Source - LSE Regulatory
RNS Number : 9205L
Regional REIT Limited
16 September 2021
 

16 September 2021

Regional REIT Limited

("Regional REIT", the "Group" or the "Company")

 

2021 Interim Results

Portfolio transition to office focus largely completed, well positioned to deliver capital growth

 

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 2021. 

 

Financial highlights:

 

Income focused - A robust performance from an increasingly diversified and growing regional office portfolio, positioned extremely well to benefit from 'the return to the office'

·      Total shareholder return of 7.9% for the period

·      Total rent collection for the period was 99.0%* of rent due, ahead of the 93.7% of rent collected for the equivalent period in 2020

·      Rent roll remained stable at £61.1m (31 December 2020: £64.2m)

·      Net initial yield was 6.7% (31 December 2020: 6.9%)

·      EPRA EPS increased to 3.0p per share ("pps") for the period (30 June 2020: 2.6pps)

·      H1 dividend declared of 3.2pps (30 June 2020: 3.4pps), targeting an expected full year dividend of 6.5pps

·      EPRA NTA per share of 99.1pps (31 December 2020: 98.6pps); IFRS NAV of 98.5pps (31 December 2020: 97.5pps)

·      Group's cost of debt 3.3% (31 December 2020: 3.3%)

·      Net LTV of 39.8% (31 December 2020: 40.8%), slightly below target of 40%

·      Weighted average debt duration in line with objectives at 6.0 years (31 December 2020: 6.4 years)

·      Fair value of the portfolio valuation £729.1m (31 December 2020: £732.4m)

·      Operating profit before gains and losses on property assets and other investments for the period amounted to £19.9m (30 June 2020: £18.1m)

 

*As at 10 September 2021, rent collections to 30 June 2021 amounted to 99.0%; actual rent collected 96.8%, monthly rents 0.4% and deals agreed of 1.8%.

 

Operational highlights:

 

Increasing office exposure and generating attractive dividends

·      Another period of strong operational performance, demonstrating the capabilities of our active asset management approach and the quality of our occupier base

·      Prioritising the maintenance of occupancy levels, while providing safe and vibrant spaces for occupiers to thrive within

·      Post the period end, significant progress made in exiting industrial and retail holdings to focus entirely on core regional offices. At the period end, 83.2% (31 December 2020: 83.5%) of the portfolio by valuation was offices, 11.3% industrial (31 December 2020: 11.1%), 4.1% retail (31 December 2020: 4.1%) and 1.4% other (31 December 2020:1.3%)

·      By income, office assets accounted for 82.5% of gross rental income (31 December 2020: 82.3%) and industrial assets for 9.8% (31 December 2020: 10.3%)

·      A diversified portfolio of 151 properties (31 December 2020: 153), 1,214 units (31 December 2020: 1,245) and 847 occupiers (31 December 2020: 898)

·      The Group made disposals amounting to £10.8m (net of costs) during the period. The proceeds from these disposals have since been recycled into acquiring properties to further diversify the occupier base

·      At the period end, the portfolio valuation split by region was as follows: England 77.7% (31 December 2020: 78.3%), Scotland 17.9% (31 December 2020: 17.3%) and the balance of 4.4% (31 December 2020: 4.4%) was in Wales

·      EPRA Occupancy rates decreased to 85.7% (31 December 2020: 89.4%)

·      During the period, the Company completed 25 new lettings. Once fully occupied, these will provide an additional gross rental income of c. £1.3m

 

Post period end

·      On 26 August 2021, the Company declared the Q2 2021 dividend of 1.60pps, to be paid to shareholders on 15 October 2021

·      On 31 August 2021, the Company acquired a significant regional office portfolio for £236m, comprised of 31 high quality multi-let offices, reflecting a NIY of 7.8% and a reversionary yield of 11.0%

·      Several disposals were also made post period end, including:

 

Arena Point - Sold for £10.65m, representing a substantial uplift of 15.8% against the valuation as at 31 December 2020

Industrial portfolio - Sold for £45.0m, reflecting an uplift of 7.5% above the valuation as at 31 December 2020

Trident Retail Park, Birmingham - Sold for £3.52m reflecting an uplift of 63.7% above the valuation as at 31 December 2020

Crompton Way, Irvine - Sold for £1.85m in August 2021, reflecting an uplift of 85.0% against the valuation as at 31 December 2020

Freebournes Drive, Witham -  The contracted £3.4m sale is expected to complete by the end of September 2021, reflecting an uplift of 20.1% above the valuation as at 31 December 2020

 

·      Following the completion of the post-period end acquisitions and disposals, the estimated current weightings based upon valuations as at 30 June 2021 were approximately 90.6% offices and 9.4% non-core assets

 

Since 30 June 2021, the Company has made a number of successful new lettings and lease renewals:

 

·      Cyan Building, Rotherham - A lease has been signed with National Westminster Bank Plc for 67,458 sq. ft.. The lease is for two years with a break option any time after December 2022 at a rental income of £425,000 per annum ("pa") (£6.20/ sq. ft.).

·      Ashby Business Park, Ashby De La Zouch - Hill Rom UK Ltd. renewed its lease for 29,358 sq. ft. for a further 12 months at a rental income of £366,975 pa (£12.50/ sq. ft.).

·      The Coach Works, Leeds - A new lease has been signed with Pentest People Ltd. for 3,304 sq. ft.. The lease is for five years with a break option in August 2024 at a rental income of £84,600 pa (£25.61/ sq. ft.) plus an additional £4,000 pa for two car parking spaces.

·      Advantage, Reading - 3,255 sq. ft. of previously vacant space has been let to Barrett & Co Solicitors LLP. The new lease is for 10 years with a break option in November 2027 at a rent of £87,288 pa (£26.82/ sq. ft.).

·      Genesis Business Park, Woking - A new lease has been signed with Metamark (UK) Ltd. for 2,622 sq. ft.. The lease is for five years with a break option in July 2024 at a rent of £61,617 pa (£23.50/ sq. ft.).

·      Mandale Business Park, Durham - A new lease has been signed with Partner Construction Ltd. for 5,000 sq. ft.. The lease is for five years with a break option in August 2024 at a rent of £57,500 pa (£11.50/sq. ft.).

 

Stephen Inglis, CEO of London and Scottish Property Investment Management, the Asset Manager, commented:

 

"I am pleased to report that the Company has once again demonstrated the resilience of its business model and it performed well during the first half of 2021, against the testing market environment. Regional REIT is now poised to benefit from an anticipated change in sentiment as most employees return to their offices.

 

I would particularly like to thank our team for their ongoing commitment in assisting occupiers throughout this challenging period and who are continuing to successfully implement the identified asset management initiatives across the portfolio.

 

The Company continued to execute on its strategic objective of focusing on regional office assets with a number of significant non-core disposals providing considerable uplifts from valuation. Capital was swiftly redeployed into value accretive acquisition opportunities in line with the renewed objectives. This culminated, post period end, in the purchase of a portfolio of 31 high quality, predominately multi-let office assets from Squarestone Growth LLP.

 

The Company is in a strong financial position. It has produced a total shareholder return of 7.9% for the period, whilst maintaining its record of quarterly dividends. Furthermore, the strong rent collections have resulted in EPRA earnings of 3.0 pence per share for the six months to 30 June 2021. 

 

We would like to thank our shareholders for their continued support as we look forwards with renewed optimism as the full return to the office becomes ever more evident. The portfolio is in an exceptional position to capitalise on the next stage of 'the return to the office', with significant upside potential in occupational and rental growth and in turn the portfolio valuation."

 

A meeting for analysts and sales teams will be held via a conference call facility at 9.30am (London time, GMT) on Thursday, 16 September 2021. 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 shortly be available to download from the Investors section of the Group's website at www.regionalreit.com.

 

The full Half-Yearly Report and Financials Statements can be accessed via the Company's website at 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 subsidiaries1 (the "Group") is a United Kingdom ("UK") based real estate investment trust that launched in November 2015. It is managed by London & Scottish Property Investment Management Limited, the Asset Manager, and Toscafund Asset Management LLP, the Investment Manager.

 

Regional REIT's commercial property portfolio is comprised wholly of income producing UK assets and comprises, predominantly of offices located in the regional centres outside of the M25 motorway. The portfolio is geographically diversified, with 151 properties, 847 occupiers as at 30 June 2021, with a valuation of £729.1m.

 

Regional REIT pursues its investment objective by investing in, actively managing and disposing of regional core and core plus property assets. It aims to deliver an attractive total return to its Shareholders, targeting greater than 10% per annum, with a strong focus on income supported by additional capital growth prospects.

 

The Company's shares were admitted to the Official List of the UK's Financial Conduct Authority and to trading on the London Stock Exchange on 6 November 2015. For more information, please visit the Group's website at www.regionalreit.com.

 

Cautionary Statement

This document has been prepared solely to provide additional information to Shareholders to assess the Group's performance in relation to its operations and growth potential. The document should not be relied upon by any other party or for any other reason. Any forward looking statements made in this document are done so by the Directors in good faith based on the information available to them up to the time of their approval of this document. However, such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

 

ESMA Legal Entity Identifier ("LEI"): 549300D8G4NKLRIKBX73

 

1Regional 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

Income focused - opportunistic buying and strategic selling, coupled with intensive asset management, continues to secure long-term income

 

 

30 June 2021

30 December 2020

Portfolio Valuation

£729.1m

£732.4

IFRS NAV per share

98.5p

97.5p

EPRA NTA per share

99.1p

98.6p

Net Loan To Value Ratio* 

39.8%

40.8%

Weighted Average Cost of Debt* 

3.3%

3.3%

Weighted Average Debt Duration* 

6.0 years

6.4 years

 

 

 

 

 

 

Dividend declared per share for the six months ended 30 June 2021

3.2p

 

Dividend declared per share for the six months ended 30 June 2020

3.4p

 

 

* Alternative Performance Measure. Details are provided in the Glossary of Terms and the EPRA Performance Measures in the full half-yearly report.

 

CHAIRMAN'S STATEMENT

 

The Chairman's Statement covers the period ended 30 June 2021.

 

"I am pleased to report that Regional REIT has once again demonstrated the resilience of its business model and it has performed relatively well during the first half of 2021. As the wider economy awakens from the Government imposed pandemic restrictions, our geographically diversified portfolio is well positioned to support current and future occupiers as they capture the unfolding growth opportunities."

 

Kevin McGrath

Chairman
 

OVERVIEW

Despite the challenging backdrop created by the pandemic, our strategy of having a defensive portfolio composed of a large number of occupiers operating across different industries in a range of growth regions outside the M25 motorway has resulted in a relatively good performance. Our active Asset Manager, comprising of 62 professionals, continued to maintain strong working relationships with our 847 occupiers (31 December 2020: 898), which underpinned our strong rent collections and resulted in EPRA earnings of 3.0 pence per share ("pps") (six months to 30 June 2020: 2.6pps). IFRS diluted earnings per share were 4.2pps (six months to 30 June 2020: diluted loss of 6.2pps). We have declared a total dividend of 3.2pps for the period.

 

Our portfolio held up well given the on-going challenges posed by the pandemic and Brexit, with its overall value marginally reducing to £729.1m from £732.4m as at 31 December 2020. During the period, disposals amounted to £10.8m (net of costs). The proceeds from these disposals will be recycled into acquiring properties to further diversify our occupier base, as well as providing good opportunities to add value through asset management initiatives. Our rolling capital expenditure programme amounted to £4.3m.


Our priorities throughout the period were to maintain occupancy levels, provide safe and vibrant spaces in which our occupiers could thrive and, increase our overall occupier and geographic diversification, whilst continuing to source revenue enhancing opportunities in the challenging commercial property market.

 

FINANCIAL RESOURCES

The Group continues to be in a financially strong position with an EPRA NTA* of £427.7m (31 December 2020: £425.6m) and a cash balance of £75.3m as at 30 June 2021 (31 December 2020: £67.4m), of which £61.3m is unrestricted (31 December 2020: £55.0m).

