REG - Regional REIT Ltd - 2024 Half Year Results
10/09/2024 07:00
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RNS Number : 4966D Regional REIT Limited 10 September 2024
10 September 2024
Regional REIT Limited
("Regional REIT", the "Group" or the "Company")
2024 Half Year Results, Q2 Dividend Declaration
& £110.5m Fundraise Successfully Completed Post Period End
Regional REIT (LSE: RGL), the regional commercial property specialist today
announces its half year results for the six months ended 30 June 2024.
Post-Period end highlights, Transformational Successful Fundraise:
· 18 July 2024 successfully completed £110.5m equity fund raise,
supported by Shareholders
· Proceeds used for the repayment of the £50m retail bond and £26.3m
will be used to reduce bank facilities. The remaining net proceeds of £28.4m
will be used in accretive capital expenditure projects on assets, enhancing
earnings in the near term and value in the mid to long-term, further
underpinning dividend payments going forward
· 29 July 2024 1 for every 10 ordinary share consolidation
completed
· 6 August 2024 repaid in full the 4.50%, £50m retail bond
· LTV reduced to 42.2% from 30 June 2024 58.3%
Financial Highlights:
· Portfolio valuation of £647.9m (31 December 2023: £700.7m). On a
like-for-like basis, the portfolio value reduced by 5.1% during the period,
after adjusting for disposals and capital expenditure, comparing favourably
against the MSCI Rest of UK offices Index return of -6.4%
· Rent collection remained strong over the period at 98.0%
(equivalent period for 30 June 2023: 98.8%).
· Rent roll at £63.5m, 3% lower on a like-for-like basis (31
December 2023: £67.8m)
· Net initial yield on the portfolio 6.1% (31 December 2023: 6.2%)
· Covered dividend declared per share of Q1 2024 1.20 pence per
share ("pps"); following the successful equity capital raise and 1 for 10
share consolidation the dividend for Q2 2024: 2.20pps (30 June 2023: 2.85pps)
· The fully covered dividend target for 2024 for H2 2024 is 4.4pps
· The Group's weighted average cost of debt continued to remain low
at 3.5% (31 December 2023: 3.5%)
· Operating profit before gains and losses on property assets and
other investments for the six months ending 30 June 2024 amounted to £19.1m
(30 June 2023: £20.6m)
· The weighted average maturity of the bank debt was 3.0 years (31
December 2023: 3.5 years)
· EPRA NTA 48.8pps (31 December 2023: 56.4pps); IFRS NAV of 51.7pps
(31 December 2023: 59.3pps)
· Prior to the 1 for 10 share consolidation on 29 July 2024: EPRA
EPS of 2.1pps for the period (30 June 2023: 2.5pps); and post share
consolidation 21.3p (30 June 2023: 24.6p)
Operational highlights:
· As at 30 June 2024, 81.8% of portfolio properties had attained an
EPC rating of C+ or higher, an improvement from 73.7% as recorded on 31
December 2023. Properties rated B+ and Exempt have surged to 56.3%, up from
42.1% at the end of the previous year. These milestones place us firmly on the
path to better the Minimum Energy Efficiency Standard (MEES) target of an EPC
rating of B well before the 2030 deadline
· The Group made disposals amounting to £21.9m (before costs)
during the period
· At period end, 91.5% (31 December 2023 92.1%) of the portfolio by
valuation was offices, 3.4% industrial (31 December 2023: 3.2%), 3.1% retail
(31 December 2023 3.1%) and 1.9% other (31 December 2023: 1.7%)
· At the period end, the portfolio valuation split by region was as
follows: England 77.5% (31 December 2023: 78.4%), 16.7% Scotland (31 December
2023: 16.2%) and 5.8% Wales (31 December 2023: 5.4%).
· By income, office assets accounted for 90.9% of gross rental
income (30 June 2023: 91.4%) and 4.3% was retail (30 June 2023: 4.6%). The
remaining balance was made up of industrial, 3.0% (30 June 2023: 2.7%) and
other, 1.8% (30 June 2023: 1.4%)
· The portfolio continues to remain diversified with 132 properties
(31 December 2023: 144), 1,305 units (31 December 2023: 1,483) and 832 tenants
(31 December 2023: 978)
· EPRA Occupancy rate stood at 78.0% (31 December 2023: 80.0%)
Q2 2024 Dividend Declaration
The Company declares that it will pay a dividend of 2.20 pps for the period 1
April 2024 to 30 June 2024. The entire dividend will be paid as a REIT
property income distribution ("PID").
Shareholders have the option to invest their dividend in a Dividend
Reinvestment Plan ("DRIP"), and more details can be found on the Company's
website
https://www.regionalreit.com/investors/investors-dividend/dividend-reinvestment-plan
(https://www.regionalreit.com/investors/investors-dividend/dividend-reinvestment-plan)
.
The key dates relating to this dividend are:
Ex-dividend date 19 September 2024
Record date 20 September 2024
Last day for DRIP election 27 September 2024
Payment date 18 October 2024
The level of future payments of dividends will be determined by the Board
having regard to, among other factors, the financial position and performance
of the Group at the relevant time, UK REIT requirements, the interest of
shareholders and the long term future of the Company.
Stephen Inglis, CEO of London and Scottish Property Investment Management, the
Asset Manager:
"The period under review was another challenging period for the commercial
real estate sector, with valuations reduced by persistently high interest
rates and poor investor sentiment towards UK commercial real estate. However,
the regional office market appears to be reaching an inflection point, with
the recent cut to the base rate providing a helpful development.
"Post-period end, we repaid in full our 4.50% £50m retail bond, which we were
able to achieve following a £110.5m capital raise in July. This also provides
us with the opportunity to reduce the Company's borrowings with the LTV
reducing to 42% and we continue to make efforts to reduce the LTV further to
the long term target of 40%. The raise also provides greater flexibility for
capital expenditure to improve the core assets in our portfolio and increase
shareholder value going forward.
"We would again like to thank shareholders for their continued support during
this challenging period and we look forward to updating them on our progress
in enhancing shareholder value through active portfolio management."
Subsequent Events summary post 30 June 2024
Since the quarter end, the Group has successfully completed an additional
notable letting:
Lettings
· The Courtyard, Macclesfield - Elior UK Services Ltd. has renewed
existing lease for 23,100 sq. ft. of space to August 2028, at a rental income
of £542,700 pa (£23.49/ sq. ft.)
· 1175 Century Way, Thorpe Park, Leeds - Greenbelt Group Ltd. has
let 2,670 sq. ft. of office space to July 2029, at a rental income of £64,080
pa (£24.00 / sq. ft.).
· Mandale Business Park, Durham - Avove Ltd. has let 5,000 sq. ft.
of office space to July 2034 with the option to break in 2029, at a rental
income of £58,750 pa (£11.75 / sq. ft.).
· St James Business Park, Paisley - Maximus UK Services Ltd. has let
5,456 sq. ft. of office space to September 2029 with the option to break in
2025, at a rental income of £76,384 pa (£14.00 / sq. ft.).
· Buchanan Gate, Stepps, Glasgow - RPS Environmental Management Ltd.
has let 7,710 sq. ft. of office space to September 2029 with the option to
break in 2027, at a rental income of £88,665 pa (£11.50 / sq. ft.).
Future asset disposal programme comprises of 54 sales totalling c £106m:
· 2 disposals contracted for c. £1.5m
· 10 disposals totalling c. £12.4m under offer and in legal due
diligence
· 7 further disposals totalling c. £10.4m are in negotiation
· 7 further disposals totalling c. £9.1m are on the market
· 28 potential disposals totalling c. £73m are being prepared for
the market
Forthcoming Events
13 November 2024 Q3 2024 Trading Update
Enquiries:
Regional REIT Limited
Press enquiries through Burson Buchanan
ESR Europe Private Markets Limited Tel: +44 (0) 203 831 9776
Investment Manager to the Group
Adam Dickinson, Investor Relations, Regional REIT Limited
London & Scottish Property Investment Management Tel: +44 (0) 141 248 4155
Asset Manager to the Group
Stephen Inglis
Burson Buchanan Communications Tel: +44 (0) 20 7466 5000
Financial Communications
Charles Ryland, Henry Wilson, George Beale
About Regional REIT
Regional REIT Limited ("Regional REIT" or the "Company") and its
subsidiaries (the "Group") is a United Kingdom ("UK") based real estate
investment trust that launched in November 2015. It is managed
by London & Scottish Property Investment Management Limited, the Asset
Manager, and ESR Europe Private Markets Limited, the Investment Adviser.
Regional REIT's commercial property portfolio is comprised wholly of income
producing UK assets and comprises, predominantly of offices located in the
regional centres outside of the M25 motorway. The portfolio is geographically
diversified, with 132 properties, 1,305 units and 832 tenants as at 30 June
2024, with a valuation of c.£647.9m.
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/) .
ESMA Legal Entity Identifier ("LEI"): 549300D8G4NKLRIKBX73
KEY FINANCIALS
Period ended 30 June 2024
30 31 December 2023
June
2024
Portfolio Valuation £647.9m £700.7m
IFRS NAV per Share 51.7p 59.3p
EPRA* NTA per Share 48.8p 56.4p
Net Loan to Value Ratio* 58.3% 55.1%
Weighted Average Cost of Debt* 3.5% 3.5%
Weighted Average Debt Duration* 3.0 yrs 3.5 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 in the full Half Year Report.
* Alternative Performance Measures. Details are provided in the Glossary of
Terms in the full Half-Year Report.
"The Board's focus remained on the continued disposal of non-core assets and
reducing the LTV, which has been achieved following the successful equity
fundraise completed in July, whilst maintaining dividend payments to our
shareholders."
Kevin McGrath
Chairman
CHAIRMAN'S STATEMENT
Overview
My below summary of the Group's performance for the six months to 30 June
2024, has been overshadowed by subsequent events with the completion on 18
July 2024 of the successful £110.5m equity capital raise.
The transformational raise enabled the Company's £50m Retail Bond to be fully
repaid, eliminating this short-term liability and further reduced the
constraints caused by the requirement to pay coupon distributions on the
Retail Bond. In addition, some £26m are to be used to reduce bank facilities,
which will result in the Company having greater headroom under the covenants
in such facilities. The remaining proceeds of the net capital raise will
provide additional flexibility to fund selective capital expenditure on
assets, which will enhance earnings in the near term and value in the mid to
long-term, further underpinning dividends going forward.
Notwithstanding the constrained commercial real estate transactional market
conditions, our Asset Manager, in line with our strategy, continued to focus
upon the disposal of non-core assets, which in the period under review
amounted to £20.7m (net of costs) at a net initial yield of 9.3% (10.4%
excluding vacant units). The proceeds from the disposals were promptly
allocated to our stated near-term objectives of reducing borrowing levels,
with £17.4m being repaid. Planned capital expenditure amounting to £5.2m was
utilised to drive property values and increase occupancy.
After adjusting for disposals and capital expenditure during the period, the
Company's portfolio experienced a £52.8m decrease in value to £647.9m (31
December 2023: £700.7m); this reflects a like-for-like decrease of 5.1%, with
a Loan-to-Value (LTV) of 58.3%. The Group's post period end equity raise
described below has substantially reduced this figure to 42.2%.
Rent collection remained strong throughout the period to 30 June 2024. As at
30 August 2024, rent collection for the period to 30 June 2024, amounted to
98.0% (equivalent period for the six months to 30 June 2023 98.8%.) Enquiry
levels for space requirements continued to increase through the period under
review, however, the continued wider macroeconomic conditions saw potential
occupiers adopting a cautious approach with the EPRA occupancy standing at
78.0% at the period end (30 June 2023: 82.5%). If fully occupied the rental
income is estimated at ERV £83.7m, reflects an equivalent yield of 10.2%
(June 2023: 9.5%). EPRA earnings were 21.3p (six months to June 2023: 24.6p).
*
The Board's focus remained on the continued disposal of non-core assets and
reducing the LTV, which has been achieved following the successful fundraise
completed in July, whilst maintaining dividend payments to our shareholders.
Financial Resources
The EPRA NTA saw a reduction to £251.6m (IFRS NAV: £266.6m) as of 30 June
2024, a decrease from the 31 December 2023 £290.8m (IFRS NAV; £306.1m). This
contraction is primarily attributed to the lower revaluation of the investment
property portfolio, which mirrors the broader challenges faced by the market.
Despite these headwinds, the Company maintained a robust cash balance of
£25.7m as of 30 June 2024
(31 December 2023: £34.5m), with £21.8m of this being unrestricted funds (31
December 2023: £30.7m).
Our debt strategy, characterised by 100% fixed and hedged interest rate debt,
shielded the Company from
rate fluctuations, maintaining a stable weighted average cost of debt at 3.5%.
The maturity of the £50m 4.5% Retail Eligible Bond in August 2024 remained a
focal point for the Board and more details can be found in the Subsequent
Events section.
* Prior to the Company share consolidation of 1 new share for every 10
ordinary shares after the period end EPRA earnings per share would have been
2.1p (six months to June 2023: 2.5p).
