenant
loan 17b 1,396 1,926
------------ ------------
720,886 740,928
Current assets
Trade and other receivables 18 22,163 21,947
Cash and cash equivalents 19 104,823 44,640
------------ ------------
126,986 66,587
Total assets 847,872 807,515
------------ ------------
Liabilities
Current liabilities
Trade and other payables 20 (30,663) (26,941)
Deferred income 21 (11,043) (12,667)
Taxation liabilities 22 (1,763) (2,636)
Bank and loan borrowings 23 (400) (400)
Zero dividend preference shares 24 (39,816) -
------------ ------------
(83,685) (42,644)
Non-current liabilities
Bank and loan borrowings 23 (285,199) (333,981)
Zero dividend preference shares 24 - (37,239)
Retail eligible bonds 25 (49,136) -
Derivative financial instruments 26 (337) (752)
------------ ------------
(334,672) (371,972)
Total liabilities (418,357) (414,616)
------------ ------------
Net assets 429,515 392,899
------------ ------------
Equity
Stated capital 27 370,316 370,318
Retained earnings 59,199 22,581
------------ ------------
Total equity attributable to owners of
the parent company 429,515 392,899
------------ ------------
Net asset value per share - basic 28 115.2p 105.4p
Net asset value per share - diluted 28 115.2p 105.1p
The notes below are an integral part of these consolidated
financial statements.
These consolidated group financial statements were approved by
the Board of Directors and authorised for issue on 27 March 2019
and signed on its behalf by:
Kevin McGrath,
Chairman and Independent Non-Executive Director
27 March 2019
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Attributable to owners of the
parent company
Notes Stated Retained
capital earnings Total
GBP'000 GBP'000 GBP'000
Balance at 1 January
2018 370,318 22,581 392,899
Total comprehensive
income - 67,373 67,373
Share based payments 35 - (930) (930)
Share issue costs 27 (2) - (2)
Dividends paid 13 - (29,825) (29,825)
--------------- -------------- ---------------
Balance at 31 December
2018 370,316 59,199 429,515
--------------- -------------- ---------------
Consolidated Statement of Changes in Equity
For the year ended 31 December 2017
Attributable to owners of the
parent company
Notes Stated Retained
capital earnings Total
GBP'000 GBP'000 GBP'000
Balance at 1 January
2017 274,217 17,518 291,735
Total comprehensive
income - 27,060 27,060
Share based payments 35 - 814 814
Issue of share capital 27 98,687 - 98,687
Share issue costs 27 (2,586) - (2,586)
Dividends paid 13 - (22,811) (22,811)
--------------- -------------- ---------------
Balance at 31 December
2017 370,318 22,581 392,899
--------------- -------------- ---------------
The notes below are an integral part of these consolidated
financial statements.
Consolidated Statement of Cash Flows
For the year ended 31 December 2018
Year ended Year ended
31 December 31 December
2018 2017
GBP'000 GBP'000
Cash flows from operating activities
Profit for the year before taxation 67,940 28,692
- Change in fair value of investment
properties (23,881) (5,893)
- Change in fair value of financial
derivative instruments (415) (217)
- Gain on disposal of investment properties (23,127) (1,234)
Impairment of goodwill 557 557
Finance income (268) (215)
Finance expense 15,983 14,728
Share based payments (930) 814
Increase in trade and other receivables (7) (5,479)
Increase in trade and other payables 5,323 8,617
Decrease in deferred income (2,358) (119)
------------- -------------
Cash generated from operations 38,817 40,251
Financial income 250 988
Finance costs (12,173) (10,155)
Taxation paid (1,467) (236)
------------- -------------
Net cash flow generated from operating
activities 25,427 30,848
------------- -------------
Investing activities
Purchase of investment properties (48,675) (25,188)
Sale of investment properties 149,276 16,921
Interest received 220 25
Acquisition of subsidiaries, net
of cash acquired (32,629) (51,866)
------------- -------------
Net cash flow generated from/(used
in)
investing activities 68,192 (60,108)
------------- -------------
Financing activities
Proceeds from the issue of shares - 72,654
Share issue costs (1,190) (1,398)
Dividends paid (29,429) (23,321)
Net costs paid on the disposal of
derivatives - (441)
Bank borrowings advanced 50,959 179,540
Bank borrowings repaid (101,506) (165,619)
Bank borrowing costs paid (1,345) (3,714)
Proceeds from Bond issue 50,000 -
Bond issue costs paid (925) -
------------- -------------
Net cash flow (used in)/generated
from
financing activities (33,436) 57,701
------------- -------------
Net increase in cash and cash equivalents 60,183 28,441
Cash and cash equivalents at the start
of the year 44,640 16,199
------------- -------------
Cash and cash equivalents at the end
of the year 104,823 44,640
------------- -------------
The notes below are an integral part of these consolidated
financial statements.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
1. Corporate Information
The Group's consolidated financial statements for the year ended
31 December 2018 comprise the results of the Company and its
subsidiaries (together constituting "the Group") and were approved
by the Board and authorised for issue on 27 March 2019.
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 Strategic Report in the full Annual
Report and Accounts 2018.
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 2018 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 2018 have
been audited and approved, but have not yet been filed.
The Group's audited financial statements for the year ended 31
December 2018 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 27
March 2019.
2.1 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'000) pound, except where otherwise
indicated.
2.2 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. Regional REIT
ZDP PLC zero dividend preference shares matured on 9 January 2019
and, as detailed in note 36 below, zero dividend preference
shareholders were paid after the year end. No material
uncertainties have been detected which would influence the Group's
ability to continue as a going concern for a period of not less
than 12 months. The Directors have satisfied themselves that the
Group 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.
2.3 Business combinations
At the time of acquisition, the Group considers whether each
acquisition represents the acquisition of a business or the
acquisition of an asset. For an acquisition of a business where an
integrated set of activities are acquired in addition to the
property, the Group accounts for the acquisition as a business
combination under IFRS 3 Business Combinations ("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.
2.4 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 2018 have had an impact on the financial statements as
follows:
IFRS 9, 'Financial Instruments', effective for annual periods
beginning on or after 1 January 2018. The Group now applies an
expected credit loss model when calculating impairment losses on
its trade and other receivables. Rental guarantees included with
trade and other receivables are classified as a financial asset and
valued at fair value.
A review of comparative figures has taken place and it has been
determined that the accounting policy change has not had a material
impact on the impairment of debtors at 31 December 2017.
IFRS 15, 'Revenue from contracts with customers', is effective
for accounting periods beginning on or after 1 January 2018. Income
arising from renting a property is not within the scope of this
standard and the accounting treatment is unchanged. Income arising
from expenses recharged to tenants is now recognised in net rental
income as the Directors consider that the Group acts as principal
in this respect. Rental income and property costs have been grossed
up for recoverable service charge income and expenditure and
comparative figures have been updated.
This has resulted in an increase in rental income of
GBP9,216,000 and a corresponding increase in non-recoverable
property costs of GBP9,216,000 for the year ended 31 December 2017.
As a result there has been no impact to the profit position for the
year ended 31 December 2017 and no changes to opening reserves at 1
January 2017.
2.5 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 2019, and have not been applied in preparing these
financial statements. These are:
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.
As detailed in note 33, the Group has a number of operating
leases concerning the long-term lease of land associated with its
long leasehold investment properties. At 31 December 2018, there
was GBP50,614,000 ground rent committed under these leases. Under
IFRS16, the Group will recognise the right-to-use-asset (classified
as an investment property) in the Consolidated Statement of
Financial Position and this will be valued at fair value. Changes
in fair value will be recognised in the Consolidated Statement of
Comprehensive Income. In addition, a financial liability will be
recognised in the Consolidated Statement of Financial Position
which will be valued at the present value of future lease payments.
Lease payments (also known as ground rent) which are currently
recognised within non-recoverable property costs will instead
reduce the financial liability and any further changes to the value
of the financial liability will be recognised as finance costs.
Under IFRS16, comparative information is not required to be
restated upon adoption if the "modified retrospective" approach is
applied.
The Directors anticipate that the value of the right to use
asset and the financial liability at 31 December 2018 are
GBP7,614,000 and GBP7,614,000 respectively so the overall impact on
net assets will be negligible. The overall impact on profits will
also be negligible. However instead of costs of approximately
GBP618,000 per annum being recognised in non-recoverable property
costs, equivalent amounts will instead be recognised within
unrealised gains and finance costs.
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 GBP718,375,000 (31 December 2017:
GBP737,330,000), 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 14.
In relation to Brexit, the ongoing negotiations with regards to
the terms of the UK's exit from the EU has meant that property
market uncertainty has increased. The independent property
valuation experts are comfortable that, despite the property market
uncertainty, there is sufficient transactional market evidence at
the reporting date to support the fair value of investment
property.
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
GBP337,000 (31 December 2017: GBP752,000). The significant methods
and assumptions used in estimating the fair value of the interest
rate derivatives are set out in note 26.
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 GBP1,115,000 (31 December
2017: GBP1,672,000).
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 the Performance Fee. The fee is calculated at a rate of
15% of the Total Shareholder Return in excess of the Hurdle rate of
8% per annum for the relevant Performance Period. Total Shareholder
Return for any Performance Period consists of the sum of any
increase or decrease in EPRA NAV per Ordinary Share and the total
dividends per Ordinary Share declared in the Performance
Period.
A Performance Fee is only payable in respect of a Performance
Period where the EPRA NAV per Ordinary Share exceeds the 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 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.