 

Our disciplined approach to debt management continues to focus upon ensuring the debt profile remains flexible as the signs of the economic recovery are evidenced. There is no requirement to refinance until 2024.

 

Furthermore, net borrowings stand at 39.8% (31 December 2020: 40.8%), which is in line with our long-term target of c.40%. Our debt facilities maintain ample headroom against their respective covenants.

 

* Alternative Performance Measure. Details are provided in the Glossary of Terms and the EPRA Performance Measures in the full half-yearly report.

 

MARKET ENVIRONMENT

Lambert Smith Hampton (LSH)2 research shows that investment volumes reached £13.9 billion in the second quarter of 2021, 23.8% higher than Q1 2021 and 6.9% above the five-year quarterly average. Consequently, this resulted in strong overall investment in H1 2021 relative to trend. At £25.1 billion, volumes in the first half of 2021 were 37.4% above the same period in 2020, up 25.1% when compared to the pre-pandemic levels recorded in the first half of 2019, and 5.2% higher than the five-year average.

 

The UK regions outside of London attracted £5.6 billion in Q2 2021, the highest figure recorded since Q1 2018, 21.0% above the five-year quarterly average, and a 34.0% increase from the previous quarter. Investment in the second quarter brought the H1 2021 total to £9.7 billion, the highest figure recorded since H1 2018 and double the level recorded in the same period in 2020. Research by LSH highlights the importance of the regional markets in driving Q2's recovery, with the regions outperforming when compared to London. At £4.8 billion, investment in Greater London was 9.1% below the five-year quarterly average.

 

More details can be found in the Asset and Investment Managers' Report below.

 

2 LSH, UKIT Q2 2021, August 2021 

 

STRATEGY UPDATE - POSITIONED FOR GROWTH

Following our announcement on 12 November 2020 that the Company would focus its investments solely on properties in the office sector in the main regional centers of the UK outside of the M25 motorway and exit all other commercial property sector investments, a number of significant none core disposals have been completed. (See Note 22). The Board remains convinced that the supply and demand imbalance of the regional office sector coupled with the Asset Manager's specialist operating platform and experience will produce attractive Shareholder returns over the long-term.

 

DIVIDENDS

The dividend is the major component of total shareholder returns. The Company declared a total dividend of 3.2pps for the period ended 30 June 2021, comprising of two quarterly dividends of 1.6pps each.

 

It remains the Board's intention to maintain its uninterrupted record of quarterly dividend payments, especially through this period of continuing uncertainty. This is predicated on the strength of the Company's balance sheet and the strong rent collections received to date.

 

PERFORMANCE

Since listing on 6 November 2015, the Company's EPRA Total Return was 39.9% with an annualised EPRA Total Return of 6.1%. The total shareholder return since listing was 30.1%, compared to the FTSE EPRA NAREIT UK Total Return Index, which has generated a return of 4.7% over the same period. Over the reporting period, the Company's total shareholder return was 7.9%, versus the return of 10.7% for the FTSE EPRA NAREIT UK Total Return Index.

 

INTEGRATING A MORE SUSTAINABLE APPROACH

As previously announced, and in accordance with the Group's commitment to a sustainability strategy, the inaugural submission to the Global Real Estate Sustainability Benchmark ("GRESB") has been completed. This will be used as a platform from which sustainability policies and actions will be built upon over the coming years.

 

SUBSEQUENT EVENTS

On 2 July 2021, the Company announced the sale of an industrial site for £8.6m, with a net initial yield of 7.2% and a 4.9% premium to the 31 December 2020 valuation.

 

On 12 July 2021, the Company announced the disposal of an office for £10.65m, representing a 15.8% uplift to the 31 December 2020 valuation.

 

On 21 July 2021, the Company announced the exchange for the sale of a portfolio of seven industrial properties for £45m, with a net initial yield of 6.75% and a 7.5% premium to the 31 December 2020 valuation.

 

On 31 August 2021, the Company announced the acquisition of 31 high quality, predominately multi-let office assets for a consideration price of £236.0m, reflecting a net initial yield of 7.8%. The consideration was satisfied by three components: the issuance of 84,230,000 new ordinary shares in the Company at 98.6 pence per share (being the EPRA Net Tangible Asset Value per share as at 31 December 2020) equivalent to £83.1m, £76.7m of existing cash resources and additional borrowings of £76.2m. Following the acquisition, the Company estimates (based on its own Consolidated Balance Sheet as at 31 December 2020) that it has a net LTV-ratio of c. 43.8% (31 December 2020: 40.8%); and weighted average cost of debt of 3.3% (31 December 2020: 3.3%).

 

OUTLOOK

The successful national vaccine programme has resulted in the Government rescinding the imposed pandemic restrictions. This has been accompanied by a strong rebound in most sectors of the UK economy. The economic activity augurs well for the remainder of 2021. 

 

Though we remain mindful of the challenges to be faced in a structurally evolving property market, which will inevitably continue to be impacted by the pandemic and the aftermath of Brexit, our confidence for the long-term remains. It is under pinned by our deliberately geographically diversified portfolio, coupled with robust levels of rent collections, which have continued to maintain quarterly dividends to our Shareholders. 

 

The Group continues to focus on asset management initiatives to promptly recycle capital into office opportunities that de-risk the portfolio, whilst increasing the number, quality and quantum of income streams.

 

Kevin McGrath

Chairman

 

15 September 2021

 

ASSET AND INVESTMENT MANAGERS' REPORT

 

"It brings me great pleasure to report that the Company performed relatively well during the six months ended June 2021. The performance can in part be attributable to my tenacious team for their ongoing commitment in assisting occupiers through this challenging period and continuing to implement the identified programme of asset management initiatives across the portfolio.

 

The Company is in a strong financial position. It has produced a total shareholder return of 7.9% for the period, while maintaining its record of quarterly dividends. Furthermore, the strong rent collections have resulted in EPRA earnings of 3.0 pence per share, a 15% increase over the six months to 30 June 2020.

 

During the period, the Company has continued to execute its strategic objective of focusing on regional office assets with a number of significant non-core disposals providing considerable uplifts from valuation. Capital was swiftly redeployed into value accretive acquisition opportunities in line with the renewed objectives. This has culminated, post period end, in the purchase of a portfolio of 31 high quality, predominately multi-let office assets from Squarestone Growth LLP.

 

We would like to thank our shareholders for their continued support as we look forwards with renewed optimism as the full return to the office becomes ever more evident. The portfolio is in an exceptional position to capitalise on the economic recovery, with significant upside potential in both rental growth and portfolio valuation.

 

During the first half of 2021, the Company completed 25 new lettings, totaling 116,815 sq. ft.. When fully occupied, these will provide an additional gross rental income of c. £1.3m. Given the end of many pandemic restrictions and the successful vaccine programme, we anticipate a pick-up in activity over the coming months as more and more companies return to the office."

 

Stephen Inglis

CEO and Founder of London & Scottish Property Investment Management

Asset Manager of Regional REIT

 

Investment Activity in the UK Commercial Property Market

The COVID-19 pandemic had a considerable impact on investment in the UK commercial property market throughout 2020 with investment levels falling by 17.6% from 2019 levels and total investment in 2020 dropping to £40.7 billion, according to research from Lambert Smith Hampton ("LSH")3.  Although the pandemic continues to impact the UK commercial property market, the end of many legal restrictions throughout the UK has resulted in a clear rise in investment volumes reflecting improved business confidence. The most recent data from LSH shows that investment volumes reached £13.9 billion in the second quarter of 2021, 23.8% higher than Q1 2021 and 6.9% above the five-year quarterly average. Consequently, this resulted in strong overall investment in the first half of 2021 relative to trend. At £25.1billion volumes in the first half of 2021 were 37.4% above the same period in 2020, up 25.1% when compared to the pre-pandemic levels recorded in the first half of 2019, and 5.2% higher than the five-year average.

 

3 LSH UKIT Q2 2021, August 2021

 

The UK regions outside of London attracted £5.6 billion in Q2 2021, the highest figure recorded since Q1 2018, 21.0% above the five-year quarterly average, and a 34.0% increase from the previous quarter. Investment in the second quarter brought the H1 2021 total to £9.7 billion, the highest figure recorded since H1 2018 and double the level recorded in the same period in 2020. Research by LSH highlights the importance of the regional markets in driving Q2's recovery, with the regions outperforming when compared to London. At £4.8 billion, investment in Greater London was 9.1% below the five-year quarterly average. Both East Midlands and West Midlands performed strongly in Q2. Total investment in East Midlands reached £868 million, 129.6% above the five-year quarterly average - the strongest regional performance relative to trend. Data from LSH shows that the West Midlands accounted for the highest proportion of regional investment (19.4%) with £1.1 billion invested, 94.4% above the five-year quarterly average. Other regional markets that performed well relative to trend include: North West, South West, East, and Yorkshire & the Humber.

 

Overseas investment in the UK commercial property market accounted for 55.6% of total investment in Q2 2021. Figures indicate that overseas investment reached £7.7 billion in Q2 2021, 20.0% above the five-year quarterly average. Strong international investment in the second quarter of the year brought the H1 2021 total to £13.8 billion - 40.2% higher than the pre-pandemic level recorded in H1 2019. Higher levels of capital inflows from international investors highlights the resilience of UK commercial property and suggests that global investors continue to view the UK as a safe haven for capital. LSH research suggests that North American investors were the most acquisitive net buyers at £2.8 billion. Figures indicate that Europe, Far East, and Middle East were all net investors in the second quarter of 2021.

 

Research from CBRE4 indicates that regional offices have outperformed in comparison to central London offices, delivering marginally greater returns of 3.3% in the 12 months ending June 2021 in comparison to central London office returns of 3.2% - a trend that has been witnessed over the last five years.

 

4 CBRE Monthly Index, Q2 2021

 

Occupational Demand in the UK Regional Office Market

Avison Young estimate that take-up of office space across the Big Nine regional markets5 in Q2 2021 reached 1.5 million sq. ft., bringing the half year total to 3.0 million sq. ft. Although take-up in the first half of 2021 is 10.6% higher than the same period in 2020, it is 31.4% below the pre-pandemic levels recorded in the first half of 20196 City Centre activity accounted for the highest proportion of take-up (65.2%) in Q2 2021 at 1.0 million sq. ft., with 0.5 million sq. ft. transacted in the out of town market. Avison Young expect demand throughout Q3 2021 to remain broadly in-line with current levels.

 

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 2021

 

According to Savills, strong occupational demand came from public services, with education and health accounting for the highest proportion of take-up of all regional offices at 16% in the first half of 2021. Moreover, the technology, media & telecoms sector, and serviced offices accounted for the second and third largest proportion of take-up in the regional cities, accounting for 13% and 10% respectively.

 

In terms of speculative development, it is estimated that approximately 5.3 million sq. ft. of office space is currently under construction in the Big Nine regional markets, with Manchester, Glasgow and Birmingham accounting for 24.3%, 22.2% and 11.1%, respectively. Approximately 44.7% of office buildings currently under construction are already pre-let.

 

The COVID-19 pandemic accelerated the adoption of alternative ways of working, in doing so the pandemic also highlighted the limitations of remote working in terms of collaboration, training and productivity, to name a few. Research by CBRE found that only 1% of occupiers expect fully remote working going forward and only an additional 15% anticipate a mostly remote solution7. One trend that the Asset Manager believes will continue is improvements to the office environment as greater importance is placed on health and wellbeing. The office has long provided a place for concentrated work and increasingly a place for collaboration, connection, innovation and social interaction, and the desire for these characteristics has not diminished. However, transformations to offices will be required not only to encourage existing staff to return to the office but also to attract and retain new talent. Research shows that the average office space per employee has reduced drastically since the 1990s, with typical densities of just c.85 sq. ft. per employee8.  Therefore, de-densification of floorplates will likely take place as offices are transformed to include versatile breakout areas and quiet work areas. Additionally, preferences for increased distance between workstations, more private offices, and a reduction in hot desking may result in increased demand for space.

