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), the 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 £69.8m (30 June 2022: £72.0m; 31 December 2022: £71.8m)

·      Portfolio valuation £752.2m (31 December 2022: £789.5m). 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 £20.6m (30 June 2022: £23.4m)

·      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 £14.6m (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.£1.2m 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."


- ENDS - 

Enquiries:

Regional REIT Limited

 




Toscafund Asset Management

Tel: +44 (0) 20 7845 6100

Investment Manager to the Group


Adam Dickinson, Investor Relations, Regional REIT Limited




London & Scottish Property Investment Management

Tel: +44 (0) 141 248 4155

Asset Manager to the Group


Stephen Inglis




Buchanan Communications

Tel: +44 (0) 20 7466 5000

Financial PR

regional@buchanan.uk.com

Charles Ryland /Henry Wilson / George Beale


 

About Regional REIT

Regional REIT Limited ("Regional REIT" or the "Company") and its subsidiaries1 (the "Group") is a United Kingdom ("UK") based real estate investment trust that launched in November 2015. It is managed by London & Scottish Property Investment Management Limited, the Asset Manager, and Toscafund Asset Management LLP, the Investment Manager.

 

Regional REIT's commercial property portfolio is comprised wholly of 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 £752.2 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

June

2023

31

December 2022

Portfolio Valuation

£752.2m

£789.5m

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 £14.1 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 £6.7 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 £344.9 million (31 December 2022: £379.2 million) and a cash balance of £41.2 million (31 December 2022: £50.1 million), of which £26.0 million is unrestricted (31 December 2022: £37.8 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 £3.0 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 £6.0 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 £3.0 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 £0.6 billion, 10.8% above the five-year quarterly average - the strongest regional performance relative to trend. Data from LSH shows that £0.5 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 £15.7 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 £0.8 billion in Q2 2023, 27.8% higher than the previous quarter. Overall, investment in regional offices reached £1.4 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 £69.8m.

 

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 £54.1 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 £15.7 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 £3.0 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 £6.0 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 £3.0 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 £0.6 billion, 10.8% above the five-year quarterly average - the strongest regional performance relative to trend. Data from LSH shows that £0.5 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 £0.8 billion in Q2 2023, 27.8% higher than the previous quarter. Overall, investment in regional offices reached £1.4 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 20221. 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.

 

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 £100m plus deals in Q2 2023. Figures indicate that overseas investment reached £4.0 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 £7.9 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 £2.5 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 markets3 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 decade4. 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 Cities5 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%, respectively6. 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 markets7, 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 £35.39 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 £752.2 million (30 June 2022: £918.2 million; 31 December 2022: £789.5 million), with rent roll of £69.8 million (30 June 2022: £72.0 million; 31 December 2022: £71.8 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 £88.9 million per annum (30 June 2022: £94.1 million; 31 December 2022: £92.0

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

 

Valuation

 

Sq. ft.

Occupancy (EPRA)

WAULT to first break

Gross rental income

Average rent

ERV

Capital rate

Yield

 

 

 

Properties

 

 

 

(£m)

 

 

% by valuation

 

 

 

(m)

 

 

 

(%)

 

 

 

(yrs)

 

 

 

(£m)

 

 

 

(£psf)

 

 

 

(£m)

 

 

 

(£psf)

EPRA Net initial

(%)

 

 

Equivalent

(%)

 

 

Reversionary

(%)

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   

 














Region

 

Valuation

 

Sq. ft.