Sustainability
As of 30 June 2024, I am pleased to report that 81.8% of our properties have
attained an EPC rating of C+ or higher, a significant improvement from 73.7%
as recorded on 31 December 2023. Properties rated B+ and Exempt have surged to
56.3%, up from 42.1% at 31 December 2023. These milestones place us firmly on
the path to surpassing the Minimum Energy Efficiency Standard (MESS) target of
an EPC rating of B well before the 2030 deadline.
Board Composition
As noted in the Prospectus published by the Company on 27 June 2024, both Dan
Taylor and I, having each served on the Board for nine years, intend to step
down from the Board, subject to replacement directors being appointed in our
place. The Company and its new significant shareholder, Bridgemere, have
agreed, through the Subscription Agreement of the Capital Raising, that Dan
will be replaced by a director to be identified by Bridgemere. In addition to
his non-executive Director duties, Dan currently also serves as our Senior
Independent Director, therefore, as part of the Board's succession plan, one
of the Board members will be appointed as the new Senior Independent Director
to replace Dan. The Nomination Committee has commenced the process to identify
a new non-executive Chair to replace me. We will report to shareholders on the
progress, and expect to be able to make the appropriate announcements through
a Regulatory Information Service in due course.
Dividends
For the period under review, the Company declared a covered dividend of 1.2pps
for the first quarter 2024 and dividend of 2.2 pps* for the second quarter
2024, (declared on 9 September 2024) being post the capital raise and the
subsequent share consolidation (six months to June 2023: 2.85pps). Please see
Subsequent Events for more information.
*On 29 July 2024, the shares in issue were consolidated by a ratio of 1 new
share for every 10 shares.
Performance
The period under review was impacted by the announced equity capital raise on
the 27 June 2024. The Company's total shareholder return was -50.8%, versus
the return of -2.4% for the FTSE EPRA NAREIT UK Total return Index over the
same period. The EPRA total return from listing on 6 November 2015 was 7.5%
and the annualised EPRA Total Return was 0.8%. Total Shareholder Return since
listing was -65.9%, compared with the FTSE EPRA NAREIT UK Total Return Index
of -10.3%.
Subsequent Events
Following shareholder support and approval at the extraordinary general
meeting held on 18 July 2024, the Company successfully raised £110.5m of
gross proceeds in aggregate, by way of a fully underwritten Placing, Overseas
Placing and Open Offer of 1,105,149,821 New Ordinary Shares. The Capital Raise
was fully underwritten by Bridgemere Investments Limited, whom we now welcome
as a significant new Shareholder with a holding of 18.7%.
As announced on 29 July 2024, the Company completed a share consolidation,
representing a consolidation ratio of 1 consolidated share for every 10
ordinary shares.
The Company repaid in full the 4.50% £50m retail bond (ISIN XS1849479602),
which matured on 6 August 2024.
ESR Europe Investment Management Ltd ("ESR Europe") obtained its FCA licence
on the 1st August 2024 and the process of changing the AIFM for Regional REIT
Ltd from Toscafund Asset Management LLP to ESR Europe IM completed on 30
August 2024.
On 9 September 2024, the Company declared a dividend of 2.20 pps in respect of
the period 1 April 2024 to 30 June 2024. The dividend is payable to the
162,088,483 shares in issue on the record date of 20 September 2024.
Outlook
Continuing through 2024, the economic landscape in the UK's regions for
regional offices is showing signs
of improvement, with interest rates expected to reduce further following the
sharp fall in headline inflation over recent months. However, the Board is
conscious of the persistent macroeconomic headwinds that may challenge us in
the near term.
The successful £110.5m capital raise in July 2024, has placed the Company on
a much stronger footing with the £50m retail bond repaid in full, the
continued reduction of debt, whilst providing the Company with greater
financial flexibility to fund capital expenditure on assets to maximise value
and income for shareholders over the long term. In addition, the Company
continues its programme of disposal of non-core assets.
Operationally, our performance remains robust, as evidenced by our solid rent
collections. The Board
remains dedicated to providing vibrant, growth- conducive spaces for our
tenants, which is fundamental to increasing occupancy and reducing the costs
associated with vacant spaces.
With an eye on the future, we are committed to growing our rent roll and
sustaining our dividend payments coupled with the execution of our asset
management plans, which are expected to drive property values and ensure the
long-term growth of the Company.
Kevin McGrath
Chairman
9 September 2024
ASSET AND INVESTMENT MANAGERS' REPORT
"The six months to 30 June 2024 was another challenging period for UK
commercial real estate,
with persistently high interest rates and poor investor sentiment both
consistent headwinds. Despite this, the Company's operational performance
remained robust, and we are pleased to note that the regional office market
has begun to show early signs of reaching an inflection point
During the six months to 30 June 2024, though the Company's portfolio
valuation declined on a like-for-like basis by 5.1%, after adjusting for
disposals and capital expenditure, it outperformed the MSCI UK regional office
benchmark, which saw a decline of 6.4% over the same period. In the main
this was due to our high-quality, blue-chip tenant base, the continued asset
management programme, and the diversification and quality of our portfolio in
terms of sector and geography. Given the recent cut to the base rate, we hope
to see wider market conditions improve in the coming months, confirming that
valuations have passed their nadir.
In June 2024, we announced a capital raise of £110.5m, by way of a fully
underwritten placing. We are pleased to note that this was strongly supported
by Shareholders and it successfully completed post period end. This has
enabled us to repay, in full, the 4.5% £50 million retail bond, provides us
with greater headroom within the Group's covenants, greater flexibility for
capital expenditure an
opportunities to increase shareholder value.
Looking ahead to the remainder of 2024, we will continue to adopt an active
approach to portfolio management, taking steps to improve the quality of core
assets, reduce the Group's LTV, improve occupancy and EPC ratings, and grow
the Company's rent roll.
We would again like to thank shareholders for their continued support during
this period and we look forward to updating you on our progress over the
coming months."
Stephen Inglis
CEO of London & Scottish Property Investment Management, Asset Manager
Investment Activity in the UK Commercial Property Market
Although 2023 proved to be a challenging year with investment in the UK
commercial property market totalling £37.4billion, improving investment
volumes in the final quarter suggested the market bottomed out in2023,
signalling the early stages of an upward trend and a reason to be optimistic
moving into 2024, according to research from Lambert Smith Hampton ("LSH")(1).
The most recent data from LSH shows that investment in UK commercial property
improved in the first half of 2024 reaching £21.0 billion, 19.3% above the
same period in 2023. Investment volumes in Q2 2024 reached £11.1 billion,
11.6% above Q1 volume of £9.9 billion, as a result of a rise in the number of
deals that took place, with transaction activity approximately 5.0% above the
five-year average. Recent investment levels show signs of recovery which is
expected to continue in the second half of 2024. Although uncertainty remains
in financial markets, the most recent ONS figures show that UK inflation (CPI)
remains at the 2.0% target set by the Bank of England, a considerable
improvement from the 7.9% recorded in June 2023(2) . Additionally, forecasts
from HM Treasury indicate that interest rates are set to fall from 5.0% to
4.75% by the end of 2024 and to 3.75% at the end 2025(3).
Single Asset Investment Activity
Research by LSH highlights the importance of the regional markets, with the
regions outperforming when compared to London for a third consecutive quarter.
At £3.8 billion, investment in single assets across the UK regional markets
in Q2 2024 was 21.9% higher than the level of investment in Greater London -
well above the five-year quarterly average margin of 9.6%. Four regions
experienced robust levels of investment in Q2 2024 when compared to their
corresponding averages, namely Yorkshire and the Humber, Scotland, East
Midlands and the North East. Data from LSH shows the South East of England
accounted for the largest share of regional investment in Q2 2024 for the
third successive quarter.
Single Office Investment Activity
Overall, investment in regional offices reach £1.0 billion in H1 2024, 5.0%
below the same period in 2023. As can be seen from the table on page 17 of the
Full Half Year Report, LSH's data on the split between London and the regions
is hard to interpret because of a growing proportion of portfolio
transactions, some of which will include both London and Regional properties.
Although investment in the regional office market was below trend in H1 2024,
optimism is supported by positive office attendance figures. 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 68.0% of employees
reporting that they exclusively travel to work or worked on a hybrid basis,
with only 11.0% of workers reporting that they worked exclusively from home -
down from 26% in mid-January 2022.(4) Moreover, the most recent CEO Outlook
published by KPMG shows that c. 87% of CEOs are more inclined to reward those
employees that work from the office on a regular basis in the form of better
projects, salary increases and promotions. The majority of respondents (64%)
anticipate a full return to the office over the next three years(5).
1 Lambert Smith Hampton, UKIT, Q2 2024
2 ONS, Labour Market Overview, UK, July 2024
3 Colliers, UK Property Snapshot, July 2024
4 ONS, Characteristics of homeworkers, June 2024
5 KPMG, CEO Outlook, 2023
Quarterly Investment Volumes
Overseas investment in the UK commercial property market accounted for 53.9%
of total investment in Q2 2024 and drove overall investment at the larger end
of the market. Figures indicate that overseas investment reached £6.0 billion
in Q2 2024, 54.8% higher than the previous quarter, and in line with the
five-year quarterly average. International investment in the second quarter of
the year brought the H1 2024 total to £9.8 billion, 8.3% above the same
period in 2023. Overseas investment was largely supported by North American
buyers with investment of £3.4 billion, which accounted for approximately
56.2% of all overseas investment. LSH research suggests that North American
investors were the most acquisitive net buyers at £2.4 billion. Moreover,
investors from Europe, the Far East and Middle East were also net buyers in Q2
2024 at £0.5 billion, £0.5 billion and £2.0 million, respectively.
Occupational Demand in the UK Regional Office Market
Avison Young estimate that take-up of office space across the nine regional
markets(6) reached 1.6 million sq. ft. in Q2 2024, bringing the half year
total to 3.5 million sq. ft., 7.4% above the five-year average take-up for the
first 6 month of the year. City Centre activity accounted for the largest
proportion of take-up (61.6%) in H1 2024 at 2.2 million sq. ft., 9.2% above
the five-year average. When comparing this to the same period in 2023, city
centre take-up as a proportion of total take-up has increased from 58.5% in H1
2023. In the first half of 2024 approximately 1.3 million sq. ft. was
transacted in the out-of-town market, 4.6% above the five-year average, and
accounting for 38.4% of total H1 2024 take-up.
Occupational demand in the regional office markets continued to be driven by
the professional services sector, which accounted for the highest proportion
of take-up at 20.3% in the first six months of 2024. Moreover, public
services, education & health, and technology, media & telecoms sector
accounted for the second and third largest proportion of take-up in the
regional cities, accounting for 16.6% and 14.2%, respectively(7). Savills
research indicates that although office market sentiment is going through a
period of change, the same key sectors continue to drive demand for UK office
stock as the three most active sectors prior to the Covid-19 pandemic remain
in the top three in the first half of 2024.
Regional Supply: Annual Office Supply
According to Savills, there was a rise in availability for regional office
stock across six regional UK markets(8), with total availability in H1 2024 to
10.5 million sq. ft. Despite the uptick in availability in the first half of
2024 supply across the six regional markets remains 3.5% below the long-term
average. Research from PwC(9) suggests that there is likely to be a number of
stranded assets, given an EPC rating of C will be required by 2027 in order to
let a property and then a rating of B from 2030. Currently, approximately 8.9%
of office properties in the UK are unlettable as they have an EPC rating of F
or G. Additionally, 50.0% (261.5 million Sq. Ft.) of office floor space in the
UK is rated D below, which PwC suggest may be classed as 'stranded' going
forward due to the extensive capital expenditure (capex) that would be
required, indicating the scale of the challenge faced by landlord. However,
lower returns due to subdued market and subsequently lower rental growth will
result in investors finding it more difficult to, justify cap Ultimately, this
could lead to a fall in office stock going forward as stranded assets are
repositioned for alternative use. At present, only 10.8% of assets have and
EPC rating of B or above.
In terms of speculative development, it is estimated that approximately 3.4
million sq. ft. of office space is current under construction in the Big Nine
regional markets, down from 3.7 million sq. ft. for the same period last year
with Manchester, Bristol, and Leeds accounting for 27.4%, 20.1% and 12.7%,
respectively. Approximately 32.6% of office buildings currently under
construction are already pre-let.
6 Nine regional office markets mentioned by Avison Young include:
Birmingham, Bristol, Cardi
Edinburgh, Glasgow, Leeds, Liverpool, Manchester, Newcastle
7 Savills, The Regional Office Market Review, Q2 2024
8 Six regional office markets mentioned by Savills includes: Birmingham,
Bristol, Edinburgh, Glasgow
Leeds and Manchester
9 PwC, UK Office Outlook & Investor Consideration, September 2023
Rental Growth in the UK Regional Office Market
According to monthly data from MSCI, rental value growth slowed for the rest
of UK office markets in the 12-month ended June 2024 with growth of 1.8%, 5.0%
above trend Similarly, central London offices experienced a fall in rent
growth to 1.9% over the same period. Avison Young expects rental growth to
continue across most markets for the remainder of 2024 and into 2025. Demand
for quality office space has put an upward pressure on rents, with growth of
4.5% recorded across the Big Nine regional markets in the first half of 2024,
with average headline rents now sitting a £38.14 per sq. ft., according to
research from Avison Young.
