REG - Regional REIT Ltd - Half-year Report
15/09/2022 07:00
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RNS Number : 5075Z Regional REIT Limited 15 September 2022
15 September 2022
Regional REIT Limited
("Regional REIT", the "Group" or the "Company")
2022 Interim Results
Delivering on strategic objectives - whilst maintaining the high dividend
Regional REIT (LSE: RGL), the regional real estate investment specialist
focused on building a geographically diverse portfolio of income producing
regional UK core and core plus office assets, today announces its half year
results for the six months ended 30 June 2022.
Financial highlights:
Income focused - Maintained the high dividend, supported by a successful
strategy, a strong balance sheet and strong rent collection throughout the
period
· Total rent collection for the period was 98.7%* of rent due, higher
than the 96.4% of rent collected for the equivalent period in 2021
· Rent roll £72.0m (31 December 2021: £72.1m)
· Fair value of the portfolio valuation £918.2m (31 December 2021:
£906.1m). On a like-for-like basis, the portfolio value increased by 1.0%
during the period
· Net initial yield 5.7% (31 December 2021: 5.7%)
· EPRA EPS of 2.9p per share ("pps") for the period (30 June 2021:
EPRA EPS: 3.0pps); (IFRS EPS: 5.5pps (30 June 2021: IFRS EPS 4.2pps)
· Operating profit before gains and losses on property assets and
other investments for the period amounted to £23.4m (30 June 2021: £19.9m)
· H1 dividend of 3.3pps (30 June 2021: 3.2pps), targeting a full
year dividend of 6.6pps
· EPRA NTA per share remained 97.1pps (31 December 2021: 97.2pps);
IFRS NAV of 99.5pps (31 December 2021: 97.4pps)
· Group's cost of debt 3.5% (31 December 2021: 3.3%) - 100% fixed and
hedged ensuring the current maximum cost of debt will not exceed 3.5%
· Net LTV of 43.2% (31 December 2021: 42.4%)
· Weighted average debt duration 5.0 years (31 December 2021: 5.5
years)
*As at 8 September 2022, rent collections to 30 June 2022 amounted to 98.7%;
actual rent collected 98.5%, monthly rents 0.2% and deals agreed of 0.0%.
Operational highlights:
Defensive strategy - focusing on opportunities to de-risk the Company's offer
both by geographical and tenant spread
· Good progress made during an active period, demonstrating the
capabilities of the asset manager to make timely disposals whilst recycling
capital into value accretive acquisitions
· At the period end, 92.0% (31 December 2021: 89.8%) of the
portfolio by valuation was offices, 3.1% industrial (31 December 2021: 5.1%),
3.5% retail (31 December 2021: 3.7%) and 1.4% other (31 December 2021:1.4%)
· By income, office assets accounted for 91.5% of gross rental income
(31 December 2021: 88.6%) and industrial assets for 2.6% (31 December 2021:
4.5%)
· Portfolio remained strongly diversified with 159 properties (31
December 2021: 168), 1,517 units (31 December 2021: 1,511) and 1,086 occupiers
(31 December 2021: 1,077)
· The Group made disposals amounting to £71.4m (after costs) during
the period, yielding 5.5%. The proceeds have since been recycled into
acquiring higher yielding properties of enhanced quality whilst further
diversifying the occupier base
· The Group acquired assets amounting to £78.9m (after costs)
during the period, yielding 8.4%
· At the period end, the portfolio valuation split by region was as
follows: England 78.3% (31 December 2021: 75.7%), Scotland 16.9% (31 December
2021: 19.0%) and the balance of 4.8% (31 December 2021: 5.3%) was in Wales
· EPRA Occupancy rates increased to 83.8% (31 December 2021: 81.8%)
with two properties in particular having an adverse impact where asset
management programmes to increase value are underway
· During the period, the Company completed 47 new lettings,
totalling 145,656 sq. ft.. When fully occupied, these will provide an
additional gross rental income of c. £2.6m per annum ("pa")
Post period end
On 24 August 2022, the Company declared the Q2 2022 dividend of 1.65pps, for
the period 1 April 2022 to 30 June 2022, to be paid to shareholders on 14
October 2022.
Disposals
The Company disposed of three properties located in Reading, Lincoln, and
Colchester, which had completed their individual business plans for £7.2m, in
line with 30 June 2022 valuation.
Summary of Activity
Since 1 July 2022, the Group has exchanged on 20 new leases, totalling 46,871
sq.ft.. When fully occupied these leases will provide £0.7m ("pa") of rental
income.
Highlights
· 550 Bristol Business Park, Bristol - Thales Property Ltd. has renewed
its lease for 16,794 sq. ft. for a further five years to March 2027 at a
rental income of £318,900 (£18.99/ sq. ft.)
· 1&2 Rivermead Court Buildings, Bristol - 9,485 sq. ft. of space
has been let to Hydro International Ltd. at a rent of £137,634 pa (£14.51/
sq. ft.) until July 2032 with the option to break in 2027
· The Coach Works, Leeds - The Canal & River Trust has leased 4,560
sq. ft. for ten years with the option to break in 2027 at a rent of £118,000
pa (£25.88/ sq. ft.)
· Manchester Green, Manchester - Part of the second floor (4,972 sq.
ft.) has been let to Compass Financial (UK) Ltd. at a rent of £94,468 pa
(£19.00/ sq. ft.). The lease is for five years with the option to break in
2025
· Aqueous One, Birmingham - Specsavers Optical Superstores Ltd. has
leased 6,414 sq. ft. for ten years with the option to break in 2027 at a rent
of £83,382 pa (£13.00/ sq. ft.)
· Bellhaven House, Bellshill - Focus 4 U Ltd. has let 6,055 sq. ft. of
previously vacant space for 5 years with the option to break in 2025 at a rent
of £75,569 (£12.48/ sq. ft.), representing an uplift of 11.5% against ERV
Stephen Inglis, CEO of London and Scottish Property Investment Management, the
Asset Manager, commented:
"Regional REIT has again achieved a robust operational and financial
performance despite the turbulence within the UK economy, and as the pandemic
measures have been lifted across the country, we have continued to benefit
from serious enquiries and an increasing level of occupation throughout the
estate. Across the portfolio, approximately 98.7% of all our tenants are now
back in occupation in some form, be it full time or hybrid, with the 14
tenants who have not returned to date, indicating that they intend to return
shortly.
The easing of pandemic restrictions saw the normalisation of rental
collections with 98.7%* collected for the six months to 30 June 2022,
supporting our high dividend payments.
In the period, capital continues to be recycled from non-core assets and
properties where asset management plans have been completed, to secure a net
initial yield enhancement of some 290bps between sales and acquisitions. The
acquired high quality properties also present additional attractive asset
management opportunities to further drive shareholder value over the medium
term.
Although inflation, the energy crisis and political change cast a shadow over
the economy, our historic and continued focus upon mitigating risk wherever
possible, has resulted in the group debt profile being 100% fixed, hedged or
capped. Therefore, should interest rates move even higher as many predict, the
weighted average cost of current borrowing will not exceed 3.5%.
With the experience and expertise across the platform, underpinned by our
defensive positioning throughout the portfolio, I am confident of navigating
the wider macro challenges facing the economy.
During the first half of 2022, the Company witnessed improved occupational
demand for its accommodation and completed 47 new lettings, totalling 145,656
sq. ft.. When fully occupied, these lettings will provide an additional gross
rental income of c. £2.6m pa. Q3 to date also looks encouraging.
We remain focussed on income and delivering on our commitment to our investors
to pay a high level of dividend every quarter."
*As at 8 September 2022, rent collections to 30 June 2022 amounted to 98.7%,
actual rent collected 98.5%, monthly rents 0.2% and deals agreed of 0.0%.
A meeting for analysts and sales teams will be held via a conference call
facility at 9.30am (London time, BST) on Thursday, 15 September 2022. If
you would like the conference call details, please contact George Beale
at georgeb@buchanan.uk.com or Henry Wilson at henryw@buchanan.uk.com.
The presentation slides for the meeting will be available to download from the
Investors section of the Group's website at www.regionalreit.com
(http://www.regionalreit.com/) .
- ENDS -
Enquiries:
Regional REIT Limited
Toscafund Asset Management Tel: +44 (0) 20 7845 6100
Investment Manager to the Group
Adam Dickinson, Investor Relations, Regional REIT Limited
London & Scottish Property Investment Management Tel: +44 (0) 141 248 4155
Asset Manager to the Group
Stephen Inglis
Buchanan Communications Tel: +44 (0) 20 7466 5000
Financial PR regional@buchanan.uk.com
Charles Ryland /Henry Wilson / George Beale
About Regional REIT
Regional REIT Limited ("Regional REIT" or the "Company") and its
subsidiaries(1) (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 UK
assets, offices located in regional centres outside of the M25 motorway. The
portfolio is geographically diversified, with 159 properties, 1,517 units and
1,086 tenants as at 30 June 2022, with a valuation of £918.2 million.
Regional REIT pursues its investment objective by investing in, actively
managing and disposing of regional Core Property and Core Plus Property
assets. It aims to deliver an attractive total return to its Shareholders,
targeting greater than 10% per annum ("pa"), 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
(1)Regional REIT Limited is the parent Company of a number of subsidiaries
which together comprise a group within the definition of The Companies
(Guernsey) Law 2008, as amended (the "Law") and the International Financial
Reporting Standard ("IFRS") 10, 'Consolidated Financial Statements', as issued
by the International Accounting Standards Board ("IASB") and as contained in
UK-adopted International Accounting Standards. Unless otherwise stated, the
text of the Half-Yearly Report does not distinguish between the activities of
the Company and those of its subsidiaries.
Financial Highlights
Period ended 30 June 2022
Income focused, opportunistic buying and strategic selling, coupled with
intensive asset management, continues to secure long-term income.
30 31 December 2021 30
June 2022 June
2021
Portfolio Valuation £918.2m £906.1m -
IFRS NAV per Share 99.5p 97.4p -
EPRA* NTA per Share 97.1p 97.2p -
EPRA* earnings per Share 2.9p - 3.0p
Dividend per Share 3.3p - 3.2p
Net Loan to Value Ratio** 43.2% 42.4% -
Weighted Average Cost of Debt** 3.5% 3.3% -
Weighted Average Debt Duration** 5.0yrs 5.5yrs -
The European Public Real Estate Association ("EPRA")*
The EPRA's mission is to promote, develop and represent the European public
real estate sector. As an EPRA member, we fully support the EPRA Best
Practices Recommendations. Specific EPRA metrics can be found in the Company's
financial and operational highlights, with further disclosures and supporting
calculations below.
* The European Public Real Estate Association (EPRA)
** Alternative Performance Measures. Details are provided in the Glossary of
Terms in the full Half-Yearly Report and the EPRA Performance Measures below.
CHAIRMAN'S STATEMENT
The Chairman's Statement covers the period ended 30 June 2022.
OVERVIEW
Following an active six months to 30 June 2022, I am pleased to report the
Group has performed well in navigating the unfolding economic and geopolitical
challenges, including those left in the wake of the pandemic-related
disruptions.
We have continued to drive forward our asset management focused strategy for
creating value as the regional office specialist with the disposal of non-core
assets amounting to £71.4 million (net of costs), at a net initial yield of
5.5%. The proceeds were promptly recycled into acquiring higher yielding
properties of enhanced quality, amounting to £78.9 million after costs and
reflecting net initial yields of 8.4%. Timely capital recycling continues to
underpin our defensive strategy of focusing upon opportunities to de-risk our
offering both by geographical and tenant spread.
Whilst the plethora of Covid-19 related restrictions and guidance issued by
the respective devolved United Kingdom Government bodies slowly dissipated
over the period, rent collection remained strong throughout. Currently, rent
collection for the period to 30 June 2022 amounts to 98.7%* (equivalent date
for the six months to 30 June 2021: 96.4% and resulted in EPRA diluted
earnings of 2.9 pence per share ("pps") (six months to 30 June 2021: 3.0pps).
IFRS diluted earnings per share were 5.5pps (six months to 30 June 2021:
4.2pps).
* As at 8 September 2022, rent collections to 30 June 2022 amounted to 98.7%;
actual rent collected 98.5%, monthly rents 0.2% and deals agreed of 0.0%.
** Alternative Performance Measures. Details are provided in the Glossary of
Terms in the full Half-Yearly Report and the EPRA Performance Measures below.
FINANCIAL RESOURCES
The Group continues to be in a financially strong position with an EPRA NTA of
£500.5 million (31 December 2021: £501.4m) and a cash balance of £46.2m as
at 30 June 2022 (31 December 2021: £56.1m), of which £43.2m is unrestricted
(31 December 2021: £49.9m).
One of the Company's notable features in the current rising rate environment
is its long term strategy of adopting defensive debt positioning with the
ambition of mitigating any volatility in rates. The Company's current
borrowings comprise 56.7% of fixed rate debt, with the balance being swapped
or capped. This proactive and defensive approach has ensured the weighted
average cost of debt increased only marginally to 3.5% at 30 June 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 these arrangements until 2024.
