TIDMRGL
RNS Number : 0719M
Regional REIT Limited
12 September 2023
12 September 2023
Regional REIT Limited
("Regional REIT", the "Group" or the "Company")
2023 Half Year Results
Resilient operational performance in challenging macroeconomic
conditions
Regional REIT (LSE: RGL), t he regional office specialist today
announces its half year results for the six months ended 30 June
2023.
Financial highlights:
-- Total rent collection for the period was 98.8% of rent due,
ahead of the 97.8% of rent collected for the equivalent period in
2022
-- Rent roll broadly unchanged at GBP69.8m (30 June 2022:
GBP72.0m; 31 December 2022: GBP71.8m)
-- Portfolio valuation GBP752.2m (31 December 2022: GBP789.5m).
On a like-for-like basis, portfolio value decreased by 3.8%, after
adjusting for capital expenditure and disposals during the
period.
-- Net initial yield increased to 6.1% (30 June 2022: 5.7%; 31 December 2022: 6.0%)
-- EPRA EPS of 2.5p per share ("pps") for the period (30 June
2022: EPRA EPS: 2.9p); IFRS EPS: (2.4) pps (30 June 2022: IFRS EPS
5.5pps)
-- Operating profit before gains and losses on property assets
and other investments for the period amounted to GBP20.6m (30 June
2022: GBP23.4m)
-- H1 dividend of 2.85pps (30 June 2022: 3.30pps); due to
challenging macroeconomic conditions, and in accordance with the
board's strategy, the dividend continues to be aligned with
earnings going forward
-- EPRA NTA per share 66.9pps (31 December 2022: 73.5pps); IFRS
NAV of 72.5pps (31 December 2022: 78.1pps)
-- Group's cost of debt (incl. hedging) remained low at 3.5% pa
(31 December 2022: 3.5% pa) - 100% fixed, swapped or capped
-- Weighted average debt duration 4.0 years (31 December 2022: 4.5 years)
-- Net LTV 51.9% (31 December 2022: 49.5%). Currently, a
programme of asset management initiatives and disposals are in
train to reduce LTV to the long term target of 40%.
Operational highlights:
-- Good EPC progress continues with the Group weighted average
EPC score improving to C 70 (31 December 2022: C 73)
-- At the period end, 92.0% (31 December 2022: 91.8%) of the
portfolio by valuation was offices, 3.5% retail (31 December 2022:
3.6%), 3.0% industrial (31 December 2022: 3.1%) and 1.5% other (31
December 2022:1.4%)
-- By income, office assets accounted for 91.4% of gross rental
income (30 June 2022: 91.5%; 31 December 2022: 91.5%) and 4.6%
(June 2022: 4.5%, December 2022: 4.5%) was retail. The balance was
made up of industrial, 2.7% (June 2022: 2.6%, December 2022: 2.6%),
and other, 1.4% (June 2022: 1.5%, December 2022: 1.3%)
-- Portfolio remained diversified with 150 properties (31
December 2022: 154), 1,535 units (31 December 2022: 1,552) and
1,038 tenants (31 December 2022: 1,076)
-- The Group made disposals amounting to GBP14.6m (before costs)
during the period, yielding 2.4% (9.4% excluding vacant assets).
The proceeds have since been used in part to reduce borrowing and
fund capital expenditure.
-- At the period end, the portfolio valuation split by region
was as follows: England 78.4% (31 December 2022: 78.3%), Scotland
16.4% (31 December 2022: 16.7%) and the balance of 5.1% (31
December 2022: 5.0%) was in Wales.
-- EPRA Occupancy rate of 82.5% (31 December 2022: 83.4%)
-- During the period, the Company completed 45 new lettings.
When fully occupied, these will provide an additional gross rental
income of c.GBP1.2m per annum ("pa"), 13.5% above December 2022
ERV.
Post-Period end highlights:
-- On 12 September 2023, the Company declared the Q2 2023
dividend of 1.20pps (Q2 2022 dividend: 1.65pps), for the period 1
April 2023 to 30 June 2023, to be paid to shareholders on 19
October 2023.
Stephen Inglis, CEO of London and Scottish Property Investment
Management, the Asset Manager, commented:
"It has been another challenging period for the commercial real
estate sector as rapidly rising interest rates continued to impact
valuations. During the six months to 30 June 2023, the Company's
portfolio valuation declined on a like-for-like basis by 3.8%,
after adjusting for disposals and capital expenditure,
outperforming the MSCI UK regional office benchmark, which saw a
decline of 7.2% over the same period. This has resulted in the
increase of the Company's loan to value to 51.9%. Thanks to the
defensive debt positioning being 100% fixed, swapped or capped, the
weighted average cost of debt remains at 3.5%. The Asset Manager
continues to implement its active asset management strategy,
including a programme of asset sales to reduce net borrowings back
to the Company's long term c.40% target.
"With the challenging economic backdrop our net rental income
has been adversely impacted by higher non-recoverable property
costs and lower income from lease surrender, dilapidations payments
and other income. As such the Board continues to align the dividend
with earnings and has today declared the Q2 2023 dividend of
1.20pps.
"As we look ahead, we remain wholly committed to reducing the
LTV, improving occupancy and the portfolio's weighted average EPC
rating as we actively manage the portfolio. We look forward to
updating shareholders on our progress at the next juncture."
-S -
Enquiries:
Regional REIT Limited
Toscafund Asset Management Tel: +44 (0) 20 7845
6100
Investment Manager to the Group
Adam Dickinson, Investor Relations, Regional
REIT Limited
London & Scottish Property Investment Tel: +44 (0) 141
Management 248 4155
Asset Manager to the Group
Stephen Inglis
Buchanan Communications Tel: +44 (0) 20 7466
5000
Financial PR regional@buchanan.uk.com
Charles Ryland /Henry Wilson / George Beale
About Regional REIT
Regional REIT Limited ("Regional REIT" or the "Company") and its
subsidiaries(1) (the "Group") is a United Kingdom ("UK") based real
estate investment trust that launched in November 2015. It is
managed by London & Scottish Property Investment Management
Limited, the Asset Manager, and Toscafund Asset Management LLP, the
Investment Manager.
Regional REIT's commercial property portfolio is comprised
wholly of UK assets, offices located in regional centres outside of
the M25 motorway. The portfolio is geographically diversified, with
150 properties, 1,535 units and 1,038 tenants as at 30 June 2023,
with a valuation of GBP752.2 million.
Regional REIT pursues its investment objective by investing in,
actively managing and disposing of regional Core Property and Core
Plus Property assets. It aims to deliver an attractive total return
to its Shareholders, targeting greater than 10% per annum ("pa"),
with a strong focus on income supported by additional capital
growth prospects.
For more information, please visit the Group's website at
www.regionalreit.com .
KEY FINANCIALS
Period ended 30 June 2023
30 31
June December
2023 2022
Portfolio Valuation GBP752.2m GBP789.5m
IFRS NAV per Share 72.5p 78.1p
EPRA* NTA per Share 66.9p 73.5p
EPRA* earnings per Share 2.5p 2.9p
Dividend per Share 2.85p 3.3p
Net Loan to Value Ratio** 51.9% 49.5%
Weighted Average Cost of Debt** 3.5% 3.5%
Weighted Average Debt Duration** 4.0 yrs 4.5 yrs
The European Public Real Estate Association ("EPRA")*
The EPRA's mission is to promote, develop and represent the
European public real estate sector. As an EPRA member, we fully
support the EPRA Best Practices Recommendations. Specific EPRA
metrics can be found in the Company's financial and operational
highlights, with further disclosures and supporting calculations in
the full Half Year Report.
* The European Public Real Estate Association (EPRA)
** Alternative Performance Measures. Details are provided in the
Glossary of Terms in the full Half-Year Report and the EPRA
Performance Measures below.
CHAIRMAN'S STATEMENT
"99% of tenants having returned to the office and rent
collections remaining strong"
Kevin McGrath
Chairman
Overview
I am pleased to report the Group's results for the six months to
30 June 2023, with 99% of our tenants having returned to the office
and rent collections remaining strong.
The Company has a clear strategy of being the office provider of
choice in the regions outside of London,
offering vibrant places to help tenants thrive at all stages of
their business cycle with tailored offerings to match their
requirements. By utilising the specialised Asset Manager's platform
and with its extensive experience in the regions of the UK, the
Company continues to work hard to deliver a robust income stream
and long-term capital growth, whilst encompassing a sustainable
approach. The portfolio weighted average EPC continued to improve
to C 70 from C 73 as at 31 December 2022.
The challenging macroeconomic environment continued to affect
all commercial real estate sectors, with a like- for-like decline
in value of 3.8%, after adjusting for capital expenditure,
acquisitions and disposals during the period. However, the
portfolio outperformed versus a decline of 7.2% MSCI UK regional
office values during the period. During the six months to 30 June
2023, disposals of non-core assets amounted to GBP14.1 million (net
of costs) reflecting a net initial yield of 2.4% (9.4% excluding
vacant properties) with no acquisitions in the period. The
programme of disposals reflects our focus upon de-risking the
offering in the short to medium term. The rolling capital
expenditure programme amounted to GBP6.7 million.
Rent collection remained strong throughout the period to 30 June
2023. Currently, rent collection for the period to 30 June 2023
amounted to 98.8% (equivalent period for the six months to 30 June
2022 97.8%), however, operational costs continue to be impacted by
inflationary pressures and resulted in an EPRA diluted earnings of
2.5 pence per share ("pps") (six months to 30 June 2022: 2.9pps).
IFRS diluted earnings per share were (2.4pps) (six months to 30
June 2022: 5.5pps).
Financial Resources
As at 30 June 2023 the EPRA* NTA amounted to GBP344.9 million
(31 December 2022: GBP379.2 million) and a cash balance of GBP41.2
million (31 December 2022: GBP50.1 million), of which GBP26.0
million is unrestricted (31 December 2022: GBP37.8 million).
The defensive debt positioning continues to mitigate rate
volatility. The borrowings are comprised of a 56.4% fixed rate
debt, with the balance being swapped or capped. This proactive and
defensive approach ensured that the weighted average cost of debt
remained 3.5% at 30 June 2023 (31 December 2022: 3.5%), with no
requirement to refinance until August 2024.
The net loan-to-value at 30 June 2023 amounted to 51.9% (31
December 2022: 49.5%). The Asset Manager continues to implement its
active asset management strategy and disposal programme with the
ambition of promptly reducing the net borrowings back to the
Company's long term c.40% target.
* Alternative Performance Measures. Details are provided in the
Glossary of Terms in the full Half Yearly Report and the EPRA
Performance Measures below.
Sustainability
We continue to focus upon sustainability within our business
model with the continued membership of UK Green Building Council,
Better Buildings Partnership, EPRA sustainability benchmarking and
the Global Real Estate Sustainability Benchmark (GRESB). We look
forward to providing a positive update on our GRESB accreditation
in due course.
Market Environment
The UK regions outside of London attracted GBP3.0 billion in Q2
2023, 2.3% above the previous quarter, but 31.6% lower than the
five-year quarterly average. Investment in Q2 brought the H1 2023
total to GBP6.0 billion, 28.0% above the level recorded during the
first lockdown due to the Covid-19 pandemic. Research by Lambert
Smith Hampton ("LSH") highlights the importance of the regional
markets, with the regions outperforming when compared with London.
At GBP3.0 billion, investment in single assets across the UK
regional markets in Q2 2023 was 26.3% higher than the level of
investment in Greater London - well above the five-year quarterly
average margin of 0.6%. Two regions that experienced robust levels
of investment in Q2 2023 were the West Midlands and the South East.
Total investment in the West Midlands reached GBP0.6 billion, 10.8%
above the five-year quarterly average - the strongest regional
performance relative to trend. Data from LSH shows that GBP0.5
billion was invested in the South East. Other regional markets that
performed well relative to trend include Scotland and the North
West of England.
The most recent data from LSH shows that investment in UK
commercial property totalled GBP15.7 billion in the first half of
2023. Although Q2 2023 volumes were 10.6% below Q1 figures, the
number of deals increased by approximately 9.0% over the same
period. The most recent Office of National Statistics figures show
that UK inflation dropped to 6.8% in the year to July, from 7.9% in
June. As a result, LSH predict that there will be a considerable
rise in investment volumes, if not in the final quarter of 2023,
then at the beginning of 2024.
Investment volumes in the UK regional office market reached
GBP0.8 billion in Q2 2023, 27.8% higher than the previous quarter.
Overall, investment in regional offices reached GBP1.4 billion in
H1 2023. Although investment in regional offices in the first half
of 2023 was 43.4% below trend, optimism in the regional markets
continues to be supported by strong employment growth and a fall in
the number of employees exclusively working from home. The most
recent data from the ONS shows that the UK employment rate rose to
76.0% in the three months to May 2023, up 0.1% for the same period
in 2022. Additionally, data from the ONS shows that despite the
rise in hybrid working as a result of Covid-19, the vast majority
of people do not work from home, with 56.0% of employees reporting
that they exclusively travel to the office and only 16.0% of
workers reporting that they worked exclusively from home - down
from 26% in mid-January 20222.
Dividends
For the period under review, the Company declared total
dividends of 2.85pps (six months to June 2022: 3.30pps), comprising
one quarterly dividends of 1.65pps and one quarterly dividend of
1.20pps.
Given the challenging economic backdrop, inflationary pressures
continue to impact the net rental income and the cost base. As such
the Board continues to align the dividend with earnings, with the
priority remaining to offer an attractive dividend to
shareholders.
Asset Manager Update
As announced on the 13 April 2023, ARA Asset Management Ltd.
acquired a majority shareholding
stake in the Asset Manager, London & Scottish Property
Investment Management, with Stephen Inglis retaining a significant
minority interest. The day-to-day asset management team remains
unchanged and are now supported by the resources of a large global
real estate platform, therefore shareholders can be reassured that
the Asset Manager capabilities have been strengthened.
Subsequent Events
On 11 September 2023, the Board of Directors approved a dividend
of 1.20 pence per Share in respect of the period 1 April 2023 to 30
June 2023 for announcement on 12 September 2023. The dividend will
be paid on 19 October 2023 to Shareholders on the register as at 22
September 2023. These condensed consolidated financial statements
do not reflect this dividend.
Performance
For the period under review, the Company's Total Shareholder
Return was -18.5%, versus the return of
-10.3% for the FTSE EPRA NAREIT UK Total Return Index over the
same period.
Since listing on 6 November 2015, the Company's EPRA Total
Return was 20.8% and the annualised EPRA Total Return was 2.5%.
Total Shareholder Return was -14.8%, compared with the FTSE EPRA
NAREIT UK Total Return Index, which has generated a return of
-23.7% over the same period.
Since listing on 6 November 2015, the Company's EPRA Total
Return was 20.8% and the annualised EPRA Total Return was 2.5%.