Occupancy (EPRA)

WAULT to first break

Gross rental income

Average rent

ERV

Capital rate

Yield

Properties

(£m)

% by valuation

(m)

(%)

(yrs)

(£m)

(£psf)

(£m)

(£psf)

EPRA Net initial (%)

Equivalent

(%)

Reversionary

(%)

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

 

 

 

 

Market

value (£m)

% of

portfolio

Lettable

area

 

EPRA

Occupancy

(%)

Annualised

gross rent (£m)

% of gross rental income

WAULT

to

first

break

300 Bath Street,

Glasgow

 

Office

University of Glasgow,

Glasgow Tay House Centre

Ltd, Fairhurst Group LLP,

London & Scottish Property

Investment Management

 

21.4

2.8%

156,853

87.6%

1.2

1.8%

2.4

 

Eagle Court,

Coventry Road,

Birmingham

Office

Virgin Media Ltd, Rexel UK Ltd

20.2

2.7%

132,979

67.6%

1.6

2.3%

0.6

 

Hampshire

Corporate Park,

Eastleigh

 

Office

Aviva Central Services UK

Ltd, Lloyd's Register EMEA,

Complete Fertility Ltd,

National Westminster Bank

Plc

 

19.8

2.6%

84,043

100.0%

1.7

2.4%

3.5

Beeston Business

Park, Nottingham

 

Office/

Industrial

 

Metropolitan Housing Trust

Ltd, SMS Electronics Ltd,

Heart Internet Ltd, SMS

Product Services Ltd

 

17.2

2.3%

215,330

100.0%

1.4

2.0%

5.1

800 Aztec West,

Bristol

 

Office

NNB Generation Company

(HPC) Ltd, Edvance SAS

 

16.5

2.2%

73,292

100.0%

1.5

2.2%

0.9

Manchester Green,

Manchester

 

Office

Chiesi Ltd, Ingredion UK

Ltd, Assetz SME Capital

Ltd, Contemporary Travel

Solutions Ltd

 

16.5

2.2%

107,760

79.1%

1.4

2.0%

3.1

Orbis 1, 2 & 3, Pride

Park, Derby

 

Office

First Source Solutions UK

Ltd, DHU Health Care C.I.C.,

Tentamus Pharma (UK) Ltd

 

16.2

2.1%

121,883

100.0%

1.8

2.6%

3.9

Norfolk House,

Smallbrook

Queensway,

Birmingham

 

Office

Global Banking School Ltd,

Accenture (UK) Ltd

 

15.3

2.0%

115,780

97.7%

1.4

1.9%

6.8

Linford Wood

Business Park,

Milton Keynes

 

Office

IMServ Europe Ltd, Market

Force Information (Europe)

Ltd, Aztech IT Solutions Ltd

 

15.2

2.0%

107,352

91.1%

1.5

2.1%

2.1

Capitol Park, Leeds

Office

Hermes Parcelnet Ltd, BDW

Trading Ltd

 

13.4

1.8%

98,340

45.9%

0.7

1.0%

4.6

 

Portland Street,

Manchester

 

Office

Evolution Money Group Ltd,

Mott MacDonald Ltd, NCG

(Manchester) Ltd, Simard Ltd

 

12.9

1.7%

55,787

95.9%

1.1

1.5%

2.4

Oakland House,

Manchester

 

Office

Please Hold (UK) Ltd,

A.M.London Fashion Ltd,

CVS (Commercial Valuers &

Surveyors) Ltd

 

12.9

1.7%

161,502

78.5%

1.0

1.5%

2.1

Templeton On The

Green, Glasgow

 

Office

The Scottish Ministers, The

Scottish Sports Council, Noah

Beers Ltd, The Wise Group

 

12.0

1.6%

142,520

92.7%

1.3

1.9%

3.9

Origin 1 & 2,

Crawley

 

Office

Knights Professional Services

Ltd, DMH Stallard LLP,

Spirent Communications Plc,

Travelopia Holdings Ltd

 

11.7

1.6%

45,855

100.0%

1.1

1.6%

1.5

Buildings 2, Bear

Brook Office Park,

Aylesbury

 

Office

Utmost Life and Pensions Ltd,

Musarubra UK Subsidiary 3

Ltd, Agria Pet Insurance 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

 

 

 

 

WAULT to first break

Lettable area

Annualised gross rent

% of gross rental income

Tenant

Property 

Sector 

(years)

