TIDMRGL
RNS Number : 3062G
Regional REIT Limited
29 March 2022
29 March 2022
Regional REIT Limited
("Regional REIT", the "Group" or the "Company")
2021 Full Year Results
Portfolio growth and dividend drives shareholder value
Regional REIT (LSE: RGL), the regional real estate investment
specialist focused on building a geographically diverse portfolio
of income producing regional UK core and core plus office assets,
today announces its full year results for the year ended 31
December 2021.
Financial highlights:
A strong performance and significant increase in both portfolio
valuation and rent roll, providing shareholders with an attractive
yield
-- Significant portfolio value increase of 23.7% to GBP906.1m
(2020: GBP732.4m), following the GBP236m portfolio acquisition
August 2021
-- Valuation per share remains resilient: IFRS NAV per share of
97.4p (2020: 97.5p); EPRA NTA per share of 97.2p (2020: 98.6p)
-- EPRA total return of 41.2% since IPO in November 2015;
representing 5.8% annualised returns for shareholders
-- Total rent collection or within terms for 2021 was 99.2%* of
rent due, improved against the 95.9% of rent collected for the
equivalent period in 2020
-- Rent roll increased by 12.3% to GBP72.1m (2020: GBP64.2m)
-- EPRA EPS of 6.6pps (2020: 6.5pps); IFRS EPS 6.3pps (2020: loss 7.2pps)
-- Net initial yield was 5.6% (2020: 6.9%)
-- 2021 dividend, of 6.50pps (2020: 6.40pps), fully covered by EPRA earnings
-- Group's cost of debt remained the same at 3.3% (2020: 3.3%)
-- Net LTV of 42.4% (2020: 40.8%)
-- Weighted average debt duration remains robust at 5.5 years (2020: 6.4 years)
*As at 18 March 2022, rent collections to 31 December 2021
amounted to 99.2%; actual rent collected 97.9%, monthly rents 0.2%
and deals agreed of 1.1%.
Operational highlights:
A growing portfolio of geographically diversified assets -
generating attractive income and a substantial yield throughout a
challenging year
-- Rental income generated from a large spread of tenants and
industries across a growing and geographically diversified
portfolio of 168 properties (2020: 153), 1,511 units (2020: 1,245)
and 1,077 occupiers (2020: 898)
-- The Asset Manager continued to deliver on exiting all
industrial and retail holdings to focus entirely on the core
regional offices which the Asset Manager believes will provide the
best return for shareholders over the coming years.
-- The Group made disposals amounting to GBP76.9m (net of costs)
during 2021. The proceeds from these disposals were promptly
recycled into acquiring higher yielding properties
-- A significant acquisition was completed in August 2021, when
the Group acquired a GBP236.0m (before costs) portfolio comprising
of predominately office assets, in exchange for the issuance of
84,230,000 of the Company's shares, GBP76.7m of existing cash
resources, and additional borrowings of GBP76.2m. The acquired
portfolio further de-risked the Company's offering increasing
diversification by geography, occupier and type of income
streams
-- At the period end, 89.8% (2020: 83.5%) of the portfolio by
market value was offices and 5.1% (2020: 11.1%) was industrial. The
balance was made up of retail 3.7% (2020: 4.1%) and other, 1.4%
(2020: 1.3%)
-- Portfolio valuation split by region was: England 75.7% (2020:
78.3%), Scotland 19.0% (2020: 17.3%) and the balance of 5.3% was in
Wales (2020: 4.4%). In England, the largest regions were the South
East, Midlands and the North West
-- EPRA Occupancy (by ERV) was 81.8% (2020: 89.4%) as expected.
EPRA Occupancy has been impacted by the GBP236.0m (before costs)
portfolio acquisition made in Q3 2021. Asset management plans are
in place to improve occupancy
-- Completed 55 new lettings in 2021, totalling 194,716 sq. ft.,
which when fully occupied will provide a gross rental income of c.
GBP2.5m
Post period end
-- Post 31 December 2021, the Company has disposed of
separately: eight non-core properties for a total consideration of
GBP33.5m, at a 1.3% premium to the 31 December 2021 valuation, with
a net initial yield of 5.1% (6.3% excluding vacant properties)
-- Good momentum through active asset management, securing
GBP0.7m of lettings across nine new lease agreements
-- On 24 February 2022, the Company declared the Q4 2021
dividend of 1.70pps, which will be paid to shareholders on 8 April
2022
Stephen Inglis, CEO of London and Scottish Property Investment
Management, the Asset Manager, commented:
"We are delighted to report that the Company performed well in
2021, despite the underlying difficulties in the office sector
caused by COVID-19 during the reporting period. Our track record of
distributing a quarterly dividend to shareholders since IPO remains
uninterrupted, achieved through a defensive and geographically
diversified portfolio of assets, which is poised to benefit from
the UK's return to the office in 2022.
2021 was an active year for us, as we undertook substantial
transactional activity in line with our strategy to focus the
portfolio exclusively on the regional office sector and exit all
other areas of commercial property.
Additionally, the portfolio's valuation has increased
considerably during 2021, owing primarily to the significant
acquisition made in August, which included 31 high quality assets
for GBP236m.
Our performance has been maintained primarily through the
strength of our occupier base and our strong relationships with
those tenants, where we have received 99.2% of rents due for the
year, and our intensive asset management initiatives, helping us
realise additional value in the portfolio.
As we look forward, we are confident in the Company's prospects
of maximising shareholder value through the strategic repositioning
of the portfolio in high quality regional office assets, while
continuing to deliver a significant yield. "
Forthcoming Events
25 May 2022 May 2022 Trading Update and Outlook Announcement
Q1 2022 Dividend Declaration Announcement
Annual General Meeting
15 September 2022 2022 Interim Results Announcements
10 November 2022 Q3 2022 Trading Update
Note: All dates are provisional and subject to change.
-S -
Enquiries:
Regional REIT Limited
Toscafund Asset Management Tel: +44 (0) 20 7845 6100
Investment Manager to the Group
Adam Dickinson, Investor Relations, Regional REIT Limited
London & Scottish Property Investment Management Tel: +44 (0) 141 248 4155
Asset Manager to the Group
Stephen Inglis
Buchanan Communications Tel: +44 (0) 20 7466 5000
Financial PR regional@buchanan.uk.com
Charles Ryland, Henry Wilson, George Beale
About Regional REIT
Regional REIT Limited ("Regional REIT" or the "Company") and its
subsidiaries (the "Group") is a United Kingdom ("UK") based real
estate investment trust that launched in November 2015. It is
managed by London & Scottish Property Investment Management
Limited, the Asset Manager, and Toscafund Asset Management LLP, the
Investment Manager.
Regional REIT's commercial property portfolio is comprised
wholly of income producing UK assets and comprises, predominantly
of offices located in the regional centres outside of the M25
motorway. The portfolio is geographically diversified, with 168
properties, 1,077 occupiers as at 31 December 2021, with a
valuation of c.GBP906.1m.
Regional REIT pursues its investment objective by investing in,
actively managing and disposing of regional core and core plus
property assets. It aims to deliver an attractive total return to
its Shareholders, targeting greater than 10% per annum, with a
strong focus on income supported by additional capital growth
prospects.
The Company's shares were admitted to the Official List of the
UK's Financial Conduct Authority and to trading on the London Stock
Exchange on 6 November 2015. For more information, please visit the
Group's website at www.regionalreit.com .
Cautionary Statement
This document has been prepared solely to provide additional
information to Shareholders to assess the Group's performance in
relation to its operations and growth potential. The document
should not be relied upon by any other party or for any other
reason. Any forward looking statements made in this document are
done so by the Directors in good faith based on the information
available to them up to the time of their approval of this
document. However, such statements should be treated with caution
due to the inherent uncertainties, including both economic and
business risk factors, underlying any such forward-looking
information.
ESMA Legal Entity Identifier ("LEI"): 549300D8G4NKLRIKBX73
Financial Highlights
Year ending 31 December 2021
Income focused - opportunistic buying and strategic selling,
coupled with intensive asset management, continues to secure
long-term income
Portfolio Valuation GBP 906.1 m (2020: GBP732.4m)
IFRS NAV per Share 97.4 p (2020: 97.5p)
EPRA* NTA per Share 97.2 p (2020: 98.6p)
EPRA earnings per Share 6.6p (2020: 6.5p)
Dividend per Share 6.5 p (2020: 6.4p)
Net Loan to Value Ratio** 42.4 % (2020: 40.8%)
Weighted Average Cost of Debt** 3.3 % (2020: 3.3%)
Weighted Average Debt Duration** 5.5 yrs (2020: 6.4yrs)
* The European Public Real Estate Association (EPRA)
** Alternative Performance Measures. Details are provided in the
full Annual Report.
The European Public Real Estate Association
The EPRA's mission is to promote, develop and represent the
European public real estate sector. As an EPRA member, we fully
support the EPRA Best Practices Recommendations. Specific EPRA
metrics can be found in the Company's financial and operational
highlights, with further disclosures and supporting calculations
can be found within the full Annual Report.
Operational Highlights
Year ending 31 December 2021
Deliberately diversified and strengthened portfolio by location
and tenant - regions primed for growth
Properties 168
Units 1,511
Occupiers 1,077
Rent Roll GBP 72.1 m
Portfolio by region and sector (by value)
England & Wales 81.0 %
Office 89.8 %
Property acquisitions (before costs) GBP 236.0 m
Number of properties 31
Property disposal proceeds (net of costs) GBP 76.9 m
Number of properties 16
EPRA Occupancy by ERV* 81.8 %
WAULT to expiry 4.8 yrs
WAULT to first break 3.0 yrs
* Alternative Performance Measures. Details are provided in the
full Annual Report.
Performance Highlights
Year ending 31 December 2021
The high dividend distributions are a major component of the
total return
Dividends declared per Share: Pence
2021 6.50
2020 6.40
2019 8.25
2018 8.05
2017 7.85
2016 7.65
2015 1.00
EPRA
EPRA Total Return attributable to Shareholders since
Admission^ 41.2 %
EPRA Annual Total Return attributable to Shareholders 5.8 %
^Admission: 6 November 2015
Member of FTSE All-Share Index since March 2016
Member of FTSE EPRA NAREIT UK Index since June 2016
Total EPRA Return (from IPO)
(EPRA NTA and dividend declared)
Pence per share
IPO Nov 2015 100
Dec 2015 107.8
Dec 2016 113.2
Dec 2017 119.9
Dec 2018 137.5
Dec 2019 142.9
Dec 2020 136.3
Dec 2021 141.2
Chairman's Statement
"The Company is in a strong position to create significant
long-term value with a high dividend distribution."
Kevin McGrath, Chairman
Overview
Our progress this year reflects the growing maturity and
strength of Regional REIT. The transition to being a pure regional
office specialist gained substantial momentum in the year with the
acquisition of a GBP236.0million (before costs) portfolio of
predominately office assets from Squarestone Growth LLP. Overall,
the Company continued to perform well during 2021, despite the
challenging environment.
We continued to execute our successful strategy of having a
large number of occupiers operating across a range of industries in
properties located in the growth regions outside the M25 motorway.
Driving this strategy forward has been in no small part due to our
strong working relationships and understanding of our occupiers'
needs and requirements. This has ensured continued robust rent
collections throughout the year. Currently, rent collection for
2021 amounted to 99.2%* (2020: equivalent period 95.9%). In
addition, our exceptional network of contacts continues to provide
a pipeline of asset acquisition and disposal opportunities to
create long-term value.
Whilst 2021 was a challenging year due to the myriad of
restrictions and guidance issued by the respective United Kingdom
Government bodies, our strong rent collection resulted in EPRA
diluted earnings of 6.6 pence per share ("pps") (2020: 6.5pps).
IFRS diluted earnings per share were 6.3pps (2020: loss per share
of 7.2pps). The dividend was fully covered by EPRA earnings.
During the year, the overall value of the portfolio increased by
23.7% to GBP906.1 million from GBP732.4 million as at 31 December
2020, reflecting the acquisition of the Squarestone Growth LLP
office portfolio, positioning the REIT for further long term asset
growth. The Company made disposals amounting to GBP76.9 million
(net of costs). As usual the proceeds from these disposals have
been promptly recycled into acquiring higher yielding properties.
The Squarestone Growth LLP acquisition was completed in August,
when the Group acquired a GBP236.0 million (before costs) portfolio
comprising of predominately office assets, in exchange for the
issuance of 84,230,000 of the Company's shares, GBP76.7 million of
existing cash resources, and additional borrowings of GBP76.2
million. The acquired portfolio increased diversification of the
Company's portfolio by geography, occupier and the standard
industrial classification type of income streams, and it aligns
well with the expertise, experience and unique strengths of the
Asset Manager. While generating an attractive yield, it also offers
a multitude of longer-term asset management opportunities.
* As at 18 March 2022, rent collections to 31 December 2021
amounted to 99.2%; actual rent collected 97.9%, monthly rents 0.2%
and deals agreed of 1.1%.
** Alternative Performance Measures. Details are provided in the
full Annual Report.
During the year, our rolling capital expenditure programme
amounted to GBP6.8 million (2020: GBP8.8 million). Our priorities
throughout the year were to maintain occupancy levels, provide safe
and vibrant spaces in which our occupiers could thrive and grow and
provide long-term capital value growth for our Shareholders.
Financial Resources
The Company continues to be in a financially strong position
with an EPRA NTA of GBP501.4 million (2020: GBP425.6 million) and a
cash balance of GBP56.1 million as at 31 December 2021 (2020:
GBP67.4 million), of which GBP49.9 million is unrestricted (2020:
GBP55.0 million).
One of the Company's key achievements has been its defensive
debt positioning. The simple and flexible debt profile with strong
lender relationships continued to ensure that the Company was well
positioned for any further economic turbulence. These attributes
remain evident going forward with no requirement to refinance until
2024.
Following the GBP236.0 million (before costs) portfolio
acquisition in August 2021, the net borrowings as at 31 December
2021 amounted to 42.4%. A programme of asset management initiatives
is in train to ensure the net borrowing reverts to our long-term
target of c. 40%. Our debt facilities have sufficient headroom
against their respective covenants, and the Company is in a robust
position to withstand any future economic uncertainty.
Market Environment
Investment in the UK commercial property market reached GBP57.0
billion in 2021, according to research by Lambert Smith Hampton
("LSH")(1) , 6.1% above the five-year average, 40.1% higher than
the volume recorded in 2020, and 15.4% above pre-COVID-19 levels in
2019. Investor sentiment remained positive in the final quarter of
2021, despite concerns surrounding Omicron, and the quarterly
investment was GBP17.3 billion, the highest level recorded since Q2
2015.
Savills research highlights that investor sentiment in the
regional office market has improved throughout 2021(2) . Regional
office investment totalled GBP7.2 billion in 2021, 34.8% higher
than 2020 figures, and marginally above the five-year average(3) .
Investment in office parks in 2021 reached GBP2.8 billion, the
highest level reported since 2017, and 31.6% above the five-year
average. Optimism in the regional office market has been supported
by strong employment growth. The most recent data from the ONS
shows that the UK employment rate rose to 75.5% in the three months
to November 2021, up from 74.9% for the same period in 2020(4)
.
(1) Lambert Smith Hampton, UKIT Q4 2021
(2) Savills, UK Regional Investment Market Watch - December
2021
(3) Lambert Smith Hampton, UKIT Q4 2021
(4) ONS, Labour Market Overview, UK - January 2022
More details can be found in the Asset Manager's Report in the
full Annual Report.
Strategy Update - Positioned for Growth
As announced on 12 November 2020, the Company has focused its
investment on properties in the office sector in the main regional
centres of the UK outside of the M25 motorway. The Company
continued to exit all other commercial property sector investments.
During 2021, non-core disposals amounted to GBP76.9 million (net of
costs) and regional office acquisitions totalled GBP220.2
million.
The Board remains convinced that the supply and demand imbalance
of the regional office sector coupled with the Asset Manager's
specialist operating platform and experience will produce an
attractive Total Shareholder Return over the long term.
Dividends
The dividend is the major component of Total Shareholder
Returns. For the year under review, the Company declared total
dividends of 6.50pps for the year (2020: 6.40pps), comprising three
quarterly dividends of 1.60pps each and a fourth dividend of
1.70pps. This represented a yield of 6.9% at a share price of
93.90pps at the close of 31 December 2021. Since inception, the
Company has declared dividends amounting to 45.7pps.
Looking ahead, there is a clear aspiration by the Board to
maintain its record of uninterrupted quarterly dividend payments.
This is predicated on the strength of the Company's balance sheet
and the strong rent collections received throughout the year.
Performance
Since listing on 6 November 2015, the Company's EPRA Total
Return was 41.2% and the annualised EPRA Total Return was 5.8%. The
Total Shareholder Return was 47.6%, compared with the FTSE EPRA
NAREIT UK Total Return Index, which has generated a return of 21.9%
over the same period.
For the year under review, the Company's Total Shareholder
Return was 22.4%, versus the return of 28.9% for the FTSE EPRA
NAREIT UK Total Return Index over the same period.