Following this active period of capital recycling, the net borrowings at 30
June 2022 amounted to 43.2% (31 December 2021: 42.4%). The programme of asset
management initiatives continues to be executed to ensure the net borrowing
reverts to our long-term target of c. 40%. Our debt facilities have sufficient
headroom against their respective covenants, and the Company is in a robust
position.
MARKET ENVIRONMENT
The UK regions outside of London attracted £5.2 billion of commercial
property investment in Q2 2022, 8.4% above the five-year quarterly average,
and up 2.9% from the previous quarter. Investment in Q2 brought the H1 2022
total to £10.3 billion, the highest figure recorded since H1 2018, and 4.4%
above the same period in 2021. Research by Lambert Smith Hampton ("LSH")
highlights the importance of the regional markets, with the regions
outperforming when compared with London. At £5.2 billion, investment in
single assets across the UK regional markets in Q2 2022 was 32.0% higher than
the level of investment in Greater London - the largest margin recorded in
over 10 years. Two regions that experienced robust levels of investment in Q2
2022 were the West Midlands and the North East. Total investment in the West
Midlands reached £1.0 billion, 79.1% above the five-year quarterly average -
the strongest regional performance relative to trend. Data from LSH shows that
£222 million was invested in the North East, 63.6% above the five-year
quarterly average. Other regional markets that performed well relative to
trend include Scotland and the South East of England.
Investment in the UK commercial property market totalled £56.9 billion in
2021, according to research from LSH. This has been followed by a rise in
investment activity during the first half of 2022. The most recent data from
LSH shows that investment in UK commercial property reached £32.4 billion in
the first half of 2022, up 26.2% from H1 2021 figures, and 30.1% above the
five-year average. However, it is worth noting that despite strong overall H1
2022 investment volumes relative to trend, there has been a progressive
monthly slowdown in the general level of investment activity during the first
half of 2022. This can largely be attributed to global economic headwinds, an
increasingly inflationary environment, and tightening of monetary policy. The
combination of these factors led to investor uncertainty and delayed decision
making. Investment slowed in Q2 2022 with £15.7 billion transacted during the
quarter falling 5.9% below the £16.7 billion recorded in Q1 2022. Although Q2
2022 volumes remained 14.9% above the five-year quarterly average, monthly
performance throughout the quarter varied considerably. May volumes reached
£9.0 billion compared with £2.2 billion in June 2022.
PORTFOLIO AND ENHANCHING ASSET QUALITY
During the period, the overall value of the portfolio increased by £12.1
million to £918.2 million from£906.1 million as at 31 December 2021. Market
conditions continue to present opportunities with the aforementioned disposals
and acquisitions adding a net £1.9 million to the rent roll. The assets
acquired are located in areas identified as regional growth areas and enhance
the quality of the portfolio.
The rolling capital expenditure programme by the Asset Manager amounted to
£3.1 million.
DIVIDENDS
Over the period under review, the Company declared total dividends of 3.3pps
(six months to 30 June 2021: 3.20pps), comprising two quarterly dividends of
1.65pps. Since inception, the Company has declared dividends amounting to
49.0pps.
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 period under review, the Company's Total Shareholder Return was
-19.9%, versus the return of-19.1% 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 44.4%
and the annualised EPRA Total Return was 5.7%. The Total Shareholder Return
was 18.2%, compared with the FTSE EPRA NAREIT UK Total Return Index, which has
generated a return of -1.4% over the same period.
MANAGEMENT AGREEMENTS
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.
In addition, the management agreements between the Company, the Asset and
Investment Manager, had a three-year term to November 2023. In view of the
resilient returns of the Company and the significant increase in its size, the
Board sought to secure the services of the managers. In doing so, the
Management Engagement and Remuneration Committee conducted a review to ensure
that the terms of these agreements remained appropriate. The Management
Engagement and Remuneration Committee sought advice from Peel Hunt LLP, the
Company's Financial Adviser and Broker, 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.
SUSTAINABILITY
We have continued to devote significant resources to further integrate
sustainability within our business model, which include the appointment of a
non-executive Director to focus on environmental, social, and governance
("ESG") matters; we continue to be a member of Global Real Estate
Sustainability Benchmark. Post the period end, the Company joined the UK Green
Building Council.
The Asset Manager has benefited from training on sustainability matters
provided by external consultants.
BOARD AND GOVERNANCE
Following an internal review of the Board's effectiveness, and as part of a
drive to ensure we evolve appropriately with the development of the Group, on
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
The Board is pleased with the strategic progress that our business has
achieved over the period with increased focus upon the office sector of the
portfolio and the continued exit from the other property sectors. With the
robust level of rent collections, the geographical diversification of the
portfolio and the strong finances, the Company is well positioned to meet the
challenges and take the opportunities that will inevitably arise in the coming
years.
Though we remain mindful of the current macroeconomic challenges to be faced,
the Company is confident of maintaining high rent collections and accelerating
the momentum of the asset management initiatives for the remainder of 2022.
The Board believes this will result in the continued de-risking of the
portfolio, whilst continuing to deliver income and long-term total returns for
our shareholders.
Kevin McGrath
Chairman
14 September 2022
ASSET AND INVESTMENT MANAGERS' REPORT
Investment Activity in the UK Commercial Property Market
Investment in the UK commercial property market totalled £56.9 billion in
2021, according to research from Lambert Smith Hampton ("LSH")(1). This was
followed by a rise in investment activity during the first half of 2022. The
most recent data from LSH shows that investment in UK commercial property
reached £32.4 billion in the first half of 2022, up 26.2% from H1 2021
figures, and 30.1% above the five-year average. However, it is worth noting
that despite strong overall H1 2022 investment volumes relative to trend,
there has been a progressive monthly slowdown in the general level of
investment activity during H1 2022. This can largely be attributed to global
economic headwinds, an increasingly inflationary environment and tightening of
monetary policy. The combination of these factors has led to investor
uncertainty and delayed decision making. Investment slowed in Q2 2022 with
£15.7 billion transacted during the quarter, falling 5.9% below the £16.7
billion recorded in Q1 2022. Although Q2 2022 volumes remained 14.9% above the
five-year quarterly average, monthly performance throughout the quarter varied
considerably - May volumes reached £9.0 billion compared with £2.2 billion
in June 2021.
The UK regions outside of London attracted £5.2 billion in Q2 2022, 8.4%
above the five-year quarterly average, and up 2.9% from the previous quarter.
Investment in Q2 brought the H1 2022 total to £10.3 billion, the highest
figure recorded since H1 2018, and 4.4% above the same period in 2021.
Research by LSH highlights the importance of the regional markets, with the
regions outperforming when compared to London. At £5.2 billion, investment in
single assets across the UK regional markets in Q2 2022 was 32.0% higher than
the level of investment in Greater London - the largest margin recorded in
over 10 years.
Two regions that experienced particularly robust levels of investment in Q2
2022 were the West Midlands and the North East. Total investment in the West
Midlands reached £1.0 billion, 79.1% above the five-year quarterly average -
the strongest regional performance relative to trend. Data from LSH shows that
£222 million was invested in the North East, 63.6% above the five-year
quarterly average. Other regional markets that performed well relative to
trend included Scotland and the South East of England.
As office occupancy increased throughout the UK regions (outside of South East
England), investor sentiment for regional office stock also improved. Stronger
investor sentiment underpinned a rise in investment volumes, which reached
£1.2 billion in Q2 2022 - the highest volume recorded since Q4 2018. The
regional office market was one of the strongest performing sectors relative to
trend in Q2 2022 with investment up 59.4% compared to the five-year average.
Overall, investment in regional offices reached £1.53 billion in H1 2022,
marking a four-year high. Additionally, the MSCI monthly index highlights that
yield compression continued in the second quarter of 2022, with the strongest
movements recorded for offices outside of Central London and retail
warehouses. Optimism in the regional office market continues to be supported
by strong employment growth. The most recent data from the ONS shows that the
UK employment rate rose to 75.5% in the three months to June 2022, up from
75.0% for the same period in 2021(2). Additionally, data from the ONS shows
that despite the rise in hybrid working as a result of Covid-19, the vast
majority of people do not work from home, with only 14% of workers reporting
that they worked exclusively from home, down from 26% in mid-January 2022(3).
Overseas investment in the UK commercial property market accounted for 57.6%
of total investment in Q2 2022. Figures indicate that overseas investment
reached £9.1 billion in Q2 2022, 33.7% above the five-year quarterly average.
Strong international investment in the second quarter of the year brought the
H1 2022 total to £17.5 billion, 24.3% above the same period last year, and
78.7% higher than the pre-pandemic level recorded in H1 2019. However,
overseas investment was largely supported by the acquisition of the Student
Roost portfolio, which accounted for approximately 36% of all overseas
investment. LSH research suggests that Far East investors were the most
acquisitive net buyers at £4.6 billion. Conversely, North American investors
were net sellers at £1.9 billion in Q2 2022.
Research from CBRE(4) indicates that regional offices have outperformed in
comparison to central London offices, delivering superior income returns of
5.3% in the 12 months ending June 2022 in comparison to central London office
returns of 3.4%, a trend that has been witnessed over the last seven years.
1 LSH, UKIT, Q2 2022, August 2022
2 ONS, Labour Market Overview, UK, August 2022
3 ONS, Opinions and Lifestyle Survey, May 2022
4 CBRE Monthly Index, Q2 2022
Occupational Demand in the UK Regional Office Market
Avison Young estimate that take-up of office space across the nine regional
markets(5) reached 1.8 million sq. ft. in Q2 2022, bringing the half year
total to 3.7 million sq. ft. - 18.0% above the same period in 2021. City
centre activity accounted for the largest proportion of take-up (58.6%) in H1
2022 at 2.1 million sq. ft., however, when comparing this to previous years,
city centre take-up as a proportion of total take-up has steadily declined
from a high of 63.8% in 2019. In the first half of 2022 approximately 1.5
million sq. ft. was transacted in the out of town market, 3.9% above the five
year average, and accounting for 41.4% of total H1 2022 take-up, the highest
proportion recorded over the last decade(6). The Asset Manager believes that,
although there is scope for take-up to continue to increase throughout the
remainder of 2022, take-up figures in the first half of the year when compared
to 2021 provide a clear indication of recovery in the regional office market
following the Covid-19 pandemic.
Occupational demand in the regional office markets continued to be driven by
the technology, media & telecoms sector, which accounted for the highest
proportion of take-up at 21.8% in the first six months of 2022. Moreover, the
professional services sector, and public services, education & health
sector accounted for the second and third largest proportion of take-up in the
regional cities, accounting for 18.4% and 14.7%, respectively(7).
According to Savills, there was a marginal fall in availability for regional
office stock across ten regional UK markets(8), with total availability
falling by 1.2% in 2022 to 14.6 million sq. ft. Despite the uptick in
availability in 2020 and 2021, supply across the ten regional markets remains
7.6% below the long-term average. The recent fall in supply highlights a
return to the trend witnessed prior to the Covid-19 pandemic, whereby
availability gradually fell each year from 2009 to 2019. The overall vacancy
rate for regional offices remained unchanged at 12.5% in 2022 and remains in
line with the 10-year average(9).
In terms of speculative development, it is estimated that approximately 4.7
million sq. ft. of office space is currently under construction in the Big
Nine regional markets, with Glasgow, Bristol and Birmingham accounting for
34.8%, 15.1% and 13.0%, respectively. Approximately 51.9% 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 Avison Young, Big Nine, Q2 2022
7 Savills, The Regional Office Market Review, Q2 2022
8 Ten regional office markets mentioned by Savills includes: Aberdeen,
Birmingham, Bristol, Cambridge, Cardiff, Edinburgh, Glasgow, Leeds, Manchester
and Oxford
9 Savills, MIM UK Commercial, July 2022
Rental Growth in the UK Regional Office Market
The CBRE Monthly Index shows that rental value growth held up better for the
rest of UK office markets in the 12 months ended June 2022 with growth of
2.4%. Conversely, Central London offices experienced modest growth of 0.9%
over the same period. According to monthly data from MSCI, there is evidence
of sustained rental growth in the majority of the regional office markets. By
region, the strongest regional rental growth in June 2022 (year-on-year
comparison) was recorded in Outer South East (+2.9%), East of England (+2.4%),
Midlands (+2.4%), South West (+2.4%), and Wales (+2.4%)(10). Colliers
International expects rental growth to continue across most markets for the
remainder of 2022. Demand for quality office space has put an upward pressure
on rents, with growth of 4.3% recorded across the Big Nine regional markets in
the first half of 2022, with average headline rents now sitting at £34.08 per
sq. ft., according to research from Avison Young.