(Sq. Ft)

(£m)

Virgin Media Ltd

Eagle Court, Birmingham Southgate Park, Peterborough

Information and communication

0.7

107,830

1.8

2.5%

Shell Energy Retail Ltd

Columbus House, Coventry

Electricity, gas, steam

and air conditioning

supply

 

0.5

53,253

1.4

2.0%

Secretary of State for

Communities & Local

Government Ltd

 

1 Burgage Square, Merchant Square,

Wakefield

Albert Edward House, Preston

Bennett House, Stoke-On-Trent

Oakland House, Manchester

Waterside Business Park, Swansea

Public sector

4.1

108,915

1.1

1.5%

EDF Energy Ltd

Endeavour House, Sunderland

Electricity, gas, steam

and air conditioning

supply

 

7.2

77,565

1.0

1.5%

First Source Solutions

UK Ltd

 

Orbis 1, 2 & 3, Pride Park, Derby

Administrative and

support service

activities

 

3.8

62,433

1.0

1.4%

E.ON UK Plc

Two Newstead Court, Nottingham

Electricity, gas, steam

and air conditioning

supply

1.8

99,142

0.9

1.4%

John Menzies Plc

2 Lochside Avenue, Edinburgh

Professional, scientific

and technical activities

0.1

43,780

0.9

1.3%

NNB Generation

Company (HPC) Ltd

 

800 Aztec West, Bristol

Electricity, gas, steam

and air conditioning

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%

SPD Development Co

Ltd

 

Clearblue Innovation Centre, Bedford

Professional, scientific

and technical activities

2.3

58,167

0.8

1.2%

Aviva Central Services

UK Ltd

 

Hampshire Corporate Park, Eastleigh

Other service activities

1.4

42,612

0.8

1.1%

Odeon Cinemas Ltd

Kingscourt Leisure Complex, Dundee

Information and

communication

12.3

41,542

0.8

1.1%

SpaMedica Ltd

1175 Century Way, Thorpe Park, Leeds

Albert Edward House, Preston

Fairfax House, Wolverhampton

lll Acre, Princeton Drive, Stockton On Tees

Southgate Park, Peterborough

The Foundation Chester Business Park, Chester

Human health and

social work activities

 

2.9

50,656

0.7

1.0%

Edvance SAS

800 Aztec West, Bristol

Electricity, gas, steam

and air conditioning

supply

1.1

31,549

0.7

1.0%

Care Inspectorate

Compass House, Dundee

Quadrant House, 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 £344.9 million (IFRS NAV: £373.8 million) from £379.2 million (IFRS NAV: £402.9 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 £29.5 million, for the properties held as at 30 June 2023.

 

The investment property portfolio was valued at £752.2 million (30 June 2022: £918.2 million; 31 December 2022: £789.5 million). The decrease of £37.3 million since the December 2022 year-end is a reflection of revaluation movement loss of £29.5 million, £14.1 million of net property disposals and £0.4 million loss on the disposal of investment properties, offset by subsequent expenditure of £6.8 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 to 30 June 2023

Six months to June 2022

Year ended

31 December 2022



(£million)

(£million)

(£million)

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

 

 

£m

 

Pence per 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 £20.6 million (six months to 30 June 2022: £23.4 million). Loss after finance and before taxation of £12.1 million (six months to 30 June 2022: gain £28.3 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 £29.5m, the loss on the disposal of investment properties of £0.4m, and the change in the value of right of use asset of £0.1million.

 

Rental and property income amounted to £34.3 million, excluding recoverable service charge income and other similar items (six months to 30 June 2022 £37.1m 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 £0.4 million (release in the six months to 30 June 2022: £0.2 million).

 

Non-recoverable property costs, excluding recoverable service charge income and other similar costs, amounted to £8.3 million (six months to 30 June 2022: £8.1 million), and the rent roll decreased to £69.8 million (six months to 30 June 2022: £72.0 million).