Integrating a More Sustainable Approach
The Company has always been cognisant of its environmental
impact, transparent governance structure and its social
responsibility. With the Company's commitment to a more focused and
formal approach, the Company joined the Real Estate Sustainability
Benchmark ("GRESB"), achieving a green star for 2021. The Company
has continued with a programme of integrating environmental, social
and governance through its decision making. More details are set
out in the full Annual Report.
Annual General Meeting
The Company plans to hold its 2022 Annual General Meeting
("AGM") in person on Wednesday, 25 May 2022. The notice for the
2022 AGM will be published on our website and will be circulated to
Shareholders in accordance with the requirements of the Company's
Articles of Incorporation.
In the absence of any reimposition of restrictions, the Board
very much looks forward to meeting with Shareholders at the
AGM.
Shareholder and Stakeholder Engagement
Our priority throughout 2021 remained first and foremost to
provide vibrant workspaces where collaborative and collegiate
environments can be built by our occupiers to face market
challenges. We have stood ready to support and guide our occupiers,
if required, throughout this challenging period and this remains
the case.
I would like to take this opportunity to thank all the asset
management teams, from property management, research, legal,
corporate finance and finance to credit control, who have continued
to support our occupiers through this unprecedented period.
Board and Governance
I am pleased to announce that in 2021 a Nomination Committee was
constituted by the Board. The Committee's Terms of Reference can be
found on the Company's website. The Committee comprises all of the
independent Non-Executive Directors. More details can be found in
the full Annual Report.
Outlook
The outlook for the Company remains positive. With the robust
level of rent collections, the geographical and occupier
diversification of the portfolio and strong finances, the Company
is well positioned to continue to grow and take the opportunities
that will inevitably arise in the coming years.
For the remainder of 2022, though we remain mindful of the
challenges to be faced, the Company is confident of maintaining
high rent collections and accelerating the momentum on the asset
management initiatives. The Board believes this will result in the
continued de-risking of the portfolio, whilst continuing to deliver
income and long-term total returns for our Shareholders.
Kevin McGrath
Chairman
28 March 2022
Asset and Investment Managers' Report
"We are pleased to report that the Company performed well in
2021, despite the underlying challenges caused by COVID-19. Since
IPO, we have consistently provided a quarterly dividend to our
Shareholders. This has been achieved through a defensive and
geographically diversified portfolio of assets, which is poised to
benefit from the UK's return to the office in 2022.
2021 was an active year for us, as we undertook substantial
transactional activity in line with our strategy to be
opportunistic and focus the portfolio on the regional office
sector. We continue to progress with a planned exit for all other
non-core assets.
In addition, the portfolio's valuation increased considerably
during 2021, owing primarily to the significant off-market
acquisition made in August, when the Company acquired a
predominately multi-let office portfolio for GBP236 million. This
acquisition, one of the largest regional office acquisitions in the
UK in 2021, was an excellent fit with our existing portfolio given
its complementary spread of quality assets and a differentiated
occupier base, and results in 90% of the portfolio being in the
office sector. The portfolio presents a major opportunity for
Regional REIT to implement its proven asset management strategy to
generate additional Shareholder value on a large-scale portfolio
over the coming years.
Our good income performance has been maintained primarily
through the strength of our occupier base and our strong
relationships with these occupiers. We received 99.2% of rents due
for the year. We expect to continue to collect the outstanding
amounts over the coming months.
Our consistent quarterly dividends throughout the challenging
period of the pandemic have further strengthened the Company's
well-attested credentials as a reliable source of high income. We
believe we are well placed in the current inflationary environment,
given our high level of rent collection, regular rent reviews, and
asset backed valuations.
As we look forward, we are confident in the Company's prospects
of maximising Shareholder value through the strategic repositioning
of the portfolio in high quality regional office assets, whilst
continuing to deliver a significant dividend yield."
Stephen Inglis, CEO of London & Scottish Property Investment
Management, Asset Manager.
Highlights from 2021
-- Achieved a high level of rent collection. As at 18 March
2022, rent collection continued to strengthen, with FY 2021
collections increasing to 99.2%, adjusting for monthly rent and
agreed collections plans, which is similar to the equivalent date
in 2020 when 95.9% had been collected.
-- Completed 55 new lettings in 2021, totalling 194,716 sq. ft.,
which when fully occupied will provide a gross rental income of c.
GBP2.5 million.
-- Acquisitions in 2021 totalled GBP236.0 million (before costs)
for 31 assets, reflecting an average net initial yield of 7.8%, and
a reversionary yield of 11.0%.
-- Disposals during 2021 totalled GBP76.9 million (net of
costs), reflecting an average net initial yield of 6.5% (6.6%
excluding vacant properties).
-- Average rent by let sq. ft. increased by 22.2% from GBP10.44
per sq. ft. in December 2020 to GBP12.75 per sq. ft. in December
2021.
-- Capital value per sq. ft. increased by 21.9% from GBP102.26
per sq. ft. in December 2020 to GBP124.70 per sq. ft.
Investment Activity in the UK Commercial Property Market
Investment in the UK commercial property market reached GBP57.0
billion in 2021, according to research by Lambert Smith Hampton
("LSH")(5) , 6.1% above the five-year average, 40.0% higher than
the volume recorded in 2020, and 15.4% above pre-COVID-19 levels in
2019. Investor sentiment remained positive in the final quarter of
2021, despite concerns surrounding the Omicron variant, with a
quarterly investment of GBP17.3 billion - the highest level
recorded since Q2 2015. Investment in Q4 2021 marked an improvement
of 23.4% on Q3 2021 and was 28.7% above the five-year quarterly
average. 2021 proved to be a strong year for investment in
portfolio deals, with investment totalling GBP15.6 billion, 50.9%
above 2020 figures and 20.1% above the pre-pandemic level recorded
in 2019. The commercial property market is well positioned for a
positive 2022. Savills forecast that investment will increase by
10% over the next 12 months, with growth expected to be underpinned
by occupational factors such as falling unemployment and companies
reporting strong employment intentions(6) .
The strength of the UK regional markets was particularly
pronounced in 2021, with annual investment reaching GBP21.3
billion, 12.0% above the five-year average and 54.2% higher than
2020 investment volumes. Conversely, London volumes were down
relative to trend with 2021 volumes falling 6.0% below the
five-year average at GBP20.1 billion. LSH research notes that a
rise in investment levels was reflected across the majority of UK
regions, with seven of the 11 regions recording a volume above the
respective five-year averages. The largest increase in regional
investment in 2021 relative to the five-year average occurred in
the East, West Midlands, North West, South East and Northern
Ireland.
Savills research highlights that investor sentiment in the
regional office market improved throughout 2021(7) . Regional
office investment totalled GBP7.2 billion in 2021, 34.8% higher
than 2020 figures, and marginally above the five-year average(8) .
Investment in office parks in 2021 reached GBP2.8 billion, the
highest level reported since 2017, and 31.6% above the five-year
average. Optimism in the regional office market has been supported
by strong employment growth. The most recent data from the ONS
shows that the UK employment rate rose to 75.5% in the three months
to November 2021, up from 74.9% for the same period in 2020(9) .
Moreover, a survey by Deloitte shows that 74% of CFOs plan to
increase employee numbers over the next 12 months. This is in stark
contrast to the same quarter in 2020, in which less than a quarter
of CFOs planned to increase headcount and approximately 50% planned
to reduce staff numbers(10) . Strong employment rates and
encouraging levels of recruitment are positive indicators for
occupational demand.
The Asset Manager's strong opinion is that the office will
continue to play a vital role in working life regardless of whether
hybrid or more traditional working practices are adopted. It is
their opinion that many occupiers will require more office
accommodation in future due to both employment growth and the
improvement in the working environment by employers including
de-densification.
(5) Lambert Smith Hampton, UKIT Q4 2021
(6) Savills, MIM, UK Commercial - January 2022
(7) Savills, UK Regional Investment Market Watch - December
2021
(8) Lambert Smith Hampton, UKIT Q4 2021
(9) ONS, Labour Market Overview, UK - January 2022
(10) Deloitte, CFO Survey, Q4 2021
Quarterly Investment Volumes (GBPbn)
GBPbn
2014 Q1 12.04
2014 Q2 12.84
2014 Q3 15.97
2014 Q4 20.50
2015 Q1 19.93
2015 Q2 18.30
2015 Q3 12.74
2015 Q4 16.04
2016 Q1 13.24
2016 Q2 10.90
2016 Q3 9.83
2016 Q4 13.13
2017 Q1 12.98
2017 Q2 14.33
2017 Q3 15.77
2017 Q4 16.90
2018 Q1 14.13
2018 Q2 14.07
2018 Q3 17.04
2018 Q4 16.33
2019 Q1 11.26
2019 Q2 8.78
2019 Q3 13.85
2019 Q4 15.45
2020 Q1 13.89
2020 Q2 4.36
2020 Q3 8.09
2020 Q4 14.32
2021 Q1 11.41
2021 Q2 14.28
2021 Q3 13.98
2021 Q4 17.27
Source: Lambert Smith Hampton Research (February 2022)
Overseas investment in the UK property market accounted for just
under half (49.3%) of total investment in 2021, according to data
from LSH. LSH estimates that total overseas investment for 2021
reached GBP28.1 billion, 32.0% higher than 2020, and 6.8% above
than the five-year average. Overseas investment in Q4 2021 reached
GBP7.5 billion, up 14.1% on Q3's level and 13.4% higher than the
five-year quarterly average. North America and the Middle East were
net investors in the final quarter of 2021. Conversely, European
investors were net sellers in Q4 2021, c. 30% below the Q4 average
despite strong demand from German investors.
Research from CBRE(11) indicates that regional offices have
outperformed in comparison to central London offices, delivering
superior income returns of 5.7% in 2021 in comparison to central
London office returns of 3.6% - a trend that has been witnessed
over the past seven years. With a total return of 7.7% for regional
offices, 2021 marked a significant improvement on 2020 performance,
in which a total return of 0.6% was reported.
(11) CBRE Monthly Index, Q4 2021
Central London & Regional Office Income Returns (12 months
to December 2021)
Income Return
2015 2016 2017 2018 2019 2020 2021
Central London Offices 3.2% 3.3% 3.7% 3.8% 3.8% 4.1% 3.6%
Rest of UK Offices 6.4% 6.2% 6.4% 5.9% 5.8% 5.9% 5.7%
Source: CBRE (February 2022)
Occupational Demand in the UK Regional Office Market
Avison Young estimates that take-up of office space across nine
regional office markets(12) totalled 8.1 million sq. ft. in 2021;
41.9% above the level of take-up recorded in 2020, and 5.0% lower
than the 10-year average. Take-up in the final quarter of 2021 was
21.9% above the five-year average at 2.7 million sq. ft., marking
the highest quarterly take-up figure in over three years. This
highlighted a return to 'normal' demand levels in the second half
of 2021 with take-up in H2 totalling 5.0 million sq. ft. Avison
Young highlights that that there is increased demand for greater
customer care, space that encourages collaboration, and a focus on
health and well-being.
Occupational demand was driven by the technology, media &
telecoms sector, which accounted for the highest proportion of
take-up at 21.9% in 2020. Following the technology, media &
telecoms sector, the public services, education & health sector
and the professional sector accounted for the second and third
largest proportion of take-up in the regional cities, accounting
for 16.9% and 12.7% respectively.
According to Savills, there was a rise in availability for
regional office stock across ten regional UK markets (13) , with
total availability rising by 11.3% in 2021 to 14.7 million sq. ft.
The uptick in availability over the last two years has pushed
supply marginally above the 10-year average by 0.6%. This marks the
second year that supply of office stock has increased over the last
decade, having gradually fallen each year since 2009. The overall
vacancy rate for regional offices ticked upwards from 11.4% in 2020
to 12.6% in 2021 but remains 2.2% below the 10-year average(14)
.
Furthermore, it is estimated that approximately 4.0 million sq.
ft. of office space is currently under construction in the Big Nine
regional markets, with Glasgow, Bristol and Leeds accounting for
24.7%, 16.2% and 15.6%, respectively. Approximately 48.3% of office
buildings currently under construction are already pre-let.
(12) Nine regional office markets mentioned by Avison Young
include: Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds,
Liverpool, Manchester & Newcastle
(13) Ten regional office markets mentioned by Savills include:
Aberdeen, Birmingham, Bristol, Cambridge, Cardiff, Edinburgh,
Glasgow, Leeds, Manchester and Oxford
(14) Savills: The Regional Office Market Overview, Q4 2021
Regional Supply: Annual Office Supply
Year Regional Supply (sq, ft.) 10-year Average
2005 13,366,593 14,651,164
2006 13,495,550 14,651,164
2007 15,536,262 14,651,164
2008 17,531,111 14,651,164
2009 20,388,260 14,651,164
2010 19,128,055 14,651,164
2011 18,456,562 14,651,164
2012 18,238,269 14,651,164
2013 16,378,996 14,651,164
2014 16,123,864 14,651,164
2015 15,384,157 14,651,164
2016 14,803,325 14,651,164
2017 14,091,517 14,651,164
2018 12,272,422 14,651,164
2019 11,248,539 14,651,164
2020 13,235,404 14,651,164
2021 14,735,145 14,651,164
Source: Savills (February 2022)
Rental Growth in the UK Regional Office Market
The CBRE Monthly Index shows that rental value growth held up
better for the rest of UK office markets in the 12 months ended
December 2021 with growth of 1.4%. Conversely, central London
offices experienced modest growth of 0.2% during 2021. According to
MSCI, average rents in the regional office market (outside of
London and the South East) increased by 1.6% in 2021. Demand for
quality office space has put an upward pressure on rents, with
growth of 2.3% recorded across the Big Nine regional markets in
2021, with average headline rents now sitting at GBP32.67 per sq.
ft., according to research from Avison Young. Colliers
International noted that office park rental growth was particularly
encouraging, with an annual increase of 2.1% as reported by
MSCI(15) .
(15) Colliers International, Property Snapshot, December 2021
Regional REIT's Office Assets
EPRA occupancy of the Group's regional offices was 80.8% (2020:
88.6%). A like-for-like comparison of the Group's regional offices'
EPRA occupancy, as at 31 December 2021 versus 31 December 2020,
shows occupancy of 81.4% (2020: 89.4%). WAULT to first break was
2.6 years (2020: 2.6 years); like-for-like WAULT to first break of
2.8 years (2020: 2.7 years).
Property Portfolio
As at 31 December 2021, the Group's property portfolio was
valued at GBP906.1 million (2020: GBP732.4 million), with rent roll
of GBP72.1 million (2020: GBP64.2 million), and an EPRA occupancy
of 81.8% (2020: 89.4%). As expected, EPRA Occupancy was impacted by
the GBP236.0m (before costs) portfolio acquisition made in Q3
'2021. Asset management plans are in place to improve
occupancy.
On a like-for-like basis, 31 December 2021 versus 31 December
2020, EPRA occupancy was 82.4% (2020: 89.5%).
There were 168 properties (2020: 153) in the portfolio, with
1,511 units (2020: 1,245) and 1,077 tenants (2020: 898). If the
portfolio was fully occupied at Cushman & Wakefield's view of
market rents, the rental income would be GBP94.6 million per annum
as at 31 December 2021 (2020: GBP76.6 million).
As at 31 December 2021, the net initial yield on the portfolio
was 5.6% (2020: 6.9%), the equivalent yield was 8.7% (2020: 8.8%)
and the reversionary yield was 9.4% (2020: 9.4%).