Regional REIT's Office Assets
EPRA occupancy of the Group's regional offices as at 30 June 2024 was 77.0%
(30 June 2023: 81.6%). A like-for-like comparison of the Group's regional
offices EP occupancy, 30 June 2024 versus 30 June 2023, shows that occupancy
of 77.0% (30 June 2023: 82.8%).
WAULT to first break was 2.8 years (30 June 2023: 2.8 years); like-for-like
WAULT to first break was 2.8 years (30 June 2023: 2.8 years).
Property Portfolio
As at 30 June 2024, the Group's property portfolio was valued at £647.9
million (30 June 2023: £752.2 million; 31 December 2024: £700.7 million),
with rent roll of £63.5 million (30 June 2023: £69.8 million; 31 December
2023: £67.8 million), and an EPRA occupancy rate of 78.0% (30 June 2023:
82.5%; 31 December 2023: 80.0%). On a like-for-like basis, 30 June 2024 versus
30 June 2023 EPRA occupancy was 78.0% (30 June 2023: 83.8%).
There were 132 properties (30 June 2023: 150; 31 December 2023: 144), in the
portfolio, with 1,305 units (30 June 2023: 1,535; 31 December 2023: 1,483) and
832 tenants (30 June 2023: 1,038; 31 December 2023: 978). If the portfolio was
fully occupied at Colliers view of market rents, the rental income would be
£83.7 million per annum (30 June 2023: £88.9 million; 31 December 2023:
£87.0
million).
As at 30 June 2024, the net initial yield on the portfolio was 6.1% (30 June
2023: 6.1%; 31 December 2023: 6.2%), the equivalent yield was 10.2% (30 June
2023: 9.5%; 31 December 2023: 9.9%) and the reversionary yield was 11.2% (30
June 2023: 10.4%; 31 December 2023: 10.8%).
Property Portfolio by Sector as at 30 June 2024
Sector Valuation Sq. ft. Occupancy (EPRA) WAULT to first break Gross rental income Average rent ERV Capital rate
EPRA Net yield initial
(%)
% by valuation Equivalent yield Reversionary yield
Properties (£m) (m) (%) (yrs) (£m) (£psf) (£m) (£psf) (%) (%)
Office 113 592.8 91.5 5.2 77.0 2.8 57.7 14.74 78.3 114.02 6.0 10.3 11.5
Retail 13 20.4 3.1 0.3 94.0 3.2 2.7 11.09 2.3 76.82 8.8 9.4 9.9
Industrial 4 22.3 3.4 0.4 85.3 4.6 1.9 5.38 2.2 53.12 6.0 7.8 8.2
Other 2 12.5 1.9 0.1 98.5 10.0 1.1 12.48 0.9 131.81 8.3 8.1 6.8
Total 132 647.9 100.0 6.0 78.0 3.0 63.5 13.77 83.7 108.38 6.1 10.2 11.2
Property Portfolio by Region as at 30 June 2024
Region Valuation Sq. ft. Occupancy (EPRA) WAULT to first break Gross rental income Average rent ERV Capital rate
Properties (£m) % by valuation (m) (%) (yrs) (£m) (£psf) (£m) (£psf) EPRA Net initial yield (%) Equivalent yield Reversionary yield
(%) (%)
Scotland 29 108.3 16.7 1.1 72.8 4.0 10.3 13.34 16.3 95.16 4.8 10.7 12.0
South East 26 118.6 18.3 0.9 77.7 2.8 11.5 16.48 15.5 127.72 6.1 10.0 11.2
North East 19 99.4 15.3 0.8 76.8 2.7 9.0 13.40 11.7 117.13 5.6 9.7 10.7
Midlands 23 132.9 20.5 1.3 81.9 3.4 14.0 12.84 17.0 99.31 7.0 10.3 11.3
North West 17 89.6 13.8 0.9 72.4 1.8 9.0 13.48 12.0 100.74 6.0 10.6 11.9
South West 12 61.7 9.5 0.4 85.4 2.3 5.9 17.46 7.1 154.11 7.1 10.1 10.8
Wales 6 37.5 5.8 0.4 87.6 3.4 3.7 10.13 4.1 86.11 7.5 9.0 9.5
Total 132 647.9 100.0 6.0 78.0 3.0 63.5 13.77 83.7 108.38 6.1 10.2 11.2
Tables may not sum due to rounding.
Top 15 Investments (market value) as at 30 June 2024
Property Sector Anchor tenants Market % of Lettable EPRA Annualised % of gross rental income WAULT
value (£m) portfolio area Occupancy gross rent (£m) to
(Sq. Ft.) (%) first
break
(years)
Eagle Court, Coventry Road, Birmingham Office Virgin Media Ltd, Rexel UK Ltd, Goldbeck Construction Ltd 18.3 2.8 132,690 54.5% 1.3 2.1 3.1
Hampshire Corporate Park, Eastleigh Office Aviva Central Services UK Ltd, Lloyd's Register EMEA, Complete Fertility Ltd, 17.8 2.7 84,043 100.0% 1.8 2.8 3.2
Silverstream Technologies (UK) Ltd
300 Bath Street, Glasgow Office University of Glasgow, Glasgow Tay House Centre Ltd, Fairhurst Group LLP, 17.5 2.7 156,853 84.0% 1.2 1.9 1.4
London & Scottish Property Investment Management
Norfolk House, Smallbrook Queensway, Birmingham Office Global Banking School Ltd, Accenture (UK) Ltd 17.2 2.7 118,530 98.9% 1.9 3.1 6.6
800 Aztec West, Bristol Office NNB Generation Company (HPC) Ltd, EDF EPR Engineering UK Ltd 16.2 2.5 73,292 100.0% 1.5 2.4 2.3
Manchester Green, Manchester Office Chiesi Ltd, Ingredion UK Ltd, Assetz SME Capital Ltd, Contemporary Travel 15.2 2.3 107,760 79.3% 1.5 2.3 2.2
Solutions Ltd
Beeston Business Park, Nottingham Office/ Industrial Metropolitan Housing Trust Ltd, SMS Electronics Ltd, SMS Product Services Ltd 15.2 2.3 215,330 56.3% 1.1 1.7 5.5
Orbis 1, 2 & 3, Pride Park, Derby Office First Source Solutions UK Ltd, DHU Health Care C.I.C., Tentamus Pharma (UK) 13.7 2.1 121,883 100.0% 1.8 2.9 2.9
Ltd
Oakland House, Manchester Office Please Hold (UK) Ltd, A.M.London Fashion Ltd, CVS (Commercial Valuers & 12.9 2.0 161,502 80.8% 1.1 1.8 1.7
Surveyors) Ltd
Lightyear - Glasgow Office Airport, Glasgow Office Loganair Ltd, Rolls-Royce Submarines Ltd, Heathrow Airport Ltd 12.2 1.9 73,499 95.5% 1.4 2.2 5.0
Linford Wood, Business Park, Milton Keynes Office IMServ Europe Ltd, Senceive Ltd, Aztech IT Solutions Ltd, Autotech Recruit Ltd 12.1 1.9 107,352 100.0% 1.4 2.2 2.1
Ashby Park, Ashby De La Zouch Office Ashfield Healthcare Ltd, Ceva Logistics Ltd, Brush Electrical Machines Ltd 11.7 1.8 87,872 100.0% 1.2 1.9 3.4
Portland Street, Manchester Office Evolution Money Group Ltd, Mott MacDonald Ltd, NCG (Manchester) Ltd, Simard 11.5 1.8 55,787 95.9% 1.1 1.7 1.5
Ltd
Capitol Park, Leeds Office Hermes Parcelnet Ltd, BDW Trading Ltd 10.9 1.7 86,758 50.2% 0.7 1.1 3.4
1-4 Llansamlet Retail Park, Natyffin Rd, Swansea Retail Wren Kitchens Ltd, NCF Furnishings Ltd, A Share & Sons Ltd, Carpetright 10.5 1.6 74,425 100.0% 1.2 1.9 2.4
Ltd
Total 212.7 32.8 1,657,576 84.9% 20.4 32.1 3.2
Tables may not sum due to rounding
Top 15 Tenants (share of rental income) as at 30 June 2024
WAULT to first break Lettable area Annualised gross rent % of gross rental income
Tenant Property Sector (years) (Sq. Ft) (£m)
Virgin Media Ltd Eagle Court, Birmingham Southgate Park, Peterborough Information and communication 0.7 107,830 1.8 2.5
Global Banking School Ltd Norfolk House, Smallbrook, Queensway, Birmingham Education 8.4 73,628 1.4 2.2
Virgin Media Ltd Eagle Court, Coventry Road, Birmingham Information and communication 3.2 75,309 1.3 2.1
Secretary of State for 1 Burgage Square, Merchant Square, Wakefield Public sector 4.6 116,238 1.2 1.9
Housing, Communities
and Local Government Albert Edward House, Preston Bennett House, Stoke On Trent Oakland House,
Manchester Origin (Office), Bracknell
Waterside Business Park, Swansea
Firstsource Solutions UK Ltd Orbis 1, 2 & 3, Pride Park, Derby Administrative and 2.8 62,433 1.0 1.6
support service
activities
E.ON UK Plc E.ON UK Plc Electricity, gas, steam 0.8 99,142 0.9 1.5
and air conditioning
supply
Shell Energy Retail Ltd Columbus House, Coventry Electricity, gas, steam and air conditioning supply 0.5 53,253 0.9 1.4
NNB Generation Company (HPC) Ltd 800 Aztec West, Bristol Electricity, gas, steam 1.6 41,743 0.9 1.4
and air conditioning
supply
SPD Development Company Ltd Clearblue Innovation Centre, Bedford Professional, scientific 9.5 58,167 0.8 1.3
and technical activities
Aviva Central Services UK Ltd Hampshire Corporate Park, Eastleigh Other service activities 1.4 42,612 0.8 1.2
Odeon Cinemas Ltd Kingscourt Leisure Complex, Dundee Information and 11.3 41,542 0.8 1.2
communication
Care Inspectorate Compass House, Dundee Public sector 3.8 51,852 0.7 1.1
Quadrant House, Dundee
Please Hold (UK) Ltd Oakland House, Manchester Professional, scientific and technical activities 1.2 60,362 0.6 1.0
SpaMedica Ltd 1175 Century Way, Thorpe Park, Leeds Human health and social work activities 2.5 40,529 0.6 1.0
Albert Edward House, Preston Fairfax House, Wolverhampton Southgate Park,
Peterborough
The Foundation Chester Business Park, Chester
University of Glasgow 300 Bath Street, Glasgow Education 0.2 29,885 0.6 0.9
Total 4.1 955,809 14.3 22.5
Table may not sum due to rounding
PROPERTY PORTFOLIO SECTOR AND REGION SPLITS BY VALUATION AND INCOME AS AT 30
JUNE 2024
By Valuation
As at 30 June 2024, 91.5% (June 2023: 92.0%, December 2023: 92.1%) of the
portfolio by market value was offices and 3.1% (June 2023: 3.5%, December
2023: 3.1%) was retail. The balance was made up of industrial, 3.4% (June
2023: 3.0%, December 2023: 3.2%) and other, 1.9% (June 2023: 1.5%, December
2023: 1.7%). By UK region, as at 30 June 2024, Scotland represented 16.7%
(June 2023: 16.4%, December 2023: 16.2%) of the portfolio and England 77.5%
(June 2023: 78.4%, December 2023: 78.4%) the balance of 5.8% (June 2023: 5.1%,
December 2023: 5.4%) was in Wales. In England, the largest regions were the
Midlands, South East and the North East.
By Income
As at 30 June 2024, 90.9% (June 2023: 91.4%, December 2023: 91.3%) of the
portfolio by income was offices and 4.3% (June 2023: 4.6%, December 2023:
4.2%) was retail. The balance was made up of industrial, 3.0% (June 2023:
2.7%, December 2023: 2.8%), and other, 1.8% (June 2023: 1.4%, December 2023:
1.7%). By UK region, as at 30 June 2024, Scotland represented 16.3% (June
2023: 16.5%, December 2023: 15.8%) of the portfolio and England 77.9% (June
2023: 78.1%, December 2023: 78.6%); the balance of 5.8% was in Wales (June
2023: 5.5%, December 2023: 5.6%). 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 (30 June 2023: 4.8; 31 December 2023:
4.7); WAULT to first break is 3.0 years (30 June 2023: 3.0; 31 December 2023:
2.8). As at 30 June 2024, 12.1% (30 June 2023: 14.0%; 31 December 2023: 15.9%)
of income was from leases, which will expire within one year, 13.1% (30 June
2023: 12.6%; 31 December 2023: 10.7%) between one and two years, 35.7% (30
June 2023: 30.9%; 31 December 2023: 33.3%) between two and five years and
39.1% (30 June 2023: 42.5%; 31 December 2023: 40.1%) after five years.
