Annual Report and Accounts for the year ended 31 December 2020 Regional REIT Ltd | Annual Report and Accounts 2020
Overview
High dividend distribution UK REIT,
offering exposure to the regional
commercial office property market,
with active management by an
experienced asset manager.
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
• Openness and transparency
OUR CULTURE
• Constructive debate
• Integrity, reliability and good
• Collaborative atmosphere and
governance
• Collaboration
• Adapt and evolve
long-term relationships
• Ongoing dialogue and
engagement with stakeholders
• Openness, transparency and
integrity
For more details on the Company’s values, culture and strategy, please refer to pages 64 and 18, respectively.
Beeston Business Park, Nottingham
Financial Highlights
INCOME FOCUSED – OPPORTUNISTIC BUYING AND STRATEGIC
SELLING, COUPLED WITH INTENSIVE ASSET MANAGEMENT,
CONTINUES TO SECURE LONG-TERM INCOME
£732.4m
97.5p
PORTFOLIO VALUATION
IFRS NAV PER SHARE
98.6p
6.4p
EPRA NTA PER SHARE
DIVIDEND PER SHARE
40.8%
3.3%
NET LOAN TO VALUE RATIO*
WEIGHTED AVERAGE COST OF DEBT*
6.4yrs
WEIGHTED AVERAGE DEBT DURATION*
* Alternative Performance Measures. Details are provided in the Glossary of Terms on pages 144 and 145 and the EPRA
Performance Measures on pages 140 to 142.
CONTENTS
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
Going Concern
Viability Statement
Section 172 Statement
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
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
Property Related Capital
Expenditure Analysis
Glossary of Terms
AIFMD Disclosure
Company Information
Forthcoming Events
Shareholder Information
Dividend History
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18
24
29
42
44
47
58
58
59
62
64
68
70
76
77
88
92
94
96
104
105
106
107
108
140
141
143
144
146
147
148
148
149
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Overview
About Us
Headlines
At a Glance
A Year in Review
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Regional REIT Ltd | Annual Report and Accounts 2020
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
Limited, 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 predominantly
offices located in regional centres outside of the M25 motorway. The portfolio is geographically
diversified, with 153 properties, 1,245 units and 898 tenants as at 31 December 2020, with a
valuation of £732.4 million.
Regional REIT pursues its investment objective by investing in, actively managing and disposing
of regional Core Property and Core Plus Property assets. It aims to deliver an attractive total
return to its Shareholders, targeting greater than 10% per annum (“pa”), with a strong focus on
income supported by additional capital growth prospects.
For more information, visit the Group’s website: www.regionalreit.com.
European Public Real Estate
Association ("EPRA") Gold Award
In 2020, the Company was pleased to be recognised by EPRA for
a third consecutive year and be granted its second 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.
Global Reach, Cardiff
Global Reach, Cardiff
Overview
WHAT IS A REIT?
A real estate investment trust (“REIT”) is a
specialist tax-efficient investment vehicle
built around real property assets, 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, among a
number of conditions, 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 and its subsidiaries are a UK
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 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.
Beeston Business Park, Nottingham
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.
4
Beeston Business Park, Nottingham
Beeston Business Park, Nottingham
Beeston Business Park, Nottingham
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Regional REIT Ltd | Annual Report and Accounts 2020
HEADLINES
OPERATIONAL HIGHLIGHTS
Deliberately diversified portfolio by location and tenant – regions remain strong
153
Properties
1,245
Units
898
Occupiers
£64.2m
Rent roll
89.4%
Active management building
occupancy by EPRA ERV*
Office
Retail
Industrial
Other
Portfolio by region and
sector (by value)
Property acquisitions
(before costs)
Property disposal
proceeds (net of costs)
England & Wales: 82.7%
Office: 83.5%
£42.4 million
Number of properties: 5
£53.4 million
Number of properties: 12
WAULT
to expiry
5.1 years
WAULT
to first break
3.2 years
Overview
2 Lochside Avenue, Edinburgh
PERFORMANCE HIGHLIGHTS
The high dividend distributions are a major component of the total return
7.65
7.85
8.05
8.25
6.40
1.00
2015
2016
2017
2018
2019
2020
Dividends declared per share (pence)
EPRA
36.3%
6.2%
EPRA Total Return attributable
to Shareholders since Admission^*
EPRA Annual Total Return attributable
to Shareholders*
142.9
137.5
136.3
119.9
113.2
107.8
100.0
IPO Nov 2015
Dec 2015
Dec 2016
Dec 2017
Dec 2018
Dec 2019
Dec 2020
Total EPRA Return (from IPO) (EPRA NTA and dividend declared) (pence per share)
^ Admission: 6 November 2015.
Member of FTSE All-Share Index since March 2016.
Member of FTSE EPRA NAREIT UK Index since June 2016.
* Alternative Performance Measure. Details are provided in the Glossary of Terms on pages 144 and 145 and the
EPRA Performance Measures on pages 140 to 142.
* Alternative Performance Measure. Details are provided in the Glossary of Terms on pages 144 and 145 and the EPRA Performance Measures on pages 140 to 142.
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Regional REIT Ltd | Annual Report and Accounts 2020
AT A GLANCE
6.5p (17%)
89.4% (0%)
£53.3m (3%)
153 (4%)
898 (1%)
1,245 (0%)
2020
2019
6.5
2020
89.4
2020
53.3
7.8
2019
89.4
2019
55.0
2020
2019
153
2020
898
2020
160
2019
904
2019
EPRA-Eps-Adj* diluted (pence) (excluding performance fee)
EPRA Occupancy*(%)
Net Rental and Property Income (£million)
Number of Properties
Tenants
Units
6.4yrs (12%)
40.8% +5%
3.3% (6%)
£64.2m (0%)
3.2yrs (9%)
£10.44 +3%
2020
2019
6.4
2020
40.8
2020
3.3
7.3
2019
38.9
2019
3.5
2020
2019
64.2
2020
3.2
2020
64.3
2019
3.5
2019
WADD* (years)
Net LTV* (%)
WACD*(%)
Rent Roll (£million)
WAULT to First Break (years)
Average Rent (£ per square foot)
Overview
1,245
1,251
10.44
10.17
98.6p (12%)
£4.8m (3%)
£732.4m (7%)
102% +7%
6.4p (22%)
97.5p (13%)
2020
2019
98.6
2020
4.8
2020
732.4
112.6
2019
4.9
2019
787.9
2020
2019
102
2020
6.4
2020
97.5
95
2019
8.25
2019
112.1
EPRA NTA diluted* (pence per share)
Average Property Value (£million)
Value of the Investment Properties (£million)
EPRA Dividend Cover (%)
Dividend (pence per share)
IFRS NAV diluted (pence per share)
* Alternative Performance Measures. Details are provided in the Glossary of Terms on pages 144 and 145 and the EPRA Performance Measures on pages 140 to 142.
Terms are defined in the Glossary of Terms on pages 144 and 145.
Newstead Court, Nottingham
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Regional REIT Ltd | Annual Report and Accounts 2020
A YEAR IN REVIEW
Overview
Juniper Park, Basildon
2410 Aztec West, Bristol
Beeston Business Park, Nottingham
Building 2 & 3, The Oaks, Coventry
Waterside Business Park, Swansea
Global Reach, Cardiff
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KEY DISPOSALSAmount:Location:Description:Net initial yield:PORTFOLIOProperties:Units:Tenants:Valuation:Rent roll (per annum):EPRA occupancy (by ERV):LTV:CASH/DEBT/EQUITYCash balance:Gross borrowings:DIVIDENDSAmount:Period:30 Jun1511,249876£742.3m£62.9m89.0%39.7%30 Sep1501,239857£739.9m£62.4m88.6%39.3%26 Mar£30.7m26 Aug1.50pQ2 20208 Jun£6.3mCoventryOffice6.5%, reflecting an uplift of 8.6% above the Dec 2020 valuation3 Nov£8.4mCardiff1 office8.9%30 Sep£71.0m£361.7m12 Nov1.50pQ3 202027 Feb2.55pQ4 201921 May1.90pQ1 202031 Dec 20191601,251904£787.9m£64.3m 89.4%38.9%31 Mar1541,261882£783.6m£63.4m88.5%38.3%31 Dec1531,245898£732.4m£64.2m89.4%40.8%KEY ACQUISITIONSAmount:Location:Description:Net initial yield:31 Mar£69.0m£369.1m30 Jun£67.9m£362.7m9 Dec£16.4mNottinghamBusiness park10.1%5 Oct£10.2mSwansea & Bristol2 offices10.1%31 Dec£67.3m£366.2m2 Oct£32.7mBasildonMulti-let industrial warehouse and office parkReflects an uplift of 59.4% from the acquisition price of £20.1m, March 201631 Dec 2019£37.3m£344.0m 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
Going Concern
Viability Statement
Section 172 Statement
Management Arrangements
Other Information
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24
29
42
44
47
58
58
59
62
64
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Regional REIT Ltd | Annual Report and Accounts 2020
CHAIRMAN’S STATEMENT
The Chairman’s Statement together with the Asset and Investment Managers’ Report forms
part of the Strategic Report and covers the year ended 31 December 2020.
“We are confident that our geographically
diversified portfolio, which offers vibrant spaces
for a broad range of occupier types, will create
long term shareholder value with a strong yield,
particularly as we increasingly focus our strategy
towards the regional office sector.”