3.3 Consolidation of entities in which the Group holds less than
50%
Management considered that up until 9 November 2018, the Group
had de facto control of View Castle Limited (previously known as
Credential Investment Holdings Limited), and its 27 subsidiaries
(the "Credential Sub Group") by virtue of the amended and restated
Call Option Agreement dated 3 November 2015. Following a
restructure of the Credential Sub Group, the majority of properties
held within the Credential Sub Group were transferred into two new
SPVs with two additional properties to be transferred into these
SPVs at a later date. A new call option was entered into dated 9
November 2018 with View Castle Limited and 5 of its subsidiaries
(the "View Castle Group"). As per the previous amended and restated
Call Option Agreement, under this new option the Group may acquire
any of the properties held by the View Castle Group for a nominal
consideration. Despite having no equity holding, the Group controls
the View Castle Group as the option agreement means that the Group
is exposed to, and has rights to, variable returns from its
involvement with the View Castle Group through its power to
control. The View Castle 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 15.
3.4 Acquisitions of subsidiary companies
During the year, the Group has made two purchases of subsidiary
companies which own investment properties. For each acquisition,
the Directors consider whether the acquisition met the definition
of the acquisition of a business or the acquisition of a group of
assets and liabilities.
A business is defined in IFRS 3 as an integrated set of
activities and assets that is capable of being conducted and
managed for the purpose of providing a return in the form of
dividends, lower costs or other economic benefits directly to
investors or other owners, members or participants. Furthermore, a
business consists of inputs and processes applied to those inputs
that have the ability to create outputs.
The companies acquired in the year have comprised portfolios of
investment properties and existing leases with multiple tenants
over varying periods, with little in the way of processes acquired.
It has therefore concluded in each case that the acquisitions did
not meet the criteria for the acquisition of a business as outlined
IFRS 3 above.
4. Summary of significant accounting policies
The accounting policies adopted in this report are consistent
with those applied in the financial statements for the year ended
31 December 2017 and have been consistently applied for the year
ended 31 December 2018. The no significant changes arising from
accounting standards effective for the first time. As detailed in
note 2.4 rental income and property expenses have been grossed up
for service charge income and expenditure however there is no
overall impact on profits or assets of the Group.
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.
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
amount 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.
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 as at fair value
through profit or loss or at amortised cost, depending on the
purpose for which the asset was acquired. Currently the Group does
not have any financial assets which it has classified at fair value
through profit or loss.
Assets held at amortised cost arise principally from the
provision of goods and services (e.g. trade receivables), but also
incorporate other financial assets where the objective is to hold
these assets in order to collect contractual cash flows which
comprise the payment of principal and interest. They are initially
recognised at fair value plus transaction costs that are directly
attributable to their acquisition or issue and are subsequently
carried at amortised cost being the effective interest rate method,
less provision for impairment.
The Group's financial assets comprise 'trade and other
receivables'. 'tenant loan' 'surrender premium' and 'cash and cash
equivalents'.
The tenant loan relates to a loan made to a tenant which is
subject to interest. The amount receivable has been recognised at
amortised cost using the effective interest method.
The lease surrender receivable relates to a lease surrender
payment which has been received in instalments. The amount
receivable has been recognised at amortised cost using the
effective interest method.
4.8. Trade and other receivables
Trade and other receivables are recognised initially at fair
value and subsequently carried at amortised cost less provision for
impairment. Where the time value of money is material, receivables
are carried at amortised cost using the effective interest method.
Impariment provisions are recognised based on the expected credit
loss model detailed within IFRS 9
The Group recognises a loss allowance for expected credit losses
(ECL) on trade receivables. The loss allowance is based on lifetime
expected credit losses. The amount of expected credit losses is
updated at each reporting date to reflect changes in credit risk
since initial recognition. The expected credit losses on these
financial assets are estimated based on the Group's historical
credit loss experience, adjusted for factors that are specific to
the debtors, general economic conditions and an assessment of both
the current as well as the forecast direction of conditions at the
reporting date. Impaired balances are reported net, however
impairment provisions are recorded within a separate provision
account with the loss being recognised within administration costs
within the Consolidated Statement of Comprehensive Income. On
confirmation that the trade receivable will not be collectable the
gross carrying value of the asset is written off against the
associated provision.
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 (comprising bank loans and retail
eligible bonds) 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 Zero Dividend Preference Shares
Zero Dividend Preference Shares ("ZDP shares") are recognised as
liabilities in the Group's Consolidated Statement of Financial
Position in accordance with IAS 32 Financial Instruments:
Presentation. After initial recognition, these liabilities are
measured at amortised cost, which represents the value the
liability is recognised at initial recognition, plus the accrued
entitlement to the date of these financial statements.
4.13 Dividends payable to Shareholders
Equity dividends are recognised when paid.
4.14 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.
Income arising from expenses recharged to tenants is recognised
in the year in which the compensation becomes receivable. Service
charges and other similar receipts are included in net rental
income gross of the related costs as the Directors consider the
Group acts as principal in this respect.
4.15 Property costs
Non recoverable property costs contain service and management
charges related to empty properties and ground rents charges.
Service and management charges are recognised in the accounting
period in which the services are rendered.
Recoverable service charges and other similar costs are
recognised in the accounting period in which the services are
rendered.
Ground rents are payments made under operating leases associated
with the ownership of long leasehold investment properties.
Payments made under these operating leases are expensed in the
Consolidated Statement of Comprehensive Income over the term of the
lease on a straight-line basis. Future comittments under these
operating lesases are detailed in note 33.
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
Interest costs are expensed in the period in which they occur.
Arrangement fees, that an entity incurs in connection with bank and
other borrowings are amortised over the term of the loan.
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.
There are a small number of entities within the Group which fall
outside the REIT rules and are subject to UK taxes on profits and
property gains.
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 substantively 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.
Deferred tax has been recognised on the unrealised property
valuation gains of properties owned by Group entities which fall
outside of the REIT tax rules.
The current rate of UK Corporation Tax is 19%. Reductions in UK
Corporation Tax have been enacted, reducing the rate to 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 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 Manager 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. If circumstances change and the fee is
no longer settled by the issue of shares then the amounts
previously credited to Equity reserves are reversed.
In accordance with the FCA's Listing Rule 15.4.11, the Company
cannot issue shares for cash at a price below the NAV per share
without Shareholder approval. The Company does not have Shareholder
approval to do this and any such issue would in any event be
dilutive. Accordingly, the Management Agreements have been amended
to clarify that, in this situation, the Performance Fee will be
paid entirely in cash but 50% of that amount will be used to
acquire shares in the market on behalf of the Managers within a 20
business day period on an instruction to do so. On this occasion
the shares will be paid for entirely in cash and be acquired from
the date of publication of the preliminary 2018 annual results.
These amendments were made to preserve the underlying commercial
intention that the Managers should normally receive 50% of the
Performance Fee in shares.
5. Rental income
Year ended Year ended
31 December 31 December
2018 2017
Restated
GBP'000 GBP'000
Rental income - freehold property 54,107 44,505
Rental income - long leasehold property 7,968 7,844
Recoverable service charge income and other
similar items 11,944 9,261
------------- -------------
Total 74,019 61,610
------------- -------------
Comparative figures have been updated as detailed
in note 2.4
6. Non-recoverable property costs
Year ended Year ended
31 December 31 December
2018 2017
Restated
GBP'000 GBP'000
Operating lease expenses 618 563
Other property expenses and irrecoverable
costs 7,082 5,939
Recoverable service charge income and other
similar costs 11,944 9,261
Total 19,644 15,763
------------- -------------
Non-recoverable property costs represent direct operating
expenses which arise on investment properties that generate rental
income.
Comparative figures have been updated as detailed in note
2.4
7. Administrative and other expenses
Year ended Year ended
31 December 31 December
2018 2017
GBP'000 GBP'000
Investment management fees 2,405 1,732
Property management fees 2,264 1,972
Performance fees 7,046 1,610
Asset management fees 2,405 1,739
Directors' remuneration (see note 8) 235 190
Administration fees 663 702
Legal and professional fees 1,714 1,493
Marketing and promotion 87 68
Other administrative costs (including bad
debts) 595 689
Bank charges 172 28
VAT recoverable for previous periods - (794)
Total 17,586 9,429
------------- -------------
VAT recoverable for previous periods represents amounts
recovered following the Company's VAT registration in 2018.
The number of persons employed by the Group in the year was six,
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:
Year ended Year ended
31 December 31 December
2018 2017
GBP'000 GBP'000
Audit of the consolidated and parent company
financial statements 78 70
Audit related services in respect of the
half year financial statements 26 30
Audit of the subsidiaries for their respective
periods of account 171 140
Fees associated with share issue - 108
------------- -------------
Total 275 348
------------- -------------
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.
Year ended Year ended
31 December 31 December
2018 2017
GBP'000 GBP'000
Directors' fees 216 170
Employers National Insurance contributions 19 20
--------------- --------------
Total 235 190
--------------- --------------
9. Finance income
Year ended Year ended
31 December 31 December
2018 2017
GBP'000 GBP'000
Interest income 224 25
Unwinding of the discount on financial
assets 44 190
-------------- --------------
Total 268 215
-------------- --------------
10. Finance expense
Year ended Year ended
31 December 31 December
2018 2017
GBP'000 GBP'000
Interest payable on bank borrowings 11,267 9,550
Accrued capital entitlement on ZDP shares 2,430 1,769
Amortisation of loan arrangement fees 1,172 722
Amortisation of ZDP share acquisition costs 147 114
Break costs associated with refinancing - 605
Loan arrangement fees recognised early
due to refinancing - 1,968
Bond interest 906 -
Bond issue costs amortised 61 -
-------------- --------------
Total 15,983 14,728
-------------- --------------
11. Taxation
Year ended Year ended
31 December 31 December
2018 2017
GBP'000 GBP'000
Corporation tax charge 1,983 208
(Decrease) /increase in deferred tax creditor (1,416) 1,424
-------------- --------------
Total 567 1,632
-------------- --------------
The current tax charge is reduced by the UK REIT tax exemptions.
