REG - Regional REIT Ltd - 2023 Full Year Results
26/03/2024 07:00
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RNS Number : 2333I Regional REIT Limited 26 March 2024
26 March 2024
Regional REIT Limited
("Regional REIT", the "Group" or the "Company")
2023 Full Year Results
Resilient operational performance in challenging macroeconomic conditions
Regional REIT (LSE: RGL), the regional office specialist today announces its
full results for the year ended 31 December 2023.
Financial highlights:
· Resilient valuation performance in a challenging environment, with a
like-for-life portfolio valuation decline of 9.3% during the year
significantly outperforming a -17.4% decline for the MSCI Rest of UK offices
Index
· A high level of rent collection was achieved over the year. As at 15
March 2024, rent collection was strong, with FY 2023 collections reaching
99.0%, the equivalent date in 2023 when 98.7% had been collected
· Rent roll for the year was £67.8m (31 December 2022: £71.8m)
· Portfolio valuation of £700.7m (31 December 2022: £789.5m)
· Net initial yield increased to 6.2% (31 December 2022: 6.0%), the
equivalent yield was 9.9% (31 December 2022: 9.0%) and the reversionary yield
was 10.8% (31 December 2022: 10.2%)
· EPRA EPS of 5.23p per share ("pps") for the year (31 December 2022:
6.6pps)
· Covered Dividend of 5.25pps (31 December 2022: 6.6pps). Since the end
of the year, the Company has declared a dividend for the fourth quarter of
2023 of 1.20pps, ensuring REIT compliance
· EPRA NTA per share 56.4pps (31 December 2022: 73.5pps); IFRS NAV of
59.3pps (31 December 2022: 78.1pps)
· The Group's cost of debt (incl. hedging) remained low at 3.5%, the
same for the previous period. 100% of this was fixed, swapped or capped
· Weighted average debt duration 3.5 years (31 December 2022: 4.5
years); the earliest maturity being August 2024 for the £50m retail bond.
Significant preparatory work has been undertaken to date in respect of both
the debt and equity refinancing options
· Net LTV 55.1% (31 December 2022: 49.5%) before unamortised costs. The
Board continues to target a net LTV ratio of 40%
Operational highlights:
· During the period, the Company completed 88 new lettings. When fully
occupied, these will provide an additional gross rental income of £3.8
million per annum
· Energy Performance Certificate ("EPC") ratings have been reviewed
across 98.4% of the portfolio. To date, the weighted average EPC ratings have
improved from 56.9% to 73% EPC C and above
· At the period end, 92.1% (31 December 2022: 91.8%) of the portfolio
valuation was offices, 3.1% retail (31 December 2022: 3.6%), industrial 3.2%
(31 December 2022: 3.1%) and 1.7% other (31 December 2022: 1.4%)
· The portfolio continues to remain diversified with 144 properties (31
December 2022: 154), 1,483 units (31 December 2022: 1,552) and 978 tenants (31
December 2022: 1,076)
· By income, office assets accounted for 91.3% of gross rental income
(31 December 2022: 91.5%) and 4.2% (31 December 2022: 4.5%) was retail. The
balance was made up of industrial, 2.8% (31 December 2022: 2.6%), and other,
1.7% (31 December 2022: 1.3%)
· Disposals during the year totalled £25.0 million (net of costs),
reflecting an average net initial yield of 4.5% (7.9% excluding vacant
properties)
· At the period end, the portfolio valuation split by region was as
follows: England 78.4% (31 December 2022: 78.3%), Scotland 16.2% (31 December
2022: 16.7%) and the balance of 5.4% (31 December 2022: 6.0%) was in Wales
· EPRA Occupancy rate of 80.0% (31 December 2022: 83.4%)
· The Company submitted its Third Global Real Estate Sustainability
Benchmark ("GRESB") assessment resulting in an increased score to 66 from 60
Post period end
Disposals
· Since 31 December 2023, the Company has completed eight disposals and
two part sales for an aggregate total of £13.4m (before costs) in line with
the 2023 year end valuation.
The current disposal programme comprises of 58 assets totalling c £130m:
· one disposal contracted for £405,000;
· 10 disposals totalling c. £22 million under offer and in legal due
diligence;
· 9 further disposals totalling c. £20 million are in negotiation;
· 24 further disposals totalling c. £42 million are on the market; and
· 14 potential disposals totalling c. £46 million are being prepared
for the market
Lettings
Since 1 January 2024, the Group has exchanged on four notable leases to new
tenants totalling 45,891 sq. ft. amounting to £0.8m per annum ("pa") of
rental income when fully occupied, achieving a rental uplift of 10.7% against
December 2023 ERVs. In addition, five notable leases have renewal amounting to
90,418 sq. ft. and £1.3m per annum ("pa") of rental income, delivering a
rental uplift of 5.2% against December 2023 ERVs.
Noteworthy new and renewed lease are set out below:
· Clearblue Innovation Centre, Bedford - SPD Development Co Ltd renewed
its lease to September 2033, at a rental income of £825,000 pa (£14.18/ sq.
ft.) on 58,167 sq. ft. of space.
· The Foundation Chester Business Park, Chester - GB Group Plc renewed
its lease to July 2028, with a break option in July 2026, at a rental income
of £289,500 pa (£18.21/ sq. ft.) on 15,902 sq. ft. of space.
· Lightyear Building, Glasgow Airport, Glasgow - Heathrow Airport Ltd
has leased 15,154 sq. ft. of space until March 2039, with break option in
2034, at a rent of £264,618 pa (£17.46/ sq. ft.).
· Park House, Bristol - Serco Ltd has leased 10,035 sq. ft. of space
until September 2031, with break option in 2029, at a rent of £230,000 pa
(£22.92/ sq. ft.).
· Oakland House, Manchester - Please Hold (UK) Ltd has leased 10,926 sq.
ft. of space until March 2029, with break option in 2027, at a rent of
£147,501 pa (£13.50/ sq. ft.). Additionally, Please Hold (UK) Ltd renewed
existing lease (5,450 sq. ft.) until March 2025, at a rent of £68,125 pa
(£12.50/ sq. ft.).
· Delta Business Park, Swindon - Improve International Ltd has leased
9,776 sq. ft. of space until February 2034, with break option in 2029, at a
rent of £185,744 pa (£19.00/ sq. ft.).
· Equinox North, Almondsbury, Bristol - Qualcomm Technologies Int Ltd
renewed its lease to March 2029, with a break option in March 2027, at a
rental income of £97,155 pa (£15.00/ sq. ft.) on 6,477 sq. ft. of space.
· Cardiff Gate Business Park, Cardiff - SMS Energy Services Ltd renewed
its lease to February 2025 at a rental income of £61,908 pa (£14.00/ sq.
ft.) on 4,422 sq. ft. of space.
Stephen Inglis, CEO of London and Scottish Property Investment Management, the
Asset Manager, commented:
2023 was another active period for the Company, in which we completed 88 new
lettings, 7.1% above the Company's external valuer's estimated rental value
(ERV) as at the 2023 year end. In addition, as part of the Company's asset
disposal programme to reduce the LTV, disposals during the year amounted to
£25m (net of costs).
Since 31 December 2023, the Company has completed eight disposals and two part
sales for an aggregate total of £13.4m (before costs), in line with 2023 year
end valuation. Currently, there are some 58 assets at various stages of
disposal amounting to some £130m.
Significant preparatory work has been undertaken to date in respect of both
the debt and equity options for the refinancing of the £50m August 2024
retail bond. We look forward to providing an update in due course."
Forthcoming Events
22 May 2024 2024 Q1 2024 Trading Update and Outlook Announcement
10 September 2024 Interim Results Announcement
13 November 2024 Q3 2024 Trading Update
- ENDS -
Enquiries:
Regional REIT Limited
Press enquiries through Buchanan
ARA Europe Private Markets Limited Tel: +44 (0) 20 7845 6100
Investment Adviser to the Group
Adam Dickinson, Investor Relations
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
Charles Ryland, Henry Wilson, George Beale
About Regional REIT
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 ARA Europe Private Markets Limited, the Investment Adviser.
Regional REIT's commercial property portfolio is comprised wholly of income
producing UK assets and, predominantly, of offices located in the regional
centres outside of the M25 motorway. The portfolio is geographically
diversified, with 144 properties and 978 occupiers as at 31 December 2023,
with a valuation of c.£700.7m.
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 (http://www.regionalreit.com/) .
Financial Key Points
Year Ended 31 December 2023
Income focused - opportunistic buying and strategic selling, coupled with
intensive asset management, continues to secure long-term income.
Portfolio Valuation £700.7m (31 December 2022: £789.5m)
IFRS NAV per Share 59.3p (31 December 2022: 78.1p)
EPRA* NTA per Share 56.4p (31 December 2022: 73.5p)
EPRA* earnings per Share 5.2p (31 December 2022: 6.6p)
Dividend per Share 5.25p (31 December 2022: 6.6p)
Net Loan to Value Ratio** 55.1% (31 December 2022: 49.5%)
Weighted Average Cost of Debt** 3.5% (31 December 2022: 3.5%)
Weighted Average Debt Duration** 3.5 yrs (31 December 2022: 4.5 yrs)
The European Public Real Estate Association ("EPRA")
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.
* The European Public Real Estate Association (EPRA)
** Alternative Performance Measures. Details are provided in the full Annual
Report.
Operational KEY POINTS
Year Ended 31 December 2023
Income focused with intensive asset management.
Properties 144
Units 1,483
Tenants 978
Rent Roll £67.8m
Portfolio by region and sector (by value)
England & Wales 83.8%
Office 92.1%
Property disposal proceeds (net of costs) £25.0m
Number of properties 10
EPRA Occupancy by ERV* 80.0%
WAULT to expiry 4.7 yrs
WAULT to first break by ERV* 2.8 yrs
* Alternative Performance Measures. Details are provided in the full Annual
Report.
Performance Key Points
Year ended 31 December 2023
A key focus on delivering high dividend distributions to shareholders.
Dividends declared per Share Pence per share
2023 5.25
2022 6.60
2021 6.50
2020 6.40
2019 8.25
2018 8.05
2017 7.85
2016 7.65
2015 1.00
Total EPRA Return (from IPO) (EPRA NTA and dividend declared) Pence per share
Dec 2023 112.7
Dec 2022 124.2
Dec 2021 141.2
Dec 2020 136.3
Dec 2019 142.9
Dec 2018 137.5
Dec 2017 119.9
Dec 2016 113.2
Dec 2015 107.8
IPO Nov 2015 100.0
EPRA Total Return attributable to Shareholders since Admission^ 12.7%
EPRA Annual Total Return attributable to Shareholders 1.5%
EPRA Total Return attributable to Shareholders since Admission^
12.7%
EPRA Annual Total Return attributable to Shareholders
1.5%
^Admission: 6 November
2015.
Member of FTSE All-Share Index since March 2016.
Member of FTSE EPRA NAREIT UK Index since June 2016.
Terms are defined in the Glossary of Terms in the Annual Report.
Chairman's Statement
"In a challenging environment for REITs, the Company maintained a resilient
operational performance, which was underpinned by the asset and property
management teams who continue to provide vibrant spaces, allowing our tenants
to thrive over the long term."
Kevin McGrath, Chairman
Overview
In a challenging environment for REITs, the Company continued to see a rise in
tenants' return to the office with an average of 4.1 days per week and
increased space enquiries across the portfolio. The Asset Manager's survey
showed an increased 71.4% active office occupation* across the portfolio (June
2023: 65.4%) and that current active occupation is 102% of the pre-pandemic
occupancy levels and is expected to grow further. However, the Company was not
immune from the wider macro-economic environment with inflation continuing to
impact costs and in-turn potential occupiers taking a 'wait and see' position
on office requirement or downsizing in the near-term, reflected in EPRA
earnings reducing to 5.23p (31 December 2022: 6.6p) with a dividend per share
of 5.25p (31 December 2022: 6.6p).
The near-term focus of the Board has been upon the maturity of the £50.0m
4.5% Retail Eligible Bond maturing in August 2024. At the date of this
statement, the Board's election of the most appropriate refinancing option is
still subject to commercial and practical considerations, though significant
progress has been made with the options being considered.
In the challenging 'higher for longer' interest rate environment, real estate
values across most sectors were impacted but the Company outperformed against
a -17.4% decline for the MSCI Rest of UK offices Index. Against this backdrop
initiatives undertaken by the Asset Manager mitigated some of the wider
valuation decrease. However, the Company's portfolio still decreased in value
by 11.2% to £700.7 million (31 December 2022: £789.5m); after adjusting for
acquisitions, disposals and capital expenditure, reflecting a decrease of 9.3%
on a like-for- like basis.
During 2023, the Company continued to make strides towards reducing the
Company's LTV with the continued asset disposal programme. Though market
conditions continued to be constrained with limited transactional activity,
selected disposals were achieved of non-core assets amounting to £25.0
million (net of costs) and net initial yields of 4.5% (7.9% excluding vacant
units). In addition, the rolling capital expenditure programme continued to be
executed, partially mitigating the wider market valuation decline and being
targeted at non- speculative earnings accretive projects. In the year, the
rolling programme amounted to £10.2 million (net after costs) (31 December
2022: £10.0m). No acquisitions were transacted in 2023 reflecting our focus
on de-risking the offering in the short to medium term.
Rent roll remained robust at £67.8m (2022: £71.8m) and the EPRA occupancy
stands at 80% (2022: 83.4%). As of 31 December 2023, the net initial yield on
the portfolio was 6.2% (2022: 6.0%). The fully occupied rental income was
estimated at ERV £87.0m (2022: £92.0m) with an equivalent yield of 9.9%
(2022: 9.0%).
The Company continues to enjoy robust levels of rental collection, reaching
99.0% for the period up to 15 March 2024 (2022: equivalent period 98.7%).
* If a company has 100 desks then on average during business hours 71.4% of
desks would be actively occupied, with the balance unoccupied due to absences
from holidays, illness, or out of the office on business.
5.25pps 2023 Dividend (2022: 6.60pps)
£234.5 million of dividends have been declared since inception
£700.7 million Portfolio Valuation
Financial Resources
The Company's EPRA NTA reduced to £290.8 million (IFRS NAV: £306.1 million)
as at 31 December 2023, down from £379.2 million (IFRS NAV: £402.9 million)
as at 31 December 2022. This was the result of the previously mentioned
investment property portfolio revaluation which reflected the challenging
market environment. We retained a strong cash balance of £34.5 million as of
31 December 2023 (31 December 2022: £50.1 million), of which £30.2 million
is unrestricted (31 December 2022: £41.3 million).