Tenants by Standard Industrial Classification as at 30 June 2024
As at 30 June 2024, 11.6% of income was from tenants in the information and
communication sector (30 June
2023: 12.9%; 31 December 2023: 12.2%), 11.5% from the professional, scientific
and technical activities sector (3 June 2023: 12.5%; 31 December 2023: 11.5%),
10.9% from the administrative and support service activities sector (30 June
2023: 10.9%; 31 December 2023: 10.4%), 8.1% from the wholesale and retail
trade sector (30 June 2023: 7.8%; 31 December 2023: 8.0%), 7.0% from the
financial and insurance activities (30 June 2023: 8.3%; 31 December 2023:
8.7%), 6.2% from the education sector (30 June 2023: 4.6%; 31 December 2023:
5.6%), and 6.1% from the electricity, gas, steam and air conditioning supply
(30 June 2023: 7.2%; 31 December 2023: 6.5%). The remaining exposure is
broadly spread.
No tenant represents more than 3% of the Group's rent roll as at 30 June 2024,
the largest being 2.7% (30 June 2023: 2.5%; 31 December 2023: 2.5%).
Tenants by SIC Codes (% of gross rent)
SIC Code % of Headline Rent
Information and communication 11.6%
Professional, scientific and technical activities 11.5%
Administrative and support service activities 10.9%
Wholesale and retail trade 8.1%
Financial and insurance activities 7.0%
Education 6.2%
Electricity, gas, steam and air conditioning supply 6.1%
Human health and social work activities 5.5%
Public Sector 5.5%
Manufacturing 5.4%
Construction 4.2%
Other* 17.8%
Total 100.0%
* Other - Accommodation and food service activities, activities of
extraterritorial organisations and bodies, activities of households as
employers; undifferentiated goods, arts, entertainment and recreation,
charity, mining and quarrying, other service activities, overseas company,
public administration and defence; compulsory social security, real estate
activities, registered society, transportation and storage, water supply,
sewerage, waste management and remediation activities.
FINANCIAL REVIEW
Net Asset Value
Between 1 January 2024 and 30 June 2024, the EPRA NTA* of the Group decreased
to £251.6m (IFRS NAV: £266.6m) from £290.8m (IFRS NAV: £306.1m) as at 31
December 2023, equating to a decrease in the diluted EPRA NTA of 7.6pps to
48.8pps (IFRS: 51.7pps). This is after the dividends declared in the period
amounting to 2.4pps.
In the six months to 30 June 2024, the investment property revaluation
decrease amounted to £36.1m, for the properties held as at 30 June 2024.
The investment property portfolio was valued at £647.9m (30 June 2023:
£752.2m; 31 December 2023: £700.7m). The decrease of £52.8m since the
December 2023 year-end is a reflection of revaluation movement loss of
£36.1m, £20.7m of net property disposals and £1.2m loss on the disposal of
investment properties, offset by subsequent expenditure of £5.2m. Overall, on
a like-for-like basis, the portfolio value decreased by 5.1% during the
period.
The table below sets out the acquisitions, disposals and capital expenditure
for the respective periods:
Six months to 30 June 2024 Six months to June 2023 Year ended
31 December 2023
(£million) (£million) (£million)
Acquisitions
Net (after costs) 0.0 0.1 0.1
Gross (before costs) 0.0 0.0 0.0
Disposals
Net (after costs) 20.7 14.1 25.0
Gross (before costs) 21.9 14.6 26.1
Capital Expenditure
Net (after dilapidations) 5.2 6.7 10.2
Gross (before dilapidations) 5.2 6.8 11.0
The diluted EPRA NTA per share decreased to 48.8pps (31 December 2023:
56.4pps). The EPRA NTA is reconciled in the table below:
Six months to 30 June 2024
£m Pence per Share
Opening EPRA NTA (31 December 2023) 290.8 56.4
Net rental and property income 23.8 4.6
Administration and other expenses (4.7) (0.9)
Loss on the disposal of investment properties (1.2) (0.2)
Change in the fair value of investment properties (37.9) (7.3)
Change in value of right of use (0.1) (0.0)
EPRA NTA after operating profit 270.8 52.5
Net finance expense (8.1) (1.6)
Realised gain on derivative financial instruments 1.3 0.2
Taxation 0.0 0.0
EPRA NTA before dividends paid 264.0 51.2
Dividends paid** (12.4) (2.4)
Closing EPRA NTA (30 June 2024) 251.6 48.8
Tables may not sum due to rounding
* The Group has determined that EPRA net tangible assets (NTA) is the most
relevant measure. Further detail on the new EPRA performance measures can be
found in the full Annual Report.
**As at 30 June 2024, there were 515,736,583 Shares in issue.
Income Statement
Operating profit before gains and losses on property assets and other
investments for the six months ending 30 June 2024 amounted to £19.1m (six
months to 30 June 2023: £20.6m). Loss after finance and before taxation of
£27.1m (six months to 30 June 2023: loss £12.1m). The six months to 30 June
2024 included a full rent roll for the portfolio of properties held as at 30
June 2024, plus the partial rent roll for properties disposed of during the
period.
Realised loss on the disposal of investment properties amounted to £1.2m (six
months to 30 June 2023: loss £0.4m). The disposal losses were from the
aggregate disposal of 12 properties and three-part property sales in the
period, on which individual asset management plans had been completed. The
change in the fair value of investment properties amounted to a loss of
£37.9m (six months to 30 June 2023: loss of £29.5m). Net capital expenditure
amounted to £5.2m (six months to 30 June 2023: £6.7m). The change in value
of right of use asset amounted to a charge of £0.1m (six months to 30 June
2023: charge £0.1m).
Rental and property income amounted to £32.2m, excluding recoverable service
charge income and other similar items (six months to 30 June 2023 £34.3m).
The decrease was primarily the result of the rent roll being held over the six
months to 30 June 2024.
Currently more than 80% of the rental income is collected within 30 days of
the due date and the bad debts provision in the period amounted to £0.2m (30
June 2023: £0.4m). Trade and other receivables increased predominantly due to
a one-off systems migration. Subsequently, it abated with rent collection at
30 August 2024 for the period ending 30 June 2024 at 98.0% (equivalent
collection period in 2023: 98.8%)
Non-recoverable property costs, excluding recoverable service charge income
and other similar costs, amounted to £8.4m (six months to 30 June 2023:
£8.3m), and the rent roll decreased to £63.5m (six months to 30 June 2023:
£69.8m).
Finance expenses amount to £8.2m (six months to 30 June 2023: £8.0m). The
six months to 30 June 2023 was lower due to the decrease of amortisation of
borrowings costs.
The EPRA cost ratio, including direct vacancy costs, was 40.6% (30 June 2023:
39.9%). The EPRA cost ratio, excluding direct vacancy costs was 13.4% (30 June
2023: 17.3%). The ongoing charges for the year ending 30 June 2024 were 9.1%
(30 June 2023: 7.0%) and excluding direct vacancy costs 3.0% (30 June 2023:
3.1%).
The EPRA Total Return from Listing to 30 June 2024 was 7.5% (30 June 2023:
20.8%), with an annualised rate of 0.8% pa (30 June 2023: 2.5% pa).
Dividend
During the period from 1 January 2024 to 30 June 2024, the Company declared
dividends totalling 2.40pps (six months to 30 June 2023: 3.3pps).
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 five years. The weighted average maturity of the bank debt and
retail eligible bond is 3.0 years (30 June 2023: 4.0 years; 31 December 2023:
3.5 years).
The Group's borrowing facilities are with the Royal Bank of Scotland, Bank of
Scotland and Barclays, Scottish Widows Limited & Aviva Investors Real
Estate Finance, Scottish Widows Limited, Santander UK. The total bank
borrowing facilities at 30 June 2024 amounted to £353.3m (30 June 2023:
£381.7m; 31 December 2023: £370.8m) (before unamortised debt issuance
costs), with nil available to be drawn. In addition to the bank borrowings,
the Group had a £50m 4.5% retail eligible bond, repaid in August 2024. In
aggregate, the total debt available at 30 June 2024 amounted to £403.3m (30
June 2023: £437.4m; 31 December 2023: £420.8m).
At 30 June 2024, the Group's cash and cash equivalent balances amounted to
£25.7m (30 June 2023: £41.2m; 31 December 2023: £34.5m), of which £21.8m
(30 June 2023: £26.0m; 31 December 2023: £30.6m) was unrestricted cash.
The Group's net loan to value ("LTV") ratio stands at 58.3% (30 June 2023:
51.9%; 31 December 2023: 55.1%) before unamortised costs. The Board continues
to target a net LTV ratio of 40%.
Debt Profile and LTV Ratios as at 30 June 2024
Facility Outstanding debt* Maturity Gross loan to value** Annual interest rate
amount
Lender £'000 £'000 date % %
Royal Bank of Scotland, Bank of Scotland & Barclays 115,961 115,961 Aug-26 56.10 2.40 over 3 months
£ SONIA
Scottish Widows Ltd. and Aviva Investors Real Estate Finance 147,500 147,500 Dec-27 54.80 3.28 Fixed
Scottish Widows Ltd. 36,000 36,000 Dec-28 48.80 3.37 Fixed
Santander UK 53,852 53,852 Jun-29 53.50 2.20% over 3 months
£ SONIA
353,313 353,313
Retail Eligible Bond*** 50,000 50,000 Aug-24 N/A
4.50 Fixed
403,313 403,313
Table may not sum due to rounding.
* Before unamortised debt issue costs
** Based on Colliers International Property Consultants Ltd
*** The retail bond which matured on 6 August 2024 has been repaid in full.
The Managers continue to monitor the borrowing requirements of the Group. As
at 30 June 2024, the Group had sufficient headroom against its borrowing
covenants.
The net gearing ratio (net debt to Ordinary Shareholders' equity of the Group
was 141.6% as at 30 June 2024 (30 June 2023: 104.5%; 31 December 2023:
126.2%).
Interest cover, excluding amortised costs, stands at 2.6 times (30 June 2023:
2.8 times; 31 December 2023: 2.9 times) and including amortised costs, stands
at 2.3 times (30 June 2023: 2.6 times; 31 December 2023: 2.7 times).
Hedging
The Group applies an interest rate 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.
Six months ended Six months ended Year ended
30 June 2024 30 June 2023 31 December 2023
% % %
Borrowings interest rate hedged 100.0 101.6 100.0
Thereof :
Fixed 57.9 56.4 56.7
Swap 28.9 28.4 28.6
Cap 13.3 16.6 14.7
Weighted Average Cost of Debt ("WACD")(10) 3.5 3.5 3.5
Table may not sum due to rounding
(10) WACD - Weighted Average Effective Interest Rate including the cost of
hedging
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.
As at 30 June 2024, the Group recognised a tax charge of nil (30 June 2023:
nil tax charge).
PRINCIPAL RISKS AND UNCERTAINTIES
For Regional REIT, effective risk management is a cornerstone of delivering
our strategy and integral to the achievement of our objective of delivering
long term value through active asset management across the portfolio. The
principal risks and uncertainties the Group faces are summarised below and
described in detail on pages 58 to 70 of the 2023 Annual Report, which is
available on the Group's website: www.regionalreit.com
(http://www.regionalreit.com) - Annual Report 2023.
The Audit Committee, which assists the Board with its responsibilities for
managing risk, regularly reviews the risk appetite of the Company. Taking into
consideration the latest information available, the Company is able to assess
and respond quickly to new and emerging risks.
Despite the improvement in the operating environment, with the level of
enquiries for office space remaining robust and the risks associated with
Covid-19 pandemic considerably lessened, the continued conflicts in Ukraine,
Israel and Palestine and the UK election process continued to impact the wider
UK economy.
A summary of the Group's principal risks for the first half of 2024 is
provided here.
Strategic risk
Investment decisions could result in lower dividend income and capital returns
to our Shareholders.
Valuation risk
The valuation of the Group's portfolio, undertaken by the external valuer,
Colliers International Property Consultants Ltd, could impact the Group's
profitability and net assets.
Healthcare risk
The economic disruption after-effects resulting from the pandemic, coupled
with potential new strains of infectious diseases, could further impact rental
incomes, the Group's property portfolio valuations, the ability to access
funding at competitive rates, maintain a progressive dividend policy, and
adhere to the HMRC REIT regime requirements.
Economic and Political risk
The macro-health of the UK economy could impact on borrowing and hedging
costs, demand by tenants for suitable properties and the quality of the
tenants. Also, there is a risk that in the wake of wider geopolitical
consequences of Russia's invasion of Ukraine and the conflict in the Middle
East, property valuations could be impacted.
Funding risk
The Group may not be able to secure further debt on acceptable terms, which
could impinge upon investment opportunities and the ability to grow the Group.
Bank reference rates maybe set to continue to become more volatile,
accompanying volatile inflation. Breach of covenants within the Group's
funding structure could lead to a cancellation of debt funding if the Company
is unable to service the debt.
Tenant risk
Type and concentration of tenants could result in a lower rental income. A
higher concentration of lease term maturity and/or break options, could result
in a more volatile rental income.
Financial and Tax Change risk
Changes to UK financial legislation and the tax regime could result in lower
rental income.
Operational risk
Business disruption could result in lower rental income. Information security,
cyber threats, and technology outages could result in data loss, or negative
regulatory, reputational, operational (including GDPR), or financial impacts.
Accounting, Legal and Regulatory risk
Changes to accounting, legal and regulatory requirements could affect current
operating processes and the Board's ability to achieve the investment
objectives and provide favourable returns to our Shareholders. Potential loss
of REIT status.
