REG - Regional REIT Ltd - Final Results
28/03/2023 07:00
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RNS Number : 3807U Regional REIT Limited 28 March 2023
28th March 2023
Regional REIT Limited
("Regional REIT", the "Group" or the "Company")
2022 Full Year Results
A robust performance with strong rent collections and increased rental income,
with a sector leading dividend yield
Regional REIT (LSE: RGL), the regional office specialist today announces its
full year results for the year ended 31 December 2022.
Financial highlights:
· Net rental income increased by 12.2% to £62.6m (2021: £55.8m) -
reflecting large portfolio acquisition in August 2021
· EPRA EPS of 6.6pps (2021: 6.6pps); IFRS EPS (12.6)pps (2021: 6.3pps)
· 2022 dividend of 6.6pps (2021: 6.5pps), fully covered by EPRA
earnings; currently yielding more than 11.3%*
· Total rent collection for 2022 was 98.7%** of rent due, improved against
the 97.7% of rent collected for the equivalent period in 2021
· Primarily as a consequence of macro factors affecting the property
sector, the portfolio value decreased to £789.5m (2021: £906.1m); reflecting
a decrease of 12.1% on a like-for-like basis in the year, after adjusting for
capital expenditure, acquisitions and disposals - outperforming the MSCI Rest
of UK Office index capital decline of 17.3% over the same period
· IFRS Net Asset Value per share 78.1p (2021: 97.4p); EPRA NTA per
share of 73.5p (2021: 97.2p)
· Rent roll remained strong at £71.8m (2021: £72.1m); average rent
let by sq.ft. increased by 7.0% to £13.65
· Group's cost of debt (incl. hedging) remained low at 3.5% pa (2021:
3.3% pa) - 100% fixed and hedged, ensuring the maximum cost of debt will not
exceed 3.5% pa
· Weighted average debt duration 4.5 years (2021: 5.5 years)
· Net LTV increased to 49.5% (2021: 42.4%), due to the reduction in
portfolio valuation; ample headroom remains on all loan covenants
*At a share price of 58.2p at the close of 27 March 2023.
**As at 17 March 2023, rent collections to 31 December 2022 amounted to 98.7%;
actual rent collected 98.7%, monthly rents 0.0% and deals agreed of 0.0%.
Operational highlights:
A high-quality portfolio of property assets diversified by geography and
tenant type - generating substantial rental income whilst delivering a high
quarterly dividend
· Rental income generated from a large spread of tenants and industries
across a growing and geographically diversified portfolio of 154 properties
(2021: 168), 1,552 units (2021: 1,511) and 1,076 occupiers (2021: 1,077)
· Portfolio valuation split by region: England 78.3% (2020: 75.7%),
Scotland 16.7% (2021: 19.0%) and the balance of 5.0% in Wales (2021: 5.3%). In
England, the largest regions were the Midlands and the South East
· The Group made disposals amounting to £84.1m (net of costs) during
2022. The proceeds from these disposals were promptly recycled into acquiring
£74.7m (before costs) of attractive earnings accretive assets
· At the period end, 91.8% of the portfolio by market value was offices
(2021: 89.8%), retail 3.6% (2021: 3.7%), industrials 3.1% (2021: 5.1%), and
Other 1.4% (2021: 1.4%)
· EPRA Occupancy (by ERV) was 83.4% (2021: 81.8%)
· Completed 114 new lettings in 2022, totalling 330,173 sq. ft., which
will provide gross rental income of c. £5.9m
Post period end
· On 14 February 2023, the Company announced that 99% of its tenants
had returned to the office in some form.
· On 23 February 2023, the Company declared the Q4 2022 dividend of
1.65pps, which will be paid to shareholders on 6 April 2023.
Stephen Inglis, CEO of London and Scottish Property Investment Management, the
Asset Manager, commented:
"Following the turmoil of the pandemic, 2022 was an operationally strong year
with earnings accretive asset recycling of £84.1m (after costs) of disposals
and £74.7m (before costs) of acquisitions in areas identified as growth
regions across the UK.
"The macro-economic environment provided significant headwinds for REITs in
2022 and was one of the most challenging years we have seen for the property
sector in some time, as inflation has driven costs upwards and the increase in
interest rates impacted valuations. We have not been immune to these
challenges, with rising energy costs putting pressure on net earnings and the
portfolio valuation decreasing by 12.9% to £789.5m, versus the MSCI Rest of
UK Office decline of 17.3%; reflecting a decrease of 12.1% on a like-for-like
basis, after adjusting for acquisitions, disposals and capital expenditure.
"In spite of all of the challenges, robust rent collections of 99% for the
twelve months ended 31 December 2022 enabled the delivery of a covered
dividend of 6.6pps, which we had indicated at the beginning of 2022. I would
like to take this opportunity to thank my team for all their hard work and yet
again delivering for our shareholders.
"As previously announced, a November 2022 study of our tenant's active
occupation noted 99% of our tenant roster had returned to the office in some
form, with only 12 tenants still to return, and we are witnessing increasing
numbers of employees returning across all regions of the UK. I have
consistently stated that it will be the end of 2023 and into 2024 before we
see any long term trends emerging as companies see employees return to the
office in numbers, which will then determine what works best for their
business and their employees. It is clear there will not be a one size fits
all strategy. However, the clear anecdotal evidence convinces me that most
businesses will end up with the majority of people in the office the majority
of time, which remains supportive for overall demand in our sector."
Forthcoming Events
24 May 2023 May 2023 Trading Update and Outlook Announcement
Q1 2023 Dividend Declaration Announcement
25 May 2023 Annual General Meeting
12 September 2023 2023 Interim Results Announcements
9 November 2023 Q3 2023 Trading Update
Note: All dates are provisional and subject to change.
- ENDS -
Enquiries:
Regional REIT Limited
Press enquiries through Buchanan
Toscafund Asset Management Tel: +44 (0) 20 7845 6100
Investment Manager to the Group
Adam Dickinson, Investor Relations, Regional REIT Limited
London & Scottish Property Investment Management Tel: +44 (0) 141 248 4155
Asset Manager to the Group
Stephen Inglis
Buchanan Communications Tel: +44 (0) 20 7466 5000
Financial PR
Charles Ryland, Henry Wilson, George Beale
About Regional REIT
Regional REIT Limited ("Regional REIT" or the "Company") and its
subsidiaries (the "Group") is a United Kingdom ("UK") based real estate
investment trust that launched in November 2015. It is managed
by London & Scottish Property Investment Management Limited, the Asset
Manager, and Toscafund Asset Management LLP, the Investment Manager.
Regional REIT's commercial property portfolio is comprised wholly of income
producing UK assets and comprises, predominantly of offices located in the
regional centres outside of the M25 motorway. The portfolio is geographically
diversified, with 154 properties and 1,076 occupiers as at 31 December 2022,
with a valuation of c.£789.5m.
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.
For more information, please visit the Group's website
at www.regionalreit.com (http://www.regionalreit.com/) .
Cautionary Statement
This document has been prepared solely to provide additional information to
Shareholders to assess the Group's performance in relation to its operations
and growth potential. The document should not be relied upon by any other
party or for any other reason. Any forward-looking statements made in this
document are done so by the Directors in good faith based on the information
available to them up to the time of their approval of this document. However,
such statements should be treated with caution due to the inherent
uncertainties, including both economic and business risk factors, underlying
any such forward-looking information.
ESMA Legal Entity Identifier ("LEI"): 549300D8G4NKLRIKBX73
Financial Highlights
Year ending 31 December 2022
Income focused - opportunistic buying and strategic selling, coupled with
intensive asset management, continues to secure long-term income
Portfolio Valuation £789.5m (2021: £906.1m)
IFRS NAV per Share 78.1p (2021: 97.4p)
EPRA* NTA per Share 73.5p (2021: 97.2p)
EPRA* earnings per Share 6.6p (2021: 6.6p)
Dividend per Share 6.6p (2021: 6.5p)
Net Loan to Value Ratio** 49.5% (2021: 42.4%)
Weighted Average Cost of Debt** 3.5% (2021: 3.3%)
Weighted Average Debt Duration** 4.5 yrs (2021: 5.5yrs)
* The European Public Real Estate Association (EPRA)
** Alternative Performance Measures. Details are provided in the full Annual
Report.
EPRA
The EPRA's mission is to promote, develop and represent the European public
real estate sector. As an EPRA member, we fully support the EPRA Best
Practices Recommendations. Specific EPRA metrics can be found in the Company's
financial and operational highlights, with further disclosures and supporting
calculations can be found within the full Annual Report.
Operational Highlights
Year ending 31 December 2022
Deliberately diversified and strengthened portfolio by location and tenant -
regions primed for growth
Properties 154
Units 1,552
Tenants 1,076
Rent Roll £71.8m
Portfolio by region and sector (by value)
England & Wales 83.3%
Office 91.8%
Property acquisitions (before costs) £74.7m
Number of properties 6
Property disposal proceeds (net of costs) £84.1m
Number of properties 20
EPRA Occupancy by ERV* 83.4%
WAULT to expiry 4.7 yrs
WAULT to first break 3.0 yrs
* Alternative Performance Measures. Details are provided in the full Annual
Report.
Performance Highlights
Year ending 31 December 2022
The high dividend distributions are a major component of the total return
Dividends declared per Share Pence
2022 6.60
2021 6.50
2020 6.40
2019 8.25
2018 8.05
2017 7.85
2016 7.65
2015 1.00
EPRA
EPRA Total Return attributable to Shareholders since Admission^ 24.2%
EPRA Annual Total Return attributable to Shareholders 3.1%
^Admission: 6 November 2015
Member of FTSE All-Share Index since March 2016
Member of FTSE EPRA NAREIT UK Index since June 2016
Total EPRA Return (from IPO)
(EPRA NTA and dividend declared)
Pence per share
IPO Nov 2015 100
2015 107.8
2016 113.2
2017 119.9
2018 137.5
2019 142.9
2020 136.3
2021 141.2
2022 124.2
Chairman's Statement
"Despite the challenging macroeconomic backdrop impacting valuations across
all sectors of commercial real estate, Regional REIT achieved a good
operational performance throughout 2022. Rent collections normalised and our
market fundamentals remained robust allowing for an increase in the quarterly
dividend distribution for 2022.
Our unique sector leading asset and property management teams continued to
manage the portfolio with a hands-on approach, providing our customers with
vibrant spaces within which they can thrive and grow."
Kevin McGrath, Chairman
Overview
I am pleased to report the Group performed operationally well during a
difficult year, driving forward the EPRA* earnings per share to 6.6p and
increasing the dividend per share to 6.6p. The lifting of the Government
restrictions across the UK in the early part of 2022 witnessed the return to
the office, the normalisation of rent collection and increased space enquiries
resulting in increased active occupancy across the portfolio.
We continued to work closely with our occupiers providing vibrant spaces
within which they can grow their businesses, increasing our diversification by
occupier profile, whilst enhancing our Environmental, Social and Governance
("ESG") credentials.
Following the tightening of the monetary policy implemented in 2022, real
estate values across most sectors were impacted. Our portfolio has not been
immune with the value decreasing by 12.9% to £789.5 million; after adjusting
for acquisitions, disposals and capital expenditure, reflected a decrease of
12.1% on a like-for-like basis. However, it has been resilient versus a
decline of 17.3% for the MSCI Rest of UK Offices Index. During 2022, we
continued to drive forward our strategy of being the regional office
specialist of choice, with the disposal of non-core assets amounting to £84.1
million (net of costs) and net initial yields of 4.9%. The proceeds have been
promptly recycled into acquiring higher yielding properties of superior
quality, amounting to £74.7 million before costs and reflecting net initial
yields of 8.4%. Market conditions continue to present opportunities with the
aforementioned disposals and acquisitions adding a net £1.6 million to the
rent roll. The assets acquired are located in areas identified as places of
regional growth. The rolling capital expenditure programme amounted to £10.0
million.
Timely capital recycling continued to underpin our defensive strategy of
focusing upon opportunities to de-risk our offering both by geographical and
tenant spread.
Rent collection remained strong throughout 2022. Currently, rent collection
for the period to 17 March 2023 amounts to 98.7%** (2021: equivalent period
97.7%) and resulted in EPRA basic and diluted earnings of 6.6 pence per share
("pps") (2021: 6.6pps). IFRS basic and diluted loss per share were (12.6pps)
(2021: gain 6.3pps). The dividend was covered by EPRA earnings.
* Alternative Performance Measures. Details are provided in the full Annual
Report.
**As at 17 March 2023, rent collection to 31 December 2022 amounted to 98.7%;
actual rent collected 98.7%, monthly rents 0.0% and deals agreed of 0.0%.
Financial Resources
The Company continues to be in a financially robust position with an EPRA NTA
of £379.2 million (31 December 2021: £501.4 million) and a cash balance of
£50.1 million as at 31 December 2022 (31 December 2021: £56.1 million), of
which £37.8 million is unrestricted (31 December 2021: £49.9 million).
One of the Company's key achievements has been its defensive debt positioning
which aims to mitigate rate volatility. The borrowings comprise of 56.9% of
fixed rate debt, with the balance being swapped or capped. This proactive and
defensive approach ensured that the weighted average cost of debt increased
only marginally to 3.5% at 31 December 2022 from 3.3% at 31 December 2021.
Furthermore, the simple and flexible debt profile with strong lender
relationships continued to ensure that the Company is well positioned for any
further economic turbulence. These attributes remain evident going forward
with no requirement to refinance until August 2024.
Following this active period of capital recycling, the net borrowings Net
Loan-to-Value (LTV) at 31 December 2022 amounted to 49.5% (31 December 2021:
42.4%). The programme of asset management initiatives continues to be executed
to ensure the LTV reverts to our long-term target of c. 40%.
Our debt facilities have ample headroom against their respective covenants and
the Company is in a robust position from a debt perspective.
Sustainability
We have continued to devote significant resources to further integrate
sustainability within our business model. Particularly noteworthy in this
regard is the appointment of Massy Larizadeh as a non-executive Director of
the Company in June 2022 who will lead the Board's efforts in relation to ESG.
We were pleased to increase our Global Real Estate Sustainability Benchmark
(GRESB) from 52 to 60, and to be awarded an inaugural bronze for EPRA
sustainability disclosures. During 2022, with the assistance of our external
advisors, we have made good progress on our individual properties' Net Zero
Carbon (NZC) surveys. Once the surveys have been completed, we will announce
NZC pathway and targets.
During the year the team benefitted from training regarding sustainability
matters provided by external consultants.
In addition, the Company has joined the UK Green Building Council and the
Better Building Partnership.
Market Environment
Investment in the UK commercial property market reached £54.1 billion in
2022, according to research by Lambert Smith Hampton ("LSH") (1), although
this was 5.0% below the volumes recorded in 2021, it was 3.0% above the
five-year average and 9.7% above pre-COVID-19 levels in 2019.
Savills research highlights that regional office investment in the second half
of 2022 was muted at £1.5 billion. This brought the total regional office
investment in 2022, 26.9% below the five-year average. Savills anticipate that
regional office investment will remain subdued in short-term. However, some
research suggests that confidence is now building among overseas investors as
capital values fall and the occupational market remains robust.
According to MSCI, average rents in the regional office market (outside of
London and the South East) increased by 1.5% in 2022.
More details can be found in the Asset Manager's Report in the full Annual
Report.
Dividends
The dividend is the major component of Total Shareholder Returns. Over the
period under review, the Company declared total dividends of 6.6pps (2021:
6.5pps), comprising four quarterly dividends of 1.65pps. This represents a
yield of 11.2%, at a share price of 59.0p as at 31 December 2022. Since
inception, the Company has declared dividends amounting to 52.3pps and to date
the Company has distributed c.£200 million in dividends.
It should be highlighted that looking ahead there is a clear aspiration by the
Board to maintain its record of uninterrupted quarterly dividend payments.
This is predicated on the strength of the Company's balance sheet and the
strong rent collections received throughout the year.
Performance
For the year under review, the Company's Total Shareholder Return was -31.3%,
versus the return of -31.9% for the FTSE EPRA NAREIT UK Total Return Index
over the same period.
Since listing on 6 November 2015, the Company's EPRA Total Return was 24.2%
and the annualised EPRA Total Return was 3.1%. Total Shareholder Return was
1.4%, compared to the FTSE EPRA NAREIT UK Total Return Index, which has
generated a return of -16.9% over the same period.
Management Agreements
Following a review by the Management Engagement and Remuneration Committee
(the "MERC") and having sought advice from Peel Hunt LLP, the Company's
Financial Adviser and Broker, the Company and the Asset and Investment
Managers agreed to amend the terms of the annual management fees charged, by
reducing their fees to: (i) 1.1% of the EPRA NTA up to and equal to
£500,000,000; (ii) 0.9% of EPRA NTA above £500,000,000 and up to or equal to
£1,000,000,000; (iii) 0.7% of EPRA NTA above £1,000,000,000 and up to or
equal to £1,500,000,000; and (iv) 0.5% of EPRA NTA above £1,500,000,000.
In addition, the management agreements between the Company and the Asset and
Investment Manager had a three-year term to November 2023. In view of the
resilient returns of the Company, the significant increase in its size and
there being less than one year to expiry of the current agreements, the Board
sought to secure the services of the Managers. In doing so, the Committee
conducted a review to ensure that the terms of these agreements remained
appropriate. The Committee sought advice from Peel Hunt LLP and Macfarlanes
LLP, the Company's Legal Adviser. Following this review, which included
comparisons of Shareholder returns against those of its peer group and
consideration of the interests of the Company, the Company and the Managers
each agreed to waive their right to issue a termination notice on or before 3
November 2022 and the management agreements will now continue in force until 3
November 2026.
Annual General Meeting
The Company plans to hold its 2023 Annual General Meeting ("AGM") in person on
Wednesday, 25 May 2023. The notice for the 2023 AGM will be published on our
website and will be circulated to Shareholders in accordance with the
requirements of the Company's Articles of Incorporation.
Mr Bee and Mr Eason will not stand for annual re-election at the forthcoming
AGM by reason of re-location overseas and ill health, respectively. The Board
thanks Mr Bee and Mr Eason for their invaluable commitment to the Company and
wishes them well for the future.
Mr Taylor will assume the role of Senior Independent Director and Ms Larizadeh
will become Chair of both the Nomination Committee and the Management
Engagement and Remuneration Committee.
The Board does not intend to appoint new Directors in the short-term and will
incorporate discussions to ensure an orderly refreshment of the Board in its
current succession planning.
The Board very much looks forward to meeting with Shareholders at the AGM.
Shareholder and Stakeholder Engagement
Ultimately, the experience of our tenants and other stakeholders will
influence our performance. Our aim is to continue to offer great working
environments, from a small flexible unit to a landmark corporate headquarters,
allowing our tenants to thrive.