The debt position comprising of 100.0% fixed and hedged interest rate debt,
meant the Company was able to mitigate rate volatility and ensured the
weighted average cost of debt remained stable at 3.5% at the end of 2023 (31
December 2022: 3.5%). As previously mentioned, the maturity of the £50m 4.5%
Retail Eligible Bond in August 2024, has been a particular focus of the Board.
The most appropriate refinancing option is still subject to commercial and
practical considerations, though significant preparatory work has been
undertaken to date in respect of both the debt and equity options, which
remain under active consideration.
The challenging real estate valuation environment in 2023 resulted in net
borrowings Net Loan-to-Value (LTV) of 55.1% as of 31 December 2023, up from
49.5% on 31 December 2022. The Company continues to execute its disposal
programme and active asset management initiatives to reduce the LTV to our
long-term target of approximately 40%.
Sustainability
I am delighted to share the considerable progress made by the ESG working
party throughout the year, leading to a 10% improvement in the Company's
Global Real Estate Sustainability Benchmark (GRESB) from 60 to 66, achieving
two Green Star Status. Furthermore, we have seen enhancements in our EPRA
sustainability accreditation and EPC ratings across the portfolio. EPC ratings
of C+ reached 73.7% (compared to 55.9% on 31 December 2022), and EPC B plus
and Exempt increased to 42.1% (compared to 23.6% on 31 December 2022). This
brings us closer to achieving the Minimum Energy Efficiency Standard ('MEES')
target of EPC B, well in advance of 2030.
The Company conducted a baseline exercise to access the carbon performance and
form a 1.5-degree carbon pathway. With this we plan to develop asset level
action plans to address risks. For 2024 we plan to expand the effort in
occupier data collection so our baseline and 1.5-degree pathway can be
undertaken with greater accuracy. The end goal for 2024 is to be able to
develop a science- based target initiative (SBTI) aligned target.
Market Environment
Investment in commercial property amounted to £36.7 billion during 2023,
according to research by Lambert Smith Hampton ("LSH"), 34.5% below the
volumes recorded in 2022, and 23.5% below the five-year average. However,
improving investment volumes in the final quarter suggest the market bottomed
out in 2023, signalling the early stages of an upward trend and a reason to be
optimistic moving into 2024.
Overall, investment in regional offices, throughout the UK reached £2.4
billion in 2023, and although investment in regional offices across 2023 was
40.2% below trend, optimism in the regional markets continues to be supported
by strong employment levels and a fall in the number of employees exclusively
working from home. As demonstrated with Q4 2023 investment volumes being 62.1%
higher than the previous quarter, reaching £0.8 billion.
According to monthly data from MSCI, rental value growth held up well for the
rest of UK office markets in the 12 months ended December 2023 with growth of
2.3%. Conversely, central London offices experienced modest growth of 1.7%
over the same period.
Dividends
The dividend continues to represent a significant component of total
shareholder returns. Over the period under review, the Company declared total
dividends of 5.25pps (2022: 6.6pps), ensuring compliance with the HMRC REIT
regime. Since inception, the Company has declared dividends amounting to
57.55pps and to date the Company has distributed c.£234 million in dividends.
Performance
For the period under review, the Company's total shareholder return was
-31.7%, versus the return of 10.7% for the FTSE EPRA NAREIT UK Total return
Index over the same period.
The EPRA total return from listing on 6 November 2015 was 12.7% (2022: 24.2%)
and the annualised EPRA Total Return was 1.5% p.a. (2022: 3.1% p.a.). Total
Shareholder Return was -30.7%, versus the FTSE EPRA NAREIT UK Total Return
Index of -8.1%.
Management Agreements
The Board announced on 13 April 2023 that ARA Asset Management Limited
acquired a majority shareholding in London & Scottish Property Investment
Management ("Asset Manager"), with Stephen Inglis retaining a significant
minority interest. All the Asset Manager's staff remained unchanged, including
Stephen Inglis as CEO of the Asset Manager, which ensured that there was no
disruption to the services provided to Regional REIT.
The Board announced on 11 October 2023 that ARA Europe Private Markets Limited
("ARA Europe"), was appointed as the Company's Investment Adviser, having
acquired the role from Toscafund Asset Management LLP ("Toscafund").
The Board believes the appointment of ARA Europe will enhance the overall
strength and capabilities to the benefit of the Company's long-term strategy.
Both of the management agreements continue on the existing terms to November
2026. Toscafund remains the Company's Alternative Investment Fund Manager
("AIFM") on an interim basis until ARA receives its AIFM licence.
Annual General Meeting
The notice for the 2024 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.
All Directors will stand for re-election at the 2024 AGM in accordance with
the Company's articles and the AIC Code. The Directors ensure that they
maintain their continuing professional development in accordance with the
requirements of their respective professions as well as receiving briefings
from the Company Secretary and other advisers on a regular basis.
The Board does not intend to appoint new Directors in the short-term and will
incorporate discussions to ensure an orderly refreshment of the Board in its
current succession planning.
The Board very much looks forward to meeting with Shareholders at the AGM.
Shareholder and Stakeholder Engagement
Ultimately, the satisfaction of our tenants and other stakeholders will
influence our performance. Our objective is to consistently provide
exceptional working environments, catering to diverse needs, whether it be a
small flexible unit or a prominent corporate headquarters, fostering an
environment where our tenants can flourish.
Active involvement with our tenants is a pivotal aspect of our asset
management initiatives, enabling us to grasp their requirements and recognise
both opportunities and challenges. We actively encourage transparent and
collaborative communication with our tenants, fostering an environment that
facilitates continuous enhancement of our workspaces and ensures mutual
advantages. This collaborative approach extends to our stakeholders, aiming to
enhance our operational efficiency.
The Company welcomes engagement with its shareholders and more details on the
Company can be found on the Company's website www.regionalreit.com. Further
information on Shareholder and stakeholder engagement can be found in the full
Annual Report.
Outlook
Although the economic activity in the UK regions continues to improve, the
Board expects the macroeconomic challenges to remain in the near term,
particularly around the availability of funding, given the prolonged monetary
policy tightening. Operationally, the Company continues to perform well,
delivering against the factors which are within its control, as demonstrated
by the robust rent collections.
The Board's focus remains to continue to offer vibrant spaces to enable our
current and future tenants the ability to grow and thrive, leading to
increased occupancy and in-turn a reduction in the carrying costs associated
with the vacant space. We look forward to growing the portfolio's rent roll
which underpins the quarterly dividend distributions; and the execution of the
Company's asset management plans to drive property values over the long term.
Kevin McGrath
Chairman
25 March 2024
Asset Manager and Investment Adviser's Report
"2023 was another active period for the Company, in which we completed on 88
new lettings, 7.1% above ERV. Additionally, the Company disposed of £25
million of assets to support the balance sheet and reduce the Company's LTV."
Stephen Inglis
CEO of London & Scottish Property Investment Management,
Asset Manager
Overview
2023 saw a continuation of the challenging market environment for REITs that
we witnessed throughout 2022. The sector continued to be sentiment driven, as
cautious investors shunned areas of the commercial property sector they deemed
less attractive. The office market once again faced the brunt of the storm,
which was reflected in the Company's portfolio valuation declining by 9.3%
from 31 December 2022 to 31 December 2023 on a like-for-like basis, albeit
this was considerably better than the 17.4% decline for the MSCI Rest of UK
offices Index. This resulted in a further increase in our LTV, which reached
55.1% at the end of the period. Whilst this is above our target, it's
important to note that the debt position is comprised of 100% fixed and hedged
interest rate debt with the weighted average cost of debt remaining stable at
3.5% at the end of 2023.
The Company is taking steps to reduce the LTV back to the approximate 40%
target and has disposed of certain assets whilst halting acquisition activity.
During the year, the Company disposed of assets totalling £25m, reflecting an
average net initial yield of 4.5%.
Operational performance was robust with 88 new lettings completed in 2023,
totalling 242,908 sq. ft., which, when fully occupied, will provide a gross
rental income of c. £3.8 million and equates to the average rent by sq. ft.
of £15.70.
Furthermore, rent collection has once again remained strong, with 99.0%
achieved at FY 23, better than previous reporting periods. This can be
attributed to our careful selection of tenants with investment grade credit
which can be relied upon throughout the most challenging economic cycles.
In addition, at the time of writing the Company has been focused upon
identifying refinancing options for the near term maturity of the Retail
Eligible Bond in August 2024, which are the most appropriate both commercial
and practical for the Company.
Key Points from 2023
· High level of rent collection
Achieved a high level of rent collection. As at 15 March 2024, rent collection
continued to strengthen, with FY 2023 collections increasing to 99.0%,
adjusting for monthly rent and agreed collections plans, which is similar to
the equivalent date in 2023 when 98.7% had been collected.
· 88 new lettings
Completed 88 new lettings in 2023, totalling 242,908 sq. ft., which when fully
occupied will provide a gross rental income of c. £3.8 million.
· £25.0 million of disposals
Disposals during 2023 totalled £25.0 million (net of costs), reflecting an
average net initial yield of 4.5% (7.9% excluding vacant properties).
· Increase in average rent
Average rent by let sq. ft. increased by 1.3% from £13.65 per sq. ft. in
December 2022 to £13.82 per sq. ft. in December 2023. MSCI monthly data shows
rental growth of 1.5% for rest of UK offices over the same period.
· Decrease in capital value
The like-for-like value of the portfolio decreased by 5.9% from 30 June 2023
to 31 December 2023 after adjusting for capital expenditure, acquisitions and
disposals during the period (5.5% excluding capital expenditure adjustment).
MSCI monthly data shows capital value decline of 11.0% for rest of UK offices
over the same period.
· Increase in GRESB Score
The Company submitted its Third Global Real Estate Sustainability Benchmark
("GRESB") assessment resulting in an increased score of 66 from 60.
Investment Activity in the UK Commercial Property Market
2023 proved to be a challenging year for investment in the UK commercial
property market, with overall investment in commercial property of £36.7
billion during 2023, according to research by Lambert Smith Hampton
("LSH")(1), 34.5% below the volumes recorded in 2022, and 23.5% below the
five-year average. However, improving investment volumes in the final quarter
suggest the market bottomed out in 2023, signalling the early stages of an
upward trend and a reason to be optimistic moving into 2024. Investment
volumes in the final quarter of 2023 reached £10.2 billion, up 13.8% on the
previous quarter and the highest level recorded since Q3 2022. Investment in
Q4 2023 pushed H2 2023 investment volumes £19.1 billion, 8.2% above the first
half of 2023. Additionally, Savills research suggests that optimism for the
future can be derived from the anticipated fall in the UK base rate in the
second half of 2024, which is expected to result in opportunistic buying in
2024.
The UK regions outside of London attracted £3.7 billion of investment in Q4
2023, 17.0% above the previous quarter, but 14.5% lower than the five-year
quarterly average. Investment in Q4 brought the annual 2023 total to £13.3
billion, 22.5% below the level recorded in 2022. Research by LSH highlights
the importance of the regional markets, with the regions outperforming when
compared with London. At £2.7 billion, investment in single assets across the
UK regional markets in Q4 2023 was 34.7% higher than the level of investment
in Greater London - well above the five-year quarterly average margin of 5.2%.
Two regions that experienced robust levels of investment in 2023 were the
South East and North West of England. Total investment in the South East
reached £2.9 billion. Data from LSH shows that £2.4 billion was the
investment in the North West of England. It is worth noting that the only
regional market that recorded investment volumes above the five-year average
was the West Midlands with annual investment of £2.1 billion in 2023.
Investment volumes in the UK regional office market reached £0.8 billion in
Q4 2023, 62.1% higher than the previous quarter. Overall, investment in
regional offices reached £2.4 billion in 2023. Although investment in
regional offices in 2023 was 40.2% below trend, optimism in the regional
markets continues to be supported by strong employment levels and a fall in
the number of employees exclusively working from home. The most recent data
from the ONS shows that the UK employment rate remained steady at 75.0% in the
three months to December 2023(2). Additionally, data from the ONS shows that
despite the rise in hybrid working as a result of Covid-19, the vast majority
of people do not work from home, with only 12% of workers reporting that they
worked exclusively from home - down from 26% in mid- January 2022.
Additionally, those aged 16 to 29 were less likely to exclusively work from
home with only 6% stating that they did not travel to work(3).
(1) Lambert Smith Hampton, UKIT Q4 2023
(2) Labour Market Overview, UK, December 2023
(3) ONS, Public Opinions and social trends, Great Britain: 17 to 29 March
2023, June 2023
Overseas investment in the UK property market accounted for just under half
(48.8%) of total investment in 2023, according to data from LSH. LSH estimates
that total overseas investment in 2023 reached £17.2 billion, 32.8% lower
than 2022 volumes and 25.1% below the five-year average. However, improved
investment volumes in the final quarter of 2023 reflects international
investors' confidence in UK commercial property. Overseas investment in Q4
2023 amounted to £5.1 billion, 39.4% above Q3 levels, but 16.1% below the
five-year quarterly average. International investors were net buyers in Q4 for
the fourth consecutive quarter with net purchasing of £2.9 billion - c. 13%
above trend. It is worth noting that overseas investment was largely supported
by North American buyers with the largest share of international inflows in Q4
for the sixth successive quarter.
LSH research highlights that North American investors purchased £1.9 billion
of UK commercial real estate in Q4 2023. Additionally, Middle Eastern
investors purchased £0.8 billion in the final quarter of 2023, the highest
quarterly volume over the last three years.
Occupational Demand in the UK Regional Office Market
Avison Young estimates that take-up of office space across nine regional
office markets(4) totalled 7.1 million sq. ft. in 2023; 11.7% below the level
of take-up recorded in 2022 and 6.0% lower than the 5-year average. That said,
it is worth noting that take-up in 2023 was 24.9% above the level reported in
2020. Take-up in the final quarter of 2023 was 1.4% above the five-year
average at 1.9 million sq. ft., marking the highest quarterly take-up figure
in 2023. Approximately 63.2% of take-up in Q4 2023 was transacted in city
centres, with 36.8% transacted in the out of town market - both the city
centre and out of town markets were in-line with the quarterly trend in Q4
2023. Avison Young highlights that occupiers have increasingly sought greater
quality space to attract and retain talent.
