Riversgold Limited Annual Report 2019

FY2019 Annual Report · Riversgold Limited

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Annual Report and Accounts for the year ended 31 December 2019Contents

Overview
About Us
Headlines
At a Glance
A Year in Review

Strategic Report
Chairman’s Statement
Investment Strategy and Business Model
Asset and Investment Managers’ Report
Property Portfolio
Environmental Matters
Financial Review
Principal Risks and Uncertainties
Management Arrangements
Other Information

Corporate Governance
Board of Directors
Report of the Directors
Statement of Directors’ Responsibilities
Corporate Governance Statement
Audit Committee Report
Management Engagement and Remuneration Committee Report
Directors’ Remuneration Report
Independent Auditor’s Report
Appendix: Auditor’s Responsibilities for the Audit of the Financial Statements

Financial Statements
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements

Additional Information
EPRA Performance Measures
Notes to the Calculation of EPRA Performance Measures
Glossary of Terms
AIFMD Disclosure
Company Information
Forthcoming Events
Shareholder Information
Dividend History

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Cover photo: 2 Lochside Avenue, Edinburgh Park, Edinburgh

Annual Report and Accountsfor the year ended 31 December 2019Overview

About Us
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 Limited2, the Asset Manager,
and Toscafund Asset Management LLP (“Toscafund”), the Investment Manager (together the
“Managers”).

Regional REIT’s commercial property portfolio is comprised wholly of UK assets and comprises,
predominantly, offices and industrial units located in the regional centres outside of the M25
motorway. The portfolio is highly diversified, with 160 properties, 1,251 units and 904 tenants as
at 31 December 2019, with a valuation of £787.9m.

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, visit the Group’s website at www.regionalreit.com.

Our Purpose
The purpose of the Company
is to deliver long-term
returns for Shareholders
with income generated from
investment in UK commercial
property outside of the M25
motorway.

Our Values
•

Integrity, reliability and
good governance

•

Fostering collaborative
long-term relationships

Focus on opportunities
and challenges

• Openness and

transparency

Our Culture
• Openness, transparency

and integrity

•

Constructive debate and
relationships

Collaborative
atmosphere

• Ongoing dialogue

and engagement with
stakeholders

For more details on the Company’s values, culture and strategy, please refer to pages 18 to 20 and 61.

European Public Real Estate Association ("EPRA") Gold Award

The Company was pleased to be recognised by the EPRA for a second
year and be granted its first EPRA BPR Gold Award in respect of
the Company’s exceptional compliance with EPRA’s Best Practice
Recommendations for financial reporting of listed property companies.

tr
y

1 Regional REIT Limited is the parent Company of a number of subsidiaries which together comprise a group within the definition of The Companies (Guernsey) Law 2008, as amended (the
“Law”) and the International Financial Reporting Standard (“IFRS”) 10, ‘Consolidated Financial Statements’, as issued by the International Accounting Standards Board (“IASB”) and as
adopted by the European Union ("EU”). Unless otherwise stated, the text of this Annual Report does not distinguish between the activities of the Company and those of its subsidiaries.

2 Following an internal restructure at London and Scottish Investments Limited, the Asset Manager agreement has been assigned to London and Scottish Property Investment Management
Limited (“LSPIM”).

Annual Report and Accountsfor the year ended 31 December 2019

What is a REIT?
A real estate investment trust (“REIT”) is a specialist tax-efficient
investment vehicle built around real property assets, most
specifically property rental/letting activities. REITs are quoted
companies, or groups of companies, that own and manage property
with the aim of generating a rental income. The rental income, after
costs, is paid to Shareholders as a dividend distribution so that,
over time, dividends will represent a significant proportion of the
Shareholders’ total return. REITs are a well-established and globally
recognised holding structure for property assets.

UK REITs are exempt from UK corporation tax on profits and gains of
their qualifying property rental business. However, in consequence,
UK REITs are required to distribute a minimum of 90% of their
qualifying profits to Shareholders as dividends (known as property
income distributions, or “PIDs”). As Shareholders receive higher
pay-outs than they would if the REIT were subject to UK corporation
tax on its property profits and gains, Shareholders are thus required
to pay tax on the PIDs. The effect, in general terms, is that taxation
is moved from the REIT to the investor and the investor is then liable
for taxation as if they owned the property directly.

Regional REIT Limited and its subsidiaries are a United Kingdom
REIT group under UK tax legislation, having elected to enter the REIT
regime with effect from 7 November 2015. Remaining in the regime
is subject to meeting various conditions imposed by the legislation.

ISA, SSAS and SIPP Status
The Company’s shares should be eligible to be held in an Individual
Savings Account (“ISA”).

Subject to the rules of the trustees of the relevant scheme, the
Ordinary Shares should generally be eligible for inclusion in a small
self-administered scheme (“SSAS”) or self-invested personal pension
(“SIPP”) provided: (a) no member of the SSAS or SIPP (or person
connected with such a member) occupies or uses any residential
property held by the Group; and (b) the SSAS or SIPP, alone or
together with one or more associated persons, does not directly or
indirectly hold 10% or more of any of the Ordinary Shares, voting
rights in the Company, rights to income of the Company, rights to
amounts on a distribution of the Company or rights to assets on a
winding up of the Company.

a r k, B asildon

INDUSTRIALS: J u n i p e

r P

R
E
T
A

R: The Brunel C e n t

e , Bletchley

Annual Report and Accountsfor the year ended 31 December 2019

Headlines

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

112.1p
IFRS NAV per share

8.25p
Dividend per share

3.5%
Weighted Average
Cost of Debt*

£787.9m
Portfolio Valuation

112.7p
EPRA NAV per share

38.9%
Net Loan to
Value Ratio*

7.3 years
Weighted Average
Debt Duration*

Operational Highlights
Deliberately diversified portfolio by location and tenant – regions remain strong

Portfolio by region and
sector (by value)

1,251
Units

£64.3m
Rent Roll

93.6%
Ofﬁce & Industrial

89.4%
Active management
building occupancy
by EPRA ERV*

5.5 years
WAULT to expiry

13
Number of properties

3
Number of properties

160
Properties

904
Tenants

82.0%
England & Wales

£87.1m
Property acquisitions
(before costs)

£24.3m
Property disposal
proceeds (net of costs)

3.5 years
WAULT to ﬁrst break

* Alternative Performance Measures. Details are provided in the Glossary of Terms on pages 140 and 141 and the EPRA Performance Measures on pages 136 to 139.

Annual Report and Accountsfor the year ended 31 December 2019Performance Highlights
The high dividend distributions are a major component of the total return

Dividends declared per share:

EPRA

8.05p
2018

7.65p
2016

43.0%
EPRA Total Return
attributable to
Shareholders since
Admission

8.25p
2019

7.85p
2017

1.00p
2015

# Admission: 6 November 2015
Member of FTSE All-Share Index since March 2016
Member of FTSE EPRA NAREIT UK Index since June 2016

12.7%
EPRA NAV increase
since Admission#
(Admission: 100p)

9.0%
EPRA Annual Total
Return attributable
to Shareholders*

Total EPRA Return* (from IPO) (EPRA NAV and dividend declared)

43.0%

e
r
a
h
s

r
e
p

e
c
n
e
P

150
145
140
135
130
125
120
115
110
105
100
95

IPO November 2015 December 2015

December 2016

December 2017

December 2018

December 2019

^ Alternative Performance Measures. Details are provided in the Glossary of Terms on pages 140 and 141 and the EPRA Performance Measures on pages 136 to 139

Terms are defined in the Glossary of Terms on pages 140 and 141.

Annual Report and Accountsfor the year ended 31 December 2019

Property Name: Tay House, Glasgow
Sector: Office

At a Glance

EPRA-Eps-Adj^ diluted (p)

7.8p +4%

Reported Proﬁt (£m)

£26.5m -61%

Net Rental Income (£m)

£55.0m +1%

^excluding performance fee

2019

2018

2017

7.8

7.5

8.6

2019

2018

2017

26.5

27.1

67.4

2019

2018

2017

45.8

55.0

54.4

WADD* (years)

7.3yrs +14%

Net LTV* (%)

38.9% +2%

WACD* (%)

3.5% -8%

2019

2018

2017

7.3

6.4

6.0

2019

2018

2017

38.9

38.3

2019

3.5

2018

2017

45.0

3.8

EPRA NAV – diluted* (pps)

112.7p -2%

Average Property Value (£m)

£4.9m +3%

EPRA Occupancy* (%)

89.4% 0%

2019

2018

2017

112.7

115.5

105.9

2019

2018

2017

4.9

2019

N/A

4.8

4.5

2018

2017

88.2

89.4

Number of Properties

160 +7%

Tenants

904 +3%

Units

1,251 +5%

2019

2018

2017

150

160

164

2019

2018

2017

904

874

1,026

2019

2018

2017

1,251

1,192

1,368

Rent Roll (£m)

£64.3m +8%

WAULT to ﬁrst break (years)

3.5yrs +3%

Average rent psf (£)

£10.17 +8%

2019

2018

2017

64.3

59.7

61.9

2019

2018

2017

3.4

3.5

2019

2018

2017

10.17

9.40

8.18

IFRS Eps diluted (p)

6.6p -64%

Dividend per share (p)

£8.25p +2%

IFRS NAV diluted (pps)

112.1p -3%

2019

2018

2017

6.6

9.1

18.1

2019

2018

2017

8.25

8.05

7.85

2019

2018

2017

105.1

112.1

115.2

* Alternative Performance Measures. Details are provided in the Glossary of Terms on pages 140 and 141 and the EPRA Performance Measures on pages 136 to 139.

Terms are defined in the Glossary of Terms on pages 140 and 141.

Annual Report and Accountsfor the year ended 31 December 2019A Year in Review

H o use, Birmingha

o rf o l k

e C r e s cent, Birmingha

0 T

2 8 0

e o n L uxe, Dundee

O d

Annual Report and Accountsfor the year ended 31 December 2019PORTFOLIOKEYACQUISITIONSKEYDISPOSALSDIVIDENDSKEYLETTINGS /REFURBISHMENTSDEBT / EQUITY2020Properties:Units:Tenants:Portfolio:Rent roll:LTV:Amount:Description:Net initial yield:Rent:Location:Area:Description:Amount:Location:Description:Amount:Description:Amount:Period:30 Jun1491,178828£721.7m£57.8m pa39.9%30 Sep1561,224864£749.7m£60.2m pa34.2%21 Jan£555,000Leeds & Coventry40,717 sq. ft.Ofﬁce lettings9 Jan£39.9m6.5% Zero DividendPreference Shares repaid6 & 7 Jun £19.9mShefﬁeld & Beverlynet initial yieldof 6.8%, 10.2% upliftagainst Dec 18 valuation15 May£737,600Dundee,Odeon Luxelease extended to 203519 Jul£62.5mSuccessful equitycapital raise at106.5 pence per share20 JunReﬁnancing £121m£66m 10yr Santander£55m 5yr RBS18 Oct£27.7m4 multi-let ofﬁces8.7%25 Nov£211,6003200 Thorpe Park,Leeds10,550 sq. ft.10yr lease27 Nov£775,000Hampshire Corporate Park, Eastleigh42,612 sq. ft.15.7% ahead of previouspassing rent14 Aug£320,000Colwick, Nottingham82,380 sq. ft.Industrial park29 Aug1.90pQ2 201914 Nov1.90pQ3 201921 Feb2.50pQ4 201823 May1.90pQ1 201931 Dec 20181501,192874£718.4m£59.7m pa38.3%31 Mar1511,223884£741.0m£60.5m pa40.0%31 Dec1601,251904£787.9£64.3m38.9%4 Feb£20.0m1 ofﬁce; 12 smallretail units7.9%21 Aug£25.9m6 ofﬁces8.87%20 Feb£293,8322800, The CrescentBusiness Park13,356 sq. ft.10yr ofﬁcelettings8 Nov£240,800Juniper Park, Basildon30,100 sq. ft.5yr letting; 30% upliftfrom previous tenancy20199 Oct£370,000Juniper Park, Basildon61,079 sq. ft.5yr letting; 15.4% upliftfrom previous tenancy31 Dec£10.3m1 ofﬁce8.00%C e n t u r y W a y , Thorpe Park, Lee

i p e r Park, Basildon

J u

S al a m a n d e r Quay, Harefi eld

High dividend distribution UK REIT, offering
exposure to the regional commercial property
market, with active management by an
experienced asset manager.

Chairman’s Statement

The Chairman’s Statement forms part of the Strategic Report and covers the year ended 31 December 2019.

“This was another good year for Regional REIT, marking four years
since our IPO and representing a step change in the growth of the
Group with the successful oversubscribed equity capital raise in July
2019. In addition, we continued to deliver to our Shareholders a
sector-leading dividend that we increased again by a further c. 2.5%.

In line with our strategic objectives, our unique, integrated,
proactive asset management platform continued to manage our
regionally diverse portfolio on a granular level. This ensured that
we delivered the bespoke and high-quality environments our
tenants expect, resulting in robust occupancy, increased tenant
renewals, increased rent roll, and increased WAULT to expiry.

Whilst the economic and geopolitical backdrop remained uncertain,
we responded to both market opportunities and challenges
and continued to focus on activities that create value for our
Shareholders and deliver a regular source of robust income."

Kevin McGrath
Chairman

8.25pp
Attractive 2019
Dividend
(2018: 8.05pps)

7.3% Yield
Attractive Dividend
Yield of 7.3% as at
31 December 2019

Total EPRA Return
43.0% from
inception to
31 December 2019

As I write my Chairman’s Statement,
and before I comment on the Company’s
progress and growth during 2019, the
world’s focus is on COVID-19 and its impact
on business and day to day life. I want to
assure our Shareholders that the Board is
monitoring the impact of the COVID-19
virus on the Group. Further details are given
below.

I am pleased to report that the Group had
another very active year and continued to
achieve positive growth, with investment
properties under management increasing
significantly by 9.7% to £787.9m. The EPRA
company adjusted diluted earnings per share
was 7.8 pence per share (“pps”) (2018:
7.5pps). IFRS earnings were 6.6pps (2018:
18.1pps) with the recycling of the 2018
disposal funds into assets which are

currently undergoing our intensive asset
management initiatives. The total dividend
for the year of 8.25pps, is an increase of
c. 2.5% on the 8.05pps dividend for 2018.
We continued to work closely with our
tenants via our distinctive offering of
integrated asset, property and finance
teams, ensuring we have supportive tenants,
which added value to both rental income
and capital appreciation.

“The total dividend for
the year of 8.25pps, is
an increase of c. 2.5%
on the 8.05pps dividend
for 2018.”

Our priorities were to maintain occupancy
levels, continue to provide vibrant spaces in
which our tenants can thrive, and increase
our diversification by tenant profile and
geography, whilst seizing considerable
ongoing anticipated opportunities from
the challenging commercial property
market. EPRA occupancy rates remained
robust at 89.4% (2018: 89.4%), rent roll
increased to £64.3m (2018: £59.7m), and
WAULT to expiry increased to 5.5 years
(2018: 5.4 years). These are encouraging
achievements.

During the year, the Group acquired
properties with an aggregate value of £87.1m,
before costs, which was in part funded by the
successfully oversubscribed £62.5m equity
capital raise undertaken in July 2019. This
funding enabled us to make opportunistic

Annual Report and Accountsfor the year ended 31 December 2019off-market aggregate property acquisitions
of £63.9m (before costs), which further
diversified the portfolio not only by property,
but also by tenant. In addition, we continued
our portfolio enhancement programme,
with disposals amounting to £24.3m (net of
costs), and our rolling capital expenditure
programme amounted to £8.0m.

Furthermore, our debt profile continues to
be rationalised with the settlement of the
£39.9m 6.5% Zero Dividend Preference
Shares (“ZDPs”) issued by the Company’s
indirect subsidiary, Regional REIT ZDP Plc,
which matured on 9 January 2019, coupled
with the £121m refinancing in June 2019.
These successful initiatives resulted in a
reduction in the Group’s WACD, including
hedging costs, to c.3.5% at 31 December
2019 (31 December 2018: 3.8%), and a
weighted average debt duration of 7.3 years
(31 December 2018: 6.4 years).

The Group’s overall net borrowings were
38.9% of gross investment properties as
at 31 December 2019 (31 December 2018:
38.3%) and below the Company’s target
ratio of approximately 40%.

The combination of all of this positive
momentum, together with our diverse
portfolio and experienced management
team, has ensured that the Group remains
well positioned for the next stage of its
development and to continue to effectively
execute our proven business model.

Market Environment
Following muted investment at the
beginning of 2019, the UK regions outside of
London attracted £4.9 billion of investment
during the final quarter of 2019 – equal to
the five-year quarterly average. This brought
investment in the second half of 2019 to
£10.2 billion, 34% higher than the first half
of 2019. Annual investment in the regional
markets reached £17.9 billion in 2019.

“Annual investment in
the regional markets
reached £17.9 billion
in 2019.”

Overseas investment in the UK property
markets accounted for almost half (48%) of
total investment in 2019 according to data
from CoStar3. Furthermore, CoStar estimate
that total overseas investment for 2019
reached £21.3 billion, 6% higher than the
10-year average.

Regional offices have outperformed in
comparison to central London offices,
delivering superior total returns of 8.6% in
2019 in comparison to central London office
returns of 5.8% – a trend that has been
witnessed over the past four years.

Dividends
The dividend is the major component of
total Shareholder returns. Over the period
under review, the Company declared total
dividends of 8.25pps for the year, comprising
three quarterly dividends of 1.90pps each,
and a fourth quarterly dividend of 2.55pps,
an increase of c.2.5% on the previous year’s
total dividend. This represented a yield of
7.3% at a share price of 113.2p at the close
of 31 December 2019. Since inception,
the Company has distributed dividends
amounting to 30.25pps.

Performance
The EPRA Total Accounting Return
performance since listing on 6 November
2015 amounted to 43.0%, and an annualised
EPRA Total Accounting Return of 9.0%.

The Company’s Total Shareholder Return of
32.5% for 2019 outperformed the FTSE EPRA
NAREIT UK Index Total Return of 30.6%.
Since inception, the Total Shareholder Return
was 52.2% vs 12.5% for the FTSE EPRA
NAREIT UK Index.

In accordance with the management
arrangements, the Asset Manager and
Investment Manager are each entitled to
a 50% share of a performance fee of 15%
of the Total EPRA Accounting Return in
excess of an annual hurdle rate of 8%. A
performance fee did not crystallise for the
period from 1 January 2019 to 31 December
2019. Further details of the performance fee
can be found on page 58.

Management Agreements
The management agreements between
the Company, the Asset Manager and the
Investment Manager, entered into when
the Company listed, had a five-year term
to November 2020. In view of the strong
returns of the Company, the significant
increase in its size and there being less than
one year to expiry of the current agreement,
the Board sought to secure the services of
the Managers. In doing so, the Management
Engagement and Remuneration Committee
conducted a review to ensure that the
terms of these agreements remained
appropriate. The Management Engagement
and Remuneration Committee sought advice
from Peel Hunt LLP, the Company’s Financial
Adviser and Broker, and Macfarlanes LLP,
the Company’s Legal Adviser. Following
this review, which included comparisons of
Shareholder returns against those of its peer
group and consideration of the interests of
the Company and the respective Managers,
the Company and the Managers each agreed
to waive their right to issue a termination
notice on or before 3 November 2020
and the management agreement will now
continue in force until 3 November 2023.

Shareholder and Stakeholder
Engagement
Ultimately, the experience of our tenants
and other stakeholders will influence our
performance. Our aim is to continue to
offer great workspaces and environments
to businesses throughout their lifecycle,
from a start-up in a small flexible unit
to a landmark corporate headquarters.
Direct engagement with our tenants is an
important part of our asset management
initiatives, to help us understand their needs
and identify opportunities and challenges.
We encourage our tenants to work openly
and collaboratively with us to enable us
to continually improve our workspaces
and deliver mutual benefit. Likewise, we
encourage this with our stakeholders to
ensure we can continually improve our
operations.

The Company has continued to develop
its relations with investors. The Company’s
website can be found at www.regionalreit.com.

3 CoStar, Investment Volumes, Q4 2019

Annual Report and Accountsfor the year ended 31 December 2019Chairman’s Statement (continued)

Annual General Meeting
The Company’s 2020 Annual General
Meeting (“AGM”) was due to be held on
Thursday, 21 May 2020. In accordance with
the Company’s Articles of Incorporation
(the “Articles”) and given the COVID-19
situation, in particular the compulsory
measures (the Stay at Home Measures)
published by the Government on 23 March
2020 prohibiting public gatherings of more
than two people, the Board has made the
decision to postpone the Company’s 2020
AGM. Notice of a revised time and date
for the 2020 AGM will be published on our
website (www.regionalreit.com) and, where
appropriate, by RNS announcement as soon
as practicable. In due course, a notice of AGM
will be circulated in accordance with the
requirements of the Company’s Articles.

"We are going paperless"

The Company is cognisant of its
environmental impact and at the 2020
AGM will be seeking approval to implement
electronic communications. Further details
regarding this will be set out in the Company’s
Notice of AGM, which will be circulated in
due course. I encourage all Shareholders
to consider this proposal. We will also be
removing paper proxies at the 2020 AGM
from our voting process in favour of a quicker
and more secure method of voting online
via our registrar’s website. You can, however,
request a paper proxy if you wish from our
registrars at the appropriate time.

Subsequent Events and
COVID-19
The wellbeing of our tenants and other
stakeholders in the Company are of utmost
importance to the Board and we continue
to manage the Company, cognisant of their
needs in this current environment.

On 20 February 2020, the Company
announced a potential equity fundraise to
take advantage of its growing near-term
pipeline of accretive growth. As a result of
the current market uncertainty caused by
the global spread of COVID-19, the Company
took the decision to withdraw the potential
equity fundraise.

On 31 March 2020, and in view of the
COVID-19 disruption to UK economic
activity, the Company announced a trading
update. The rental collections were slightly
reduced as at 30 March 2020, with 68.2%
of invoiced rental income collected in
comparison with 69.6% at the same date
in 2019. In addition, £30.7m of available
borrowing headroom from the Santander
UK and Royal Bank of Scotland facilities had
been drawn.

The Board will continue to closely monitor
the developing situation and its effect on the
Group, although the Board is re-assured by
the Company’s balance sheet, the breadth
of tenants and geographical spread of
assets, which will ensure it is well positioned
to mitigate any prolonged periods of
uncertainty.

Outlook
Subject to the above, the outlook for
the Group is positive and the Board is
encouraged by the Asset Manager’s ability to
secure attractive assets in regional locations
which will support the Company’s
long-term return prospects. For the
remainder of 2020, the Group is confident
of maintaining the momentum of the
asset management initiatives, which
should continue to deliver income for our
Shareholders.

We remain mindful of the backdrop of
economic uncertainty, market cycles and
tenant requirements in a structurally
evolving property market, which will
inevitably be impacted by COVID-19.
However, our confidence for the long term
is underpinned by the Group’s focus on asset
management initiatives that increase the
number, quality and quantum of income
streams, coupled with an ever-broadening
Shareholder base and strengthened balance
sheet.

Kevin McGrath
Chairman

8 April 2020

www.regionalreit.com

Annual Report and Accountsfor the year ended 31 December 2019Property Name: Templeton on the Green, Glasgow
Sector: Office

Investment Strategy and Business Model

The Group will invest in, actively manage and dispose of offices and industrial properties – or debt portfolios secured on such properties –
located predominantly in the regional centres of the UK.

Investment Strategy
The Group aims to acquire a portfolio of
interests that, together, offers Shareholders a
diversification of investment risk, by investing in
a range of geographical areas and sectors across
a number of assets and tenants and through letting properties,
where possible, to low-risk tenants.

The Group will use gearing, borrowings and other sources of
leverage to implement its investment strategy and enhance
equity returns.

Investment Objectives
The Investment Objective of the Company is to
deliver an attractive total return to Shareholders
of greater than 10% per annum, with a strong
focus on income from investing in UK commercial
property, predominantly in the office and industrial sectors in
major regional centres and urban areas outside of the
M25 motorway.

Borrowings
The Group targets a ratio of net borrowings to
Gross Investment Properties Value of 40% over
the longer term, with a maximum limit of 50%.

Investment Policy
The Group will invest in office and light industrial
properties that are situated in the UK and outside
of the M25 motorway.

The Group may also invest in property portfolios
in which up to 50% of the properties (by market value) are
situated inside the M25 motorway.

In the ordinary course of business, no single property will exceed
10% of the Group’s Gross Investment Properties Value at the
time of the investment; exceptionally, the Board may consider
taking this up to 20%.

The normal minimum value for a single property investment is
£5m, except where an asset is within a portfolio of properties
for which there shall be no such minimum.

No more than 20% of the Gross Investment Properties Value
shall be exposed to any one tenant or group undertaking of that
tenant.

Speculative development (properties under construction,
but excluding refurbishment, which have not been pre-let) is
prohibited. Any other development is restricted to an aggregate
maximum of 15% of Gross Investment Properties Value at
investment or commencement.

Annual Report and Accountsfor the year ended 31 December 2019BORROWINGSROOWWININVESTMENTSTRATEGYTRVEMEEGESTMRATEOBJECTIVESINVESTMENTPOLICY17

Annual Report and Accountsfor the year ended 31 December 2019BusinessModelRegions remainstrongDiversiﬁedportfolioActivemanagement ofthe propertiesInvesting inincome-producingassetsOpportunisticapproach to the property marketHighlyexperienced assetmanagerInvestment Strategy and Business Model (continued)

Regions Remain Strong

OUR APPROACH

That the “regions remain strong” in UK commercial real estate, believing that capital inflows into the regions
will grow, the UK domestic economy will continue to remain robust and tenant demand for offices and
industrial sites will outweigh available supply.

Regional offices have outperformed central London offices, delivering superior returns of 8.6% in 2019
compared to 5.8% – a trend that has been witnessed over the last four years.

HOW WE ADD VALUE The investment policy focuses on a balanced portfolio of offices and light industrial sites located outside of the

M25 motorway, broadly based on the region’s economic worth and population mix.

43.0%
EPRA Total
Accounting
Return since
IPO

The Group seeks to enhance income growth and capital values through the services of the Asset Manager.

The Asset Manager operates through a number of regional offices, implementing a targeted investment policy
and an individual property asset management plan.

EPRA Total Accounting Return 43.0% since IPO and 9.0% annualised in 2019 (10.6% in 2018).

Opportunistic Approach to the Property Market

OUR APPROACH

A focus on exploiting pricing inefficiencies and mismatches between regional Core and Core Plus and primary
property yields.

From such opportunities, the Group will acquire, hold and sell commercial real estate that it believes to be
mispriced and have good income and capital growth prospects.

Utilising leverage to build the acquisitions capability of the business.

HOW WE ADD VALUE An opportunistic approach to UK commercial property with recycling of capital from the portfolio refreshment
programme and aiming to acquire properties where the Group can add value through the expertise of the Asset
Manager.

£87.1m
Completed
acquisitions
2019

Seeking to build the income growth and capital values of properties, taking undermanaged and underinvested
properties to being attractive investments to be retained for yield or for disposal.

An established borrower with long-term relationships in place with a number of UK banks. The Group will
exploit opportunities to improve total returns utilising leverage.

With debt maturing and opportunities to renegotiate existing facilities, the Group aims to reduce its funding
costs.

Completed acquisitions in 2019 totalled £87.1m (before costs) and disposals (net of costs) of £24.3m,
with average net initial yields of c.8.6% and c.6.8% respectively.

During 2019, debt facility payments totalled £59.3m, new borrowings were £22.9m, resulting in total
borrowings of £344.0m. The average funding cost (including hedging) was 3.5% (2018: 3.8%).

Annual Report and Accountsfor the year ended 31 December 2019Investing in Income Producing Assets

OUR APPROACH

The Group has a strict set of investment criteria to invest, predominantly, in income producing assets capable
of delivering an attractive total return to our Shareholders.

HOW WE ADD VALUE Investment decisions are based on identifying strong underlying fundamentals, including inter alia: prospects
for future income growth; sector and geographic prospects; lease length; initial and equivalent yields; and the
potential for active asset management.

£64.3m
Rent roll
as at end
2019

Speculative development strictly limited to refurbishment programmes.

Rent roll of £64.3m as at end 2019 (31 December 2018: £59.7m).

Average rents have increased to £10.17 per sq. ft. (31 December 2018: £9.40 per sq. ft.).

Declared dividends per share of 8.25p for 2019 (8.05p in 2018).

Active Management of the Properties

OUR APPROACH

The Group prides itself on maintaining a close relationship with its tenants and in the intensive granular
management of its properties, a very hands-on approach.

Our aim is to provide a consistent approach to improving returns, thereby enhancing the quality of the underlying
portfolio.

HOW WE ADD VALUE The Asset Manager undertakes all of the principal property management activities in-house and remains close

to its tenants, with an immediate understanding of their requirements and ensuring better decision-making
capability.

89.4%
EPRA
occupancy

The Asset Manager utilises a range of approaches to each asset, tailoring the project programme for each
property.

Net capital expenditure of £5.8m in 2019 (£7.0m in 2018); much capital expenditure is recovered
through dilapidations, service charges or improved property rental income.

Active and intense asset management maintained robust EPRA occupancy of 89.4%
(31 December 2018: 89.4%).

Annual Report and Accountsfor the year ended 31 December 2019Investment Strategy and Business Model (continued)

Diversified Portfolio

OUR APPROACH

A distinctive large and diverse commercial property portfolio.

An approach that diversifies the investment risk of the portfolio and enables better management of the timing
of lease re-gears, new lettings, geography and sector.

HOW WE ADD VALUE The portfolio consists of offices and light industrial units, geographically well spread across the regions of the

UK outside of the M25 motorway and with a broad mix of tenants.

160 properties
1,251 units
904 tenants

160 properties, 1,251 units and 904 tenants as at 31 December 2019.

The largest single property is only 4.3% of the Gross Investment Properties value and the largest tenant
only 2.5% of Gross Rental Income.

England & Wales represent 82.0% of the Gross Investment Properties value (31 December 2018:
82.0%); Scotland represents the remainder. Offices and industrial sites are 93.6% (31 December 2018:
91.6%).

Highly Experienced Asset Manager

OUR APPROACH

The Asset Manager has the heritage of a long-established property investment management team.

HOW WE ADD VALUE The capabilities and track record of the management team, including knowledge, expertise and established

relationships, provide an important competitive advantage for operating in the fragmented UK regional
secondary property market.

LSPIM staff
working on
Regional REIT

The senior management team of the Asset Manager collectively have over 180 years of property experience,
with a proven record of creating value.

The Asset Manager grew property rental income for a similar portfolio on a like-for-like basis through
the 2008-12 recession.

LSPIM is based in Glasgow and has a number of offices around the UK, with 57 employees employed, as
at 31 December 2019, working on Regional REIT.

Annual Report and Accountsfor the year ended 31 December 2019Property Name: Norfolk House, Birmingham
Sector: Office

London & Scottish Property Investment Management

Asset and Investment Managers’ Report

“We are pleased to have performed again for our Shareholders, delivering strong
dividends and capital growth in 2019. A key component of this total return
to Shareholders remains our sector-leading dividend income distributed on a
quarterly basis. It is notable therefore that, as planned, distribution to Shareholders
increased for the fourth consecutive year and has done so every year since IPO, to
8.25 pence per share.

The year also marked a considerable milestone in our ongoing ambition to grow
the Company, marked by a highly successful oversubscribed capital raise of
£62.5m. Swift deployment of these proceeds into our significant investment
pipeline helped to contribute to the continued growth in our investment properties
under management to £787.9m, up 9.7% from £718.4m in 2018. In turn, our
enlarged portfolio of properties supported a further increase in both the volume of
our gross rent roll to £64.3m and the diversity of our tenant base to 904 tenants.

Whilst markets are currently experiencing considerable levels of volatility due to
COVID-19; we continue to believe that our income-led, defensive and risk-adverse approach to Shareholder returns will
continue to offer investors the best risk-adjusted income return in the sector. Our market fundamentals remain robust and
we continue to micro manage the portfolio utilising our unique, sector-leading asset and property management teams to
assist tenants where possible, on health matters, good practice and also to access all of the assistance available from the
Government, Bank of England and other banks and local authorities with an absolute focus on everyone’s health and safety
and on maintaining our income.

It is simply too early to tell what impact COVID-19 will have on the business, but we continue to monitor the situation
extremely closely and are speaking regularly to our occupiers and to our banks, who remain hugely supportive. It is worth
noting that we are lowly leveraged, have substantial headroom on bank covenants and that we have a hugely diverse
portfolio, in terms of number of quality tenants, number of properties, geographic spread of the assets and no large
exposure to any individual tenant, any individual property and very little exposure to retail and leisure. We also have a very
broad spectrum of tenants operating across a wide range of sectors. We believe that this is important as it is likely that some
sectors will be more detrimentally affected than others going forward.

Only a few weeks ago we announced that we were contemplating an equity raise, given the strength and value identified
in our investment pipeline. It will come as no surprise that we are no longer considering an equity raise at this time and
indeed we will be making no new acquisitions in the immediate future, focussing instead on conserving existing cash and
maintaining our rental income for ongoing expenses and dividend distributions, in accordance with the HMRC REIT regime.

The Company’s continuing focus on income has delivered strong Shareholder returns in 2019, outperforming the FTSE
NAREIT Index and providing 43.0% EPRA NAV returns to Shareholders since IPO.”

Stephen Inglis,
CEO of London & Scottish Property Investment Management, the Asset Manager of Regional REIT Limited

Investment
properties value
£787.9m

Rent roll
£64.3m

Tenants
904

Annual Report and Accountsfor the year ended 31 December 2019HIGHLIGHTS FROM 2019:

£62.5m
10.3%
8.6%
9.8%
71

Successfully oversubscribed £62.5m equity
capital raise was undertaken in July 2019.

Disposals during 2019 totalled £24.3m
(net of costs) achieving an average uplift
against December 2018 valuation of 10.3%,
reflecting an average net initial yield of 6.8%.

Acquisitions in 2019 totalled £87.1m (before
costs) for 13 properties, reflecting an
average net initial yield of 8.6%.

Lease renewals for office and industrial
assets during 2019 achieved an uplift in
gross rental roll of 9.8%.

Completed 71 new lettings in 2019,
totalling 356,446 sq. ft.; when fully
occupied, these will provide a gross rental
income of c.£3.8m.

1.4%
2.2%
8.3%
9.1%

The like-for-like value of the Group's core office
and industrial segment (93.6% by value) also
increased in 2019 by 1.4%, after adjusting for capital
expenditure and disposals during the period.

Improved WAULT (to first break) by 2.2%, to
3.5 years and improved WAULT (to expiry) by 1.9%
to 5.5 years.

Average rent by let sq. ft. increased by 8.3% from
£9.40 per sq. ft. in December 2018 to £10.17 per
sq. ft. in December 2019.

Capital value per sq. ft. increased by 9.1%
from £96.64 per sq. ft. in December 2018 to
£105.42 per sq. ft..

Going forward, we believe that our diverse tenant base as well as the
broad regional spread of our assets means that we are well positioned
to weather not only current political uncertainty but also the wider
economic uncertainty that will no doubt result from the emergence
and spread of COVID-19. As always, the Asset Manager will continue to
identify value in the market with a focus on income.

INVESTMENT ACTIVITY IN THE UK COMMERCIAL PROPERTY MARKET

Investment in the UK commercial property market reached £49.5 billion
in 2019, according to research from Lambert Smith Hampton (“LSH”)4,
13% below the five-year average. Although overall investment in 2019
was lower than 2018, it was 5.2% higher than 2016 levels, a year that
was similarly dominated by political uncertainty. Investment in the final
quarter of 2019 was slightly higher than Q3 2019 volumes, bringing
investment in H2 2019 to £29.5 billion, indicating an increase of 47%
when compared to H1 2019, which helped boost overall investment
figures for 2019. 2019 proved to be another strong year for investment
in portfolio deals, with investment totalling £13.0 billion. Investment in
portfolios was particularly strong in the final quarter of 2019, reaching
£4.7 billion, 35% higher than the five-year quarterly average.

Quarterly Investment Volumes

Following muted investment at the beginning on 2019, the UK regions
outside of London attracted £4.9 billion in investment during the final
quarter of 2019 – equal to the five-year quarterly average. This brought
investment in the second half of 2019 to £10.2 billion, 34% higher than
the first half of 2019. Annual investment in the regional markets reached
£17.9 billion in 2019. LSH research notes that there were significant
contrasts between regions during 2019, with the East of England
performing strongly through the year.

4 Lambert Smith Hampton, UKIT Q4 2019

Annual Report and Accountsfor the year ended 31 December 20192520151005080604020-20-40Five-Year Quarterly Average% Quarterly AverageAll Property2014Q12018Q42014Q22014Q32014Q42015Q12015Q22015Q32015Q42016Q12016Q22016Q32016Q42017Q12017Q22017Q32017Q42018Q12018Q22018Q3£ billion%Figure 1: Lambert Smith Hampton Research (February 2020)2019Q42019Q12019Q22019Q3Asset and Investment Managers’ Report (continued)

Overseas investment in the UK property markets accounted for almost half (48%) of total investment in 2019 according to data from CoStar5.
Overseas investors continued to take advantage of favourable exchange rates, with investment in the final quarter of 2019 reaching £7.2 billion,
24% higher than the five-year average. Figures from LSH indicate that North America, Far East and Europe were all net investors in the final
quarter of 2019. CoStar estimate that total overseas investment for 2019 reached £21.3 billion, 6% higher than the 10-year average.

Research from CBRE indicates that regional offices have outperformed in comparison to central London offices, delivering superior total returns of
8.6% in 2019 in comparison to central London office returns of 5.8%, a trend that has been witnessed over the past four years. Outperformance
reflected better capital returns and income returns. Rental growth in regional offices markets continued with growth of 1.2% in 2019.