The tax charge for the year can be reconciled to the profit in the
Statement of Comprehensive Income as follows:
Profit before taxation 67,940 28,692
-------- --------
UK Corporation tax rate 19.00% 19.25%
Theoretical tax at UK Corporation tax rate 12,909 5,523
Effects of:
Revaluation gain on investment properties (4,537) (1,134)
Adjustments to tax charge in respect of 25 -
previous periods
Permanent differences 1,592 461
Profits from the tax exempt business (8,006) (4,642)
Deferred tax movement (1,416) 1,424
-------- --------
Total 567 1,632
-------- --------
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.
The Group elected to be treated as a UK REIT with effect from 7
November 2015. The UK REIT rules exempt the profits of the Group's
UK property rental business from corporation tax. Gains on UK
properties are also exempt from tax, provided 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 and UK income
tax.
As a REIT, Regional REIT Ltd is required to pay Property Income
Distributions equal to at least 90% of the Group's exempted net
income. To retain UK REIT status, there are a number of conditions
to be met in respect of the principal company of the Group, the
Group's qualifying activity and its balance of business. The Group
continues to meet these conditions.
UK Corporation tax and UK income tax arise on entities which
form part of the Group consolidated accounts but do not form part
of the REIT group.
Due to the Group's REIT status and its intention to continue
meeting the conditions required to obtain approval in the
foreseeable future, no provision has been made for deferred tax on
any capital gains or losses arising on the revaluation or disposal
of investments held by entities within the REIT group.
No deferred tax asset has been recognised in respect of losses
carried forward due to the unpredictability of future taxable
profits.
12. 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 were dilutive instruments outstanding at 31 December
2018, 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 35, a Performance Fee for the period from commencement of
trading to 31 December 2017 was recognised in the financial
statements. An estimate was made of the number of shares that would
be issued based on the EPRA NAV at 31 December 2017. It should be
noted that the Performance Fee period is from 6 November 2015 to 31
December 2018 and the number of shares to be issued to settle the
fee charge will be based on the EPRA NAV as at 31 December
2018.
In accordance with the FCA's Listing Rule 15.4.11, the Company
cannot issue shares for cash at a price below the NAV per share
without Shareholder approval. The Company does not have Shareholder
approval to do this and any such issue would in any event be
dilutive. Accordingly, the Management Agreements have been amended
to clarify that, in this situation, the Performance Fee will be
paid entirely in cash but 50% of that amount will be used to
acquire shares in the market on behalf of the Managers within a 20
business day period on an instruction to do so. On this occasion
the shares will be paid for entirely in cash and be acquired from
the date of publication of the preliminary 2018 annual results.
These amendments were made to preserve the underlying commercial
intention that the Managers should normally receive 50% of the
Performance Fee in shares.
The calculation of basic and diluted earnings per share is based
on the following:
Year ended Year ended
31 December 31 December
2018 2017
GBP'000 GBP'000
Calculation of earnings per share
Net profit attributable to Ordinary Shareholders 67,373 27,060
Adjustments to remove:
Changes in value of investment properties (23,881) (5,893)
Changes in fair value of interest rate
derivatives and financial assets (459) (407)
Gain on disposal of investment property (23,127) (1,234)
Impairment of goodwill 557 557
Deferred tax charge (1,416) 1,424
Income tax charge on disposal profits 1,416 -
Close out costs on borrowings and derivatives 430 2,507
------------- -------------
EPRA net profit attributable to Ordinary
Shareholders 20,892 24,014
Add performance fee 7,046 1,610
------------- -------------
Company specific adjusted earnings figure 27,938 25,624
------------- -------------
Weighted average number of Ordinary Shares 372,821,136 296,807,647
Dilutive instruments - 875,752
------------- -------------
Adjusted weighted average number of Ordinary
Shares 372,821,136 297,683,399
------------- -------------
Earnings per share
- basic 18.1p 9.1p
Earnings per share
- diluted 18.1p 9.1p
EPRA earnings per share - basic 5.6p 8.1p
EPRA earnings per share - diluted 5.6p 8.1p
Company specific adjusted earnings per
share - basic 7.5p 8.6p
Company specific adjusted earnings per
share - diluted 7.5p 8.6p
13. Dividends
Year ended Year ended
31 December 31 December
2018 2017
GBP'000 GBP'000
Dividend of 2.45 (2017: 2.40) pence per
Ordinary Share
for the period 1 October 2017 - 31 December
2017 9,134 6,581
Dividend of 1.85 (2017: 1.80) pence per
Ordinary Share
for the period 1 January 2018 - 31 March
2018 6,897 5,410
Dividend of 1.85 (2017: 1.80) pence per
Ordinary Share
for the period 1 April 2018 - 30 June 2018 6,897 5,410
Dividend of 1.85 (2017: 1.80) pence per
Ordinary Share
for the period 1 July 2018 - 30 September
2018 6,897 5,410
-------------- --------------
29,825 22,811
-------------- --------------
On 22 February 2018, the Company announced a dividend of 2.45
pence per share in respect of the period 1 October 2017 to 31
December 2017. The dividend payment was made on 12 April 2018 to
shareholders on the register as at 2 March 2018.
On 17 May 2018, the Company announced a dividend of 1.85 pence
per share in respect of the period 1 January 2018 to 31 March 2018.
The dividend payment was made on 13 July 2018 to shareholders on
the register as at 25 May 2018.
On 31 August 2018, the Company announced a dividend of 1.85
pence per share in respect of the period 1 April 2018 to 30 June
2018. The dividend payment was made on 15 October 2018 to
shareholders on the register as at 14 September 2018.
On 15 November 2018, the Company announced a dividend of 1.85
pence per share in respect of the period 1 July 2018 to 30
September 2018. The dividend payment was made on 21 December 2018
to shareholders on the register as at 22 November 2018.
On 21 February 2019, the Company announced a dividend of 2.50
pence per share in respect of the period 1 October 2018 to 31
December 2018. The dividend will be paid on 11 April 2019 to
shareholders on the register as at 1 March 2019. The financial
statements do not reflect this dividend.
The Board intends to peruse a progressive dividend policy and
continue to pay quarterly dividends.
14. Investment properties
In accordance with International Accounting Standard, IAS 40,
'Investment Property', investment property has been independently
valued at fair value by Cushman & Wakefield and Jones Lang
LaSalle, Chartered Surveyors who are both accredited independent
valuers with recognised and relevant professional qualifications
and with recent experience in the locations and categories of the
investment properties being valued. The valuations have been
prepared in accordance with 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 properties Property GBP'000 Total
for the year ended 31 December GBP'000 GBP'000
2018
Valuation at 1 January 2018 636,600 100,730 737,330
Property additions - acquisitions 76,334 - 76,334
Property additions - subsequent
expenditure 6,735 244 6,979
Property disposals (142,505) (6,771) (149,276)
Gain/(loss) on the disposal of
investment properties 23,856 (729) 23,127
Change in fair value during the
year 24,000 (119) 23,881
----------- --------------- ----------
Valuation at 31 December 2018 625,020 93,355 718,375
----------- --------------- ----------
The net book value of properties disposed of during the year amounted
to GBP126,149,000
Movement in investment properties
for the year ended 31 December
2017
Valuation at 1 January 2017 424,310 78,115 502,425
Property additions- acquisitions 212,332 18,994 231,326
Property additions - subsequent
expenditure 12,444 929 13,373
Property disposals (16,921) - (16,921)
Gain/(loss) on the disposal of
investment properties 1,234 - 1,234
Change in fair value during the
period 3,201 2,692 5,893
----------- --------------- ----------
Valuation at 31 December 2017 636,600 100,730 737,330
----------- --------------- ----------
The net book value of properties disposed of during the year amounted
to GBP15,687,000
The historic cost of the properties is GBP675,808,000 (31
December 2017: GBP628,723,000).
The following table provides the fair value measurement
hierarchy for investment property:
Significant Significant
Quoted active observable unobservable
prices inputs inputs
Total (level 1) (level 2) (level
Date of valuation: GBP'000 GBP'000 GBP'000 3)
GBP'000
31 December 2018 718,375 - - 718,375
---------- ---------------- ------------ --------------
31 December 2017 737,330 - - 737,330
---------- ---------------- ------------ --------------
The hierarchy levels are defined in note 26.
It has been determined that the entire investment properties
portfolio should be classified under the level 3 category. The
table below shows the movement in the year on the level 3
category:
Year ended Year ended
31 December 31 December
2018 2017
GBP'000 GBP'000
Balance at the start of the year 737,330 -
Assets transferred from level 2 - 504,425
Additions 83,313 244,699
Disposals (149,276) (16,921)
Gain on the disposal of investment properties 23,127 1,234
Change in fair value during the year 23,881 5,893
-------------- --------------
Balance at the end of the year 718,375 737,330
-------------- --------------
The determination of the fair value of the investment properties
held by each consolidated subsidiary requires unobservable inputs,
such as the use of the estimated future cash flows from investment
properties, which take into consideration lettings, tenants'
profiles, future revenue streams, capital values of fixtures and
fittings, plant and machinery, any environmental matters and the
overall repair and condition of the property, and discount rates
applicable to those assets. Future revenue streams comprise
contracted rent (passing rent) and Estimated Rental Value ("ERV")
after the contract period. In calculating ERV, the potential impact
of future lease incentives to be granted to secure new contracts is
taken into consideration. All these estimates are based on local
market conditions existing at the reporting date.
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: GBP1,500- GBP3,092,226
per annum (2017: GBP2,860- GBP3,092,125per 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: 0.00%-26.98% (2017: 0.00%-29.23%).
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.