Occupational demand was driven by the professional sector, which accounted for
the highest proportion of take-up at 23.4% in 2023. Following the professional
sector, the public services, education & health sector and technology,
media & telecoms sector accounted for the second and third largest
proportion of take-up in the regional cities, accounting for 16.1% and 15.4%
respectively. Research from Savills shows that these sectors were also the
most active sectors pre-covid from 2015 to 2019(5).
According to data from CoStar, there was an increase in availability for all
regional office stock with total supply rising by 2.4% in 2023 to 82.0 million
sq. ft. However, it is worth highlighting that supply remains 2.0% below the
10-year average. Availability for prime office stock experienced a larger
increase when compared to the previous year, increasing by 2.7% compared to
2.3% for secondary office stock. According to Savills the overall vacancy rate
regional offices across ten regional UK markets(6) ticked upwards from 12.4%
in 2022 to 13.0% in 2023, 2.8% below the long-term average(7).
Furthermore, it is estimated that approximately 4.2 million sq. ft. of office
space is currently under construction in the Big Nine regional markets, with
Manchester, Bristol and Glasgow accounting for 24.8%, 22.7% and 12.6%,
respectively. Approximately 30.2% of office buildings currently under
construction are already pre-let. Additionally, 3.3 million sq. ft. (78.7%) is
due to complete in 2024.
The Asset Manager's opinion is that occupational market fundamentals remain
robust despite the recent fall in capital values. Overall, there appears to be
a disconnect between the investment market and the occupational market. The
Asset Manager's view is that the market bottomed out in 2023, signalling the
early stages of an upward trend and a reason to be optimistic moving into
2024.
(4) Nine regional office markets mentioned by Avison Young include:
Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Liverpool, Manchester
& Newcastle
(5) Savills: The Regional Office Market Overview, Q4 2023
(6) Ten regional office markets mentioned by Savills include: Aberdeen,
Birmingham, Bristol, Cambridge, Cardiff, Edinburgh, Glasgow, Leeds, Manchester
and Oxford
(7) Savills: The Regional Office Market Overview, Q4 2022
Rental Growth in the UK Regional Office Market
According to monthly data from MSCI, rental value growth held up well for the
rest of UK office markets in the 12 months ended December 2023 with growth of
2.3%. Conversely, central London offices experienced modest growth of 1.7%
over the same period(8). The most recent figures from MSCI shows that there is
evidence of sustained rental growth in the majority of the regional office
markets. According to the monthly MSCI digest index, Rest of UK and Mid-Town
& West End offices recorded the strongest rental growth in December 2023.
Avison Young expects rental growth to continue across most markets for the
remainder of 2024 and 2025(9). Demand for quality office space has put an
upward pressure on rents, with growth of 5.0% recorded across the Big Nine
regional markets in 2023, 27.2% above the five-year average rental growth
figure. Average headline rents now sitting at £36.50 per sq. ft., according
to research from Avison Young.
Research from Savills highlights that optimism in occupational markets is set
to be driven by limited development starts in 2023 and 2024, which in turn
will cause downward pressure on vacancy rates and result in rental growth.
Moreover, rental growth and positivity surrounding exit yields will reinstate
confidence among not only opportunistic investors but a more diverse range of
investors in 2025. Subsequently, this will trigger yield recovery that mirrors
the kind of recovery witnessed in previous cycles, according to Savills(10).
Regional REIT's Office Assets
EPRA occupancy of the Group's regional offices declined to 79.2% (2022:
82.8%). A like-for-like comparison of the Group's regional offices' EPRA
occupancy, as at 31 December 2023 versus 31 December 2022, shows occupancy of
79.2% (2022: 84.2%). WAULT to first break was 2.6 years (2022: 2.7 years);
like-for-like WAULT to first break of 2.6 years (2022: 2.7 years).
(8) MSCI, Colliers, UK Property Snapshot, February 2024
(9) Avison Young, Big Nine Q4 2023, February 2024
(10) Savills, Market in Minutes, January 2024
Property Portfolio
As at 31 December 2023, the Group's property portfolio was valued at £700.7
million (2022: £789.5 million), with rent roll of £67.8 million (2022:
£71.8 million), and an EPRA occupancy of 80.0% (2022: 83.4%).
On a like-for-like basis, 31 December 2023 versus 31 December 2022, EPRA
occupancy was 80.0% (2022: 84.7%).
There were 144 properties (2022: 154) in the portfolio, with 1,483 units
(2022: 1,552) and 978 tenants (2022: 1,076). If the portfolio was fully
occupied at Colliers International Property Consultants Ltd's view of market
rents, the rental income would be £87.0 million per annum as at 31 December
2023 (2022: £92.0 million).
As at 31 December 2023, the net initial yield on the portfolio was 6.2% (2022:
6.0%), the equivalent yield was 9.9% (2022: 9.0%) and the reversionary yield
was 10.8% (2022: 10.2%).
Property Portfolio by Sector
Valuation % by Sq. ft. Occupancy (EPRA) WAULT to first break Gross rental income Average rent ERV Capital rate Net Initial Yield Equivalent Reversionary
yield yield
Sector Properties (£m) valuation (m) (%) (yrs) (£m) (£psf) (£m) (£psf) (%) (%) (%)
Office 122 645.0 92.1 5.5 79.2 2.6 61.9 14.72 81.6 117.14 6.1 10.0 11.0
Retail 15 21.9 3.1 0.3 93.6 3.5 2.9 11.55 2.4 81.93 8.9 9.2 9.5
Industrial 4 22.1 3.2 0.4 86.2 5.0 1.9 5.27 2.1 52.76 5.9 7.6 8.0
Other 3 11.7 1.7 0.1 100.0 10.3 1.1 12.36 0.9 120.86 7.1 8.5 7.0
Total 144 700.7 100.0 6.3 80.0 2.8 67.8 3.82 87.0 111.40 6.2 9.9 10.8
Property Portfolio by Region
Valuation % by Sq. ft. Occupancy (EPRA) WAULT to first break Gross rental income Average rent ERV Capital rate Net Initial Yield Equivalent yield Reversionary
yield
Region Properties (£m) valuation (m) (%) (yrs) (£m) (£psf) (£m) (£psf) (%) (%) (%)
Scotland 33 113.8 16.2 1.2 72.4 4.0 10.7 13.31 16.5 98.62 5.1 10.4 11.7
South East 26 126.5 18.1 0.9 83.7 2.1 12.3 16.46 15.5 135.77 6.4 9.6 10.6
North East 21 112.5 16.0 1.0 77.2 3.0 9.8 13.03 13.1 113.59 5.4 9.7 10.5
Midlands 26 142.7 20.4 1.4 85.2 3.1 15.2 13.29 17.8 101.40 6.4 9.9 10.9
North West 18 97.7 13.9 0.9 73.4 2.0 9.1 13.50 12.1 108.71 5.9 10.0 11.1
South West 14 69.8 10.0 0.5 85.9 2.1 6.7 16.81 7.9 147.44 8.3 10.0 10.6
Wales 6 37.8 5.4 0.4 90.4 3.5 3.8 10.22 4.0 86.85 7.9 8.8 9.1
Total 144 700.7 100.0 6.3 80.0 2.8 67.8 13.82 87.0 111.40 6.2 9.9 10.8
* Tables may not sum due to rounding
Top 15 Investments (market value) as at 31 December 2023
Property Sector Anchor tenants Market value % of portfolio Lettable area EPRA Occupancy Annualised gross rent % of gross rental income WAULT to first break (years)
(£m) (sq ft) (%) (£m)
300 Bath Street, Glasgow Office University of Glasgow, Glasgow Tay House Centre Ltd, Fairhurst Group LLP, 19.4 2.8% 156,853 87.2% 1.2 1.8% 1.9
London & Scottish Property Investment Management
Hampshire Corporate Park, Eastleigh Office Aviva Central Services UK Ltd, Lloyd's Register EMEA, Complete Fertility Ltd, 19.0 2.7% 84,043 100.0% 1.8 2.7% 3.2
Silverstream Technologies (UK)Ltd
Eagle Court, Coventry Road, Birmingham Office Virgin Media Ltd, Rexel UK Ltd 18.8 2.7% 132,416 62.8% 1.3 1.9% 3.4
Beeston Business Park, Nottingham Office/ Industrial Metropolitan Housing Trust Ltd, SMS Electronics Ltd, Heart Internet Ltd SMS 16.5 2.3% 215,330 78.6% 1.4 2.1% 4.6
Product Services Ltd
Norfolk House, Smallbrook Queensway, Birmingham Office Global Banking School Ltd, Accenture (UK) Ltd 16.3 2.3% 118,530 98.9% 1.9 2.9% 6.8
800 Aztec West, Bristol Office NNB Generation Company (HPC) Ltd, EDF EPR Engineering UK Ltd 16.3 2.3% 73,292 100.0% 1.5 2.3% 1.2
Manchester Green, Manchester Office Chiesi Ltd, Ingredion UK Ltd, Assetz SME Capital Ltd, Contemporary Travel 16.3 2.3% 107,760 79.3% 1.4 2.1% 2.7
Solutions Ltd
Orbis 1, 2 & 3, Pride Park, Derby Office First Source Solutions UK Ltd, DHU Health Care C.I.C., Tentamus Pharma (UK) 14.8 2.1% 121,883 100.0% 1.8 2.7% 3.4
Ltd
Capitol Park, Leeds Office Hermes Parcelnet Ltd, BDW Trading Ltd 13.4 1.9% 98,340 41.6% 0.7 1.1% 4.1
Linford Wood Business Park, Milton Keynes Office IMServ Europe Ltd, Aztech IT Solutions Ltd, Autotech Recruit Ltd 13.3 1.9% 107,352 79.9% 1.3 2.0% 1.8
Oakland House, Manchester Office Please Hold (UK) Ltd, A.M.London Fashion Ltd, CVS (Commercial Valuers & 13.1 1.9% 161,502 74.3% 1.0 1.5% 1.9
Surveyors) Ltd
Portland Street, Manchester Office Evolution Money Group Ltd, Mott MacDonald Ltd, NCG (Manchester) Ltd, Simard 13.0 1.9% 55,787 95.9% 1.1 1.6% 1.9
Ltd
Lightyear - Glasgow Office Rolls-Royce Submarines Ltd, Loganair Ltd, Cefetra Ltd, Taylor Wimpey UK Ltd 12.3 1.8% 73,499 88.4% 1.1 1.6% 4.7
Airport, Glasgow
Origin 1& 2 Crawley Office Knights Professional Services Ltd, DMH Stallard LLP, Spirent Communications 11.7 1.7% 45,855 100.0% 1.1 1.6% 1.0
Plc, Travelopia Holdings Ltd
Buildings 2, Bear Brook Office Park, Aylesbury Office Utmost Life and Pensions Ltd, Musarubra UK Subsidiary 3 Ltd, Agria Pet 10.9 1.5% 61,642 94.5% 1.0 1.5% 3.5
Insurance Ltd
Total 224.9 32.1% 1,614,084 84.6% 19.7 29.1% 3.2
* Tables may not sum due to rounding
Top 15 Tenants (share of rental income) as at 31 December 2023
Tenant Property Sector WAULT to first break (years) Lettable area Annualised gross rent (£m) % of gross rental income
(sq ft)
EDF Energy Ltd 800 Aztec West, Bristol Electricity, gas, steam and air conditioning supply 4.3 109,114 1.7 2.5%
Endeavour House, Sunderland
Global Banking School Ltd Norfolk House, Smallbrook Queensway, Birmingham Education 8.5 73,628 1.4 2.1%
Shell Energy Retail Ltd Columbus House, Coventry Electricity, gas, steam and air conditioning supply 0.0 53,253 1.4 2.0%
Virgin Media Ltd Eagle Court, Coventry Road, Birmingham Information and communication 3.4 75,309 1.3 2.0%
Southgate Park, Peterborough
Secretary of State for Communities & Local Government 1 Burgage Square, Merchant Square, Wakefield Public sector 3.6 108,915 1.1 1.6%
Albert Edward House, Preston
Bennett House, Stoke-On-Trent
Oakland House, Manchester
Waterside Business Park, Swansea
First Source Solutions UK Ltd Orbis 1, 2 & 3, Pride Park, Derby Administrative and support service activities 3.3 62,433 1.0 1.5%
E.ON UK Plc Two Newstead Court, Nottingham Electricity, gas, steam and air conditioning supply 1.3 99,142 0.9 1.4%
NNB Generation Company (HPC) Ltd 800 Aztec West, Bristol Electricity, gas, steam and air conditioning supply 1.6 41,743 0.9 1.3%
SPD Development Co Ltd Clearblue Innovation Centre, Bedford Professional, scientific and technical activities 1.8 58,167 0.8 1.2%
Aviva Central Services UK Ltd Hampshire Corporate Park, Eastleigh Other service activities 0.9 42,612 0.8 1.1%
Odeon Cinemas Ltd Kingscourt Leisure Complex, Dundee Information and communication 11.8 41,542 0.8 1.1%
Care Inspectorate Compass House, Dundee Public Sector 4.3 51,852 0.7 1.0%
Quadrant House, Dundee
SpaMedica Limited 1175 Century Way, Thorpe Park, Leeds Human health and social work activities 2.5 40,529 0.6 0.9%
Albert Edward House, Preston Fairfax House, Wolverhampton Southgate Park,
Peterborough The Foundation Chester Business Park, Chester
University of Glasgow 300 Bath Street, Glasgow Education 0.7 29,885 0.6 0.9%
Homeserve Membership Ltd 1175 Century Way, Thorpe Park, Leeds Construction 2.7 37,818 0.6 0.9%
Aspect House, Bennerley Road, Nottingham
Total 3.5 925,942 14.5 21.5%
*Tables may not sum due to rounding.