10 Colliers International, Property Snapshot, July 2022
Regional REIT's Office Assets
EPRA occupancy of the Group's regional offices remained broadly in line at
83.3% (30 June 2021: 84.3%). A like-for-like comparison of the Group's
regional offices EPRA occupancy, 30 June 2022 versus 30 June 2021, shows that
occupancy of 81.3% (30 June 2021: 86.2%).
WAULT to first break was 2.6 years (30 June 2021: 2.6 years); like-for-like
WAULT to first break was 2.7 years (30 June 2021: 2.7 years).
Property Portfolio
As at 30 June 2022, the Group's property portfolio was valued at £918.2
million (30 June 2021: £729.1 million; 31 December 2021: £906.1 million),
with rent roll of £72.0 million (30 June 2021: £61.1 million; 31 December
2021: £72.1 million), and an EPRA occupancy rate of 83.8% (30 June 2021:
85.7%; 31 December 2021: 81.8%). On a like-for-like basis, 30 June 2022 versus
30 June 2021 EPRA occupancy was 82.1% (30 June 2021: 86.3%). Two properties in
particular have had a relatively adverse impact on these numbers. Brennan
House, Farnborough and Norfolk House, Birmingham account for almost 60% of the
decrease in like-for-like occupancy over the last 12 months. Further details
on these are below.
· Brennan House, Farnborough - following the completion of our latest
refurbishment scheme the property is now available to let and subsequently
released to the market and accordingly impacts on the EPRA analysis. It should
be noted that the property is now under offer, in-line with the Group's
business plan.
· Norfolk House, Birmingham - One of the larger occupiers at this
multi-let property vacated at expiry. This was anticipated in our forecast.
Our ongoing strategy is to undertake some light refurbishment work to the
building reception to update to contemporary aesthetic, refurbish the recently
vacated space along with improving the welfare facilities at the building and
potentially reclad the exterior. There has been an encouraging level of
interest in the Birmingham market. A number of viewings of the space have
taken place and we are currently at an advanced stage of negotiating terms
with an occupier for a large part of the void.
There were 159 properties (30 June 2021: 151; 31 December 2021: 168), in the
portfolio, with 1,517 units (30 June 2021: 1,214; 31 December 2021: 1,511) and
1,086 tenants (30 June 2021: 847; 31 December 2021: 1,077). If the portfolio
was fully occupied at Cushman & Wakefield's view of market rents, the
rental income would be £94.1 million per annum (30 June 2021: £75.1 million;
31 December 2021: £94.6 million).
As at 30 June 2022, the EPRA net initial yield on the portfolio was 5.7% (30
June 2021: 6.7%; 31 December 2021: 5.7%), the equivalent yield was 8.6% (30
June 2021: 8.8%; 31 December 2021: 8.7%) and the reversionary yield was 9.2%
(30 June 2021: 9.3%; 31 December 2021: 9.4%).
Property Portfolio by Sector as at 30 June 2022
Sector Valuation Sq. ft. Occupancy (EPRA) WAULT to first break Gross rental income Average rent ERV Capital rate Yield
Properties (£m) % by valuation (m) (%) (yrs) (£m) (£psf) (£m) (£psf) Net initial Equivalent Reversionary
(%) (%) (%)
Office 133 844.8 92.0 5.9 83.3% 2.6 65.9 14.28 87.7 142.92 5.6 8.6 9.4
Industrial 4 28.5 3.1 0.4 85.2% 6.4 1.9 5.27 2.2 67.99 5.7 5.1 7.3
Retail 19 32.4 3.5 0.3 93.4% 4.3 3.2 10.50 3.2 96.15 7.8 8.6 9.2
Other 3 12.5 1.4 0.1 92.7% 12.5 1.0 12.66 0.9 129.27 6.1 8.3 6.7
Total 159 918.2 100.0 6.8 83.8% 2.9 72.0 13.44 94.1 135.75 5.7 8.6 9.2
Property Portfolio by Region as at 30 June 2022
Region Valuation Sq. ft. Occupancy (EPRA) WAULT to first break Gross rental income Average rent ERV Capital rate Yield
Properties (£m) % by valuation (%) (%) (yrs) (£m) (£psf) (£m) (£psf) Net initial (%) Equivalent Reversionary
(%) (%)
Scotland 39 155.2 16.9 1.3 83.3 3.5 12.7 13.29 17.9 116.08 4.6 9.4 10.4
South East 30 183.3 20.0 1.1 77.2 2.8 12.4 16.04 18.5 166.50 4.5 8.2 9.6
North East 24 145.7 15.9 1.1 87.8 2.7 11.6 12.55 14.3 135.88 6.6 8.6 8.9
Midlands 27 182.3 19.9 1.4 83.7 3.2 14.7 12.95 18.7 128.41 5.6 8.5 10.0
North West 19 123.6 13.5 0.9 80.0 2.4 9.7 12.80 12.9 133.21 6.3 9.0 9.7
South West 14 84.3 9.2 0.5 92.6 2.2 7.0 16.35 7.9 178.07 6.9 8.2 8.7
Wales 6 43.8 4.8 0.4 94.0 3.9 3.8 10.07 4.0 101.18 7.3 7.9 8.5
Total 159 918.2 100.0 6.8 83.8 2.9 72.0 13.44 94.1 135.75 5.7 8.6 9.2
Tables may not sum due to rounding.
Top 15 Investments (market value) as at 30 June 2022
Property Sector Anchor tenants Market value % of portfolio Lettable area EPRA Occupancy Annualised gross rent % of gross rental income WAULT to first break
(£m) (%) (Sq. Ft.) (%) (£m) (years)
300 Bath Street, Glasgow Office University of Glasgow, Glasgow Tay House Centre Ltd, Fairhurst Group LLP 27.6 3.0 156,853 99.9 1.2 1.7 3.3
Building 2 & 3 Bear Brook office Park, Aylesbury Office Utmost Life and Pensions Ltd, Agria Pet Insurance Ltd 23.6 2.6 140,791 100.0 1.0 1.4 3.6
Eagle Court, Coventry Road, Birmingham Office Virgin Media Ltd, Rexel UK Ltd, Coleshill Retail Ltd 22.5 2.5 132,979 84.1 2.0 2.8 1.1
Orbis 1, 2& 3, Pride Park, Derby Office First Source Solutions UK Ltd, DHU Health Care C.I.C., Tentamus Pharma (UK) 19.5 2.1 121,883 100.0 1.8 2.5 4.9
Ltd
800 Aztec West, Bristol Office NNB Generation Company (HPC) Ltd, Edvance SAS 19.4 2.1 73,292 100.0 1.5 2.1 1.9
Manchester Green, Office Chiesi Ltd, Ingredion UK Ltd, Assetz SME Capital Ltd 19.3 2.1 107,201 75.9 1.3 1.8 2.9
Manchester
Hampshire Office Aviva Central Services UK Ltd, Lloyd's Register EMEA, National Westminster 19.2 2.1 85,243 99.8 1.4 1.9 3.3
Bank Plc
Corporate Park,
Eastleigh
Beeston Business Office/ Metropolitan Housing Trust Ltd, SMS Electronics Ltd, Worldwide Clinical Trials 18.9 2.1 215,330 100.0 1.8 2.5 4.9
Ltd, Heart Internet
Park, Nottingham Industrial
Ltd
Capitol Park, Leeds Office Hermes European Logistics Ltd, NHS Shared Business Services Ltd, BDW Trading 18.7 2.0 98,340 100.0 1.5 2.1 1.4
Ltd
Norfolk House, Office Accenture (UK) Ltd, HP Asia Ltd 17.0 1.9 114,982 40.3 0.5 0.7 3.1
Smallbrook
Queensway,
Birmingham
Linford Wood Office IMServ Europe Ltd, Market Force Information (Europe) Ltd, Autotech Recruit Ltd 16.8 1.8 107,352 96.7 1.6 2.2 2.2
Business Park,
Milton Keynes
Portland Street, Office Darwin Loan Solutions Ltd, Mott MacDonald Ltd, NCG (Manchester) Ltd 15.6 1.7 55,787 96.5 1.0 1.4 2.2
Manchester
Templeton On The Office The Scottish Ministers, The Scottish Sports Council, Noah Beers Ltd 14.2 1.5 142,512 91.5 1.3 1.7 4.3
Green, Glasgow
One & Two Office E.ON UK Plc 13.7 1.5 146,262 68.8 0.9 1.3 2.8
Newstead Court,
Nottingham
Ashby Park, Ashby Office Ceva Logistics Ltd, Brush Electrical Machines Ltd, Citron Hygiene UK Ltd 13.2 1.4 91,034 88.9 0.8 1.0 5.2
De La Zouch
Total 278.9 30.4 1,789,841 89.2 19.5 27.1 3.1
Tables may not sum due to rounding
Top 15 Tenants (by share of rental income) as at 30 June 2022
WAULT to first break Lettable area Annualised gross rent % of gross rental income
Tenant Property Sector (years) (Sq. Ft) (£m)
Virgin Media Ltd Eagle Court, Coventry Road, Birmingham Southgate Park, Peterborough Information and 1.5 107,830 1.7 2.4
communication
The Scottish Ministers Calton House, Edinburgh, Edinburgh Lightyear - Glasgow Airport, Glasgow Public sector 1.6 114,364 1.5 2.1
Quadrant House, Dundee
Templeton On The Green, Glasgow
TUI Northern Europe Ltd Columbus House, Coventry Professional, scientific and technical activities 1.5 53,253 1.4 1.9
NHS Aspect House, Bennerley Road, Nottingham Public sector 2.0 97,486 1.2 1.6
Capitol Park, Leeds
Equinox North, Almondsbury, Park House, Bristol
St James Court, Bristol, Bristol
Wren House, Chelmsford
Secretary of State for 1 Burgage Square, Merchant Square, Wakefield Albert Edward House, Preston Public sector 2.8 108,915 1.1 1.5
Bennett House, Stoke-On-Trent Oakland House, Manchester Waterside Business
Communities & Local Park, Swansea
Government
EDF Energy Ltd Endeavour House, Sunderland Electricity, gas, steam and air conditioning supply 1.2 77,565 1.0 1.4
First Source Solutions Orbis 1, 2 & 3, Pride Park, Derby Administrative and 4.8 62,433 1.0 1.4
UK Ltd support service activities
E.ON UK Plc Two Newstead Court, Nottingham Electricity, gas, steam and air conditioning supply 2.8 99,142 0.9 1.3
John Menzies Plc 2 Lochside Avenue, Edinburgh Professional, scientific and technical activities 1.1 43,780 0.9 1.2
NNB Generation 800 Aztec West, Bristol Electricity, gas, steam and air conditioning supply 1.7 41,743 0.9 1.2
Company (HPC) Ltd
SPD Development Co Ltd Clearblue Innovation Centre, Bedford Professional, scientific and technical activities 3.3 58,167 0.8 1.1
Hermes European Capitol Park, Leeds Transportation and 1.5 37,372 0.8 1.1
Logistics Ltd storage
Aviva Central Services Hampshire Corporate Park, Eastleigh Other service activities 2.4 42,612 0.8 1.1
UK Ltd
Odeon Cinemas Ltd Kingscourt Leisure Complex, Dundee Information and 13.3 41,542 0.7 1.0
communication
Edvance SAS 800 Aztec West, Bristol Electricity, gas, steam and air conditioning supply 2.1 31,549 0.7 0.9
Total 2.6 1,017,753 15.4 21.4
Table may not sum due to rounding
PROPERTY PORTFOLIO SECTOR AND REGION SPLITS BY VALUATION AND INCOME AS AT 30
JUNE 2022
By Valuation
As at 30 June 2022, 92.0% (30 June 2021: 83.2%, 31 December 2021: 89.8%) of
the portfolio by market value was offices and 3.1% (30 June 2021: 11.3%, 31
December 2021: 5.1%) was industrial. The balance was made up of retail, 3.5%
(30 June 2021: 4.1%, 31 December 2021: 3.7%) and other, 1.4% (30 June 2021:
1.4%, 31 December 2021: 1.4%). By UK region, as at 30 June 2022, Scotland
represented 16.9% (30 June 2021: 17.9%, 31 December 2021: 19.0%) of the
portfolio and England 78.3% (30 June 2021: 77.7%, 31 December 2021: 75.7%) the
balance of 4.8% (30 June 2021: 4.4%, 31 December 2021: 5.3%) was in Wales. In
England, the largest regions were the South East, the Midlands and the North
East.