Total Shareholder Return was -14.8%, compared with the FTSE EPRA
NAREIT UK Total Return Index, which has generated a return of
-23.7% over the same period.
Board And Governance
William Eason, Senior Independent Non-Executive Director and Tim
Bee, Non-Executive Director stepped
down from the Board at the 2023 AGM. The Board thanks both Mr
Eason and Mr Bee for their invaluable input and commitment to the
Company over their tenures and wishes them well in their future
endeavours.
Daniel Taylor was appointed as Senior Non-Executive Director and
Massy Larizadeh was appointed Chairman of the Management Engagement
and Remuneration Committee and the Nomination Committee with effect
from 25 May 2023.
Outlook
Although the recent outlook for the UK economy has improved, the
Board remains vigilant to the continued macroeconomic uncertainty
over the short term. The Company has continued to perform well
operationally and has delivered against the controllable factors.
We continue to see significant opportunities for value creation
over the long-term.
Kevin McGrath
Chairman
11 September 2023
ASSET AND INVESTMENT MANAGERS' REPORT
"It has been another challenging period for the commercial real
estate sector as rapidly rising interest rates continued to impact
valuations. During the six months to 30 June 2023, the Company's
portfolio valuation declined on a like-for-like basis by 3.8%,
after adjusting for capital expenditure and disposals, albeit
significantly outperforming the MSCI UK regional office benchmark,
which saw a decline of 7.2% over the same period. This in turn
increased the Company's Loan to Value ("LTV") to 51.9%, whilst the
weighted average cost of debt remained at 3.5% thanks to the
defensive positioning and high rate of fixed, swapped or capped
debt. The Asset Manager continues to implement its active asset
management strategy, including a programme of asset sales to reduce
net borrowings back to the Company's long term c.40% target.
The Company's operational performance during the period remained
robust, thanks to our high-quality blue- chip tenant base, which is
diversified by both sector and geography, leading to rent
collection of 98.8% and rental income totalling GBP69.8m.
As we look ahead to the remainder of 2023, we remain wholly
committed to reducing the LTV, and improving the portfolio's
weighted average EPC rating as we actively manage the portfolio. We
look forward to updating Shareholders on our progress at the next
juncture."
Stephen Inglis
CEO of London & Scottish Property Investment Management,
Asset Manager
Investment Activity in the UK Commercial Property Market
Investment in the UK commercial property market totalled GBP54.1
billion in 2022, according to research from LSH. However, due to
the impact of further interest rate hikes as a result of continuing
inflation, investment was more subdued in the first two quarters of
2023 due to more prolonged uncertainty. The most recent data from
LSH shows that investment in UK commercial property reached GBP15.7
billion in the first half of 2023. Although Q2 2023 volumes were
10.6% below Q1 figures, the number of deals increased by
approximately 9.0% over the same period. That said, financial
markets have begun to settle following news that inflation slowed
substantially to its lowest annual rate since March 2022. The most
recent ONS figures show that UK inflation dropped to 6.8% in the
year to July, from 7.9% in June, ahead of forecasts which predicted
a fall to 8.2%. As a result, LSH predict that there will be a
considerable rise in investment volumes, if not in the final
quarter of 2023, then at the beginning of 2024.
The UK regions outside of London attracted GBP3.0 billion in Q2
2023, 2.3% above the previous quarter, but 31.6% lower than the
five-year quarterly average. Investment in Q2 brought the H1 2023
total to GBP6.0 billion, 28.0% above the level recorded during the
first lockdown due to the Covid-19 pandemic. Research by LSH
highlights the importance of the regional markets, with the regions
outperforming when compared with London. At GBP3.0 billion,
investment in single assets across the UK regional markets in Q2
2023 was 26.3% higher than the level of investment in Greater
London - well above the five-year quarterly average margin of 0.6%.
Two regions that experienced robust levels of investment in Q2 2023
were the West Midlands and the South East. Total investment in the
West Midlands reached GBP0.6 billion, 10.8% above the five-year
quarterly average - the strongest regional performance relative to
trend. Data from LSH shows that GBP0.5 billion was invested in the
South East. Other regional markets that performed well relative to
trend include Scotland and the North West of England.
Investment volumes in the UK regional office market reached
GBP0.8 billion in Q2 2023, 27.8% higher than the previous quarter.
Overall, investment in regional offices reached GBP1.4 billion in
H1 2023. Although investment in regional offices in the first half
of 2023 was 43.4% below trend, optimism in the regional markets
continues to be supported by strong employment growth and a fall in
the number of employees exclusively working from home. The most
recent data from the ONS shows that the UK employment rate rose to
76.0% in the three months to May 2023, up 0.1% for the same period
in 2022(1) . Additionally, data from the ONS shows that despite the
rise in hybrid working as a result of Covid-19, the vast majority
of people do not work from home, with 56.0% of employees reporting
that they exclusively travel to the office and only 16.0% of
workers reporting that they worked exclusively from home - down
from 26% in mid- January 2022(2) .
1 ONS, Labour Market Overview, UK, July 2023
2 ONS, Opinions and Lifestyle Survey, February 2023
Overseas investment in the UK commercial property market
accounted for 54.5% of total investment in Q2 2023 and drove
overall investment at the larger end of the market, accounting for
78.6% of the GBP100m plus deals in Q2 2023. Figures indicate that
overseas investment reached GBP4.0 billion in Q2 2023, despite
being 3.6% higher than the previous quarter, overseas investment
was 35.8% below the five-year quarterly average. International
investment in the second quarter of the year brought the H1 2023
total to GBP7.9 billion. However, overseas investment was largely
supported by the North American buyers - the only net buyer of UK
commercial property in Q2 2023, which accounted for approximately
62.0% of all overseas investment. LSH research suggests that North
American investors were the most acquisitive net buyers at GBP2.5
billion. Conversely, inflows from Far East and European investors
stood at only one third of the quarterly average.
Occupational Demand in the UK Regional Office Market
Avison Young estimate that take-up of office space across the
nine regional markets (3) reached 1.6 million sq. ft. in Q2 2023,
bringing the half year total to 3.3 million sq. ft., 3.6% below the
five year average take-up for the first six months of the year.
City centre activity accounted for the largest proportion of
take-up (58.5%) in H1 2023 at 1.9 million sq. ft. However, when
comparing this to previous years, city centre take-up as a
proportion of total take-up has steadily declined from a high of
63.8% in 2019. In the first half of 2023 approximately 1.4 million
sq. ft. was transacted in the out of town market, 3.0% above the
five year average, and accounting for 41.5% of total H1 2023
take-up - the highest proportion recorded over the last decade (4)
. The Asset Manager believes that there is scope for take-up to
increase throughout the remainder of 2023 as there continues to be
a drive among employers to get more workers back into the office in
order to increase productivity. Additionally, many of the large
tech companies like Google, Amazon, Zoom and Lyft have moved away
from fully remote working, with some mandating at least three days
in the office. Meanwhile, JP Morgan and Goldman Sachs have
curtailed remote working. Furthermore, encouraging research from
the Centre for Cities (5) think tank suggests that in the next two
years, working five days a week from the office will become the
norm again.
Occupational demand in the regional office markets continued to
be driven by the professional services sector, which accounted for
the highest proportion of take-up at 16.9% in the first six months
of 2023. Moreover, public services, education & health, and
technology, media & telecoms sectors accounted for the second
and third largest proportion of take-up in the regional cities,
accounting for 18.4% and 14.7%, respectively (6) . Savills research
indicates that although office market sentiment is going through a
period of change, the same key sectors continue to drive demand for
UK office stock as the three most active sectors prior to the
Covid-19 pandemic remain in the top three in the first half of
2023.
According to Savills, there was a rise in availability for
regional office stock across ten regional UK markets (7) , with
total availability in H1 2023 to 15.3 million sq. ft. Despite the
uptick in availability in the first half of 2023 supply across the
ten regional markets remains 1.2% below the long-term average.
In terms of speculative development, it is estimated that
approximately 3.7 million sq. ft. of office space is currently
under construction in the Big Nine regional markets, down from 4.7
million sq. ft. for the same period last year, with Manchester,
Bristol, and Glasgow accounting for 25.3%, 18.4% and 17.2%,
respectively. Approximately 30.7% of office buildings currently
under construction are already pre-let.
3 Nine regional office markets mentioned by Avison Young
include: Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds,
Liverpool, Manchester, Newcastle
4 Avison Young, The Big Nine, Q2 2023
5 Centre for Cities, Office Politics, May 2023
6 Savills, The Regional Office Market Review, Q2 2023
7 Ten regional office markets mentioned by Savills includes:
Aberdeen, Birmingham, Bristol, Cambridge, Cardiff, Edinburgh,
Glasgow, Leeds, Manchester, and Oxford
Rental Growth in the UK Regional Office Market
According to monthly data from MSCI, rental value growth held up
well for the rest of UK office markets in the 12 months ended June
2023 with growth of 2.7%. Conversely, central London offices
experienced modest growth of 1.3% over the same period. The most
recent figures from MSCI shows that there is evidence of sustained
rental growth in the majority of the regional office markets. By
region, the strongest regional rental growth in June (year-on-year
comparison) was recorded in the South West of England at 3.3% (8) .
Avison Young expects rental growth to continue across most markets
for the remainder of 2023 and into 2024. Demand for quality office
space has put an upward pressure on rents, with growth of 4.3%
recorded across the Big Nine regional markets in the first half of
2023, with average headline rents now sitting at GBP35.39 per sq.
ft., according to research from Avison Young.
8 Colliers International, Property Snapshot, June 2023
Regional REIT's Office Assets
EPRA occupancy of the Group's regional offices as at 30 June
2023 was 81.6% (30 June 2022: 83.3%). A like-for- like comparison
of the Group's regional offices EPRA occupancy, 30 June 2023 versus
30 June 2022, shows occupancy of 81.6% (30 June 2022: 84.7%).
WAULT to first break was 2.8 years (30 June 2022: 2.6 years);
like-for-like WAULT to first break was 2.8 years (30 June 2022: 2.6
years).
Property Portfolio
As at 30 June 2023, the Group's property portfolio was valued at
GBP752.2 million (30 June 2022: GBP918.2 million; 31 December 2022:
GBP789.5 million), with rent roll of GBP69.8 million (30 June 2022:
GBP72.0 million; 31 December 2022: GBP71.8 million), and an EPRA
occupancy rate of 82.5% (30 June 2022: 83.8%; 31 December 2022:
83.4%). On a like-for-like basis, 30 June 2023 versus 30 June 2022
EPRA occupancy was 82.5% (30 June 2022: 85.2%).
There were 150 properties (30 June 2022: 159; 31 December 2022:
154), in the portfolio, with 1,535 units (30 June 2022: 1,517; 31
December 2022: 1,552) and 1,038 tenants (30 June 2022: 1,086; 31
December 2022: 1,076). If the portfolio was fully occupied at
Colliers view of market rents, the rental income would be GBP88.9
million per annum (30 June 2022: GBP94.1 million; 31 December 2022:
GBP92.0
million).
As at 30 June 2023, the net initial yield on the portfolio was
6.1% (30 June 2022: 5.7%; 31 December 2022: 6.0%), the equivalent
yield was 9.5% (30 June 2022: 8.6%; 31 December 2022: 9.0%) and the
reversionary yield was 10.4% (30 June 2022: 9.2%; 31 December 2022:
10.2%).
Property Portfolio by Sector as at 30 June 2023
Sector WAULT
to Gross
Sq. Occupancy first rental Average Capital
Valuation ft. (EPRA) break income rent ERV rate Yield
EPRA
Net
% by initial Equivalent Reversionary
Properties (GBPm) valuation (m) (%) (yrs) (GBPm) (GBPpsf) (GBPm) (GBPpsf) (%) (%) (%)
Office 125 692.3 92.0 5.6 81.6 2.8 63.7 14.60 83.0 123.92 6.0 9.6 10.5
Retail 18 26.4 3.5 0.3 93.1 3.8 3.2 11.16 2.9 79.69 9.3 9.5 9.6
Industrial 4 22.3 3.0 0.4 97.0 5.5 1.9 5.27 2.1 53.17 6.5 7.6 8.0
Other 3 11.2 1.5 0.1 100.0 9.8 1.0 15.57 0.9 116.20 7.3 8.7 7.1
------------- ------------ ---------- ----------- ----- ---------- ------- -------- ---------- -------- ---------- -------- ------------ --------------
Total 150 752.2 100.0 6.4 82.5 3.0 69.8 13.76 88.9 116.91 6.1 9.5 10.4
------------- ------------ ---------- ----------- ----- ---------- ------- -------- ---------- -------- ---------- -------- ------------ --------------
Property
Portfolio
by Region
as at 30
June 2023
WAULT
to Gross
Sq. Occupancy first rental Average Capital
Valuation ft. (EPRA) break income rent ERV rate Yield
EPRA
Net
% by initial Equivalent Reversionary
Region Properties (GBPm) valuation (m) (%) (yrs) (GBPm) (GBPpsf) (GBPm) (GBPpsf) (%) (%) (%)
Scotland 36 123.7 16.4 1.2 76.9 4.8 11.5 13.66 17.5 101.93 5.6 10.0 11.4
South East 26 138.9 18.5 0.9 82.9 2.4 12.4 16.24 15.6 147.98 5.8 9.1 9.9
North East 23 122.1 16.2 1.0 80.3 3.2 10.5 12.75 13.7 117.52 5.8 9.5 10.4
Midlands 26 151.4 20.1 1.4 86.5 2.9 15.0 13.05 17.9 107.76 6.2 9.4 10.3
North West 19 103.0 13.7 0.9 75.7 2.2 9.4 13.55 12.3 110.99 5.8 9.7 10.6
South West 14 74.6 9.9 0.5 91.9 2.1 7.1 16.83 7.9 157.48 7.8 9.3 9.7
Wales 6 38.5 5.1 0.4 97.0 3.8 3.8 10.23 4.0 88.34 7.6 8.8 9.0
------------- ------------ ---------- ----------- ----- ---------- ------- -------- ---------- -------- ---------- -------- ------------ --------------
Total 150 752.2 100.0 6.4 82.5 3.0 69.8 13.76 88.9 116.91 6.1 9.5 10.4
------------- ------------ ---------- ----------- ----- ---------- ------- -------- ---------- -------- ---------- -------- ------------ --------------
Tables may not sum due to rounding.