Property Portfolio Sector and Region Splits by Valuation and Income as at 31
December 2023
By Valuation
As at 31 December 2023, 92.1% (2022: 91.8%) of the portfolio by market value
was offices and 3.1% (2022: 3.6%) was retail. The balance was made up of
industrial, 3.2% (2022: 3.1%) and other, 1.7% (2022: 1.4%). By UK region, as
at 31 December 2023, Scotland represented 16.2% (2022: 16.7%) of the portfolio
and England 78.4% (2022: 78.3%); the balance of 5.4% (2022: 5.0%) was in
Wales. In England, the largest regions were the Midlands, the South East and
the North East.
By Income
As at 31 December 2023, 91.3% (2022: 91.5%) of the portfolio by income was
offices and 4.2% (2022: 4.5%) was retail. The balance was made up of
industrial, 2.8% (2022: 2.6%), and other, 1.7% (2022: 1.3%). By UK region, as
at 31 December 2023, Scotland represented 15.8% (2022: 16.5%) of the portfolio
and England 78.6% (2022: 78.2%); the balance of 5.6% was in Wales (2022:
5.3%). In England, the largest regions were the Midlands, the South East and
the North East.
Lease Expiry Profile
The WAULT on the portfolio is 4.7 years (2022: 4.7 years); WAULT to first
break is 2.8 years (2022: 3.0 years). As at 31 December 2023, 15.9% (2022:
14.5%) of income was from leases, which will expire within one year, 10.7%
(2022: 14.0%) between one and two years, 33.3% (2022: 29.5%) between two and
five years and 40.1% (2022: 42.0%) after five years.
Lease Expiry Income Profile % of rent
0-1 years 15.9%
1-2 years 10.7%
2-5 years 33.3%
5+ years 40.1%
Total 100.0%
Source: LSPIM
Tenants by Standard Industrial Classification as at 31 December 2023
As at 31 December 2023, 12.2% of income was from tenants in the information
and communication sector (2022: 12.2%), 11.5% from the Professional,
scientific and technical activities sector (2022: 14.2%), 10.4% from the
administrative and support service activities sector (2022: 11.3%), 8.7% from
the financial and insurance activities sector (2022: 9.4%) and 8.0% from the
wholesale and retail trade (2022: 8.3%). The remaining exposure is broadly
spread.
No tenant represents more than 2.5% of the Group's rent roll as at 31 December
2023, the largest being 2.5% (2022: 2.4%).
Financial Review
Net Asset Value
In the year ended 31 December 2023, the EPRA NTA* of the Group decreased to
£290.8 million (IFRS NAV: £306.1 million) from £379.2 million (IFRS NAV:
£402.9 million) as at 31 December 2022, equating to a decrease in the diluted
EPRA NTA of 17.1pps to 56.4pps (IFRS: 59.3pps). This is after the dividends
declared in the year amounting to 5.70pps.
The EPRA NTA decrease of £88.4 million since 31 December 2022 was
predominately due to a £73.3 million reduction in the revaluation of the
property portfolio held as at 31 December 2023; £13.0m from the accounting
treatment being amended in accordance with IAS 40 paragraph 50, recognising
the prepayment cannot be recovered when the investment properties are sold
(see Note 3.1.1 below); and £0.7 million realised loss on the disposal of
properties.
The investment property portfolio valuation as at 31 December 2023 amounted to
£700.7 million (2022: £789.5 million). The property valuation decrease since
the December 2022 year end is a reflection of £73.3 million in property
revaluation, £25.0 million of net property disposals and loss on the
disposals of £0.7 million, offset by subsequent expenditure of £10.2
million.
Overall, on a like-for-like basis, the portfolio value decreased by 9.3%
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
2023 2022
(£m) (£m)
Acquisitions
Net (after costs) 0.1 79.3
Gross (before costs) 0.0 74.7
Disposals
Net (after costs) 25.0 84.1
Gross (before costs) 26.1 90.0
Capital Expenditure
Net (after dilapidations) 10.2 10.0
Gross (before dilapidations) 11.0 10.9
* Further details of the new EPRA performance measures can be found in the
Annual Report.
The EPRA NTA per share decreased to 56.4pps (2022: 73.5pps). The EPRA NTA is
reconciled in the table below:
£m Pence per Share
Opening EPRA NTA (31 December 2022) 379.2 73.5
Net rental and property income 53.7 10.4
Administration and other expenses (10.6) (2.1)
Loss on the disposal of investment properties (0.7) (0.1)
Change in the fair value of investment properties (86.4) (16.7)
Change in value of right of use (0.1) (0.0)
EPRA NTA after operating loss 335.1 65.0
Net finance expense (16.1) (3.1)
Realised gain on derivative financial instruments 1.2 0.2
Taxation 0.0 0.0
EPRA NTA before dividends paid 320.2 62.1
Dividends paid (29.4) (5.7)
Closing EPRA NTA (31 December 2022) 290.8 56.4
Table may not sum due to rounding
As at 31 December 2023, the total number of Shares in issue are 515,736,583.
Income Statement
Operating profit before gains and losses on property assets and other
investments for the year ended 31 December 2023 amounted to £43.1 million
(2022: £51.2 million). Loss after finance and before taxation of £67.5
million (2022: loss £65.2 million). 2023 included the rent roll for
properties held from 31 December 2022, plus the partial rent roll for
properties disposed of during the year.
Rental and property income amounted to £70.1 million, excluding recoverable
service charge income and other similar items (2022: £76.3 million), due to a
decrease in the rent roll being held during the year to 31 December 2023.
More than 80% of the rental income was collected within 30 days of the due
date and the allowance for doubtful debts in the year amounted to a £0.5
million (2022: release of £0.4 million).
Non-recoverable property costs, excluding recoverable service charge income
and other similar costs, amounted to £16.4 million (2022: £13.7 million),
and the rent roll amounted to £67.8 million (2022: £71.8 million).
Realised losses on the disposal of investment properties amounted to £0.7
million (2022: loss £8.6 million). The loss on the disposals were from the
aggregate disposal of 10 properties and four part sales in the period, on
which individual asset management plans had been completed and/or were of
sub-optimal asset size. The change in the fair value of investment properties
amounted to a loss
of £73.3 million (2022: loss of £113.2 million), and an adjustment of
£13.0m from rent smoothing, due to the Group now recognising the fair value
of investment property as equal to the independent property valuer's valuation
of £700.7m, which is presented net of the prepayments arising from rent
smoothing.
Net capital expenditure amounted to £10.3 million (2022: £10.0 million). The
gain on the disposal of the right of use assets amounted to nil million (2022:
£0.1 million). The change in value of right of use assets amounted to a
charge of £0.1 million (2022: charge £0.2 million).
Interest income amounted to £0.1 million (2022: £0.1 million).
Finance expenses amount to £16.2 million (2022: £17.3 million). The decrease
is due to £20.0m of net borrowings being repaid during 2023.
The EPRA* cost ratio, including direct vacancy costs, was 38.5% (2022: 32.8%).
The increase in the cost ratio is ostensibly a reflection of the increase in
Other property expenses and irrecoverable costs. The EPRA cost ratio,
excluding direct vacancy costs was 16.4% (2022: 16.2%). The ongoing charges
for the year ending 31 December 2023 were 7.5% (2022: 5.3%) and 3.2% excluding
void costs (2022: 2.6%).
The EPRA Total Return from Listing to 31 December 2023 was 12.7% (2022:
24.2%), with an annualised rate of 1.5% pa (2022: 3.1% pa).
*Alternative Performance Measures, Details are provided in the Glossary of
Terms and the EPRA Performance measures in the Annual Report.
Dividend
In relation to the year from 1 January 2023 to 31 December 2023, the Company
declared dividends totalling 5.25pps (2022: 6.60pps). Since the end of the
year, the Company has declared a dividend for the fourth quarter of 2023 of
1.20pps. A schedule of dividends can be found in note 13 below.
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 two to six years. The weighted average maturity of the bank debt and
retail eligible bond is 3.5 years (2022: 4.5 years).
The Group's borrowing facilities are with: the Royal Bank of Scotland, Bank of
Scotland and Barclays; Scottish Widows Ltd. & Aviva Investors Real Estate
Finance; Scottish Widows Ltd. and Santander UK. The total bank borrowing
facilities at 31 December 2023 amounted to £370.8 million (2022: £390.8
million) (before unamortised debt issuance costs). In addition to the bank
borrowings, the Group has a £50 million 4.5% retail eligible bond, which is
due for repayment in August 2024. In aggregate, the total debt available at 31
December 2023 amounted to £420.8 million (2022: £444.9 million).
At 31 December 2023, the Group's cash and cash equivalent balances amounted to
£34.5 million (2022: £50.1 million), of which £25.7 million (2022: £37.8
million) was unrestricted cash.
The Group's net loan to value ("LTV") ratio stands at 55.1% (2022: 49.5%)
before unamortised costs. The Board continues to target a net LTV ratio of
40%.
Debt Profile and LTV Ratios as at 31 December 2023
Facility Outstanding debt* Maturity date Gross loan to value** Annual interest rate
Lender £'000 £'000 % %
Royal Bank of Scotland, Bank of Scotland & Barclays 122,221 122,221 Aug-26 54.5 2.40 over 3 months
£ SONIA
Scottish Widows Ltd. and Aviva Investors Real Estate Finance 152,500 152,500 Dec-27 52.9 3.28 Fixed
Scottish Widows Ltd. 36,000 36,000 Dec-28 47.2 3.37 Fixed
Santander UK 60,029 60,029 Jun-29 52.1 2.20 over 3 months
£ SONIA
370,750 370,750
Retail eligible bond 50,000 50,000 Aug-24 NA 4.50 Fixed
420,750 420,750
* Before unamortised debt issue costs
** Based on Colliers International Property Consultants Ltd.
Table may not sum due to rounding.
As at 31 December 2023, the Group had headroom against its borrowing
covenants.
The net gearing ratio (net debt to Ordinary Shareholders' equity (diluted)) of
the Group was 126.2% as at 31 December 2023 (2022: 96.9%).
Interest cover, excluding amortised costs, stands at 2.9 times (2022: 3.4
times) and including amortised costs, stands at 2.7 times (2022: 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 2023 31 December 2022
% %
100.0 100.9
Borrowings interest rate hedged
Thereof:
Fixed 56.7 56.9
Swap 28.6 27.8
Cap 14.7 16.2
WACD(1) 3.5 3.5
(1) WACD - Weighted Average Effective Interest Rate including the cost of
hedging.
Table may not sum due to rounding
There is no over-hedged position as at 31 December 2023. The position was
over-hedged as at 31 December 2022, 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 had 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 2023, the Group recognised a deferred tax charge of £8,431 (2022: tax
credit of £5,570).
Principal Risks and Uncertainties
Effective risk management is embedded throughout Regional REIT and underpins
the execution of the Company'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 Board recognises the importance of embedding a framework to identify,
actively monitor, manage and mitigate its risks, which include, but are not
limited to: strategic, valuation, healthcare, economic and political, funding,
tenant, financial and tax charges, operational, regulatory, environmental
risks and emerging risks.
The Board has overall responsibility for the Company's system of risk
management and internal controls. 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.
Over the long term, the business will face other challenges and emerging
threats for which it remains vigilant.
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 Company's strategy.
Approach to Managing Risk - Identification, Evaluation and Mitigation
The risk management process is focussed upon being risk aware and 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 Company.
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
The Board is responsible for defining the level of risk that the Company
assumes and ensuring that it remains in-line with the Company's strategy. 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 Adviser, and
with the latest information available, regularly reviews the risk appetite of
the Company allowing a prompt response to identified emerging risks.
Changes to the Principal Risks
Although the risks associated with Covid-19 pandemic lessened considerably
during the year, the conflicts in Ukraine, Israel and Palestine exacerbated
geopolitical tensions resulting in volatility in commodity prices,
particularly energy related commodities, interrupted supply chains, and
exacerbated inflationary pressures, all of which has increased economic
headwinds.
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.
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.
The Company's principal risks consist of the ten most significant risks which
are composed of eight strategic and two operational risks. The strategic risks
relate to investment strategy, valuation, healthcare, economics and political,
funding, tenant, financial and tax changes, and environmental and energy
efficiency standards; operational risk encompasses business disruption, and
accounting, legal and regulatory.
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 Company.
Principal Risk Summary
Principal Risk Evolution of the trend during the year
1. Strategic ó
2. Valuation ö
3. Healthcare ⇩
4. Economic and political ó
5. Funding ö
6. Tenant ó
7. Financial and tax changes ó
8. Operational ó
9. Accounting, legal and regulatory ó
10. Environmental and energy efficiency standards ö
1. Strategic
Potential Impact Mitigation Movement in the period ó
An inappropriate investment strategy, and/or failure to implement the strategy · A clearly defined investment strategy, which is reviewed annually. · The property portfolio remains balanced across a range of
could result in lower income and capital returns to Shareholders.
geographical areas and a large number of investment properties.
· A defined and rigorous investment appraisal process.
· Acquire portfolios, which offer Shareholders diversification of
investment risk by investing in a range of geographical areas and number of
properties.
· 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 and outside of · The Group continues to purchase properties in the UK outside the M25
the M25 motorway. However, the Group may invest in property portfolios in motorway.
which up to 50% of the properties (by market value) are situated within the
M25 motorway.
· No single property, in the ordinary course of business, is expected · 300 Bath Street (2022: 300 Bath Street) is the highest valued
to exceed 10% of the Company's aggregate Investment Properties valuation. property, which equates to 2.8% (2022: 3.0%) of the Company's investment
However, the Board may, in exceptional circumstances, consider a property properties.
having a value of up to 20% of the Company's investment property value at the
time of investment.
· No more than 20% of the Company's investment property value shall be · The Company's largest single tenant exposure is 2.5% (2022: 2.4%) of
exposed to any single tenant or group undertaking of that tenant. gross rental income, being EDF Energy Ltd (2022: Virgin Media Ltd)
· Speculative development (i.e., properties under construction, but · No speculative construction was undertaken during the year under
excluding any refurbishment works, which have not been pre-let) is prohibited. review.
· The value of the properties is protected as far as possible by an · The Asset Manager continues to actively manage the investment
active asset management programme, which is regularly reviewed against the properties in accordance with market conditions and the individual asset
business plan for each property. programme.
2. Valuation
Potential Impact Mitigation Movement in the period ö
The valuation of the Company's portfolio affects its profitability and net · The Company's external valuer, Colliers International Property · Colliers International Property Consultants Ltd. independently
assets. Consultants Ltd, provide independent valuations for all properties on a provides the valuation for the entire portfolio, valuing each individual
six-monthly basis in accordance with the RICS Red Book. asset.