By Income
As at 30 June 2022, 91.5% (30 June 2021: 82.5%, 31 December 2021: 88.6%) of
the portfolio by income was offices and 2.6% (30 June 2021: 9.8%, 31 December
2021: 4.5%) was industrial. The balance was made up of retail, 4.5% (30 June
2021: 6.3%, 31 December 2021: 5.4%), and other, 1.5% (30 June 2021: 1.4%, 31
December 2021: 1.4%). By UK region, as at 30 June 2022, Scotland represented
17.6% (30 June 2021: 20.5%, 31 December 2021: 21.6%) of the portfolio and
England 77.1% (30 June 2021: 74.3%, 31 December 2021: 72.4%); the balance of
5.3% was in Wales (30 June 2021: 5.2%, 31 December 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 (30 June 2021: 5.0; 31 December 2021:
4.8); WAULT to first break is 2.9 years (30 June 2021: 3.2; 31 December 2021:
3.0). As at 30 June 2022, 11.9% (30 June 2021: 14.6%; 31 December 2021: 11.5%)
of income was from leases, which will expire within one year, 14.8% (30 June
2021: 10.1%; 31 December 2021: 13.8%) between one and two years, 31.4% (30
June 2021: 34.1%; 31 December 2021: 31.9%) between two and five years and
41.8% (30 June 2021: 41.2%; 31 December 2021: 42.8%) after five years.
Lease Expiry Income Profile
0-1 year 11.9%
1-2 years 14.8%
2-5 years 31.4%
5+ years 41.8%
Tenants by Standard Industrial Classification as at 30 June 2022
As at 30 June 2022, 14.5% of income was from tenants in the professional,
scientific and technical activities sector (30 June 2021: 14.0%; 31 December
2021: 14.5%), 12.4% from the information and communication sector (30 June
2021: 8.7%; 31 December 2021: 11.4%), 11.6% from the administrative and
support service activities sector (30 June 2021: 13.2%; 31 December 2021:
9.5%), 9.5% from the finance and insurance activities sector (30 June 2021:
13.2%; 31 December 2021: 10.9%), 8.1% from the wholesale and retail trade
sector (30 June 2021: 7.7%; 31 December 2021: 9.6%), and 6.7% from the public
sector (30 June 2021: 8.0%; 31 December 2021: 7.8%). The remaining exposure is
broadly spread.
No tenant represents more than 3% of the Group's rent roll as at 30 June 2022,
the largest being 2.4% (30 June 2021: 3.7%; 31 December 2021: 2.5%).
Professional, scientific and technical activities 14.5%
Information and communication 12.4%
Administrative and support services activities 11.6%
Financial and insurance activities 9.5%
Wholesale and retail trade 8.1%
Public sector 6.7%
Electricity, gas, steam and air conditioning supply 5.2%
Manufacturing 5.0%
Human health and social work activities 3.9%
Construction 3.9%
Education 3.2%
Other service activities 3.0%
Other* 13.1%
Chart may not sum due to rounding.
*Other - Accommodation and food service activities, activities of
extraterritorial organisations and bodies, activities of households as
employers; undifferentiated goods, arts, entertainment and recreation,
charity, mining and quarrying, not specified, overseas company, public
administration and defence; compulsory social security. real estate
activities, registered society, residential, transportation and storage, water
supply, sewerage, waste management and remediation activities.
FINANCIAL REVIEW
Net Asset Value
Between 1 January 2022 and 30 June 2022, the EPRA NTA of the Group decreased
to £500.5 million (IFRS NAV: £513.4 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 0.1pps to 97.1pps (IFRS: 99.5pps). This is after the dividends
declared in the period amounting to 3.35pps.
In the six months to 30 June 2022, the investment property revaluation
increase amounted to £4.8 million, for the properties held as at 30 June
2022.
The investment property portfolio was valued at £918.2 million (30 June 2021:
£729.1 million; 31 December 2021: £906.1 million). The increase of £12.1
million since the December 2021 year-end is a reflection of property
acquisitions and subsequent expenditure amounting to £82.0 million and the
revaluation movement gains of £4.8 million, offset by £71.4 million of net
property disposals and £3.3 million loss on the disposal of investment
properties. Overall, on a like-for-like basis, the portfolio value increased
by 1.0% during the period.
The table below sets out the acquisitions, disposals and capital expenditure
for the respective periods:
Six months to 30 June 2022 Six months to June 2021 Year ended
31 December 2021
(£m) (£m) (£m)
Acquisitions
Net (after costs) 78.9 0.6 251.4
Gross (before costs) 74.7 - 236.0
Disposals
Net (after costs) 71.4 10.8 76.9
Gross (before costs) 75.5 11.2 79.6
Capital Expenditure
Net (after dilapidations) 3.1 4.3 6.8
Gross (before dilapidations) 3.3 4.9 7.2
The EPRA NTA is reconciled in the table below:
Six months to 30 June 2022
£m Pence per Share
Opening EPRA NTA (31 December 2021) 501.4 97.2
Net rental and property income 28.9 5.6
Administration and other expenses (5.6) (1.1)
Loss on the disposal of investment properties (3.3) (0.6)
Change in the fair value of investment properties 4.8 0.9
Change in value of right of use (0.1) (0.0)
EPRA NTA after operating profit 526.2 102.0
Net finance expense (8.4) (1.6)
Taxation 0.0 0.0
EPRA NTA before dividends paid 517.8 100.4
Dividends paid* (17.3) (3.4)
Closing EPRA NTA (30 June 2021) 500.5 97.1
Table may not sum due to rounding.
*As at 30 June 2022, there were 515,736,583 Shares in issue.
Income Statement
Operating profit before gains and losses on property assets and other
investments for the six months ended 30 June 2022 amounted to £23.4 million
(six months to 30 June 2021: £19.9 million). Profit after finance and before
taxation amounted to £28.3 million (six months to 30 June 2021: £18.0
million). The increase is predominately the result of three factors: firstly,
a gain in the fair value of investment properties in the six months to June
2022; secondly, the net movement in the fair value of derivative financial
instruments; and thirdly, the six months to 30 June 2022 included a full rent
roll for the enlarged portfolio of properties held as at 31 December 2021,
plus the partial rent roll for properties acquired and disposed of during the
period.
Rental and property income amounted to £37.1 million, excluding recoverable
service charge income and other
similar items (six months to 30 June 2021 £29.5m million). The increase was
primarily the result of the increase in the rent roll being held over the six
months to 30 June 2022.
Currently more than 85% of the rental income is collected within 30 days of
the due date and the bad debts provision release in the period amounted to
£0.2 million (charge in the six months to 30 June 2021: £0.6 million).
Non-recoverable property costs, excluding recoverable service charge income
and other similar costs, amounted to £8.1 million (six months to 30 June
2021: £4.2 million), and the rent roll increased to £72.0 million (six
months to 30 June 2021: £61.1 million).
Realised loss on the disposal of investment properties amounted to £3.3
million (six months to 30 June 2021: gain £0.6 million). The disposal losses
were from the aggregate disposal of 16 properties in the period, on which
individual asset management plans had been completed. The change in the fair
value of investment properties amounted to a gain of £4.8 million (six months
to 30 June 2021: gain of £2.0 million). Net capital expenditure amounted to
£3.1 million (six months to 30 June 2021: £4.3 million). The gain on the
disposal of the right of use asset amounted to £nil million (six months to 30
June 2021: nil). The change in value of right of use asset amounted to a
charge of £0.1 million (six months to 30 June 2021: charge £0.1 million).
Finance expenses amount to £8.4 million (six months to 30 June 2021: £6.9
million). The increase is due to additional borrowings drawn from the Royal
Bank of Scotland, Bank of Scotland and Barclays on 27 August 2021, to finance
the enlarged portfolio. The EPRA cost ratio, including direct vacancy costs,
2021, to finance the enlarged portfolio.
The EPRA cost ratio, including direct vacancy costs, was 36.9% (30 June 2021:
32.6%). The EPRA cost ratio, excluding direct vacancy costs was 16.5% (30 June
2021: 19.9%). The ongoing charges for the year ending 30 June 2022 were 5.4%
(30 June 2021: 4.6%).
The EPRA Total Return from Listing to 30 June 2022 was 44.4% (30 June 2021:
39.9%), with an annualised rate of 5.7% pa (30 June 2021: 6.1% pa).
Dividend
During the period from 1 January 2022 to 30 June 2022, the Company declared
dividends totalling 3.35pps (six months to 30 June 2021: 3.10pps). Since the
end of the period, the Company has declared a dividend for the second 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 four to seven years. The weighted average maturity of the bank debt and
retail eligible bond is 5.0 years (30 June 2021: 6.0 years; 31 December 2021:
5.5 years).
The Group's borrowing facilities are with the Royal Bank of Scotland, Bank of
Scotland and Barclays, Scottish Widows Limited and Aviva Investors Real Estate
Finance, Scottish Widows Limited and Santander UK. The total bank borrowing
facilities at 30 June 2022 amounted to £392.9 million (30 June 2021:
£315.7million; 31 December 2021: £389.9 million) (before unamortised debt
issuance costs), with £2.0 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
30 June 2022 amounted to £444.9 million (30 June 2021: £371.9 million; 31
December 2021: £444.9 million).
At 30 June 2022, the Group's cash and cash equivalent balances amounted to
£46.2 million (30 June 2021: £75.3 million; 31 December 2021: £56.1
million), of which £43.2 million (30 June 2021: £63.3 million; 31 December
2021: £49.9 million) was unrestricted cash.
The Group's net loan to value ("LTV") ratio stands at 43.2% (30 June 2021:
39.8%; 31 December 2021: 42.4%) before unamortised costs. The Board continues
to target a net LTV ratio of 40%, with a maximum limit of 50%.
Debt Profile and LTV Ratios as at 30 June 2022
Original facility Outstanding debt* Maturity Gross loan to value** Annual interest
Lender £'000 £'000 date % rate
Royal Bank of Scotland, Bank of Scotland & Barclays 128,000 127,445 August 2026 43.7
2.40% over 3 months £ SONIA
Scottish Widows Ltd. and Aviva Investors Real Estate Finance 165,000 165,000 December 2027 45.8
3.28% Fixed
Scottish Widows Ltd. 36,000 36,000 December 2028 37.2
3.37% Fixed
Santander UK 65,870 64,444 June 2029 39.5
2.20% over 3 months
£ SONIA
394,870 392,889
Retail Eligible Bond 50,000 50,000 August 2024 N/A
4.50% Fixed
444,870 442,889
Table may not sum due to rounding.
The Managers continue to monitor the borrowing requirements of the Group. As
at 30 June 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 77.3% as at 30 June 2022 (30 June 2021: 68.3%; 31 December 2021:
76.4%).
Interest cover, excluding amortised costs, stands at 3.0 times (30 June 2021:
3.3 times; 31 December 2021: 3.5 times) and including amortised costs, stands
at 2.7 times (30 June 2021: 2.9 times; 31 December 2021: 3.0 times).
* Before unamortised debt issue costs
** Based on Cushman and Wakefield property valuations
Hedging
The Group applies an interest rate hedging strategy that is aligned to the
property management strategy and aims to mitigate interest rate volatility on
at least 90% of the debt exposure.
Six months ended Six months ended Year ended
30 Jun 2022 30 June 2021 31 Dec 2021
% % %
Borrowings interest rate hedged 100.5 101.7 101.3
Thereof :
Fixed 56.7 68.6 57.1
Swap 27.6 16.5 24.1
Cap 16.1 16.5 20.0
WACD(1) 3.5 3.3 3.3
Table may not sum due to rounding.
(1) Weighted Average Cost of Debt - Weighted Average Effective Interest Rate
including the cost of hedging
The over-hedged position has arisen due to the entire Royal Bank of Scotland,
Bank of Scotland & Barclays and Santander UK facilities, including any
undrawn balances, being hedged by interest rate cap derivatives which have no
ongoing cost to the Group.
Tax
At 30 June 2022, the Group recognised a tax charge of nil (30 June 2021: nil
tax charge).
DIRECTORS' STATEMENT OF PRINCIPAL RISKS AND UNCERTAINTIES
For Regional REIT, effective risk management is a cornerstone of delivering
our strategy and integral to the achievement of our objective of delivering
long term value through active asset management across the portfolio. The
principal risks and uncertainties the Group faces are summarised below and
described in detail on pages 52 to 61 of the 2021 Annual Report, which is
available on the Group's website: www.regionalreit.com - Annual Report 2021.
The Audit Committee, which assists the Board with its responsibilities for
managing risk, regularly reviews the risk appetite of the Company. Taking into
consideration the latest information available, the Company is able to assess
and respond quickly to new and emerging risks.
Though the principal risks and uncertainties remain substantially unchanged
since the Annual Report and Accounts for the year ended 31 December 2021, and
despite the recovery in the operating environment with the easing of pandemic
related restrictions, the risks remain heightened in light of concerns around
rising inflation, higher interest rates, pandemic after-effects, and
geopolitical consequences of Russia's invasion of Ukraine; all of which may
impact valuations and the wider UK economy.
A summary of the Group's principal risks for the second half of the year is
provided below.
Strategic risk
Investment decisions could result in lower dividend income and capital returns
to our Shareholders.
Valuation risk
The valuation of the Group's portfolio, undertaken by the external valuer,
Cushman & Wakefield, could impact the Group's profitability and net
assets.
COVID-19 risk
The economic disruption after-effects resulting from Covid-19, coupled with
possible new strains and other infectious diseases, could further impact
rental incomes, the Group's property portfolio valuations, the ability to
access funding at competitive rates, maintain a progressive dividend policy
and adhere to the HMRC REIT
regime requirements.