Top 15 Investments (market value) as at 30 June 2023
Annualised % of WAULT
Market EPRA gross gross to
value % of Lettable Occupancy rent rental first
(GBPm) portfolio area (%) (GBPm) income break
------------ ------------ ---------------- ------- ---------- ---------- ---------- ----------- ------- ------
University
of Glasgow,
Glasgow
Tay House
Centre
Ltd, Fairhurst
Group LLP,
London
& Scottish
300 Bath Property
Street, Investment
Glasgow Office Management 21.4 2.8% 156,853 87.6% 1.2 1.8% 2.4
------------ ------------ ---------------- ------- ---------- ---------- ---------- ----------- ------- ------
Eagle
Court, Virgin
Coventry Media Ltd,
Road, Rexel UK
Birmingham Office Ltd 20.2 2.7% 132,979 67.6% 1.6 2.3% 0.6
------------ ------------ ---------------- ------- ---------- ---------- ---------- ----------- ------- ------
Aviva Central
Services
UK
Ltd, Lloyd's
Register
EMEA,
Complete
Fertility
Ltd,
Hampshire National
Corporate Westminster
Park, Bank
Eastleigh Office Plc 19.8 2.6% 84,043 100.0% 1.7 2.4% 3.5
------------ ------------ ---------------- ------- ---------- ---------- ---------- ----------- ------- ------
Metropolitan
Housing
Trust
Ltd, SMS
Electronics
Ltd,
Heart Internet
Beeston Ltd, SMS
Business Product
Park, Office/ Services
Nottingham Industrial Ltd 17.2 2.3% 215,330 100.0% 1.4 2.0% 5.1
------------ ------------ ---------------- ------- ---------- ---------- ---------- ----------- ------- ------
NNB Generation
Company
800 Aztec (HPC) Ltd,
West, Edvance
Bristol Office SAS 16.5 2.2% 73,292 100.0% 1.5 2.2% 0.9
------------ ------------ ---------------- ------- ---------- ---------- ---------- ----------- ------- ------
Chiesi
Ltd, Ingredion
UK
Ltd, Assetz
SME Capital
Ltd,
Contemporary
Manchester Travel
Green, Solutions
Manchester Office Ltd 16.5 2.2% 107,760 79.1% 1.4 2.0% 3.1
------------ ------------ ---------------- ------- ---------- ---------- ---------- ----------- ------- ------
First Source
Solutions
UK
Ltd, DHU
Orbis Health
1, 2 & Care C.I.C.,
3, Pride Tentamus
Park, Pharma
Derby Office (UK) Ltd 16.2 2.1% 121,883 100.0% 1.8 2.6% 3.9
------------ ------------ ---------------- ------- ---------- ---------- ---------- ----------- ------- ------
Global
Norfolk Banking
House, School
Smallbrook Ltd,
Queensway, Accenture
Birmingham Office (UK) Ltd 15.3 2.0% 115,780 97.7% 1.4 1.9% 6.8
------------ ------------ ---------------- ------- ---------- ---------- ---------- ----------- ------- ------
IMServ
Europe
Ltd, Market
Linford Force
Wood Information
Business (Europe)
Park, Ltd, Aztech
Milton IT Solutions
Keynes Office Ltd 15.2 2.0% 107,352 91.1% 1.5 2.1% 2.1
------------ ------------ ---------------- ------- ---------- ---------- ---------- ----------- ------- ------
Hermes
Parcelnet
Capitol Ltd, BDW
Park, Trading
Leeds Office Ltd 13.4 1.8% 98,340 45.9% 0.7 1.0% 4.6
------------ ------------ ---------------- ------- ---------- ---------- ---------- ----------- ------- ------
Evolution
Money Group
Ltd,
Mott MacDonald
Ltd, NCG
Portland (Manchester)
Street, Ltd, Simard
Manchester Office Ltd 12.9 1.7% 55,787 95.9% 1.1 1.5% 2.4
------------ ------------ ---------------- ------- ---------- ---------- ---------- ----------- ------- ------
Please
Hold (UK)
Ltd,
A.M.London
Fashion
Ltd,
CVS
(Commercial
Valuers
Oakland &
House, Surveyors)
Manchester Office Ltd 12.9 1.7% 161,502 78.5% 1.0 1.5% 2.1
------------ ------------ ---------------- ------- ---------- ---------- ---------- ----------- ------- ------
The Scottish
Ministers,
The
Scottish
Sports
Council,
Templeton Noah
On The Beers Ltd,
Green, The Wise
Glasgow Office Group 12.0 1.6% 142,520 92.7% 1.3 1.9% 3.9
------------ ------------ ---------------- ------- ---------- ---------- ---------- ----------- ------- ------
Knights
Professional
Services
Ltd, DMH
Stallard
LLP,
Spirent
Communications
Plc,
Origin Travelopia
1 & 2, Holdings
Crawley Office Ltd 11.7 1.6% 45,855 100.0% 1.1 1.6% 1.5
------------ ------------ ---------------- ------- ---------- ---------- ---------- ----------- ------- ------
Utmost
Life and
Pensions
Ltd,
Buildings Musarubra
2, Bear UK Subsidiary
Brook 3
Office Ltd, Agria
Park, Pet Insurance
Aylesbury Office Ltd 11.3 1.5% 61,642 94.5% 1.0 1.5% 4.0
------------ ------------ ---------------- ------- ---------- ---------- ---------- ----------- ------- ------
Total 232.4 30.9% 1,680,918 87.4% 19.8 28.4% 3.1
-------------------------------------------- ------- ---------- ---------- ---------- ----------- ------- ------
Tables may not sum due to rounding
Top 15 Tenants (share of rental income) as at 30 June 2023
%
of
WAULT Annualised gross
to first Lettable gross rental
break area rent income
--------
Tenant Property Sector (years) (Sq. (GBPm)
Ft)
------------------- -------------------------- ----------------------- ---------- --------- ----------- --------
Eagle Court, Birmingham
Virgin Media Southgate Park, Information
Ltd Peterborough and communication 0.7 107,830 1.8 2.5%
------------------- -------------------------- ----------------------- ---------- --------- ----------- --------
Electricity,
gas, steam
Shell Energy Columbus House, and air conditioning
Retail Ltd Coventry supply 0.5 53,253 1.4 2.0%
------------------- -------------------------- ----------------------- ---------- --------- ----------- --------
1 Burgage Square,
Merchant Square,
Wakefield
Albert Edward House,
Preston
Bennett House,
Secretary of Stoke-On-Trent
State for Oakland House,
Communities & Manchester
Local Waterside Business
Government Ltd Park, Swansea Public sector 4.1 108,915 1.1 1.5%
------------------- -------------------------- ----------------------- ---------- --------- ----------- --------
Electricity,
gas, steam
Endeavour House, and air conditioning
EDF Energy Ltd Sunderland supply 7.2 77,565 1.0 1.5%
------------------- -------------------------- ----------------------- ---------- --------- ----------- --------
Administrative
First Source and
Solutions Orbis 1, 2 & 3, support service
UK Ltd Pride Park, Derby activities 3.8 62,433 1.0 1.4%
------------------- -------------------------- ----------------------- ---------- --------- ----------- --------
Electricity,
gas, steam
Two Newstead Court, and air conditioning
E.ON UK Plc Nottingham supply 1.8 99,142 0.9 1.4%
------------------- -------------------------- ----------------------- ---------- --------- ----------- --------
Professional,
scientific
John Menzies 2 Lochside Avenue, and technical
Plc Edinburgh activities 0.1 43,780 0.9 1.3%
------------------- -------------------------- ----------------------- ---------- --------- ----------- --------
Electricity,
NNB Generation gas, steam
Company (HPC) 800 Aztec West, and air conditioning
Ltd Bristol supply 0.7 41,743 0.9 1.2%
------------------- -------------------------- ----------------------- ---------- --------- ----------- --------
Global Banking
School
Ltd Norfolk House, Birmingham Education 9.4 44,245 0.8 1.2%
------------------- -------------------------- ----------------------- ---------- --------- ----------- --------
Professional,
SPD Development scientific
Co Clearblue Innovation and technical
Ltd Centre, Bedford activities 2.3 58,167 0.8 1.2%
------------------- -------------------------- ----------------------- ---------- --------- ----------- --------
Aviva Central
Services Hampshire Corporate Other service
UK Ltd Park, Eastleigh activities 1.4 42,612 0.8 1.1%
------------------- -------------------------- ----------------------- ---------- --------- ----------- --------
Information
Odeon Cinemas Kingscourt Leisure and
Ltd Complex, Dundee communication 12.3 41,542 0.8 1.1%
------------------- -------------------------- ----------------------- ---------- --------- ----------- --------
1175 Century Way,
Thorpe Park, Leeds
Albert Edward House,
Preston
Fairfax House,
Wolverhampton
lll Acre, Princeton
Drive, Stockton
On Tees
Southgate Park, Human health
Peterborough and
The Foundation Chester social work
SpaMedica Ltd Business Park, Chester activities 2.9 50,656 0.7 1.0%
------------------- -------------------------- ----------------------- ---------- --------- ----------- --------
Electricity,
gas, steam
800 Aztec West, and air conditioning
Edvance SAS Bristol supply 1.1 31,549 0.7 1.0%
------------------- -------------------------- ----------------------- ---------- --------- ----------- --------
Compass House, Dundee
Quadrant House,
Care Inspectorate Dundee Public sector 4.8 51,852 0.7 1.0%
------------------- -------------------------- ----------------------- ---------- --------- ----------- --------
Total 3.3 915,284 14.2 20.3%
------------------------------------------------------------------------ ---------- --------- ----------- --------
Table may not sum due to rounding
PROPERTY PORTFOLIO SECTOR AND REGION SPLITS BY VALUATION AND
INCOME AS AT 30 JUNE 2023
By Valuation
As at 30 June 2023, 92.0% (June 2022: 92.0%, December 2022:
91.8%) of the portfolio by market value was offices and 3.5% (June
2022: 3.5%, December 2022: 3.6%) was retail. The balance was made
up of industrial, 3.0% (June 2022: 3.1%, December 2022: 3.1%) and
other, 1.5% (June 2022: 1.4%, December 2022: 1.4%). By UK region,
as at 30 June 2023, Scotland represented 16.4% (June 2022: 16.9%,
December 2022: 16.7%) of the portfolio and England 78.4% (June
2022: 78.3%, December 2022: 78.3%) the balance of 5.1% (June 2022:
4.8%, December 2022: 5.0%) was in Wales. In England, the largest
regions were the Midlands, South East and the North East.
By Income
As at 30 June 2023, 91.4% (June 2022: 91.5%, December 2022:
91.5%) of the portfolio by income was offices and 4.6% (June 2022:
4.5%, December 2022: 4.5%) was retail. The balance was made up of
industrial, 2.7% (June 2022: 2.6%, December 2022: 2.6%), and other,
1.4% (June 2022: 1.5%, December 2022: 1.3%). By UK region, as at 30
June 2023, Scotland represented 16.5% (June 2022: 17.6%, December
2022: 16.5%) of the portfolio and England 78.0% (June 2022: 77.1%,
December 2022: 78.2%); the balance of 5.5% was in Wales (June 2022:
5.3%, December 2022: 5.3%). In England, the largest regions were
the Midlands, the South East and the North East.
LEASE EXPIRY PROFILE
The WAULT on the portfolio is 4.8 years (30 June 2022: 4.7; 31
December 2022: 4.7); WAULT to first break is 3.0 years (30 June
2022: 2.9; 31 December 2022: 3.0). As at 30 June 2023, 14.0% (30
June 2022: 11.9%; 31 December 2022: 14.5%) of income was from
leases, which will expire within one year, 12.6% (30 June 2022:
14.8%; 31 December 2022: 14.0%) between one and two years, 30.9%
(30 June 2022: 31.4%; 31 December 2022: 29.5%) between two and five
years and 42.5% (30 June 2022: 41.8%; 31 December 2022: 42.0%)
after five years.
Lease Expiry Income Profile
0-1 year 14.0%
1-2 years 12.6%
2-5 years 30.9%
5+ years 42.5%
Tenants by Standard Industrial Classification ("SIC") as at 30
June 2023
SIC Code % of Headline
Rent
Information and communication 12.9%
Professional, scientific and technical
activities 12.5%
Administrative and support services
activities 10.9%
Financial and insurance activities 8.3%
Wholesale and retail trade 7.8%
Electricity, gas, steam and air
conditioning supply 7.2%
Human health and social work activities 5.2%
Public Sector 5.0%
Manufacturing 4.8%
Education 4.6%
Construction 4.1%
Not Specified 3.3%
Other* 13.3%
----------------------------------------- --------------
Total 100.0%
* Other - Accommodation and food service activities, activities
of extraterritorial organisations and bodies, activities of
households as employers; undifferentiated goods, arts,
entertainment and recreation, charity, mining and quarrying, other
service activities, overseas company, public administration and
defence; compulsory social security. real estate activities,
registered society, transportation and storage, water supply,
sewerage, waste management and remediation activities.
FINANCIAL REVIEW
Net Asset Value
Between 1 January 2023 and 30 June 2023, the EPRA NTA* of the
Group decreased to GBP344.9 million (IFRS NAV: GBP373.8 million)
from GBP379.2 million (IFRS NAV: GBP402.9 million) as at 31
December 2022, equating to a decrease in the diluted EPRA NTA of
6.6pps to 66.9pps (IFRS: 72.5pps). This is after the dividends
declared in the period amounting to 3.3pps.
In the six months to 30 June 2023, the investment property
revaluation decrease amounted to GBP29.5 million, for the
properties held as at 30 June 2023.
The investment property portfolio was valued at GBP752.2 million
(30 June 2022: GBP918.2 million; 31 December 2022: GBP789.5
million). The decrease of GBP37.3 million since the December 2022
year-end is a reflection of revaluation movement loss of GBP29.5
million, GBP14.1 million of net property disposals and GBP0.4
million loss on the disposal of investment properties, offset by
subsequent expenditure of GBP6.8 million. Overall, on a
like-for-like basis, the portfolio value decreased by 3.8%, after
adjusting for capital expenditure, acquisitions and disposals
during the period.
The table below sets out the acquisitions, disposals and capital
expenditure for the respective periods:
Six months Six months Year ended
to 30 June to June 31 December
2023 2022 2022
(GBPmillion) (GBPmillion) (GBPmillion)
------------------------------ ------------- ------------- -------------
Acquisitions
Net (after costs) 0.1 78.9 79.3
Gross (before costs) 0.0 74.7 74.7
------------------------------ ------------- ------------- -------------
Disposals
Net (after costs) 14.1 71.4 84.1
Gross (before costs) 14.6 75.5 90.0
------------------------------ ------------- ------------- -------------
Capital Expenditure
Net (after dilapidations) 6.7 3.1 10.0
Gross (before dilapidations) 6.8 3.3 10.9
------------------------------ ------------- ------------- -------------
The diluted EPRA NTA per share decreased to 66.9pps (31 December
2022: 73.5pps). The EPRA NTA is reconciled in the table below:
Six months to 30 June
2023
Pence per
GBPm Share
---------- ------------
Opening EPRA NTA (31 December
2022) 379.2 73.5
---------------------------------------- ---------- ------------
Net rental and property income 26.0 5.0
Administration and other expenses (5.3) (1.0)
Loss on the disposal of investment
properties (0.4) (0.1)
Change in the fair value of investment
properties (29.5) (5.7)
Change in value of right of use (0.1) (0.0)
---------------------------------------- ---------- ------------
EPRA NTA after operating profit 369.9 71.7
---------------------------------------- ---------- ------------
Net finance expense (7.9) (1.5)
Taxation 0.0 0.0
---------------------------------------- ---------- ------------
EPRA NTA before dividends paid 361.9 70.2
---------------------------------------- ---------- ------------
Dividends paid** (17.0) (3.3)
---------------------------------------- ---------- ------------
Closing EPRA NTA (30 June 2023) 344.9 66.9
---------------------------------------- ---------- ------------
Tables may not sum due to rounding
* The Group has determined that EPRA net tangible assets (NTA)
is the most relevant measure. Further detail on the new EPRA
performance measures can be found in the full Annual Report.