KEVIN MCGRATH
Chairman
OVERVIEW
Regional REIT performed relatively well
during 2020, despite the challenging and
unprecedented environment imposed by the
COVID-19 pandemic. Our strategy of having a
large number of occupiers operating across a
range of industries in growth regions outside
the M25 motorway has resulted in a defensive
portfolio. Our active asset management
team continued to maintain strong working
relationships with our 898 occupiers (2019:
904), providing support as required. These
actions have continued to underpin the
robust rent collections of 98.2%* (2019:
99.4%) and EPRA occupancy rate** of 89.4%
(2019: 89.4%), which the Company has
achieved during the year under review.
Whilst 2020 was an eventful year, the
Company’s rent collection remained strong
through-out and resulted in EPRA diluted
earnings of 6.5 pence per share (“pps”) (2019:
7.8pps). IFRS diluted losses per share were
7.2pps (2019: earnings per share of 6.6pps).
The full year 2020 dividend of 6.4pps was
fully covered.
* As at 12 March 2021, rent collections to 31 December 2020 amounted to 98.2%; actual rent collected 96.1%, monthly rents
0.5% and deals agreed of 1.6%.
** Alternative Performance Measures. Details are provided in the Glossary of Terms on pages 144 and 145 and the EPRA
Performance Measures on pages 140 to 142.
Ashby Park, Ashby De La Zouch
6.4pps Attractive
2020 Dividend
(2019: 8.25pps)
7.8% Attractive
Dividend Yield at
31 December 2020
Total EPRA Return
36.3% from inception
to 31 December 2020
Strategic Report
Our investment portfolio was not immune to the challenges posed
by the COVID-19 pandemic, with the overall value of the portfolio
reducing to £732.4 million as at 31 December 2020 from £787.9 million
as at 31 December 2019. The decrease was predominately due to the
uncertain economic backdrop resulting in a reduction in the fair value
of the portfolio of £54.8 million, albeit this was an ‘unrealised’ decline.
£732.4m Portfolio Valuation
During the year, the Group made disposals amounting to £53.4 million
(net of costs). The proceeds from these disposals were recycled into
acquiring properties with an aggregate value of £42.4 million (before
costs), further diversifying our occupier base, as well as providing good
opportunities to add value through asset management initiatives. Our
rolling capital expenditure programme amounted to £8.8 million.
Our priorities throughout the year were to maintain occupancy levels,
provide safe and vibrant spaces in which our occupiers could thrive
and increase our overall occupier and geographic diversification,
whilst continuing to source earning enhancing opportunities in the
challenging commercial property market.
COVID–19 RESPONSE
From the onset of the COVID-19 pandemic in early 2020, the Asset
Manager reassigned staff to focus upon supporting our occupiers and
prioritised cash flow. A full review of all our c. 900 occupiers’ financial
data was undertaken to ensure the best possible assistance could be
provided as required in a timely manner. In addition, increased control
reporting was instigated providing actionable data to maintain the robust
rent collection which ensured the uninterrupted quarterly dividend.
FINANCIAL RESOURCES
Importantly in the current environment, the Company continues
to be in a financially strong position with an EPRA NTA* of £425.6
million (2019: £485.7 million) and a cash balance of £67.4 million as
at 31 December 2020 (2019: £37.3 million), of which £55.0 million is
unrestricted (2019: £34.7 million). Our approach to debt management,
which is to simplify, extend and engineer flexibility into the debt profile,
has ensured that the Company was well positioned for the economic
turbulence encountered throughout 2020. These attributes remain
evident going forward with no need to refinance until 2024.
Furthermore, with net borrowings at 40.8%, which is in line with our
long-term target of c. 40%, and with our debt facilities maintaining
ample headroom against their respective covenants, the Company is in
a robust position to withstand any future economic uncertainty.
MARKET ENVIRONMENT
Lambert Smith Hampton2 research notes that 2020 total UK
commercial property investment amounted to £38.5 billion, which is
21.9% lower than the 2019 total of £49.3 billion. However, there are
signs that investment activity is increasing, with total UK investment in
the final quarter of 2020 reaching £12.2 billion, a marked improvement
of 50.6% on Q3 and only 5.0% below the five-year quarterly average.
The rise in activity in the final months of 2020 indicates renewed
confidence in the office market following fears regarding the impact
that working from home would have on occupational demand.
Cushman & Wakefield3 research highlights that many businesses have
now stated that offices remain important despite changing working
practices. More details can be found in the Asset Manager’s Report on
pages 25 to 28.
STRATEGY
As announced on 12 November 2020, the Board undertook an internal
strategic review of the Company’s investment objectives to ensure the
maximisation of total Shareholder’s returns.
The Board is convinced that the supply and demand imbalance of the
regional office sector, coupled with the Asset Manager's specialist
operating platform and experience, will produce attractive total
Shareholder returns over the long-term. For the foreseeable future, the
Board decided that the Company would focus its investment solely on
properties in the office sector in the main regional centres of the UK
outside of the M25 motorway.
The Company will in due course seek to exit all other commercial
property sector investments, including its industrial and remaining
retail assets, and promptly recycle the capital into regional offices,
whilst giving due consideration to reducing the borrowing facilities and
buying back the Company’s shares. This will ensure that the Group is
able to maximise its investment objectives of delivering an attractive
and sustainable income-focused total return to Shareholders over the
long-term.
2 Lambert Smith Hampton, UKIT Q4 2020.
3 Cushman & Wakefield, Office Market, Q4 2020.
Genesis Business Park, Woking
Annual investment in regional markets
amounted to £38.5bn in 2020
* In October 2019, EPRA issued new best practice recommendations that replaced EPRA net
asset value (NAV) with three new measures of net asset value. The Group has determined that
EPRA net tangible assets (NTA) is the most relevant measure hence this is now reported in
place of EPRA NAV. Prior year comparatives are stated under the new definition on EPRA NTA.
Further detail of the new EPRA performance measures can be found on pages 144 and 145
and reconciled to IFRS measures on pages 140 to 142.
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Regional REIT Ltd | Annual Report and Accounts 2020
CHAIRMAN’S STATEMENT continued
DIVIDENDS
The dividend is the major component of total shareholder returns.
Over the year under review, the Company declared total dividends
of 6.40pps for the year (2019: 8.25pps), comprising one dividend of
1.90pps and three quarterly dividends of 1.50pps each. This represented
a yield of 7.8% at a share price of 82.50pps at the close of 31 December
2020. Since inception, the Company has declared dividends amounting
to 39.20pps.
It should be highlighted that, looking ahead, there is a clear aspiration
by the Board to maintain its record of uninterrupted quarterly dividend
payments, especially through this period of continuing uncertainty. This
is predicated on the strength of the Company’s balance sheet and the
strong rent collections received throughout the year.
PERFORMANCE
Since Listing on 6 November 2015, the Company’s EPRA Total Return
was 36.3% and the annualised EPRA Total Return was 6.2%. The Total
Shareholder Return was 20.6%, compared to the FTSE EPRA NAREIT
UK Total Return Index, which has generated a return of (5.4%) over the
same period.
For the year under review, the Company’s Total Shareholder Return was
(20.7%), versus the return of (15.9%) for the FTSE EPRA NAREIT UK
Total Return Index over the same period.
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 EPRA Total Return in excess of an annual
hurdle rate of 8%. A performance fee did not crystallise for the period
from1 January 2020 to 31 December 2020 (2019: none). Further details
of the performance fee can be found on pages 62 and 63.
INTEGRATING A MORE SUSTAINABLE APPROACH
We were pleased to launch our commitment to a sustainability strategy
in 2020. The Group has always been cognisant of its environmental
impact, the importance of a transparent governance structure and its
social responsibility. However, the Company has now committed to
a more formal approach with the intention to join Global Real Estate
Sustainability Benchmark (“GRESB”) in 2021. This will be used as a
platform from which sustainability policies and actions will be built
upon over the coming years.
ANNUAL GENERAL MEETING
The Company had planned to hold its 2021 Annual General Meeting
(“AGM”) on Thursday, 19 May 2021. In light of the ongoing COVID-19
situation, in particular the compulsory stay at home measures
published by the UK Government on 4 January 2021 currently
prohibiting public gatherings of more than two people, the Board has
made the decision to delay the Company’s 2021 AGM until later in the
year with the hope that Shareholders will be able to attend in person.
Notice of a revised time and date for the 2021 AGM will be published
on our website and by RNS announcement as soon as practicable. The
notice of the AGM will be circulated to Shareholders in accordance with
the requirements of the Company’s Articles of Incorporation.
Strategic Report
SHAREHOLDER AND STAKEHOLDER ENGAGEMENT
Our priority throughout 2020 has pivoted from first and foremost
providing vibrant workspaces which are in demand by businesses, to
providing assistance to our occupiers to navigate the economic turmoil.
I would like to take this opportunity to thank all the asset management
teams, from the property management, research, legal, corporate
finance, finance to credit control, who transitioned to working
from home whilst seamlessly continuing to support our occupiers
throughout this challenging period.
On 3 November 2020, the Company was pleased to hold its first
capital markets webcast, which was well attended by current and
potential investors and stakeholders. The webcast of the event can be
found on the Company’s website at www.regionalreit.com/investors/
results-and-presentations/2020.
OUTLOOK
The Board continues to be encouraged by the robust level of rent
collections which support the investment property capital values and
the Company’s long-term total return prospects. For the remainder
of 2021, the Group is confident of maintaining high rent collections
and accelerating the momentum on the asset management initiatives,
which should continue to deliver income for our Shareholders.
We remain mindful of the challenges to be faced in a structurally
evolving property market, which will inevitably continue to be
impacted by the COVID-19 pandemic and the aftermath of Brexit.
However, our confidence for the long-term remains. It is underpinned
by the Group’s focus on asset management initiatives to promptly
recycle underperforming capital into office opportunities that continue
to de-risk the portfolio, whilst increasing the number, quality and
quantum of income streams.
