29 March 2022
Regional REIT Limited
("Regional REIT", the "Group" or the "Company")
2021 Full Year Results
Portfolio growth and dividend drives shareholder value
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 full year results for the year ended 31 December 2021.
Financial highlights:
A strong performance and significant increase in both portfolio valuation and rent roll, providing shareholders with an attractive yield
· Significant portfolio value increase of 23.7% to £906.1m (2020: £732.4m), following the £236m portfolio acquisition August 2021
· Valuation per share remains resilient: IFRS NAV per share of 97.4p (2020: 97.5p); EPRA NTA per share of 97.2p (2020: 98.6p)
· EPRA total return of 41.2% since IPO in November 2015; representing 5.8% annualised returns for shareholders
· Total rent collection or within terms for 2021 was 99.2%* of rent due, improved against the 95.9% of rent collected for the equivalent period in 2020
· Rent roll increased by 12.3% to £72.1m (2020: £64.2m)
· EPRA EPS of 6.6pps (2020: 6.5pps); IFRS EPS 6.3pps (2020: loss 7.2pps)
· Net initial yield was 5.6% (2020: 6.9%)
· 2021 dividend, of 6.50pps (2020: 6.40pps), fully covered by EPRA earnings
· Group's cost of debt remained the same at 3.3% (2020: 3.3%)
· Net LTV of 42.4% (2020: 40.8%)
· Weighted average debt duration remains robust at 5.5 years (2020: 6.4 years)
*As at 18 March 2022, rent collections to 31 December 2021 amounted to 99.2%; actual rent collected 97.9%, monthly rents 0.2% and deals agreed of 1.1%.
Operational highlights:
A growing portfolio of geographically diversified assets - generating attractive income and a substantial yield throughout a challenging year
· Rental income generated from a large spread of tenants and industries across a growing and geographically diversified portfolio of 168 properties (2020: 153), 1,511 units (2020: 1,245) and 1,077 occupiers (2020: 898)
· The Asset Manager continued to deliver on exiting all industrial and retail holdings to focus entirely on the core regional offices which the Asset Manager believes will provide the best return for shareholders over the coming years.
· The Group made disposals amounting to £76.9m (net of costs) during 2021. The proceeds from these disposals were promptly recycled into acquiring higher yielding properties
· A significant acquisition was completed in August 2021, when the Group acquired a £236.0m (before costs) portfolio comprising of predominately office assets, in exchange for the issuance of 84,230,000 of the Company's shares, £76.7m of existing cash resources, and additional borrowings of £76.2m. The acquired portfolio further de-risked the Company's offering increasing diversification by geography, occupier and type of income streams
· At the period end, 89.8% (2020: 83.5%) of the portfolio by market value was offices and 5.1% (2020: 11.1%) was industrial. The balance was made up of retail 3.7% (2020: 4.1%) and other, 1.4% (2020: 1.3%)
· Portfolio valuation split by region was: England 75.7% (2020: 78.3%), Scotland 19.0% (2020: 17.3%) and the balance of 5.3% was in Wales (2020: 4.4%). In England, the largest regions were the South East, Midlands and the North West
· EPRA Occupancy (by ERV) was 81.8% (2020: 89.4%) as expected. EPRA Occupancy has been impacted by the £236.0m (before costs) portfolio acquisition made in Q3 2021. Asset management plans are in place to improve occupancy
· Completed 55 new lettings in 2021, totalling 194,716 sq. ft., which when fully occupied will provide a gross rental income of c. £2.5m
Post period end
· Post 31 December 2021, the Company has disposed of separately: eight non-core properties for a total consideration of £33.5m, at a 1.3% premium to the 31 December 2021 valuation, with a net initial yield of 5.1% (6.3% excluding vacant properties)
· Good momentum through active asset management, securing £0.7m of lettings across nine new lease agreements
· On 24 February 2022, the Company declared the Q4 2021 dividend of 1.70pps, which will be paid to shareholders on 8 April 2022
Stephen Inglis, CEO of London and Scottish Property Investment Management, the Asset Manager, commented:
"We are delighted to report that the Company performed well in 2021, despite the underlying difficulties in the office sector caused by COVID-19 during the reporting period. Our track record of distributing a quarterly dividend to shareholders since IPO remains uninterrupted, achieved through a defensive and geographically diversified portfolio of assets, which is poised to benefit from the UK's return to the office in 2022.
2021 was an active year for us, as we undertook substantial transactional activity in line with our strategy to focus the portfolio exclusively on the regional office sector and exit all other areas of commercial property.
Additionally, the portfolio's valuation has increased considerably during 2021, owing primarily to the significant acquisition made in August, which included 31 high quality assets for £236m.
Our performance has been maintained primarily through the strength of our occupier base and our strong relationships with those tenants, where we have received 99.2% of rents due for the year, and our intensive asset management initiatives, helping us realise additional value in the portfolio.
As we look forward, we are confident in the Company's prospects of maximising shareholder value through the strategic repositioning of the portfolio in high quality regional office assets, while continuing to deliver a significant yield."
Forthcoming Events
| 25 May 2022 | May 2022 Trading Update and Outlook Announcement |
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| Q1 2022 Dividend Declaration Announcement |
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| Annual General Meeting |
| 15 September 2022 | 2022 Interim Results Announcements |
| 10 November 2022 | Q3 2022 Trading Update |
Note: All dates are provisional and subject to change.
- ENDS -
Enquiries:
| Regional REIT Limited |
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| Toscafund Asset Management | Tel: +44 (0) 20 7845 6100 |
| Investment Manager to the Group |
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| Adam Dickinson, Investor Relations, Regional REIT Limited |
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| London & Scottish Property Investment Management | Tel: +44 (0) 141 248 4155 |
| Asset Manager to the Group |
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| Stephen Inglis |
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| Buchanan Communications | Tel: +44 (0) 20 7466 5000 |
| Financial PR | regional@buchanan.uk.com |
| Charles Ryland, Henry Wilson, George Beale |
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About Regional REIT
Regional REIT Limited ("Regional REIT" or the "Company") and its subsidiaries (the "Group") is a United Kingdom ("UK") based real estate investment trust that launched in November 2015. It is managed by London & Scottish Property Investment Management Limited, the Asset Manager, and Toscafund Asset Management LLP, the Investment Manager.
Regional REIT's commercial property portfolio is comprised wholly of income producing UK assets and comprises, predominantly of offices located in the regional centres outside of the M25 motorway. The portfolio is geographically diversified, with 168 properties, 1,077 occupiers as at 31 December 2021, with a valuation of c.£906.1m.
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
Financial Highlights
Year ending 31 December 2021
Income focused - opportunistic buying and strategic selling, coupled with intensive asset management, continues to secure long-term income
| Portfolio Valuation | £906.1m (2020: £732.4m) |
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| IFRS NAV per Share | 97.4p (2020: 97.5p) |
| EPRA* NTA per Share EPRA earnings per Share | 97.2p (2020: 98.6p) |
| Dividend per Share | 6.5p (2020: 6.4p) |
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| Net Loan to Value Ratio** | 42.4% (2020: 40.8%) |
| Weighted Average Cost of Debt** | 3.3% (2020: 3.3%) |
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| Weighted Average Debt Duration** | 5.5 yrs (2020: 6.4yrs) |
* The European Public Real Estate Association (EPRA)
** Alternative Performance Measures. Details are provided in the full Annual Report.
The European Public Real Estate Association
The EPRA's mission is to promote, develop and represent the European public real estate sector. As an EPRA member, we fully support the EPRA Best Practices Recommendations. Specific EPRA metrics can be found in the Company's financial and operational highlights, with further disclosures and supporting calculations can be found within the full Annual Report.
Operational Highlights
Year ending 31 December 2021
Deliberately diversified and strengthened portfolio by location and tenant - regions primed for growth
| Properties | 168 |
| Units | 1,511 |
| Occupiers | 1,077 |
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| Rent Roll | £72.1m |
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| Portfolio by region and sector (by value) |
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| England & Wales | 81.0% |
| Office | 89.8% |
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| Property acquisitions (before costs) | £236.0m |
| Number of properties | 31 |
| Property disposal proceeds (net of costs) | £76.9m |
| Number of properties | 16 |
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| EPRA Occupancy by ERV* | 81.8% |
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| WAULT to expiry | 4.8 yrs |
| WAULT to first break | 3.0 yrs |
* Alternative Performance Measures. Details are provided in the full Annual Report.
Performance Highlights
Year ending 31 December 2021
The high dividend distributions are a major component of the total return
| Dividends declared per Share: | Pence |
| 2021 | 6.50 |
| 2020 | 6.40 |
| 2019 | 8.25 |
| 2018 | 8.05 |
| 2017 | 7.85 |
| 2016 | 7.65 |
| 2015 | 1.00 |
EPRA
| EPRA Total Return attributable to Shareholders since Admission^ | 41.2% |
| EPRA Annual Total Return attributable to Shareholders | 5.8% |
^Admission: 6 November 2015
Member of FTSE All-Share Index since March 2016
Member of FTSE EPRA NAREIT UK Index since June 2016
Total EPRA Return (from IPO)
(EPRA NTA and dividend declared)
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| Pence per share |
| IPO Nov 2015 | 100 |
| Dec 2015 | 107.8 |
| Dec 2016 | 113.2 |
| Dec 2017 | 119.9 |
| Dec 2018 | 137.5 |
| Dec 2019 | 142.9 |
| Dec 2020 | 136.3 |
| Dec 2021 | 141.2 |
Chairman's Statement
"The Company is in a strong position to create significant long-term value with a high dividend distribution."
Kevin McGrath, Chairman
Overview
Our progress this year reflects the growing maturity and strength of Regional REIT. The transition to being a pure regional office specialist gained substantial momentum in the year with the acquisition of a £236.0million (before costs) portfolio of predominately office assets from Squarestone Growth LLP. Overall, the Company continued to perform well during 2021, despite the challenging environment.
We continued to execute our successful strategy of having a large number of occupiers operating across a range of industries in properties located in the growth regions outside the M25 motorway. Driving this strategy forward has been in no small part due to our strong working relationships and understanding of our occupiers' needs and requirements. This has ensured continued robust rent collections throughout the year. Currently, rent collection for 2021 amounted to 99.2%* (2020: equivalent period 95.9%). In addition, our exceptional network of contacts continues to provide a pipeline of asset acquisition and disposal opportunities to create long-term value.
Whilst 2021 was a challenging year due to the myriad of restrictions and guidance issued by the respective United Kingdom Government bodies, our strong rent collection resulted in EPRA diluted earnings of 6.6 pence per share ("pps") (2020: 6.5pps). IFRS diluted earnings per share were 6.3pps (2020: loss per share of 7.2pps). The dividend was fully covered by EPRA earnings.
During the year, the overall value of the portfolio increased by 23.7% to £906.1 million from £732.4 million as at 31 December 2020, reflecting the acquisition of the Squarestone Growth LLP office portfolio, positioning the REIT for further long term asset growth. The Company made disposals amounting to £76.9 million (net of costs). As usual the proceeds from these disposals have been promptly recycled into acquiring higher yielding properties. The Squarestone Growth LLP acquisition was completed in August, when the Group acquired a £236.0 million (before costs) portfolio comprising of predominately office assets, in exchange for the issuance of 84,230,000 of the Company's shares, £76.7 million of existing cash resources, and additional borrowings of £76.2 million. The acquired portfolio increased diversification of the Company's portfolio by geography, occupier and the standard industrial classification type of income streams, and it aligns well with the expertise, experience and unique strengths of the Asset Manager. While generating an attractive yield, it also offers a multitude of longer-term asset management opportunities.
* As at 18 March 2022, rent collections to 31 December 2021 amounted to 99.2%; actual rent collected 97.9%, monthly rents 0.2% and deals agreed of 1.1%.
** Alternative Performance Measures. Details are provided in the full Annual Report.
During the year, our rolling capital expenditure programme amounted to £6.8 million (2020: £8.8 million). Our priorities throughout the year were to maintain occupancy levels, provide safe and vibrant spaces in which our occupiers could thrive and grow and provide long-term capital value growth for our Shareholders.
Financial Resources
The Company continues to be in a financially strong position with an EPRA NTA of £501.4 million (2020: £425.6 million) and a cash balance of £56.1 million as at 31 December 2021 (2020: £67.4 million), of which £49.9 million is unrestricted (2020: £55.0 million).
One of the Company's key achievements has been its defensive debt positioning. The simple and flexible debt profile with strong lender relationships continued to ensure that the Company was well positioned for any further economic turbulence. These attributes remain evident going forward with no requirement to refinance until 2024.
Following the £236.0 million (before costs) portfolio acquisition in August 2021, the net borrowings as at 31 December 2021 amounted to 42.4%. A programme of asset management initiatives is in train to ensure the net borrowing reverts to our long-term target of c. 40%. Our debt facilities have sufficient headroom against their respective covenants, and the Company is in a robust position to withstand any future economic uncertainty.
Market Environment
Investment in the UK commercial property market reached £57.0 billion in 2021, according to research by Lambert Smith Hampton ("LSH")1, 6.1% above the five-year average, 40.1% higher than the volume recorded in 2020, and 15.4% above pre-COVID-19 levels in 2019. Investor sentiment remained positive in the final quarter of 2021, despite concerns surrounding Omicron, and the quarterly investment was £17.3 billion, the highest level recorded since Q2 2015.
Savills research highlights that investor sentiment in the regional office market has improved throughout 20212. Regional office investment totalled £7.2 billion in 2021, 34.8% higher than 2020 figures, and marginally above the five-year average3. Investment in office parks in 2021 reached £2.8 billion, the highest level reported since 2017, and 31.6% above the five-year average. Optimism in the regional office market has been supported by strong employment growth. The most recent data from the ONS shows that the UK employment rate rose to 75.5% in the three months to November 2021, up from 74.9% for the same period in 20204.
1 Lambert Smith Hampton, UKIT Q4 2021
2 Savills, UK Regional Investment Market Watch - December 2021
3 Lambert Smith Hampton, UKIT Q4 2021
4 ONS, Labour Market Overview, UK - January 2022
More details can be found in the Asset Manager's Report in the full Annual Report.
Strategy Update - Positioned for Growth
As announced on 12 November 2020, the Company has focused its investment on properties in the office sector in the main regional centres of the UK outside of the M25 motorway. The Company continued to exit all other commercial property sector investments. During 2021, non-core disposals amounted to £76.9 million (net of costs) and regional office acquisitions totalled £220.2 million.
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 an attractive Total Shareholder Return over the long term.
Dividends
The dividend is the major component of Total Shareholder Returns. For the year under review, the Company declared total dividends of 6.50pps for the year (2020: 6.40pps), comprising three quarterly dividends of 1.60pps each and a fourth dividend of 1.70pps. This represented a yield of 6.9% at a share price of 93.90pps at the close of 31 December 2021. Since inception, the Company has declared dividends amounting to 45.7pps.
Looking ahead, there is a clear aspiration by the Board to maintain its record of uninterrupted quarterly dividend payments. This is predicated on the strength of the Company's balance sheet and the strong rent collections received throughout the year.
Performance
Since listing on 6 November 2015, the Company's EPRA Total Return was 41.2% and the annualised EPRA Total Return was 5.8%. The Total Shareholder Return was 47.6%, compared with the FTSE EPRA NAREIT UK Total Return Index, which has generated a return of 21.9% over the same period.
For the year under review, the Company's Total Shareholder Return was 22.4%, versus the return of 28.9% for the FTSE EPRA NAREIT UK Total Return Index over the same period.
Integrating a More Sustainable Approach
The Company has always been cognisant of its environmental impact, transparent governance structure and its social responsibility. With the Company's commitment to a more focused and formal approach, the Company joined the Real Estate Sustainability Benchmark ("GRESB"), achieving a green star for 2021. The Company has continued with a programme of integrating environmental, social and governance through its decision making. More details are set out in the full Annual Report.
Annual General Meeting
The Company plans to hold its 2022 Annual General Meeting ("AGM") in person on Wednesday, 25 May 2022. The notice for the 2022 AGM will be published on our website and will be circulated to Shareholders in accordance with the requirements of the Company's Articles of Incorporation.
In the absence of any reimposition of restrictions, the Board very much looks forward to meeting with Shareholders at the AGM.
Shareholder and Stakeholder Engagement
Our priority throughout 2021 remained first and foremost to provide vibrant workspaces where collaborative and collegiate environments can be built by our occupiers to face market challenges. We have stood ready to support and guide our occupiers, if required, throughout this challenging period and this remains the case.
I would like to take this opportunity to thank all the asset management teams, from property management, research, legal, corporate finance and finance to credit control, who have continued to support our occupiers through this unprecedented period.
Board and Governance
I am pleased to announce that in 2021 a Nomination Committee was constituted by the Board. The Committee's Terms of Reference can be found on the Company's website. The Committee comprises all of the independent Non-Executive Directors. More details can be found in the full Annual Report.
Outlook
The outlook for the Company remains positive. With the robust level of rent collections, the geographical and occupier diversification of the portfolio and strong finances, the Company is well positioned to continue to grow and take the opportunities that will inevitably arise in the coming years.
For the remainder of 2022, though we remain mindful of the challenges to be faced, the Company is confident of maintaining high rent collections and accelerating the momentum on the asset management initiatives. The Board believes this will result in the continued de-risking of the portfolio, whilst continuing to deliver income and long-term total returns for our Shareholders.
Kevin McGrath
Chairman
28 March 2022
Asset and Investment Managers' Report
"We are pleased to report that the Company performed well in 2021, despite the underlying challenges caused by COVID-19. Since IPO, we have consistently provided a quarterly dividend to our Shareholders. This has been achieved through a defensive and geographically diversified portfolio of assets, which is poised to benefit from the UK's return to the office in 2022.
2021 was an active year for us, as we undertook substantial transactional activity in line with our strategy to be opportunistic and focus the portfolio on the regional office sector. We continue to progress with a planned exit for all other non-core assets.
In addition, the portfolio's valuation increased considerably during 2021, owing primarily to the significant off-market acquisition made in August, when the Company acquired a predominately multi-let office portfolio for £236 million. This acquisition, one of the largest regional office acquisitions in the UK in 2021, was an excellent fit with our existing portfolio given its complementary spread of quality assets and a differentiated occupier base, and results in 90% of the portfolio being in the office sector. The portfolio presents a major opportunity for Regional REIT to implement its proven asset management strategy to generate additional Shareholder value on a large-scale portfolio over the coming years.
Our good income performance has been maintained primarily through the strength of our occupier base and our strong relationships with these occupiers. We received 99.2% of rents due for the year. We expect to continue to collect the outstanding amounts over the coming months.
Our consistent quarterly dividends throughout the challenging period of the pandemic have further strengthened the Company's well-attested credentials as a reliable source of high income. We believe we are well placed in the current inflationary environment, given our high level of rent collection, regular rent reviews, and asset backed valuations.
As we look forward, we are confident in the Company's prospects of maximising Shareholder value through the strategic repositioning of the portfolio in high quality regional office assets, whilst continuing to deliver a significant dividend yield."
Stephen Inglis, CEO of London & Scottish Property Investment Management, Asset Manager.
Highlights from 2021
· Achieved a high level of rent collection. As at 18 March 2022, rent collection continued to strengthen, with FY 2021 collections increasing to 99.2%, adjusting for monthly rent and agreed collections plans, which is similar to the equivalent date in 2020 when 95.9% had been collected.
· Completed 55 new lettings in 2021, totalling 194,716 sq. ft., which when fully occupied will provide a gross rental income of c. £2.5 million.
· Acquisitions in 2021 totalled £236.0 million (before costs) for 31 assets, reflecting an average net initial yield of 7.8%, and a reversionary yield of 11.0%.
· Disposals during 2021 totalled £76.9 million (net of costs), reflecting an average net initial yield of 6.5% (6.6% excluding vacant properties).
· Average rent by let sq. ft. increased by 22.2% from £10.44 per sq. ft. in December 2020 to £12.75 per sq. ft. in December 2021.
· Capital value per sq. ft. increased by 21.9% from £102.26 per sq. ft. in December 2020 to £124.70 per sq. ft.