Central London & Regional Office Returns (12 months to December 2019)

22.9%

19.3%

18.5%

16.3%

12.0%

11.5%

8.0%

8.6%

5.3%

5.8%

0.9%

2.7%

2014

2015

2016

2017

2018

2019

Figure 2: CBRE (February 2020)

Central London ofﬁces

Rest of UK ofﬁces

OCCUPATIONAL DEMAND IN THE UK REGIONAL OFFICE MARKET

Avison Young estimates that take-up of office space across nine regional office markets6 reached 8.8 million sq. ft. in 2019; although this is
below the level of take-up recorded in 2018, it is 3.9% above the 10-year average. Take-up during 2019 was marginally higher (+0.7%) than
2016, a year that was similarly dominated by political uncertainty. According to Savills, occupational demand was driven by the technology,
media & telecoms sector, which accounted for the highest proportion of take-up at 27%. Following the technology, media & telecoms sector,
the serviced office sector and the insurance & financial services sector accounted for the second and third largest proportion of take-up in the
regional cities, accounting for 12% and 10% respectively. Whilst demand from Central Government fell in 2019 in comparison to 2018, Avison
Young expect a number of deals to take place in 2020 as part of the next phase of the hub programme.

According to Savills, demand for regional office stock led to a decline in availability across nine regional UK markets7, with total availability
falling by 8% in 2019 to 10.5 million sq. ft., 28% below the 10-year average. This marks the tenth consecutive year that supply of office stock
has declined. Cushman & Wakefield research indicates that vacancy rates across the UK’s regions fell to 7% in the final quarter of 2019, a
decrease from 8% the 12 months previous8.

Furthermore, it is estimated that approximately 5.9 million sq. ft. of office space is currently under construction in the Big Nine regional
markets, with Manchester, Glasgow and Birmingham accounting for 26%, 19% and 17%, respectively. 56% of office buildings currently under
construction are already pre-let.

5 CoStar, Investment Volumes, Q4 2019
6 Nine regional office markets mentioned by Avison Young include: Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Liverpool, Manchester & Newcastle
7 Nine regional office markets mentioned by Savills include: Aberdeen, Birmingham, Bristol, Cambridge, Cardiff, Edinburgh, Glasgow, Leeds & Manchester
8 Cushman & Wakefield Big Eight Office Report Q4 2019. Eight regional office markets mentioned by Cushman & Wakefield include: Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds,
Manchester & Newcastle

Annual Report and Accountsfor the year ended 31 December 2019Regional Demand: Annual Office Take-Up

Regional Supply: Annual Office Supply

.
t
f

q
s
n
o

i
l
l
i

m
p
u
-
e
k
a
T

2010

2009
Regional Total

2011

2012

2013
10-year average

.
t
f

q
s
n
o

i
l
l
i

m
y
l

p
p
u
S

2010

2009
Regional Total

2014

2015

2016

2017

2018

2019

2011

2012

2013
10-year average

2014

2015

2016

2017

2018

2019

Figure 3: Avison Young (February 2020)

Figure 4: Savills (February 2020)

RENTAL GROWTH IN THE UK REGIONAL OFFICE MARKET

A lack of availability in the Big Nine regional markets put an upward pressure on headline rents as well as a downward pressure on rent incentives,
which led to an increase of 2.9% in city centre net effective rents in 2019, according to Avison Young. Additionally, research by Avison Young
estimates that headline rents for out of town offices increased by 3.0% from Q4 2018 to Q4 2019.

The CBRE Monthly Index shows that rental value growth for the rest of UK office markets in the 12 months ending December 2019 was 1.2%.

Rental Value Growth (vs previous 12 months)

-1

-2

-3

-4

Rest of UK Ofﬁces

Dec.19, 1.2%

Jan 12

Jan 13

Jan 14

Jan 15

Jan 16

Jan17

Jan18

Jan19

Sep19

Figure 5: CBRE (February 2020)

REGIONAL REIT’S OFFICE ASSETS

EPRA occupancy of the Group’s regional offices rose to 88.4% (31 December 2018: 88.2%). A like-for-like comparison of the Group’s regional
offices’ EPRA occupancy, 31 December 2019 versus 31 December 2018, shows that occupancy decreased to 86.8% (31 December 2018: 88.5%).
This reduction in occupancy can largely be attributed to two properties becoming vacant: Brennan House, Farnborough (29,707 sq. ft.) and Niceday
House, Meridian Park, Andover (34,262 sq. ft.). Further details on these are below.

•

Brennan House, Farnborough – We were ahead of business plan when we took the opportunity to do a contract-led letting to Fluor
Limited. Unfortunately, Fluor exercised a valid break notice as their contract was not extended. Brennan House presents well and we are
exploring the opportunity to carry out works to upgrade the building. Activity levels remain good in the Farnborough market with 2019
take up slightly ahead of the five-year average. Take-up varies across a wide range of size from lettings of 5,500 to 46,000 sq. ft.. We have
had a number of positive viewings recently and remain hopeful of securing a letting at the property in the near future.

• Niceday House, Andover – As expected, the tenant vacated at expiry. Following this, a dilapidations settlement has been agreed and an

outline residential consent has been obtained for change of use.

WAULT to first break was 3.0 years (31 December 2018: 3.0 years); like-for-like WAULT to first break increased to 3.1 years (31 December 2018: 3.0 years).

Annual Report and Accountsfor the year ended 31 December 2019

Asset and Investment Managers’ Report (continued)

OCCUPIER DEMAND IN THE UK INDUSTRIAL MARKET

Take-up in the final quarter of 2019 reached 6.8 million sq. ft., pushing
annual take-up during 2019 to 34.5 million sq. ft.; although this is 18%
below the record high reported in 2018, demand remained above the
10-year average9. CBRE10 research shows that 60% of take-up was
within the East Midlands and South East as the M1 corridor remains the
most attractive location for occupiers. Following this, West Midlands,
Yorkshire and North East accounted for 17% and 12% of take-up in
2019, respectively.

BNP Paribas Real Estate research highlights occupier demand was diverse
in 2019 with no one sector dominating take-up11. According to Colliers
International, occupier demand was driven by occupier’s requirements to

future-proof their supply chain operations. Occupier demand within the
industrial market continues to benefit from growth in online shopping,
as online retailing currently accounts for 19.0% of total retail sales in
the UK, according to the ONS12. BNP Paribas Real Estate research shows
that Retailers were the most active in terms of take-up throughout 2019,
accounting for 37% of annual take-up (including online sales).

In terms of development, 8.6 million sq. ft. of speculative development
was delivered in 2019. However, availability levels remained relatively
steady as a result of robust net absorption. Looking forward, there is
currently only 6.6 million sq. ft. of speculative development expected to
complete in 2020.

INDUSTRIAL RENTAL GROWTH CONTINUES

Research by BNP Paribas Real Estate illustrates that, although
demand for standard industrial space led to rental growth in 2019,
there were signs that rental growth cooled following several years
of strong growth. Data from the CBRE Monthly Index shows rental

REGIONAL REIT’S INDUSTRIAL ASSETS

growth of 3.1% in the 12 months to the end of December 2019,
indicating that rental growth slowed in 2019 from 4.2% for the
12 months to the end of December 2018.

EPRA occupancy of the Group’s industrial sites increased to 95.5%
(31 December 2018: 94.5%). A like-for-like comparison of the
Group’s industrial offices’ EPRA occupancy, 31 December 2019
versus 31 December 2018, shows that occupancy increased to 95.4%

(31 December 2018: 94.2%). WAULT to first break was 5.8 years
(31 December 2018: 5.4 years); like-for-like WAULT to first break
decreased marginally to 5.8 years (31 December 2018: 5.9 years).

9 Cushman & Wakefield, Industrial Snapshot, Q4 2019
10 CBRE, Market Summary, Q4 2019
11 BNP Paribas Real Estate, Industrial & Logistics Review, Q4 2019
12 ONS, Retail Sales, Great Britain, January 2020

Annual Report and Accountsfor the year ended 31 December 2019PROPERTY PORTFOLIO

As at 31 December 2019, the Group’s property portfolio was valued
at £787.9m (31 December 2018: £718.4m), with rent roll of £64.3m
(31 December 2018: £59.7m), and an EPRA occupancy of 89.4%
(31 December 2018: 89.4%).

On a like-for-like basis, 31 December 2019 versus 31 December 2018,
EPRA occupancy was 88.1% (31 December 2018: 89.6%).

There were 160 properties (31 December 2018: 150) in the portfolio,
with 1,251 units (31 December 2018: 1,192) and 904 tenants
(31 December 2018: 874). If the portfolio was fully occupied at

Property Portfolio by Sector

Cushman & Wakefield’s view of market rents, the rental income
would be £77.2m per annum as at 31 December 2019 (31 December
2018: £70.0m).

As at 31 December 2019, the net initial yield on the portfolio was
6.2% (31 December 2018: 6.5%), the equivalent yield was 8.3%
(31 December 2018: 8.2%), and the reversionary yield was 9.1%
(31 December 2018: 8.8%).

Sector

Properties

Valuation
(£m)

% by
valuation

Sq. ft.
(mil)

Occupancy
(EPRA)
(%)

WAULT
to first
break
(yrs)

Gross
rental
income
(£m)

Average
rent
(£psf)

ERV
(£m)

Capital
rate
(£psf)

Yield (%)

Net
initial Equivalent Reversionary

Office

Industrial

Retail

Other

Total

116

629.7

107.7

39.2

11.4

79.9

13.7

5.0

1.4

160

787.9

100.0

4.7

2.2

0.5

0.2

7.5

88.4

95.5

90.9

90.6

89.4

3.0

5.8

4.6

6.9

3.5

51.2

13.15

62.9

135.34

8.0

4.3

0.8

4.17

10.53

8.17

9.0

4.3

1.0

48.85

84.19

74.99

6.1

5.3

9.0

7.5

64.3

10.17

77.2 105.42

6.2

8.3

7.4

9.2

8.0

8.3

9.3

7.6

9.7

8.1

9.1

Property Portfolio by Region

Location

Properties

Valuation
(£m)

% by
valuation

Sq. ft.
(mil)

Scotland

South East

North East

Midlands

North West

South West

Wales

Total

141.8

233.0

81.2

140.4

92.4

79.3

19.9

18.0

29.6

10.3

17.8

11.7

10.1

2.5

160

787.9

100.0

1.7

0.9

1.4

1.0

0.5

0.3

7.5

Tables may not sum due to rounding

Occupancy
(EPRA)
(%)

WAULT
to first
break
(yrs)

Gross
rental
income
(£m)

Yield (%)

Net
initial Equivalent Reversionary

Average
rent
(£psf)

ERV
(£m)

Capital
rate
(£psf)

9.73

15.7

81.70

12.06

21.2

140.33

8.56

9.07

8.32

15.57

8.73

8.4

87.29

12.7

100.88

9.8

7.6

1.9

91.21

165.50

74.97

6.7

5.9

6.0

5.5

6.8

7.5

12.8

17.9

6.8

11.6

6.7

6.6

1.9

64.3

10.17

77.2 105.42

6.2

9.3

7.5

9.0

7.8

8.7

8.1

8.4

8.3

10.3

8.4

9.6

8.5

9.4

8.9

8.6

9.1

86.2

87.9

88.1

93.2

89.1

95.8

87.6

89.4

3.3

3.4

2.8

3.5

4.9

2.9

6.6

3.5

Annual Report and Accountsfor the year ended 31 December 2019Buildings 2 & 3
HBOS Campus,
Aylesbury

Norfolk House,
Smallbrook
Queensway,
Birmingham

Hampshire
Corporate Park,
Eastleigh

One & Two
Newstead Court,
Annesley

Road 4 Winsford
Industrial Estate,
Winsford

Asset and Investment Managers’ Report (continued)

Top 15 Investments (market value) as at 31 December 2019

Property

Sector

Anchor tenants

Market
value
(£m)

% of
portfolio

Lettable
area
(sq. ft.)

EPRA
Occupancy
(%)

Annualised
gross rent
(£m)

Tay House,
Glasgow

Juniper Park,
Basildon

Genesis Business
Park, Woking

Office

Barclays Execution Services Ltd,
University of Glasgow

33.7

4.3

156,853

94.2

Industrial Schenker Ltd, A Share & Sons Ltd,

29.6

3.8

277,760

100.0

26.0

3.3

98,359

82.7

% of
gross
rental
income

WAULT
to first
break
(years)

4.2

2.4

3.5

2.8

2.4

4.3

2.7

2.2

1.5

24.9

3.2

140,791

95.7

2.3

3.5

3.4

20.5

2.6

114,982

100.0

1.7

2.6

1.6

Vanguard Logistics Services Ltd

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

Bank of Scotland Plc, The
Equitable Life Assurance Society,
Agria Pet Insurance Ltd

Secretary of State for
Communities & Local
Government, Spark44 Ltd

Office

Aviva Central Services UK Ltd,
National Westminster Bank Plc

20.1

2.6

85,422

99.6

1.5

2.4

3.6

800 Aztec West,
Bristol

Office

Edvance SAS, The Secretary of
State for Defence

19.3

2.4

73,292

100.0

Office

E.ON UK Plc

16.9

2.1

146,262

100.0

1.5

1.4

2.4

3.6

2.2

3.9

Industrial Jiffy Packaging Ltd

15.7

2.0

246,209

100.0

1.0

1.5

14.8

Portland Street,
Manchester

Office

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

Ashby Park, Ashby
De La Zouch

Office

Ceva Logistics Ltd, Hill Rom UK
Ltd, Alstom Power Ltd

Columbus House,
Coventry

Office

TUI Northern Europe Ltd

Templeton On The
Green, Glasgow

Office

Oakland House,
Manchester

Office

The Scottish Ministers, The
Scottish Sports Council, Heidi
Beers Ltd

HSS Hire Service Group
Ltd, Please Hold (UK) Ltd,
CVS (Commercial Valuers &
Surveyors) Ltd

15.3

1.9

54,959

97.7

0.8

1.3

2.9

13.9

1.8

91,034

100.0

13.3

11.7

1.7

1.5

53,253

100.0

142,512

97.4

1.1

1.4

1.3

1.7

2.1

1.4

4.0

2.0

4.1

11.3

1.4

160,938

89.5

1.1

1.7

3.8

Kingscourt Leisure
Complex, Dundee

Other

Odeon Cinemas Ltd, Jag Leisure
(Scotland) Ltd

10.5

1.3

83,780

88.8

0.7

1.1

7.7

Total

282.6

35.9

1,926,406

96.0

22.2

34.6

3.8

Tables may not sum due to rounding

Annual Report and Accountsfor the year ended 31 December 2019

Top 15 Tenants (share of rental income) as at 31 December 2019

Tenant

Property

Sector

WAULT
to first
break
(years)

Lettable
area
(sq. ft.)

Annualised
gross rent
(£m)

% of
gross
rental
income

Barclays Execution
Services Ltd

Bank of Scotland Plc

Secretary of State for
Communities & Local
Government

Tay House, Glasgow

Buildings 3 HBOS Campus, Aylesbury
High Street, Dumfries

Bennett House, Hanley
Cromwell House, Tritton Road, Lincoln
Norfolk House, Birmingham
Oakland House, Manchester

E.ON UK Plc

One & Two Newstead Court, Annesley

TUI Northern Europe Ltd Columbus House, Coventry

The Scottish Ministers

Jiffy Packaging Ltd

Calton House, Edinburgh
Quadrant House, Dundee
Templeton On The Green, Glasgow
The Courtyard, Falkirk

Road 4 Winsford Industrial Estate,
Winsford

Edvance SAS

800 Aztec West, Bristol

John Menzies Plc

2 Lochside Avenue, Edinburgh

The Royal Bank of
Scotland Plc

SPD Development Co
Ltd

Clearblue Innovation Centre, Bedford

Aviva Central Services
UK Ltd

Hampshire Corporate Park, Chilworth
House, Eastleigh

Schenker Ltd

Juniper Park, Basildon

Cyan Building, Rotherham

Banking

1.5

67,458

A Share & Sons Ltd

1-4 Llansamlet Retail Park, Swansea
Juniper Park, Basildon

Wholesale and retail
trade

800 Aztec West, Bristol

Public sector

4.0

32,007

The Secretary of State
for Defence

Total

Tables may not sum due to rounding

Administrative and
support service activities

1.9

78,044

Banking

2.2

92,978

Public sector

2.2

115,753

1.6

1.5

1.4

2.5

2.3

2.2

3.9

146,262

1.4

2.2

Electricity, gas, steam
and air conditioning
supply

Professional, scientific
and technical activities

4.0

53,253

Public Sector

1.5

111,076

Manufacturing

14.8

246,209

Electricity, gas, steam
and air conditioning
supply

Professional, scientific
and technical activities

3.4

41,285

3.6

43,780

Professional, scientific
and technical activities

5.8

58,167

Other service activities

4.9

42,612

Transportation and
storage

2.8

91,287

4.4

75,791

1.4

1.3

1.0

0.9

0.8

0.7

0.6

2.1

1.5

1.4

1.3

1.2

1.1

1.0

3.8

1,295,962

15.9

24.8

Annual Report and Accountsfor the year ended 31 December 2019Asset and Investment Managers’ Report (continued)

PROPERTY PORTFOLIO SECTOR AND REGION SPLITS BY VALUATION AND INCOME

BY VALUATION

BY INCOME

As at 31 December 2019, 79.9% (2018: 76.1%) of the portfolio by market
value was offices and 13.7% (2018: 15.5%) was industrial. The balance
was made up of retail, 5.0% (2018: 7.1%) and other, 1.4% (2018: 1.4%).
By UK region, as at 31 December 2019, Scotland represented 18.0%
(2018: 18.0%) of the portfolio and England 79.5% (2018: 79.3%); the
balance of 2.5% (2018: 2.7%) was in Wales. In England, the largest
regions were the South East, the Midlands and the North West.

As at 31 December 2019, 79.7% (2018: 77.3%) of the portfolio by income
was offices and 12.4% (2018: 13.2%) was industrial. The balance was
made up of retail, 6.7% (2018: 8.3%), and other, 1.2% (2018: 1.2%). By
UK region, as at 31 December 2019, Scotland represented 19.9% (2018:
20.1%) of the portfolio and England 77.2% (2018: 77.2%); the balance of
2.9% was in Wales (2018: 2.7%). In England, the largest regions were the
South East, the Midlands and the North East.

Sector split by valuation 2019

Sector split by income 2019

Regional split by valuation 2019

Regional split by income 2019

Charts may not sum due to rounding

Annual Report and Accountsfor the year ended 31 December 2019Ofﬁce (79.9%)Industrial (13.7%)Retail (5.0%)Other (1.4%)Ofﬁce (79.7%)Industrial (12.4%)Retail (6.7%)Other (1.2%)South East (27.9%)North East (10.7%)South West (10.3%)Wales (2.9%)Scotland (19.9%)Midlands (18.0%)North West (10.4%)South East (29.6%)North East (10.3%)South West (10.1%)Wales (2.5%)Scotland (18.0%)Midlands (17.8%)North West (11.7%)LEASE EXPIRY PROFILE

The WAULT on the portfolio is 5.5 years (2018: 5.4 years); WAULT
to first break is 3.5 years (2018: 3.4 years). As at 31 December 2019,
5.5% (2018: 10.1%) of income was from leases, which will expire
within 1 year, 14.2% (2018: 4.4%) between 1 and 2 years, 33.0%
(2018: 34.0%) between 2 and 5 years and 47.4% (2018: 51.6%) after
5 years.

Lease expiry income profile

Lease expiry income profile by year

Lease expiry to first break income profile by year

Charts may not sum due to rounding

Annual Report and Accountsfor the year ended 31 December 20199432018765Contracted Rental Income (£m)20292028202720262025202420232021202020222030+1614420861210Rental Income (£m)20292028202720262025202420232021202020222030+1-2 years (14.2%)5+ years (47.4%)2-5 years (33.0%)0-1 year (5.5%)Asset and Investment Managers’ Report (continued)

UK PROPERTY LOCATIONS AS AT 31 DECEMBER 2019

Ofﬁce

Industrial

Retail

Other

Annual Report and Accountsfor the year ended 31 December 2019TENANTS BY STANDARD INDUSTRIAL CLASSIFICATION AS AT 31 DECEMBER 2019

As at 31 December 2019, 13.0% of income was from tenants in the professional, scientific and technical activities sector (2018: 11.5%), 12.0%
from the administrative and support service activities sector (2018: 10.4%), 9.1% from the information and communication sector (2018:
8.8%), 9.1% from the wholesale and retail trade (2018: 10.1%) and 8.7% from the manufacturing sector (2018: 7.4%). The remaining exposure
is broadly spread.

No tenant represents more than 3% of the Group’s rent roll as at 31 December 2019, the largest being 2.5% (2018: 2.7%).

Tenants by SIC Codes (% of gross rent)

Chart may not sum due to rounding

* Other – Not specified, other service activities, construction, education, human health and social work activities, real estate activities, accommodation and food service activities, arts,
entertainment and recreation, water supply, sewerage, waste management and remediation activities, public administration and defence, compulsory social security, charity, activities of
extraterritorial organisations and bodies, residential.

Annual Report and Accountsfor the year ended 31 December 2019Professional, scientiﬁc and technical activities (13.0%)Administrative and support service activities (12.0%)Information and communication (9.1%)Wholesale and retail trade (9.1%)Manufacturing (8.7%)Public sector (8.4%)Financial and insurance activities (other) (7.2%)Banking (5.3%)Electricity, gas, steam and air conditioning supply (4.4%)Transportation and storage (3.5%)Other* (19.3%)Asset and Investment Managers’ Report (continued)

TOP 15 PROPERTIES BY SECTOR: OFFICE

y H o u se, Glasgow

Market value (£m):
Sector:
Annualised gross rent (£m):
Lettable area (sq. ft.):
Anchor tenants:
EPRA Occupancy (%):
WAULT (years) (to first break): 6.4 (2.4)

33.7
Office
2.7
156,853
Barclays Execution Services Ltd, University of Glasgow
94.2

•

Secure Income – The leases with Barclays were re-geared in December 2015, securing
income until October 2021 at the earliest.
Break Option Removed – Removal of the University of Glasgow’s break option in
September 2019, securing income until September 2024.
Tenant Expansion – New 10-year lease agreed with the University of Glasgow for an
additional 9,791 sq. ft. in the building, with option to break in September 2024. This lease
provides an additional gross rental income of c. £181,000 p.a.
Future Asset Management Initiatives – Let of the balance of space on the first floor.
Explore refurbishment options should Barclays Execution Services Ltd exercise November
2021 break option. This presents an opportunity for comprehensive repositioning of asset in
a market with limited supply of high-quality large floor plates in an improving location.

s i s B u s i n ess Park, Wokin

G e n

Market value (£m):
Sector:
Annualised gross rent (£m):
Lettable area (sq. ft.):
Anchor tenants:

26.0
Office
1.5
98,359
Nuvias (UK & Ireland) Ltd, Fernox Ltd, McCarthy &
Stone Retirement Lifestyles Ltd
82.7

EPRA Occupancy (%):
WAULT (years) (to first break): 7.3 (4.3)

•

Established Business Park – Genesis is the premier out-of-town office park in the town,
situated approximately one mile from Woking town centre.

• New Letting – New 10-year lease agreed with Gallagher Benefit Services Management

Company Limited for 4,594 sq. ft. (Suite 1C) subject to a break option after five years at a
gross rent of c. £106,000 p.a (£23.00 per sq. ft.).
Asset Management Initiatives – Let balance of space.

•

Annual Report and Accountsfor the year ended 31 December 2019Buildin g s 2 & 3 H B OS Campus, A

yle

rfolk H o u s e, S m a

o
N

l b r ook Queensw

a
y, B
ir

TOP 15 PROPERTIES BY SECTOR: OFFICE (CONTINUED)

Market value (£m):
Sector:
Annualised gross rent (£m):
Lettable area (sq. ft.):
Anchor tenants:

EPRA Occupancy (%):

24.9
Office
2.3
140,791
Bank of Scotland Plc, The Equitable Life Assurance
Society, Agria Pet Insurance Ltd
95.7

WAULT (years) (to first break): 4.2 (3.4)

•

• High-Quality Asset – Comprehensive refurbishment programme of Building 2 now
completed with gross capital expenditure of c. £3.3m. The property is now the best
accommodation in the town.
Continued Letting Activity – Additional lettings on the ground floor of Building 2 to Product
Compliance Specialists Limited on a 10-year lease commencing in April 2019, subject to a
break option at the seventh anniversary. The lease provides a gross rental income of
c. £87,000 p.a (c. £24.00 per sq. ft.).
Future Asset Management Initiatives – Let balance of remaining space (5,550 sq. ft.) in
Building 2. Additionally, advanced discussions are currently ongoing with the Bank of Scotland
Plc to assess their intentions for renewal of their lease of Building 3 in November 2021.
Opportunity exists to undertake similar successful refurbishment programme completed on
Building 2.

•

Market value (£m):
Sector:
Annualised gross rent (£m):
Lettable area (sq. ft.):
Anchor tenants:

20.5
Office
1.7
114,982
Secretary of State for Communities & Local
Government, Spark44 Ltd
100.0

EPRA Occupancy (%):
WAULT (years) (to first break): 4.0 (1.6)

• High-Quality Asset – City centre building split over six floors with 12 retail units on the

•

ground floor level.
Business Plan – Engage with tenants to re-gear the leases, remove break options and
improve rental value. Let remaining retail unit.
Future Asset Management Initiatives – Explore improving aesthetics and profile of
exterior of building by way of potential cladding options/retail frontage improvements.

Annual Report and Accountsfor the year ended 31 December 2019Asset and Investment Managers’ Report (continued)

TOP 15 PROPERTIES BY SECTOR: OFFICE (CONTINUED)

e C o r p orate Park, Eastleig

Ha m p s h ir

Market value (£m):
Sector:
Annualised gross rent (£m):
Lettable area (sq. ft.):
Anchor tenants:

20.1
Office
1.5
85,422
Aviva Central Services UK Ltd, National
Westminster Bank Plc
99.6

EPRA Occupancy (%):
WAULT (years) (to first break): 7.5 (3.6)

•

Successful Refurbishment – Interior and exterior refurbishment of Hampshire House. By
advance programme and marketing, the void period was limited to only five months whilst
the works were ongoing.
Securing Income Streams – New 10-year lease agreed for 43,612. sq. ft. at Chilworth
House, Hampshire Corporate Park, Eastleigh, at a rent of £775,000 p.a which is 15.7% ahead
of the previous rent.

0 A z t e c West, Bristol

Market value (£m):
Sector:
Annualised gross rent (£m):
Lettable area (sq. ft.):
Anchor tenants:
EPRA Occupancy (%):
WAULT (years) (to first break): 8.8 (3.6)

19.3
Office
1.5
73,292
Edvance SAS, The Secretary of State for Defence
100.0

•

Successful Refurbishment – Major “back to shell” refurbishment of the whole building
completed in August 2018 into active Bristol market with limited city centre supply.
Further Lettings – The final floor comprising 9,736 sq. ft. has been let to Edvance SAS for a
nine-year lease from August 2019 at a gross rental income of c. £224,000 p.a.
Full Let – Property now fully let and producing a gross rental income of £2.3m.

Annual Report and Accountsfor the year ended 31 December 2019TOP 15 PROPERTIES BY SECTOR: OFFICE (CONTINUED)

Market value (£m):
Sector:
Annualised gross rent (£m):
Lettable area (sq. ft.):
Anchor tenants:
EPRA Occupancy (%):

16.9
Office
1.4
146,262
E.ON UK Plc
100.0

WAULT (years) (to first break): 5.6 (3.9)

One & T

• High-Quality Assets – Two modern office pavilions in an established business park.
•

Break Option Removed – Removal of EON’s break option in May 2020 for Two Newstead
Court, securing income until April 2025.

o N e w stead Court, A

s
l
e

n d S t reet, Mancheste

P o r t l a

Market value (£m):
Sector:
Annualised gross rent (£m):
Lettable area (sq. ft.):
Anchor tenants:

15.3
Office
0.8
54,959
New College Manchester Ltd, Mott MacDonald Ltd,
Darwin Loan Solutions Ltd
97.7

EPRA Occupancy (%):
WAULT (years) (to first break): 5.3 (2.9)

•

Tenant Retention – Secured three lease re-gears with existing tenants during 2019 which
will provide a revised combined gross rental income of c. £262,000 p.a., an uplift of 43.4%
from previous gross rental income.
Strong Investment Market – Strong investor demand remains for offices in the Manchester
city centre.
Asset Management Initiatives – Various initiative ongoing with existing tenants regarding
lease extensions. Explore opportunity to undertake improvements to elements of the
reception area.

Annual Report and Accountsfor the year ended 31 December 2019Asset and Investment Managers’ Report (continued)

TOP 15 PROPERTIES BY SECTOR: OFFICE (CONTINUED)

r k ,

y P

A s h b

A shby De La Zo

Market value (£m):
Sector:
Annualised gross rent (£m):
Lettable area (sq. ft.):
Anchor tenants:
EPRA Occupancy (%):
WAULT (years) (to first break): 2.7 (1.4)

13.9
Office
1.1
91,034
Ceva Logistics Ltd, Hill Rom UK Ltd, Alstom Power Ltd
100.0

•

Fully Let – Dilapidations on the inherited vacated space agreed. Jigsaw agreed new lease
over revised area with Dunwoody Airline Services taking the remaining void.
Asset Management Initiatives – Re-gear lease with Ceva Logistics to secure longer income
and complete lease surrender of Power House with Alstom Power Ltd and back-to-back
re-letting to Brush Electrical Machines Ltd on a new 10-year lease.

o l u m b u s House, Coventry

Market value (£m):
Sector:
Annualised gross rent (£m):
Lettable area (sq. ft.):
Anchor tenants:
EPRA Occupancy (%):
WAULT (years) (to first break): 4.0 (4.0)

13.3
Office
1.4
53,253
TUI Northern Europe Ltd
100.0

•

Income Profile – Let to TUI until 2024 on a geared lease with fixed annual uplifts. TUI has sublet
the entire space to First Utility that provides an underpinning to the rent.
Asset Management Initiatives – Potential to agree lease surrender with TUI, with benefits of
existing sublets to First Utility who have recently been acquired by Shell Petroleum Company
Limited.

Annual Report and Accountsfor the year ended 31 December 2019TOP 15 PROPERTIES BY SECTOR: OFFICE (CONTINUED)

Market value (£m):
Sector:
Annualised gross rent (£m):
Lettable area (sq. ft.):
Anchor tenants:

11.7
Office
1.3
142,512
The Scottish Ministers, The Scottish Sports Council,
Heidi Beers Ltd
97.4

EPRA Occupancy (%):
WAULT (years) (to first break): 7.5 (4.1)

n O n The Green, Glas

p l e

Te m

• Diversified Income – Multi-let to 39 tenants across 47 leases.
•

Further Lettings – Six new lettings took place during 2019 to five tenants across 13,547 sq.
ft., providing a combined gross rental income of c. £130,000 p.a. and representing a notable
uplift of c. 19% from December 2018 ERVs.
Reducing Vacancy – EPRA Occupancy has increased by 5.4% in the 12 months to
31 December 2019, reaching 97.4%.

•

d H o use, Manchester

a k l a

Market value (£m):
Sector:
Annualised gross rent (£m):
Lettable area (sq. ft.):
Anchor tenants:

11.3
Office
1.1
160,938
HSS Hire Service Group Ltd, Please Hold (UK) Ltd, CVS
(Commercial Valuers & Surveyors) Ltd

EPRA Occupancy (%):
WAULT (years) (to first break): 5.1 (3.8)

89.5

•

Adding Value – Front of house works undertaken to improve immediate presentation and
installation of high-level external illuminated signage to “landmark” the building.

• New Lettings – New lease agreed with Please Hold (UK) Limited for 5,450 sq. ft. on the

•

fifth floor for a 10-year term at a gross rental value of £12.50 per sq. ft., with a break option
in 2024.
Asset Management Initiatives – Refurbishment of ground floor to create smaller suites in
response to changing occupational demand as well as proposed creation of hub style facility
to provide welfare facilities (including showers and improved reception).

Annual Report and Accountsfor the year ended 31 December 2019Asset and Investment Managers’ Report (continued)

TOP 15 PROPERTIES BY SECTOR: INDUSTRIAL

n i p e r P ark, Basildon

J u

Market value (£m):
Sector:
Annualised gross rent (£m):
Lettable area (sq. ft.):
Anchor tenants:

29.6
Industrial
2.2
277,760
Schenker Ltd, A Share & Sons Ltd, Vanguard
Logistics Services Ltd
100.0

EPRA Occupancy (%):
WAULT (years) (to first break): 4.4 (2.8)

• Diversified Income – Multi-let to 11 tenants across 15 leases.
• New Letting – New lease agreed with DG International Group Limited for c. 30,100 sq.

ft. for a five-year term at a gross rental income of c. £240,800 p.a., representing a notable
uplift of 30% from the previous tenancy. The unit was re-let within 11 weeks of the previous
lease coming to an end.

• Major Renewal Secured – Unit 2 of the 16-unit site has successfully been renewed to

Vanguard Logistics Services Limited for a five-year period with Vanguard having the option
to extend beyond this. A stepped rent has been agreed on the 61,079 sq. ft. unit, increasing
to £370,000 p.a representing an uplift of 15.4% to the previous annual rent of £320,665,
and 5.4% ahead of ERV.
Tenant Expansion – Agreement for lease signed with Schenker Limited to take a lease of
the whole ground floor offices (c. 13,000 sq. ft.) at Juniper Place on a five-year term at a
gross rent of c. £182,000 p.a (c. £14.00 per sq. ft. and 4.9% above ERV).

•

r d

s f

I n dustrial Estate, W

Road 4 W in

Market value (£m):
Sector:
Annualised gross rent (£m):
Lettable area (sq. ft.):
Anchor tenants:
EPRA Occupancy (%):

15.7
Industrial
1.0
246,209
Jiffy Packaging Ltd
100.0

WAULT (years) (to first break): 14.8 (14.8)

•
•

Long-Term Lease – Let to Jiffy Packaging Limited until 2034.
Business Plan – Tenant company acquired by Airpack Group and lease guarantee assigned
to new parent company. Discussions continue with tenant regarding a potential re-gear.

Annual Report and Accountsfor the year ended 31 December 2019t L e i s u re Complex, D

TOP 15 PROPERTIES BY SECTOR: OTHER

Market value (£m):
Sector:
Annualised gross rent (£m):
Lettable area (sq. ft.):
Anchor tenants:
EPRA Occupancy (%):
WAULT (years) (to first break): 8.0 (7.7)

10.5
Other
0.7
83,780
Odeon Cinemas Ltd, Jag Leisure (Scotland) Ltd
88.8

•

Adding Value – Works undertaken to transform 10 screen multiplex Odeon cinema to
‘Odeon Deluxe’ brand. Successfully negotiated re-gear of the lease to provide a further
10-year term subject to us contributing to the cost of the upgrade.
Asset Management Initiatives – Let balance of refurbished space.

Kingsc o

Annual Report and Accountsfor the year ended 31 December 2019Asset and Investment Managers’ Report (continued)

ENVIRONMENTAL MATTERS

The Asset Manager currently has five main aspects to its
management of the environmental impact of the portfolio:

Case Study

•

An independent environmental report is required for all
potential acquisitions which considers, amongst other matters,
the historic and current usage of the site and the extent of any
contamination.

Century Way, Thorpe Park, Leeds
Ground and second floor office spaces, plus all common area and
toilet facilities, were comprehensively refurbished. The scope of
energy improvements includes:

The process of development and refurbishment projects
considers the choice of materials and equipment used to avoid
health hazards or damage to the environment.

•

The replacement of the original air conditioning system with a
high-performance low energy use VRF system; including new fan
coils, external condensers and fully insulated pipework.

• Ongoing risk examinations of the activities of current and

• Water heating was replaced with point of use appliances and the

incoming tenants is carried out by way of site inspections to
identify and prevent pollution.

•

All sites are visited at least annually with material evident
environmental issues reported to the Board.

All new leases seek to commit occupiers to environmental
regulations.

Improving Resource Management at our Assets
In order to reduce energy consumption both in landlords’ and
tenants’ areas, the Asset Manager needs to work closely with tenants.
The Asset Manager engages with tenants on resource consumption
issues where the Asset Manager has responsibility for the payment
of the supply. It has also engaged an energy consultant to advise
on energy efficiencies. Energy improvements are always considered
when repair or refurbishment programmes are undertaken. Please see
below for an example of a property where we improved the energy
efficiency.

Developments and Refurbishments
Development and refurbishments projects are subcontracted. The
Asset Manager monitors the work directly and with project managers
on larger projects, to ensure they are in accordance with relevant
guidelines and laws. All subcontractors are assessed to ensure that
they have sufficient resources to meet legal requirements.

•

old storage vessels for the indirect system were removed.

Retained chiller unit for the first floor offices was downgraded to
its optimum use characteristic.

BMS systems were entirely replaced; making the most efficient
use of all systems and in planning for the eventual replacement
of the nominal retained systems in the first floor.

Lighting throughout the common areas, internal and external,
were replaced with modern high efficiency LED fittings.

All power systems to these areas were also replaced with new
high efficiency fittings and new cabling.

The lift installation was comprehensively upgraded to include
new operational equipment and controls; of modern efficient
type.

Building fabric upgrades included insulated suspended ceiling tile
installations. Sealing of roof sheet gaps and brand-new raised
access floors of enhanced composition to the original.

•

External fire doors were all upgraded with new draught seals.

• New ground floor fire exit door facilities were installed to the
rear, fully thermally broken, and a new entrance lobby was
created to the front of the premises to minimise air leakage and
improve thermal control.

•

The south facing full height atrium was solar control managed
and new air handling systems were installed.

Annual Report and Accountsfor the year ended 31 December 2019Property Name: 800 Aztec West, Bristol
Sector: Office

Asset and Investment Managers’ Report (continued)

FINANCIAL REVIEW

Net Asset Value
In the year ended 31 December 2019, the EPRA NAV of the Group increased by £55.8m to £486.3m (IFRS: £483.7m) from £430.5m (IFRS:
£429.5m) as at 31 December 2018, equating to a decrease in the diluted EPRA NAV of 2.8pps to 112.7pps from 115.5pps. This is after the
payment of dividends in the period amounting to 8.2pps.

The EPRA NAV increase of some £55.8m since 31 December 2018 is predominately sourced from the issuance of new equity and offset by the
revaluation of investment properties held at 31 December 2019.

On 23 July 2019, the Company issued 58,685,447 Ordinary Shares at a price of 106.5pps pursuant to a capital raise of gross proceeds of £62.5m. The
funds were deployed in three tranches, excluding transaction costs: on 21 August 2019, a portfolio of six offices were acquired for £25.9m; on 18 October
2019, four multi-let offices were acquired for £27.7m; and finally, on 31 December 2019, a company office headquarters was acquired for £10.3m.