**As at 30 June 2022, there were 515,736,583 Shares in
issue.
Income Statement
Operating profit before gains and losses on property assets and
other investments for the six months ended 30 June 2023 amounted to
GBP20.6 million (six months to 30 June 2022: GBP23.4 million). Loss
after finance and before taxation of GBP12.1 million (six months to
30 June 2022: gain GBP28.3 million). The six months to 30 June 2023
included the partial rent roll for properties disposed of during
the period. The decrease also includes the loss in the fair value
of investment properties in the six months to June 2023 of
GBP29.5m, the loss on the disposal of investment properties of
GBP0.4m, and the change in the value of right of use asset of
GBP0.1million.
Rental and property income amounted to GBP34.3 million,
excluding recoverable service charge income and other similar items
(six months to 30 June 2022 GBP37.1m million). The decrease was
primarily the result of the decrease in the rent roll being held
over the six months to 30 June 2023.
Currently more than 80% of the rental income is collected within
30 days of the due date and the bad debts provision in the period
amounted to only GBP0.4 million (release in the six months to 30
June 2022: GBP0.2 million).
Non-recoverable property costs, excluding recoverable service
charge income and other similar costs, amounted to GBP8.3 million
(six months to 30 June 2022: GBP8.1 million), and the rent roll
decreased to GBP69.8 million (six months to 30 June 2022: GBP72.0
million).
Realised loss on the disposal of investment properties amounted
to GBP0.4 million (six months to 30 June 2022: loss GBP3.3
million). The disposal losses were from the aggregate disposal of
four properties in the period, on which individual asset management
plans had been completed. The change in the fair value of
investment properties amounted to a loss of GBP29.5 million (six
months to 30 June 2022: gain of GBP4.8 million). Net capital
expenditure amounted to GBP6.7 million (six months to 30 June 2022:
GBP3.1 million). The gain on the disposal of the right of use asset
amounted to GBPnil (six months to 30 June 2022: GBPnil). The change
in value of right of use asset amounted to a charge of GBP0.1
million (six months to 30 June 2022: charge GBP0.1 million).
Finance expenses amount to GBP8.0 million (six months to 30 June
2022: GBP8.4 million).
The EPRA cost ratio, including direct vacancy costs, was 39.9%
(30 June 2022: 36.9%). The EPRA cost ratio, excluding direct
vacancy costs was 17.3% (30 June 2022: 16.5%). The ongoing charges
for the six months ending 30 June 2023 were 7.0% (30 June 2022:
5.4%).
The EPRA Total Return from Listing to 30 June 2023 was 20.8% (30
June 2022: 44.4%), with an annualised rate of 2.5% pa (30 June
2022: 5.7% pa).
Dividend
During the period from 1 January 2023 to 30 June 2023, the
Company declared dividends totalling 3.30pps (six months to 30 June
2022: 3.35pps). A schedule of dividends can be found on the Company
website.
Debt Financing and Gearing
Borrowings comprise third-party bank debt and the retail
eligible bond. The bank debt is secured over properties owned by
the Group and repayable over the next three to six years. The
weighted average maturity of the bank debt and retail eligible bond
is 4.0 years (30 June 2022: 5.0 years; 31 December 2022: 4.5
years).
The Group's borrowing facilities are with the Royal Bank of
Scotland, Bank of Scotland & Barclays, Scottish Widows Limited
& Aviva Investors Real Estate Finance, Scottish Widows Limited
and Santander UK. The total bank borrowing facilities at 30 June
2023 amounted to GBP381.7 million (30 June 2022: GBP392.9million;
31 December 2022: GBP390.8 million) (before unamortised debt
issuance costs), with GBP5.7 million available to be drawn. In
addition to the bank borrowings, the Group has a GBP50 million 4.5%
retail eligible bond, which is due for repayment in August 2024. In
aggregate, the total debt available at 30 June 2023 amounted to
GBP437.4 million (30 June 2022: GBP444.9 million; 31 December 2022:
GBP444.9 million).
At 30 June 2023, the Group's cash and cash equivalent balances
amounted to GBP41.2 million (30 June 2022: GBP46.2 million; 31
December 2022: GBP50.1 million), of which GBP26.0 million (30 June
2022: GBP43.2 million; 31 December 2022: GBP37.8 million) was
unrestricted cash.
The Group's net loan to value ("LTV") ratio stands at 51.9% (30
June 2022: 43.2%; 31 December 2022: 49.5%) before unamortised
costs. A programme of asset management initiatives and disposals
continues to be diligently executed to ensure the net borrowing
reverts to our long- term target of c.40%.
Debt Profile and LTV Ratios as at 30 June 2023
Gross
Original Outstanding loan to Annual interest
facility debt* Maturity value** rate
Lender GBP'000 GBP'000 date % %
----------------- ---------- ------------ --------- --------- ----------------
Royal Bank of
Scotland, Bank 2.40 over 3
of Scotland months
& Barclays 128,000 125,677 Aug-26 52.7 GBP SONIA
----------------- ---------- ------------ --------- --------- ----------------
Scottish Widows
Ltd. and Aviva
Investors Real
Estate Finance 157,500 157,500 Dec-27 51.4 3.28 Fixed
----------------- ---------- ------------ --------- --------- ----------------
Scottish Widows
Ltd. 36,000 36,000 Dec-28 43.8 3.37 Fixed
----------------- ---------- ------------ --------- --------- ----------------
2.20% over 3
months
Santander UK 65,870 62,516 Jun-29 47.2 GBP SONIA
----------------- ---------- ------------ --------- --------- ----------------
387,370 381,693
----------------- ---------- ------------ --------- --------- ----------------
Retail Eligible
Bond 50,000 50,000 Aug-24 N/A 4.50% Fixed
----------------- ---------- ------------ --------- --------- ----------------
437,370 431,693
----------------- ---------- ------------ --------- --------- ----------------
Table may not sum due to rounding.
* Before unamortised debt issue costs
** Based on valuation undertaken by Colliers at 30/6/23
The Managers continue to monitor the borrowing requirements of
the Group.
The net gearing ratio (net debt to Ordinary Shareholders' equity
(diluted) of the Group was 104.5% as at 30 June 2023 (30 June 2022:
77.3%; 31 December 2022: 96.9%).
Interest cover, excluding amortised costs, stands at 2.8 times
(30 June 2022: 3.2 times; 31 December 2022: 3.4 times) and
including amortised costs, stands at 2.6 times (30 June 2022: 2.8
times; 31 December 2022: 3.0 times).
Hedging
The Group applies an interest rate hedging strategy that is
aligned to the property management strategy and aims to mitigate
interest rate volatility on at least 90% of the debt exposure.
Six months Six months
ended ended Year ended
30 June
2023 30 June 2022 31 December 2022
% % %
Borrowings interest rate hedged
Thereof : 101.6 100.5 100.9
Fixed 56.4 56.7 56.9
Swap 28.4 27.6 27.8
Cap 16.6 16.1 16.2
Weighted Average Cost of
Debt ("WACD")(10) 3.5 3.5 3.5
Table may not sum due to rounding
The over-hedged position has arisen due to the entire Royal Bank
of Scotland, Bank of Scotland & Barclays and Santander UK
facilities, including any undrawn balances, being hedged by
interest rate cap derivatives which have no ongoing cost to the
Group.
(10) WACD - Group borrowings interest and net derivative costs
per annum at the period end, divided by total Group debt in issue
at the period end.
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.
At 30 June 2023, the Group recognised a tax charge of GBPnil (30
June 2022: GBPnil tax charge).
PRINCIPAL RISKS AND UNCERTAINTIES
For Regional REIT, effective risk management is a cornerstone of
delivering our strategy and integral to the achievement of our
objective of delivering long term value through active asset
management across the portfolio. The principal and emerging risks
and uncertainties the Group faces are summarised below and
described in detail on pages 49 to 59 of the 2022 Annual Report,
which is available on the Group's website: www.regionalreit.com -
Annual Report 2022.
The Audit Committee, which assists the Board with its
responsibilities for managing risk, regularly reviews the risk
appetite of the Company. Taking into consideration the latest
information available, the Company is able to assess and respond
quickly to new and emerging risks.
Though the principal risks and uncertainties remain
substantially unchanged since the Annual Report and Accounts for
the year ended 31 December 2022, the risks remain heightened in
light of concerns around rising inflation, higher interest rates
and the unsettled geopolitical backdrop, all of which may impact
valuations and the wider UK economy.
A summary of the Group's principal risks is provided here.
Strategic risk
Investment decisions could result in lower dividend income and
capital returns to our Shareholders.
Valuation risk
The valuation of the Group's portfolio, undertaken by the
external valuer, Colliers International Property Consultants Ltd ,
could impact the Group's profitability and net assets.
Covid risk
The economic disruption after-effects resulting from Covid-19,
coupled with possible new strains and other infectious diseases,
could further impact rental incomes, the Group's property portfolio
valuations, the ability to access funding at competitive rates,
maintain a progressive dividend policy and adhere to the HMRC
REIT
regime requirements.
Economic and Political risk
The macro-health of the UK economy could impact on borrowing and
hedging costs, demand by tenants for
suitable properties and the quality of the tenants.
Funding risk
The Group may not be able to secure further debt on acceptable
terms, which could impinge upon investment opportunities and the
ability to grow the Group. Bank reference rates maybe set to
continue to become more volatile, accompanying volatile inflation.
Breach of covenants within the Group's funding structure could lead
to a cancellation of debt funding if the Company is unable to
service the debt.
Tenant risk
Type and concentration of tenants could result in a lower rental
income. A higher concentration of lease term maturity and/or break
options, could result in a more volatile rental income.
Financial and Tax Change risk
Changes to UK financial legislation and the tax regime could
result in lower rental income.
Operational risk
Business disruption could result in lower rental income.
Accounting, Legal and Regulatory risk
Changes to accounting, legal and regulatory requirements could
affect current operating processes and the Board's ability to
achieve the investment objectives and provide favourable returns to
our Shareholders.
Environmental and Energy Efficiency Standards
Changes to the environment could impact upon the Group's cost
base, operations and legal requirements which need to be adhered
too. All of these risks could impinge upon the profitability of the
Group.
INTERIM MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITY
STATEMENT
Interim Management Report
The important events that have occurred during the period under
review, the principal risks and uncertainties and the key factors
influencing the financial statements for the remaining six months
of the year are set out in the Chairman's Statement and the Asset
and Investment Managers' Report.
The principal risks and uncertainties faced by the Group are
substantially unchanged since the date of the Annual Report and
Accounts for the year ended 31 December 2022 and are summarised
above.
The condensed consolidated financial statements for the period
from 1 January 2023 to 30 June 2023 have not been audited or
reviewed by auditors pursuant to the Financial Reporting Council
guidance on Review of Interim Financial Information and do not
constitute annual statutory accounts for the purposes of the
Law.
Going Concern
The financial statements continue to be prepared on a going
concern basis. The Directors have reviewed areas of potential
financial risk and cash flow forecasts. No material uncertainties
have been detected which would influence the Group's ability to
continue as a going concern for a period of not less than 12
months. Accordingly, the Board of Directors continue to adopt the
going concern basis in preparing the condensed consolidated
financial statements.
Further detail on the assessment of going concern can be found
in note 2.3 below.
Responsibility Statement of the Directors in respect of the
Half-Yearly Report
In accordance with Disclosure Guidance and Transparency Rule
4.2.10R we, the Directors of the Company (whose names are listed in
full at the end of this report), confirm that to the best of their
knowledge:
-- the condensed set of consolidated financial statements has been prepared in accordance with International Accounting Standard (IAS) 34, "Interim Financial Reporting", as contained in UK-adopted International Accounting Standards, as required by Disclosure Guidance and Transparency Rule DTR 4.2.4R, and gives a true and fair view of the assets, liabilities, financial position and profit of the Group;
-- this Half-Yearly Report includes a fair review, required
under DTR 4.2.7R, of the important events that have occurred during
the first six months of the financial year, their impact on the
condensed set of consolidated financial statements and a
description of the principal risks and uncertainties for the
remaining six months of the financial year; and
-- this Half-Yearly Report includes a fair review, required
under DTR 4.2.8R, of related party transactions that have taken
place in the first six months of the current financial year and
that have materially affected the financial position and or
performance of the Group during that period; and any changes in the
related party transaction described in the last Annual Report that
could do so.
This Half-Yearly Report was approved and authorised for issue by
the Board of Directors on 11 September2023 and the above
responsibility statement was signed on its behalf by:
Kevin McGrath
Chairman
11 September 2023
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2023
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
Notes GBP'000 GBP'000 GBP'000
Continuing Operations
Revenue
Rental and property income 5 44,415 45,211 93,318
Property costs 6 (18,438) (16,267) (30,672)
-------------------------------------- ------- --------------- --------------
Net rental and property income 25,977 28,944 62,646
-------------------------------------- ------- -------------- --------------- --------------
Administrative and other expenses 7 (5,341) (5,568) (11,421)
-------------------------------------- ------- --------------- --------------
Operating profit before gains
and losses on property assets
and other investments 20,636 23,376 51,225
-------------------------------------- ------- -------------- --------------- --------------
Loss on disposal of investment
properties 13 (403) (3,281) (8,636)
Change in fair value of investment
properties 13 (29,491) 4,785 (113,233)
Gain on disposal of right
of use assets - 36 76
Change in fair value of right
of use assets (69) (112) (185)
-------------------------------------- ------- --------------- --------------
Operating (loss)/profit (9,327) 24,804 (70,753)
-------------------------------------- ------- -------------- --------------- --------------
Finance income 8 17 34 126
Finance expenses 9 (7,953) (8,437) (17,285)
Net movement in fair value
of derivative financial instruments 16 5,128 11,851 22,743
-------------------------------------- ------- --------------- --------------
(Loss)/profit before tax (12,135) 28,252 (65,169)
-------------------------------------- ------- -------------- --------------- --------------
Taxation 10 - - 6
-------------------------------------- ------- -------------- --------------- --------------
Total comprehensive (loss)/income
for the period (attributable
to owners of the parent Company) (12,135) 28,252 (65,163)
-------------------------------------- ------- -------------- --------------- --------------
(Losses)/earnings per Share
- basic and diluted 11 (2.4)p 5.5p (12.6)p
-------------------------------------- ------- -------------- --------------- --------------
Total comprehensive (loss)/income arises from continuing
operations.