Investment Activity in the UK Commercial Property Market
Investment in the UK commercial property market reached £57.0 billion in 2021, according to research by Lambert Smith Hampton ("LSH")5, 6.1% above the five-year average, 40.0% higher than the volume recorded in 2020, and 15.4% above pre-COVID-19 levels in 2019. Investor sentiment remained positive in the final quarter of 2021, despite concerns surrounding the Omicron variant, with a quarterly investment of £17.3 billion - the highest level recorded since Q2 2015. Investment in Q4 2021 marked an improvement of 23.4% on Q3 2021 and was 28.7% above the five-year quarterly average. 2021 proved to be a strong year for investment in portfolio deals, with investment totalling £15.6 billion, 50.9% above 2020 figures and 20.1% above the pre-pandemic level recorded in 2019. The commercial property market is well positioned for a positive 2022. Savills forecast that investment will increase by 10% over the next 12 months, with growth expected to be underpinned by occupational factors such as falling unemployment and companies reporting strong employment intentions6.
The strength of the UK regional markets was particularly pronounced in 2021, with annual investment reaching £21.3 billion, 12.0% above the five-year average and 54.2% higher than 2020 investment volumes. Conversely, London volumes were down relative to trend with 2021 volumes falling 6.0% below the five-year average at £20.1 billion. LSH research notes that a rise in investment levels was reflected across the majority of UK regions, with seven of the 11 regions recording a volume above the respective five-year averages. The largest increase in regional investment in 2021 relative to the five-year average occurred in the East, West Midlands, North West, South East and Northern Ireland.
Savills research highlights that investor sentiment in the regional office market improved throughout 20217. Regional office investment totalled £7.2 billion in 2021, 34.8% higher than 2020 figures, and marginally above the five-year average8. Investment in office parks in 2021 reached £2.8 billion, the highest level reported since 2017, and 31.6% above the five-year average. Optimism in the regional office market has been supported by strong employment growth. The most recent data from the ONS shows that the UK employment rate rose to 75.5% in the three months to November 2021, up from 74.9% for the same period in 20209. Moreover, a survey by Deloitte shows that 74% of CFOs plan to increase employee numbers over the next 12 months. This is in stark contrast to the same quarter in 2020, in which less than a quarter of CFOs planned to increase headcount and approximately 50% planned to reduce staff numbers10. Strong employment rates and encouraging levels of recruitment are positive indicators for occupational demand.
The Asset Manager's strong opinion is that the office will continue to play a vital role in working life regardless of whether hybrid or more traditional working practices are adopted. It is their opinion that many occupiers will require more office accommodation in future due to both employment growth and the improvement in the working environment by employers including de-densification.
5 Lambert Smith Hampton, UKIT Q4 2021
6 Savills, MIM, UK Commercial - January 2022
7 Savills, UK Regional Investment Market Watch - December 2021
8 Lambert Smith Hampton, UKIT Q4 2021
9 ONS, Labour Market Overview, UK - January 2022
10 Deloitte, CFO Survey, Q4 2021
Quarterly Investment Volumes (£bn)
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| £bn |
| 2014 Q1 | 12.04 |
| 2014 Q2 | 12.84 |
| 2014 Q3 | 15.97 |
| 2014 Q4 | 20.50 |
| 2015 Q1 | 19.93 |
| 2015 Q2 | 18.30 |
| 2015 Q3 | 12.74 |
| 2015 Q4 | 16.04 |
| 2016 Q1 | 13.24 |
| 2016 Q2 | 10.90 |
| 2016 Q3 | 9.83 |
| 2016 Q4 | 13.13 |
| 2017 Q1 | 12.98 |
| 2017 Q2 | 14.33 |
| 2017 Q3 | 15.77 |
| 2017 Q4 | 16.90 |
| 2018 Q1 | 14.13 |
| 2018 Q2 | 14.07 |
| 2018 Q3 | 17.04 |
| 2018 Q4 | 16.33 |
| 2019 Q1 | 11.26 |
| 2019 Q2 | 8.78 |
| 2019 Q3 | 13.85 |
| 2019 Q4 | 15.45 |
| 2020 Q1 | 13.89 |
| 2020 Q2 | 4.36 |
| 2020 Q3 | 8.09 |
| 2020 Q4 | 14.32 |
| 2021 Q1 | 11.41 |
| 2021 Q2 | 14.28 |
| 2021 Q3 | 13.98 |
| 2021 Q4 | 17.27 |
Source: Lambert Smith Hampton Research (February 2022)
Overseas investment in the UK property market accounted for just under half (49.3%) of total investment in 2021, according to data from LSH. LSH estimates that total overseas investment for 2021 reached £28.1 billion, 32.0% higher than 2020, and 6.8% above than the five-year average. Overseas investment in Q4 2021 reached £7.5 billion, up 14.1% on Q3's level and 13.4% higher than the five-year quarterly average. North America and the Middle East were net investors in the final quarter of 2021. Conversely, European investors were net sellers in Q4 2021, c. 30% below the Q4 average despite strong demand from German investors.
Research from CBRE11 indicates that regional offices have outperformed in comparison to central London offices, delivering superior income returns of 5.7% in 2021 in comparison to central London office returns of 3.6% - a trend that has been witnessed over the past seven years. With a total return of 7.7% for regional offices, 2021 marked a significant improvement on 2020 performance, in which a total return of 0.6% was reported.
11 CBRE Monthly Index, Q4 2021
Central London & Regional Office Income Returns (12 months to December 2021)
| Income Return | |||||||
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| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |
| Central London Offices | 3.2% | 3.3% | 3.7% | 3.8% | 3.8% | 4.1% | 3.6% |
| Rest of UK Offices | 6.4% | 6.2% | 6.4% | 5.9% | 5.8% | 5.9% | 5.7% |
Source: CBRE (February 2022)
Occupational Demand in the UK Regional Office Market
Avison Young estimates that take-up of office space across nine regional office markets12 totalled 8.1 million sq. ft. in 2021; 41.9% above the level of take-up recorded in 2020, and 5.0% lower than the 10-year average. Take-up in the final quarter of 2021 was 21.9% above the five-year average at 2.7 million sq. ft., marking the highest quarterly take-up figure in over three years. This highlighted a return to 'normal' demand levels in the second half of 2021 with take-up in H2 totalling 5.0 million sq. ft. Avison Young highlights that that there is increased demand for greater customer care, space that encourages collaboration, and a focus on health and well-being.
Occupational demand was driven by the technology, media & telecoms sector, which accounted for the highest proportion of take-up at 21.9% in 2020. Following the technology, media & telecoms sector, the public services, education & health sector and the professional sector accounted for the second and third largest proportion of take-up in the regional cities, accounting for 16.9% and 12.7% respectively.
According to Savills, there was a rise in availability for regional office stock across ten regional UK markets 13, with total availability rising by 11.3% in 2021 to 14.7 million sq. ft. The uptick in availability over the last two years has pushed supply marginally above the 10-year average by 0.6%. This marks the second year that supply of office stock has increased over the last decade, having gradually fallen each year since 2009. The overall vacancy rate for regional offices ticked upwards from 11.4% in 2020 to 12.6% in 2021 but remains 2.2% below the 10-year average14.
Furthermore, it is estimated that approximately 4.0 million sq. ft. of office space is currently under construction in the Big Nine regional markets, with Glasgow, Bristol and Leeds accounting for 24.7%, 16.2% and 15.6%, respectively. Approximately 48.3% of office buildings currently under construction are already pre-let.
12 Nine regional office markets mentioned by Avison Young include: Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Liverpool, Manchester & Newcastle
13 Ten regional office markets mentioned by Savills include: Aberdeen, Birmingham, Bristol, Cambridge, Cardiff, Edinburgh, Glasgow, Leeds, Manchester and Oxford
14 Savills: The Regional Office Market Overview, Q4 2021
Regional Supply: Annual Office Supply
| Year | Regional Supply (sq, ft.) | 10-year Average |
| 2005 | 13,366,593 | 14,651,164 |
| 2006 | 13,495,550 | 14,651,164 |
| 2007 | 15,536,262 | 14,651,164 |
| 2008 | 17,531,111 | 14,651,164 |
| 2009 | 20,388,260 | 14,651,164 |
| 2010 | 19,128,055 | 14,651,164 |
| 2011 | 18,456,562 | 14,651,164 |
| 2012 | 18,238,269 | 14,651,164 |
| 2013 | 16,378,996 | 14,651,164 |
| 2014 | 16,123,864 | 14,651,164 |
| 2015 | 15,384,157 | 14,651,164 |
| 2016 | 14,803,325 | 14,651,164 |
| 2017 | 14,091,517 | 14,651,164 |
| 2018 | 12,272,422 | 14,651,164 |
| 2019 | 11,248,539 | 14,651,164 |
| 2020 | 13,235,404 | 14,651,164 |
| 2021 | 14,735,145 | 14,651,164 |
Source: Savills (February 2022)
Rental Growth in the UK Regional Office Market
The CBRE Monthly Index shows that rental value growth held up better for the rest of UK office markets in the 12 months ended December 2021 with growth of 1.4%. Conversely, central London offices experienced modest growth of 0.2% during 2021. According to MSCI, average rents in the regional office market (outside of London and the South East) increased by 1.6% in 2021. Demand for quality office space has put an upward pressure on rents, with growth of 2.3% recorded across the Big Nine regional markets in 2021, with average headline rents now sitting at £32.67 per sq. ft., according to research from Avison Young. Colliers International noted that office park rental growth was particularly encouraging, with an annual increase of 2.1% as reported by MSCI15.
15 Colliers International, Property Snapshot, December 2021
Regional REIT's Office Assets
EPRA occupancy of the Group's regional offices was 80.8% (2020: 88.6%). A like-for-like comparison of the Group's regional offices' EPRA occupancy, as at 31 December 2021 versus 31 December 2020, shows occupancy of 81.4% (2020: 89.4%). WAULT to first break was 2.6 years (2020: 2.6 years); like-for-like WAULT to first break of 2.8 years (2020: 2.7 years).
Property Portfolio
As at 31 December 2021, the Group's property portfolio was valued at £906.1 million (2020: £732.4 million), with rent roll of £72.1 million (2020: £64.2 million), and an EPRA occupancy of 81.8% (2020: 89.4%). As expected, EPRA Occupancy was impacted by the £236.0m (before costs) portfolio acquisition made in Q3 '2021. Asset management plans are in place to improve occupancy.
On a like-for-like basis, 31 December 2021 versus 31 December 2020, EPRA occupancy was 82.4% (2020: 89.5%).
There were 168 properties (2020: 153) in the portfolio, with 1,511 units (2020: 1,245) and 1,077 tenants (2020: 898). If the portfolio was fully occupied at Cushman & Wakefield's view of market rents, the rental income would be £94.6 million per annum as at 31 December 2021 (2020: £76.6 million).
As at 31 December 2021, the net initial yield on the portfolio was 5.6% (2020: 6.9%), the equivalent yield was 8.7% (2020: 8.8%) and the reversionary yield was 9.4% (2020: 9.4%).
Property Portfolio by Sector
| Sector | Properties | Valuation | % by valuation | Sq. ft. | Occupancy (EPRA) | WAULT to first break | Gross rental income | Average rent | ERV | Capital rate | Yield (%) | ||
|
|
| (£m) |
| (m) | (%) | (yrs) | (£m) | (£psf) | (£m) | (£psf) | Net initial | Equivalent | Reversionary |
| Office | 138 | 813.4 | 89.8 | 6.0 | 80.8 | 2.6 | 63.9 | 14.07 | 86.3 | 134.77 | 5.4 | 8.8 | 9.6 |
| Industrial | 7 | 46.4 | 5.1 | 0.7 | 90.7 | 7.2 | 3.3 | 5.10 | 3.6 | 66.18 | 6.1 | 7.5 | 7.4 |
| Retail | 20 | 33.9 | 3.7 | 0.4 | 92.6 | 3.6 | 3.9 | 9.99 | 3.8 | 78.14 | 9.3 | 9.7 | 9.8 |
| Other | 3 | 12.5 | 1.4 | 0.1 | 92.7 | 13.0 | 1.0 | 12.66 | 0.9 | 129.27 | 6.6 | 8.0 | 7.5 |
| Total | 168 | 906.1 | 100.0 | 7.3 | 81.8 | 3.0 | 72.1 | 12.75 | 94.6 | 124.70 | 5.6 | 8.7 | 9.4 |
| 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) |
| (m) | (%) | (yrs) | (£m) | (£psf) | (£m) | (£psf) | Net initial | Equivalent | Reversionary |
| Scotland | 44 | 172.1 | 19.0 | 1.7 | 84.7 | 3.9 | 15.5 | 11.80 | 19.6 | 102.62 | 6.0 | 9.4 | 10.2 |
| South East | 33 | 192.9 | 21.3 | 1.4 | 72.9 | 2.6 | 12.7 | 15.08 | 20.8 | 140.41 | 4.2 | 8.5 | 9.5 |
| North East | 23 | 121.4 | 13.4 | 1.0 | 83.9 | 3.0 | 9.6 | 11.86 | 11.8 | 126.36 | 6.0 | 9.2 | 9.2 |
| Midlands | 26 | 161.8 | 17.9 | 1.3 | 79.1 | 2.9 | 13.1 | 12.60 | 16.2 | 124.57 | 4.9 | 8.5 | 9.7 |
| North West | 20 | 125.2 | 13.8 | 1.0 | 80.0 | 2.7 | 9.8 | 12.55 | 13.3 | 131.35 | 6.0 | 9.2 | 9.1 |
| South West | 15 | 84.6 | 9.3 | 0.5 | 94.1 | 2.0 | 7.0 | 16.35 | 8.4 | 164.45 | 6.0 | 8.2 | 9.1 |
| Wales | 7 | 48.2 | 5.3 | 0.5 | 94.6 | 4.2 | 4.4 | 9.98 | 4.4 | 98.57 | 8.2 | 8.3 | 8.5 |
| Total | 168 | 906.1 | 100.0 | 7.3 | 81.8 | 3.0 | 72.1 | 12.75 | 94.6 | 124.70 | 5.6 | 8.7 | 9.4 |
* Table may not sum due to rounding
Top 15 Investments (Market Value) as at 31 December 2021
| Property | Sector | Anchor tenants | Market value | % of portfolio | Lettable area | EPRA Occupancy | Annualised gross rent | % of gross rental income | WAULT to first break (years) |
| (£m) | (sq ft) | (%) | (£m) | ||||||
| 300 Bath Street, Glasgow | Office | University of Glasgow, Glasgow Tay House Centre Ltd, Eaton Ltd | 27.2 | 3.0 | 156,853 | 99.8 | 1.2 | 1.7 | 2.9 |
| Buildings 2 & 3, Bear Brook Office Park, Aylesbury | Office | Utmost Life and Pensions Ltd, Agria Pet Insurance Ltd | 22.8 | 2.5 | 140,791 | 90.8 | 0.9 | 1.3 | 3.6 |
| Genesis Business Park, Woking | Office | Nuvias (UK & Ireland) Ltd, Fernox Ltd, McCarthy & Stone Retirement Lifestyles Ltd, Walk The Walk Worldwide | 22.7 | 2.5 | 98,151 | 81.3 | 1.4 | 1.9 | 2.2 |
| Capitol Park, Leeds | Office | Hermes European Logistics Ltd, NHS Shared Business Services Ltd | 21.5 | 2.4 | 98,340 | 100.0 | 1.8 | 2.5 | 1.7 |
| Eagle Court, Coventry Road, Birmingham | Office | Virgin Media Ltd, Rexel UK Ltd, Coleshill Retail Ltd | 21.4 | 2.4 | 132,979 | 77.8 | 1.8 | 2.5 | 1.4 |
| 800 Aztec West, Bristol | Office | NNB Generation Company (HPC) Ltd, Edvance SAS | 19.0 | 2.1 | 73,292 | 100.0 | 1.5 | 2.1 | 1.6 |
| Manchester Green, Manchester | Office | Chiesi Ltd, Ingredion UK Ltd, Assetz SME Capital Ltd | 18.9 | 2.1 | 106,133 | 75.9 | 1.3 | 1.8 | 3.4 |
| Beeston Business Park, Nottingham | Office/ Industrial | Metropolitan Housing Trust Ltd, SMS Electronics Ltd, Worldwide Clinical Trials Ltd, Heart Internet Ltd | 18.9 | 2.1 | 215,330 | 100.0 | 1.8 | 2.5 | 5.4 |
| Hampshire Corporate Park, Eastleigh | Office | Aviva Central Services UK Ltd, Utilita Energy Ltd, Digital Wholesale Solutions Ltd | 18.7 | 2.1 | 85,422 | 99.8 | 1.3 | 1.8 | 2.1 |
| Norfolk House, Smallbrook Queensway, Birmingham | Office | Accenture (UK) Ltd, Secretary of State for Communities & Local Government | 18.0 | 2.0 | 114,982 | 49.0 | 0.8 | 1.1 | 2.3 |
| Portland Street, Manchester | Office | Darwin Loan Solutions Ltd, New College Manchester Ltd, Mott MacDonald Ltd | 15.2 | 1.7 | 55,787 | 98.7 | 0.9 | 1.3 | 2.7 |
| One & Two Newstead Court, Nottingham | Office | E.ON UK Plc | 14.5 | 1.6 | 146,262 | 67.8 | 0.9 | 1.3 | 3.3 |
| Templeton On The Green, Glasgow | Office | The Scottish Ministers, The Scottish Sports Council, Noah Beers Ltd | 13.6 | 1.5 | 142,512 | 90.7 | 1.2 | 1.7 | 4.1 |
| Ashby Park, Ashby De La Zouch | Office | Ceva Logistics Ltd, Hill Rom UK Ltd, Brush Electrical Machines Ltd | 13.5 | 1.5 | 91,034 | 92.8 | 1.1 | 1.6 | 3.9 |
| The Lighthouse, Salford Quays, Manchester | Office | Pearson Education Ltd, Engie Regeneration Ltd, Assemble Technology Ltd | 13.3 | 1.5 | 64,275 | 56.7 | 0.7 | 1.0 | 2.7 |
| Total |
|
| 279.1 | 30.8 | 1,722,143 | 84.3 | 18.8 | 26.1 | 2.9 |
* Table may not sum due to rounding
Top 15 Tenants (Share of Rental Income) as at 31 December 2021
| Tenant | Property | Sector | WAULT to first break (years) | Lettable area (sq ft) | Annualised gross rent (£m) | % of gross rental income |
| Virgin Media Ltd | Eagle Court, Coventry Road, Birmingham | Information and communication | 1.8 | 112,147 | 1.8 | 2.5 |
|
| Genesis Business Park, Woking |
|
|
|
|
|
|
| Southgate Park, Peterborough |
|
|
|
|
|
| NHS | Aspect House, Bennerley Road, Nottingham | Public sector | 1.9 | 103,240 | 1.7 | 2.3 |
|
| Capitol Park, Leeds |
|
|
|
|
|
|
| Lightyear - Glasgow Airport, Glasgow |
|
|
|
|
|
|
| Park House, Bristol |
|
|
|
|
|
|
| St James Court, Bristol |
|
|
|
|
|
|
| Wren House, Chelmsford |
|
|
|
|
|
| TUI Northern Europe Ltd | Columbus House, Coventry | Professional, scientific and technical activities | 2.0 | 53,253 | 1.4 | 1.9 |
| Secretary of State for Communities & Local Government | 1 Burgage Square, Merchant Square, Wakefield | Public sector | 2.7 | 128,335 | 1.3 | 1.8 |
|
| Albert Edward House, Preston |
|
|
|
|
|
|
| Bennett House, Stoke-On-Trent |
|
|
|
|
|
|
| Norfolk House, Birmingham |
|
|
|
|
|
|
| Oakland House, Manchester |
|
|
|
|
|
|
| Waterside Business Park, Swansea |
|
|
|
|
|
| The Scottish Ministers | Calton House, Edinburgh | Public sector | 1.7 | 106,511 | 1.3 | 1.8 |
|
| Quadrant House, Dundee |
|
|
|
|
|
|
| Templeton On The Green, Glasgow |
|
|
|
|
|
| Bank of Scotland Plc | Dundas House, Rosyth | Banking | 0.8 | 83,060 | 1.3 | 1.7 |
|
| High Street/Bank Street, Dumfries |
|
|
|
|
|
| EDF Energy Ltd | Endeavour House, Sunderland | Electricity, gas, steam and air conditioning supply | 1.7 | 77,565 | 1.0 | 1.4 |
| E.ON UK Plc | Two Newstead Court, Nottingham | Electricity, gas, steam and air conditioning supply | 3.3 | 99,142 | 0.9 | 1.3 |
| John Menzies Plc | 2 Lochside Avenue, Edinburgh | Professional, scientific and technical activities | 1.6 | 43,780 | 0.9 | 1.2 |
| NNB Generation Company (HPC) Ltd | 800 Aztec West, Bristol | Electricity, gas, steam and air conditioning supply | 1.6 | 41,743 | 0.9 | 1.2 |
| James Howden & Company Ltd | Howden Site, Renfrew | Manufacturing | 9.9 | 204,414 | 0.8 | 1.1 |
| SPD Development Co Ltd | Clearblue Innovation Centre, Bedford | Professional, scientific and technical activities | 3.8 | 58,167 | 0.8 | 1.1 |
| Hermes European Logistics Ltd | Capitol Park, Leeds | Transportation and storage | 2.0 | 37,372 | 0.8 | 1.1 |
| Aviva Central Services UK Ltd | Hampshire Corporate Park, Eastleigh | Other service activities | 2.9 | 42,612 | 0.8 | 1.1 |
| Matalan Retail Ltd | Loreny Industrial Estate, Kilmarnock | Wholesale and retail trade | 6.9 | 75,038 | 0.8 | 1.1 |
|
| Newport Retail Park, Newport |
|
|
|
|
|
| Total |
|
| 2.7 | 1,266,379 | 16.4 | 22.7 |
*Table may not sum due to rounding.