Direct engagement with our tenants is an important part of our asset
management initiatives, to help us understand their needs and identify
opportunities and challenges. We encourage our tenants to work openly and
collaboratively with us to enable us to continually improve our workspaces and
deliver mutual benefit. Likewise, we encourage this with our stakeholders to
ensure we can continually improve our operations. The Company has continued to
develop its relations with investors and more details can be found on the
Company website www.regionalreit.com. Further information on Shareholder and
Stakeholder engagement can be found in the full Annual Report.
Board and Governance
Following an internal review of the Board's effectiveness, and as part of a
drive to ensure an orderly refreshment of the Board with the development of
the Group, on the 25 May 2022 the Nomination Committee appointed Massy
Larizadeh as a non-executive Director of the Company. Massy also became a
member of the Audit Committee, Nomination Committee and Management Engagement
and Remuneration Committee. Massy has a particular interest in ESG issues and
as such will be taking a lead role in the Company's ESG matters.
Outlook
Whilst we are acutely aware of the challenging backdrop, including labour
shortages, inflationary pressures, tightening monetary policy and geopolitical
uncertainties arising from the continued Ukrainian conflict, we remain
confident of maintaining high rent collections and accelerating the momentum
on the asset management initiatives for the remainder of 2023. The Board
believes these actions will result in the continued de-risking of the
portfolio, whilst continuing to deliver income and long-term total returns for
our shareholders.
The UK region's economic activity continues to strengthen, and companies
continue to require office space in our identified growth areas. Regional REIT
remains well positioned to meet the challenges and take the opportunities that
will inevitably arise in the coming years.
Kevin McGrath
Chairman
27 March 2023
Asset and Investment Managers' Report
"The macro-economic environment provided significant headwinds for REITs in
2022 being one of the most challenging years seen for the property sector in
some time, as rising interest rates impacted valuations. The Company was not
immune, with the portfolio value decreasing by 12.9% to £789.5m; and after
adjusting for acquisitions, disposals and capital expenditure, reflected a
decrease of 12.1% on like-for-like basis. In turn the loan to value amounted
to 49.5%. Importantly, however, the Company has ample headroom on the
covenants and the weighted average cost costs of debt remained fixed at 3.5%.
We are proud of our strong relationships with our tenants, which has led to
another robust set of rent collections figures, totalling 98.7% for the twelve
months ended 31 December 2022. The tenant base remains highly diverse both in
terms of sector and geography.
Despite the challenging economic environment, the Company's net rental income
increased by 12% year-on-year, to £62.6m, which is in part testament to our
active asset management approach to identify value enhancing opportunities
within the portfolio whilst regularly reviewing rents.
Our consistent quarterly dividend continues to provide our shareholders with a
strong and reliable level of dividend income, yielding 11.3% on the share
price as at 27 March 2023. The dividend is fully covered by EPRA earnings,
which we hope provides shareholders with a high level of confidence in the
sustainability of future dividend payments."
Stephen Inglis
CEO of London & Scottish Property Investment Management,
Asset Manager
Highlights from 2022
· High level of rent collection
Achieved a high level of rent collection. As at 17 March 2023, rent collection
continued to strengthen, with FY 2022 collections increasing to 98.7%,
adjusting for monthly rent and agreed collections plans, which is similar to
the equivalent date for 2021 when 97.7% had been collected.
· 114 new lettings
Completed 114 new lettings in 2022, totalling 330,173 sq. ft., which when
fully income producing after incentives will provide a gross rental income of
c. £5.9 million.
· £74.7 million of acquisitions
Acquisitions in 2022 totalled £74.7 million (before costs) for 6 assets,
reflecting an average net initial yield of 8.4%.
· £84.1 million of disposals
Disposals during 2022 totalled £84.1 million (net of costs), reflecting an
average net initial yield of 4.9% (6.3% excluding vacant properties).
· Increase in average rent
Average rent by let sq. ft. increased by 7.0% from £12.75 per sq. ft. in
December 2021 to £13.65 per sq. ft. in December 2022. MSCI monthly data shows
rental growth of 1.5% for rest of UK offices over the same period.
· Decrease in capital value
The like-for-like value of the portfolio decreased by 12.1% in 2022 after
adjusting for capital expenditure, acquisitions and disposals during the
period (11.0% excluding capital expenditure adjustment). MSCI monthly data
shows capital value decline of 17.3% for rest of UK offices over the same
period.
Investment Activity in the UK Commercial Property Market
Investment in the UK commercial property market reached £54.1 billion in
2022, according to research by Lambert Smith Hampton ("LSH")(1). Although this
was 5.0% below the volumes recorded in 2021, it was 3.0% above the five-year
average and 9.7% above pre-COVID-19 levels in 2019. Investment volumes fell in
each quarter throughout 2022 when compared to the previous quarter. In the
final quarter of 2022, overall investment fell by 40.7% to £7.3 billion, the
lowest level recorded since Q2 2020. Investment in Q4 2022 marked a decline of
44.3% against the five-year quarterly average. However, it is worth noting
that although investors were increasingly cautious in the second half of 2022,
investment in Q1 2022 and Q2 2022 proved robust when compared to the five-year
quarterly average, up 33.2% and 29.4%, respectively.
LSH research notes that investment was more resilient across UK regional
markets, compared to London. Investment in UK regional markets held up well in
2022 relative to trend, with annual investment reaching £18.6 billion, 0.8%
above the five-year average. Conversely, London volumes were down relative to
trend, with 2022 volumes falling 7.1% below the five-year average at £18.7
billion. The largest increase in regional investment in 2022 relative to the
five-year average occurred in the West Midlands, South East and North West.
Savills research highlights that regional office investment in the second half
of 2022 was muted at £1.5 billion. This brought the total regional office
investment in 2022, 26.9% below the five-year average(2). Savills anticipate
that regional office investment will remain subdued in short-term. However,
some research suggests that confidence is now building among overseas
investors as capital values fall and the occupational market remains robust.
Additionally, the most recent data from the ONS shows that the UK employment
rate rose to 75.6% in the three months to December 2022, up from 75.5% for the
same period in 2021(3).
The Asset Manager's strong opinion is that the office will continue to play a
vital role in working life regardless of whether hybrid or more traditional
working practices are adopted. It is our opinion that many occupiers will
require more office accommodation in future due to both employment growth and
aiming to improve the working environment, including more space per staff
member.
1 Lambert Smith Hampton, UKIT Q4 2022
2 Savills, Market in Minutes, Q4 2022
3 ONS, Labour Market Overview, UK - March 2023
Overseas investment in the UK property market accounted for just over half
(50.1%) of total investment in 2022, according to data from LSH. LSH estimates
that total overseas investment in 2022 reached £27.1 billion, 3.5% lower than
2021 volumes, but 4.2% above the five-year average and 7.9% higher than
pre-pandemic levels. Overseas investment in Q4 2022 amounted to £2.9 billion,
52.0% below Q3 levels and 55.6% below the five-year quarterly average.
Although overseas investment has dropped in recent months, international
investors were net buyers in Q4 overall £2.1 billion), with low disposals
relative to trend, therefore highlighting that investor sentiment remains
positive and that there is not a push to exit the UK. It is worth noting that
a fall in investment was not witnessed for all investors, with investment
volumes from North American investors increasing by 7.0% in Q4 2022.
Research from CBRE4 indicates that regional offices have outperformed in
comparison to central London offices, delivering superior income returns of
5.1% in 2022 in comparison to central London office returns of 3.6% - a trend
that has been witnessed over the past eight years.
4 CBRE Monthly Index, Q4 2022
Central London & Regional Office Income Returns (12 months to December
2022)
Income Return
December 2016 December 2017 December 2018 December 2019 December 2020 December 2021 December 2022
Central London Offices 3.3% 3.7% 3.8% 3.8% 4.1% 3.6% 3.6%
Rest of UK Offices 6.2% 6.4% 5.9% 5.8% 5.9% 5.7% 5.1%
Source: CBRE (February 2023)
Occupational Demand in the UK Regional Office Market
Avison Young estimates that take-up of office space across nine regional
office markets(5) totalled 8.1 million sq. ft. in 2022; marginally below
(0.3%) the level of take-up recorded in 2021 and 3.1% lower than the 5-year
average. That said, it is worth noting that take-up in 2022 was 41.4% above
the level reported in 2020. Take-up in the final quarter of 2022 was 18.2%
above the five-year average at 2.5 million sq. ft., marking the highest
quarterly take-up figure in 2022. Approximately 66.9% of take-up in Q4 2022
was transacted in city centres, with 33.1% transacted in the out of town
market - both the city centre and out of town markets performed well relative
to trend in Q4 2022. Avison Young highlights that occupiers have increasingly
sought greater quality space to attract and retain talent.
Occupational demand was driven by the technology, media & telecoms sector,
which accounted for the highest proportion of take-up at 19.2% in 2022.
Following the technology, media & telecoms sector, the professional sector
and the public services, education & health sector accounted for the
second and third largest proportion of take-up in the regional cities,
accounting for 17.8% and 14.0% respectively.
According to Savills, there was marginal decrease in availability for regional
office stock across ten regional UK markets(6), with total supply falling by
1.0% in 2022 to 14.4 million sq. ft.. The decrease in supply over the last 12
months has resulted in supply falling 2.2% below the 10-year average. This
marks the first year that supply of office stock has decreased after
increasing each year since 2019. However, it is worth noting that there was an
increase in supply of prime space, which increased by 5.4% in 2022. Therefore,
the fall in supply can be attributed to the secondary office supply, which
decreased by 4.4% in 2022.
The overall vacancy rate for regional offices ticked upwards from 12.5% in
2021 to 12.6% in 2022 but remains in-line with the 10-year average(7).
Furthermore, it is estimated that approximately 5.1 million sq. ft. of office
space is currently under construction in the Big Nine regional markets, with
Manchester, Bristol and Birmingham accounting for 22.1%, 19.6% and 14.8%,
respectively. Approximately 33.0% of office buildings currently under
construction are already pre-let.
5 Nine regional office markets mentioned by Avison Young include: Birmingham,
Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Liverpool, Manchester &
Newcastle.
6 Ten regional office markets mentioned by Savills include: Aberdeen,
Birmingham, Bristol, Cambridge, Cardiff, Edinburgh, Glasgow, Leeds, Manchester
and Oxford.
7 Savills: The Regional Office Market Overview, Q4 2022.
The Asset Manager's opinion is that occupational market fundamentals remain
robust despite the recent fall in capital values. Overall, there appears to be
a disconnect between the investment market and the occupational market. The
Asset Manager's view is that there will be hard work ahead throughout 2023,
but that the market will be fundamentally steady, with no large declines nor
large increases in activity. Additionally, the occupational market will
continue to witness a rise in office occupancy as employees return to the
office.
Rental Growth in the UK Regional Office Market
The CBRE Monthly Index shows that rental value growth held up better for the
rest of UK office markets in the 12 months ended December 2022 with growth of
2.6%. Conversely, central London offices experienced a more modest level of
growth during 2022 of 1.5%. According to MSCI, average rents in the regional
office market (outside of London and the South East) increased by 1.5% in
2022. According to the monthly MSCI digest index, Rest of UK and Mid Town
& West End offices recorded the strongest rental growth in December 2022.
Demand for quality office space has put an upward pressure on prime rents,
with growth of 6.5% recorded across the Big Nine regional markets in 2022,
with average headline rents now sitting at £34.78 per sq. ft., according to
research from Avison Young.
Regional REIT's Office Assets
EPRA occupancy of the Group's regional offices rose to 82.8% (2021: 80.8%). A
like-for-like comparison of the Group's regional offices' EPRA occupancy, as
at 31 December 2022 versus 31 December 2021, shows occupancy of 81.5% (2021:
84.0%). WAULT to first break was 2.7 years (2021: 2.6 years); like-for-like
WAULT to first break of 2.7 years (2021: 2.7 years).
Property Portfolio
As at 31 December 2022, the Group's property portfolio was valued at £789.5
million (2021: £906.1 million), with rent roll of £71.8 million (2021:
£72.1 million), and an EPRA occupancy of 83.4% (2021: 81.8%).
On a like-for-like basis, 31 December 2022 versus 31 December 2021, EPRA
occupancy was 82.1% (2021: 84.5%).
There were 154 properties (2021: 168) in the portfolio, with 1,552 units
(2021: 1,511) and 1,076 tenants (2021: 1,077). If the portfolio was fully
occupied at Cushman & Wakefield's view of market rents, the rental income
would be £92.0 million per annum as at 31 December 2022 (2021: £94.6
million).
As at 31 December 2022, the net initial yield on the portfolio was 6.0% (2021:
5.6%), the equivalent yield was 9.0% (2021: 8.7%) and the reversionary yield
was 10.2% (2021: 9.4%).
Property Portfolio by Sector
Sector Properties Valuation % by valuation Sq. ft. Occupancy (EPRA) WAULT to first break Gross rental income Average rent ERV Capital rate
(£m) (m) (%) (yrs) (£m) (£psf) (£m) (£psf) Net initial Equivalent Reversionary
yield yield yield
(%) (%) (%)
Office 129 725.1 91.8 5.8 82.8 2.7 65.7 14.50 85.7 125.88 5.9 9.0 10.3
Retail 18 28.5 3.6 0.3 93.7 4.1 3.2 10.59 3.1 85.82 8.5 9.2 10.1
Industrial 4 24.6 3.1 0.4 85.2 5.9 1.9 5.27 2.2 58.64 5.5 8.0 8.7
Other 3 11.4 1.4 0.1 93.6 10.2 0.9 15.20 0.9 117.75 6.9 8.5 9.7
Total 154 789.5 100.0 6.6 83.4 3.0 71.8 13.65 92.0 119.48 6.0 9.0 10.2
Property Portfolio by Region
Region Properties Valuation % by valuation Sq. ft. Occupancy (EPRA) WAULT to first break Gross rental income Average rent ERV Capital rate
(£m) (m) (%) (yrs) (£m) (£psf) (£m) (£psf) Net initial yield Equivalent yield Reversionary
(%) (%) yield
(%)
Scotland 38 131.6 16.7 1.3 76.7 3.4 11.8 13.46 17.3 103.84 4.7 9.8 11.7
South East 27 153.1 19.4 1.0 76.5 2.6 12.2 16.23 16.9 148.93 4.9 8.5 9.7
North East 24 126.1 16.0 1.1 86.9 3.3 11.7 12.88 14.2 117.84 5.8 9.2 10.4
Midlands 26 159.1 20.2 1.4 90.3 3.2 15.4 13.13 18.7 113.25 6.3 9.0 10.0
North West 19 106.8 13.5 0.9 79.4 2.3 9.9 13.17 12.9 115.03 6.6 9.1 10.5
South West 14 73.1 9.3 0.5 92.3 2.0 7.0 16.44 7.9 154.49 7.7 8.5 9.6
Wales 6 39.6 5.0 0.4 91.3 4.3 3.8 10.23 4.0 91.02 7.3 8.3 9.2
Total 154 789.5 100.0 6.6 83.4 3.0 71.8 13.65 92.0 119.48 6.0 9.0 10.2
* Tables may not sum due to rounding
Top 15 Investments (market value) as at 31 December 2022
Property Sector Anchor tenants Market value % of portfolio Lettable area EPRA Occupancy Annualised gross rent % of gross rental income WAULT to first break (years)
(£m) (sq ft) (%) (£m)
300 Bath Street, Glasgow Office University of Glasgow, Glasgow Tay House Centre Ltd, Fairhurst Group LLP, 23.6 3.0 156,853 89.1 1.2 1.7 2.9
London & Scottish Property Investment Management
Buildings 2 & 3, Bear Brook Office Park, Aylesbury Office Utmost Life and Pensions Ltd, Agria Pet Insurance Ltd, International Fire 20.9 2.6 140,791 100.0 0.8 1.1 4.0
Consultants Ltd
Hampshire Corporate Park, Eastleigh Office Aviva Central Services UK Ltd, Lloyd's Register EMEA, Complete Fertility Ltd, 19.5 2.5 84,043 99.8 1.7 2.3 4.0
National Westminster Bank Plc
Eagle Court, Coventry Road, Birmingham Office Virgin Media Ltd, Rexel UK Ltd, Coleshill Retail Ltd 19.4 2.5 132,979 82.6 2.0 2.8 0.9
Beeston Business Park, Nottingham Office Metropolitan Housing Trust Ltd, SMS Electronics Ltd, Heart Internet Ltd 17.2 2.2 215,330 100.0 1.4 2.0 5.6
800 Aztec West, Bristol Office NNB Generation Company (HPC) Ltd, Edvance SAS 16.5 2.1 73,292 100.0 1.5 2.1 1.4
Orbis 1, 2 & 3, Pride Park, Derby Office First Source Solutions UK Ltd, DHU Health Care C.I.C., Tentamus Pharma (UK) 16.5 2.1 121,883 100.0 1.8 2.5 4.4
Ltd
Norfolk House, Smallbrook Queensway, Birmingham Office Global Banking School Ltd, Accenture (UK) Ltd, HP Asia Ltd 15.6 2.0 115,780 100.0 1.4 1.9 7.2
Linford Wood Business Park, Milton Keynes Office IMServ Europe Ltd, Market Force Information (Europe) Ltd, Autotech Recruit Ltd 15.1 1.9 107,352 92.2 1.5 2.1 2.0
Manchester Green, Manchester Office Chiesi Ltd, Ingredion UK Ltd, Assetz SME Capital Ltd, Contemporary Travel 14.7 1.9 107,760 80.6 1.4 1.9 2.4
Solutions Ltd
Capitol Park, Leeds Office Hermes Parcelnet Ltd, NHS Shared Business Services Ltd, BDW Trading Ltd 14.0 1.8 98,340 82.4 1.3 1.8 2.8
Portland Street, Manchester Office Evolution Money Group Ltd, Mott MacDonald Ltd, NCG (Manchester) Ltd, Simard 13.1 1.7 55,787 95.5 1.1 1.5 2.9
Ltd
Ashby Park, Ashby De La Zouch Office Ceva Logistics Ltd, Brush Electrical Machines Ltd, Ashfield Healthcare Ltd 12.7 1.6 91,034 100.0 0.9 1.2 4.0
Templeton On The Green, Glasgow Office The Scottish Ministers, The Scottish Sports Council, Noah Beers Ltd, The Wise 12.1 1.5 142,520 92.9 1.3 1.8 4.3
Group
The Lighthouse - Salford Quays, Manchester Office Pearson Education Ltd, EQUANS Regeneration Ltd 11.8 1.5 64,275 54.6 0.7 1.0 1.8
Total 242.7 30.7 1,708,019 90.6 19.9 27.8 3.3
* Tables may not sum due to rounding
Top 15 Tenants (share of rental income) as at 31 December 2022
Tenant Property Sector WAULT to first break (years) Lettable area (sq ft) Annualised gross rent (£m) % of gross rental income
Virgin Media Ltd Eagle Court, Coventry Road, Birmingham Information and communication 1.0 107,830 1.7 2.4
Southgate Park, Peterborough
TUI Northern Europe Ltd Columbus House, Coventry Professional, scientific and technical activities 1.0 53,253 1.4 1.9
NHS Aspect House, Bennerley Road, Nottingham Public sector 1.4 85,324 1.3 1.8
Capitol Park, Leeds
Equinox North, Almondsbury, Bristol
Park House, Bristol
St James Court, Bristol
Wren House, Chelmsford
Secretary of State for Communities & Local Government 1 Burgage Square, Merchant Square, Wakefield Public sector 4.2 108,915 1.1 1.5
Albert Edward House, Preston
Bennett House, Stoke-On-Trent
Norfolk House, Birmingham
Oakland House, Manchester
Waterside Business Park, Swansea
EDF Energy Ltd Endeavour House, Sunderland Electricity, gas, steam and air conditioning supply 7.8 77,565 1.0 1.4
First Source Solutions UK Ltd Orbis 1, 2 & 3, Pride Park, Derby Administrative and support service activities 4.3 62,433 1.0 1.4
E.ON UK Plc Two Newstead Court, Nottingham Electricity, gas, steam and air conditioning supply 2.3 99,142 0.9 1.3
John Menzies Plc 2 Lochside Avenue, Edinburgh Professional, scientific and technical activities 1.6 43,780 0.9 1.2
NNB Generation Company (HPC) Ltd 800 Aztec West, Bristol Electricity, gas, steam and air conditioning supply 1.1 41,743 0.9 1.2
Global Banking School Limited Norfolk House, Smallbrook Queensway, Birmingham Education 9.9 44,245 0.8 1.2
SPD Development Co Ltd Clearblue Innovation Centre, Bedford Professional, scientific and technical activities 2.8 58,167 0.8 1.1
Aviva Central Services UK Ltd Hampshire Corporate Park, Eastleigh Other service activities 1.9 42,612 0.8 1.1
Odeon Cinemas Ltd Kingscourt Leisure Complex, Dundee Information and communication 12.8 41,542 0.7 1.0
SpaMedica Limited 1175 Thorpe Park, Leeds Albert Edward House, Preston lll Acre, Princeton Human health and social work activities 3.4 50,656 0.7 1.0
Drive, Stockton On Tees Fairfax House, Wolverhampton Southgate Park,
Peterborough The Foundation Chester Business Park, Chester
Edvance SAS 800 Aztec West, Bristol Electricity, gas, steam and air conditioning supply 1.7 31,549 0.7 0.9
Total 3.4 948,756 14.8 20.6
*Tables may not sum due to rounding.