KEVIN MCGRATH
Chairman
24 March 2021
www.regionalreit.com
Templeton on the Green, Glasgow
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Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
INVESTMENT STRATEGY AND BUSINESS MODEL
Investment
Strategy
The Group aims to build a portfolio of
interests that, together, offer Shareholders a
diversification of investment risk by investing
in a range of geographical areas and across a
number of high-quality 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
Objective
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 sector in
major regional centres and urban areas
outside of the M25 motorway*.
Investment
Policy
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%.
The Group will invest predominately in office 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.
No more than 20% of the Gross Investment Properties Value shall be
exposed to any one tenant or group undertaking of that tenant.
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.
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.
* The Investment Policy and Objective were amended on 26 October 2020.
The Group will invest in and, actively
manage, a portfolio of mainly office
properties or debt portfolios secured on
such properties located predominantly
in the regional centres of the UK
outside of the M25 motorway.
Business Model
Regions
primed for
growth
Opportunistic
approach to the
property market
Investing
in income
producing assets
Active
management of
the properties
Geographically
diversified
portfolio
Highly
experienced
asset manager
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Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
INVESTMENT STRATEGY AND BUSINESS MODEL continued
Read more about the Principal Risks and Uncertainties facing the Company on pages 47 to 57, which are linked to the Company’s strategy as set out
below.
PRINCIPAL RISKS AND UNCERTAINTIES:
Inappropriate investment strategy
Occupiers
Valuation
COVID-19
Financial and tax changes
Operational
Economic and political
Accounting, legal and regulatory
Funding
Environmental and efficiency standards
LINK TO PRINCIPAL RISKS
REGIONS PRIMED FOR GROWTH
Our approach
• The resilient regions are expected to benefit from capital inflows and the strong rebound of the UK economy, which should conflate to
ensure occupier demand for offices remains strong.
• Research from CBRE indicates that regional offices have outperformed in comparison to central London offices, delivering superior
income returns of 5.9% in 2020 in comparison to central London office returns of 4.1% – a trend that has been witnessed over the past
seven years. Total returns in 2020 for regional offices and central London were broadly in-line at 0.6% and 0.7%, respectively.
How we add value
• The investment policy focuses on a portfolio of offices located outside of the M25 motorway, broadly based on the region’s economic
worth and population mix.
• The Group seeks to enhance income growth and capital values through the proactive approach 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.
Progress during the year
• EPRA Total Return 36.3% since IPO and 6.2% annualised in 2020 (2019: 9.0%:).
LINK TO PRINCIPAL RISKS
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.
• 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.
• 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.
Progress during the year
• Completed acquisitions in 2020 totalled £42.4 million
(before costs) and disposals (net of costs) of £53.4
million, with average net initial yields of c. 9.8% and
c.5.1% respectively.
• During 2020, debt facility payments totalled £17.0
million, new borrowings were £39.2 million, resulting
in total borrowings of £366.2 million. The average
funding cost (including hedging) was 3.3% (2019:
3.5%).
LINK TO PRINCIPAL RISKS
INVESTING 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.
• Speculative development strictly limited to refurbishment
programmes.
Progress during the year
• Rent roll of £64.2 million as at 31 December 2020
(2019: £64.3 million).
• Average rents have increased to £10.44 per sq. ft.
(2019: £10.17 per sq. ft.).
• Declared dividends of 6.40pps for 2020 (8.25pps in 2019).
20
21
Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
INVESTMENT STRATEGY AND BUSINESS MODEL continued
LINK TO PRINCIPAL RISKS
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, ensuring an immediate understanding of
their requirements and enabling better decision-making
capability.
• The Asset Manager utilises a range of approaches to each
asset, tailoring the project programme for each property.
Progress during the year
• Net capital expenditure of £8.8 million in 2020 (2019:
£5.8 million); 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% (2019: 89.4%).
LINK TO PRINCIPAL RISKS
DIVERSIFIED INCOME FOCUSED 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 mainly offices, geographically well
spread across the regions of the UK outside of the M25
motorway and with a broad mix of tenants.
Progress during the year
• 153 properties (2019: 160), 1,245 units (2019: 1,251)
and 898 tenants (2019: 904) as at 31 December 2020.
• The largest single property is only 3.8% of the Gross
Investment Properties value (2019: 4.3%) and the
largest tenant only 3. 5% of Gross Rental Income
(2019: 2.5%).
• England & Wales represent 82.7% of the Gross
Investment Properties value (2019: 82.0%); office
83.5% and industrial 11.1% (2019: office 79.9%;
industrial 13.7%).
LINK TO PRINCIPAL RISKS
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. The senior
management team of the Asset Manager collectively have over 180 years of property
experience, with a proven record of creating value.
Progress during the year
• 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 62
employees employed, as at 31 December 2020, working on Regional REIT.
London & Scottish Property Investment Management
22
23
Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
ASSET AND INVESTMENT MANAGERS’ REPORT
“We are pleased to report that the Company
delivered a robust performance in 2020 despite the
impact of COVID-19 on all our daily lives and, in turn,
the commercial property market. Notwithstanding
the challenges presented, we continued to deliver
an uninterrupted quarterly dividend, ever mindful of
our commitment to our Shareholders.
I would like to take this opportunity to thank my
focused and hardworking team who adapted
and responded seamlessly to assist our occupiers
through this most challenging period. Responding
to occupiers’ needs prior to, and during, this period
was key to maintaining strong rent collection of
98.2%* over the course of 2020. As normal life
comes into sight, and indicators are anticipating a
prompt economic recovery, we view our regional
portfolio as well positioned to benefit.
Following the Board’s strategic review, we continue
to move the portfolio to focus on regional offices.
We are convinced that in future, regional, high
quality offices with affordable rents will continue
to see demand from occupiers and, given limited
supply, there remains a strong rental growth story.
We see a compelling opportunity to further leverage
the experience of our asset management platform
to unlock value from the regional office sector over
the long term, whilst continuing to deliver yield.”
STEPHEN INGLIS
CEO of London & Scottish Property Investment Management,
the Asset Manager of Regional REIT
* As at 12 March 2021, rent collections to 31 December 2020 amounted to 98.2%; actual rent collected 96.1%, monthly rents
0.5% and deals agreed of 1.6%.
24
HIGHLIGHTS FROM 2020
98.2%
Achieved high levels of rent collection. As at
12 March 2021, the rent collections continued
to strengthen, with FY 2020 collections
increasing to 96.1%, adjusting for monthly
rent and agreed collection plans, stands at
98.2%, which is similar to the equivalent date
in 2019 when 99.4% had been collected.
5.1%
9.8%
Disposals during 2020 totalled £53.4 million
(net of costs), reflecting an average net
initial yield of 5.1% (5.6% excluding vacant
properties).
Acquisitions in 2020 totalled £42.4 million
(before costs) for five properties, reflecting an
average net initial yield of 9.8%.
74.4%
Increase of retention of income to 74.4% (by
value) for leases that came up for renewal in
2020, up from 65.9% in December 2019.
53
Completed 53 new lettings in 2020,
totalling 177,883 sq. ft., which when fully
occupied will provide a gross rental income
of c.£2.0 million.
+2.6%
Average rent by let sq. ft. increased by 2.6%
from £10.17 per sq. ft. in December 2019 to
£10.44 per sq. ft. in December 2020.
INVESTMENT ACTIVITY IN THE UK COMMERCIAL PROPERTY MARKET
According to research from Lambert Smith Hampton (“LSH”)4 in 2020
total investment in the UK commercial property market amounted
to £38.5 billion, 24.9% below the five-year average and 21.9% lower
than the 2019 volume of £49.3 billion. However, there are signs that
investment activity is increasing, with total UK investment in the final
quarter of 2020 reaching £12.2 billion, a marked improvement of 50.6%
on Q3 and only 5.0% below the five-year quarterly average. The rise
in activity in the final months of 2020 indicates renewed confidence
in the office market following fears regarding the impact that working
from home would have on occupational demand. Cushman & Wakefield
research highlights that many businesses have now stated that offices
remain important despite changing working practices5.
Following muted investment at the beginning of 2020, the UK regions
outside of London attracted £4.5 billion in investment during the final
quarter of 2020 – just 1.6% below the five year quarterly average. This
brought investment in the second half of 2020 to £8.4 billion, 78.6%
higher than the first half of 2020. Annual investment in the regional
markets reached £13.0 billion in 2020. LSH research notes that the
improvement in investment volumes in Q4 2020 was reflected across
the majority of UK regions, with seven of the 11 regions recording a
volume higher than their respective five-year quarterly averages.
4 Lambert Smith Hampton, UKIT Q4 2020
5 Cushman & Wakefield, Office Market, Q4 2020
£732.4m
Investment
properties value
£64.2m
Rent roll
898
Occupiers
n
o
i
l
l
i
b
£
20
15
10
5
0
Columbus House, Coventry
All Property
Five-Year
Quarterly Average
% Quarterly Change
100
80
60
40
20
%
0
-20
-40
-60
-80
2016
Q1
2016
Q2
2016
Q3
2016
Q4
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
2019
Q4
2020
Q1
2020
Q2
2020
Q3
2020
Q4
Quarterly Investment Volumes
Figure 1: Lambert Smith Hampton Research (February 2021)
25
Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
ASSET AND INVESTMENT MANAGERS’ REPORT continued
ASSET AND INVESTMENT MANAGERS’ REPORT continued
Overseas investment in the UK property markets accounted for just over
half (52.8%) of total investment in 2020 according to data from LSH6.