15. Investment in subsidiaries
List of subsidiaries which are 100% owned and controlled by the
Group
Country of Ownership
incorporation %
Blythswood House LLP United Kingdom 100%
Regional Commercial MIDCO Limited Jersey 100%
RR Aspect Court Limited Jersey 100%
RR Bristol Ltd Jersey 100%
RR Eureka SARL Luxembourg 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 Range Limited Jersey 100%
RR Sea Dundee Limited United Kingdom 100%
RR Sea Hannover St. Limited United Kingdom 100%
RR Sea Lamont I Ltd Jersey 100%
RR Sea Lamont II Ltd Jersey 100%
RR Sea Lamont III Ltd Jersey 100%
RR Sea St. Helens Limited United Kingdom 100%
RR Sea Stafford Limited United Kingdom 100%
RR Sea Strand Limited United Kingdom 100%
RR Sea TAPP Limited Guernsey 100%
RR Sea TOPP Bletchley Limited Guernsey 100%
RR Sea TOPP I Limited Guernsey 100%
RR Skylar Limited Jersey 100%
RR UK (Central) Limited Jersey 100%
RR UK (Cheshunt) Limited Jersey 100%
RR UK (Port Solent) Limited Jersey 100%
RR UK (South) Limited Jersey 100%
RR Wing Portfolio Limited Jersey 100%
Regional REIT ZDP PLC (in liquidation) United Kingdom 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 Garnet Limited Jersey 100%
Tosca Glasgow II Limited United 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%
RR Star 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 Harvest Limited Jersey 100%
Toscafund Milburn House Limited Jersey 100%
Toscafund Minton Place Limited Jersey 100%
Toscafund Newstead Court Limited Jersey 100%
Toscafund North Esplanade Limited Jersey 100%
Toscafund Portland Street Limited Jersey 100%
Toscafund Sheldon Court Limited Jersey 100%
Toscafund South Gyle 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%
All of the above entities have been included in the Group's
consolidated financial statements.
By virtue of an Amended and Restated Call Option Agreement dated
3 November 2015, the Directors consider that the Group had control
of View Castle Limited (previously Credential Investment Holdings
Limited) and its 27 subsidiaries ("the Credential Group").
Under this option, the Group has the ability to 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 will be obliged to convey its title within one month
after receipt of the option notice.
Despite having no equity holding, the Group controls the
Credential Group as the option agreement has the effect 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 View Castle Group are as
follows:
List of subsidiaries that are controlled by the Group:
Country of Effective
incorporation Ownership
%
Castlestream Limited United Kingdom 100%
Caststop Limited United Kingdom 100%
Credential (Baillieston) Limited United Kingdom 100%
Credential (Greenock) Limited United Kingdom 100%
Credential (Peterborough) Limited
(in liquidation) United Kingdom 100%
Credential (Wardpark North) Limited United Kingdom 100%
Credential (Wardpark South) Limited United Kingdom 100%
Credential Bath Street Limited United Kingdom 100%
Credential Charring Cross Limited United Kingdom 100%
Credential Estates Limited United Kingdom 100%
Credential Muirhouse Limited (in liquidation) United Kingdom 100%
Credential Residential Finance Limited United Kingdom 100%
Credential SHOP Limited (in liquidation) United Kingdom 100%
Credential Tay House Limited United Kingdom 100%
Douglas Shelf Seven Limited (in liquidation) United Kingdom 100%
Dumbarton Road Limited (in liquidation) United Kingdom 100%
Hamiltonhill Estates Limited United Kingdom 100%
Lilybank Church Limited United Kingdom 100%
Lilybank Terrace Limited United Kingdom 100%
London & Scottish Property Management
Limited (in liquidation) United Kingdom 100%
Old Mill Studios Limited United Kingdom 100%
Old Rutherglen Road Limited United Kingdom 100%
Rocket Unit Trust Jersey 100%
Squeeze Newco (Elmbank) Limited United Kingdom 100%
Squeeze Newco 2 Limited United Kingdom 100%
Stock Residential Lettings Limited United Kingdom 100%
The Legal Services Centre Limited United Kingdom 100%
View Castle (Properties) Limited United Kingdom 100%
View Castle (Milton Keynes) Limited United Kingdom 100%
View Castle Limited United Kingdom 100%
All of the above entities have been included in the Groups
consolidated financial statements up to 31 December 2018.
On 9 November 2018, the Credential Group was restructured. All
but two properties held within the Credential Group were
transferred into View Castle (Properties) Limited and View Castle
(Milton Keynes) Limited, both subsidiaries of View Castle Limited,
with the two outstanding properties to be transferred at a later
date. The entities from which the properties were transferred are
to be placed into liquidation in 2019.
An updated call option was put in place to include View Castle
(Properties) Limited and View Castle (Milton Keynes) Limited.
Business Combinations
There have been no new business combinations entered into in the
financial year.
During the year, there were two subsidiary company acquisitions
that took place in order for the Group to acquire the investment
property owned by that company. These acquisitions have not been
treated as a business combination. For further details see note
3.4. The fair value of investment properties acquired through the
purchase of subsidiary companies totalled GBP36,300,000. Total
consideration paid was GBP33,740,000. The assets and liabilities of
the companies acquired included the investment properties,
mentioned above, net current liabilities totalling GBP600,000
(principally comprising debtors, cash, creditors and deferred
income) and bank borrowings of GBP1,960,000.
16. Goodwill
31 December 31 December
2018 2017
GBP'000 GBP'000
Group
At start of year 1,672 2,229
Impairment (557) (557)
------------ ------------
At end of year 1,115 1,672
------------ ------------
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 cash flow projections of cost savings of the
Group as a whole as a single cash generating unit, using a discount
factor of 4.8%, 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.
17. Non-current receivables
17a. Non-current receivables on lease surrender premium
31 December 31 December
2018 2017
GBP'000 GBP'000
At start of year 206 1,004
Movement in year (250) (988)
Unwinding of discount 44 190
------------ ------------
At end of year - 206
------------ ------------
Asset due within 1 year - 206
Asset due after 1 year - -
---- ----
- 206
---- ----
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 four
years with the final instalment 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.
17b. Non-current receivables on tenant loans
31 December 31 December
2018 2017
GBP'000 GBP'000
At start of year 1,926 1,926
Amounts loaned in the year - -
------------ ------------
At end of year 1,926 1,926
------------ ------------
Asset due within 1 year 530 -
Asset due after 1 year 1,396 1,926
------ ------
1,926 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 ten years.
18. Trade and other receivables
31 December 31 December
2018 2017
GBP'000 GBP'000
Gross amount receivable from tenants 7,294 8,171
Less provision for impairment (1,115) (1,033)
------------ ------------
Net amount receivable from tenants 6,179 7,138
Current receivables - surrender premium
(note 17a) - 206
Current receivables - tenant loans (note 530 -
17b)
Other receivables 3,256 4,715
Prepayments 12,198 9,888
------------ ------------
22,163 21,947
------------ ------------
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
2018 2017
GBP'000 GBP'000
< 30 days 3,974 6,926
30-60 days 720 859
> 60 days 2,600 1,959
------------ ------------
7,294 9,744
Less provision for impairment (1,115) (1,033)
------------ ------------
6,179 8,711
------------ ------------
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
2018 2017
GBP'000 GBP'000
At start of year 1,033 258
Provision for impairment in the year 928 607
Upon acquisition of subsidiary companies - 225
Receivables written off as uncollectable (452) -
Unused provision reversed (394) (57)
------------ ------------
At end of year 1,115 1,033
------------ ------------
Other categories within trade and other receivables do not
include impaired assets.
19. Cash and cash equivalents
31 December 31 December
2018 2017
GBP'000 GBP'000
Group
Cash held at bank 79,616 33,433
Restricted cash held at bank 25,207 11,207
------------ ------------
At end of year 104,823 44,640
------------ ------------
Restricted cash balances of the Group comprise:
-- GBP20,259,000 (2017: GBP2,499,000) 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.
-- GBP2,780,000 (2017 GBP4,198,000) of funds which represent
service charge income received from tenants for settlement of
future service charge expenditure.
-- GBP900,000 (2017: GBP2,144,000) of funds which represent tenants' rental deposits.
-- GBP1,268,000 (2017: GBP1,957,000) 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 conditions are met. The
restricted funds arose on net proceeds held in relation to rental
guarantees given by the seller of properties purchased by the
Group. These funds can only be withheld by the lender and used to
repay outstanding loans in the event of a default. GBP1,256,000 of
this balance will be released to free cash before 31 March
2019.
-- GBP0 (2017: GBP409,000) of funds held in blocked rent
accounts which are controlled by one of the Group's lenders and
will be released to free cash post year end without
restriction.
All restricted cash balances will be available before 31 March
2019.
20. Trade and other payables
31 December 31 December
2018 2017
GBP'000 GBP'000
Withholding tax due on dividends paid 1,302 906
Trade payables 2,462 3,739
Other payables 9,905 9,493
Value added tax 939 298
Accruals of incidental costs for fund
raise and acquisitions 27 2,593
Accruals 16,028 9,912
------------ ------------
At end of year 30,663 26,941
------------ ------------
Other payables principally includes rent deposits held and
service charge costs.
21. Deferred income
Deferred rental income represents rent received in advance from
tenants.