Property Portfolio Sector and Region Splits by Valuation and Income
By Valuation
As at 31 December 2021, 89.8% (2020: 83.5%) of the portfolio by market value was offices and 5.1% (2020: 11.1%) was industrial. The balance was made up of retail, 3.7% (2020: 4.1%) and other, 1.4% (2020: 1.3%). By UK region, as at 31 December 2021, Scotland represented 19.0% (2020: 17.3%) of the portfolio and England 75.7% (2020: 78.3%); the balance of 5.3% (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 31 December 2021, 88.6% (2020: 82.3%) of the portfolio by income was offices and 4.5% (2020: 10.3%) was industrial. The balance was made up of retail, 5.4% (2020: 6.0%), and other, 1.4% (2020: 1.3%). By UK region, as at 31 December 2021, Scotland represented 21.6% (2020: 20.4%) of the portfolio and England 72.4% (2020: 74.6%); the balance of 6.0% was in Wales (2020: 5.0%). In England, the largest regions were the Midlands, the South East and the North West.
Lease Expiry Profile
The WAULT on the portfolio is 4.8 years (2020: 5.1 years); WAULT to first break is 3.0 years (2020: 3.2 years). As at 31 December 2021, 11.5% (2020: 14.2%) of income was from leases, which will expire within one year; 13.8% (2020: 9.1%) between one and two years; 31.9% (2020: 35.8%) between two and five years; and 42.8% (2020: 40.9%) after five years.
| Lease Expiry Income Profile | % of rent |
| 0-1 years | 11.5% |
| 1-2 years | 13.8% |
| 2-5 years | 31.9% |
| 5+ years | 42.8% |
| Total | 100.0% |
Source: LSPIM
| Lease Expiry Income Profile by year | £m |
| 2022 | 8,110,328 |
| 2023 | 9,742,865 |
| 2024 | 8,676,128 |
| 2025 | 7,509,207 |
| 2026 | 6,372,007 |
| 2027 | 5,608,480 |
| 2028 | 5,686,320 |
| 2029 | 6,890,525 |
| 2030+ | 12,013,130 |
| Total | 70,608,989 |
Source: LSPIM
| Lease expiry to first break income profile by year | £m |
| 2022 | 14,077,145 |
| 2023 | 16,915,418 |
| 2024 | 14,704,786 |
| 2025 | 8,219,482 |
| 2026 | 6,568,996 |
| 2027 | 2,028,779 |
| 2028 | 1,064,912 |
| 2029 | 1,764,160 |
| 2030+ | 5,265,312 |
| Total | 70,608,989
|
Source: LSPIM
Tenants by Standard Industrial Classification as at 31 December 2021
As at 31 December 2021, 14.5% of income was from tenants in the professional, scientific and technical activities sector (2020: 13.5%); 11.4% from the information and communication sector (2020: 8.3%); 9.6% from the wholesale & retail trade sector (2020: 7.3%); 9.5% from the administrative and support service activities sector (2020: 12.9%); 7.9% from the financial and insurance activities (other) sector (2020: 8.4%); and 7.8% from the public sector (2020: 8.8%). The remaining exposure is broadly spread.
No tenant represents more than 3% of the Group's rent roll as at 31 December 2021, the largest being 2.5% (2020: 3.5%).
Top 15 Properties
| 300 Bath Street, Glasgow | Market value (£m) | 27.2 |
|
| Sector | Office |
|
| Annualised gross rent (£m) | 1.2 |
|
| Lettable area (sq. ft.) | 156,853 |
|
| Anchor tenants | University of Glasgow, Glasgow Tay House Centre Ltd, Eaton Ltd |
|
| EPRA Occupancy (%) | 99.8% |
|
| WAULT (years) (to first break) | 6.0 (2.9) |
| Buildings 2 & 3, Bear Brook Office Park, Aylesbury | Market value (£m) | 22.8 |
|
| Sector | Office |
|
| Annualised gross rent (£m) | 0.9 |
|
| Lettable area (sq. ft.) | 140,791 |
|
| Anchor tenants | Utmost Life and Pensions Ltd, Agria Pet Insurance Ltd |
|
| EPRA Occupancy (%) | 90.8% |
|
| WAULT (years) (to first break) | 5.7 (3.6) |
| Genesis Business Park, Woking | Market value (£m) | 22.7 |
|
| Sector | Office |
|
| Annualised gross rent (£m) | 1.4 |
|
| Lettable area (sq. ft.) | 98,151 |
|
| Anchor tenants | Nuvias (UK & Ireland) Ltd, Fernox Ltd, McCarthy & Stone Retirement Lifestyles Ltd, Walk The Walk Worldwide |
|
| EPRA Occupancy (%) | 81.3% |
|
| WAULT (years) (to first break) | 5.4 (2.2) |
| Capitol Park, Leeds | Market value (£m) | 21.5 |
|
| Sector | Office |
|
| Annualised gross rent (£m) | 1.8 |
|
| Lettable area (sq. ft.) | 98,340 |
|
| Anchor tenants | Hermes European Logistics Ltd, NHS Shared Business Services Ltd |
|
| EPRA Occupancy (%) | 100.0% |
|
| WAULT (years) (to first break) | 1.7 (1.7) |
| Eagle Court, Coventry Road, Birmingham | Market value (£m) | 21.4 |
|
| Sector | Office |
|
| Annualised gross rent (£m) | 1.8 |
|
| Lettable area (sq. ft.) | 132,979 |
|
| Anchor tenants | Virgin Media Ltd, Rexel UK Ltd, Coleshill Retail Ltd |
|
| EPRA Occupancy (%) | 77.8% |
|
| WAULT (years) (to first break) | 2.3 (1.4) |
| 800 Aztec West, Bristol | Market value (£m) | 19.0 |
|
| Sector | Office |
|
| Annualised gross rent (£m) | 1.5 |
|
| Lettable area (sq. ft.) | 73,292 |
|
| Anchor tenants | NNB Generation Company (HPC) Ltd, Edvance SAS |
|
| EPRA Occupancy (%) | 100.0% |
|
| WAULT (years) (to first break) | 6.8 (1.6) |
| Manchester Green, Manchester | Market value (£m) | 18.9 |
|
| Sector | Office |
|
| Annualised gross rent (£m) | 1.3 |
|
| Lettable area (sq. ft.) | 106,133 |
|
| Anchor tenants | Chiesi Ltd, Ingredion UK Ltd, Assetz SME Capital Ltd |
|
| EPRA Occupancy (%) | 75.9% |
|
| WAULT (years) (to first break) | 5.2 (3.4) |
| Beeston Business Park, Nottingham | Market value (£m) | 18.9 |
|
| Sector | Office/ Industrial |
|
| Annualised gross rent (£m) | 1.8 |
|
| Lettable area (sq. ft.) | 215,330 |
|
| Anchor tenants | Metropolitan Housing Trust Ltd, SMS Electronics Ltd, Worldwide Clinical Trials Ltd, Heart Internet Ltd |
|
| EPRA Occupancy (%) | 100.0% |
|
| WAULT (years) (to first break) | 8.2 (5.4) |
| Hampshire Corporate Park, Eastleigh | Market value (£m) | 18.7 |
|
| Sector | Office |
|
| Annualised gross rent (£m) | 1.3 |
|
| Lettable area (sq. ft.) | 85,422 |
|
| Anchor tenants | Aviva Central Services UK Ltd, Utilita Energy Ltd, Digital Wholesale Solutions Ltd |
|
| EPRA Occupancy (%) | 99.8% |
|
| WAULT (years) (to first break) | 6.8 (2.1) |
| Norfolk House, Smallbrook Queensway, Birmingham | Market value (£m) | 18.0 |
|
| Sector | Office |
|
| Annualised gross rent (£m) | 0.8 |
|
| Lettable area (sq. ft.) | 114,982 |
|
| Anchor tenants | Accenture (UK) Ltd, Secretary of State for Communities & Local Government |
|
| EPRA Occupancy (%) | 49.0% |
|
| WAULT (years) (to first break) | 2.8 (2.3) |
| Portland Street, Manchester | Market value (£m) | 15.2 |
|
| Sector | Office |
|
| Annualised gross rent (£m) | 0.9 |
|
| Lettable area (sq. ft.) | 55,787 |
|
| Anchor tenants | Darwin Loan Solutions Ltd, New College Manchester Ltd, Mott MacDonald Ltd |
|
| EPRA Occupancy (%) | 98.7% |
|
| WAULT (years) (to first break) | 4.5 (2.7) |
| One & Two Newstead Court, Nottingham | Market value (£m) | 14.5 |
|
| Sector | Office |
|
| Annualised gross rent (£m) | 0.9 |
|
| Lettable area (sq. ft.) | 146,262 |
|
| Anchor tenants | E.ON UK Plc |
|
| EPRA Occupancy (%) | 67.8% |
|
| WAULT (years) (to first break) | 3.3 (3.3) |
| Templeton On The Green, Glasgow | Market value (£m) | 13.6 |
|
| Sector | Office |
|
| Annualised gross rent (£m) | 1.2 |
|
| Lettable area (sq. ft.) | 142,512 |
|
| Anchor tenants | The Scottish Ministers, The Scottish Sports Council, Noah Beers Ltd |
|
| EPRA Occupancy (%) | 90.7% |
|
| WAULT (years) (to first break) | 6.2 (4.1) |
| Ashby Park, Ashby De La Zouch | Market value (£m) | 13.5 |
|
| Sector | Office |
|
| Annualised gross rent (£m) | 1.1 |
|
| Lettable area (sq. ft.) | 91,034 |
|
| Anchor tenants | Ceva Logistics Ltd, Hill Rom UK Ltd, Brush Electrical Machines Ltd |
|
| EPRA Occupancy (%) | 92.8% |
|
| WAULT (years) (to first break) | 4.0 (3.9) |
| The Lighthouse, Salford Quays, Manchester | Market value (£m) | 13.3 |
|
| Sector | Office |
|
| Annualised gross rent (£m) | 0.7 |
|
| Lettable area (sq. ft.) | 64,275 |
|
| Anchor tenants | Pearson Education Ltd, Engie Regeneration Ltd, Assemble Technology Ltd |
|
| EPRA Occupancy (%) | 56.7% |
|
| WAULT (years) (to first break) | 4.1 (2.7) |
Financial Review
Net Asset Value
In the year ended 31 December 2021, the EPRA NTA* of the Group increased to £501.4 million (IFRS NAV: £502.4 million) from £425.6 million (IFRS NAV: £420.6 million) as at 31 December 2020, equating to a decrease in the diluted EPRA NTA of 1.4pps to 97.2pps (IFRS: 97.4pps). This is after the dividends declared in the year amounting to 6.30pps.
The EPRA NTA increase of £75.8 million since 31 December 2020 was predominately from the issuance of a tranche of new equity, equivalent to £83.1 million; offset broadly by an £8.3million decrease in the revaluation of the property portfolio held as at 31 December 2021, and a £0.7million realised gain on the disposal of properties.
On 31 August 2021, a £236.0 million portfolio (before costs) comprising: 27 office assets, 2 industrial units, a residential asset and a Tim Horton's Drive-Thru restaurant was acquired. In consideration of the purchase, 84,230,000 new ordinary shares were issued at 98.6 pence per share (being the Group's EPRA NTA per share as at 31 December 2020), equivalent to £83.1 million, £76.7 million from existing cash resources, and additional borrowings of £76.2 million.
The investment property portfolio valuation as at 31 December 2021 amounted to £906.1 million (2020: £732.4 million). The increase of £173.7 million since the December 2020 year-end is a reflection of property acquisitions and subsequent expenditure of £258.2 million and gains on the disposal of properties of £0.7 million, offset by £76.9 million of net property disposals and £8.3 million of property revaluation. Overall, on a like-for-like basis, the portfolio value increased by 1.1% during the year.
The table below sets out the acquisitions, disposals and capital expenditure for the respective periods:
|
|
|
Year ended |
Year ended |
|
|
| 31 December 2021 | 31 December 2020 |
|
|
| (£m) | (£m) |
| Acquisitions |
|
| |
|
| Net (after costs) | 251.4 | 45.0 |
|
| Gross (before costs) | 236.0 | 42.4 |
|
|
|
|
|
| Disposals |
|
| |
|
| Net (after costs) | 76.9 | 53.4 |
|
| Gross (before costs) | 79.6 | 56.4 |
|
|
|
|
|
| Capital Expenditure |
|
| |
|
| Net (after dilapidations) | 6.8 | 8.8 |
|
| Gross (before dilapidations) | 7.2 | 13.1 |
|
|
|
|
|
* The Group has determined that EPRA net tangible assets (NTA) is the most relevant measure. Further detail on the new EPRA performance measures can be found in the full Annual Report.
EPRA Net Tangible Asset - Bridge
31 December 2021
| 31 Dec 2020 EPRA NTA | 98.6 |
| Equity issuance costs | 0.0 |
| EPRA NTA (incl. costs) | 98.6 |
| Net rental and property income | 10.8 |
| Admin expenses | (2.1) |
| Valuation (excl. net capital expenditure | (0.3) |
| Net capital expenditure | (1.3) |
| Gain on disposal of investment properties | 0.1 |
| Net finance expense | (2.9) |
| Dividends | (5.8) |
| 31 Dec 2021 EPRA NTA | 97.2 |
The diluted EPRA NTA per share decreased to 97.2pps (2020: 98.6pps). The EPRA NTA is reconciled in the table below:
|
| £m | Pence per Share |
| Opening EPRA NTA (31 December 2020) | 425.6 | 98.6 |
|
|
|
|
| Equity issuance (net of expenses)* | 82.9 | (0.0) |
|
|
|
|
| Opening EPRA NAV (Incl. net capital raise) | 508.6 | 98.6 |
|
|
|
|
| Net rental and property income | 55.8 | 10.8 |
| Administration and other expenses | (10.6) | (2.1) |
| Gain on the disposal of investment properties | 0.7 | 0.1 |
| Change in the fair value of investment properties | (8.3) | (1.6) |
| Change in value of right of use | (0.0) | (0.0) |
| EPRA NTA after operating profit | 546.1 | 105.9 |
| Net finance expense | (14.9) | (2.9) |
| Taxation | (0.0) | (0.0) |
| EPRA NTA before dividends paid | 531.3 | 103.0 |
| Dividends paid** | (29.9) | (5.8) |
| Closing EPRA NTA (31 December 2021) | 501.4 | 97.2 |
Table may not sum due to rounding
*As at 31 December 2020, there were 431,506,583 Shares in issue. On 1 September 2021, the Company issued 84,230,000 Shares and increased the total number of Shares in issue to 515,736,583.
** The new issuance of Shares qualified for the Q2 dividend of 1.50 pence per Share paid on 15 October 2021 and Q3 dividend of 1.50 pence per Share declared on 11 November 2021.
Income Statement
Operating profit before gains and losses on property assets and other investments for the year ended 31 December 2021 amounted to £45.2 million (2020: £42.0 million). Profit after finance and before taxation of £28.8 million (2020: loss £31.2 million). 2021 included the rent roll for properties held from the 31 December 2020, plus the partial rent roll for properties disposed or acquired during the year.
Rental and property income amounted to £65.8 million, excluding recoverable service charge income and other similar items (2020: £62.1 million). The increase was primarily the result of the increase in the rent roll being held over the year to 31 December 2021.
Currently more than 80% of the rental income is collected within 30 days of the due date and bad debts in the year were £0.6million (2020: £1.1 million).
Non-recoverable property costs, excluding recoverable service charge income and other similar costs, amounted to £9.9 million (2020: £8.8 million), and the rent roll increased to £72.1 million (2020: £64.2 million).
Realised gain on the disposal of investment properties amounted to £0.7 million (2020: loss £1.1 million). The change in the fair value of investment properties amounted to a loss of £8.3 million (2020: loss of £54.8 million). Net capital expenditure amounted to £6.8 million (2020: £8.8 million). The gain on the disposal of the right of use asset amounted to £0.2 million (2020: nil). The change in value of right of use asset amounted to a charge of £0.2 million (2020: charge £0.2 million).
Finance expenses amount to £14.9 million (2020: £14.1 million). The increase is due to additional borrowings in the period. On 27 August 2021, the Group drew down £76.2 million from the Royal Bank of Scotland, Bank of Scotland, and Barclays to finance the enlarged portfolio.
The EPRA* cost ratio, including direct vacancy costs, was 31.2% (2020: 32.4%). The EPRA cost ratio, excluding direct vacancy costs was 16.8% (2020: 19.6%). The ongoing charges for the year ending 31 December 2021 were 4.6% (2020: 4.6%).
The EPRA Total Return from Listing to 31 December 2021 was 41.2% (2020: 36.3%), with an annualised rate of 5.8% pa (2020: 6.2% pa).
Dividend
In relation to the year from 1 January 2021 to 31 December 2021, the Company declared dividends totalling 6.50pps (2020: 6.40pps). Since the end of the year, the Company has declared a dividend for the fourth quarter of 2021 of 1.70pps. A schedule of dividends can be found in the full Annual Report.
Debt Financing and Gearing
Borrowings comprise third-party bank debt and the retail eligible bond. The bank debt is secured over properties owned by the Group and repayable over the next four and a half to eight years. The weighted average maturity of the bank debt and retail eligible bond is 5.5 years (2020: 6.4 years).
The Group's borrowing facilities are with the Santander UK, Scottish Widows Limited, Scottish Widows Limited & Aviva Investors Real Estate Finance, Royal Bank of Scotland, Bank of Scotland and Barclays. The total bank borrowing facilities at 31 December 2021 amounted to £389.9 million (2020: £316.2 million) (before unamortised debt issuance costs), with £4.9 million available to be drawn. In addition to the bank borrowings, the Group has a £50 million 4.5% retail eligible bond, which is due for repayment in August 2024. In aggregate, the total debt available at 31 December 2021 amounted to £444 million (2020: £371.9 million).
During the period, the Company increased its borrowings to part fund the £236.0 million (before costs) portfolio acquisition on 27 August 2021. The majority of the increase was funded by a new club facility provided by the Royal Bank of Scotland, Bank of Scotland, and Barclays.
At 31 December 2021, the Group's cash and cash equivalent balances amounted to £56.1 million (2020: £67.4 million), of which £49.9 million (2020: £55.0 million) was unrestricted cash.