LSH estimate that total overseas investment for 2020 reached £20.4
billion, 14.1% lower than the 10-year average. Overseas investment in
Q4 2020 reached £6.5 billion, more than double Q3’s level and 9.7%
higher than the five-year quarterly average, suggesting that struggles
with COVID-19 and Brexit uncertainty have been offset by favourable
exchange rates and attractive yields. Figures indicate that Europe, Far
East, Middle East and North America were all net investors in the final
quarter of 2020.
Research from CBRE7 indicates that regional offices have outperformed in
comparison to central London offices, delivering superior income returns
of 5.9% in 2020 in comparison to central London office returns of 4.1%
– a trend that has been witnessed over the past seven years. Total returns
in 2020 for regional offices and central London were broadly in-line at
0.6% and 0.7% respectively.
RENTAL GROWTH IN THE UK REGIONAL OFFICE MARKET
A lack of availability in the Big Nine regional markets has supported headline rents in 2020, though some rent free periods have moved out slightly,
according to research from Avison Young. The CBRE Monthly Index shows that rental value growth held up better for the rest of UK office markets
in the 12 months ended December 2020 with modest growth of 0.1%. Conversely, central London offices and all UK property rents have declined
by -1.2% and -2.5% respectively. Colliers International expects this trend to continue in 2021, estimating that average rents in the London office
market will see larger declines than the regional markets. However, their research suggests that the majority of rental decline will occur in the first
half of 2021, and the sector should stabilise in the second half of the year as workers return to the office following the vaccine rollout and easing of
UK Government restrictions.
7.8
6.4
6.2
6.4
5.9
5.8
5.9
3.9
3.2
3.3
3.7
3.8
3.8
4.1
Central London
Offices
Rest of UK
Offices
%
9
8
7
6
5
4
3
2
1
0
%
12
10
8
6
4
2
0
2
-4
All UK
Property
Central London
Offices
Rest of UK
Offices
Dec 2020, 0.1%
January
2014
January
2015
January
2016
January
2017
January
2018
January
2019
January
2020
2012
2013
2014
2015
2016
2017
2018
2019
2020
Central London & Regional Office Income Returns (12 months to December 2020)
Figure 2: CBRE (February 2021)
Rental Value Growth (vs previous 12 months)
Figure 5: CBRE (February 2021)
OCCUPATIONAL DEMAND IN THE UK REGIONAL OFFICE MARKET
Avison Young estimates that take-up of office space across nine
regional office markets8 totalled 5.6 million sq. ft. in 2020; 36.7%
below the level of take-up recorded in 2019, and 33.1% lower than the
10-year average. Both the city centre and out-of-town markets were
affected by COVID-19, with a decline in take-up volumes of 38.9%
and 32.6%, respectively. Occupational demand was driven by the
technology, media & telecoms sector, which accounted for the highest
proportion of take-up at 26% in 2020. Following the technology, media
& telecoms sector, the insurance & financial sector and the public
services, education & health sector accounted for the second and third
largest proportion of take-up in the regional cities, accounting for 18%
and 9% respectively.
According to Savills, there was a rise in availability for regional office
stock across nine regional UK markets9, with total availability rising by
18.9% in 2020 to 12.6 million sq. ft.. Despite the uptick in availability
and supply the total supply remains 11.3% below the 10-year average.
This marks the first year that supply of office stock has increased over
the last decade, having gradually fallen each year since 2009. The
overall vacancy rate for regional offices ticked upwards from 9.6% in
2019 to 11.4% in 2020 but remains 15.4% below the 10-year average10.
Furthermore, it is estimated that approximately 5.6 million sq. ft. of
office space is currently under construction in the Big Nine regional
markets, with Manchester, Glasgow and Bristol accounting for 29.9%,
24.4% and 11.1%, respectively. 49.4% of office buildings currently
under construction are already pre-let.
Portland Street, Manchester
10 year average
.
t
f
.
q
s
n
o
i
l
l
i
m
p
u
-
e
k
a
T
12
10
8
6
4
2
0
2009
2010
2011
2012
2013
2014
2015 2016 2017 2018 2019 2020
Regional Demand: Annual Office Take-Up
Figure 3: Avison Young (February 2021)
10 year average
.
t
f
.
q
s
n
o
i
l
l
i
m
y
l
p
p
u
S
20
18
16
14
12
10
8
6
4
2
0
FUTURE OFFICE DEMAND
Although the COVID-19 pandemic has forced the adoption of
alternative ways of working, it can be argued that the pandemic merely
accelerated changes that were already occurring in terms of both digital
transformation and flexible working. However, in accelerating the
working from home trend, the pandemic also highlighted its limitations
in terms of collaborative working, training and productivity, to name
a few. To date, there has been considerable speculation regarding the
future of the office. The office has long provided a place for concentrated
work and increasingly a place for collaboration, connection, innovation
and social interaction, and the desire for these characteristics has not
diminished. Research by JLL found that 70% of employees believe the
office environment is more conducive to team building and creative
collaboration, with 74% of respondents indicating that they were looking
forward to the opportunity to return to the office.
The Asset Manager believes that the office will continue to play a vital
role in working life and that, going forward, many occupiers will require
more space per employee as greater importance is placed on health and
wellbeing. The average office space per employee has reduced drastically
since the 1990s, with typical densities of just c.85 sq. ft. per employee11.
Therefore, de-densification of floorplates will likely take place as offices
are transformed to encourage teamworking, innovation and education.
Additionally, preferences for increased distance between workstations,
more private offices, more defined private space, and a reduction in hot
desking may result in increased demand for space12.
2009
2010
2011
2012
2013
2014
2015 2016 2017 2018 2019 2020
Portland Street, Manchester
Regional Supply: Annual Office Supply
Figure 4: Savills (February 2021)
11 WSP, Demand for Office Space
12 Brookfield Research, Gensler U.S. Work From Home Survey 2020.
6 Lambert Smith Hampton, UKIT, Q4 2020
7 CBRE Monthly Index, Q4 2020
8 Nine regional office markets mentioned by Avison Young includes: Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Liverpool, Manchester & Newcastle
9 Nine regional office markets mentioned by Savills includes: Aberdeen, Birmingham, Bristol, Cambridge, Cardiff, Edinburgh, Glasgow, Leeds & Manchester
10 Savills: The Regional Office Market Overview, Q4 2020
26
27
Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
REGIONAL REIT’S OFFICE ASSETS
EPRA occupancy of the Group’s regional offices rose to 88.6% (2019:
88.4%). A like-for-like comparison of the Group’s regional offices’ EPRA
occupancy, as at 31 December 2020 versus 31 December 2019, shows
occupancy of 88.0% (2019: 88.4%). WAULT to first break was 2.6 years
(2019: 3.0 years); like-for-like WAULT to first break of 2.5 years (2019:
3.0 years).
OCCUPIER DEMAND IN THE UK INDUSTRIAL MARKET
Take-up in the final quarter of 2020 reached 14.3 million sq. ft., pushing
annual take-up during 2020 to 50.4 million sq. ft.; a 49.7% increase
from 2019 levels, 44.8% above the 10-year average and 35.8% above
the five-year average13. The increase in take-up throughout 2020
resulted in a 14% fall in availability, with some regions now met with
growing shortages of suitable supply. CBRE14 research shows that
49.4% of take-up was within the East Midlands and South East as
the M1 corridor remains the most attractive location for occupiers.
Following this, Yorkshire & North East, and West Midlands accounted
for 20.5% and 13.7% of take-up in 2020, respectively.
Occupier demand within the industrial market continues to benefit
from growth in online shopping, as online retailing currently accounts
for 35.2% of total retail sales in the UK, according to the Office for
National Statistics (“ONS”)15. This is considerably higher than the
19.5% recorded in January 2020. BNP Paribas Real Estate research
shows that online retailers were the most active in terms of take-up
throughout 2020, accounting for 37.5% of annual take-up. Following
this, 3PL/ Distribution and General Retail accounted for 22.4% and
18.5% of take-up in 2020 respectively16.
In terms of development, 8.2 million sq. ft. of speculative development
was delivered in 2020. Cushman & Wakefield highlight that just under
six million sq. ft of committed speculative development is due to be
delivered in 2021 across 43 units.
RENTAL GROWTH IN THE INDUSTRIAL MARKET
Research by BNP Paribas Real Estate illustrates that competition for
industrial space led to rental growth in 2020. The research compared
data from the monthly MSCI Index for December 2020, which showed
rental growth of 2.3% for the 12 months to the end of December 2020,
compared to a 2.3% decline for all property types. BNP Paribas Real
Estate estimates that rental growth in the industrial market is likely to
remain positive during 202117.
The Investment Property Forum UK Consensus Forecast, November
2020, anticipates rental growth in the industrial sector of 1.0% in
2021, providing evidence of sustained growth. Additionally, the IPF
UK Consensus Forecast predicts 2.2% and 1.8% average rental growth
rates respectively for 2022 and 2020/24. In comparison, the IPF UK
Consensus Forecast predicts that there will be a decline for the All
Property average rents in 2021 of 2.8%.
REGIONAL REIT’S INDUSTRIAL ASSETS
EPRA occupancy of the Group’s industrial sites was 94.6% (2019:
95.5%). A like-for-like comparison of the Group’s industrial offices’
EPRA occupancy, 31 December 2020 versus 31 December 2019, shows
occupancy of 93.4% (2019: 94.5%). WAULT to first break increased
to 6.2 years (2019: 5.8 years); like-for-like WAULT to first break of 6.7
years (2019: 7.2 years).
PROPERTY PORTFOLIO
As at 31 December 2020, the Group’s property portfolio
was valued at £732.4 million (2019: £787.9 million), with
rent roll of £64.2 million (2019: £64.3 million) and an
EPRA occupancy of 89.4% (2019: 89.4%).
On a like-for-like basis, 31 December 2020 versus
31 December 2019, EPRA occupancy was 88.7% (2019:
89.0%).