 

Realised loss on the disposal of investment properties amounted to £0.4 million (six months to 30 June 2022: loss £3.3 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 £29.5 million (six months to 30 June 2022: gain of £4.8 million). Net capital expenditure amounted to £6.7 million (six months to 30 June 2022: £3.1 million). The gain on the disposal of the right of use asset amounted to £nil  (six months to 30 June 2022: £nil). The change in value of right of use asset amounted to a charge of £0.1 million (six months to 30 June 2022: charge £0.1 million).

 

Finance expenses amount to £8.0 million (six months to 30 June 2022: £8.4 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 £381.7 million (30 June 2022: £392.9million; 31 December 2022: £390.8 million) (before unamortised debt issuance costs), with £5.7 million available to be drawn. In addition to the bank borrowings, the Group has a £50 million 4.5% retail eligible bond, which is due for repayment in August 2024. In aggregate, the total debt available at 30 June 2023 amounted to £437.4 million (30 June 2022: £444.9 million; 31 December 2022: £444.9 million).

 

At 30 June 2023, the Group's cash and cash equivalent balances amounted to £41.2 million (30 June 2022: £46.2 million; 31 December 2022: £50.1 million), of which £26.0 million (30 June 2022: £43.2 million; 31 December 2022: £37.8 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

 

 

Original facility

Outstanding debt*

Maturity

Gross  loan to value**

Annual interest rate

  Lender

£'000

£'000

date 

 %

 %

Royal Bank of Scotland, Bank of Scotland & Barclays

128,000

125,677

Aug-26

52.7

2.40 over 3 months

£ 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

Santander UK

65,870

62,516

Jun-29

47.2

2.20% over 3 months

£ 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 ended

Six months 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 £nil (30 June 2022: £nil 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

 


 

 

 

 

 

 

Notes

 

Six months

ended

30 June

2023

(unaudited)

£'000 

 

Six months

ended

30 June

2022

 (unaudited)

£'000 

 

Year

ended

31 December

2022

(audited)

£'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

 


 

 

 

Notes

30 June

2023

(unaudited)

£'000 

30 June

2022

(unaudited)

£'000 

31 December

 2022

(audited)

£'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


 

 

Notes

Stated

capital

£'000

Accumulated 

losses 

£'000 

 

Total 

£'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


 

 

Notes

Stated

capital

£'000

Accumulated losses 

£'000 

 

Total 

£'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


 

 

Notes

Stated

capital

£'000

Accumulated losses

£'000

 

Total

£'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 

2023

(unaudited)

£'000 

 

 

30 June 

2022

(unaudited)

£'000 

 

 

31 December 

2022

(audited)

£'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 (£'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 £41.2m of cash and cash equivalents, of which £26.0m was unrestricted cash, providing ample liquidity. Borrowing facilities decreased from £440.8m at 31 December 2022 to £431.7m 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 £125.7m 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 £752,226,000 (30 June 2022: £918,200,000; 31 December 2022: £789,480,000) 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 £29,577,000 asset (30 June 2022: £13,557,000; 31 December 2022: £24,449,000). 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

ended

30 June

2023

(unaudited)

£'000

Six months

 ended

30 June

2022

 (unaudited)

£'000

Year

 ended

31 December

2022

(audited)

£'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

ended

30 June

2023

(unaudited)

£'000

Six months

 ended

30 June

2022

 (unaudited)

£'000

Year

 ended

31 December

2022

(audited)

£'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

 ended

30 June

2022

(unaudited)

£'000

Year

 ended

31 December

2022

(audited)

£'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

5,568

11,421

 





 

8. Finance income


 

 

 

Six months

ended

30 June

2023

(unaudited)

£'000

Six months

 ended

30 June

2022

(unaudited)

£'000

Year

 ended

31 December

2022

(audited)

£'000

 




Interest income

17

34

126

Total

17

34

126





 

9. Finance expense


 

 

 