Environmental and Energy Efficiency Standards
Changes to the environment could impact upon the Group's cost base, operations
and legal requirements which need to be adhered too. All of these risks could
impinge upon the profitability of the Group. An Energy Performance Rating of E
and below may impact the Company's ability to sell/lease an asset.
INTERIM MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITY STATEMENT
Interim Management Report
The important events that have occurred during the period under review, the
principal risks and uncertainties and the key factors influencing the
financial statements for the remaining six months of the year are set out in
the Chairman's Statement and the Asset and Investment Managers' Report.
The principal risks and uncertainties faced by the Group are substantially
unchanged since the date of the Annual Report and Accounts for the year ended
31 December 2023 and are summarised above.
The condensed consolidated financial statements for the period from 1 January
2024 to 30 June 2024 have not been audited or reviewed by auditors pursuant to
the Financial Reporting Council guidance on Review of Interim Financial
Information and do not constitute annual statutory accounts for the purposes
of the Law.
Going Concern
The Directors have made an assessment of the Group's ability to continue as a
going concern. This assessment
included consideration of the Group's cash resources, borrowing facilities,
rental income, acquisition and disposals of investment properties, elective
and committed capital expenditure and dividend distributions.
The Group ended the period under review with £25.7m of cash and cash
equivalents, of which £21.8m was
unrestricted cash. Borrowing facilities decreased from £420.8m at 31 December
2023 to £412.4m as at 30 June
2024, with an LTV of 58.3%, based upon the value of the Group's investment
properties as at 30 June 2024.
Following the announcement on 18 July 2024 of the successful £110.5m capital
raise, the retail bond was repaid on 6 August 2024, in accordance with the
maturity date. Borrowing facilities after repayment were £353.3m with an LTV
of 42.2%*. The next bank facility to mature is the £116.0m facility in August
2026 which is held with the Royal Bank of Scotland, Bank of Scotland and
Barclays.
Based on the above, the Directors are satisfied that the Group has adequate
resources to continue in operational existence for a period of at least 12
months from the date these Financial Statements are approved. This is
underpinned by the robust rent collections and the level of committed capital
expenditure in the forthcoming 12
months. Furthermore, the Directors are not aware of any material uncertainties
that may cast significant doubt
upon the Group's ability to continue as a going concern. Accordingly, the
Directors consider that it is appropriate to prepare the Financial Statements
on a going concern basis.
*Based upon 30 June 2024 Colliers International Property Consultants Ltd.
valuation of £647.9m, 30 June 2024 cash balance of £25.7m and the capital
raise net proceeds of £104.7m less the repayment of the £50.0m retail bond.
Responsibility Statement of the Directors in respect of the Half-Yearly Report
In accordance with Disclosure Guidance and Transparency Rule 4.2.10R we, the
Directors of the Company (whose names are listed in full at the end of this
report), confirm that to the best of their knowledge:
· the condensed set of consolidated financial statements has been
prepared in accordance with International Accounting Standard (IAS) 34,
"Interim Financial Reporting", as contained in UK-adopted International
Accounting Standards, as required by Disclosure Guidance and Transparency Rule
DTR 4.2.4R, and gives a true and fair view of the assets, liabilities,
financial position and profit of the Group;
· this Half-Yearly Report includes a fair review, required under
DTR 4.2.7R, of the important events that have occurred during the first six
months of the financial year, their impact on the condensed set of
consolidated financial statements and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
· this Half-Yearly Report includes a fair review, required under
DTR 4.2.8R, of related party transactions that have taken place in the first
six months of the current financial year and that have materially affected the
financial position and or performance of the Group during that period; and any
changes in the related party transaction described in the last Annual Report
that could do so.
This Half-Yearly Report was approved and authorised for issue by the Board of
Directors on 9 September 2024 and the above responsibility statement was
signed on its behalf by:
Kevin McGrath
Chairman
9 September 2024
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2024
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
Notes £'000 £'000 £'000
Continuing Operations
Revenue
Rental and property income 5 44,232 44,415 91,880
Property costs 6 (20,403) (18,438) (38,161)
Net rental and property income 23,829 25,977 53,719
Administrative and other expenses 7 (4,724) (5,341) (10,626)
Operating profit before gains and losses on property assets and other
investments
19,105 20,636 43,093
Loss on disposal of investment properties 13 (1,156) (403) (726)
Change in fair value of investment properties 13 (37,858) (29,491) (86,350)
Change in fair value of right of use assets (69) (69) (139)
Operating loss (19,978) (9,327) (44,122)
Finance income 8 134 17 79
Finance expenses 9 (8,229) (7,953) (16,210)
Net movement in fair value of derivative financial instruments 962 5,128 (7,194)
16
Loss before tax (27,111) (12,135) (67,447)
Taxation 10 - - (9)
Total comprehensive loss for the period (attributable to owners of the parent (27,111) (12,135)
Company)
(67,456)
Loss per Share - basic and diluted (52.6)p (130.8)p
11 (23.5)p
Loss per Share - basic and diluted (prior to 1 for 10 share consolidation)
11 (5.3)p (2.4)p (13.1)p
Total comprehensive loss arises from continuing operations.
The notes below are an integral part of these condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2024
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
Notes £'000 £'000 £'000
Assets
Non-current assets
Investment properties 13 633,166 752,226 687,695
Right of use assets 10,918 11,057 10,987
Non-current receivables on tenant loan 337 452 385
Derivative financial instruments 16 15,704 29,577 16,009
660,125 793,312 715,076
Current assets
Trade and other receivables 43,887 33,068 32,837
Cash and cash equivalents 25,690 41,231 34,505
69,577 74,299 67,342
Total assets 729,702 867,611 782,418
Liabilities
Current liabilities
Trade and other payables (38,071) (38,230) (33,039)
Deferred income (14,452) (17,244) (15,597)
Retail eligible bonds (49,984) - (49,907)
Deferred tax liabilities (708) (699) (708)
(103,215) (56,173) (99,251)
Non-current liabilities
Bank and loan borrowings 14 (348,427) (376,331) (365,603)
Retail eligible bonds 15 - (49,829) -
Lease liabilities (11,460) (11,490) (11,475)
(359,887) (437,650) (377,078)
Total liabilities (463,102) (493,823) (476,329)
Net assets 266,600 373,788 306,089
Equity
Stated capital 17 513,762 513,762 513,762
Accumulated losses (247,162) (139,974) (207,673)
Total equity attributable to owners of the parent Company
266,600 373,788 306,089
Net asset value per Share - basic and diluted
18 51.7p 72.5p 59.3p
The notes below are an integral part of these condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2024
Attributable to owners of the parent company
Stated Accumulated
capital losses Total
Notes £'000 £'000 £'000
Balance at 1 January 2024 513,762 (207,673) 306,089
Total comprehensive loss - (27,111) (27,111)
Dividends paid 12 - (12,378) (12,378)
Balance at 30 June 2024 513,762 (247,162) 266,600
For the six months ended 30 June 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 income - (12,135) (12,135)
Dividends paid 12 - (17,019) (17,019)
Balance at 30 June 2023 513,762 (139,974) 373,788
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 loss - (67,456) (67,456)
Dividends paid 12 - (29,397) (29,397)
Balance at 31 December 2023 513,762 (207,673) 306,089
The notes below are an integral part of these condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 2024
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Cash flows from operating activities
Loss for the year before taxation (27,111) (12,135) (67,447)
- Change in fair value of investment properties 37,858 29,491 86,350
- Change in fair value of financial derivative instruments (962) (5,128) 7,194
- Loss on disposal of investment properties 1,156 403 726
- Change in fair value of right of use assets 69 69 139
Finance income (134) (17) (79)
Finance expense 8,229 7,953 16,210
Increase in trade and other receivables (10,997) (2,679) (2,380)
Increase/(decrease) in trade and other payables 4,997 (1,017) (3,611)
(Decrease)/increase in deferred income (1,145) 584 (1,064)
Cash generated from operations 11,960 17,524 36,038
Interest paid (7,236) (7,430) (14,775)
Taxation paid (5) - -
Net cash flow generated from operating activities 4,719 10,094 21,263
Investing activities
Purchase of investment properties and subsequent expenditure (5,200) (6,755) (10,260)
Sale of investment properties 20,715 14,115 24,969
Interest received 134 28 89
Net cash flow from investing activities 15,649 7,388 14,798
Financing activities
Proceeds received on derivative financial instruments 1,267 1,246
Dividends paid (12,342) (17,004) (31,978)
Bank borrowings advanced - 1,944 3,729
Bank borrowings repaid (17,437) (11,043) (23,771)
Bank borrowing costs paid (453) (78) (495)
Lease repayments (218) (218) (435)
Net cash flow used in financing activities (29,183) (26,399) (51,704)
Net decrease in cash and cash equivalents (8,815) (8,917) (15,643)
Cash and cash equivalents at the start of the period 34,505 50,148 50,148
Cash and cash equivalents at the end of the period 25,690 41,231 34,505
The notes below are an integral part of these condensed consolidated financial
statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2024
1. Corporate information
The condensed consolidated financial statements of the Group for the six
months ended 30 June 2024 comprise the results of the Company and its
subsidiaries (together constituting the "Group") and were approved by the
Board and authorised for issue on 9 September 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 its shares were
admitted to trading on the LSE.
The nature of the Group's operations and its principal activities are set out
in the Chairman's Statement.
The address of the registered office is: Mont Crevelt House, Bulwer Avenue,
St. Sampson, Guernsey, GY2 4LH.
2. Basis of preparation
The condensed consolidated financial statements for the six months ended 30
June 2024 have been prepared on a going concern basis in accordance with the
Disclosure Guidance and Transparency Rules of the FCA and with IAS 34, Interim
Financial Reporting, as contained in UK-adopted International Accounting
Standards.
The condensed consolidated financial statements have been prepared on a
historical cost basis, as modified for the Group's investment properties and
certain financial assets and financial liabilities (including derivative
instruments) at fair value through profit or loss.
The condensed consolidated interim financial information should be read in
conjunction with the Group's audited financial statements for the year ended
31 December 2023, which have been prepared in accordance with International
Financial Reporting Standards ("IFRS") as contained in UK-adopted
International Accounting
Standards. The results presented in this report have not been audited or
reviewed in accordance with International Standard on Review Engagements (UK)
2410.
2.1. Comparative period
The comparative financial information presented herein for the year ended 31
December 2023 do not constitute full statutory accounts within the meaning of
the Law. The Group's Annual Report and Accounts for the year ended 31 December
2023 were delivered to the Guernsey Financial Services Commission. The Group's
independent Auditor's report on those Accounts was unqualified but included a
material uncertainty related to going concern.
2.2. Functional and presentation currency
The consolidated financial information is presented in Pounds Sterling which
is also the Group's functional currency, and all values are rounded to the
nearest thousand (£'000s) pounds, except where otherwise indicated.
2.3. Going concern
The Directors have made an assessment of the Group's ability to continue as a
going concern. This assessment
included consideration of the Group's cash resources, borrowing facilities,
rental income, acquisition and disposals of investment properties, elective
and committed capital expenditure and dividend distributions.
The Group ended the period under review with £25.7m of cash and cash
equivalents, of which £21.8m was unrestricted cash. Borrowing facilities
decreased from £420.8m at 31 December 2023 to £403.3m as at 30 June 2024,
with an LTV of 58.3%, based upon the value of the Group's investment
properties as at 30 June 2024. Following the announcement on 18 July 2024 of
the successful £110.5m capital raise, the retail bond was repaid on 6 August
2024, in accordance with the maturity date. Borrowing facilities after
repayment were £353.3m with an LTV of 42.2%*. The next bank facility to
mature is the £116.0m facility in August 2026 which is held with the Royal
Bank of Scotland, Bank of Scotland and Barclays.
Based on the above, the Directors are satisfied that the Group has adequate
resources to continue in operational existence for a period of at least 12
months from the date these Financial Statements are approved. This is
underpinned by the robust rent collections and the level of committed capital
expenditure in the forthcoming 12 months. Furthermore, the Directors are not
aware of any material uncertainties that may cast significant doubt upon the
Group's ability to continue as a going concern. Accordingly, the Directors
consider that it is appropriate to prepare the Financial Statements on a going
concern basis.
*Based upon 30 June 2024 Colliers International Property Consultants Ltd.
valuation of £647.9m, 30 June 2024 cash balance of £25.7m and the capital
raise net proceeds of £104.7m less the repayment of the £50.0m retail bond.
3. Significant accounting judgements, estimates and assumptions
The preparation of the condensed consolidated financial statements requires
management to make judgements, estimates and assumptions that affect the
reported amounts of revenues, expenses, assets and liabilities and the
disclosure of contingent liabilities at the reporting date. However,
uncertainty about these assumptions and estimates could result in outcomes
that require a material adjustment to the carrying amount of the asset or
liability affected in future periods.
3.1. Critical accounting estimates and assumptions
The principal estimates that may be material to the carrying amount of assets
and liabilities are as follows:
3.1.1. Valuation of investment properties
The fair 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 Investment Property and IFRS 13 Fair
Value Measurement.
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 13 in the Full Half Year report and below.