The notes below are an integral part of these condensed
consolidated financial statements.
Condensed Consolidated Statement of Financial Position
As at 30 June 2023
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
Notes GBP'000 GBP'000 GBP'000
Assets
Non-current assets
Investment properties 13 752,226 918,200 789,480
Right of use assets 11,057 12,402 11,126
Non-current receivables
on tenant loan 452 674 578
Derivative financial instruments 16 29,577 13,557 24,449
---------------------------------- ------- --------------
793,312 944,833 825,633
---------------------------------- ------- -------------- ------------- ------------
Current assets
Trade and other receivables 33,068 32,181 30,274
Cash and cash equivalents 41,231 46,158 50,148
---------------------------------- ------- -------------- ------------- ------------
74,299 78,339 80,422
Total assets 867,611 1,023,172 906,055
---------------------------------- ------- -------------- ------------- ------------
Liabilities
Current liabilities
Trade and other payables (38,230) (47,188) (39,231)
Deferred income (17,244) (12,537) (16,661)
Deferred tax liabilities (699) (705) (699)
---------------------------------- -------
(56,173) (60,430) (56,591)
---------------------------------- ------- -------------- ------------- ------------
Non-current liabilities
Bank and loan borrowings 14 (376,331) (386,932) (385,265)
Retail eligible bonds 15 (49,829) (49,673) (49,752)
Lease liabilities (11,490) (12,762) (11,505)
---------------------------------- -------
(437,650) (449,367) (446,522)
Total liabilities (493,823) (509,797) (503,113)
---------------------------------- ------- -------------- ------------- ------------
Net assets 373,788 513,375 402,942
---------------------------------- ------- -------------- ------------- ------------
Equity
Stated capital 17 513,762 513,762 513,762
Accumulated losses (139,974) (387) (110,820)
---------------------------------- ------- -------------- ------------- ------------
Total equity attributable to owners
of the parent Company 373,788 513,375 402,942
------------------------------------------- -------------- ------------- ------------
Net asset value per Share
- basic and diluted 18 72.5p 99.5p 78.1p
--------------------------- ----- -------- -------- --------
The notes below are an integral part of these condensed
consolidated financial statements.
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 2023
Attributable to owners of
the parent company
Stated Accumulated
capital losses Total
Notes GBP'000 GBP'000 GBP'000
-------------------------- -------- --------- ------------ ----------
Balance at 1 January
2023 513,762 (110,820) 402,942
Total comprehensive loss - (12,135) (12,135)
Dividends paid 12 - (17,019) (17,019)
-------------------------- -------- --------- ------------ ----------
Balance at 30 June 2023 513,762 (139,974) 373,788
-------------------------- -------- --------- ------------ ----------
For the six months ended 30 June 2022
Attributable to owners of
the parent company
Stated Accumulated
capital losses Total
Notes GBP'000 GBP'000 GBP'000
---------------------------- -------- --------- ------------ ----------
Balance at 1 January
2022 513,762 (11,361) 502,401
Total comprehensive income - 28,252 28,252
Dividends paid 12 - (17,278) (17,278)
---------------------------- -------- --------- ------------ ----------
Balance at 30 June 2022 513,762 (387) 513,375
---------------------------- -------- --------- ------------ ----------
For the year ended 31 December 2022
Attributable to owners of
the parent company
Stated Accumulated
capital losses Total
Notes GBP'000 GBP'000 GBP'000
-------------------------- -------- --------- ------------ ----------
Balance at 1 January
2022 513,762 (11,361) 502,401
Total comprehensive loss - (65,163) (65,163)
Dividends paid 12 - (34,296) (34,296)
-------------------------- -------- --------- ------------ ----------
Balance at 31 December
2022 513,762 (110,820) 402,942
-------------------------- -------- --------- ------------ ----------
The notes below are an integral part of these condensed
consolidated financial statements.
Condensed Consolidated Statement of Cash Flows
For the six months ended 30 June 2023
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------------------------------------------- --------------- -------------- -------------
Cash flows from operating activities
(Loss)/profit for the year before taxation (12,135) 28,252 (65,169)
- Change in fair value of investment properties 24,491 (4,785) 113,233
- Change in fair value of financial derivative
instruments (5,128) (11,851) (22,743)
Loss on disposal of investment properties 403 3,281 8,636
- Gain on disposal of right of use assets - (36) (76)
- Change in fair value of right of use
assets 69 112 185
Finance income (17) (34) (126)
Finance expense 7,953 8,437 17,285
(Increase) in trade and other receivables (2,679) (2,631) (619)
(Decrease)/increase in trade and other
payables and deferred income (433) 1,686 (2,150)
-------------------------------------------------- --------------- -------------- -------------
Cash generated from
operations 17,524 22,431 48,456
-------------------------------------------------- --------------- -------------- -------------
Finance costs (7,430) (7,406) (15,198)
Net cash flow generated from operating
activities 10,094 15,025 33,258
-------------------------------------------------- --------------- -------------- -------------
Investing activities
Purchase of investment properties and
subsequent expenditure (6,755) (81,970) (89,287)
Sale of investment properties 14,115 71,423 84,087
Interest received 28 33 116
-------------------------------------------------- --------------- -------------- -------------
Net cash flow from/(used in) operating
activities 7,388 (10,514) (5,084)
-------------------------------------------------- --------------- -------------- -------------
Financing activities
Dividends paid (17,004) (16,956) (33,971)
Bank borrowings advanced 1,944 14,322 14,322
Bank borrowings repaid (11,043) (11,370) (13,467)
Bank borrowing costs
paid (78) (153) (485)
Lease repayments (218) (324) (553)
-------------------------------------------------- --------------- -------------- -------------
Net cash flow (used in)/generated from
financing activities (26,399) (14,481) (34,154)
-------------------------------------------------- --------------- -------------- -------------
Net decrease in cash and cash equivalents
for
the period (8,917) (9,970) (5,980)
Cash and cash equivalents at the start
of the period 50,148 56,128 56,128
-------------------------------------------------- --------------- -------------- -------------
Cash and cash equivalents at the end
of the period 41,231 46,158 50,148
-------------------------------------------------- --------------- -------------- -------------
The notes below are an integral part of these condensed
consolidated financial statements.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 30 June 2023
1. Corporate information
The condensed consolidated financial statements of the Group for
the six months ended 30 June 2023 comprise the results of the
Company and its subsidiaries (together constituting the "Group")
and were approved by the Board and authorised for issue on 11
September 2023.
The Company is a company limited by shares incorporated in
Guernsey under The Companies (Guernsey) Law,
2008, as amended (the "Law"). The Company's Ordinary Shares are
admitted to the Official List of the Financial
Conduct Authority ("FCA") and traded on the London Stock
Exchange ("LSE").
The Company was incorporated on 22 June 2015 and is registered
with the Guernsey Financial Services
Commission as a Registered Closed-Ended Collective Investment
Scheme pursuant to The Protection of
Investors (Bailiwick of Guernsey) Law, 2020, as amended, and the
Registered Collective Investment Scheme Rules & Guidance
2021.
The Company did not begin trading until 6 November 2015 when its
shares were admitted to trading on the LSE.
The nature of the Group's operations and its principal
activities are set out in the Chairman's Statement.
The address of the registered office is: Mont Crevelt House,
Bulwer Avenue, St. Sampson, Guernsey, GY2 4LH.
2. Basis of preparation
The condensed consolidated financial statements for the six
months ended 30 June 2023 have been prepared on a going concern
basis in accordance with the Disclosure Guidance and Transparency
Rules of the FCA and with IAS 34, Interim Financial Reporting, as
contained in UK-adopted International Accounting Standards.
The condensed consolidated financial statements have been
prepared on a historical cost basis, as modified for the Group's
investment properties and certain financial assets and financial
liabilities (including derivative instruments) at fair value
through profit or loss.
The condensed consolidated interim financial information should
be read in conjunction with the Group's audited financial
statements for the year ended 31 December 2022, which have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") as contained in UK-adopted International
Accounting
Standards.
2.1. Comparative period
The comparative financial information presented herein for the
year ended 31 December 2022 do not constitute full statutory
accounts within the meaning of the Law. The Group's Annual Report
and Accounts for the year ended 31 December 2022 were delivered to
the Guernsey Financial Services Commission. The Group's independent
Auditor's report on those Accounts was unqualified and did not
include references to any matters to which the Auditors drew
attention by way of emphasis without qualifying their report.
2.2. Functional and presentation currency
The consolidated financial information is presented in Pounds
Sterling which is also the Group's functional currency, and all
values are rounded to the nearest thousand (GBP'000s) pounds,
except where otherwise indicated.
2.3. Going concern
The Directors have made an assessment of the Group's ability to
continue as a going concern. This assessment
included consideration of the Group's cash resources, borrowing
facilities, rental income, acquisition and disposals of investment
properties, elective and committed capital expenditure and dividend
distributions.
The Group ended the period under review with GBP41.2m of cash
and cash equivalents, of which GBP26.0m was unrestricted cash,
providing ample liquidity. Borrowing facilities decreased from
GBP440.8m at 31 December 2022 to GBP431.7m as at 30 June 2023, with
an LTV of 51.9%, based upon the value of the Group's investment
properties as at 30 June 2023. In respect of the Group's borrowings
the first bank facility to mature is GBP125.7m facility in August
2026 which is held with the Royal Bank of Scotland, and the Retail
eligible bond matures August 2024. The Directors believe that
should financing be required at the bond maturity date then
appropriate borrowings will be in-place in adequate time.
The Directors are satisfied that the Group has adequate
resources to continue in operational existence for a
period of at least 12 months from the date these Financial
Statements were approved. This is underpinned by the robust rent
collections and the limited level of committed capital expenditure
in the forthcoming 12 months. Furthermore, the Directors are not
aware of any material uncertainties that may cast significant doubt
upon the Group's ability to continue as a going concern.
Accordingly, the Directors consider that it is appropriate to
prepare the Financial Statements on a going concern basis.
2.4. Business combinations
At the time of acquisition, the Group considers whether each
acquisition represents the acquisition of a business or the
acquisition of an asset. For an acquisition of a business where an
integrated set of activities are acquired in addition to the
property, the Group accounts for the acquisition as a business
combination under IFRS 3 Business Combinations.
Where such acquisitions are not judged to be the acquisition of
a business, they are not treated as business combinations. Rather,
the cost to acquire the corporate entity is allocated between the
identifiable assets and liabilities of the entity based upon their
relative fair values at the acquisition date. Accordingly, no
goodwill or additional deferred tax arises.
3. Significant accounting judgements, estimates and
assumptions
The preparation of the condensed consolidated financial
statements requires management to make judgements, estimates and
assumptions that affect the reported amounts of revenues, expenses,
assets and liabilities and the disclosure of contingent liabilities
at the reporting date. However, uncertainty about these assumptions
and estimates could result in outcomes that require a material
adjustment to the carrying amount of the asset or liability
affected in future periods.
3.1. Critical accounting estimates and assumptions
The principal estimates that may be material to the carrying
amount of assets and liabilities are as follows:
3.1.1. Valuation of investment properties
The fair value of investment property, which has a carrying
value at the reporting date of GBP752,226,000 (30 June 2022:
GBP918,200,000; 31 December 2022: GBP789,480,000) is determined, by
independent property valuation experts, to be the estimated amount
for which a property should exchange on the date of the valuation
in an arm's length transaction. Properties have been valued on an
individual basis. The valuation experts use recognised valuation
techniques applying the principles of both IAS 40 Investment
Property and IFRS 13 Fair Value Measurement.
The value of the properties has been assessed in accordance with
the relevant parts of the current RICS Red Book. In particular, we
have assessed the fair value as referred to in VPS4 item 7 of the
RICS Red Book. Under these provisions, the term "Fair Value" means
the definition adopted by the International Accounting Standards
Board ("IASB") in IFRS 13, namely "The price that would be received
to sell an asset, or paid to transfer a liability in an orderly
transaction between market participants at the measurement date".
Factors reflected include current market conditions, annual
rentals, lease lengths and location. The significant methods and
assumptions used by the valuers in estimating the fair value of
investment property are set out in note 13.
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
GBP29,577,000 asset (30 June 2022: GBP13,557,000; 31 December 2022:
GBP24,449,000). The significant methods and assumptions used in
estimating the fair value of the interest rate derivatives are set
out in note 16.
3.1.3. Dilapidation income
The Group recognises dilapidation income in the Group's
Statement of Comprehensive Income when the right to receive the
income arises. In determining accrued dilapidations, the Group has
considered historic recovery rates, while also factoring in
expected costs associated with recovery.
3.1.4. Operating lease contracts - the Group as lessee
The Group has a number of leases concerning the long-term lease
of land associated with its long leasehold investment properties.
Under IFRS16, the Group calculates the lease liability at each
reporting date and at the inception of each lease and at 1 January
2019 when the standard was first adopted. The liability is
calculated using present value of future lease payments using the
Group's incremental borrowing rate as the discount rate.
At 30 June 2023, there were ten leases with the range of the
period left to run being 25 and 95 years. The
Directors have determined that the discount rate to use in the
calculation for each lease is 4% being the Group's weighted average
cost of debt at the date of transition. Any new leases entered in
to following the transition date will apply a discount rate based
on the Group's weighted average cost of debt at the date the lease
is entered into.
3.2. Critical judgements in applying the Group's accounting
policies
In the process of applying the Group's accounting policies,
management has made the following judgements, which have the most
significant effect on the amounts recognised in the condensed
consolidated financial statements:
3.2.1 Leases - the Group as lessor
The Group has acquired investment properties that are subject to
commercial property leases with tenants. The Group has determined,
based on an evaluation of the terms and conditions of the
arrangements, particularly the duration of the lease terms and
minimum lease payments, that it retains all of the significant
risks and rewards of ownership of these properties and so accounts
for the leases as operating leases.
3.2.2. Recognition of income
Service charges and other similar receipts are included in net
rental and property income gross of the related costs as the
Directors consider the Group acts as principal in this respect.
3.2.3 Acquisition of subsidiary companies
For each acquisition, the Directors consider whether the
acquisition met the definition of the acquisition of a business or
the acquisition of a group of assets and liabilities.
A business is defined in IFRS 3 as an integrated set of
activities and assets that is capable of being conducted and
managed for the purpose of providing a return in the form of
dividends, lower costs or other economic benefits directly to
investors or other owners, members or participants. Furthermore, a
business consists of inputs and processes applied to those inputs
that have the ability to create outputs.