· The Audit Committee has the opportunity to discuss 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 Asset Manager produces asset management plans for each individual
asset to enhance both income and long term value. These actions also mitigate
the macro economic factors which may impact valuations.
3. Healthcare
Potential Impact Mitigation Movement in the period ⇩
The economic disruption resulting from COVID-19 and other social health issues · The Asset Manager continues to adapt and, as required, to support · The Group has continued to scrutinise all current risk mitigation
could continue to impact rental income; the ability of Valuers to discern tenants. approaches employed and to work closely with all parties.
valuations; the ability to access funding at competitive rates, adherence to
banking covenants, maintain its dividend policy, and adhere to the HMRC REIT · The property portfolio has been deliberately constituted to ensure a
regime requirements. diverse range of tenants by standard industrial classification; which ensured
the many tenants, being designated as essential services, continued to operate
throughout the recent pandemic.
· Close relationships with lenders ensuring continued dialogue around
covenants and ability to access funding as required at competitive rates.
· Initial vetting of all third-party providers with annual due
diligence reviews, including the review of business continuity capabilities to
minimise when remote working has been necessitated.
4. Economic and Political
Potential Impact Mitigation Movement in the periodó
Significant political events could impact the health of the UK economy, · The Group operates with a sole focus on the UK regions, with no · There remains a risk that property valuations and the occupancy
resulting in borrowing constraints, changes in demand by tenants for suitable foreign currency exchange exposure. It remains well positioned with a market may be impacted by change in the political landscape.
properties, the quality of the tenants, and ultimately the property portfolio deliberately diverse standard industry classification of tenants generating
value. 978 (2022: 1,076) income streams which are located in areas of expected
economic growth.
· The Board receives advice on macro-economic risks from the Asset
Manager and Investment Adviser and other advisers and acts accordingly.
2. Valuation
Potential Impact Mitigation Movement in the period ö
The valuation of the Company's portfolio affects its profitability and net · The Company's external valuer, Colliers International Property · Colliers International Property Consultants Ltd. independently
assets. Consultants Ltd, provide independent valuations for all properties on a provides the valuation for the entire portfolio, valuing each individual
six-monthly basis in accordance with the RICS Red Book. asset.
· The Audit Committee has the opportunity to discuss 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 Asset Manager produces asset management plans for each individual
asset to enhance both income and long term value. These actions also mitigate
the macro economic factors which may impact valuations.
3. Healthcare
Potential Impact Mitigation Movement in the period ⇩
The economic disruption resulting from COVID-19 and other social health issues · The Asset Manager continues to adapt and, as required, to support · The Group has continued to scrutinise all current risk mitigation
could continue to impact rental income; the ability of Valuers to discern tenants. approaches employed and to work closely with all parties.
valuations; the ability to access funding at competitive rates, adherence to
banking covenants, maintain its dividend policy, and adhere to the HMRC REIT · The property portfolio has been deliberately constituted to ensure a
regime requirements. diverse range of tenants by standard industrial classification; which ensured
the many tenants, being designated as essential services, continued to operate
throughout the recent pandemic.
· Close relationships with lenders ensuring continued dialogue around
covenants and ability to access funding as required at competitive rates.
· Initial vetting of all third-party providers with annual due
diligence reviews, including the review of business continuity capabilities to
minimise when remote working has been necessitated.
4. Economic and Political
Potential Impact Mitigation Movement in the periodó
Significant political events could impact the health of the UK economy, · The Group operates with a sole focus on the UK regions, with no · There remains a risk that property valuations and the occupancy
resulting in borrowing constraints, changes in demand by tenants for suitable foreign currency exchange exposure. It remains well positioned with a market may be impacted by change in the political landscape.
properties, the quality of the tenants, and ultimately the property portfolio deliberately diverse standard industry classification of tenants generating
value. 978 (2022: 1,076) income streams which are located in areas of expected
economic growth.
· The Board receives advice on macro-economic risks from the Asset
Manager and Investment Adviser and other advisers and acts accordingly.
5. Funding
Potential Impact Mitigation Movement in the period ö
The Group may not be able to secure, be that bank lending, private credit or · The Asset Manager has a Corporate Finance team dedicated to · Weighted average debt term decreased to 3.5 (2022: 4.5 years).
the bond markets, on acceptable terms, which may impinge upon investment optimising the Company's funding requirements.
opportunities, the ability to grow the Company and distribute an attractive
· Weighted average cost of capital, including hedging costs was 3.5%
dividend. · Both debt and equity funding options are constantly reviewed with an (2022: 3.5%).
emphasis on reducing the weighted average cost of capital and lengthening the
weighted average debt to maturity. · LTV increased to 55.1% (2022: 49.5%).
· Borrowings are currently provided by a range of institutions with · Maturity of the £50m 4.5% retail eligible bond on 6 August 2024.
targeted staggered maturities.
· Strong relationships with key long-term lenders.
· Continual monitoring of LTV.
Bank reference interest rates may be set to become more volatile, accompanying · Policy of hedging at least 90% of variable interest rate borrowings. · Continued adherence to the hedging policy.
volatile inflation Fixed, swapped and capped borrowing amounted to 100.0% (31 December 2022:
100.9%)
· Borrowings are currently provided by a range of institutions with
targeted staggered maturities.
Breach of covenants within the Company's funding structure could lead to a · The Asset Manager's corporate finance team reviews the applicable · The Group continues to have headroom against the applicable borrowing
cancellation of debt funding if the Company is unable to service the debt. covenants on a regular basis and these are considered in future operational covenants.
decisions.
· Compliance certificates and requested reports are prepared as
scheduled.
6. Tenant
Potential Impact Mitigation Movement in the period ó
Type of tenant and concentration of tenant could result in lower income from · An active asset management programme with a focus on the Asset · This risk remains stable in view of the increasing diversification of
reduced lettings or defaults. Manager working with individual tenants to assess any occupational issues and properties, tenants and geographies in the portfolio.
to manage any potential bad debts.
· The tenant mix and their underlying activity remains diversified,
· Diversified portfolio of properties let, where possible, to a large with the number of tenants amounting to 978 at the year-end (2022: 1,076).
number of low-risk tenants across a wide range of standard industrial
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 of lease term maturity and/or break options could result · The portfolio lease and maturity concentrations are monitored by the · The WAULT to first break as at 31 December 2023 was 2.8 years (2022:
in a more volatile contracted rent roll. experienced Asset Manager to minimise concentration. 3.0 years)
· There is a focus on securing early renewals and increased lease · The largest tenant is 2.5% (2022: 2.4%) of the gross rental income,
periods. being EDF Energy Limited.
· The requirement for suitable tenants and the quality of the tenant is · The Asset Management team remains vigilant to the financial
managed by the experienced Asset Manager which maintains close relationships well-being of our current tenants and continues to liaise with tenants and
with current tenants and with letting agents. agents.
6. Tenant
Potential Impact
Mitigation
Movement in the period ó
Type of tenant and concentration of tenant could result in lower income from
reduced lettings or defaults.
· An active asset management programme with a focus on the Asset
Manager working with individual tenants to assess any occupational issues and
to manage any potential bad debts.
· Diversified portfolio of properties let, where possible, to a large
number of low-risk tenants across a wide range of standard industrial
classifications throughout the UK.
· Potential acquisitions are reviewed for tenant overlap and potential
disposals are similarly reviewed for tenant standard industrial classification
concentration.
· This risk remains stable in view of the increasing diversification of
properties, tenants and geographies in the portfolio.
· The tenant mix and their underlying activity remains diversified,
with the number of tenants amounting to 978 at the year-end (2022: 1,076).
A high concentration of lease term maturity and/or break options could result
in a more volatile contracted rent roll.
· The portfolio lease and maturity concentrations are monitored by the
experienced Asset Manager to minimise concentration.
· There is a focus on securing early renewals and increased lease
periods.
· The requirement for suitable tenants and the quality of the tenant is
managed by the experienced Asset Manager which maintains close relationships
with current tenants and with letting agents.
· The WAULT to first break as at 31 December 2023 was 2.8 years (2022:
3.0 years)
· The largest tenant is 2.5% (2022: 2.4%) of the gross rental income,
being EDF Energy Limited.
· The Asset Management team remains vigilant to the financial
well-being of our current tenants and continues to liaise with tenants and
agents.
7. Financial and Tax Changes
Potential Impact Mitigation Movement in the period ó
Changes to the UK REIT and non-REIT regimes tax and financial legislation. · The Board receives advice on these changes where appropriate and will · Advice is received from several corporate advisers, including tax
act accordingly. adviser KPMG LLP and the Company adapts to changes as required.
8. Operational
Potential Impact Mitigation Movement in the period ó
Business disruption could impinge on the normal operations of the Group. · The Asset Manager and Investment Adviser each have contingency plans · Both the Asset Manager and Investment Adviser annually review their
in place to ensure there are no disruptions to the core infrastructure which Disaster and Business Continuity Plans.
would impinge on the normal operations of the Company.
· An annual due diligence exercise is carried out on all principal · The annual due diligence visits were undertaken with the Company's
third-party service providers. principle third-party service providers. No concerns were identified from the
visits.
· As an externally managed investment company, there is a continued · Both the Asset and Investment Adviser are viable going concerns.
reliance on the Asset Manager and Investment Adviser and other third-party
service providers. · The Asset Manager continues to monitor changes in Health and Safety
regulations.
· All acquisitions undergo a rigorous due diligence process and all
multi-let properties undergo an annual comprehensive fire risk. · The Asset Manager reviews the adequacy of insurance cover on an
ongoing basis.
· The impact of physical damage and destruction to investment
properties is mitigated by ensuring all are covered by a comprehensive
building, loss of rent and service charge plus terrorism insurance with the
exception of a small number of "self-insure" arrangements covered under
leases.
Information security and cyber threat resulting in data loss, or negative · The Asset Manager and Investment Adviser each has a dedicated · The Asset Manager and Investment Adviser review the respective
regulatory, reputational, operational (including GDPR), or financial impact. Information Technology team which monitors information security, privacy risk Information Technology policies and the material third party service suppliers
and cyber threats ensuring their respective operations are not interrupted. as required to ensure they reflect current and possible future threats.
· As required the building management systems are reviewed for cyber
security risk.
9. Accounting, Legal, and Regulatory
Potential Impact Mitigation Movement in the period ö
Changes to accounting, legal and/or regulatory legislation, including · Robust processes are in place to ensure adherence to accounting, · The Company continues to receive advice from its corporate advisers
sanctions could result in changes to current operating processes. legal and regulatory requirements, including sanctions and Listing Rules. and has incorporated changes where required.
· All contracts are reviewed by the Company's legal counsel. · The Administrator and Company Secretary continue to attend all Board
meetings and advise on Listing Rule requirements in conjunction with the
· The Administrator, Sub-Administrator and the Company Secretary attend Corporate Broker and Financial Adviser.
all relevant Board meetings in order to be aware of all announcements that
need to be made.
· All compliance issues are raised with the Company's Financial
Adviser.
Loss of REIT status · The HMRC REIT regime requirements are monitored by the Asset Manager · The Company continues to receive advice from external advisers on any
and Investment Adviser, and external advisors including the Company's tax anticipated future changes to the REIT regime.
adviser KPMG LLP and its Sub-Administrator Link Alternative Fund
Administrators Limited.
10. Environmental and Energy Efficiency Standards
Potential Impact Mitigation Movement in the period ö
The Company's cost base could be impacted, and management time diverted, due · The Board receives regular updates on environmental, social, · Additional attention is currently being devoted to this area to
to climate changes and associated legislation. governance and potential legislation changes from its advisers. ensure the appropriate approach is applied and embedded in Company activities.
· The Company has engaged an environmental consultancy to assist with
achieving and improving the Global Real Industry Sustainability Benchmark
(GRESB).
Changes to the environment could impact upon the operations of the Company. · Property acquisitions undergo a rigorous due diligence process, · The rigour of the environmental assessments process continues to be
including an environmental assessment. reviewed with the aim of enhancing it.
· The Asset Manager monitors the portfolio for any detrimental
environmental impact, by way of frequent inspections of the properties, and
the annual insurance review process.
An Energy Performance Rating of E and below may impact the Company's ability · The Company continues to review each property to ensure adherence · The Asset Manager is continually reviewing the feasibility of
to sell or lease an asset. with Energy Performance Rating requirements. enhancing Energy Performance Ratings to exceed the minimum requirement.
· The energy efficiency of investment acquisitions is fully considered
as part of the due diligence process for the acquisition of a property.
Changes to the Principal Risks and Uncertainties
The Board, via the Audit Committee, has reviewed and agreed the movement
during the year to each of the identified principal risks and uncertainties
following review of these risks, having considered the characteristics of
these and the economic and geopolitical factors. The potential impact of these
risks to the Company's future strategy is considered on an ongoing basis.
Extract FROM the Report of the Directors
Share Capital
As at 31 December 2023, the Company's total issued share capital was
515,736,583 Ordinary Shares (2022: 515,736,583).
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 (2022: none) are currently in issue.
At the AGM held on 25 May 2023, the Directors were granted authority to allot
Ordinary Shares on a non- pre-emptive basis for cash up to a maximum number of
51,573,658 Shares (being 10% of the issued Share capital on 24 March 2023).
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
51,573,658 Shares (being 10% of the issued Share capital on 24 March 2023)
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 2024 AGM where resolutions
for their renewal will be sought, or, if sooner, on 25 August 2024.
At the AGM held on 25 May 2023, the Company was authorised to purchase up to a
maximum of 51,573,658 of its own Ordinary Shares (being 10% of the Company's
issued Share capital on 24 March 2023).
No Shares have been purchased under this authority during the year under
review, which will expire at the Company's 2024 AGM where a resolution for its
renewal will be sought, or, if sooner, on 25 August 2024.