The fair value of investment property is equal to the independent property
valuer's valuation of £647,925,000 (31 December 2023: £700,720,000). This is
presented net of the prepayment arising from rent smoothing £14,759,000 (31
December 2023: £13,025,000). This is detailed in note 13 of the report and is
in accordance with IAS 40 paragraph 50, recognising the prepayment cannot be
recovered when the investment properties are sold. Comparative figures for 30
June 2023 have not been restated as the effect on the accounts of £11,952,000
is not considered by the Directors to be material.
3.1.2. Fair valuation of interest rate derivatives
In 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 occur-ring on a quarterly basis. The counterparties will use
a number of assumptions in determining the fair values, including estimations
over future interest rates and there-fore 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 estimat-ing the fair value of the interest
rate derivatives are set out in note 16 in the Full Half Year Report and
below.
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 condensed consolidated financial statements:
3.2.1 Operating lease contracts - the Group as lessor
The Group has acquired investment properties that are subject to commercial
property leases with tenants. The Group has determined, based on an evaluation
of the terms and conditions of the arrangements, particularly the duration of
the lease terms and minimum lease payments, that it retains all of the
significant risks and rewards of ownership of these properties and so accounts
for the leases as operating leases.
3.2.2. 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.
3.2.3 Acquisition of subsidiary companies
For each acquisition, the Directors consider whether the acquisition met the
definition of the acquisition of a business or the acquisition of a group of
assets and liabilities.
A business is defined in IFRS 3 as an integrated set of activities and assets
that is capable of being conducted and managed for the purpose of providing a
return in the form of dividends, lower costs or other economic benefits
directly to investors or other owners, members or participants. Furthermore, a
business consists of inputs and processes applied to those inputs that have
the ability to create outputs.
The companies acquired in the year have comprised portfolios of investment
properties and existing leases with multiple tenants over varying periods,
with little in the way of processes acquired. It has therefore concluded in
each case that the acquisitions did not meet the criteria for the acquisition
of a business as outlined above.
3.2.4 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 were transferred
into two new special purpose vehicles ("SPVs") with two additional properties
to be transferred into these SPVs at a later date. A new call option was
entered into dated 9 November 2018 with View Castle Limited and 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.
4. Summary of significant accounting policies
With the exception of new accounting standards listed below, the accounting
policies adopted in this report are consistent with those applied in the
Group's statutory accounts for the year ended 31 December 2023 and are
expected to be consistently applied for the current year ending 31 December
2024. The changes to the condensed consolidated financial statements arising
from accounting standards effective for the first time are noted below:
Amendments to IAS 1 'Presentation of Financial Statements'
(effective for periods beginning on or after 1 January 2024) 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. The amendments
have not had a material impact on the financial statements.
Amendments to IFRS 16 'Leases'
(effective for periods beginning on or after 1 January 2024) include
requirements to explain how an entity accounts for a sale and leaseback after
the date of transaction. The amendments have not had a material impact on the
financial statements.
Amendments to IAS 7 'Cash Flow Statements' and IFRS 7 'Financial Instruments:
Disclosure'
(effective for periods beginning on or after 1 January 2024) require
disclosures to enhance the transparency of supplier finance arrangements and
their effects on an entity's liabilities, cash flows and exposure to liquidity
risk. The amendments have not had a material impact on the financial
statements.
IFRS S1 General Requirements for Disclosure of Sustainability-related
Financial Information (effective for periods beginning on or after 1 January
2024).
IFRS S2 Climate-related Disclosures (effective for periods beginning on or
after 1 January 2024).
5. Rental and property income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Rental income - freehold property 26,250 28,360 57,845
Rental income - long leasehold property 5,940 5,949 12,210
Recoverable service charge income and other similar items 12,042 10,106 21,825
Total 44,232 44,415 91,880
6. Property costs
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Other property expenses and irrecoverable costs 8,361 8,332 16,336
Recoverable service charge expenditure and other similar costs 12,042 10,106 21,825
Total 20,403 18,438 38,161
Property costs represent direct operating expenses which arise on investment
properties generating rental income.
7. Administrative and other expenses
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Investment management fees 720 1,035 1,944
Property management fees 1,161 1,324 2,677
Asset management fees 719 1,034 1,944
Directors' remuneration 132 157 293
Administration fees 313 317 727
Legal and professional fees 1,360 914 2,203
Marketing and promotion 37 38 87
Other administrative costs 94 111 194
Allowance/(credit) for doubtful debts 181 397 542
Bank charges 7 14 15
Total 4,724 5,341 10,626
8. Finance income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Interest income 134 17 79
Total 134 17 79
9. Finance expense
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Interest payable on bank borrowings 6,107 6,301 12,517
Amortisation of loan arrangement fees 714 243 875
Bond interest 1,125 1,125 2,250
Bond issue costs amortised 77 77 155
Bond expenses 4 4 8
Lease interest 202 203 405
Total 8,229 7,953 16,210
10. Taxation
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Corporation tax charge - - -
Decrease in deferred tax liability - - 9
Total - - 9
The Group elected to be treated as a UK REIT with effect from 7 November 2015.
The UK REIT rules exempt the profits of the Group's UK property rental
business from corporation tax. Gains on UK properties are also exempt from
tax, provided that they are not held for trading or sold in the three years
after completion of development. The Group is otherwise subject to UK
corporation tax.
Income tax, corporation tax and deferred tax above arise on entities which
form part of the Group's condensed consolidated accounts but do not form part
of the REIT group.
Due to the Group's REIT status and its intention to continue meeting the
conditions required to obtain approval in the foreseeable future, no provision
has been made for deferred tax on any capital gains or losses arising on the
revaluation or disposal of investments held by entities within the REIT group.
No deferred tax asset has been recognised in respect of losses carried forward
due to unpredictability of future taxable profits.
As a REIT, Regional REIT Ltd is required to pay PIDs equal to at least 90% of
the Group's exempted net income. To retain UK REIT status, there are a number
of conditions to be met in respect of the principal company of the Group, the
Group's qualifying activity and its balance of business. The Group continues
to meet these conditions.
11. Earnings per Share
Earnings per share ("EPS") amounts are calculated by dividing profits for the
period attributable to ordinary equity holders of the Company by the weighted
average number of Ordinary Shares in issue during the period.
The calculation of basic and diluted earnings per share is based on the
following:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Calculation of earnings per Share
Net loss attributable to Ordinary Shareholders (27,111) (12,135) (67,456)
Adjustments to remove:
Changes in value of investment properties 37,858 29,491 86,350
Changes in fair value of right of use assets 69 69 139
Loss on disposal of investment property 1,156 403 726
Change in fair value of interest rate derivates and financial assets
(962) (5,128) 7,194
Deferred tax charge - - 9
EPRA net profit attributable to Ordinary Shareholders 11,010 12,700 26,962
Weighted average number of Ordinary Shares 51,573,685 51,573,685 51,573,685
Loss per Share - basic and diluted (52.6)p (23.5)p (130.8)p
EPRA earnings per Share - basic and diluted 21.3p 24.6p 52.3p
Earnings per Share (prior to 1 for 10 consolidation)
Weighted average number of Ordinary Shares 515,736,853 515,736,853 515,736,583
Loss per Share - basic and diluted (5.3)p (2.4)p (13.1)p
EPRA earnings per Share - basic and diluted 2.1p 2.5p 5.2p
12. Dividends
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Dividends
Dividend of 1.20 (2023: 1.65) pence per Ordinary Share for the period 1 6,189 8,509 8,509
October - 31 December
Dividend of 1.20 (2023: 1.65) pence per Ordinary Share for the period 1 6,189 8,510 8,510
January - 31 March
Dividend of nil (2023: 1.20) pence per Ordinary Share for the period 1 April - - 6,189
30 June
-
Dividend of nil (2023: 1.20) pence per Ordinary Share for the period 1 July - - - 6,189
30 September
Total 12,378 17,019 29,397
On 22 February 2024, the Company announced a dividend of 1.20 pps in respect
of the period 1 October 2023 to 31 December 2023. The dividend was paid on 5
April 2024 to Shareholders on the register as at 1 March 2024.
On 22 May 2024, the Company announced a dividend of 1.20 pps in respect of the
period 1 January 2024 to 31 March 2024. The dividend was paid on 12 July 2024
to Shareholders on the register as at 31 May 2024.
13. 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 Ltd, a Chartered Surveyor who is
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 valuation has been prepared in
accordance with the Red Book and incorporates the recommendations of the
International Valuation Standards Committee which are consistent with the
principles set out in IFRS 13.
Investment property valuations in comparative periods were carried out by
Colliers.
The valuation is 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 Freehold Long Leasehold Total
six months ended 30 June 2024 (unaudited) property property £'000
£'000 £'000
Valuation at 1 January 2024 562,395 138,325 700,720
Property additions - acquisitions - - -
Property additions - subsequent expenditure 4,274 926 5,200
Property disposals (20,715) - (20,715)
Loss on disposals of investment properties (1,156) - (1,156)
Change in fair value during the period (28,198) (7,926) (36,124)
Valuation at 30 June 2024 (unaudited) 516,600 131,325 647,925
Group Movement in investment properties for the Freehold Long Leasehold Total
six months ended 30 June 2024 (unaudited) property property £'000
£'000 £'000
Value advised by the property valuers 516,600 131,325 647,925
Less adjustment for rent smoothing assets (10,590) (4,169) (14,759)
Fair value at 30 June 2024 506,010 127,156 633,166
Change in fair value during the period (28,198) (7,926) (36,124)
Adjustment for rent smoothing assets at 30 June 2024 (10,590) (4,169) (14,759)
Adjustment for rent smoothing assets at 31 Dec 2023 9,532 3,493 13,025
Change in fair value of investment properties (29,256) (8,602) (37,858)
Group Movement in investment properties for the
six months ended 30 June 2023 (unaudited)
Valuation at 1 January 2023 643,630 145,850 789,480
Property additions - acquisitions 6 85 91
Property additions - subsequent expenditure 4,631 2,033 6,664
Property disposals (14,168) 53 (14,115)
Loss on the disposal of investment properties (350) (53) (403)
Change in fair value during the period (28,543) (948) (29,491)
Valuation at 30 June 2023 (unaudited) 605,206 147,020 752,226
Group Movement in investment properties for the year ended 31 December 2023
(audited)
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 fair value during the period (63,466) (9,859) (73,325)
Valuation at 31 December 2023 (audited) 562,395 138,325 700,720
Valuation advised by the property valuers 562,395 138,325 700,720
Less adjustment for rent smoothing assets (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
£37,858,000 (30 June 2023: £29,491,000; 31 December 2023: £86,350,00).
The historic cost of the properties is £857,120,000 (30 June 2023:
£908,464,000; 31 December 2023: £899,236,000).
The net book value of properties disposed of during the period amounted to
£21,871,000 (30 June 2023: £14,518,000; 31 December 2023: £25,695,000).
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 30 June 2024 was
£644,425,000 (30 June 2023 £747,425,000; 31 December 2023 £700,720,000).
The following table provides the fair value measurement hierarchy for
investment properties:
Significant observable inputs Significant unobservable inputs
Quoted (level 2) (level 3)
active prices £'000 £'000
Total (level 1)
Date of valuation: £'000 £'000
30 June 2024 647,925 - - 647,925
30 June 2023 752,226 - - 752,226
31 December 2023 700,720 - - 700,720
The hierarchy levels are defined in note 16.
It has been determined that the entire investment properties portfolio should
be classified under the level 3
category.
There have been no transfers between levels during the period.
The determination of the fair value of the investment properties held by each
consolidated subsidiary requires
the use of estimates such as future cash flows from investment properties,
which take into consideration
lettings, tenants' profiles, future revenue streams, capital values of
fixtures and fittings, any environmental matters and the overall repair and
condition of the property, and discount rates applicable to those assets.
Future revenue streams comprise contracted rent (passing rent) and estimated
rental value after the contract period. In calculating ERV, the potential
impact of future lease incentives to be granted to secure new contracts is
taken into consideration. All these estimates are based on local market
conditions existing at the reporting date.
As at 30 June 2024, 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.
Techniques used for valuing investment properties
The following descriptions and definitions relate to valuation techniques and
key unobservable inputs made
in determining the fair values:
Valuation technique: market comparable method
Under the market comparable method (or market approach), a property fair value
is estimated based on
comparable transactions in the market.
Significant input: market rental
The rent at which space could be let in the market conditions prevailing at
the date of valuation £16,200-£3,247,200 per annum (30 June 2023: £12,500 -
£3,589,000 per annum; 31 December 2023: £16,200-£3,237,000 per annum).
Significant input: rental growth
The decrease in rent is based on contractual agreements: 5.42% (30 June 2023:
3.18%; 31 December 2023 6.49%). There is a gross contracted rent reduction, as
per normal operations it is a combination of property disposals, space under
refurbishment and lease expiries.
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 input (level 3) are sensitive to the changes in
the estimated future cash flows from investment properties such as increases
and decreases in contract rents, operating expenses and capital expenditure,
plus transactional activity in the real estate market.
Geographical and sector specific market evidence reviewed in the course of
preparing the June 2024 valuation had an initial yield range of 2.83% to
17.41% (30 June 2023: 5.59% to 9.33%; 31 December 2023: 5.78% to 15.0%).