Six months

ended

30 June

2023

(unaudited)

£'000

Six months

 ended

30 June

2022

(unaudited)

£'000

Year

 ended

31 December

2022

(audited)

£'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

ended

30 June

2023

(unaudited)

£'000

Six months

 ended

30 June

2022

(unaudited)

£'000

Year

 ended

31 December

2022

(audited)

£'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

ended

30 June

2023

(unaudited)

£'000

Six months

ended

   30 June

2022

(unaudited)

   £'000

Year

ended

31 December

2022

(audited)

£'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

ended

30 June 

2023

(unaudited)

£'000

Six months

ended

30 June

2022

(unaudited)

£'000

Year

ended

31 December

2022

(audited)

£'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 for the

six months ended 30 June 2023 (unaudited)


Freehold 

 property 

£'000 

Long Leasehold 

 property 

£'000 

Total

£'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 £908,464,000 (30 June 2022: £944,480,000; 31 December 2022: £92,723,000).

 

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

 

 

 

 

Date of valuation:

 

 

 

Total

£'000

 

Quoted

active prices

(level 1)

£'000

Significant observable inputs

(level 2)

£'000

Significant unobservable inputs

 (level 3)

£'000






30 June 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 £12,500 - £3,589,000 per annum (30 June 2022: £9,000 - £3,317,000 per annum; 31 December 2022: £12,500-£3,317,000).

 

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 2023

Impact on

statement of

comprehensive

income

£'000

30 June 2023

Impact on

statement of

nancial position

£'000

 

31 December 2022

Impact on

statement of

comprehensive

income

£'000

31 December 2022

Impact on

statement of

nancial position

£'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 

2023

(unaudited)

£'000 

30 June 

2022 

(unaudited)

£'000 

31 December 

 2022 

(audited)

£'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.

 

 

 

Lender

 

Original

facility

 

Outstanding debt*

 

Maturity

date

Gross

loan to value**

 

Annual interest rate

 

Amortisation


£'000

£'000












 

 

Royal Bank of Scotland, Bank of Scotland and Barclays

128,000

125,677

August 2026

52.70%

 

2.40% over 3 months £ SONIA

Mandatory prepayment

 

Scottish Widows Ltd & Aviva Investors Real Estate Finance

157,500

 

157,500

 

December 2027

51.40%

 

 

              3.28% Fixed

 

 

None

 

Scottish Widows Ltd

36,000

36,000

December 2028

43.80%

3.37% Fixed

None

 

 

Santander UK

65,870

62,516

June 2029

47.20%

2.20% over 3

months £ SONIA

Mandatory prepayment

 

Total bank borrowings

387,370

 

381,693





 

Retail eligible bond

50,000

50,000

August 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 £50,000,000 of 4.5% retail eligible bonds with a maturity date of 6 August 2024. The bonds are listed on the LSE ORB platform.

 

 

 

30 June 

2023

(unaudited)

£'000 

30 June 

2022

(unaudited)

£'000 

31 December 

 2022 

(audited)

£'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

2023

(unaudited)

£'000

30 June

2022

(unaudited)

£'000

31 December

 2022

(audited)

£'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 facility

£'000

 

Outstanding debt*

£'000

 

 

Maturity

date

 

 

Annual interest rate

 

Notional amount

£'000

 

 

Rate

Royal Bank of Scotland, Bank of Scotland and Barclays

128,000

125,677

August 2026

 

2.40% over 3months £ SONIA

swap £73,000

cap £55,000

0.97%

0.97%

Scottish Widows Ltd. & Aviva Investors Real Estate Finance

157,500

157,500

December 2027

 

 

                 3.28% Fixed

 

 

n/a

 

 

n/a

Scottish Widows Ltd

36,000

36,000

December 2028

 

3.37% Fixed

n/a

n/a

Santander UK

65,870

62,516

June 2029

 

2.20% over 3 months £ SONIA

swap £49,403

cap £16,468

1.39%

1.39%

Total

387,370

381,693





 

SONIA = Sterling Over Night Indexed Average

 

As at 30 June 2023, the swap arrangements were £122.4m (30 June 2022: £122.4m; 31 December 2022: £122.4m) and the cap notional arrangements amounted to £71.5m (30 June 2022: £71.5m; 31 December 2022: £71.5m).