There were 153 properties (2019: 160) in the portfolio,
with 1,245 units (2019: 1,251) and 898 tenants (2019:
904). If the portfolio was fully occupied at Cushman &
Wakefield’s view of market rents, the rental income would
be £76.6 million per annum as at 31 December 2020
(2019: £77.2 million).
As at 31 December 2020, the net initial yield on the
portfolio was 6.9% (2019: 6.2%), the equivalent yield was
8.8% (2019: 8.3%) and the reversionary yield was 9.4%
(2019: 9.1%).
PROPERTY PORTFOLIO BY SECTOR
£732.4m
Investment
properties value
£64.2m
Rent roll
898
Occupiers
13 Cushman & Wakefield, Industrial Marketbeat Q4 2020
14 CBRE, Market Summary, Q4 2020
15 ONS, Retail Sales, Great Britain, January 2021
16 BNP Paribas, Industrial & Logistics Insider, Q4 2020
17 Industrial & Logistics Insider Q4 2020
Sector
Office
Industrial
Retail
Other
Total
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)
115
16
20
2
611.2
83.5
81.3
30.0
9.9
11.1
4.1
1.3
153
732.4
100.0
4.7
1.9
0.4
0.1
7.2
88.6
94.6
93.1
89.0
89.4
2.6
6.2
3.7
14.8
3.2
52.9
13.26
64.5 129.10
6.6
3.9
0.9
3.90
9.58
12.82
7.4
3.9
0.8
42.87
67.41
115.03
64.2
10.44 76.6 102.26
6.9
Net
initial
yield
(%)
6.8
7.0
9.9
7.8
Equivalent
yield
(%)
Reversionary
yield
(%)
8.8
8.1
10.8
9.9
8.8
9.6
8.0
11.2
7.3
9.4
PROPERTY PORTFOLIO BY REGION
Sector
Properties
Valuation
(£m)
% by
valuation
Sq. ft.
(mil)
Occupancy
(EPRA)
(%)
WAULT
to first
break
(yrs)
Gross
rental
income
(£m)
Scotland
South East
North East
Midlands
North West
South West
Wales
Total
39
31
20
28
16
14
5
127.0
184.6
79.8
139.9
88.9
80.2
32.0
17.3
25.2
10.9
19.1
12.1
11.0
4.4
153
732.4
100.0
1.5
1.3
0.9
1.5
1.0
0.5
0.4
7.2
86.7
87.5
85.8
93.6
86.9
96.8
93.1
89.4
3.6
2.5
2.7
3.4
4.6
2.4
4.6
3.2
* Tables may not sum due to rounding
Average
rent
(£psf)
ERV
(£m)
Capital
rate
(£psf)
10.42
15.0
85.19
13.29
18.5 138.64
8.81
8.85
8.36
15.87
9.28
8.4
87.72
13.7
91.80
9.6
8.0
3.4
87.89
160.59
81.02
13.1
14.9
6.8
12.6
6.6
7.0
3.2
64.2
10.44 76.6 102.26
Net
initial
yield
(%)
Equivalent
yield
(%)
Reversionary
yield
(%)
8.4
6.3
5.9
7.7
5.5
6.7
8.8
6.9
10.1
8.2
9.4
8.4
9.1
8.3
9.0
8.8
10.8
8.9
9.9
8.9
9.4
9.1
9.4
9.4
28
29
Buildings 2 & 3
HBOS Campus,
Aylesbury
Hampshire
Corporate Park,
Eastleigh
800 Aztec West,
Bristol
Norfolk House,
Smallbrook
Queensway,
Birmingham
Road 4 Winsford
Industrial Estate,
Winsford
One & Two
Newstead Court,
Nottingham
Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
ASSET AND INVESTMENT MANAGERS’ REPORT continued
TOP 15 INVESTMENTS (MARKET VALUE) AS AT 31 DECEMBER 2020
TOP 15 TENANTS (SHARE OF RENTAL INCOME) AS AT 31 DECEMBER 2020
Property
Sector
Anchor tenants
Tay House, Glasgow Office
Barclays Execution Services Ltd,
University of Glasgow
Genesis Business
Park, Woking
Office
Nuvias (UK & Ireland) Ltd, Fernox Ltd,
McCarthy & Stone Retirement Lifestyles
Ltd, Walk The Walk Worldwide
Market
value
(£million)
% of
portfolio
Lettable
area
(Sq. Ft.)
EPRA
Occupancy
(%)
Annualised
gross rent
(£million)
% of gross
rental
income
WAULT to
first break
(years)
28.0
3.8
156,853
94.2
2.7
4.2
2.0
23.9
3.3
98,359
80.6
1.3
2.1
3.1
Office
Bank Of Scotland Plc, Utmost Life and
Pensions Ltd, Agria Pet Insurance Ltd
23.5
3.2
140,791
95.7
2.3
3.5
2.4
Tenant
Property
Sector
WAULT to
first break
(years)
Lettable area
(Sq. Ft.)
Annualised
gross rent
(£million)
% of Gross
rental income
Barclays Execution
Services Ltd
Tay House, Glasgow
Waterfront Business Park, Fleet
Administrative and support
service activities
0.8
108,386
2.2
Secretary of State for
Communities & Local
Government
1 Burgage Square, Wakefield
Bennett House, Stoke-On-Trent
Cromwell House, Tritton Road, Lincoln
Norfolk House, Birmingham
Oakland House, Manchester
Waterside Business Park, Swansea
Public sector
2.4
173,735
2
Office
Office
Office
Aviva Central Services UK Ltd, National
Westminster Bank Plc, Utilita Energy
Ltd, Digital Wholesale Solutions Ltd
Edvance SAS, The Secretary of State
for Defence
Secretary of State for Communities &
Local Government, Spark44 Ltd
19.5
2.7
85,422
99.8
1.5
2.4
2.6
Bank Of Scotland Plc
Buildings 3 HBOS Campus, Aylesbury
High Street/Bank Street, Dumfries
Banking
1.4
92,978
1.5
19.2
2.6
73,292
100.0
1.5
2.4
2.6
E.ON UK Plc
One & Two Newstead Court,
Nottingham
Electricity, gas, steam and air
conditioning supply
2.9
146,262
1.4
18.9
2.6
114,982
97.4
1.6
2.5
1.7
TUI Northern Europe Ltd
Columbus House, Coventry
Professional, scientific and
technical activities
3.0
53,253
1.4
Beeston Business
Park, Nottingham
Office/
Industrial
Metropolitan Housing Trust Ltd, SMS
Electronics Ltd, Worldwide Clinical
Trials Ltd, Heart Internet Ltd
18.0
2.5
215,330
100.0
1.8
2.8
6.3
Industrial
Jiffy Packaging Ltd
16.3
2.2
246,209
100.0
1.0
1.6
13.8
Jiffy Packaging Ltd
Road 4 Winsford Industrial Estate,
Winsford
Manufacturing
13.8
246,209
1.0
The Scottish Ministers
Calton House, Edinburgh
Quadrant House, Dundee
Templeton On The Green, Glasgow
The Courtyard, Falkirk
Public sector
1.6
111,076
1.3
Office
E.ON UK Plc
15.7
2.1
146,262
100.0
1.4
2.2
2.9
Portland Street,
Manchester
Office
Darwin Loan Solutions Ltd,
New College Manchester Ltd,
Mott MacDonald Ltd, Simard Ltd
15.1
2.1
55,787
98.8
0.9
1.5
3.1
Ashby Park, Ashby
De La Zouch
Office
Ceva Logistics Ltd, Brush Electrical
Machines Ltd, Hill Rom UK Ltd
12.6
1.7
91,034
100.0
1.1
Columbus House,
Coventry
Office
TUI Northern Europe Ltd (Shell Energy)
12.0
1.6
53,253
100.0
1.4
Templeton On The
Green, Glasgow
Office
The Scottish Ministers, The Scottish
Sports Council, Heidi Beers Ltd,
Cornerstone Community Care
11.7
1.6
142,512
89.9
1.2
1.8
2.1
1.9
2.7
3.0
3.4
Oakland House,
Manchester
Office
Please Hold (UK) Ltd, HSS Hire Service
Group Ltd, CVS (Commercial Valuers &
Surveyors) Ltd, Rentsmart Ltd
10.8
1.5
160,975
88.1
1.1
1.8
2.9
Edvance SAS
800 Aztec West, Bristol
Electricity, gas, steam and air
conditioning supply
2.4
41,285
0.9
John Menzies Plc
2 Lochside Avenue, Edinburgh
Professional, scientific and
technical activities
2.6
43,780
0.9
The Royal Bank Of
Scotland Plc
Cyan Building, Rotherham
Banking
0.5
67,458
0.9
SPD Development Co Ltd
Clearblue Innovation Centre, Bedford
Professional, scientific and
technical activities
4.8
58,167
0.8
Aviva Central Services
UK Ltd
Hampshire Corporate Park, Chilworth
House, Eastleigh
Other service activities
3.9
42,612
0.8
James Howden &
Company Ltd
Howden Site, Renfrew
Manufacturing
4.1
204,414
0.8
Odeon Cinemas Ltd
Kingscourt Leisure Complex, Dundee
Information and communication
14.8
41,542
0.7
0.6
Chancellor Court,
Leeds
Office
St James's Place Wealth Management
Group Plc
10.1
1.4
41,666
99.0
0.3
0.5
0.8
The Secretary of State for
Defence
800 Aztec West, Bristol
Public sector
3.0
32,007
Total
* Tables may not sum due to rounding
30
255.2
34.8
1,822,727
95.5
21.3
33.2
3.4
Total
3.5
1,463,164
17.3
26.9
* Tables may not sum due to rounding
31
3.5
3.2
2.3
2.2
2.1
2.1
1.6
1.4
1.4
1.3
1.3
1.2
1.2
1.1
1.0
Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
ASSET AND INVESTMENT MANAGERS’ REPORT continued
PROPERTY PORTFOLIO SECTOR AND REGION SPLITS BY VALUATION AND INCOME
By Valuation
As at 31 December 2020, 83.5% (2019: 79.9%) of the portfolio by
market value was offices and 11.1% (2019: 13.7%) was industrial.