The investment property portfolio valuation as at 31 December 2019 totalled £787.9m (31 December 2018: £718.4m). The increase of £69.5m
since the December 2018 year end is largely a reflection of the aforementioned £62.5m equity capital raise funds being deployed, £1.7m
realised property disposals, offset by £3.5m of investment property revaluations, and gross capital expenditure amounting to £8.0m. Overall, on
a like-for-like basis, the portfolio was broadly unchanged with a 0.1% decrease.

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

Acquisitions

Net (after costs)
Gross (before costs)

Disposals

Net (after costs)
Gross (before costs)

Capital Expenditure

Net (after dilapidations)
Gross (before dilapidations)

EPRA Net Asset Value – Diluted Bridge 2019

Year ended
31 December 2019
(£m)

Year ended
31 December 2018
(£m)

89.9
87.1

24.3
24.9

5.8
8.0

76.3
73.3

149.3
152.5

7.0
9.8

Table may not sum due to rounding

Annual Report and Accountsfor the year ended 31 December 2019Pence per shareNet ﬁnanceexpenseGain on thedisposal of investmentpropertiesNet capitalexpenditureValuation (incl. net capital expenditure)OpeningEPRA NAV(incl. dilution)Capitalraisedilution31 Dec2018NAVNet rentaland propertyincome130105125115110100120115.5113.812.7(2.5)0.5(1.3)0.4(7.6)(0.0)112.7(1.7)(3.2)31 Dec2019Impairment of Goodwill& TaxDividendsAdmin expensesThe diluted EPRA NAV per share decreased to 112.7pps (31 December 2018: 115.5pps). The EPRA NAV is reconciled in the table below:

Opening EPRA NAV (31 December 2018)

Capital raise dilution

Opening EPRA NAV (incl. net capital raise)

Net rental and property income

Administration and other expenses

Gain on the disposal of investment properties

Change in the fair value of investment properties

Change in value of right of use

EPRA NAV after operating profit

Net finance expense

Impairment of goodwill

Taxation

EPRA NAV before dividends paid

Dividends paid

Closing EPRA NAV (31 December 2019)

Table may not sum due to rounding

Year ended
2019

£m

430.5

60.5

491.0

55.0

(10.9)

1.7

(3.5)

(0.2)

533.0

(13.7)

(0.6)

0.4

519.1

(32.8)

486.3

Pence per share

115.5

(1.7)

113.8

12.7

(2.5)

0.4

(0.8)

–

123.5

(3.2)

(0.1)

0.1

120.3

(7.6)

112.7

As at 31 December 2018, there were 372,821,136 shares in issue. On 23 July 2019, the Company issued 58,685,447 shares which qualified for
the Q2 2019 dividend of 1.90 pence per share and increased the total number of shares in issue to 431,506,583.

INCOME STATEMENT

Operating profit before gains and losses on property assets and other investments for the year ended 31 December 2019 amounted to £44.1m
(31 December 2018: £36.8m). Profit after finance items and before taxation was £26.3m (31 December 2018: £67.9m). This reduction is
predominately the result of three factors: firstly, a reduction in the gains on the disposal of investment properties, with 2018 including a number
of opportunistic disposals; secondly, the reduction in the change in fair value of investment properties, with 2018 values being driven by asset
management initiatives; and finally, the combination of the two prior factors resulted in a reduction of the performance fee incurred. 2019 included
a full rent roll for properties held as at 31 December 2018, plus the partial rent roll for properties acquired and disposed of during the period.

Rental and property income amounted to £64.4m, excluding recoverable service charge income and other similar items (31 December 2018:
£62.1m). The increase was primarily the result of the enlarged investment property portfolio held in 2019.

Currently more than 85% of the rental income is collected within 28 days of the due date and bad debts in the period were £0.5m
(31 December 2018: £0.4m).

Non-recoverable property costs, excluding recoverable service charge income and other similar costs, amounted to £9.4m (31 December 2018:
£7.7m), and the rent roll increased to £64.3m (31 December 2018: £59.7m).

Realised gain on disposal of investment properties amounted to £1.7m (31 December 2018: £23.1m). These gains were primarily driven by
asset management initiatives. The change in the fair value of investment properties amounted to a loss of £3.5m (31 December 2018: gain of
£23.9m). Gross capital expenditure amounted to £8.0m. The change in value of right of use asset amounted to a charge of £0.2m; additional
information is set out in note 2.4 on page 101.

Finance expenses amount to £13.9m (31 December 2018: £16.0m). The decrease is largely as a result of the repayment of the 30m zero
dividend preference shares (“ZDPs”) on 9 January 2019.

Annual Report and Accountsfor the year ended 31 December 2019Asset and Investment Managers’ Report (continued)

The EPRA cost ratio, including direct vacancy costs, was 31.6% (31 December 2018: 40.1%), adjusting for ground rent. The decrease in the
cost ratio is ostensibly a reflection of the decrease in realised gains from the disposal of investment properties in the period, coupled with the
reduction in the fair value of the investment properties, resulting in a nil performance fee (31 December 2018: £7.0m). The EPRA cost ratio,
including direct vacancy costs and excluding the performance fee, was 31.6% (31 December 2018: 28.6%).

The ongoing charges for the period ending 31 December 2019 were 4.5% (31 December 2018: 4.4%).

The EPRA Total Return from 6 November 2015 to 31 December 2019 was 43.0% (31 December 2018: 37.5%), an annualised rate of 9.0% pa
(31 December 2018: 10.6% pa).

DIVIDEND

In relation to the period from 1 January 2019 to 31 December 2019, the Company declared dividends totalling 8.25pps (2018: 8.05pps). Since
the end of the period, the Company has declared a dividend for the fourth quarter of 2019 of 2.55pps.

Period covered

Announcement date

1 Jan 2019 to 31 Mar 2019

1 Apr 2019 to 30 Jun 2019

1 Jul 2019 to 30 Sep 2019

1 Oct 2019 to 31 Dec 2019

1 Jan 2018 to 31 Mar 2018

1 Apr 2018 to 30 Jun 2018

1 Jul 2018 to 30 Sep 2018

1 Oct 2018 to 31 Dec 2018

23 May 2019

29 Aug 2019

14 Nov 2019

27 Feb 2020

17 May 2018

31 Aug 2018

15 Nov 2018

21 Feb 2019

DEBT FINANCING AND GEARING

Ex-date

6 Jun 2019

5 Sep 2019

21 Nov 2019

5 Mar 2020

24 May 2018

13 Sep 2018

22 Nov 2018

28 Feb 2019

Payment date

Pence per share

12 July 2019

15 Oct 2019

19 Dec 2019

9 April 2020

13 Jul 2018

15 Oct 2018

21 Dec 2018

11 Apr 2019

1.90

2.55

1.85

2.50

Borrowings comprise third-party bank debt which is secured over properties owned by the Group and repayable over the next four to ten years, with a
weighted average maturity of 7.3 years (31 December 2018: 6.4 years).
The Group’s borrowing facilities are with the Royal Bank of Scotland, Scottish Widows Limited & Aviva Investors Real Estate Finance, Scottish Widows
Limited and Santander UK. Total bank borrowing facilities at 31 December 2019 amounted to £294.0m (31 December 2018: £290.5m) (before
unamortised debt issuance costs), with £27.9m available to be drawn. In addition to the bank borrowings, the Group has a £50m 4.5% retail eligible
bond which is due for repayment in August 2024. In aggregate, the total debt available at 31 December 2019 amounted to £371.9m (31 December
2018: £380.4m).
During the period, the Company fully repaid the £39.9m ZDP shares on 9 January 2019. In addition, a new £66.0m 10-year facility was agreed with
Santander, refinancing the existing £44.0m facility; a new £55.0m five-year facility was agreed with the Royal Bank of Scotland, which refinanced both
the existing £26.5m facility with the Royal Bank of Scotland and the £19.0m facility with HSBC. The new Royal Bank of Scotland and Santander UK
facilities had not been fully drawn as at 31 December 2019.
At 31 December 2019, the Group’s cash and cash equivalent balances amounted to £37.3m (31 December 2018: £104.8m), after the repayment of the
£39.9m ZDP shares and the acquisition of Norfolk House for £20.0m before costs.
The Group’s net LTV ratio stands at 38.9% (31 December 2018: 38.3%) before unamortised costs. The Board continues to target a net LTV ratio of
40%, with a maximum limit of 50%.

Annual Report and Accountsfor the year ended 31 December 2019Debt Profile and LTV Ratios as at 31 December 2019

Original facility
£’000

Outstanding debt*
£’000

Maturity
date

48,584

June 2024

Gross loan

to value**

39.8

Annual interest
rate

2.15 over 3 months
£ LIBOR

Lender

Royal Bank of Scotland

Scottish Widows Ltd. & Aviva
Investors Real Estate Finance

Scottish Widows Ltd.

Santander UK

Retail eligible bond

55,000

165,000

36,000

65,870

321,870

50,000

371,870

165,000

December 2027

45.1

3.28 Fixed

36,000

December 2028

38.9

3.37 Fixed

June 2029

26.4

2.2 over 3 months
£ LIBOR

44,416

294,000

50,000

August 2024

N/A

4.5 Fixed

344,000

* Before unamortised debt issue costs

** Based on Cushman and Wakefield property valuations

Table may not sum due to rounding

The Managers continue to monitor the borrowing requirements of the Group. As at 31 December 2019, the Group had substantial headroom
against its borrowing covenants.

The net gearing ratio (net debt to Ordinary Shareholders’ equity (diluted)) of the Group was 63.4% as at 31 December 2019 (31 December 2018: 64.1%).

Interest cover, including amortised costs, stands at 3.6 times (31 December 2018: 2.3 times) including the ZDP shares, and 3.6 times excluding
the ZDP shares (31 December 2018: 2.7 times). The interest cover, including amortised costs, increase was a result of the reduction of
borrowings following the repayment of the ZDP shares on 9 January 2019.

HEDGING

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

Borrowings interest rate hedged (incl. ZDP)

Thereof:

Fixed

Swap

Cap

WACD1

WACD – excluding the ZDPs2

Table may not sum due to rounding

1 WACD - Weighted Average Effective Interest Rate including the cost of hedging

2 Zero Dividend Preference Shares, which were assumed on 24 March 2017 and fully repaid on 9 January 2019

31 December
2019
(%)

108.1

73.0

17.6

3.5

31 December
2018
(%)

102.0

76.5

12.8

3.8

3.5

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

Annual Report and Accountsfor the year ended 31 December 2019Asset and Investment Managers’ Report (continued)

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 31 December 2019, the Group recognised a tax credit of £0.3m, which comprised tax provisions for the year offset by releases of tax
previously provided for in prior years which are now concluded and not payable.

SUBSEQUENT EVENTS AND COVID-19

The wellbeing of our tenants and other stakeholders in the Company are of utmost importance to the Board and we continue to manage the
Company, cognisant of their needs in this current environment.

On 20 February 2020, the Company announced a potential equity fundraise to take advantage of its growing near-term pipeline of accretive
growth. As a result of the current market uncertainty caused by the global spread of COVID-19, the Company took the decision to withdraw the
potential equity fundraise.

On 31 March 2020, and in view of the COVID-19 disruption to UK economic activity the Company announced a trading update. The rental
collections were slightly reduced as at 30 March 2020, with 68.2% of invoiced rental income collected in comparison with 69.6% at the same
date in 2019. In addition, £30.7m of available borrowing headroom from the Santander UK and Royal Bank of Scotland facilities had been
drawn.

The Board will continue to closely monitor the developing situation and its effect on the Group, although the Board is re-assured by the
Company’s balance sheet, the breadth of tenants and geographical spread of assets, which will ensure it is well positioned to mitigate any
prolonged periods of uncertainty.

Annual Report and Accountsfor the year ended 31 December 2019Property Name: Columbus House, Coventry
Sector: Office

Principal Risks and Uncertainties

The Board acknowledges that it faces a number of risks which could impact the achievement of its strategy, and that effective risk management
is essential to the Group. A robust assessment is undertaken of the principal risks facing the Group, including those that would threaten its
business model and future performance, solvency or liquidity.

Although the Board believes that it has a robust framework of internal controls in place, this can provide only reasonable, and not absolute,
assurance against material financial misstatement or loss and is designed to manage, not eliminate risk.

The Group has established a risk management process to monitor and mitigate identifiable risks where possible, rather than eliminating them.
The Audit Committee reviews the risk management matrix on a six-monthly basis. The below list sets out the current identifiable principal risks
in no particular order which the Board is monitoring but does not purport to be an exhaustive list of all the risks faced by the Group.

The Board is aware that material emerging risks will arise which, to date, are not deemed material nor warrant significant resources to monitor.
As and when such risks are identified, the Group will put in place controls to monitor and mitigate.

Principal Risk Summary

Movement trend in the period

Inappropriate investment strategy

Valuation

COVID-19

Economic and political

Funding

Tenant

Financial and tax changes

Operational

Accounting, legal and regulatory

10.

Environmental and efficiency standards

Potential impact

Mitigation

Movement in the period

Strategic Risks

An inappropriate investment strategy
could result in lower income and capital
returns to Shareholders.

The property portfolio remains balanced
across a range of geographical areas and
large number of investment properties.

The Group continues to purchase
properties in the UK outside the M25
motorway.

An annual review of the investment
strategy.

A defined and rigorous investment
appraisal process.

Acquire portfolios which offer Shareholders
diversification of investment risk by
investing in a range of geographical areas
and number of properties.

Supply and demand market information
is reviewed continuously to assist in
acquisitions and disposals.

Only acquiring office and industrial
properties in the UK and outside of the
M25 motorway. However, the Group may
invest in property portfolios in which up to
50% of the properties (by market value)
are situated within the M25 motorway.

Annual Report and Accountsfor the year ended 31 December 2019Key to risk trendTrend upTrend downNo changeNo single property, in the ordinary course
of business, is expected to exceed 10%
of the Group’s aggregate Investment
Properties. However, the Board may, in
exceptional circumstances, consider a
property having a value of up to 20% of
the Group’s investment property value at
the time of investment.

Tay House (31 December 2018: Tay House)
remains the highest valued property,
which equates to 4.3% (31 December
2018: 4.6%) of the Group’s investment
properties.

No more than 20% of the Group’s
investment property value shall be
exposed to any single tenant or group
undertaking of that tenant.

The Group’s largest single tenant exposure
is 2.5% (31 December 2018: 2.7%) of gross
rental income, being Barclays Bank PLC
(31 December 2018: Barclays Bank PLC).

Speculative development (i.e. properties
under construction, but excluding any
refurbishment works, which have not been
pre-let) is prohibited.

No speculative construction was
undertaken in the year.

The value of the assets is protected by an
active asset management programme,
which is regularly reviewed against the
business plan for each property.

The Asset Manager continues to actively
manage the investment properties in
accordance with market conditions and the
individual asset programme.

Potential impact

Mitigation

Movement in the period

Valuation Risk

The valuation of the Group’s portfolio
affects its profitability and net assets.

Cushman & Wakefield provide the
valuation for the entire portfolio.

External valuers, Cushman & Wakefield
provide independent valuations for all
properties and in accordance with the RICS
Red Book.

The Audit Committee has the opportunity
to discuss with the external valuers the
basis of their valuations.

The Asset Manager’s experience and
extensive property market knowledge and
are able to challenge the external valuers
findings.

The Company’s Auditor to engage an
independent third party to evaluate
Cushman & Wakefield valuation.

Annual Report and Accountsfor the year ended 31 December 2019Principal Risks and Uncertainties (continued)

Potential impact

Mitigation

Movement in the period

COVID-19

This was a completely new and unforeseen
risk. However, the Group continues
to scrutinise all current risk mitigation
approaches employed and to work closely
with all parties through this disruptive period.

The economic disruption resulting from
COVID-19 virus could impact rental
incomes, the ability to access funding at
competitive rates, maintain a progressive
dividend policy, and adhere to the HMRC
REIT regime requirements, especially if
associated restrictions are in place for
greater than one year.

The retention of the Asset and Investment
Manager will be pivotal in the near-term in
maintaining the rental income, given their
experience and corporate memory. The
Company and the Managers each agreed
to waive their right to issue a termination
notice on or before 3 November 2020
and the management agreement will now
continue in force until 3 November 2023.

The Asset Manager stands ready, should it
be required, to support tenants in accessing
UK Government financial assistance.

The Asset Manager, where appropriate, has
put in place social distancing measures as
advised by the government.

The available borrowing facility headroom
has been drawn down from Santander UK
and Royal Bank of Scotland.

The Company is no longer considering
a potential equity fundraise and any
associated property acquisitions.

Close relationships with lenders ensuring
early dialogue around covenants.

Dividend distributions remain under review.

Economic and political Risk

Potential impact

Mitigation

Movement in the period

Significant political events could impact
the health of the UK economy, resulting in
borrowing constraints, change in demand
by tenants for suitable properties, the
quality of the tenants, and ultimately the
portfolio value.

The Group operates with a sole focus on
the UK regions, with no foreign currency
exchange exposure. It remains well
positioned with a deliberately diverse
standard industry classification of tenants
generating in excess of 900 (31 December
2018: 800) income streams which are
located in areas of expected economic
growth.

The Board receives advice on macro-
economic risks from the Investment Manager
and other Advisers and acts accordingly.

There remains a risk that property
valuations and the occupancy market may
be impacted by the ongoing negotiations
during the Brexit transition period.

Annual Report and Accountsfor the year ended 31 December 2019
Potential impact

Mitigation

Movement in the period

Funding Risk

The Group may not be able to secure
further debt on acceptable terms,
which may impinge upon investment
opportunities and the ability to grow the
Group.

Borrowings are currently provided by
a range of institutions with targeted
staggered maturities.

Strong relationships with key long-term
lenders.

Funding options are constantly reviewed
with an emphasis on reducing the weighted
average cost of capital and lengthening the
weighted average debt to maturity.

Continual monitoring of LTV.

Weighted average debt term increased to
7.3 years from 6.4 years in 2018.

Weighted average cost of capital, including
hedging costs was 3.5% (31 December
2018: 3.8%).

LTV increased to 38.9% from 38.3% at
31 December 2018.

Bank reference interest rates may be set to
rise accompanying higher inflation.

Policy of hedging at least 90% of variable
interest rate borrowings.

Continued adherence to the hedging
policy.

Borrowings are currently provided by
a range of institutions with targeted
staggered maturities.

Tenant Risk

Potential impact

Mitigation

Movement in the period

Type of tenant and concentration of tenant
could result in lower income from reduced
lettings or defaults.

A high concentration of lease term
maturity and/or break options could result
in a more volatile contracted rent roll.

This risk remains stable in view of the
increasing diversification of properties,
tenants and geographies in the portfolio.

The tenant mix and their underlying
activity has continued to increasingly
diversify, with the number of tenants
amounting to 904 at the year end
(31 December 2018: 874).

The WAULT to first break as at
31 December 2019 was 3.5 years
(31 December 2018: 3.4)

The largest tenant is 2.5% of the gross
rental income, being Barclays Bank PLC
(31 December 2018: 2.7%).

The Asset Management team remains
vigilant to the health of current tenants
and continues to liaise with occupiers and
agents.

An active asset management programme
with a focus on the Asset Manager working
with individual tenants to assess any
occupational issues and to manage any
potential bad debts.

Diversified portfolio of properties let,
where possible, to a large number of
low risk tenants across a wide range of
different standard industrial classifications
throughout the UK.

Potential acquisitions are reviewed for
tenant overlap.

The portfolio lease and maturity
concentrations are monitored by the
experienced Asset Manager to minimise
concentration.

There is a focus on securing early renewals
and increased lease period.

The requirement for suitable tenants and
the quality of the tenant is managed by
the experienced Asset Manager which
maintains close relationships with current
tenants and with letting agents.

Annual Report and Accountsfor the year ended 31 December 2019Principal Risks and Uncertainties (continued)

Potential impact

Mitigation

Movement in the period

Financial and Tax Change Risk

Changes to the UK REIT and non–REIT
regimes, tax and financial legislation.

The Board receives advice on these changes
where appropriate and will act accordingly.

Advice is received from a number of
corporate advisers including Grant
Thornton UK LLP and the Group adapts to
changes as required.

Potential impact

Mitigation

Movement in the period

Operational Risk

Business disruption could impinge on the
normal operations of the Group.

Both the Asset and Investment Managers
annually review their Disaster and Business
Continuity Plans.

The Asset and Investment Managers
each have contingency plans in place to
ensure there are no disruptions to the core
infrastructure, including cyber security
measures, which would impinge on the
normal operations of the Group. These
plans have been implemented in adherence
to COVID-19 government guidelines, with
limited disruption to operations.

An annual due diligence exercise is carried
out on all principal third-party service
providers.

Annual due diligence visits were
undertaken with the Company’s principal
third party service providers.

As an externally managed investment
Company, there is a continued reliance on
the Asset and Investment Managers.

There were no concerns identified from
these visits.

Both the Asset and Investment Manager
are viable going concerns.

All acquisitions undergo a rigorous due
diligence process and all multi-let properties
undergo an annual comprehensive fire risk
assessment.

The Asset Manager remains vigilant to
changes in Health and Safety regulations,
including, where required, COVID-19 social
distancing measures.

The impact of physical damage and
destruction to investment properties is
mitigated by ensuring all are covered by a
comprehensive building, loss of rent and
service charge plus terrorism insurance with
the exception of a small number of “self-
insure” arrangements covered under leases.

The Asset Manager reviews the adequacy
of insurance cover on an ongoing basis.

Annual Report and Accountsfor the year ended 31 December 2019Accounting, Legal, and Regulatory

Potential impact

Mitigation

Movement in the period

Changes to accounting, legal and/or
regulatory legislation could result in
changes to current operating processes.

Robust processes are in place to ensure
adherence to accounting, legal, regulatory
requirements, and Listing Rules.

The Group continues to receive advice
from its corporate advisers and has
incorporated changes where required.

All contracts are reviewed by the Group’s
legal advisers.

The Administrator, in its capacity as Group
Accountant, and the Company Secretary
attend all Board meetings in order to be
aware of all announcements that need to
be made.

All compliance issues are raised with the
Financial Adviser.

The Administrator and Company Secretary
continue to attend all Board meetings
and advise on Listing Rule requirements in
conjunction with the Corporate Broker and
Financial Adviser.

Potential impact

Mitigation

Movement in the period

Environmental and Energy Efficiency Standards

The Group’s cost base could be impacted,
and management time diverted, due to
climate changes and associated legislation.

Changes to the environment could impact
upon the operations of the Group.

The Board receives regular updates on
environmental, social, governance and
potential legislation changes (e.g. the
Government Green Finance Strategy July
2019) from its advisers.

The Group is currently reviewing its
approach to these emerging risks with the
assistance of specialist external advisers.

Property acquisitions undergo a rigorous
due diligence process, including an
environmental assessment.

The Asset Manager monitors the portfolio
for any detrimental environmental impact,
by way of frequent inspections of the
properties, and the annual insurance
review process.

An Energy Performance Rating of E and
below is required for each asset in order to
be let or sold.

The Group continues to review each
property to ensure adherence with Energy
Performance Rating requirements.

The energy efficiency of investment
acquisitions is fully considered as part of
the buying due diligence.

Emerging Risks

Additional attention is currently being
devoted in this area to ensure the
appropriate approach and indicators are
applied.

The rigour of the environmental
assessments process continues to be
reviewed with the aim of enhancing it.

The Asset Manager is continually
reviewing the feasibility of enhancing
Energy Performance Ratings to exceed the
minimum requirement.

In reviewing the principal risks, the Board also considers emerging risks on a regular basis. The Company has a procedure in place to identify
emerging risks and manages them accordingly. One key emerging risk that was identified but is now considered an actual principal risk to the
Company is COVID-19, as detailed above.

Changes to the Principal Risks and Uncertainties

The Board, via the Audit Committee, has agreed the movement during the period to each of the identified principal risks and uncertainties
following review of these risks, having considered the characteristics of these and the economic and geo-political factors. Any impact of
these risks to the Company’s future strategy is considered on an ongoing basis.

Annual Report and Accountsfor the year ended 31 December 2019Property Name: One & Two Newstead Court, Annesley
Sector: Office

Property Manager
London & Scottish Property Asset Management Limited has been
appointed to manage the day-to-day property management of each
property within the portfolio. A Property Management fee of 4%,
based upon the gross rental yield, is charged per annum.

Investment Manager and Alternative Investment
Fund Manager
The Company appointed Toscafund Asset Management LLP as the
Company’s Investment Manager (and to provide certain related
services to Midco and the respective companies which hold property
directly). The Investment Manager is responsible for the day-to-
day management of the Company’s investments, subject to the
Investment Objectives and the Investment Policy of the Company.
The Investment Manager is the Alternative Investment Fund Manager
(“AIFM”) under the Alternative Investment Fund Managers Directive
(“AIFMD”).

Notwithstanding the above terms, the Investment Management
Agreement shall terminate with immediate effect in certain
circumstances, including the Investment Manager ceasing for any
reason to be authorised under FSMA to carry out the regulated
activity of managing an AIF, or the Investment Manager committing
a material breach of its obligations either (i) not capable of being
remedied (after the Company has served notice to terminate) or (ii)
which is capable of being remedied and failing to remedy the same
within 30 days after service of notice by the Company requesting the
same to be remedied.

At any time after the later of (i) the fifth anniversary of the date of
the Investment Management Agreement (3 November 2020) and
(ii) the first date on which EPRA NAV exceeds £750,000,000, the
Board and the Investment Manager may decide, with the approval of
an ordinary resolution (upon which neither the Investment Manager
nor its associates may vote) that individuals providing the services
under the Investment Management Agreement are to become an
internal resource of the Company in lieu of the appointment of the
Investment Manager under the Investment Management Agreement.

Management Arrangements

The Board has overall responsibility for the Company’s activities,
including the review of investment activity and performance and the
control and supervision of all suppliers of services to the Company,
including the Asset Manager and Investment Manager. It is also
responsible for the determination of the Company’s investment
policy and strategy and the Company’s system of internal and
financial controls, including ensuring that commercial risks and
financing needs are properly considered and that the obligations of a
public limited company are adhered to.

Asset Manager
The Asset Management Agreement was assigned to London &
Scottish Property Investment Management Limited on 3 May 2019
from an existing entity within the Asset Manager group following
a restructure. The Asset Manager is engaged to provide asset
management services to the Company, Regional Commercial Midco
Limited (“Midco”) and the respective Group limited companies which
hold the properties directly.

Under the Asset Management Agreement, the Asset Manager is
responsible for the day-to-day asset management of the Property
Portfolio, subject to the Investment Objectives of the Company, its
Investment Policy (as set out on page 16) and the overall supervision
of the Board. The Asset Manager will also advise the Company on the
acquisition, management and disposal of the Group’s properties.

Notwithstanding the above terms, the Asset Management Agreement
may be terminated with immediate effect in certain circumstances,
including a material unremedied breach by the Asset Manager.

The Company or Midco may terminate the Asset Management
Agreement with immediate effect by giving written notice to the
Asset Manager in the event of the liquidation or insolvency (or
analogous event) of the Asset Manager.

At any time after the later of (i) the fifth anniversary of the date of
the Asset Management Agreement (3 November 2020) and (ii) the
first date on which EPRA NAV exceeds £750,000,000, the Board and
the Asset and Investment Manager may decide, with the approval of
an ordinary resolution (upon which neither the Asset Manager nor its
associates may vote) that individuals providing the services under the
Asset Management Agreement are to become an internal resource of
the Company in lieu of the appointment of the Asset Manager under
the Asset Management Agreement.

Annual Report and Accountsfor the year ended 31 December 2019Management Arrangements (continued)

Administrator
The Company appointed Jupiter Fund Services Limited as the
Administrator to the Company pursuant to an Administration
Agreement. Under the terms of the Administration Agreement, the
Administrator is responsible for the Company’s general administrative
functions such as maintaining the Company’s records and statutory
registers and acting as the Company’s Designated Administrator.
The Administrator has outsourced certain of its services under the
Administration Agreement to Link Alternative Fund Administrators
Limited as Sub-Administrator. An annual fee of £133,695 is payable
by the Company to the Administrator and Sub-Administrator in
respect of these services.

The Administration Agreement was for an initial term of one year,
following which it automatically renews for 12-month periods unless
notice of termination is served by either party at least 90 days prior
to the end of each period.

Company Secretary
Link Company Matters Limited was appointed to provide company
secretarial services to the Company pursuant to a Company
Secretarial Services Agreement. This agreement automatically renews
for 12-month periods unless notice of termination is served by either
party at least six months prior to the end of each period.

Management and Performance Fees
The Asset and Investment Managers are each entitled, in each
financial year (or part thereof), to 50% of an annual management
fee on a scaled rate of 1.1% of the Company’s EPRA NAV, reducing to
0.9% on net assets over £500,000,000. The fee shall be payable in
cash quarterly in arrears.

In addition, the Asset and Investment Managers are each entitled
to 50% of a performance fee. The fee is calculated at a rate of 15%
of Total Shareholder Returns in excess of the annual Hurdle Rate of
8% for the relevant Performance Period. Total Shareholder Returns
for any Performance Period consists of the sum of any increase or
decrease in EPRA NAV per Ordinary Share and the total dividends
per Ordinary Share declared in the Performance Period. The Initial
Performance Period ran from 6 November 2015 to 31 December
2018. Subsequent Performance Periods are annual, from 1 January
to 31 December. Any performance fee payable for the period
commencing 1 January 2019 and subsequent periods is to be paid in
part 34% in cash and 66% in Ordinary Shares. Any Ordinary Shares
issued to the Managers are to be issued at the prevailing price per
Ordinary Share on the date of issue.

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 per Ordinary Share in any previous Performance Period or the
Placing Price (100p per Ordinary Share). Full details of the Managers'
performance fee are given on pages 160 to 162 of the Company’s
Prospectus, published on 24 June 2019.

Performance Fee
As reported in the Chairman’s Statement on page 13, a performance
fee was not crystallised for the performance fee period from 1 January
2019 to 31 December 2019.

Continuing Appointment of Asset Manager and
Investment Manager
The management agreements between the Company, the Asset and
the Investment Managers had an initial five-year term to November
2020. Following a thorough review, the Management Engagement
and Remuneration Committee (“MERC”) recommended to the
Board the continued appointment of both the Asset and Investment
Managers, on similar terms of their respective agreements, which
the MERC considered to remain commercial and reasonable. The
Independent Directors were of the opinion that the Managers
had executed the investment strategy according to the Board’s
expectations. The Board agreed that this was in the best interests
of the Company and its Shareholders as a whole and approved the
MERC’s recommendation. Accordingly, the Company, the Asset
Manager and the Investment Manager have each waived their right
to serve a termination notice on or before 3 November 2020 and,
therefore, the management agreements will now continue in force
until 3 November 2023. Notwithstanding this decision, the MERC
will continue to review the performance of the Asset and Investment
Managers on an annual basis.

Annual Report and Accountsfor the year ended 31 December 2019Other Information

Principal Activity
The Company has been incorporated for the purpose of investment
in, holding and managing commercial property investments, or debt
portfolios secured on such properties, which are located predominately
in the regional centres of the UK outside the M25 motorway.

Status
The Company is incorporated in Guernsey, Channel Islands and is
registered with the Guernsey Financial Services Commission as a
Registered Closed-Ended Collective Investment Scheme pursuant
to the Protection of Investors (Bailiwick of Guernsey) Law 1987, as
amended and the Registered Collective Investment Schemes Rules
2018. It is a member of the AIC.

Status for Taxation
The Director of Income Tax in Guernsey has granted the Company
exemption from Guernsey income tax under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance, 1989 and the income of the Company
may be distributed or accumulated without deduction of Guernsey
income tax. Exemption under the above-mentioned Ordinance
entails the Company to pay an annual fee of £1,200.

During the year, the Company’s properties have been held in various
subsidiaries and associates, the majority of which are subject to UK
Income Tax. In each instance, any tax due is computed after deduction
of debt financing costs and other allowances as appropriate.

On 9 January 2018, the Company registered for VAT purposes in
England and has recovered VAT incurred since November 2015.

Shareholders who are in any doubt concerning the taxation
implications of a REIT should consult their own tax advisers.

Stakeholder Engagement and Board Decision
Making
In accordance with the AIC Code of Corporate Governance, the
Board is required to understand the views of the Company’s key
stakeholders and describe in the Annual Report how their interests
and the matters set out in section 172 of the UK’s Companies Act
200614 have been considered in Board discussions and decision
making. This section of the UK’s Companies Act requires the Directors
to have regard to the following matters:

•

the likely consequences of any decision in the long term;

the need to foster the Company’s business relationships with
suppliers, customers and others;

the impact of the Company’s operations on the community and
the environment;

the Company’s reputation for high standards of business
conduct; and

the need to act fairly as between members of the Company.

The Board is of the view that effective engagement with all of its
stakeholders plays an important role and underpins good governance
and creates long-term value.

The importance of stakeholder considerations, in particular in the
context of decision making, is taken into account at every Board
meeting. All discussions involve careful consideration of the longer-term
consequences of any decisions and their implications for stakeholders.
Examples of material matters discussed during the year are set out in the
Chairman’s Statement. In addition, the Investment Strategy and Business
Model set on pages 16 to 20 gives examples of how we approach each
specific element of our strategy which supports the business model, this
includes an explanation of our values and approach.

Examples of the Board having taken into consideration its
stakeholders in decisions are set where relevant below.

Our Stakeholders
The Board seeks to understand the needs and priorities of the
Company’s stakeholders and these are taken into account during
all its discussions and as part of its decision making. During the
period under review, the Board has discussed which parties should
be considered as stakeholders of the Company. As the Company is
an externally-managed REIT and does not have any employees, the
Board believes that the Company’s key stakeholders comprise, in
no particular order, its tenants, Shareholders and its Managers. The
section below discusses why these stakeholders are considered of
importance to the Company and the actions taken to ensure that
their interests are taken into account.

Tenants
The ability of the Company to meet its objective requires a strong
focus on generating income from the property portfolio. To do this, the
Company must understand its tenants needs, challenges and future
aspirations to retain lettings and lease renewals. The Company has
engaged a dedicated property manager, London and Scottish Property
Asset Management Limited (“LSPAM”) to manage the day-to-day
property management. LSPAM communicates regularly with existing
tenants to understand their needs and improve their satisfaction. This
improves retention rates and also attracts prospective tenants.

The Board recognises that the Company has certain responsibility to its
Shareholders, stakeholders and the wider society. While an externally-
managed REIT, the Company itself does not have employees, the
Company aims to conduct itself responsibly, ethically and fairly and
has sought to ensure that the Asset Manager takes account of social,
environmental and ethical factors where appropriate. The Board has
welcomed the Asset Manager’s increased commitment to improve the
environmental and sustainability performance of the Company.

An example of how the interests of our tenants are taken into
consideration and acted upon was in respect of the letting of
800 Aztec West, Bristol. The Asset Manager met with the tenant
prior to them leasing the space regarding the tenant’s security
requirements and was able to ensure that these requirements were
met prior to them signing the lease.

14 Although Section 172 of the Companies Act 2006 does not apply to the Company, the AIC Code requires that the matters stated under Section 172 are reported on by all companies

irrespective of domicile.

Annual Report and Accountsfor the year ended 31 December 2019Other Information (continued)

Shareholders
Continued Shareholder support and engagement are critical to the
existence of the Company and the delivery of its long-term strategy. The
Board is committed to maintaining open channels of communication
and engagement with Shareholders which is given a high priority by
both the Board and the Managers. The Chairman ensures that the Board
as a whole has a clear understanding of the views of Shareholders by
receiving regular updates from the Company’s Corporate Broker and
Financial Adviser and Managers.

The Managers and the Company’s Corporate Broker and Financial
Adviser are in regular contact with major Shareholders, which include
meetings and roadshows. The Managers report the results of all meetings
and the views of those Shareholders to the Board on a regular basis. At
every Board meeting, the Directors receive an investor relations update
from the Investment Manager on the share trading activity, share price
performance and any Shareholder feedback, as well as an update from
the Investment Manager on any publications or comments by press
and analysts. The Chairman and the other Directors are available to
attend these meetings with Shareholders if required. Relations with
Shareholders are also considered as part of the annual Board evaluation
process. For further details regarding this process see page 77.

All Shareholders are encouraged to vote at the annual general meeting
(“AGM”), during which the Board and the Managers intend to make
themselves available to discuss issues affecting the Company and answer
any questions. The Asset Manager generally delivers a presentation
on the Company’s performance and the future outlook at the AGM.
Shareholders have an opportunity to meet the Directors and to ask the
Managers or any of the Directors questions. Shareholders wishing to raise
questions or concerns directly with the Chairman, Senior Independent
Director or Company Secretary, outside of the AGM, should do so using
the contact details provided on page 143.

The annual report and half-year report are made available on
the Company’s website, together with other communications
to Shareholders. These reports provide Shareholders with a clear
understanding of the Company’s performance and financial position.
This information is supported by regular announcements on activity
within the property portfolio such as lettings, lease extensions and
acquisitions announced via the stock exchange and are also available on
the Company’s website.

The Asset Manager and Investment Manager
The performance of both the Asset Manager and Investment Manager
is critical for the Company to successfully deliver its investment
strategy and meet its objective to provide Shareholders with an
attractive total return of greater than 10% per annum.

Maintaining a close and constructive working relationship with the
Managers is crucial as the Board and the Managers aim to achieve
the investment objective. Important components in the collaboration
with the Managers, representative of the Company’s culture are:

•

Encouraging open discussion with the Managers;

Recognising that the interests of Shareholders and the Managers
are for the most part well aligned, adopting a tone of constructive
challenge, balanced when those interests are not fully congruent
by robust negotiation of their terms of engagement;

Drawing on Board Members’ individual experience to support
the Managers in the monitoring and development of the
property portfolio; and

• Willingness to make the Board Members’ experience available
to support the Managers in the sound long-term development
of its business and resources, recognising that the long-term
health of the Managers is in the interests of Shareholders in the
Company.

Other Service Providers
The Company’s day-to-day operational functions are delegated to a
number of third-party service providers, each engaged under separate
contracts. The Company’s principal third-party service providers
include the Company Secretary, Corporate Broker and Financial
Adviser, Administrator, Legal Adviser, Tax Adviser, Auditor and the
Registrar. The Company relies on these reputable advisers for support
in complying with all relevant legal and regulatory obligations. The
Board maintains regular contact with its key third-party service
providers, taking a constructive and positive approach to working
with these service providers with the aim of building long-term
relationships. Their advice, as well as their needs and views, are
routinely taken into account.