The companies acquired in the year have comprised portfolios of
investment properties and existing leases with multiple tenants
over varying periods, with little in the way of processes acquired.
It has therefore concluded in each case that the acquisitions did
not meet the criteria for the acquisition of a business as outlined
above.
3.3. Consolidation of entities in which the Group holds less
than 50%
Management considered that up until 9 November 2018, the Group
had de facto control of View Castle Limited and its 27 subsidiaries
(the "View Castle Sub Group") by virtue of the amended and restated
Call Option Agreement dated 3 November 2015. Following a
restructure of the View Castle Sub Group, the majority of
properties held within the View Castle Sub Group were transferred
into two new special purpose vehicles ("SPVs") with two additional
properties to be transferred into these SPVs at a later date. A new
call option was entered into dated 9 November 2018 with View Castle
Limited and five of its subsidiaries (the "View Castle Group"). As
per the previous amended and restated Call Option Agreement, under
this new option the Group may acquire any of the properties held by
the View Castle Group for a fixed nominal consideration. Despite
having no equity holding, the Group is deemed to have control over
the View Castle Group as the Option Agreement means that the Group
is exposed to, and has rights to, variable returns from its
involvement with the View Castle Group, through its power to
control.
4. Summary of significant accounting policies
With the exception of new accounting standards listed below, the
accounting policies adopted in this report are consistent with
those applied in the Group's statutory accounts for the year ended
31 December 2022 and are expected to be consistently applied for
the current year ending 31 December 2023. The changes to the
condensed consolidated financial statements arising from accounting
standards effective for the first time are noted below:
-- IFRIC Agenda Item: Following clarification by IFRIC on the
classification of monies held in restricted accounts, monies that
are restricted by use only are classified at 31 March 2023 as "Cash
and cash equivalents". The clarification has not had a material
impact on the financial statements.
-- IFRIC Agenda Item: In October 2022, the IFRIC issued an
agenda decision in respect of 'Lessor forgiveness of
lease payments (IFRS 9 and IFRS 16)' ('the IFRIC Decision on
Concessions'). This concluded that losses incurred on granting
retrospective rent concessions should be charged to the income
statement on the date that the legal rights to income are conceded
(i.e. immediate recognition in full rather than smoothed over the
life of the lease). The clarification has not had a material impact
on the financial statements.
-- Amendments to IAS 12 'Income Taxes' (effective for periods
beginning on or after 1 January 2023) - clarify
how companies account for deferred tax on transactions such as
leases and decommissioning obligations. The
amendments have not had 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 have not had 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) - introduce the
definition of an accounting estimate and include
other amendments to help entities distinguish changes in
accounting estimates from changes in accounting policies. The
amendments have not had a significant impact on the preparation of
the financial statements.
5. Rental and property income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
------------------ ------------------ -------------- -------------- -------------
Rental income - freehold property 28,360 31,255 61,458
Rental income - long leasehold
property 5,949 5,801 14,861
Recoverable service charge
income and other similar items 10,106 8,155 16,999
-------------------------------------- -------------- -------------- -------------
Total 44,415 45,211 93,318
-------------------------------------- -------------- -------------- -------------
6. Property costs
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------- ------------------- -------------- -------------- -------------
Other property expenses and
irrecoverable costs 8,332 8,112 13,673
Recoverable service charge
expenditure and other similar
costs 10,106 8,155 16,999
----------------------------------- -------------- -------------- -------------
Total 18,438 16,267 30,672
----------------------------------- -------------- -------------- -------------
Property costs represent direct operating expenses which arise
on investment properties generating rental income.
7. Administrative and other expenses
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
------------- ----------------- -------------- ------------- -------------
Investment management fees 1,035 1,469 2,687
Property management fees 1,324 1,284 3,044
Asset management fees 1,034 1,494 2,691
Directors' remuneration 157 134 302
Administration fees 317 315 697
Legal and professional fees 914 939 2,083
Marketing and promotion 38 43 111
Other administrative costs 111 82 195
Bank debt cost/(credit) 397 (199) (405)
Bank charges 14 7 16
-------------------------------- -------------- ------------- -------------
Total 5,341 5,568 11,421
-------------------------------- -------------- ------------- -------------
8. Finance income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------- ---------- -------------- ------------- -------------
Interest income 17 34 126
-------------------- -------------- ------------- -------------
Total 17 34 126
-------------------- -------------- ------------- -------------
9. Finance expense
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------- ---------------------- -------------- ------------- -------------
Interest payable on bank borrowings 6,301 6,277 12,940
Amortisation of loan arrangement
fees 243 659 1,421
Bond interest 1,125 1,125 2,250
Bond issue costs amortised 77 77 156
Bond expenses 4 4 8
Lease interest 203 295 510
---------------------------------------- -------------- ------------- -------------
Total 7,953 8,437 17,285
---------------------------------------- -------------- ------------- -------------
10. Taxation
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
--------------- --------------------- --------------- -------------- -------------
Corporation tax charge - - -
Decrease in deferred tax creditor - - (6)
-------------------------------------- --------------- -------------- -------------
Total - - (6)
-------------------------------------- --------------- -------------- -------------
The Group elected to be treated as a UK REIT with effect from 7
November 2015. The UK REIT rules exempt the profits of the Group's
UK property rental business from corporation tax. Gains on UK
properties are also exempt from tax, provided that they are not
held for trading or sold in the three years after completion of
development. The Group is otherwise subject to UK corporation
tax.
Income tax, corporation tax and deferred tax above arise on
entities which form part of the Group's condensed consolidated
accounts but do not form part of the REIT group.
Due to the Group's REIT status and its intention to continue
meeting the conditions required to obtain approval in the
foreseeable future, no provision has been made for deferred tax on
any capital gains or losses arising on the revaluation or disposal
of investments held by entities within the REIT group. No deferred
tax asset has been recognised in respect of losses carried forward
due to unpredictability of future taxable profits.
As a REIT, Regional REIT Ltd is required to pay PIDs equal to at
least 90% of the Group's exempted net income. To retain UK REIT
status, there are a number of conditions to be met in respect of
the principal company of the Group, the Group's qualifying activity
and its balance of business. The Group continues to meet these
conditions.
11. Earnings per Share
Earnings per share ("EPS") amounts are calculated by dividing
profits for the period attributable to ordinary equity holders of
the Company by the weighted average number of Ordinary Shares in
issue during the period.
The calculation of basic and diluted earnings per share is based
on the following:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
--------------------------- ------------------ -------------- ------------- -------------
Calculation of earnings per Share
Net (loss)/profit attributable to
Ordinary Shareholders (12,135) 28,252 (65,163)
Adjustments to remove:
Changes in value of investment properties 29,491 (4,785) 113,233
Changes in fair value of right of
use assets 69 112 185
Loss on disposal of investment property 403 3,281 8,636
Gain on the disposal of right of use
assets - (36) (76)
Change in fair value of interest rate
derivates and financial assets (5,128) (11,851) (22,743)
Deferred tax credit - - (6)
----------------------------------------------- -------------- ------------- -------------
EPRA net profit attributable to Ordinary
Shareholders 12,700 14,973 34,066
----------------------------------------------- -------------- ------------- -------------
Weighted average number of Ordinary
Shares 515,736,853 515,736,853 515,736,583
----------------------------------------------- -------------- ------------- -------------
(Loss)/ earnings per Share - basic
and diluted (2.4)p 5.5p (12.6)p
EPRA earnings per Share - basic and
diluted 2.5p 2.9p 6.6p
----------------------------------------------- -------------- ------------- -------------
12. Dividends
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
--------------- ---------------------- -------------- ------------- -------------
Dividends
Dividend of 1.65 (2022: 1.70)
pence per Ordinary Share for the
period 1 October - 31 December 8,510 8,768 8,768
Dividend of 1.65 (2022: 1.65)
pence per Ordinary Share for the
period 1 January - 31 March 8,509 8,510 8,510
Dividend of nil (2022: 1.65) pence
per Ordinary Share for the period
1 April - 30 June - - 8,509
Dividend of nil (2022: 1.65) pence
per Ordinary Share for the period
1 July - 30 September - - 8,509
--------------------------------------- -------------- ------------- -------------
Total 17,019 17,278 34,296
--------------------------------------- -------------- ------------- -------------
On 23 February 2023, the Company announced a dividend of 1.65
pence per Share in respect of the period 1 October 2022 to 31
December 2022. The dividend was paid on 6 April 2023 to
Shareholders on the register as at 3 March 2023.
On 24 May 2023, the Company announced a dividend of 1.65 pence
per Share in respect of the period 1 January 2023 to 31 March 2023.
The dividend was paid on 4 August 2023 to Shareholders on the
register as at 2 June 2023.
13. Investment properties
In accordance with International Accounting Standard, IAS 40,
'Investment Property', investment property has been independently
valued at fair value by
Colliers International Property Consultants Ltd, a Chartered
Surveyor who is an accredited independent valuer with recognised
and relevant professional qualifications and with recent experience
in the locations and categories of the investment properties being
valued. The valuation has been prepared in accordance with the Red
Book and incorporates the recommendations of the International
Valuation Standards Committee which are consistent with the
principles set out in IFRS 13.
Investment property valuations in comparative periods were
carried out by Cushman & Wakefield.
The valuation is the ultimate responsibility of the Directors.
Accordingly, the critical assumptions used in
establishing the independent valuation are reviewed by the
Board.
Group Movement in investment properties Freehold Long Leasehold
for the property property Total
six months ended 30 June 2023 (unaudited) GBP'000 GBP'000 GBP'000
-------------------------------------------- ---------- --------------- ----------
Valuation at 1 January 2023 643,630 145,850 789,480
Property additions - acquisitions 6 85 91
Property additions - subsequent
expenditure 4,631 2,033 6,664
Property disposals (14,168) 53 (14,115)
Loss on the disposal of investment
properties (350) (53) (403)
Change in fair value during the
period (28,543) (948) (29,491)
--------------------------------------------- ---------- --------------- ----------
Valuation at 30 June 2023 (unaudited) 605,206 147,020 752,226
--------------------------------------------- ---------- --------------- ----------
Group Movement in investment properties
for the
six months ended 30 June 2022 (unaudited)
Valuation at 1 January 2022 751,440 154,709 906,149
Property additions - acquisitions 64,709 14,207 78,916
Property additions - subsequent
expenditure 1,735 1,319 3,054
Property disposals (67,097) (3,516) (71,423)
Loss on the disposal of investment
properties (2,792) (489) (3,281)
Change in fair value during the
period 1,940 2,845 4,785
--------------------------------------------- ---------- --------------- ----------
Valuation at 30 June 2022 (unaudited) 749,125 169,075 918,200
--------------------------------------------- ---------- --------------- ----------
Group Movement in investment properties
for the year ended 31 December 2022
(audited)
-------------------------------------------- ---------- --------------- ----------
Valuation at 1 January 2022 751,440 154,709 906,149
Property additions - acquisitions 70,322 8,948 79,270
Property additions - subsequent
expenditure 5,994 4,023 10,017
Property disposals (80,436) (3,651) (84,087)
Gain/(loss) on the disposal of investment
properties (8,032) (604) (8,636)
Change in fair value during the
period (95,658) (17,575) (113,233)
--------------------------------------------- ---------- --------------- ----------
Valuation at 31 December 2022 (audited) 643,630 145,850 789,480
--------------------------------------------- ---------- --------------- ----------
The historic cost of the properties was GBP908,464,000 (30 June
2022: GBP944,480,000; 31 December 2022: GBP92,723,000).
The following table provides the fair value measurement
hierarchy for investment properties:
Significant Significant
Quoted observable unobservable
active prices inputs inputs
Total (level 1) (level 2) (level 3)
Date of valuation: GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------- ---------------- ------------ --------------
30 June 2023 752,226 - - 752,226
---------------------- ---------- ---------------- ------------ --------------
30 June 2022 918,200 - - 918,200
---------------------- ---------- ---------------- ------------ --------------
31 December 2022 789,480 - - 789,480
---------------------- ---------- ---------------- ------------ --------------
The hierarchy levels are defined in note 16.
It has been determined that the entire investment properties
portfolio should be classified under the level 3
category.
There have been no transfers between levels during the
period.
The determination of the fair value of the investment properties
held by each consolidated subsidiary requires
the use of estimates such as future cash flows from investment
properties, which take into consideration
lettings, tenants' profiles, future revenue streams, capital
values of fixtures and fittings, any environmental matters and the
overall repair and condition of the property, and discount rates
applicable to those assets. Future revenue streams comprise
contracted rent (passing rent) and estimated rental value after the
contract period. In calculating ERV, the potential impact of future
lease incentives to be granted to secure new contracts is taken
into consideration. All these estimates are based on local market
conditions existing at the reporting date.
As at 30 June 2023, 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.
In arriving at their estimates of fair values as at 30 June
2023, the valuers used their market knowledge
and professional judgement and did not rely solely on historical
transactional comparables.
Techniques used for valuing investment properties
The following descriptions and definitions relate to valuation
techniques and key unobservable inputs made
in determining the fair values:
Valuation technique: market comparable method
Under the market comparable method (or market approach), a
property fair value is estimated based on
comparable transactions in the market.
Observable input: market rental
The rent at which space could be let in the market conditions
prevailing at the date of valuation GBP12,500 - GBP3,589,000 per
annum (30 June 2022: GBP9,000 - GBP3,317,000 per annum; 31 December
2022: GBP12,500-GBP3,317,000).
Observable input: rental growth
The decrease in rent is based on contractual agreements: -3.18%(
30 June 2022: -1.2%; 31 December 2022: -5.08%). There is a gross
contracted rent reduction, as per normal operations it is a
combination of property disposals, space under refurbishment and
lease expires.
Observable Input: net initial yield
The initial net income from a property at the accounting date,
expressed as a percentage of the gross purchase price including the
costs of purchase 0% - 21.4%; (30 June 2022: 0% - 21.81%; 31
December 2022: 0% to 22.58%).
Unobservable inputs:
The significant unobservable input (level 3) are sensitive to
the changes in the estimated future cash flows from investment
properties such as increases and decreases in contract rents,
operating expenses and capital expenditure, plus transactional
activity in the real estate market.
Geographical and sector specific market evidence reviewed in the
course of preparing the June 2023 valuation had an initial yield
range of 5.59% to 9.33% (31 December 2022: 5.20% to 17.55%). 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.
As set out within the significant accounting estimates and
judgements above, the Group's property portfolio
valuation is open to judgement and is inherently subjective by
nature, and actual values can only be determined in a sales
transaction.