The Group's net loan to value ("LTV") ratio stands at 42.4% (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 LTV Ratios as at 31 December 2021
| Lender | Original facility | Outstanding debt* | Maturity date | Gross loan to value** | Annual interest rate | |
|
| £'000 | £'000 |
| % | % |
|
| Royal Bank of Scotland, Bank of Scotland & Barclays | 128,000 | 127,220 | Aug-26 | 43.4 | 2.40 | over 3mth £ SONIA |
| Scottish Widows Ltd. & Aviva Investors Real Estate Finance | 165,000 | 165,000 | Dec-27 | 46.4 | 3.28 | Fixed |
| Scottish Widows Ltd. | 36,000 | 36,000 | Dec-28 | 38.7 | 3.37 | Fixed |
| Santander UK | 65,870 | 61,717 | Jun-29 | 39.0 | 2.20 | over 3mth £ LIBOR moving to SONIA 1/1/22 |
|
|
|
|
|
|
|
|
|
| 394,870 | 389,937 |
|
|
|
|
| Retail eligible bond | 50,000 | 50,000 | Aug-24 | NA | 4.50 | Fixed |
|
| 444,870 | 439,937 |
|
|
|
|
* Before unamortised debt issue costs
** Based on Cushman and Wakefield property valuations
Table may not sum due to rounding
The Managers continue to monitor the borrowing requirements of the Group. As at 31 December 2021, the Group had sufficient headroom against its borrowing covenants.
The net gearing ratio (net debt to Ordinary Shareholders' equity (diluted)) of the Group was 76.4% as at 31 December 2021 (2020: 71.0%).
Interest cover, excluding amortised costs, stands at 3.5 times (2020: 3.4 times) and including amortised costs, stands at 3.0 times (2020: 3.0 times).
Hedging
The Group applies an interest hedging strategy that is aligned to the property management strategy and aims to mitigate interest rate volatility on at least 90% of the debt exposure.
|
|
|
| 31 December 2021 | 31 December 2020 |
|
|
|
| % | % |
|
Borrowings interest rate hedged |
|
| 101.3 | 101.6 |
| Thereof: |
|
|
|
|
| Fixed |
|
| 57.1 | 68.6 |
| Swap |
|
| 24.1 | 16.5 |
| Cap |
|
| 20.0 | 16.5 |
|
|
|
|
|
|
| WACD1 |
|
| 3.3 | 3.3 |
|
|
|
|
|
|
| Table may not sum due to rounding | ||||
| 1 WACD - Weighted Average Effective Interest Rate including the cost of hedging | ||||
The over-hedged position has arisen due to the entire Royal Bank of Scotland, Bank of Scotland & Barclays and Santander UK facilities, including any undrawn balances, being hedged by interest rate cap derivatives which have no ongoing cost to the Group.
Tax
The Group entered the UK REIT regime on 7 November 2015 and all of the Group's UK property rental operations became exempt from UK corporation tax from that date. The exemption remains subject to the Group's continuing compliance with the UK REIT rules.
On 9 January 2018, the Company registered for VAT purposes in England.
During 2021, the Group recognised a tax charge of £0.02 million (2020: tax credit of £0.2 million), which comprised tax provisions for the year offset by releases of tax previously provided for in prior years which are now concluded and not payable.
Principal Risks and Uncertainties
Effective risk management underpins the execution of Regional REIT's strategy, the positioning of the business for growth and maintaining the regular income over a long-term sustainable horizon.
Risk Framework and Approach
The overall responsibility for the Company's system of risk management and internal controls rests with the Board. The Board recognises the importance of identifying and actively monitoring its risks, which include, but are not limited to: strategic, valuation, COVID-19, funding, tenant, financial and tax charges, operational, regulatory, and environmental risks. Over the long term, the business will face other challenges and emerging threats for which it remains vigilant.
The Board is supported by the Audit Committee in the management of risk. The Audit Committee is responsible for determining the principal risks facing the business and reviewing, at least annually, the effectiveness of the Company's financial control, risk management and internal control processes.
However, the Board also views the potential risks as opportunities which, when handled appropriately, can drive performance. Thus, having an effective risk management process is key to support the delivery of the Group's strategy.
Approach to Managing Risk - Identification, Evaluation and Mitigation
The risk management process is designed to identify, evaluate, manage and mitigate (rather than eliminate) risks faced. The Company maintains a detailed and formal matrix of current principal risks, which uses risk scoring to evaluate risks consistently. This allows the risks to be monitored and mitigated as part of a risk management process with the Audit Committee undertaking, at a minimum on a six-monthly basis or more frequently if required, a robust evaluation of these risks facing the Group.
Risks are identified and weighted according to their potential impact on the Company and to their likelihood of occurrence. The Audit Committee uses the risk matrix to prioritise individual risks, allocating scores to each risk for both the likelihood of its occurrence and the severity of its impact. Those with the highest gross rating in terms of impact are highlighted as top risks within the matrix and are defined as principal risks.
While the Board believes that it has a robust framework of internal controls in place, this can provide only reasonable, and not absolute, assurance against material financial misstatement or loss and is designed to manage, not eliminate, risk.
Risk Appetite
Risk appetite is integral to the Board's approach to risk management, business planning and decision making. The level and type of risk that the Company is willing to bear will vary over time.
The Board, in conjunction with the Asset Manager and Investment Manager, regularly reviews the risk appetite of the Company in association with the latest information available and the Company is able to assess and respond quickly to new and emerging risks.
Emerging Risks
The Board is cognisant of emerging risks defined as potential trends, sudden events or changing risks, which are characterised by a high degree of uncertainty in terms of probability of occurrence and possible effects on the Company. Once emerging risks become sufficiently clear, they may be classed as a principal risk and added to the risk matrix.
On 24 February 2022, Russia initiated a military invasion of Ukraine, which the Board is currently identifying as an emerging risk, as it is likely to have global economic effects.
Increasing inflation in the UK has also been identified as an emerging risk, as this will have wide reaching effects to the economy, which will, in turn, impact the Company. The Board, through the Audit Committee, continue to monitor inflation levels.
To help manage emerging risks and discuss other wider matters affecting property, the Board has an annual strategy meeting. The Board considers having a clear strategy is the key to managing and mitigating emerging risk.
COVID-19
During 2021, the principal risks and uncertainties faced by the Company continued to be impacted by the respective devolved Government's reactions. Throughout this period, the Board worked closely with the Asset Manager, Investment Manager and its third-party suppliers to ensure it was as well positioned as possible to identify, evaluate, manage and mitigate as required.
The primary aim being to preserve and enhance the Company's net income and capital values, meeting all regulatory and stakeholder obligations, whilst looking to the longer term to identify strategic opportunities.
This threat has an ongoing effect on many of our principal risks and the Board meets regularly with the Asset and Investment Managers to assess these risks and how they can be managed.
The below list, in no particular order, sets out the current identifiable principal and emerging risks, including their impact and the actions taken by the Company to mitigate them. It does not purport to be an exhaustive list of all the risks faced by the Group.
Principal Risk Summary
| Principal Risk | Evolution of the trend during the year
| |
| 1. | Strategic | ó |
| 2. | Valuation | ó |
| 3. | COVID-19 | ó |
| 4. | Economic and political | ó |
| 5. | Funding | ó |
| 6. | Tenant | ó |
| 7. | Financial and tax changes | ó |
| 8. | Operational | ó |
| 9. | Accounting, legal and regulatory | ö |
| 10. | Environmental and energy efficiency standards | ö |
1. Strategic
| |||||||||||||||||||||
|
2. Valuation
3. COVID-19
4. Economic and Political
| |||||||||||||||||||||
|
| 5. Funding
6. Tenant
| |||||||||||||||
| POTENTIAL IMPACT | MITIGATION | MOVEMENT IN THE PERIOD ó |
| ||||||||||||
| Type of tenant and concentration of tenant could result in lower income from reduced lettings or defaults. | · An active asset management programme with a focus on the Asset Manager working with individual tenants to assess any occupational issues and to manage any potential bad debts. · Diversified portfolio of properties let, where possible, to a large number of low-risk tenants across a wide range of standard industrial classifications throughout the UK. · Potential acquisitions are reviewed for tenant overlap and potential disposals are similarly reviewed for tenant standard industrial classification concentration.
| · This risk remains stable in view of the increasing diversification of properties, tenants and geographies in the portfolio. · The tenant mix and their underlying activity has continued to increasingly diversify, with the number of tenants amounting to 1,077 at the year-end (2020: 898). |
| ||||||||||||
| A high concentration of lease term maturity and/or break options could result in a more volatile contracted rent roll. | · The portfolio lease and maturity concentrations are monitored by the experienced Asset Manager to minimise concentration. · There is a focus on securing early renewals and increased lease periods. · The requirement for suitable tenants and the quality of the tenant is managed by the experienced Asset Manager which maintains close relationships with current tenants and with letting agents. | · The WAULT to first break as at 31 December 2021 was 3.0 years (2020: 3.2 years) · The largest tenant is 2.5% (2020: 3.5%) of the gross rental income, being Virgin Media Limited. · The Asset Management team remains vigilant to the financial well-being of our current tenants and continues to liaise with occupiers and agents. |
| ||||||||||||
|
|
| ||||||||||||||
7. Financial and Tax Changes
| POTENTIAL IMPACT | MITIGATION | MOVEMENT IN THE PERIOD ó |
| Changes to the UK REIT and non-REIT regimes tax and financial legislation. | · The Board receives advice on these changes where appropriate and will act accordingly. | · Advice is received from several corporate advisers, including tax adviser Grant Thornton UK LLP and the Group adapts to changes as required. |
8. Operational
| POTENTIAL IMPACT | MITIGATION | MOVEMENT IN THE PERIOD ó |
| Business disruption could impinge on the normal operations of the Group. | · The Asset and Investment Managers each have contingency plans in place to ensure there are no disruptions to the core infrastructure which would impinge on the normal operations of the Group. These plans have been implemented in adherence to COVID-19 Government guidelines, with limited disruption to operations.
| · Both the Asset and Investment Managers annually review their Disaster and Business Continuity Plans.
|
|
| · An annual due diligence exercise is carried out on all principal third-party service providers. | · The annual due diligence visits were curtailed due to government restrictions. However, assurances were received as required from third-party service providers. · No concerns were identified.
|
|
| · As an externally managed investment company, there is a continued reliance on the Asset and Investment Managers and other third-party service providers.
| · Both the Asset and Investment Manager are viable going concerns. |
|
| · All acquisitions undergo a rigorous due diligence process and all multi-let properties undergo an annual comprehensive fire risk. · The impact of physical damage and destruction to investment properties is mitigated by ensuring all are covered by a comprehensive building, loss of rent and service charge plus terrorism insurance with the exception of a small number of "self-insure" arrangements covered under leases.
| · The Asset Manager continues to monitor changes in Health and Safety regulations, including, where required, COVID-19 social distancing measures. · The Asset Manager reviews the adequacy of insurance cover on an ongoing basis. |
| Information security and cyber threat resulting in data loss, or negative regulatory, reputational, operational (including GDPR), or financial impact. | · The Asset and Investment Manager each has a dedicated Information Technology team which monitors information security, privacy risk and cyber threats ensuring their respective operations are not interrupted. · As required the building management systems are reviewed for cyber security risk. | · The Managers review the respective Information Technology polices and the material third party service suppliers on as required basis to ensure they reflect current and possible future threats. |
9. Accounting, Legal, and Regulatory
| POTENTIAL IMPACT | MITIGATION | MOVEMENT IN THE PERIOD ö |
| Changes to accounting, legal and/or regulatory legislation, including sanctions could result in changes to current operating processes. | · Robust processes are in place to ensure adherence to accounting, legal and regulatory requirements, including sanctions and Listing Rules. · All contracts are reviewed by the Group's legal advisers. · The Administrator, in its capacity as Group Accountant, and the Company Secretary attend all Board meetings in order to be aware of all announcements that need to be made. · All compliance issues are raised with the Financial Adviser. | · The Group continues to receive advice from its corporate advisers and has incorporated changes where required. · The Administrator and Company Secretary continue to attend all Board meetings and advise on Listing Rule requirements in conjunction with the Corporate Broker and Financial Adviser.
|
| Loss of REIT status | · The HMRC REIT regime requirements are monitored by the Asset and Investment Manager, and external advisors including the Company's tax adviser Grant Thornton UK LLP and its sub-administrator Link Alternative Fund Administrators Limited. | · The Group continues to receive advice from external advisers on any anticipated future changes to the REIT regime. |
10. Environmental and Energy Efficiency Standards
| POTENTIAL IMPACT | MITIGATION | MOVEMENT IN THE PERIOD ö |
| The Group's cost base could be impacted, and management time diverted, due to climate changes and associated legislation. | · The Board receives regular updates on environmental, social, governance and potential legislation changes (e.g. the Government Green Finance Strategy July 2019) from its advisers. · The Group has engaged an environmental consultancy to assist with achieving and improving the Global Real Industry Sustainability Benchmark (GRESB).
| · Additional attention is currently being devoted to this area to ensure the appropriate approach is applied and embedded in Group activities. |
| Changes to the environment could impact upon the operations of the Group. | · Property acquisitions undergo a rigorous due diligence process, including an environmental assessment. · The Asset Manager monitors the portfolio for any detrimental environmental impact, by way of frequent inspections of the properties, and the annual insurance review process.
| · The rigour of the environmental assessments process continues to be reviewed with the aim of enhancing it. |
| An Energy Performance Rating of E and below may impact the Group's ability to sell or lease an asset. | · The Group continues to review each property to ensure adherence with Energy Performance Rating requirements. · The energy efficiency of investment acquisitions is fully considered as part of the due diligence process for the acquisition of a property. | · The Asset Manager is continually reviewing the feasibility of enhancing Energy Performance Ratings to exceed the minimum requirement. |
Changes to the Principal Risks and Uncertainties
The Board, via the Audit Committee, has agreed the movement during the period under review to each of the identified principal risks and uncertainties following review of these risks, having considered the characteristics of these and the economic and geo-political factors. Any impact of these risks to the Company's future strategy is considered on an ongoing basis.
Extracts of the Report of the Directors
Share Capital
As at 31 December 2021, the Company's total issued share capital was 515,736,583 Ordinary Shares (2020: 431,506,583).
All of the Company's Ordinary Shares are listed on the premium segment of the London Stock Exchange and each Ordinary Share carries one vote.
There is only one class of Ordinary Shares in issue for the Company, in adherence to the REIT requirements. The only other shares the Company may issue are particular types of non-voting restricted preference shares, of which none (2020: none) are currently in issue.
Share Issues
On 1 September 2021, the Company allotted and issued 84,230,000 new Ordinary Shares, which rank pari passu with the Company's existing issued Ordinary Shares. These new Ordinary Shares were issued for non-cash consideration in accordance with sections 295 and 296 of the Law as part of the consideration payable to Squarestone Growth LLP for the acquisition of a regional office portfolio announced on 31 August 2021.
At the AGM held on 21 September 2021, the Directors were granted authority to allot Ordinary Shares on a non-pre-emptive basis for cash up to a maximum number of 43,150,658 Shares (being 5% of the issued Share capital on 9 August 2021). The Directors were also granted the authority to disapply pre-emption rights in respect of the allotment of Ordinary Shares up to a maximum number of 21,575,329 Shares (being 5% of the issued Share capital on 9 August 2021) where the allotment of such Shares is for the sole purpose of financing an acquisition or other capital investment as defined by the Pre-Emption Group's Statement of Principles.
No Shares were issued under these authorities during the year under review, and the authorities will expire at the Company's 2022 AGM where resolutions for their renewal will be sought, or, if sooner, on 21 December 2022.
Restrictions on Voting Rights
The Company does not have any restrictions on Shareholder voting rights.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Group Financial Statements in accordance with applicable law and regulations.
Guernsey company law requires the directors to prepare financial statements for each financial year. The Directors are required under the Listing Rules of the Financial Conduct Authority to prepare the group financial statements in accordance with International Financial Reporting Standards ("IFRS") and IFRS Interpretation Committee ("IFRIC") as contained in UK-adopted International Accounting Standards.
The financial statements of the Group are required by law to give a true and fair view of the state of the Group's affairs at the end of the financial period and of the profit or loss of the Group for that period and are required by IFRS and IFRIC as contained in UK-adopted International Accounting Standards to present fairly the financial position and performance of the Group.
In preparing each of the Group financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and prudent;
· state whether they have been prepared in accordance with IFRS and IFRIC as contained in UK-adopted International Accounting Standards;
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions; disclose with reasonable accuracy at any time the financial position of the Group; enable them to ensure that the financial statements comply with the requirements of The Companies (Guernsey) Law 2008 and, as regards the Group financial statements, the IFRS and IFRIC as contained in UK-adopted International Accounting Standards. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on Regional REIT's website.
Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE CONSOLIDATED ANNUAL REPORT
Each of the Directors, whose names and functions are listed within the full Annual Report and Accounts, confirms that to the best of each person's knowledge:
• the financial statements, prepared in accordance with IFRS and IFRIC as contained in UK-adopted International Accounting Standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group and the undertakings included in the consolidation taken as a whole;
• the Strategic Report, including the Asset and Investment Managers' Report, includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face; and
· the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Group's position, performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 28 March 2022 and signed on its behalf by:
Kevin McGrath
Chairman
28 March 2022
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2021
|
|
Notes | Year ended 31 December 2021 £'000 |
| Year ended 31 December 2020 £'000 |
| Continuing Operations |
|
|
|
|
| Revenue |
|
|
|
|
| Rental and property income | 5 | 79,899 |
| 75,941 |
| Property costs | 6 | (24,075) |
| (22,662) |
| Net rental and property income |
| 55,824 |
| 53,279 |
| Administrative and other expenses | 7 | (10,583) |
| (11,329) |
| Operating profit before gains and losses on property assets and other investments |
| 45,241 |
| 41,950 |
| Gain/(loss) on disposal of investment properties | 14 | 679 |
| (1,073) |
| Change in fair value of investment properties | 14 | (8,296) |
| (54,793) |
| Gain on the disposal of right of use assets | 26 | 167 |
| - |
| Change in fair value of right of use assets | 26 | (206) |
| (195) |
| Operating profit/(loss) |
| 37,585 |
| (14,111) |
| Finance income | 9 | 14 |
| 99 |
| Finance expenses | 10 | (14,872) |
| (14,108) |
| Impairment of goodwill | 16 | - |
| (558) |
| Net movement in fair value of derivative financial instruments |
25 |
6,045 |
|
(2,523) |
| Profit/(loss) before tax |
| 28,772 |
| (31,201) |
| Taxation | 11 | (15) |
| 203 |
| Total comprehensive income/(loss) for the year (attributable to owners of the parent company) |
|
28,757 |
|
(30,998) |
|
|
|
|
|
|
Total comprehensive income arises from continuing operations.
| Earnings/(losses)/ per Share - basic and diluted | 12 | 6.3p |
| (7.2)p |
The notes below are an integral part of these consolidated financial statements.
Consolidated Statement of Financial Position
As at 31 December 2021
|
|
Notes | 31 December 2021 £'000 |
| 31 December 2020 £'000 |
| Assets |
|
|
|
|
| Non-current assets |
|
|
|
|
| Investment properties | 14 | 906,149 |
| 732,380 |
| Right of use assets | 26 | 16,482 |
| 16,156 |
| Goodwill | 16 | - |
| - |
| Non-current receivables on tenant loan | 17 | 819 |
| 1,011 |
| Derivative financial instruments | 25 | 1,706 |
| - |
|
|
| 925,156 |
| 749,547 |
| Current assets |
|
|
|
|
| Trade and other receivables | 18 | 29,404 |
| 33,690 |
| Cash and cash equivalents | 19 | 56,128 |
| 67,373 |
|
|
| 85,532 |
| 101,063 |
| Total assets |
| 1,010,688 |
| 850,610 |
|
|
|
|
|
|
| Liabilities |
|
|
|
|
| Current liabilities |
|
|
|
|
| Trade and other payables | 20 | (40,966) |
| (33,809) |
| Deferred income | 21 | (16,751) |
| (14,584) |
| Deferred tax liabilities | 22 | (705) |
| (690) |
|
|
| (58,422) |
| (49,083) |
| Non-current liabilities |
|
|
|
|
| Bank and loan borrowings | 23 | (383,474) |
| (310,692) |
| Retail eligible bonds | 24 | (49,596) |
| (49,441) |
| Derivative financial instruments | 25 | - |
| (4,339) |
| Lease liabilities | 26 | (16,795) |
| (16,473) |
|
|
| (449,865) |
| (380,945) |
|
|
|
|
|
|
| Total liabilities |
| (508,287) |
| (430,028) |
|
|
|
|
|
|
| Net assets |
| 502,401 |
| 420,582 |
|
|
|
|
|
|
| Equity |
|
|
|
|
| Stated capital | 27 | 513,762 |
| 430,819 |
| (Accumulated losses) |
| (11,361) |
| (10,237) |
|
|
|
|
|
|
| Total equity attributable to owners of the parent company | 502,401 |
| 420,582 | |
|
|
|
|
|
|
| Net asset value per Share - basic and diluted | 28 | 97.4p |
| 97.5p |
The notes below are an integral part of these consolidated financial statements.