22. Taxation liabilities
31 December 31 December
2018 2017
GBP'000 GBP'000
Income tax 1,129 586
Deferred tax 634 2,050
------------ ------------
1,763 2,636
------------ ------------
The movement on deferred tax liability
is shown below:
At start of year 2,050 626
Deferred tax on the valuation of investment
properties (1,416) 1,424
-------- ------
At end of year 634 2,050
-------- ------
23. 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
2018 2017
GBP'000 GBP'000
Bank borrowings drawn at start of year 339,074 220,060
Bank borrowings drawn 52,919 284,633
Bank borrowings repaid (101,506) (165,619)
------------ ------------
Bank borrowings drawn at end of year 290,487 339,074
Less: unamortised costs at start of year (4,693) (2,618)
Less: loan issue costs incurred in the
year (1,367) (4,765)
Add: loan issue costs amortised in the
year 1,172 2,690
------------ ------------
At end of year 285,599 334,381
------------ ------------
Maturity of bank borrowings
Repayable within 1 year 400 400
Repayable between 1 to 2 years 400 65,400
Repayable between 2 to 5 years 88,687 108,274
Repayable after more than 5 years 201,000 165,000
Unamortised loan issue costs (4,888) (4,693)
------------ ------------
285,599 334,381
------------ ------------
As detailed in notes 24 and 25 the Group also has 30,000,000 ZDP
shares in issue and GBP50,000,000 Retail Eligible Bond in
issue.
The table below lists the Group's borrowings.
Gross
Lender Original Outstanding Maturity Loan to Annual Interest Amortisation
Facility Debt* Date Value** rate
GBP'000 GBP'000 %
Scottish Widows
Ltd 36,000 36,000 Dec-28 38.8 3.37% Fixed none
2.00% over
Royal Bank of 3mth GBP
Scotland 26,458 26,458 Dec-21 45.9 LIBOR MP
2.15% over
3mth GBP
HSBC 19,003 19,003 Dec-21 51.4 LIBOR MP
2.15% over
3mth GBP
Santander UK 44,026 44,026 Nov-22 36.7 LIBOR MP
Scottish Widows
Ltd. & Aviva
Investors Real
Estate Finance 165,000 165,000 Dec-27 45.4 3.28% Fixed MP
----------- --------------
Total bank borrowings 290,487 290,487
ZDP Shares 39,879 39,820 Jan-19 n/a 6.50% Fixed none
Retail Eligible
Bond 50,000 50,000 Aug-24 n/a 4.50% Fixed none
----------- --------------
Total 380,366 380,307
----------- --------------
LIBOR = London Interbank Offered Rate (Sterling)
MP = Mandatory prepayment
* Before unamortised debt issue costs
** Based upon Cushman & Wakefield and Jones Lang LaSalle
property valuations
The weighted average term to maturity of the Group's debt at the
period end was 6.4 years (31 December 2017: 6.0 years). The
weighted average interest rate payable by the Group on its debt
portfolio, excluding hedging costs, as at the period end was 3.7%
(31 December 2017: 3.7%).
The Group weighted average interest rate, including the ZDP
Shares, Retail Eligible Bond and hedging costs at the period end
amounted to 3.8% per annum (31 December 2017: 3.8% per annum).
The Group has been in compliance with all of the financial
covenants relating to the above facilities as applicable throughout
the year covered by these consolidated financial statements. Each
facility has distinct covenants which generally include: historic
interest cover, projected interest cover, loan to value cover, and
debt service cover. A breach of agreed covenant levels would
typically result in an event of default of the respective facility,
giving the lender the right, but not the obligation, to declare the
loan immediately due and payable. Where a loan is repaid in these
circumstances early repayment fees will apply, which are generally
based on a percentage of the loan repaid or calculated with
reference to the interest income foregone by the lenders as a
result of the repayment.
As shown in note 26, 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.
24. Zero dividend preference shares
31 December 31 December
2018 2017
GBP'000 GBP'000
At start of year 37,239 -
Fair value arising on the acquisition of
subsidiaries - 35,620
Acquisition costs - (264)
Amortisation of acquisition costs 147 114
Accrued capital entitlement 2,430 1,769
------------ ------------
At end of year 39,816 37,239
------------ ------------
The Group entity Regional REIT ZDP PLC, has 30,000,000 zero
dividend preference shares ("ZDP shares") in issue. The ZDP shares
were originally issued at 100 pence per share. The ZDP shares have
an entitlement to receive a fixed cash amount on 9 January 2019,
being the maturity date, but do not receive any dividends or income
distributions. Additional capital accrues to the ZDP shares on a
daily basis at a rate equivalent to 6.5% per annum, resulting in a
final capital entitlement of 132.9 pence per share. The ZDP shares
are listed on the London Stock Exchange (LSE: RGLZ). As detailed in
note 36, the repayment of the Regional REIT ZDP Plc 6.5% ZDP shares
in full took place after the year end.
During the period, the Group accrued GBP2,430,000 (31 December
2017: GBP1,769,000) of capital payable. The total amount repayable
at maturity will be GBP39,879,269.
The ZDP shares do not carry the right to vote at general
meetings of Regional REIT ZDP PLC, although they carry the right to
vote as a class on certain proposals which would be likely to
materially affect their position. In the event of a winding-up of
Regional REIT ZDP PLC, the capital entitlement of the ZDP shares
will rank ahead of ordinary shares but behind other creditors of
Regional REIT ZDP PLC.
25. Retail Eligible Bonds
During the year, the Company launched GBP50,000,000 4.5% Retail
eligible bonds with a maturity date of 6 August 2024. The Bonds are
listed on the London Stock Exchange ORB platform.
31 December 31 December
2018 2017
GBP'000 GBP'000
Bonds issued in the period 50,000 -
Issue costs (925) -
Amortisation of issue costs 61 -
At end of year 49,136 -
------------ ------------
26. 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
2018 2017
GBP'000 GBP'000
Group
Fair value at start of year (752) (1,513)
Fair value of derivative financial instruments
arising on the acquisition of subsidiaries - 103
Net costs of disposing of derivative financial
instruments - 441
Revaluation in the year 415 217
------------ ------------
Fair value at end of year (337) (752)
------------ ------------
The calculation of fair value of interest rate caps and swaps is
based on the following calculation: the notional amount multiplied
by the difference between the swap rate and the current market rate
and then multiplied by the number of years remaining on the
contract and discounted.
The table below details the hedging and swap notional amounts
and rates against the details of the Group's loan facilities.
Original Outstanding Maturity Notional
Lender Facility Debt Date Annual Interest Amount Rate
rate
GBP'000 GBP'000 GBP'000 %
Scottish
Widows Ltd 36,000 36,000 Dec-28 3.37% Fixed n/a n/a
2.00% over Swap 13,229 1.32
Royal Bank 3mth GBP Cap
of Scotland 26,458 26,458 Dec-21 LIBOR 13,229 1.32
2.15% over
3mth GBP
HSBC 19,003 19,003 Dec-21 LIBOR nil n/a
2.15% over Swap 35,350 1.605
Santander 3mth GBP Cap
UK 44,026 44,026 Nov-22 LIBOR 35,350 1.605
Scottish
Widows Ltd.
& Aviva Investors
Real Estate
Finance 165,000 165,000 Dec-27 3.38% Fixed n/a n/a
Total 290,487 290,487
LIBOR = London Interbank Offered Rate (Sterling)
As at 31 December 2018, the swap notional arrangements were
GBP48.58m (31 December 2017: GBP35.35).
The Group weighted average effective interest rate was 3.5% (31
December 2017: 3.5%) inclusive of hedging costs but excluding the
ZDP.
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 102.6% (31 December 2017: 88.5%), as shown below. The
over hedged position has arisen due to debt repayments during
2018.
31 December 31 December
2018 2017
GBP'000 GBP'000
Total bank borrowings 290,487 339,074
------------ ------------
Notional value of interest rate caps and
swaps 97,158 70,700
Value of fixed rate debts 201,000 230,000
------------ ------------
298,158 300,700
------------ ------------
Proportion of hedged debt 102.6% 88.7%
------------ ------------
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.
Significant Significant
Quoted active observable unobservable
prices inputs inputs
Total (level 1) (level 2) (level
Interest rate derivatives GBP'000 GBP'000 GBP'000 3)
GBP'000
31 December 2018 (337) - (337) -
---------- ---------------- ------------ --------------
31 December 2017 (752) - (752) -
---------- ---------------- ------------ --------------
The fair value of these contracts is 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.
27. Stated capital
Stated capital represents the consideration received by the
Company for the issue of Ordinary Shares.
Group 31 December 31 December
2018 2017
Issued and fully GBP'000 GBP'000
paid shares of no
par value
At start of the year 370,318 274,217
Shares issued 24/03/2017 - 25,687
Shares issued 21/12/2017 - 73,000
Share issue costs (2) (2,586)
------------ ------------
At end of the year 370,316 370,318
------------ ------------
Number of shares in issue
At start of the year 372,821,136 274,217,264
Shares issued 24/03/2017 - 26,326,644
Shares issued 21/12/2017 - 72,277,228
------------ ------------
At end of the year 372,821,136 372,821,136
------------ ------------
28. Net asset value per share (NAV)
Basic NAV per share is calculated by dividing the 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 were dilutive instruments outstanding at 31 December
2017, both basic and diluted earnings per share are disclosed
below.
Dilutive instruments relate to the partial settlement of the
Performance Fee by the future issue of Ordinary Shares. As detailed
in note 35, a Performance Fee for the period from commencement of
trading to 31 December 2017 was recognised in the financial
statements. An estimate was made of the number of shares that would
be issued based on the EPRA NAV at 31 December 2017. It should be
noted that the first Performance Fee charge runs for the period
from 6 November 2015 to 31 December 2018 and the shares issued to
settle the charge will be based on the diluted EPRA NAV as at 31
December 2018.
In accordance with the FCA's Listing Rule 15.4.11, the Company
cannot issue shares for cash at a price below the NAV per share
without Shareholder approval. The Company does not have Shareholder
approval to do this and any such issue would in any event be
dilutive. Accordingly, the Management Agreements have been amended
to clarify that, in this situation, the Performance Fee will be
paid entirely in cash but 50% of that amount will be used to
acquire shares in the market on behalf of the Managers within a 20
business day period on an instruction to do so. On this occasion
the shares will be paid for entirely in cash and be acquired from
the date of publication of the preliminary 2018 annual results.