As set out within the significant accounting estimates and judgements above,
the Group's property portfolio valuation is open to judgement and is
inherently subjective by nature, and actual values can only be determined in a
sales transaction.
Equivalent yield range by sector:
Fair value
ERV Range (per sq ft per annum)
Sector £'000 Equivalent Yield Range
Industrial £22,275.00 £3.50 - £9.49 7.00% - 27.31%
Retail £20,375.00 £4.50 - £45.02 6.00% - 30.96%
Alternatives/ Other £12,450.00 £5.00 - £13.50 4.25% - 9.67%
Office by Region
Office South East £114,625.00 £5.07 - £29.01 8.65% - 22.90%
Office South West £61,650.00 £12.28 - £22.90 9.11% - 13.39%
Office Midlands £124,170.00 £3.01 - £35.07 9.08% - 11.93%
Office North West £88,975.00 £6.61 - £29.59 8.25% - 15.25%
Office North East £94,400.00 £6.26 - £30.05 7.61% - 14.03%
Office Wales £19,150.00 £10.00 - £13.50 8.92% - 10.74%
Office Scotland £89,855.00 £4.50 - £24.02 9.43% - 14.26%
Total £647,925.00
The impact of changes to the significant unobservable inputs:
30 June 2024 30 June 2024 31 December 2023 31 December 2023
Impact on Impact on Impact on Impact on
statement of statement of statement of statement of
comprehensive financial position comprehensive financial position
income £'000 income £'000
£'000 £'000
Improvement in ERV by 5% 28,758 28,758 31,464 31,464
Worsening in ERV by 5% (28,313) (28,313) (30,966) (30,966)
Improvement in yield by 0.125% 9,308 9,308 10,361 10,361
Worsening in yield by 0.125% (9,102) (9,102) (10,101) (10,101)
14. Bank and loan borrowings
Bank borrowings are secured by charges over individual investment properties
held by certain asset-holding subsidiaries. The banks also hold charges over
the shares of certain subsidiaries and any intermediary holding companies of
those subsidiaries.
Any associated fees in arranging the bank borrowings unamortised as at the
period end are offset against amounts drawn on the facilities as shown in the
table below:
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Bank borrowings drawn at start of period 370,750 390,792 390,792
Bank borrowings drawn - 1,944 3,729
Bank borrowings repaid (17,437) (11,043) (23,771)
Bank borrowings drawn at end of period 353,313 381,693 370,750
Less: unamortised costs at start of period (5,147) (5,527) (5,527)
Less: loan issue costs incurred in the period (453) (78) (495)
Add: loan issue costs amortised in the period 714 243 875
At end of period 348,427 376,331 365,603
Maturity of bank borrowings
Repayable within 1 year - - -
Repayable between 1 to 2 years - - -
Repayable between 2 to 5 years 353,313 283,177 310,721
Repayable after more than 5 years - 98,516 60,029
Unamortised loan issue costs (4,886) (5,362) (5,147)
348,427 376,331 365,603
As detailed in note 15 below, the Group has £50,000,000 (30 June 2023:
£50,000,000; 31 December 2023: £50,000,000) retail eligible bonds in issue.
The table below lists the Group's borrowings.
Gross
Facility Outstanding debt* Maturity loan to value** Annual interest rate Amortisation
Lender Amount date
£'000 £'000
115,961 August 2026 56.10% 2.40% over 3 months £ SONIA Mandatory prepayment
Royal Bank of Scotland, Bank of Scotland and Barclays
115,961
147,500 December 2027 54.80%
Scottish Widows Ltd & Aviva Investors Real Estate Finance
3.28% Fixed None
147,500
36,000 December 2028 49.00% 3.37% Fixed None
Scottish Widows Ltd 36,000
53,852 June 2029 53.50% 2.20% over 3 Mandatory prepayment
months £ SONIA
Santander UK 53,852
353,313
Total bank borrowings
353,313
50,000 50,000 August 2024 4.50% Fixed None
Retail eligible bond
Total 403,313 403,313
SONIA = Sterling Over Night Indexed Average
* Before unamortised debt issue costs.
** Based upon Colliers International Property Consultants limited property
valuation
The percentage of borrowings at variable rates of interest was 42.1% (30 June
2023: 43.6%; 31 December 2023: 43.3%).
The weighted average term to maturity of the Group's debt at the period end
was 3.0 years (30 June 2023: 4.0 years; 31 December 2023: 3.5 years).
The weighted average interest rate payable by the Group on its debt portfolio,
excluding hedging, as at the period end was 5.2% per annum (30 June 2023: 4.9%
per annum; 31 December 2023: 5.4% per annum).
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
2023: 3.5% per annum).
The Group has been in compliance with all of the financial covenants of the
above facilities as applicable throughout the period covered by these
condensed consolidated financial statements. Each facility has distinct
covenants which generally include: historic interest cover, projected interest
cover, loan-to-value cover and debt to rent 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
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 16 below, the Group uses a combination of interest rate swaps
and fixed rate bearing loans to hedge against interest rate risks. The Group's
exposure to interest rate volatility is minimal.
15. Retail eligible bonds
The Company has in issue £50,000,000 of 4.5% retail eligible bonds with a
maturity date of 6 August 2024. The bonds are listed on the LSE ORB platform.
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Bond principal at start of period 50,000 50,000 50,000
Unamortised issue costs at start of period (93) (248) (248)
Amortisation of issue costs 77 77 155
At end of period 49,984 49,829 49,907
16. 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.
During the period the notional amount on derivative instruments was reduced
with a cash amount realised of £1,267,000 (30 June 2023: £nil; 31 December
2023: £1,246,000).
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Fair value at start of period 16,009 24,449 24,449
Proceeds received from a reduction in notional amounts
(1,267) - (1,246)
Revaluation in the period 962 5,128 (7,194)
Fair value at end of period 15,704 29,577 16,009
The calculation of fair value of interest rate caps and swaps is based on the
following calculation: the notional amount multiplied by the difference
between the swap rate and the current market rate and then multiplied by the
number of years remaining on the contract and discounted.
The fair value of interest rate caps and swaps represents the net present
value of the difference between the cash flows produced by the contracted rate
and the current market rate over the life of the instrument.
The table below details the hedging and swap notional amounts and rates
against the details of the Group's loan facilities.
Facility Outstanding debt* Notional amount
Lender amount £'000 Maturity Annual interest rate £'000 Rate
£'000 date
Royal Bank of Scotland, Bank of Scotland and Barclays 115,961 115,961 August 2026 swap £71,000 0.97%
2.40% over 3months £ SONIA cap £44,961 0.97%
Scottish Widows Ltd. & Aviva Investors Real Estate Finance 147,500 147,500 December 2027
3.28% Fixed n/a n/a
Scottish Widows Ltd 36,000 36,000 December 2028 n/a n/a
3.37% Fixed
Santander UK 53,852 53,852 June 2029 swap £45,522 1.39%
2.20% over 3 months £ SONIA cap £8,529 1.39%
Total 353,313 353,313
SONIA = Sterling Over Night Indexed Average
As at 30 June 2024, the swap arrangements were £116.5m (30 June 2023:
£122.4m; 31 December 2023: £120.4m) and the cap notional arrangements
amounted to £53.5m (30 June 2023: £71.5m; 31 December 2023: £61.8m).
The Group weighted average cost of debt of 3.5% (30 June 2023: 3.5%; 31
December 2023: 3.5%) is 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 loan portfolio
using fixed-rate facilities or interest rate derivatives. The hedging on all
of the facilities matches the term. As at the period end date, the total
proportion of hedged debt equated to 100.1% (30 June 2023: 101.6%; 31 December
2023: 100.0%), as shown below.
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Total bank borrowings 353,313 381,693 370,750
Notional value of interest rate caps and swaps 170,012 193,870 182,250
Value of fixed rate debts 183,500 193,500 188,500
353,512 387,370 370,750
Proportion of hedged debt 100.1% 101.6% 100.0%
Fair value hierarchy
The following table provides the fair value measurement hierarchy for interest
rate derivatives. The different levels are defined as follows.
Level 1: Quoted (unadjusted) market prices in active markets for identical
assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly
observable.
Level 3: Valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the condensed consolidated
financial statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by reassessing
categorisation at the end of each reporting period.
Significant observable inputs Significant unobservable inputs
Quoted active prices (level 2) (level 3)
(level 1) £'000 £'000
Total £'000
Date of valuation: £'000
30 June 2024 15,704 - 15,704 -
30 June 2023 29,577 - 29,577 -
31 December 2023 16,009 - 16,009 -
The fair values of these contracts are recorded in the Condensed Consolidated
Statement of Financial Position and are determined by forming an expectation
that interest rates will exceed strike rates and by discounting these future
cash flows at the prevailing market rates as at the period end.
There have been no transfers between levels during the period.
The Group has not adopted hedge accounting.
17. Stated capital
Stated capital represents the consideration received by the Company for the
issue of Ordinary Shares.
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Issued and fully paid Shares of no par value
At start and end of period 513,762 513,762 513,762
Number of Shares in issue 515,736,583 515,736,583 515,736,583
At start and end of period
18. Net asset value per Share (NAV)
Basic NAV per share is calculated by dividing the net assets in the Condensed
Consolidated Statement of Financial Position attributable to ordinary equity
holders of the parent by the number of Ordinary Shares in issue at the end of
the period.
EPRA net asset value is a key performance measure used in the real estate
industry which highlights the fair value of net assets on an ongoing long-term
basis. Assets and liabilities that are not expected to crystallise in normal
circumstances such as the fair value of derivatives and deferred taxes on
property valuation surpluses are therefore excluded.
Net asset values have been calculated as follows:
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Net asset value per Condensed Consolidated Statement of Financial Position 266,600 373,788 306,089
Adjustment for calculating EPRA net tangible assets:
Derivative financial instruments (15,704) (29,577) (16,009)
Deferred tax liability 708 699 708
EPRA Net Tangible Assets 251,604 344,910 290,788
Number of Ordinary Shares in issue * 515,736,583 515,736,583 515,736,583
Net asset value per Share - basic and diluted 51.7p 72.5p
59.3p
EPRA Net Tangible Assets per Share - basic and diluted 48.8p 66.9p 56.4p
*Prior to the Company share consolidation, of 1 new share for every 10
ordinary shares after the period end.
19. Segmental information
After a review of the information provided for management purposes, it was
determined that the Group had one operating segment and therefore segmental
information is not disclosed in these condensed consolidated financial
statements.
20. Transactions with related parties
Transactions with the Asset Manager, London & Scottish Property Investment
Management Limited and the Property Manager, London & Scottish Property
Asset Management Limited.
Stephen Inglis is a non-executive Director of the Company, as well as being
the Chief Executive Officer of London & Scottish Property Investment
Management Limited ("LSPIM"), which is the parent company of L&S PM
Limited. LSPIM has been contracted to act as the Asset Manager of the Group
and L&S PM Limited contracted as the Property Manager.
In consideration for the provision of services provided, the Asset Manager is
entitled in each financial year (or part thereof) to 50% of an annual
management fee on a scaled rate of (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.
In respect of each portfolio property the Investment Manager has procured and
shall, with the Company in future, procure that London & Scottish Property
Investment Management Limited is appointed as the Property Manager. A property
management fee of 4% per annum is charged by the Property Manager on a
quarterly basis: 31 March, 30 June, 30 September and 31 December, based upon
the gross rental yield. Gross rental yield means the rents due under the
property's lease for the peaceful enjoyment of the property, including any
value paid in respect of rental renunciations, but excluding any sums paid in
connection with service charges or insurance costs.
The Investment Manager is also entitled to a performance fee. Details of the
performance fee are given below. The following tables show the fees charged in
the period and the amount outstanding at the end of the period:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Asset management fees charged(1) 719 1,034 1,944
Property management fees charged(1) 1,161 1,324 2,677
Performance fees charged - - -
1,880 2,358 4,621
Total
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Total fees outstanding(*) 340 1,279 1,170
(*) Including irrecoverable VAT charged where appropriate
Transactions with the Investment Manager, Toscafund Asset Management LLP and
the Investment Adviser, ESR Europe Private Markets Limited.
With effect from 11 October 2023, ESR Europe Private Markets Limited ("ESR
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 as detailed in the
2023 Annual Report.
In consideration for the provision of services provided, the Investment
Manager is entitled in each financial year (or part thereof) to 50% of an
annual management fee on a scaled rate of (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.
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 period and the amount
outstanding at the end of the period:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Investment management fees charged 720 1,035 1,944
Performance fees charged - - -
Total 720 1,035 1,944
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Total fees outstanding 398 519 478
Performance fee
The Asset Manager and the Investment Manager are each entitled to 50% of a
performance fee. The fee is calculated at a rate of 15% of the total
shareholder return in excess of the hurdle rate of 8% per annum for the
relevant performance period. Total shareholder return for any financial year
consists of the sum of any increase or decrease in EPRA NAV per Ordinary Share
and the total dividends per Ordinary Share declared in the financial year. A
performance fee is only payable in respect of a performance period where the
EPRA NAV per Ordinary Share exceeds the high-water mark which is equal to the
greater of the highest year-end EPRA NAV Ordinary Share in any previous
performance period. The performance fee was calculated initially on 31
December 2018 and 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 six months ended 30 June 2024 or 30
June 2023 or the year ended
31 December 2023.
21. Subsequent events
On 22 May 2024, the Company declared a dividend of 1.20 pps in respect of the
period 1 January 2024 to 31 March 2024. The dividend was paid on 12 July 2024
to Shareholders on the register as at 31 May 2024. These condensed
consolidated financial statements do not reflect this dividend.