These consolidated group financial statements were approved by the Board of Directors and authorised for issue on 28 March 2022 and signed on its behalf by:
Kevin McGrath,
Chairman
28 March 2022
Consolidated Statement of Changes in Equity
For the year ended 31 December 2021
|
|
|
| Attributable to owners of the parent company
|
| ||||||
|
|
|
Notes | Stated capital £'000 |
| Retained earnings/ (Accumulated losses) £'000 |
|
Total £'000 | |||
|
|
|
|
|
|
|
|
| |||
| Balance at 1 January 2021 |
|
| 430,819 |
| (10,237) |
| 420,582 | |||
| Total comprehensive income |
|
| - |
| 28,757 |
| 28,757 | |||
| Shares issued |
| 27 | 83,051 |
| - |
| 83,051 | |||
| Share issue costs |
| 27 | (108) |
| - |
| (108) | |||
| Dividends paid |
| 13 | - |
| (29,881) |
| (29,881) | |||
|
|
|
|
|
|
|
|
| |||
| Balance at 31 December 2021 |
|
| 513,762 |
| (11,361) |
| 502,401 | |||
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
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 |
| 13 | - |
| (32,148) |
| (32,148) | |||
|
|
|
|
|
|
|
|
| |||
| Balance at 31 December 2020 |
|
| 430,819 |
| (10,237) |
| 420,582 | |||
The notes below are an integral part of these consolidated financial statements.
Consolidated Statement of Cash Flows
For the year ended 31 December 2021
|
| Year ended 31 December 2021 £'000 |
| Year ended 31 December 2020 £'000 | |
| Cash flows from operating activities |
|
|
| |
| Profit/(loss) for the year before taxation | 28,772 |
| (31,201) | |
| - Change in fair value of investment properties | 8,296 |
| 54,793 | |
| - Change in fair value of financial derivative instruments | (6,045) |
| 2,523 | |
| - (Gain)/loss on disposal of investment properties | (679) |
| 1,073 | |
| - Gain on disposal of right of use assets | (167) |
| - | |
| - Change in fair value of right of use assets | 206 |
| 195 | |
| Impairment of goodwill | - |
| 558 | |
| Finance income | (14) |
| (99) | |
| Finance expense | 14,872 |
| 14,108 | |
| Decrease/(increase) in trade and other receivables | 4,398 |
| (2,821) | |
| Increase in trade and other payables | 5,089 |
| 7,595 | |
| Increase in deferred income | 2,167 |
| 1,283 | |
|
|
|
|
|
|
| Cash generated from operations |
| 56,895 |
| 48,007 |
| Interest paid |
| (13,053) |
| (12,515) |
| Taxation received |
| - |
| 174 |
|
|
|
|
|
|
| Net cash flow generated from operating activities |
| 43,842 |
| 35,666 |
|
|
|
|
|
|
| Investing activities |
|
|
|
|
| Purchase of investment properties |
| (175,196) |
| (53,759) |
| Sale of investment properties |
| 76,940 |
| 53,428 |
| Interest received |
| 15 |
| 101 |
|
|
|
|
|
|
| Net cash flow used in investing activities |
| (98,241) |
| (230) |
|
|
|
|
|
|
| Financing activities |
|
|
|
|
| Share issue costs |
| (108) |
| - |
| Dividends paid |
| (27,813) |
| (26,672) |
| Bank borrowings advanced |
| 77,305 |
| 39,200 |
| Bank borrowings repaid |
| (3,539) |
| (17,029) |
| Bank borrowing costs paid |
| (2,051) |
| (192) |
| Lease repayments |
| (640) |
| (618) |
|
|
|
|
|
|
| Net cash flow generated/(used) in financing activities |
| 43,154 |
| (5,311) |
|
|
|
|
|
|
| Net (decrease)/increase in cash and cash equivalents | (11,245) |
| 30,125 | |
| Cash and cash equivalents at the start of the year | 67,373 |
| 37,248 | |
|
|
|
|
|
|
| Cash and cash equivalents at the end of the year | 56,128 |
| 67,373 | |
|
|
|
|
|
|
The notes below are an integral part of these consolidated financial statements.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2021
1. Corporate information
The Group's consolidated financial statements for the year ended 31 December 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 28 March 2022.
The Company is a company limited by Shares incorporated in Guernsey under The Companies (Guernsey) Law, 2008, as amended (the "Law"). The Company's Ordinary Shares are admitted to the Official List of the Financial Conduct Authority ("FCA") and traded on the London Stock Exchange ("LSE").
The Company was incorporated on 22 June 2015 and is registered with the Guernsey Financial Services Commission as a Registered Closed-Ended Collective Investment Scheme pursuant to The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended, and the Registered Collective Investment Schemes Rules 2018.
The Company did not begin trading until 6 November 2015 when the Shares were admitted to trading on the LSE.
The nature of the Group's operations and its principal activities are set out in the Strategic Report within the full Annual Report.
The address of the registered office is Mont Crevelt House, Bulwer Avenue, St. Sampson, Guernsey GY2 4LH.
2. Basis of preparation
In accordance with Section 244 of The Companies (Guernsey) Law 2008, the Group confirms that the financial information for the year ended 31 December 2021 are derived from the Group's audited financial statements and that these are not statutory accounts and, as such, do not contain all information required to be disclosed in the financial statements prepared in accordance with International Financial Reporting Standards ("IFRS").
The statutory accounts for the year ended 31 December 2021 have been audited and approved, but have not yet been filed.
The Group's audited financial statements for the year ended 31 December 2021 received an unqualified audit opinion and the auditor's report contained no statement under section 263(2) or 263(3) of The Companies (Guernsey) Law 2008.
The financial information contained within this preliminary statement was approved and authorised for issue by the Board on 28 March 2022.
2.1 Functional and presentation currency
The financial information is presented in Pounds Sterling, which is also the functional currency, and all values are rounded to the nearest thousand (£'000) pound, except where otherwise indicated.
2.2 Going concern
The Directors have carefully considered areas of potential financial risk and have reviewed cash flow forecasts, evaluating a number of scenarios which included extreme downside sensitivities in relation to rental cash collection, no property acquisitions, no elective capital expenditure, REIT regime compliance, and no dividends. A range of scenarios of up to 12 months of nil rental cash collection were considered, and taking into account mitigating management actions, the Company had adequate resources to continue is operations. Further effects of the COVID-19 outbreak are documented in the going concern and viability statements within the full Annual Report and within principal and emerging risks above.
No material uncertainties have been detected which would influence the Group's ability to continue as a going concern for a period of at least 12 months from the approval of these financial statements. The Directors have satisfied themselves that the Group has adequate financial resources to continue in operational existence for this period.
Accordingly, the Board of Directors continue to adopt the going concern basis in preparing the financial statements.
2.3 Business combinations
At the time of acquisition, the Group considers whether each acquisition represents the acquisition of a business or the acquisition of an asset. For an acquisition of a business where an integrated set of activities are acquired in addition to the property, the Group accounts for the acquisition as a business combination under IFRS 3 Business Combinations ("IFRS 3").
Where such acquisitions are not judged to be the acquisition of a business, they are not treated as business combinations. Rather, the cost to acquire the corporate entity is allocated between the identifiable assets and liabilities of the entity based upon their relative fair values at the acquisition date. Accordingly, no goodwill or additional deferred tax arises.
2.4 New standards, amendments and interpretations
New standards, amendments to standards and interpretations which came into effect for accounting periods starting on or after 1 January 2021 and which have had an impact on the financial statements are as follows:
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, Bank of Scotland & Barclays and Santander UK are transitioning from the London Interbank Offer Rate (LIBOR) benchmark to Sterling Overnight Index Average (SONIA) benchmark. The borrowings with RBS transitioned during the year and the Santander UK borrowings transition for the first interest payment in 2022. There has been and is expected to be negligible cost involved in the borrowing facility transition and the respective hedge instrument amendments. As the Group does not apply hedge accounting, the accounting standard amendments have not had a significant impact on the preparation of the financial statements.
Amendments to IFRS 16 'Leases' (effective for periods beginning on or after 1 June 2020) These amendments provide lessees with an exemption from assessing whether a COVID-19 related rent concession is a lease modification. These amendments have not had a significant impact on the preparation of the financial statements.
2.5 New standards, amendments and interpretations effective for future accounting periods
A number of new standards, amendments to standards and interpretations are effective for periods beginning on or after 1 January 2022 and have not been applied in preparing these financial statements. These are:
Amendments to IFRS 3 'Business Combinations' (effective for periods beginning on or after 1 January 2022) - gives clarification on the recognition of contingent liabilities at acquisition and clarifies that contingent assets should not be recognised at the acquisition date. The amendments are not expected to have a significant impact on the preparation of the financial statements.
Amendments to IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' (effective for periods beginning on or after 1 January 2022) - gives clarification on costs to include in estimating the cost of fulfilling a contract for the purpose of assessing whether that contract is onerous. The amendments are not expected to have a significant impact on the preparation of the financial statements.
Amendments to IFRS 9 'Financial Instruments' (effective for periods beginning on or after 1 January 2022) - gives clarification on the fees an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original liability. The amendments are not expected to have a significant impact on the preparation of the financial statements.
Amendments to IAS 1 'Presentation of Financial Statements' (effective for periods beginning on or after 1 January 2023) - clarifies that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period and not expectations of or actual events after the reporting date. The amendments also give clarification to the definition of settlement of a liability. The amendments are not expected to have a significant impact on the preparation of the financial statements.
Amendments to IAS 1 'Presentation of Financial Statements' (effective for periods beginning on or after 1 January 2023) - are intended to help entities in deciding which accounting policies to disclose in their financial statements. The amendments are not expected to have a significant impact on the preparation of the financial statements.
Amendments to IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors' (effective for periods beginning on or after 1 January 2023) - introduces the definition of an accounting estimate and includes other amendments to help entities distinguish changes in accounting estimates from changes in accounting policies. The amendments are not expected to have a significant impact on the preparation of the financial statements.
3. Significant accounting judgements, estimates and assumptions
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.
3.1. Critical accounting estimates and assumptions
The principal estimates that may be material to the carrying amount of assets and liabilities are as follows:
3.1.1 Valuation of investment property
The fair value of investment property, which has a carrying value at the reporting date of £906,149,000 (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 and IFRS 13.
The value of the properties has been assessed in accordance with the relevant parts of the current RICS Red Book. In particular, we have assessed the fair value as referred to in VPS4 item 7 of the RICS Red Book. Under these provisions, the term "Fair Value" means the definition adopted by the International Accounting Standards Board ("IASB") in IFRS 13, namely "The price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants at the measurement date". Factors reflected include current market conditions, annual rentals, lease lengths and location. The significant methods and assumptions used by the valuers in estimating the fair value of investment property are set out in note 14.
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 11th 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
In accordance with IFRS 13, the Group values its interest rate derivatives at fair value. The fair values are estimated by the respective counterparties with revaluation occurring on a quarterly basis. The counterparties will use a number of assumptions in determining the fair values, including estimations over future interest rates and therefore future cash flows. The fair value represents the net present value of the difference between the cash flows produced by the contracted rate and the valuation rate. The carrying value of the derivatives at the reporting date was £1,706,000 asset (31 December 2020: £4,339,000 liability). The significant methods and assumptions used in estimating the fair value of the interest rate derivatives are set out in note 25.
3.1.3 Leases - the Group as lessee
The Group has a number of leases concerning the long-term lease of land associated with its long leasehold investment properties. Under IFRS16, the Group calculates the lease liability at each reporting date and at the inception of each lease. The liability is calculated using present value of future lease payments using the Group's incremental borrowing rate as the discount rate. At 31 December 2021, there were 12 leases with the range of the period left to run being 45 and 130 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.
3.1.4 Dilapidation income
The Group recognises dilapidation income in the Group's Statement of Comprehensive Income when the right to receive the income arises. In determining accrued dilapidations, the Group has considered historic recovery rates, while also factoring in expected costs associated with recovery.
3.2. Critical judgements in applying the Group's accounting policies
In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements:
3.2.1 Operating lease contracts - the Group as lessor
The Group has acquired investment properties that are subject to commercial property leases with tenants. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, particularly the duration of the lease terms and minimum lease payments, that it retains all of the significant risks and rewards of ownership of these properties and so accounts for the leases as operating leases.
3.2.2 Consolidation of entities in which the Group holds less than 50%
Management considered that up until 9 November 2018, the Group had de facto control of View Castle Limited and its 27 subsidiaries (the "View Castle Sub Group") by virtue of the amended and restated Call Option Agreement dated 3 November 2015. Following a restructure of the View Castle Sub Group, the majority of properties held within the View Castle Sub Group now reside in a new special purpose vehicle ("SPV"). A new call option was entered into dated 9 November 2018 with View Castle Limited and five of its subsidiaries (the "View Castle Group"). As per the previous amended and restated Call Option Agreement, under this new option the Group may acquire any of the properties held by the View Castle Group for a fixed nominal consideration. Despite having no equity holding, the Group is deemed to have control over the View Castle Group as the Option Agreement means that the Group is exposed to, and has rights to, variable returns from its involvement with the View Castle Group, through its power to control.
3.2.3 Acquisitions of subsidiary companies
For each acquisition, the Directors consider whether the acquisition met the definition of the acquisition of a business or the acquisition of a group of assets and liabilities.
A business is defined in IFRS 3 as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants. Furthermore, a business consists of inputs and processes applied to those inputs that have the ability to create outputs.
The companies acquired in the year have comprised portfolios of investment properties and existing leases with multiple tenants over varying periods, with little in the way of processes acquired. It has therefore concluded in each case that the acquisitions did not meet the criteria for the acquisition of a business as outlined above.
3.2.4 Recognition of income
Service charges and other similar receipts are included in net rental and property income gross of the related costs as the Directors consider the Group acts as principal in this respect.
4. Summary of significant accounting policies
The accounting policies adopted in this report are consistent with those applied in the financial statements for the year ended 31 December 2020 and have been consistently applied for the year ended 31 December 2021.
4.1. Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the date of the Statement of Financial Position.
4.2 Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. Identifiable assets and liabilities acquired, and contingent liabilities assumed, in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.
For acquisitions of subsidiaries not meeting the definition of a business, the Group allocates the cost between the individual identifiable assets and liabilities in the Group based on their relative fair values at the date of acquisition. Such transactions or events do not give rise to goodwill.
Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated in full. When necessary, amounts reported by subsidiaries have been adjusted to conform to the Group's accounting policies.
The excess of the consideration transferred, and the amount of any non-controlling interest in the acquiree over the fair value of the identifiable net assets acquired, is recognised as goodwill.
4.2.1. Disposal of subsidiaries
When the Group ceases to have control over an entity, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in the carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
4.3. Segmental information
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker is the person or group that allocates resources to and assesses the performance of the operating segments of an entity. The Group has determined that its chief operating decision-maker is the Board of Directors.
After a review of the information provided for management purposes, it was determined that the Group has one operating segment and therefore segmental information is not disclosed in these consolidated financial statements.
4.4. Investment property
Investment property comprises freehold or leasehold properties that are held to earn rentals or for capital appreciation, or both, rather than for sale in the ordinary course of business or for use in production or administrative functions.
Investment property is recognised, usually, on legal completion, when the risks and rewards of ownership have been transferred, and is measured initially at cost including transaction costs. Transaction costs include transfer taxes, professional fees for legal services and other costs incurred in order to bring the property to the condition necessary for it to be capable of being utilised in the manner intended. Subsequent to initial recognition, investment property is stated at fair value. Gains or losses arising from changes in the fair value are included in the Group's Consolidated Statement of Comprehensive Income in the period in which they arise under IAS 40, 'Investment Property'.
Additions to investment property include costs of a capital nature only. Expenditure is classified as capital when it results in identifiable future economic benefits, which are expected to accrue to the Group. All other property expenditure is charged in the Group's Consolidated Statement of Comprehensive Income as incurred.
Investment properties cease to be recognised when they have been disposed of or withdrawn permanently from use and no future economic benefit is expected. The difference between the net disposal proceeds and the carrying amount of the asset (being the fair value at the start of the financial year) would result in either gains or losses at the retirement or disposal of investment property. Any gains or losses are recognised in the Group's Consolidated Statement of Comprehensive Income in the period of retirement or disposal.
4.5. Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the Group's interest in the fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree plus the amount of the non-controlling interest of the acquiree.
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the subsidiaries, or groups of subsidiaries, that is expected to benefit from the synergies of the combination. Each subsidiary or group of subsidiaries to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes.
Goodwill impairment reviews are undertaken annually, or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of the value in use and the fair value less the costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed.
4.6. Derivative financial instruments
Derivative financial instruments, comprising interest rate caps and swaps for hedging purposes, are initially recognised at fair value and are subsequently measured at fair value, being the estimated amount that the Group would receive or pay to sell or transfer the agreement at the period end date, taking into account current interest rate expectations and the current credit rating of the lender and its counterparties. The gain or loss at each fair value remeasurement date is recognised in the Group's Consolidated Statement of Comprehensive Income.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs significant to the fair value measurement as a whole.
4.7 Financial assets
The Group classifies its financial assets as at fair value through profit or loss or at amortised cost, depending on the purpose for which the asset was acquired. Currently the Group does not have any financial assets which it has classified at fair value through profit or loss.
Assets held at amortised cost arise principally from the provision of goods and services (e.g. trade and other receivables), but also incorporate other financial assets where the objective is to hold these assets in order to collect contractual cash flows which comprise the payment of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost being the effective interest rate method, less provision for impairment.
The Group's financial assets comprise 'trade and other receivables', 'tenant loan' and 'cash and cash equivalents'.
The tenant loan relates to a loan made to a tenant which is subject to interest. The amount receivable has been recognised at amortised cost using the effective interest method.
4.8. Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently carried at amortised cost less provision for impairment. Where the time value of money is material, receivables are carried at amortised cost using the effective interest method. Impairment provisions are recognised based on the expected credit loss model detailed within IFRS 9.
The Group recognises a loss allowance for expected credit losses on trade receivables. The loss allowance is based on lifetime expected credit losses. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition. The expected credit losses on these financial assets are estimated based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date. Impaired balances are reported net, however, impairment provisions are recorded within a separate provision account with the loss being recognised within administration costs within the Consolidated Statement of Comprehensive Income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
Lease premiums and other lease incentives provided to tenants are recognised as an asset and amortised over the period from date of lease commencement to termination date.
4.9. Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at banks with original maturities of three months or less. Cash also includes amounts held in restricted accounts that are unavailable for everyday use.
4.10. Trade and other payables
Trade and other payables are initially recognised at their fair value being at their invoiced value inclusive of any VAT that may be applicable. Payables are subsequently measured at amortised cost using the effective interest method.
4.11. Bank and other borrowings
All bank and other borrowings (comprising bank loans and retail eligible bonds) are initially recognised at cost net of attributable transaction costs. Any attributable transaction costs relating to the issue of the bank borrowings are amortised through the Group's Statement of Comprehensive Income over the life of the debt instrument on a straight-line basis. After initial recognition, all bank and other borrowings are measured at amortised cost, using the effective interest method.
Bank and other borrowings are derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in Group's Consolidated Statement of Comprehensive Income.