These amendments were made to preserve the underlying commercial
intention that the Managers should normally receive 50% of the
Performance Fee in shares.
At 31 December 2017, only 50% of the Performance Fee was
recognised within accruals and as there was the intention to pay
the remainder of the fee through the issue of shares, dilutive
instruments were outstanding at that date.
EPRA NAV is a key performance measure used in the real estate
industry which highlights the fair value of net assets on an
ongoing long-term basis. Assets and liabilities that are not
expected to crystallise in normal circumstances such as the fair
value of derivatives and deferred taxes on property valuation
surpluses are therefore excluded.
Net asset values have been calculated as follows:
Group 31 December 31 December
2018 2017
GBP'000 GBP'000
Net asset value per Consolidated Statement
of Financial Position 429,515 392,899
Adjustment for calculating EPRA net assets:
Derivative financial instruments 337 752
Deferred tax liability 634 2,050
-------------- --------------
EPRA net assets 430,486 395,701
-------------- --------------
Number of Ordinary Shares
in issue 372,821,136 372,821,136
Dilutive instruments - 875,752
-------------- --------------
Adjusted number of Ordinary
Shares 372,821,136 373,696,888
-------------- --------------
Net asset value per share
- basic 115.2p 105.4p
Net asset value per share
- diluted 115.2p 105.1p
EPRA net asset value per share - basic 115.5p 106.1p
EPRA net asset value per share - diluted 115.5p 105.9p
29. Notes to the Statement of Cash Flows
29.1. Non cash transactions
The Group has accounted for the following non cash
transactions:
-- During the year ended 31 December 2018, the reversal of
share-based payment adjustments made in previous years as it has
now been determined that the Performance Fees will be fully paid by
cash. (see note 35)
-- During the year ended 31 December 2017, the value of
Performance fees expensed within the Group where Ordinary Shares
will be issued for the consideration prior to the subsequent
reversal of that transaction.
29.2 Reconciliation of changes in liabilities to cash flows
arising from financing activities
31 December 2018 Zero dividend
Bank loans preference Retail Derivative
and borrowings shares Eligible financial
GBP'000 GBP'000 Bonds instruments Total
GBP'000 GBP'000 GBP'000
Balance at 1 January 2018 334,381 37,239 - 752 372,372
----------------- -------------- ----------- -------------- -----------
Changes from financing
cash flows:
Bank and Bond borrowings
advanced 50,959 - 50,000 - 100,959
Bank borrowings repaid (101,506) - - - (101,506)
Bank and Bond borrowing
costs paid (1,345) - (925) - (2,270)
----------------- -------------- ----------- -------------- -----------
Total changes from financing
cash flows (51,892) - 49,075 - (2, 817)
----------------- -------------- ----------- -------------- -----------
Arising from subsidiary
acquisitions 1,960 - - - 1,960
Costs from subsidiary
acquisitions (22) - - - (22)
Amortisation of issue
costs 1,172 147 61 - 1,380
Accrued capital entitlement - 2,430 - - 2,430
Change in fair value - - - (415) (415)
----------------- -------------- ----------- -------------- -----------
Total other changes 3,110 2,577 61 (415) 5,333
----------------- -------------- ----------- -------------- -----------
Balance at 31 December
2018 285,599 39,816 49,136 337 374,888
----------------- -------------- ----------- -------------- -----------
Balances are included in the Statement of Financial
Position as follows:
Current liabilities 400 39,816 - - 40,216
Non-current liabilities 285,199 - 49,136 337 334,672
----------------- -------------- ----------- -------------- -----------
Balance at 31 December
2018 285,599 39,816 49,136 337 374, 888
----------------- -------------- ----------- -------------- -----------
31 December 2017 Zero dividend
Bank loans preference Retail Derivative
and borrowings shares Eligible financial
GBP'000 GBP'000 Bonds instruments Total
GBP'000 GBP'000 GBP'000
Balance at 1 January
2017 217,442 - - 1,513 218,955
Changes from financing
cash flows:
Net costs paid on the
disposal of derivatives - - - (441) (441)
Bank borrowings advanced 179,540 - - - 179,540
Bank borrowings repaid (165,619) - - - (165,619)
Bank borrowing costs
paid (3,714) - - - (3,714)
Total changes from financing
cash flows 10,207 - - (441) 9,766
Arising from subsidiary
acquisitions 105,093 35,620 - (103) 140,610
Costs of subsidiary acquisitions
allocated (1,051) (264) - - (1,315)
Amortisation of issue
costs 2,690 114 - - 2,804
Accrued capital entitlement - 1,769 - - 1,769
Change in fair value - - - (217) (217)
Total other changes 106,732 37,239 - (320) 143,651
Balance at 31 December
2017 334,381 37,239 - 752 372,372
Balances are included in the Statement of Financial Position as follows:
Current liabilities 400 - - - 400
Non-current liabilities 333,981 37,239 - 752 371,972
Balance at 31 December
2017 334,381 37,239 - 752 372,372
30. Financial risk management
30.1 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, amounts due to Zero Dividend
Preference Shareholders 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 2018 31 December 2017
Book value Fair value Book value Fair value
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets - measured
at amortised cost
Trade and other receivables 11,891 11,891 13,985 13,985
Cash and short-term deposits 104,823 104,823 44,640 44,640
Financial liabilities
- measured at amortised
cost
Trade and other payables (29,361) (29,361) (26,035) (26,035)
Bank and loan borrowings (285,599) (285,599) (334,381) (334,381)
Zero dividend preference
shares (39,816) (39,150) (37,239) (38,550)
Retail Eligible Bonds (49,136) (50,038) - -
Financial liabilities
- measured at fair value
through profit or loss
Interest rate derivatives (337) (337) (752) (752)
----------- ----------- ----------- -----------
30.2 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.
30.3 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
31 December 31 December
2018 2017
GBP'000 GBP'000
0.00% - -
0.25% 102 184
0.50% 24 368
0.75% 307 552
1.00% 409 737
30.4 Credit risk
Credit risk is the risk that a counterparty will not meet its
obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risk
from both its leasing activities and financing activities,
including deposits with banks and financial institutions. Credit
risk is mitigated by tenants being required to pay rentals in
advance under their lease obligations. The credit quality of the
tenant is assessed based on an extensive credit rating scorecard at
the time of entering into a lease agreement.
Outstanding trade receivables are regularly monitored. The
maximum exposure to credit risk at the reporting date is the
carrying value of each class of financial asset.
30.5 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.
30.6 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:
Bankers Fitch Ratings
Barclays A+ Rating Watch Negative
Royal Bank of Scotland A+ Rating Watch Negative
Santander UK A+ Rating Watch Negative
HSBC AA- Rating Watch Negative
Aviva A+ Stable
Scottish Widows* A+ Stable
* rating relates to parent entity - Lloyds Banking Group plc
30.7 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 After
2018 1 year 1 to 2 years 2 to 5 5 years Total
GBP'000 GBP'000 years GBP'000 GBP'000
GBP'000
Trade and other payables (29,361) - - - (29,361)
Bank borrowings (8,926) (8,959) (113,026) (228,717) (359,628)
Interest rate derivatives (264) (244) (418) - (926)
Zero Dividend Preference
Shares (39,879) - - - (39,879)
Retail eligible bonds (2,250) (2,250) (6,750) (52,250) (63,500)
--------- -------------- ---------- ---------- ----------
(80,680) (11,453) (120,194) (280,967) (493,294)
--------- -------------- ---------- ---------- ----------
Group at 31 December Within Between Between After
2017 1 year 1 to 2 years 2 to 5 years 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade and other payables (26,035) - - - (26,035)
Bank borrowings (12,019) (75,599) (131,712) (191,793) (411,123)
Interest rate derivatives (242) (242) (700) - (1,184)
Zero Dividend Preference
Shares - (39,879) - - (39,879)
--------- -------------- -------------- ---------- -----------
(38,296) (115,720) (132,412) (191,793) (478,221)
--------- -------------- -------------- ---------- -----------
31. 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 and
Asset Managers, monitors and reviews the Group's capital so as to
promote the long-term success of the business, facilitate
expansion, deliver a quarterly dividend distribution 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 40% of Investment Property Values at any time.
However, the Board may modify the Group'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.
The optimal debt financing structure for the Group will have
consideration for the key metrics including: fixed or floating
interest rate charged, debt type, maturity profile, substitution
rights, covenant and security requirements, lender type, diversity,
and the lender's knowledge and relationship with the property
sector.
32. 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
2018 2017
Group GBP'000 GBP'000
Receivable within 1 year 38,109 49,621
Receivable between 1 - 2 years 37,365 38,678
Receivable between 2 - 5 years 106,408 66,437
Receivable after 5 years 275,529 47,979
------------ ------------
457,411 202,715
------------ ------------
The Group has in excess of 889 operating leases. The number of
years remaining on these operating leases varies between 1 and 80
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.
33. Operating lease commitments
The Group's operating lease commitments at the year end were
spread across 13 separate operating leases with the two largest
leases at Basingstoke and Witham making up 41% of the balance.
Total commitments on operating leases in respect of land and
buildings are as follows:
31 December 31 December
2018 2017
Group GBP'000 GBP'000
Payable within 1 year 618 471
Payable between 1 - 2 years 618 471
Payable between 2 - 5 years 1,854 1,414
Payable after 5 years 51,337 36,001
------------ ------------
54,427 38,357
------------ ------------
34. Segmental information
After a review of the information provided for management
purposes during the current year, it was determined that the Group
has one operating segment and therefore segmental information is
not disclosed in these consolidated financial statements.