Restrictions on Voting Rights
Other than those discussed in the full Annual Report, 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 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 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 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 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 below, confirms
that to the best of each person's knowledge:
· the financial statements, prepared in accordance with 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 Manager and Investment
Advisers' 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 25
March 2024 and signed on its behalf by:
Kevin McGrath
Chairman
25 March 2024
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2023
Year ended Year ended
31 December 31
2023 December 2022
Notes £'000 £'000
Continuing Operations
Revenue
Rental and property income 5 91,880 93,318
Property costs 6 (38,161) (30,672)
Net rental and property income 53,719 62,646
Administrative and other expenses 7 (10,626) (11,421)
Operating profit before gains and losses on property assets and other 43,093 51,225
investments
Loss on disposal of investment properties 14 (726) (8,636)
Change in fair value of investment properties 14 (86,350) (113,233)
Gain on the disposal of right of use assets 25 - 76
Change in fair value of right of use assets 25 (139) (185)
Operating loss (44,122) (70,753)
Finance income 9 79 126
Finance expenses 10 (16,210) (17,285)
Net movement in fair value of derivative financial instruments
24 (7,194) 22,743
Loss before tax (67,447) (65,169)
Taxation 11 (9) 6
Total comprehensive losses for the year
(attributable to owners of the parent company) (67,456) (65,163)
Loss per Share - basic and diluted 12 (13.1)p (12.6)p
The notes below are an integral part of these consolidated financial
statements.
Total comprehensive losses all arise from continuing operations.
Consolidated Statement of Financial Position
As at 31 December 2023
31 31 December
December 2022
Notes 2023 £'000
£'000
Assets
Non-current assets
Investment properties 14 687,695 789,480
Right of use assets 25 10,987 11,126
Non-current receivables on tenant loan 16 385 578
Derivative financial instruments 24 16,009 24,449
715,076 825,633
Current assets
Trade and other receivables 17 32,837 30,274
Cash and cash equivalents 18 34,505 50,148
67,342 80,422
Total assets 782,418 906,055
Liabilities
Current liabilities
Trade and other payables 19 (33,039) (39,231)
Deferred income 20 (15,597) (16,661)
Retail eligible bonds 23 (49,907) -
Deferred tax liabilities 21 (708) (699)
(99,251) (56,591)
Non-current liabilities
Bank and loan borrowings 22 (365,603) (385,265)
Retail eligible bonds 23 - (49,752)
Lease liabilities 25 (11,475) (11,505)
(377,078) (446,522)
Total liabilities (476,329) (503,113)
Net assets 306,089 402,942
Equity
Stated capital 26 513,762 513,762
Accumulated losses (207,673) (110,820)
Total equity attributable to owners of the parent company 306,089 402,942
Net asset value per Share - basic and diluted 27 59.3p 78.1p
The notes below are an integral part of these consolidated financial
statements.
These consolidated group financial statements were approved by the Board of
Directors and authorised for issue on 25 March 2024 and signed on its behalf
by:
Kevin McGrath
Chairman
25 March 2024
Consolidated Statement of Changes in Equity
For the year ended 31 December 2023
Attributable to owners of the parent company
Stated Accumulated losses
capital £'000 Total
Notes £'000 £'000
Balance at 1 January 2023 513,762 (110,820) 402,942
Total comprehensive losses - (67,456) (67,456)
Dividends paid 13 - (29,397) (29,397)
Balance at 31 December 2023 513,762 (207,673) 306,089
For the year ended 31 December 2022
Attributable to owners of the parent company
Stated Accumulated losses
capital £'000 Total
Notes £'000 £'000
Balance at 1 January 2022 513,762 (11,361) 502,401
Total comprehensive losses - (65,163) (65,163)
Dividends paid 13 - (34,296) (34,296)
Balance at 31 December 2022 513,762 (110,820) 402,942
The notes below are an integral part of these consolidated financial
statements.
Consolidated Statement of Cash Flows
For the year ended 31 December 2023
Year ended Year ended
31 December 31 December
2023 2022
£'000 £'000
Cash flows from operating activities
Loss for the year before taxation (67,447) (65,169)
- Change in fair value of investment properties 86,350 113,233
- Change in fair value of financial derivative instruments 7,194 (22,743)
- Loss on disposal of investment properties 726 8,636
- Gain on disposal of right of use assets - (76)
- Change in fair value of right of use assets 139 185
Finance income (79) (126)
Finance expense 16,210 17,285
Increase in trade and other receivables (2,380) (619)
Decrease in trade and other payables (3,611) (2,060)
Decrease in deferred income (1,064) (90)
Cash generated from operations 36,038 48,456
Interest paid (14,775) (15,198)
Taxation received - -
Net cash flow generated from operating activities 21,263 33,258
Investing activities
Investment property acquisitions and subsequent expenditure (10,260) (89,287)
Sale of investment properties 24,969 84,087
Interest received 89 116
Net cash flow generated from/ (used in) investing activities 14,798 (5,084)
Financing activities
Proceeds received on derivative financial instruments 1,246 -
Dividends paid (31,978) (33,971)
Bank borrowings advanced 3,729 14,322
Bank borrowings repaid (23,771) (13,467)
Bank borrowing costs paid (495) (485)
Lease repayments (435) (553)
Net cash flow used in financing activities (51,704) (34,154)
Net decrease in cash and cash equivalents (15,643) (5,980)
Cash and cash equivalents at the start of the year 50,148 56,128
Cash and cash equivalents at the end of the year 34,505 50,148
The notes below are an integral part of these consolidated financial
statements.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2023
1. Corporate information
The Group's consolidated financial statements for the year ended 31 December
2023 comprise the results of the Company and its subsidiaries (together
constituting the "Group") and were approved by the Board and authorised for
issue on 25 March 2024.
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, 2020, as amended, and the Registered Collective Investment
Scheme Rules & Guidance 2021.
The Company did not begin trading until 6 November 2015 when the Shares were
admitted to trading on the LSE.
The nature of the Group's operations and its principal activities are set out
in the Strategic Report in the full Annual Report.
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 2023
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 2023 have been audited
and approved, but have not yet been filed.
The Group's audited financial statements for the year ended 31 December 2023
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,
but did include a section highlighting a material uncertainty that may cast
significant doubt on the Group's ability to continue as a going concern.
Further detail is provided within the Going Concern section of this
announcement.
The financial information contained within this preliminary statement was
approved and authorised for issue by the Board on 25 March 2024.
2.1 Functional and presentation currency
The financial information is presented in Pounds Sterling, which is also the
functional currency of all Group companies, and all values are rounded to the
nearest thousand (£'000) pound, except where otherwise indicated.
2.2 Going concern
The Board have performed an assessment of whether the Group would be able to
continue as a going concern for at least twelve months from the date of the
consolidated annual financial statements. The Directors took into account the
financial position, expected future performance of the operations, the debt
facilities and debt service requirements, including those of the proposed
refinancing of the Company's Retail Eligible Bond, the working capital and
capital expenditure commitments and forecasts.
The cashflow forecast indicates that the Group requires additional liquidity
to fund the Retail Eligible Bond obligation during the next twelve months; and
the Group's ability to continue as a going concern is dependent on its ability
to obtain the necessary additional funding required through a capital raise or
alternative funding sources, which are currently being considered by the
Board. This condition indicates the existence of a material uncertainty that
may cast significant doubt on the Group's ability to continue as a going
concern. The consolidated financial statements for the year ended 31 December
2023 have been prepared on a going concern basis as, in the opinion of the
Directors, the Group will be in a position to continue to meet its operating
and capital costs requirements and pay its debts as and when they fall due for
at least twelve months from the date of this report, as the Board are
confident they can raise the necessary funding to replace the Retail Eligible
Bond due to be repaid in August 2024.
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 2023 are as
follows:
IFRIC Agenda Item: Following clarification by IFRIC on the classification of
monies held in restricted accounts, monies that are restricted by use only are
classified at 31 December 2023 as "Cash and cash equivalents".
IFRIC Agenda Item: In October 2022, the IFRIC issued an agenda decision in
respect of 'Lessor forgiveness of lease payments (IFRS 9 and IFRS 16)' ('the
IFRIC Decision on Concessions'). This concluded that losses incurred on
granting retrospective rent concessions should be charged to the income
statement on the date that the legal rights to income are conceded (i.e.
immediate recognition in full rather than smoothed over the life of the
lease).
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.
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.
Amendments to IAS 12 'Income Taxes' (effective for periods beginning on or
after 1 January 2023) - clarify how companies account for deferred tax on
transactions such as leases and decommissioning obligations.
During the year ended 31 December 2023, none of the above had a material
impact on 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 2024 and have not been
applied in preparing these financial statements. These are:
Amendments to IAS 1 'Presentation of Financial Statements' (effective for
periods beginning on or after 1 January 2024) - clarifies how conditions with
which an entity must comply within twelve months after the reporting period
affect the classification of a liability.
The amendments also clarify 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. These 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 value of investment property, 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 less the
value of assets arising from rent smoothing. 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.
The fair value of investment property is equal to the independent property
valuer's valuation of £700.7m. This is presented net of the prepayments
arising from rent smoothing (£13.0m). This is detailed in note 14 below and
in the full Annual Report and is in accordance with IAS 40 paragraph 50,
recognising the prepayment cannot be recovered when the investment properties
are sold. Prior year figures have not been restated as the effect on the
accounts is not considered by the Directors to be material (£10.6m). The
prepayment for rent smoothing is disclosed in note 17.
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 significant
methods and assumptions used in estimating the fair value of the interest rate
derivatives are set out in note 24.
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 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
With the exception of the change detailed in note 3.1.1, the accounting
policies adopted in this report are consistent with those applied in the
financial statements for the year ended 31 December 2022 and have been
consistently applied for the year ended 31 December 2023.
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. No
single customer comprises in excess of 10% of the Group's revenue in either
2023 or 2022.
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. The Group now recognises the fair
value of investment property to be the value calculated by the independent
property valuer less the value of assets arising from rent smoothing. 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. 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.
4.6. 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 only assets classified at fair value through profit or
loss are derivative financial instruments.
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. Impairment provisions are recognised based on
the expected credit loss model detailed within IFRS 9.
4.7. 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.
Trade receivables are grouped based on shared credit risk characteristics and
the days past due. 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.
4.8. 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.
4.9. 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.
4.10. 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.
4.11. 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.
4.12. 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.
4.13. 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.
4.14. 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.
4.15. 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.
4.16. 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.
4.17 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 25%.
4.18. Stated capital
Stated capital represents the consideration received by the Company for the
issue of Ordinary Shares. Ordinary Shares are classed as equity.
4.19. Share-based payments
The Group has entered into performance fee arrangements with the Asset Manager
and Investment Adviser 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 current and prior year, no cash or equity rewards have been
made.
4.20 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 an applicable 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
2023 2022
£'000 £'000
Rental income - freehold property 57,845 61,458
Rental income - long leasehold property 12,210 14,861
Recoverable service charge income and other similar items 21,825 16,999
Total 91,880 93,318
6. Property costs
Year ended Year ended
31 December 2023 31 December
£'000 2022
£'000
Other property expenses and irrecoverable costs 16,336 13,673
Recoverable service charge expenditure and other similar costs 21,825 16,999
Total 38,161 30,672
7. Administrative and other expenses
Year ended Year ended
31 December 31 December
2023 2022
£'000 £'000
Investment management fees 1,944 2,687
Property management fees 2,677 3,044
Asset management fees 1,944 2,691
Directors' remuneration (see note 8) 293 302
Administration fees 727 697
Legal and professional fees 2,203 2,083
Marketing and promotion 87 111
Other administrative costs 194 195
Allowance/(credit) for doubtful debts 542 (405)
Bank charges 15 16
Total 10,626 11,421
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
2023 2022
£'000 £'000
Fees payable to the Company's Auditor for the audit of the Company's annual
accounts
105 99
Fees payable to the Group's Auditor and its associates for the audit of the
Company's subsidiaries
134 125
Total fees payable for audit services 239 224
Fees payable to the Group's Auditor and its associates for other services:
Other business services 31 29
Total 270 253
8. Directors' remuneration
Key management comprises the Directors of the Company. A summary of the
Directors' emoluments is set out in the Directors' Remuneration Report in the
full Annual Report.
Year ended Year ended
31 December 31 December
2023 2022
£'000 £'000
Directors' fees 267 273
Employer's National Insurance contributions 26 29
Total 293 302
9. Finance income
Year ended Year ended
31 December 31 December
2023 2022
£'000 £'000
Interest income 79 126
Total 79 126
10. Finance expense
Year ended Year ended
31 December 31 December
2023 2022
£'000 £'000
Net Interest payable on bank borrowings and 12,517 12,940
derivatives
Amortisation of loan arrangement fees 875 1,421
Bond interest 2,250 2,250
Bond issue costs amortised 155 156
Bond expenses 8 8
Lease interest 405 510
Total 16,210 17,285
11. Taxation
Year ended Year ended
31 December 31 December
2023 2022
£'000 £'000
Corporation tax charge - -
Increase/ (decrease) in deferred tax liability 9 (6)
Total 9 (6)
The current tax charge is reduced by the UK REIT tax exemptions. The tax
charge for the year can be reconciled to the loss in the Consolidated
Statement of Comprehensive Income as follows:
Year ended Year ended
31 December 31 December
2023 2022
£'000 £'000
(Loss)/profit before taxation (67,447) (65,169)
UK Corporation Tax rate 23.52% 19%
Theoretical tax at UK Corporation Tax rate (15,864) (12,382)
Effects of:
Revaluation of investment property 20,310 21,514
Expenses not deductible for tax (387) (201)
Profits from the tax-exempt business (4,059) (8,931)
Deferred tax arising from temporary differences on the revaluation of 9 (6)
investment property
Total 9 (6)
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 nontaxable 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 PID's 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.
12. Earnings per Share
Earnings per Share amounts are calculated by dividing (losses)/profits for the
year attributable to ordinary equity holders of the Company by the weighted
average number of Ordinary Shares in issue during the year.