4.12 Dividends payable to Shareholders
Equity dividends are recognised and accrued from the date declared and when they are no longer at the discretion of the Company.
4.13 Rental and property income
Rental income arising from operating leases on investment property is accounted for on a straight-line basis over the lease terms and is included in gross rental and property income in the Group's Consolidated Statement of Comprehensive Income. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the lease asset and are recognised as an expense over the lease term on the same basis as the lease income.
For leases which contain fixed or minimum uplifts, the rental income arising from such uplifts is recognised on a straight-line basis over the lease term.
Tenant lease incentives are recognised as a reduction of rental revenue on a straight-line basis over the term of the lease. The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease where, at the inception of the lease, the Directors are reasonably certain that the tenant will exercise that option.
Surrender premiums received from tenants to terminate leases or surrender premises are recognised in the Group's Statement of Comprehensive Income when the right to receive them arises.
Dilapidation income is recognised in the Group's Statement of Comprehensive Income when the right to receive it arises.
When the Group is acting as an agent, the commission, rather than gross income, is recorded as revenue.
Income arising from expenses recharged to tenants is recognised in the year in which the compensation becomes receivable. Service charges and other similar receipts are included in net rental and property income gross of the related costs as the Directors consider the Group acts as principal in this respect.
4.14 Property costs
Non-recoverable property costs contain service and management charges related to empty properties.
Service and management charges are recognised in the accounting period in which the services are rendered.
Recoverable property costs contain service charges and other similar costs which are recognised in the accounting period in which the services are rendered.
4.15. Interest income
Interest income is recognised as interest accrued on cash balances held by the Group. Interest charged to a tenant on any overdue rental income is also recognised within interest income.
4.16. Dividend income
Dividend income is recognised when the right to receive payment is established.
4.17. Finance costs
Interest costs are expensed in the period in which they occur. Arrangement fees that a Group entity incurs in connection with bank and other borrowings are amortised over the term of the loan.
4.18. Taxation
As the Company is managed and controlled in the UK, it is considered to be tax resident in the UK.
The tax currently payable is based on the taxable profit/(loss) for the period. Taxable profit/(loss) differs from net profit/(loss) as reported in the Consolidated Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current and deferred tax is calculated using tax rates that have been enacted or substantively enacted at the date of the Statement of Financial Position.
The Group elected to be treated as a UK REIT with effect from 7 November 2015. The UK REIT rules exempt the profits of the Group's UK property rental business from UK Corporation Tax. Gains on UK properties are also exempt from tax, provided that they are not held for trading or sold in the three years after completion of development. The Group is otherwise subject to UK Corporation Tax.
There are a small number of entities within the Group which fall outside the REIT rules and are subject to UK taxes on profits and property gains.
4.19 Deferred tax
Deferred tax is provided in full using the liability method on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit/(loss). The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax rates (and tax laws) enacted or substantively enacted at the date of the Statement of Financial Position. A deferred tax asset is recognised only to the extent that it is probable that future profits will be available for offset.
The deferred tax liability in relation to investment properties that are measured at fair value is determined assuming that the property will be recovered entirely through sale.
Deferred tax has been recognised on the unrealised property valuation gains/(losses) of properties owned by Group entities which fall outside of the REIT tax rules.
The current rate of UK Corporation Tax is 19%.
4.20. Stated capital
Stated capital represents the consideration received by the Company for the issue of Ordinary Shares. Ordinary Shares are classed as equity.
4.21. Share-based payments
The Group has entered into performance fee arrangements with the Asset Manager and Investment Manager which depend on the growth in the net asset value of the Group exceeding a hurdle rate of return over a performance period. The fee will be partly settled in cash and partly in equity and the equity portion is therefore a Share-based payment arrangement. The fair value of the obligation is measured at each reporting period, and the cost recognised as an expense. The part of the obligation to be settled in Shares is credited to equity reserves. If circumstances change and the fee is no longer settled by the issue of Shares, then the amounts previously credited to equity reserves are reversed. In the year ending 31 December 2021 no cash or equity rewards have been made.
4.22 Leased assets
The Group has a number of leases concerning the long-term lease of land associated with its long leasehold investment properties. These leased assets are capitalised as "right of use assets" by recognising the present value of the lease payments as an asset and a financial liability representing the obligation to make future lease payments.
Right of use assets are valued at fair value and the change in fair value is recognised in the Consolidated Statement of Comprehensive Income.
The associated financial liability is valued at the present value of future lease payments using the Group's incremental borrowing rate. The value of the financial liability is revalued at each reporting date. Lease payments reduce the financial liability and interest on the financial liability is recognised in finance costs.
5. Rental and property income
|
|
| Year ended 31 December 2021 £'000 |
| Year ended 31 December 2020 £'000 |
| ||
|
|
|
|
|
| |||
| Rental income - freehold property | 57,128 |
| 55,382 |
| |||
| Rental income - long leasehold property | 8,626 |
| 6,695 |
| |||
| Recoverable service charge income and other similar items | 14,145 |
| 13,864 |
| |||
|
|
|
|
|
|
| ||
| Total | 79,899 |
| 75,941 |
| |||
|
|
|
| |||||
6. Property costs
|
|
| Year ended 31 December 2021 £'000 |
| Year ended 31 December 2020 £'000 |
|
|
|
|
| |
| Other property expenses and irrecoverable costs | 9,930 |
| 8,798 | |
| Recoverable service charge expenditure and other similar costs | 14,145 |
| 13,864 | |
|
|
|
|
|
|
| Total | 24,075 |
| 22,662 | |
7. Administrative and other expenses
|
|
| Year ended 31 December 2021 £'000 |
| Year ended 31 December 2020 £'000 |
|
|
|
|
| |
| Investment management fees | 2,326 |
| 2,577 | |
| Property management fees | 2,495 |
| 2,266 | |
| Asset management fees | 2,326 |
| 2,579 | |
| Directors' remuneration (see note 8) | 254 |
| 255 | |
| Administration fees | 647 |
| 634 | |
| Legal and professional fees | 1,680 |
| 1,674 | |
| Marketing and promotion | 72 |
| 69 | |
| Other administrative costs (including bad debts) | 755 |
| 1,257 | |
| Bank charges | 28 |
| 18 | |
|
|
|
|
| |
|
|
|
|
|
|
| Total | 10,583 |
| 11,329 | |
|
|
|
|
|
|
Services provided by the Company's Auditor and its associates
The Group has obtained the following services from the Company's Auditor and its associates:
|
|
| Year ended 31 December 2021 £'000 |
| Year ended 31 December 2020 £'000 |
|
|
|
|
| |
| Fees payable to the Company's Auditor for the audit of the Company's annual accounts* |
88 |
|
105 | |
| Fees payable to the Group's Auditor and its associates for the audit of the Company's subsidiaries |
117 |
|
105 | |
| Total fees payable for audit services | 205 |
| 210 | |
| Fees payable to the Group's Auditor and its associates for other services: |
|
|
| |
| Audit-related services | 27 |
| 26 | |
|
|
|
|
|
|
| Total fees payable to the Group's Auditor and its associates | 232 |
| 236 | |
* The prior year charge includes fees of £20,000 in respect of additional audit work required for the 2019 audit due to the COVID-19 pandemic.
8. Directors' remuneration
Key management comprises the Directors of the Company. A summary of the Directors' emoluments is set out in the Directors' Remuneration Report.
|
|
|
Year ended 31 December 2021 £'000 |
|
Year ended 31 December 2020 £'000 |
|
|
|
|
| |
| Directors' fees | 231 |
| 231 | |
| Employer's National Insurance contributions | 23 |
| 24 | |
|
|
|
|
|
|
| Total | 254 |
| 255 | |
|
|
|
|
| |
9. Finance income
|
|
Year ended 31 December 2021 £'000 |
|
Year ended 31 December 2020 £'000 | |
|
|
|
|
| |
| Interest income | 14 |
| 99 | |
|
|
|
|
|
|
| Total | 14 |
| 99 | |
|
|
|
|
|
|
10. Finance expense
|
|
|
Year ended 31 December 2021 £'000 |
|
Year ended 31 December 2020 £'000 |
|
|
|
|
| |
| Interest payable on bank borrowings | 10,795 |
| 10,257 | |
| Amortisation of loan arrangement fees | 1,067 |
| 857 | |
| Bond interest | 2,250 |
| 2,250 | |
| Bond issue costs amortised | 155 |
| 155 | |
| Bond expenses | 8 |
| 8 | |
| Lease interest | 597 |
| 581 | |
|
|
|
|
|
|
| Total | 14,872 |
| 14,108 | |
11. Taxation
|
|
Year ended 31 December 2021 £'000 |
|
Year ended 31 December 2020 £'000 |
|
|
|
|
|
| Corporation tax charge/(credit) | - |
| (157) |
| Increase/(decrease) in deferred tax creditor | 15 |
| (46) |
|
|
|
|
|
| Total | 15 |
| (203) |
|
|
|
|
|
The current tax charge is reduced by the UK REIT tax exemptions. The tax charge for the year can be reconciled to the profit / (loss) in the Statement of Comprehensive Income as follows:
|
| Year ended 31 December 2021 £'000 |
| Year ended 31 December 2020 £'000
|
| Profit/(loss) before taxation | 28,772 |
| (31,201) |
|
|
|
|
|
| UK Corporation Tax rate | 19% |
| 19% |
| Theoretical tax at UK Corporation Tax rate | 5,467 |
| (5,928) |
| Effects of: |
|
|
|
| Revaluation of investment property | 1,576 |
| 10,410 |
| Permanent differences | (207) |
| (363) |
| Profits from the tax-exempt business | (6,836) |
| (4,276) |
| Deferred tax movement | 15 |
| (46) |
| Total | 15 |
| (203) |
Permanent differences are the differences between an entity's taxable profits and its results as stated in the financial statements. These arise because certain types of income and expenditure are non-taxable or disallowable, or because certain tax charges or allowances have no corresponding amount in the financial statements.
The Group elected to be treated as a UK REIT with effect from 7 November 2015. The UK REIT rules exempt the profits of the Group's UK property rental business from corporation tax. Gains on UK properties are also exempt from tax, provided they are not held for trading or sold in the three years after completion of development. The Group is otherwise subject to UK corporation tax.
As a REIT, Regional REIT Ltd is required to pay PIDs equal to at least 90% of the Group's exempted net income. To retain UK REIT status, there are a number of conditions to be met in respect of the principal company of the Group, the Group's qualifying activity and its balance of business. The Group continues to meet these conditions.
UK corporation tax arises on entities which form part of the Group consolidated accounts but do not form part of the REIT group.
Due to the Group's REIT status and its intention to continue meeting the conditions required to obtain approval in the foreseeable future, no provision has been made for deferred tax on any capital gains or losses arising on the revaluation or disposal of investments held by entities within the REIT group.
No deferred tax asset has been recognised in respect of losses carried forward due to the unpredictability of future taxable profits.
12. Earnings per Share
Earnings per Share amounts are calculated by dividing profits/(losses) for the year attributable to ordinary equity holders of the Company by the weighted average number of Ordinary Shares in issue during the year.
The calculation of basic and diluted earnings per Share is based on the following:
|
|
| Year ended 31 December 2021 £'000 |
| Year ended 31 December 2020 £'000 |
| Calculation of earnings per Share |
|
|
| |
| Net profit/(loss) attributable to Ordinary Shareholders | 28,757 |
| (30,998) | |
| Adjustments to remove: |
|
|
| |
| Changes in value of investment properties | 8,296 |
| 54,793 | |
| Changes in fair value of right of use assets | 206 |
| 195 | |
| (Gain)/loss on disposal of investment property | (679) |
| 1,073 | |
| Gain on the disposal of right of use assets | (167) |
| - | |
| Changes in fair value of interest rate derivatives and financial assets | (6,045) |
| 2,523 | |
| Impairment of goodwill | - |
| 558 | |
| Deferred tax charge/(credit) | 15 |
| (46) | |
|
|
|
|
|
|
| EPRA net profit attributable to Ordinary Shareholders | 30,383 |
| 28,098 | |
|
|
|
|
| |
| Weighted average number of Ordinary Shares | 459,660,172 |
| 431,506,583 | |
| Earnings/(loss) per Share - basic and diluted | 6.3p |
| (7.2)p | |
| EPRA earnings per Share - basic and diluted | 6.6p |
| 6.5p | |
|
|
|
|
|
|
13. Dividends
|
|
|
Year ended 31 December 2021 £'000 |
|
Year ended 31 December 2020 £'000 |
|
|
|
|
| |
| Dividend of 1.50 (2020: 2.55) pence per Ordinary Share for the period 1 October - 31 December |
6,473 |
|
11,004 | |
| Dividend of 1.60 (2020: 1.90) pence per Ordinary Share for the period 1 January - 31 March |
6,904 |
|
8,198 | |
| Dividend of 1.60 (2020: 1.50) pence per Ordinary Share for the period 1 April - 30 June |
8,252 |
|
6,473 | |
| Dividend of 1.60 (2020: 1.50) pence per Ordinary Share for the period 1 July - 30 September |
8,252 |
|
6,473 | |
|
|
|
|
|
|
|
|
| 29,881 |
| 32,148 |
|
|
|
|
|
|
On 25 February 2021, the Company announced 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 announced 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 26 August 2021, the Company announced a dividend of 1.60 pence per Share in respect of the period 1 April 2021 to 30 June 2021. The dividend payment was made on 15 October 2021 to Shareholders on the register as at 10 September 2021.
On 11 November 2021, the Company announced a dividend of 1.60 pence per Share in respect of the period 1 July 2021 to 30 September 2021. The dividend payment was made on 12 January 2022 to Shareholders on the register as at 19 November 2021.
On 24 February 2022, the Company announced a dividend of 1.70 pence per Share in respect of the period 1 October 2021 to 31 December 2021. The dividend will be paid on 8 April 2022 to Shareholders on the register as at 4 March 2022. The financial statements do not reflect this dividend.
The Board intends to pursue a progressive dividend policy and continue to pay quarterly dividends. The level of future payment of dividends will be determined by the Board having regard to, amongst other things, the financial position and performance of the Group at the relevant time, UK REIT requirements, and the interest of Shareholders.
14. Investment properties
In accordance with International Accounting Standard, IAS 40, 'Investment Property', investment property has been independently valued at fair value by Cushman & Wakefield Chartered Surveyors, an accredited independent valuer with recognised and relevant professional qualifications and with recent experience in the locations and categories of the investment properties being valued. The valuations have been prepared in accordance with the Red Book and incorporate the recommendations of the International Valuation Standards Committee which are consistent with the principles set out in IFRS 13.
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 11th 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 valuations are the ultimate responsibility of the Directors. Accordingly, the critical assumptions used in establishing the independent valuation are reviewed by the Board.
All corporate acquisitions during the year have been treated as properties purchased rather than business combinations (see note 3.2.3).
| Group
Movement in investment properties for the year ended 31 December 2021 |
|
Freehold Property £'000 |
| Long Leasehold Property £'000 |
|
Total £'000 |
|
|
|
|
|
|
|
|
| Valuation at 1 January 2021 |
| 659,432 |
| 72,948 |
| 732,380 |
| Property additions - acquisitions |
| 155,806 |
| 95,625 |
| 251,431 |
| Property additions - subsequent expenditure |
| 3,329 |
| 3,487 |
| 6,816 |
| Property disposals |
| (60,304) |
| (16,557) |
| (76,861) |
| Gain/(loss) on the disposal of investment properties | (1,256) |
| 1,935 |
| 679 | |
| Change in fair value during the year |
| (5,567) |
| (2,729) |
| (8,296) |
|
|
|
|
|
|
|
|
| Valuation at 31 December 2021 |
| 751,440 |
| 154,709 |
| 906,149 |
|
| ||||||
| Movement in investment properties for the year ended 31 December 2020
|
|
|
|
|
|
|
| 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 year |
| (43,715) |
| (11,078) |
| (54,793) |
|
|
|
|
|
|
|
|
| Valuation at 31 December 2020 |
| 659,432 |
| 72,948 |
| 732,380 |
The net book value of properties disposed of during the year amounted to £76,181,000 (2020: £54,501,000).
The historic cost of the properties is £942,694,000 (31 December 2020: £759,705,000).
Bank borrowings are secured by charges over investment properties held by certain asset-holding subsidiaries. The banks also hold charges over the Shares of certain subsidiaries and any intermediary holding companies of those subsidiaries. The value of investment properties secured at 31 December 2021 was £896,149,000 (31 December 2020: £705,130,000).
The following table provides the fair value measurement hierarchy for investment property:
|
Date of valuation: |
Total £'000 |
Quoted active prices (level 1) £'000 | Significant observable inputs (level 2) £'000 | Significant unobservable inputs (level 3) £'000 |
|
|
|
|
|
|
| 31 December 2021 | 906,149 | - | - | 906,149 |
|
|
|
|
|
|
|
|
|
|
|
|
| 31 December 2020 | 732,380 | - | - | 732,380 |
|
|
|
|
|
|
The hierarchy levels are defined in note 30.
It has been determined that the entire investment properties portfolio should be classified under the level 3 category. The table below shows the movement in the year on the level 3 category:
|
|
|
Year ended 31 December 2021 £'000 |
|
Year ended 31 December 2020 £'000
|
| Balance at the start of the year |
| 732,380 |
| 787,915 |
| Additions |
| 258,247 |
| 53,759 |
| Disposals |
| (76,861) |
| (53,428) |
| Gain/(loss) on the disposal of investment properties | 679 |
| (1,073) | |
| Change in fair value during the year |
| (8,296) |
| (54,793) |
|
|
|
|
|
|
| Balance at the end of the year |
| 906,149 |
| 732,380 |
|
|
|
|
|
|
The determination of the fair value of the investment properties held by each consolidated subsidiary requires the use of estimates such as future cash flows from investment properties, which take into consideration lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, any environmental matters and the overall repair and condition of the property, and discount rates applicable to those assets. Future revenue streams comprise contracted rent (passing rent) and estimated rental value after the contract period. In calculating ERV, the potential impact of future lease incentives to be granted to secure new contracts is taken into consideration. All these estimates are based on local market conditions existing at the reporting date.
As at 31 December 2021, the estimated fair value of each property has been primarily derived using comparable recent market transactions on arm's length terms and assessed in accordance with the relevant parts of the RICS Valuation - Global Standards and the RICS Valuation UK National Supplement.
Techniques used for valuing investment properties
The following descriptions and definitions relate to valuation techniques and key observable inputs made in determining the fair values:
Valuation technique: market comparable method
Under the market comparable method (or market approach), a property fair value is estimated based on comparable transactions in the market.
Observable input: market rental
The rent at which space could be let in the market conditions prevailing at the date of valuation range: £9,000 - £3,125,246 per annum (2020: £9,000 - £3,092,291 per annum).
Observable input: rental growth
The increase in rent is based on contractual agreements: 12.29% (2020: 13.08%)
Observable input: net initial yield
The initial net income from a property at the date of purchase, expressed as a percentage of the gross purchase price including the costs of purchase range: 0.00% - 60.37% (2020: 0.00% - 25.64%).
Unobservable inputs:
The significant unobservable inputs (level 3) are sensitive to changes in the estimated future cash flows from investment properties such as increases and decreases in contracted rents, operating expenses and capital expenses, plus transactional activity in the real estate market.
As set out within the significant accounting estimates and judgements, the Group's property portfolio valuation is open to judgement and is inherently subjective by nature, and actual values can only be determined in a sales transaction.