Property Portfolio by Sector
Sector Properties Valuation % by Sq. Occupancy WAULT Gross Average ERV Capital Yield (%)
valuation ft. (EPRA) to rental rent rate
first income
break
(GBPm) (m) (%) (yrs) (GBPm) (GBPpsf) (GBPm) (GBPpsf) Net Equivalent Reversionary
initial
Office 138 813.4 89.8 6.0 80.8 2.6 63.9 14.07 86.3 134.77 5.4 8.8 9.6
Industrial 7 46.4 5.1 0.7 90.7 7.2 3.3 5.10 3.6 66.18 6.1 7.5 7.4
Retail 20 33.9 3.7 0.4 92.6 3.6 3.9 9.99 3.8 78.14 9.3 9.7 9.8
Other 3 12.5 1.4 0.1 92.7 13.0 1.0 12.66 0.9 129.27 6.6 8.0 7.5
Total 168 906.1 100.0 7.3 81.8 3.0 72.1 12.75 94.6 124.70 5.6 8.7 9.4
Property Portfolio by Region
Region Properties Valuation % by Sq. Occupancy WAULT Gross Average ERV Capital Yield (%)
valuation ft. (EPRA) to rental rent rate
first income
break
(GBPm) (m) (%) (yrs) (GBPm) (GBPpsf) (GBPm) (GBPpsf) Net Equivalent Reversionary
initial
Scotland 44 172.1 19.0 1.7 84.7 3.9 15.5 11.80 19.6 102.62 6.0 9.4 10.2
South East 33 192.9 21.3 1.4 72.9 2.6 12.7 15.08 20.8 140.41 4.2 8.5 9.5
North East 23 121.4 13.4 1.0 83.9 3.0 9.6 11.86 11.8 126.36 6.0 9.2 9.2
Midlands 26 161.8 17.9 1.3 79.1 2.9 13.1 12.60 16.2 124.57 4.9 8.5 9.7
North West 20 125.2 13.8 1.0 80.0 2.7 9.8 12.55 13.3 131.35 6.0 9.2 9.1
South West 15 84.6 9.3 0.5 94.1 2.0 7.0 16.35 8.4 164.45 6.0 8.2 9.1
Wales 7 48.2 5.3 0.5 94.6 4.2 4.4 9.98 4.4 98.57 8.2 8.3 8.5
Total 168 906.1 100.0 7.3 81.8 3.0 72.1 12.75 94.6 124.70 5.6 8.7 9.4
============ =========== ========== ========== ==== ========== ====== ======= ========= ======= ========= ======== =========== =============
* Table may not sum due to rounding
Top 15 Investments (Market Value) as at 31 December 2021
Property Sector Anchor tenants Market % of Lettable EPRA Annualised % of WAULT
value portfolio area Occupancy gross gross to
rent rental first
income break
(years)
(GBPm) (sq ft) (%) (GBPm)
University of
Glasgow,
300 Bath Glasgow Tay
Street, House Centre
Glasgow Office Ltd, Eaton Ltd 27.2 3.0 156,853 99.8 1.2 1.7 2.9
Buildings 2
& 3, Bear Utmost Life and
Brook Pensions
Office Ltd, Agria Pet
Park, Insurance
Aylesbury Office Ltd 22.8 2.5 140,791 90.8 0.9 1.3 3.6
Nuvias (UK &
Ireland) Ltd,
Fernox Ltd,
McCarthy &
Stone
Genesis Retirement
Business Lifestyles
Park, Ltd, Walk The
Woking Office Walk Worldwide 22.7 2.5 98,151 81.3 1.4 1.9 2.2
Hermes European
Logistics
Ltd, NHS
Shared
Capitol Business
Park, Leeds Office Services Ltd 21.5 2.4 98,340 100.0 1.8 2.5 1.7
Virgin Media
Ltd, Rexel
Eagle Court, UK Ltd,
Coventry Coleshill
Road, Retail
Birmingham Office Ltd 21.4 2.4 132,979 77.8 1.8 2.5 1.4
NNB Generation
800 Aztec Company
West, (HPC) Ltd,
Bristol Office Edvance SAS 19.0 2.1 73,292 100.0 1.5 2.1 1.6
Chiesi Ltd,
Ingredion UK
Manchester Ltd, Assetz
Green, SME Capital
Manchester Office Ltd 18.9 2.1 106,133 75.9 1.3 1.8 3.4
Metropolitan
Housing Trust
Ltd, SMS
Electronics
Ltd,
Worldwide
Beeston Clinical
Business Trials
Park, Office/ Ltd, Heart
Nottingham Industrial Internet Ltd 18.9 2.1 215,330 100.0 1.8 2.5 5.4
Aviva Central
Services
UK Ltd,
Hampshire Utilita Energy
Corporate Ltd, Digital
Park, Wholesale
Eastleigh Office Solutions Ltd 18.7 2.1 85,422 99.8 1.3 1.8 2.1
Accenture (UK)
Norfolk Ltd, Secretary
House, of State for
Smallbrook Communities
Queensway, & Local
Birmingham Office Government 18.0 2.0 114,982 49.0 0.8 1.1 2.3
Darwin Loan
Solutions Ltd,
New College
Portland Manchester
Street, Ltd, Mott
Manchester Office MacDonald Ltd 15.2 1.7 55,787 98.7 0.9 1.3 2.7
One & Two
Newstead
Court,
Nottingham Office E.ON UK Plc 14.5 1.6 146,262 67.8 0.9 1.3 3.3
The Scottish
Ministers,
The Scottish
Templeton On Sports
The Green, Council,
Glasgow Office Noah Beers Ltd 13.6 1.5 142,512 90.7 1.2 1.7 4.1
Ceva Logistics
Ltd, Hill
Rom UK Ltd,
Ashby Park, Brush
Ashby De Electrical
La Zouch Office Machines Ltd 13.5 1.5 91,034 92.8 1.1 1.6 3.9
Pearson
Education Ltd,
The Engie
Lighthouse, Regeneration
Salford Ltd,
Quays, Assemble
Manchester Office Technology Ltd 13.3 1.5 64,275 56.7 0.7 1.0 2.7
Total 279.1 30.8 1,722,143 84.3 18.8 26.1 2.9
============================================= ======= ========== ========== ========== =========== ======= ========
* Table may not sum due to rounding
Top 15 Tenants (Share of Rental Income) as at 31 December
2021
Tenant Property Sector WAULT Lettable Annualised % of
to first area gross gross
break (sq rent (GBPm) rental
(years) ft) income
Eagle Court, Coventry Information and
Virgin Media Ltd Road, Birmingham communication 1.8 112,147 1.8 2.5
Genesis Business
Park,
Woking
Southgate Park,
Peterborough
Aspect House,
Bennerley
NHS Road, Nottingham Public sector 1.9 103,240 1.7 2.3
Capitol Park, Leeds
Lightyear - Glasgow
Airport,
Glasgow
Park House, Bristol
St James Court,
Bristol
Wren House,
Chelmsford
Professional,
scientific
TUI Northern Europe Columbus House, and technical
Ltd Coventry activities 2.0 53,253 1.4 1.9
Secretary of State 1 Burgage Square,
for Communities Merchant
& Local Government Square, Wakefield Public sector 2.7 128,335 1.3 1.8
Albert Edward House,
Preston
Bennett House,
Stoke-On-Trent
Norfolk House,
Birmingham
Oakland House,
Manchester
Waterside Business
Park,
Swansea
The Scottish Calton House,
Ministers Edinburgh Public sector 1.7 106,511 1.3 1.8
Quadrant House,
Dundee
Templeton On The
Green,
Glasgow
Bank of Scotland Plc Dundas House, Rosyth Banking 0.8 83,060 1.3 1.7
High Street/Bank
Street,
Dumfries
Electricity, gas,
steam
Endeavour House, and air conditioning
EDF Energy Ltd Sunderland supply 1.7 77,565 1.0 1.4
Electricity, gas,
steam
Two Newstead Court, and air conditioning
E.ON UK Plc Nottingham supply 3.3 99,142 0.9 1.3
Professional,
scientific
2 Lochside Avenue, and technical
John Menzies Plc Edinburgh activities 1.6 43,780 0.9 1.2
Electricity, gas,
NNB Generation steam
Company (HPC) 800 Aztec West, and air conditioning
Ltd Bristol supply 1.6 41,743 0.9 1.2
James Howden &
Company Ltd Howden Site, Renfrew Manufacturing 9.9 204,414 0.8 1.1
Professional,
scientific
SPD Development Co Clearblue Innovation and technical
Ltd Centre, Bedford activities 3.8 58,167 0.8 1.1
Hermes European
Logistics Transportation and
Ltd Capitol Park, Leeds storage 2.0 37,372 0.8 1.1
Aviva Central Hampshire Corporate
Services UK Park, Other service
Ltd Eastleigh activities 2.9 42,612 0.8 1.1
Loreny Industrial
Estate, Wholesale and retail
Matalan Retail Ltd Kilmarnock trade 6.9 75,038 0.8 1.1
Newport Retail Park,
Newport
Total 2.7 1,266,379 16.4 22.7
===================================================================== ========== ========== ============= ========
*Table may not sum due to rounding.
Property Portfolio Sector and Region Splits by Valuation and
Income
By Valuation
As at 31 December 2021, 89.8 % (2020: 83.5 %) of the portfolio
by market value was offices and 5.1% (2020: 11.1%) was industrial.
The balance was made up of retail, 3.7 % (2020: 4.1 %) and other,
1.4% (2020: 1.3%). By UK region, as at 31 December 2021, Scotland
represented 19.0 % (2020: 17.3 %) of the portfolio and England 75.7
% (2020: 78.3 %); the balance of 5.3 % (2020: 4.4 %) was in Wales.
In England, the largest regions were the South East, the Midlands
and the North West.
By Income
As at 31 December 2021, 88.6 % (2020: 82.3 %) of the portfolio
by income was offices and 4.5% (2020: 10.3%) was industrial. The
balance was made up of retail, 5.4 % (2020: 6.0 %), and other, 1.4
% (2020: 1.3 %). By UK region, as at 31 December 2021, Scotland
represented 21.6 % (2020: 20.4 %) of the portfolio and England 72.4
% (2020: 74.6 %); the balance of 6.0 % was in Wales (2020: 5.0 %).
In England, the largest regions were the Midlands, the South East
and the North West.
Lease Expiry Profile
The WAULT on the portfolio is 4.8 years (2020: 5.1 years); WAULT
to first break is 3.0 years (2020: 3.2 years). As at 31 December
2021, 11.5% (2020: 14.2%) of income was from leases, which will
expire within one year; 13.8% (2020: 9.1%) between one and two
years; 31.9% (2020: 35.8%) between two and five years; and 42.8%
(2020: 40.9%) after five years.
Lease Expiry Income Profile % of rent
0-1 years 11.5%
1-2 years 13.8%
2-5 years 31.9%
5+ years 42.8%
Total 100.0%
Source: LSPIM
Lease Expiry Income Profile GBPm
by year
2022 8,110,328
2023 9,742,865
2024 8,676,128
2025 7,509,207
2026 6,372,007
2027 5,608,480
2028 5,686,320
2029 6,890,525
2030+ 12,013,130
Total 70,608,989
Source: LSPIM
Lease expiry to first break GBPm
income profile by year
2022 14,077,145
2023 16,915,418
2024 14,704,786
2025 8,219,482
2026 6,568,996
2027 2,028,779
2028 1,064,912
2029 1,764,160
2030+ 5,265,312
Total 70,608,989
Source: LSPIM
Tenants by Standard Industrial Classification as at 31 December
2021
As at 31 December 2021, 14.5% of income was from tenants in the
professional, scientific and technical activities sector (2020:
13.5%); 11.4% from the information and communication sector (2020:
8.3%); 9.6% from the wholesale & retail trade sector (2020:
7.3%); 9.5% from the administrative and support service activities
sector (2020: 12.9%); 7.9% from the financial and insurance
activities (other) sector (2020: 8.4%); and 7.8% from the public
sector (2020: 8.8%). The remaining exposure is broadly spread.
No tenant represents more than 3% of the Group's rent roll as at
31 December 2021, the largest being 2.5% (2020: 3.5%).
Top 15 Properties
300 Bath Street, Glasgow Market value (GBPm) 27.2
Sector Office
Annualised gross rent
(GBPm) 1.2
Lettable area (sq. ft.) 156,853
Anchor tenants University of Glasgow,
Glasgow Tay House Centre
Ltd, Eaton Ltd
EPRA Occupancy (%) 99.8%
WAULT (years) (to first 6.0 (2.9)
break)
Buildings 2 & 3, Bear
Brook Office Park, Aylesbury Market value (GBPm) 22.8
Sector Office
Annualised gross rent
(GBPm) 0.9
Lettable area (sq. ft.) 140,791
Anchor tenants Utmost Life and Pensions
Ltd, Agria Pet Insurance
Ltd
EPRA Occupancy (%) 90.8%
WAULT (years) (to first 5.7 (3.6)
break)
Genesis Business Park,
Woking Market value (GBPm) 22.7
Sector Office
Annualised gross rent
(GBPm) 1.4
Lettable area (sq. ft.) 98,151
Anchor tenants Nuvias (UK & Ireland)
Ltd, Fernox Ltd, McCarthy
& Stone Retirement Lifestyles
Ltd, Walk The Walk Worldwide
EPRA Occupancy (%) 81.3%
WAULT (years) (to first 5.4 (2.2)
break)
Capitol Park, Leeds Market value (GBPm) 21.5
Sector Office
Annualised gross rent
(GBPm) 1.8
Lettable area (sq. ft.) 98,340
Anchor tenants Hermes European Logistics
Ltd, NHS Shared Business
Services Ltd
EPRA Occupancy (%) 100.0%
WAULT (years) (to first 1.7 (1.7)
break)
Eagle Court, Coventry
Road, Birmingham Market value (GBPm) 21.4
Sector Office
Annualised gross rent
(GBPm) 1.8
Lettable area (sq. ft.) 132,979
Anchor tenants Virgin Media Ltd, Rexel
UK Ltd, Coleshill Retail
Ltd
EPRA Occupancy (%) 77.8%
WAULT (years) (to first 2.3 (1.4)
break)
800 Aztec West, Bristol Market value (GBPm) 19.0
Sector Office
Annualised gross rent
(GBPm) 1.5
Lettable area (sq. ft.) 73,292
Anchor tenants NNB Generation Company
(HPC) Ltd, Edvance SAS
EPRA Occupancy (%) 100.0%
WAULT (years) (to first 6.8 (1.6)
break)
Manchester Green, Manchester Market value (GBPm) 18.9
Sector Office
Annualised gross rent
(GBPm) 1.3
Lettable area (sq. ft.) 106,133
Anchor tenants Chiesi Ltd, Ingredion
UK Ltd, Assetz SME Capital
Ltd
EPRA Occupancy (%) 75.9%
WAULT (years) (to first 5.2 (3.4)
break)
Beeston Business Park,
Nottingham Market value (GBPm) 18.9
Sector Office/ Industrial
Annualised gross rent
(GBPm) 1.8
Lettable area (sq. ft.) 215,330
Anchor tenants Metropolitan Housing
Trust Ltd, SMS Electronics
Ltd, Worldwide Clinical
Trials Ltd, Heart Internet
Ltd
EPRA Occupancy (%) 100.0%
WAULT (years) (to first 8.2 (5.4)
break)
Hampshire Corporate Park,
Eastleigh Market value (GBPm) 18.7
Sector Office
Annualised gross rent
(GBPm) 1.3
Lettable area (sq. ft.) 85,422
Anchor tenants Aviva Central Services
UK Ltd, Utilita Energy
Ltd, Digital Wholesale
Solutions Ltd
EPRA Occupancy (%) 99.8%
WAULT (years) (to first 6.8 (2.1)
break)
Norfolk House, Smallbrook
Queensway, Birmingham Market value (GBPm) 18.0
Sector Office
Annualised gross rent
(GBPm) 0.8
Lettable area (sq. ft.) 114,982
Anchor tenants Accenture (UK) Ltd,
Secretary of State for
Communities & Local
Government
EPRA Occupancy (%) 49.0%
WAULT (years) (to first 2.8 (2.3)
break)
Portland Street, Manchester Market value (GBPm) 15.2
Sector Office
Annualised gross rent
(GBPm) 0.9
Lettable area (sq. ft.) 55,787
Anchor tenants Darwin Loan Solutions
Ltd, New College Manchester
Ltd, Mott MacDonald
Ltd
EPRA Occupancy (%) 98.7%
WAULT (years) (to first 4.5 (2.7)
break)
One & Two Newstead Court,
Nottingham Market value (GBPm) 14.5
Sector Office
Annualised gross rent
(GBPm) 0.9
Lettable area (sq. ft.) 146,262
Anchor tenants E.ON UK Plc
EPRA Occupancy (%) 67.8%
WAULT (years) (to first 3.3 (3.3)
break)
Templeton On The Green,
Glasgow Market value (GBPm) 13.6
Sector Office
Annualised gross rent
(GBPm) 1.2
Lettable area (sq. ft.) 142,512
Anchor tenants The Scottish Ministers,
The Scottish Sports
Council, Noah Beers
Ltd
EPRA Occupancy (%) 90.7%
WAULT (years) (to first 6.2 (4.1)
break)
Ashby Park, Ashby De
La Zouch Market value (GBPm) 13.5
Sector Office
Annualised gross rent
(GBPm) 1.1
Lettable area (sq. ft.) 91,034
Anchor tenants Ceva Logistics Ltd,
Hill Rom UK Ltd, Brush
Electrical Machines
Ltd
EPRA Occupancy (%) 92.8%
WAULT (years) (to first 4.0 (3.9)
break)
The Lighthouse, Salford
Quays, Manchester Market value (GBPm) 13.3
Sector Office
Annualised gross rent
(GBPm) 0.7
Lettable area (sq. ft.) 64,275
Anchor tenants Pearson Education Ltd,
Engie Regeneration Ltd,
Assemble Technology
Ltd
EPRA Occupancy (%) 56.7%
WAULT (years) (to first 4.1 (2.7)
break)
Financial Review
Net Asset Value
In the year ended 31 December 2021, the EPRA NTA* of the Group
increased to GBP501.4 million (IFRS NAV: GBP502.4 million) from
GBP425.6 million (IFRS NAV: GBP420.6 million) as at 31 December
2020, equating to a decrease in the diluted EPRA NTA of 1.4pps to
97.2pps (IFRS: 97.4pps). This is after the dividends declared in
the year amounting to 6.30pps.
The EPRA NTA increase of GBP75.8 million since 31 December 2020
was predominately from the issuance of a tranche of new equity,
equivalent to GBP83.1 million; offset broadly by an GBP8.3million
decrease in the revaluation of the property portfolio held as at 31
December 2021, and a GBP0.7million realised gain on the disposal of
properties.