Economic and Political risk
The macro-health of the UK economy could impact on borrowing and hedging
costs, demand by tenants for suitable properties and the quality of the
tenants. Also, there is a risk that in the wake of the UK's departure from the
European Union and geopolitical consequences of Russia's invasion of Ukraine,
property valuations could be impacted.
Funding risk
The Group may not be able to secure further debt on acceptable terms, which
could impinge upon investment opportunities and the ability to grow the Group.
Bank reference rates maybe set to continue to rise accompanying higher
inflation.
Tenant risk
Type and concentration of tenants could result in a lower rental income. A
higher concentration of lease term maturity and/or break options, could result
in a more volatile rental income.
Financial and Tax Change risk
Changes to UK financial legislation and the tax regime could result in lower
rental income.
Operational risk
Business disruption could result in lower rental income.
Accounting, Legal and Regulatory risk
Changes to accounting, legal and regulatory requirements could affect current
operating processes and the Board's ability to achieve the investment
objectives and provide favourable returns to our Shareholders.
Environmental and Energy Efficiency Standards
Changes to the environment could impact upon the Group's cost base, operations
and legal requirements which need to be adhered too. All of these risks could
impinge upon the profitability of the Group.
INTERIM MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITY STATEMENT
Interim Management Report
The important events that have occurred during the period under review, the
principal risks and uncertainties and the key factors influencing the
financial statements for the remaining six months of the year are set out in
the Chairman's Statement and the Asset and Investment Managers' Report.
The principal risks and uncertainties faced by the Group are substantially
unchanged since the date of the Annual Report and Accounts for the year ended
31 December 2021 and are summarised above.
The condensed consolidated financial statements for the period from 1 January
2022 to 30 June 2022 have not been audited or reviewed by auditors pursuant to
the Financial Reporting Council guidance on Review of Interim Financial
Information and do not constitute annual statutory accounts for the purposes
of the Law.
Going Concern
The financial statements continue to be prepared on a going concern basis. The
Directors have reviewed areas of potential financial risk and cash flow
forecasts. No material uncertainties have been detected which would influence
the Group's ability to continue as a going concern for a period of not less
than 12 months. Accordingly, the Board of Directors continue to adopt the
going concern basis in preparing the condensed consolidated financial
statements.
Further detail on the assessment of going concern can be found in note 2.3
below.
Responsibility Statement of the Directors in respect of the Half-Yearly Report
In accordance with Disclosure Guidance and Transparency Rule 4.2.10R we, the
Directors of the Company (whose names are listed in full at the end of this
report), confirm that to the best of their knowledge:
· the condensed set of consolidated financial statements has been
prepared in accordance with International Accounting Standard (IAS) 34,
"Interim Financial Reporting", as contained in UK-adopted International
Accounting Standards, as required by Disclosure Guidance and Transparency Rule
DTR 4.2.4R, and gives a true and fair view of the assets, liabilities,
financial position and profit of the Group;
· this Half-Yearly Report includes a fair review, required under DTR
4.2.7R, of the important events that have occurred during the first six months
of the financial year, their impact on the condensed set of consolidated
financial statements and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
· this Half-Yearly Report includes a fair review, required under DTR
4.2.8R, of related party transactions that have taken place in the first six
months of the current financial year and that have materially affected the
financial position and or performance of the Group during that period; and any
changes in the related party transaction described in the last Annual Report
that could do so.
This Half-Yearly Report was approved and authorised for issue by the Board of
Directors on 14 September 2022 and the above responsibility statement was
signed on its behalf by:
Kevin McGrath
Chairman
14 September 2022
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2022
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
Notes £'000 £'000 £'000
Continuing Operations
Revenue
Rental and property income 5 45,211 36,335 79,899
Property costs 6 (16,267) (10,966) (24,075)
Net rental and property income 28,944 25,369 55,824
Administrative and other expenses 7 (5,568) (5,477) (10,583)
Operating profit before gains and losses on property assets and other 23,376 19,892 45,241
investments
(Loss)/gain on disposal of investment properties 13 (3,281) 585
679
Change in fair value of investment properties 13 4,785 1,985 (8,296)
Gain on disposal of right of use assets 36 2 167
Change in fair value of right of use assets (112) (97) (206)
Operating profit 24,804 22,367 37,585
Finance income 8 34 10 14
Finance expenses 9 (8,437) (6,927) (14,872)
Net movement in fair value of derivative financial instruments 11,851 2,563
16 6,045
Profit before tax 28,252 18,013 28,772
Taxation 10 - - (15)
Total comprehensive income for the period (attributable to owners of the 28,252 18,013 28,757
parent Company)
Earnings per Share - basic and diluted 11 5.5p 4.2p 6.3p
The notes below are an integral part of these condensed consolidated financial
statements.
Total comprehensive income arises from continuing operations.
Condensed Consolidated Statement of Financial Position
As at 30 June 2022
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
Notes £'000 £'000 £'000
Assets
Non-current assets
Investment properties 13 918,200 729,115 906,149
Right of use assets 12,402 15,956 16,482
Non-current receivables on tenant loan 674 915 819
Derivative Financial Instruments 16 13,557 - 1,706
944,833 745,986 925,156
Current assets
Trade and other receivables 32,181 30,819 29,404
Cash and cash equivalents 46,158 75,331 56,128
78,339 106,150 85,532
Total assets 1,023,172 852,136 1,010,688
Liabilities
Current liabilities
Trade and other payables (47,188) (37,838) (40,966)
Deferred income (12,537) (10,359) (16,751)
Deferred tax liabilities (705) (690) (705)
(60,430) (48,887) (58,422)
Non-current liabilities
Bank and loan borrowings 14 (386,932) (310,388) (383,474)
Retail eligible bonds 15 (49,673) (49,518) (49,596)
Derivative financial instruments 16 - (1,776) -
Lease liabilities (12,762) (16,349) (16,795)
(449,367) (378,031) (449,865)
Total liabilities (509,797) (426,918) (508,287)
Net assets 513,375 425,218 502,401
Equity
Stated capital 17 513,762 430,819 513,762
Accumulated losses (387) (5,601) (11,361)
Total equity attributable to owners of the parent Company
513,375 425,218 502,401
Net asset value per Share - basic and diluted 18 99.5p 98.5p 97.4p
The notes below are an integral part of these condensed consolidated financial
statements.
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 2022
Attributable to owners of the parent company
Stated Accumulated
capital losses Total
Notes £'000 £'000 £'000
Balance at 1 January 2022 513,762 (11,361) 502,401
Total comprehensive income - 28,252 28,252
Dividends paid 12 - (17,278) (17,278)
Balance at 30 June 2022 513,762 (387) 513,375
For the six months ended 30 June 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 - 18,013 18,013
Dividends paid 12 - (13,377) (13,377)
Balance at 30 June 2021 430,819 (5,601) 425,218
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 17 83,051 - 83,051
Share issue costs 17 (108) - (108)
Dividends paid 12 - (29,881) (29,881)
Balance at 31 December 2021 513,762 (11,361) 502,401
The notes below are an integral part of these condensed consolidated financial
statements.
Condensed Consolidated Statement of Cash Flows
For the six months ended 30 June 2022
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Cash flows from operating activities
Profit for the year before taxation 28,252 18,013 28,772
- Change in fair value of investment properties (4,785) (1,985) 8,296
- Change in fair value of financial derivative instruments (11,851) (2,563) (6,045)
- Loss/(gain) on disposal of investment properties 3,281 (585) (679)
- Gain on disposal of right of use assets (36) (2) (167)
- Change in fair value of right of use assets 112 97 206
Finance income (34) (10) (14)
Finance expense 8,437 6,927 14,872
(Increase)/decrease in trade and other receivables (2,631) 2,967 4,398
Increase/(decrease) in trade and other payables and deferred income 1,686 (631)
7,256
Cash generated from operations 22,431 22,228 56,895
Finance costs (7,406) (6,109) (13,053)
Taxation received - - -
Net cash flow generated from operating activities 15,025 16,119 43,842
Investing activities
Purchase of investment properties and subsequent expenditure (81,970) (4,993) (175,196)
Sale of investment properties 71,423 10,828 76,940
Interest received 33 11 15
Net cash flow (used in)/generated from operating activities (10,514) 5,846 (98,241)
Financing activities
Share issue costs - - (108)
Dividends paid (16,956) (12,943) (27,813)
Bank borrowings advanced 14,322 1,109 77,305
Bank borrowings repaid (11,370) (1,570) (3,539)
Bank borrowing costs paid (153) (296) (2,051)
Lease repayments (324) (307) (640)
Net cash flow (used in)/generated from financing activities (14,481) (14,007) 43,154
Net (decrease)/increase in cash and cash equivalents for (9,970) 7,958 (11,245)
the period
Cash and cash equivalents at the start of the period 56,128 67,373 67,373
Cash and cash equivalents at the end of the period 46,158 75,331 56,128
The notes below are an integral part of these condensed consolidated financial
statements.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 30 June 2022
1. Corporate information
The condensed consolidated financial statements of the Group for the six
months ended 30 June 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 14 September 2022.
The Company is a company limited by shares incorporated in Guernsey under The
Companies (Guernsey) Law, 2008, as amended (the "Law"). The Company's Ordinary
Shares are admitted to, and, traded on the Official List of the London Stock
Exchange ("LSE").
The Company was incorporated on 22 June 2015 and is registered with the
Guernsey Financial Services Commission as a Registered Closed-Ended Collective
Investment Scheme pursuant to The Protection of Investors (Bailiwick of
Guernsey) Law, 1987, as amended, and the Registered Collective Investment
Schemes Rules 2018.
The Company did not begin trading until 6 November 2015 when its shares were
admitted to trading on the LSE.
The nature of the Group's operations and its principal activities are set out
in the Chairman's Statement.
The address of the registered office is: Mont Crevelt House, Bulwer Avenue,
St. Sampson, Guernsey, GY2 4LH.
2. Basis of preparation
The condensed consolidated financial statements for the six months ended 30
June 2022 have been prepared on a going concern basis in accordance with the
Disclosure Guidance and Transparency Rules of the FCA and with IAS 34, Interim
Financial Reporting, as contained in UK-adopted International Accounting
Standards.
The condensed consolidated financial statements have been prepared on a
historical cost basis, as modified for the Group's investment properties and
certain financial assets and financial liabilities (including derivative
instruments) at fair value through profit or loss.
The condensed consolidated interim financial information should be read in
conjunction with the Group's audited financial statements for the year ended
31 December 2021, which have been prepared in accordance with International
Financial Reporting Standards ("IFRS") as contained in UK-adopted
International Accounting
Standards.
2.1. Comparative period
The comparative financial information presented herein for the six months
ended 30 June 2021 and year ended 31 December 2021 do not constitute full
statutory accounts within the meaning of the Law. The Group's Annual Report
and Accounts for the year ended 31 December 2021 were delivered to the
Guernsey Financial Services Commission. The Group's independent Auditor's
report on those Accounts was unqualified and did not include references to any
matters to which the Auditors drew attention by way of emphasis without
qualifying their report.
2.2. Functional and presentation currency
The consolidated financial information is presented in Pounds Sterling which
is also the Group's functional currency, and all values are rounded to the
nearest thousand (£'000s) pounds, except where otherwise indicated.
2.3. Going concern
The Directors have made an assessment of the Group's ability to continue as a
going concern. This assessment included consideration of the current
uncertainties created by Covid-19, coupled with the Group's cash resources,
borrowing facilities, rental income, acquisition and disposals of investment
properties, elective and committed capital expenditure and dividend
distributions.
The Group ended the period under review with £46.2m of cash and cash
equivalents, of which £43.2m was unrestricted cash, providing ample
liquidity.
Borrowing facilities increased from £439.9m at 31 December 2021 to £442.9m
as at 30 June 2022, with an LTV of 43.2%, based upon the value of Company's
investment properties as at 30 June 2022. In respect of the Company's
borrowings, the Retail eligible bond matures in August 2024 and the 1st bank
facility to mature is £128m facility in August 2026 which is held with the
Royal Bank of Scotland.
The Directors are satisfied that the Company has adequate resources to
continue in operational existence for a period no less than 12 months from the
date of these Financial Statements. This is underpinned by the robust rent
collections and the limited level of committed capital expenditure in the
forthcoming 12 months. Furthermore, the Directors are not aware of any
material uncertainties that may cast significant doubt upon the Group's
ability to continue as a going concern. Accordingly, the Directors consider
that it is appropriate to prepare the Financial Statements on a going concern
basis.
2.4. 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.
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.
3. Significant accounting judgements, estimates and assumptions
The preparation of the condensed consolidated financial statements requires
management to make judgements, estimates and assumptions that affect the
reported amounts of revenues, expenses, assets and liabilities and the
disclosure of contingent liabilities at the reporting date. However,
uncertainty about these assumptions and estimates could result in outcomes
that require a material adjustment to the carrying amount of the asset or
liability affected in future periods.