 

7 CBRE, EMEA Occupier survey, June 2021

8 WSP, Demand for Office Space

 

Rental Growth in the UK Regional Office Market

A lack of availability in the Big Nine regional markets has supported headline rents in the first half of 2021. Average regional rents have been resilient throughout 2021 with data from the MSCI monthly index highlighting rental growth of 0.2% in the first six months of the year.

 

The CBRE Monthly Index shows that rental value growth held up better for the rest of UK office markets in the 12 months ended July 2021 with modest growth of 0.2%. Conversely, central London offices and all UK property rents have declined by -1.0% and -0.5% respectively. Colliers International expects rental growth to continue as encouraging demand levels continue in the second half of 2021.

 

Regional REIT's Office Assets

EPRA occupancy of the Group's regional offices decreased to 84.3% (30 June 2020: 88.4%). A like-for-like comparison of the Group's regional offices EPRA occupancy, 30 June 2021 versus 30 June 2020, shows that occupancy decreased to 83.5% (30 June 2020: 88.5%). WAULT to first break was 2.6 years (30 June 2020: 2.8 years); like-for-like WAULT to first break was 2.5 years (30 June 2020: 2.8 years).

 

OCCUPATIONAL DEMAND IN THE UK INDUSTRIAL OFFICE MARKET

Cushman & Wakefield estimate that take-up in the first half of 2021 totalled 32.3 million sq. ft., 67.1% higher than the same period in 2020 and 86.8% above 2019 levels9 Take-up in Q1 2021 was 123.6% higher than the same quarter in 2020 at 13.0 million sq. ft. Demand increased in Q2 2021 reaching 19.2 million sq. ft., 47.8% above the level of take-up in Q1 2021 and 42.7% higher than the same period in 2020. In addition, research by Colliers International suggests that availability fell by c. 26% year-on-year resulting in a vacancy rate of just 4.3% in Q2 2021. In response to low levels of supply developers have announced a range of speculative development. Approximately 16.8 million sq. ft. of speculative development space is currently under construction, according to Savills - the highest level since before the global financial crisis. However, it is worth noting that build costs are expected to increase in the short-term due to low levels of supply of materials such as cladding, steel and concrete10.

 

Occupier demand within the industrial market continues to be highly driven by e-commerce. Online sales increased to 27.9% of total retail sales in July 2021, up from 27.1% in June 2021 and a substantial increase from 19.8% in February 2020 (pre-coronavirus pandemic).11 However, data from the ONS indicates that the percentage of retail spend online is beginning to decrease from highs of just over 30% at the beginning of 2021 in line with the easing of national COVID-19 lockdown restrictions.

 

9 Cushman & Wakefield, Industrial Marketbeat, August 2021

10 Savills, Market in Minutes, July 2021

11 Office for National Statistics, Retail Sales, Great Britain, July 2021

 

RENTAL GROWTH IN THE UK INDUSTRIAL MARKET

Data from MSCI index shows that rental growth in Q2 2021 increased by 1.7% - the highest quarterly rental growth over the last 20 years12. Rental growth in Q2 2021 brings the 12-month average rental growth (in the 12 months to June 2021) to 2.9%, according to data from MSCI13.

 

Rental growth in the UK industrial market looks set to continue as accelerated demand outstrips new supply. According to research from Savills, the most recent rental growth forecasts from RealFor suggests that the industrial and logistics market should expect rental growth of 2.7% per annum until 2025.

 

12 Colliers International, Property Snapshot, August 2021

13 BNP Paribas Real Estate, Industrial Logistics Insider, Q2 2021

 

Regional REIT's Industrial Assets

EPRA occupancy of the Group's industrial sites increased to 94.3% (30 June 2020: 91.5%). A like-for-like comparison of the Group's industrial EPRA occupancy, 30 June 2021 versus 30 June 2020, shows that occupancy increased to 92.8% (30 June 2020: 92.7%). WAULT to first break was 6.7 years (30 June 2020: 5.7 years); like-for-like WAULT to first break was 6.4 years (30 June 2020: 7.2 years).

 

Property Portfolio

As at 30 June 2021, the Group's property portfolio was valued at £729.1m (30 June 2020: £742.3m; 31 December 2020: £732.4m), with rent roll of £61.1m (30 June 2020: £62.9m; 31 December 2020: £64.2m), and an EPRA occupancy rate of 85.7% (30 June 2020: 89.0%; 31 December 2020: 89.4%). On a like-for-like basis, 30 June 2021 versus 30 June 2020 EPRA occupancy was 84.8% (30 June 2020: 89.1%).

 

As at 30 June 2021, there were 151 properties (30 June 2020: 151; 31 December 2020: 153), in the portfolio, with 1,214 units (30 June 2020: 1,249; 31 December 2020: 1,245) and 847 tenants (30 June 2020: 876; 31 December 2020: 898). If the portfolio was fully occupied at Cushman & Wakefield's view of market rents, rental income would be £75.1m per annum (30 June 2020: £75.2m; 31 December 2020: £76.6m).

 

As at 30 June 2021, the net initial yield on the portfolio was 6.7% (30 June 2020: 6.4%; 31 December 2020: 6.9%), the equivalent yield was 8.8% (30 June 2020: 8.7%; 31 December 2020: 8.8%) and the reversionary yield was 9.3% (30 June 2020: 9.2%; 31 December 2020: 9.4%).

As At 30 June 2021

Property Portfolio by Sector

 

 Sector

Properties

Valuation

% by valuation

Sq. ft.

Occupancy (EPRA)

WAULT to first break

Gross rental income

Average rent

ERV

Capital rate

Yield (%)

 

(£m)

(%)

(mil)

(%)

(yrs)

(£m)

(£psf)

(£m)

(£psf)

Net initial

Equivalent

Reversionary

Office

114

607.0

83.2

4.6

84.3

2.6

50.4

13.78

63.9

132.23

6.5

8.8

9.5

Industrial

15

82.6

11.3

1.7

94.3

6.7

6.0

4.06

6.7

49.57

6.8

7.6

6.8

Retail

20

29.7

4.1

0.4

93.5

3.4

3.8

9.47

3.8

66.77

10.8

10.7

11.0

Other

2

9.9

1.4

0.1

89.0

14.3

0.9

12.82

0.8

115.03

7.1

8.3

7.8

Total

151

729.1

100.0

6.8

85.7

3.2

61.1

10.91

75.1

107.43

6.7

8.8

9.3

 

 

Property Portfolio by Region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Region

Properties

Valuation

% by valuation

Sq. ft.

Occupancy (EPRA)

WAULT to first break

Gross rental income

Average rent

ERV

Capital rate

Yield (%)

 

(£m)

(%)

(%)

(%)

(yrs)

(£m)

(£psf)

(£m)

(£psf)

Net initial

Equivalent

Reversionary

Scotland

39

130.2

17.9

1.5

84.5

3.8

12.5

10.29

15.0

87.34

7.8

9.9

10.3

South East

31

183.8

25.2

1.3

86.8

2.2

14.3

13.31

18.4

139.28

5.9

8.1

8.9

North East

19

73.1

10.0

0.6

73.5

3.0

5.8

11.92

7.6

113.96

5.7

9.3

9.8

Midlands

27

138.7

19.0

1.5

86.2

3.5

11.8

9.14

13.5

94.82

6.7

8.3

8.8

North West

16

90.9

12.5

1.0

85.4

4.4

6.6

8.67

9.2

92.75

6.1

9.0

9.3

South West

14

80.3

11.0

0.5

94.2

2.2

6.9

16.02

8.1

161.42

7.1

8.3

9.1

Wales

5

32.1

4.4

0.4

93.0

4.1

3.2

9.29

3.3

81.30

9.3

8.8

9.3

Total

151

729.1

100.0

6.8

85.7

3.2

61.1

10.91

75.1

107.43

6.7

8.8

9.3

 

Tables may not sum due to rounding.

Top 15 Investments (by market value) as at 30 June 2021

 

 

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)

 

Tay House, Glasgow

Office

Barclays Execution Services Ltd, University of Glasgow

27.0

3.7

156,853

94.3

2.7

4.4

1.5

 

Genesis Business Park, Woking

Office

Nuvias (UK & Ireland) Ltd, Fernox Ltd, McCarthy & Stone Retirement Lifestyles Ltd, Walk The Walk Worldwide

23.8

3.3

98,359

80.7

1.3

2.2

2.7

 

Buildings 2 & 3, Bear Brook Office Park, Aylesbury

Office

Bank Of Scotland Plc, Utmost Life and Pensions Ltd, Agria Pet Insurance Ltd

23.3

3.2

140,791

95.7

2.3

3.7

1.9

 

Hampshire
Corporate Park,
Eastleigh

Office

Aviva Central Services UK Ltd, National Westminster Bank Plc, Utilita Energy Ltd, Digital Wholesale Solutions Ltd

19.2

2.6

85,422

99.8

1.5

2.5

2.1

 

Beeston Business Park, Nottingham

Office/ Industrial

Metropolitan Housing Trust Ltd, SMS Electronics Ltd, Worldwide Clinical Trials Ltd, Heart Internet Ltd

18.4

2.5

215,330

100.0

1.8

2.9

5.8

 

800 Aztec West, Bristol

Office

Edvance SAS, NNB Generation  Company (HPC) Ltd

18.3

2.5

73,292

100.0

1.5

2.5

2.1

 

Norfolk House, Smallbrook Queensway, Birmingham

Office

Secretary of State for Communities & Local Government, Spark44 Ltd

18.0

2.5

114,982

85.8

1.4

2.3

1.6

 

Road 4 Winsford Industrial Estate, Winsford

Industrial

Jiffy Packaging Ltd

15.8

2.2

246,209

100.0

1.0

1.7

13.2

 

One & Two Newstead Court, Notting-ham

Office

E.ON UK Plc

15.2

2.1

146,262

68.1

0.9

1.5

3.8

 

Portland Street, Manchester

Office

Darwin Loan Solutions Ltd, New College Manchester Ltd, Mott MacDonald Ltd, Simard Ltd

15.2

2.1

55,787

98.7

0.9

1.5

2.8

 

Ashby Park, Ashby De La Zouch

Office

Ceva Logistics Ltd, Brush Electrical Machines Ltd, Hill Rom UK Ltd

13.4

1.8

91,034

89.4

1.0

1.6

4.5

 

Templeton On The Green, Glasgow

Office

The Scottish Ministers, The Scottish Sports Council, Noah Beers Ltd, Cornerstone Community Care

12.7

1.7

142,512

87.2

1.2

1.9

4.2

 

The Coach Works, Leeds

Office

St James's Place Wealth Management Group Plc

11.9

1.6

41,666

41.7

0.5

0.7

3.2

 

Columbus House, Coventry

Office

TUI Northern Europe Ltd (Shell Energy)

11.4

1.6

53,253

100.0

1.4

2.3

2.5

 

Oakland House, Manchester

Office

Please Hold (UK) Ltd, A.M. London Fashion Ltd, HSS Hire Service Finance Ltd, CVS (Commercial Valuers & Surveyors) Ltd

10.8

1.5

161,057

93.6

1.3

2.1

2.2

 

Total

 

 

254.2

34.9

1,822,809

89.7

20.7

33.9

3.3

 

 

Table may not sum due to rounding

 

Top 15 Tenants (by share of rental income) as at 30 June 2021

 

Tenant

Property

Sector

WAULT to first break

Lettable area

Annualised gross rent

% of Gross rental income

 

 

 

 

(years)

 

(Sq. Ft)

 

(£m)

Barclays Execution
Services Ltd

Tay House, Glasgow

Waterfront Business Park, Fleet

Administrative and support service activities

0.4

108,386

2.2

3.7

Secretary of State for Communities & Local Government

1 Burgage Square, Wakefield Albert Edward House, Preston Bennett House, Stoke-On-Trent Norfolk House, Birmingham Oakland House, Manchester Waterside Business Park, Swansea