Property Portfolio Sector and Region Splits by Valuation and Income
By Valuation
As at 31 December 2022, 91.8% (2021: 89.8%) of the portfolio by market value
was offices and 3.6% (2021: 3.7%) was retail. The balance was made up of
industrial, 3.1% (2021: 5.1%) and other, 1.4% (2021: 1.4%). By UK region, as
at 31 December 2022, Scotland represented 16.7% (2021: 19.0%) of the portfolio
and England 78.3% (2021: 75.7%); the balance of 5.0% (2021: 5.3%) was in
Wales. In England, the largest regions were the Midlands, the South East and
the North East.
By Income
As at 31 December 2022, 91.5% (2021: 88.6%) of the portfolio by income was
offices and 4.5% (2021: 5.4%) was retail. The balance was made up of
industrial, 2.6% (2021: 4.5%), and other, 1.3% (2021: 1.4%). By UK region, as
at 31 December 2022, Scotland represented 16.5% (2021: 21.6%) of the portfolio
and England 78.2% (2021: 72.4%); the balance of 5.3% was in Wales (2021:
6.0%). 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 (2021: 4.8 years); WAULT to first
break is 3.0 years (2021: 3.0 years). As at 31 December 2022, 14.5% (2021:
11.5%) of income was from leases, which will expire within one year, 14.0%
(2021: 13.8%) between one and two years, 29.5% (2021: 31.9%) between two and
five years and 42.0% (2021: 42.8%) after five years.
Lease Expiry Income Profile % of rent
0-1 years 14.5%
1-2 years 14.0%
2-5 years 29.5%
5+ years 42.0%
Total 100.0%
Source: LSPIM
Tenants by Standard Industrial Classification as at 31 December 2022
As at 31 December 2022, 14.2% of income was from tenants in the professional,
scientific and technical activities sector (2021: 14.5%), 12.2% from the
information and communication activities sector (2021: 11.4%), 11.3% from the
administrative and support service activities sector (2021: 9.5%), 9.4% from
the financial and insurance sector (2021: 10.9%) and 8.3% from the wholesale
and retail trade (2021: 9.6%). The remaining exposure is broadly spread.
No tenant represents more than 2.5% of the Group's rent roll as at 31 December
2022, the largest being 2.4% (2021: 2.5%).
Financial Review
Net Asset Value
In the year ended 31 December 2022, the EPRA NTA* of the Group decreased to
£379.2 million (IFRS NAV: £402.9 million) from £501.4 million (IFRS NAV:
£502.4 million) as at 31 December 2021, equating to a decrease in the diluted
EPRA NTA of 23.7pps to 73.5pps (IFRS: 78.1pps). This is after the dividends
declared in the year amounting to 6.65pps.
The EPRA NTA decrease of £122.2 million since 31 December 2021 was
predominately from £113.2 million decrease in the revaluation of the property
portfolio held as at 31 December 2022, and a £8.6 million realised loss on
the disposal of properties.
The investment property portfolio valuation as at 31 December 2022 amounted to
£789.5 million (2021: £906.1 million). The decrease of £116.7 million since
the December 2021 year end is a reflection of £84.1 million of net property
disposals, loss on the disposal of properties of £8.6 million and £113.2
million of property revaluation, offset by property acquisitions and
subsequent expenditure of £89.3 million. Overall, on a like-for-like basis,
the portfolio value decreased by 12.1% during the year.
The table below sets out the acquisitions, disposals and capital expenditure
for the respective periods:
Year ended Year ended
31 December 31 December
2022 2021
(£m) (£m)
Acquisitions
Net (after costs) 79.3 251.4
Gross (before costs) 74.7 236.0
Disposals
Net (after costs) 84.1 76.9
Gross (before costs) 90.0 79.6
Capital Expenditure
Net (after dilapidations) 10.0 6.8
Gross (before dilapidations) 10.9 7.2
* Further details of the new EPRA performance measures can be found in the
full Annual Report.
The EPRA NTA per share decreased to 73.5pps (2021: 97.2pps). The EPRA NTA is
reconciled in the table below:
£m Pence per Share
Opening EPRA NTA (31 December 2021) 501.4 97.2
Net rental and property income 62.6 12.1
Administration and other expenses (11.4) (2.2)
Loss on the disposal of investment properties (8.6) (1.6)
Change in the fair value of investment properties (113.2) (22.0)
Change in value of right of use (0.1) (0.0)
EPRA NTA after operating profit 430.6 83.5
Net finance expense (17.2) (3.3)
Taxation 0.0 0.0
EPRA NTA before dividends paid 413.5 80.2
Dividends paid* (34.3) (6.7)
Closing EPRA NTA (31 December 2022) 379.2 73.5
Table may not sum due to rounding
*As at 31 December 2022, the total number of Shares in issue to 515,736,583.
Income Statement
Operating profit before gains and losses on property assets and other
investments for the year ended 31 December 2022 amounted to £51.2 million
(2021: £45.2 million). Loss after finance and before taxation of £65.2
million (2021: gain £28.8 million). 2022 included the rent roll for
properties held from the 31 December 2021, plus the partial rent roll for
properties disposed or acquired during the year.
Rental and property income amounted to £76.3 million, excluding recoverable
service charge income and other similar items (2021: £65.8 million). The
increase was primarily the result of the increase in the rent roll being held
during the year to 31 December 2022.
Currently more than 80% of the rental income is collected within 30 days of
the due date and bad debts in the year amounted to a release of £0.4 million
(2021: charge of £0.6 million).
Non-recoverable property costs, excluding recoverable service charge income
and other similar costs, amounted to £13.7 million (2021: £9.9 million), and
the rent roll amounted to £71.8 million (2021: £72.1 million).
Realised loss on the disposal of investment properties amounted to £8.6
million (2021: gain £0.7 million). The loss on the disposals were from the
aggregate disposal of 20 properties in the period, on which individual asset
management plans had been completed and/or were of sub-optimal asset size. The
change in the fair value of investment properties amounted to a loss of
£113.2 million (2021: loss of £8.3 million). Net capital expenditure
amounted to £10.0 million (2021: £6.8 million). The gain on the disposal of
the right of use asset amounted to £0.1 million (2021: £0.2 million). The
change in value of right of use asset amounted to a charge of £0.2 million
(2021: charge £0.2 million)
Interest income amounted to £0.1 million (2021: £0.0 million).
Finance expenses amount to £17.3 million (2021: £14.9 million). The increase
is due to a full year of finance expense being incurred on £76.2 million
borrowings drawn down 27 August 2021 from the Royal Bank of Scotland, Bank of
Scotland, and Barclays to finance the enlarged portfolio.
The EPRA* cost ratio, including direct vacancy costs, was 32.8% (2021: 31.2%).
The EPRA cost ratio, excluding direct vacancy costs was 16.2% (2021: 16.8%).
The ongoing charges for the year ending 31 December 2022 were 5.3% (2021:
4.6%) and 2.6% excluding void costs (2021: 2.5%).
The EPRA Total Return from Listing to 31 December 2022 was 24.2% (2021:
41.2%), with an annualised rate of 3.1% pa (2021: 5.8% pa).
*Alternative Performance Measures, Details are provided in the Glossary of and
the EPRA Performance measures in the full Annual Report. .
Dividend
In relation to the year from 1 January 2022 to 31 December 2022, the Company
declared dividends totalling 6.60pps (2021: 6.50pps). Since the end of the
year, the Company has declared a dividend for the fourth quarter of 2022 of
1.65pps. A schedule of dividends can be found in the full Annual Report.
Debt Financing and Gearing
Borrowings comprise third-party bank debt and the retail eligible bond. The
bank debt is secured over properties owned by the Group and repayable over the
next three to seven years. The weighted average maturity of the bank debt and
retail eligible bond is 4.5 years (2021: 5.5 years).
The Group's borrowing facilities are with the Santander UK, Scottish Widows
Ltd., Scottish Widows Ltd. & Aviva Investors Real Estate Finance, Royal
Bank of Scotland, Bank of Scotland and Barclays. The total bank borrowing
facilities at 31 December 2022 amounted to £390.8 million (2021: £389.9
million) (before unamortised debt issuance costs), with £4.1 million
available to be drawn. In addition to the bank borrowings, the Group has a
£50 million 4.5% retail eligible bond, which is due for repayment in August
2024. In aggregate, the total debt available at 31 December 2022 amounted to
£444.9 million (2021: £444.9 million).
At 31 December 2022, the Group's cash and cash equivalent balances amounted to
£50.1 million (2021: £56.1 million), of which £37.8 million (2021: £49.9
million) was unrestricted cash.
The Group's net loan to value ("LTV") ratio stands at 49.5% (2021: 42.4%)
before unamortised costs. The Board continues to target a net LTV ratio of
40%, with a targeted maximum limit of 50%.
Debt Profile and LTV Ratios as at 31 December 2022
Lender Original facility Outstanding debt* Maturity date Gross loan to value** Annual interest rate
£'000 £'000 % %
Royal Bank of Scotland, Bank of Scotland & Barclays 128,000 125,676 Aug-26 50.8 2.40 over 3mth £ SONIA
Scottish Widows Ltd. & Aviva Investors Real Estate Finance 165,000 165,000 Dec-27 52.0 3.28 Fixed
Scottish Widows Ltd. 36,000 36,000 Dec-28 42.2 3.37 Fixed
Santander UK 65,870 64,116 Jun-29 44.9 2.20 over 3mth £ to SONIA
394,870 390,792
Retail eligible bond 50,000 50,000 Aug-24 NA 4.50 Fixed
444,870 440,792
* Before unamortised debt issue costs
** Based on Cushman and Wakefield property valuations
Table may not sum due to rounding
The Managers continue to monitor the borrowing requirements of the Group. As
at 31 December 2022, the Group had sufficient headroom against its borrowing
covenants.
The net gearing ratio (net debt to Ordinary Shareholders' equity (diluted)) of
the Group was 96.9% as at 31 December 2022 (2021: 76.4%).
Interest cover, excluding amortised costs, stands at 3.4 times (2021: 3.5
times) and including amortised costs, stands at 3.0 times (2021: 3.0 times).
Hedging
The Group applies an interest hedging strategy that is aligned to the property
management strategy and aims to mitigate interest rate volatility on at least
90% of the debt exposure.
31 December 2022 31 December 2021
% %
100.9 101.3
Borrowings interest rate hedged
Thereof:
Fixed 56.9 57.1
Swap 27.8 24.1
Cap 16.2 20.0
WACD(1) 3.5 3.3
1 WACD - Weighted Average Effective Interest Rate including the cost of
hedging.
Table may not sum due to rounding
The over-hedged position has arisen due to the entire Royal Bank of Scotland,
Bank of Scotland & Barclays and Santander UK facilities, including any
undrawn balances, being hedged by interest rate cap derivatives which have no
ongoing cost to the Group.
Tax
The Group entered the UK REIT regime on 7 November 2015 and all of the Group's
UK property rental operations became exempt from UK corporation tax from that
date. The exemption remains subject to the Group's continuing compliance with
the UK REIT rules.
On 9 January 2018, the Company registered for VAT purposes in England.
During 2022, the Group recognised a tax credit of £5,570 (2021: tax charge of
£15,948), which comprised tax provisions for the year offset by releases of
tax previously provided for in prior years which are now concluded and not
payable.
Principal Risks and Uncertainties
Effective risk management underpins the execution of Regional REIT's strategy,
the positioning of the business for growth and maintaining the regular income
over a long-term sustainable horizon.
Risk Framework and Approach
The Board has overall responsibility for the Company's system of risk
management and internal controls. The Board recognises the importance of
identifying and actively monitoring its risks, which include, but are not
limited to: strategic, valuation, COVID-19, economic and political, funding,
tenant, financial and tax charges, operational, regulatory, and environmental
risks. Over the long term, the business will face other challenges and
emerging threats for which it remains vigilant.
The Board is supported by the Audit Committee in the management of risk. The
Audit Committee is responsible for determining the principal risks facing the
business and reviewing, at least annually, the effectiveness of the Company's
financial control, risk management and internal control processes.
However, the Board also views the potential risks as opportunities which, when
handled appropriately, can drive performance. Thus, having an effective risk
management process is key to support the delivery of the Group's strategy.
Approach to Managing Risk - Identification, Evaluation and Mitigation
The risk management process is focussed upon being risk aware and is designed
to identify, evaluate, manage and mitigate, rather than eliminate, risks
faced. The Company maintains a detailed and formal matrix of current principal
risks, which uses risk scoring to evaluate risks consistently. This allows the
risks to be monitored and mitigated as part of a risk management process with
the Audit Committee undertaking, at a minimum on a six-monthly basis or more
frequently if required, a robust evaluation of these risks facing the Group.
Risks are identified and weighted according to their potential impact on the
Company and to their likelihood of occurrence. The Audit Committee uses the
risk matrix to prioritise individual risks, allocating scores to each risk for
both the likelihood of its occurrence and the severity of its impact. Those
with the highest gross rating in terms of impact are highlighted as top risks
within the matrix and are defined as principal risks.
While the Board believes that it has a robust framework of internal controls
in place, this can provide only reasonable, and not absolute, assurance
against material financial misstatement or loss and is designed to manage, not
eliminate, risk.
Risk Appetite
The Board is responsible for defining the level of risk that the Company
assumes and ensuring that it remains in-line with the Company's strategy. Risk
appetite is integral to the Board's approach to risk management, business
planning and decision making. The level and type of risk that the Company is
willing to bear will vary over time.
The Board, in conjunction with the Asset Manager and Investment Manager, and
with the latest information available, regularly reviews the risk appetite of
the Company allowing a prompt response to identified emerging risks.
Changes to the Principal Risks
During Q1 2022, the devolved Governments' reactions to Covid-19 continued to
impact economic activity in the respective countries. However, with the
reduction in Covid-19 transmission and the subsequent lifting of restrictions,
economic activity increased resulting in a downgrade of the respective risk.
The war in Ukraine has increased geopolitical tensions resulting in volatility
in commodity prices, particularly energy related commodities, interrupted
supply chains, and exacerbated inflationary pressures, all of which has
increased economic headwinds.
Emerging Risks
The Board is cognisant of emerging risks defined as potential trends, sudden
events or changing risks, which are characterised by a high degree of
uncertainty in terms of probability of occurrence and possible effects on the
Company. Once emerging risks become sufficiently clear, they may be classed as
a principal risk and added to the risk matrix.
To help manage emerging risks and discuss other wider matters affecting
property, the Board has an annual strategy meeting. The Board considers having
a clear strategy is the key to managing and mitigating emerging risk.
The Company's principal risks consist of the ten most significant risks which
are composed of eight strategic and two operational risks. The strategic risks
relate to investment strategy, valuation, COVID-19, economics and political,
funding, tenant, financial and tax changes, and environmental and energy
efficiency standards; operational risk encompasses business disruption, and
accounting, legal and regulatory.
The below list, in no particular order, sets out the current identifiable
principal and emerging risks, including their impact and the actions taken by
the Company to mitigate them. It does not purport to be an exhaustive list of
all the risks faced by the Group.
Principal Risk Summary
Principal Risk Evolution of the
trend during the year
1. Strategic ó
2. Valuation ö
3. COVID-19 ⇩
4. Economic and political ó
5. Funding ö
6. Tenant ó
7. Financial and tax changes ó
8. Operational ó
9. Accounting, legal and regulatory ö
10. Environmental and energy efficiency standards ö
1. Strategic
Potential Impact Mitigation Movement in the period ó
An inappropriate investment strategy, and/or failure to implement the strategy · A clearly defined investment strategy, which is reviewed · The property portfolio remains balanced across a range of
could result in lower income and capital returns to Shareholders. annually. geographical areas and a large number of investment properties.
· A defined and rigorous investment appraisal process.
· Acquire portfolios, which offer Shareholders diversification of
investment risk by investing in a range of geographical areas and number of
properties.
· Supply and demand market information is reviewed continuously to
assist in acquisitions and disposals.
· All the above steps are monitored to ensure the strategy is
implemented.
· Predominately, acquiring office properties in the UK and outside · The Group continues to purchase properties in the UK outside the
of the M25 motorway. However, the Group may invest in property portfolios in M25 motorway.
which up to 50% of the properties (by market value) are situated within the
M25 motorway.
· No single property, in the ordinary course of business, is · 300 Bath Street (2021: 300 Bath Street) is the highest valued
expected to exceed 10% of the Group's aggregate Investment Properties property, which equates to 3.0% (2021: 3.0%) of the Group's investment
valuation. However, the Board may, in exceptional circumstances, consider a properties.
property having a value of up to 20% of the Group's investment property value
at the time of investment.
· No more than 20% of the Group's investment property value shall · The Group's largest single tenant exposure is 2.4% (2021: 2.5%)
be exposed to any single tenant or group undertaking of that tenant. of gross rental income, being Virgin Media Ltd (2021: Virgin Media Ltd.).