The balance was made up of retail, 4.1% (2019: 5.0%) and other,
1.3% (2019: 1.4%). By UK region, as at 31 December 2020, Scotland
represented 17.3% (2019: 18.0%) of the portfolio and England 78.3%
(2019: 79.5%); the balance of 4.4% (2019: 2.5%) was in Wales. In
England, the largest regions were the South East, the Midlands and the
North West.
By Income
As at 31 December 2020, 82.3% (2019: 79.7%) of the portfolio by
income was offices and 10.3% (2019: 12.4%) was industrial. The
balance was made up of retail, 6.0% (2019: 6.7%), and other, 1.3%
(2019: 1.2%). By UK region, as at 31 December 2020, Scotland
represented 20.4% (2019: 19.9%) of the portfolio and England 74.6%
(2019: 77.2%); the balance of 5.0% was in Wales (2019: 2.9%). In
England, the largest regions were the South East, the Midlands and the
South West.
LEASE EXPIRY PROFILE
The WAULT on the portfolio is 5.1 years (2019: 5.5 years); WAULT to first
break is 3.2 years (2019: 3.5 years). As at 31 December 2020, 14.2% (2019:
5.5%) of income was from leases, which will expire within one year,
9.1% (2019: 14.2%) between one and two years, 35.8% (2019: 33.0%)
between two and five years and 40.9% (2019: 47.4%) after five years.
1.3%
4.1%
11.1%
(cid:31)(cid:30)Office
(cid:31)(cid:30)Industrial
(cid:31)(cid:30)Retail
(cid:31)(cid:30)Other
1.3%
6.0%
10.3%
(cid:31)(cid:30)Office
(cid:31)(cid:30)Industrial
(cid:31)(cid:30)Retail
(cid:31)(cid:30)Other
83.5%
82.3%
Sector Split by Valuation
Sector Split by Income
4.4%
10.9%
25.2%
5.0%
10.4%
23.2%
11.0%
12.1%
(cid:31)(cid:30)South East
(cid:31)(cid:30)Midlands
(cid:31)(cid:30)Scotland
(cid:31)(cid:30)North West
(cid:31)(cid:30)South West
(cid:31)(cid:30)North East
(cid:31)(cid:30)Wales
10.5%
10.9%
(cid:31)(cid:30)South East
(cid:31)(cid:30)Scotland
(cid:31)(cid:30)Midlands
(cid:31)(cid:30)South West
(cid:31)(cid:30)North East
(cid:31)(cid:30)North West
(cid:31)(cid:30)Wales
19.1%
20.4%
17.3%
19.6%
Regional Split by Valuation
Regional Split by Income
Source: LSPIM. Charts may not sum due to rounding.
32
40.9%
(cid:31)(cid:30)0-1 years
(cid:31)(cid:30)1-2 years
(cid:31)(cid:30)2-5 years
(cid:31)(cid:30)5+ years
14.2%
9.1%
35.8%
Lease Expiry Income Profile
)
m
£
(
e
m
o
c
n
I
l
a
t
n
e
R
10
8
6
4
2
0
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030+
Lease Expiry Income Profile by year
Source: LSPIM
)
m
£
(
e
m
o
c
n
I
l
a
t
n
e
R
18
16
14
12
10
8
6
4
2
0
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030+
Lease Expiry to First Break Income Profile by Year
Source: LSPIM. Charts may not sum due to rounding.
Source: LSPIM
33
Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
ASSET AND INVESTMENT MANAGERS’ REPORT continued
ASSET AND INVESTMENT MANAGERS’ REPORT continued
0
2
0
2
R
E
B
M
E
C
E
D
1
3
T
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S
A
S
N
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Office
Retail
Industrial
Other
TENANTS BY STANDARD INDUSTRIAL CLASSIFICATION AS AT 31 DECEMBER 2020
As at 31 December 2020, 13.5% of income was from tenants in the professional, scientific and technical activities sector (2019: 13.0%), 12.9% from
the administrative and support service activities sector (2019: 12.0%), 10.3% from the manufacturing sector (2019: 8.7%), 8.8% from the public
sector (2019: 8.4%) and 8.4% from the financial and insurance activities (other) sector (2019: 7.2%). The remaining exposure is broadly spread.
No tenant represents more than 4% of the Group’s rent roll as at 31 December 2020, the largest being 3.5% (2019: 2.5%).
14.9%
13.5%
2.6%
3.4%
4.2%
5.3%
7.3%
12.9%
10.3%
8.3%
8.4%
8.8%
Tenants by SIC Codes (% of gross rent)
Chart may not sum due to rounding.
(cid:31)(cid:30)Professional, scientific and technical activities
(cid:31)(cid:30)Administrative and support service activities
(cid:31)(cid:30)Manufacturing
(cid:31)(cid:30)Public Sector
(cid:31)(cid:30)Financial and insurance activities (Other)
(cid:31)(cid:30)Information and communication
(cid:31)(cid:30)Wholesale and retail trade
(cid:31)(cid:30)Banking
(cid:31)(cid:30)Electricity, gas, steam and air conditioning supply
(cid:31)(cid:30)Other service activities
(cid:31)(cid:30)Human health and social work activities
(cid:31)(cid:30)Other
* Other – Accommodation and food service activities, activities of extraterritorial organisations and bodies, arts, entertainment and recreation, charity, construction, education, mining and quarrying,
not specified, public administration and defence; compulsory social security. real estate activities, registered Society, residential, sole trader, transportation and storage, water supply, sewerage, waste
management and remediation activities, and motorcycles.
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35
Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
ASSET AND INVESTMENT MANAGERS’ REPORT continued
s
e
i
t
r
e
p
o
r
P
5
1
p
o
T
36
s
e
i
t
r
e
p
o
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5
1
p
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Sector: Office
Sector: Office
Sector: Office
Sector: Office
Sector: Office
13
1
15
10
14
8
7
9
11
6
12
5
2
3
4
1. Tay House, Glasgow
Market value
£28.0m £2.7m
Annualised gross rent
Lettable area
156,853sq. ft 94.2%
EPRA Occupancy
Anchor Tenants: Barclays Execution Services Ltd, University of Glasgow
WAULT (to first break): 5.4 (2.0) years
Landmark Grade A office building offering column free floor plates of 10,000 – 30,000 sq. ft. in Glasgow’s city
centre. The building underwent an extensive refurbishment during 2008-10 and, in 2016, the first and second floors
were comprehensively refurbished.
2. Genesis Business Park, Woking
Market value
£23.9m £1.3m
Annualised gross rent
Lettable area
98,359sq. ft
EPRA Occupancy
80.6%
Anchor Tenants: Nuvias (UK & Ireland) Ltd, Fernox Ltd, McCarthy & Stone Retirement Lifestyles Ltd, Walk The Walk
Worldwide
WAULT (to first break): 6.5 (3.1) years
Business park consisting of eight detached buildings extending in total to 98,359 sq. ft.. Genesis is the premier out
of town office park situated approximately one mile from Woking’s town centre. It is located within the south west
quadrant of London's M25 commuter belt, within five miles of Junction 11.
3. Buildings 2 & 3 HBOS Campus, Aylesbury
Market value
Annualised gross rent
£23.5m £2.3m
Lettable area
140,791sq. ft 95.7%
EPRA Occupancy
Anchor Tenants: Bank Of Scotland Plc, Utmost Life and Pensions Ltd, Agria Pet Insurance Ltd
WAULT (to first break): 3.2 (2.4) years
Campus of two buildings, including the “Blue Leanie”, acquired in March 2016 as part of the larger Rainbow
Portfolio. The campus development is situated on the south east corner of the town centre. The property is located
approximately 44 miles northwest of central London, 23 miles from Oxford and 15 miles south of Milton Keynes. The
property has recently been rebranded as Bear Brook Office Park to appeal to a wider range of potential occupiers.
4. Hampshire Corporate Park, Eastleigh
Market value
£19.5m £1.5m
Annualised gross rent
Lettable area
85,422sq. ft
EPRA Occupancy
99.8%
Anchor Tenants: Aviva Central Services UK Ltd, National Westminster Bank Plc, Utilita Energy Ltd, Digital Wholesale Solutions Ltd
WAULT (to first break): 6.5 (2.6) years
Acquired in January 2015, two office buildings named Chilworth House and Hampshire House. The offices are within one of
Chandler’s Ford’s most prestigious office parks on the south coast. Since acquisition, Hampshire House has undergone an interior
and exterior refurbishment as part of the Company’s capital expenditure programme. The offices benefit from excellent transport
links with Junctions 13 and 14 of the M3 motorway and Junction 5 of the M27 motorway. Southampton International Airport is
approximately two miles away and train stations are available in Eastleigh, Southampton Parkway and Chandler’s Ford.
5. 800 Aztec West, Bristol
Market value
£19.2m £1.5m
Annualised gross rent
Lettable area
73,292sq. ft
EPRA Occupancy
100.0%
Anchor Tenants: Edvance SAS, The Secretary of State for Defence
WAULT (to first break): 7.8 (2.6) years
Acquired vacant in January 2016 as part of the Rainbow Portfolio. This property consists of 73,292 sq. ft. of office
space consisting of the ground floor and two upper floors with 330 parking spaces on a premier out of town business
park to the north west of Bristol’s city centre. The property is located within close proximity of the M5 motorway.