35. Transactions with related parties
Transactions with the Directors
Directors' remuneration is disclosed within the Remuneration
Report and note 8 to the financial statements. Directors'
beneficial interests in the Ordinary Shares of the Company are
disclosed within the Directors' Report. During the year, the
following dividends were received by the Directors (and their
spouses or minor children) on the holdings:
Year ended Year ended
31 December 31 December
2018 2017
GBP'000 GBP'000
Kevin McGrath 24 -
William Eason 16 10
Daniel Taylor 28 16
Stephen Inglis 60 49
Frances Daley 2 -
Timothy Bee 12 11
-------------- --------------
Total 142 86
-------------- --------------
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 Chief Executive Officer of London
& Scottish Investments Limited ("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, reducing to 0.9% on net assets over
GBP500,000,000. The fee shall be payable in cash quarterly in
arrears.
In respect of each portfolio property, the Asset Manager has
procured and shall, with the Company in future, procure that London
& Scottish Property Asset Management Limited is appointed as
the Property Manager. A property management fee of 4% per annum is
charged by the Property Manager on a quarterly basis: 31 March, 30
June, 30 September, and 31 December, based upon the gross rental
yield. Gross rental yield means the rents due under the property's
lease for the peaceful enjoyment of the property, including any
value paid in respect of rental renunciations but excluding any
sums paid in connection with service charges or insurance
costs.
The Asset Manager is also entitled to a Performance Fee. Details
of the Performance Fee are given below.
The following tables show the fees charged in the year and the
amount outstanding at the end of the year:
Year ended Year ended
31 December 31 December
2018 2017
GBP'000 GBP'000
Asset management fees charged* 2,405 1,739
Property management fees charged* 2,264 1,972
Performance fees charged 3,523 814
-------------- --------------
Total 8,192 4,525
-------------- --------------
31 December 31 December
2018 2017
GBP'000 GBP'000
Total fees outstanding 5,263 1,882
-------------- --------------
* Including irrecoverable VAT charged where appropriate
Transactions with the Investment Manager, Toscafund Asset
Management LLP
Martin McKay was a non-executive Director of the Company and the
Chief Financial Officer of Toscafund Asset Management LLP until 7
July 2017. With effect from that date he was replaced on the Board
by Tim Bee, Chief Legal Counsel of Toscafund Asset Management LLP.
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, 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:
Year ended Year ended
31 December 31 December
2018 2017
GBP'000 GBP'000
Investment management fees charged 2,405 1,732
Performance fees charged 3,523 814
Total 5,928 2,546
-------------- --------------
31 December 31 December
2018 2017
GBP'000 GBP'000
Total fees outstanding 5,044 1,378
-------------- --------------
Performance Fee
The Asset Manager and the Investment Manager are each entitled
to 50% of a Performance Fee. The fee is calculated at a rate of 15%
of the Total Shareholder Return in excess of the Hurdle Rate of 8%
per annum for the relevant performance period. Total Shareholder
Return for any financial year consists of the sum of any increase
or decrease in EPRA NAV per Ordinary Share and the total dividends
per Ordinary Share declared in the financial year. A Performance
Fee is only payable in respect of a performance period where the
EPRA NAV per Ordinary Share exceeds the High-water mark which is
equal to the greater of the highest year-end EPRA NAV Ordinary
Share in any previous performance period or the Placing price (100p
per Ordinary Share). The Performance Fee is 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 Performance 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 one year.
In accordance with the FCA's Listing Rule 15.4.11, the Company
cannot issue shares for cash at a price below the NAV per share
without Shareholder approval. The Company does not have Shareholder
approval to do this and any such issue would in any event be
dilutive. Accordingly, the Management Agreements have been amended
to clarify that, in this situation, the Performance Fee will be
paid entirely in cash but 50% of that amount will be used to
acquire shares in the market on behalf of the Managers within a 20
business day period on an instruction to do so. On this occasion
the shares will be paid for entirely in cash and be acquired from
the date of publication of the preliminary 2018 annual results.
These amendments were made to preserve the underlying commercial
intention that the Managers should normally receive 50% of the
Performance Fee in shares.
The Performance Fees for subsequent years 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 one year and 50% of the
shares locked-in for two years.
Based on the EPRA NAV of the Group as at 31 December 2018, the
Performance Fee liability, for the period from commencement of
trading to 31 December 2018 was estimated at GBP8,905,000 (31
December 2017: GBP1,859,000). This fee has been accrued in the
consolidated financial statements.
In the comparative period, it was assumed that market conditions
would prevail so that the future payment of the Performance Fee
charge would be met 50% by cash and 50% by the issue of shares.
Therefore, at 31 December 2017, 50% of the fee was accrued as a
liability totalling GBP930,000 and the 50% of the fee, payable by
the issue of Ordinary Shares was reflected as a share based payment
in the Consolidated Statement of Changes in Equity.
36. Subsequent events
On 10 January 2019, the Company announced the repayment of the
Regional REIT ZDP Plc 6.5% ZDP shares in full totalling GBP39.9m.
This resulted in a reduction in the weighted average cost of
borrowing (including hedging costs) from c. 3.8% to c. 3.5%.
Regional REIT ZDP Plc has now been placed into liquidation.
On 4 February 2019, the Company announced the acquisition of
Norfolk House in Birmingham for GBP20m, with a net initial yield of
7.92%. The building is 98.75% occupied with a net income of c.
GBP1.69m
EPRA Performance Measures
The Group is a member of the European Public Real Estate
Association ("EPRA").
EPRA have developed and defined the following performance
measures to give transparency, comparability and relevant of
financial reporting across entities which may use different
accounting standards. The Group is pleased to disclose the
following measures which are calculated in accordance with EPRA
guidance:
EPRA Performance Definition EPRA Performance Measure 31 December 31 December
Measure 2018 2017
EPRA EARNINGS Earnings from GBP20,892,000 GBP24,014,000
operational EPRA Earnings
activities. EPRA Earnings per 5.6p 8.1p
share (basic)
EPRA Earnings per 5.6p 8.1p
share (diluted)
----------------------- -------------------------- --------------- ---------------
Company Company Specific GBP27,938,000 GBP25,624
Adjusted Earnings Measure Adjusted Earnings ,000
Earnings which adds back EPRA Earnings per 7.5p
the performance share (basic) 8.6p
fee charged EPRA Earnings per 7.5p
in the accounts share (diluted) 8.6p
----------------------- -------------------------- --------------- ---------------
EPRA NAV Net Asset Value GBP430,486,000 GBP395,701,000
adjusted to
include properties EPRA Net Asset Value
and other investment 115.5p 105.9p
interest at
fair value and EPRA NAV per share
to exclude certain (diluted)
items not expected
to crystallise
in a long-term
investment property
business model.
----------------------- -------------------------- --------------- ---------------
EPRA NNNAV EPRA NAV adjusted EPRA NNNAV GBP427,966000 GBP391,588,000
to include the
fair values EPAR NNNAV per share
of (i) financial (diluted) 115.1p 104.8p
instruments,
(ii) debt and
(iii) deferred
taxes.
----------------------- -------------------------- --------------- ---------------
Annualised rental
income based
on the cash
rents passing
at the balance
sheet date,
less non-recoverable
property operating
expenses, divided
by the market
value of the
property with
EPRA NET (estimated)
INITIAL purchasers'
YIELD costs. EPRA Net Initial Yield 6.5% 6.5%
----------------------- -------------------------- --------------- ---------------
This measure
incorporates
an adjustment
to the ERA NIY
in respect of
the expiration
of rent-free-periods
(or other unexpired
lease incentives
such as discounted
rent periods
EPRA 'TOPPED-UP' and stepped EPRA 'Topped-up' Net
NIY rents) Initial Yield 6.6% 6.6%
----------------------- -------------------------- --------------- ---------------
Estimated Market
Rental Value
(ERV) of vacancy
space divided
EPRA VACANCY by ERV of the
RATE whole portfolio EPRA Vacancy Rate 10.6% 11.8%
----------------------- -------------------------- --------------- ---------------
EPRA COSTS Administrative EPRA Costs Ratio 40.1% 29.7%
RATIO & operating
costs (including EPRA Costs Ratio 29.9% 19.0%
& excluding (excluding direct
costs of direct vacancy costs)
vacancy divided
by gross rental
income
----------------------- -------------------------- --------------- ---------------
Notes to the calculation of EPRA performance measures
1. EPRA earnings
For calculations, please refer to note 12 to the financial
statements.