· Speculative development (i.e., properties under construction, but · No speculative construction was undertaken during the year under
excluding any refurbishment works, which have not been pre-let) is prohibited. review.
· The value of the properties is protected as far as possible by an · The Asset Manager continues to actively manage the investment
active asset management programme, which is regularly reviewed against the properties in accordance with market conditions and the individual asset
business plan for each property. programme.
2. Valuation
Potential Impact Mitigation Movement in the period ö
The valuation of the Group's portfolio affects its profitability and net · The Company's external valuer, Cushman & Wakefield, provide · Cushman & Wakefield independently provides the valuation for
assets. independent valuations for all properties on a six-monthly basis in accordance the entire portfolio, valuing each individual asset.
with the RICS Red Book.
· The Audit Committee has the opportunity to discuss the basis of
the valuations with the external valuer. The Audit Committee membership
includes an experienced chartered surveyor.
· The Asset Manager's experience and extensive knowledge of the
property market. The Asset Manager is able to challenge the external valuers'
findings.
· The Company's Auditor engages an independent third party to
evaluate the Cushman & Wakefield valuation.
3. COVID-19
Potential Impact Mitigation Movement in the period ⇩
The economic disruption resulting from COVID-19 and other social health issues · The Asset Manager continues to adapt and, as required, to support · The Group has continued to scrutinise all current risk mitigation
could continue to impact rental income; the ability of Valuers to discern tenants. approaches employed and to work closely with all parties.
valuations; the ability to access funding at competitive rates, adherence to
banking covenants, maintain a progressive dividend policy, and adhere to the · The property portfolio has been deliberately constituted to
HMRC REIT regime requirements. ensure a diverse range of tenants by standard industrial classification; which
ensured the many tenants, being designated as essential services, continued to
operate throughout the COVID-19 pandemic.
· Close relationships with lenders ensuring continued dialogue
around covenants and ability to access funding as required at competitive
rates.
· Initial vetting of all third-party providers with annual due
diligence reviews, including the review of business continuity capabilities to
minimise when remote working has been necessitated.
4. Economic and Political
Potential Impact Mitigation Movement in the periodó
Significant political events could impact the health of the UK economy, · The Group operates with a sole focus on the UK regions, with no · There remains a risk that property valuations and the occupancy
resulting in borrowing constraints, changes in demand by tenants for suitable foreign currency exchange exposure. It remains well positioned with a market may be impacted by change in the political landscape.
properties, the quality of the tenants, and ultimately the property portfolio deliberately diverse standard industry classification of tenants generating
value. 1,076 (2021: 1,077) income streams which are located in areas of expected
economic growth.
· The Board receives advice on macro-economic risks, including
Brexit, from the Investment Manager and other advisers and acts accordingly.
2. Valuation
Potential Impact Mitigation Movement in the period ö
The valuation of the Group's portfolio affects its profitability and net · The Company's external valuer, Cushman & Wakefield, provide · Cushman & Wakefield independently provides the valuation for
assets. independent valuations for all properties on a six-monthly basis in accordance the entire portfolio, valuing each individual asset.
with the RICS Red Book.
· The Audit Committee has the opportunity to discuss the basis of
the valuations with the external valuer. The Audit Committee membership
includes an experienced chartered surveyor.
· The Asset Manager's experience and extensive knowledge of the
property market. The Asset Manager is able to challenge the external valuers'
findings.
· The Company's Auditor engages an independent third party to
evaluate the Cushman & Wakefield valuation.
3. COVID-19
Potential Impact Mitigation Movement in the period ⇩
The economic disruption resulting from COVID-19 and other social health issues · The Asset Manager continues to adapt and, as required, to support · The Group has continued to scrutinise all current risk mitigation
could continue to impact rental income; the ability of Valuers to discern tenants. approaches employed and to work closely with all parties.
valuations; the ability to access funding at competitive rates, adherence to
banking covenants, maintain a progressive dividend policy, and adhere to the · The property portfolio has been deliberately constituted to
HMRC REIT regime requirements. ensure a diverse range of tenants by standard industrial classification; which
ensured the many tenants, being designated as essential services, continued to
operate throughout the COVID-19 pandemic.
· Close relationships with lenders ensuring continued dialogue
around covenants and ability to access funding as required at competitive
rates.
· Initial vetting of all third-party providers with annual due
diligence reviews, including the review of business continuity capabilities to
minimise when remote working has been necessitated.
4. Economic and Political
Potential Impact Mitigation Movement in the periodó
Significant political events could impact the health of the UK economy, · The Group operates with a sole focus on the UK regions, with no · There remains a risk that property valuations and the occupancy
resulting in borrowing constraints, changes in demand by tenants for suitable foreign currency exchange exposure. It remains well positioned with a market may be impacted by change in the political landscape.
properties, the quality of the tenants, and ultimately the property portfolio deliberately diverse standard industry classification of tenants generating
value. 1,076 (2021: 1,077) income streams which are located in areas of expected
economic growth.
· The Board receives advice on macro-economic risks, including
Brexit, from the Investment Manager and other advisers and acts accordingly.
5. Funding
Potential Impact Mitigation Movement in the period ö
The Group may not be able to secure further debt or on acceptable terms, which · The Asset Manager has a Corporate Finance team dedicated to · Weighted average debt term decreased to 4.5 years from 5.5 years
may impinge upon investment opportunities and the ability to grow the Group. optimising the Group's funding requirements. in 2021.
· Funding options are constantly reviewed with an emphasis on · Weighted average cost of capital, including hedging costs was
reducing the weighted average cost of capital and lengthening the weighted 3.5% (2021: 3.3%).
average debt to maturity.
· LTV increased to 49.5% from 42.4% as at 31 December 2021.
· Borrowings are currently provided by a range of institutions with
targeted staggered maturities.
· Strong relationships with key long-term lenders.
· Continual monitoring of LTV.
Bank reference interest rates may be set to become more volatile, accompanying · Policy of hedging at least 90% of variable interest rate · Continued adherence to the hedging policy.
volatile inflation borrowings. Fixed, swapped and capped borrowing amounted to 100.9%
(2021:101.3%)
· Borrowings are currently provided by a range of institutions with
targeted staggered maturities.
Breach of covenants within the Group's funding structure could lead to a · The Asset Manager's corporate finance team reviews the applicable · The Group continues to have sufficient headroom against the
cancellation of debt funding if the Company is unable to service the debt. covenants on a regular basis and these are considered in future operational applicable borrowing covenants.
decisions.
· Compliance certificates and requested reports are prepared as
scheduled.
6. Tenant
Potential Impact Mitigation Movement in the period ó
Type of tenant and concentration of tenant could result in lower income from · An active asset management programme with a focus on the Asset · This risk remains stable in view of the increasing
reduced lettings or defaults. Manager working with individual tenants to assess any occupational issues and diversification of properties, tenants and geographies in the portfolio.
to manage any potential bad debts.
· The tenant mix and their underlying activity has continued to
· Diversified portfolio of properties let, where possible, to a increasingly diversify, with the number of tenants amounting to 1,076 at the
large number of low-risk tenants across a wide range of standard industrial year-end (2021: 1,077).
classifications throughout the UK.
· Potential acquisitions are reviewed for tenant overlap and
potential disposals are similarly reviewed for tenant standard industrial
classification concentration.
A high concentration of lease term maturity and/or break options could result · The portfolio lease and maturity concentrations are monitored by · The WAULT to first break as at 31 December 2022 was 3.0 years
in a more volatile contracted rent roll. the experienced Asset Manager to minimise concentration. (2021: 3.0 years)
· There is a focus on securing early renewals and increased lease · The largest tenant is 2.4% (2021: 2.5%) of the gross rental
periods. income, being Virgin Media Limited.
· The requirement for suitable tenants and the quality of the · The Asset Management team remains vigilant to the financial
tenant is managed by the experienced Asset Manager which maintains close well-being of our current tenants and continues to liaise with tenants and
relationships with current tenants and with letting agents. agents.
6. Tenant
Potential Impact
Mitigation
Movement in the period ó
Type of tenant and concentration of tenant could result in lower income from
reduced lettings or defaults.
· An active asset management programme with a focus on the Asset
Manager working with individual tenants to assess any occupational issues and
to manage any potential bad debts.
· Diversified portfolio of properties let, where possible, to a
large number of low-risk tenants across a wide range of standard industrial
classifications throughout the UK.
· Potential acquisitions are reviewed for tenant overlap and
potential disposals are similarly reviewed for tenant standard industrial
classification concentration.
· This risk remains stable in view of the increasing
diversification of properties, tenants and geographies in the portfolio.
· The tenant mix and their underlying activity has continued to
increasingly diversify, with the number of tenants amounting to 1,076 at the
year-end (2021: 1,077).
A high concentration of lease term maturity and/or break options could result
in a more volatile contracted rent roll.
· The portfolio lease and maturity concentrations are monitored by
the experienced Asset Manager to minimise concentration.
· There is a focus on securing early renewals and increased lease
periods.
· The requirement for suitable tenants and the quality of the
tenant is managed by the experienced Asset Manager which maintains close
relationships with current tenants and with letting agents.
· The WAULT to first break as at 31 December 2022 was 3.0 years
(2021: 3.0 years)
· The largest tenant is 2.4% (2021: 2.5%) of the gross rental
income, being Virgin Media Limited.
· The Asset Management team remains vigilant to the financial
well-being of our current tenants and continues to liaise with tenants and
agents.
7. Financial and Tax Changes
Potential Impact Mitigation Movement in the period ó
Changes to the UK REIT and non-REIT regimes tax and financial legislation. · The Board receives advice on these changes where appropriate and · Advice is received from several corporate advisers, including tax
will act accordingly. adviser Grant Thornton UK LLP and the Group adapts to changes as required.
8. Operational
Potential Impact Mitigation Movement in the period ó
Business disruption could impinge on the normal operations of the Group. · The Asset and Investment Managers each have contingency plans in · Both the Asset and Investment Managers annually review their
place to ensure there are no disruptions to the core infrastructure which Disaster and Business Continuity Plans.
would impinge on the normal operations of the Group.
· An annual due diligence exercise is carried out on all principal · The annual due diligence visits were undertaken with the
third-party service providers. Company's principle third-party service providers. No concerns were identified
from the visits.
· As an externally managed investment company, there is a continued · Both the Asset and Investment Manager are viable going concerns.
reliance on the Asset and Investment Managers and other third-party service
providers.
· All acquisitions undergo a rigorous due diligence process and all · The Asset Manager continues to monitor changes in Health and
multi-let properties undergo an annual comprehensive fire risk. Safety regulations, including, where required, COVID-19 social distancing
measures.
· The impact of physical damage and destruction to investment
properties is mitigated by ensuring all are covered by a comprehensive · The Asset Manager reviews the adequacy of insurance cover on an
building, loss of rent and service charge plus terrorism insurance with the ongoing basis.
exception of a small number of "self-insure" arrangements covered under
leases.
Information security and cyber threat resulting in data loss, or negative · The Asset and Investment Manager each has a dedicated Information · The Managers review the respective Information Technology polices
regulatory, reputational, operational (including GDPR), or financial impact. Technology team which monitors information security, privacy risk and cyber and the material third party service suppliers on as required basis to ensure
threats ensuring their respective operations are not interrupted. they reflect current and possible future threats.
· As required the building management systems are reviewed for
cyber security risk.
9. Accounting, Legal, and Regulatory
Potential Impact Mitigation Movement in the period ö
Changes to accounting, legal and/or regulatory legislation, including · Robust processes are in place to ensure adherence to accounting, · The Group continues to receive advice from its corporate advisers
sanctions could result in changes to current operating processes. legal and regulatory requirements, including sanctions and Listing Rules. and has incorporated changes where required.
· All contracts are reviewed by the Group's legal advisers. · The Administrator and Company Secretary continue to attend all
Board meetings and advise on Listing Rule requirements in conjunction with the
· The Administrator, in its capacity as Group Accountant, and the Corporate Broker and Financial Adviser.
Company Secretary attend all Board meetings in order to be aware of all
announcements that need to be made.
· All compliance issues are raised with the Financial Adviser.
Loss of REIT status · The HMRC REIT regime requirements are monitored by the Asset and · The Group continues to receive advice from external advisers on
Investment Manager, and external advisors including the Company's tax adviser any anticipated future changes to the REIT regime.
Grant Thornton UK LLP and its sub-administrator Link Alternative Fund
Administrators Limited.
10. Environmental and Energy Efficiency Standards
Potential Impact Mitigation Movement in the period ö
The Group's cost base could be impacted, and management time diverted, due to · The Board receives regular updates on environmental, social, · Additional attention is currently being devoted to this area to
climate changes and associated legislation. governance and potential legislation changes from its advisers. ensure the appropriate approach is applied and embedded in Group activities.
· The Group has engaged an environmental consultancy to assist with
achieving and improving the Global Real Industry Sustainability Benchmark
(GRESB).
Changes to the environment could impact upon the operations of the Group. · Property acquisitions undergo a rigorous due diligence process, · The rigour of the environmental assessments process continues to
including an environmental assessment. be reviewed with the aim of enhancing it.
· The Asset Manager monitors the portfolio for any detrimental
environmental impact, by way of frequent inspections of the properties, and
the annual insurance review process.
An Energy Performance Rating of E and below may impact the Group's ability to · The Group continues to review each property to ensure adherence · The Asset Manager is continually reviewing the feasibility of
sell or lease an asset. with Energy Performance Rating requirements. enhancing Energy Performance Ratings to exceed the minimum requirement.
· The energy efficiency of investment acquisitions is fully
considered as part of the due diligence process for the acquisition of a
property.
Changes to the Principal Risks and Uncertainties
The Board, via the Audit Committee, has reviewed and agreed the movement
during the year to each of the identified principal risks and uncertainties
following review of these risks, having considered the characteristics of
these and the economic and geopolitical factors. The potential impact of these
risks to the Company's future strategy is considered on an ongoing basis.
Extract of the Report of the Directors
Share Capital
As at 31 December 2022, the Company's total issued share capital was
515,736,583 Ordinary Shares (2021: 515,736,583).
All of the Company's Ordinary Shares are listed on the premium segment of the
London Stock Exchange and each Ordinary Share carries one vote.
There is only one class of Ordinary Shares in issue for the Company, in
adherence to the REIT requirements. The only other shares the Company may
issue are particular types of non-voting restricted preference shares, of
which none (2021: none) are currently in issue.
At the AGM held on 25 May 2022, the Directors were granted authority to allot
Ordinary Shares on a non-pre-emptive basis for cash up to a maximum number of
25,786,829 Shares (being 5% of the issued Share capital on 20 April 2022). The
Directors were also granted the authority to disapply pre-emption rights in
respect of the allotment of Ordinary Shares up to a maximum number of
25,786,829 Shares (being 5% of the issued Share capital on 20 April 2022)
where the allotment of such Shares is for the sole purpose of financing an
acquisition or other capital investment as defined by the Pre-Emption Group's
Statement of Principles.
No Shares were issued under these authorities during the year under review,
and the authorities will expire at the Company's 2023 AGM where resolutions
for their renewal will be sought, or, if sooner, on 25 August 2023.
At the AGM held on 25 May 2022, the Company was authorised to purchase up to a
maximum of 51,573,658 of its own Ordinary Shares (being 10% of the Company's
issued Share capital on 20 April 2022).
No Shares have been purchased under this authority during the year under
review, which will expire at the Company's 2023 AGM where a resolution for its
renewal will be sought, or, if sooner, on 25 August 2023.
Restrictions on Voting Rights
The Company does not have any restrictions on Shareholder voting rights.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Group
Financial Statements in accordance with applicable law and regulations.
Guernsey company law requires the directors to prepare financial statements
for each financial year. The Directors are required under the Listing Rules of
the Financial Conduct Authority to prepare the group financial statements in
accordance with UK-adopted International Accounting Standards.
The financial statements of the Group are required by law to give a true and
fair view of the state of the Group's affairs at the end of the financial
period and of the profit or loss of the Group for that period and are required
by UK-adopted International Accounting Standards to present fairly the
financial position and performance of the Group.
In preparing each of the Group financial statements, the Directors are
required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and
prudent;
· state whether they have been prepared in accordance with UK-adopted
International Accounting Standards;
· prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group's transactions; disclose with
reasonable accuracy at any time the financial position of the Group; enable
them to ensure that the financial statements comply with the requirements of
The Companies (Guernsey) Law 2008 and, as regards the Group financial
statements, the UK-adopted International Accounting Standards. They are also
responsible for safeguarding the assets of the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on Regional REIT's website.
Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE CONSOLIDATED
ANNUAL REPORT
Each of the Directors, whose names and functions are listed within the full
Annual Report and Accounts, confirms that to the best of each person's
knowledge:
• the financial statements, prepared in accordance with UK-adopted
International Accounting Standards, give a true and fair view of the assets,
liabilities, financial position and profit of the Group and the undertakings
included in the consolidation taken as a whole;
• the Strategic Report, including the Asset and Investment Managers'
Report, includes a fair review of the development and performance of the
business and the position of the Group and the undertakings included in the
consolidation taken as a whole, together with a description of the principal
risks and uncertainties they face; and
· the Annual Report and Accounts, taken as a whole, are fair, balanced
and understandable and provide the information necessary for Shareholders to
assess the Group's position, performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 27
March 2023 and signed on its behalf by:
Kevin McGrath
Chairman
27 March 2023
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022
Year ended Year ended
31 December 31 December
2022 2021
Notes £'000 £'000
Continuing Operations
Revenue
Rental and property income 5 93,318 79,899
Property costs 6 (30,672) (24,075)
Net rental and property income 62,646 55,824
Administrative and other expenses 7 (11,421) (10,583)
Operating profit before gains and losses on property assets and other 51,225 45,241
investments
(Loss)/gain on disposal of investment properties 14 (8,636) 679
Change in fair value of investment properties 14 (113,233) (8,296)
Gain on the disposal of right of use assets 25 76 167
Change in fair value of right of use assets 25 (185) (206)
Operating (loss)/profit (70,753) 37,585
Finance income 9 126 14
Finance expenses 10 (17,285) (14,872)
Net movement in fair value of derivative financial instruments
24 22,743 6,045
(Loss)/profit before tax (65,169) 28,772
Taxation 11 6 (15)
Total comprehensive (loss)/income for the year
(attributable to owners of the parent company) (65,163) 28,757
(Loss)/earnings per Share - basic and diluted 12 (12.6)p 6.3p
The notes below are an integral part of these consolidated financial
statements.
Total comprehensive income arises from continuing operations.