The building underwent remodelling and refurbishment resulting in revised approach, frontage, and foyer, opening
up of floor plates, creation of roof terrace, replacement of all cladding/glazing and replacement of M & E resulting in
an EPC improvement from an E to a B energy rating.
37
Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
ASSET AND INVESTMENT MANAGERS’ REPORT continued
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Sector: Office
Sector: Office
Sector: Office/Industrial
Sector: Industrial
6. Norfolk House, Birmingham
Market value
£18.9m £1.6m
Annualised gross rent
Lettable area
114,982sq. ft 97.4%
EPRA Occupancy
Anchor Tenants: Secretary of State for Communities & Local Government, Spark44 Ltd
WAULT (to first break): 3.4 (1.7) years
Acquired in February 2019, Norfolk House occupies a 0.52-acre island site in the centre of Birmingham in close
proximity to Birmingham New Street Train Station and adjacent to the Bullring Shopping Centre. The building is
split over six floors with 12 retail units on the ground floor level totalling 26,099 sq. ft. and 88,883 sq. ft. of office
accommodation on the ground floor and above.
7. Beeston Business Park, Nottingham
Market value
£18.0m £1.8m
Annualised gross rent
Lettable area
215,330sq. ft 100.0%
EPRA Occupancy
Anchor Tenants: Metropolitan Housing Trust Ltd, SMS Electronics Ltd, Worldwide Clinical Trials Ltd, Heart Internet Ltd
WAULT (to first break): 9.2 (6.3) years
Acquired in December 2020, Beeston Business Park is located four miles south west of Nottingham’s city centre in a
prominent location, adjoining Beeston Train Station, offering direct connectivity to London St Pancras International.
The park comprises 215,330 sq. ft. across one multi-let office building, three single let industrial buildings, a vacant
development plot and sporting fields on a total site area of 26.53 acres. The property is fully let.
8. Road Four, Winsford Industrial Estate, Winsford
Market value
£16.3m £1.0m
Lettable area
246,209sq. ft 100.0%
Annualised gross rent
EPRA Occupancy
s
e
i
t
r
e
p
o
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P
5
1
p
o
T
Sector: Office
Sector: Office
11. Ashby Park, Ashby De La Zouch
Market value
£12.6m £1.1m
Annualised gross rent
Lettable area
91,034sq. ft
EPRA Occupancy
100.0%
Anchor Tenants: Ceva Logistics Ltd, Brush Electrical Machines Ltd, Hill Rom UK Ltd
WAULT (to first break): 2.7 (2.7) years
Acquired in March 2017 from The Conygar Investment Company PLC as part of a larger property portfolio, the
property comprises of three detached office buildings constructed in the mid 1990’s, with a combined floor area of
91,034 sq. ft. of space. The property is fully let to five occupiers. The location has excellent motorway access. East
Midlands Airport is eight miles to the north. The nearest railway station is Burton Upon Trent.
12. Columbus House, Coventry
Market value
£12.0m £1.4m
Annualised gross rent
Anchor Tenants: TUI Northern Europe Ltd (Shell Energy)
WAULT (to first break): 3.0 (3.0) years
Lettable area
53,253sq. ft
EPRA Occupancy
100.0%
Acquired in August 2014. A high specification purpose-built HQ style building in an established and popular
business park let on a long-term FRI lease to Tui who have sub-let the entire space to First Utility that provides an
underpinning to the rent. The property comprises a purpose-built office building of masonry construction, arranged
over three floors. The property is located on Westwood Way, with great transport links to the city and close to the
A45, north & southbound.
13. Templeton on the Green, Glasgow
Market value
£11.7m £1.2m
Annualised gross rent
Lettable area
142,512sq. ft 89.9%
EPRA Occupancy
Anchor Tenants: Jiffy Packaging Ltd
WAULT (to first break): 13.8 (13.8) years
Acquired in August 2014. Let to Jiffy Packaging until 2034, 246,209 sq. ft. industrial asset providing combination
of high bay warehouse space, stand-alone industrial unit, offices, yard and car parking. The industrial estate is
located on road four in Winsford with the A54 providing access to the M6 motorway. Winsford Railway Station is
approximately 0.54 miles from the industrial estate.
Sector: Office
Anchor Tenants: The Scottish Ministers, The Scottish Sports Council, Heidi Beers Ltd, Cornerstone Community Care
WAULT (to first break): 6.6 (3.4) years
Acquired in 2013, the property comprises of a former landmark factory building of traditional brick construction
which consists of five buildings offering a varied range of unit sizes. The property is located on Glasgow Green, just
off London Road, which is a main thoroughfare to the east of Glasgow’s city centre, providing excellent access to
local bus routes and train network via the adjacent Bridgeton station.
9. One & Two Newstead Court, Nottingham
Market value
Annualised gross rent
£15.7m £1.4m
Lettable area
146,262sq. ft 100.0%
EPRA Occupancy
14. Oakland House, Manchester
Market value
£10.8m £1.1m
Annualised gross rent
Lettable area
160,975sq. ft 88.1%
EPRA Occupancy
Anchor Tenants: E.ON UK Plc
WAULT (to first break): 4.6 (2.9) years
Sector: Office
Sector: Office
Acquired from receivership in May 2014. Two modern, high quality large office pavilions let to E.ON on an
established business park, located north of Nottingham. Road connections are accessed at Junction 27 of the M1
motorway via the A608, providing links to the UK National Motorway Network. The nearest railway station is
Nottingham.
Sector: Office
10. Portland Street, Manchester
Market value
£15.1m
Annualised gross rent
£0.9m
Lettable area
55,787sq. ft
EPRA Occupancy
98.8%
Sector: Office
Sector: Office
38
Anchor Tenants: Darwin Loan Solutions Ltd, New College Manchester Ltd, Mott MacDonald Ltd, Simard Ltd
WAULT (to first break): 5.2 (3.1) years
Acquired from receivership in December 2013. Refurbished vacant modern offices behind a retained listed façade
consisting of the ground floor and six upper floors extending to 55,787 sq. ft.. Since acquisition, c. £1m has been
spent on remedial works. Following successful completion of works, the building re-launched into letting market.
The property is located on Portland Street at the junction with Piccadilly. The property is at the epicentre of
Manchester's transport infrastructure with adjacent access to the Piccadilly Gardens Bus Station and Metrolink tram
and bus station whilst Piccadilly Railway Station is within close proximity.
Sector: Office
Anchor Tenants: Please Hold (UK) Ltd, HSS Hire Service Group Ltd, CVS (Commercial Valuers & Surveyors) Ltd,
Rentsmart Ltd
WAULT (to first break): 4.2 (2.9) years
Acquired in March 2016 as part of the larger Wing Portfolio, a 15-storey office block which is prominently located on
Talbot Road, one of the main arterial routes in the Old Trafford area of Manchester. The property offers easy access
to the city centre with two Metrolink stops within a short walk. Additionally, both the M60 and M602 motorways
are within a short distance.
15. Chancellor Court, Leeds
Market value
£10.1m
Annualised gross rent
£0.3m
Lettable area
41,666sq. ft
EPRA Occupancy
99.0%
Anchor Tenants: St James's Place Wealth Management Group Plc
WAULT (to first break): 0.8 (0.8) years
Two self-contained office buildings with combined floor area of 41,666 sq. ft.. Currently being extensively
refurbished in order to reposition the property in the local market, the property will shortly be rebranded as The
Coachworks. The property comprises two detached office buildings of brick construction arranged over four floors.
The property is located on The Calls at its junction with Crown Street, in the south western fringes of Leeds’s city
centre. The property lies within close proximity to Leeds’s Railway Station.
39
Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
ASSET AND INVESTMENT MANAGERS’ REPORT continued
OUR APPROACH TO CORPORATE SOCIAL RESPONSIBILITY
The Company’s belief in the importance of sustainability, which
encompasses environmental, social and governance (“ESG”), has
guided its transactional activity since inception and is increasingly
inculcated in its activities. The importance of ESG may have grown over
recent years however, the Company’s view has always been to approach
transactions and our operational activities by seeking to minimise any
negative impacts upon the environment and society as a whole.
The Company has committed to a more formal sustainability approach
with the intention to join GRESB in 2021. This is to be achieved with
the guidance and assistance of an external sustainability consultant.
The Company will use GRESB as a platform from which sustainability
policies and actions can be built upon over the coming years to unlock
sustainable value to the benefit of both the greater community and the
Company’s stakeholders.
Occupier Survey
During 2020, the Company’s occupiers took part in a survey designed
by the Asset Manager. The objective of the survey was firstly, to gain
a greater insight and understanding of their requirements during a
challenging period and if any likely changes were envisaged in the
foreseeable future. Secondly, it sought an understanding of how the
Asset Manager’s assistance to navigate both the UK Government
COVID-19 financial and stay at home measures had been received.
The survey captured both quantitative and qualitative responses
providing both actionable responses and an understanding of occupiers’
future requirements. Following the success of the survey, future
surveys are likely to be scheduled, maintaining another channel of
communication with the occupiers. An overview of the survey was
included in the Company’s Capital Markets Event presentation held on
the 3 November 2020, which is available on the Company’s website at
www.regionalreit.com.
Case Study
During the summer of 2020, a team from the
Asset Manager took part in the virtual 2020
Rob Worboys Challenge (view.ceros.com/
cushmanwakefield/robworboychallenge/p/1).
From 2016 to 2019, participants cycled
around the Isle of Arran; however, due
to the COVID-19 restrictions the event
was held virtually in 2020, with the Asset
Management team producing an admirable
challenge.