2. EPRA NAV
31 December 31 December
2018 2017
GBP'000 GBP'000
NAV per the financial statements 429,515 382,899
Effect of dilutive instruments - -
------------ ------------
Diluted NAV 429,515 382,899
Fair value of derivative financial instruments 337 752
Deferred tax liability 634 2,050
------------ ------------
EPRA NAV 430,486 395,701
------------ ------------
Dilutive number of shares 372,821,136 373,696,888
EPRA NAV per share 115.5p 105.9p
------------ ------------
3. EPRA NNNAV
31 December 31 December
2018 2017
GBP'000 GBP'000
EPRA NAV 430,486 395,701
Fair value of derivative financial instruments (337) (752)
Adjustment for the fair value of debt:
Bank and loan borrowings - -
Zero Dividend Preference Shares 666 (1,311)
Retail eligible bonds (902) -
Deferred tax liability (634) (2,050)
------------ ------------
EPRA NNNAV 429,279 391,588
------------ ------------
Dilutive number of shares 372,821,136 373,696,888
EPRA NAV per share 115.1p 104.8p
------------ ------------
4. EPRA Net Initial Yield
Calculated as the value of investment properties divided by
annualised net rents:
31 December 31 December
2018 2017
GBP'000 GBP'000
Investment properties 718,375 765,288
------------ ------------
Annualised cash passing rental income 54,710 57,011
Property outgoings (4,650) (4,468)
------------ ------------
Annualised net rents 50,060 52,543
Add notional rent expiration of rent
free periods or other lease incentives 443 639
------------ ------------
Topped-up net annualised rent 50,503 53,182
------------ ------------
EPRA NIY 6.5% 6.5%
------------ ------------
EPRA topped up NIY 6.6% 6.6%
------------ ------------
5. EPRA Vacancy Rate
31 December 31 December
2018 2017
GBP'000 GBP'000
Estimated Market Rental Value (ERV) of
vacant space 7,128 8,247
------------ ------------
Estimated Market Rental value (ERV) of
whole portfolio 67,042 70,034
------------ ------------
EPRA Vacancy Rate 10.6% 11.8%
------------ ------------
6. EPRA Cost Ratios
31 December 31 December
2018 2017
GBP'000 GBP'000
Operating costs 19,644 15,763
Less ground rent (662) (563)
Less recoverable service charge income
and other similar costs (11,944) (9,261)
Add administrative and other expenses 17,586 9,429
------------ ------------
EPRA costs (including direct vacancy
costs) 24,624 15,368
Direct vacancy costs (6,240) (5,522)
------------ ------------
EPRA costs (excluding direct vacancy
costs) 18,384 9,846
------------ ------------
Gross rental income 74,019 61,610
Less recoverable service charge income
and other similar items (11,944) (9,261)
Less ground rent (661) (563)
------------ ------------
Gross rental income less ground rents 61,414 51,786
------------ ------------
EPRA Cost Ratio (including direct vacancy
costs) 40.1% 29.7%
------------ ------------
EPRA Cost Ratio (excluding direct vacancy
costs) 29.9% 19.0%
------------ ------------
It should be noted that the EPRA Costs in the above calculations
include the performance fee cost for the period of GBP7,046,000
(year ended 31 December 2017: GBP1,610,000). The EPRA cost ratio
excluding the Performance Fee from costs would be as follows:
EPRA Cost Ratio (including direct vacancy
costs) 28.6% 26.6%
------ ------
EPRA Cost Ratio (excluding direct vacancy
costs) 18.5% 15.9%
------ ------
The Group has not capitalised any overhead or operating expenses
in the accounting years disclosed above - LSI to confirm
Property Related Capital Expenditure Analysis
31 December 31 December
2018 2017
GBP'000 GBP'000
Acquisitions 76,334 231,326
Subsequent capital expenditure 6,979 13,373
Total capital expenditure 83,313 244,699
------------ ------------
Acquisitions - this represents the purchase cost of investment
properties and associated incidental purchase expenses such as
stamp duty land tax, legal fees, agents' fees, valuations and
surveys.
Subsequent capital expenditure - this represents capital
expenditure which has taken place post the initial acquisition of
an investment property.
Forthcoming Events
Q1 2019 Trading Update, AGM Statement and Dividend Announcement 23 May 2019
2019 Annual General Meeting 23 May 2019
Q2 2019 Dividend Announcement 29 August 2019
2019 Interim Results Announcement 10 September 2019
Q3 2019 Trading Update and Dividend Announcement 14 November
2019
Note: all future dates are provisional and subject to
change.
Shareholder Information
Share Register Enquires:
Phone: 0871 664 0300
Calls cost 12p per minute plus your provider's access charge. If
outside the United Kingdom call +44 371 664 0300. Calls outside the
UK will be charged at applicable international rate. Lines are open
between 09:00-17:30 Monday to Friday (excluding public holidays in
England and Wales). For shareholder enquiries please email
shareholderenquiries@linkgroup.co.uk.
Dividend History
Period Announcement Ex-Date Record Date Payment Total Dividend
Date Date Pence per share
Q4 2018 21 February 28 February 1 March 11 April 2.50pps
2019 2019 2019 2019 of which PID: 2.50pps
------------- ------------- ------------- ------------ ---------------------------
Q3 2018 15 November 22 November 23 November 21 December 1.85pps
2018 2018 2018 2018 of which PID: 1.85pps
------------- ------------- ------------- ------------ ---------------------------
Q2 2018 31 August 13 September 14 September 15 October 1.85pps
2018 2018 2018 2018 of which PID: 1.85pps
------------- ------------- ------------- ------------ ---------------------------
Q1 2018 17 May 2018 24 May 2018 25 May 2018 13 July 1.85pps
2018 of which PID: 1.85pps
------------- ------------- ------------- ------------ ---------------------------
Q4 2017 22 February 1 March 2 March 12 April 2.45pps
2018 2018 2018 2017
------------- ------------- ------------- ------------ ---------------------------
of which PID: 2.205pps
------------- ------------- ------------- ------------ ---------------------------
of which non-PID:0.245pps
------------- ------------- ------------- ------------ ---------------------------
Q3 2017 14 November 23 November 24 November 22 December 1.80pps
2017 2017 2017 2017
------------- ------------- ------------- ------------ ---------------------------
of which PID: 1.62pps
------------- ------------- ------------- ------------ ---------------------------
of which non-PID:0.18pps
------------- ------------- ------------- ------------ ---------------------------
Q2 2017 31 August 7 September 8 September 13 October 1.80pps
2017 2017 2017 2017
------------- ------------- ------------- ------------ ---------------------------
of which PID: 1.08pps
------------- ------------- ------------- ------------ ---------------------------
of which non-PID:
0.72pps
------------- ------------- ------------- ------------ ---------------------------
Q1 2017 25 May 8 June 2017 9 June 2017 14 July 1.80pps
2017 2017
------------- ------------- ------------- ------------ ---------------------------
of which PID: 1.26pps
------------- ------------- ------------- ------------ ---------------------------
of which non-PID:
0.54pps
------------- ------------- ------------- ------------ ---------------------------
Q4 2016 23 February 2 March 3 March 13 April 2.40pps
2017 2017 2017 2017
------------- ------------- ------------- ------------ ---------------------------
of which PID:2.1600pps
------------- ------------- ------------- ------------ ---------------------------
of which non-PID:0.2400pps
------------- ------------- ------------- ------------ ---------------------------
Q3 2016 17 November 24 November 25 November 22 December 1.75pps
2016 2016 2016 2016
------------- ------------- ------------- ------------ ---------------------------
of which PID:1.6345pps
------------- ------------- ------------- ------------ ---------------------------
of which non-PID:0.1155pps
------------- ------------- ------------- ------------ ---------------------------
Q2 2016 1 September 8 September 9 September 7 October 1.75pps
2016 2016 2016 2016
------------- ------------- ------------- ------------ ---------------------------
of which PID: 1.5013pps
------------- ------------- ------------- ------------ ---------------------------
of which non-PID:
0.2487pps
------------- ------------- ------------- ------------ ---------------------------
Q1 2016 27 May 2016 9 June 2016 10 June 8 July 1.75pps
2016 2016
------------- ------------- ------------- ------------ ---------------------------
of which PID: 1.3579pps
------------- ------------- ------------- ------------ ---------------------------
of which non-PID:
0.3921pps
------------- ------------- ------------- ------------ ---------------------------
Full Year 7 March 2016 17 March 18 March 15 April 1.00pps
2015 2016 2016 2016
------------- ------------- ------------- ------------ ---------------------------
of which PID: 0.6572pps
------------- ------------- ------------- ------------ ---------------------------
of which non-PID:
0.3428pps
------------- ------------- ------------- ------------ ---------------------------
[1] Regional REIT Limited is the parent Company of a number of
subsidiaries which together comprise a group within the definition
of The Companies (Guernsey) Law 2008, as amended (the "Law") and
the International Financial Reporting Standard ("IFRS") 10,
'Consolidated Financial Statements', as issued by the International
Accounting Standards Board ("IASB") and as adopted by the European
Union ("EU"). Unless otherwise stated, the text of this Annual
Report does not distinguish between the activities of the Company
and those of its subsidiaries.
[2] CoStar UK Commercial Property Investment Review Q4 2018
[3]
https://www.lsh.co.uk/-/media/files/lsh/research/2019/2019-01-10584-ukit-q42018.ashx?la=en&hash=818DC1417D4DD899079049E9CFECE3BBFCF19C4C
[4]
https://www.propertyweek.com/news/investment-volumes-plunge-ahead-of-brexit/5101760.article
[5]
https://www.propertyweek.com/news/real-estate-funds-see-five-consecutive-months-of-capital-outflows-/5101749.article
[6] CoStar UK Commercial Property Investment Review Q4 2018
[7] Nine regional office markets mentioned by Savills include:
Aberdeen, Birmingham, Bristol, Cambridge, Cardiff, Edinburgh,
Glasgow, Leeds and Manchester
[8]
https://www2.avisonyoung.co.uk/media/55201/the-big-nine-q4-2018.pdf
[9]
http://www.cushmanwakefield.co.uk/en-gb/research-and-insight/uk/united-kingdom-office-snapshot
[10] Savills, Regional Office Market Q4 2018
[11] Cushman & Wakefield, UK Pre-Let Report- Race for Space
2019
[12]
https://www2.avisonyoung.co.uk/media/55201/the-big-nine-q4-2018.pdf
[13]
https://www2.avisonyoung.co.uk/media/55201/the-big-nine-q4-2018.pdf
[14]
http://www.cushmanwakefield.co.uk/en-gb/research-and-insight/uk/united-kingdom-office-snapshot
[15]
https://www.colliers.com/-/media/files/emea/uk/research/market-overview/colliers_international_real_estate_investment_forecasts_q4_2018.pdf?la=en-GB
[16]
https://www.cbre.co.uk/research-and-reports/United-Kingdom-Logistics---The-Property-Perspective-H2-2018
[17]
https://www.ons.gov.uk/businessindustryandtrade/retailindustry/bulletins/retailsales/january2019#whats-the-story-in-online-sales
[18]
https://www.colliers.com/-/media/files/emea/uk/research/market-overview/colliers_international_property_snapshot_january_2019.pdf?la=en-GB
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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