 

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

2023

(unaudited)

£'000 

30 June 

2022

(unaudited)

£'000 

31 December

 2022

(audited)

£'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.

 

 

 

 

 

Date of valuation:

 

 

 

Total

£'000

 

Quoted active prices

(level 1)

£'000

Significant observable inputs

(level 2)

£'000

Significant unobservable inputs

 (level 3)

£'000






30 June 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

2023

(unaudited)

£'000

30 June

2022

(unaudited)

£'000

31 December 

 2022 

(audited)

£'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  

  2023  

  (unaudited) 

£'000  

30 June

2022

(unaudited)

£'000 

 31 December

2022

(audited)

£'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 £500,000,000; (ii) 0.9% of EPRA NTA above £500,000,000 and up to or equal to £1,000,000,000; (iii) 0.7% of EPRA NTA above £1,000,000,000 and up to or equal to £1,500,000,000; and (iv) 0.5% of EPRA NTA above £1,500,000,000.

 

In respect of each portfolio property the Investment Manager has procured and shall, with the Company in future, procure that London & Scottish Property Investment Management Limited is appointed as the Property Manager. A property management fee of 4% per annum is charged by the Property Manager on a quarterly basis: 31 March, 30 June, 30 September and 31 December, based upon the gross rental yield. Gross rental yield means the rents due under the property's lease for the peaceful enjoyment of the property, including any value paid in respect of rental renunciations, but excluding any sums paid in connection with service charges or insurance costs.

 

The Investment Manager is also entitled to a performance fee. Details of the performance fee are given below. The following tables show the fees charged in the period and the amount outstanding at the end of the period:

 

 

 

 

 

Six months

ended

30 June

2023

(unaudited)

£'000

Six months

 ended

30 June

2022

(unaudited)

£'000

Year

 ended

31 December

2022

(audited)

£'000





Asset management fees charged1

1,034

 

1,494

 

Property management fees charged1

1,324

 

1,284

 

 

Total

2,358

2,778

5,735





 

 

 

30 June

2023

(unaudited)

£'000

30 June

2022

(unaudited)

£'000

31 December

 2022

(audited)

£'000





Total fees outstanding1

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 £500,000,000; (ii) 0.9% of EPRA NTA above £500,000,000 and up to or equal to £1,000,000,000; (iii) 0.7% of EPRA NTA above £1,000,000,000 and up to or equal to £1,500,000,000; and (iv) 0.5% of EPRA NTA above £1,500,000,000.

 

The Investment Manager is also entitled to a Performance Fee. Details of the Performance Fee are given below.

 

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

 

 

 

 

Six months

ended

30 June

2023

(unaudited)

£'000

Six months

ended

30 June

2022

(unaudited)

£'000

Year

ended

31 December

2022

(audited)

£'000





Investment management fees charged

1,035

1,469

2,687

Total

1,035

1,469

2,687


 



 

 

 

30 June

2023

(unaudited)

£'000

30 June

2022

(unaudited)

£'000

31 December

 2022

(audited)

£'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 Measure

 

 

Definition

EPRA Performance Measure

Period ended 30 June

2023

Period ended 31 December

2022

EPRA EARNINGS

Earnings from operational activities

 

EPRA Earnings

 

 

£12,700,000

 

 

 

£34,066,000

 

 

 

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

Reinstatement Value

 

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

required to rebuild the entity.