The Audit Committee reviews and evaluates the control
environments in place at the key third-party service providers.
Further details regarding the role of the Audit Committee are set out
on pages 82 to 85. The Management Engagement Remuneration
Committee formally assess their performance, fees and continuing
appointment at least annually to ensure that the key third-party
service providers continue to function at an acceptable level. Further
information about the review of third-party service providers is set
out on page 86.

The above mechanisms for engaging with stakeholders are kept under
review by the Directors and will be discussed on a regular basis at
Board meetings to ensure that they remain effective.

Annual Report and Accountsfor the year ended 31 December 2019Culture
The Board has established core values for the Company that align
with the Company’s purpose, culture and strategy. These are set out
on page 2. The Directors are aware that establishing and maintaining
a healthy corporate culture amongst the Board and in its interaction
with the Managers, Shareholders and other stakeholders will support
the delivery of its purpose and investment strategy.

The Board’s culture itself is one of openness, collaboration and
transparency of debate. The Directors are comfortable to give
their opinions in a respectful environment, allowing challenge and
constructive discussion. The Board maintains a desire for strong
governance and diversity. All Directors act with integrity, lead by
example and seek to promote the Company’s culture through
ongoing dialogue and engagement with its stakeholders, principally
the Managers.

The Board seeks to appoint appropriate service providers and,
through the MERC, evaluates their service on a regular basis as
described on page 86. Their ongoing appointments are not only
reflective of their performance by reference to their contractual
and service level obligations, but also take into account the extent
to which their individual corporate cultures align with those of
the Company. The Board considers the culture of the Managers
and other stakeholders, including their practices and behaviour,
relationships with the Board and through regular reporting from
these stakeholders, and in particular during the annual review of the
performance and continuing appointment of all service providers.

The Strategic Report has been approved by the Board and signed on
its behalf.

On behalf of the Board

Kevin McGrath
Chairman and Independent Non-Executive Director

8 April 2020

Annual Report and Accountsfor the year ended 31 December 2019Property Name: Juniper Park, Basildon
Sector: Industrial

Board of Directors

Kevin McGrath MRICS DL OBE
(Chairman and Independent Non-Executive Director)
Appointed: 16 October 2015
Kevin McGrath is chairman of M&M Property Asset Management, having previously been managing
director and senior adviser of F&C REIT Asset Management. Prior to F&C REIT, Kevin was a founding
equity partner in REIT Asset Management, a property investment, finance and asset management
partnership, which managed a global commercial property portfolio and had offices in London, Munich,
Tel Aviv, Stockholm and Mumbai.

Prior to REIT Asset Management, Kevin was a senior investment surveyor with Hermes Investment
Management, the fund manager for British Telecommunications and Post Office Pension Schemes.
Before that, he worked for various local authorities in a variety of property-related positions and prior to
that he worked in manufacturing and banking.

He also obtained a postgraduate diploma in Property Investment (Award Winner) from the College of Estate Management.

Kevin graduated from the Polytechnic of the South Bank with a BSc (Distinction) in Estate Management.

He was the High Sheriff for Greater London in 2014/15 and is the Representative Deputy Lieutenant for the London Borough of Hammersmith
and Fulham. Kevin is a chartered surveyor who has worked in the property industry for over 35 years, is a member of the Royal Institute of
Chartered Surveyors and the Worshipful Company of Chartered Surveyors and is a Freeman of the City of London. He is a trustee of several
charities including The Old Vic and The Clink Prison Restaurant Charity.

William Eason
(Senior Independent Non-Executive Director)
Appointed: 16 October 2015
William (“Bill”) Eason was previously head of charities with Quilter Cheviot and, before that, with
Laing & Cruickshank. He had managed diversified high net worth portfolios since 1973 and became a
member of the London Stock Exchange in 1976. Bill was chief investment officer at Laing & Cruickshank
Investment Management and is a former chairman of Henderson High Income Trust plc and non-
executive director of The European Investment Trust plc. Bill is currently a director of Henderson
International Income Trust plc and of Institutional Protection Services Ltd. He is a Chartered Fellow of
the Chartered Institute for Securities and Investment. Amongst his charitable roles, Bill has acted as a
governor of Henley Management School and is currently a trustee of Marshall’s Charity, The Gordon
Foundation, the John Hampden Fund and a business fellow of Gray’s Inn.

Daniel Taylor
(Independent Non-Executive Director)
Appointed: 16 October 2015
Daniel (“Dan”) Taylor is the chairman of Westchester Capital Limited, an investment and advisory firm
specialising in real estate. Dan currently holds the role of managing partner of Bourne Office Space
Limited, a privately held serviced office business based in London, in which Westchester Capital is a
principal investor. From 2011 to 2015, Dan was chairman and a principal shareholder of AIM-listed
Avanta Serviced Office Group plc, then the UK’s second largest serviced office provider. Prior to this,
he was managing director of financier Grosvenor ParkMedia, Inc. for whom he managed a US$400m
investment joint venture with Fortress Investment Group LLC providing finance to the media industry.
From 1989 to 1999, Dan was president and founder of Victoria Asset Management Inc., an investment
company in Houston, Texas, specialising in distressed real estate assets. Dan started his professional
career as a financial analyst with Bank of America in San Francisco, and then as vice president at
FirstBoston Inc., in charge of the institutional equity division based in London.

Dan has held directorships for various private and listed companies involving investment management, corporate finance and corporate
governance roles. He has been registered with the FCA as an investment manager (CF30) and CF1-Director and has over the last 20 years held
the following controlled functions at FCA (or predecessor) authorised firms: CF10-Compliance Oversight; CF11-Money Laundering Reporting;
CF21-Investment Adviser; and CF27-Investment Management. Dan graduated from Stanford University in 1980.

Annual Report and Accountsfor the year ended 31 December 2019Frances Daley
(Independent Non-Executive Director)
Appointed: 1 February 2018
Frances Daley is a chartered accountant who qualified with a predecessor firm to Ernst & Young LLP.
She subsequently spent nine years in corporate finance with Royal Bank of Canada and Ernst & Young,
followed by 18 years in various chief financial officer roles, principally in the licensed retail sector
(10 years) and in healthcare. From 2007 to 2012, she was group finance director of the private
equity-backed Lifeways Group, the UK’s largest provider of specialist support to adults with learning
disabilities and mental health needs.

Frances is a non-executive director of Henderson Opportunities Trust Plc and chair of Baring Emerging
Europe Plc. She is also chair of Haven House Children’s Hospice.

Frances graduated from Cambridge University in 1980 with a degree in Land Economy.

Stephen Inglis
(Non-Executive Director)
Appointed: 16 October 2015
Stephen Inglis is the founder and chief executive officer of the Asset Manager. He has over 30 years’
experience in the commercial property market, the majority of which has been working in the investment
and development sector. His career to date has been split between London and Scotland and he has
gained extensive knowledge of the UK regional property markets. He is a chartered surveyor and became
a member of RICS in 2001 and is also a member of the Investment Property Forum.

Timothy Bee
(Non-Executive Director)
Appointed: 7 July 2017
Tim Bee is the Investment Manager’s chief legal counsel. He joined the Investment Manager in May 2014
having previously been a corporate partner at two leading London-based law firms where he advised on a
wide range of transactions for public and private companies, financial institutions and fund managers. He
qualified as a solicitor in 1988 and has extensive experience in mergers and acquisitions, equity capital
markets and financial services.

Annual Report and Accountsfor the year ended 31 December 2019Report of the Directors

The Directors of Regional REIT are pleased to present their report and
the consolidated audited financial statements of the Group for the year
ended 31 December 2019.

In accordance with the Listing Rules and the Disclosure Guidance and
Transparency Rules, the reports within the Corporate Governance
section of the Annual Report and Accounts should be read in conjunction
with one another, and the Strategic Report. As permitted, some of the
matters normally included in the Directors’ Report have instead been
included in the Strategic Report (pages 12 to 61) as the Board considers
them to be of strategic importance.

Directors
All Directors of the Company were in office during the whole of the
year and at the date of this report. Their full biographies can be found
on pages 64 and 65. Details of the Directors’ terms of appointment can
be found in the Corporate Governance Statement and the Directors’
remuneration report.

All Directors will stand for re-election at the 2020 AGM in accordance
with the Company’s Articles and the AIC Code of Corporate Governance.

The Directors ensure that they maintain their continuing professional
development requirements in accordance with the requirements of their
respective professions as well as receiving briefings from the Company
Secretary and other Advisers on a regular basis.

Diversity
The Board of Directors of the Company comprises of five males and one
female.

The Board recognises the importance and benefits of improving the
gender balance of the Board. Notwithstanding this, the Board does not
consider that it would be appropriate to set diversity targets as all Board
appointments are made on merit, against objective criteria and with due
regard for the benefits of diversity on the Board.

Directors’ and Officers’ Liability Insurance
Directors’ and Officers’ Liability insurance is maintained through the
Investment Manager’s own insurance policy. Save for the indemnity
provisions in the Articles, there are no qualifying third-party indemnity
provisions in force.

Directors
There is no requirement under the Company’s Articles of Incorporation or the terms of their appointment for Directors to hold shares in the Company.

The beneficial interests of the Directors of the Company are set out in the table below:

Director

Kevin McGrath*

William Eason

Daniel Taylor**

Frances Daley

Stephen Inglis***

Timothy Bee****

* Held by his spouse and children.
** Held by his spouse and children.
*** Held by himself and spouse.
**** Held beneficially by his spouse.

At 31 December 2019

At 8 April 2020

Number of
Ordinary Shares

% Interest in
share capital

Number of
Ordinary Shares

% Interest in
share capital

334,158

225,000

709,998

76,948

1,062,498

232,031

0.08

0.05

0.16

0.02

0.25

0.05

334,158

225,000

709,998

76,948

1,062,498

232,031

0.08

0.05

0.16

0.02

0.25

0.05

Share Capital
As at 31 December 2019, the Company’s total issued share capital was 431,506,583 Ordinary Shares (31 December 2018: 372,821,136).

All of the Company’s Ordinary Shares are listed on the premium listing segment of the London Stock Exchange and each Ordinary Share carries
one vote.

There is only one class of Ordinary Shares in issue for the Company, in adherence to the REIT requirements. The only other shares the Company
may issue are particular types of non-voting restricted preference shares, of which none (2018: none) are currently in issue.

Annual Report and Accountsfor the year ended 31 December 2019Share Issues
At the AGM held on 23 May 2019, the Directors were granted
authority to allot Ordinary Shares on a non-pre-emptive basis for
cash up to a maximum number of 18,641,056 shares (being 5% of
the issued share capital on 10 April 2019). The Directors were also
granted the authority to disapply pre-emption rights in respect
of the allotment of Ordinary Shares up to a maximum number
of 18,641,056 shares (being 5% of the issued share capital on
10 April 2019) where the allotment of such shares is for the sole
purpose of financing an acquisition or other capital investment of
a kind contemplated by the Pre-Emption Group’s Statement of
Principles. No shares were issued under these authorities, which were
superseded by those authorities granted at the extraordinary general
meeting held on 18 July 2019.

Purchase of Own Shares
At the AGM held on 23 May 2019, the Company was authorised to
purchase up to a maximum of 37,282,113 of its own Ordinary Shares
(being 10% of the Company’s issued share capital on 10 April 2019).
No shares were bought back under this authority.

At the extraordinary general meeting held on 18 July 2019, the
Company was authorised to purchase up to a maximum of 43,150,658
of its own Ordinary Shares (being 10% of the entire issued share capital
immediately following admission of the new shares), which replaced
the existing authority granted at the AGM on 23 May 2019.

No shares have been purchased under this authority, which will
expire at the Company’s 2020 AGM, where a resolution for its
renewal will be sought.

On 24 June 2019, the Company published a prospectus in relation
to a placing, open offer and offer for subscription and intermediaries
offer to raise gross proceeds of up to £50m (the “Capital Raise”). At
an extraordinary general meeting held on 18 July 2019, the Directors
were granted the authority to allot Ordinary Shares on a non-pre-
emptive basis up to a maximum number of 93,896,714 shares in
connection with the Capital Raise, such authority to expire at the
next AGM of the Company.

On 19 July 2019, the Company issued 58,685,447 Ordinary Shares
under this authority at a price of 106.5 pence per Ordinary Share
pursuant to the Capital Raise. The new Ordinary Shares commenced
trading on 23 July 2019.

At the extraordinary general meeting held on 18 July 2019, the
Directors were also granted the following general share issuance
authorities, which replaced the existing general issuance authorities
granted at the AGM on 23 May 2019:

(i) The authority to allot Ordinary Shares on a non-pre-emptive
basis for cash up to a maximum number of 21,575,329 shares
(being 5% of the entire issued share capital immediately
following admission of the new shares); and

(ii) the authority to disapply pre-emption rights in respect of

the allotment of Ordinary Shares up to a maximum number
of 21,575,329 shares (5% of the entire issued share capital
immediately following admission of the new shares) where the
allotment of such shares is for the sole purpose of financing an
acquisition or other capital investment of a kind contemplated
by the Pre-Emption Group’s Statement of Principles.

No shares have been issued under these authorities, which will expire
at the Company’s 2020 AGM, where resolutions for their renewal will
be sought.

Restrictions on the Transfer of Shares
Subject to the Articles, as well as applicable foreign securities laws,
a Shareholder may transfer all or any of his Ordinary Shares in any
manner which is permitted by the Guernsey law or in any other
manner which is from time to time approved by the Board.

If any Ordinary Shares are owned directly, indirectly or beneficially
by a person believed by the Board to be a “Non-Qualified Holder”
(see below), the Board may give notice to such person requiring
him either: (i) to provide the Board within 30 days of receipt of such
notice with sufficient satisfactory documentary evidence to satisfy
the Board that such person is not a Non-Qualified Holder, or (ii) to
sell or transfer his Ordinary Shares to a person who is not a Non-
Qualified Holder within 30 days and within such 30 days to provide
the Board with satisfactory evidence of such sale or transfer and
pending such sale or transfer, the Board may suspend the exercise of
any voting or consent rights and rights to receive notice of or attend
any meeting of the Company and any rights to receive dividends
or other distributions with respect to such Ordinary Shares. Where
condition (i) or (ii) is not satisfied within 30 days after the serving of
the notice, (i) the person will be deemed, upon the expiration of such
30 days, to have forfeited his Ordinary Shares or (ii) if the Board in its
absolute discretion so determines, the Company may dispose of the
Ordinary Shares at the best price reasonably obtainable and pay the
net proceeds of such a disposal to the former holder.

A Non-Qualifying Holder is defined as any person whose ownership of
Ordinary Shares, or the transfer of Ordinary Shares to such person, may:

cause the Company’s assets to be deemed “plan assets” for
the purposes of the US Internal Revenue Code of 1986 (as
amended), or US Employee Retirement Income Security Act of
1974 (as amended);

cause the Company to be required to register as an “investment
company” under the US Investment Company Act 1940;

cause the Company or any of its securities to be required under the
US Exchange Act, the US Securities Act or any similar legislation;

cause the Company not being considered a “Foreign Private
Issuer”, as such term is defined in rule 3b-4(c) under the US
Exchange Act;

cause the Investment Manager to be required to register as a
municipal Adviser under the US Exchange Act;

•

Annual Report and Accountsfor the year ended 31 December 2019Report of the Directors (continued)

•

result in the Company being disqualified from issuing securities
pursuant to Rule 506 of Regulation D under the US Securities Act;

•

cause a loss of partnership status for US federal income tax
purposes or a termination of the US partnership under US
Internal Revenue Code of 1986 (as amended), Section 708;

result in a person holding Ordinary Shares in violation of the
transfer restrictions put forth in any prospectus published by the
Company from time to time; or

cause the Company to be a “controlled foreign corporation” for
the purposes of Section 957 of the US Internal Revenue Code
of 1986 (as amended), or may cause the Company to suffer any
pecuniary or tax disadvantage or any person who is deemed to be
a Non-Qualified Holder by virtue of their refusal to provide the
Company within formation that it requires in order to comply with
its obligations under exchange of information agreements.

Substantial Shareholdings
Information on major interests in shares provided to the Company under the Disclosure Guidance and Transparency Rules of the FCA is
published via a Regulatory Information Service and on the Company’s website.

The Company has received notification of the following disclosable interests in the voting rights of the Company:

Shareholder

At 31 December 2019

At 8 April 2020

Number of Ordinary
Shares notified

% Interest in share
capital

Number of
Ordinary Shares
notified

% Interest in share
capital

Toscafund Asset Management LLP

27,154,198

6.29%

27,154,198

6.29%

The Company has not been informed of any other changes to the notifiable interests between 31 December 2019 and the date of this report.

As a company registered in Guernsey, the disclosure thresholds for such a non-UK issuer (in accordance with Disclosure Guidance &
Transparency Rule 5) are 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%.

Dividend Policy
The Directors maintain a dividend policy which has due regard to
sustainable levels of dividend cover and reflects the Directors’ views on
the outlook for sustainable recurring earnings, subject to compliance
with REIT status requirements. The Directors intend to reinvest
proceeds from disposals of assets in accordance with the Company’s
Investment Policy.

Shareholders are not required to vote on the payment of a
dividend under the Guernsey law at the Company’s AGM. Given
the requirement to distribute at least 90% of qualifying property
rental business income, it is not thought that this adversely impacts
Shareholders’ rights.

The Company intends to continue to pursue a progressive dividend
policy and its quarterly dividends provide a source of regular income
for Shareholders, thus improving their cashflow return profile.
However, in view of ongoing circumstances, the Company reserves the
right to review future dividend payments.

•

For the purpose of determining the profits available for a
dividend distribution, the Company continues to choose to
treat all of its net income from the Property Related Business as
qualifying property income, notwithstanding that the Company
accounts for both property income and interest income.

The payment and level of dividends will always remain subject to
the Company’s performance, its financial position, the business
outlook and to market conditions.

•

It is the Company’s intention to continue to declare and pay
dividends on a quarterly basis. The dividends for the first, second
and third quarters of any specific financial year are expected to
be declared at or near the same level on a pence per share basis
(if necessary, as adjusted for any capital raising, consolidation
or split). The fourth-quarter dividend in relation to that same
financial year will be declared to at least manage compliance
with the REIT distribution requirement.

The Board will resolve to declare any dividends at an appropriate
time after the end of the relevant quarter dates, being 31 March,
30 June, 30 September and 31 December. The dividends will be
paid approximately one month after being declared.

In order to maintain REIT status, the Company is required to meet a
minimum distribution test for each accounting period that it is a REIT.
This minimum distribution test requires the Company to distribute
at least 90% of the income profits (broadly, calculated using normal
tax rules) of the Group to the extent that they are derived from the
Property Related Business of the Group (other than any Property
Related Business carried on outside the UK by non-UK tax resident
members of the Group).

The Company has the ability, by ordinary resolution, to offer
Shareholders the right to elect to receive further Ordinary Shares,
credited as fully paid, instead of cash in respect of all or any part of
any dividend (a scrip dividend). At the current time, and following a
consultation with Shareholders, it is not the Directors’ intention to
offer a scrip dividend option.

Annual Report and Accountsfor the year ended 31 December 2019Results and Dividends
A summary of the Company’s performance during the year and the
outlook for the forthcoming year is set out on pages 22 to 48.

The Company also encourages investors and analysts to utilise its on-
line facilities and communications and has developed a comprehensive
website of Group-specific information and other information generally
useful to real estate investment trust investors and analysts.

During 2019, the Company declared three quarterly dividends, each
of 1.90pps. A fourth quarterly dividend of 2.55pps for the year ended
31 December 2019 was declared on 27 February 2020. This dividend
will be paid on 9 April 2020 to Shareholders on the register at the close
of business on 6 March 2020. The ex-dividend date was 5 March 2020.

Corporate Governance Statement
The Directors are committed to establishing and maintaining high
standards of corporate governance, in line with best practice. The Board
works closely with the Company Secretary in this regard. The Board is
accountable to Shareholders for the governance of the Group’s affairs.

The Corporate Governance Statement on pages 74 to 79 forms part of
this report.

Stakeholder Engagement
While the Company has no employees, suppliers or customers,
the Directors give regular consideration to the need to foster the
Company’s business relationships with its stakeholders, in particular
with tenants, Shareholders, the Managers and other service providers.
The effect of this consideration upon the principal decisions taken by
the Company during the financial year is set out in further detail in the
Strategic Report on pages 12 to 61.

Relations with Shareholders
Communication with Shareholders remains of critical importance to
the Board, who believe that understanding the views of Shareholders
is a key factor in the Group’s strategic direction and successful
development of the business.

The Company places considerable emphasis on maintaining an open
dialogue with Shareholders, and in particular institutions and wealth
managers. It has a regular schedule of announcements and additional
announcements as required. In addition, meetings are held with
institutional Shareholders, private Shareholders, wealth managers,
and sell-side equity analysts to present the Group’s financial and
operational results and to discuss the strategy and business model, as
well as the UK regional commercial property market.

Representatives of both the Asset and Investment Managers
conducted several roadshows during the 2019 successful capital
equity raise, meeting both existing and potential Shareholders. These
representatives also regularly meet institutional Shareholders to
discuss strategy and to understand any concerns or issues. The results
of such meetings are reported at the following Board meeting.

The Board receives a regular investor relations report summarising
Shareholder contact, sell-side analysts’ research, media coverage, and
share price movements. In addition, the Board receives feedback from
its Corporate Broker and Financial Adviser on Shareholder matters.

Shareholders are encouraged to vote at the Company’s AGM,
which provides a forum for communication with both private and
institutional Shareholders alike. The Board makes itself available at
the AGM to answer Shareholder questions. The Chairman, and as
necessary all other members of the Board, are also available to meet
with Shareholders throughout the year.

The Annual Report, notice of AGM including proposed resolutions, the
interim results and all other announcements by the Group, are made
available on the Group’s website. In addition, Shareholders, and any
other interested parties, can register for email alerts of the Group’s
announcements.

Financial Risk Management
The principal risks and uncertainties faced by the Group and the
Group’s policies for managing these risks are set out on pages 50 to 55.

The principal financial risks relating to financial instruments, including the
Company’s retail eligible sterling bonds, and details of the risk mitigation
factors relating to these financial instruments are set out in note 30.

Going Concern
The Directors have made an assessment of the Group’s ability to
continue as a going concern which included the current uncertainties
created by COVID-19, coupled with the Group’s cash resources,
borrowing facilities, rental income, acquisition and disposals of
investment properties, elective and committed capital expenditure,
and dividend distributions.

The Group ended the year under review with £37.3m of cash and cash
equivalents, of which £34.7m was unrestricted cash. In light of current
uncertainties, the Directors prudently decided to draw down £30.7m
of available borrowing headroom from the Santander UK and Royal
Bank of Scotland facilities on 26 March 2020. As at 30 March 2020,
the cash and cash equivalents amounted to £68.8m, of which £64.4m
was unrestricted. As a result of the drawdown, the borrowing facilities
increased from £344.0m at the year ended 31 December 2019 to
£371.9m as at 31 March 2020, with an LTV of c. 39%, based upon the
value of Company’s investment properties as at 31 December 2019. In
respect of the Company’s borrowings, the first of its facilities to mature
is for £55.0m in June 2024, and is held with the Royal Bank of Scotland.

As at 30 March 2020, the first quarter 2020 rent collected was only
c. 1.4% reduced from the position as at the same date in the first quarter
2019. As at 31 March 2020, the aggregate rent to be invoiced for the
second and third quarters of 2020 would amount to some £30.4m, and
the respective operating costs would amount to some £5.7m.

Annual Report and Accountsfor the year ended 31 December 2019Report of the Directors (continued)

As part of the going concern assessment, and taking the above into
consideration, the Directors reviewed a number of scenarios which
included extreme downside sensitivities in relation to rental cash
collection, no property acquisitions, no elective capital expenditure,
REIT regime compliance, and no dividends. The 2019 dividend payment
of 8.25 pence per share would amount to £35.6m if distributed in
2020, based on the current number of shares in issue. A range of
scenarios up to 12 months with nil cash collection were considered,
and taking into account mitigating management actions, the Company
had adequate resources to continue its operations.

To supplement the scenario planning, constructive discussions were
held with all the Company’s lenders around the ability to waive
or change the respective covenants, if required. This was further
underpinned by the, Bank of England’s financial services regulatory
and supervisory body, the Prudential Regulation Authority providing
guidance to its regulated members on the 26 March 2020.

Given the substantial amount of unrestricted cash currently held by
the Group, the limited level of committed capital expenditure in the
forthcoming 12 months, and reasonable downside sensitivities the
Directors are satisfied that the Company has adequate resources to
continue in operational existence, for a period of at least 12 months
from the date that these Financial Statements were approved.

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.

Viability Statement
In accordance with the AIC Code of Corporate Governance, and
taking into consideration COVID-19, the Directors have assessed the
prospects of the Group and future viability over a three-year period
from the year end, being longer than the 12 months required by the
‘Going Concern’ provision. The Board conducted the review with regard
to the Group’s long-term strategy, principal risks and risk appetite,
current position, asset performance and future plans, and determined
that three years to 31 December 2022 is the maximum timescale over
which the performance of the Group can be forecast with any material
degree of accuracy, and so is an appropriate period over which to
consider the Group’s viability.

A range of downside sensitivity analyses were stress tested to form
part of the review, with material inputs filtered to consider differing
economic backdrops, and how such challenges would be met.
Achievement of the one-year forecast has a greater level of certainty
and is used to set near-term targets across the Group. Achievement of
the subsequent forecasted years is less certain than the one-year. The
Board’s forecast, though provides a longer-term outlook against which
strategic decisions can be made.

Assessment of Review Period
The Board chose to conduct the review for a three-year period giving
consideration to:

•

The Group’s WAULT of 3.5 years to first break.

The Group’s detailed forecast covering a rolling three-year period.

The Group’s weighted average debt to maturity was 7.3 years as
at 31 December 2019.

Assessment of Prospects and Viability
The financial planning process considers the Group’s profitability,
capital values, LTV, cashflows, dividend cover, banking covenants, and
other key financial metrics over the three-year period. The metrics
are subject to a sensitivity analysis, in which a number of the main
underlying assumptions are flexed and tested to consider a range
of alternative macro-environments and portfolio compositions. The
review was updated to consider the impact of COVID-19, however,
given the unpredictable nature of the outbreak, and how rapidly the
responses to the outbreak are changing, the Board is unable to predict
the full extent of the impact.

The downside scenarios considered the impact on the corporate
model, including the loss of all rental income up to a 12-month period,
taking into consideration, no property acquisitions, elective capital
expenditure, or dividends, and compliance with the REIT regime.
Taking into account mitigating management actions, the Company
had adequate resources to continue is operations over the period of
the assessment on the assumption the current economic turbulence
resulting from the impact of COVID-19 will be ameliorated by the UK
Government actions and normalise within one year.

Subject to this assumption, the results of the sensitivity analysis and
stress testing demonstrated that the Group would have sufficient
liquidity to meet its ongoing liabilities and its currently committed
capital expenditure as they fall due over the period of assessment.

Furthermore, the Board, in conjunction with the Audit Committee,
carried out a robust assessment of the principal risks and uncertainties
facing the Group, including those that would threaten its business
model, strategy, future performance, solvency or liquidity over
the three-year period. The risk review process provided the Board
with assurance that the mitigations and management systems are
operating as intended. The Board believes that the Group is well
positioned to manage its principal risks and uncertainties successfully,
taking into account the current COVID-19 risk, and the economic and
political environment.

The Board’s expectation is further underpinned by the regular briefings
provided by each of the Asset and Investment Manager. These
briefings consider market conditions, opportunities, the ability to
raise third-party funds and deploy these promptly, and changes in the
regulatory landscape, and the current political and economic risks and
uncertainties. These risks, and other potential risks which may arise,
continue to be closely monitored by the Board.

Annual Report and Accountsfor the year ended 31 December 2019Future Developments
Information on future developments is detailed within the Strategic
Report on page 14.

Subsequent Events
The wellbeing of our tenants and other stakeholders in the Company
are of utmost importance to the Board and we continue to manage
the Company, cognisant of their needs in this current environment.

On 20 February 2020, the Company announced a potential equity
fundraise to take advantage of its growing near-term pipeline of
accretive growth. As a result of the current market uncertainty caused
by the global spread of COVID-19, the Company took the decision to
withdraw the potential equity fundraise.

On 31 March 2020, and in view of the COVID-19 disruption to UK
economic activity, the Company announced a trading update. The
rental collections were slightly reduced as at 30 March 2020, with
68.2% of invoiced rental income collected in comparison with the
69.6% at the same date in 2019. In addition, £30.7m of available
borrowing headroom from the Santander UK and Royal Bank of
Scotland facilities had been drawn.

The Board will continue to closely monitor the developing situation
and its effect on the Group, although the Board is re-assured by the
Company’s balance sheet, the breadth of tenants and geographical
spread of assets, which will ensure it is well positioned to mitigate any
prolonged periods of uncertainty.

Annual General Meeting
As advised in the Chairman’s Statement, the Company’s 2020 AGM
has been postponed in view of the COVID-19 situation.

A revised date and time for the 2020 AGM will be notified to all
Shareholders in due course and a notice of AGM, which will set out
the resolutions to be proposed, together with an explanation of
the resolutions proposed, will be circulated to all Shareholders in
accordance with the requirements of the Company’s Articles.

The AGM is the Company’s principal forum for communication
with Shareholders. The Chairman of the Board, together with the
other Directors, currently intend to make itself available to answer
Shareholders’ questions at the AGM.

Confirmation of Viability
The Board confirms that it has a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as
they fall due over the next three years, taking account of the Group’s
current position, the principal risks as set out in the Chairman’s
Statement and the principal risks and uncertainties report, and on
the assumption the current economic turbulence resulting from the
impact of COVID-19 will be ameliorated by the UK Government
actions and normalise within one year.

The Directors have carefully reviewed areas of potential financial risk.
The Directors have satisfied themselves that the Group has adequate
financial resources to continue in operational existence for the
foreseeable future.

Corporate, Social and Environmental
Responsibility
Corporate responsibility covers many different aspects of business.
The Group has no direct social or community responsibilities, but the
environmental impact of our properties is important to the Group.
Although the Group is not required by statute to provide reporting on
its environmental impact and, as a Company with no employees, the
Company’s own direct environmental impact is minimal, the Board
considers the environmental impact of the Group to be an important
issue to be monitored by the Asset Manager, who is responsible for the
management of the properties on behalf of the Group. Further details
can be found on page 42.

Auditor
RSM UK Audit LLP (“RSM”) was appointed as Auditor to the Company
on listing on 6 November 2015. RSM has expressed its willingness to
continue in office as Auditor to the Company and resolutions for its
re-appointment and for the Directors to determine its remuneration
will be proposed at the forthcoming AGM.

Audit Information
The Directors who held office at the date of approval of this Directors’
Report confirm that, so far as they are each aware, there is no relevant
audit information of which the Company’s Auditor is unaware; and
each Director has taken all the steps that they ought to have taken as a
Director to make themselves aware of any relevant audit information
and to establish that the Company’s Auditor is aware of that information.

Listing Rules Disclosures
Listing Rule 9.8.4R requires the Company to include specified information
in a single identifiable section of the Annual Report or a cross reference
table indicating where the information is set out. The Directors confirm
that there are no disclosures required in relation to Listing Rule 9.8.4,
with the exception of the details of any contract of significance in which
a Director is or was materially interested. The details of the Agreements
with the Asset and Investment Managers are set out in note 35.

Annual Report and Accountsfor the year ended 31 December 2019Report of the Directors (continued)

Electronic Communications
The Company is seeking to take advantage of the provisions of the
Articles and the Disclosure Guidance and Transparency Rules to allow
electronic communications with its Shareholders, including making
important documents available through its website, and an Ordinary
Resolution authorising this will be included in the Notice of AGM.

This resolution, if passed, would allow the Company to communicate
electronically with Shareholders by placing documents such as the
Annual Report on its website rather than sending them in hard copy.
The Company will notify those Shareholders who have elected for
electronic communication, by post or email, if they have provided
an email address, that the document is available on the Company’s
website. Shareholders can, however, ask for a hard copy of any
document at any time.

If this resolution is passed, the new arrangements are expected to
result in potential administrative, printing and postage cost savings
for the Company, whilst preserving Shareholders’ rights to receive
hard copy documents if they so wish. In addition, the greater use of
electronic communications would result in environmental benefits.

For and on behalf of the Board

Kevin McGrath
Chairman

8 April 2020

Annual Report and Accountsfor the year ended 31 December 2019Statement of Directors’ Responsibilities

Responsibility Statement of the Directors In
Respect of the Consolidated Annual Report
Each of the Directors, whose names and functions are listed on pages
64 and 65, confirms that to the best of each person’s knowledge:

•

the Financial Statements, prepared in accordance with the
International Financial Reporting Standards as adopted by the
EU, give a true and fair view of the assets, liabilities, financial
position and profit of the Group and the undertakings included
in the consolidation taken as a whole;

the Strategic Report, including the Asset and Investment
Managers’ Report, includes a fair review of the development
and performance of the business and the position of the Group
and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties they face; and

the Annual Report and Accounts, taken as a whole, are fair,
balanced and understandable and provide the information
necessary for Shareholders to assess the Group’s position,
performance, business model and strategy.

This responsibility statement was approved by the Board of Directors
on 8 April 2020 and signed on its behalf by:

Kevin McGrath
Chairman

8 April 2020

The Directors are responsible for preparing the Annual Report and the
Group Financial Statements in accordance with applicable law and
applicable regulations, including the requirements of the Listing Rules
and the Disclosure Guidance and Transparency Rules.

The Law requires the Directors to prepare financial statements for
each financial year in accordance with generally accepted accounting
principles. The Directors are required under the Listing Rules of
the FCA to prepare group financial statements in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union (“EU”).

The financial statements are required by law to give a true and fair
view of the state of the Group’s affairs at the end of the financial
period and of the profit or loss of the Group for that period and are
required by IFRS adopted by the EU to present fairly the financial
position of the Group and the financial performance of the Group.

In preparing the Group Financial Statements, the Directors are
required to:

•

select suitable accounting policies and then apply them
consistently;

present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;

• make judgements and estimates that are reasonable and

prudent;

•

state that the Financial Statements have been prepared in
accordance with IFRS as adopted by the EU, subject to any
material departures disclosed and explained in the financial
statements; and

prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Group will
continue in business.

The Directors are responsible for keeping accounting records which
are sufficient to show and explain the Group’s transactions and
are such as to disclose with reasonable accuracy at any time the
financial position of the Group and enable them to ensure that
the Financial Statements are properly prepared in accordance with
the requirements of the Law and, as regards the Group Financial
Statements, Article 4 of the IAS Regulation. They are also responsible
for safeguarding the assets of the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.

The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Group’s
website.

Legislation in Guernsey governing the preparation and dissemination
of financial statements may differ from legislation in other
jurisdictions.

Annual Report and Accountsfor the year ended 31 December 2019Corporate Governance Statement

This Corporate Governance Statement forms part of the Report of
the Directors.

The Listing Rules and the Disclosure Guidance and Transparency
Rules of the FCA require listed companies to disclose how they
have applied the principles and complied with the provisions of the
corporate governance code to which the issuer is subject.

Throughout the year, the Board considers that it has managed
its affairs in compliance with the AIC Code, except where it has
concluded that adherence or compliance with any particular principle
or provision of the AIC Code would not have been appropriate to
the Company’s circumstances. Similar to the UK Code, the AIC Code
specifies a “comply or explain” basis and the Board’s report under this
section explains any deviation from its provisions.

Introduction from the Chairman
I am pleased to introduce this year’s Corporate Governance
Statement.

In this statement, the Company reports on its compliance with the
AIC Code of Corporate Governance (the “AIC Code”) and sets out
how the Board has operated during the past year. The revised AIC
Code, as published in February 2019, sets out new principles and
provisions regarding matters including stakeholder engagement and
the culture of the Company, against which the Company has reported
in the below Statement. The AIC Code is available on the AIC website
(www.theaic.co.uk).

The Board is accountable to Shareholders for the governance of the
Company and is committed to maintaining the highest standard of
corporate governance for the long-term sustainable success of the
Company.

By reporting against the AIC Code, the Company has met the
requirements of the Listing Rules.

The Principles of the AIC Code
The AIC Code is made up of 18 principles split into five sections:

•
•
•
•
•

Board leadership and purpose
Division of responsibilities
Composition, succession and evaluation
Audit, risk and internal control
Remuneration

Compliance with the AIC Code
The AIC Code addresses the principles and provisions set out in the
UK Corporate Governance Code (the “UK Code”) as well as setting
out additional provisions on issues that are of specific relevance
to the Company as an investment trust. The Board considers that
reporting against the principles and provisions of the AIC Code
(which adapts the UK Code for investment companies), which has
been endorsed by the FRC and the Guernsey Financial Services
Commission (“GFSC”), provides more relevant information to
Shareholders. A copy of the UK Code can be found at www.frc.org.uk.

The GFSC’s Finance Sector Code of Corporate Governance (the
“GFSC Code”), updated and published in February 2016, applies to all
companies that hold a licence from the GFSC under the regulatory
laws or which are registered or authorised as collective investment
schemes, which includes the Company. Companies which report
against the AIC Code are deemed to meet the requirements of the
GFSC Code. A copy of the GFSC Code can be obtained via the GFSC
website at www.gfsc.gg.

The UK Code includes provisions relating to:

the role of the chief executive;
executive directors’ remuneration;

•
•
• management performance, remuneration and succession

planning;

• workforce policies (including remuneration) and practices; and
•

the need for an internal audit function.

For the reasons explained in the AIC Code, the Board considers that
these provisions are not relevant to the Company, being an externally
managed investment company with no employees. The Company has
therefore not reported further in respect of these provisions.

The Board has reviewed the principles and provisions of the AIC Code
and considers that it has complied throughout the year, with the
exception of the following:

•

as a Guernsey incorporated entity, there are no statutory
requirements for the Company to develop a renumeration
policy. The steps taken by the MERC to ensure that Directors’
fees support the Company’s strategy and promote its long-term
success are set out in the Remuneration Report on page 88.

the Board do not consider it necessary to appoint a separate
nomination committee as this function is currently undertaken
by the Board as a whole. This will be kept under review.