Consolidated Statement of Financial Position
As at 31 December 2022
31 December 31 December
2022 2021
Notes £'000 £'000
Assets
Non-current assets
Investment properties 14 789,480 906,149
Right of use assets 25 11,126 16,482
Non-current receivables on tenant loan 16 578 819
Derivative financial instruments 24 24,449 1,706
825,633 925,156
Current assets
Trade and other receivables 17 30,274 29,404
Cash and cash equivalents 18 50,148 56,128
80,422 85,532
Total assets 906,055 1,010,688
Liabilities
Current liabilities
Trade and other payables 19 (39,231) (40,966)
Deferred income 20 (16,661) (16,751)
Deferred tax liabilities 21 (699) (705)
(56,591) (58,422)
Non-current liabilities
Bank and loan borrowings 22 (385,265) (383,474)
Retail eligible bonds 23 (49,752) (49,596)
Lease liabilities 25 (11,505) (16,795)
(446,522) (449,865)
Total liabilities (503,113) (508,287)
Net assets 402,942 502,401
Equity
Stated capital 26 513,762 513,762
(Accumulated losses) (110,820) (11,361)
Total equity attributable to owners of the parent company 402,942 502,401
Net asset value per Share - basic and diluted 27 78.1p 97.4p
The notes below are an integral part of these consolidated financial
statements.
These consolidated group financial statements were approved by the Board of
Directors and authorised for issue on 27 March 2023 and signed on its behalf
by:
Kevin McGrath
Chairman
27 March 2023
Consolidated Statement of Changes in Equity
For the year ended 31 December 2022
Attributable to owners of the parent company
Stated (Accumulated losses)
capital £'000 Total
Notes £'000 £'000
Balance at 1 January 2022 513,762 (11,361) 502,401
Total comprehensive loss - (65,163) (65,163)
Dividends paid 13 - (34,296) (34,296)
Balance at 31 December 2022 513,762 (110,820) 402,942
For the year ended 31 December 2021
Attributable to owners of the parent company
Stated (Accumulated losses)
capital £'000 Total
Notes £'000 £'000
Balance at 1 January 2021 430,819 (10,237) 420,582
Total comprehensive income - 28,757 28,757
Shares issued 26 83,051 - 83,051
Share issue costs 26 (108) - (108)
Dividends paid 13 - (29,881) (29,881)
Balance at 31 December 2021 513,762 (11,361) 502,401
The notes below are an integral part of these consolidated financial
statements.
Consolidated Statement of Cash Flows
For the year ended 31 December 2022
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Cash flows from operating activities
(Loss)/profit for the year before taxation (65,169) 28,772
- Change in fair value of investment properties 113,233 8,296
- Change in fair value of financial derivative instruments (22,743) (6,045)
- Loss/(gain) on disposal of investment properties 8,636 (679)
- Gain on disposal of right of use assets (76) (167)
- Change in fair value of right of use assets 185 206
Finance income (126) (14)
Finance expense 17,285 14,872
(Increase)/ decrease in trade and other receivables (619) 4,398
(Decrease)/increase in trade and other payables (2,060) 5,089
(Decrease)/increase in deferred income (90) 2,167
Cash generated from operations 48,456 56,895
Interest paid (15,198) (13,053)
Taxation received - -
Net cash flow generated from operating activities 33,258 43,842
Investing activities
Purchase of investment properties (89,287) (175,196)
Sale of investment properties 84,087 76,940
Interest received 116 15
Net cash flow used in investing activities (5,084) (98,241)
Financing activities
Share issue costs - (108)
Dividends paid (33,971) (27,813)
Bank borrowings advanced 14,322 77,305
Bank borrowings repaid (13,467) (3,539)
Bank borrowing costs paid (485) (2,051)
Lease repayments (553) (640)
Net cash flow (used in)/ generated in financing activities (34,154) 43,154
Net decrease in cash and cash equivalents (5,980) (11,245)
Cash and cash equivalents at the start of the year 56,128 67,373
Cash and cash equivalents at the end of the year 50,148 56,128
The notes below are an integral part of these consolidated financial
statements.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2022
1. Corporate information
The Group's consolidated financial statements for the year ended 31 December
2022 comprise the results of the Company and its subsidiaries (together
constituting the "Group") and were approved by the Board and authorised for
issue on 27 March 2023.
The Company is a company limited by Shares incorporated in Guernsey under The
Companies (Guernsey) Law, 2008, as amended (the "Law"). The Company's Ordinary
Shares are admitted to the Official List of the Financial Conduct Authority
("FCA") and traded on the London Stock Exchange ("LSE").
The Company was incorporated on 22 June 2015 and is registered with the
Guernsey Financial Services Commission as a Registered Closed-Ended Collective
Investment Scheme pursuant to The Protection of Investors (Bailiwick of
Guernsey) Law, 2020, as amended, and the Registered Collective Investment
Scheme Rules & Guidance 2021.
The Company did not begin trading until 6 November 2015 when the Shares were
admitted to trading on the LSE.
The nature of the Group's operations and its principal activities are set out
in the Strategic Report in the full Annual Report.
The address of the registered office is Mont Crevelt House, Bulwer Avenue, St.
Sampson, Guernsey GY2 4LH.
2. Basis of preparation
In accordance with Section 244 of The Companies (Guernsey) Law 2008, the Group
confirms that the financial information for the year ended 31 December 2022
are derived from the Group's audited financial statements and that these are
not statutory accounts and, as such, do not contain all information required
to be disclosed in the financial statements prepared in accordance with
International Financial Reporting Standards ("IFRS").
The statutory accounts for the year ended 31 December 2022 have been audited
and approved, but have not yet been filed.
The Group's audited financial statements for the year ended 31 December 2022
received an unqualified audit opinion and the auditor's report contained no
statement under section 263(2) or 263(3) of The Companies (Guernsey) Law 2008.
The financial information contained within this preliminary statement was
approved and authorised for issue by the Board on 27 March 2023.
2.1 Functional and presentation currency
The financial information is presented in Pounds Sterling, which is also the
functional currency, and all values are rounded to the nearest thousand
(£'000) pound, except where otherwise indicated.
2.2 Going concern
The Directors confirm that they have a reasonable expectation that the Group
has adequate resources to continue as a going concern. This expectation is
underpinned by the Board having made an assessment of the Group's ability to
continue in operational existence, giving due consideration to the Group's
cash resources, borrowing facilities, rental income, acquisition and disposals
of investment properties, elective and committed capital expenditure and
dividend distributions.
No material uncertainties have been detected which would influence the Group's
ability to continue as a going concern for a period of at least 12 months from
the approval of these financial statements. The Directors have satisfied
themselves that the Group has adequate financial resources to continue in
operational existence for this period.
Accordingly, the Board of Directors continue to adopt the going concern basis
in preparing the financial statements.
2.3 Business combinations
At the time of acquisition, the Group considers whether each acquisition
represents the acquisition of a business or the acquisition of an asset. For
an acquisition of a business where an integrated set of activities are
acquired in addition to the property, the Group accounts for the acquisition
as a business combination under IFRS 3 Business Combinations ("IFRS 3").
Where such acquisitions are not judged to be the acquisition of a business,
they are not treated as business combinations. Rather, the cost to acquire the
corporate entity is allocated between the identifiable assets and liabilities
of the entity based upon their relative fair values at the acquisition date.
Accordingly, no goodwill or additional deferred tax arises.
2.4 New standards, amendments and interpretations
New standards, amendments to standards and interpretations which came into
effect for accounting periods starting on or after 1 January 2022 and which
have had an impact on the financial statements are as follows:
Amendments to IFRS 3 'Business Combinations'
(effective for periods beginning on or after 1 January 2022) - gives
clarification on the recognition of contingent liabilities at acquisition and
clarifies that contingent assets should not be recognised at the acquisition
date. The amendments do not have a significant impact on the preparation of
these financial statements.
Amendments to IAS 37 'Provisions, Contingent Liabilities and Contingent
Assets' (effective for periods
beginning on or after 1 January 2022) - gives clarification on costs to
include in estimating the cost of fulfilling a contract for the purpose of
assessing whether that contract is onerous. The amendments do not have a
significant impact on the preparation of these financial statements.
Amendments to IFRS 9 'Financial Instruments' (effective for periods beginning
on or after 1 January 2022) - gives clarification on the fees an entity
includes when assessing whether the terms of a new or modified financial
liability are substantially different from the terms of the original
liability. The amendments do not have a significant impact on the preparation
of these financial statements.
2.5 New standards, amendments and interpretations effective for future
accounting periods
A number of new standards, amendments to standards and interpretations are
effective for periods beginning
on or after 1 January 2023 and have not been applied in preparing these
financial statements. These are:
Amendments to IAS 1 'Presentation of Financial Statements' (effective for
periods beginning on or after 1 January 2023) - are intended to help entities
in deciding which accounting policies to disclose in their financial
statements. The amendments are not expected to have a significant impact on
the preparation of the financial statements.
Amendments to IAS 8 'Accounting Policies, Changes in Accounting Estimates and
Errors' (effective for periods beginning on or after 1 January 2023) -
introduces the definition of an accounting estimate and includes other
amendments to help entities distinguish changes in accounting estimates from
changes in accounting policies. The amendments are not expected to have a
significant impact on the preparation of the financial statements.
Amendments to IAS 1 'Presentation of Financial Statements' (effective for
periods beginning on or after
1 January 2024 - clarifies how conditions with which an entity must comply
within twelve months after the reporting period affect the classification of a
liability.
The amendments also clarify that liabilities are classified as either current
or non-current, depending on the rights that exist at the end of the reporting
period and not expectations of or actual events after the reporting date. The
amendments also give clarification to the definition of settlement of a
liability. These amendments are not expected to have a significant impact on
the preparation of the financial statements.
3. Significant accounting judgements, estimates and assumptions
The preparation of the financial statements requires management to make
judgements, estimates and assumptions that affect the reported amounts of
revenues, expenses, assets and liabilities at the reporting date. However,
uncertainty about these assumptions and estimates could result in outcomes
that require a material adjustment to the carrying amount of the asset or
liability affected in future periods.
3.1. Critical accounting estimates and assumptions
The principal estimates that may be material to the carrying amount of assets
and liabilities are as follows:
3.1.1 Valuation of investment property
The fair value of investment property, which has a carrying value at the
reporting date of £789,480,000 (31 December 2021: £906,149,000), is
determined by independent property valuation experts to be the estimated
amount for which a property should exchange on the date of the valuation in an
arm's length transaction. Properties have been valued on an individual basis.
The valuation experts use recognised valuation techniques applying the
principles of both IAS 40 and IFRS 13.
The value of the properties has been assessed in accordance with the relevant
parts of the current RICS Red Book. In particular, we have assessed the fair
value as referred to in VPS4 item 7 of the RICS Red Book. Under these
provisions, the term "Fair Value" means the definition adopted by the
International Accounting Standards Board ("IASB") in IFRS 13, namely "The
price that would be received to sell an asset, or paid to transfer a liability
in an orderly transaction between market participants at the measurement
date". Factors reflected include current market conditions, annual rentals,
lease lengths and location. The significant methods and assumptions used by
the valuers in estimating the fair value of investment property are set out in
note 14.
3.1.2. Fair valuation of interest rate derivatives
In accordance with IFRS 13, the Group values its interest rate derivatives at
fair value. The fair values are estimated by the respective counterparties
with revaluation occurring on a quarterly basis. The counterparties will use a
number of assumptions in determining the fair values, including estimations
over future interest rates and therefore future cash flows. The fair value
represents the net present value of the difference between the cash flows
produced by the contracted rate and the valuation rate. The carrying value of
the derivatives at the reporting date was £24,449,000 asset (31 December
2021: £1,706,000). The significant methods and assumptions used in estimating
the fair value of the interest rate derivatives are set out in note 24.
3.1.3. Leases - the Group as lessee
The Group has a number of leases concerning the long- term lease of land
associated with its long leasehold investment properties. Under IFRS16, the
Group calculates the lease liability at each reporting date and at the
inception of each lease. The liability is calculated using present value of
future lease payments using the Group's incremental borrowing rate as the
discount rate. At 31 December 2022, there were 10 leases with the range of the
period left to run being 29 and 95 years (31 December 2021: 12 leases with
periods of 45 to 130 years left to run). The Directors have determined that
the discount rate to use in the calculation for each lease is 4% (31 December
2021: 4%) being the Group's weighted average cost of debt at the date of
transition. Any new leases entered in to following the transition date will
apply a discount rate based on the Group's weighted average cost of debt at
the date the lease is entered in to.
3.1.4. Dilapidation income
The Group recognises dilapidation income in the Group's Statement of
Comprehensive Income when the right
to receive the income arises. In determining accrued dilapidations, the Group
has considered historic recovery
rates, while also factoring in expected costs associated with recovery.
3.2. Critical judgements in applying the Group's accounting policies
In the process of applying the Group's accounting policies, management has
made the following judgements, which have the most significant effect on the
amounts recognised in the financial statements:
3.2.1 Operating lease contracts - the Group as lessor
The Group has acquired investment properties that are subject to commercial
property leases with tenants. The Group has determined, based on an evaluation
of the terms and conditions of the arrangements, particularly the duration of
the lease terms and minimum lease payments, that it retains all of the
significant risks and rewards of ownership of these properties and so accounts
for the leases as operating leases.
3.2.2 Consolidation of entities in which the Group holds less than 50%
Management considered that up until 9 November 2018, the Group had de facto
control of View Castle Limited and its 27 subsidiaries (the "View Castle Sub
Group") by virtue of the amended and restated Call Option Agreement dated 3
November 2015. Following a restructure of the View Castle Sub Group, the
majority of properties held within the View Castle Sub Group now reside in a
new special purpose vehicle ("SPV"). A new call option was entered into dated
9 November 2018 with View Castle Limited and five of its subsidiaries (the
"View Castle Group"). As per the previous amended and restated Call Option
Agreement, under this new option the Group may acquire any of the properties
held by the View Castle Group for a fixed nominal consideration. Despite
having no equity holding, the Group is deemed to have control over the View
Castle Group as the Option Agreement means that the Group is exposed to, and
has rights to, variable returns from its involvement with the View Castle
Group, through its power to control.
3.2.3 Acquisitions of subsidiary companies
For each acquisition, the Directors consider whether the acquisition met the
definition of the acquisition of a business or the acquisition of a group of
assets and liabilities.
A business is defined in IFRS 3 as an integrated set of activities and assets
that is capable of being conducted and managed for the purpose of providing a
return in the form of dividends, lower costs or other economic benefits
directly to investors or other owners, members or participants. Furthermore, a
business consists of inputs and processes applied to those inputs that have
the ability to create outputs.
The companies acquired have comprised portfolios of investment properties and
existing leases with multiple tenants over varying periods, with little in the
way of processes acquired. It has therefore concluded in each case that the
acquisitions did not meet the criteria for the acquisition of a business as
outlined above.
3.2.4 Recognition of income
Service charges and other similar receipts are included in net rental and
property income gross of the related costs as the Directors consider the Group
acts as principal in this respect.
4. Summary of significant accounting policies
The accounting policies adopted in this report are consistent with those
applied in the financial statements for the year ended 31 December 2021 and
have been consistently applied for the year ended 31 December 2022.
4.1. Basis of consolidation
The consolidated financial statements comprise the financial statements of the
Company and its subsidiaries as at the date of the Statement of Financial
Position.
4.2 Subsidiaries
Subsidiaries are all entities (including structured entities) over which the
Group has control. The Group controls an entity when the Group is exposed to,
or has rights to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are deconsolidated from the date that control
ceases.
The Group applies the acquisition method to account for business combinations.
The consideration transferred for the acquisition of a subsidiary is the fair
value of the assets transferred, the liabilities incurred to the former owners
of the acquiree and the equity interests issued by the Group. Identifiable
assets and liabilities acquired, and contingent liabilities assumed, in a
business combination are measured initially at their fair values at the
acquisition date. The Group recognises any non-controlling interest in the
acquiree on an acquisition-by-acquisition basis, either at fair value or at
the non-controlling interest's proportionate share of the recognised amounts
of the acquiree's identifiable net assets. Acquisition-related costs are
expensed as incurred.
Any contingent consideration to be transferred by the Group is recognised at
fair value at the acquisition date. Subsequent changes to the fair value of
the contingent consideration are recognised in profit or loss. Contingent
consideration that is classified as equity is not re-measured, and its
subsequent settlement is accounted for within equity.
For acquisitions of subsidiaries not meeting the definition of a business, the
Group allocates the cost between the individual identifiable assets and
liabilities in the Group based on their relative fair values at the date of
acquisition. Such transactions or events do not give rise to goodwill.
Inter-company transactions, balances and unrealised gains and losses on
transactions between Group companies are eliminated in full. When necessary,
amounts reported by subsidiaries have been adjusted to conform to the Group's
accounting policies.
The excess of the consideration transferred, and the amount of any
non-controlling interest in the acquiree over the fair value of the
identifiable net assets acquired, is recognised as goodwill.
4.2.1. Disposal of subsidiaries
When the Group ceases to have control over an entity, any retained interest in
the entity is re-measured to its fair value at the date when control is lost,
with the change in the carrying amount recognised in profit or loss. The fair
value is the initial carrying amount for the purposes of subsequently
accounting for the retained interest as an associate, joint venture or
financial asset. In addition, any amounts previously recognised in other
comprehensive income in respect of that entity are accounted for as if the
Group had directly disposed of the related assets or liabilities. This may
mean that amounts previously recognised in other comprehensive income are
reclassified to profit or loss.
4.3. Segmental information
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker is the person or group that allocates resources to and assesses
the performance of the operating segments of an entity. The Group has
determined that its chief operating decision-maker is the Board of Directors.
After a review of the information provided for management purposes, it was
determined that the Group has one operating segment and therefore segmental
information is not disclosed in these consolidated financial statements. No
single customer comprises in excess of 10% of the Group's revenue in either
2022 or 2021.
4.4. Investment property
Investment property comprises freehold or leasehold properties that are held
to earn rentals or for capital appreciation, or both, rather than for sale in
the ordinary course of business or for use in production or administrative
functions.
Investment property is recognised, usually, on legal completion, when the
risks and rewards of ownership have been transferred, and is measured
initially at cost including transaction costs. Transaction costs include
transfer taxes, professional fees for legal services and other costs incurred
in order to bring the property to the condition necessary for it to be capable
of being utilised in the manner intended. Subsequent to initial recognition,
investment property is stated at fair value. Gains or losses arising from
changes in the fair value are included in the Group's Consolidated Statement
of Comprehensive Income in the period in which they arise under IAS 40,
'Investment Property'.
Additions to investment property include costs of a capital nature only.
Expenditure is classified as capital when it results in identifiable future
economic benefits, which are expected to accrue to the Group. All other
property expenditure is charged in the Group's Consolidated Statement of
Comprehensive Income as incurred.
Investment properties cease to be recognised when they have been disposed of
or withdrawn permanently from use and no future economic benefit is expected.
The difference between the net disposal proceeds and the carrying amount of
the asset (being the fair value at the start of the financial year) would
result in either gains or losses at the retirement or disposal of investment
property. Any gains or losses are recognised in the Group's Consolidated
Statement of Comprehensive Income in the period of retirement or disposal.