15. Investment in subsidiaries
List of subsidiaries which are 100% owned and controlled by the Group
|
| Country of incorporation | Ownership % |
|
|
|
|
| Blythswood House LLP (in liquidation) | United Kingdom | 100% |
| Beaufort Office Park Management Company Limited | United Kingdom | 100% |
| Glasgow Airport Business Park Management Company Limited | United Kingdom | 100% |
| Regional Commercial MIDCO Ltd | Jersey | 100% |
| RR Aspect Court Ltd | Jersey | 100% |
| RR Bristol Ltd | Jersey | 100% |
| RR Hounds Gate Ltd | Jersey | 100% |
| RR Rainbow (Aylesbury) Ltd | Jersey | 100% |
| RR Rainbow (North) Ltd | Jersey | 100% |
| RR Rainbow (South) Ltd | Jersey | 100% |
| RR Range Ltd | Jersey | 100% |
| RR Sea Dundee Ltd | United Kingdom | 100% |
| RR Sea Hanover Street Ltd | United Kingdom | 100% |
| RR Sea Lamont I Ltd | Jersey | 100% |
| RR Sea Lamont II Ltd | Jersey | 100% |
| RR Sea Lamont III Ltd | Jersey | 100% |
| RR Sea St. Helens Ltd | United Kingdom | 100% |
| RR Sea Stafford Ltd | United Kingdom | 100% |
| RR Sea Strand Ltd | United Kingdom | 100% |
| RR Sea TAPP Ltd | Guernsey | 100% |
| RR Sea TOPP Bletchley Ltd | Guernsey | 100% |
| RR Sea TOPP I Ltd | Guernsey | 100% |
| RR UK (Central) Ltd | Jersey | 100% |
| RR UK (Cheshunt) Ltd | Jersey | 100% |
| RR UK (South) Ltd | Jersey | 100% |
| RR UK (Port Solent) Ltd | Jersey | 100% |
| RR Wing Portfolio Ltd | Jersey | 100% |
| Smallbrook Queensway Limited | Jersey | 100% |
| Quay West Estate Company Limited | United Kingdom | 100% |
| Tay Properties Ltd | Jersey | 100% |
| TCP Arbos Ltd | Jersey | 100% |
| TCP Channel Ltd | Jersey | 100% |
| Tosca Chandlers Ford Ltd | Jersey | 100% |
| Tosca Glasgow II Ltd | United Kingdom | 100% |
| Tosca Midlands Ltd | Jersey | 100% |
| Tosca North West Ltd | Jersey | 100% |
| Tosca Scotland Ltd | Jersey | 100% |
| RR Star Ltd | Jersey | 100% |
| Tosca Swansea Ltd | Jersey | 100% |
| Tosca UK CP II Ltd | Jersey | 100% |
| Tosca UK CP Ltd | Jersey | 100% |
| Toscafund Bennett House Ltd | Jersey | 100% |
| Toscafund Bishopgate Street Ltd | Jersey | 100% |
| Toscafund Blythswood Ltd | Jersey | 100% |
| Toscafund Brand Street Ltd | Jersey | 100% |
| Toscafund Chancellor Court Ltd | Jersey | 100% |
| Toscafund Crompton Way Ltd | Jersey | 100% |
| RR Falcon Ltd | Jersey | 100% |
| Toscafund Glasgow Ltd | Jersey | 100% |
| Toscafund Harvest Ltd | Jersey | 100% |
| Toscafund Milburn House Ltd | Jersey | 100% |
| Toscafund Minton Place Ltd | Jersey | 100% |
| Toscafund Newstead Court Ltd | Jersey | 100% |
| Toscafund Portland Street Ltd | Jersey | 100% |
| Toscafund St Georges House Ltd | Jersey | 100% |
| Toscafund St James Court Ltd | Jersey | 100% |
| Toscafund Strathclyde BP Ltd | Jersey | 100% |
| Toscafund Wallington Ltd | Jersey | 100% |
| Toscafund Westminster House Ltd | Jersey | 100% |
| Toscafund Sheldon Court Ltd | Jersey | 100% |
All of the above entities have been included in the Group's consolidated financial statements.
By virtue of an Amended and Restated Call Option Agreement dated 3 November 2015, the Directors consider that the Group has control of View Castle Limited and its subsidiaries (the "View Castle Group").
Under this option, the Group has the ability to acquire any of the properties held by the View Castle Group by issuing an option notice for a nominal consideration of £1. The recipient of the option notice will be obliged to convey its title within one month after receipt of the option notice.
Despite having no equity holding, the Group controls the View Castle Group as the option agreement has the effect that the Group is exposed to, and has rights to, variable returns from its involvement with the View Castle Group through its power to control.
The companies which make up the View Castle Group are as follows:
List of subsidiaries that are controlled by the Group:
|
| Country of incorporation | Effective Ownership % |
|
|
|
|
| Castlestream Ltd (in liquidation) | United Kingdom | 100% |
| Caststop Ltd (in liquidation) | United Kingdom | 100% |
| Credential (Baillieston) Ltd (in liquidation) | United Kingdom | 100% |
| Credential (Greenock) Ltd (in liquidation) | United Kingdom | 100% |
| Credential (Wardpark North) Ltd | United Kingdom | 100% |
| Credential Charing Cross Ltd (in liquidation) | United Kingdom | 100% |
| Credential Estates Ltd | United Kingdom | 100% |
| Hamiltonhill Estates Ltd (in liquidation) | United Kingdom | 100% |
| Old Rutherglen Road Ltd (in liquidation) | United Kingdom | 100% |
| Rocket Unit Trust | Jersey | 100% |
| Squeeze Newco 2 Ltd | United Kingdom | 100% |
| The Legal Services Centre Ltd (in liquidation) | United Kingdom | 100% |
| View Castle Ltd | United Kingdom | 100% |
| View Castle (Milton Keynes) Ltd | United Kingdom | 100% |
| View Castle (Properties) Ltd | United Kingdom | 100% |
All of the above entities have been included in the Group's consolidated financial statements up to 31 December 2021.
Business Combinations
There have been no new business combinations entered into in the financial year.
16. Goodwill
|
| 31 December 2021 £'000 |
| 31 December 2020 £'000 |
| Group |
|
|
|
| At start of year | - |
| 558 |
| Impairment | - |
| (558) |
|
|
|
|
|
| At end of year | - |
| - |
|
|
|
|
|
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 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 Statement of Comprehensive Income.
17. Non-current receivables
Non-current receivables on tenant loans
|
| 31 December 2021 £'000 |
| 31 December 2020 £'000 | ||
|
|
|
|
| ||
| At start of year | 1,203 |
| 1,348 | ||
| Amounts repaid in the year | (192) |
| (145) | ||
|
|
|
|
| ||
| At end of year | 1,011 |
| 1,203 | ||
|
|
|
|
|
| |
| Asset due within 1 year (note 18) | 192 |
| 192 |
| Asset due after 1 year | 819 |
| 1,011 |
|
|
|
|
|
|
| 1,011 |
| 1,203 |
|
|
|
|
|
During 2016, the Group entered into a loan agreement with a tenant for £1,926,000. The loan is subject to interest of 4% above the base rate of the Bank of Scotland on late payments and is repayable in instalments over ten years.
18. Trade and other receivables
|
| 31 December 2021 £'000 |
| 31 December 2020 £'000 | ||
|
|
|
|
| ||
| Gross amount receivable from tenants | 10,835 |
| 11,768 | ||
| Less provision for impairment | (1,615) |
| (1,458) | ||
|
|
|
|
| ||
| Net amount receivable from tenants | 9,220 |
| 10,310 | ||
| Current receivables - tenant loans (note 17) | 192 |
| 192 | ||
| Income tax | 52 |
| 52 | ||
| Other receivables | 736 |
| 1,458 | ||
| Prepayments | 19,204 |
| 21,678 | ||
|
|
|
|
| ||
|
| 29,404 |
| 33,690 | ||
|
|
|
|
|
| |
|
|
|
|
|
| |
The maximum exposure to credit risk at the reporting date is the carrying value of the amounts disclosed above. The Group does not hold any collateral as security.
The aged analysis of trade receivables that are past due but not impaired was as follows:
|
| 31 December 2021 £'000 |
| 31 December 2020 £'000 |
|
|
|
|
|
| < 30 days | 4,605 |
| 6,000 |
| 30-60 days | 1,160 |
| 915 |
| > 60 days | 5,070 |
| 4,853 |
|
|
|
|
|
|
| 10, 835 |
| 11,768 |
| Less provision for impairment | (1,615) |
| (1,458) |
|
|
|
|
|
|
| 9,220 |
| 10,310 |
|
|
|
|
|
The Directors consider the fair value of receivables equals their carrying amount.
The table above shows the aged analysis of trade receivables included in the table above which are past due but not impaired. These relate to tenants for whom there is no recent history of default.
Provision for impairment of trade receivables movement as follows:
|
| 31 December 2021 £'000 |
| 31 December 2020 £'000 | ||
|
|
|
|
| ||
| At start of year | 1,458 |
| 891 | ||
| Provision for impairment in the year | 1,971 |
| 1,787 | ||
| Receivables written off as uncollectable | (633) |
| (719) | ||
| Unused provision reversed | (1,181) |
| (501) | ||
|
|
|
|
| ||
| At end of year | 1,615 |
| 1,458 | ||
|
|
|
|
|
| |
Other categories within trade and other receivables do not include impaired assets. Receivables are written off as uncollectable where there is no reasonable expectation of recovery.
19. Cash and cash equivalents
|
| 31 December 2021 £'000 |
| 31 December 2020 £'000 |
| Group |
|
|
|
| Cash held at bank | 49,919 |
| 54,958 |
| Restricted cash held at bank | 6,209 |
| 12,415 |
|
|
|
|
|
| At end of year | 56,128 |
| 67,373 |
|
|
|
|
|
Restricted cash balances of the Group comprise:
· £4,149,000 (2020: £10,752,000) of funds held in blocked bank accounts which are controlled by the Group's lenders and are released to free cash once certain loan conditions are met. The restricted funds arose on net proceeds from investment property disposals and were released after the year end.
· £2,060,000 (2020: £1,663,000) of funds which represent tenants' rental deposits.
All restricted cash balances will be available before 31 March 2022.
In addition, £10,040,000 (2020: £7,462,000) of cash funds represent service charge income received from tenants for settlement of future service charge expenditure. These amounts are not analysed as restricted balances.
20. Trade and other payables
|
| 31 December 2021 £'000 |
| 31 December 2020 £'000 | ||
|
|
|
|
| ||
| Withholding tax due on dividends paid | 861 |
| 572 | ||
| Dividends announced but not paid | 8,252 |
| 6,473 | ||
| Trade payables | 3,559 |
| 2,262 | ||
| Other payables | 13,245 |
| 11,205 | ||
| Value added tax | 1,714 |
| 3,662 | ||
| Accruals | 13,335 |
| 9,635 | ||
|
|
|
|
| ||
| At end of year | 40,966 |
| 33,809 | ||
|
|
|
|
|
| |
Other payables principally include rent deposits held and service charge costs.
The Directors consider the fair value of trade and other payables to equal their carrying amounts.
21. Deferred income
Deferred rental income of £16,751,000 (31 December 2020: £14,584,000) represents rent received in advance from tenants.
22. Deferred tax liabilities
|
| 31 December 2021 £'000 |
| 31 December 2020 £'000 |
|
|
|
|
|
|
|
| Deferred tax | 705 |
| 690 |
|
|
|
|
|
|
|
|
| 705 |
| 690 |
|
|
|
|
|
|
|
| The movement on deferred tax liability is shown below: |
|
|
| |
| At start of year | 690 |
| 736 | |
| Deferred tax on the valuation of investment properties | 15 |
| (46) | |
|
|
|
|
| |
| At end of year | 705 |
| 690 | |
|
|
|
|
| |
23. Bank and loan borrowings
Bank borrowings are secured by charges over investment properties held by certain asset-holding subsidiaries. The banks also hold charges over the Shares of certain subsidiaries and any intermediary holding companies of those subsidiaries. Any associated fees in arranging the bank borrowings unamortised as at the year end are offset against amounts drawn on the facilities as shown in the table below:
|
| 31 December 2021 £'000 |
| 31 December 2020 £'000 |
|
|
|
|
|
| Bank borrowings drawn at start of year | 316,171 |
| 294,000 |
| Bank borrowings drawn | 77,305 |
| 39,200 |
| Bank borrowings repaid | (3,539) |
| (17,029) |
|
|
|
|
|
| Bank borrowings drawn at end of year | 389,937 |
| 316,171 |
| Less: unamortised costs at start of year | (5,479) |
| (6,144) |
| Less: loan issue costs incurred in the year | (2,051) |
| (192) |
| Add: loan issue costs amortised in the year | 1,067 |
| 857 |
|
|
|
|
|
| At end of year | 383,474 |
| 310,692 |
|
|
|
|
|
| Maturity of bank borrowings |
|
|
|
| Repayable within 1 year | - |
| - |
| Repayable between 1 to 2 years | - |
| - |
| Repayable between 2 to 5 years | 127,220 |
| 52,349 |
| Repayable after more than 5 years | 262,717 |
| 263,822 |
| Unamortised loan issue costs | (6,463) |
| (5,479) |
|
|
|
|
|
|
| 383,474 |
| 310,692 |
|
|
|
|
|
As detailed in note 24, the Group has £50,000,000 (31 December 2020: £50,000,000) retail eligible bonds in issue.
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, Bank of Scotland and Barclays | 128,000 | 127,220 | Aug-26
| 43.4% | 2.40% over 3mth £ SONIA | Mandatory prepayment |
| Scottish Widows Ltd & Aviva Investors Real Estate Finance | 165,000 | 165,000 | Dec-27 | 46.4% | 3.28% Fixed | None |
| Scottish Widows Ltd | 36,000 | 36,000 | Dec-28 | 38.7% | 3.37% Fixed | None |
| Santander UK | 65,870 | 61,717 | Jun-29 | 39.0% | 2.20% over 3mth £ LIBOR Moving to SONIA 01/01/22 | Mandatory prepayment |
|
|
|
|
|
|
|
|
| Total bank borrowings | 394,870 | 389,937 |
|
|
|
|
|
Retail eligible bond | 50,000 | 50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
| Total | 444,870 | 439,937 |
|
|
|
|
|
|
|
|
|
|
|
|
SONIA = Sterling Over Night Indexed Average
LIBOR = London Interbank Offered Rate (Sterling)
* Before unamortised debt issue costs
** Based upon Cushman & Wakefield property valuations
The percentage of loans at variable rates of interest was 42.9% (31 December 2020: 54.9%).
The weighted average term to maturity of the Group's debt at the year end was 5.5 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 year end was 3.0% (31 December 2020: 3.1%).
The Group weighted average interest rate, including the retail eligible bonds and hedging costs at the year end, amounted to 3.3% per annum (31 December 2020: 3.3% per annum).
The Group has been in compliance with all of the financial covenants relating to the above facilities as applicable throughout the year covered by these consolidated financial statements. Each facility has distinct covenants which generally include: historic interest cover, projected interest cover, LTV cover and debt service cover. A breach of agreed covenant levels would typically result in an event of default of the respective facility, giving the lender the right, but not the obligation, to declare the loan immediately due and payable. Where a loan is repaid in these circumstances, early repayment fees will apply, which are generally based on a percentage of the loan repaid or calculated with reference to the interest income foregone by the lenders as a result of the repayment.
As shown in note 25, the Group uses a combination of interest rate swaps and fixed rate bearing loans to hedge against cash flow interest rate risks. The Group's exposure to interest rate volatility is minimal.
In line with recent announcements from the Bank of England and the FCA, the Royal Bank of Scotland and Bank of Scotland & Barclays borrowings and Santander UK borrowings are transitioning from the London Interbank Offer Rate (LIBOR) benchmark to Sterling Overnight Index Average (SONIA) benchmark. The borrowings with RBS transitioned during the year and the Santander UK borrowings transition for the first interest payment in 2022. There is expected to be negligible cost involved in the borrowing facility transition and the respective hedge instrument amendments.
24. Retail Eligible Bonds
The Company has in issue £50,000,000 (31 December 2020: £50,000,000) 4.5% Retail Eligible Bonds with a maturity date of 6 August 2024. These unsecured bonds are listed on the London Stock Exchange ORB platform.
|
| 31 December 2021 £'000 |
| 31 December 2020 £'000 | |
|
|
|
|
| |
| Bond principal at start of year | 50,000 |
| 50,000 | |
| Unamortised issue costs at start of year | (559) |
| (714) | |
| Amortisation of issue costs | 155 |
| 155 | |
|
|
|
|
| |
| At end of year | 49,596 |
| 49,441 | |
|
|
|
|
|
|
25. Derivative financial instruments
Interest rate caps and swaps are in place to mitigate the interest rate risk that arises as a result of entering into variable rate borrowings.
|
| 31 December 2021 £'000 |
| 31 December 2020 £'000 |
| Group |
|
|
|
| Fair value at start of year | (4,339) |
| (1,816) |
| Revaluation in the year | 6,045 |
| (2,523) |
|
|
|
|
(4,339 |
| Fair value at end of year | 1,706 |
| (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 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, Bank of Scotland and Barclays | 128,000 | 127,220 | Aug-26 | 2.40% over 3 months £ SONIA | 73,000 55,000 | 0.97% 0.97% |
| Scottish Widows Ltd. & Aviva Investors Real Estate Finance | 165,000 | 165,000 | Dec-27 | 3.28% Fixed | n/a | n/a |
| Scottish Widows Ltd | 36,000 | 36,000 | Dec-28 | 3.37% Fixed | n/a | n/a |
| Santander UK | 65,870 | 61,717 | Jun-29 | 2.20% over 3 months £ LIBOR Moving to SONIA 01/01/22 | 32,935 32,935 | 1.45% 1.45% |
|
|
|
|
|
|
|
|
| Total | 394,870 | 389,937 |
|
|
| |
SONIA = Sterling Over Night Indexed Average
LIBOR = London Interbank Offered Rate (Sterling)
As at 31 December 2021, the swap notional arrangements were £105.94m (31 December 2020: £60.44m) and the cap notional arrangements amounted to £87.94m (31 December 2020: £60.44m).
The Group weighted average effective interest rate was 3.3% (31 December 2020: 3.3%) 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 debt portfolio using interest rate derivatives and fixed-rate facilities. As at the year end, the total proportion of hedged debt equated to 101.3% (31 December 2020: 101.8%), as shown below. The over-hedged position has arisen as a result of the full RBS and Santander facilities (including headroom) being hedged but the excess relates to Interest Rate Caps which have no ongoing cost for the Group.
|
| 31 December 2021 £'000 |
| 31 December 2020 £'000 |
|
|
|
|
|
| Total bank borrowings | 389,937 |
| 316,171 |
|
|
|
|
|
| Notional value of interest rate caps and swaps | 193,870 |
| 120,870 |
| Value of fixed rate debts | 201,000 |
| 201,000 |
|
|
|
|
|
|
| 394,870 |
| 321,870 |
|
|
|
|
|
| Proportion of hedged debt | 101.3% |
| 101.8% |
|
|
|
|
|
The Group has not adopted hedge accounting in either year.
26. Leases
|
Right of use asset | 31 December 2021 £'000 |
| 31 December 2020 £'000 |
|
|
|
|
|
| At start of year | 16,156 |
| 16,351 |
| Right of use asset acquired | 6,438 |
| - |
| Derecognition of right of use asset | (5,906) |
| - |
| Fair value movement | (206) |
| (195) |
|
|
|
|
|
|
| 16,482 |
| 16,156 |
|
Lease liability | 31 December 2021 £'000 |
| 31 December 2020 £'000 |
|
|
|
|
|
| At start of year | 16,473 |
| 16,510 |
| Finance lease liability acquired | 6,438 |
| - |
| Derecognition of finance lease liability | (6,073) |
| - |
| Lease payments | (640) |
| (618) |
| Interest charges | 597 |
| 581 |
|
|
|
|
|
|
| 16,795 |
| 16,473 |
The derecognition of right of use assets and liabilities during the year gave rise to a realised gain of £167,000 (2020: £nil).