The calculation of basic and diluted earnings per Share is based on the
following:
Year ended Year ended
31 December 31 December
2023 2022
£'000 £'000
Calculation of earnings per Share
Net loss profit attributable to Ordinary Shareholders (67,456) (65,163)
Adjustments to remove:
Changes in value of investment properties 86,350 113,233
Changes in fair value of right of use assets 139 185
Loss on disposal of investment properties 726 8,636
Gain on the disposal of right of use assets - (76)
Changes in fair value of interest rate derivatives and financial assets 7,194 (22,743)
Deferred tax charge/(credit) 9 (6)
EPRA net profit attributable to Ordinary Shareholders 26,962 34,066
Weighted average number of Ordinary Shares 515,736,583 515,736,583
Loss per Share - basic and diluted (13.1)p (12.6)p
EPRA earnings per Share - basic and diluted 5.2p 6.6p
13. Dividends
Year ended Year ended
31 December 31 December
2023 2022
£'000 £'000
Dividend of 1.65 (2022: 1.70) pence per Ordinary Share
for the period 1 October - 31 December 8,509 8,768
Dividend of 1.65 (2022: 1.65) pence per Ordinary Share
for the period 1 January - 31 March 8,510 8,510
Dividend of 1.20 (2022: 1.65) pence per Ordinary Share
for the period 1 April - 30 June 6,189 8,509
Dividend of 1.20 (2022: 1.65) pence per Ordinary Share
for the period 1 July - 30 September 6,189 8,509
Total 29,397 34,296
On 23 February 2023, the Company announced a dividend of 1.65 pence per Share
in respect of the period 1 October 2022 to 31 December 2022. The dividend
payment was made on 6 April 2023 to Shareholders on the register as at 2 March
2023.
On 24 May 2023, the Company announced a dividend of 1.65 pence per Share in
respect of the period 1 January 2023 to 31 March 2023. The dividend payment
was made on 4 August 2023 to Shareholders on the register as at 1 June 2023.
On 12 September 2023, the Company announced a dividend of 1.20 pence per Share
in respect of the period 1 April 2023 to 30 June 2023. The dividend payment
was made on 19 October 2023 to Shareholders on the register as at 21 September
2023.
On 9 November 2023, the Company announced a dividend of 1.20 pence per Share
in respect of the period 1 July 2023 to 30 September 2023. The dividend
payment was made on 12 January 2024 to Shareholders on the register as at 16
November 2023.
On 22 February 2024, the Company announced a dividend of 1.20 pence per Share
in respect of the period 1 October 2023 to 31 December 2023. The dividend will
be paid on 5th April 2024 to Shareholders on the register as at 29(th)
February 2024. The financial statements do not reflect this dividend.
The Board intends to pursue a dividend policy with quarterly dividend
distributions. 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
Colliers International Property Consultants Limited, 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 RICS
Red Book and incorporate the recommendations of the International Valuation
Standards Committee which are consistent with the principles set out in IFRS
13.
The valuations are the ultimate responsibility of the Directors. Accordingly,
the critical assumptions used in establishing the independent valuation are
reviewed by the Board.
Group Movement in investment properties for the year ended 31 December 2023 Long Leasehold Property
Freehold Property £'000
£'000 Total
£'000
Valuation at 1 January 2023 643,630 145,850 789,480
Property additions - acquisitions 5 85 90
Property additions - subsequent expenditure 7,921 2,249 10,170
Property disposals (25,004) 35 (24,969)
Loss on the disposal of investment properties (691) (35) (726)
Change in valuation during the period (63,466) (9,859) (73,325)
Valuation at 31 December 2023 562,395 138,325 700,720
Value advised by the property valuers 562,395 138,325 700,720
Less adjustments for rent smoothing assets (note 17) (9,532) (3,493) (13,025)
Fair Value at 31 December 2023 552,863 134,832 687,695
The total change in fair value during the period was a decrease of
£86,350,000 (2022: £113,233,000)
Group Movement in investment properties for the year ended 31 December 2022
Valuation at 1 January 2022 751,440 154,709 906,149
Property additions- acquisitions 70,322 8,948 79,270
Property additions - subsequent expenditure 5,994 4,023 10,017
Property disposals (80,436) (3,651) (84,087)
Loss on disposal of investment properties (8,032) (604) (8,636)
Change in fair value during the year (95,658) (17,575) (113,233)
Valuation at 31 December 2022 643,630 145,850 789,480
The net book value of properties disposed of during the year amounted to
£25,695,000 (2022: £92,723,000).
The historic cost of the properties is £899,236,000 (31 December 2022:
£919,543,000).
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 independent valuers
assessment of the value of investment properties secured at 31 December 2023
was £700,720,000 (31 December 2022: £789,480,000).
The following table provides the fair value measurement hierarchy for
investment property:
Date of valuation: Total Quoted active prices Significant observable inputs Significant unobservable inputs
£'000 (level 1) (level 2) (level 3)
£'000 £'000 £'000
31 December 2023 700,720 - - 700,720
31 December 2022 789,480 - - 789,480
The hierarchy levels are defined in note 29.
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
2023 2022
£'000 £'000
Balance at the start of the year 789,480 906,149
Additions 10,260 89,287
Disposals (24,969) (84,087)
Loss on the disposal of investment properties (726) (8,636)
Change in fair value during the year (86,350) (113,233)
Balance at the end of the year 687,695 789,480
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, any environmental matters and the
overall repair and condition of the property, and discount rates applicable to
those assets. Future revenue streams comprise contracted rent (passing rent)
and Estimated Rental Value (ERV) after the contract period. In calculating
ERV, the potential impact of future lease incentives to be granted to secure
new contracts is taken into consideration. All these estimates are based on
local market conditions existing at the reporting date.
As at 31 December 2023, 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 Red Book.
The impact of climate change on the portfolio and the principal risk around
environmental and energy efficiency standards are disclosed in the Strategic
Report in the full Annual Report.
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.
Significant input: market rental
The rent at which space could be let in the market conditions prevailing at
the date of valuation range: £16,200- £3,237,000 per annum (2022:
£12,500-£3,137,000 per annum).
Observable input: rental growth
The decrease in rent is based on contractual agreements: 6.49% (2022: decrease
5.08%). There is a gross contracted rent reduction, as per normal operations
it is a combination of property disposals, space under refurbishments and
lease expiries.
Observable input: equivalent yield
The time-weighted average return that a property will produce including
purchase costs. The equivalent yield generally sits between the net initial
yield and reversionary yield. See below table.
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.
Geographical and sector specific market evidence reviewed in the course of
preparing the December 2023 valuation had an initial yield range of 5.78% to
15.0% (2022: 5.20% to 17.55%).
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.
Equivalent yield range by sector:
Fair Value ERV Range Equivalent
Sector £'000 (per sq ft per annum) Yield Range
Industrial £22,125.00 £3.50 - £9.49 6.61% - 30.12%
Retail £21,925.00 £4.50 - £60.10 6.00% - 30.97%
Alternatives/ Other £11,650.00 £5.00 - £17.67 4.75% - 9.69%
Office by Region
Office South East £122,800.00 £5.07 - £29.01 8.25% - 19.88%
Office South West £69,800.00 £8.74 - £22.00 9.00% - 13.09%
Office Midlands £133,550.00 £3.01 - £34.95 9.09% - 14.00%
Office North West £97,015.00 £6.61 - £29.59 7.50% - 14.26%
Office North East £106,800.00 £4.00 - £30.51 7.61% - 21.78%
Office Wales £20,125.00 £10.00 - £13.50 8.94% - 10.34%
Office Scotland £94,930.00 £4.48 - £24.02 8.81% - 19.80%
Total £700,720.00
The impact of changes to the significant unobservable inputs:
2023 2023 2022 2022
Impact on Impact on Impact on Impact on
statement of statement of statement of statement of
comprehensive financial comprehensive financial
income position income position
£'000 £'000 £'000 £'000
Improvement in ERV by 5% 31,464 31,464 35,307 35,307
Worsening in ERV by 5% (30,966) (30,966) (34,740) (34,740)
Improvement in yield by 0.125% 10,361 10,361 13,427 13,427
Worsening in yield by 0.125% (10,101) (10,101) (13,035) (13,035)
15. Investment in subsidiaries
List of subsidiaries which are 100% owned and controlled by the Group:
Country of incorporation Ownership
%
Beaufort Office Park Management Company Limited United Kingdom 100%
Glasgow Airport Business Park Management Company Limited United Kingdom 100%
Quay West Estate Company Limited United Kingdom 100%
Regional Commercial MIDCO Ltd Jersey 100%
RR Aspect Court Ltd Jersey 100%
RR Bennett House Ltd Jersey 100%
RR Bishopgate Street Ltd Jersey 100%
RR Brand Street Ltd Jersey 100%
RR Bristol Ltd Jersey 100%
RR Chancellor Court Ltd Jersey 100%
RR Crompton Way Ltd Jersey 100%
RR Falcon Ltd Jersey 100%
RR Glasgow Ltd Jersey 100%
RR Harvest Ltd Jersey 100%
RR Hounds Gate Ltd Jersey 100%
RR Milburn House Ltd Jersey 100%
RR Minton Place Ltd Jersey 100%
RR Newstead Court Ltd Jersey 100%
RR Portland Street 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 Sheldon Court Ltd Jersey 100%
RR Star Ltd Jersey 100%
RR St Georges House Ltd Jersey 100%
RR St James Court Ltd Jersey 100%
RR Strathclyde BP Ltd Jersey 100%
RR UK (Central) Ltd Jersey 100%
RR UK (Cheshunt) Ltd Jersey 100%
RR UK (Port Solent) Ltd Jersey 100%
RR UK (South) Ltd Jersey 100%
RR Wallington Ltd Jersey 100%
RR Westminster House Ltd Jersey 100%
RR Wing Portfolio Ltd Jersey 100%
Tay Properties Ltd Jersey 100%
TCP Arbos Ltd Jersey 100%
TCP Channel Ltd Jersey 100%
Tosca Chandlers Ford Ltd (in liquidation) Jersey 100%
Tosca Glasgow II 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 £1. 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 incorporation Control
%
Credential (Wardpark North) Ltd United Kingdom 100%
Credential Estates Ltd United Kingdom 100%
Rocket Unit Trust Jersey 100%
Squeeze Newco 2 Ltd 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 2023.
16. Non-current receivables on tenant loans
31 December 31 December
2023 2022
£'000 £'000
At start of year 770 1,011
Amounts repaid in the year (192) (241)
At end of year 578 770
Asset due within 1 year (note 17) 193 192
Asset due after 1 year 385 578
578 770
During 2016, the Group entered into a loan agreement with a tenant for
£1,926,000. 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. No impairment has been recognised against the receivables on tenant
loans as at 31 December 2023 or 31 December 2022.
17. Trade and other receivables
31 December 31 December
2023 2022
£'000 £'000
Gross amount receivable from tenants 8,704 10,092
Less provision for impairment (915) (902)
Net amount receivable from tenants 7,789 9,190
Current receivables - tenant loans (note 16) 193 192
Income tax 52 52
Other receivables 760 955
Prepayment for rent smoothing (note 14) 13,025 10,597
Prepayments 11,018 9,288
32,837 30,274
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
2023 2022
£'000 £'000
< 30 days 3,604 7,386
30-60 days 650 205
> 60 days 4,450 2,501
Net amount receivable from tenants 8,704 10,092
Less provision for impairment (915) (902)
Net Amount receivable from tenants 7,789 9,190
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 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
2023 2022
£'000 £'000
At start of year 902 1,615
Provision for impairment in the year 903 949
Receivables written off as uncollectable (670) (458)
Unused provision reversed (220) (1,204)
At end of year 915 902
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.
18. Cash and cash equivalents
31 December 31 December
2023 2022
£'000 £'000
Group
Cash held at bank 30,209 41,262
Restricted cash held at bank 3,826 8,886
At end of year 34,035 50,148
* Comparatives have been re-analysed between restricted and non-restricted
balances.
Restricted cash balances of the Group comprise:
• £3,826,000 (2022: £8,886,000) of funds held in blocked bank accounts
which are controlled by the Group's lenders and are released once certain loan
conditions are met. The restricted funds arose on net proceeds from investment
property disposals.
The following amounts are not analysed as restricted balances:
• £7,863,000 (2022: £9,940,000) of cash funds represent service charge
income received from tenants for settlement of future service charge
expenditure.
• £2,845,541 (2022: £3,493,000) of cash funds represent tenants' rental
deposits.
These amounts are not analysed as restricted balances.
The restricted cash balances are all accessible within 90 days so meet the
definition of cash and cash equivalents.
19. Trade and other payables
31 December 31 December
2023 2022
£'000 £'000
Withholding tax due on dividends paid 668 929
Dividends announced but not paid 6,189 8,509
Trade payables 2,862 3,455
Other payables 15,350 14,703
Value added tax 1,387 1,562
Accruals 6,583 10,073
At end of year 33,039 39,231
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.
20. Deferred income
Deferred rental income of £15,597,000 (31 December 2022: £16,661,000)
represents rent received in advance from tenants. Deferred income will be
recognised over the next 12 month period.
21. Deferred tax liabilities
31 December 31 December
2023 2022
£'000 £'000
Deferred tax 708 699
At end of year 708 699
The movement on deferred tax liability is shown below:
At start of year 699 705
Deferred tax on the valuation of investment properties 9 (6)
At end of year 708 699
The deferred tax liability relates to the potential tax liability that may
crystalise when investment properties are sold. It is calculated on the
revaluation gains of investment properties held by the Group which fall
outside of the REIT regime.
22. 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
2023 2022
£'000 £'000
Bank borrowings drawn at start of year 390,792 389,937
Bank borrowings drawn 3,729 14,322
Bank borrowings repaid (23,771) (13,467)
Bank borrowings drawn at end of year 370,750 390,792
Less: unamortised costs at start of year (5,527) (6,463)
Less: loan issue costs incurred in the year (495) (485)
Add: loan issue costs amortised in the year 875 1,421
At end of year 365,603 385,265
Maturity of bank borrowings
Repayable within 1 year - -
Repayable between 1 to 2 years - -
Repayable between 2 to 5 years 310,721 290,677
Repayable after more than 5 years 60,029 100,115
Unamortised loan issue costs (5,147) (5,527)
365,603 385,265
As detailed in note 23, the Group has £50,000,000 (31 December 2022:
£50,000,000) retail eligible bonds in issue.
The table below lists the Group's borrowings.
Facility Outstanding debt* Maturity Gross Annual interest rate Amortisation
Lender £'000 £'000 date loan to value**
Royal Bank of Scotland, Bank of Scotland and Barclays 122,221 122,221 Aug-26 54.5% 2.40% over 3 months Mandatory prepayment
£ SONIA
Scottish Widows Ltd & Aviva Investors Real Estate Finance 152,500 152,500 Dec-27 52.9% 3.28% Fixed None
Scottish Widows Ltd 36,000 36,000 Dec-28 47.2% 3.37% Fixed None
Santander UK 60,029 60,029 Jun-29 52.1% 2.20% over 3 months Mandatory prepayment
£ SONIA
Total bank borrowings 370,750 370,750
Retail eligible bond 50,000 50,000 Aug-24 N/A 4.50% Fixed None
Total 420,750 420,750
SONIA = Sterling Over Night Indexed Average
* Before unamortised debt issue costs
** Based upon Colliers International Property Consultants limited property
valuations
The percentage of borrowings at variable rates of interest was 43.3% (31
December 2022: 43.1%).