4.5. Derivative financial instruments
Derivative financial instruments, comprising interest rate caps and swaps for
hedging purposes, are initially
recognised at fair value and are subsequently measured at fair value, being
the estimated amount that the Group would receive or pay to sell or transfer
the agreement at the period end date, taking into account current interest
rate expectations and the current credit rating of the lender and its
counterparties. The gain or loss at each fair value remeasurement date is
recognised in the Group's Consolidated Statement of Comprehensive Income.
The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data is available to measure fair value, maximising
the use of relevant observable inputs and minimising the use of unobservable
inputs significant to the fair value measurement as a whole.
4.6. Financial assets
The Group classifies its financial assets as at fair value through profit or
loss or at amortised cost, depending on
the purpose for which the asset was acquired. Currently the Group does not
have any financial assets which it has classified at fair value through profit
or loss.
Assets held at amortised cost arise principally from the provision of goods
and services (e.g. trade and other receivables), but also incorporate other
financial assets where the objective is to hold these assets in order to
collect contractual cash flows which comprise the payment of principal and
interest. They are initially recognised at fair value plus transaction costs
that are directly attributable to their acquisition or issue and are
subsequently carried at amortised cost being the effective interest rate
method, less provision for impairment.
The Group's financial assets comprise 'trade and other receivables', 'tenant
loan' and 'cash and cash equivalents'.
The tenant loan relates to a loan made to a tenant which is subject to
interest. The amount receivable has been recognised at amortised cost using
the effective interest method. Impairment provisions are recognised based on
the expected credit loss model detailed within IFRS 9.
4.7. Trade and other receivables
Trade and other receivables are recognised initially at fair value and
subsequently carried at amortised cost less provision for impairment. Where
the time value of money is material, receivables are carried at amortised cost
using the effective interest method. Impairment provisions are recognised
based on the expected credit loss model detailed within IFRS 9.
The Group recognises a loss allowance for expected credit losses on trade
receivables. The loss allowance is based on lifetime expected credit losses.
Trade receivables are grouped based on shared credit risk characteristics and
the days past due. The amount of expected credit losses is updated at each
reporting date to reflect changes in credit risk since initial recognition.
The expected credit losses on these financial assets are estimated based on
the Group's historical credit loss experience, adjusted for factors that are
specific to the debtors, general economic conditions and an assessment of both
the current as well as the forecast direction of conditions at the reporting
date. Impaired balances are reported net, however, impairment provisions are
recorded within a separate provision account with the loss being recognised
within administration costs within the Consolidated Statement of Comprehensive
Income. On confirmation that the trade receivable will not be collectable, the
gross carrying value of the asset is written off against the associated
provision.
Lease premiums and other lease incentives provided to tenants are recognised
as an asset and amortised over the period from date of lease commencement to
termination date.
4.8. Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at banks with
original maturities of three months or less. Cash also includes amounts held
in restricted accounts that are unavailable for everyday use.
4.9. Trade and other payables
Trade and other payables are initially recognised at their fair value being at
their invoiced value inclusive of any VAT that may be applicable. Payables are
subsequently measured at amortised cost using the effective interest method.
4.10. Bank and other borrowings
All bank and other borrowings (comprising bank loans and retail eligible
bonds) are initially recognised at cost
net of attributable transaction costs. Any attributable transaction costs
relating to the issue of the bank borrowings are amortised through the Group's
Statement of Comprehensive Income over the life of the debt instrument on a
straight-line basis. After initial recognition, all bank and other borrowings
are measured at amortised cost, using the effective interest method.
Bank and other borrowings are derecognised when the obligation under the
liability is discharged or cancelled
or expires. When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of an existing
liability are substantially modified, such an exchange or modification is
treated as the derecognition of the original liability and the recognition of
a new liability. The difference in the respective carrying amounts is
recognised in Group's Consolidated Statement of Comprehensive Income.
4.11. Dividends payable to Shareholders
Equity dividends are recognised and accrued from the date declared and when
they are no longer at the
discretion of the Company.
4.12. Rental and property income
Rental income arising from operating leases on investment property is
accounted for on a straight-line basis over the lease terms and is included in
gross rental and property income in the Group's Consolidated Statement of
Comprehensive Income. Initial direct costs incurred in negotiating and
arranging an operating lease are added to the carrying amount of the lease
asset and are recognised as an expense over the lease term on the same basis
as the lease income.
For leases which contain fixed or minimum uplifts, the rental income arising
from such uplifts is recognised on a straight-line basis over the lease term.
Tenant lease incentives are recognised as a reduction of rental revenue on a
straight-line basis over the term of
the lease. The lease term is the non-cancellable period of the lease together
with any further term for which the
tenant has the option to continue the lease where, at the inception of the
lease, the Directors are reasonably certain that the tenant will exercise that
option.
Surrender premiums received from tenants to terminate leases or surrender
premises are recognised in the
Group's Statement of Comprehensive Income when the right to receive them
arises.
Dilapidation income is recognised in the Group's Statement of Comprehensive
Income when the right to receive it arises.
When the Group is acting as an agent, the commission, rather than gross
income, is recorded as revenue.
Income arising from expenses recharged to tenants is recognised in the year in
which the compensation becomes receivable. Service charges and other similar
receipts are included in net rental and property income gross of the related
costs as the Directors consider the Group acts as principal in this respect.
4.13. Property costs
Non-recoverable property costs contain service and management charges related
to empty properties.
Service and management charges are recognised in the accounting period in
which the services are rendered.
Recoverable property costs contain service charges and other similar costs
which are recognised in the accounting period in which the services are
rendered.
4.14. Interest income
Interest income is recognised as interest accrued on cash balances held by the
Group. Interest charged to a tenant on any overdue rental income is also
recognised within interest income.
4.15. Dividend income
Dividend income is recognised when the right to receive payment is
established.
4.16. Finance costs
Interest costs are expensed in the period in which they occur. Arrangement
fees that a Group entity incurs in connection with bank and other borrowings
are amortised over the term of the loan.
4.17. Taxation
As the Company is managed and controlled in the UK, it is considered to be tax
resident in the UK.
The tax currently payable is based on the taxable profit/(loss) for the
period. Taxable profit/(loss) differs from net profit/(loss) as reported in
the Consolidated Statement of Comprehensive Income because it excludes items
of income or expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The Group's
liability for current and deferred tax is calculated using tax rates that have
been enacted or substantively enacted at the date of the Statement of
Financial Position.
The Group elected to be treated as a UK REIT with effect from 7 November 2015.
The UK REIT rules exempt the profits of the Group's UK property rental
business from UK Corporation Tax. Gains on UK properties are also exempt from
tax, provided that they are not held for trading or sold in the three years
after completion of development. The Group is otherwise subject to UK
Corporation Tax.
There are a small number of entities within the Group which fall outside the
REIT rules and are subject to UK taxes on profits and property gains.
4.18 Deferred tax
Deferred tax is provided in full using the liability method on temporary
differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation
of taxable profit/(loss). The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates that are expected to apply in the period when
the liability is settled or the asset is realised based on tax rates (and tax
laws) enacted or substantively enacted at the date of the Statement of
Financial Position. A deferred tax asset is recognised only to the extent that
it is probable that future profits will be available for offset.
The deferred tax liability in relation to investment properties that are
measured at fair value is determined assuming that the property will be
recovered entirely through sale.
Deferred tax has been recognised on the unrealised property valuation
gains/(losses) of properties owned by Group entities which fall outside of the
REIT tax rules.
The current rate of UK Corporation Tax is 19%.
4.19. Stated capital
Stated capital represents the consideration received by the Company for the
issue of Ordinary Shares. Ordinary Shares are classed as equity.
4.20. Share-based payments
The Group has entered into performance fee arrangements with the Asset Manager
and Investment Manager which depend on the growth in the net asset value of
the Group exceeding a hurdle rate of return over a performance period. The fee
will be partly settled in cash and partly in equity and the equity portion is
therefore a Share-based payment arrangement. The fair value of the obligation
is measured at each reporting period, and the cost recognised as an expense.
The part of the obligation to be settled in Shares is credited to equity
reserves. If circumstances change and the fee is no longer settled by the
issue of Shares, then the amounts previously credited to equity reserves are
reversed. In the year ending 31 December 2021 no cash or equity rewards have
been made.
4.21 Leased assets
The Group has a number of leases concerning the long-term lease of land
associated with its long leasehold investment properties. These leased assets
are capitalised as "right of use assets" by recognising the present value of
the lease payments as an asset and a financial liability representing the
obligation to make future lease payments.
Right of use assets are valued at fair value and the change in fair value is
recognised in the Consolidated Statement of Comprehensive Income.
The associated financial liability is valued at the present value of future
lease payments using the Group's incremental borrowing rate. The value of the
financial liability is revalued at each reporting date. Lease payments reduce
the financial liability and interest on the financial liability is recognised
in finance costs.
5. Rental and property income
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Rental income - freehold property 61,458 57,128
Rental income - long leasehold property 14,861 8,626
Recoverable service charge income and other similar items 16,999 14,145
Total 93,318 79,899
6. Property costs
Year ended Year ended
31 December 2022 31 December
£'000 2021
£'000
Other property expenses and irrecoverable costs 13,673 9,930
Recoverable service charge expenditure and other similar costs 16,999 14,145
Total 30,672 24,075
7. Administrative and other expenses
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Investment management fees 2,687 2,326
Property management fees 3,044 2,495
Asset management fees 2,691 2,326
Directors' remuneration (see note 8) 302 254
Administration fees 697 647
Legal and professional fees 2,083 1,680
Marketing and promotion 111 72
Other administrative costs 195 129
Bad debt (credit)/cost (405) 626
Bank charges 16 28
Total 11,421 10,583
Services provided by the Company's Auditor and its associates
The Group has obtained the following services from the Company's Auditor and
its associates:
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Fees payable to the Company's Auditor for the audit of the Company's annual
accounts
99 88
Fees payable to the Group's Auditor and its associates for the audit of the
Company's subsidiaries
125 117
Total fees payable for audit services 224 205
Fees payable to the Group's Auditor and its associates for other services:
Audit-related services 29 27
Total fees payable to the Group's Auditor and its associates 253 232
8. Directors' remuneration
Key management comprises the Directors of the Company. A summary of the
Directors' emoluments is set out in the Directors' Remuneration Report in the
full Annual Report.
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Directors' fees 273 231
Employer's National Insurance contributions 29 23
Total 302 254
9. Finance income
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Interest income 126 14
Total 126 14
10. Finance expense
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Interest payable on bank borrowings 12,940 10,795
Amortisation of loan arrangement fees 1,421 1,067
Bond interest 2,250 2,250
Bond issue costs amortised 156 155
Bond expenses 8 8
Lease interest 510 597
Total 17,285 14,108
11. Taxation
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Corporation tax charge/(credit) - -
(Decrease)/increase in deferred tax liability (6) 15
Total (6) 15
The current tax (credit)/charge is reduced by the UK REIT tax exemptions. The
tax charge for the year can be reconciled to the (loss)/profit the
Consolidated Statement of Comprehensive Income as follows:
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
(Loss)/profit before taxation (65,169) 28,772
UK Corporation Tax rate 19% 19%
Theoretical tax at UK Corporation Tax rate (12,382) 5,467
Effects of:
Revaluation of investment property 21,514 1,576
Permanent differences (201) (207)
Profits from the tax-exempt business (8,931) (6,836)
Deferred tax movement (6) 15
Total (6) 15
Permanent differences are the differences between an entity's taxable profits
and its results as stated in the financial statements. These arise because
certain types of income and expenditure are non-taxable or disallowable, or
because certain tax charges or allowances have no corresponding amount in the
financial statements.
The Group elected to be treated as a UK REIT with effect from 7 November 2015.
The UK REIT rules exempt the profits of the Group's UK property rental
business from corporation tax. Gains on UK properties are also exempt from
tax, provided they are not held for trading or sold in the three years after
completion of development. The Group is otherwise subject to UK corporation
tax.
As a REIT, Regional REIT Ltd is required to pay PIDs equal to at least 90% of
the Group's exempted net income. To retain UK REIT status, there are a number
of conditions to be met in respect of the principal company of the Group, the
Group's qualifying activity and its balance of business. The Group continues
to meet these conditions.
UK corporation tax arises on entities which form part of the Group
consolidated accounts but do not form part of the REIT group.
Due to the Group's REIT status and its intention to continue meeting the
conditions required to obtain approval in the foreseeable future, no provision
has been made for deferred tax on any capital gains or losses arising on the
revaluation or disposal of investments held by entities within the REIT group.
No deferred tax asset has been recognised in respect of losses carried forward
due to the unpredictability of future taxable profits.
12. Earnings per Share
Earnings per Share amounts are calculated by dividing (losses)/profits for the
year attributable to ordinary equity holders of the Company by the weighted
average number of Ordinary Shares in issue during the year.
The calculation of basic and diluted earnings per Share is based on the
following:
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Calculation of earnings per Share
Net(loss)/profit attributable to Ordinary Shareholders (65,163) 28,757
Adjustments to remove:
Changes in value of investment properties 113,233 8,296
Changes in fair value of right of use assets 185 206
Loss/(gain) on disposal of investment property 8,636 (679)
Gain on the disposal of right of use assets (76) (167)
Changes in fair value of interest rate derivatives and financial assets (22,743) (6,045)
Deferred tax charge/(credit) (6) 15
EPRA net profit attributable to Ordinary Shareholders 34,066 30,383
Weighted average number of Ordinary Shares 515,736,583 459,660,172
(Loss)/earnings per Share - basic and diluted (12.6)p 6.3p
EPRA earnings per Share - basic and diluted 6.6p 6.6p
13. Dividends
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Dividend of 1.70 (2021: 1.50) pence per Ordinary Share
for the period 1 October - 31 December 8,768 6,473
Dividend of 1.65 (2021: 1.60) pence per Ordinary Share
for the period 1 January - 31 March 8,510 6,904
Dividend of 1.65 (2021: 1.60) pence per Ordinary Share
for the period 1 April - 30 June 8,509 8,252
Dividend of 1.65 (2021: 1.60) pence per Ordinary Share
for the period 1 July - 30 September 8,509 8,252
34,296 29,881
On 24 February 2022, the Company announced a dividend of 1.70 pence per Share
in respect of the period 1 October 2021 to 31 December 2021. The dividend
payment was made on 8 April 2022 to Shareholders on the register as at 4 March
2022.
On 25 May 2022, the Company announced a dividend of 1.65 pence per Share in
respect of the period 1 January 2022 to 31 March 2022. The dividend payment
was made on 15 July 2022 to Shareholders on the register as at 6 June 2022.
On 24 August 2022, the Company announced a dividend of 1.65 pence per Share in
respect of the period 1 April 2022 to 30 June 2022. The dividend payment was
made on 14 October 2022 to Shareholders on the register as at 2 September
2022.
On 10 November 2022, the Company announced a dividend of 1.65 pence per Share
in respect of the period 1 July 2022 to 30 September 2022. The dividend
payment was made on 12 January 2023 to Shareholders on the register as at 18
November 2022.
On 23 February 2023, the Company announced a dividend of 1.65 pence per Share
in respect of the period 1 October 2022 to 31 December 2022. The dividend will
be paid on 6 April 2023 to Shareholders on the register as at 3 March 2023.
The financial statements do not reflect this dividend.
The Board intends to pursue a progressive dividend policy and continue to pay
quarterly dividends. The level of future payment of dividends will be
determined by the Board having regard to, amongst other things, the financial
position and performance of the Group at the relevant time, UK REIT
requirements, and the interest of Shareholders.
14. Investment properties
In accordance with International Accounting Standard, IAS 40, 'Investment
Property', investment property has been independently valued at fair value by
Cushman & Wakefield Chartered Surveyors, an accredited independent valuer
with recognised and relevant professional qualifications and with recent
experience in the locations and categories of the investment properties being
valued. The valuations have been prepared in accordance with the Red Book and
incorporate the recommendations of the International Valuation Standards
Committee which are consistent with the principles set out in IFRS 13.
The valuations are the ultimate responsibility of the Directors. Accordingly,
the critical assumptions used in
establishing the independent valuation are reviewed by the Board.
All corporate acquisitions during the year have been treated as properties
purchased rather than business
combinations (see note 3.2.3).
Group Movement in investment properties for the year ended 31 December 2022 Long Leasehold Property
Freehold Property £'000
£'000 Total
£'000
Valuation at 1 January 2022 751,440 154,709 906,149
Property additions - acquisitions 70,322 8,948 79,270
Property additions - subsequent expenditure 5,994 4,023 10,017
Property disposals (80,436) (3,651) (84,087)
Loss on the disposal of investment properties (8,032) (604) (8,636)
Change in fair value during the year (95,658) (17,575) (113,233)
Valuation at 31 December 2022 643,630 145,850 789,480
Movement in investment properties for the year ended 31 December 2021
Valuation at 1 January 2021 659,432 72,948 732,380
Property additions- acquisitions 155,806 95,625 251,431
Property additions - subsequent expenditure 3,329 3,487 6,816
Property disposals (60,304) (16,557) (76,861)
Gain/(loss) on the disposal of investment properties (1,256) 1,935 679
Change in fair value during the year (5,567) (2,729) (8,296)
Valuation at 31 December 2021 751,440 154,709 906,149
The net book value of properties disposed of during the year amounted to
£92,723,000 (2021: £76,181,000).
The historic cost of the properties is £919,543,000 (31 December 2021:
£942,694,000).
Bank borrowings are secured by charges over investment properties held by
certain asset-holding subsidiaries. The banks also hold charges over the
Shares of certain subsidiaries and any intermediary holding companies of those
subsidiaries. The value of investment properties secured at 31 December 2022
was £789,480,000 (31 December 2021: £906,149,000.
The following table provides the fair value measurement hierarchy for
investment property:
Significant observable inputs Significant unobservable inputs
Quoted active prices (level 2) (level 3)
(level 1) £'000 £'000
Total £'000
Date of valuation: £'000
31 December 2022 789,480 - - 789,480
31 December 2021 906,149 - - 906,149
The hierarchy levels are defined in note 29.
It has been determined that the entire investment properties portfolio should
be classified under the level 3 category. The table below shows the movement
in the year on the level 3 category:
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Balance at the start of the year 906,149 732,380
Additions 89,287 258,247
Disposals (84,087) (76,861)
(Loss)/gain on the disposal of investment properties (8,636) 679
Change in fair value during the year (113,233) (8,296)
Balance at the end of the year 789,480 906,149
The determination of the fair value of the investment properties held by each
consolidated subsidiary requires the use of estimates such as future cash
flows from investment properties, which take into consideration lettings,
tenants' profiles, future revenue streams, capital values of fixtures and
fittings, any environmental matters and the overall repair and condition of
the property, and discount rates applicable to those assets. Future revenue
streams comprise contracted rent (passing rent) and estimated rental value
after the contract period. In calculating ERV, the potential impact of future
lease incentives to be granted to secure new contracts is taken into
consideration. All these estimates are based on local market conditions
existing at the reporting date.