Public sector

2.1

164,819

2.0

3.2

Bank Of Scotland Plc

Buildings 3, Bear Brook Office Park, Aylesbury, High Street/Bank Street, Dumfries

Banking

1.0

92,978

1.5

2.4

TUI Northern Europe Ltd (Shell Energy)

Columbus House, Coventry

Professional, scientific and technical activities

2.5

53,253

1.4

2.3

The Scottish Ministers

Calton House, Edinburgh, Edinburgh Quadrant House, Dundee Templeton on the Green, Glasgow

 

 

 

Public sector

2.2

106,511

1.3

2.1

Jiffy Packaging Ltd

Road 4 Winsford Industrial Estate, Winsford

Manufacturing

13.2

246,209

1.0

1.7

EON UK Plc

Two Newstead court Nottingham

Electricity, gas, steam and air conditioning supply

3.8

99,142

0.9

1.5

Edvance SAS

800 Aztec West, Bristol

Electricity, gas, steam and air conditioning supply

1.9

41,285

0.9

1.5

John Menzies Plc

2 Lochside Avenue, Edinburgh

Professional, scientific and technical activities

2.1

43,780

0.9

1.4

The Royal Bank Of Scotland Plc

Cyan Building, Rotherham

Banking

0.0

67,458

0.9

1.4

SPD Development Co Ltd

Clearblue Innovation Centre, Bedford

Professional, scientific and technical activities

4.3

58,167

0.8

1.4

Aviva Central Services UK Limited

Hampshire Corporate Park, Chilworth House, Eastleigh

Other services activities

3.4

42,612

0.8

1.3

James Howden &
Company Ltd

Howden Site, Renfrew

 

 

Manufacturing

10.4

204,414

0.8

1.2

Odeon Cinemas Ltd

Kingscourt Leisure Complex, Dundee

Information and communication

14.3

41,542

0.7

1.2

NNB Generation Company (HPC) Ltd

800 Aztec West, Bristol

Electricity, gas, steam and air conditioning supply

2.5

32,007

0.6

1.0

Total

 

 

3.6

1,402,563

16.7

27.3

 

Table may not sum due to rounding

 

 

PROPERTY PORTFOLIO SECTOR AND REGION SPLITS BY VALUATION AND INCOME

 

By Valuation

As at 30 June 2021, 83.2% (30 June 2020: 79.9%, 31 December 2020: 83.5%) of the portfolio by market value was offices and 11.3% (30 June 2020: 14.3%, 31 December 2020: 11.1%) was industrial. The balance was made up of retail, 4.1% (30 June 2020: 4.3%, 31 December 2020: 4.1%) and other, 1.4% (30 June 2020: 1.5%, 31 December 2020: 1.3%). By UK region, as at 30 June 2021, Scotland represented 17.9% (30 June 2020: 17.7%, 31 December 2020: 17.3%) of the portfolio and England 77.7% (30 June 2020: 79.8%, 31 December 2020: 78.3%) the balance of 4.4% (30 June 2020: 2.5%, 31 December 2020: 4.4%) was in Wales. In England, the largest regions were the South East, the Midlands and the North West.

 

By Income

As at 30 June 2021, 82.5% (30 June 2020: 79.8%, 31 December 2020: 82.3%) of the portfolio by income was offices and 9.8% (30 June 2020: 12.3%, 31 December 2020: 10.3%) was industrial. The balance was made up of retail, 6.3% (30 June 2020: 6.6%, 31 December 2020: 6.0%), and other, 1.4% (30 June 2020: 1.4%, 31 December 2020: 1.3%). By UK region, as at 30 June 2021, Scotland represented 20.5% (30 June 2020: 20.6%, 31 December 2020: 20.4%) of the portfolio and England 74.3% (30 June 2020: 76.4%, 31 December 2020: 74.6%); the balance of 5.2% was in Wales (30 June 2020: 3.0%, 31 December 2020: 5.0%). In England, the largest regions were the South East, the Midlands and the South West.

 

LEASE EXPIRY PROFILE

The WAULT on the portfolio is 5.0 years (30 June 2020: 5.3 years; 31 December 2020: 5.1 years); WAULT to first break is 3.2 years (30 June 2020: 3.4 years; 31 December 2020: 3.2 years). As at 30 June 2021, 14.6% (30 June 2020: 6.3%; 31 December 2020: 14.2%) of income was from leases, which will expire within one year, 10.1% (30 June 2020: 14.9%; 31 December 2020: 9.1%) between one and two years, 34.1% (30 June 2020: 34.5%; 31 December 2020: 35.8%) between two and five years and 41.2% (30 June 2020: 44.3%; 31 December 2020: 40.9%) after five years.

 

Lease Expiry Profile

0-1 year

14.6%

1-2 years

10.1%

2-5 years

34.1%

5+ years

41.2%

 

Tenants by Standard Industrial Classification

As at 30 June 2021, 14.0% of income was from tenants in the professional, scientific and technical activities sector (30 June 2020: 13.0%; 31 December 2020: 13.5%), 13.2% from the administrative and support service activities sector (30 June 2020: 12.8%; 31 December 2020: 12.9%), 10.1% from the manufacturing sector (30 June 2020: 8.9%; 31 December 2020: 10.3%), 8.7% from the information and communication sector (30 June 2020: 8.3%; 31 December 2020: 8.3%), and 8.0% from the public sector (30 June 2020: 8.1%; 31 December 2020: 8.8%). The remaining exposure is broadly spread.

 

Tenants by SIC Codes (% of gross rent)

 

Professional, scientific and technical activities

14.0%

Administrative and support service activities

13.2%

Manufacturing

10.1%

Information and communication

  8.7%

 

Public sector

  8.0%

 

Financial and insurance activities

  7.9%

Wholesale and retail trade

  7.7%

Banking

  5.3%

Electricity, gas, steam and air conditioning supply

  4.7%

Other service activities

  3.5%

Human health and social work activities

  2.7%

Other*

14.1%

       

 

*Other - Accommodation and food service activities, activities of extraterritorial organisations and bodies, arts, entertainment and recreation, charity, construction, education, mining and quarrying, not specified, public administration and defence; compulsory social security. real estate activities, registered society, residential, transportation and storage, water supply, sewerage, waste management and remediation activities.

 

Tables may not sum due to rounding.


No tenant represents more than 4% of the Group's gross rent roll as at 30 June 2021, the largest being 3.7%. (30 June 2020: 3.6%; 31 December 2020: 3.5%).

 

Financial Review

 

Net Asset Value

Between 1 January 2021 and 30 June 2021, the EPRA NTA* of the Group increased to £427.7m (IFRS: £425.2m) from £425.6m (IFRS: £420.6m) as at 31 December 2020, resulting in an increase of the EPRA NTA to 99.1pps (30 June 2020: 102.5pps; 31 December 2020: 98.6pps). This is after the declaration of dividends in the period amounting to 3.10pps.

 

* Alternative Performance Measure. Details are provided in the Glossary of Terms and the EPRA Performance Measures in the full half-yearly report.

 

In the six months to 30 June 2021, the investment property revaluation amounted to £2.0m for the properties held as at 30 June 2021. Net capital expenditure amounted to £4.3m, which is yet to be fully reflected in the valuation and the realised gain of £0.6m on the disposal of investment properties.

 

The investment property portfolio was valued at a total of £729.1m as at 30 June 2021 (30 June 2020: £742.3m; 31 December 2020: £732.4m). The marginal decrease since the 2020 year-end is primarily attributable to property disposals of £10.2m, which are offset by an unrecognised investment property portfolio revaluation of £2.0m and net capital expenditure of £4.3m. Overall, on a like-for-like basis, the portfolio increased by 0.4%.

 

The table below sets out the acquisitions, disposals and capital expenditure for the respective periods:

 

 

 

Six months to 30 June 2021

Six months to June 2020

Year ended

31 December 2020

 

 

£m

£m

£m

Acquisitions

 

 

 

 

Net (after costs)

0.6

0.1

45.0

 

Gross (before costs)

-

-

42.4

Disposals

 

 

 

 

Net (after costs)

10.8

15.1

53.4

 

Gross (before costs)

11.2

15.5

56.4

Capital Expenditure

 

 

 

 

Net (after dilapidations)

4.3

4.5

8.8

 

Gross (before dilapidations)

4.9

5.5

13.1

 

The diluted EPRA NAV per share increased to 99.1pps (31 December 2020: 98.6pps) over the period. The EPRA NTA is reconciled in the table below:

 

 

Six months to 30 June 2021

 

 

£m

 

pence per share

 

 

 

 

Opening EPRA NTA (31 December 2020)

425.6

 

                                            98.6

Net rental and property income

25.4

 

5.9

Administration and other expenses

(5.5)

 

(1.3)

Gain on the disposal of investment properties

0.6

 

 0.1

Change in the fair value of investment properties

2.0

 

0.5

Change in value of right of use

(0.1)

 

EPRA NTA after operating profit

448.0

 

103.8

Net finance expense

(6.9)

 

(1.6)

Taxation

 

EPRA NTA before dividends paid

441.1

 

102.2

Dividends paid

(13.4)

 

(3.1)

Closing EPRA NTA (30 June 2021)

427.7

 

99.1

 

 

 

 

 Table may not sum due to rounding.

 

 

 

 

INCOME STATEMENT

Operating profit before gains and losses on property assets and other investments for the six months ended 30 June 2021 amounted to £19.9m (six months to 30 June 2020: £18.1m). Profit after finance items and before taxation was £18.0m (six months to 30 June 2020: loss £27.0m). This increase is predominately the result of two factors: firstly, a gain in the fair value of investment properties in the six months to June 2021; and secondly, a gain on the disposal of investment properties. The six months to 30 June 2021 included a full rent roll for properties held as at 31 December 2020, plus the partial rent roll for properties disposed of during the period.

 

Rental and property income amounted to £29.5m, excluding recoverable service charge income and other similar items (six months to 30 June 2020: £29.4m).

 

Currently more than 80% of rental income is collected within 30 days of the due date and bad debts in the period were £0.6m (six months to 30 June 2020: £0.6m).

 

Non-recoverable property costs, excluding recoverable service charge income and other similar costs, amounted to £4.2m (six months to 30 June 2020: £5.4m) and the rent roll decreased to £61.1m (six months to 30 June 2020: £62.9m).

 

The realised gain on the disposal of investment properties amounted to £0.6m (six months to 30 June 2020: loss £2.0m). The disposal gains were from the aggregate disposal of four 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 £2.0m (six months to 30 June 2020: loss of £33.2m). The change in value of right of use asset amounted to a charge of £0.1m (six months to 30 June 2020: £0.1m); with a minimal gain on the associated disposal of a right of use.

 

Finance expenses amounted to £6.9m (six months to 30 June 2020: £7.1m). The Group continued to hold a larger than usual cash balance during the period, ensuring ample liquidity during the current period of economic uncertainty.

 

The EPRA cost ratio, including direct vacancy costs, was 32.6% (six months to 30 June 2020: 38.4%). The decrease in the cost ratio is ostensibly a reflection of the decrease in non recoverable property costs. The EPRA cost ratio, excluding direct vacancy costs was 19.9% (six months to 30 June 2020: 21.4%).

 

The ongoing charges for the period ended 30 June 2021 were 4.6% (30 June 2020: 4.9%).

 

The EPRA Total Return from 6 November 2015 (date of IPO) to 30 June 2021 was 39.9% (30 June 2020: 37.3%), an annualised rate of 6.1% pa (30 June 2020: 7.0% pa).

 

Dividend

During the period from 1 January 2021 to 30 June 2021, the Company declared dividends totalling 3.10pps (2020: 4.45pps). Since the end of the period, the Company has declared a dividend for the second quarter of 2021 of 1.60pps. A schedule of dividends can be found in the Report.

 

DEBT FINANCING AND GEARING

Borrowings comprise third-party bank debt which is secured over properties owned by the Group and repayable over the next 3 to 8 years, with a weighted average maturity of 6.0 years (six months to 30 June 2020: 6.8 years; 31 December 2020 6.4 years).