On 31 August 2021, a GBP236.0 million portfolio (before costs)
comprising: 27 office assets, 2 industrial units, a residential
asset and a Tim Horton's Drive-Thru restaurant was acquired. In
consideration of the purchase, 84,230,000 new ordinary shares were
issued at 98.6 pence per share (being the Group's EPRA NTA per
share as at 31 December 2020), equivalent to GBP83.1 million,
GBP76.7 million from existing cash resources, and additional
borrowings of GBP76.2 million.
The investment property portfolio valuation as at 31 December
2021 amounted to GBP906.1 million (2020: GBP732.4 million). The
increase of GBP173.7 million since the December 2020 year-end is a
reflection of property acquisitions and subsequent expenditure of
GBP258.2 million and gains on the disposal of properties of GBP0.7
million, offset by GBP76.9 million of net property disposals and
GBP8.3 million of property revaluation. Overall, on a like-for-like
basis, the portfolio value increased by 1.1% during the year.
The table below sets out the acquisitions, disposals and capital
expenditure for the respective periods:
Year ended Year ended
31 December 31 December
2021 2020
(GBPm) (GBPm)
Acquisitions
Net (after costs) 251.4 45.0
Gross (before costs) 236.0 42.4
Disposals
Net (after costs) 76.9 53.4
Gross (before costs) 79.6 56.4
Capital Expenditure
Net (after dilapidations) 6.8 8.8
Gross (before dilapidations) 7.2 13.1
* The Group has determined that EPRA net tangible assets (NTA)
is the most relevant measure. Further detail on the new EPRA
performance measures can be found in the full Annual Report.
EPRA Net Tangible Asset - Bridge
31 December 2021
31 Dec 2020 EPRA NTA 98.6
Equity issuance costs 0.0
EPRA NTA (incl. costs) 98.6
Net rental and property
income 10.8
Admin expenses (2.1)
Valuation (excl. net capital
expenditure (0.3)
Net capital expenditure (1.3)
Gain on disposal of investment
properties 0.1
Net finance expense (2.9)
Dividends (5.8)
31 Dec 2021 EPRA NTA 97.2
The diluted EPRA NTA per share decreased to 97.2pps (2020: 98.6
pps). The EPRA NTA is reconciled in the table below:
Pence
GBPm per Share
Opening EPRA NTA (31 December 2020) 425.6 98.6
Equity issuance (net of expenses)* 82.9 (0.0)
Opening EPRA NAV (Incl. net capital
raise) 508.6 98.6
Net rental and property income 55.8 10.8
Administration and other expenses (10.6) (2.1)
Gain on the disposal of investment
properties 0.7 0.1
Change in the fair value of investment
properties (8.3) (1.6)
Change in value of right of use (0.0) (0.0)
------- -----------
EPRA NTA after operating profit 546.1 105.9
Net finance expense (14.9) (2.9)
Taxation (0.0) (0.0)
EPRA NTA before dividends paid 531.3 103.0
Dividends paid** (29.9) (5.8)
------- -----------
Closing EPRA NTA (31 December 2021) 501.4 97.2
======= ===========
Table may not sum due to rounding
*As at 31 December 2020, there were 431,506,583 Shares in issue.
On 1 September 2021, the Company issued 84,230,000 Shares and
increased the total number of Shares in issue to 515,736,583.
** The new issuance of Shares qualified for the Q2 dividend of
1.50 pence per Share paid on 15 October 2021 and Q3 dividend of
1.50 pence per Share declared on 11 November 2021.
Income Statement
Operating profit before gains and losses on property assets and
other investments for the year ended 31 December 2021 amounted to
GBP45.2 million (2020: GBP42.0 million). Profit after finance and
before taxation of GBP28.8 million (2020: loss GBP31.2 million).
2021 included the rent roll for properties held from the 31
December 2020, plus the partial rent roll for properties disposed
or acquired during the year.
Rental and property income amounted to GBP 65.8 million,
excluding recoverable service charge income and other similar items
(2020: GBP 62.1 million). The increase was primarily the result of
the increase in the rent roll being held over the year to 31
December 2021.
Currently more than 80 % of the rental income is collected
within 30 days of the due date and bad debts in the year were GBP
0.6 million (2020: GBP 1.1 million).
Non-recoverable property costs, excluding recoverable service
charge income and other similar costs, amounted to GBP9.9 million
(2020: GBP 8.8 million), and the rent roll increased to GBP 72.1
million (2020: GBP64.2 million).
Realised gain on the disposal of investment properties amounted
to GBP0.7 million (2020: loss GBP1.1 million). The change in the
fair value of investment properties amounted to a loss of GBP8.3
million (2020: loss of GBP54.8 million). Net capital expenditure
amounted to GBP6.8 million (2020: GBP8.8 million). The gain on the
disposal of the right of use asset amounted to GBP0.2 million
(2020: nil). The change in value of right of use asset amounted to
a charge of GBP0.2 million (2020: charge GBP0.2 million).
Finance expenses amount to GBP14.9 million (2020: GBP14.1
million). The increase is due to additional borrowings in the
period. On 27 August 2021, the Group drew down GBP76.2 million from
the Royal Bank of Scotland, Bank of Scotland, and Barclays to
finance the enlarged portfolio.
The EPRA* cost ratio, including direct vacancy costs, was 31.2%
(2020: 32.4%). The EPRA cost ratio, excluding direct vacancy costs
was 16.8% (2020: 19.6%). The ongoing charges for the year ending 31
December 2021 were 4.6% (2020: 4.6%).
The EPRA Total Return from Listing to 31 December 2021 was 41.2%
(2020: 36.3%), with an annualised rate of 5.8% pa (2020: 6.2%
pa).
Dividend
In relation to the year from 1 January 2021 to 31 December 2021,
the Company declared dividends totalling 6.50pps (2020: 6.40pps).
Since the end of the year, the Company has declared a dividend for
the fourth quarter of 2021 of 1.70pps. A schedule of dividends can
be found in the full Annual Report.
Debt Financing and Gearing
Borrowings comprise third-party bank debt and the retail
eligible bond. The bank debt is secured over properties owned by
the Group and repayable over the next four and a half to eight
years . The weighted average maturity of the bank debt and retail
eligible bond is 5.5 years (2020: 6.4 years).
The Group's borrowing facilities are with the Santander UK,
Scottish Widows Limited, Scottish Widows Limited & Aviva
Investors Real Estate Finance, Royal Bank of Scotland, Bank of
Scotland and Barclays. The total bank borrowing facilities at 31
December 2021 amounted to GBP389.9 million (2020: GBP316.2 million)
(before unamortised debt issuance costs), with GBP4.9 million
available to be drawn. In addition to the bank borrowings, the
Group has a GBP50 million 4.5% retail eligible bond, which is due
for repayment in August 2024. In aggregate, the total debt
available at 31 December 2021 amounted to GBP444 million (2020:
GBP371.9 million).
During the period, the Company increased its borrowings to part
fund the GBP236.0 million (before costs) portfolio acquisition on
27 August 2021. The majority of the increase was funded by a new
club facility provided by the Royal Bank of Scotland, Bank of
Scotland, and Barclays.
At 31 December 2021, the Group's cash and cash equivalent
balances amounted to GBP56.1 million (2020: GBP67.4 million), of
which GBP49.9 million (2020: GBP55.0 million) was unrestricted
cash.
The Group's net loan to value ("LTV") ratio stands at 42.4%
(2020: 40.8%) before unamortised costs. The Board continues to
target a net LTV ratio of 40%, with a maximum limit of 50%.
Debt Profile and LTV Ratios as at 31 December 2021
Lender Original Outstanding Maturity Gross Annual interest
facility debt* date loan rate
to value**
GBP'000 GBP'000 % %
Royal Bank of
Scotland, Bank
of Scotland over 3mth
& Barclays 128,000 127,220 Aug-26 43.4 2.40 GBP SONIA
Scottish Widows
Ltd. & Aviva
Investors Real
Estate Finance 165,000 165,000 Dec-27 46.4 3.28 Fixed
Scottish Widows
Ltd. 36,000 36,000 Dec-28 38.7 3.37 Fixed
over 3mth
GBP LIBOR
moving to
Santander UK 65,870 61,717 Jun-29 39.0 2.20 SONIA 1/1/22
394,870 389,937
Retail eligible
bond 50,000 50,000 Aug-24 NA 4.50 Fixed
========== ============
444,870 439,937
* Before unamortised debt issue costs
** Based on Cushman and Wakefield property valuations
Table may not sum due to rounding
The Managers continue to monitor the borrowing requirements of
the Group. As at 31 December 2021, the Group had sufficient
headroom against its borrowing covenants.
The net gearing ratio (net debt to Ordinary Shareholders' equity
(diluted)) of the Group was 76.4% as at 31 December 2021 (2020:
71.0%).
Interest cover, excluding amortised costs, stands at 3.5 times
(2020: 3.4 times) and including amortised costs, stands at 3.0
times (2020: 3.0 times).
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
2021 2020
% %
Borrowings interest rate hedged 101.3 101.6
Thereof:
Fixed 57.1 68.6
Swap 24.1 16.5
Cap 20.0 16.5
WACD(1) 3.3 3.3
Table may not sum due to rounding
(1) WACD - Weighted Average Effective Interest Rate including
the cost of hedging
The over-hedged position has arisen due to the entire Royal Bank
of Scotland, Bank of Scotland & Barclays and Santander UK
facilities, including any undrawn balances, being hedged by
interest rate cap derivatives which have no ongoing cost to the
Group.
Tax
The Group entered the UK REIT regime on 7 November 2015 and all
of the Group's UK property 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.
During 2021, the Group recognised a tax charge of GBP0.02 m
illion (2020: tax credit of GBP0.2 m illion ), which comprised tax
provisions for the year offset by releases of tax previously
provided for in prior years which are now concluded and not
payable.
Principal Risks and Uncertainties
Effective risk management underpins the execution of Regional
REIT's strategy, the positioning of the business for growth and
maintaining the regular income over a long-term sustainable
horizon.
Risk Framework and Approach
The overall responsibility for the Company's system of risk
management and internal controls rests with the Board. The Board
recognises the importance of identifying and actively monitoring
its risks, which include, but are not limited to: strategic,
valuation, COVID-19, funding, tenant, financial and tax charges,
operational, regulatory, and environmental risks. Over the long
term, the business will face other challenges and emerging threats
for which it remains vigilant.
The Board is supported by the Audit Committee in the management
of risk. The Audit Committee is responsible for determining the
principal risks facing the business and reviewing, at least
annually, the effectiveness of the Company's financial control,
risk management and internal control processes.
However, the Board also views the potential risks as
opportunities which, when handled appropriately, can drive
performance. Thus, having an effective risk management process is
key to support the delivery of the Group's strategy.
Approach to Managing Risk - Identification, Evaluation and
Mitigation
The risk management process is designed to identify, evaluate,
manage and mitigate (rather than eliminate) risks faced. The
Company maintains a detailed and formal matrix of current principal
risks, which uses risk scoring to evaluate risks consistently. This
allows the risks to be monitored and mitigated as part of a risk
management process with the Audit Committee undertaking, at a
minimum on a six-monthly basis or more frequently if required, a
robust evaluation of these risks facing the Group.
Risks are identified and weighted according to their potential
impact on the Company and to their likelihood of occurrence. The
Audit Committee uses the risk matrix to prioritise individual
risks, allocating scores to each risk for both the likelihood of
its occurrence and the severity of its impact. Those with the
highest gross rating in terms of impact are highlighted as top
risks within the matrix and are defined as principal risks.
While the Board believes that it has a robust framework of
internal controls in place, this can provide only reasonable, and
not absolute, assurance against material financial misstatement or
loss and is designed to manage, not eliminate, risk.
Risk Appetite
Risk appetite is integral to the Board's approach to risk
management, business planning and decision making. The level and
type of risk that the Company is willing to bear will vary over
time.
The Board, in conjunction with the Asset Manager and Investment
Manager, regularly reviews the risk appetite of the Company in
association with the latest information available and the Company
is able to assess and respond quickly to new and emerging
risks.
Emerging Risks
The Board is cognisant of emerging risks defined as potential
trends, sudden events or changing risks, which are characterised by
a high degree of uncertainty in terms of probability of occurrence
and possible effects on the Company. Once emerging risks become
sufficiently clear, they may be classed as a principal risk and
added to the risk matrix.
On 24 February 2022, Russia initiated a military invasion of
Ukraine, which the Board is currently identifying as an emerging
risk, as it is likely to have global economic effects.
Increasing inflation in the UK has also been identified as an
emerging risk, as this will have wide reaching effects to the
economy, which will, in turn, impact the Company. The Board,
through the Audit Committee, continue to monitor inflation
levels.
To help manage emerging risks and discuss other wider matters
affecting property, the Board has an annual strategy meeting. The
Board considers having a clear strategy is the key to managing and
mitigating emerging risk.
COVID-19
During 2021, the principal risks and uncertainties faced by the
Company continued to be impacted by the respective devolved
Government's reactions. Throughout this period, the Board worked
closely with the Asset Manager, Investment Manager and its
third-party suppliers to ensure it was as well positioned as
possible to identify, evaluate, manage and mitigate as
required.
The primary aim being to preserve and enhance the Company's net
income and capital values, meeting all regulatory and stakeholder
obligations, whilst looking to the longer term to identify
strategic opportunities.
This threat has an ongoing effect on many of our principal risks
and the Board meets regularly with the Asset and Investment
Managers to assess these risks and how they can be managed.
The below list, in no particular order, sets out the current
identifiable principal and emerging risks, including their impact
and the actions taken by the Company to mitigate them. It does not
purport to be an exhaustive list of all the risks faced by the
Group.
Principal Risk Summary
Principal Risk Evolution of the
trend during the
year
1. Strategic ó
2. Valuation ó
3. COVID-19 ó
4. Economic and political ó
5. Funding ó
6. Tenant ó
7. Financial and tax changes ó
8. Operational ó
9. Accounting, legal and regulatory ö
10. Environmental and energy ö
efficiency standards
1. Strategic
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ó
An
inappropriate * A clearly defined investment strategy, which is * The property portfolio remains balanced across a
investment reviewed annually. range of geographical areas and large number of
strategy, investment properties.
and/or
failure * A defined and rigorous investment appraisal process.
to implement
the strategy
could result * Acquire portfolios, which offer Shareholders
in lower diversification of investment risk by investing in a
income range of geographical areas and number of properties
and capital .
returns to
Shareholders.
* Supply and demand market information is reviewed
continuously to assist in acquisitions and disposals
.
* All the above steps are monitored to ensure the
strategy is implemented.
---------------------------------------------------------------- ------------------------------------------------------------
* Predominately, acquiring office properties in the UK * The Group continues to purchase properties in the UK
and outside of the M25 motorway. However, the Group outside the M25 motorway.
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 * 300 Bath Street (2020: 300 Bath Street) is the
business, is expected to exceed 10% of the Group's highest valued property, which equates to 3.0% (2020:
aggregate Investment Properties valuation. However, 3.8%) of the Group's investment properties.
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 2.5%
value shall be exposed to any single tenant or group (2020: 3.5%) of gross rental income, being Virgin
undertaking of that tenant. Media Ltd (2020: Barclays Execution Services Ltd.).
---------------------------------------------------------------- ------------------------------------------------------------
* Speculative development (i.e., properties under * No speculative construction was undertaken during the
construction, but excluding any refurbishment works, year under review.
which have not been pre-let) is prohibited.
---------------------------------------------------------------- ------------------------------------------------------------
* The value of the properties is protected as far as * The Asset Manager continues to actively manage the
possible by an active asset management programme, investment properties in accordance with market
which is regularly reviewed against the business plan conditions and the individual asset programme.
for each property.
---------------------------------------------------------------- ------------------------------------------------------------
2. Valuation
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ó
The valuation
of the * The Company's external valuer, Cushman & Wakefield, * Cushman & Wakefield independently provides the
Group's provide independent valuations for all properties on valuation for the entire portfolio, valuing ea
portfolio a six-monthly basis in accordance with the RICS Red ch
affects Book. individual asset.
its
profitability
and net * The Audit Committee has the opportunity to discuss
assets. the basis of the valuations with the external valuer
.
The Audit Committee membership includes an
experienced chartered surveyor.
* The Asset Manager's experience and extensive
knowledge of the property market. The Asset Manager
is able to challenge the external valuers' findings.
* The Company's Auditor engages an independent third
party to evaluate the Cushman & Wakefield valuation.
----------------------------------------------------------- -----------------------------------------------------
3. COVID-19
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ó
The economic
disruption * The Asset Manager continues to adapt and, as required * The Group has continued to scrutinise all current
resulting , risk mitigation approaches employed and to work
from the to support tenants. closely with all parties through this disruptive
COVID-19 period.
virus could
continue * The Asset Manager continues to adhere to the
to impact respective devolved Government COVID-19 guidelines.
rental
income; the
ability * The property portfolio has been deliberately
of Valuers to constituted to ensure a diverse range of tenants by
discern standard industrial classification comprised of 47.0%
valuations; of government designated essential services.
the ability
to
access * Close relationships with lenders ensuring continued
funding dialogue around covenants and ability to access
at funding as required at competitive rates.
competitive
rates,
adherence * Initial vetting of all third-party providers with
to banking annual due diligence reviews, including the review of
covenants, business continuity capabilities to minimise when
maintain a remote working has been necessitated.
progressive
dividend
policy,
and adhere to
the HMRC REIT
regime
requirements.