The Board of Directors
The Board consists entirely of Non-Executive Directors, who have all
served throughout the period. Biographical details of the Directors of
the Company are shown on pages 64 and 65.

Under the leadership of the Chairman, the Board of Directors is
collectively responsible for the long-term sustainable success of the
Company, generating value for Shareholders and contributing to
wider society. All decisions are considered from this point of view. It
establishes the purpose, values and strategic aims of the Company
and satisfies itself that these and its culture are aligned. The culture is
set out on page 61. The values of the Company are set out in page 2.
These values are considered in Board decision making. The purpose
of the Company is the investment objective, which can be found on
page 16. The strategy that the Board follows to meet this objective is
outlined in the Strategic Report on page 16. The business model that
the Company operates is set out on page 17.

The Board ensures that the necessary resources are in place for
the Company to meet its objectives. It does this predominately
through its engagement with third-party service providers. The Board
regularly reviews financial forecasts and KPIs on page 7, as well as
debt financing and gearing. Further details can be found on pages
12 to 61 of the Strategic Report. The Board fulfils its obligations to

Annual Report and Accountsfor the year ended 31 December 2019Shareholders within a framework of high standards of corporate
governance and effective internal controls. The Directors are
responsible for the determination of the Company’s investment
policy and strategy and have the overall responsibility for the
Company’s activities, including the review of investment activity
and performance, and the control and supervision of the Asset and
Investment Managers.

The Board is responsible for all matters of direction and control of
the Company and the Group, including its investment policy and
strategy, and no one individual has unfettered powers of decision-
making. As part of this, the opportunities and risks faced by the
business are considered, monitored and assessed on a regular basis,
both in terms of actual and emerging risks that the business may
face. Emerging risks are identified by the Board through a variety of
means including advice from the Company’s Managers, the AIC and
Directors’ industry knowledge and market changes and events.

More detail regarding the principal risks and uncertainties, emerging
risks and the sustainability of the business can be found in the
Strategic Report on pages 50 to 55.

None of the Directors have a service contract, but letters of
appointment setting out the terms of their appointment are in place.
Directors are not entitled to any compensation for loss of office.
Copies of the letters of appointment are available for inspection at
the Company’s registered office address and will be made available
for up to 15 minutes prior to the start of the AGM.

Chairman
The Chairman, Mr McGrath, who was deemed by his fellow
independent Board members to be independent at the time of his
appointment and to have no conflicting relationships, remains so. He
does not have any other significant commitments that would affect
his Chairmanship of the Company and the time he can commit to
the Company’s affairs. The role and responsibilities of the Chairman
are clearly defined and set out in writing, a copy of which is available
on the Company’s website. Whilst Mr McGrath and his family own
shareholdings in the Company, in view of these de minimis holdings,
the Board are of the view that this does not affect his independence.

all Directors. In liaison with the Company Secretary, he ensures
that the Directors receive accurate, timely and clear information.
The Directors act with integrity, lead by example and promote this
culture within the Company.

The Board seeks to ensure the alignment of the Company’s purpose,
values and strategy with the culture of openness, debate and
integrity through ongoing dialogue, and engagement with the Asset
Manager, the Investment Manager, Shareholders and the Company’s
other service providers. The culture of the Board is considered as part
of the annual performance evaluation process which is undertaken by
each Director.

Board Diversity and Inclusion
The Board acknowledges the benefits of greater diversity, including
gender, and remains committed to ensuring that the Company’s
Directors bring a wide range of skills, knowledge, experience,
backgrounds and perspectives.

The Board does not feel that it would be appropriate to set diversity
targets as all appointments must be made on merit and objective
criteria. However, gender and diversity generally will be taken into
consideration when evaluating the skills, knowledge and experience
desirable to fill a Board vacancy. The Board has established the
following objectives for achieving diversity on the Board:

•

All Board appointments will be made on merit, in the context
of the skills, knowledge and experience that are needed for the
Board to be effective.

Long lists of potential non-executive Directors will always
include diverse candidates of appropriate merit.

The Board will only engage executive search firms who have
signed up to the voluntary Code of Conduct on gender diversity
and best practice.

The Board has not appointed a new director during the year
under review. In furtherance of the Company’s strategy, all Board
appointments will be made on merit, in the context of the skills,
knowledge and experience that are needed for the Board to be
effective.

Senior Independent Director
William Eason was appointed as the Senior Independent Director
on 1 December 2016. He provides a channel for any Shareholder
concerns regarding the Chairman and takes the lead in the annual
evaluation of the Chairman. The role and responsibilities of the Senior
Independent Director are clearly defined and set out in writing, a
copy of which is available on the Company’s website.

Culture
The Board’s own culture promotes a desire for strong governance,
diversity and transparency of debate. The Chairman leads the
Board and is responsible for its overall effectiveness in directing the
Company. He demonstrates objective judgement, promotes a culture
of openness and debate, and facilitates effective contributions by

Board Operation
There is a clear division of responsibilities between the Chairman, the
Board and the Managers. The Directors have agreed a formal schedule
of matters specifically reserved for their approval. These includes, but
is not limited to the following:

•
•
•
•

•
•

approval of asset acquisitions and disposals over £15m;
approval of CAPEX;
approval of the Company’s borrowings;
approval of the Company’s investment policy, long-term
objectives and commercial strategy;
approval of the gearing policy of the Company;
approval of annual and half-yearly reports and financial
statements and accounting policies, prospectuses, circulars and
other Shareholder communications;

Annual Report and Accountsfor the year ended 31 December 2019Corporate Governance Statement (continued)

•
•
•
•

raising new capital;
approval of dividends;
Board appointments and removals; and
appointment and removal of the Asset Manager, Investment
Manager, Auditor and the Company’s other service providers,
including the Company Secretary.

A copy of this schedule of matters reserved for the Board can be
found on the website.

To assist the Board in the day-to-day operations of the Company,
arrangements have been put in place to delegate authority for
the performance of day-to-day operations of the Company to the
Asset Manager and Investment Manager and other third-party
service providers. The Board has appointed the Asset Manager and
Investment Manager to manage the Company’s portfolio within
guidelines set by the Board, detailed in the respective management
agreements with the Company. Both Managers are in frequent
contact with the Board and supply the Directors with regular updates
on the Company’s activities and a detailed report at each Board
meeting.

The Board agenda is set by the Chairman, in conjunction with the
Company Secretary and include an update from the Managers.

The Board, at its regular meetings, undertakes reviews of key
investment and financial data, analyses of asset allocation, peer
group information, the economy generally, transactions and
performance comparisons, share price (whether at a discount or
premium to NAV) and NAV performance. It receives an update
from the Asset Manager on property market conditions and trends,
movements compared to previous quarters, yields on properties
within the portfolio, lease lengths and letting activity, including
estimated rental values and vacant properties. The Board also
receives an update from the Investment Manager on investor
relations. Discussions also take place on strategic proposals,
developments and legal and governance matters.

Representatives of each of the Asset and Investment Manager are
appointed to the Board, which facilitates communication between
them and the Board and supplements the regular reporting to the
Directors.

Company Secretary
The Board has direct access to the advice and services of the
Secretary, Link Company Matters Limited, which is responsible for
ensuring that the Board and Committee procedures are followed.

The Secretary is also responsible to the Board for ensuring timely
delivery of the information and reports and that the statutory
obligations of the Company are met. To enhance the delivery of
Board and Committee papers the Board uses a Board portal which
provide a secure and efficient process for meeting pack distribution.

Board Meeting Attendance
The Directors meet at regular Board meetings, held at least four
times a year, with additional meetings arranged as necessary. During
the year to 31 December 2019, the number of scheduled Board
meetings attended by each Director was as follows:

Director

Kevin McGrath

William Eason1

Daniel Taylor

Frances Daley

Stephen Inglis2

Timothy Bee

Scheduled Board Meetings

Number entitled
to attend

Number
attended

1 Mr Eason was unable to attend one Board meeting due to personal illness.

2 Mr Inglis was unable to attend one Board meeting due to personal illness.

Additional Board meetings were also held as required during the
year, including to deal with corporate transactions such as property
acquisitions, dividends, the capital raise and were attended by
those Directors available at the time. The Board also held an all-day
strategy meeting during the year, which all Directors attended.

The Board follows a formal agenda, which is approved by the
Chairman and circulated by the Company Secretary in advance of the
meeting to all the Directors and other attendees. A typical agenda
includes a review of performance with a detailed update from Asset
and Investment Manager on the property portfolio, investment
opportunities and disposals, the Company’s financial performance,
updates on investor relations and specific regulatory or governance
matters. Representatives of the Company’s Advisers are invited to
attend Board meetings from time to time, particularly the Company’s
Corporate Broker and Financial Adviser and Legal Adviser.

The Board is responsible for the strategy of the Company and
monitors performance against its agreed strategy on an ongoing
basis.

The Board is responsible for setting the overall strategic objectives of
the Company and meets once a year to focus exclusively on strategy.

Conflicts of Interest
The Company’s Articles permit a Director to act in a situation where
a Director has disclosed the nature and extent of an interest that
conflicts, or may possibly conflict, with the interests of the Group in
accordance with the Law.

The Board has established a formal process whereby actual and
potential conflicts of interests are considered by the Directors who
have no interest in the matter, who then decide whether to authorise
the conflict and any conditions to be attached to such authorisations.

Annual Report and Accountsfor the year ended 31 December 2019The Directors are able to impose limits or conditions when giving
authorisation, if they think this is appropriate in the circumstances.
A register of potential conflicts is maintained by the Company
Secretary and is reviewed at each Board meeting to ensure that any
authorised conflicts remain appropriate. Directors are required to
confirm at these meetings whether there has been any change to
their position.

Board Evaluation
The Directors are aware of the need to continually monitor and
improve performance and recognise that this can be achieved
through undertaking a regular Board evaluation exercise, providing
a valuable feedback mechanism for improving Board effectiveness.
The Board agreed that the use of an externally facilitated evaluation
service provider was not necessary this year, however, this will be
kept under review.

The Directors have opted to undertake an internal performance
evaluation specifically designed to assess the strengths and
independence of the Board and the Chairman, individual Directors
and the performance of its committees. The evaluation was
conducted using tailored questionnaires and was structured to
analyse the focus of Board composition and effectiveness, the
efficiency of Board and Committee meetings, and to assess whether
the operation of such meetings was appropriate, as well as whether
any additional information may be required to facilitate better Board
discussions. The Board was also asked to consider Board support,
strategic operational oversight, culture, Shareholder engagement and
succession planning. The evaluation identifies areas for improvement
and areas of knowledge and expertise which would be considered as
part of succession planning.

The evaluation process was carried out following the year end and
responses were collated and provided on an anonymous basis to the
Chairman of the Board. The independence of the Directors and their
ability to commit sufficient time to the Company’s activities was
considered as part of the evaluation process. The performance of the
Chairman was similarly evaluated by the other Directors, led by the
Senior Independent Director.

Overall, the results of the evaluation were positive, with Director
engagement and preparation for meetings, and combined knowledge
of the property sector viewed as strengths. There were no significant
concerns amongst the Directors relating to the effectiveness of
the Board. Any feedback relating to Board composition from the
evaluation will be taken into consideration by the Board at the time it
discusses the anonymised results of the evaluation.

As evidenced by the result of the evaluation, the Board considers
that all the current Directors are independent, contribute effectively
and have the skills and experience relevant to foster the effective
leadership and direction of the Company. It was found that the
Directors can commit sufficient time to the Company’s activities.

The Chairman’s review was positive, and the other Directors
considered that the Chairman remained independent and that he
continued to strongly and effectively lead the Board. In addition,
post the year end, the Senior Independent Director led a separate

discussion with the other Directors (in the absence of the Chairman)
to discuss the evaluation results and provide a forum for open
discussion. There were no concerns to report.

Independence of Directors
In accordance with the AIC Code, the Board has reviewed the
independence status of each individual Director and the Board as a
whole. Stephen Inglis and Tim Bee are deemed non-independent and
report on the activities of each of the Asset and Investment Manager
respectively. A majority of the Board will at all times be independent
of each of the Asset and Investment Managers.

As part of its review of the Directors independence, the Board
considered the shareholdings in the Company held by each of the
Directors and/or their connected persons. In view of the de minimis
amounts held, the Board do not consider these shareholdings in the
Company impact the independence of the Directors.

William Eason and Frances Daley are directors of separate
companies managed by investment manager Janus Henderson. This
has been considered by the Board, which is satisfied that they are
demonstrably independent and that their independence as Directors
of the Company is not affected. Although managed by the same
investment manager, these appointments are entirely separate from
each other and this Company. Therefore, the other Directors, having
considered the impact of this relationship, were satisfied that each
Director took an impartial and objective approach in their duties as a
Director of the Company.

Having assessed the performance and independence of each Director,
the Board is satisfied that all Directors bring strong independent
oversight and continue to demonstrate independence in judgement
and character.

Re-election of Directors
In accordance with the Company’s Articles and the AIC Code,
Directors are subject to election by Shareholders at the first AGM
after their appointment. Thereafter all Directors submit themselves
for annual re-election by Shareholders at the AGM of the Company.

Tenure
Each Director has a letter of appointment setting out their terms of
appointment. These letters detail an initial three-year appointment,
but each Director may be invited by the Board to serve for an
additional period of three years, if both the individual Director and
the Board believes this is in the interest of the Company, having taken
into account the independence of the Director.

In 2018, the Board agreed to extend the appointment period of
Kevin McGrath, Daniel Taylor, Stephen Inglis and William Eason for a
further three-year term.

Directors are initially appointed by the Board, until the following
AGM when, as required by the Company’s Articles, they will stand
for re-election by Shareholders. Thereafter, a Director’s appointment

Annual Report and Accountsfor the year ended 31 December 2019Corporate Governance Statement (continued)

Board Committees
The Board has two Committees in operation and has delegated
certain responsibilities to its Audit Committee and its Management
Engagement and Remuneration Committee. Given the size of the
Company, it is not felt appropriate for the Company to have a
separate nomination committee.

The Board has established formal terms of reference for each of the
Committees, which are available on the Company’s website.

Audit Committee
The Audit Committee comprises the four Independent Directors and
is chaired by Frances Daley. It meets at least twice a year, or more
often if required. The Chairman of the Company is a member of the
Audit Committee but does not act as committee chairman.

All members of the Audit Committee are considered to have relevant
experience in the industry in which the Company operates. The Board
is also satisfied that at least one member of the Audit Committee has
recent and relevant financial experience.

Any individual who is not a member of the Audit Committee is not
entitled to attend or to vote at its meetings. However, the Audit
Committee may invite anyone to attend Committee meetings at its
discretion and representatives of the external Auditor are invited to
attend as necessary. An Audit Committee Report is set out on pages
82 to 85.

Management Engagement and Remuneration
Committee (“MERC”)
The MERC comprises the four Independent Directors and is chaired
by William Eason. It meets at least once a year, or more often if
required. The Chairman of the Company is a member of the MERC
but does not act as committee chairman.

Although an individual who is not a member of the MERC is
not entitled to attend and vote on matters at its meetings, the
Committee may invite anyone to attend at its discretion. A MERC
Report is set out on pages 86 and 87.

Management of Risk and Internal Controls
The Board has overall responsibility for the Company’s systems of
internal controls and for reviewing their effectiveness, ensuring that
risk management and control processes are embedded in day-to-day
operations.

is subject to an annual performance evaluation and the approval of
Shareholders at each AGM, in accordance with corporate governance
best practice.

The Board has adopted a formal tenure policy for Directors based
on a continual review of performance. It is not anticipated that
any of the Directors would normally serve in excess of nine years
in order to provide regular refreshment of the Board and facilitate
diversity of the Board. In exceptional circumstances, which would be
fully explained to Shareholders at the time, an extension might be
appropriate.

Similarly, it is not anticipated that the Chairman will normally serve
in excess of nine years, this limit being decided by the Board in
consideration of the need for regular Board refreshment. However,
given the entirely non-executive nature of the Board and as the
Chairman may not be appointed as such at the time of their initial
appointment as a Director, in exceptional circumstances, which
would be fully explained at the time, a short extension might be
appropriate. As with all Directors, the continuing appointment of the
Chairman is subject to ongoing review of performance, including a
satisfactory annual evaluation, annual re-election by Shareholders
and may be further subject to the particular circumstances of the
Company at the time he or she intends to retire from the Board.

Given the structure and size of the Board, the Board does not
consider it necessary to appoint a separate nomination committee
and this function is carried out by the Board. The independent
Directors would be expected to lead the process of the appointment
of any new Director to the Board as and when vacancies arise
and as part of the Directors’ ongoing succession plans. As part of
this process, the use of an external executive search agency will
be considered. The Board will keep the decision not to appoint a
separate nomination committee under review.

Induction and Training
On appointment, the Asset Manager, Investment Manager and
Company Secretary provide new Directors with induction training
as appropriate. The training covers the Company’s investment
strategy, policies and practices. The Directors are also given regular
briefings on changes in law and regulatory requirements that affect
the Company and the Directors. It is the Chairman’s responsibility to
ensure that the Directors have sufficient knowledge to fulfil their role
and Directors are encouraged to attend industry and other seminars
covering issues and developments relevant to investment trust
companies. Regular reviews of Directors’ training needs are carried
out by the Chairman by means of the evaluation process.

The Directors have access to the advice and services of the Company
Secretary through its appointed representative, who is responsible
for general secretarial functions and for assisting the Company with
compliance with its continuing obligations as a company listed on the
premium segment of the Official List. The Company Secretary is also
responsible for ensuring good information flows between all parties.

When deemed necessary, the Directors can seek independent
professional advice.

Annual Report and Accountsfor the year ended 31 December 2019Taking into account the principal and emerging risks provided on
pages 50 to 55 and the ongoing work of the Audit Committee in
monitoring the risk management and internal control systems on
behalf of Board, the Directors:

•

are satisfied that they have carried out a robust assessment of
the emerging and principal risks facing the Group; and

have reviewed the effectiveness of the risk management and
internal controls systems and no significant failings were
identified.

The Board has established an ongoing process for identifying,
evaluating and managing significant risks with the aim of helping to
safeguard the Company’s assets. The Board exercises its oversight
of financial, reporting, compliance, operational and overall risks by
relying on regular reporting on performance and other management
information from the Asset and Investment Managers. These
procedures are designed to manage rather than eliminate risk. The
Board manages risks as set out below:

•

the Board, through the Audit Committee, will conduct a risk and
control assessment on an annual basis, including a review of the
internal controls procedures of the Company’s principal third-
party service providers;

the responsibilities for the investment management, asset
management, accountancy and depositary functions are
segregated, and the procedures of the third-party service
providers are designed to safeguard the Company’s assets;

the Board is kept regularly updated by each of the Asset
Manager and Investment Manager outside of scheduled Board
meetings and each manager provides reports at each meeting of
the Board; and

under the terms of the Asset Management Agreement between
the Company and the Asset Manager, Board approval is required
for purchases of property exceeding £15m in value and for
disposals exceeding £15m in value.

Regular risk assessments and reviews of internal controls are
undertaken in the context of the Company’s overall investment
objective by the Board, through the Audit Committee.

A risk matrix has been produced against which the risks identified and
the controls in place to mitigate those risks can be monitored. The
risks are assessed on the basis of the likelihood of them happening,
the impact on the business if they were to occur and the effectiveness
of the controls in place to mitigate them. This risk register is reviewed
by the Audit Committee every six months.

The principal risks that have been identified by the Board are set out
on pages 50 to 55.

The Board reviews financial information produced by the Investment
Manager and the Sub-Administrator on a regular basis.

Most functions for the day-to-day management of the Company are
sub-contracted, and the Directors therefore obtain regular assurances
and information from principal third-party suppliers regarding the
internal systems and controls operated in their organisations. In
addition, each of the Company’s material third parties, excluding
LSPIM and Toscafund, provide a copy of its report on internal controls
each year, which is reviewed by the Audit Committee.

The Audit Chairman, on behalf of the Audit Committee, meets with
representatives of LSPIM and Toscafund to discuss and review their
internal controls. The Depositary provides depositary services under
the AIFMD to the Company and reports on an annual basis to the
Company, in addition to quarterly reports, on its specific monitoring
of cash transactions and asset verification.

Annual Report and Accountsfor the year ended 31 December 2019Property Name: Portland Street, Manchester
Sector: Office

Audit Committee Report

Dear Shareholder,

I am pleased to present the Audit Committee Report for the year
ended 31 December 2019, which provides an overview of our
activities and our role in ensuring the integrity of the Group’s
published financial information and effectiveness of its risk
management, controls and related processes.

The Audit Committee is a Board Committee with governance
responsibilities that include the oversight of financial disclosures and
corporate reporting and it is therefore important that the Committee
operates effectively and efficiently. The Committee is to meet at
least twice annually, and its quorum is two members.

Role of the Audit Committee
The principal duties of the Audit Committee are:

Financial Reporting
•

to review the integrity and contents of the half-yearly financial
statements, full-year financial statements and preliminary
results announcement of the Company;

•

to review and report to the Board on any significant financial
reporting issues and judgements, having regard to any matters
communicated to it by the Auditor; and

as requested by the Board, to review the contents of the Annual
Report and Accounts and advise the Board on whether, taken as a
whole, the report is fair, balanced and understandable and provides
Shareholders with sufficient information to assess the Company’s
position and performance, business model and strategy.

Risk Management and Control
•

to keep under review the adequacy of the Company’s third-
party service providers’ internal controls and risk management
systems;

•

review the Company’s risk register, including significant and
emerging risks; and

to assess the prospects of the Company for the next 12 months
and to consider its longer-term viability.

External Audit
•

to manage the relationship with the Company’s external Auditor,
including reviewing the Auditor’s remuneration, re-appointment,
terms of engagement, objectivity and independence and
performance. The Committee makes recommendations to the
Board as appropriate;

•

to review the policy on the engagement of the Auditor to supply
non-audit services and the fees paid for such services;

to safeguard the Auditor’s independence and objectivity; and

to regularly review the need for an internal audit function.

External Property Valuation
•

to review the quality and appropriateness of the half-yearly and
full-year external valuations of the Group’s property portfolio.

Other
•

to review the Committee’s terms of reference and performance
effectiveness; and

•

to report to the Board on how it has discharged its responsibilities.

Annual Report and Accountsfor the year ended 31 December 2019The Audit Committee reports and makes recommendations to the
Board, as appropriate.

Attendance at these scheduled meetings was as follows:

Financial Reporting
As stated above, one of the Audit Committee’s principal
responsibilities is to review and report to the Board on the Group’s
financial statements, including the Preliminary Statement, the
Annual Report and Half-Year Report. When conducting its reviews,
the Committee considers the overall requirement that the financial
statements present a “true and fair view”, the Company’s accounting
policies and significant financial judgements.

We are pleased to advise the Board that the 2019 Annual Report
is fair, balanced and understandable and provides the necessary
information for our Shareholders to assess the Company’s position
and performance, business model and strategy.

Risk Management and Control
The Audit Committee reviewed the internal controls and risk
management systems of the Company’s key third-party service
providers and no significant matters of concern were raised. On an
annual basis, I meet with representatives of the Managers and discuss
their internal controls and compliance. There were no significant
matters of concern from these meetings.

The Audit Committee has reviewed and updated, where appropriate,
the risk matrix. This is done on a six-monthly basis. The Principal Risks
and Uncertainties are set out on pages 50 to 55.

Audit Committee Composition
During the year under review, the membership of the Audit
Committee, which remained unchanged, comprised of four
independent non-executive Directors. None of the members of the
Committee are connected to either the Asset or Investment Manager
or to the Auditor. Whilst Mr McGrath is an independent Director, he
is also Chairman of the Company. The Committee has considered it
beneficial to have Mr McGrath as a member of the Committee as he
was independent on appointment and provides significant input into
Audit Committee meetings.

I am a qualified accountant, a Fellow of the Institute of Chartered
Accountants in England and Wales and therefore consider that I have
an appropriate level of recent and relevant financial experience to
discharge my duties as Chairman of the Audit Committee.

The Audit Committee’s role and responsibilities are set out in the
terms of reference, which were last updated in March 2020 and are
available on the Company’s website at www.regionalreit.com.

Meetings
The Audit Committee met on two scheduled occasions during the
year and three occasions post the year end to consider the audit plan,
the AQR and the Financial Statements.

Member

Frances Daley (Chairman)

William Eason

Kevin McGrath

Daniel Taylor

Scheduled Audit Committee Meetings

Number of meetings
entitled
to attend

Number
attended

Matters Considered by the Audit Committee in
the Year
At these meetings, the Audit Committee has:

•

reviewed the internal controls and risk management systems of
key third-party service providers;

reviewed financial results;

reviewed the assessment of the Company’s prospects and viability
made by the Investment Manager for the next four years which
formed the basis for the viability statement (see pages 70 and 71);

agreed the audit plan with the Auditor, including the principal
areas of focus, and agreed the audit fee;

reviewed the half-year and annual valuation reports from
Cushman & Wakefield Debenham Tie Leung Limited (trading as
Cushman & Wakefield);

received and discussed with the Auditor their report on the
results of the audit;

reviewed the provision of non-audit services by the Auditor;

reviewed the independence of the Auditor; and

reviewed the Group’s Financial Statements and advised the
Board accordingly.

The Administrator and the Investment Manager update the Audit
Committee on changes to accounting policies, legislation and
best practice and areas of significant judgment undertaken by the
Investment Manager.

Significant Matters Considered by the Audit
Committee
The Committee considering the following key matters in relation to
the Company during the period:

COVID-19
Since the Company’s year end, the spread of COVID-19 has quickly
escalated from an initial emerging risk to that of a principal risk to
the Company, which the Audit Committee has considered as set out
in the principal risk and uncertainties, the going concern and viability
statements.

Annual Report and Accountsfor the year ended 31 December 2019Audit Committee Report (continued)

Property Portfolio Valuation
The Committee recognises that the valuation of the properties within
the Company’s portfolio is central to the Company’s business and
that errors could have a material impact on the Company’s net asset
value. Properties are independently valued by specialist third-party
service provider, Cushman & Wakefield at the half-year and year end.

External Auditor
The Audit Committee has primary responsibility for overseeing the
relationship with the external Auditor, RSM. This includes assessing
their performance, effectiveness and independence annually and
recommending to the Board their reappointment or removal.

The valuations are prepared in accordance with the appropriate
sections of the RICS Professional Standards, RICS Global Valuation
Practice Statements, RICS Global Valuation Practice Guidance-
Applications and United Kingdom Valuation Standards contained
within the RICS Valuation-Professional Standards 2014. The
valuations are compliant with International Valuation Standards.

The Asset Manager has held open discussions with the valuers
throughout the year on the valuation process to discuss and challenge
various elements of the property valuations. The Auditor also meets
with the independent property valuer as part of the audit process to
discuss and challenge their approach and findings.

The Committee reviewed the half-year valuation as at 30 June 2019
and, since the year end, the Committee has considered the year-end
valuation report. It discussed the year-end report with the Asset
Manager. The Committee were satisfied with the valuation report.

The performance of Cushman & Wakefield is assessed on an annual
basis by the MERC, as set out in their report on page 86.

FRC Audit Quality Review
During the year, the Audit Quality Review Team from the FRC
conducted an audit quality review (“AQR”) of our 2018 year-end
audit, performed by our Auditor, RSM UK Audit LLP (“RSM”) as part
of its annual programme of promoting improvement in the overall
quality of auditing in the UK.

I was involved in the planning for the review which included a
preparatory call with the FRC. Following completion of the AQR, the
Committee was provided with a report from the FRC’s AQR Team and
received an oral update on the outcome from RSM.

The Committee discussed the AQR findings, in particular with respect
to the challenge of the judgements made in relation to the valuation
of investment properties. As the Chair of the Committee, I discussed
the FRC’s report with RSM and the FRC. RSM have confirmed that,
in the 2019 audit, it enhanced its audit procedures to address the
specific matters raised in the AQR findings.

RSM has been Auditor to the Company since listing on 6 November
2015, during which time Mr Euan Banks, Partner at RSM, has been
the lead audit partner on the audit. In accordance with requirements
relating to the appointment of auditors, the Company will conduct
a competitive audit tender no later than in respect of financial year
ending 31 December 2025. There are no contractual obligations
that would restrict the Audit Committee in selecting an alternative
external Auditor.

Each year, the Audit Committee monitors and reviews the effectiveness
of the external audit process for the Annual Report, undertakes a
detailed review of the audit plan and the audit results report and makes
recommendations to the Board on the re-appointment, remuneration
and terms of engagement of the Auditor.

Change in Audit Partner
Euan Banks will reach the end of his five-year term as audit partner
following the 2019 year-end audit. I have met with the new
audit partner, Alan Aitchison, post the year end. The transitionary
arrangements were discussed with RSM and the Investment Manager
to ensure a smooth handover and induction process. The first audit
under the supervision of Alan Aitchison will be the 2020 year-end
audit.

Working with the Auditor
Each year, the Audit Committee meets with the lead audit partner
before the annual results are prepared to discuss the scope of the
audit plan, with focus on risk and materiality. The external Auditor
further meets with the Audit Committee post the year end to discuss
the findings of the external audit and consider and evaluate any
findings. To facilitate further open dialogue and assurance, the Audit
Committee holds a private session with the Auditor without members
of the Asset Manager and Investment Manager being present.

Annual Report and Accountsfor the year ended 31 December 2019Annual Review of the External Auditor
The Audit Committee has undertaken a review of the effectiveness
of the external audit process and considered the reappointment of
the Auditor. The review comprised, amongst other factors, the quality
of the staff, including the performance of the lead audit partner,
the competence and expertise of the audit team, the resources,
and communication between the audit team and the Asset and
Investment Managers. The Audit Committee further considered the
outcome of the AQR.

Independence and Objectivity of the Auditor
The Audit Committee has considered the independence and
objectivity of the Auditor. In evaluating RSM’s performance, the Audit
Committee considered the effectiveness of the audit process, taking
consideration of the quality of delivery, staff expertise, audit fees and
the Auditor’s independence, along with matters raised during the
audit. The Committee were of the view that the non-audit services
provided by a different business line within RSM did not impact their
independence.

Any concerns with the effectiveness of the external audit process
would be reported to the Board. No concerns were raised in respect
of the year just ended and the Audit Committee concluded that
the quality of the external Auditor’s work, and the knowledge
and competence of the audit team, had been maintained at an
appropriate standard during the year.

The Audit Committee received confirmation from RSM that they
maintain appropriate internal safeguards in line with applicable
professional standards.

Having considered the Auditor’s independence in respect of the year
under review, the Audit Committee is satisfied with the Auditor’s
performance, objectivity and independence.

Audit Fees and Non-Audit Services
An audit fee of £82,500 has been agreed in respect of the audit of the
Company for the year ended 31 December 2019 (31 December 2018:
£77,500). The Group’s audit fees for the year ended 31 December
2019 totalled £219,000 (31 December 2018: £222,500).

In order to help safeguard the external Auditor’s independence and
objectivity, the Audit Committee has a policy on the engagement
of the Auditor to supply non-audit services, taking into account the
recommendations of the Accounting Practices Board. All non-audit
work to be carried out by the Auditor must be approved by the Audit
Committee in advance and such approval will not be granted in
circumstances where it is considered that the nature or cost of the
work could interfere with the external Auditor’s independence.

The cost of non-audit services provided by the Auditor to the
Company for the year under review was £80,000 (31 December
2018: £26,000). These services related to work undertaken by RSM
Corporate Finance LLP, a separate corporate body to that of the
Auditor (RSM UK Audit LLP) in respect of corporate finance advice in
respect of the equity capital raise.

Auditor Appointment
Following consideration of the performance of the Auditor, the
service provided during the year and a review of their independence
and objectivity, the Audit Committee has recommended to the Board
the continued appointment of RSM UK Audit LLP as the Company’s
external independent Auditor.

Internal Audit
The Audit Committee has determined that there is no need for an
internal audit function, principally because the Company delegates
its day-to-day operations to third parties that are monitored by the
Committee, and which provide control reports on their operations at
least annually but also given the limited size and complexity of the
business.

Committee Effectiveness
During the year, the Board carried out an internally facilitated
evaluation of its performance and that of its Committees. This
evaluation confirmed that the Audit Committee continued to operate
at an appropriate standard.

Frances Daley
Audit Committee Chairman

8 April 2020

Annual Report and Accountsfor the year ended 31 December 2019Management, Engagement and Remuneration
Committee Report

I am pleased to present the Management Engagement and Remuneration Committee (“MERC”) Report for the year ended 31 December 2019.

Composition and Meetings
The MERC, whose membership remained unchanged and consists
solely of the independent non-executive Directors and myself as
Chairman, met twice during the year. The MERC is required to meet at
least once annually, and its quorum is two members.

Attendance at these meetings was as follows:

Following this review, which included comparisons of Shareholder
returns against those of its peer group and consideration of the
interests of both the Company, all Shareholders and the respective
Managers, the MERC agreed to recommend to the Board that the
Company waive its right to terminate the Agreements on or before
November 2020 so that the Agreements will continue at least until
November 2023.

Scheduled MERC Meetings

Number of meetings
entitled to attend

Number
attended

The Board keeps the ongoing performance of each of the Asset and
Investment Manager under continual review and, through the MERC,
conducts an annual appraisal of each of the Managers, along with the
performance of key third-party service providers.

On a regular basis, the Board reviews the acquisition and disposal
decisions made by the Asset Manager. To ensure open and
regular communication between the Managers and the Board,
representatives of both Managers have been appointed to the Board
and attend all Board meetings. The Managers provide regular updates
to the Board on the Company’s assets and discuss the property
market generally and financial performance and strategy of the
Company. The Board keeps the performance of both Managers under
continual review.

The MERC considered the ongoing appointment of the Company’s
third-party service providers and was satisfied with the effectiveness
of the performance of these providers and that the Company was
benefiting from added value in respect of the services it procures from
these third parties and recommended to the Board that all third-party
service providers be retained.

In addition, the Investment Manager undertakes continual review of
the competitiveness of the Company’s service providers and advises
the MERC as appropriate.

Member

Bill Eason (Chairman)1

Kevin McGrath

Daniel Taylor

Frances Daley

1 Mr Eason was unable to attend one meeting due to personal illness

Activities During the Year
The MERC met to consider a proposal from LSPIM and Toscafund that
the Company waive its right to terminate the Investment Management
Agreement and Asset Management Agreement (the “Agreements”) on
or before November 2020 so that the agreements would continue until
at least November 2023. The MERC considered advice from Peel Hunt
LLP, the Company’s Financial Adviser and Broker, and Macfarlanes LLP,
the Company’s Legal Adviser, and further considered the performance
of the Managers, their performance incentivisation in knowing their
tenure was secure for a further three years, and their ability to support
the Company’s Investment Objective.

Annual Report and Accountsfor the year ended 31 December 2019The MERC also considered the remuneration of the independent
non-executive Directors, details of which can be found in the
Remuneration Report on page 88. No individual was involved in
discussions about his/her own remuneration.

Directors' Interests
The Company’s Articles do not require a Director to own shares in the
Company. The interests of the Directors and any connected persons
in the Ordinary Shares of the Company at 31 December 2019 and the
date of this report can be found on page 66.

Renumeration Advisers
The Company has not sought the advice or service by any outside
persons in respect of the consideration of Directors’ renumeration.

Role of the Management Engagement and
Remuneration Committee
The principal duties of the MERC are:

•

to have responsibility for setting the remuneration policy for all
Directors and the Company Chairman;

to monitor the level and structure of remuneration of the
Directors, Asset Manager and Investment Manager of the
Company;

to recommend and monitor the appropriateness of the ongoing
appointment of the Asset Manager and Investment Manager of
the Company;

to recommend and monitor the appropriateness of the ongoing
appointment of the third-party service providers; and

• within the terms of the agreed policy and in consultation with
the Chairman, to determine the total individual remuneration
package of each Director and the Managers, including bonuses,
incentive payments and share options or other share awards.

William Eason
MERC Chairman

8 April 2020

Annual Report and Accountsfor the year ended 31 December 2019Directors’ Remuneration Report

Statement from the Chairman
As Chairman of the MERC and on behalf of the Board, I am pleased
to present the Directors’ Remuneration Report for 2019. This report
has been prepared in accordance with the relevant requirements
of the Listing Rules. A resolution for the approval of this Director’s
Remuneration Report will be proposed at the Company’s 2020 AGM.

As at 31 December 2019 and the date of this report, the Board
consists entirely of non-executive Directors and the Company has
no employees. During the year under review, the MERC reviewed the
level of Directors’ remuneration, considering the level of activity of
the Company, its financial results, market rates generally and the
time commitment and responsibilities required of each Director. The
MERC ensured that the level of remuneration remained aligned to
the performance of the Company and will take into consideration the
views of Shareholders on Directors’ remuneration.

Each Director abstains from voting on their own individual
remuneration. The MERC has not been provided with any advice or
services by any person or organisation in respect of its consideration
of the Directors’ remuneration.

There have been no decisions on Directors’ remuneration or any other
changes to the remuneration paid to each individual Director in the
period under review.

Directors’ Remuneration
The level of remuneration has been set to reflect the experience
of the Board as a whole, determined with reference to comparable
organisations and appointments. The Directors shall be entitled to
receive fees for their services, such sums not to exceed in aggregate
£300,000 in any financial year (or such sum as the Company in
general meeting shall from time to time determine).

William Eason receives no additional remuneration for his role as
Chairman of the MERC or as Senior Independent Non-Executive
Director. Frances Daley receives no additional remuneration for her
role as Chairman of the Audit Committee.

Stephen Inglis receives no remuneration from the Company due to
his position as chief executive officer of the Asset Manager. Tim Bee
receives no remuneration from the Company due to his position as
chief legal counsel of the Investment Manager.

The Directors may be paid all reasonable travel, hotel and other
out-of-pocket expenses properly incurred by them in attending Board
or committee meetings or general meetings, and all reasonable
expenses properly incurred by them seeking independent professional
advice on any matter that concerns them in the furtherance of their
duties as a Director.

Additional Remuneration
There are no performance conditions attaching to the remuneration of
the Directors as the Board does not believe that this is appropriate for
non-executive Directors. The Directors do not receive pension benefits,
long-term incentive schemes or share options or any other non-statutory
benefits. Directors’ & Officers’ liability insurance is maintained and paid

for by the Company on behalf of the Directors. No Director is entitled to
any other monetary payment or any assets of the Company.