 

The Group's borrowing facilities are with the Royal Bank of Scotland, Scottish Widows Limited & Aviva Investors Real Estate Finance, Scottish Widows Limited and Santander UK. Total bank borrowing facilities at 30 June 2021 amounted to £315.7m (30 June 2020: £312.7m; 31 December 2020: £316.2m) (before unamortised debt issuance costs), with £6.2m available to be drawn.

 

During the period, the maturity date of the Company's facility with the Royal Bank of Scotland was extended from June 2024 to June 2025 by invoking a pre-agreed extension option.

 

In addition to bank borrowings, the Group has a £50m 4.5% retail eligible bond which is due for repayment in August 2024. In aggregate, the total debt available at 30 June 2021 amounted to £371.9m (30 June 2020: £371.9m; 31 December 2020: £371.9m).

 

At 30 June 2021, the Group's cash and cash equivalent balances amounted to £75.3m (30 June 2020: £67.9m; 31 December 2020: £67.4m).

 

The Group's net LTV ratio stands at 39.8% (30 June 2020: 39.7%; 31 December 2020: 40.8%) before unamortised costs. The Board continues to target a net LTV ratio of 40%, with a maximum limit of 50%.

 

Debt Profile and Loan-to-Value Ratios as at 30 June 2021

 

Lender

Original facility

Outstanding debt*

Maturity date

Gross  loan-to-value**

Annual interest rate

 

 

£'000

£'000

 

 %

%

 

Royal Bank of Scotland

55,000

51,024

Jun-2025

40.3

 

2.15 over                    3 months

£ LIBOR

 

 

 

 

 

 

 

 

 

Scottish Widows Ltd & Aviva Investors Real Estate Finance

165,000

165,000

Dec-2027

46.6

 

3.28 Fixed

 

Scottish Widows

36,000

36,000

Dec-2028

40.9

 

3.37 Fixed

 

Santander UK

65,870

63,686

Jun-2029

38.1

 

2.20 over             3 months  

£ LIBOR

 

 

 
321,870

315,710

 

 

 

 

 

Retail Eligible Bond

50,000

50,000

Aug-2024

N/A

 

4.50 Fixed

 

Total

 371,870

 365,710

 

 

 

 

 

 

 

 

* Before unamortised debt issue costs

** Based on Cushman & Wakefield property valuations

 

 

 

Table may not sum due to rounding.

 

The Managers continue to monitor the borrowing requirements of the Group. As at 30 June 2021, the Group had substantial headroom against its applicable borrowing covenants.

 

The net gearing ratio (net debt to Ordinary Shareholders' equity (diluted)) of the Group was 68.3% as at 30 June 2021 (30 June 2020: 67.4%; 31 December 2020: 71.0%).

 

Interest cover, excluding amortised costs and finance lease interest, stands at 3.3 times (30 June 2020: 2.9 times; 31 December 2020: 3.4 times) and including amortised and finance lease interest costs stands at 2.9 times (30 June 2020: 2.5 times; 31 December 2020: 3.0 times).

 

Hedging

The Group applies an interest rate hedging strategy that is aligned to the property management strategy and aims to mitigate interest rate volatility on at least 90% of the debt exposure.

 

 

Six months ended

Six months ended

Year ended

 

 30 Jun 2021

30 Jun 2020

31 Dec 2020

 

(%)

(%)

(%)

Borrowings interest rate hedged

101.7

102.5

101.6

Thereof :

 

 

 

   Fixed

68.6

69.2

68.6

   Swap

16.5

16.7

16.5

   Cap

16.5

16.7

16.5

 

 

 

 

WACD*

3.3

3.4

3.3

 

* Weighted Average Cost of Debt - Weighted Average Effective Interest Rate including the cost of hedging

 

Table may not sum due to rounding.

 

The over hedged position has arisen due to the entire Royal Bank of Scotland and Santander UK facilities, including any undrawn balances, being hedged by interest rate cap derivatives which have no ongoing cost to the Group.

 

Tax

The Group entered the UK REIT regime on 7 November 2015 and all of the Group's UK rental operations became exempt from UK corporation tax from that date. The exemption remains subject to the Group's continuing compliance with the UK REIT rules.

 

At 30 June 2021, the Group recognised a nil tax balance.

 

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 47 to 57 of the 2020 Annual Report, which is available on the Group's website: www.regionalreit.com - Annual Report 2020. The Audit Committee, which assists the Board with its responsibilities for managing risk, considers that there have been no substantial changes to these principal risks. However, several principal risks continue to be elevated (as set out in the 2020 Annual Report & Accounts), as a result of COVID-19 restrictions and the level of economic uncertainty associated with the UK's departure from the European Union.

 

A summary of the Group's principal risks for the second half of the year is provided below.

 

Strategic

Investment decisions could result in lower dividend income and capital returns to our Shareholders.

 

Valuation

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

The economic disruption resulting from COVID-19 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, especially if restrictions remain in place for a prolonged period of time.

 

Economic and political

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. There is a risk that the UK's departure from the European Union could impact property valuations whilst this period of uncertainty is navigated.

 

Funding

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 rise accompanying higher inflation.

 

Tenant

Structural changes in the occupational markets, coupled with the 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

Changes to UK financial legislation and the tax regime could result in lower earnings.

 

Operational

Business disruption could impinge on normal operations of the Group.

 

Accounting, legal and regulatory

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 and associated legal requirements 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 2020 and are summarised above.

 

The condensed consolidated financial statements for the period from 1 January 2021 to 30 June 2021 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 below), 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 15 September 2021 and the above responsibility statement was signed on its behalf by:

 

Kevin McGrath

Chairman

15 September 2021

 

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2021

 

 

 

 

 

 

 

 

Notes

 

Six months

ended

30 June

2021

(unaudited)

£'000 

 

Six months

ended

30 June

2020

 (unaudited)

£'000 

 

Year

ended

31 December

2020

(audited)

£'000 

Continuing Operations

 

 

 

 

Revenue

 

 

 

 

Rental and property income

5

36,335

36,964

75,941

Property costs

6

(10,966)

(12,886)

(22,662)

Net rental and property income

 

              25,369

24,078

53,279

Administrative and other expenses

7

(5,477)

(5,945)

(11,329)

Operating profit before gains and losses on property assets and other investments

 

19,892

18,133

41,950

Gain/(loss) on disposal of investment properties

13

585

 

(1,965)

 

(1,073)

Change in fair value of investment properties

13

1,985

(33,218)

(54,793)

Gain on disposal of right of use assets

 

2

-

-

Change in fair value of right of use assets

 

(97)

(98)

(195)

Operating profit/(loss)

 

22,367

(17,148)

(14,111)

Finance income

8

10

80

99

Finance expenses

9

(6,927)

(7,117)

(14,108)

Impairment of goodwill

14

-

(279)

(558)

Net movement in fair value of derivative financial instruments

 

17

2,563

 

(2,562)

 

(2,523)

Profit/(loss) before tax

 

18,013

(27,026)

(31,201)

Taxation

10

-

65

203

Total comprehensive income/(loss) for the period (attributable to owners of the parent Company)

18,013

(26,961)

 

(30,998)

 

Total comprehensive income arises from continuing operations.

 

Earnings/(losses) per share - basic and diluted

11

4.2p

(6.2)p

(7.2)p

 

The notes below are an integral part of these condensed consolidated financial statements.

 

Condensed Consolidated Statement of Financial Position

As at 30 June 2021

 

 

 

 

 

Notes

30 June

2021

(unaudited)

£'000 

30 June

2020

(unaudited)

£'000 

31 December

 2020

(audited)

£'000 

Assets

 

 

 

 

Non-current assets

 

 

 

 

Investment properties

13

729,115

742,300

732,380

Right of use assets

 

15,956

16,253

16,156

Goodwill

14

-

279

-

Non-current receivables on tenant loan

 

915

1,108

1,011

 

 

745,986

759,940

749,547

Current assets

 

 

 

 

Trade and other receivables

 

30,819

35,973

33,690

Cash and cash equivalents

 

75,331

67,913

67,373

 

 

106,150

103,886

101,063

Total assets

 

852,136

863,826

850,610

 

 

 

 

 

Liabilities

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

(37,838)

(36,071)

(33,809)

Deferred income

 

(10,359)

(12,408)

(14,584)

Taxation liabilities

 

(690)

(633)

(690)

 

 

(48,887)

(49,112)

(49,083)

Non-current liabilities

 

 

 

 

Bank and loan borrowings

15

(310,388)

(306,917)

(310,692)

Retail eligible bonds

16

(49,518)

(49,363)

(49,441)

Derivative financial instruments

17

(1,776)

(4,378)

(4,339)

Lease liabilities

 

(16,349)

(16,491)

(16,473)

 

 

(378,041)

(377,149)

(380,945)

Total liabilities

 

(426,918)

(426,261)

(430,028)

Net assets

 

425,218

437,565

420,582

 

 

 

 

 

Equity

 

 

 

 

Stated capital

18

430,819

430,819 

430,819 

(Accumulated losses)/retained earnings

 

(5,601)

6,746 

(10,237)

Total equity attributable to owners of the parent Company

 

425,218

 

437,565 

420,582

 

Net asset value per share - basic and diluted

19

98.5p

                  101.4p

 97.5p

 

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 2021

 

 

 

Attributable to owners of the parent company

 

 

 

Notes

Stated

capital

£'000

Accumulated 

losses 

£'000 

 

Total 

£'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 six months ended 30 June 2020

 

 

 

Attributable to owners of the parent company

 

 

 

Notes

Stated

capital

£'000

Retained 

earnings 

£'000 

 

Total 

£'000 

 

 

 

 

 

Balance at 1 January 2020

 

430,819

52,909

483,728

Total comprehensive loss

 

-

(26,961)

(26,961)

Dividends paid

12

-

(19,202)

(19,202)

Balance at 30 June 2020

 

430,819

6,746

437,565

 

 

 

 

 

 

For the year ended 31 December 2020

 

 

 

Attributable to owners of the parent company

 

 

 

Notes

Stated

capital

£'000

Retained

earnings/ (Accumulated losses

£'000

 

Total

£'000

 

 

 

 

 

Balance at 1 January 2020

 

430,819

52,909

483,728

Total comprehensive loss

 

-

(30,998)

(30,998)

Dividends paid

12

-

(32,148)

(32,148)

Balance at 31 December 2020

 

430,819

(10,237)

420,582

 

 

 

 

 

 

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 2021

 

 

 

 

 

 

Six months 

ended 

30 June 

2021 

(unaudited)

£'000 

Six months 

ended 

30 June 

2020 

(unaudited)

£'000 

Year 

ended 

31 December 

2020

(audited)

£'000 

Cash flows from operating activities

 

 

 

Profit/(loss) for the period before taxation

18,013

(27,026)

(31,201)

- Change in fair value of investment properties

(1,985)

33,218

54,793

- Change in fair value of financial derivative instruments

(2,563)

2,562

2,523

- (Gain)/loss on disposal of investment properties

(585)

1,965

1,073

- Gain on disposal of right of use assets

(2)

-

-

- Change in fair value of right of use assets

97

97

195

Impairment of goodwill

-

279

558

Finance income

(10)

(80)

(99)

Finance expenses

6,927

7,117

14,108

Decrease/(Increase) in trade and other receivables

2,967

(5,244)

(2,821)

(Decrease)/increase in trade and other payables and deferred income

(631)

 

6,754

 

8,878

Cash generated from operations

 

22,228

19,642

Finance costs

(6,109)

(6,325)

Taxation received

 

-

32

174

Net cash flow generated from operating activities

16,119

13,349

35,666

 

 

 

 

 

Investing activities

 

 

 

 

Purchase of investment properties and subsequent expenditure

(4,993)

(4,625)

(53,759)

Sale of investment properties

 

10,828

15,057

53,428

Interest received

 

11

73

101

Net cash flow generated from/(used in) investing activities

5,846

10,505

(230)

 

 

 

 

 

Financing activities

 

 

 

 

Dividends paid

 

(12,943)

(11,516)

(26,672)

Bank borrowings advanced

 

1,109

30,698

39,200

Bank borrowings repaid

 

(1,570)

(11,967)

(17,029)

Bank borrowing costs paid

 

(296)

(95)

(192)

Lease repayments

 

(307)

(309)

(618)

Net cash flow (used in)/ generated financing activities

(14,007)

6,811

(5,311)

Net increase in cash and cash equivalents for the period

7,958

30,665

30,125

Cash and cash equivalents at the start of the period

67,373

37,248

37,248

Cash and cash equivalents at the end of the period

75,331

67,913

67,373

 

 

 

 

 

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 2021

 

1. Corporate information

The condensed consolidated financial statements of the Group for the six months ended 30 June 2021 comprise the results of the Company and its subsidiaries (together constituting the "Group") and were approved by the Board and authorised for issue on 15 September 2021.