------------------------------------------------------------ -------------------------------------------------------------
4. Economic and Political
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ó
Significant
political * The Group operates with a sole focus on the UK * There remains a risk that property valuations and the
events regions, with no foreign currency exchange exposure. occupancy market may be impacted by change in the
could It remains well positioned with a deliberately political landscape..
impact the diverse standard industry classification of tenants
health generating 1,077 (2020: 898) income streams which are
of the UK located in areas of expected economic growth.
economy,
resulting
in * The Board receives advice on macro-economic risks,
borrowing including Brexit, from the Investment Manager and
constraints other advisers and acts accordingly.
,
changes in
demand
by tenants
for
suitable
properties,
the quality
of
the
tenants,
and
ultimately
the
property
portfolio
value.
------------------------------------------------------------ ------------------------------------------------------------
5. Funding
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ó
The Group may
not be able * The Asset Manager has a Corporate Finance team * Weighted average debt term decreased to 5.5 years
to dedicated to optimising the Group's funding from 6.4 years in 2020.
secure requirements.
further
debt or on * Weighted average cost of capital, including hedging
acceptable * Funding options are constantly reviewed with an costs was 3.3% (2020: 3.3%).
terms, which emphasis on reducing the weighted average cost of
may impinge capital and lengthening the weighted average debt to
upon maturity. * LTV increased to 42.4% from 40.8% as at 31 December
investment 2020.
opportunities
and the * Borrowings are currently provided by a range of
ability institutions with targeted staggered maturities.
to grow the
Group.
* Strong relationships with key long-term lenders.
* Continual monitoring of LTV.
---------------------------------------------------------------- ----------------------------------------------------------
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.
---------------------------------------------------------------- ----------------------------------------------------------
Breach of
covenants * The Asset Manager's Corporate Finance team reviews * The Group continues to have sufficient headroom
within the the applicable covenants on a regular basis and these against the applicable borrowing covenants.
Group's are considered in future operational decisions.
funding
structure
could lead to * Compliance certificates and requested reports are
a prepared as scheduled.
cancellation
of debt
funding
if the
Company
is unable to
service the
debt.
---------------------------------------------------------------- ----------------------------------------------------------
6. Tenant
POTENTIAL IMPACT MITIGATION MOVEMENT IN THE PERIOD
ó
Type of tenant
and * An active asset management programme with a focus on * This risk remains stable in view of the increasing
concentration of the Asset Manager working with individual tenants to diversification of properties, tenants and
tenant could assess any occupational issues and to manage any geographies in the portfolio.
result potential bad debts.
in lower income
from reduced * The tenant mix and their underlying activity has
lettings * Diversified portfolio of properties let, where continued to increasingly diversify, with the number
or defaults. possible, to a large number of low-risk tenants of tenants amounting to 1,077 at the year-end (2020:
across a wide range of standard industrial 898).
classifications throughout the UK.
* Potential acquisitions are reviewed for tenant
overlap and potential disposals are similarly
reviewed for tenant standard industrial
classification concentration.
------------------------------------------------------------------ ----------------------------------------------------------------
A high
concentration * The portfolio lease and maturity concentrations are * The WAULT to first break as at 31 December 2021 was
of lease term monitored by the experienced Asset Manager to 3.0 years (2020: 3.2 years)
maturity minimise concentration.
and/or break
options * The largest tenant is 2.5% (2020: 3.5%) of the gross
could result in * There is a focus on securing early renewals and rental income, being Virgin Media Limited.
a more volatile increased lease periods.
contracted rent
roll. * The Asset Management team remains vigilant to the
* The requirement for suitable tenants and the quality financial well-being of our current tenants and
of the tenant is managed by the experienced Asset continues to liaise with occupiers and agents.
Manager which maintains close relationships with
current tenants and with letting agents.
------------------------------------------------------------------ ----------------------------------------------------------------
7. Financial and Tax Changes
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ó
Changes to
the * The Board receives advice on these changes where * Advice is received from several corporate advisers,
UK REIT and appropriate and will act accordingly. including tax adviser Grant Thornton UK LLP and the
non-REIT Group adapts to changes as required.
regimes
tax and
financial
legislation.
------------------------------------------------------- ----------------------------------------------------------
8. Operational
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ó
Business
disruption * The Asset and Investment Managers each have * Both the Asset and Investment Managers annually
could impinge contingency plans in place to ensure there are no review their Disaster and Business Continuity Plans.
on the normal disruptions to the core infrastructure which would
operations of impinge on the normal operations of the Group. These
the Group. plans have been implemented in adherence to COVID-19
Government guidelines, with limited disruption to
operations.
--------------------------------------------------------------- ----------------------------------------------------------------
* An annual due diligence exercise is carried out on * The annual due diligence visits were curtailed due to
all principal third-party service providers. government restrictions. However, assurances were
received as required from third-party service
providers.
* No concerns were identified.
--------------------------------------------------------------- ----------------------------------------------------------------
* As an externally managed investment company, there i * Both the Asset and Investment Manager are viable
s going concerns.
a continued reliance on the Asset and Investment
Managers and other third-party service providers.
--------------------------------------------------------------- ----------------------------------------------------------------
* All acquisitions undergo a rigorous due diligence * The Asset Manager continues to monitor changes in
process and all multi-let properties undergo an Health and Safety regulations, including, where
annual comprehensive fire risk. required, COVID-19 social distancing measures.
* The impact of physical damage and destruction to * The Asset Manager reviews the adequacy of insurance
investment properties is mitigated by ensuring all cover on an ongoing basis.
are covered by a comprehensive building, loss of ren
t
and service charge plus terrorism insurance with the
exception of a small number of "self-insure"
arrangements covered under leases.
--------------------------------------------------------------- ----------------------------------------------------------------
Information
security * The Asset and Investment Manager each has a dedicated * The Managers review the respective Information
and cyber Information Technology team which monitors Technology polices and the material third party
threat information security, privacy risk and cyber threats service suppliers on as required basis to ensure they
resulting in ensuring their respective operations are not reflect current and possible future threats.
data loss, or interrupted.
negative
regulatory,
reputational, * As required the building management systems are
operational reviewed for cyber security risk.
(including
GDPR), or
financial
impact.
--------------------------------------------------------------- ----------------------------------------------------------------
9. Accounting, Legal, and Regulatory
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ö
Changes to
accounting, * Robust processes are in place to ensure adherence to * The Group continues to receive advice from its
legal accounting, legal and regulatory requirements, corporate advisers and has incorporated changes where
and/or including sanctions and Listing Rules. required.
regulatory
legislation
, * All contracts are reviewed by the Group's legal * The Administrator and Company Secretary continue to
including advisers. attend all Board meetings and advise on Listing Rule
sanctions requirements in conjunction with the Corporate Broker
could and Financial Adviser.
result * The Administrator, in its capacity as Group
in changes Accountant, and the Company Secretary attend all
to Board meetings in order to be aware of all
current announcements that need to be made.
operating
processes.
* All compliance issues are raised with the Financial
Adviser.
----------------------------------------------------------- ----------------------------------------------------------------
Loss of
REIT * The HMRC REIT regime requirements are monitored by * The Group continues to receive advice from external
status the Asset and Investment Manager, and external advisers on any anticipated future changes to the
advisors including the Company's tax adviser Grant REIT regime.
Thornton UK LLP and its sub-administrator Link
Alternative Fund Administrators Limited.
----------------------------------------------------------- ----------------------------------------------------------------
10. Environmental and Energy Efficiency Standards
POTENTIAL MITIGATION MOVEMENT IN THE PERIOD
IMPACT ö
The Group's
cost base * The Board receives regular updates on environmental, * Additional attention is currently being devoted to
could social, governance and potential legislation changes this area to ensure the appropriate approach is
be impacted, (e.g. the Government Green Finance Strategy July applied and embedded in Group activities.
and 2019) from its advisers.
management
time
diverted, * The Group has engaged an environmental consultancy to
due to assist with achieving and improving the Global Real
climate Industry Sustainability Benchmark (GRESB).
changes and
associated
legislation.
---------------------------------------------------------------- ----------------------------------------------------------
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 impact assessment. it.
upon the
operations
of the * The Asset Manager monitors the portfolio for any
Group. detrimental environmental impact, by way of frequent
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.
may
impact the
Group's * The energy efficiency of investment acquisitions is
ability to fully considered as part of the due diligence process
sell for the acquisition of a property.
or lease an
asset.
---------------------------------------------------------------- ----------------------------------------------------------
Changes to the Principal Risks and Uncertainties
The Board, via the Audit Committee, has agreed the movement
during the period under review to each of the identified principal
risks and uncertainties following review of these risks, having
considered the characteristics of these and the economic and
geo-political factors. Any impact of these risks to the Company's
future strategy is considered on an ongoing basis.
Extracts of the Report of the Directors
Share Capital
As at 31 December 2021, the Company's total issued share capital
was 515,736,583 Ordinary Shares (2020: 431,506,583).
All of the Company's Ordinary Shares are listed on the premium
segment of the London Stock Exchange and each Ordinary Share
carries one vote.
There is only one class of Ordinary Shares in issue for the
Company, in adherence to the REIT requirements. The only other
shares the Company may issue are particular types of non-voting
restricted preference shares, of which none (2020: none ) are
currently in issue.
Share Issues
On 1 September 2021, the Company allotted and issued 84,230,000
new Ordinary Shares, which rank pari passu with the Company's
existing issued Ordinary Shares. These new Ordinary Shares were
issued for non-cash consideration in accordance with sections 295
and 296 of the Law as part of the consideration payable to
Squarestone Growth LLP for the acquisition of a regional office
portfolio announced on 31 August 2021.
At the AGM held on 21 September 2021, the Directors were granted
authority to allot Ordinary Shares on a non-pre-emptive basis for
cash up to a maximum number of 43,150,658 Shares (being 5% of the
issued Share capital on 9 August 2021). The Directors were also
granted the authority to disapply pre-emption rights in respect of
the allotment of Ordinary Shares up to a maximum number of
21,575,329 Shares (being 5% of the issued Share capital on 9 August
2021) where the allotment of such Shares is for the sole purpose of
financing an acquisition or other capital investment as defined by
the Pre-Emption Group's Statement of Principles.
No Shares were issued under these authorities during the year
under review, and the authorities will expire at the Company's 2022
AGM where resolutions for their renewal will be sought, or, if
sooner, on 21 December 2022.
Restrictions on Voting Rights
The Company does not have any restrictions on Shareholder voting
rights.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and the Group Financial Statements in accordance with applicable
law and regulations.
Guernsey company law requires the directors to prepare financial
statements for each financial year. The Directors are required
under the Listing Rules of the Financial Conduct Authority to
prepare the group financial statements in accordance with
International Financial Reporting Standards ("IFRS") and IFRS
Interpretation Committee ("IFRIC") as contained in UK-adopted
International Accounting Standards.
The financial statements of the Group 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 and IFRIC as
contained in UK-adopted International Accounting Standards to
present fairly the financial position and performance of the
Group.
In preparing each of the Group financial statements, the
Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with IFRS
and IFRIC as contained in UK-adopted International Accounting
Standards;
-- 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 adequate accounting
records that are sufficient to show and explain the Group's
transactions; disclose with reasonable accuracy at any time the
financial position of the Group; enable them to ensure that the
financial statements comply with the requirements of The Companies
(Guernsey) Law 2008 and, as regards the Group financial statements,
the IFRS and IFRIC as contained in UK-adopted International
Accounting Standards. 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 Regional
REIT'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
within the full Annual Report and Accounts , confirms that to the
best of each person's knowledge:
-- the financial statements, prepared in accordance with IFRS
and IFRIC as contained in UK-adopted International Accounting
Standards, 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 Strategic Report, including the Asset and Investment
Managers' Report, includes 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 principal 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, performance,
business model and strategy.
This responsibility statement was approved by the Board of
Directors on 28 March 2022 and signed on its behalf by:
Kevin McGrath
Chairman
28 March 2022
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Notes GBP'000 GBP'000
Continuing Operations
Revenue
Rental and property income 5 79,899 75,941
Property costs 6 (24,075) (22,662)
------------- -------------
Net rental and property income 55,824 53,279
Administrative and other expenses 7 (10,583) (11,329)
-------------
Operating profit before gains and
losses on property assets and other
investments 45,241 41,950
Gain/(loss) on disposal of investment
properties 14 679 (1,073)
Change in fair value of investment
properties 14 (8,296) (54,793)
Gain on the disposal of right of
use assets 26 167 -
Change in fair value of right of
use assets 26 (206) (195)
------------- -------------
Operating profit/(loss) 37,585 (14,111)
Finance income 9 14 99
Finance expenses 10 (14,872) (14,108)
Impairment of goodwill 16 - (558)
Net movement in fair value of derivative
financial instruments 25 6,045 (2,523)
-------------
Profit/(loss) before tax 28,772 (31,201)
Taxation 11 (15) 203
------------- -------------
Total comprehensive income/(loss)
for the year
(attributable to owners of the parent
company) 28,757 (30,998)
------------- -------------
Total comprehensive income arises from continuing
operations.
Earnings/(losses)/ per Share - basic
and diluted 12 6.3p (7.2)p
The notes below are an integral part of these consolidated
financial statements.
Consolidated Statement of Financial Position
As at 31 December 2021
31 December 31 December
2021 2020
Notes GBP'000 GBP'000
Assets
Non-current assets
Investment properties 14 906,149 732,380
Right of use assets 26 16,482 16,156
Goodwill 16 - -
Non-current receivables on tenant
loan 17 819 1,011
Derivative financial instruments 25 1,706 -
------------ ------------
925,156 749,547
Current assets
Trade and other receivables 18 29,404 33,690
Cash and cash equivalents 19 56,128 67,373
------------ ------------
85,532 101,063
Total assets 1,010,688 850,610
------------ ------------
Liabilities
Current liabilities
Trade and other payables 20 (40,966) (33,809)
Deferred income 21 (16,751) (14,584)
Deferred tax liabilities 22 (705) (690)
(58,422) (49,083)
Non-current liabilities
Bank and loan borrowings 23 (383,474) (310,692)
Retail eligible bonds 24 (49,596) (49,441)
Derivative financial instruments 25 - (4,339)
Lease liabilities 26 (16,795) (16,473)
------------ ------------
(449,865) (380,945)
Total liabilities (508,287) (430,028)
------------ ------------
Net assets 502,401 420,582
------------ ------------
Equity
Stated capital 27 513,762 430,819
(Accumulated losses) (11,361) (10,237)
------------ ------------
Total equity attributable to owners of
the parent company 502,401 420,582
------------ ------------
Net asset value per Share - basic
and diluted 28 97.4p 97.5p
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 28 March 2022
and signed on its behalf by:
Kevin McGrath,
Chairman
28 March 2022
Consolidated Statement of Changes in Equity
For the year ended 31 December 2021
Attributable to owners of the
parent company
Stated Retained
capital earnings/ Total
Notes GBP'000 (Accumulated GBP'000
losses)
GBP'000
Balance at 1 January
2021 430,819 (10,237) 420,582
Total comprehensive
income - 28,757 28,757
Shares issued 27 83,051 - 83,051
Share issue costs 27 (108) - (108)
Dividends paid 13 - (29,881) (29,881)
------------------------------ -------------- ----------
Balance at 31 December
2021 513,762 (11,361) 502,401
------------------------------ -------------- ----------
For the year ended 31 December 2020
Attributable to owners of the
parent company
Stated Retained
capital earnings/ Total
Notes GBP'000 (Accumulated GBP'000
losses)
GBP'000
Balance at 1 January
2020 430,819 52,909 483,728
Total comprehensive
loss - (30,998) (30,998)
Dividends paid 13 - (32,148) (32,148)
------------------------------ -------------- --------------
Balance at 31 December
2020 430,819 (10,237) 420,582
------------------------------ -------------- --------------
The notes below are an integral part of these consolidated
financial statements.
Consolidated Statement of Cash Flows
For the year ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Cash flows from operating activities
Profit/(loss) for the year before taxation 28,772 (31,201)
- Change in fair value of investment
properties 8,296 54,793
- Change in fair value of financial
derivative instruments (6,045) 2,523
- (Gain)/loss on disposal of investment
properties (679) 1,073
- Gain on disposal of right of use assets (167) -
- Change in fair value of right of use
assets 206 195
Impairment of goodwill - 558
Finance income (14) (99)
Finance expense 14,872 14,108
Decrease/(increase) in trade and other
receivables 4,398 (2,821)
Increase in trade and other payables 5,089 7,595
Increase in deferred income 2,167 1,283
------------- -------------
Cash generated from operations 56,895 48,007
Interest paid (13,053) (12,515)
Taxation received - 174
------------- -------------
Net cash flow generated from operating
activities 43,842 35,666
------------- -------------
Investing activities
Purchase of investment properties (175,196) (53,759)
Sale of investment properties 76,940 53,428
Interest received 15 101
Net cash flow used in investing
activities (98,241) (230)
------------- -------------
Financing activities
Share issue costs (108) -
Dividends paid (27,813) (26,672)
Bank borrowings advanced 77,305 39,200
Bank borrowings repaid (3,539) (17,029)
Bank borrowing costs paid (2,051) (192)
Lease repayments (640) (618)
------------- -------------
Net cash flow generated/(used) in
financing activities 43,154 (5,311)
------------- -------------
Net (decrease)/increase in cash and
cash equivalents (11,245) 30,125
Cash and cash equivalents at the start
of the year 67,373 37,248
------------- -------------
Cash and cash equivalents at the end
of the year 56,128 67,373
------------- -------------
The notes below are an integral part of these consolidated
financial statements.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2021
1. Corporate information
The Group's consolidated financial statements for the year ended
31 December 2021 comprise the results of the Co mpany and its
subsidiaries (together constituting the "Group") and were approved
by the Board and authorised for
issue on 28 March 2022.