EPRA Net Reinstatement

Value

 

 

£344,910,000

 

 

£379,192,000

 

EPRA Net Reinstatement

Value per Share (diluted)

 

 

 

66.9p

73.5p

 

 

 

EPRA Net Tangible Assets

 

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

 

 

 

EPRA Net Tangible Assets

 

 

 

 

£344,910,000

 

 

 

£379,192,000

 

EPRA Net Tangible

Assets per Share

(diluted)

66.9p

 

73.5p

EPRA Net Disposal Value

EPRA NAV metric which represents the

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

extent of their liability, net of any resulting tax.

 

EPRA Net Disposal Value

 

 

 

 

£400,226,000

 

 

 



£422,226,000

 

EPRA Net Disposal Value per Share (diluted)

 

 

 

 

77.6p

81.9p

 

EPRA Net Initial Yield (NIY)

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


EPRA Net Initial Yield

 

 

 

 

 

 

 

 

 

6.5%

 

6.4%

EPRA 'Topped-up' NIY

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 and stepped rents).


EPRA 'Topped-up' Net Initial Yield

 

 

 

 



 

 

7.2%

 

7.2%

EPRA Vacancy Rate

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

EPRA Vacancy Rate

 

 

 

16.2%

 

 

 

 

 

16.6%

 

 

EPRA Costs Ratio

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

 

EPRA Costs Ratio

 

 

 

 

39.9%

 

 

 

 

32.8%

 

 

 

EPRA Costs Ratio

(excluding direct

vacancy costs)

 

 

 

 

17.3%

 

 

 

 

16.28%

 

 

 

EPRA LTV

Debt divided by the market value of 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

2023

£'000 


31 December 

2022

£'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

2023

£'000 


31 December 

2022

£'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

2023

£'000 


31 December  

2022 

£'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 

2023

£'000 

 

31 December 

2022

£'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

30 June 

2023

£'000 


Year ended 31 December 

2022

£'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 ended 30 June

2023

£'000 


Year ended 31 December 

2022

£'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

2023

£'000 


31 December 

2022

£'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 EXPENDITURE ANALYSIS

 

 

 

Six months ended 30 June

2023

£'000


Year ended 31 December

2022

£'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

2023

£'000


31 December 

2022

£'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 shareholderenquiries@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:  shareholderenquiries@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

Jupiter Fund Services Limited

Mont Crevelt House

Bulwer Avenue

St. Sampson

Guernsey GY2 4LH

 

Independent Auditor

RSM UK Audit LLP

Third Floor

Centenary House

69 Wellington Street

Glasgow G2 6HG

Registrar

Link Market Services (Guernsey)

Limited

10th Floor Central Square

29 Wellington Street

Leeds LS1 4DL

 

 

 

Asset Manager

London & Scottish Property Investment Management Limited

300 Bath Street, Glasgow

G2 4JR

Investment Manager

Toscafund Asset Management LLP

5th Floor

15 Marylebone Road

London NW1 5JD

 

Sub-Administrator

Link Alternative Fund Administrators Limited

Broadwalk House

Southernhay West

Exeter

EX1 1TS

 

 

 

Company Secretary

Link Company Matters Limited

65 Gresham Street

London

EC2V 7NQ

Legal Adviser to the Company

Macfarlanes LLP

20 Cursitor Street

London EC4A 1LT

 

Tax Adviser

KPMG LLP

319 St Vincent Street

Glasgow G2 5AS

 

 

 

Depositary

Ocorian Depositary (UK) Limited

20 Fenchurch Street

London

EC3M 3BY

 

Public Relations

Buchanan Communications Limited

107 Cheapside

London EC2V 6DN

 

Registered office

Regional REIT Limited

Mont Crevelt House

Bulwer Avenue

St. Sampson

Guernsey GY2 4LH

 

 

 

Financial Adviser and Joint Broker

Peel Hunt LLP

7th Floor

100 Liverpool Street London

EC2M 2AT

Joint Broker

Panmure Gordon

1 New Change

London

EC4M 9AF

 

Property Valuers

Colliers International Property

Consultants Limited

95 Wigmore Street

London

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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