 

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 2021 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 2020, 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 2020 and year ended 31 December 2020 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 2020 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 £75.3m of cash and cash equivalents, of which £61.3m was unrestricted cash, providing ample liquidity.

 

Borrowing facilities decreased from £366.2m at 31 December 2020 to £365.7m as at 30 June 2021, with an LTV of 39.8%, based upon the value of Company's investment properties as at 30 June 2021. In respect of the Company's borrowings, the first of its facilities to mature is for £55.0m in June 2025, which is held with the Royal Bank of Scotland.

 

Following the subsequent event on 31 August 2021 of the £236m property acquisition (see Note 22), 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 £729,115,000 (30 June 2020: £742,300,000; 31 December 2020: £732,380,000) is determined, by independent property valuation experts, to be the estimated amount for which a property should exchange on the date of the valuation in an arm's length transaction. Properties have been valued on an individual basis. The valuation experts use recognised valuation techniques applying the principles of both IAS 40 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.

 

In relation to Brexit, the recently completed negotiations with regards to the terms of the UK's exit from the EU has meant that property market remains uncertain. There is some uncertainty concerning the impact of COVID 19 however the independent valuers note the following in their report:

 

"The outbreak of Novel Coronavirus (COVID-19), which was declared by the World Health Organisation as a "Global Pandemic" on the 11 March 2020, continues to affect economies and real estate markets globally. Nevertheless, as at the valuation date, property markets are mostly functioning again, with transaction volumes and other relevant evidence at levels where enough market evidence exists upon which to base opinions of value. Accordingly - and for the avoidance of doubt - our valuation is not reported as being subject to 'material valuation uncertainty', as defined by VPS 3 and VPGA 10 of the RICS Valuation - Global Standards."

 

3.1.2. Fair valuation of interest rate derivatives

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 a liability of £1,776,000 (30 June 2020: £4,378,000; 31 December 2020: £4,339,000), as set out on Note 17.

 

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 2021, there were 13 leases with the range of the period left to run being 45 and 104 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. Performance fee

The Asset Manager and the Investment Manager are each entitled to 50% of the 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 performance period 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 performance period.

 

A performance fee is only payable in respect of a performance period where the EPRA NAV per Ordinary Share exceeds the highwater mark which is equal to the greater of the highest year-end EPRA NAV per Ordinary Share in any previous performance period or the placing price (100p per Ordinary Share). The performance fee was calculated initially on 31 December 2018 and will be calculated annually thereafter.

 

In the period to date, the Group has not met the criteria for a performance fee. However, future circumstances may dictate that a performance fee is ultimately due. Further details are disclosed in note 21

 

3.2.3. 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.

 

3.3. 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 2020 and are expected to be consistently applied for the current year ending 31 December 2021. The changes to the condensed consolidated financial statements arising from accounting standards effective for the first time are noted below:

 

Interest Rate Benchmark Reform-Phase 2:

Amendments to IFRS 9 'Financial Instruments', IAS 39 'Financial Instruments; Recognition and Measurement', IFRS 7 'Financial Instruments: Disclosures', IFRS 4 'Insurance Contracts' and IFRS 16 'Leases' (effective for periods beginning on or after 1 January 2021) These amendments address issues that might affect financial reporting when an existing interest rate benchmark is replaced with an alternative benchmark interest rate.

The Group's borrowings with Royal Bank of Scotland and Santander UK will be transitioning from the London Interbank Offer Rate (LIBOR) benchmark to Sterling Overnight Index Average (SONIA) benchmark by 31 December 2021. There is expected to be negligible cost involved in the borrowing facility transition and the respective hedge instrument amendments.

The Directors are currently assessing the impact of the changes in accounting standards but as the Group does not apply hedge accounting, it is anticipated that the accounting standard amendments will not have a significant impact on the preparation of the financial statements.

                                 

5. Rental and property income

 

 

Six months

ended

30 June

2021

(unaudited)

£'000

Six months

 ended

30 June

2020

 (unaudited)

£'000

Year

 ended

31 December

2020

(audited)

£'000

 

 

 

 

Rental income - freehold property

26,636

26,407

55,382

Rental income - long leasehold property

2,891

3,033

6,695

Recoverable service charge income and other similar items

6,808

7,524

 

13,864

Total

36,335

36,964

75,941

 

 

 

 

 

 

 

6. Property costs

 

 

 

 

Six months

ended

30 June

2020

(unaudited)

£'000

Six months

 ended

30 June

2020

 (unaudited)

£'000

Year

 ended

31 December

2020

(audited)

£'000

 

 

 

 

Other property expenses and irrecoverable costs

4,158
 

5,362
 

8,798 

 

Recoverable service charge income and other similar costs

6,808

7,524

 

13,864

Total

10,966

12,886

22,662

 

Property costs represent direct operating expenses which arise on investment properties generating rental income.

 

7. Administrative and other expenses

 

 

 

 

Six months

ended

30 June

2021

(unaudited)

£'000

Six months

 ended

30 June

2020

(unaudited)

£'000

Year

 ended

31 December

2020

(audited)

£'000

 

 

 

 

Investment management fees

1,137

1,413

2,577

Property management fees

1,183

1,127

2,266

Asset management fees

1,139

1,430

2,579

Directors' remuneration

125

125

255

Administration fees

339

296

634

Legal and professional fees

839

823

1,674

Marketing and promotion

35

30

69

Other administrative costs (including bad debts)

658

 

690

1,257

 

Bank charges

22

11

18

Total

5,477

5,945

11,329

 

 

 

 

 

 

8. Finance income

 

 

 

 

Six months

ended

30 June

2021

(unaudited)

£'000

Six months

 ended

30 June

2020

(unaudited)

£'000

Year

 ended

31 December

2020

(audited)

£'000

 

 

 

 

Interest income

10

80

99

Total

10

80

99

 

 

 

 

 

9. Finance expenses

 

 

 

 

Six months

ended

30 June

2021

(unaudited)

£'000

Six months

 ended

30 June

2020

(unaudited)

£'000

Year

 ended

31 December

2020

(audited)

£'000

 

 

 

 

Interest payable on bank borrowings

4,980

5,208

10,257

Amortisation of loan arrangement fees

453

425

857

Bond interest

1,125

1,113

2,250

Bond issue costs amortised

77

77

155

Bond expenses

4

4

8

Lease interest

288

290

581

Total

6,927

7,117

14,108

 

 

 

 

 

 

10. Taxation

 

 

 

 

Six months

ended

30 June

2021

(unaudited)

£'000

Six months

 ended

30 June

2020

(unaudited)

£'000

Year

 ended

31 December

2020

(audited)

£'000

 

 

 

 

Corporation tax

-

(26)

(157)

(Decrease)/increase in deferred tax creditor

-

(39)

(46) 

Total

-

(65)

(203)

 

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

ended

30 June

2021

(unaudited)

£'000

Six months

ended

   30 June

2020

(unaudited)

   £'000

Year

ended

31 December

2020

(audited)

£'000

Calculation of earnings per share

 

 

 

Net profit/(loss) attributable to Ordinary Shareholders

18,013

(26,961)

(30,998)

Adjustments to remove:

 

 

 

Changes in value of investment properties

(1,985)

33,218

54,793

Changes in fair value of interest rate derivatives

and financial assets

(2,563)

2,562

 

2,523

(Gain)/loss on disposal of investment property

(585)

1,965

1,073

Impairment of goodwill

-

279

558

Deferred tax credit

-

(39)

(46)

EPRA net profit attributable to Ordinary Shareholders

12,880

11,024

 27,903

Add performance fee

- 

- 

- 

Company specific adjusted earnings

 

12,880

11,024

27,903

 

 

 

 

 

Weighted average number of Ordinary Shares

431,506,583

431,506,583

431,506,583

 

 

 

 

 

Earnings/(Losses) per share - basic and diluted

4.2p

(6.2p)

(7.2)p

EPRA Earnings per share - basic and diluted

3.0p

2.6p 

6.5p

Company specific adjusted earnings per share:

 

 

 

- basic and diluted

 

3.0p

2.6p

6.5p

 

 

 

 

 

The Company specific adjusted earnings per share excludes the performance fee.

 

12. Dividends

 

 

 

 

Six months

ended

30 June 

2021

(unaudited)

£'000

Six months

ended

30 June

2020

(unaudited)

£'000

Year

ended

31 December

2020

(audited)

£'000

Dividends

 

 

 

Dividend of 1.50 (2020 2.55) pence per Ordinary share for the period 1 October - 31 December

6,473

11,004

 

11,004

Dividend of 1.60 (2020: 1.90) pence per Ordinary share for the period 1 January - 31 March


6,904



8,198

 

                      8,198

Dividend of - (2020: 1.50 pence per Ordinary share

for the period 1 April - 30 June


-


-

 

6,473

Dividend of  - (2020: 1.50) per Ordinary share

for the period 1 July - 30 September


-


-

 

6,473

Total

13,377

19,202

32,148

 

On 25 February 2021, the Company declared a dividend of 1.50 pence per share in respect of the period 1 October 2020 to 31 December 2020. The dividend payment was made on 9 April 2021 to Shareholders on the register as at 5 March 2021.

 

On 19 May 2021, the Company declared a dividend of 1.60 pence per share in respect of the period 1 January 2021 to 31 March 2021. The dividend payment was made on 16 July 2021 to Shareholders on the register as at 28 May 2021.

 

On 25 August 2021, the Company declared a dividend in respect of the period 1 April 2021 to 30 June 2021 of 1.60 pence per share, which will be paid on 15 October 2021 to Shareholders on the register as at 10 September 2021. 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.

 

In relation to Brexit, the recently completed negotiations with regards to the terms of the UK's exit from the EU has meant that the property market remains uncertain. There is some uncertainty concerning the impact of COVID-19 however, the independent valuers note the following in their report:

 

"The outbreak of Novel Coronavirus (COVID-19), which was declared by the World Health Organisation as a "Global Pandemic" on the 11 March 2020, continues to affect economies and real estate markets globally. Nevertheless, as at the valuation date, property markets are mostly functioning again, with transaction volumes and other relevant evidence at levels where enough market evidence exists upon which to base opinions of value. Accordingly - and for the avoidance of doubt - our valuation is not reported as being subject to 'material valuation uncertainty',  as defined by VPS 3 and VPGA 10 of the RICS Valuation - Global Standards."