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 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
2018.
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 within the full
Annual Report.
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 2021 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 2021 have
been audited and approved, but have not yet been filed.
The Group's audited financial statements for the year ended 31
December 2021 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 28
March 2022.
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 Directors have carefully considered areas of potential
financial risk and have reviewed cash flow forecasts, evaluating a
number of scenarios which included extreme downside sensitivities
in relation to rental cash collection, no property acquisitions, no
elective capital expenditure, REIT regime compliance, and no
dividends. A range of scenarios of up to 12 months of nil rental
cash collection were considered, and taking into account mitigating
management actions, the Company had adequate resources to continue
is operations. Further effects of the COVID-19 outbreak are
documented in the going concern and viability statements within the
full Annual Report and within principal and emerging risks
above.
No material uncertainties have been detected which would
influence the Group's ability to continue as a going concern for a
period of at least 12 months from the approval of these financial
statements. The Directors have satisfied themselves that the Group
has adequate financial resources to continue in operational
existence for this period.
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 2021 and which have had an impact on the financial
statements are as follows:
Interest Rate Benchmark Reform-Phase 2:
Amendments to IFRS 9 'Financial Instruments', IAS 39 'Financial
Instruments; Recognition and Measurement', IFRS 7 'Financial
Instruments: Disclosures', IFRS 4 'Insurance Contracts' and IFRS 16
'Leases' (effective for periods beginning on or after 1 January
2021) These amendments address issues that might affect financial
reporting when an existing interest rate benchmark is replaced with
an alternative benchmark interest rate.
The Group's borrowings with Royal Bank of Scotland, Bank of
Scotland & Barclays and Santander UK are transitioning from the
London Interbank Offer Rate (LIBOR) benchmark to Sterling Overnight
Index Average (SONIA) benchmark. The borrowings with RBS
transitioned during the year and the Santander UK borrowings
transition for the first interest payment in 2022. There has been
and is expected to be negligible cost involved in the borrowing
facility transition and the respective hedge instrument amendments.
As the Group does not apply hedge accounting, the accounting
standard amendments have not had a significant impact on the
preparation of the financial statements.
Amendments to IFRS 16 'Leases' (effective for periods beginning
on or after 1 June 2020) These amendments provide lessees with an
exemption from assessing whether a COVID-19 related rent concession
is a lease modification. These amendments have not had a
significant impact on the preparation of the financial
statements.
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 2022 and have not been applied in preparing these financial
statements. These are:
Amendments to IFRS 3 'Business Combinations' (effective for
periods beginning on or after 1 January 2022) - gives clarification
on the recognition of contingent liabilities at acquisition and
clarifies that contingent assets should not be recognised at the
acquisition date. The amendments are not expected to have a
significant impact on the preparation of the financial
statements.
Amendments to IAS 37 'Provisions, Contingent Liabilities and
Contingent Assets' (effective for periods beginning on or after 1
January 2022) - gives clarification on costs to include in
estimating the cost of fulfilling a contract for the purpose of
assessing whether that contract is onerous. The amendments are not
expected to have a significant impact on the preparation of the
financial statements.
Amendments to IFRS 9 'Financial Instruments' (effective for
periods beginning on or after 1 January 2022) - gives clarification
on the fees an entity includes when assessing whether the terms of
a new or modified financial liability are substantially different
from the terms of the original liability. The amendments are not
expected to have a significant impact on the preparation of the
financial statements.
Amendments to IAS 1 'Presentation of Financial Statements'
(effective for periods beginning on or after 1 January 2023) -
clarifies that liabilities are classified as either current or
non-current, depending on the rights that exist at the end of the
reporting period and not expectations of or actual events after the
reporting date. The amendments also give clarification to the
definition of settlement of a liability. The amendments are not
expected to have a significant impact on the preparation of the
financial statements.
Amendments to IAS 1 'Presentation of Financial Statements'
(effective for periods beginning on or after 1 January 2023) - are
intended to help entities in deciding which accounting policies to
disclose in their financial statements. The amendments are not
expected to have a significant impact on the preparation of the
financial statements.
Amendments to IAS 8 'Accounting Policies, Changes in Accounting
Estimates and Errors' (effective for periods beginning on or after
1 January 2023) - introduces the definition of an accounting
estimate and includes other amendments to help entities distinguish
changes in accounting estimates from changes in accounting
policies. The amendments are not expected to have a significant
impact on the preparation of the financial statements.
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 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 GBP906,149,000 (31 December 2020:
GBP732,380,000), is determined by independent property valuation
experts to be the estimated amount for which a property should
exchange on the date of the valuation in an arm's length
transaction. Properties have been valued on an individual basis.
The valuation experts use recognised valuation techniques applying
the principles of both IAS 40 and IFRS 13.
The value of the properties has been assessed in accordance with
the relevant parts of the current RICS Red Book. In particular, we
have assessed the fair value as referred to in VPS4 item 7 of the
RICS Red Book. Under these provisions, the term "Fair Value" means
the definition adopted by the International Accounting Standards
Board ("IASB") in IFRS 13, namely "The price that would be received
to sell an asset, or paid to transfer a liability in an orderly
transaction between market participants at the measurement date".
Factors reflected include current market conditions, annual
rentals, lease lengths and location. The significant methods and
assumptions used by the valuers in estimating the fair value of
investment property are set out in note 14.
There is some uncertainty concerning the impact of COVID-19;
however, the independent valuers note the following in their
report.
The outbreak of Novel Coronavirus (COVID-19), which was declared
by the World Health Organisation as a "Global Pandemic" on the
11(th) March 2020, continues to affect economies and real estate
markets globally. Nevertheless, as at the valuation date, property
markets are mostly functioning again, with transaction volumes and
other relevant evidence at levels where enough market evidence
exists upon which to base opinions of value. Accordingly, and for
the avoidance of doubt, our valuation is not reported as being
subject to 'material valuation uncertainty' as defined by VPS 3 and
VPGA 10 of the RICS Valuation - Global Standards.
3.1.2 Fair valuation of interest rate derivatives
In accordance with IFRS 13, 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 GBP
1,706,000 asset (31 December 2020: GBP4,339,000 liability). The
significant methods and assumptions used in estimating the fair
value of the interest rate derivatives are set out in note 25.
3.1.3 Leases - the Group as lessee
The Group has a number of leases concerning the long-term lease
of land associated with its long leasehold investment properties.
Under IFRS16, the Group calculates the lease liability at each
reporting date and at the inception of each lease. The liability is
calculated using present value of future lease payments using the
Group's incremental borrowing rate as the discount rate. At 31
December 2021, there were 12 leases with the range of the period
left to run being 45 and 130 years. The Directors have determined
that the discount rate to use in the calculation for each lease is
3.5% being the Group's weighted average cost of debt at the date of
transition.
3.1.4 Dilapidation income
The Group recognises dilapidation income in the Group's
Statement of Comprehensive Income when the right to receive the
income arises. In determining accrued dilapidations, the Group has
considered historic recovery rates, while also factoring in
expected costs associated with recovery.
3.2. 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 Consolidation of entities in which the Group holds less
than 50%
Management considered that up until 9 November 2018, the Group
had de facto control of View Castle Limited and its 27 subsidiaries
(the "View Castle Sub Group") by virtue of the amended and restated
Call Option Agreement dated 3 November 2015. Following a
restructure of the View Castle Sub Group, the majority of
properties held within the View Castle Sub Group now reside in a
new special purpose vehicle ("SPV"). A new call option was entered
into dated 9 November 2018 with View Castle Limited and five of its
subsidiaries (the "View Castle Group"). As per the previous amended
and restated Call Option Agreement, under this new option the Group
may acquire any of the properties held by the View Castle Group for
a fixed nominal consideration. Despite having no equity holding,
the Group is deemed to have control over the View Castle Group as
the Option Agreement means that the Group is exposed to, and has
rights to, variable returns from its involvement with the View
Castle Group, through its power to control.
3.2.3 Acquisitions of subsidiary companies
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
above.
3.2.4 Recognition of income
Service charges and other similar receipts are included in net
rental and property income gross of the related costs as the
Directors consider the Group acts as principal in this respect.
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 2020 and have been consistently applied for the year
ended 31 December 2021.
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 value 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 the 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 are
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 value 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 the value in use and
the fair value less the 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 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 and other 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' 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.
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.
Impairment provisions are recognised based on the expected credit
loss model detailed within IFRS 9.
The Group recognises a loss allowance for expected credit losses
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 and other payables
Trade and other 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.
Bank and other borrowings are derecognised when the obligation
under the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in Group's
Consolidated Statement of Comprehensive Income.
4.12 Dividends payable to Shareholders
Equity dividends are recognised and accrued from the date
declared and when they are no longer at the discretion of the
Company.
4.13 Rental and property 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 and property 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.
Dilapidation income is recognised in the Group's Statement of
Comprehensive Income when the right to receive it 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 and
property income gross of the related costs as the Directors
consider the Group acts as principal in this respect.
4.14 Property costs
Non-recoverable property costs contain service and management
charges related to empty properties.
Service and management charges are recognised in the accounting
period in which the services are rendered.
Recoverable property costs contain service charges and other
similar costs which are recognised in the accounting period in
which the services are rendered.
4.15. Interest income
Interest income is recognised as interest accrued on cash
balances held by the Group. Interest charged to a tenant on any
overdue rental income is also recognised within interest
income.
4.16. Dividend income
Dividend income is recognised when the right to receive payment
is established.
4.17. Finance costs
Interest costs are expensed in the period in which they occur.
Arrangement fees that a Group entity incurs in connection with bank
and other borrowings are amortised over the term of the loan.
4.18. 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/(loss)
for the period. Taxable profit/(loss) differs from net
profit/(loss) 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.
4.19 Deferred tax
Deferred tax is provided in full using the liability method on
temporary 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/(loss). 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.
The deferred tax liability in relation to investment properties
that are measured at fair value is determined assuming that the
property will be recovered entirely through sale.
Deferred tax has been recognised on the unrealised property
valuation gains/(losses) of properties owned by Group entities
which fall outside of the REIT tax rules.
The current rate of UK Corporation Tax is 19%.
4.20. Stated capital
Stated capital represents the consideration received by the
Company for the issue of Ordinary Shares. Ordinary Shares are
classed as equity.
4.21. 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 the year
ending 31 December 2021 no cash or equity rewards have been
made.
4.22 Leased assets
The Group has a number of leases concerning the long-term lease
of land associated with its long leasehold investment properties.
These leased assets are capitalised as "right of use assets" by
recognising the present value of the lease payments as an asset and
a financial liability representing the obligation to make future
lease payments.
Right of use assets are valued at fair value and the change in
fair value is recognised in the Consolidated Statement of
Comprehensive Income.
The associated financial liability is valued at the present
value of future lease payments using the Group's incremental
borrowing rate. The value of the financial liability is revalued at
each reporting date. Lease payments reduce the financial liability
and interest on the financial liability is recognised in finance
costs.
5. Rental and property income
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Rental income - freehold property 57,128 55,382
Rental income - long leasehold property 8,626 6,695
Recoverable service charge income and other
similar items 14,145 13,864
------------- -------------
Total 79,899 75,941
------------- -------------
6. Property costs
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Other property expenses and irrecoverable
costs 9,930 8,798
Recoverable service charge expenditure
and other similar costs 14,145 13,864
-------------
Total 24,075 22,662
------------- -------------
7. Administrative and other expenses
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Investment management fees 2,326 2,577
Property management fees 2,495 2,266
Asset management fees 2,326 2,579
Directors' remuneration (see note 8) 254 255
Administration fees 647 634
Legal and professional fees 1,680 1,674
Marketing and promotion 72 69
Other administrative costs (including bad
debts) 755 1,257
Bank charges 28 18
Total 10,583 11,329
------------- -------------
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
2021 2020
GBP'000 GBP'000
Fees payable to the Company's Auditor for
the audit of the Company's annual accounts* 88 105
Fees payable to the Group's Auditor and
its associates for the audit of the Company's
subsidiaries 117 105
------------- -------------
Total fees payable for audit services 205 210
Fees payable to the Group's Auditor and
its associates for other services:
Audit-related services 27 26
Total fees payable to the Group's Auditor
and its associates 232 236
------------- -------------
* The prior year charge includes fees of GBP20,000 in respect of
additional audit work required for the 2019 audit due to the
COVID-19 pandemic.
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
2021 2020
GBP'000 GBP'000
Directors' fees 231 231
Employer's National Insurance contributions 23 24
--------------- --------------
Total 254 255
--------------- --------------
9. Finance income
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Interest income 14 99
Total 14 99
-------------- --------------
10. Finance expense
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Interest payable on bank borrowings 10,795 10,257
Amortisation of loan arrangement fees 1,067 857
Bond interest 2,250 2,250
Bond issue costs amortised 155 155
Bond expenses 8 8
Lease interest 597 581
-------------- --------------
Total 14,872 14,108
-------------- --------------
11. Taxation
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Corporation tax charge/(credit) - (157)
Increase/(decrease) in deferred tax creditor 15 (46)
-------------- --------------
Total 15 (203)
-------------- --------------
The current tax charge is reduced by the UK REIT tax exemptions.
The tax charge for the year can be reconciled to the profit /
(loss) in the Statement of Comprehensive Income as follows:
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Profit/(loss) before taxation 28,772 (31,201)
------------- -------------
UK Corporation Tax rate 19% 19%
Theoretical tax at UK Corporation Tax rate 5,467 (5,928)
Effects of:
Revaluation of investment property 1,576 10,410
Permanent differences (207) (363)
Profits from the tax-exempt business (6,836) (4,276)
Deferred tax movement 15 (46)
------------- -------------
Total 15 (203)
------------- -------------
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.
As a REIT, Regional REIT Ltd is required to pay PIDs equal to at
least 90% of the Group's exempted net income. To retain UK REIT
status, there are a number of conditions to be met in respect of
the principal company of the Group, the Group's qualifying activity
and its balance of business. The Group continues to meet these
conditions.
UK corporation tax arises 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 amounts are calculated by dividing
profits/(losses) for the year attributable to ordinary equity
holders of the Company by the weighted average number of Ordinary
Shares in issue during the year.
The calculation of basic and diluted earnings per Share is based
on the following:
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Calculation of earnings per Share
Net profit/(loss) attributable to Ordinary
Shareholders 28,757 (30,998)
Adjustments to remove:
Changes in value of investment properties 8,296 54,793
Changes in fair value of right of use assets 206 195
(Gain)/loss on disposal of investment property (679) 1,073
Gain on the disposal of right of use assets (167) -
Changes in fair value of interest rate
derivatives and financial assets (6,045) 2,523
Impairment of goodwill - 558
Deferred tax charge/(credit) 15 (46)
EPRA net profit attributable to Ordinary
Shareholders 30,383 28,098
Weighted average number of Ordinary Shares 459,660,172 431,506,583
Earnings/(loss) per Share - basic and diluted 6.3p (7.2)p
EPRA earnings per Share - basic and diluted 6.6p 6.5p
13. Dividends
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Dividend of 1.50 (2020: 2.55) pence per
Ordinary Share
for the period 1 October - 31 December 6,473 11,004
Dividend of 1.60 (2020: 1.90) pence per
Ordinary Share
for the period 1 January - 31 March 6,904 8,198
Dividend of 1.60 (2020: 1.50) pence per
Ordinary Share
for the period 1 April - 30 June 8,252 6,473
Dividend of 1.60 (2020: 1.50) pence per
Ordinary Share
for the period 1 July - 30 September 8,252 6,473
-------------- --------------
29,881 32,148
-------------- --------------
On 25 February 2021, the Company announced a dividend of 1.50
pence per Share in respect of the period 1 October 2020 to 31
December 2020. The dividend payment was made on 9 April 2021 to
Shareholders on the register as at 5 March 2021.
On 19 May 2021, the Company announced a dividend of 1.60 pence
per Share in respect of the period 1 January 2021 to 31 March 2021.
The dividend payment was made on 16 July 2021 to Shareholders on
the register as at 28 May 2021 .
On 26 August 2021, the Company announced a dividend of 1.60
pence per Share in respect of the period 1 April 2021 to 30 June
2021. The dividend payment was made on 15 October 2021 to
Shareholders on the register as at 10 September 2021.
On 11 November 2021, the Company announced a dividend of 1.60
pence per Share in respect of the period 1 July 2021 to 30
September 2021. The dividend payment was made on 12 January 2022 to
Shareholders on the register as at 19 November 2021.