3.1. Critical accounting estimates and assumptions
The principal estimates that may be material to the carrying amount of assets
and liabilities are as follows:
3.1.1. Valuation of investment property
The fair value of investment property, which has a carrying value at the
reporting date of £918,200,000 (30 June 2021: £729,115,000; 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 Investment Property and IFRS 13 Fair
Value Measurement.
The valuations have been prepared in accordance with the requirements of the
RICS Valuation - Global Standards which incorporate the International
Valuation Standards ("IVS") and the RICS Valuation UK National Supplement (the
"RICS Red Book") edition current at the Valuation Date. It follows that the
valuations are compliant with "IVS". Factors reflected include current market
conditions, annual rentals, lease lengths and location. The significant
methods and assumptions used by valuers in estimating the fair value of
investment property are set out in note 13.
3.1.2. Fair valuation of interest rate derivatives
The Group values its interest rate derivatives at fair value. The fair values
are estimated by the loan counterparty with a revaluation occurring on a
quarterly basis. The counterparties will use a number of assumptions in
determining the fair values including estimates of 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 an asset of £13,557,000 (30 June 2021: £1,776,000 liability; 31
December 2021: £1,706,000 asset), as set out on Note 16.
3.1.3. 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.
3.1.4. Operating lease contracts - 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 and at 1 January 2019 when the standard was first
adopted. The liability is calculated using present value of future lease
payments using the Group's incremental borrowing rate as the discount rate.
At 30 June 2022, there were 12 leases with the range of the period left to run
being 44 and 129 years. The Directors have determined that the discount rate
to use in the calculation for each lease is 3.5% being the Group's weighted
average cost of debt at the date of transition.
3.2. Critical judgements in applying the Group's accounting policies
In the process of applying the Group's accounting policies, management has
made the following judgements, which have the most significant effect on the
amounts recognised in the condensed consolidated financial statements:
3.2.1 Leases - the group as lessee
The Group has acquired investment properties that are subject to commercial
property leases with tenants. The Group has determined, based on an evaluation
of the terms and conditions of the arrangements, particularly the duration of
the lease terms and minimum lease payments, that it retains all of the
significant risks and rewards of ownership of these properties and so accounts
for the leases as operating leases.
3.2.2. Recognition of income
Service charges and other similar receipts are included in net rental and
property income gross of the related costs as the Directors consider the Group
acts as principal in this respect.
3.2.3 Acquisition of subsidiary companies
For each acquisition, the Directors consider whether the acquisition met the
definition of the acquisition of a business or the acquisition of a group of
assets and liabilities.
A business is defined in IFRS 3 as an integrated set of activities and assets
that is capable of being conducted and managed for the purpose of providing a
return in the form of dividends, lower costs or other economic benefits
directly to investors or other owners, members or participants. Furthermore, a
business consists of inputs and processes applied to those inputs that have
the ability to create outputs.
The companies acquired in the year have comprised portfolios of investment
properties and existing leases with multiple tenants over varying periods,
with little in the way of processes acquired. It has therefore concluded in
each case that the acquisitions did not meet the criteria for the acquisition
of a business as outlined above.
3.3. Consolidation of entities in which the Group holds less than 50%
Management considered that up until 9 November 2018, the Group had de facto
control of View Castle Limited and its 27 subsidiaries (the "View Castle Sub
Group") by virtue of the amended and restated Call Option Agreement dated 3
November 2015. Following a restructure of the View Castle Sub Group, the
majority of properties held within the View Castle Sub Group were transferred
into two new special purpose vehicles ("SPVs") with two additional properties
to be transferred into these SPVs at a later date. A new call option was
entered into dated 9 November 2018 with View Castle Limited and five of its
subsidiaries (the "View Castle Group"). As per the previous amended and
restated Call Option Agreement, under this new option the Group may acquire
any of the properties held by the View Castle Group for a fixed nominal
consideration. Despite having no equity holding, the Group is deemed to have
control over the View Castle Group as the Option Agreement means that the
Group is exposed to, and has rights to, variable returns from its involvement
with the View Castle Group, through its power to control.
4. Summary of significant accounting policies
With the exception of new accounting standards listed below, the accounting
policies adopted in this report are consistent with those applied in the
Group's statutory accounts for the year ended 31 December 2021 and are
expected to be consistently applied for the current year ending 31 December
2022. The changes to the condensed consolidated financial statements arising
from accounting standards effective for the first time are noted below:
Amendments to IFRS 3 'Business Combinations'
(effective for periods beginning on or after 1 January 2022) - gives
clarification on the recognition of contingent liabilities at acquisition and
clarifies that contingent assets should not be recognised at the acquisition
date. The amendments are not expected to have a significant impact on the
preparation of the financial statements.
Amendments to IAS 37 'Provisions, Contingent Liabilities and Contingent
Assets'
(effective for periods beginning on or after 1 January 2022) - gives
clarification on costs to include in estimating the cost of fulfilling a
contract for the purpose of assessing whether that contract is onerous. The
amendments are not expected to have a significant impact on the preparation of
the financial statements.
Amendments to IFRS 9 'Financial Instruments'
(effective for periods beginning on or after 1 January 2022) - gives
clarification on the fees an entity includes when assessing whether the terms
of a new or modified financial liability are substantially different from the
terms of the original liability. The amendments are not expected to have a
significant impact on the preparation of the financial statements.
5. Rental and property income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Rental income - freehold property 31,255 26,636 57,128
Rental income - long leasehold property 5,801 2,891 8,626
Recoverable service charge income and other similar items 8,155 6,808 14,145
Total 45,211 36,335 79,899
6. Property costs
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Other property expenses and irrecoverable costs 8,112 4,158 9,930
Recoverable service charge income and other similar costs 8,155 6,808 14,145
Total 16,267 10,966 24,075
Property costs represent direct operating expenses which arise on investment
properties generating rental income.
7. Administrative and other expenses
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Investment management fees 1,469 1,137 2,326
Property management fees 1,284 1,183 2,495
Asset management fees 1,494 1,139 2,326
Directors' remuneration 134 125 254
Administration fees 315 339 647
Legal and professional fees 939 839 1,680
Marketing and promotion 43 35 72
Other administrative costs (including bad debts) 755
(117) 658
Bank charges 7 22 28
Total 5,568 5,477 10,583
Other administration costs includes a credit of £200,000 for the net recovery
of bad debts (six months ended 30 June 2021: net cost for bad debtors of
£583,000; year ended 31 December 2021: net cost for bad debts of £626,000).
8. Finance income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Interest income 34 10 14
Total 34 10 14
9. Finance expense
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Interest payable on bank borrowings 6,277 4,980 10,795
Amortisation of loan arrangement fees 659 453 1,067
Bond interest 1,125 1,125 2,250
Bond issue costs amortised 77 77 155
Bond expenses 4 4 8
Lease interest 295 288 597
Total 8,437 6,927 14,872
10. Taxation
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Corporation tax charge/(credit) - - -
(Decrease)/increase in deferred tax creditor - - 15
Total - - 15
The Group elected to be treated as a UK REIT with effect from 7 November 2015.
The UK REIT rules exempt the profits of the Group's UK property rental
business from corporation tax. Gains on UK properties are also exempt from
tax, provided that they are not held for trading or sold in the three years
after completion of development. The Group is otherwise subject to UK
corporation tax.
Income tax, corporation tax and deferred tax above arise on entities which
form part of the Group's condensed consolidated accounts but do not form part
of the REIT group.
Due to the Group's REIT status and its intention to continue meeting the
conditions required to obtain approval in the foreseeable future, no provision
has been made for deferred tax on any capital gains or losses arising on the
revaluation or disposal of investments held by entities within the REIT group.
No deferred tax asset has been recognised in respect of losses carried forward
due to unpredictability of future taxable profits.
As a REIT, Regional REIT Ltd is required to pay PIDs equal to at least 90% of
the Group's exempted net income. To retain UK REIT status, there are a number
of conditions to be met in respect of the principal company of the Group, the
Group's qualifying activity and its balance of business. The Group continues
to meet these conditions.
11. Earnings per Share
Earnings per share ("EPS") amounts are calculated by dividing profits for the
period attributable to ordinary equity holders of the Company by the weighted
average number of Ordinary Shares in issue during the period.
The calculation of basic and diluted earnings per share is based on the
following:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Calculation of earnings per Share
Net profit attributable to Ordinary Shareholders 28,252 18,013 28,757
Adjustments to remove:
Changes in value of investment properties (4,785) (1,985) 8,296
Changes in fair value of right of use assets 112 97 206
(Gain)/loss on disposal of investment property 3,281 (585) (679)
Gain on the disposal of right of use assets (36) (2) (167)
Change in fair value of interest rate derivates and financial assets (11,851) (2,563) (6,045)
Deferred tax charge/credit - - 15
14,973 12,975 30,383
EPRA net profit attributable to Ordinary Shareholders
Weighted average number of Ordinary Shares 515,736,853 431,506,583 459,660,172
Earnings/(loss) per Share - basic and diluted 5.5p 4.2p 6.3p
EPRA earnings per Share - basic and diluted 2.9p 3.0p 6.6p
12. Dividends
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Dividends
Dividend of 1.70 (2021: 1.50) pence per Ordinary Share for the period 1 8,768 6,473 6,473
October - 31 December
Dividend of 1.60 (2021: 1.60) pence per Ordinary Share for the period 1 8,510 6,904 6,904
January - 31 March
Dividend of nil (2021: 1.60) pence per Ordinary Share for the period 1 April - - - 8,252
30 June
Dividend of nil (2021: 1.60) pence per Ordinary Share for the period 1 July - - - 8,252
30 September
Total 17,278 13,377 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 was
paid 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 was paid
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 will be paid
on 14 October 2022 to Shareholders on the register as at 2 September 2022.
These condensed consolidated financial statements do not reflect this
dividend.
13. INVESTMENT PROPERTIES
In accordance with International Accounting Standard, IAS 40, 'Investment
Property', investment property has been independently valued at fair value by
Cushman & Wakefield, a Chartered Surveyor who is an accredited independent
valuer with recognised and relevant professional qualifications and with
recent experience in the locations and categories of the investment properties
being valued. The valuation has been prepared in accordance with the Red Book
and incorporates the recommendations of the International Valuation Standards
Committee which are consistent with the principles set out in IFRS 13.
The valuation is 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 period have been treated as properties
purchased rather than business combinations.
Movement in investment properties for the Freehold Long Leasehold Total
six months ended 30 June 2022 (unaudited) property property £'000
£'000 £'000
Valuation at 1 January 2022 751,440 154,709 906,149
Property additions - acquisitions 64,709 14,207 78,916
Property additions - subsequent expenditure 1,735 1,319 3,054
Property disposals (67,907) (3,516) (71,423)
Loss on the disposal of investment properties (2,792) (489) (3,281)
Change in fair value during the period 1,940 2,845 4,785
Valuation at 30 June 2022 (unaudited) 749,125 169,075 918,200
Movement in investment properties for the
six months ended 30 June 2021 (unaudited)
Valuation at 1 January 2021 659,432 72,948 732,380
Property additions - acquisitions 645 - 645
Property additions - subsequent expenditure 2,341 2,007 4,348
Property disposals (10,828) - (10,828)
Gain on the disposal of investment properties 585 - 585
Change in fair value during the period 1,394 591 1,985
Valuation at 30 June 2021 (unaudited) 653,569 75,546 729,115
Movement in investment properties for the year ended 31 December 2021
(audited)
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 period (5,567) (2,729) (8,296)
Valuation at 31 December 2021 (audited) 751,440 154,709 906,149
The historic cost of the properties was £944,480,000 (30 June 2021:
£752,029,000, 31 December 2021: £942,694,000).
The following table provides the fair value measurement hierarchy for
investment properties:
Significant observable inputs Significant unobservable inputs
Quoted (level 2) (level 3)
active prices £'000 £'000
Total (level 1)
Date of valuation: £'000 £'000
30 June 2022 918,200 - - 918,200
30 June 2021 729,115 - - 729,115
31 December 2021 906,149 - - 906,149
The hierarchy levels are defined in note 16.
It has been determined that the entire investment properties portfolio should
be classified under the level 3 category.
There have been no transfers between levels during the period.
The determination of the fair value of the investment properties held by each
consolidated subsidiary requires the use of estimates such as future cash
flows from investment properties, which take into consideration lettings,
tenants' profiles, future revenue streams, capital values of fixtures and
fittings, any environmental matters and the overall repair and condition of
the property, and discount rates applicable to those assets. Future revenue
streams comprise contracted rent (passing rent) and estimated rental value
after the contract period. In calculating ERV, the potential impact of future
lease incentives to be granted to secure new contracts is taken into
consideration. All these estimates are based on local market conditions
existing at the reporting date.
In arriving at their estimates of fair values as at 30 June 2022, the valuers
used their market knowledge and professional judgement and did not rely solely
on historical transactional comparables.