 

The 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

six months ended 30 June 2021

 

Freehold 

 property 

£'000 

Long Leasehold 

 property 

£'000 

Total

£'000 

 

 

 

 

 

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

six months ended 30 June 2020

 

Freehold 

property 

£'000 

Long Leasehold

property

£'000

 

Total

£'000

 

 

 

 

 

Valuation at 1 January 2020

 

697,908

90,007

787,915

Property additions - acquisitions

 

83

-

83

Property additions - subsequent expenditure

 

4,519

23

4,542

Property disposals

 

(14,793)

(264)

(15,057)

Loss on the disposal of investment properties

 

(1,714)

(251)

(1,965)

Change in fair value during the period

 

(26,223)

(6,995)

(33,218)

Valuation at 30 June 2020 (unaudited)

 

659,780

82,520

742,300

 

 

 

 

 

Movement in investment properties for the year ended 31 December 2020

 

Freehold 

property 

£'000 

Long Leasehold 

property 

£'000 

 

Total

£'000

 

 

 

 

 

Valuation at 1 January 2020

 

697,908

90,007

787,915

Property additions - acquisitions

 

44,956

-

44,956

Property additions - subsequent expenditure

 

8,446

357

8,803

Property disposals

 

(47,035)

(6,393)

(53,428)

Gain/(Loss) on the disposal of investment properties

 

(1,128)

55

(1,073)

Change in fair value during the period

 

(43,715)

(11,078)

(54,793)

Valuation at 31 December 2020 (audited)

 

659,432

72,948

732,380

 

 

 

 

 

The historic cost of the properties was £752,029,000 (30 June 2020: £739,576,000, 31 December 2020: £759,705,000).

 

The following table provides the fair value measurement hierarchy for investment properties:

 

 

 

 

Date of valuation:

 

 

 

Total

£'000

 

Quoted

active prices

(level 1)

£'000

Significant observable inputs

(level 2)

£'000

Significant unobservable inputs

 (level 3)

£'000

 

 

 

 

 

30 June 2021

729,115

-

-

729,115

 

 

 

 

 

30 June 2020

742,300

-

-

742,300

 

 

 

 

 

31 December 2020

732,380

-

-

732,380

 

 

 

 

 

The hierarchy levels are defined in note 17.

 

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 2021, 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 (range: £9,000 - £3,087,591 per annum (30 June 2020: £9,000 - £3,092,291 per annum; 31 December 2020: £9,000 - £3,092,291 per annum)).

 

Observable input: rental growth

The estimated average increase in rent is based on both market estimations and contractual agreements.

Observable Input: net initial yield

 

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 (range: 0% - 27.26%; (30 June 2020: 0% - 23.90%; 31 December 2020: 0.00% to 25.64%)).

 

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. Goodwill

 

 

 

30 June 

2021 

(unaudited)

£'000 

30 June 

2020 

(unaudited)

£'000 

31 December 

 2020 

(audited)

£'000 

 

 

 

 

At start of period

-

558 

558

Impairment

-

(279)

(558)

At end of period

-

279 

-

 

 

 

 

Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired. If the total of consideration is transferred, non-controlling interest recognised and previously held interest measured at fair value is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the Group's Condensed Consolidated Statement of Comprehensive Income.

 

Goodwill impairment reviews are undertaken annually, or more frequently if events or changes in circumstances indicate a potential impairment. The goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed. As at 31 December 2020, the goodwill had been fully impaired.

 

15. 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 

2021 

(unaudited)

£'000 

30 June 

2020 

(unaudited)

£'000 

31 December 

 2020 

(audited)

£'000 

 

 

 

 

Bank borrowings drawn at start of period

316,171

294,000

294,000

Bank borrowings drawn

1,109

30,698

39,200

Bank borrowings repaid

(1,570)

(11,967)

(17,029)

Bank borrowings drawn at end of period

315,710

312,731

316,171 

 

 

 

 

Less: unamortised costs at start of period

(5,479)

(6,144)

(6,144)

Less: loan issue costs incurred in the period

(296)

(95)

(192)

Add: loan issue costs amortised in the period

453

425

857

At end of period

310,388

306,917 

310,692

 

 

 

 

Maturity of bank borrowings

 

 

 

Repayable within 1 year

Repayable between 1 to 2 years

Repayable between 2 to 5 years

51,024

53,328

52,349

Repayable after more than 5 years

264,686

259,403

263,822

Unamortised loan issue costs

(5,322)

(5,814)

(5,479)

 

310,388

306,917

310,692

 

 

 

 

 

The table below lists the Group's borrowings.

 

Lender

 

Original

facility

 

Outstanding debt*

 

Maturity

date

Gross

Loan to Value**

 

Annual interest rate

 

Amortisation

 

£'000

£'000

 

%

%

 

 

 

 

 

 

 

 

 

 

Royal Bank of Scotland

55,000

51,024

Jun 2025

40.3

2.15 over 3 months £ LIBOR

Mandatory prepayment

 

Scottish Widows Ltd. & Aviva Investors Real Estate Finance

 

 

165,000

 

 

165,000

 

 

Dec 2027

 

 

46.6

 

 

                  3.28 Fixed

 

 

None

Scottish Widows Ltd

36,000

36,000

Dec 2028

40.9

3.37 Fixed

None

 

Santander UK

65,870

63,686

Jun 2029

38.1

2.20 over 3

months £ LIBOR

Mandatory prepayment

 

Total bank borrowings

 

321,870

 

315,710

 

 

 

 

 

 

 

 

 

 

 

Retail eligible bond

50,000

50,000

Aug 2024

n/a

4.50 Fixed

none

Total

371,870

365,710

 

 

 

 

 

 

 

 

 

 

 

LIBOR = London Interbank Offered Rate (Sterling)

* 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 6.0 years (30 June 2020: 6.8 years; 31 December 2020: 6.4 years). The weighted average interest rate payable by the Group on its debt portfolio, excluding hedging costs, as at the period end was 3.1% per annum (30 June 2020: 3.2% per annum; 31 December 2020: 3.1% 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 17, 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.

 

In line with recent announcements from the Bank of England and the FCA, the Royal Bank of Scotland and Santander UK borrowings will be transitioning from the London Interbank Offer Rate (LIBOR) benchmark to Sterling Overnight Index Average (SONIA) benchmark by 31 December 2021. There is expected to be negligible cost involved in the borrowing facility transition and the respective hedge instrument amendments.

 

16. Retail eligible bonds

The Company launched £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 

2021 

(unaudited)

£'000 

30 June 

2020 

(unaudited)

£'000 

31 December 

 2020 

(audited)

£'000 

 

 

 

 

Broad principal at start of period

50,000

50,000

50,000

Unamortised issue costs at start of period

(559)

(714)

(714)

Amortisation of issue costs

77 

77 

155

At end of period

49,518

49,363

49,441

 

17. 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

2021

(unaudited)

£'000

30 June

2020

(unaudited)

£'000

31 December

 2020

(audited)

£'000

 

 

 

 

Fair value at start of period

(4,339)

(1,816)

(1,816)

Revaluation in the period

2,563

(2,562)

(2,523)

Fair value at end of period

(1,776)

(4,378)

(4,339)

 

 

 

 

 

The calculation of fair value of interest rate caps and swaps is based on the following calculation: the notional amount multiplied by the difference between the swap rate and the current market rate and then multiplied by the number of years remaining on the contract and discounted.

 

The 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.

 

 

Lender

Original facility

 

Outstanding debt

 

Maturity

date

 

 

Annual interest rate

 

Notional amount

 

 

Rate

 

£'000

£'000

 

%

£'000

%

Royal Bank of Scotland

55,000

51,024

Jun 2025

 

2.15 over 3 months £ LIBOR

Swap £27,500

Cap £27,500

1.26

1.26

Scottish Widows Ltd. & Aviva Investors Real Estate Finance

165,000

 

 

165,000

 

 

Dec 2027

 

 

                 3.28 Fixed

 

 

n/a

 

 

n/a

Scottish Widows Ltd

36,000

36,000

Dec 2028

 

3.37 Fixed

n/a

n/a

Santander UK

65,870

63,686

Jun 2029

 

2.20 over 3 months £ LIBOR

Swap £32,935

Cap £32,935

1.45

1.45

Total bank borrowings

321,870

 

315,710

 

 

 

 

 

 

LIBOR = London Interbank Offered Rate (Sterling)

 

As at 30 June 2021, the swap and the cap notional arrangements were £60.44m (30 June 2020: £60.44m; 31 December 2020: £60.44m).

 

The Group weighted average cost of debt of 3.3%, (30 June 2020: 3.4%; 31 December 2020: 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 102.0% (30 June 2020: 102.9%; 31 December 2020: 101.8%), as shown below.

 

 

 

 

30 June    

2021    

(unaudited)   

£'000    

30 June    

2020    

(unaudited)   

£'000    

31 December    

 2020    

(audited)   

£'000    

 

 

 

 

Total bank borrowings

312,731   

316,171   

Notional value of interest rate caps and swaps

120,870    

120,870   

120,870   

Value of fixed rate debts

   201,000   

201,000   

 

321,870    

321,870   

321,870   

 

 

 

 

Proportion of hedged debt

102.0%    

102.9%    

101.8%    

 

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.

 

 

 

 

 

Date of valuation:

 

 

 

Total

£'000

 

Quoted active prices

(level 1)

£'000

Significant observable inputs

(level 2)

£'000

Significant unobservable inputs

 (level 3)

£'000

 

 

 

 

 

30 June 2021

(1,776)

-

(1,776)

-

 

 

 

 

 

30 June 2020

(4,378)

-

(4,378)

-

 

 

 

 

 

31 December 2020

(4,339)

-

(4,399)

-

 

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.

 

18. Stated capital

Stated capital represents the consideration received by the Company for the issue of Ordinary shares.

 

 

 

 

 

30 June

2021

(unaudited)

£'000

30 June

2020

(unaudited)

£'000

31 December 

 2020 

(audited)

£'000 

Issued and fully paid shares at no par value

 

 

 

At start of the period

430,819

430,819

430,819 

At end of the period

430,819

430,819

430,819 

 

 

 

 

Number of shares in issue

 

 

 

At start of the period

431,506,583

431,506,583

431,506,583

At end of the period

431,506,583

431,506,583

431,506,583 

 

 

 

 

 

19. 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 NAV 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  

  2021  

  (unaudited) 

£'000  

30 June  

2020  

(unaudited)

£'000  

31 December  

2020  

(audited) 

£'000  

 

Net asset value per Condensed Consolidated Statement of Financial Position

425,218  

 

437,565  

 

420,582  

 

Adjustment for calculating EPRA Net Tangible Assets:

 

 

 

 

Derivative financial instruments

1,776 

4,378 

4,339  

 

Deferred tax liability

690  

698  

690  

 

Goodwill

-

(279)

-   

EPRA Net Tangible Assets

427,684  

442,362 

425,611  

 

 

 

 

 

 

 

 

 

 

 

Number of Ordinary Shares in issue

431,506,583  

431,506,583 

431,506,583  

 

 

 

 

 

Net asset value per share - basic and diluted

98.5p  

101.4p  

97.5p  

EPRA net tangible assets per share - basic and diluted

99.1p  

102.5p  

98.6p  

 

20. 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.

 

21. 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 1.1% of the EPRA NAV, reducing to 0.9% on net assets over £500,000,000. The fee shall be payable in cash quarterly in arrears.

 

In respect of each portfolio property the Asset Manager has procured and shall, with the Company in future, procure that London & Scottish Property Asset Management Limited is appointed as the Property Manager.

 

A property management fee of 4% per annum is charged by the Property Manager on a quarterly basis: 31 March, 30 June, 30 September and 31 December, based upon the gross rental yield. Gross rental yield means the rents due under the property's lease for the peaceful enjoyment of the property, including any value paid in respect of rental renunciations, but excluding any sums paid in connection with service charges or insurance costs.

 

The Asset Manager is also entitled to a performance fee. Details of the performance fee are given below.

 

 

 

 

Six months

ended

30 June

2021

(unaudited)

£'000

Six months

 ended

30 June

2020

(unaudited)

£'000

Year

 ended

31 December

2020

(audited)

£'000

 

 

 

 

Asset management fees charged*

1,139

1,430

2,579

Property management fees charged*

1,183

1,127

2,266

Performance fee

-

-

-

Total

2,322

2,557

4,845

 

 

 

 

 

 

 

30 June

2021

(unaudited)

£'000

30 June

2020

(unaudited)

£'000

31 December

 2020

(audited)

£'000

 

 

 

 

Total fees outstanding*

1,186

1,347

612

 

 

 

 

 

* Including irrecoverable VAT charged where appropriate

 

Transactions with the Investment Manager, Toscafund Asset Management LLP

Tim Bee is a non-executive Director of the Company, as well as being Chief Legal Counsel of the Investment Manager.