Following shareholder approval at the extraordinary general meeting held on
the 18 July 2024, the Company successfully raised £110.5m of gross proceeds
in aggregate, by way of a fully underwritten Placing, Overseas Placing and
Open Offer of 1,105,149,821 New Ordinary Shares. The Capital Raise was fully
underwritten by Bridgemere Investments Limited whom we now welcome as a
significant new Shareholder with a holding of 18.7%.
As announced on 29 July 2024, the Company completed a share consolidation,
representing a consolidation ratio of 1 new share for every 10 ordinary
shares.
The Company repaid in full the 4.50% £50m retail bond (ISIN XS1849479602),
which matured on 6 August 2024.
ESR Europe Investment Management Ltd ("ESR Europe") obtained its FCA licence
on 1 August 2024 and the process of changing the AIFM for Regional REIT Ltd
from Toscafund Asset Management LLP to ESR Europe completed on 30 August 2024.
On 9 September 2024, the Company declared a dividend of 2.20 pps in respect of
the period 1 April 2024 to 30 June 2024. The dividend is payable to the
162,088,483 shares in issue on the record date of 20 September 2024.
EPRA PERFORMANCE MEASURES
The Group is a member of the European Public Real Estate Association ("EPRA").
EPRA has developed and defined the following performance measures to give
transparency, comparability and relevance of financial reporting across
entities which may use different accounting standards. The Group is pleased to
disclose the following measures which are calculated in accordance with EPRA
guidance:
EPRA Performance Measure EPRA Performance Measure Period ended 30 June Period ended 31 December
2024 2023
Definition
EPRA EARNINGS Earnings from operational activities
EPRA Earnings £11,010,000 £26,962,000
EPRA Earnings per Share (basic and diluted) 21.3p 52.3p
The EPRA NAV set of metrics make adjustments to the NAV per the IFRS financial
statements to provide stakeholders with the most relevant information on the
fair value of the assets and liabilities of a real estate investment company,
under different scenarios.
EPRA Net EPRA Net Reinstatement £337,030,000
Reinstatement Value EPRA NAV metric which assumes that entities never sell assets and aims to Value
represent the value
£294,327,000
required to rebuild the entity.
EPRA Net Reinstatement 65.3p
Value per Share (diluted)
57.1p
EPRA Net Tangible Assets
EPRA NAV metric which assumes that entities buy and sell assets, thereby £290,788,000
crystallising certain levels of unavoidable deferred tax.
EPRA Net Tangible Assets £251,604,000
EPRA Net Tangible 48.8p 56.4p
Assets per Share
(diluted)
EPRA Net Disposal Value EPRA NAV metric which represents the £320,775,000
Shareholders' value under a disposal scenario, where deferred tax, financial EPRA Net Disposal Value
instruments and certain other adjustments are calculated to the full
extent of their liability, net of any resulting tax.
£275,561,000
EPRA Net Disposal Value per Share (diluted) 62.2p
53.4p
EPRA Net Initial Yield (NIY) Annualised rental income based on the cash rents passing at the balance sheet EPRA Net Initial Yield
date, less non-recoverable property operating expenses, divided by the market
value of the property with (estimated) purchasers' costs.
6.6%
6.5%
EPRA 'Topped-up' NIY This measure incorporates an adjustment to the EPRA 'Topped-up' Net Initial Yield
EPRA NIY in respect of the expiration of rent-free-periods
7.5%
(or other unexpired lease incentives such as discounted rent periods and
stepped rents).
7.5%
EPRA Vacancy Rate Estimated Market Rental Value (ERV) of vacancy space divided by ERV of the EPRA Vacancy Rate
whole portfolio.
20.0%
22.0%
EPRA Costs Ratio Administrative and operating costs (including and excluding costs of direct
vacancy) divided by gross rental income.
EPRA Costs Ratio
40.6% 38.5%
EPRA Costs Ratio
(excluding direct
vacancy costs) 13.4% 16.4%
EPRA LTV Debt divided by the market value of property EPRA LTV 58.6%
61.2%
NOTES TO THE CALCULATION OF THE EPRA PERFORMANCE MEASURES
1. EPRA earnings and Company Adjusted Earnings
For calculations, please refer to note 11 to the financial statements above.
2. EPRA Net Reinstatement Value
30 June 31 December
2024 2023
£'000 £'000
NAV per the financial statements 266,600 306,089
Fair value of derivative financial instruments (15,704) (16,009)
Deferred tax liability 708 708
Purchase costs 42,723 46,242
EPRA Net Reinstatement Value 294,327 337,030
Dilutive number of Shares prior to the Company share consolidation, of 1 new 515,736,583 515,736,583
share for every 10 ordinary shares after the period end.
EPRA Net Reinstatement Value per share 57.1p 65.3p
Comparatives have been updated for purchaser costs.
3. EPRA Net Tangible Assets
30 June 31 December
2024 2023
£'000 £'000
NAV per the financial statements 266,600 306,089
Fair value of derivative financial instruments (15,704) (16,009)
Deferred tax liability 708 708
EPRA Net Tangible Assets 251,604 290,788
Dilutive number of Shares prior to the Company share consolidation, of 1 new 515,736,583 515,736,583
share for every 10 ordinary shares after the period end.
48.8p 56.4p
EPRA Net Tangible Assets per Share
4. EPRA Net Disposal Value
30 June 31 December
2024 2023
£'000 £'000
NAV per the financial statements 266,600 306,089
Adjustment for the fair value of bank borrowings 8,352 11,479
Adjustment for the fair value of retail eligible bonds 609 3,207
EPRA Net Disposal Value 275,561 320,775
Dilutive number of Shares (prior to the Company share consolidation, of 1 new 515,736,583 515,736,583
share for every 10 ordinary shares after the period end)
EPRA Net Disposal Value per Share 53.4p 62.2p
5. EPRA Net Initial Yield
Calculated as the value of investment properties divided by annualised net
rents:
30 June 31 December
2024 2023
£'000 £'000
Investment properties 647,925 700,720
Purchaser costs 42,773 46,241
690,698 746,961
Annualised cash passing rental income 55,739 59,522
Property outgoings (10,569) (10,077)
Annualised net rents 45,170 49,445
Add notional rent expiration of rent-free periods or other lease incentives 6,813 6,670
Topped-up net annualised rent 51,983 56,115
EPRA NIY 6.5% 6.6%
EPRA topped up NIY 7.5% 7.5%
6. EPRA Vacancy Rate
Six months ended Year ended 31 December
30 June 2023
2024 £'000
£'000
Estimated Market Rental Value (ERV) of vacant space 17,766 16,650
Estimated Market Rental value (ERV) of whole portfolio 80,596 83,314
EPRA Vacancy Rate 22.0% 20.0%
7. EPRA Cost Ratios
Six month ended 30 June Year ended 31 December
2024 2023
£'000 £'000
Property costs 20,403 38,161
Less recoverable service charge income and other similar costs (12,042) (21,825)
Add administrative and other expenses 4,724 10,626
EPRA costs (including direct vacancy costs) 13,085 26,962
Direct vacancy costs (8,776) (15,441)
EPRA costs (excluding direct vacancy costs) 4,309 11,521
Gross rental income 44,232 91,880
Less recoverable service charge income and other similar items (12,042) (21,825)
Gross rental income less ground rents 32,190 70,055
EPRA Cost Ratio (including direct vacancy costs) 40.6% 38.5%
EPRA Cost Ratio (excluding direct vacancy costs) 13.4% 16.4%
The Group has not capitalised any overhead or operating expenses in the
accounting years disclosed above.
8. EPRA LTV
30 June 31 December
2024 2023
£'000 £'000
Borrowings from financial institutions 353,313 370,750
Bond loans 50,000 50,000
Net payables 10,077 17,188
Cash and cash equivalents (25,690) (34,505)
EPRA Net debt 387,700 403,433
Investment properties at fair value 633,166 687,695
Financial Assets - loans 530 578
Total property value 633,696 688,273
EPRA LTV 61.2% 58.6%
PROPERTY RELATED CAPITAL EXPENDITURE ANALYSIS
Six months ended 30 June Year ended 31 December
2024 2023
£'000 £'000
Acquisitions - 5
Development - -
Investment properties -
Incremental lettable space - -
Enhancing lettable space 5,200 10,255
Tenant incentives - -
Other material non-allocated types of expenditure - -
Capitalised interest -
Total Capital Expenditure 5,200 10,260
Conversion from accruals to cash basis - -
Total Capital Expenditure on cash basis 5,200 10,260
Acquisitions - this represents the purchase cost of investment properties and
associated incidental purchase expenses such as stamp duty land tax, legal
fees, agents' fees, valuations and surveys.
Subsequent capital expenditure - this represents capital expenditure which has
taken place post the initial acquisition of an investment property.
ALTERNATIVE PERFORMANCE MEASURES
Net LTV
30 June 31 December
2024 2023
£'000 £'000
Borrowings from financial institutions 353,313 370,750
Bond loans 50,000 50,000
Cash and cash equivalents (25,690) (34,505)
Net debt 377,623 386,245
Investment properties at fair value 647,925 700,720
Net LTV 58.3% 55.1%
SHAREHOLDER INFORMATION
Share register enquiries: Link Group.
Please phone: 0371 664 0300 for any questions about:
• changing your address or other details
• your Shares
• buying and selling Shares.
Calls are charged at the standard geographic rate and will vary by provider.
Calls outside the United Kingdom will be charged at the applicable
international rate. The Registrar is open between 9.00 and - 17.30, Monday to
Friday excluding public holidays in England and Wales. For Shareholder
enquiries please email shareholderenquiries@linkgroup.co.uk
(mailto:enquiries@linkgroup.co.uk) .
Forthcoming events
October 2024 Q2 Dividend Payment
November 2024 Q3 Trading Update and Dividend Declaration
February 2025 Q4 Dividend Declaration
March 2025 2024 Preliminary Results
May 2025 Q1 2024 Trading Update and Dividend Declaration
Note: all future dates are provisional and subject to change.
Other Information
Listing (ticker):
LSE
Main Market (RGL)
Date of
listing:
6 November 2015
Joint Brokers:
Peel Hunt LLP and Panmure Liberum Limited
Financial
PR:
Buchanan Communications
Incorporated:
Guernsey
ISIN:
GG00BSY2LD72
SEDOL:
BSY2LD7
Legal Entity Identifier:
549300D8G4NKLRIKBX73
Website: www.regionalreit.com (http://www.regionalreit.com)
COMPANY INFORMATION
Directors
Kevin McGrath (Chairman and Independent Non-Executive Director)
Daniel Taylor (Senior Independent Non-Executive Director)
Frances Daley (Independent Non-Executive Director and Audit Committee
Chairman)
Massy Larizadeh (Independent Non-Executive Director and Chair of the
Management Engagement & Remuneration Committee and Nomination Committee)
Stephen Inglis (Non-Executive Director)
Administrator Independent Auditor Registrar
Jupiter Fund Services Limited RSM UK Audit LLP Link Market Services (Guernsey)
Mont Crevelt House Third Floor Limited
Bulwer Avenue Centenary House Mont Crevelt House
St. Sampson 69 Wellington Street Buwler Avenue
Guernsey GY2 4LH Glasgow G2 6HG St Sampson
Guernsey GY2 4LH
Asset Manager Investment Adviser Sub-Administrator
London & Scottish Property Investment Management Limited ESR Europe Private Markets Limited Link Alternative Fund Administrators Limited
300 Bath Street, Glasgow Ferguson House Broadwalk House
G2 4JR 15 Marylebone Road Southernhay West
London Exeter
NW1 5JD EX1 1TS
Company Secretary Legal Adviser to the Company Tax Adviser
Link Company Matters Limited Macfarlanes LLP KPMG LLP
Central Square 20 Cursitor Street 319 St Vincent Street
29 Wellington Street London EC4A 1LT Glasgow G2 5AS
Leeds
LS1 4DL
Depositary Public Relations Registered office
Ocorian Depositary (UK) Limited Burson Buchanan Communications Limited Regional REIT Limited
20 Fenchurch Street 107 Cheapside Mont Crevelt House
London London EC2V 6DN Bulwer Avenue
EC3M 3BY St. Sampson
Guernsey GY2 4LH
Financial Adviser and Joint Broker Joint Broker Property Valuer
Peel Hunt LLP Panmure Liberum Colliers International Property
7th Floor Ropemaker Place Consultants Limited
100 Liverpool Street London 25 Ropemaker Street 95 Wigmore Street
EC2M 2AT London London
EC2Y 9AN W1U 1DJ
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of this announcement.
National Storage Mechanism
A copy of the Half-Yearly Report will be submitted shortly to the National
Storage Mechanism ("NSM") and will
be available for inspection at the NSM, which is situated at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
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