The weighted average term to maturity of the Group's debt at the year end was
3.5 years (31 December 2022: 4.5 years).
The weighted average interest rate payable by the Group on its total bank
borrowings, excluding hedging costs, as at the year end was 5.4% (31 December
2022: 3.5%).
The Group weighted average interest rate, including the retail eligible bonds
and hedging activity at the year end, amounted to 3.5% per annum (31 December
2022: 3.5% 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 24, 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.
23. Retail Eligible Bonds
The Company has in issue £50,000,000 (31 December 2022: £50,000,000) 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
2023 2022
£'000 £'000
Bond principal at start of year 50,000 50,000
Unamortised issue costs at start of year (248) (404)
Amortisation of issue costs 155 156
At end of year 49,907 49,752
24. 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
2023 2022
£'000 £'000
Fair value at start of year 24,449 1,706
Proceeds received from a reduction in nominal amounts (1,246) -
Revaluation in period (7,194) 22,743
Fair Value at end of year 16,009 24,449
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. Further details can
be found in note 29.1.
During the year the notional amount on derivative instruments was reduced with
a cash amount realised of £1,246,000.
The table below lists the hedging and swap notional amounts and rates against
the details of the Group's loan facilities.
Lender Facility Outstanding debt* Maturity Annual interest rate Notional amount Swap/cap rate
£'000 £'000 date £'000
Royal Bank of Scotland, Bank of Scotland and Barclays 122,221 122,221 Aug-26 2.40% over 71,000 swap 0.97%
3 mth £ SONIA 51,221 cap 0.97%
Scottish Widows Ltd & Aviva Investors Real Estate Finance 152,500 152,500
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 60,029 60,029 2.20% over 49,403 swap 1.39%
3 mth £ 10,626 cap 1.39%
Jun-29 SONIA
Total bank borrowings 370,750 370,750
*Before unamortised debt issue costs
SONIA = Sterling Over Night Indexed Average
As at 31 December 2023, the swap notional arrangements were £120.4 million
(31 December 2022: £122.4 million) and the cap notional arrangements amounted
to £61.8 million (31 December 2022: £71.5 million).
The Group weighted average effective interest rate was 3.5% (31 December 2022:
3.5%) inclusive of hedging costs and the Retail Eligible Bond.
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 100.0% (31 December 2022:
100.9%), as shown below.
31 December 31
2022 December
£'000 2021
£'000
Total bank borrowings 370,750 390,792
Notional value of interest rate caps and swaps 182,250 193,871
Value of fixed rate debts 188,500 201,000
370,750 394,871
Proportion of hedged debt 100.0% 100.9 %
Table may not sum due to rounding
The Group has not adopted hedge accounting in either year.
25. Leases
Right of use asset 31 December 31
2023 December
£'000 2022
£'000
At start of year 11,126 16,482
Derecognition of right of use asset - (5,171)
Fair value movement (139) (185)
At end of year 10,987 11,126
Lease liability 31 December 31 December
2023 2022
£'000 £'000
At start of year 11,505 16,795
Derecognition of finance lease liability - (5,247)
Lease payments (435) (553)
Interest charges 405 510
At end of year 11,475 11,505
The derecognition of right of use assets and liabilities during the year gave
rise to a realised gain of £nil (2022: £76,000).
The Group's lease commitments which are now represented by the right of use
asset and lease liability are spread across 10 separate leases with the two
largest leases at Northern Cross Basingstoke and Quantum Court Edinburgh
making up 48% of the balance. Total commitments on leases in respect of land
and buildings are as follows:
Group 31 December 31 December
2023 2022
£'000 £'000
Payable within 1 year 435 435
Payable between 1 and 2 years 435 435
Payable between 2 and 5 years 1,305 1,305
Payable after 5 years 33,999 29,109
36,174 31,284
26. Stated capital
Stated capital represents the consideration received by the Company for the
issue of Ordinary Shares.
31 December 31 December
2023 2022
£'000 £'000
Group
Issued and fully paid Shares of no par value
At start of the year 513,762 513,762
At end of the year 513,762 513,762
Number of Shares in issue
At start of the year 515,736,583 515,736,583
At end of the year 515,736,583 515,736,583
27. 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.
Further detail of the EPRA performance measures can be found in the full
Annual Report.
Net asset values have been calculated as follows:
31 31 December
December 2022
2023 £'000
£'000
Group
Net asset value per Consolidated Statement of Financial Position 306,089 402,942
Adjustment for calculating EPRA net tangible assets:
Derivative financial instruments (16,009) (24,449)
Deferred tax liability 708 699
EPRA Net Tangible Assets 290,788 379,192
Number of Ordinary Shares in issue 515,736,583 515,736,583
Net asset value per Share - basic and diluted 59.3p 78.1p
EPRA Net Tangible Assets per Share - basic and diluted 56.4p 73.5p
28. Notes to the Statement of Cash Flows
28.1 Non-Cash Transactions
During the prior year, two right of use assets and liabilities were
derecognised following the sale of long-leasehold investment properties.
28.2 Reconciliation of changes in liabilities to cash flows arising from
financing activities
Bank loans and borrowings Retail Eligible Bonds
£'000 £'000 Lease liabilities £'000
Total
£'000
Balance at 1 January 2023 385,265 49,752 11,505 446,522
Changes from financing cash flows:
Bank and bond borrowings advanced 3,729 - - 3,729
Bank borrowings repaid (23,771) - - (23,771)
Bank and bond borrowing costs paid (495) - - (495)
Lease payments - - (435) (435)
Total changes from financing cash flows (20,537) - (435) (20,972)
Amortisation of issue costs 875 155 - 1,030
Unwinding of discount - - 405 405
Total other changes 875 155 405 1,435
Balance at 31 December 2023 365,603 49,907 11,475 426,985
Bank loans and borrowings Retail Eligible Bonds
£'000 £'000 Lease liabilities £'000
Total
£'000
Balance at 1 January 2022 383,474 49,596 16,795 449,865
Changes from financing cash flows:
Bank and bond borrowings advanced 14,322 - - 14,322
Bank borrowings repaid (13,467) - - (13,467)
Bank and bond borrowing costs paid (485) - - (485)
Lease payments - - (553) (553)
Total changes from financing cash flows 370 - (553) (183)
Amortisation of issue costs 1,421 156 - 1,577
Unwinding of discount - - 510 510
Derecognition of finance lease liability - - (5,247) (5,247)
Total other changes 1,421 156 (4,737) (3,160)
Balance at 31 December 2022 385,265 49,752 11,505 446,522
29. Financial risk management
29.1 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 and lease liabilities, 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:
31 December 2023 31 December 2022
Carrying value Fair Carrying value Fair
£'000 value £'000 value
Group £'000 £'000
Financial assets - measured at amortised cost
Trade and other receivables 9,127 9,127 10,915 10,915
Cash and short-term deposits 34,505 34,505 50,148 50,148
Financial assets - measured at fair value through profit or loss
Interest rate derivatives 16,009 16,009 24,449 24,449
Financial liabilities - measured at amortised cost
Trade and other payables (30,984) (30,984) (36,741) (36,741)
Bank and loan borrowings (365,603) (354,124) (385,265) (366,398)
Retail eligible bonds (49,907) (46,700) (49,752) (49,335)
Lease liability (11,475) (11,475) (11,505) (11,505)
The following financial assets and 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.
Total Quoted active prices Significant observable inputs Significant unobservable inputs
£'000 (level 1) (level 2) (level 3)
£'000 £'000 £'000
Balance at 31 December 2023
Interest rate derivatives 16,009 - 16,009 -
31 December 2022
Interest rate derivatives 24,449 - 24,449 -
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.
29.2 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.
29.3 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 variable 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.
29.4 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.
29.5 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.
29.6 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 Bank Plc A Stable
Royal Bank of Scotland A+ Stable
Bank of Scotland plc A+ Stable
Santander UK A+ Stable
Aviva A+ Stable
Scottish Widows Limited A Stable
29.7 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 2023 Within Between Between After
1 year 1 and 2 years 2 and 5 years 5 years Total
£'000 £'000 £'000 £'000 £'000
Trade and other payables (30,984) - - - (30,984)
Bank borrowings (20,104) (20,104) (344,139) (62,282) (446,629)
Interest rate derivatives 7,810 7,810 10,735 1,185 27,540
Retail eligible bonds (51,125) - - - (51,125)
Lease liability (435) (435) (1,305) (33,999) (36,175)
(94,838) (12,729) (334,709) (95,096) (537,373)
Group at 31 December 2022 Within Between Between After
1 year 1 and 2 years 2 and 5 years 5 years Total
£'000 £'000 £'000 £'000 £'000
Trade and other payables (36,741) - - - (36,741)
Bank borrowings (16,300) (16,300) (330,923) (106,105) (469,628)
Interest rate derivatives 3,158 3,158 6,448 1,333 14,097
Retail eligible bonds (2,250) (52,250) - - (54,500)
Lease liability (435) (435) (1,305) (29,109) (31,284)
(52,568) (65,827) (325,780) (133,881) (578,056)
The maturity dates of all bank borrowings are disclosed in note 22.
The maturity date of the retail eligible bonds is disclosed in note 23.
The range of maturity dates of the lease liability payments is between 43 and
128 years.
30. 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 Asset Manager and Investment Adviser, 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 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.
31. Operating leases
The future minimum lease payments receivable under non-cancellable operating
leases in respect of the Group's property portfolio are as follows:
Group 31 December 31 December
2023 2022
£'000 £'000
Receivable within 1 year 51,207 55,898
Receivable between 1-2 years 45,008 42,673
Receivable between 2-5 years 96,923 74,718
Receivable after 5 years 67,798 46,122
260,936 219,411
The Group has in excess of 940 operating leases.
The number of years remaining on these operating leases varies between 1 and
997 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.
32. 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.
33. Transactions with related parties
Transactions with the Directors
The following persons and entities are related parties because they have
significant influence over the reporting entity or are key management
personnel or the reporting entity.
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.
34. Transactions with Managers
Transactions with the Asset Manager, London & Scottish Property Investment
Management Limited, and the Property Manager, L&S PM 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 L&S PM 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. Following a review by the Management
Engagement and Remuneration Committee and having sought advice from Peel Hunt
LLP, the Company's Financial Adviser and Broker, the Company, Asset Manager
and Investment Adviser agreed to amend the terms of the annual management fees
charged to: (i) 1.1% of the EPRA NTA up to and equal to £500,000,000; (ii)
0.9% of EPRA NTA above £500,000,000 and up to or equal to £1,000,000,000;
(iii) 0.7% of EPRA NTA above £1,000,000,000 and up to or equal to
£1,500,000,000; and (iv) 0.5% of EPRA NTA above £1,500,000,000. Previously
the annual management fee charged was on a scaled rate of 1.1% of the
Company's EPRA NTA, reducing to 0.9% on net assets over £500,000,000. 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 L&S PM 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
2023 2022
£'000 £'000
Asset management fees charged* 1,944 2,691
Property management fees charged* 2,677 3,044
Performance fees charged - -
Total 4,621 5,735
31 December 31 December
2023 2022
£'000 £'000
Total fees outstanding 1,170 1,642
* Including irrecoverable VAT charged where appropriate.
Transactions with the Investment Manager, Toscafund Asset Management LLP, and
the Investment Adviser, ARA Europe Private Markets Limited.
In consideration for the provision of services provided, the Investment
Adviser is entitled in each financial year (or part thereof) to 50% of an
annual management fee on a scaled rate.
With effect from 11 October 2023, ARA Europe Private Markets Limited ("ARA
Europe") was appointed as the Company's Investment adviser and on the same
date replaced Toscafund Asset Management's entitlement of the 50% annual
management fee.
Following a review by the Management Engagement and Remuneration Committee and
having sought advice from Peel Hunt LLP, the Company's Financial Adviser and
Broker, the Company, Asset Manager and Investment Adviser agreed to amend the
terms of the annual management fees charged to: (i) 1.1% of the EPRA NTA up to
and equal to £500,000,000; (ii) 0.9% of EPRA NTA above £500,000,000 and up
to or equal to £1,000,000,000; (iii) 0.7% of EPRA NTA above £1,000,000,000
and up to or equal to £1,500,000,000; and (iv) 0.5% of EPRA NTA above
£1,500,000,000. Previously the annual management fee charged was on a scaled
rate of 1.1% of the Company's EPRA NTA, reducing to 0.9% on net assets over
£500,000,000. The fee shall be payable in cash quarterly in arrears.
The Investment Adviser 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
2023 2022
£'000 £'000
Investment management fees charged 1,944 2,687
Total 1,944 2,687
31 December 31 December
2022 2021
£'000 £'000
Total fees outstanding 478 524
Performance Fee
The Asset Manager and the Investment Adviser 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 NTV 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 NTV per Ordinary Share exceeds the high-water mark which is equal to the
greater of the highest year-end EPRA NTV 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 2023 or 31
December 2022.
35. Subsequent Events
On 22 February 2024, the Company declared the Q4 2023 dividend of 1.20pps,
which will be paid to shareholders on 5th April 2024.
Company Information
Directors
Kevin McGrath (Chairman and Independent Non-Executive Director)
Daniel Taylor (Senior Independent Non-Executive Director)
Frances Daley (Independent Non-Executive Director, Audit Committee Chairman)
Massy Larizadeh (Independent Non-Executive Director, Nomination Committee
Chairman, Management Engagement and Remuneration Committee Chairman)
Stephen Inglis (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 (http://www.regionalreit.com)
FURTHER INFORMATION
The Company's annual report and accounts for the year ended 31 December 2023
will be available shortly on www.regionalreit.com.
It will also be submitted shortly in full unedited text to the Financial
Conduct Authority's National Storage Mechanism and will be available for
inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) in accordance
with DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance
and Transparency Rules.
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