The impact of changes to the significant unobservable
inputs:
30 June 30 June 2023 31 December 31 December
2023 Impact on 2022 2022
Impact statement Impact on Impact on
on of statement statement
statement nancial position of of
of GBP'000 comprehensive nancial
comprehensive income position
income GBP'000 GBP'000
GBP'000
------------------------ --------------- ------------------ --------------- ------------
Improvement in ERV by
5% 32,721 32,721 39,166 39,166
Worsening in ERV by 5% (32,199) (32,199) (38,625) (38,625)
Improvement in yield
by 0.125% 12,174 12,174 16,066 16,066
Worsening in yield by
0.125% (1,012) (1,012) (15,558) (15,558)
------------------------ --------------- ------------------ --------------- ------------
14. Bank and loan borrowings
Bank borrowings are secured by charges over individual
investment properties held by certain asset-holding subsidiaries.
The banks also hold charges over the shares of certain subsidiaries
and any intermediary holding companies of those subsidiaries.
Any associated fees in arranging the bank borrowings unamortised
as at the period end are offset against amounts drawn on the
facilities as shown in the table below:
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
--------------------------------- -------------- ------------- ------------
Bank borrowings drawn at
start of period 390,792 389,937 389,937
Bank borrowings drawn 1,944 14,322 14,322
Bank borrowings repaid (11,043) (11,370) (13,467)
--------------------------------- -------------- ------------- ------------
Bank borrowings drawn at
end of period 381,693 392,889 390,792
--------------------------------- -------------- ------------- ------------
Less: unamortised costs at
start of period (5,527) (6,463) (6,463)
Less: loan issue costs incurred
in the period (78) (153) (485)
Add: loan issue costs amortised
in the period 243 659 1,421
--------------------------------- -------------- ------------- ------------
At end of period 376,331 386,932 385,265
--------------------------------- -------------- ------------- ------------
Maturity of bank borrowings
Repayable within 1 year - - -
Repayable between 1 to 2 years - - -
Repayable between 2 to 5 years 283,177 127,445 290,677
Repayable after more than
5 years 98,516 265,444 100,115
Unamortised loan issue costs (5,362) (5,957) (5,527)
--------------------------------- -------------- ------------- ------------
376,331 386,932 385,265
--------------------------------- -------------- ------------- ------------
The table below lists the Group's borrowings.
Gross
Original Outstanding Maturity loan to Annual interest
Lender facility debt* date value** rate Amortisation
GBP'000 GBP'000
------------------------- ----------- -------------- ----------- --------- ------------------ ---------------
Royal Bank of
Scotland, Bank 2.40% over
of Scotland and August 3 months Mandatory
Barclays 128,000 125,677 2026 52.70% GBP SONIA prepayment
------------------------- ----------- -------------- ----------- --------- ------------------ ---------------
Scottish Widows
Ltd & Aviva Investors December
Real Estate Finance 157,500 157,500 2027 51.40% 3.28% Fixed None
------------------------- ----------- -------------- ----------- --------- ------------------ ---------------
Scottish Widows December
Ltd 36,000 36,000 2028 43.80% 3.37% Fixed None
------------------------- ----------- -------------- ----------- --------- ------------------ ---------------
2.20% over
3
June months GBP Mandatory
Santander UK 65,870 62,516 2029 47.20% SONIA prepayment
------------------------- ----------- -------------- ----------- --------- ------------------ ---------------
Total bank borrowings 387,370 381,693
------------------------- ----------- -------------- ----------- --------- ------------------ ---------------
Retail eligible August
bond 50,000 50,000 2024 4.50% Fixed None
------------------------- ----------- -------------- ----------- --------- ------------------ ---------------
Total 437,370 431,693
------------------------- ----------- -------------- ----------- --------- ------------------ ---------------
SONIA = Sterling Over Night Indexed Average
* Before unamortised debt issue costs.
** Based upon Colliers property valuations.
The weighted average term to maturity of the Group's debt at the
period end was 4.0 years (30 June 2022: 5.0
years; 31 December 2022: 4.5 years).
The weighted average interest rate payable by the Group on its
debt portfolio, excluding hedging, as at the period
end was 4.9% per annum (30 June 2022: 3.4% per annum; 31
December 2022: 3.5% per annum).
The Group has been in compliance with all of the financial
covenants of the above facilities as applicable throughout the
period covered by these condensed consolidated financial
statements. Each facility has distinct covenants which generally
include: historic interest cover, projected interest cover,
loan-to-value cover and debt to rent cover. A breach of agreed
covenant levels would typically result in an event of default of
the respective facility, giving the lender the right, but not the
obligation, to declare the loan immediately due and payable. Where
a loan is repaid in these circumstances, early repayment fees will
apply, which are generally based on percentage of the loan repaid
or calculated with reference to the interest income foregone by the
lenders as a result of the repayment.
As shown in note 16, the Group uses a combination of interest
rate swaps and fixed rate bearing loans to hedge
against interest rate risks. The Group's exposure to interest
rate volatility is minimal.
15. Retail eligible bonds
The Company has in issue GBP50,000,000 of 4.5% retail eligible
bonds with a maturity date of 6 August 2024. The bonds are listed
on the LSE ORB platform.
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
----------------------------- -------------- ------------- ------------
Bond principal at start
of period 50,000 50,000 50,000
Unamortised issue costs
at start of period (248) (404) (404)
Amortisation of issue costs 77 77 156
----------------------------- -------------- ------------- ------------
At end of period 49,829 49,673 49,752
-------------- ------------- ------------
16. Derivative financial instruments
Interest rate caps and swaps are in place to mitigate the
interest rate risk that arises as a result of entering into
variable rate borrowings.
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
------------------------------- -------------- ------------- ------------
Fair value at start of period 24,449 1,706 1,706
Revaluation in the period 5,128 11,851 22,743
------------------------------- -------------- ------------- ------------
Fair value at end of period 29,577 13,557 24,449
------------------------------- -------------- ------------- ------------
The calculation of fair value of interest rate caps and swaps is
based on the following calculation: the notional amount multiplied
by the difference between the swap rate and the current market rate
and then multiplied by the number of years remaining on the
contract and discounted.
The fair value of interest rate caps and swaps represents the
net present value of the difference between the cash flows produced
by the contracted rate and the current market rate over the life of
the instrument.
The table below details the hedging and swap notional amounts
and rates against the details of the Group's loan facilities.
Lender Original Outstanding Annual Notional
facility debt* Maturity interest amount
GBP'000 GBP'000 date rate GBP'000 Rate
swap GBP73,000 0.97%
Royal Bank of Scotland, 2.40% over
Bank of Scotland August 3months
and Barclays 128,000 125,677 2026 GBP SONIA cap GBP55,000 0.97%
------------------------- ----------- -------------- ----------- -------------- --------------- -------
Scottish Widows Ltd.
& Aviva Investors December 3.28%
Real Estate Finance 157,500 157,500 2027 Fixed n/a n/a
------------------------- ----------- -------------- ----------- -------------- --------------- -------
December
Scottish Widows Ltd 36,000 36,000 2028 3.37% Fixed n/a n/a
------------------------- ----------- -------------- ----------- -------------- --------------- -------
swap GBP49,403 1.39%
2.20% over
3 months
Santander UK 65,870 62,516 June 2029 GBP SONIA cap GBP16,468 1.39%
------------------------- ----------- -------------- ----------- -------------- --------------- -------
Total 387,370 381,693
------------------------- ----------- -------------- ----------- -------------- --------------- -------
SONIA = Sterling Over Night Indexed Average
As at 30 June 2023, the swap arrangements were GBP122.4m (30
June 2022: GBP122.4m; 31 December 2022: GBP122.4m) and the cap
notional arrangements amounted to GBP71.5m (30 June 2022: GBP71.5m;
31 December 2022: GBP71.5m).
The Group weighted average cost of debt of 3.5% (30 June 2022:
3.5%; 31 December 2022: 3.5%) is inclusive of hedging costs.
The maximum exposure to credit risk at the reporting date is the
fair value of the derivative liabilities.
It is the Group's target to hedge at least 90% of the total loan
portfolio using fixed-rate facilities or interest rate
derivatives. The hedging on all of the facilities matches the
term. As at the period end date, the total proportion of hedged
debt equated to 101.6% (30 June 2022: 100.5%; 31 December 2022:
100.9%), as shown below.
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------- -------------- ------------- ------------
Total bank borrowings 381,693 392,889 390,792
---------------------------- -------------- ------------- ------------
Notional value of interest
rate caps and swaps 193,870 193,870 193,871
Value of fixed rate debts 193,500 201,000 201,000
---------------------------- -------------- ------------- ------------
387,370 394,870 394,871
---------------------------- -------------- ------------- ------------
Proportion of hedged debt 101.6% 100.5% 100.9%
---------------------------- -------------- ------------- ------------
Fair value hierarchy
The following table provides the fair value measurement
hierarchy for interest rate derivatives. The different levels are
defined as follows.
Level 1: Quoted (unadjusted) market prices in active markets for
identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable.
For assets and liabilities that are recognised in the condensed
consolidated financial statements on a recurring basis, the Group
determines whether transfers have occurred between levels in the
hierarchy by reassessing categorisation at the end of each
reporting period.
Significant Significant
Quoted active observable unobservable
prices inputs inputs
Total (level 1) (level 2) (level
Date of valuation: GBP'000 GBP'000 GBP'000 3)
GBP'000
---------------------- ---------- ---------------- ------------ --------------
30 June 2023 29,577 - 29,577 -
30 June 2022 13,557 - 13,557 -
31 December 2022 24,449 - 24,449 -
---------------------- ---------- ---------------- ------------ --------------
The fair values of these contracts are recorded in the Condensed
Consolidated Statement of Financial Position and are determined by
forming an expectation that interest rates will exceed strike rates
and by discounting these future cash flows at the prevailing market
rates as at the period end.
There have been no transfers between levels during the
period.
The Group has not adopted hedge accounting.
17. Stated capital
Stated capital represents the consideration received by the
Company for the issue of Ordinary Shares.
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
------------------------------ -------------- ------------- ------------
Issued and fully paid Shares
of no par value
At start of the period 513,762 513,762 513,762
------------------------------ -------------- ------------- ------------
Number of Shares in issue
At start and end of period 515,736,583 515,736,583 515,736,583
------------------------------ -------------- ------------- ------------
18. Net asset value per Share (NAV)
Basic NAV per share is calculated by dividing the net assets in
the Condensed Consolidated Statement of Financial Position
attributable to ordinary equity holders of the parent by the number
of Ordinary Shares in issue at the end of the period.
EPRA net asset value is a key performance measure used in the
real estate industry which highlights the fair value of net assets
on an ongoing long-term basis. Assets and liabilities that are not
expected to crystallise in normal circumstances such as the fair
value of derivatives and deferred taxes on property valuation
surpluses are therefore excluded.
Net asset values have been calculated as follows:
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------- ----------------------- -------------- ------------- --------------
Net asset value per Condensed
Consolidated Statement of Financial
Position 373,788 513,375 402,942
Adjustment for calculating EPRA
net tangible assets:
Derivative financial instruments (29,577) (13,557) (24,449)
Deferred tax liability 699 705 699
----------------------------------------- -------------- ------------- --------------
EPRA Net Tangible Assets 344,910 500,523 379,192
----------------------------------------- -------------- ------------- --------------
Number of Ordinary Shares in
issue 515,736,583 515,736,583 515,736,583
----------------------------------------- -------------- ------------- --------------
Net asset value per Share -
basic and diluted 72.5p 99.5p 78.1p
----------------------------------------- -------------- ------------- --------------
EPRA Net Tangible Assets per
Share - basic and diluted 66.9p 97.1p 73.5p
----------------------------------------- -------------- ------------- --------------
19. Segmental information
After a review of the information provided for management
purposes, it was determined that the Group had one operating
segment and therefore segmental information is not disclosed in
these condensed consolidated financial statements.
20. Transactions with related parties
Transactions with the Asset Manager, London & Scottish
Property Investment Management Limited and the Property Manager,
London & Scottish Property Asset Management Limited.
Stephen Inglis is a non-executive Director of the Company, as
well as being the Chief Executive Officer of London & Scottish
Property Investment Management Limited ("LSPIM"), which is the
parent company of L&S PM Limited. LSPIM has been contracted to
act as the Asset Manager of the Group and L&S PM Limited
contracted as the Property Manager.
In consideration for the provision of services provided, the
Asset Manager is entitled in each financial year (or part thereof)
to 50% of an annual management fee on a scaled rate of (i) 1.1% of
the EPRA NTA up to and equal to GBP500,000,000; (ii) 0.9% of EPRA
NTA above GBP500,000,000 and up to or equal to GBP1,000,000,000;
(iii) 0.7% of EPRA NTA above GBP1,000,000,000 and up to or equal to
GBP1,500,000,000; and (iv) 0.5% of EPRA NTA above
GBP1,500,000,000.
In respect of each portfolio property the Investment Manager has
procured and shall, with the Company in future, procure that London
& Scottish Property Investment Management Limited is appointed
as the Property Manager. A property management fee of 4% per annum
is charged by the Property Manager on a quarterly basis: 31 March,
30 June, 30 September and 31 December, based upon the gross rental
yield. Gross rental yield means the rents due under the property's
lease for the peaceful enjoyment of the property, including any
value paid in respect of rental renunciations, but excluding any
sums paid in connection with service charges or insurance
costs.
The Investment Manager is also entitled to a performance fee.
Details of the performance fee are given below. The following
tables show the fees charged in the period and the amount
outstanding at the end of the period:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------------- -------------- ------------- -------------
Asset management fees charged
(1) 1,034 1,494 2,691
Property management fees charged
(1) 1,324 1,284 3,044
Total 2,358 2,778 5,735
---------------------------------- -------------- ------------- -------------
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------------- -------------- ------------- -------------
Total fees outstanding (1) 1,279 1,474 1,642
---------------------------------- -------------- ------------- -------------
(1) Including irrecoverable VAT charged where appropriate
Transactions with the Investment Manager, Toscafund Asset
Management LLP
In consideration for the provision of services provided, the
Investment Manager is entitled in each financial year (or part
thereof) to 50% of an annual management fee on a scaled rate of (i)
1.1% of the EPRA NTA up to and equal to GBP500,000,000; (ii) 0.9%
of EPRA NTA above GBP500,000,000 and up to or equal to
GBP1,000,000,000; (iii) 0.7% of EPRA NTA above GBP1,000,000,000 and
up to or equal to GBP1,500,000,000; and (iv) 0.5% of EPRA NTA above
GBP1,500,000,000.
The Investment Manager is also entitled to a Performance Fee.
Details of the Performance Fee are given below.