Payment for Loss of Office
Compensation will not be made upon early termination of appointment.
No payment has been made to any former Director for loss of office.

Remuneration Consultants
The Group did not engage the services of an external remuneration
consultant during the period under review. The Board will consider the
engagement of remuneration consultants in the future if it is thought
appropriate or desirable to do so.

Total Director Remuneration (audited)
The following amounts were paid to the Directors as fees for their
services during the year:

Director

Kevin McGrath

William Eason

Daniel Taylor

Frances Daley*

Stephen Inglis

Tim Bee

Aggregate:

Fees paid to
31 December 2019

Fees paid to
31 December 2018

£72,625

£51,875

–

£70,000

£50,000

£45,833

–

£228,250

£215,832

* Appointed on 1 February 2018

No additional remuneration was paid to the Directors during the year.

Directors’ Shareholdings
Neither the Company’s Articles of Incorporation nor the Directors’
Letters of Appointment require a Director to own shares in the
Company. Any shares held by the Directors and their connected
persons have been bought on the open market. Details of the
Directors’ interests in shares are provided on page 66.

Shareholder Engagement
Any views expressed by Shareholders on the fees being paid to
Directors would be taken into consideration by the MERC when
reviewing levels of remuneration.

By order of the Board

William Eason
Chairman

8 April 2020

Annual Report and Accountsfor the year ended 31 December 2019Property Name: 800 Aztec West, Bristol
Sector: Office

Independent Auditor’s Report to the Members of
Regional REIT Limited

Opinion
We have audited the Group financial statements of Regional
REIT Limited and its subsidiaries ('the Group') for the year ended
31 December 2019 which comprise the Consolidated Statement
of Comprehensive Income, Consolidated Statement of Financial
Position, Consolidated Statement of Changes in Equity and
Consolidated Statement of Cash Flows and notes to the financial
statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.

In our opinion:

•

the financial statements give a true and fair view of the state of
the Group’s affairs as at 31 December 2019 and of the Group’s
profit for the year then ended;

•

the financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union; and

the financial statements have been prepared in accordance with
the requirements of the Companies (Guernsey) Law 2008 (the
“Law”) and Article 4 of the IAS Regulation.

•

the Board’s confirmation set out on page 79 in the annual
report that it has carried out a robust assessment of the Group’s
principal risks, including those that would threaten its business
model, future performance, solvency or liquidity;

the Board’s statement set out on pages 69 and 70 in the financial
statements about whether the Board considered it appropriate
to adopt the going concern basis of accounting in preparing
the financial statements and the Board’s identification of any
material uncertainties to the Group’s ability to continue to do so
over a period of at least twelve months from the date of approval
of the financial statements;

• whether the Board’s statement relating to going concern

required under the Listing Rules in accordance with Listing Rule
9.8.6R(3) is materially inconsistent with our knowledge obtained
in the audit; or

the Board’s explanation set out on pages 70 and 71 in the annual
report as to how it has assessed the prospects of the Group, over
what period it has done so and why it considers that period to be
appropriate, and its statement as to whether it has a reasonable
expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention
to any necessary qualifications or assumptions.

Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of
our report. We are independent of the Group in accordance with the
ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied
to listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.

Conclusions relating to principal risks, going
concern and viability statement
We have nothing to report in respect of the following information
in the annual report, in relation to which the ISAs (UK) require us
to report to you whether we have anything material to add or draw
attention to:

•

the disclosures in the annual report set out on pages 50 to 55
that describe the principal risks and explain how they are being
managed or mitigated;

Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the Group
financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not
due to fraud) that we identified. These matters included those which
had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of the
Group financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.

Valuation of investment properties held by
the group

Risk of material misstatement
This is detailed in the Audit Committee report on pages 82 to 85;
the significant accounting judgements and estimates on pages 102
and 103; significant accounting policies in note 4 to the financial
statements on page 105.

The group owns or controls through a portfolio of Special Purpose
Vehicles (SPVs) a portfolio of investment properties which include
industrial, office and retail. The total value of the portfolio at
31 December 2019 was £787.9m (2018: £718.4m). These properties
are diversified across the UK with a wide geographical spread.

Annual Report and Accountsfor the year ended 31 December 2019The Directors’ assessment of the value of the investment properties
at the year end date, is considered a key audit matter due to
the magnitude of the total amount, the potential impact of the
movement in value on the reported results, and the subjectivity and
complexity of the valuation process.

The valuation is carried out by external valuers, Cushman &
Wakefield, in line with the methodology set out in note 3.1.1.

Audit approach adopted
We audited the independent valuations of investment properties
to ensure they had been prepared on a consistent basis for all
properties and in accordance with RICs standards and are considered
to be appropriate and correctly recorded in the financial statements
in line with Accounting Standards. We assessed the external
valuers qualifications and expertise and considered their terms of
engagement, we also considered their objectivity and any other
existing relationships with the Group and concluded that there was
no evidence that the valuers’ objectivity had been compromised.

We reviewed the property portfolio and selected a total of
22 properties that were either individually material or had valuation
or yield movements that were higher or lower than expected from
our overall review of the portfolio. We discussed and challenged
the valuation of these properties with the property manager and
valuer, who demonstrated a detailed knowledge of each property,
the geographical location, the tenant status and the overall asset
desirability. We corroborated the additional information provided to
support these movements.

In addition, we engaged a property valuation specialist, as our auditor
expert, they provided us with sector and geographical data to assist
us with the corroboration of movement in yields and also completed
a detailed valuation exercise of 15 properties, selected to cover
the various significant movements in the portfolio, this included
6 properties from the 22 selected above.

We audited the additions and disposals made in the year and agreed
a sample of these to completion statements, we also confirmed
the appropriate funds were transacted through the Group’s bank
accounts.

We tested the inputs used by the valuer and ensured these reflected
the correct inputs for a sample of properties.

We tested ownership for a sample of properties by reference to land
registry documents.

Key observations
We concluded that the fair values of the investment properties being
adopted by the Group were appropriate.

Impact of COVID-19 on going concern
and viability statement

Risk of material misstatement
The Group has set out its analysis of the potential impact on its
operations and financial position of the COVID-19 pandemic in the
description of the principal risks on pages 50 to 55, the going concern
statement on pages 69 and 70, the viability statement on pages 70 and
71 and the post balance sheet events note on page 135. The potential
risks to the Group include tenants defaulting on rent, a decline in the
property market resulting in a reduced ability to sell properties, and
market conditions resulting in a reduced ability to borrow and comply
with bank covenants.

In the event of a material loss of, or delay to, incoming cash resources,
the Group could suffer cash pressure or default against borrowing
covenants. The assessment of these risks in an uncertain economic
environment requires judgement, and a risk of material misstatement
arises in respect of an incorrect application of the going concern basis
of preparation or the failure to disclose a material uncertainty. As a
result, the potential impact of the COVID-19 outbreak was considered
to be one of most significance in the audit and was therefore
determined to be a key audit matter.

Audit approach adopted
We audited the Group’s assessment of the application of the going
concern basis of preparation, including the Liquidity Analysis prepared
by management in response to the COVID-19 pandemic.

Our audit work included:

• Checking the integrity and accuracy of the cashflow forecasts and

covenant calculations prepared by Management and stress tested in
the Liquidity Analysis.

• Challenging management on the reasonableness of the assumptions
made in the forecasts in the Liquidity Analysis, particularly in respect
of the non-payment of rent by tenants; the drawdown of funds
from existing bank facilities; the headroom in banking covenants;
the ability to make property sales and the delay or cancellation of
dividend payments.

• Corroborating the reasonableness of assumptions and explanations
provided by management to supporting information where available.

• Discussing with all the banks the relationship with the Group and

that they would continue to support the business even if covenants
were breached. Discussions with the valuer and our own auditor
valuation expert to ascertain their view on the market and the
impact on valuations of COVID-19.

• Stress-testing management’s cashflow forecasts to assess the

impact of assumptions worse than those included in management’s
Liquidity Analysis. Considering mitigating actions available to
management and the level of headroom in the forecasts under
various scenarios.

• Discussing our findings with management and the Audit Committee.

Annual Report and Accountsfor the year ended 31 December 2019Independent Auditor’s Report to the Members of
Regional REIT Limited (continued)

• Auditing the accuracy and completeness of disclosures made in the
financial statements in respect of risks, going concern, viability and
post balance sheet events.

Key Observation
COVID-19 is a new and unique event, its full impact and how
long it lasts cannot be predicted. In this context, the funding the
Group has in place and actions it has and can take, we are satisfied
that management’s assessment that it remains a going concern is
appropriate.

Our application of materiality
When establishing our overall audit strategy, we set certain thresholds
which help us to determine the nature, timing and extent of our audit
procedures. When evaluating whether the effects of misstatements,
both individually and on the financial statements as a whole, could
reasonably influence the economic decisions of the users we take into
account the qualitative nature and the size of the misstatements.
During planning materiality for the Group financial statements as a
whole was calculated as £5.3m, which was not significantly changed
during the course of our audit. We agreed with the Audit Committee
that we would report to them all unadjusted differences in excess of
£150,000, as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.

An overview of the scope of our audit
Our audit scope covered 100% of group revenue, group profit and
total group assets, and was performed to the materiality levels set
out above. The key audit matters were audited as noted above.

Other information
The other information comprises the information included in the
annual report set out on pages 1 to 88, other than the financial
statements and our auditor’s report thereon. The Directors are
responsible for the other information.

Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in our report, we do not express any form of assurance conclusion
thereon. In connection with our audit of the financial statements,
our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit
or otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we
are required to determine whether there is a material misstatement
in the financial statements or a material misstatement of the other
information.

If, based on the work we have performed, we conclude that there is a
material misstatement of the other information, we are required to
report that fact. We have nothing to report in this regard.

In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in the other
information and to report as uncorrected material misstatements of
the other information where we conclude that those items meet the
following conditions:

•

Fair, balanced and understandable set out on page 73 – the
statement given by the Directors that they consider the annual
report and financial statements taken as a whole is fair, balanced
and understandable and provides the information necessary for
Shareholders to assess the Group’s performance, business model
and strategy, is materially inconsistent with our knowledge
obtained in the audit; or

Audit committee reporting set out on pages 82 to 85 – the
section describing the work of the audit committee does not
appropriately address matters communicated by us to the audit
committee; or

• Directors’ statement of compliance with the AIC Code set
out on pages 74 to 79 – the parts of the Directors’ statement
required under the Listing Rules relating to the Company’s
compliance with the AIC Code containing provisions specified for
review by the auditor in accordance with Listing Rule 9.8.10R(2)
do not properly disclose a departure from a relevant provision of
the AIC Code.

Matters on which we are required to report
by exception
We have nothing to report in respect of the following matters in
relation to which the Law requires us to report to you if, in our
opinion:

•

proper accounting records have not been kept by the parent
company; or

the parent company financial statements are not in agreement
with the accounting records; or

• we have failed to obtain all the information and explanations
which, to the best knowledge and belief, are necessary for the
purposes of our audit.

Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set
out on page 73, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the Directors determine
is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible
for assessing the Group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the Directors either
intend to liquidate the Group or to cease operations, or have no
realistic alternative but to do so.

Annual Report and Accountsfor the year ended 31 December 2019Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.

As part of our audit, we will consider the susceptibility of the Group
to fraud and other irregularities, taking account of the business and
control environment established and maintained by the Directors,
as well as the nature of transactions, assets and liabilities recorded
in the accounting records. Owing to the inherent limitations of an
audit, there is an unavoidable risk that some material misstatements
of the financial statements may not be detected, even though the
audit is properly planned and performed in accordance with the ISAs.
However, the principal responsibility for ensuring that the financial
statements are free from material misstatement, whether caused by
fraud or error, rests with management who should not rely on the
audit to discharge those functions.

A further description of our responsibilities for the audit of the
financial statements is included in the appendix to this auditor’s
report. This description, which is located on page 94, forms part of
our auditor’s report.

Other matters which we are required to address
Following the recommendation of the audit committee, we were
appointed by the audit committee on 6 November 2015 to audit
the financial statements for the year ending 31 December 2015 and
subsequent financial periods.

The period of total uninterrupted engagement is five years, covering
the years ending 31 December 2015 to 31 December 2019.

The non-audit services prohibited by the FRC’s Ethical Standard were
not provided to the Group or the parent company and we remain
independent of the Group and the parent company in conducting our
audit.

Our audit opinion is consistent with the additional report to the audit
committee.

Use of our report
This report is made solely to the Company’s members, as a body, in
accordance with Section 262 of the Law. Our audit work has been
undertaken so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s report and
for no other purpose. To the fullest extent permitted by Law, we
do not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.

RSM UK Audit LLP, Auditor
Chartered Accountants
25 Farringdon Street
London
EC4A 4AB

8 April 2020

Annual Report and Accountsfor the year ended 31 December 2019Appendix: Auditor’s Responsibilities for the Audit of the
Financial Statements

We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.

We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, including the FRC’s Ethical Standard as applied
to listed public interest entities, and communicate with them all
relationships and other matters that may reasonably be thought to
bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements
of the current period and are therefore the key audit matters. We
describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences
of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.

As part of an audit in accordance with ISAs (UK), we exercise
professional judgment and maintain professional scepticism
throughout the audit. We also:

•

Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for
one resulting from error as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal control.

• Obtain an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the group’s internal control.

•

Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures
made by the Directors.

Conclude on the appropriateness of the Directors’ use of the
going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related
to events or conditions that may cast significant doubt on the
group’s ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in
the financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the group to
cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the
financial statements, including the disclosures, and whether the
financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the

financial information of the entities or business activities within
the group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for
our audit opinion.

Annual Report and Accountsfor the year ended 31 December 2019Property Name: 2 Lochside Avenue, Edinburgh Park, Edinburgh
Sector: Office

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2019

Continuing Operations

Revenue

Rental and property income

Property costs

Net rental and property income

Administrative and other expenses

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

Gain on disposal of investment properties

Change in fair value of investment properties

Change in fair value of right of use assets

Operating profit

Finance income

Finance expenses

Impairment of goodwill

Net movement in fair value of derivative financial instruments

Profit before tax

Taxation

Total comprehensive income for the year
(attributable to owners of the parent Company)

Total comprehensive income arises from continuing operations.

Earnings per share – basic and diluted

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

Year ended
31 December
2019
£’000

Year ended
31 December
2018
£’000

Notes

75,645

(20,681)

54,964

(10,904)

44,060

1,662

(3,513)

(194)

42,015

155

(13,880)

(557)

(1,479)

26,254

257

26,511

74,019

(19,644)

54,375

(17,586)

36,789

23,127

23,881

–

83,797

268

(15,983)

(557)

415

67,940

(567)

67,373

6.6p

18.1p

Annual Report and Accountsfor the year ended 31 December 2019Consolidated Statement of Financial Position

As at 31 December 2019

Assets
Non-current assets
Investment properties
Right of use assets
Goodwill
Non-current receivables on tenant loan

Current assets
Trade and other receivables
Cash and cash equivalents

Total assets

Liabilities
Current liabilities
Trade and other payables
Deferred income
Taxation liabilities
Bank and loan borrowings
Zero dividend preference shares

Non-current liabilities
Bank and loan borrowings
Retail eligible bonds
Derivative financial instruments
Lease liabilities

Total liabilities

Net assets
Equity
Stated capital

Retained earnings

Total equity attributable to owners of the parent Company

Net asset value per share – basic and diluted

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

31 December
2019
£’000

31 December
2018
£’000

Notes

14
33
16
17b

18
19

20
21
22
23
24

23
25
26
33

787,915
16,351
558
1,156

805,980

32,158
37,248
69,406
875,386

(22,153)
(13,301)
(736)
–
–
(36,190)

(287,856)
(49,286)
(1,816)
(16,510)
(355,468)
(391,658)

483,728

430,819

52,909

483,728

718,375
–
1,115
1,396

720,886

22,163
104,823
126,986
847,872

(30,663)
(11,043)
(1,763)
(400)
(39,816)
(83,685)

(285,199)
(49,136)
(337)
–
(334,672)
(418,357)

429,515

370,316

59,199

429,515

112.1p

115.2p

These consolidated group financial statements were approved by the Board of Directors and authorised for issue on 8 April 2020 and signed on
its behalf by:

Kevin McGrath
Chairman and Independent Non-Executive Director

8 April 2020

Annual Report and Accountsfor the year ended 31 December 2019Consolidated Statement of Changes in Equity

For the year ended 31 December 2019

Balance at 1 January 2019

Total comprehensive income

Issue of share capital

Share issue costs

Dividends paid

Balance at 31 December 2019

For the year ended December 2018

Balance at 1 January 2018

Total comprehensive income

Share based payments

Share issue costs

Dividends paid

Balance at 31 December 2018

Notes

29.1

Attributable to owners of the parent company

Stated
capital
£’000

370,316

–

62,500

(1,997)

–

430,819

Retained
earnings
£’000

59,199

26,511

–

(32,801)

52,909

Attributable to owners of the parent company

Stated
capital
£’000

370,318

–

(2)

–

370,316

Retained
earnings
£’000

22,581

67,373

(930)

–

(29,825)

59,199

Total
£’000

429,515

26,511

62,500

(1,997)

(32,801)

483,728

Total
£’000

392,899

67,373

(930)

(2)

(29,825)

429,515

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

Annual Report and Accountsfor the year ended 31 December 2019Consolidated Statement of Cash Flows

For the year ended 31 December 2019

Cash flows from operating activities

Profit for the year before taxation

– Change in fair value of investment properties

– Change in fair value of financial derivative instruments

– Gain on disposal of investment properties

– Change in fair value of right of use assets

Impairment of goodwill

Finance income

Finance expenses

Share based payments

Increase in trade and other receivables

(Decrease)/increase in trade and other payables

Increase/(decrease) in deferred income

Cash generated from operations

Financial income

Finance costs

Payments for the interest portion of the lease liability

Taxation paid

Net cash flow generated from operating activities

Investing activities

Purchase of investment properties

Sale of investment properties

Interest received

Acquisition of subsidiaries, net of cash acquired

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

Financing activities

Proceeds from the issue of shares

Share issue costs

Dividends paid

Zero Dividend Preference Shareholders repaid

Bank borrowings advanced

Bank borrowings repaid

Bank borrowing costs paid

Proceeds from Bond issue

Bond issue costs paid

Lease repayments

Net cash flow used in financing activities

Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents at the start of the year

Cash and cash equivalents at the end of the year

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

Year ended
31 December
2019
£’000

Year ended
31 December
2018
£’000

26,254

3,513

1,479

(1,662)

194

557

(155)

13,880

–

(7,881)

(12,416)

2,259

26,022

–

(12,165)

(583)

(839)

12,435

(49,917)

24,294

163

(43,943)

(69,403)

62,500

(1,997)

(32,534)

(39,879)

22,911

(19,398)

(2,168)

–

(7)

(35)

(10,607)

(67,575)

104,823

37,248

67,940

(23,881)

(415)

(23,127)

–

557

(268)

15,983

(930)

(7)

5,323

(2,358)

38,817

250

(12,173)

–

(1,467)

25,427

(48,675)

149,276

220

(32,629)

68,192

–

(1,190)

(29,429)

–

50,959

(101,506)

(1,345)

50,000

(925)

–

(33,436)

60,183

44,640

104,823

Annual Report and Accountsfor the year ended 31 December 2019Notes to the Consolidated Financial Statements

For the year ended 31 December 2019

1. Corporate information
The Group’s consolidated financial statements for the year ended 31 December 2019 comprise the results of the Company and its subsidiaries
(together constituting the “Group”) and were approved by the Board and authorised for issue on 8 April 2020.

The Company is a company limited by shares incorporated in Guernsey under The Companies (Guernsey) Law, 2008, as amended (the “Law”).
The Company’s Ordinary Shares are admitted to the Official List of the Financial Conduct Authority (“FCA”) and traded on the London Stock
Exchange (“LSE”).

The Company was incorporated on 22 June 2015 and is registered with the Guernsey Financial Services Commission as a Registered Closed-
Ended Collective Investment Scheme pursuant to The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended, and the
Registered Collective Investment Schemes Rules 2018.

The Company did not begin trading until 6 November 2015 when the shares were admitted to trading on the LSE.

The nature of the Group’s operations and its principal activities are set out in the Strategic Report on pages 12 to 61.

The address of the registered office is Mont Crevelt House, Bulwer Avenue, St. Sampson, Guernsey, GY2 4LH.

2. Basis of preparation
The Group’s consolidated financial statements have been prepared on a going concern basis in accordance with the Disclosure Guidance and
Transparency Rules of the FCA and with International Financial Reporting Standards (“IFRS”) and IFRS Interpretation Committee (“IFRIC”) as
issued by the IASB and as adopted by the European Union (“EU”), in accordance with Article 4 of the IAS Regulations and the Law.

The Group’s 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.

2.1. Functional and presentation currency
The financial information is presented in Pounds Sterling, which is also the functional currency, and all values are rounded to the nearest
thousand (£’000) pound, except where otherwise indicated.

2.2. Going concern
The assessments of going concern are prepared in accordance with the FRC Guidance issued in September 2014.

The Directors have carefully considered areas of potential financial risk and have reviewed cash flow forecasts, evaluating a number of scenarios
which included extreme downside sensitivities in relation to rental cash collection, no property acquisitions, no elective capital expenditure,
REIT regime compliance, and no dividends. A range of scenarios of up to 12 months of nil rental cash collection were considered, and taking
into account mitigating management actions, the company had adequate resources to continue is operations. Further effects of the post-year
end COVID-19 outbreak are documented in the going concern and viability statements on pages 69 to 71 and within principal and emerging
risks on pages 50 to 55.

No material uncertainties have been detected which would influence the Group’s ability to continue as a going concern for a period of at least
12 months from the approval of these financial statements. The Directors have satisfied themselves that the Group has adequate financial
resources to continue in operational existence for this period.

Accordingly, the Board of Directors continue to adopt the going concern basis in preparing the financial statements.

2.3. Business combinations
At the time of acquisition, the Group considers whether each acquisition represents the acquisition of a business or the acquisition of an
asset. For an acquisition of a business where an integrated set of activities are acquired in addition to the property, the Group accounts for the
acquisition as a business combination under IFRS 3 Business Combinations (“IFRS 3”).

Where such acquisitions are not judged to be the acquisition of a business, they are not treated as business combinations. Rather, the cost to
acquire the corporate entity is allocated between the identifiable assets and liabilities of the entity based upon their relative fair values at the
acquisition date. Accordingly, no goodwill or additional deferred tax arises.

100

Annual Report and Accountsfor the year ended 31 December 20192. Basis of preparation (continued)

2.4. New standards, amendments and interpretations
New standards, amendments to standards and interpretations which came into effect for accounting periods starting on or after 1 January
2019 and have had an impact on the financial statements are as follows:

IFRS 16, ‘Leases’, is effective for accounting periods beginning on or after 1 January 2019. Under IFRS 16, most leased assets are capitalised as
“right of use assets” by recognising the present value of the lease payments as an asset and a financial liability representing the obligation to
make future lease payments.

The Group has a number of leases concerning the long-term lease of land associated with its long leasehold investment properties. At
31 December 2019, there was £50,054,000 ground rent committed under these leases (31 December 2018: £50,614,000) and the annual
charge for ground rent for the period for the year ended 31 December 2019 was £618,000 (31 December 2018: £618,000).

Under IFRS 16, the Group recognises the right of use asset in the Consolidated Statement of Financial Position and this is valued at fair value as
the underlying asset is an Investment Property. The change in fair value is recognised in the Consolidated Statement of Comprehensive Income.
In addition, a financial liability is recognised in the Consolidated Statement of Financial Position which is valued at the present value of future
lease payments using the Group’s incremental borrowing rate. Lease payments (also known as ground rent) which were previously recognised
within non-recoverable property costs, now upon payment, reduce the financial liability. The financial liability is recalculated at each reporting
date, lease payments reduce the financial liability and interest on the financial liability is recognised in finance costs.

IFRS 16 has been applied from 1 January 2019 and the modified retrospective approach to measure the right of use asset at the same value as
the financial liability has been taken and comparatives have not been restated. At 1 January 2019, a right of use asset and the financial liability
of £16,545,000 and £16,545,000 respectively were recognised.

The right of use asset and the financial liability were measured at the present value of the remaining lease payments, discounted using the
Group’s incremental borrowing rate as of 1 January 2019. The incremental borrowing rate used to determine the right of use asset has been
determined with consideration for the rate at which the Group would pay to borrow for an asset of similar value to the right of use asset. The
Group considers this to be equivalent to the Group’s weighted average cost of debt, being 3.5% and has applied. This single discount rate has
been applied across the whole portfolio of leases.

At 31 December 2019, the financial liability was adjusted for the interest as the lease liability is carried at fair value, with amounts recognised
within finance costs for movements on the finance liability. The right of use asset was calculated at fair value with the change in fair value
charged to the Consolidated Statement of Comprehensive Income. Under the modified retrospective approach in IFRS 16, comparative
information is not required to be restated.

The table below illustrates the accounting treatment presented in the financial statements:

Transactions in the Condensed Consolidated Statement of Comprehensive Income

Ground rent charges included within non-recoverable property costs

Fair value movement on right of use asset

Finance charges

Total

Assets and liabilities recognised within the Condensed Consolidated Statement
of Financial Position

Right of use assets included with investment property

Lease liabilities

Total

101

Year ended
31 December
2019
£’000

Year ended
31 December
2018
£’000

–

194

583

777

16,351

(16,510)

(159)

618

–

618

–

Annual Report and Accountsfor the year ended 31 December 2019Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2019

2. Basis of preparation (continued)

2.5. New standards, amendments and interpretations effective for future accounting periods
A number of new standards, amendments to standards and interpretations are effective for periods beginning on or after 1 January 2020 and
have not been applied in preparing these financial statements. These are:

Amendments to IFRS 3 ‘Business Combinations’ (effective where the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after 1 January 2020) – makes amendments to clarify the definition of a business to help companies determine whether
an acquisition is of a business or a group of assets. The amendments are expected to result in more acquisitions being accounted for as asset
acquisitions. As detailed in note 2.3, careful consideration is given to the accounting treatment for each acquisition. Most acquisitions made
by the Group are treated as the acquisition of a group of assets, so the Directors do not expect the amendments to this standard to have any
significant impact on the financial statements.

Amendments to IAS 1 ‘Presentation of Financial Statements’ and IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’
(effective for annual periods beginning on or after 1 January 2020) – make amendments to clarify the definition of ‘material’. The amendments
make IFRSs more consistent but are not expected to have a significant impact on the preparation of the financial statements.

3. Significant accounting judgements, estimates and assumptions
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported
amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities at the reporting date. However, uncertainty
about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or
liability affected in future periods.

3.1. Critical accounting estimates and assumptions
The principal estimates that may be material to the carrying amount of assets and liabilities are as follows:

3.1.1. Valuation of investment property
The fair value of investment property, which has a carrying value at the reporting date of £787,915,000 (31 December 2018: £718,375,000), is
determined by independent property valuation experts to be the estimated amount for which a property should exchange on the date of the
valuation in an arm’s length transaction. Properties have been valued on an individual basis. The valuation experts use recognised valuation
techniques applying the principles of both IAS 40 and IFRS 13.

The value of the properties has been assessed in accordance with the relevant parts of the current RICS Red Book. In particular, we have
assessed the fair value as referred to in VPS4 item 7 of the RICS Red Book. Under these provisions, the term "Fair Value" means the definition
adopted by the International Accounting Standards Board (“IASB”) in IFRS 13, namely "The price that would be received to sell an asset, or paid
to transfer a liability in an orderly transaction between market participants at the measurement date". Factors reflected include current market
conditions, annual rentals, lease lengths and location. The significant methods and assumptions used by the valuers in estimating the fair value
of investment property are set out in note 14.

In relation to Brexit, the ongoing negotiations with regards to the terms of the UK’s exit from the EU has meant that property market
uncertainty has increased. The independent property valuation experts are comfortable that, despite the property market uncertainty, there is
sufficient transactional market evidence at the reporting date to support the fair value of investment property.

3.1.2. Fair valuation of interest rate derivatives
In accordance with IAS 39, the Group values its interest rate derivatives at fair value. The fair values are estimated by the respective
counterparties with revaluation occurring on a quarterly basis. The counterparties will use a number of assumptions in determining the fair
values, including estimations over future interest rates and therefore future cash flows. The fair value represents the net present value of the
difference between the cash flows produced by the contracted rate and the valuation rate. The carrying value of the derivatives at the reporting
date was £1,816,000 (31 December 2018: £337,000). The significant methods and assumptions used in estimating the fair value of the interest
rate derivatives are set out in note 26.

102

Annual Report and Accountsfor the year ended 31 December 20193. Significant accounting judgements, estimates and assumptions (continued)

3.1.3. Leases – the Group as lessee
The Group has a number of leases concerning the long-term lease of land associated with its long leasehold investment properties. Under
IFRS16, the Group calculates the lease liability at each reporting date and at the inception of each lease 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 discount rate. At 31 December 2019, there were 13 leases with the range of the period left to run being 15 and 107 years. The Directors have
determined that the discount rate to use in the calculation for each lease at 1 January 2019 and 31 December 2019 is 3.5% being the Group’s
weighted average cost of debt.

3.1.4. Dilapidation income
The Group recognises dilapidation income in the Group’s Statement of Comprehensive Income when the right to receive the income arises.
In determining accrued dilapidations, the Group has considered historic recovery rates, while also factoring in expected costs associated with
recovery.

3.2. Critical judgements in applying the Group’s accounting policies
In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant
effect on the amounts recognised in the financial statements:

3.2.1. Operating lease contracts – the Group as lessor
The Group has acquired investment properties that are subject to commercial property leases with tenants. The Group has determined, based
on an evaluation of the terms and conditions of the arrangements, particularly the duration of the lease terms and minimum lease payments,
that it retains all of the significant risks and rewards of ownership of these properties and so accounts for the leases as operating leases.

3.2.2. Consolidation of entities in which the Group holds less than 50%
Management considered that up until 9 November 2018, the Group had de facto control of View Castle Limited (previously known as
Credential Investment Holdings 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.

3.2.3. Acquisitions of subsidiary companies
During the year, the Group has made two purchases of subsidiary companies which own investment properties. For each acquisition, the
Directors consider whether the acquisition met the definition of the acquisition of a business or the acquisition of a group of assets and
liabilities.

A business is defined in IFRS 3 as an integrated set of activities and assets that is capable of being conducted and managed for the purpose
of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or
participants. Furthermore, a business consists of inputs and processes applied to those inputs that have the ability to create outputs.

The companies acquired in the year have comprised portfolios of investment properties and existing leases with multiple tenants over varying
periods, with little in the way of processes acquired. It has therefore concluded in each case that the acquisitions did not meet the criteria for
the acquisition of a business as outlined above.

3.2.4. Recognition of income
Service charges and other similar receipts are included in net rental and property income gross of the related costs as the Directors consider the
Group acts as principal in this respect.

103

Annual Report and Accountsfor the year ended 31 December 2019Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2019

4. Summary of significant accounting policies
The accounting policies adopted in this report are consistent with those applied in the financial statements for the year ended 31 December
2018 and have been consistently applied for the year ended 31 December 2019. The significant change arising from accounting standards
effective for the first time, IFRS 16 Leases, is detailed in note 2.4.

4.1. Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the date of the Statement of
Financial Position.

4.2. Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power
over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the
date that control ceases.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a
subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued
by the Group. Identifiable assets and liabilities acquired, and contingent liabilities assumed, in a business combination are measured initially
at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition
basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of the acquiree's identifiable net
assets. Acquisition-related costs are expensed as incurred.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair
value of the contingent consideration are recognised in profit or loss. Contingent consideration that is classified as equity is not re-measured,
and its subsequent settlement is accounted for within equity.

For acquisitions of subsidiaries not meeting the definition of a business, the Group allocates the cost between the individual identifiable assets
and liabilities in the Group based on their relative fair values at the date of acquisition. Such transactions or events do not give rise to goodwill.

Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated in full. When
necessary, amounts reported by subsidiaries have been adjusted to conform to the Group’s accounting policies.

The excess of the consideration transferred, and the amount of any non-controlling interest in the acquiree over the fair value of the
identifiable net assets acquired, is recognised as goodwill.

4.2.1. Disposal of subsidiaries
When the Group ceases to have control over an entity, any retained interest in the entity is re-measured to its fair value at the date when
control is lost, with the change in the carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes
of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously
recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets
or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

4.3. Segmental information
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief
operating decision-maker is the person or group that allocates resources to and assesses the performance of the operating segments of an
entity. The Group has determined that its chief operating decision-maker is the Board of Directors.

After a review of the information provided for management purposes, it was determined that the Group has one operating segment and
therefore segmental information is not disclosed in these consolidated financial statements.

104

Annual Report and Accountsfor the year ended 31 December 20194. Summary of significant accounting policies (continued)

4.4. Investment property
Investment property comprises freehold or leasehold properties that are held to earn rentals or for capital appreciation, or both, rather than for
sale in the ordinary course of business or for use in production or administrative functions.

Investment property is recognised, usually, on legal completion, when the risks and rewards of ownership have been transferred, and is
measured initially at cost including transaction costs. Transaction costs include transfer taxes, professional fees for legal services and
other costs incurred in order to bring the property to the condition necessary for it to be capable of being utilised in the manner intended.
Subsequent to initial recognition, investment property is stated at fair value. Gains or losses arising from changes in the fair value are included
in the Group’s Consolidated Statement of Comprehensive Income in the period in which they arise under IAS 40, ‘Investment Property’.

Additions to investment property include costs of a capital nature only. Expenditure is classified as capital when it results in identifiable
future economic benefits, which are expected to accrue to the Group. All other property expenditure is charged in the Group’s Consolidated
Statement of Comprehensive Income as incurred.

Investment properties cease to be recognised when they have been disposed of or withdrawn permanently from use and no future economic
benefit is expected. The difference between the net disposal proceeds and the carrying amount of the asset (being the fair value at the start of
the financial year) would result in either gains or losses at the retirement or disposal of investment property. Any gains or losses are recognised
in the Group’s Consolidated Statement of Comprehensive Income in the period of retirement or disposal.

4.5. Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the Group's interest in the fair
value of the net identifiable assets, liabilities and contingent liabilities of the acquiree plus the amount of the non-controlling interest of the
acquiree.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the subsidiaries, or groups of
subsidiaries, that is expected to benefit from the synergies of the combination. Each subsidiary or group of subsidiaries to which the goodwill is
allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes.

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

4.6. Derivative financial instruments
Derivative financial instruments, comprising interest rate caps and swaps for hedging purposes, are initially recognised at fair value at
acquisition and are subsequently measured at fair value, being the estimated amount that the Group would receive or pay to sell or transfer
the agreement at the period end date, taking into account current interest rate expectations and the current credit rating of the lender and its
counterparties. The gain or loss at each fair value remeasurement date is recognised in the Group’s Consolidated Statement of Comprehensive
Income.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value,
maximising the use of relevant observable inputs and minimising the use of unobservable inputs significant to the fair value measurement as a
whole.

4.7. Financial assets
The Group classifies its financial assets as at fair value through profit or loss or at amortised cost, depending on the purpose for which the asset
was acquired. Currently the Group does not have any financial assets which it has classified at fair value through profit or loss.

Assets held at amortised cost arise principally from the provision of goods and services (e.g. trade receivables), but also incorporate other
financial assets where the objective is to hold these assets in order to collect contractual cash flows which comprise the payment of principal
and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are
subsequently carried at amortised cost being the effective interest rate method, less provision for impairment.

The Group’s financial assets comprise 'trade and other receivables', ‘tenant loan’, ‘surrender premium’ and 'cash and cash equivalents'.

The tenant loan relates to a loan made to a tenant which is subject to interest. The amount receivable has been recognised at amortised cost
using the effective interest method.

105

Annual Report and Accountsfor the year ended 31 December 2019Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2019

4. Summary of significant accounting policies (continued)
The lease surrender receivable relates to a lease surrender payment which has been received in instalments. The amount receivable has been
recognised at amortised cost using the effective interest method.

4.8. Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently carried at amortised cost less provision for impairment.
Where the time value of money is material, receivables are carried at amortised cost using the effective interest method. Impairment
provisions are recognised based on the expected credit loss model detailed within IFRS 9.

The Group recognises a loss allowance for expected credit losses on trade receivables. The loss allowance is based on lifetime expected credit
losses. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition. The
expected credit losses on these financial assets are estimated based on the Group’s historical credit loss experience, adjusted for factors that
are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at
the reporting date. Impaired balances are reported net, however, impairment provisions are recorded within a separate provision account with
the loss being recognised within administration costs within the Consolidated Statement of Comprehensive Income. On confirmation that the
trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Lease premiums and other lease incentives provided to tenants are recognised as an asset and amortised over the period from date of lease
commencement to termination date.

4.9. Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at banks with original maturities of three months or less. Cash also includes
amounts held in restricted accounts that are unavailable for everyday use.

4.10. Trade payables
Trade payables are initially recognised at their fair value being at their invoiced value inclusive of any VAT that may be applicable. Payables are
subsequently measured at amortised cost using the effective interest method.

4.11. Bank and other borrowings
All bank and other borrowings (comprising bank loans and retail eligible bonds) are initially recognised at cost net of attributable transaction
costs. Any attributable transaction costs relating to the issue of the bank borrowings are amortised through the Group’s Statement of
Comprehensive Income over the life of the debt instrument on a straight-line basis. After initial recognition, all bank and other borrowings are
measured at amortised cost, using the effective interest method.

Bank and other borrowings are derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing
financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are
substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new
liability. The difference in the respective carrying amounts is recognised in Group’s Consolidated Statement of Comprehensive Income.

4.12. Zero Dividend Preference Shares
Zero Dividend Preference Shares (“ZDP Shares”) are recognised as liabilities in the Group’s Consolidated Statement of Financial Position in
accordance with IAS 32 Financial Instruments: Presentation. After initial recognition, these liabilities are measured at amortised cost, which
represents the value the liability is recognised at initial recognition, plus the accrued interest entitlement to the date of these financial
statements.

4.13. Dividends payable to Shareholders
Equity dividends are recognised when paid.

4.14. Rental and property income
Rental income arising from operating leases on investment property is accounted for on a straight-line basis over the lease terms and is
included in gross rental and property income in the Group’s Consolidated Statement of Comprehensive Income. Initial direct costs incurred in
negotiating and arranging an operating lease are added to the carrying amount of the lease asset and are recognised as an expense over the
lease term on the same basis as the lease income.