On 24 February 2022, the Company announced a dividend of 1.70
pence per Share in respect of the period 1 October 2021 to 31
December 2021. The dividend will be paid on 8 April 2022 to
Shareholders on the register as at 4 March 2022. The financial
statements do not reflect this dividend.
The Board intends to pursue a progressive dividend policy and
continue to pay quarterly dividends. The level of future payment of
dividends will be determined by the Board having regard to, amongst
other things, the financial position and performance of the Group
at the relevant time, UK REIT requirements, and the interest of
Shareholders.
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 Chartered
Surveyors, an accredited independent valuer with recognised and
relevant professional qualifications and with recent experience in
the locations and categories of the investment properties being
valued. The 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.
There is some uncertainty concerning the impact of COVID-19;
however, the independent valuers note the following in their
report.
The outbreak of Novel Coronavirus (COVID-19), which was declared
by the World Health Organisation as a "Global Pandemic" on the
11(th) March 2020, continues to affect economies and real estate
markets globally. Nevertheless, as at the valuation date, property
markets are mostly functioning again, with transaction volumes and
other relevant evidence at levels where enough market evidence
exists upon which to base opinions of value. Accordingly, and for
the avoidance of doubt, our valuation is not reported as being
subject to 'material valuation uncertainty' as defined by VPS 3 and
VPGA 10 of the RICS Valuation - Global Standards.
The 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 (see note
3.2.3).
Group Long Leasehold
Freehold Property
Movement in investment properties Property GBP'000 Total
for the year ended 31 December GBP'000 GBP'000
2021
Valuation at 1 January 2021 659,432 72,948 732,380
Property additions - acquisitions 155,806 95,625 251,431
Property additions - subsequent
expenditure 3,329 3,487 6,816
Property disposals (60,304) (16,557) (76,861)
Gain/(loss) on the disposal of investment
properties (1,256) 1,935 679
Change in fair value during the
year (5,567) (2,729) (8,296)
----------- --------------- ----------
Valuation at 31 December 2021 751,440 154,709 906,149
----------- --------------- ----------
Movement in investment properties
for the year ended 31 December
2020
Valuation at 1 January 2020 697,908 90,007 787,915
Property additions- acquisitions 44,956 - 44,956
Property additions - subsequent
expenditure 8,446 357 8,803
Property disposals (47,035) (6,393) (53,428)
Gain/(loss) on the disposal of
investment properties (1,128) 55 (1,073)
Change in fair value during the
year (43,715) (11,078) (54,793)
----------- --------------- ----------
Valuation at 31 December 2020 659,432 72,948 732,380
----------- --------------- ----------
The net book value of properties disposed of during the year
amounted to GBP 76,181,000 (2020: GBP54,501,000).
The historic cost of the properties is GBP 942,694,000 (31
December 2020: GBP759,705,000).
Bank borrowings are secured by charges over 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. The value of
investment properties secured at 31 December 2021 was GBP
896,149,000 (31 December 2020: GBP705,130,000).
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 3)
Date of valuation: GBP'000 GBP'000 GBP'000 GBP'000
31 December 2021 906,149 - - 906,149
---------- ---------------- ------------ --------------
31 December 2020 732,380 - - 732,380
---------- ---------------- ------------ --------------
The hierarchy levels are defined in note 30 .
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
2021 2020
GBP'000 GBP'000
Balance at the start of
the year 732,380 787,915
Additions 258,247 53,759
Disposals (76,861) (53,428)
Gain/(loss) on the disposal of
investment properties 679 (1,073)
Change in fair value during
the year (8,296) (54,793)
-------------- --------------
Balance at the end of the
year 906,149 732,380
-------------- --------------
The determination of the fair value of the investment properties
held by each consolidated subsidiary requires the use of estimates
such as future cash flows from investment properties, which take
into consideration lettings, tenants' profiles, future revenue
streams, capital values of fixtures and fittings, any environmental
matters and the overall repair and condition of the property, and
discount rates applicable to those assets. Future revenue streams
comprise contracted rent (passing rent) and estimated rental value
after the contract period. In calculating ERV, the potential impact
of future lease incentives to be granted to secure new contracts is
taken into consideration. All these estimates are based on local
market conditions existing at the reporting date.
As at 31 December 2021, the estimated fair value of each
property has been primarily derived using comparable recent market
transactions on arm's length terms and assessed in accordance with
the relevant parts of the RICS Valuation - Global Standards and the
RICS Valuation UK National Supplement.
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: GBP9,000 - GBP3,125,246
per annum (2020: GBP 9,000 - GBP3,092,291 per annum).
Observable input: rental growth
The increase in rent is based on contractual agreements: 12.29%
(2020: 13.08%)
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 % - 60.37% (2020: 0.00% - 25.64 %).
Unobservable inputs:
The significant unobservable inputs (level 3) are sensitive to
changes in the estimated future cash flows from investment
properties such as increases and decreases in contracted rents,
operating expenses and capital expenses, plus transactional
activity in the real estate market.
As set out within the significant accounting estimates and
judgements, 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 (in liquidation) United Kingdom 100%
Beaufort Office Park Management Company
Limited United Kingdom 100%
Glasgow Airport Business Park Management
Company Limited United Kingdom 100%
Regional Commercial MIDCO Ltd Jersey 100%
RR Aspect Court Ltd Jersey 100%
RR Bristol Ltd Jersey 100%
RR Hounds Gate Ltd Jersey 100%
RR Rainbow (Aylesbury) Ltd Jersey 100%
RR Rainbow (North) Ltd Jersey 100%
RR Rainbow (South) Ltd Jersey 100%
RR Range Ltd Jersey 100%
RR Sea Dundee Ltd United Kingdom 100%
RR Sea Hanover Street Ltd 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 Ltd United Kingdom 100%
RR Sea Stafford Ltd United Kingdom 100%
RR Sea Strand Ltd United Kingdom 100%
RR Sea TAPP Ltd Guernsey 100%
RR Sea TOPP Bletchley Ltd Guernsey 100%
RR Sea TOPP I Ltd Guernsey 100%
RR UK (Central) Ltd Jersey 100%
RR UK (Cheshunt) Ltd Jersey 100%
RR UK (South) Ltd Jersey 100%
RR UK (Port Solent) Ltd Jersey 100%
RR Wing Portfolio Ltd Jersey 100%
Smallbrook Queensway Limited Jersey 100%
Quay West Estate Company Limited United Kingdom 100%
Tay Properties Ltd Jersey 100%
TCP Arbos Ltd Jersey 100%
TCP Channel Ltd Jersey 100%
Tosca Chandlers Ford Ltd Jersey 100%
Tosca Glasgow II Ltd United Kingdom 100%
Tosca Midlands Ltd Jersey 100%
Tosca North West Ltd Jersey 100%
Tosca Scotland Ltd Jersey 100%
RR Star Ltd Jersey 100%
Tosca Swansea Ltd Jersey 100%
Tosca UK CP II Ltd Jersey 100%
Tosca UK CP Ltd Jersey 100%
Toscafund Bennett House Ltd Jersey 100%
Toscafund Bishopgate Street Ltd Jersey 100%
Toscafund Blythswood Ltd Jersey 100%
Toscafund Brand Street Ltd Jersey 100%
Toscafund Chancellor Court Ltd Jersey 100%
Toscafund Crompton Way Ltd Jersey 100%
RR Falcon Ltd Jersey 100%
Toscafund Glasgow Ltd Jersey 100%
Toscafund Harvest Ltd Jersey 100%
Toscafund Milburn House Ltd Jersey 100%
Toscafund Minton Place Ltd Jersey 100%
Toscafund Newstead Court Ltd Jersey 100%
Toscafund Portland Street Ltd Jersey 100%
Toscafund St Georges House Ltd Jersey 100%
Toscafund St James Court Ltd Jersey 100%
Toscafund Strathclyde BP Ltd Jersey 100%
Toscafund Wallington Ltd Jersey 100%
Toscafund Westminster House Ltd Jersey 100%
Toscafund Sheldon Court Ltd 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 has control
of View Castle Limited and its subsidiaries (the "View Castle
Group").
Under this option, the Group has the ability to acquire any of
the properties held by the View Castle 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 View
Castle 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 View Castle 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 Ltd (in liquidation) United Kingdom 100%
Caststop Ltd (in liquidation) United Kingdom 100%
Credential (Baillieston) Ltd (in
liquidation) United Kingdom 100%
Credential (Greenock) Ltd (in liquidation) United Kingdom 100%
Credential (Wardpark North) Ltd United Kingdom 100%
Credential Charing Cross Ltd (in
liquidation) United Kingdom 100%
Credential Estates Ltd United Kingdom 100%
Hamiltonhill Estates Ltd (in liquidation) United Kingdom 100%
Old Rutherglen Road Ltd (in liquidation) United Kingdom 100%
Rocket Unit Trust Jersey 100%
Squeeze Newco 2 Ltd United Kingdom 100%
The Legal Services Centre Ltd (in
liquidation) United Kingdom 100%
View Castle Ltd United Kingdom 100%
View Castle (Milton Keynes) Ltd United Kingdom 100%
View Castle (Properties) Ltd United Kingdom 100%
All of the above entities have been included in the Group's
consolidated financial statements up to 31 December 2021.
Business Combinations
There have been no new business combinations entered into in the
financial year.
16. Goodwill
31 December 31 December
2021 2020
GBP'000 GBP'000
Group
At start of year - 558
Impairment - (558)
-------------- ------------
At end of year - -
-------------- ------------
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.
17. Non-current receivables
Non-current receivables on tenant loans
31 December 31 December
2021 2020
GBP'000 GBP'000
At start of year 1,203 1,348
Amounts repaid in the year (192) (145)
------------ ----------------
At end of year 1,011 1,203
------------ ----------------
Asset due within 1 year (note 18) 192 192
Asset due after 1 year 819 1,011
------ ------
1,011 1,203
------ ------
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 on late payments and is
repayable in instalments over ten years.
18. Trade and other receivables
31 December 31 December
2021 2020
GBP'000 GBP'000
Gross amount receivable from tenants 10,835 11,768
Less provision for impairment (1,615) (1,458)
------------ ----------------
Net amount receivable from tenants 9,220 10,310
Current receivables - tenant loans (note
17 ) 192 192
Income tax 52 52
Other receivables 736 1,458
Prepayments 19,204 21,678
------------ ----------------
29,404 33,690
------------ ----------------
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
2021 2020
GBP'000 GBP'000
< 30 days 4,605 6,000
30 - 60 days 1,160 915
> 60 days 5,070 4,853
------------ ------------
10, 835 11,768
Less provision for impairment (1,615) (1,458)
------------ ------------
9,220 10,310
------------ ------------
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
2021 2020
GBP'000 GBP'000
At start of year 1,458 891
Provision for impairment in the year 1,971 1,787
Receivables written off as uncollectable (633) (719)
Unused provision reversed (1,181) (501)
------------ ----------------
At end of year 1,615 1,458
------------ ----------------
Other categories within trade and other receivables do not
include impaired assets. Receivables are written off as
uncollectable where there is no reasonable expectation of
recovery.
19. Cash and cash equivalents
31 December 31 December
2021 2020
GBP'000 GBP'000
Group
Cash held at bank 49,919 54,958
Restricted cash held at bank 6,209 12,415
At end of year 56,128 67,373
Restricted cash balances of the Group comprise:
-- GBP 4,149,000 (2020: GBP10,752,000) of funds held in blocked
bank accounts which are controlled by 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.
-- GBP 2,060,000 (2020: GBP1,663,000) of funds which represent tenants' rental deposits.
All restricted cash balances will be available before 31 March
2022.
In addition, GBP 10,040,000 (2020: GBP7,462,000) of cash funds
represent service charge income received from tenants for
settlement of future service charge expenditure. These amounts are
not analysed as restricted balances.
20. Trade and other payables
31 December 31 December
2021 2020
GBP'000 GBP'000
Withholding tax due on dividends paid 861 572
Dividends announced but not paid 8,252 6,473
Trade payables 3,559 2,262
Other payables 13,245 11,205
Value added tax 1,714 3,662
Accruals 13,335 9,635
------------ ----------------
At end of year 40,966 33,809
------------ ----------------
Other payables principally include rent deposits held and
service charge costs.
The Directors consider the fair value of trade and other
payables to equal their carrying amounts.
21. Deferred income
Deferred rental income of GBP16,751,000 (31 December 2020:
GBP14,584,000) represents rent received in advance from
tenants.
22. Deferred tax liabilities
31 December 31 December
2021 2020
GBP'000 GBP'000
Deferred tax 705 690
------------ ------------
705 690
------------ ------------
The movement on deferred tax liability
is shown below:
At start of year 690 736
Deferred tax on the valuation of investment
properties 15 (46)
------------ --------------
At end of year 705 690
------------ --------------
23. Bank and loan borrowings
Bank borrowings are secured by charges over 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
2021 2020
GBP'000 GBP'000
Bank borrowings drawn at start of year 316,171 294,000
Bank borrowings drawn 77,305 39,200
Bank borrowings repaid (3,539) (17,029)
------------ ------------
Bank borrowings drawn at end of year 389,937 316,171
Less: unamortised costs at start of year (5,479) (6,144)
Less: loan issue costs incurred in the
year (2,051) (192)
Add: loan issue costs amortised in the
year 1,067 857
------------ ------------
At end of year 383,474 310,692
------------ ------------
Maturity of bank borrowings
Repayable within 1 year - -
Repayable between 1 to 2 years - -
Repayable between 2 to 5 years 127,220 52,349
Repayable after more than 5 years 262,717 263,822
Unamortised loan issue costs (6,463) (5,479)
------------ ------------
383,474 310,692
------------ ------------
As detailed in note 24, the Group has GBP50,000,000 (31 December
2020: GBP50,000,000) retail eligible bonds in issue.
The table below lists the Group's borrowings.
Gross
Lender Original Outstanding Maturity loan Annual interest Amortisation
facility debt* date to value** rate
GBP'000 GBP'000
Royal Bank of
Scotland, Bank
of Scotland and 2.40% over Mandatory
Barclays 128,000 127,220 Aug-26 43.4% 3mth GBP SONIA prepayment
Scottish Widows
Ltd & Aviva Investors
Real Estate Finance 165,000 165,000 Dec-27 46.4% 3.28% Fixed None
Scottish Widows
Ltd 36,000 36,000 Dec-28 38.7% 3.37% Fixed None
2.20% over
3mth GBP LIBOR
Moving to Mandatory
Santander UK 65,870 61,717 Jun-29 39.0% SONIA 01/01/22 prepayment
Total bank borrowings 394,870 389,937
Retail eligible
bond 50,000 50,000
----------- --------------
Total 444,870 439,937
----------- --------------
SONIA = Sterling Over Night Indexed Average
LIBOR = London Interbank Offered Rate (Sterling)
* Before unamortised debt issue costs
** Based upon Cushman & Wakefield property valuations
The percentage of loans at variable rates of interest was 42.9%
(31 December 2020: 54.9 %).
The weighted average term to maturity of the Group's debt at the
year end was 5.5 years (31 December 2020: 6.4 years). The weighted
average interest rate payable by the Group on its debt portfolio,
excluding hedging costs, as at the year end was 3.0 % (31 December
2020: 3.1%).
The Group weighted average interest rate, including the retail
eligible bonds and hedging costs at the year end, amounted to 3.3 %
per annum (31 December 2020: 3.3% 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, LTV 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 25, the Group uses a combination of interest
rate swaps and fixed rate bearing loans to hedge against cash flow
interest rate risks. The Group's exposure to interest rate
volatility is minimal.
In line with recent announcements from the Bank of England and
the FCA, the Royal Bank of Scotland and Bank of Scotland &
Barclays borrowings and Santander UK borrowings are transitioning
from the London Interbank Offer Rate (LIBOR) benchmark to Sterling
Overnight Index Average (SONIA) benchmark. The borrowings with RBS
transitioned during the year and the Santander UK borrowings
transition for the first interest payment in 2022. There is
expected to be negligible cost involved in the borrowing facility
transition and the respective hedge instrument amendments.
24. Retail Eligible Bonds
The Company has in issue GBP50,000,000 (31 December 2020:
GBP50,000,000) 4.5% Retail Eligible Bonds with a maturity date of 6
August 2024. These unsecured bonds are listed on the London Stock
Exchange ORB platform.
31 December 31 December
2021 2020
GBP'000 GBP'000
Bond principal at start of year 50,000 50,000
Unamortised issue costs at start of year (559) (714)
Amortisation of issue costs 155 155
At end of year 49,596 49,441
------------ ------------
25. Derivative financial instruments
Interest rate caps and swaps are in place to mitigate the
interest rate risk that arises as a result of entering into
variable rate borrowings.
31 December 31 December
2021 2020
GBP'000 GBP'000
Group
Fair value at start of year (4,339) (1,816)
Revaluation in the year 6,045 (2,523)
------------ ------------
(4,339
Fair value at end of year 1,706 (4,339)
------------ ------------
The calculation of fair value of interest rate caps and swaps is
based on the following calculation: the notional amount multiplied
by the difference between the swap rate and the current market rate
and then multiplied by the number of years remaining on the
contract and discounted.