The following tables show the fees charged in the period and the
amount outstanding at the end of the period:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------- -------------- ------------- -------------
Investment management fees
charged 1,035 1,469 2,687
Total 1,035 1,469 2,687
---------------------------- -------------- ------------- -------------
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------- -------------- ------------- -------------
Total fees outstanding 519 687 524
---------------------------- -------------- ------------- -------------
Performance fee
The Asset Manager and the Investment Manager are each entitled
to 50% of a performance fee. The fee is calculated at a rate of 15%
of the total shareholder return in excess of the hurdle rate of 8%
per annum for the relevant performance period. Total shareholder
return for any financial year consists of the sum of any increase
or decrease in EPRA NAV per Ordinary Share and the total dividends
per Ordinary Share declared in the financial year. A performance
fee is only payable in respect of a performance period where the
EPRA NAV per Ordinary Share exceeds the high water mark which is
equal to the greater of the highest year-end EPRA NAV Ordinary
Share in any previous performance period. The performance fee was
calculated initially on 31 December 2018 and annually
thereafter.
The performance fees are now payable 34% in cash and 66% in
Ordinary Shares, at the prevailing price per share, with 50% of the
shares locked-in for one year and 50% of the shares locked-in for
two years.
No performance fee has been earned for the six months ended 30
June 2023 or 30 June 2022 or the year ended
31 December 2022.
21. Subsequent events
On 11 September 2023, the Board of Directors approved a dividend
of 1.20 pps in respect of the period 1 April 2023 to 30 June 2023
for announcement on 12 September 2023. The dividend will be paid on
19 October 2023 to Shareholders on the register as at 22 September
2023. These condensed consolidated financial statements do not
reflect this dividend.
EPRA PERFORMANCE MEASURES
The Group is a member of the European Public Real Estate
Association ("EPRA").
EPRA has developed and defined the following performance
measures to give transparency, comparability and relevance of
financial reporting across entities which may use different
accounting standards. The Group is pleased to disclose the
following measures which are calculated in accordance with EPRA
guidance:
EPRA Performance EPRA Performance Period ended 30 Period ended 31
Measure Measure June December
Definition 2023 2022
------------------ ----------------------- ------------------------ ----------------- -----------------
EPRA EARNINGS Earnings
from operational EPRA Earnings GBP12,700,000 GBP34,066,000
activities
------------------ -----------------------
EPRA Earnings
per Share
(basic and
diluted) 2.5p 6.6p
------------------------------------------------------------------- ----------------- -----------------
The EPRA NAV set of metrics make adjustments to the NAV per the IFRS
financial statements to provide stakeholders with the most relevant
information on the fair value of the assets and liabilities of a
real estate investment company, under different scenarios.
-----------------------------------------------------------------------------------------------------------
EPRA Net EPRA Net Reinstatement GBP379,192,000
Reinstatement Value GBP344,910,000
Value
------------------ -----------------------
EPRA NAV
metric which
assumes that
entities
never sell
assets and
aims to represent
the value
required EPRA Net Reinstatement
to rebuild Value per
the entity. Share (diluted) 66.9p 73.5p
----------------------- ------------------------------------------- ----------------- -----------------
EPRA Net
Tangible GBP379,192,000
Assets EPRA Net Tangible GBP344,910,000
Assets
------------------ -----------------------
EPRA NAV
metric which
assumes that
entities
buy and sell
assets, thereby
crystallising
certain levels EPRA Net Tangible
of unavoidable Assets per
deferred Share
tax. (diluted) 66.9p 73.5p
----------------------- ------------------------------------------- ----------------- -----------------
EPRA Net EPRA NAV
Disposal metric which EPRA Net Disposal
Value represents Value
the GBP422,226,000
Shareholders' GBP400,226,000
value under
a disposal
scenario,
where deferred
tax, financial
instruments
and certain
other adjustments
are calculated
to the full
extent of
their liability,
net of any
resulting
tax.
------------------ -----------------------
EPRA Net Disposal
Value per
Share (diluted) 77.6p 81.9p
------------------------------------------------------------------- ----------------- -----------------
Annualised
rental income
based on
the cash
rents passing
at the balance
sheet date,
less non-recoverable
property
operating
expenses,
divided by
the market
value of
the property
EPRA Net with (estimated)
Initial Yield purchasers' EPRA Net
(NIY) costs. Initial Yield 6.5% 6.4%
------------------ -----------------------
This measure
incorporates
an adjustment
to the
EPRA NIY
in respect
of the expiration
of rent-free-periods
(or other
unexpired
lease incentives
such as discounted
rent periods EPRA 'Topped-up'
EPRA 'Topped-up' and stepped Net Initial
NIY rents). Yield 7.2% 7.2%
------------------ ----------------------- ------------------------ -----------------
Estimated
Market Rental
Value (ERV)
of vacancy
space divided
by ERV of
EPRA Vacancy the whole EPRA Vacancy
Rate portfolio. Rate 16.2% 16.6%
------------------ ----------------------- ------------------------ -----------------
Administrative
and operating
costs (including
and excluding
costs of
direct vacancy)
divided by
EPRA Costs gross rental EPRA Costs
Ratio income. Ratio 39.9% 32.8%
EPRA Costs
Ratio
(excluding
direct
vacancy costs) 17.3% 16.28%
Debt divided
by the market
value of
EPRA LTV property EPRA LTV 55.0% 52.8%
NOTES TO THE CALCULATION OF THE EPRA PERFORMANCE MEASURES
1. EPRA earnings and Company Adjusted Earnings
For calculations, please refer to note 11 to the financial
statements.
2. EPRA Net Reinstatement Value
30 June 31 December
2023 2022
GBP'000 GBP'000
NAV per the financial statements 373,788 402,942
Fair value of derivative financial
instruments (29,577) (24,449)
Deferred tax liability 699 699
EPRA Net Reinstatement Value 344,910 379,192
Dilutive number of Shares 515,736,583 515,736,583
EPRA Net Reinstatement Value per
share 66.9p 73.5p
3. EPRA Net Tangible Assets
30 June 31 December
2023 2022
GBP'000 GBP'000
------------
NAV per the financial statements 373,788 402,942
Fair value of derivative financial instruments (29,577) (24,449)
Deferred tax liability 699 699
------------
EPRA Net Tangible Assets 344,910 379,192
------------
Dilutive number of Shares 515,736,583 515,736,583
------------
EPRA Net Tangible Assets per Share 66.9p 73.5p
------------
4. EPRA Net Disposal Value
30 June 31 December
2023 2022
GBP'000 GBP'000
------------
NAV per the financial statements 373,788 402,942
Adjustment for the fair value of bank
borrowings 24,109 18,867
Adjustment for the fair value of retail
eligible bonds 2,329 417
------------
EPRA Net Disposal Value 400,226 422,226
------------
Dilutive number of Shares 515,736,583 515,736,583
------------
EPRA Net Disposal Value per Share 77.6p 81.9p
------------
5. EPRA Net Initial Yield
Calculated as the value of investment properties divided by
annualised net rents:
30 June 31 December
2023 2022
GBP'000 GBP'000
---------
Investment properties 752,226 789,480
Purchaser costs 49,633 51,993
---------
801,859 841,473
---------
Annualised cash passing rental income 61,663 63,687
Property outgoings (9,694) (9,705)
Annualised net rents 51,969 53,982
Add notional rent expiration of rent-free
periods or other lease incentives 5,985 6,402
---------
Topped-up net annualised rent 57,954 60,384
---------
EPRA NIY 6.5% 6.4%
---------
EPRA topped up NIY 7.2% 7.2%
---------
6. EPRA Vacancy Rate
Six months
ended Year ended
30 June 31 December
2023 2022
GBP'000 GBP'000
-------------
Estimated Market Rental Value (ERV) of
vacant space 14,729 14,579
Estimated Market Rental value (ERV) of
whole portfolio 84,260 87,652
-------------
EPRA Vacancy Rate 17.5% 16.6%
-------------
7. EPRA Cost Ratios
Six month Year ended
ended 30 June 31 December
2023 2022
GBP'000 GBP'000
--------------- -------------
Property costs 18,438 30,672
Less recoverable service charge income
and other similar costs (10,106) (16,999)
Add administrative and other expenses 5,341 11,421
--------------- -------------
EPRA costs (including direct vacancy
costs) 13,673 25,094
--------------- -------------
Direct vacancy costs (7,723) (12,712)
--------------- -------------
EPRA costs (excluding direct vacancy
costs) 5,950 12,382
--------------- -------------
Gross rental income 44,415 93,318
Less recoverable service charge income
and other similar items (10,106) (16,999)
--------------- -------------
Gross rental income less ground rents 34,309 76,319
--------------- -------------
EPRA Cost Ratio (including direct vacancy
costs) 39.9% 32.8%
--------------- -------------
EPRA Cost Ratio (excluding direct vacancy
costs) 17.3% 16.2%
--------------- -------------
The Group has not capitalised any overhead or operating expenses
in the accounting years disclosed above.
8. EPRA LTV
30 June 31 December
2023 2022
GBP'000 GBP'000
--------- ------------
Borrowings from financial institutions 381,693 390,792
Bond loans 50,000 50,000
Net payables 23,731 26,888
Cash and cash equivalents (41,231) (50,148)
EPRA Net debt 414,193 417,532
Investment properties at fair value 752,226 789,480
Financial Assets - loans 645 770
--------- ------------
Total property value 752,871 790,250
--------- ------------
EPRA LTV 55.0% 52.8%
--------- ------------
PROPERTY RELATED CAPITAL EXPITURE ANALYSIS
Six months Year ended
ended 30 June 31 December
2023 2022
GBP'000 GBP'000
--------------- -------------
Acquisitions 91 79,270
Development - -
Investment properties -
Incremental lettable space - -
Enhancing lettable space 6,664 10,017
Tenant incentives - -
Other material non-allocated types of - -
expenditure
Capitalised interest - -
--------------- -------------
Total Capital Expenditure 6,755 89,287
--------------- -------------
Conversion from accruals to cash basis - -
--------------- -------------
Total Capital Expenditure on cash basis 6,755 89,287
--------------- -------------
Acquisitions - this represents the purchase cost of investment
properties and associated incidental purchase expenses such as
stamp duty land tax, legal fees, agents' fees, valuations and
surveys.
Subsequent capital expenditure - this represents capital
expenditure which has taken place post the initial acquisition of
an investment property.
OTHER PERFORMANCE MEASURES
Net LTV
30 June 31 December
2023 2022
GBP'000 GBP'000
--------- ------------
Borrowings from financial institutions 381,693 390,792
Bond loans 50,000 50,000
Cash and cash equivalents (41,231) (50,148)
--------- ------------
Net debt 390,462 390,644
--------- ------------
Investment properties at fair value 752,226 789,480
--------- ------------
Net LTV 51.9% 49.5%
--------- ------------
SHAREHOLDER INFORMATION
Share register enquiries: Link Group.
Please phone: 0371 664 0300 for any questions about:
-- changing your address or other details
-- your Shares
-- buying and selling Shares.
Calls are charged at the standard geographic rate and will vary
by provider. Calls outside the United Kingdom will be charged at
the applicable international rate. The Registrar is open between
9.00 and - 17.30, Monday to Friday excluding public holidays in
England and Wales. For Shareholder enquiries please email
shareholder enquiries@linkgroup.co.uk .
POSTAL ADDRESS
Link Group
Shareholder Services
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Electronic Communications from the Company
Shareholders now have the opportunity to be notified by email
when the Company's annual reports, interim reports and other formal
communications are available on the Company's website, instead of
receiving printed copies by post. This has environmental benefits
in the reduction of paper, printing, energy and water usage, as
well as reducing costs to the Company. If you have not already
elected to receive electronic communications from the Company and
wish to do so, visit www.signalshares.com. To register, you will
need your investor code, which can be found on your share
certificate.
Alternatively, you can contact Link's Customer Support Centre,
which is available to answer any queries you have in relation to
your shareholding:
By phone: call +44 (0) 371 664 0300. Calls from outside the UK
will be charged at the applicable international rate. Lines are
open between 9.00 and 17.30, Monday to Friday (excluding public
holidays in England and Wales).
By email: shareholder enquiries@linkgroup.co.uk
By post:
Link Group
Shareholder Services
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Forthcoming events
October 2023 Q2 2023 Dividend Payment
November 2023 Q3 Trading Update and Dividend Declaration
February 2024 Q4 Dividend Declaration
March 2024 2023 Preliminary Results
May 2024 Q1 2024 Trading Update and Dividend Declaration
Note: all future dates are provisional and subject to
change.
Website: www.regionalreit.com
Other Information
Listing (ticker): LSE Main Market (RGL)
Date of listing: 6 November 2015
Joint Brokers: Peel Hunt LLP and Panmure Gordon (UK) Limited
Financial PR: Buchanan Communications
Incorporated: Guernsey
ISIN: GG00BYV2ZQ34
SEDOL: BYV2ZQ3
Legal Entity Identifier: 549300D8G4NKLRIKBX73
COMPANY INFORMATION
Directors
Kevin McGrath (Chairman and Independent Non-Executive
Director)
Daniel Taylor (Senior Independent Non-Executive Director)
Frances Daley (Independent Non-Executive Director and Audit
Committee Chairman)
Massy Larizadeh (Independent Non-Executive Director, Nomination
Committee and Management Engagement Committee Chairman)
Stephen Inglis (Non-Executive Director)
Administrator Independent Auditor Registrar
Jupiter Fund Services RSM UK Audit LLP Link Market Services
Limited Third Floor (Guernsey)
Mont Crevelt House Centenary House Limited
Bulwer Avenue 69 Wellington Street 10th Floor Central Square
St. Sampson Glasgow G2 6HG 29 Wellington Street
Guernsey GY2 4LH Leeds LS1 4DL
Asset Manager Investment Manager Sub-Administrator
London & Scottish Property Toscafund Asset Management Link Alternative Fund
Investment Management LLP Administrators Limited
Limited 5th Floor Broadwalk House
300 Bath Street, Glasgow 15 Marylebone Road Southernhay West
G2 4JR London NW1 5JD Exeter
EX1 1TS
Company Secretary Legal Adviser to the Tax Adviser
Link Company Matters Company KPMG LLP
Limited Macfarlanes LLP 319 St Vincent Street
65 Gresham Street 20 Cursitor Street Glasgow G2 5AS
London London EC4A 1LT
EC2V 7NQ
Depositary Public Relations Registered office
Ocorian Depositary (UK) Buchanan Communications Regional REIT Limited
Limited Limited Mont Crevelt House
20 Fenchurch Street 107 Cheapside Bulwer Avenue
London London EC2V 6DN St. Sampson
EC3M 3BY Guernsey GY2 4LH
Financial Adviser and Joint Broker Property Valuers
Joint Broker Panmure Gordon Colliers International
Peel Hunt LLP 1 New Change Property
7th Floor London Consultants Limited
100 Liverpool Street EC4M 9AF 95 Wigmore Street
London London
EC2M 2AT W1U 1DJ
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of this
announcement.
National Storage Mechanism
A copy of the Half-Yearly Report will be submitted shortly to
the National Storage Mechanism ("NSM") and will be available for
inspection at the NSM, which is situated at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
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END
IR EAKNFFDNDEFA
(END) Dow Jones Newswires
September 12, 2023 02:00 ET (06:00 GMT)
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