106

Annual Report and Accountsfor the year ended 31 December 20194. Summary of significant accounting policies (continued)
For leases which contain fixed or minimum uplifts, the rental income arising from such uplifts is recognised on a straight-line basis over the
lease term.

Tenant lease incentives are recognised as a reduction of rental revenue on a straight-line basis over the term of the lease. The lease term is
the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease where, at the
inception of the lease, the Directors are reasonably certain that the tenant will exercise that option.

Surrender premiums received from tenants to terminate leases or surrender premises are recognised in the Group’s Statement of
Comprehensive Income when the right to receive them arises.

Dilapidation income is recognised in the Group’s Statement of Comprehensive Income when the right to receive it arises.

When the Group is acting as an agent, the commission, rather than gross income, is recorded as revenue.

Income arising from expenses recharged to tenants is recognised in the year in which the compensation becomes receivable. Service charges
and other similar receipts are included in net rental and property income gross of the related costs as the Directors consider the Group acts as
principal in this respect.

4.15. Property costs
Non recoverable property costs contain service and management charges related to empty properties. For the year ended 31 December 2018
this figure also included ground rents charges. As from 1 January 2019 a right of use asset and a lease liability are recognised instead of a ground
rent cost. Please refer to notes 2.4 and 4.23.

Service and management charges are recognised in the accounting period in which the services are rendered.

Recoverable property costs contain service charges and other similar costs which are recognised in the accounting period in which the services
are rendered.

4.16. Interest income
Interest income is recognised as interest accrued on cash balances held by the Group. Interest charged to a tenant on any overdue rental
income is also recognised within interest income.

4.17. Dividend income
Dividend income is recognised when the right to receive payment is established.

4.18. Finance costs
Interest costs are expensed in the period in which they occur. Arrangement fees that an entity incurs in connection with bank and other
borrowings are amortised over the term of the loan.

4.19. Taxation
As the Company is managed and controlled in the UK, it is considered to be tax resident in the UK.

The tax currently payable is based on the taxable profit for the period. Taxable profit differs from net profit as reported in the Consolidated
Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The Group's liability for current and deferred tax is calculated using tax rates that have
been enacted or substantively enacted at the date of the Statement of Financial Position.

The Group elected to be treated as a UK REIT with effect from 7 November 2015. The UK REIT rules exempt the profits of the Group’s UK
property rental business from UK Corporation Tax. Gains on UK properties are also exempt from tax, provided that they are not held for trading
or sold in the three years after completion of development. The Group is otherwise subject to UK Corporation Tax.

There are a small number of entities within the Group which fall outside the REIT rules and are subject to UK taxes on profits and property
gains.

107

Annual Report and Accountsfor the year ended 31 December 2019Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2019

4. Summary of significant accounting policies (continued)

4.20. Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable profit. The amount of deferred tax provided is based
on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates that are expected to apply
in the period when the liability is settled or the asset is realised based on tax rates (and tax laws) enacted or substantively enacted at the
date of the Statement of Financial Position. A deferred tax asset is recognised only to the extent that it is probable that future profits will be
available for offset.

Deferred tax has been recognised on the unrealised property valuation gains of properties owned by Group entities which fall outside of the
REIT tax rules.

The current rate of UK Corporation Tax is 19%. Reductions in UK Corporation Tax have been enacted, reducing the rate to 17% from 1 April
2020, however, it has been confirmed in the recent Budget Announcement, on 11 March 2020, that the government will legislate to retain the
current 19% rate in April 2020.

4.21. Stated capital
Stated capital represents the consideration received by the Company for the issue of Ordinary Shares. Ordinary Shares are classed as equity.

4.22. Share-based payments
The Group has entered into performance fee arrangements with the Asset Manager and Investment Manager which depend on the growth in
the net asset value of the Group exceeding a hurdle rate of return over a performance period. The fee will be partly settled in cash and partly in
equity and the equity portion is therefore a share-based payment arrangement. The fair value of the obligation is measured at each reporting
period, and the cost recognised as an expense. The part of the obligation to be settled in shares is credited to equity reserves. If circumstances
change and the fee is no longer settled by the issue of shares, then the amounts previously credited to equity reserves are reversed.

4.23. Leased assets
The Group has a number of leases concerning the long-term lease of land associated with its long leasehold investment properties. These
leased assets are capitalised as “right of use assets” by recognising the present value of the lease payments as an asset and a financial liability
representing the obligation to make future lease payments.

Right of use assets are valued at fair value and the change in fair value is recognised in the Consolidated Statement of Comprehensive Income.

The associated financial liability is valued at the present value of future lease payments using the Group’s incremental borrowing rate. The value
of the financial liability is revalued at each reporting date. Lease payments reduce the financial liability and interest on the financial liability is
recognised in finance costs.

5. Rental and property income

Rental income – freehold property

Rental income – long leasehold property

Recoverable service charge income and other similar items

Total

Year ended
31 December
2019
£’000

53,404

10,989

11,252

75,645

Year ended
31 December
2018
£’000

54,107

7,968

11,944

74,019

108

Annual Report and Accountsfor the year ended 31 December 20196. Property costs

Operating lease expenses

Other property expenses and irrecoverable costs

Recoverable service charge income and other similar costs

Total

Year ended
31 December
2019
£’000

–

9,429

11,252

20,681

Year ended
31 December
2018
£’000

618

7,082

11,944

19,644

Property costs represent direct operating expenses which arise on investment properties that generate rental income. Operating lease expenses
are now accounted for under IFRS16 as detailed in note 2.4.

7. Administrative and other expenses

Investment management fees

Property management fees

Performance fees

Asset management fees

Directors’ remuneration (see note 8)

Administration fees

Legal and professional fees

Marketing and promotion

Other administrative costs (including bad debts)

Bank charges

Total

Services provided by the Company’s Auditor and its associates
The Group has obtained the following services from the Company’s Auditor and its associates:

Audit of the consolidated and parent Company financial statements

Audit-related services in respect of the half-year financial statements

Audit of the subsidiaries for their respective periods of account

Fees associated with share issue

Total

109

Year ended
31 December
2019
£’000

Year ended
31 December
2018
£’000

2,356

2,280

–

2,356

255

746

2,107

657

10,904

2,405

2,264

7,046

2,405

235

663

1,714

595

172

17,586

Year ended
31 December
2019
£’000

Year ended
31 December
2018
£’000

114

305

171

–

275

Annual Report and Accountsfor the year ended 31 December 2019Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2019

8. Directors’ remuneration
Key management comprises the Directors of the Company. A summary of the Directors’ emoluments is set out in the Directors’ Remuneration
Report.

Directors’ fees

Employer’s National Insurance contributions

Total

9. Finance income

Interest income

Unwinding of the discount on financial assets

Total

10. Finance expenses

Interest payable on bank borrowings

Accrued capital entitlement on ZDP Shares

Amortisation of loan arrangement fees

Amortisation of ZDP Share acquisition costs

Bond interest

Bond issue costs amortised

Bond expenses

Lease interest

Total

11. Taxation

Corporation tax (credit)/charge

Increase/(decrease) in deferred tax creditor

Total

110

Year ended
31 December
2019
£’000

228

255

Year ended
31 December
2019
£’000

155

–

155

Year ended
31 December
2019
£’000

9,904

912

2,250

157

583

13,880

Year ended
31 December
2019
£’000

(359)

102

(257)

Year ended
31 December
2018
£’000

216

235

Year ended
31 December
2018
£’000

224

268

Year ended
31 December
2018
£’000

11,267

2,430

1,172

147

906

–

15,983

Year ended
31 December
2018
£’000

1,983

(1,416)

567

Annual Report and Accountsfor the year ended 31 December 201911. Taxation (continued)
The current tax charge is reduced by the UK REIT tax exemptions. The tax charge for the year can be reconciled to the profit in the Statement of
Comprehensive Income as follows:

Profit before taxation

UK Corporation Tax rate

Theoretical tax at UK Corporation Tax rate

Effects of:

Revaluation of investment property

Adjustments to tax charge in respect of previous periods

Permanent differences

Profits from the tax-exempt business

Deferred tax movement

Total

Year ended
31 December
2019
£’000

26,254

19%

4,988

668

–

(556)

(5,459)

102

(257)

Year ended
31 December
2018
£’000

67,940

19%

12,909

(4,537)

1,592

(8,006)

(1,416)

567

Permanent differences are the differences between an entity’s taxable profits and its results as stated in the financial statements. These arise
because certain types of income and expenditure are non-taxable or disallowable, or because certain tax charges or allowances have no
corresponding amount in the financial statements.

The Group elected to be treated as a UK REIT with effect from 7 November 2015. The UK REIT rules exempt the profits of the Group’s UK
property rental business from corporation tax. Gains on UK properties are also exempt from tax, provided they are not held for trading or sold
in the three years after completion of development. The Group is otherwise subject to UK corporation tax and UK income tax.

As a REIT, Regional REIT Ltd is required to pay PIDs equal to at least 90% of the Group’s exempted net income. To retain UK REIT status, there
are a number of conditions to be met in respect of the principal company of the Group, the Group’s qualifying activity and its balance of
business. The Group continues to meet these conditions.

UK corporation tax and UK income tax arise on entities which form part of the Group consolidated accounts but do not form part of the REIT
group.

Due to the Group’s REIT status and its intention to continue meeting the conditions required to obtain approval in the foreseeable future, no
provision has been made for deferred tax on any capital gains or losses arising on the revaluation or disposal of investments held by entities
within the REIT group.

No deferred tax asset has been recognised in respect of losses carried forward due to the unpredictability of future taxable profits.

12. Earnings per share
Earnings per share amounts are calculated by dividing profits for the year attributable to ordinary equity holders of the Company by the
weighted average number of Ordinary Shares in issue during the year.

111

Annual Report and Accountsfor the year ended 31 December 2019Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2019

12. Earnings per share (continued)
The calculation of basic and diluted earnings per share is based on the following:

Calculation of earnings per share

Net profit attributable to Ordinary Shareholders

Adjustments to remove:

Changes in value of investment properties

Changes in fair value of interest rate derivatives and financial assets

Gain on disposal of investment property

Impairment of goodwill

Deferred tax charge/(credit)

Income tax charge on disposal profits

Close out costs on borrowings and derivatives

EPRA net profit attributable to Ordinary Shareholders

Add performance fee

Company specific adjusted earnings figure

Weighted average number of Ordinary Shares

Earnings per share – basic and diluted

EPRA earnings per share – basic and diluted

Company specific adjusted earnings per share – basic and diluted

13. Dividends

Dividend of 2.50 (2018: 2.45) pence per Ordinary Share
for the period 1 October 2018 – 31 December 2018

Dividend of 1.90 (2018: 1.85) pence per Ordinary Share
for the period 1 January 2019 – 31 March 2019

Dividend of 1.90 (2018: 1.85) pence per Ordinary Share
for the period 1 April 2019 – 30 June 2019

Dividend of 1.90 (2018: 1.85) pence per Ordinary Share
for the period 1 July 2019 – 30 September 2019

Year ended
31 December
2019
£’000

Year ended
31 December
2018
£’000

26,511

67,373

3,513

1,479

(1,662)

557

102

–

487

30,987

–

30,987

(23,881)

(459)

(23,127)

557

(1,416)

1,416

430

20,892

7,046

27,938

398,867,828

372,821,136

6.6p

7.8p

18.1p

5.6p

7.5p

Year ended
31 December
2019
£’000

Year ended
31 December
2018
£’000

9,321

7,084

8,198

32,801

9,134

6,897

29,825

On 21 February 2019, the Company announced a dividend of 2.50 pence per share in respect of the period 1 October 2018 to 31 December
2018. The dividend payment was made on 11 April 2019 to Shareholders on the register as at 1 March 2019.

112

Annual Report and Accountsfor the year ended 31 December 201913. Dividends (continued)
On 23 May 2019, the Company announced a dividend of 1.90 pence per share in respect of the period 1 January 2019 to 31 March 2019. The
dividend payment was made on 12 July 2019 to Shareholders on the register as at 7 June 2019.

On 29 August 2019, the Company announced a dividend of 1.90 pence per share in respect of the period 1 April 2019 to 30 June 2019. The
dividend payment was made on 15 October 2019 to Shareholders on the register as at 6 September 2019.

On 14 November 2019, the Company announced a dividend of 1.90 pence per share in respect of the period 1 July 2019 to 30 September 2019.
The dividend payment was made on 19 December 2019 to Shareholders on the register as at 22 November 2019.

On 27 February 2020, the Company announced a dividend of 2.55 pence per share in respect of the period 1 October 2019 to 31 December 2019.
The dividend will be paid on 9 April 2020 to Shareholders on the register as at 6 March 2020. The financial statements do not reflect this dividend.

The Board intends to pursue a progressive dividend policy and continue to pay quarterly dividends. However, in view of ongoing circumstances,
the Company reserves the right to review future dividend payments.

14. Investment properties
In accordance with International Accounting Standard, IAS 40, ‘Investment Property’, investment property has been independently valued
at fair value by Cushman & Wakefield Chartered Surveyors, a accredited independent valuer with recognised and relevant professional
qualifications and with recent experience in the locations and categories of the investment properties being valued. The valuations have been
prepared in accordance with the Red Book and incorporate the recommendations of the International Valuation Standards Committee which
are consistent with the principles set out in IFRS 13.

The valuations are the ultimate responsibility of the Directors. Accordingly, the critical assumptions used in establishing the independent
valuation are reviewed by the Board.

All corporate acquisitions during the year have been treated as properties purchased rather than business combinations.

Freehold
property
£’000

Long leasehold
property
£’000

Group

Movement in investment properties for the year ended
31 December 2019

Valuation at 1 January 2019

Property additions – acquisitions

Property additions – subsequent expenditure

Property disposals

Gain/(loss) on the disposal of investment properties

Change in fair value during the year

Valuation at 31 December 2019

625,020

89,920

5,527

(24,003)

1,679

(235)

697,908

The net book value of properties disposed of during the year amounted to £22,632,000.

Movement in investment properties for the year ended
31 December 2018

Valuation at 1 January 2018

Property additions – acquisitions

Property additions – subsequent expenditure

Property disposals

Gain/(loss) on the disposal of investment properties

Change in fair value during the period

Valuation at 31 December 2018

636,600

76,334

6,735

(142,505)

23,856

24,000

625,020

113

93,355

–

238

(291)

(17)

(3,278)

90,007

100,730

–

244

(6,771)

(729)

(119)

93,355

Total
£’000

718,375

89,920

5,765

(24,294)

1,662

(3,513)

787,915

737,330

76,334

6,979

(149,276)

23,127

23,881

718,375

Annual Report and Accountsfor the year ended 31 December 2019Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2019

14. Investment properties (continued)
The net book value of properties disposed of during the year amounted to £126,149,000.

The historic cost of the properties is £751,638,000 (31 December 2018: £675,808,000).

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

Date of valuation:

31 December 2019

31 December 2018

The hierarchy levels are defined in note 30.

Total
£’000

787,915

718,375

Quoted
active prices
(level 1)
£’000

Significant
observable inputs
(level 2)
£’000

Significant
unobservable inputs
(level 3)
£’000

–

787,915

718,375

It has been determined that the entire investment properties portfolio should be classified under the level 3 category. The table below shows
the movement in the year on the level 3 category:

Balance at the start of the year

Additions

Disposals

Gain on the disposal of investment properties

Change in fair value during the year

Balance at the end of the year

Year ended
31 December
2019
£’000

718,375

95,685

(24,294)

1,662

(3,513)

787,915

Year ended
31 December
2018
£’000

737,330

83,313

(149,276)

23,127

23,881

718,375

The determination of the fair value of the investment properties held by each consolidated subsidiary requires unobservable inputs, such
as the use of the estimated future cash flows from investment properties, which take into consideration lettings, tenants’ profiles, future
revenue streams, capital values of fixtures and fittings, plant and machinery, 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 (“ERV”) 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.

Techniques used for valuing investment properties
The following descriptions and definitions relate to valuation techniques and key observable inputs made in determining the fair values:

Valuation technique: market comparable method
Under the market comparable method (or market approach), a property fair value is estimated based on comparable transactions in the
market.

Observable input: market rental
The rent at which space could be let in the market conditions prevailing at the date of valuation range: £6,000 – £3,092,291 per annum
(2018: £1,500 – £3,092,226 per annum).

Observable input: rental growth
The estimated average increase in rent is based on both market estimations and contractual agreements.

114

Annual Report and Accountsfor the year ended 31 December 201914. Investment properties (continued)
Observable input: net initial yield
The initial net income from a property at the date of purchase, expressed as a percentage of the gross purchase price including the costs of
purchase range: 0.00% – 28.70% (2018: 0.00% – 26.98%).

Unobservable inputs:
The significant unobservable inputs (level 3) are sensitive to changes in the estimated future cash flows from investment properties such as
increases and decreases in contracted rents, operating expenses and capital expenses, plus transactional activity in the real estate market.

As set out within the significant accounting estimates and judgements, the Group’s property portfolio valuation is open to judgement and is
inherently subjective by nature, and actual values can only be determined in a sales transaction.

15. Investment in subsidiaries

List of subsidiaries which are 100% owned and controlled by the Group

Blythswood House LLP

Regional Commercial MIDCO Limited

RR Aspect Court Limited

RR Bristol Ltd

RR Hounds Gate Limited

RR Rainbow (Aylesbury) Limited

RR Rainbow (North) Limited

RR Rainbow (South) Limited

RR Range Limited

RR Sea Dundee Limited

RR Sea Hannover St. Limited

RR Sea Lamont I Ltd

RR Sea Lamont II Ltd

RR Sea Lamont III Ltd

RR Sea St. Helens Limited

RR Sea Stafford Limited

RR Sea Strand Limited

RR Sea TAPP Limited

RR Sea TOPP Bletchley Limited

RR Sea TOPP I Limited

RR Skylar Limited

RR UK (Central) Limited

RR UK (Cheshunt) Limited

RR UK (Port Solent) Limited

RR UK (South) Limited

RR Wing Portfolio Limited

Tay Properties Limited

TCP Arbos Limited

TCP Channel Limited

Tosca Chandlers Ford Limited

Tosca Churchill Way Limited

Country of
incorporation

United Kingdom

Jersey

United Kingdom

Jersey

United Kingdom

Guernsey

Jersey

Ownership
%

100%

115

Annual Report and Accountsfor the year ended 31 December 2019Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2019

15. Investment subsidiaries (continued)

Tosca Garnet Limited

Tosca Glasgow II Limited

Tosca Midlands Limited

Tosca North East Limited

Tosca North West Limited

Tosca Scotland Limited

RR Star Limited

Tosca South West Limited

Tosca Swansea Limited

Tosca Thorpe Park Limited

Tosca UK CP II Limited

Tosca UK CP Limited

Tosca Victory House Limited

Tosca Winsford Limited

Toscafund Bennett House Limited

Toscafund Bishopgate Street Limited

Toscafund Blythswood Limited

Toscafund Brand Street Limited

Toscafund Chancellor Court Limited

Toscafund Crompton Way Limited

RR Falcon Limited

Toscafund Glasgow Limited

Toscafund Harvest Limited

Toscafund Milburn House Limited

Toscafund Minton Place Limited

Toscafund Newstead Court Limited

Toscafund Portland Street Limited

Toscafund Sheldon Court Limited

Toscafund St Georges House Limited

Toscafund St James Court Limited

Toscafund Strathclyde BP Limited

Toscafund Wallington Limited

Toscafund Welton Road Limited

Toscafund Westminster House Limited

Country of
incorporation

Jersey

United Kingdom

Jersey

Ownership
%

100%

All of the above entities have been included in the Group’s consolidated financial statements.

By virtue of an Amended and Restated Call Option Agreement dated 3 November 2015, the Directors consider that the Group has control of
View Castle Limited (previously Credential Investment Holdings Limited) and its 27 subsidiaries (the “View Castle Group”).

Under this option, the Group has the ability to acquire any of the properties held by the View Castle Group by issuing an option notice for a
nominal consideration of £1. The recipient of the option notice will be obliged to convey its title within one month after receipt of the option
notice.

116

Annual Report and Accountsfor the year ended 31 December 201915. Investment subsidiaries (continued)
Despite having no equity holding, the Group controls the View Castle Group as the option agreement has the effect that the Group is exposed
to, and has rights to, variable returns from its involvement with the View Castle Group through its power to control.

The companies which make up the View Castle Group are as follows:

List of subsidiaries that are controlled by the Group:

Castlestream Limited

Caststop Limited

Credential (Baillieston) Limited

Credential (Greenock) Limited

Credential (Wardpark North) Limited

Credential (Wardpark South) Limited (in liquidation)

Credential Bath Street Limited (in liquidation)

Credential Charing Cross Limited (in liquidation)

Credential Estates Limited

Credential Residential Finance Limited (in liquidation)

Credential Tay House Limited (in liquidation)

Hamiltonhill Estates Limited (in liquidation)

Lilybank Church Limited (in liquidation)

Lilybank Terrace Limited (in liquidation)

Old Mill Studios Limited (in liquidation)

Old Rutherglen Road Limited

Rocket Unit Trust

Squeeze Newco (Elmbank) Limited (in liquidation)

Squeeze Newco 2 Limited

Stock Residential Lettings Limited

The Legal Services Centre Limited

View Castle (Properties) Limited

View Castle (Milton Keynes) Limited

View Castle Limited

Country of
incorporation

United Kingdom

Jersey

United Kingdom

Ownership
%

100%

All of the above entities have been included in the Group’s consolidated financial statements up to 31 December 2019.

Business Combinations
There have been no new business combinations entered into in the financial year.

During the year, there were two subsidiary company acquisitions that took place in order for the Group to acquire the investment property
owned by that company. These acquisitions have not been treated as a business combination. For further details see note 2.3. The fair value of
investment properties acquired through the purchase of subsidiary companies totalled £45,790,000. Total consideration paid was £45,173,000.
The assets and liabilities of the companies acquired included the investment properties, mentioned above, net current liabilities totalling
£716,000 (principally comprising debtors, cash, creditors and deferred income) and bank borrowings of £nil.

117

Annual Report and Accountsfor the year ended 31 December 2019Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2019

16. Goodwill

Group

At start of year

Impairment

At end of year

31 December
2019
£’000

31 December
2018
£’000

1,115

(557)

558

1,672

(557)

1,115

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

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential
impairment. The goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal.
Any impairment is recognised immediately as an expense and is not subsequently reversed. The impairment review is based on group pre-tax
cash flow projections of cost savings of the Group as a whole as a single cash-generating unit, using a discount factor of 6.9% (31 December
2018: 4.8%), which is based on the borrowing margins currently available. If a reasonable change occurs in a key assumption, the recoverable
amount of goodwill would still be expected to be equal to the carrying value. The impairment review was conducted over a five-year period,
which is predominately derived from the borrowings facility terms, and will result in a nil terminal value.

17. Non-current receivables

17a. Non-current receivables on lease surrender premium

At start of year

Movement in year

Unwinding of discount

At end of year

31 December
2019
£’000

31 December
2018
£’000

–

206

(250)

–

In May 2014, the tenant of one of the subsidiaries (Blythswood House) surrendered their lease resulting in a lease surrender premium to be
paid by the tenant in equal instalments over four years with the final instalment paid in the quarter ending 31 March 2018. The amount due
was recognised initially at fair value and subsequently recorded at amortised cost using the effective interest method. The unwinding of the
discount is included in finance income.

118

Annual Report and Accountsfor the year ended 31 December 201917. Non-current receivables (continued)

17b. Non-current receivables on tenant loans

At start of year

Amounts repaid in the year

At end of year

Asset due within 1 year

Asset due after 1 year

31 December
2019
£’000

31 December
2018
£’000

1,926

(578)

1,348

192

1,156

1,348

1,926

–

1,926

530

1,396

1,926

During 2016, the Group entered into a loan agreement with a tenant for £1,926,000. The loan is subject to interest of 4% above the base rate
of the Bank of Scotland on late payments and is repayable in instalments over ten years.

18. Trade and other receivables

Gross amount receivable from tenants

Less provision for impairment

Net amount receivable from tenants

Current receivables – tenant loans (note 17b)

Value added tax

Income tax

Other receivables

Prepayments

31 December
2019
£’000

31 December
2018
£’000

8,206

(891)

7,315

192

1,415

6,385

16,781

32,158

7,294

(1,115)

6,179

530

–

3,256

12,198

22,163

The maximum exposure to credit risk at the reporting date is the carrying value of the amounts disclosed above. The Group does not hold any
collateral as security.

119

Annual Report and Accountsfor the year ended 31 December 2019Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2019

18. Trade and other receivables (continued)
The aged analysis of trade receivables that are past due but not impaired was as follows:

< 30 days

30 – 60 days

> 60 days

Less provision for impairment

31 December
2019
£’000

31 December
2018
£’000

4,369

1,055

2,782

8,206

(891)

7,315

3,974

720

2,600

7,294

(1,115)

6,179

The Directors consider the fair value of receivables equals their carrying amount.

The table above shows the aged analysis of trade receivables included in the table above which are past due but not impaired. These relate to
tenants for whom there is no recent history of default.

Provision for impairment of trade receivables movement as follows:

At start of year

Provision for impairment in the year

Receivables written off as uncollectable

Unused provision reversed

At end of year

Other categories within trade and other receivables do not include impaired assets.

19. Cash and cash equivalents

Group

Cash held at bank

Restricted cash held at bank

At end of year

Restricted cash balances of the Group comprise:

31 December
2019
£’000

31 December
2018
£’000

1,115

562

(537)

(249)

891

1,033

928

(452)

(394)

1,115

31 December
2019
£’000

31 December
2018
£’000

34,731

2,517

37,248

82,396

22,427

104,823

• £124,000 (2018: £20,259,000) of funds held in blocked bank accounts which are controlled by one of the Group’s lenders and are released
to free cash once certain loan conditions are met. The restricted funds arose on net proceeds from investment property disposals and were
released after the year end.

120

Annual Report and Accountsfor the year ended 31 December 201919. Cash and cash equivalents (continued)
• £2,312,000 (2018: £900,000) of funds which represent tenants’ rental deposits.

• £nil (2018: £1,268,000) of funds held in blocked bank accounts which are controlled by one of the Group’s lenders and are released to free
cash once certain conditions are met. The restricted funds arose on net proceeds held in relation to rental guarantees given by the seller of
properties purchased by the Group. These funds can only be withheld by the lender and used to repay outstanding loans in the event of a
default.

• £81,000 (2018: £nil) is held in other locked accounts.

All restricted cash balances will be available before 31 March 2020.

In addition, £4,225,000 (2018 £2,780,000) of cash funds represent service charge income received from tenants for settlement of future
service charge expenditure. These amounts are not analysed as restricted balances.

20. Trade and other payables

Withholding tax due on dividends paid

Trade payables

Other payables

Value added tax

Accruals of incidental costs for fund raise and acquisitions

Accruals

At end of year

Other payables principally include rent deposits held and service charge costs.

21. Deferred income
Deferred rental income represents rent received in advance from tenants.

22. Taxation liabilities

Income tax

Deferred tax

The movement on deferred tax liability is shown below:

At start of year

Deferred tax on the valuation of investment properties

At end of year

121

31 December
2019
£’000

31 December
2018
£’000

1,569

3,650

8,544

–

8,390

22,153

1,302

2,462

9,905

939

16,028

30,663

31 December
2019
£’000

31 December
2018
£’000

–

736

634

102

736

1,129

634

1,763

2,050

(1,416)

634

Annual Report and Accountsfor the year ended 31 December 2019Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2019

23. 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 year end are offset against amounts drawn on the facilities as shown in the table below:

31 December
2019
£’000

31 December
2018
£’000

290,487

22,911

(19,398)

294,000

(4,888)

(2,168)

912

287,856

–

48,584

245,416

(6,144)

287,856

339,074

52,919

(101,506)

290,487

(4,693)

(1,367)

1,172

285,599

400

88,687

201,000

(4,888)

285,599

Gross loan

to value**

Annual
interest rate

39.8

45.1

38.9

26.4

% Amortisation

2.15% over
3 months £ LIBOR

Mandatory
prepayment

3.28% Fixed None

3.37% Fixed None

2.20% over
3 months £ LIBOR

Mandatory
prepayment

Bank borrowings drawn at start of year

Bank borrowings drawn

Bank borrowings repaid

Bank borrowings drawn at end of year

Less: unamortised costs at start of year

Less: loan issue costs incurred in the year

Add: loan issue costs amortised in the year

At end of year

Maturity of bank borrowings

Repayable within 1 year

Repayable between 1 to 2 years

Repayable between 2 to 5 years

Repayable after more than 5 years

Unamortised loan issue costs

As detailed in note 25, the Group has £50,000,000 retail eligible bonds in issue.

The table below lists the Group’s borrowings.

Lender

Royal Bank of Scotland

Original
facility
£’000

55,000

Outstanding
debt*
£’000

Maturity
date

48,584

June 2024

Scottish Widows Ltd. & Aviva
Investors Real Estate Finance

165,000

165,000 December 2027

Scottish Widows Ltd

36,000

36,000 December 2028

Santander UK

Total bank borrowings

Retail eligible bond

Total

June 2029

65,870

321,870

50,000

371,870

44,416

294,000

50,000

344,000

LIBOR = London Interbank Offered Rate (Sterling)

MP = Mandatory prepayment

* Before unamortised debt issue costs

** Based upon Cushman & Wakefield property valuations

122

Annual Report and Accountsfor the year ended 31 December 201923. Bank and loan borrowings (continued)
The weighted average term to maturity of the Group’s debt at the period end was 7.3 years (31 December 2018: 6.4 years). The weighted average
interest rate payable by the Group on its debt portfolio, excluding hedging costs, as at the period end was 3.4% (31 December 2018: 3.7%).

The Group weighted average interest rate, including the ZDP Shares, retail eligible bonds and hedging costs at the period end, amounted to
3.5% per annum (31 December 2018: 3.8% per annum, which included the ZDP Shares). The ZDP Shares were fully repaid on 9 January 2019.

The Group has been in compliance with all of the financial covenants relating to the above facilities as applicable throughout the year covered
by these consolidated financial statements. Each facility has distinct covenants which generally include: historic interest cover, projected
interest cover, LTV cover and debt service cover. A breach of agreed covenant levels would typically result in an event of default of the
respective facility, giving the lender the right, but not the obligation, to declare the loan immediately due and payable. Where a loan is repaid in
these circumstances, early repayment fees will apply, which are generally based on a percentage of the loan repaid or calculated with reference
to the interest income foregone by the lenders as a result of the repayment.

As shown in note 26, the Group uses a combination of interest rate swaps and fixed rate bearing loans to hedge against cash flow interest rate
risks. The Group’s exposure to interest rate volatility is minimal.

24. Zero Dividend Preference Shares

At start of year

Amortisation of acquisition costs

Accrued capital entitlement

Repayment

At end of year

31 December
2019
£’000

31 December
2018
£’000

39,816

(39,879)

–

37,239

147

2,430

–

39,816

The Group entity, Regional REIT ZDP PLC, had 30,000,000 Zero Dividend Preference Shares (“ZDP Shares”) in issue, which were listed on the
London Stock Exchange (LSE: RGLZ). The ZDP Shares were issued at 100 pence per share. The ZDP Shares had an entitlement to receive a fixed
cash amount on 9 January 2019, being the maturity date, but did not receive any dividends or income distributions. Additional capital accrued
to the ZDP Shares on a daily basis at a rate equivalent to 6.5% per annum, resulting in a final capital entitlement of 132.9 pence per share,
which was paid on 9 January 2019.

25. Retail Eligible Bonds
During the prior year, the Company launched £50,000,000 4.5% retail eligible bonds with a maturity date of 6 August 2024. These unsecured
Bonds are listed on the London Stock Exchange ORB platform.

Bond principal at start of year

Bonds issued in the year

Unamortised issue costs at start of year

Issue costs

Amortisation of issue costs

At end of year

123

31 December
2019
£’000

50,000

–

(864)

(7)

157

49,286

31 December
2018
£’000

–

50,000

–

(925)

49,136

Annual Report and Accountsfor the year ended 31 December 2019(752)

415

(337)

Rate
%

1.26
1.26

n/a

1.80
1.80

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2019

26. Derivative financial instruments
Interest rate caps and swaps are in place to mitigate the interest rate risk that arises as a result of entering into variable rate borrowings.

31 December
2019
£’000

31 December
2018
£’000

Group

Fair value at start of year

Revaluation in the year

Fair value at end of year

(337)

(1,479)

(1,816)

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.

Lender

Royal Bank of Scotland

Scottish Widows Ltd. & Aviva
Investors Real Estate Finance

Scottish Widows Ltd

Santander UK

Original
facility
£’000

55,000

Outstanding
debt
£’000

Maturity
date

Annual
interest rate
%

Notional
amount
£’000

49,584

June 2024

2.15% over
3 months £ LIBOR

swap £27,500
cap £27,500

165,000

December 2027

3.28% Fixed

36,000

65,870

36,000

December 2028

3.37% Fixed

44,416

June 2029

2.20% over
3 months £ LIBOR

swap £33,000
cap £33,000

n/a

Total

321,870

294,000

LIBOR = London Interbank Offered Rate (Sterling)

As at 31 December 2019, the swap notional arrangements were £60.50m (31 December 2018: £48.58m).

The Group weighted average effective interest rate was 3.5% (31 December 2018: 3.5%) inclusive of hedging costs but excluding the ZDP Shares.

The maximum exposure to credit risk at the reporting date is the fair value of the derivative liabilities.

It is the Group’s target to hedge at least 90% of the total debt portfolio using interest rate derivatives and fixed-rate facilities. As at the year
end, the total proportion of hedged debt equated to 109.5% (31 December 2018: 102.6%), as shown below. The over-hedged position has
arisen as a result of the full RBS and Santander facilities (including headroom) being hedged but that the excess relates to Interest Rate Caps
which have no ongoing cost for the Group.

Total bank borrowings

Notional value of interest rate caps and swaps

Value of fixed rate debts

Proportion of hedged debt

The Group has not adopted hedge accounting.

124

31 December
2019
£’000

31 December
2018
£’000

294,000

121,000

201,000

322,000

109.5%

290,487

97,158

201,000

298,158

102.6%

Annual Report and Accountsfor the year ended 31 December 201927. Stated capital
Stated capital represents the consideration received by the Company for the issue of Ordinary Shares.

Group

Issued and fully paid shares of no par value

At start of the year

Shares issued 23 July 2019

Share issue costs

At end of the year

Number of shares in issue

At start of the year

Shares issued 23 July 2019

At end of the year

31 December
2019
£’000

31 December
2018
£’000

370,316

62,500

(1,997)

430,819

372,821,136

58,685,447

431,506,583

370,318

–

(2)

370,316

372,821,136

–

372,821,136

28. Net asset value per share (NAV)
Basic NAV per share is calculated by dividing the net assets in the Statement of Financial Position attributable to ordinary equity holders of the
parent by the number of Ordinary Shares outstanding at the end of the year.

EPRA NAV is a key performance measure used in the real estate industry which highlights the fair value of net assets on an ongoing long-term
basis. Assets and liabilities that are not expected to crystallise in normal circumstances such as the fair value of derivatives and deferred taxes
on property valuation surpluses are therefore excluded.

Net asset values have been calculated as follows:

Group

Net asset value per Consolidated Statement of Financial Position

483,728

429,515

31 December
2019
£’000

31 December
2018
£’000

Adjustment for calculating EPRA net assets:

Derivative financial instruments

Deferred tax liability

EPRA net assets

1,816

736

486,280

337

634

430,486

Number of Ordinary Shares in issue

431,506,583

372,821,136

Net asset value per share – basic and diluted

EPRA net asset value per share – basic and diluted

112.1p

112.7p

115.2p

115.5p

125

Annual Report and Accountsfor the year ended 31 December 2019
Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2019

29. Notes to the Statement of Cash Flows

29.1. Non cash transactions
The Group has accounted for the following non cash transactions:

• During the year ended 31 December 2018, the Group reversed the total of share-based payment adjustments made in previous years having

determined that the performance fees would be fully paid by cash (see note 35).

29.2. Reconciliation of changes in liabilities to cash flows arising from financing activities

Bank loans and
borrowings
£’000

Zero Dividend
Preference
Shares
£’000

Retail eligible
bonds
£’000

Derivative
financial
instruments
£’000

Lease
liabilities
£’000

Total
£’000

31 December 2019

Balance at 1 January 2019

285,599

39,816

49,136

337

16,545

391,433

Changes from financing
cash flows:

Zero Dividend Preference
Shareholders repaid

Bank and Bond borrowings
advanced

Bank borrowings repaid

Bank and Bond borrowing
costs paid

Lease payments

Total changes from
financing cash flows

Amortisation of issue costs

Accrued capital
entitlement

Change in fair value

Total other changes

Balance at 31 December
2019

–

(39,879)

22,911

(19,398)

(2,168)

–

1,345

912

–

912

287,856

–

(39,879)

–

Balances are included in the Statement of Financial Position as follows:

Current liabilities

Non-current liabilities

Balance at 31 December
2019

–

287,856

–

(7)

–

(7)

157

–

157

49,286

–

49,286

–

1,479

1,816

–

1,816

–

(35)

–

(39,879)

22,911

(19,398)

(2,175)

(35)

(38,576)

1,072

1,479

2,611

16,510

355,468

–

16,510

–

355,468

16,510

355,468

126

Annual Report and Accountsfor the year ended 31 December 2019
29. Notes to the Statement of Cash Flows (continued)

Bank loans and
borrowings
£’000

Zero Dividend
Preference
Shares
£’000

Retail eligible
bonds
£’000

Derivative
financial
instruments
£’000

Total
£’000

31 December 2018

Balance at 1 January 2018

334,381

37,239

–

752

372,372

Changes from financing
cash flows:

Bank and Bond borrowings
advanced

Bank borrowings repaid

Bank and Bond borrowing
costs paid

Total changes from
financing cash flows

Arising from subsidiary
acquisitions

Costs from subsidiary
acquisitions

Amortisation of issue costs

Accrued capital
entitlement

Change in fair value

Total other changes

Balance at 31 December
2018

50,959

(101,506)

(1,345)

(51,892)

1,960

(22)

1,172

–

3,110

–

147

2,430

–

2,577

50,000

–

(925)

49,075

–

285,599

39,816

49,136

Balances are included in the Statement of Financial Position as follows:

Current liabilities

Non-current liabilities

Balance at 31 December
2018

400

285,199

285,599

39,816

–

39,816

–

49,136

–

(415)

337

–

337

100,959

(101,506)

(2,270)

(2,817)

1,960

(22)

1,380

2,430

(415)

5,333

374,888

40,216

334,672

374,888

127

Annual Report and Accountsfor the year ended 31 December 2019
Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2019

30. Financial risk management

30.1. Financial instruments
The Group’s principal financial assets and liabilities are those that arise directly from its operations: trade and other receivables, trade and
other payables and cash and cash equivalents. The Group’s other principal financial liabilities are bank and other loan borrowings, amounts
due to ZDP Shareholders and interest rate derivatives, the main purpose of which is to finance the acquisition and development of the Group’s
investment property portfolio.