The table below details the hedging and swap notional amounts
and rates against the details of the Group's loan facilities.
Lender Original Outstanding Maturity Annual interest Notional
facility debt date rate amount Rate
GBP'000 GBP'000 GBP'000
Royal Bank
of Scotland,
Bank of Scotland
and Barclays 128,000 127,220 Aug-26 2.40% over 73,000 0.97%
3 months GBP
SONIA 55,000 0.97%
Scottish
Widows Ltd.
& Aviva Investors
Real Estate
Finance 165,000 165,000 Dec-27 3.28% Fixed n/a n/a
Scottish
Widows Ltd 36,000 36,000 Dec-28 3.37% Fixed n/a n/a
Santander
UK 65,870 61,717 Jun-29 2.20% over 32,935 1.45%
3 months GBP
LIBOR 32,935 1.45%
Moving to
SONIA 01/01/22
----------- --------------
Total 394,870 389,937
----------- --------------
SONIA = Sterling Over Night Indexed Average
LIBOR = London Interbank Offered Rate (Sterling)
As at 31 December 2021, the swap notional arrangements were
GBP105.94m (31 December 2020: GBP60.44m) and the cap notional
arrangements amounted to GBP 87.94 m (31 December 2020:
GBP60.44m).
The Group weighted average effective interest rate was 3.3% (31
December 2020: 3.3 %) inclusive of hedging costs.
The maximum exposure to credit risk at the reporting date is the
fair value of the derivative liabilities.
It is the Group's target to hedge at least 90% of the total debt
portfolio using interest rate derivatives and fixed-rate
facilities. As at the year end, the total proportion of hedged debt
equated to 101.3 % (31 December 2020: 101.8%), as shown below. The
over-hedged position has arisen as a result of the full RBS and
Santander facilities (including headroom) being hedged but the
excess relates to Interest Rate Caps which have no ongoing cost for
the Group.
31 December 31 December
2021 2020
GBP'000 GBP'000
Total bank borrowings 389,937 316,171
------------ ------------
Notional value of interest rate caps and
swaps 193,870 120,870
Value of fixed rate debts 201,000 201,000
------------ ------------
394,870 321,870
------------ ------------
Proportion of hedged debt 101.3% 101.8%
------------ ------------
The Group has not adopted hedge accounting in either year.
26. Leases
31 December 31 December
2021 2020
Right of use asset GBP'000 GBP'000
At start of year 16,156 16,351
Right of use asset acquired 6,438 -
Derecognition of right of use asset (5,906) -
Fair value movement (206) (195)
16,482 16,156
------------ ------------
31 December 31 December
2021 2020
Lease liability GBP'000 GBP'000
At start of year 16,473 16,510
Finance lease liability acquired 6,438 -
Derecognition of finance lease liability (6,073) -
Lease payments (640) (618)
Interest charges 597 581
16,795 16,473
------------ ------------
The derecognition of right of use assets and liabilities during
the year gave rise to a realised gain of GBP167,000 (2020:
GBPnil).
The Group's lease commitments which are now represented by the
right of use asset and lease liability are spread across 12
separate leases with the two largest leases at Mountbatten Court
Basingstoke and Northern Cross Basingstoke making up 35% of the
balance. Total commitments on leases in respect of land and
buildings are as follows:
31 December 31 December
2021 2020
Group GBP'000 GBP'000
Payable within 1 year 648 618
Payable between 1 and 2 years 648 618
Payable between 2 and 5 years 1,943 1,854
Payable after 5 years 47,668 50,346
------------ ------------
50,907 53,436
------------ ------------
27. Stated capital
Stated capital represents the consideration received by the
Company for the issue of Ordinary Shares.
Group 31 December 31 December
2021 2020
Issued and fully GBP'000 GBP'000
paid Shares of no
par value
At start of the year 430,819 430,819
Shares issued 83,051 -
Share issue costs (108) -
------------ ------------
At end of the year 513,762 430,819
------------ ------------
Number of Shares in issue
At start of the year 431,506,583 431,506,583
Shares issued 84,230,000 -
------------ ------------
At end of the year 515,736,583 431,506,583
------------ ------------
During the year 84,230,000 Shares were issued as part of the
consideration package for the purchase of a group of investment
properties. The value of Shares issued was GBP83,051,000 (98.6p per
Share).
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.
In October 2019, EPRA issued new best practice recommendations
that replaced EPRA net asset value (NAV) with three new measures of
net asset value. The Group has determined that EPRA net tangible
assets (NTA) is the most relevant measure, hence this is now
reported in place of EPRA NAV. Further detail of the new EPRA
performance measures can be found in the full Annual Report.
Net asset values have been calculated as follows:
Group 31 December 31 December
2021 2020
GBP'000 GBP'000
Net asset value per Consolidated Statement
of Financial Position 502,401 420,582
Adjustment for calculating EPRA net tangible
assets:
Derivative financial instruments (1,706) 4,339
Deferred tax liability 705 690
-------------- --------------
EPRA Net Tangible Assets 501,400 425,611
-------------- --------------
Number of Ordinary Shares
in issue 515,736,583 431,506,583
Net asset value per Share - basic and diluted 97.4p 97.5p
EPRA Net Tangible Assets per Share - basic
and diluted 97.2p 98.6p
29. Notes to the Statement of Cash Flows
29.1 Non-Cash Transactions
During the year, a non-cash transaction took place whereby
84,230,000 Shares were issued as part of the consideration package
for the purchase of a group of investment properties. The value of
Shares issued was GBP83,051,000.
During the year, three right of use assets and liabilities were
recognised at the value of GBP6,438,000 being the present value of
the lease payments associated with the Group's long leasehold
investment properties. Also during the year, three right of use
assets and liabilities were derecognised following the sale of
long-leasehold investment properties.
29.2 Reconciliation of changes in liabilities to cash flows
arising from financing activities
31 December 2021
Bank loans Retail Derivative
and borrowings Eligible financial Lease
GBP'000 Bonds instruments liabilities Total
GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January 2021 310,692 49,441 4,339 16,473 380,945
----------------- ----------- -------------- -------------- ----------
Changes from financing
cash flows:
Bank and bond borrowings
advanced 77,305 - - - 77,305
Bank borrowings repaid (3,539) - - - (3,539)
Bank and bond borrowing
costs paid (2,051) - - - (2,051)
Lease payments - - - (640) (640)
----------------- ----------- -------------- -------------- ----------
Total changes from financing
cash flows 71,715 - - (640) 71,075
----------------- ----------- -------------- -------------- ----------
Amortisation of issue
costs 1,067 155 - - 1,222
Unwinding of discount - - - 597 597
Change in fair value - - (6,045) - (6,045)
Finance lease liability
acquired - - - 6,438 6,438
Derecognition of finance
lease liability - - - (6,073) (6,073)
----------------- ----------- -------------- -------------- ----------
Total other changes 1,067 155 (6,045) 962 (3,861)
----------------- ----------- -------------- -------------- ----------
Balance at 31 December
2021 383,474 49,596 (1,706) 16,795 448,159
----------------- ----------- -------------- -------------- ----------
31 December 2020
Bank loans Retail Derivative
and borrowings Eligible financial Lease liabilities
GBP'000 Bonds instruments GBP'000 Total
GBP'000 GBP'000 GBP'000
Balance at 1 January 2020 287,856 49,286 1,816 16,510 355,468
----------------- ----------- -------------- -------------------- ----------
Changes from financing
cash flows:
Bank and bond borrowings
advanced 39,200 - - - 39,200
Bank borrowings repaid (17,029) - - - (17,029)
Bank and bond borrowing
costs paid (192) - - - (192)
Lease payments - - - (618) (618)
----------------- ----------- -------------- -------------------- ----------
Total changes from financing
cash flows 21,979 - - (618) 21,361
----------------- ----------- -------------- -------------------- ----------
Amortisation of issue
costs 857 155 - - 1,012
Unwinding of discount - - - 581 581
Change in fair value - - 2,523 - 2,523
-------- ------- ------ ------- --------
Total other changes 857 155 2,523 581 4,116
-------- ------- ------ ------- --------
Balance at 31 December
2020 310,692 49,441 4,339 16,473 380,945
-------- ------- ------ ------- --------
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 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
of the Group's financial instruments that are carried in the
financial statements and their fair value:
Group 31 December 2021 31 December 2020
Carrying Fair Carrying Fair
value value value value
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets - measured
at amortised cost
Trade and other receivables 10,967 10,967 12,971 12,971
Cash and short-term deposits 56,128 56,128 67,373 67,373
Financial assets - measured
at fair value through
profit or loss
Interest rate derivatives 1,706 1,706 - -
Financial liabilities
- measured at amortised
cost
Trade and other payables (38,391) (38,391) (29,575) (29,575)
Bank and loan borrowings (383,474) (387,373) (310,692) (327,409)
Retail eligible bonds (49,596) (51,190) (49,441) (49,500)
Lease liability (16,795) (16,795) (16,473) (16,473)
Financial liabilities
- measured at fair value
through profit or loss
Interest rate derivatives - - (4,339) (4,339)
The following financial liabilities are recorded in the
Consolidated Statement of Financial Position at amortised cost but
their fair value is different as disclosed above. Their fair values
are determined as follows:
-- The fair value of bank and loan borrowings is determined by
reference to mark-to-market valuations provided by the lenders.
-- The fair value of Retail Eligible Bonds is determined by their published market value.
-- The fair value of the lease liability has been determined as
the present value of future cash flows discounted using the Group's
incremental borrowing rate.
The following financial assets and liabilities are recorded in
the Consolidated Statement of Financial Position at fair value
which is determined as follows:
-- The fair value of interest rate derivatives 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.
Fair value hierarchy
The following table provides the fair value measurement
hierarchy for financial assets and liabilities measured at fair
value through profit or loss.
Significant Significant
Quoted active observable unobservable
prices inputs inputs
Total (level 1) (level 2) (level 3)
GBP'000 GBP'000 GBP'000 GBP'000
31 December 2021
Interest rate derivatives 1,706 - 1,706 -
31 December 2020
Interest rate derivatives (4,339) - (4,339) -
---------- ---------------- ------------ --------------
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.
There have been no transfers between levels during the year.
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 swaps. 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
2021 2020
GBP'000 GBP'000
0.00% - -
0.25% 208 137
0.50% 415 274
0.75% 559 411
1.00% 671 547
The Group's borrowings with Royal Bank of Scotland, Bank of
Scotland & Barclays and Santander UK are transitioning from the
London Interbank Offer Rate (LIBOR) benchmark to Sterling Overnight
Index Average (SONIA) benchmark. The borrowings with RBS
transitioned during the year and the Santander UK borrowings
transition for the first interest payment in 2022. There is
expected to be negligible cost involved in the borrowing facility
transition and the respective hedge instrument amendments.
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.
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 is 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 positive
Royal Bank of Scotland A+ Stable
Bank of Scotland plc A+ Stable
Santander UK A+ Stable
Aviva A+ Stable
Scottish Widows A Stable
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 that 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
2021 1 year 1 and 2 2 and 5 5 years Total
GBP'000 years years GBP'000 GBP'000
GBP'000 GBP'000
Trade and other payables (38,391) - - - (38,391)
Bank borrowings (11,333) (11,333) (160,167) (274,447) (457,280)
Interest rate derivatives (1,076) (1,076) (3,010) (1,048) (6,210)
Retail eligible bonds (2,250) (2,250) (52,250) - (56,750)
Lease liability (648) (648) (1,943) (47,668) (50,907)
--------- --------------- ---------- ---------- ----------
(53,698) (15,307) (217,370) (323,163) (609,538)
--------- --------------- ---------- ---------- ----------
Group at 31 December Within Between Between After
2020 1 year 1 and 2 2 and 5 5 years Total
GBP'000 years GBP'000 years GBP'000 GBP'000
GBP'000
Trade and other payables (29,575) - - - (29,575)
Bank borrowings (9,262) (9,262) (79,509) (283,232) (381,265)
Interest rate derivatives (805) (805) (1,898) (1,611) (5,119)
Retail eligible bonds (2,250) (2,250) (54,500) - (59,000)
Lease liability (618) (618) (1,854) (50,346) (53,436)
--------- --------------- ---------- ---------- ----------
(42,510) (12,935) (137,761) (335,189) (528,395)
--------- --------------- ---------- ---------- ----------
The maturity dates of all bank borrowings are disclosed in note
23.
The maturity date of the retail eligible bonds is disclosed in
note 24.
The range of maturity dates of the lease liability payments is
between 4 and 130 years.
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% 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 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
2021 2020
Group GBP'000 GBP'000
Receivable within 1 year 56,503 50,739
Receivable between 1-2 years 43,349 38,103
Receivable between 2-5 years 56,017 57,404
Receivable after 5 years 31,267 40,102
------------ ------------
187,136 186,348
------------ ------------
The Group has in excess of 1,030 operating leases. The number of
years remaining on these operating leases varies between 1 and 87
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. Segmental information
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.
34. Transactions with related parties
Transactions with the Directors
Directors' remuneration is disclosed within the Remuneration
Report in the full Annual Report and note 8 to the financial
statements. Directors' beneficial interests in the Ordinary Shares
of the Company are disclosed within the Directors' Report.
Transactions with the Asset Manager, London & Scottish
Property Investment Management Limited, and the Property Manager,
London & Scottish Property Asset Management Limited
Stephen Inglis is a non-executive Director of Regional REIT
Limited, as well as being the chief executive officer of London
& Scottish Property Investment Management Limited ("LSPIM") and
a director of London & Scottish Property Asset Management
Limited. The former company has been contracted to act as the Asset
Manager of the Group and the latter as the Property Manager.
In consideration for the provision of services provided, the
Asset Manager is entitled in each financial year (or part thereof)
to 50% of an annual management fee on a scaled rate of 1.1% of the
EPRA 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 the 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
2021 2020
GBP'000 GBP'000
Asset management fees charged* 2,326 2,579
Property management fees charged* 2,495 2,266
Performance fees charged - -
-------------- --------------
Total 4,821 4,845
-------------- --------------
31 December 31 December
2021 2020
GBP'000 GBP'000
Total fees outstanding 1,350 1,190
------------ ------------
* Including irrecoverable VAT charged where appropriate.
Transactions with the Investment Manager, Toscafund Asset
Management LLP
Tim Bee is a non-executive Director of the Company, as well as
being Chief Legal Counsel of the Investment Manager.
In consideration for the provision of services provided, the
Investment Manager is entitled in each financial year (or part
thereof) to 50% of an annual management fee on a scaled rate of
1.1% of the EPRA net asset value, reducing to 0.9% on net assets
over GBP500,000,000. The fee is payable in cash quarterly in
arrears.
The Investment Manager is also entitled to a performance fee.
Details of the performance fee are given below.
The following tables show the fees charged in the year and the
amount outstanding at the end of the year:
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
Investment management fees charged 2,326 2,577
Total 2,326 2,577
-------------- --------------
31 December 31 December
2021 2020
GBP'000 GBP'000
Total fees outstanding 593 612
-------------- --------------
Performance Fee
The Asset Manager and the Investment Manager are each entitled
to 50% of a performance fee. The fee is calculated at a rate of 15%
of the total Shareholder return in excess of the hurdle rate of 8%
per annum for the relevant performance period. Total Shareholder
return for any financial year consists of the sum of any increase
or decrease in EPRA NAV per Ordinary Share and the total dividends
per Ordinary Share declared in the financial year. A performance
fee is only payable in respect of a performance period where the
EPRA NAV per Ordinary Share exceeds the high-water mark which is
equal to the greater of the highest year-end EPRA NAV Ordinary
Share in any previous performance period. The performance fee was
calculated initially on 31 December 2018 and is assessed annually
thereafter.
The performance fees are now payable 34% in cash and 66% in
Ordinary Shares, at the prevailing price per share, with 50% of the
Shares locked-in for one year and 50% of the Shares locked-in for
two years.
No performance fee has been earned for the years ending 31
December 2021 or 31 December 2020.
35. Subsequent Events
Post 31 December 2021, the Company has disposed of separately:
eight non-core properties for a total consideration of GBP33.5m, at
a 1.3% premium to the 31 December 2021 valuation, with a net
initial yield of 5.1% (6.3% excluding vacant properties).
On 24 February 2022, the Company declared the Q4 2021 dividend
of 1.70pps, which will be paid to shareholders on 8 April 2022.
Company Information
Directors
Kevin McGrath (Chairman and Independent Non-Executive
Director)
William Eason (Senior Independent Non-Executive Director,
Nomination Committee Chairman, Management Engagement and
Remuneration Committee Chairman)
Daniel Taylor (Independent Non-Executive Director)
Frances Daley (Independent Non-Executive Director, Audit
Committee Chairman)
Stephen Inglis (Non-Executive Director)
Timothy Bee (Non-Executive Director)
Registered office
Regional REIT Limited
Mont Crevelt House
Bulwer Avenue
St. Sampson
Guernsey
GY2 4LH
Regional REIT Limited
ISIN: GG00BYV2ZQ34
SEDOL: BYV2ZQ3
Legal Entity Identifier: 549300D8G4NKLRIKBX73
Company website
www.regionalreit.com
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