 

In consideration for the provision of services provided, the Investment Manager is entitled in each financial year (or part thereof) to 50% of an annual management fee on a scaled rate of 1.1% of the EPRA net asset value, reducing to 0.9% on net assets over £500,000,000. The fee is payable in cash quarterly in arrears.

 

The Investment Manager is also entitled to a performance fee. Details of the performance fee are given below.

 

The following tables show the fees charged in the period and the amount outstanding at the end of the period:

 

 

 

 

Six months

ended

30 June

2021

(unaudited)

£'000

Six months

ended

30 June

2020

(unaudited)

£'000

Year

ended

31 December

2020

(audited)

£'000

 

 

 

 

Investment management fees charged

1,137

1,413

2,577

Performance fees charged

-

-

-

 

 

 

 

Total

1,137

1,413

2,577

 

 

 

 

 

 

 

30 June

2021

(unaudited)

£'000

30 June

2020

(unaudited)

£'000

31 December

 2020

(audited)

£'000

 

 

 

 

Total fees outstanding

584

665

1,190

 

 

 

 

 

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 2021 or 30 June 2020 or the year ending 31 December 2020

 

22. Subsequent events

On 31 August 2021, the Company announced the acquisition of 31 high quality, predominately multi-let office assets for a consideration price of £236.0m, reflecting a net initial yield of 7.8%. The consideration was satisfied by three components: the issuance of 84,230,000 new ordinary shares in the Company at 98.6 pence per share (being the EPRA Net Tangible Asset Value per share as at 31 December 2020) equivalent to £83.1m, £76.7m of existing cash resources and additional borrowings of £76.2m.

 

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

Definition

EPRA Performance Measure

30 June

2021

31 December

2020

EPRA EARNINGS

Earnings from operational activities

 

EPRA Earnings

 

 

£12,881,000

 

 

 

£27,903,000

 

 

EPRA Earnings per share (basic and diluted)

 

 

 

 

3.0p

 

 

 

6.5p

 

 

 

 

 

 

Company Adjusted Earnings

 

 

 

Company Specific Earnings Measure which adds back the performance fee charged in the accounts

 

Adjusted Earnings

 

 

 

£12,881,000

 

 

 

£27,903,000

 

 

EPRA Earnings per share (basic and diluted)

 

3.0p

 

6.5p

 

 

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

Reinstatement Value

 

EPRA NAV metric which assumes that entities never sell assets and aims to represent the value

required to rebuild the entity.

EPRA Net Reinstatement

Value

 

 

£427,684,000

 

 

£425,611,000

 

EPRA Net Reinstatement

Value per share (diluted)

 

 

 

99.1p

 

 

98.6p

 

 

 

EPRA Net Tangible Assets

 

EPRA NAV metric which assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred tax.

 

 

 

EPRA Net Tangible Assets

 

 

 

 

£427,684,000

 

 

 

£425,611,000

 

EPRA Net Tangible

Assets per share

(diluted)

99.1p

 

98.6p

 

EPRA Net Disposal Value

EPRA NAV metric which represents the

Shareholders' value under a disposal scenario, where deferred tax, financial instruments and certain other adjustments are calculated to the full

extent of their liability, net of any resulting tax.

 

EPRA Net Disposal Value

 

 

 

 

£415,303,000

 

 

 


 

£404,365,000

 

EPRA Net Disposal Value per share (diluted)

 

 

96.2p

 

93.7p

 

EPRA Net Initial Yield

 

Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the market value of the property with (estimated) purchasers' costs.


EPRA Net Initial Yield

 

 

 

 

 

 

 

6.7%

 

6.9% 

 

EPRA 'Topped-up' NIY

 

This measure incorporates an adjustment to the

ERA NIY in respect of the expiration of rent-free-periods

(or other unexpired lease incentives such as discounted rent periods and stepped rents).


EPRA 'Topped-up' Net Initial Yield

 

 

 

 

 
 

6.8%

7.4%

 

EPRA Vacancy Rate

Estimated Market Rental Value (ERV) of vacancy space divided by ERV of the whole portfolio

EPRA Vacancy Rate

 

 

 

14.3%

 

 

 

 

 

10.6%

 

 

EPRA Costs Ratio

Administrative and operating costs (including and excluding costs of direct vacancy) divided by gross rental income

 

EPRA Costs Ratio

 

 

32.6%

 

32.4%

 

 

EPRA Costs Ratio

(excluding direct

vacancy costs)

 

 

 

19.9%

 

 

19.6%

 

 

 

 

NOTES TO THE CALCULATION OF THE EPRA PERFORMANCE MEASURES

 

1.    EPRA earnings

For calculations, please refer to note 11 to the financial statements.

 

2.    EPRA Net Reinstatement Value

 

 

 

30 June  

2021  

£'000  

 

31 December  

2020  

£'000  

 

 

 

 

NAV per the financial statements

425,218

 

420,582  

Fair value of derivative financial instruments

1,776 

 

4,339 

Deferred tax liability

690 

 

690 

EPRA Net Reinstatement Value

427,684

 

425,611

 

 

 

 

Dilutive number of shares

431,506,583

 

431,506,583 

 

 

 

 

EPRA Net Reinstatement Value per share

99.1p

 

98.6p

 

 

 

 

 

3.    EPRA Net Tangible Assets

 

 

 

30 June  

2021  

£'000  

 

31 December  

2020  

£'000  

 

 

 

 

NAV per the financial statements

425,218 

 

420,582 

Fair value of derivative financial instruments

1,776

 

4,339 

Deferred tax liability

690 

 

690 

EPRA Net Tangible Assets

427,684

 

425,611

 

 

 

 

Dilutive number of shares

431,506,583

 

431,506,583

 

EPRA Net Tangible Assets per share

 

99.1p

 

 

98.6p

 

 

 

 

 

 

 

 

 

4.    EPRA Net Disposal Value

 

 

 

30 June  

2021  

£'000  

 

31 December  

2020 

£'000  

 

 

 

 

NAV per the financial statements

425,218

 

420,582

Adjustment for the fair value of bank borrowings

(8,850)

 

(16,717)

Adjustment for the fair value of retail eligible bonds

(1,065)

 

500

EPRA Net Disposal Value

415,303

 

404,365

 

 

 

 

Dilutive number of shares

431,506,583

 

431,506,583

EPRA Net Disposal Value per share

96.2p

 

93.7p

 

5.      EPRA Net Initial Yield

Calculated as the value of investment properties divided by annualised net rents:

 

 

 

30 June    

2021    

£'000    

 

31 December    

2020    

£'000    

 

 

 

 

Investment properties

729,115    

 

732,380   

Purchaser costs

47,897

 

48,068

 

777,012

 

780,448

Annualised cash passing rental income

58,252    

 

59,754   

Property outgoings

(6,279)    

 

(5,586)  

Annualised net rents

  51,973 

 

54,168   

Add notional rent expiration of rent free periods or other lease incentives

591 

 

3,198    

Topped-up net annualised rent

 52,564 

 

57,366    

EPRA NIY

6.7%    

 

6.9%    

EPRA topped up NIY

6.8%    

 

7.4%    

 

6.      EPRA Vacancy Rate

 

 

 

30 June    

2021    

£'000    

 

31 December 

2020 

£'000 

 

 

 

 

Estimated Market Rental Value (ERV) of vacant space

10,230   

 

7,733   

Estimated Market Rental value (ERV) of whole portfolio

71,549   

 

72,874   

 

 

 

 

EPRA Vacancy Rate

14.3%    

 

10.6%   

 

 

 

 

 

7.      EPRA Cost Ratios

 

 

 

30 June   

2021   

£'000   

 

31 December    

2020    

£'000    

 

 

 

 

Property costs

10,966 

 

22,662  

Less recoverable service charge income and other similar costs

(6,809) 

 

(13,864)  

Add administrative and other expenses

5,477 

 

11,329  

EPRA costs (including direct vacancy costs)

9,634 

 

20,127 

Direct vacancy costs

(3,766) 

 

(7,967)  

EPRA costs (excluding direct vacancy costs)

5,868 

 

12,160 

 

 

 

 

Gross rental income

36,335 

 

75,941  

Less recoverable service charge income and other similar items

(6,809) 

 

(13,864)  

Gross rental income less ground rents

29,526 

 

62,077 

 

 

 

 

EPRA Cost Ratio (including direct vacancy costs)

32.6% 

 

32.4%  

 

 

 

 

EPRA Cost Ratio (excluding direct vacancy costs)

19.9% 

 

19.6%  

 

 

 

 

The Group has not capitalised any overhead or operating expenses in the accounting years disclosed above.

 

PROPERTY RELATED CAPITAL EXPENDITURE ANALYSIS

 

 

 

30 June

2021

£'000

 

31 December

2020

£'000

 

 

 

 

Acquisitions

645

 

44,956

Subsequent capital expenditure

4,348

 

8,803

Total capital expenditure

4,993

 

53,759

 

 

 

 

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.

 

SHAREHOLDER INFORMATION

 

Share register enquiries: Link Group.

 

For any questions about:

• Changing your address or other details;

• Questions about your shares;

• Buying and selling shares.

 

Phone: 0371 664 0300

 

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.

 

POSTAL ADDRESS

Link Group

Shareholder Services

10th Floor

Central Square

29 Wellington Street

Leeds

LS1 4DL

 

Electronic Communications from the Company

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

 

By post:

Link Group

Shareholder Services

10th Floor

Central Square

29 Wellington Street

Leeds

LS1 4DL

 

Forthcoming events

October 2021

Q2 2021 Dividend Payment

November 2021 

Q3 2021 Trading Update and Dividend Declaration

February 2022

Q4 2021 Dividend Declaration

March 2022

2021 Preliminary Results

May 2022

Q1 2022 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)

Stephen Inglis (Non-Executive Director)

Timothy Bee (Non-Executive Director)

 

Administrator

Jupiter Fund Services Limited

Mont Crevelt House

Bulwer Avenue

St. Sampson

Guernsey GY2 4LH

 

Independent Auditor

RSM UK Audit LLP

Third Floor

Centenary House

69 Wellington Street

Glasgow G2 6HG

Registrar

Link Market Services (Guernsey)

Limited

The Registry

34 Beckenham Road

Beckenham

Kent BR3 4TU

 

 

 

Asset Manager

London & Scottish Property Investment Management Limited

Venlaw

349 Bath Street

Glasgow G2 4AA

Investment Manager

Toscafund Asset Management LLP

5th Floor

15 Marylebone Road

London NW1 5JD

 

Sub-Administrator

Link Alternative Fund Administrators Limited

Beaufort House

51 New North Road

Exeter

Devon EX4 4EP

 

 

 

Company Secretary

Link Company Matters Limited

Beaufort House

51 New North Road

Exeter

Devon EX4 4EP

Legal Adviser to the Company

Macfarlanes LLP

20 Cursitor Street

London EC4A 1LT

 

Tax Adviser

Grant Thornton UK LLP

110 Queen Street

Glasgow GI 3BX

 

 

 

 

Depositary

Ocorian Depositary (UK) Limited

20 Fenchurch Street

London

EC3M 3BY

 

Public Relations

Buchanan Communications Limited

107 Cheapside

London EC2V 6DN

 

Registered office

Regional REIT Limited

Mont Crevelt House

Bulwer Avenue

St. Sampson

Guernsey GY2 4LH

 

 

 

Financial Adviser and Joint Broker

Peel Hunt LLP

Moor House

120 London Wall

London EC2Y 5ET

Joint Broker

Panmure Gordon

1 New Change

London

EC4M 9AF

 

Property Valuers

Cushman & Wakefield Debenham

Tie Leung Limited (trading as Cushman & Wakefield)

125 Old Broad Street

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

 

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
END
 
 
IR SFWFMIEFSEDU
Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account.