The Group's lease commitments which are now represented by the right of use asset and lease liability are spread across 12 separate leases with the two largest leases at Mountbatten Court Basingstoke and Northern Cross Basingstoke making up 35% of the balance. Total commitments on leases in respect of land and buildings are as follows:
|
Group | 31 December 2021 £'000 |
| 31 December 2020 £'000 |
|
|
|
|
|
| Payable within 1 year | 648 |
| 618 |
| Payable between 1 and 2 years | 648 |
| 618 |
| Payable between 2 and 5 years | 1,943 |
| 1,854 |
| Payable after 5 years | 47,668 |
| 50,346 |
|
|
|
|
|
|
| 50,907 |
| 53,436 |
|
|
|
|
|
27. Stated capital
Stated capital represents the consideration received by the Company for the issue of Ordinary Shares.
| Group
Issued and fully paid Shares of no par value |
| 31 December 2021 £'000
|
| 31 December 2020 £'000
|
| At start of the year | 430,819 |
| 430,819 | |
| Shares issued | 83,051 |
| - | |
| Share issue costs | (108) |
| - | |
|
|
|
|
| |
| At end of the year | 513,762 |
| 430,819 | |
|
|
|
|
| |
| Number of Shares in issue |
|
|
| |
| At start of the year | 431,506,583 |
| 431,506,583 | |
| Shares issued | 84,230,000 |
| - | |
|
|
|
|
|
|
| At end of the year | 515,736,583 |
| 431,506,583 | |
|
|
|
|
|
|
During the year 84,230,000 Shares were issued as part of the consideration package for the purchase of a group of investment properties. The value of Shares issued was £83,051,000 (98.6p per Share).
28. Net asset value per Share (NAV)
Basic NAV per Share is calculated by dividing the net assets in the Statement of Financial Position attributable to ordinary equity holders of the parent by the number of Ordinary Shares outstanding at the end of the year.
In October 2019, EPRA issued new best practice recommendations that replaced EPRA net asset value (NAV) with three new measures of net asset value. The Group has determined that EPRA net tangible assets (NTA) is the most relevant measure, hence this is now reported in place of EPRA NAV. Further detail of the new EPRA performance measures can be found in the full Annual Report.
Net asset values have been calculated as follows:
| Group |
| 31 December 2021 £'000 |
| 31 December 2020 £'000 |
| |
|
|
|
|
|
| ||
| Net asset value per Consolidated Statement of Financial Position | 502,401 |
| 420,582 |
| ||
| Adjustment for calculating EPRA net tangible assets: |
|
|
|
| ||
| Derivative financial instruments | (1,706) |
| 4,339 |
| ||
| Deferred tax liability | 705 |
| 690 |
| ||
|
|
|
|
|
|
| |
| EPRA Net Tangible Assets | 501,400 |
| 425,611 |
| ||
|
|
|
|
|
|
| |
|
Number of Ordinary Shares in issue |
|
515,736,583 |
|
431,506,583 |
| |
|
|
|
|
|
|
| |
| Net asset value per Share - basic and diluted | 97.4p |
| 97.5p |
| ||
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
| EPRA Net Tangible Assets per Share - basic and diluted | 97.2p |
| 98.6p |
| ||
|
|
|
|
|
| ||
|
|
|
|
|
| ||
29. Notes to the Statement of Cash Flows
29.1 Non-Cash Transactions
During the year, a non-cash transaction took place whereby 84,230,000 Shares were issued as part of the consideration package for the purchase of a group of investment properties. The value of Shares issued was £83,051,000.
During the year, three right of use assets and liabilities were recognised at the value of £6,438,000 being the present value of the lease payments associated with the Group's long leasehold investment properties. Also during the year, three right of use assets and liabilities were derecognised following the sale of long-leasehold investment properties.
29.2 Reconciliation of changes in liabilities to cash flows arising from financing activities
| 31 December 2021 |
Bank loans and borrowings £'000 |
Retail Eligible Bonds £'000 |
Derivative financial instruments £'000 |
Lease liabilities £'000 |
Total £'000 |
|
|
|
|
|
|
|
| Balance at 1 January 2021 | 310,692 | 49,441 | 4,339 | 16,473 | 380,945 |
| Changes from financing cash flows: |
|
|
|
|
|
| Bank and bond borrowings advanced | 77,305 | - | - | - | 77,305 |
| Bank borrowings repaid | (3,539) | - | - | - | (3,539) |
| Bank and bond borrowing costs paid | (2,051) | - | - | - | (2,051) |
| Lease payments | - | - | - | (640) | (640) |
| Total changes from financing cash flows |
71,715 |
- |
- |
(640) |
71,075 |
|
|
|
|
|
|
|
| Amortisation of issue costs | 1,067 | 155 | - | - | 1,222 |
| Unwinding of discount | - | - | - | 597 | 597 |
| Change in fair value | - | - | (6,045) | - | (6,045) |
| Finance lease liability acquired | - | - | - | 6,438 | 6,438 |
| Derecognition of finance lease liability | - | - | - | (6,073) | (6,073) |
| Total other changes | 1,067 | 155 | (6,045) | 962 | (3,861) |
|
|
|
|
|
|
|
| Balance at 31 December 2021 | 383,474 | 49,596 | (1,706) | 16,795 | 448,159 |
| 31 December 2020 |
Bank loans and borrowings £'000 |
Retail Eligible Bonds £'000 |
Derivative financial instruments £'000 |
Lease liabilities £'000 |
Total £'000 |
|
|
|
|
|
|
|
| Balance at 1 January 2020 | 287,856 | 49,286 | 1,816 | 16,510 | 355,468 |
| Changes from financing cash flows: |
|
|
|
|
|
| Bank and bond borrowings advanced | 39,200 | - | - | - | 39,200 |
| Bank borrowings repaid | (17,029) | - | - | - | (17,029) |
| Bank and bond borrowing costs paid | (192) | - | - | - | (192) |
| Lease payments | - | - | - | (618) | (618) |
| Total changes from financing cash flows |
21,979 |
- |
- |
(618) |
21,361 |
| Amortisation of issue costs | 857 | 155 | - | - | 1,012 |
| Unwinding of discount | - | - | - | 581 | 581 |
| Change in fair value | - | - | 2,523 | - | 2,523 |
| Total other changes | 857 | 155 | 2,523 | 581 | 4,116 |
|
|
|
|
|
|
|
| Balance at 31 December 2020 | 310,692 | 49,441 | 4,339 | 16,473 | 380,945 |
30. Financial risk management
30.1 Financial instruments
The Group's principal financial assets and liabilities are those that arise directly from its operations: trade and other receivables, trade and other payables and cash and cash equivalents. The Group's other principal financial liabilities are bank and other loan borrowings, amounts due to interest rate derivatives, the main purpose of which is to finance the acquisition and development of the Group's investment property portfolio.
Set out below is a comparison by class of the carrying amounts of the Group's financial instruments that are carried in the financial statements and their fair value:
| Group | 31 December 2021 | 31 December 2020 | ||
|
| Carrying value £'000 | Fair value £'000 | Carrying value £'000 | Fair value £'000 |
| Financial assets - measured at amortised cost |
|
|
|
|
| Trade and other receivables | 10,967 | 10,967 | 12,971 | 12,971 |
| Cash and short-term deposits | 56,128 | 56,128 | 67,373 | 67,373 |
|
|
|
|
|
|
|
Financial assets - measured at fair value through profit or loss |
|
|
|
|
| Interest rate derivatives | 1,706 | 1,706 | - | - |
|
Financial liabilities - measured at amortised cost |
|
|
|
|
| Trade and other payables | (38,391) | (38,391) | (29,575) | (29,575) |
| Bank and loan borrowings | (383,474) | (387,373) | (310,692) | (327,409) |
| Retail eligible bonds | (49,596) | (51,190) | (49,441) | (49,500) |
| Lease liability | (16,795) | (16,795) | (16,473) | (16,473) |
|
Financial liabilities - measured at fair value through profit or loss |
|
|
|
|
| Interest rate derivatives | - | - | (4,339) | (4,339) |
|
|
|
|
|
|
|
|
|
|
|
|
The following financial liabilities are recorded in the Consolidated Statement of Financial Position at amortised cost but their fair value is different as disclosed above. Their fair values are determined as follows:
· The fair value of bank and loan borrowings is determined by reference to mark-to-market valuations provided by the lenders.
· The fair value of Retail Eligible Bonds is determined by their published market value.
· The fair value of the lease liability has been determined as the present value of future cash flows discounted using the Group's incremental borrowing rate.
The following financial assets and liabilities are recorded in the Consolidated Statement of Financial Position at fair value which is determined as follows:
· The fair value of interest rate derivatives is recorded in the Consolidated Statement of Financial Position and is determined by forming an expectation that interest rates will exceed strike rates and discounting these future cash flows at the prevailing market rates as at the year end.
Fair value hierarchy
The following table provides the fair value measurement hierarchy for financial assets and liabilities measured at fair value through profit or loss.
|
|
Total £'000 |
Quoted active prices (level 1) £'000 | Significant observable inputs (level 2) £'000 | Significant unobservable inputs (level 3) £'000 |
| 31 December 2021 |
|
|
|
|
| Interest rate derivatives | 1,706 | - | 1,706 | - |
|
31 December 2020 |
|
|
|
|
| Interest rate derivatives | (4,339) | - | (4,339) | - |
The different levels are defined as follows.
Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the consolidated financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each reporting period.
There have been no transfers between levels during the year.
30.2 Risk management
The Group is exposed to market risk (including interest rate risk), credit risk and liquidity risk. The Board of Directors oversees the management of these risks. The Board of Directors reviews and agrees policies for managing each of these risks that are summarised below.
30.3 Market risk
Market risk is the risk that the fair values of financial instruments will fluctuate because of changes in market prices. The financial instruments held by the Group that are affected by market risk are principally the Group's bank balances along with a number of interest rate swaps entered into to mitigate interest rate risk.
The Group's interest rate risk arises from long-term borrowings issued at variable rates, which expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group manages its cash flow interest rate risk by using floating to fixed interest rate swaps, interest rate caps and interest rate swaps. Interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Interest rate caps limit the exposure to a known level.
If interest rates were to increase by the following rates, this would increase the annual interest charge to the Group and thus reduce profits and net assets as follows:
|
Interest rate increase |
Increase to the annual interest charge | |
|
| 31 December 2021 £'000 | 31 December 2020 £'000 |
| 0.00% | - | - |
| 0.25% | 208 | 137 |
| 0.50% | 415 | 274 |
| 0.75% | 559 | 411 |
| 1.00% | 671 | 547 |
The Group's borrowings with Royal Bank of Scotland, Bank of Scotland & Barclays and Santander UK are transitioning from the London Interbank Offer Rate (LIBOR) benchmark to Sterling Overnight Index Average (SONIA) benchmark. The borrowings with RBS transitioned during the year and the Santander UK borrowings transition for the first interest payment in 2022. There is expected to be negligible cost involved in the borrowing facility transition and the respective hedge instrument amendments.
30.4 Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from both its leasing activities and financing activities, including deposits with banks and financial institutions. Credit risk is mitigated by tenants being required to pay rentals in advance under their lease obligations. The credit quality of the tenant is assessed based on an extensive credit rating scorecard at the time of entering into a lease agreement.
Outstanding trade receivables are regularly monitored. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial asset.
30.5 Credit risk related to trade receivables
Trade receivables, primarily tenant rentals, are presented in the Group's Statement of Financial Position net of provisions for impairment. Credit risk is primarily managed by requiring tenants to pay rentals in advance and performing tests around strength of covenant prior to acquisition.
30.6 Credit risk related to financial instruments and cash deposits
One of the principal credit risks of the Group arises with the banks and financial institutions. The Board of Directors believes that the credit risk on short-term deposits and current account cash balances is limited because the counterparties are banks, who are committed lenders to the Group, with high credit ratings assigned by international credit-rating agencies.
The list of bankers for the Group, with their latest Fitch credit ratings, was as follows:
| Bankers |
| Fitch Ratings |
| Barclays |
| A positive |
| Royal Bank of Scotland |
| A+ Stable |
| Bank of Scotland plc |
| A+ Stable |
| Santander UK |
| A+ Stable |
| Aviva |
| A+ Stable |
| Scottish Widows |
| A Stable |
30.7 Liquidity risk
Liquidity risk arises from the Group's management of working capital and, going forward, the finance charges and principal repayments on its borrowings. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due, as the majority of the Group's assets are investment properties and are therefore not readily realisable. The Group's objective is to ensure that it has sufficient available funds for its operations and to fund its capital expenditure. This is achieved by continuous monitoring of forecast and actual cash flows by management.
The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments:
| Group at 31 December 2021 | Within 1 year £'000 | Between 1 and 2 years £'000 | Between 2 and 5 years £'000 | After 5 years £'000 |
Total £'000 | |
|
|
|
|
|
|
| |
| Trade and other payables | (38,391) | - | - | - | (38,391) | |
| Bank borrowings | (11,333) | (11,333) | (160,167) | (274,447) | (457,280) | |
| Interest rate derivatives | (1,076) | (1,076) | (3,010) | (1,048) | (6,210) | |
| Retail eligible bonds | (2,250) | (2,250) | (52,250) | - | (56,750) | |
| Lease liability | (648) | (648) | (1,943) | (47,668) | (50,907) | |
|
|
|
|
|
|
| |
|
| (53,698) | (15,307) | (217,370) | (323,163) | (609,538) | |
|
|
|
|
|
|
| |
| Group at 31 December 2020 | Within 1 year £'000 | Between 1 and 2 years £'000 | Between 2 and 5 years £'000 | After 5 years £'000 |
Total £'000 | |
|
|
|
|
|
|
| |
| Trade and other payables | (29,575) | - | - | - | (29,575) | |
| Bank borrowings | (9,262) | (9,262) | (79,509) | (283,232) | (381,265) | |
| Interest rate derivatives | (805) | (805) | (1,898) | (1,611) | (5,119) | |
| Retail eligible bonds | (2,250) | (2,250) | (54,500) | - | (59,000) | |
| Lease liability | (618) | (618) | (1,854) | (50,346) | (53,436) | |
|
|
|
|
|
|
| |
|
| (42,510) | (12,935) | (137,761) | (335,189) | (528,395) | |
|
|
|
|
|
|
| |
The maturity dates of all bank borrowings are disclosed in note 23.
The maturity date of the retail eligible bonds is disclosed in note 24.
The range of maturity dates of the lease liability payments is between 4 and 130 years.
31. Capital management
The primary objective of the Group's capital management is to ensure that it remains a going concern and continues to qualify for UK REIT status.
The Group's capital is represented by reserves and bank borrowings. The Board, with the assistance of the Investment and Asset Managers, monitors and reviews the Group's capital so as to promote the long-term success of the business, facilitate expansion, deliver a quarterly dividend distribution and to maintain sustainable returns for Shareholders.
The Group's policy on borrowings is as follows: the level of borrowing will be on a prudent basis for the asset class and will seek to achieve a low cost of funds, while maintaining flexibility in the underlying security requirements and the structure of both the portfolio and of Regional REIT.
Based on current market conditions, the Board will target Group net borrowings of 40% of Investment Property Values at any time. However, the Board may modify the Group's borrowing policy (including the level of gearing) from time to time in light of then-current economic conditions, relative costs of debt and equity capital, fair value of the Company's assets, growth and acquisition opportunities or other factors the Board deems appropriate. The Group's net borrowings may not exceed 50% of the Investment Property Values at any time without the prior approval of Ordinary Shareholders in a General Meeting.
The optimal debt financing structure for the Group will have consideration for key metrics including: fixed or floating interest rate charged, debt type, maturity profile, substitution rights, covenant and security requirements, lender type, diversity and the lender's knowledge and relationship with the property sector.
32. Operating leases
The future minimum lease payments receivable under non-cancellable operating leases in respect of the Group's property portfolio are as follows:
|
Group | 31 December 2021 £'000 |
| 31 December 2020 £'000 |
|
|
|
|
|
| Receivable within 1 year | 56,503 |
| 50,739 |
| Receivable between 1-2 years | 43,349 |
| 38,103 |
| Receivable between 2-5 years | 56,017 |
| 57,404 |
| Receivable after 5 years | 31,267 |
| 40,102 |
|
|
|
|
|
|
| 187,136 |
| 186,348 |
|
|
|
|
|
The Group has in excess of 1,030 operating leases. The number of years remaining on these operating leases varies between 1 and 87 years. The amounts disclosed above represent total rental income receivable up to the next lease break point on each lease. If a tenant wishes to end a lease prior to the break point, a surrender premium will be charged to cover the shortfall in rental income received.
33. Segmental information
After a review of the information provided for management purposes, it was determined that the Group has one operating segment and therefore segmental information is not disclosed in these consolidated financial statements.
34. Transactions with related parties
Transactions with the Directors
Directors' remuneration is disclosed within the Remuneration Report in the full Annual Report and note 8 to the financial statements. Directors' beneficial interests in the Ordinary Shares of the Company are disclosed within the Directors' Report.
Transactions with the Asset Manager, London & Scottish Property Investment Management Limited, and the Property Manager, London & Scottish Property Asset Management Limited
Stephen Inglis is a non-executive Director of Regional REIT Limited, as well as being the chief executive officer of London & Scottish Property Investment Management Limited ("LSPIM") and a director of London & Scottish Property Asset Management Limited. The former company has been contracted to act as the Asset Manager of the Group and the latter as the Property Manager.
In consideration for the provision of services provided, the Asset Manager is entitled in each financial year (or part thereof) to 50% of an annual management fee on a scaled rate of 1.1% of the EPRA net asset value, reducing to 0.9% on net assets over £500,000,000. The fee shall be payable in cash quarterly in arrears.
In respect of each portfolio property, the Asset Manager has procured and shall, with the Company in the future, procure that London & Scottish Property Asset Management Limited is appointed as the Property Manager. A property management fee of 4% per annum is charged by the Property Manager on a quarterly basis: 31 March, 30 June, 30 September, and 31 December, based upon the gross rental yield. Gross rental yield means the rents due under the property's lease for the peaceful enjoyment of the property, including any value paid in respect of rental renunciations but excluding any sums paid in connection with service charges or insurance costs.
The Asset Manager is also entitled to a performance fee. Details of the performance fee are given below.
The following tables show the fees charged in the year and the amount outstanding at the end of the year:
|
|
Year ended 31 December 2021 £'000 |
|
Year ended 31 December 2020 £'000
|
| Asset management fees charged* | 2,326 |
| 2,579 |
| Property management fees charged* | 2,495 |
| 2,266 |
| Performance fees charged | - |
| - |
|
|
|
|
|
| Total | 4,821 |
| 4,845 |
|
|
|
|
|
|
|
|
|
|
|
| 31 December 2021 £'000 |
| 31 December 2020 £'000
|
| Total fees outstanding | 1,350 |
| 1,190 |
|
|
|
|
|
* 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 year and the amount outstanding at the end of the year:
|
|
Year ended 31 December 2021 £'000 |
|
Year ended 31 December 2020 £'000
|
| Investment management fees charged | 2,326 |
| 2,577 |
|
|
|
|
|
| Total | 2,326 |
| 2,577 |
|
|
|
|
|
|
|
|
|
|
|
| 31 December 2021 £'000 |
| 31 December 2020 £'000
|
| Total fees outstanding | 593 |
| 612 |
|
|
|
|
|
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 is assessed annually thereafter.
The performance fees are now payable 34% in cash and 66% in Ordinary Shares, at the prevailing price per share, with 50% of the Shares locked-in for one year and 50% of the Shares locked-in for two years.
No performance fee has been earned for the years ending 31 December 2021 or 31 December 2020.
35. Subsequent Events
Post 31 December 2021, the Company has disposed of separately: eight non-core properties for a total consideration of £33.5m, at a 1.3% premium to the 31 December 2021 valuation, with a net initial yield of 5.1% (6.3% excluding vacant properties).
On 24 February 2022, the Company declared the Q4 2021 dividend of 1.70pps, which will be paid to shareholders on 8 April 2022.
Company Information
Directors
Kevin McGrath (Chairman and Independent Non-Executive Director)
William Eason (Senior Independent Non-Executive Director, Nomination Committee Chairman, Management Engagement and Remuneration Committee Chairman)
Daniel Taylor (Independent Non-Executive Director)
Frances Daley (Independent Non-Executive Director, Audit Committee Chairman)
Stephen Inglis (Non-Executive Director)
Timothy Bee (Non-Executive Director)
Registered office
Regional REIT Limited
Mont Crevelt House
Bulwer Avenue
St. Sampson
Guernsey
GY2 4LH
Regional REIT Limited
ISIN: GG00BYV2ZQ34
SEDOL: BYV2ZQ3
Legal Entity Identifier: 549300D8G4NKLRIKBX73
Company website
www.regionalreit.com
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