Set out below is a comparison by class of the carrying amounts of the Group’s financial instruments that are carried in the financial statements
and their fair value:

Group

Financial assets – measured at amortised cost

Trade and other receivables

Cash and short-term deposits

Financial liabilities – measured at amortised cost

Trade and other payables

Bank and loan borrowings

ZDP Shares

Retail eligible bonds

Financial liabilities – measured at fair value through profit or loss

Interest rate derivatives

Lease liability

31 December 2019

31 December 2018

Book value
£’000

Fair value
£’000

Book value
£’000

Fair value
£’000

16,463

37,248

16,463

37,248

11,891

104,823

(20,584)

(29,361)

(287,856)

(294,875)

(285,599)

–

(49,286)

(51,860)

(39,816)

(49,136)

(39,150)

(50,038)

(1,816)

(16,510)

(1,816)

(16,510)

(337)

–

(337)

–

The following financial liabilities are recorded in the Consolidated Statement of Financial Position at amortised cost but their fair value is
different as disclosed above. Their fair values are determined as follows:

• The fair value of bank and loan borrowings is determined by reference to mark to market valuations provided by the lenders.

• The fair value of retail eligible bonds is determined by their published market value.

The following financial liabilities are recorded in the Consolidated Statement of Financial Position at fair value which is determined as follows:

• The fair value of interest rate derivatives is recorded in the Consolidated Statement of Financial Position and is determined by forming an
expectation that interest rates will exceed strike rates and discounting these future cash flows at the prevailing market rates as at the year
end.

• The fair value of the lease liability is recorded in the Consolidated Statement of Financial Position calculated as the present value of future

cash flows discounted using the Group’s incremental borrowing rate.

128

Annual Report and Accountsfor the year ended 31 December 201930. Financial risk management (continued)

Fair value hierarchy
The following table provides the fair value measurement hierarchy for financial liabilities measured at fair value through profit or loss.

31 December 2019

Interest rate derivatives

Lease liability

Total

31 December 2018

Interest rate derivatives

Total

Quoted active
prices
(level 1)
£’000

Significant
observable inputs
(level 2)
£’000

Significant
unobservable inputs
(level 3)
£’000

–

(1,816)

–

(1,816)

(337)

–

(16,510)

–

Total
£’000

(1,816)

(16,510)

(18,326)

(337)

The different levels are defined as follows.

• Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

• Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly

observable.

• Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the consolidated financial statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each reporting period.

There have been no transfers between levels during the year.

30.2. Risk management
The Group is exposed to market risk (including interest rate risk), credit risk and liquidity risk. The Board of Directors oversees the management
of these risks. The Board of Directors reviews and agrees policies for managing each of these risks that are summarised below.

30.3. Market risk
Market risk is the risk that the fair values of financial instruments will fluctuate because of changes in market prices. The financial instruments
held by the Group that are affected by market risk are principally the Group’s bank balances along with a number of interest rate swaps entered
into to mitigate interest rate risk.

The Group's interest rate risk arises from long-term borrowings issued at variable rates, which expose the Group to cash flow interest rate risk.
Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group manages its cash flow interest rate risk by using
floating to fixed interest rate swaps, interest rate caps and interest rate swaps. Interest rate swaps have the economic effect of converting
borrowings from floating rates to fixed rates. Interest rate caps limit the exposure to a known level.

129

Annual Report and Accountsfor the year ended 31 December 2019Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2019

30. Financial risk management (continued)
If interest rates were to increase by the following rates, this would increase the annual interest charge to the Group and thus reduce profits and
net assets as follows:

Interest rate increase

0.00%

0.25%

0.50%

0.75%

1.00%

Increase to the annual interest charge

31 December
2019
£’000

31 December
2018
£’000

–

155

184

212

–

102

307

409

30.4. Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial
loss. The Group is exposed to credit risk from both its leasing activities and financing activities, including deposits with banks and financial
institutions. Credit risk is mitigated by tenants being required to pay rentals in advance under their lease obligations. The credit quality of the
tenant is assessed based on an extensive credit rating scorecard at the time of entering into a lease agreement.

Outstanding trade receivables are regularly monitored. The maximum exposure to credit risk at the reporting date is the carrying value of each
class of financial asset.

30.5. Credit risk related to trade receivables
Trade receivables, primarily tenant rentals, are presented in the Group’s Statement of Financial Position net of provisions for impairment. Credit
risk is primarily managed by requiring tenants to pay rentals in advance and performing tests around strength of covenant prior to acquisition.
Any trade receivables past due as at the year end were received shortly after the year end.

30.6. Credit risk related to financial instruments and cash deposits
One of the principal credit risks of the Group arises with the banks and financial institutions. The Board of Directors believes that the credit risk
on short-term deposits and current account cash balances is limited because the counterparties are banks, who are committed lenders to the
Group, with high credit ratings assigned by international credit-rating agencies.

The list of bankers for the Group, with their latest Fitch credit ratings, was as follows:

Bankers

Barclays

Royal Bank of Scotland

Santander UK

Aviva

Scottish Widows*

Fitch Ratings

A Stable

A+ Stable

* rating relates to parent entity – Lloyds Banking Group plc

130

Annual Report and Accountsfor the year ended 31 December 201930. Financial risk management (continued)

30.7. Liquidity risk
Liquidity risk arises from the Group’s management of working capital and, going forward, the finance charges and principal repayments on
its borrowings. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due, as the majority of
the Group’s assets are investment properties and are therefore not readily realisable. The Group’s objective is to ensure that it has sufficient
available funds for its operations and to fund its capital expenditure. This is achieved by continuous monitoring of forecast and actual cash
flows by management.

The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments:

Group at 31 December 2019

Trade and other payables

Bank borrowings

Interest rate derivatives

Retail eligible bonds

Lease liability

Group at 31 December 2018

Trade and other payables

Bank borrowings

Interest rate derivatives

ZDP Shares

Retail eligible bonds

Within
1 year
£’000

(20,584)

(9,579)

(487)

(2,250)

(618)

(33,518)

Within
1 year
£’000

(29,361)

(8,926)

(264)

(39,879)

(2,250)

(80,680)

Between
1 to 2 years
£’000

Between
2 to 5 years
£’000

–

(9,579)

(483)

(2,250)

(618)

–

(76,588)

(1,111)

(56,750)

(1,854)

(12,930)

(136,303)

Between
1 to 2 years
£’000

Between
2 to 5 years
£’000

After
5 years
£’000

–

(273,944)

–

(50,964)

(324,908)

After
5 years
£’000

–

(8,959)

(244)

–

(2,250)

(11,453)

–

(113,026)

(228,717)

(418)

–

(6,750)

(120,194)

–

(52,250)

(280,967)

Total
£’000

(20,584)

(369,690)

(2,081)

(61,250)

(54,054)

(507,659)

Total
£’000

(29,361)

(359,628)

(926)

(39,879)

(63,500)

(493,294)

The maturity dates of all bank borrowings are disclosed in note 23.

The maturity date of the retail eligible bonds is disclosed in note 25.

The range of maturity dates of the lease liability payments is between 10 and 107 years.

31. Capital management
The primary objective of the Group’s capital management is to ensure that it remains a going concern and continues to qualify for UK REIT
status.

The Group’s capital is represented by reserves and bank borrowings. The Board, with the assistance of the Investment and Asset Managers,
monitors and reviews the Group’s capital so as to promote the long-term success of the business, facilitate expansion, deliver a quarterly
dividend distribution and to maintain sustainable returns for Shareholders.

The Group’s policy on borrowings is as follows: the level of borrowing will be on a prudent basis for the asset class, and will seek to achieve a
low cost of funds, while maintaining flexibility in the underlying security requirements and the structure of both the portfolio and of Regional
REIT.

131

Annual Report and Accountsfor the year ended 31 December 2019Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2019

31. Capital management (continued)
Based on current market conditions, the Board will target Group net borrowings of 40% of Investment Property Values at any time. However,
the Board may modify the Group’s borrowing policy (including the level of gearing) from time to time in light of then-current economic
conditions, relative costs of debt and equity capital, fair value of the Company’s assets, growth and acquisition opportunities or other factors
the Board deems appropriate. The Group’s net borrowings may not exceed 50% of the Investment Property Values at any time without the
prior approval of Ordinary Shareholders in a General Meeting.

The optimal debt financing structure for the Group will have consideration for key metrics including: fixed or floating interest rate charged,
debt type, maturity profile, substitution rights, covenant and security requirements, lender type, diversity and the lender’s knowledge and
relationship with the property sector.

32. Operating leases
The future minimum lease payments receivable under non-cancellable operating leases in respect of the Group’s property portfolio are as follows:

Group

Receivable within 1 year

Receivable between 1 – 2 years

Receivable between 2 – 5 years

Receivable after 5 years

31 December
2019
£’000

31 December
2018
£’000

50,038

41,696

61,181

36,202

189,117

44,684

36,157

57,599

40,483

178,923

The Group has in excess of 910 operating leases. The number of years remaining on these operating leases varies between 1 and 80 years. The
amounts disclosed above represent total rental income receivable up to the next lease break point on each lease. If a tenant wishes to end a
lease prior to the break point, a surrender premium will be charged to cover the shortfall in rental income received.

33. Leases
As from 1 January 2019, the Group has adopted IFRS16 accounting treatment as described in note 2.4.

Right of use asset

At start of year

Value recognised at 1 January 2019

Fair value movement

Lease liability

At start of year

Value recognised at 1 January 2019

Lease payments

Interest charges

31 December
2019
£’000

31 December
2018
£’000

–

16,545

(194)

16,351

–

16,545

(618)

583

16,510

–

132

Annual Report and Accountsfor the year ended 31 December 201933. Leases (continued)
The Group’s lease commitments which are now represented by the right of use asset and lease liability are spread across 13 separate leases
with the two largest leases at Basingstoke and Witham making up 42% of the balance. Total commitments on leases in respect of land and
buildings are as follows:

Group

Payable within 1 year

Payable between 1 – 2 years

Payable between 2 – 5 years

Payable after 5 years

31 December
2019
£’000

31 December
2018
£’000

618

1,854

50,964

54,054

618

1,854

51,337

54,427

34. Segmental information
After a review of the information provided for management purposes during the current year, it was determined that the Group has one
operating segment and therefore segmental information is not disclosed in these consolidated financial statements.

35. Transactions with related parties

Transactions with the Directors
Directors’ remuneration is disclosed within the Remuneration Report and note 8 to the financial statements. Directors’ beneficial interests in
the Ordinary Shares of the Company are disclosed within the Directors’ Report. During the year, the following dividends were received by the
Directors (and their spouses or minor children) on the holdings:

Kevin McGrath

William Eason

Daniel Taylor

Stephen Inglis

Frances Daley

Timothy Bee

Total

Year ended
31 December
2019
£’000

Year ended
31 December
2018
£’000

103

199

142

Transactions with the Asset Manager, London & Scottish Property Investment Management Limited and the Property Manager,
London & Scottish Property Asset Management Limited
Stephen Inglis is a non-executive Director of Regional REIT Limited, as well as being the Chief Executive Officer of London & Scottish Property
Investment Management Limited (“LSPIM”) and a director of London & Scottish Property Asset Management Limited. The former company has
been contracted to act as the Asset Manager of the Group and the latter as the Property Manager.

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

133

Annual Report and Accountsfor the year ended 31 December 2019Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2019

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

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

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

Asset management fees charged*

Property management fees charged*

Performance fees charged

Total

Total fees outstanding

* Including irrecoverable VAT charged where appropriate

Year ended
31 December
2019
£’000

2,356

2,280

–

4,636

31 December
2019
£’000

1,275

Year ended
31 December
2018
£’000

2,405

2,264

3,523

8,192

31 December
2018
£’000

5,263

Transactions with the Investment Manager, Toscafund Asset Management LLP
Tim Bee, Chief Legal Counsel of Toscafund Asset Management LLP was appointed as non-executive director on 7 July 2017. Toscafund Asset
Management LLP has been contracted as the Investment Manager of the Group.

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

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

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

Investment management fees charged

Performance fees charged

Total

Total fees outstanding

134

Year ended
31 December
2019
£’000

2,356

–

2,356

31 December
2019
£’000

591

Year ended
31 December
2018
£’000

2,405

3,523

5,928

31 December
2018
£’000

5,044

Annual Report and Accountsfor the year ended 31 December 201935. Transactions with related parties (continued)

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 or the Placing price (100p per Ordinary Share). The performance fee was calculated initially on 31 December 2018 and is calculated
annually thereafter. Full details of the Managers' performance fee are given on pages 183 to 185 of the IPO Prospectus.

The performance fee for the first Performance Period, 6 November 2015 to 31 December 2018, was paid 50% in cash and 50% in Ordinary
Shares which are subject to a one-year lock-up.

The performance fees for subsequent years are payable 34% in cash and 66% in Ordinary Shares, again 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.

Based on the EPRA NAV of the Group as at 31 December 2019, the performance fee liability for the year ending 31 December 2019 was
estimated at £nil (for the period from commencement of trading to 31 December 2018: £8,905,000). This fee has been accrued in the
consolidated financial statements.

36. Capital commitments
At 31 December 2019, the Group had committed capital expenditure on its investment property portfolio of £2,500,000 relating to a property
in Dundee. These costs were paid in February 2020.

37. Subsequent events
The wellbeing of our tenants and other stakeholders in the Company are of utmost importance to the Board and we continue to manage the
Company, cognisant of their needs in this current environment.

On 20 February 2020, the Company announced a potential equity fundraise to take advantage of its growing near-term pipeline of accretive
growth. As a result of the current market uncertainty caused by the global spread of COVID-19, the Company took the decision to withdraw the
potential equity fundraise.

The Board will continue to closely monitor the developing situation and its effect on the Group, although the Board is re-assured by the
Company’s balance sheet, the breadth of tenants and geographical spread of assets, which will ensure it is well positioned to mitigate any
prolonged periods of uncertainty.

135

Annual Report and Accountsfor the year ended 31 December 2019EPRA 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

31 December
2019

31 December
2018

EPRA EARNINGS

Earnings from operational activities

EPRA Earnings

£30,987,000

£20,892,000

Company Adjusted
Earnings

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

EPRA NAV

Net Asset Value adjusted to include properties and
other investment interest at fair value and to exclude
certain items not expected to crystallise in a long-term
investment property business model

EPRA NNNAV

EPRA NAV adjusted to include the fair values of (i)
financial instruments, (ii) debt and (iii) deferred taxes

EPRA NET INITIAL
YIELD

EPRA ‘TOPPED-
UP’ 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

This measure incorporates an adjustment to the
ERA NIY in respect of the expiration of rent-free-
periods (or other unexpired lease incentives such as
discounted rent periods and stepped rents)

EPRA Earnings per share
(basic and diluted)

7.8p

5.6p

Adjusted Earnings

£30,987,000

£27,938,000

EPRA Earnings per share
(basic and diluted)

7.8p

7.5p

EPRA Net Asset Value

£486,280,000

£430,486,000

EPRA NAV per share
(diluted)

112.7p

115.5p

EPRA NNNAV

£475,135,000

£429,279,000

EPRA NNNAV per share
(diluted)

EPRA Net Initial Yield

110.1p

6.2%

115.1p

6.5%

EPRA ‘Topped-up’
Net Initial Yield

6.9%

6.6%

EPRA VACANCY
RATE

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

EPRA Vacancy Rate

EPRA COSTS
RATIO

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

EPRA Costs Ratio

EPRA Costs Ratio (excluding
direct vacancy costs)

10.6%

31.6%

18.7%

10.6%

40.1%

29.9%

EPRA BPR Awards

2019
The Company was pleased to be recognised by the EPRA for a
second consecutive year and be granted its first EPRA BPR Gold
Award in respect of the Company’s exceptional compliance with
EPRA’s Best Practices Recommendations for financial reporting of
listed property companies.

2018
In 2018, the Company was awarded its first EPRA BPR Award at
Silver level and Most Improved Award for compliance with the
EPRA Best Practices Recommendations for financial reporting.

O
S

R O V

W
A

136

Annual Report and Accountsfor the year ended 31 December 2019

Notes to the calculation of EPRA performance measures

1. EPRA earnings
For calculations, please refer to note 12 to the financial statements.

2. EPRA NAV

NAV per the financial statements

Fair value of derivative financial instruments

Deferred tax liability

EPRA NAV

Dilutive number of shares

EPRA NAV per share

3. EPRA NNNAV

EPRA NAV

Fair value of derivative financial instruments

Adjustment for the fair value of debt:

Bank and loan borrowings

ZDP Shares

Retail eligible bonds

Deferred tax liability

EPRA NNNAV

Dilutive number of shares

EPRA NAV per share

137

31 December
2019
£’000

483,728

1,816

736

486,280

431,506,583

112.7p

31 December
2019
£’000

486,280

(1,816)

(7,019)

–

(2,574)

(737)

475,134

431,506,583

110.1p

31 December
2018
£’000

429,515

337

634

430,486

372,821,136

115.5p

31 December
2018
£’000

430,486

(337)

–

666

(902)

(634)

429,279

372,821,136

115.1p

Annual Report and Accountsfor the year ended 31 December 2019EPRA Performance Measures (continued)

4. EPRA Net Initial Yield
Calculated as the value of investment properties divided by annualised net rents:

Investment properties

Annualised cash passing rental income

Property outgoings

Annualised net rents

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

Topped-up net annualised rent

EPRA NIY

EPRA topped up NIY

5. EPRA Vacancy Rate

Estimated Market Rental Value (ERV) of vacant space

Estimated Market Rental Value (ERV) of whole portfolio

EPRA Vacancy Rate

6. EPRA Cost Ratios

Property costs

Less ground rent

Less recoverable service charge income and other similar costs

Add administrative and other expenses

EPRA costs (including direct vacancy costs)

Direct vacancy costs

EPRA costs (excluding direct vacancy costs)

Gross rental income

Less recoverable service charge income and other similar items

Less ground rent

Gross rental income less ground rents

EPRA Cost Ratio (including direct vacancy costs)

EPRA Cost Ratio (excluding direct vacancy costs)

138

31 December
2019
£’000

31 December
2018
£’000

787,915

57,067

5,104

51,962

6,157

58,119

6.2%

6.9%

718,375

54,710

(4,650)

50,060

443

50,503

6.5%

6.6%

31 December
2019
£’000

7,853

73,897

10.6%

31 December
2018
£’000

7,128

67,042

10.6%

31 December
2019
£’000

31 December
2018
£’000

20,681

–

(11,252)

10,904

20,333

(8,312)

12,021

75,645

(11,252)

–

64,393

31.6%

18.7%

19,644

(662)

(11,944)

17,586

24,624

(6,240)

18,384

74,019

(11,944)

(661)

61,414

40.1%

29.9%

Annual Report and Accountsfor the year ended 31 December 2019It should be noted that the EPRA costs in the above calculations include the performance fee cost for the period of £nil (year ended
31 December 2018: £7,046,000). The EPRA cost ratio excluding the performance fee from costs would be as follows:

EPRA Cost Ratio (including direct vacancy costs)

EPRA Cost Ratio (excluding direct vacancy costs)

31.6%

18.7%

28.6%

18.5%

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

Property Related Capital Expenditure Analysis

Acquisitions

Subsequent capital expenditure

Total capital expenditure

31 December
2019
£’000

89,920

5,527

95,685

31 December
2018
£’000

76,334

6,979

83,313

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.

139

Annual Report and Accountsfor the year ended 31 December 2019Glossary of Terms

AIC – Association of Investment Companies. A trade body for closed-
end investment companies (www.theaic.co.uk).

AIF – Alternative Investment Fund.

AIFMD – Alternative Investment Fund Managers Directive. Issued by
the European Parliament in 2012 and 2013, the Directive requires
the Company to appoint an Alternative Investment Fund Manager
(AIFM). The Board of Directors of a closed-ended investment
company nevertheless remains fully responsible for all aspects of the
Company’s strategy, operations and compliance with regulations.

AIFM – Alternative Investment Fund Manager. The entity which
ensures the Company complies with the AIFMD. The Company’s AIFM
is Toscafund Asset Management LLP.

Alternative Performance Measures (APMs) – APMs are key performance
indicators used by the Board to assess the Company’s performance.

Board – the Board of Directors of the Company.

Borrowings – aggregate amount of total drawn bank facilities and the
retail eligible bond.

Break Option – a clause in a lease which provides the landlord or tenant
with an ability to terminate the lease before its contractual expiry date.

CAPEX – capital expenditure relates to spend used by the
organisation to maintain or upgrade physical assets.

Company – Regional REIT Limited (Company Number 60527).

Company Adjusted Earnings – a company specific earnings measure
which adds back the performance fee charged in the accounts to
EPRA Earnings.

Core Property – stable income properties with low risk.

Core Plus Property – growth and income properties with the ability to
increase cash flows through asset management initiatives.

Directors – the Directors of the Company whose names are set out on
pages 64 and 65.

EPC – Energy Performance Certificate.

EPRA Cost Ratio – ratio of overheads and operating expenses against
gross rental income. Net overheads and operating expenses relate to
all administrative and operating expenses including the share of joint
ventures’ overheads and operating expenses, net of any service fees,
recharges or other income specifically intended to cover overhead
and property expenses.

EPRA – European Public Real Estate Association, a real estate industry
body, which has issued Best Practice Recommendations to provide
consistency and transparency in real estate financial reporting across
Europe.

EPRA Earnings – profit after taxation excluding investments and
development property revaluations and gains/losses on disposals,
changes in the fair value of financial instruments and associated
close-out costs and their related taxation.

EPRA Net Asset Value (EPRA NAV) – IFRS assets excluding the
mark-to-market on effective cash flow hedges and related debt
instruments and deferred taxation revaluations.

EPRA Triple NAV (EPRA NNNAV) – EPRA net assets adjusted
to include deferred tax liabilities and the fair values of financial
instruments and debt.

EPRA Net Initial Yield – annualised rental income based on the
cash rents passing at the balance sheet date, less non-recoverable
property operating expenses, divided by the market value of the
property with (estimated) purchasers’ costs.

EPRA “Topped Up” Net Initial Yield – this measure incorporates an
adjustment to the ERA NIY in respect of the expiration of rent-free-
periods (or other unexpired lease incentives such as discounted rent
periods and stepped rents).

EPRA Total Return – the movement in EPRA NAV plus the dividend
distributions paid during the period expressed as a percentage of the
share price at the beginning of the period.

EPRA Vacancy Rate – occupancy expressed as a percentage being the
ERV of vacant space divided by ERV of the whole portfolio. Vacancy
Rate should only be calculated for all completed properties, but
excluding those properties which are under development.

EPRA Occupancy Rate – occupancy expressed as a percentage
being the ERV of let space divided by ERV of the whole portfolio.
Occupancy Rate should only be calculated for all completed
properties, but excluding those properties which are under
development.

Equivalent Yield – weighted average of the initial yield and
reversionary yield, representing the return that a property will
produce based on the occupancy data of the tenant leases.

Estimated Rental Value (ERV) or Market Rent (MR) – external valuers’
opinion as to what the open market rental value of the property is on
the valuation date and which could reasonably be expected to be the
rent obtainable on a new letting of that property on the valuation date.

External Valuer – independent external valuer of a property. The
Company’s external valuer is Cushman & Wakefield.

Fair Value Adjustment – accounting adjustment to change the book
value of an asset or liability to its market value.

Gross Asset Value – the aggregate value of the total assets of the
Company as determined in accordance with the accounting principles
adopted by the Company from time to time.

Gross Investment Property Assets – investment properties
encompassing the entire property portfolio of freehold and leasehold
assets.

Gross Rental Income – See Rent Roll.

Gross Loan-to-Value (LTV) Ratio – (Borrowings)/(Investment
Properties Value), expressed as a percentage.

Group – Regional REIT Limited and its subsidiaries.

IAS – an international accounting standard established by the
International Accounting Standards Board.

ISA – Individual Savings Account.

IPO – Initial Public Offering. The Company’s admission to the London
Stock Exchange was on 6 November 2015.

140

Annual Report and Accountsfor the year ended 31 December 2019Law – The Companies (Guernsey) Law 2008, as amended

Prospectus – the Company’s prospectus issued on 5 December 2017.

Lease – legally binding contract between a landlord and a tenant
which sets out the basis on which the tenant is permitted to occupy a
property, including the lease length.

Lease Incentive – payment used to encourage a tenant to take on a
new lease, for example a landlord paying a tenant a sum of money
to contribute to the cost of a tenant’s fit-out of a property or by
allowing a rent-free period.

Lease Re-gear – renegotiation of a lease during the term and often linked
to another lease event, for example a Break Option or Rent Review.

Lease Renewal – renegotiation of a lease with the existing tenant at
its contractual expiry.

Lease Surrender – agreement whereby the landlord and tenant bring
a lease to an end other than by contractual expiry or the exercise
of a Break Option. This will frequently involve the negotiation of a
surrender premium by one party to the other.

Mark-to-Market (MTM) – difference between the book value of an
asset or liability and its market value.

Manager(s) – the Company’s external Asset and Property Manager
is London & Scottish Property Investment Management Limited. Its
external Investment Manager is Toscafund Asset Management LLP.

Net Asset Value (NAV) (or Shareholders’ Funds) – the value of the
investments and other assets of an investment company, plus cash
and debtors, less borrowings and any other creditors. It represents
the underlying value of an investment company at a point in time.

Net Debt – total cash and cash equivalents less short- and long-term
debt.

Net Gearing – (Borrowings – cash and cash equivalents)/(Total Issued
Shares + Retained Earnings).

Net Loan-to-Value (LTV) Ratio – (Borrowings – less cash)/
(Investment Properties Value) expressed as percentage.

Ordinary Resolution – a resolution passed by more than 50%
majority in accordance with the Companies Law.

Occupancy Percentage – percentage of the total area of all properties
and units currently let to tenants.

Over Rented – when the Contracted Rent is higher than the ERV.

Ongoing Charges – a measure, expressed as a percentage of NAV, of
the regular, recurring costs of running an investment company which
is calculated in line with AIC methodology.

Passing Rent – the rent that is payable at any particular time, allowing
for lease incentives. This phrase is often used for Contracted Rent.

Property Income Distributions (PID) – profits from property related
business distributed to Shareholders which are subject to tax in the
hands of the Shareholders as property income. PIDs are normally paid
net of withholding tax, currently at 20%, which the REIT pays to the tax
authorities on behalf of the Shareholder. Certain types of Shareholder
(i.e., pension funds) are tax exempt and receive PIDs without
withholding tax. Property companies also pay out normal dividends,
called non-PIDs, which are treated as not subject to withholding tax.

141

REIT – a qualifying entity which has elected to be treated as Real
Estate Investment Trust for tax purposes. In the UK such entities must
be listed on a recognised stock exchange, must be predominantly
engaged in property investments activities and must meet certain
ongoing qualifications as set out under section 705 E of the Finance
Act 2013.

Rent Review – periodic review of rent during the term of a lease, as
provided for within a lease agreement.

Rent Roll – is the contracted gross property rent receivable which
becomes payable after tenant incentives in the letting have expired.

Reversion – expected increase in rent estimated by the Company’s
External Valuers, where the passing rent is below the ERV. The
increases to rent arise on rent reviews and lettings.

Reversionary Yield – anticipated yield, excluding lease expiry, to
which the Net Initial Yield will rise (or fall) once the rent reaches the
Estimated Rental Value. ERV/Investment Properties Value expressed
as a percentage.

Shares – Ordinary Shares issued by the Company.

Shareholder – a holder of shares in the Company.

SIPP – self-invested personal pension.

SSAS – small self–administered scheme.

Total Shareholder Return – the movement in the share price, plus
the dividend distributions received and reinvested in the period,
expressed as percentage of the share price at the beginning of the
period.

Triple Net Initial Yield (NNNIY) – (Annualised current passing rent
net of property related taxes, building insurance, and maintenance
costs (the three “nets”))/(Investment Properties Value).

Weighted Average Unexpired Lease Term (WAULT) – is the average
lease term remaining to first break, or expiry, across the portfolio
weighted by rental income (including rent-free).

Weighted Average Debt to Maturity (WAD) – each tranche of Group
debt is multiplied by the remaining period to its maturity and the
result is divided by total Group debt in issue at the period end.

Weighted Average Effective Interest Rate – the Group’s loan interest
and hedging derivative costs per annum divided by total Group debt
in issue at the period end.

Weighted Average Cost of Debt (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.

Weighted Average Debt Duration (WADD) – is calculated by
multiplying each tranche of Group debt by the remaining period to
its maturity, with the sum of the results being divided by total Group
debt in issue at the period end.

Yield Compression – occurs when the net equivalent yield of a
property decreases, measured in basis points.

Annual Report and Accountsfor the year ended 31 December 2019AIFMD Disclosure

The Alternative Investment Fund Managers’ Directive requires
certain information to be made available to investors in Alternative
Investment Funds before they invest and requires that material
changes to this information be disclosed in the annual report of each
AIF. Those disclosures that are required to be made pre-investment
are included within the Initial Public Offering (“IPO”) Prospectus and
subsequent equity capital raise prospectuses, which can be found on
the Group’s website at: www.regionalreit.com.

Management agreement
With effect from 6 November 2015, the Company appointed London
& Scottish Investments Limited. as Asset Manager. Following an
internal restructure at London and Scottish Investments Limited, the
Asset Manager agreement has been assigned to London and Scottish
Property Investment Management Limited (“LSPIM”). Toscafund
Asset Management LLP (“Toscafund” or the “AIFM”) was appointed
as the Investment Manager. LSPIM and Toscafund each receive half of
an annual management fee on a scaled rate of 1.1 % of the EPRA net
asset value up to £500m and 0.9% above £500m. A performance fee
may also be paid to LSPIM and Toscafund.

Toscafund was authorised as an Alternative Investment Fund
Manager (“AIFM”), by the UK’s Financial Conduct Authority on
21 July 2014. The AIFM has implemented a remuneration policy (the
“Policy”), which is effective as of 21 July 2014. The aggregate amount
of remuneration in respect of the Company of senior management
and members of staff of the AIFM whose actions have a material
impact on the operations of Regional REIT Limited during the
period 1 January 2019 to 31 December 2019 was £3,650,400 (2018:
£3,027,376).

Continuing appointment of the AIFM
The Board continually reviews the performance of the AIFM. The
Board, through its Management Engagement and Remuneration
Committee, has considered the performance of the AIFM and the
terms of its engagement. It is the opinion of the Board that the
continuing appointment of the AIFM on the terms agreed is in
the interests of Shareholders as a whole. The Board believe that
by calculating the management fee on the basis of EPRA NAV,
the interests of the AIFM are closely aligned with those of the
Shareholders.

Principal risks and uncertainties
An explanation of the principal risks and how they are managed and
the policy and practice with respect to financial instruments are
contained in note 30 on pages 128 to 131.

Leverage
Leverage is defined in the AIFMD as any method by which the
Group increases its exposure, whether through borrowing of cash
or securities, or leverage embedded in derivative positions or by any
other means.

Leverage has been measured in terms of the Group’s exposure and is
expressed as a ratio of net asset value. The AIFMD requires this ratio
to be calculated in accordance with both the Gross Method and the
Commitment Method. Details of these methods of calculation can be
found by referring to the AIFMD. In summary, these methods express
leverage as a ratio of the exposure of debt, non-sterling currency,
equity or currency hedging and derivatives exposure against the
net asset value. The principal difference between the two methods
is that the Commitment Method enables derivative instruments to
be netted off to reflect hedging arrangements and the exposure is
effectively reduced, while the Gross Method aggregates the exposure.

The AIFMD introduced a requirement for the AIFM to set maximum
levels of leverage for the Group. The Company’s AIFM has set a
maximum limit of 400 for both the Gross and Commitment Methods
of calculating leverage.

At 31 December 2019, this gives the following figures:

Leverage
Exposure

Maximum

Actual

Gross
Method

400

188

Commitment
Method

400

196

In accordance with the AIFMD, any changes to the maximum level
of leverage set by the Group will be communicated via the Group’s
website to the Shareholders.

142

Annual Report and Accountsfor the year ended 31 December 2019Company Information

Directors
Kevin McGrath (Chairman and Independent Non-Executive Director)

William Eason (Senior Independent Non-Executive Director Management Engagement and Remuneration Committee Chairman)

Daniel Taylor (Independent Non-Executive Director)

Frances Daley (Independent Non-Executive Director Audit Committee Chairman)

Stephen Inglis (Non-Executive Director)

Timothy Bee (Non-Executive Director)

Registered office
Regional REIT Limited
Mont Crevelt House
Bulwer Avenue
St. Sampson
Guernsey
GY2 4LH

Company Secretary
Link Company Matters Limited
Beaufort House
51 New North Road
Exeter
Devon
EX4 4EP

Asset Manager
London & Scottish Property Investment
Management Limited
Venlaw
349 Bath Street
Glasgow
G2 4AA

Investment Manager
Toscafund Asset Management LLP
7th Floor
90 Long Acre
London
WC2E 9RA

Financial Adviser and Joint Broker
Peel Hunt LLP
Moor House
120 London Wall
London
EC2Y 5ET

Legal Adviser to the Company
Macfarlanes LLP
20 Cursitor Street
London
EC4A 1LT

Depositary
Estera Depositary (UK) Limited
27-28 Eastcastle Street
London
W1W 8DH

Administrator
Jupiter Fund Services Limited
Mont Crevelt House
Bulwer Avenue
St. Sampson
Guernsey
GY2 4LH

Sub-Administrator
Link Alternative Fund Administrators
Limited
Beaufort House
51 New North Road
Exeter
Devon
EX4 4EP

Independent Auditor
RSM UK Audit LLP
25 Farringdon Street
London
EC4A 4AB

Registrar
Link Market Services (Guernsey) Limited
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU

Public Relations
Buchanan Communications Limited
107 Cheapside
London
EC2V 6DN

Property Valuers
Cushman & Wakefield Debenham
Tie Leung Limited (trading as
Cushman & Wakefield)
125 Old Broad Street
London
EC2N 2BQ

Tax Adviser
Grant Thornton UK LLP
110 Queen Street
Glasgow
GI 3BX

Regional REIT Limited
ISIN:
GG00BYV2ZQ34

SEDOL:
BYV2ZQ3

Legal Entity Identifier:
549300D8G4NKLRIKBX73

Company website
www.regionalreit.com

143

Annual Report and Accountsfor the year ended 31 December 2019Forthcoming Events

Q1 2020 Trading Update

2020 Annual General Meeting

2020 Interim Results Announcement

Q3 2020 Trading Update

21 May 2020

TBC

17 September 2020

12 November 2020

Note: all future dates are provisional and subject to change.

Shareholder Information

Share Register enquiries: Link Asset Services
For any questions about:

• Changing your address or other details

• Questions about your shares

• Buying and selling shares

Phone: 0371 664 0300

Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable
international rate. The Registrar is open between 09:00 and 17:30, Monday to Friday excluding public holidays in England and Wales. For
Shareholder enquiries please email shareholderenquiries@linkgroup.co.uk.

144

Annual Report and Accountsfor the year ended 31 December 2019Dividend History

Year Period Announcement date Ex-date

Record date

Payment date

2019

2018

2017

2016

Q4 27 February 2020

5 March 2020

6 March 2020

9 April 2020

14 November 2019

21 November 2019

22 November 2019

19 December 2019

29 August 2019

5 September 2019

6 September 2019

15 October 2019

23 May 2019

6 June 2019

7 June 2019

12 July 2019

21 February 2019

28 February 2019

1 March 2019

11 April 2019

15 November 2018

22 November 2018

23 November 2018

21 December 2018

Q2 31 August 2018

13 September 2018

14 September 2018

15 October 2018

17 May 2018

24 May 2018

25 May 2018

13 July 2018

22 February 2018

1 March 2018

2 March 2018

12 April 2017

14 November 2017

23 November 2017

24 November 2017

22 December 2017

Q2 31 August 2017

7 September 2017

8 September 2017

13 October 2017

25 May 2017

8 June 2017

9 June 2017

14 July 2017

23 February 2017

2 March 2017

3 March 2017

13 April 2017

17 November 2016

24 November 2016

25 November 2016

22 December 2016

1 September 2016

8 September 2020

9 September 2016

7 October 2016

27 May 2016

9 June 2016

10 June 2016

8 July 2016

2015

7 March 2016

17 March 2016

18 March 2016

15 April 2016

Total dividend
Pence per share

2.55pps entirely PID

1.90pps entirely PID

2.50pps entirely PID

1.85pps entirely PID

2.45pps
of which PID: 2.205pps
of which non-PID: 0.245pps

1.80pps
of which PID: 1.62pps
of which non PID: 0.18pps

1.80pps
of which PID: 1.08pps
of which non-PID: 0.72pps

1.80pps
of which PID: 1.26pps
of which non-PID: 0.54pps

2.40pps
of which PID: 2.1600pps
of which non-PID: 0.2400pps

1.75pps
of which PID: 1.6345pps
of which non-PID: 0.1155pps

1.75pps
of which PID: 1.5013pps
of which non-PID: 0.2487pps

1.75pps
of which PID: 1.3579pps
of which non-PID: 0.3921pps

1.00pps
of which PID: 0.6572pps
of which non-PID: 0.3428pps

145

Annual Report and Accountsfor the year ended 31 December 2019Notes

146

Annual Report and Accountsfor the year ended 31 December 2019Notes

147

Annual Report and Accountsfor the year ended 31 December 2019Notes

148

Annual Report and Accountsfor the year ended 31 December 2019Mont Crevelt House, Bulwer Avenue, St. Sampson, Guernsey GY2 4LHwww.regionalreit.com