As at 31 December 2022, the estimated fair value of each property has been
primarily derived using comparable recent market transactions on arm's length
terms and assessed in accordance with the relevant parts of the RICS Valuation
- Global Standards and the RICS Valuation UK National Supplement.
Techniques used for valuing investment properties
The following descriptions and definitions relate to valuation techniques and
key observable inputs made in determining the fair values:
Valuation technique: market comparable method
Under the market comparable method (or market approach), a property fair value
is estimated based on comparable transactions in the market.
Observable input: market rental
The rent at which space could be let in the market conditions prevailing at
the date of valuation range: £12,500 - £3,317,000 per annum (2021: £9,000 -
£3,125,246 per annum).
Observable input: rental growth
The decrease in rent is based on contractual agreements: 5.08% (2021: increase
12.29%). There is a gross contracted rent reduction, as per normal operations
it is a combination of property disposals, space under refurbishment and lease
expiries.
Observable input: net initial yield
The initial net income from a property at the date of purchase, expressed as a
percentage of the gross purchase price including the costs of purchase range:
0.00% - 22.58% (2021: 0.00% - 60.37%). There were no significant
inter-relationships between unobservable inputs that materially affect fair
value.
Unobservable inputs:
The significant unobservable inputs (level 3) are sensitive to changes in the
estimated future cash flows from investment properties such as increases and
decreases in contracted rents, operating expenses and capital expenses, plus
transactional activity in the real estate market.
Geographical and sector specific market evidence reviewed in the course of
preparing the December 2022 valuation had an initial yield range of 5.20% to
17.55% (2021: 5.06% to 12.13%).
As set out within the significant accounting estimates and judgements, the
Group's property portfolio valuation is open to judgement and is inherently
subjective by nature, and actual values can only be determined in a sales
transaction.
2022 2022 2021 2021
Impact on Impact on Impact on Impact on
statement of statement of statement of statement of
comprehensive financial comprehensive financial
income position income position
£'000 £'000 £'000 £'000
Improvement in ERV by 5% 35,307 35,307 39,166 39,166
Worsening in ERV by 5% (34,740) (34,740) (38,625) (38,625)
Improvement in yield by 0.125% 13,427 13,427 16,066 16,066
Worsening in yield by 0.125% (13,035) (13,035) (15,558) (15,558)
15. Investment in subsidiaries
List of subsidiaries which are 100% owned and controlled by the Group
Country of incorporation Ownership
%
Blythswood House LLP (in liquidation) United Kingdom 100%
Beaufort Office Park Management Company Limited United Kingdom 100%
Glasgow Airport Business Park Management Company Limited United Kingdom 100%
Regional Commercial MIDCO Ltd Jersey 100%
RR Aspect Court Ltd Jersey 100%
RR Bristol Ltd Jersey 100%
RR Falcon Ltd Jersey 100%
RR Hounds Gate Ltd Jersey 100%
RR Rainbow (Aylesbury) Ltd Jersey 100%
RR Rainbow (North) Ltd Jersey 100%
RR Rainbow (South) Ltd Jersey 100%
RR Range Ltd Jersey 100%
RR Sea Dundee Ltd United Kingdom 100%
RR Sea Hanover Street Ltd United Kingdom 100%
RR Sea Lamont I Ltd Jersey 100%
RR Sea Lamont II Ltd Jersey 100%
RR Sea Lamont III Ltd Jersey 100%
RR Sea St. Helens Ltd United Kingdom 100%
RR Sea Stafford Ltd United Kingdom 100%
RR Sea Strand Ltd United Kingdom 100%
RR Sea TAPP Ltd Guernsey 100%
RR Sea TOPP Bletchley Ltd Guernsey 100%
RR Sea TOPP I Ltd Guernsey 100%
RR Star Ltd Jersey 100%
RR UK (Central) Ltd Jersey 100%
RR UK (Cheshunt) Ltd Jersey 100%
RR UK (South) Ltd Jersey 100%
RR UK (Port Solent) Ltd Jersey 100%
RR Wing Portfolio Ltd Jersey 100%
Smallbrook Queensway Limited Jersey 100%
Quay West Estate Company Limited United Kingdom 100%
Tay Properties Ltd Jersey 100%
TCP Arbos Ltd Jersey 100%
TCP Channel Ltd Jersey 100%
Tosca Chandlers Ford Ltd Jersey 100%
Tosca Glasgow II Ltd United Kingdom 100%
Tosca Midlands Ltd Jersey 100%
Tosca North West Ltd Jersey 100%
Tosca Scotland Ltd Jersey 100%
Tosca Swansea Ltd Jersey 100%
Tosca UK CP II Ltd Jersey 100%
Tosca UK CP Ltd Jersey 100%
Toscafund Bennett House Ltd Jersey 100%
Toscafund Bishopgate Street Ltd Jersey 100%
Toscafund Blythswood Ltd Jersey 100%
Toscafund Brand Street Ltd Jersey 100%
Toscafund Chancellor Court Ltd Jersey 100%
Toscafund Crompton Way Ltd Jersey 100%
Toscafund Glasgow Ltd Jersey 100%
Toscafund Harvest Ltd Jersey 100%
Toscafund Milburn House Ltd Jersey 100%
Toscafund Minton Place Ltd Jersey 100%
Toscafund Newstead Court Ltd Jersey 100%
Toscafund Portland Street Ltd Jersey 100%
Toscafund St Georges House Ltd Jersey 100%
Toscafund St James Court Ltd Jersey 100%
Toscafund Strathclyde BP Ltd Jersey 100%
Toscafund Wallington Ltd Jersey 100%
Toscafund Westminster House Ltd Jersey 100%
Toscafund Sheldon Court Ltd Jersey 100%
All of the above entities have been included in the Group's consolidated
financial statements.
By virtue of an Amended and Restated Call Option Agreement dated 3 November
2015, the Directors consider that the Group has control of View Castle Limited
and its subsidiaries (the "View Castle Group").
Under this option, the Group has the ability to acquire any of the properties
held by the View Castle Group by issuing an option notice for a nominal
consideration of £1. The recipient of the option notice will be obliged to
convey its title within one month after receipt of the option notice.
Despite having no equity holding, the Group controls the View Castle Group as
the option agreement has the effect that the Group is exposed to, and has
rights to, variable returns from its involvement with the View Castle Group
through its power to control.
The companies which make up the View Castle Group are as follows:
List of subsidiaries that are controlled by the Group:
Country of incorporation Effective
Ownership
%
Castlestream Ltd (in liquidation) United Kingdom 100%
Caststop Ltd (in liquidation) United Kingdom 100%
Credential (Baillieston) Ltd (in liquidation) United Kingdom 100%
Credential (Greenock) Ltd (in liquidation) United Kingdom 100%
Credential (Wardpark North) Ltd United Kingdom 100%
Credential Estates Ltd United Kingdom 100%
Old Rutherglen Road Ltd (in liquidation) United Kingdom 100%
Rocket Unit Trust Jersey 100%
Squeeze Newco 2 Ltd United Kingdom 100%
The Legal Services Centre Ltd (in liquidation) United Kingdom 100%
View Castle Ltd United Kingdom 100%
View Castle (Milton Keynes) Ltd United Kingdom 100%
View Castle (Properties) Ltd United Kingdom 100%
All of the above entities have been included in the Group's consolidated
financial statements up to 31 December 2022.
Business Combinations
There have been no new business combinations entered into in the financial
year.
16. Non-current receivables on tenant loans
31 December 31 December
2022 2021
£'000 £'000
At start of year 1,011 1,203
Amounts repaid in the year (241) (192)
At end of year 770 1,011
Asset due within 1 year (note 17) 192 192
Asset due after 1 year 578 819
770 1,011
During 2016, the Group entered into a loan agreement with a tenant for
£1,926,000. The loan is subject to interest of 4% above the base rate of the
Bank of Scotland on late payments and is repayable in instalments over ten
years. No impairment has been recognised against the non current receivable as
at 31 December 2022 or 31 December 2021.
17. Trade and other receivables
31 December 31 December
2022 2021
£'000 £'000
Gross amount receivable from tenants 10,092 10,835
Less provision for impairment (902) (1,615)
Net amount receivable from tenants 9,190 9,220
Current receivables - tenant loans (note 16) 192 192
Income tax 52 52
Other receivables 955 736
Prepayments 19,885 19,204
30,274 29,404
The maximum exposure to credit risk at the reporting date is the carrying
value of the receivable amounts (excluding prepayments) disclosed above. The
Group does not hold any collateral as security.
The aged analysis of trade receivables was as follows:
31 December 31 December
2022 2021
£'000 £'000
< 30 days 7,386 4,605
30-60 days 205 1,160
> 60 days 2,501 5,070
Net amount receivable from tenants 10,092 10,835
Less provision for impairment (902) (1,615)
9,190 9,220
The Directors consider the fair value of receivables equals their carrying
amount.
The table above shows the aged analysis of trade receivables which are past
due but not impaired. These relate to tenants for whom there is no recent
history of default.
Provision for impairment of trade receivables movement as follows:
31 December 31 December
2022 2021
£'000 £'000
At start of year 1,615 1,458
Provision for impairment in the year 949 1,971
Receivables written off as uncollectable (458) (633)
Unused provision reversed (1,204) (1,181)
At end of year 902 1,615
Other categories within trade and other receivables do not include impaired
assets. Receivables are written off as uncollectable where there is no
reasonable expectation of recovery.
18. Cash and cash equivalents
31 December 31 December
2022 2021
£'000 £'000
Group
Cash held at bank 37,769 49,919
Restricted cash held at bank 12,379 6,209
At end of year 50,148 56,128
Restricted cash balances of the Group comprise:
• £8,886,000 (2021: £4,149,000) of funds held in blocked bank accounts
which are controlled by the Group's lenders and are released to free cash once
certain loan conditions are met. The restricted funds arose on net proceeds
from investment property disposals and were released after the year end.
• £3,493,000 (2021: £2,060,000) of funds which represent tenants' rental
deposits.
All restricted cash balances will be available before 31 March 2023.
In addition, £9,940,000 (2021: £10,040,000) of cash funds represent service
charge income received from tenants for settlement of future service charge
expenditure. These amounts are not analysed as restricted balances.
19. Trade and other payables
31 December 31 December
2022 2021
£'000 £'000
Withholding tax due on dividends paid 929 861
Dividends announced but not paid 8,509 8,252
Trade payables 3,455 3,559
Other payables 14,703 13,245
Value added tax 1,562 1,714
Accruals 10,073 13,335
At end of year 39,231 40,966
Other payables principally include rent deposits held and service charge
costs.
The Directors consider the fair value of trade and other payables to equal
their carrying amounts.
20. Deferred income
Deferred rental income of £16,661,000 (31 December 2021: £16,751,000)
represents rent received in advance
from tenants. Deferred income will be recognised over the next 12 month
period.
21. Deferred tax liabilities
31 December 31 December
2022 2021
£'000 £'000
Deferred tax 699 705
699 705
The movement on deferred tax liability is shown below:
At start of year 705 690
Deferred tax on the valuation of investment properties (6) 15
At end of year 699 705
The deferred tax liability to the potential tax liability that may crystalise
when investment properties are sold. It is calculated on the revaluation gains
of investment properties held by the Group which fall outside of the REIT
regime.
22. Bank and loan borrowings
Bank borrowings are secured by charges over investment properties held by
certain asset-holding subsidiaries. The banks also hold charges over the
Shares of certain subsidiaries and any intermediary holding companies of those
subsidiaries. Any associated fees in arranging the bank borrowings unamortised
as at the year end are offset against amounts drawn on the facilities as shown
in the table below:
31 December 31 December
2022 2021
£'000 £'000
Bank borrowings drawn at start of year 389,937 316,171
Bank borrowings drawn 14,322 77,305
Bank borrowings repaid (13,467) (3,539)
Bank borrowings drawn at end of year 390,792 389,937
Less: unamortised costs at start of year (6,463) (5,479)
Less: loan issue costs incurred in the year (485) (2,051)
Add: loan issue costs amortised in the year 1,421 1,067
At end of year 385,265 383,474
Maturity of bank borrowings
Repayable within 1 year - -
Repayable between 1 to 2 years - -
Repayable between 2 to 5 years 290,677 127,220
Repayable after more than 5 years 100,115 262,717
Unamortised loan issue costs (5,527) (6,463)
385,265 383,474
As detailed in note 23, the Group has £50,000,000 (31 December 2021:
£50,000,000) retail eligible bonds in issue.
The table below lists the Group's borrowings.
Gross
Lender Original facility Outstanding debt* Maturity loan to value** Annual interest rate Amortisation
date
£'000 £'000
Royal Bank of Scotland, Bank of Scotland and Barclays 128,000 125,676 Aug-26 50.8% 2.40% over 3mth £ SONIA Mandatory prepayment
Scottish Widows Ltd & Aviva Investors Real Estate Finance 165,000 165,000 Dec-27 52.0% 3.28% Fixed None
Scottish Widows Ltd 36,000 36,000 Dec-28 42.2% 3.37% Fixed None
Santander UK 65,870 64,116 Jun-29 44.9% 2.20% over 3mth SONIA Mandatory prepayment
Total bank borrowings 394,870 390,792
Retail eligible bond 50,000 50,000 Aug-24 N/A 4.50% Fixed None
Total 444,870 440,792
SONIA = Sterling Over Night Indexed Average
LIBOR = London Interbank Offered Rate (Sterling)
* Before unamortised debt issue costs
** Based upon Cushman & Wakefield property valuations
The percentage of borrowings at variable rates of interest was 43.1% (31
December 2021: 42.9%).
The weighted average term to maturity of the Group's debt at the year end was
4.5 years (31 December 2021: 5.5 years).
The weighted average interest rate payable by the Group on its total bank
borrowings, excluding hedging costs, as at the year end was 4.1% (31 December
2021: 3.0%).
The Group weighted average interest rate, including the retail eligible bonds
and hedging costs at the year end,
amounted to 3.5% per annum (31 December 2021: 3.3% per annum).
The Group has been in compliance with all of the financial covenants relating
to the above facilities as applicable throughout the year covered by these
consolidated financial statements. Each facility has distinct covenants which
generally include: historic interest cover, projected interest cover, LTV
cover and debt service cover. A breach of agreed covenant levels would
typically result in an event of default of the respective facility, giving the
lender the right, but not the obligation, to declare the loan immediately due
and payable. Where a loan is repaid in these circumstances, early repayment
fees will apply, which are generally based on a percentage of the loan repaid
or calculated with reference to the interest income foregone by the lenders as
a result of the repayment.
As shown in note 24, the Group uses a combination of interest rate swaps and
fixed rate bearing loans to hedge against cash flow interest rate risks. The
Group's exposure to interest rate volatility is minimal.
23. Retail Eligible Bonds
The Company has in issue £50,000,000 (31 December 2021: £50,000,000) 4.5%
Retail Eligible Bonds with a maturity date of 6 August 2024. These unsecured
bonds are listed on the London Stock Exchange ORB platform.
31 December 31 December
2022 2021
£'000 £'000
Bond principal at start of year 50,000 50,000
Unamortised issue costs at start of year (404) (559)
Amortisation of issue costs 156 155
At end of year 49,752 49,596
24. Derivative financial instruments
Interest rate caps and swaps are in place to mitigate the interest rate risk
that arises as a result of entering into variable rate borrowings.
31 December 31 December
2022 2021
£'000 £'000
Group
Fair value at start of year 1,706 (4,339)
Revaluation in the year 22,743 6,045
Fair value at end of year 24,449 1,706
The calculation of fair value of interest rate caps and swaps is based on the
following calculation: the notional amount multiplied by the difference
between the swap rate and the current market rate and then multiplied by the
number of years remaining on the contract and discounted. Further details can
be found in note 29.1.
The table below details the hedging and swap notional amounts and rates
against the details of the Group's loan facilities.
Lender Original facility Outstanding debt Maturity Annual interest rate Notional amount
date Rate
£'000 £'000 £'000
Royal Bank of Scotland, Bank of Scotland and Barclays 128,000 125,676 Aug-26 2.40% over 73,000 0.97%
3 months £ SONIA
55,000 0.97%
Scottish Widows Ltd. & Aviva Investors Real Estate Finance
165,000 165,000 Dec-27 3.28% Fixed n/a n/a
Scottish Widows Ltd
36,000 36,000 Dec-28 3.37% Fixed n/a n/a
Santander UK 2.20% over 49,403 1.39%
3 months £
65,870 64,116 Jun-29 SONIA 16,468 1.39%
Total 394,870 390,792
SONIA = Sterling Over Night Indexed Average
As at 31 December 2022, the swap notional arrangements were £122.4 million
(31 December 2021: £105.9 million) and the cap notional arrangements amounted
to £71.5 million (31 December 2021: £87.9 million).
The Group weighted average effective interest rate was 3.5% (31 December 2021:
3.3%) inclusive of hedging costs and the Retail Eligible Bond.
The maximum exposure to credit risk at the reporting date is the fair value of
the derivative liabilities.
It is the Group's target to hedge at least 90% of the total debt portfolio
using interest rate derivatives and fixed-rate facilities. As at the year end,
the total proportion of hedged debt equated to 100.9% (31 December 2021:
101.3%), as shown below. The over-hedged position has arisen as a result of
the full RBS and Santander facilities (including headroom) being hedged but
the excess relates to Interest Rate Caps which have no ongoing cost for the
Group.
31 December 31 December
2022 2021
£'000 £'000
Total bank borrowings 390,792 389,937
Notional value of interest rate caps and swaps 193,871 193,870
Value of fixed rate debts 201,000 201,000
394,871 394,870
Proportion of hedged debt 100.9 % 101.3%
Table may not sum due to rounding
The Group has not adopted hedge accounting in either year.
25. Leases
31 December 31 December
2022 2021
Right of use asset £'000 £'000
At start of year 16,482 16,156
Right of use asset acquired - 6,438
Derecognition of right of use asset (5,171) (5,906)
Fair value movement (185) (206)
11,126 16,482
31 December 31 December
2022 2021
Lease liability £'000 £'000
At start of year 16,795 16,473
Finance lease liability acquired - 6,438
Derecognition of finance lease liability (5,247) (6,073)
Lease payments (553) (640)
Interest charges 510 597
At end of year 11,505 16,795
The derecognition of right of use assets and liabilities during the year gave
rise to a realised gain of £76,000 (2021: £167,000).
The Group's lease commitments which are now represented by the right of use
asset and lease liability are spread across 10 separate leases with the two
largest leases at Northern Cross Basingstoke and Quantum Court Edinburgh
making up 53% of the balance. Total commitments on leases in respect of land
and buildings are as follows:
31 December 31 December
2022 2021
Group £'000 £'000
Payable within 1 year 435 648
Payable between 1 and 2 years 435 648
Payable between 2 and 5 years 1,305 1,943
Payable after 5 years 29,109 47,668
31,284 50,907
26. Stated capital
Stated capital represents the consideration received by the Company for the
issue of Ordinary Shares.