Techniques used for valuing investment properties
The following descriptions and definitions relate to valuation techniques and
key unobservable inputs made in determining the fair values:
Valuation technique: market comparable method
Under the market comparable method (or market approach), a property fair value
is estimated based on comparable transactions in the market.
Observable input: market rental
The rent at which space could be let in the market conditions prevailing at
the date of valuation (£9,000 - £3,317,000 per annum (30 June 2021: £9,000
- £3,087,591 per annum; 31 December 2021: £9,000 - £3,125,246 per annum)).
Observable input: rental growth
The increase in rent is based on contractual agreements: -1.2% (31 December
2021: 12.29%; 30 June 2020:13.7%)
Observable Input: net initial yield
The initial net income from a property at the accounting date, expressed as a
percentage of the gross purchase price including the costs of purchase (0% -
21.81%; (30 June 2021: 0% - 27.26%; 31 December 2021: 0,% to 60.37%)).
Unobservable inputs:
The significant unobservable input (level 3) are sensitive to the changes in
the estimated future cash flows from investment properties such as increases
and decreases in contract rents, operating expenses and capital expenditure,
plus transactional activity in the real estate market.
As set out within the significant accounting estimates and judgements above,
the Group's property portfolio valuation is open to judgement and is
inherently subjective by nature, and actual values can only be determined in a
sales transaction.
14. Bank and loan borrowings
Bank borrowings are secured by charges over individual investment properties
held by certain asset-holding subsidiaries. The banks also hold charges over
the shares of certain subsidiaries and any intermediary holding companies of
those subsidiaries. Any associated fees in arranging the bank borrowings
unamortised as at the period end are offset against amounts drawn on the
facilities as shown in the table below:
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Bank borrowings drawn at start of period 389,937 316,171 316,171
Bank borrowings drawn 14,322 1,109 77,305
Bank borrowings repaid (11,370) (1,570) (3,539)
Bank borrowings drawn at end of period 392,889 315,710 389,937
Less: unamortised costs at start of period (6,463) (5,479) (5,479)
Less: loan issue costs incurred in the period (153) (296) (2,051)
Add: loan issue costs amortised in the period 659 453 1,067
At end of period 386,932 310,388 383,474
Maturity of bank borrowings
Repayable within 1 year - -
Repayable between 1 to 2 years - - -
Repayable between 2 to 5 years 127,445 51,024 127,220
Repayable after more than 5 years 265,444 264,686 262,717
Unamortised loan issue costs (5,957) (5,322) (6,463)
386,932 310,388 383,474
The table below lists the Group's borrowings.
Gross
Original Outstanding debt* Maturity loan to value** Annual interest rate Amortisation
Lender facility date
£'000 £'000
128,000 127,445 August 2026 43.7% 2.40% over 3 months £ SONIA Mandatory prepayment
Royal Bank of Scotland, Bank of Scotland and Barclays
165,000 165,000 December 2027 45.8%
Scottish Widows Ltd & Aviva Investors Real Estate Finance
3.28% Fixed None
36,000 36,000 December 2028 37.2% 3.37% Fixed None
Scottish Widows Ltd
65,870 64,444 June 2029 39.5% 2.20% over 3 Mandatory prepayment
months £ SONIA
Santander UK
394,870 392,889
Total bank borrowings
Retail eligible bond 50,000 50,000 August 4.50% Fixed None
2024
Total 444,870 442,889
SONIA = Sterling Over Night Indexed Average
* Before unamortised debt issue costs.
** Based upon the Cushman & Wakefield property valuation.
The weighted average term to maturity of the Group's debt at the period end
was 5 years (30 June 2021: 6.0 years; 31 December 2021: 5.5 years). The
weighted average interest rate payable by the Group on its debt portfolio,
excluding hedging costs, as at the period end was 3.4% per annum (30 June
2021: 3.1% per annum; 31 December 2021: 3.0% per annum).
The Group has been in compliance with all of the financial covenants of the
above facilities as applicable throughout the period covered by these
condensed consolidated financial statements. Each facility has distinct
covenants which generally include: historic interest cover, projected interest
cover, loan-to-value cover and debt to rent cover. A breach of agreed covenant
levels would typically result in an event of default of the respective
facility, giving the lender the right, but not the obligation, to declare the
loan immediately due and payable. Where a loan is repaid in these
circumstances, early repayment fees will apply, which are generally based on
percentage of the loan repaid or calculated with reference to the interest
income foregone by the lenders as a result of the repayment.
As shown in note 16, the Group uses a combination of interest rate swaps and
fixed rate bearing loans to hedge against interest rate risks. The Group's
exposure to interest rate volatility is minimal.
15. Retail eligible bonds
The Company has in issue £50,000,000 of 4.5% retail eligible bonds with a
maturity date of 6 August 2024. The bonds are listed on the LSE ORB platform.
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Bond principal at start of period 50,000 50,000 50,000
Unamortised issue costs at start of period (404) (559) (559)
Amortisation of issue costs 77 77 155
At end of period 49,673 49,518 49,596
16. Derivative financial instruments
Interest rate caps and swaps are in place to mitigate the interest rate risk
that arises as a result of entering into variable rate borrowings.
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Fair value at start of period 1,706 (4,339) (4,339)
Revaluation in the period 11,851 2,563 6,045
Fair value at end of period 13,557 (1,776) 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.
The fair value of interest rate caps and swaps represents the net present
value of the difference between the cash flows produced by the contracted rate
and the current market rate over the life of the instrument.
The table below details the hedging and swap notional amounts and rates
against the details of the Group's loan facilities.
Original facility Outstanding debt* Notional amount
Lender Maturity Annual interest rate Rate
date
£'000 £'000 £'000
Royal Bank of Scotland, Bank of Scotland and Barclays 128,000 127,445 August 2026 swap £73,000 0.97%
2.40% over 3mth £ SONIA cap £55,000 0.97%
Scottish Widows Ltd. & Aviva Investors Real Estate Finance 165,000 165,000 December 2027
3.28% Fixed n/a n/a
Scottish Widows Ltd 36,000 36,000 December 2028 n/a n/a
3.37% Fixed
Santander UK 65,870 64,444 June 2029 swap £42,403 1.39%
2.20% over 3 months £ SONIA cap £16,468 1.39%
Total 394,870 392,889
SONIA = Sterling Over Night Indexed Average
As at 30 June 2022, the swap arrangements were £122.4m (30 June 2021:
£60.44m; 31 December 2021: £105.94m) and the cap notional arrangements
amounted to £71.5m (30 June 2021: £60.4m; 31 December 2021: £87.9m).
The Group weighted average cost of debt of 3.5%, (30 June 2021: 3.3%; 31
December 2021: 3.3%) is inclusive of hedging costs.
The maximum exposure to credit risk at the reporting date is the fair value of
the derivative liabilities.
It is the Group's target to hedge at least 90% of the total loan portfolio
using fixed-rate facilities or interest rate
derivatives. The hedging on all of the facilities matches the term. As at the
period end date, the total proportion of hedged debt equated to 100.5% (30
June 2021: 102.0%; 31 December 2021: 101.3%), as shown below.
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Total bank borrowings 392,889 315,710 389,937
Notional value of interest rate caps and swaps 193,870 120,870 193,870
Value of fixed rate debts 201,000 201,000 201,000
394,870 321,870 394,870
Proportion of hedged debt 100.5% 102.0% 101.3%
Fair value hierarchy
The following table provides the fair value measurement hierarchy for interest
rate derivatives. The different levels are defined as follows.
Level 1: Quoted (unadjusted) market prices in active markets for identical
assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly
observable.
Level 3: Valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the condensed consolidated
financial statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by reassessing
categorisation at the end of each reporting period.
Significant observable inputs Significant unobservable inputs
Quoted active prices (level 2) (level 3)
(level 1) £'000 £'000
Total £'000
Date of valuation: £'000
30 June 2022 13,557 - 13,557 -
30 June 2021 (1,776) - (1,776) -
31 December 2021 1,706 - 1,706 -
The fair values of these contracts are recorded in the Condensed Consolidated
Statement of Financial Position and are determined by forming an expectation
that interest rates will exceed strike rates and by discounting these future
cash flows at the prevailing market rates as at the period end.
There have been no transfers between levels during the period.
The Group has not adopted hedge accounting.
17. Stated capital
Stated capital represents the consideration received by the Company for the
issue of Ordinary shares.
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Issued and fully paid Shares at no par value
At start of the period 513,762 430,819 430,819
Shares issued - - 83,051
Share issue costs - - (108)
At end of the period 513,762 430,819 513,762
Number of Shares in issue
At start of the period 515,736,583 431,506,583 431,506,583
Shares issued - - 84,230,000
At end of the period 515,736,583 431,506,583 515,736,583
18. Net asset value per Share (NAV)
Basic NAV per share is calculated by dividing the net assets in the Condensed
Consolidated Statement of Financial Position attributable to ordinary equity
holders of the parent by the number of Ordinary Shares in issue at the end of
the period.
EPRA net asset value is a key performance measure used in the real estate
industry which highlights the fair value of net assets on an ongoing long-term
basis. Assets and liabilities that are not expected to crystallise in normal
circumstances such as the fair value of derivatives and deferred taxes on
property valuation surpluses are therefore excluded.
Net asset values have been calculated as follows:
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Net asset value per Condensed Consolidated Statement of Financial Position 513,375 425,218 502,401
Adjustment for calculating EPRA net tangible assets:
Derivative financial instruments (13,557) 1,776 (1,706)
Deferred tax liability 705 690 705
EPRA Net Tangible Assets 500,523 427,684 501,400
Number of Ordinary Shares in issue 515,736,583 431,506,583 515,736,583
Net asset value per Share - basic and diluted 99.5p 98.5p 97.4p
EPRA Net Tangible Assets per Share - basic and diluted 97.1p 99.1p 97.2p
19. Segmental information
After a review of the information provided for management purposes, it was
determined that the Group had one operating segment and therefore segmental
information is not disclosed in these condensed consolidated financial
statements.
20. Transactions with related parties
Transactions with the Asset Manager, London & Scottish Property Investment
Management Limited and the Property Manager, London & Scottish Property
Asset Management Limited
Stephen Inglis is a non-executive Director of the Company, as well as being
the Chief Executive Officer of London & Scottish Property Investment
Management Limited ("LSPIM") and a director of London & Scottish Property
Asset Management Limited. The former company has been contracted to act as the
Asset Manager of the Group and the latter as the Property Manager.
In consideration for the provision of services provided, the Asset Manager is
entitled in each financial year (or part thereof) to 50% of an annual
management fee on a scaled rate of (i) 1.1% of the EPRA NTA up to and equal to
£500,000,000; (ii) 0.9% of EPRA NTA above £500,000,000 and up to or equal to
£1,000,000,000; (iii) 0.7% of EPRA NTA above £1,000,000,000 and up to or
equal to £1,500,000,000; and (iv) 0.5% of EPRA NTA above £1,500,000,000.
In respect of each portfolio property the Investment Manager has procured and
shall, with the Company in future, procure that London & Scottish Property
Investment Management Limited is appointed as the Property Manager. A property
management fee of 4% per annum is charged by the Property Manager on a
quarterly basis: 31 March, 30 June, 30 September and 31 December, based upon
the gross rental yield. Gross rental yield means the rents due under the
property's lease for the peaceful enjoyment of the property, including any
value paid in respect of rental renunciations, but excluding any sums paid in
connection with service charges or insurance costs.
The Investment Manager is also entitled to a performance fee. Details of the
performance fee are given below.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Asset management fees charged(1) 1,494 1,139 2,326
Property management fees charged(1) 1,284 1,183 2,495
Performance fee charged - - -
Total 2,778 2,322 4,821
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Total fees outstanding(1) 1,474 1,186 1,350
(1) Including irrecoverable VAT charged where appropriate
Transactions with the Investment Manager, Toscafund Asset Management LLP
Tim Bee is a non-executive Director of the Company, as well as being Chief
Legal Counsel of the Investment Manager
In consideration for the provision of services provided, the Investment
Manager is entitled in each financial year (or part thereof) to 50% of an
annual management fee on a scaled rate of (i) 1.1% of the EPRA NTA up to and
equal to £500,000,000; (ii) 0.9% of EPRA NTA above £500,000,000 and up to or
equal to £1,000,000,000; (iii) 0.7% of EPRA NTA above £1,000,000,000 and up
to or equal to £1,500,000,000; and (iv) 0.5% of EPRA NTA above
£1,500,000,000.
The Investment Manager is also entitled to a Performance Fee. Details of the
Performance Fee are given below.
The following tables show the fees charged in the period and the amount
outstanding at the end of the period:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Investment management fees charged 1,469 1,137 2,326
Performance fees charged - - -
Total 1,469 1,137 2,326
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Total fees outstanding 687 584 593
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 NAV per Ordinary Share
and the total dividends per Ordinary Share declared in the financial year. A
performance fee is only payable in respect of a performance period where the
EPRA NAV per Ordinary Share exceeds the high water mark which is equal to the
greater of the highest year-end EPRA NAV Ordinary Share in any previous
performance period. The performance fee was calculated initially on 31
December 2018 and annually thereafter.