Group 31 December 31 December
2022 2021
Issued and fully paid Shares of no par value £'000 £'000
At start of the year 513,762 430,819
Shares issued - 83,051
Share issue costs - (108)
At end of the year 513,762 513,762
Number of Shares in issue
At start of the year 515,736,583 431,506,583
Shares issued - 84,230,000
At end of the year 515,736,583 515,736,583
During the year 84,230,000 Shares were issued as part of the consideration
package for the purchase of a group of investment properties. The value of
Shares issued was £83,051,000 (98.6p per Share).
27. Net asset value per Share (NAV)
Basic NAV per Share is calculated by dividing the net assets in the Statement
of Financial Position attributable to ordinary equity holders of the parent by
the number of Ordinary Shares outstanding at the end of the year.
In October 2019, EPRA issued new best practice recommendations that replaced
EPRA net asset value (NAV) with three new measures of net asset value. Further
detail of the EPRA performance measures can be found in the full Annual
Report.
Net asset values have been calculated as follows:
Group 31 December 31 December
2022 2021
£'000 £'000
Net asset value per Consolidated Statement of Financial Position 402,942 502,401
Adjustment for calculating EPRA net tangible assets:
Derivative financial instruments (24,449) (1,706)
Deferred tax liability 699 705
EPRA Net Tangible Assets 379,192 501,400
Number of Ordinary Shares in issue 515,736,583 515,736,583
Net asset value per Share - basic and diluted 78.1p 97.4p
EPRA Net Tangible Assets per Share - basic and diluted 73.5p 97.2p
28. Notes to the Statement of Cash Flows
28.1 Non-Cash Transactions
During the year, a non-cash transaction took place whereby 84,230,000 Shares
were issued as part of the consideration package for the purchase of a group
of investment properties. The value of Shares issued was £83,051,000.
During the year, two right of use assets and liabilities were derecognised
following the sale of long-leasehold investment properties.
During the prior year, three right of use assets and liabilities were
recognised at the value of £6,438,000 being the present value of the lease
payments associated with the Group's long leasehold investment properties.
Also, during the prior year, three right of use assets and liabilities were
derecognised following the sale of long-leasehold investment properties.
28.2 Reconciliation of changes in liabilities to cash flows arising from
financing activities
Bank loans and borrowings Retail Eligible Bonds
£'000 £'000 Lease liabilities £'000
Total
£'000
Balance at 1 January 2022 383,474 49,596 16,795 449,865
Changes from financing cash flows:
Bank and bond borrowings advanced 14,322 - - 14,322
Bank borrowings repaid (13,467) - - (13,467)
Bank and bond borrowing costs paid (485) - - (485)
Lease payments - - (553) (553)
Total changes from financing cash flows
370 - (553) (183)
Amortisation of issue costs 1,421 156 - 1,577
Unwinding of discount - - 510 510
Derecognition of finance lease liability - - (5,247) (5,247)
Total other changes 1,421 156 (4,737) (3,160)
Balance at 31 December 2022 385,265 49,752 11,505 446,522
Bank loans and borrowings Retail Eligible Bonds
£'000 £'000 Lease liabilities £'000
Total
£'000
Balance at 1 January 2021 310,692 49,441 16,473 376,606
Changes from financing cash flows:
Bank and bond borrowings advanced 77,305 - - 77.305
Bank borrowings repaid (3,539) - - (3,539)
Bank and bond borrowing costs paid (2,051) - - (2,051)
Lease payments - - (640) (640)
Total changes from financing cash flows
71,715 - (640) 71,075
Amortisation of issue costs 1,067 155 - 1,222
Unwinding of discount - - 597 597
Finance lease liability acquired - - 6,438 6,438
Derecognition of finance lease liability - - (6,073) (6,073)
Total other changes 1,067 155 962 2,184
Balance at 31 December 2021 383,474 49,596 16,795 449,865
29. Financial risk management
29.1 Financial instruments
The Group's principal financial assets and liabilities are those that arise
directly from its operations: trade and other receivables, trade and other
payables and cash and cash equivalents. The Group's other principal financial
liabilities are bank and other loan borrowings, amounts due to interest rate
derivatives, the main purpose of which is to finance the acquisition and
development of the Group's investment property portfolio.
Set out below is a comparison by class of the carrying amounts of the Group's
financial instruments that are carried in the financial statements and their
fair value:
31 December 2022 31 December 2021
Carrying value Fair Carrying value Fair
£'000 value £'000 value
Group £'000 £'000
Financial assets - measured at amortised cost
Trade and other receivables 10,915 10,915 10,967 10,967
Cash and short-term deposits 50,148 50,148 56,128 56,128
Financial assets - measured at fair value through profit or loss
Interest rate derivatives 24,449 24,449 1,706 1,706
Financial liabilities - measured at amortised cost
Trade and other payables (36,741) (36,741) (38,391) (38,391)
Bank and loan borrowings (385,265) (366,398) (383,474) (387,373)
Retail eligible bonds (49,752) (49,335) (49,596) (51,190)
Lease liability (11,505) (11,505) (16,795) (16,795)
The following financial liabilities are recorded in the Consolidated Statement
of Financial Position at amortised cost but their fair value is different as
disclosed above. Their fair values are determined as follows:
· The fair value of bank and loan borrowings is determined by reference
to mark-to-market valuations provided by the lenders.
· The fair value of Retail Eligible Bonds is determined by their
published market value.
· The fair value of the lease liability has been determined as the
present value of future cash flows discounted using the Group's incremental
borrowing rate.
The following financial assets and liabilities are recorded in the
Consolidated Statement of Financial Position at fair value which is determined
as follows:
· The fair value of interest rate derivatives is recorded in the
Consolidated Statement of Financial Position and is determined by forming an
expectation that interest rates will exceed strike rates and discounting these
future cash flows at the prevailing market rates as at the year end.
Fair value hierarchy
The following table provides the fair value measurement hierarchy for
financial assets and liabilities measured at fair value through profit or
loss.
Significant observable inputs Significant unobservable inputs
Quoted active prices (level 2) (level 3)
(level 1) £'000 £'000
Total £'000
£'000
Balance at 31 December 2022
Interest rate derivatives 24,449 - 24,449 -
31 December 2021
Interest rate derivatives 1,706 - 1,706 -
The different levels are defined as follows.
Level 1: Quoted (unadjusted) market prices in active markets for identical
assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly
observable.
Level 3: Valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the consolidated financial
statements on a recurring basis, the Group determines whether transfers have
occurred between levels in the hierarchy by reassessing categorisation at the
end of each reporting period.
There have been no transfers between levels during the year.
29.2 Risk management
The Group is exposed to market risk (including interest rate risk), credit
risk and liquidity risk. The Board of Directors oversees the management of
these risks. The Board of Directors reviews and agrees policies for managing
each of these risks that are summarised below.
29.3 Market risk
Market risk is the risk that the fair values of financial instruments will
fluctuate because of changes in market prices. The financial instruments held
by the Group that are affected by market risk are principally the Group's bank
balances along with a number of interest rate swaps entered into to mitigate
interest rate risk.
The Group's interest rate risk arises from long-term borrowings issued at
variable rates, which expose the Group to cash flow interest rate risk.
Borrowings issued at fixed rates expose the Group to fair value interest rate
risk. The Group manages its cash flow interest rate risk by using floating to
fixed interest rate swaps, interest rate caps and interest rate swaps.
Interest rate swaps have the economic effect of converting borrowings from
floating rates to fixed rates. Interest rate caps limit the exposure to a
known level.
If interest rates were to increase by the following rates, this would increase
the annual interest charge to the Group and thus reduce profits and net assets
as follows:
Interest rate increase Increase to the annual interest charge
31 December 31 December
2022 2021
£'000 £'000
0.00% - -
0.25% - 208
0.50% - 415
0.75% - 559
1.00% - 671
29.4 Credit risk
Credit risk is the risk that a counterparty will not meet its obligations
under a financial instrument or customer contract, leading to a financial
loss. The Group is exposed to credit risk from both its leasing activities and
financing activities, including deposits with banks and financial
institutions. Credit risk is mitigated by tenants being required to pay
rentals in advance under their lease obligations. The credit quality of the
tenant is assessed based on an extensive credit rating scorecard at the time
of entering into a lease agreement.
Outstanding trade receivables are regularly monitored. The maximum exposure to
credit risk at the reporting date is the carrying value of each class of
financial asset.
29.5 Credit risk related to trade receivables
Trade receivables, primarily tenant rentals, are presented in the Group's
Statement of Financial Position net of provisions for impairment. Credit risk
is primarily managed by requiring tenants to pay rentals in advance and
performing tests around strength of covenant prior to acquisition.
29.6 Credit risk related to financial instruments and cash deposits
One of the principal credit risks of the Group arises with the banks and
financial institutions. The Board of Directors believes that the credit risk
on short-term deposits and current account cash balances is limited because
the counterparties are banks, who are committed lenders to the Group, with
high credit ratings assigned by international credit-rating agencies.
The list of bankers for the Group, with their latest Fitch credit ratings, was
as follows:
Bankers Fitch Ratings
Barclays Bank Plc A+ Stable
Royal Bank of Scotland A+ Stable
Bank of Scotland plc A+ Stable
Santander UK A+ Stable
Aviva A+ Stable
Scottish Widows Limited A Stable
29.7 Liquidity risk
Liquidity risk arises from the Group's management of working capital and,
going forward, the finance charges and principal repayments on its borrowings.
It is the risk that the Group will encounter difficulty in meeting its
financial obligations as they fall due, as the majority of the Group's assets
are investment properties and are therefore not readily realisable. The
Group's objective is to ensure that it has sufficient available funds for its
operations and to fund its capital expenditure. This is achieved by continuous
monitoring of forecast and actual cash flows by management.
The table below summarises the maturity profile of the Group's financial
liabilities based on contractual undiscounted payments:
Group at 31 December 2022 Within Between Between After
1 year 1 and 2 years 2 and 5 years 5 years Total
£'000 £'000 £'000 £'000 £'000
Trade and other payables (36,741) - - - (36,741)
Bank borrowings (16,300) (16,300) (330,923) (106,105) (469,628)
Interest rate derivatives 3,158 3,158 6,448 1,333 14,097
Retail eligible bonds (2,250) (52,250) - - (54,500)
Lease liability (435) (435) (1,305) (29,109) (31,284)
(52,568) (65,827) (325,780) (133,881) (578,056)
Group at 31 December 2021 Within Between Between After
1 year 1 and 2 years 2 and 5 years 5 years Total
£'000 £'000 £'000 £'000 £'000
Trade and other payables (38,391) - - - (38,391)
Bank borrowings (11,333) (11,333) (160,167) (274,447) (457,280)
Interest rate derivatives (1,076) (1,076) (3,010) (1,048) (6,210)
Retail eligible bonds (2,250) (2,250) (52,250) - (56,750)
Lease liability (648) (648) (1,943) (47,668) (50,907)
(53,698) (15,307) (217,370) (323,163) (609,538)
The maturity dates of all bank borrowings are disclosed in note 22.
The maturity date of the retail eligible bonds is disclosed in note 23.
The range of maturity dates of the lease liability payments is between 4 and
130 years.
30. Capital management
The primary objective of the Group's capital management is to ensure that it
remains a going concern and continues to qualify for UK REIT status.
The Group's capital is represented by reserves and bank borrowings. The Board,
with the assistance of the Investment and Asset Managers, monitors and reviews
the Group's capital so as to promote the long-term success of the business,
facilitate expansion, deliver a quarterly dividend distribution and to
maintain sustainable returns for Shareholders.
The Group's policy on borrowings is as follows: the level of borrowing will be
on a prudent basis for the asset class and will seek to achieve a low cost of
funds, while maintaining flexibility in the underlying security requirements
and the structure of both the portfolio and of Regional REIT.
Based on current market conditions, the Board will target Group net borrowings
of 40% of Investment Property Values at any time. However, the Board may
modify the Group's borrowing policy (including the level of gearing) from time
to time in light of then-current economic conditions, relative costs of debt
and equity capital, fair value of the Company's assets, growth and acquisition
opportunities or other factors the Board deems appropriate.
The optimal debt financing structure for the Group will have consideration for
key metrics including: fixed or floating interest rate charged, debt type,
maturity profile, substitution rights, covenant and security requirements,
lender type, diversity and the lender's knowledge and relationship with the
property sector.
31. Operating leases
The future minimum lease payments receivable under non-cancellable operating
leases in respect of the Group's property portfolio are as follows:
31 December 31 December
2022 2021
Group £'000 £'000
Receivable within 1 year 55,898 56,503
Receivable between 1-2 years 42,673 43,349
Receivable between 2-5 years 74,718 56,017
Receivable after 5 years 46,122 31,267
219,411 187,136
The Group has in excess of 1,030 operating leases.
The number of years remaining on these operating leases varies between 1 and
87 years. The amounts disclosed above represent total rental income receivable
up to the next lease break point on each lease. If a tenant wishes to end a
lease prior to the break point, a surrender premium will be charged to cover
the shortfall in rental income received.
32. Segmental information
After a review of the information provided for management purposes, it was
determined that the Group has one operating segment and therefore segmental
information is not disclosed in these consolidated financial statements.
33. Transactions with related parties
Transactions with the Directors
Directors' remuneration is disclosed within the Remuneration Report in the
full Annual Report and note 8 to the financial statements. Directors'
beneficial interests in the Ordinary Shares of the Company are disclosed
within the Directors' Report.
Transactions with the Asset Manager, London & Scottish Property Investment
Management Limited, and the Property Manager, London & Scottish Property
Asset Management Limited
Stephen Inglis is a non-executive Director of Regional REIT Limited, as well
as being the chief executive officer of London & Scottish Property
Investment Management Limited ("LSPIM") and a director of London &
Scottish Property Asset Management Limited. The former company has been
contracted to act as the Asset Manager of the Group and the latter as the
Property Manager.
In consideration for the provision of services provided, the Asset Manager is
entitled in each financial year (or part thereof) to 50% of an annual
management fee on a scaled rate. Following a review by the Management
Engagement and Remuneration Committee and having sought advice from Peel Hunt
LLP, the Company's Financial Adviser and Broker, the Company and the Asset and
Investment Managers agreed to amend the terms of the annual management fees
charged to: (i) 1.1% of the EPRA NTA up to and equal to £500,000,000; (ii)
0.9% of EPRA NTA above £500,000,000 and up to or equal to £1,000,000,000;
(iii) 0.7% of EPRA NTA above £1,000,000,000 and up to or equal to
£1,500,000,000; and (iv) 0.5% of EPRA NTA above £1,500,000,000. Previously
the annual management fee charged was on a scaled rate of 1.1% of the
Company's EPRA NTA, reducing to 0.9% on net assets over £500,000,000. The fee
shall be payable in cash quarterly in arrears.
In respect of each portfolio property, the Asset Manager has procured and
shall, with the Company in the future, procure that London & Scottish
Property Asset Management Limited is appointed as the Property Manager. A
property management fee of 4% per annum is charged by the Property Manager on
a quarterly basis: 31 March, 30 June, 30 September, and 31 December, based
upon the gross rental yield. Gross rental yield means the rents due under the
property's lease for the peaceful enjoyment of the property, including any
value paid in respect of rental renunciations but excluding any sums paid in
connection with service charges or insurance costs.
The Asset Manager is also entitled to a performance fee. Details of the
performance fee are given below.
The following tables show the fees charged in the year and the amount
outstanding at the end of the year:
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Asset management fees charged* 2,691 2,326
Property management fees charged* 3,044 2,495
Total 5,735 4,821
31 December 31 December
2022 2021
£'000 £'000
Total fees outstanding 1,642 1,350
* Including irrecoverable VAT charged where appropriate.
Transactions with the Investment Manager, Toscafund Asset Management LLP
Tim Bee is a non-executive Director of the Company, as well as being Chief
Legal Counsel of the Investment Manager.
In consideration for the provision of services provided, the Investment
Manager is entitled in each financial year (or part thereof) to 50% of an
annual management fee on a scaled rate. Following a review by the Management
Engagement and Remuneration Committee and having sought advice from Peel Hunt
LLP, the Company's Financial Adviser and Broker, the Company and the Asset and
Investment Managers agreed to amend the terms of the annual management fees
charged to: (i) 1.1% of the EPRA NTA up to and equal to £500,000,000; (ii)
0.9% of EPRA NTA above £500,000,000 and up to or equal to £1,000,000,000;
(iii) 0.7% of EPRA NTA above £1,000,000,000 and up to or equal to
£1,500,000,000; and (iv) 0.5% of EPRA NTA above £1,500,000,000. Previously
the annual management fee charged was on a scaled rate of 1.1% of the
Company's EPRA NTA, reducing to 0.9% on net assets over £500,000,000. The fee
shall be payable in cash quarterly in arrears.
The Investment Manager is also entitled to a performance fee. Details of the
performance fee are given below.
The following tables show the fees charged in the year and the amount
outstanding at the end of the year:
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Investment management fees charged 2,687 2,326
Total 2,687 2,326
31 December 31 December
2022 2021
£'000 £'000
Total fees outstanding 524 593
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 NTV per Ordinary Share
and the total dividends per Ordinary Share declared in the financial year. A
performance fee is only payable in respect of a performance period where the
EPRA NTV per Ordinary Share exceeds the high-water mark which is equal to the
greater of the highest year-end EPRA NTV Ordinary Share in any previous
performance period. The performance fee was calculated initially on 31
December 2018 and is assessed annually thereafter.
The performance fees are now payable 34% in cash and 66% in Ordinary Shares,
at the prevailing price per share, with 50% of the Shares locked-in for one
year and 50% of the Shares locked-in for two years.
No performance fee has been earned for the years ending 31 December 2022 or 31
December 2021.
35. Subsequent Events
On 23 February 2023, the Company declared the Q4 2022 dividend of 1.65pps,
which will be paid to shareholders on 6 April 2023.
Company Information
Directors
Kevin McGrath (Chairman and Independent Non-Executive Director)
William Eason (Senior Independent Non-Executive Director, Nomination Committee
Chairman, Management Engagement and Remuneration Committee Chairman)
Daniel Taylor (Independent Non-Executive Director)
Frances Daley (Independent Non-Executive Director, Audit Committee Chairman)
Massy Larizadeh (Independent Non-Executive Director)
Stephen Inglis (Non-Executive Director)
Tim Bee (Non-Executive Director)
Registered office
Regional REIT Limited
Mont Crevelt House
Bulwer Avenue
St. Sampson
Guernsey
GY2 4LH
Regional REIT Limited
ISIN: GG00BYV2ZQ34
SEDOL: BYV2ZQ3
Legal Entity Identifier: 549300D8G4NKLRIKBX73
Company website
www.regionalreit.com (http://www.regionalreit.com)
FURTHER INFORMATION
The Company's annual report and accounts (including the Notice of Annual
General Meeting) for the year ended 31 December 2022 will be available shortly
on www.regionalreit.com.
It will also be submitted shortly in full unedited text to the Financial
Conduct Authority's National Storage Mechanism and will be available for
inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) in accordance
with DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance
and Transparency Rules.
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