The performance fees are now payable 34% in cash and 66% in Ordinary Shares,
at the prevailing price per share, with 50% of the shares locked-in for one
year and 50% of the shares locked-in for two years.
No performance fee has been earned for the six months ending 30 June 2022 or
30 June 2021 or the year ending
31 December 2021.
EPRA PERFORMANCE MEASURES
The Group is a member of the European Public Real Estate Association ("EPRA").
EPRA has developed and defined the following performance measures to give
transparency, comparability and relevance of financial reporting across
entities which may use different accounting standards. The Group is pleased to
disclose the following measures which are calculated in accordance with EPRA
guidance:
EPRA Performance Measure EPRA Performance Measure Period ended 30 June Period ended 31 December
2022 2021
Definition
EPRA EARNINGS Earnings from operational activities
EPRA Earnings £14,973,000 £30,383,000
EPRA Earnings per Share (basic and diluted) 2.9p 6.6p
The EPRA NAV set of metrics make adjustments to the NAV per the IFRS financial
statements to provide stakeholders with the most relevant information on the
fair value of the assets and liabilities of a real estate investment company,
under different scenarios.
EPRA Net EPRA Net Reinstatement £501,400,000
Reinstatement Value EPRA NAV metric which assumes that entities never sell assets and aims to Value £500,523,000
represent the value
required to rebuild the entity.
EPRA Net Reinstatement 97.1p 97.2p
Value per Share (diluted)
EPRA Net Tangible Assets
EPRA NAV metric which assumes that entities buy and sell assets, thereby £501,400,000
crystallising certain levels of unavoidable deferred tax.
EPRA Net Tangible Assets £500,523,000
EPRA Net Tangible 97.1p 97.2p
Assets per Share
(diluted)
EPRA Net Disposal Value EPRA NAV metric which represents the £497,312,000
Shareholders' value under a disposal scenario, where deferred tax, financial EPRA Net Disposal Value
instruments and certain other adjustments are calculated to the full
extent of their liability, net of any resulting tax.
£525,518,000
EPRA Net Disposal Value per Share (diluted) 101.9p 96.4p
EPRA Net Initial Yield (NIY) Annualised rental income based on the cash rents passing at the balance sheet EPRA Net Initial Yield
date, less non-recoverable property operating expenses, divided by the market
value of the property with (estimated) purchasers' costs.
5.7%
5.7%
EPRA 'Topped-up' NIY This measure incorporates an adjustment to the EPRA 'Topped-up' Net Initial Yield
ERA NIY in respect of the expiration of rent-free-periods 6.8% 6.2%
(or other unexpired lease incentives such as discounted rent periods and
stepped rents).
EPRA Vacancy Rate Estimated Market Rental Value (ERV) of vacancy space divided by ERV of the EPRA Vacancy Rate
whole portfolio.
18.2%
16.2%
EPRA Costs Ratio Administrative and operating costs (including and excluding costs of direct
vacancy) divided by gross rental income.
EPRA Costs Ratio
36.9% 31.2%
EPRA Costs Ratio
(excluding direct
vacancy costs) 16.5% 16.8%
EPRA LTV Debt divided by the market value of property EPRA LTV 45.6%
46.3%
NOTES TO THE CALCULATION OF THE EPRA PERFORMANCE MEASURES
1. EPRA earnings and Company Adjusted Earnings
For calculations, please refer to note 11 to the financial statements.
2. EPRA Net Reinstatement Value
30 June 31 December
2022 2021
£'000 £'000
NAV per the financial statements 513,375 502,401
Fair value of derivative financial instruments (13,557) (1,706)
Deferred tax liability 705 705
EPRA Net Reinstatement Value 500,523 501,400
Dilutive number of Shares 515,736,583 515,736,583
EPRA Net Reinstatement Value per share 97.1p 97.2p
3. EPRA Net Tangible Assets
30 June 31 December
2022 2021
£'000 £'000
NAV per the financial statements 513,375 502,401
Fair value of derivative financial instruments (13,557) (1,706)
Deferred tax liability 705 705
EPRA Net Tangible Assets 500,523 501,400
Dilutive number of Shares 515,736,583 515,736,583
97.1p 97.2p
EPRA Net Tangible Assets per share
4. EPRA Net Disposal Value
30 June 31 December
2022 2021
£'000 £'000
NAV per the financial statements 513,375 502,401
Adjustment for the fair value of bank borrowings 11,493 (3,899)
Adjustment for the fair value of retail eligible bonds 650 (1,190)
EPRA Net Disposal Value 525,518 497,312
Dilutive number of Shares 515,736,583 515,736,583
EPRA Net Disposal Value per Share 101.9p 96.4p
5. EPRA Net Initial Yield
Calculated as the value of investment properties divided by annualised net
rents:
30 June 31 December
2022 2021
£'000 £'000
Investment properties 915,240 906,149
Purchaser costs 60,594 59,973
975,834 966,122
Annualised cash passing rental income 66,282 67,095
Property outgoings (10,914) (11,822)
Annualised net rents 55,368 55,273
Add notional rent expiration of rent-free periods or other lease incentives 10,734 4,961
Topped-up net annualised rent 66,101 60,234
EPRA NIY 5.7% 5.7%
EPRA topped up NIY 6.8% 6.2%
6. EPRA Vacancy Rate
Six months ended Year ended 31 December
30 June 2021
2022 £'000
£'000
Estimated Market Rental Value (ERV) of vacant space 14,334 16,095
Estimated Market Rental value (ERV) of whole portfolio 88,234 88,375
EPRA Vacancy Rate 16.2% 18.2%
7. EPRA Cost Ratios
Six month ended 30 June Year ended 31 December
2022 2021
£'000 £'000
Property costs 16,267 24,075
Less recoverable service charge income and other similar costs (8,155) (14,145)
Add administrative and other expenses 5,568 10,583
EPRA costs (including direct vacancy costs) 13,680 20,513
Direct vacancy costs (7,549) (9,468)
EPRA costs (excluding direct vacancy costs) 6,131 11,045
Gross rental income 45,211 79,899
Less recoverable service charge income and other similar items (8,155) (14,145)
Gross rental income less ground rents 37,056 65,754
EPRA Cost Ratio (including direct vacancy costs) 36.9% 31.2%
EPRA Cost Ratio (excluding direct vacancy costs) 16.5% 16.8%
The Group has not capitalised any overhead or operating expenses in the
accounting years disclosed above.
8. EPRA LTV
30 June 31 December
2022 2021
£'000 £'000
Borrowings from financial institutions 392,889 389,937
Bond loans 50,000 50,000
Net payables 28,868 29,589
Cash held by solicitors (66) (66)
Cash and net equivalents (46,158) (56,128)
EPRA Net debt 425,533 413,332
Investment properties at fair value 918,200 906,149
Financial Assets - loans 867 1,011
Total property value 919,067 907,160
EPRA LTV 46.3% 45.6%
PROPERTY RELATED CAPITAL EXPENDITURE ANALYSIS
Six months ended 30 June Year ended 31 December
2022 2021
£'000 £'000
Acquisitions 78,916 251,431
Development
Investment Properties - -
Incremental lettable space - -
No incremental lettable space 3,054 6,816
Tenant incentives - -
Other material non-allocated types of expenditure - -
Capitalised interest - -
Total capital expenditure 81,970 258,247
Conversion from accrual to cash basis - -
Total capital expenditure on cash basis 81,970 258,247
Acquisitions - this represents the purchase cost of investment properties and
associated incidental purchase expenses such as stamp duty land tax, legal
fees, agents' fees, valuations and surveys.
Subsequent capital expenditure - this represents capital expenditure which has
taken place post the initial acquisition of an investment property.
OTHER PERFORMANCE MEASURES
Net LTV
30 June 31 December
2022 2021
£'000 £'000
Borrowings from financial institutions 392,889 389,937
Bond loans 50,000 50,000
Cash held by solicitors (66) (66)
Cash and cash equivalents (46,158) (56,128)
Net debt 396,665 383,743
Investment properties at fair value 918,200 906,149
Net LTV 43.2% 42.4%
SHAREHOLDER INFORMATION
Share register enquiries: Link Group.
Please phone: 0371 664 0300 for any questions about:
• changing your address or other details;
• your shares;
• buying and selling shares.
Calls are charged at the standard geographic rate and will vary by provider.
Calls outside the United Kingdom will be charged at the applicable
international rate. The Registrar is open between 9.00am - 5.30pm, Monday to
Friday excluding public holidays in England and Wales. For Shareholder
enquiries please email enquiries@linkgroup.co.uk
(mailto:enquiries@linkgroup.co.uk) .
POSTAL ADDRESS
Link Group
Shareholder Services
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
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Shareholders now have the opportunity to be notified by email when the
Company's annual reports, interim reports and other formal communications are
available on the Company's website, instead of receiving printed copies by
post. This has environmental benefits in the reduction of paper, printing,
energy and water usage, as well as reducing costs to the Company. If you have
not already elected to receive electronic communications from the Company and
wish to do so, visit www.signalshares.com. To register, you will need your
investor code, which can be found on your share certificate.
Alternatively, you can contact Link's Customer Support Centre, which is
available to answer any queries you have in relation to your shareholding:
By phone: call +44 (0) 371 664 0300. Calls from outside the UK will be
charged at the applicable international rate. Lines are open between 9.00am
and 5.30pm, Monday to Friday (excluding public holidays in England and Wales).
By email: enquiries@linkgroup.co.uk (mailto:enquiries@linkgroup.co.uk)
By post:
Link Group
Shareholder Services
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Forthcoming events
October 2022 Q2 2022 Dividend Payment
November 2023 Q3 Trading Update and Dividend Declaration
February 2022 Q4 Dividend Declaration
March 2023 2022 Preliminary Results
May 2023 Q1 2023 Trading Update and Dividend Declaration
Note: all future dates are provisional and subject to change.
Website: www.regionalreit.com
Other Information
Listing (ticker):
LSE
Main Market (RGL)
Date of listing:
6 November 2015
Joint Brokers:
Peel Hunt LLP and Panmure Gordon (UK) Limited
Financial PR:
Buchanan Communications
Incorporated:
Guernsey
ISIN: GG00BYV2ZQ34
SEDOL:
BYV2ZQ3
Legal Entity Identifier:
549300D8G4NKLRIKBX73
COMPANY INFORMATION
Directors
Kevin McGrath (Chairman and Independent Non-Executive Director)
William Eason (Senior Independent Non-Executive Director, Management
Engagement and Remuneration Committee Chairman)
Daniel Taylor (Independent Non-Executive Director)
Frances Daley (Independent Non-Executive Director and Audit Committee
Chairman)
Massy Larizadeh (Independent Non-Executive Director)
Stephen Inglis (Non-Executive Director)
Timothy Bee (Non-Executive Director)
Administrator Independent Auditor Registrar
Jupiter Fund Services Limited RSM UK Audit LLP Link Market Services (Guernsey)
Mont Crevelt House Third Floor Limited
Bulwer Avenue Centenary House The Registry
St. Sampson 69 Wellington Street 34 Beckenham Road
Guernsey GY2 4LH Glasgow G2 6HG Beckenham
Kent BR3 4TU
Asset Manager Investment Manager Sub-Administrator
London & Scottish Property Investment Management Limited Toscafund Asset Management LLP Link Alternative Fund Administrators Limited
Venlaw 5th Floor Beaufort House
349 Bath Street 15 Marylebone Road 51 New North Road
Glasgow G2 4AA London NW1 5JD Exeter
Devon EX4 4EP
Company Secretary Legal Adviser to the Company Tax Adviser
Link Company Matters Limited Macfarlanes LLP Grant Thornton UK LLP
Beaufort House 20 Cursitor Street 110 Queen Street
51 New North Road London EC4A 1LT Glasgow GI 3BX
Exeter
Devon EX4 4EP
Depositary Public Relations Registered office
Ocorian Depositary (UK) Limited Buchanan Communications Limited Regional REIT Limited
20 Fenchurch Street 107 Cheapside Mont Crevelt House
London London EC2V 6DN Bulwer Avenue
EC3M 3BY St. Sampson
Guernsey GY2 4LH
Financial Adviser and Joint Broker Joint Broker Property Valuers
Peel Hunt LLP Panmure Gordon Cushman & Wakefield Debenham
Moor House 1 New Change Tie Leung Limited (trading as Cushman & Wakefield)
120 London Wall London 125 Old Broad Street
London EC2Y 5ET EC4M 9AF London EC2N 2BQ
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of this announcement.
National Storage Mechanism
A copy of the Half-Yearly Report will be submitted shortly to the National
Storage Mechanism ("NSM") and will
be available for inspection at the NSM, which is situated at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
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