Community Engagement
Though the Company did not engage directly in philanthropic activity
during 2020, both the Asset Manager and Investment Manager
supported a number of causes outside of their respective mandates.
The support provided by each of the Managers was focused across both
healthcare and social charitable donations and sponsoring events.
The philanthropic support provided to healthcare causes included, but
was not limited to:
• Research into blood cancer and, in particular, how it affects children
and adolescents
• Sponsorship of the London Football Awards, a fundraising event for
the Willow Foundation which is a charity providing special days for
the seriously ill between the ages of 16 and 40
• Sponsorship of an African children’s hospice
• The treatment of acquired immunodeficiency syndrome (AIDS)
The philanthropic support provided to social causes included, but was
not limited to:
• Enable Scotland - a Scottish Charity, working for an equal society for
every person who has learning disability
• School programmes for drug awareness, fire safety, and anti-bullying
• Bereavement counselling
Case Study
The Managers have each been a principal sponsor of The October Club since the early 2000s
(www.theoctoberclub.co.uk/). The aim of the charity is to transform a relatively small and
worthy charity by providing significant financial support for a specific project that redefines its
effectiveness. A member of the Investment Management team chaired the charity for four years
(2009-2012) and is now Vice-President. Regardless of the hurdles presented by COVID-19, the
Managers maintained an active role in raising funds for the October Club during 2020 helping to
transform James’ Place, a charity dealing with suicide, by establishing their extraordinary service
in London.
As set out on page 64, the Board seeks to promote the Company’s culture through ongoing
dialogue and engagement with its stakeholders, principally the Managers.
40
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Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
ASSET 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:
• 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.
• The process of development and refurbishment projects considers
the choice of materials and equipment used to avoid health hazards
or damage to the environment.
• Ongoing risk examinations of the activities of current and 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 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 as part of our repair or
refurbishment programmes in accordance with the Group’s electricity
procurement strategy, which aims for all properties within the portfolio
to source power from 100% renewable sources as far as possible.
When new energy suppliers are added to the property portfolio, their
existing contract status will be assessed and the supply moved to a
100% renewable source as soon as it is practical. Please see below for
examples of properties where we have improved the energy efficiency
and undertaken other actions to reduce the environmental impact of
our properties.
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.
Climate Change
As the first major economy to legislate for net zero emissions by 2050,
the UK’s commitment to climate change is clear. The UK commercial
property sector has a responsibility to reduce the environmental impact
of its buildings. The Company has begun working with sustainability
consultants to develop sustainability policies and actions towards a
future with more sustainable buildings for the benefit of both society as
a whole and the Company’s Shareholders.
Our Section 172 Statement can be found on pages 59 to 61.
Case Study: The
Coachworks, Chancellor
Court, Leeds
Ground & First Floors, Harcourt House/Whole of Halsbury
House were comprehensively refurbished. The scope of energy
improvements includes:
• Full renewal of air conditioning and fresh air systems to
include heat recovery and controllable flow rates for maximum
efficiency according to occupation levels. Exceptional
environmental design in respect of COVID-19.
• Renewal of entire electrical infrastructure to latest standards.
• Full replacement of lighting installations to LED.
• Full replacement of water heating systems with modern high
efficiency units.
• Upgrade and renewal of insulation materials to piped systems.
• Upgrade of windows to ground floor, to higher standards as well
as secure by design, and replacement of failed double-glazing
units to reinstate environmental performance to upper floors.
• Refurbishment of all window operating systems to reinstate a
fresh air supplemental provision.
• Detailed recycling inventory relating to 100% repurposing of
removed old materials.
• Open form design to minimise the energy provision associated
with new finishes.
• Replacement of entrance door systems, and to primary lobbies,
to maximise heat retention.
• Renewal of common area toilets which included sensor
taps, water control, lighting and unitary design in respect of
COVID-19.
• Provision of showers to encourage alternative forms of
commuting.
• Installation of a substantial and secure cycle store.
• Improved reception and informal meeting spaces.
• Some of the office space that has been refurbished had a
historic rating of G and the common areas had a rating of C. The
refurbished areas are shortly to be reassessed once all works
complete and the refurbished areas should achieve a B rating.
Case Study: 30-34 Hounds
Gate, Nottingham
Ground & First Floors/Entrance Foyer were comprehensively
refurbished. The scope of energy improvements includes:
• Full renewal of air conditioning and fresh air systems to include
heat recovery and controllable flow rates for maximum efficiency
according to occupation levels.
• Renewal of entire electrical infrastructure to latest standards.
• Renewal of common area toilets which included water control to
sanitary appliances and LED lighting.
• Installation of substantial insulation to vaulted ceiling to minimise
heat loss.
• Renewal of reception to include a reduction in external doors,
while maintaining fire compliance, to maximise heat retention and
renewal of heating systems with high efficiency equipment.
• Renewal, latest phase, of common area wiring and emergency LED
lighting to latest standards.
Case Study: Ashby Park,
Ashby De La Zouch
Ceva House was comprehensively refurbished. The scope of energy
improvements includes:
• Renewal of all internal lighting, all offices on all floors, to high
efficiency LED fittings.
• Repair and renewal in part, with modern high efficiency components,
of the air conditioning system throughout the building.
• Complete renewal of the entire Building Management System, with
related controls and field wiring plus monitoring equipment, to
ensure systems are running at peak efficiency.
• Remote monitoring equipment and computerised control of
multiple office area zoning to ensure fan coil control to maintain
unified ambient temperatures throughout.
• Renewal of isolated failed double-glazing units to reinstate the
envelope efficiency.
• Renewal of common area toilets which included sensor taps, water
control to sanitary appliances, LED lighting and unitary design in
respect of COVID-19.
• Replacement of reception entrance doors with high performance double
glazed and automated facilities, ensuring maximum heat retention.
• Repositioning and replacement of primary common area doors,
incorporating full height glazing, to maximise solar gain and natural
light benefits.
• Rejuvenation and refinishing of landscaped areas to enhance the
sites horticultural contribution.
• The existing EPC for the building shows a rating of D. Following
recent completion of the works, the buildings EPC will shortly be
reassessed, and a significant improvement is anticipated as a direct
result of the works highlighted.
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Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
ASSET AND INVESTMENT MANAGERS’ REPORT continued
FINANCIAL REVIEW
Net Asset Value
In the year ended 31 December 2020, the EPRA NTA* of the Group
decreased to £425.6 million (IFRS NAV: £420.6 million) from £485.7
million (IFRS NAV: £483.7 million) as at 31 December 2019, equating
to a decrease in the diluted EPRA NTA of 14.0pps (IFRS: 14.6pps) to
98.6pps (IFRS: 97.5pps). This is after the dividends declared in the year
amounting to 7.45pps.
The EPRA NTA decrease of some £60.1 million since 31 December
2019 was predominately due to a £54.8 million revaluation of the
property portfolio held at 31 December 2020, after capital expenditure
amounting to £8.8 million, the amount of which is yet to be fully
captured in the valuation, and a realised loss of £1.1 million on the
disposal of investment properties.
The investment property portfolio valuation as at 31 December 2020
amounted to £732.4 million (2019: £787.9 million). The decrease over
the period is a reflection of the aforementioned unrealised downward
revaluation from the prior year end, unrecognised capital expenditure
and disposals. Overall, on a like-for-like basis, the portfolio value
decreased by 7.2% during the year.
The table below sets out the acquisitions, disposals and capital
expenditure for the respective periods:
Property Portfolio by Region
Year ended
31 December
2020
(£million)
Year ended
31 December
2019
(£million)
45.0
42.4
53.4
56.4
8.8
13.1
89.9
87.1
24.3
24.9
5.8
8.0
Acquisitions
Net (after costs)
Gross (before costs)
Disposals
Net (after costs)
Gross (before costs)
Capital Expenditure
Net (after dilapidations)
Gross (before dilapidations)
12.3
(2.6)
112.6
(10.7)
(2.0)
(0.2)
(3.2)
(7.4)
98.6
31 Dec 2019
EPRA NTA
Net rental &
property income
Admin
expenses
Valuation (incl.
net capital expenditure)
Net capital
expenditure
Loss on the
disposal of investment
properties
Net finance
expense
Dividends
31 Dec 2020
EPRA NTA
EPRA Net Tangible Asset Bridge 31 December 2020
Source: Toscafund
* In October 2019, EPRA issued new best practice recommendations that replaced EPRA net asset value (NAV) with three new measures of net asset value. The Group has determined that EPRA net
tangible assets (NTA) is the most relevant measure hence this is now reported in place of EPRA NAV. Prior year comparatives are stated under the new definition on EPRA NTA. Further detail on the
new EPRA performance measures can be found on pages 140 to 142.
Table may not sum due to rounding.
The diluted EPRA NTA per share decreased to 98.6pps (2019: 112.6pps).
The EPRA NTA is reconciled in the table below:
Opening EPRA NTA
(31 December 2019)
Net rental and property
income
Administration and other
expenses
Loss on the disposal of
investment properties
Change in the fair value of
investment properties
Change in value of right
of use
EPRA NTA after operating
profit
Net finance expense
Taxation
EPRA NTA before dividends
paid
Dividends paid
Closing EPRA NTA
(31 December 2020)
£million
Pence per share
485.7
112.6
53.3
(11.3)
(1.1)
(54.8)
(0.2)
471.6
(14.0)
0.2
457.8
(32.1)
425.6
12.3
(2.6)
(0.2)
(12.7)
(0.0)
109.3
(3.2)
0.0
106.1
(7.4)
98.6
Income Statement
Operating profit before gains and losses on property assets and other
investments for the year ended 31 December 2020 amounted to £42.0
million (2019: £44.1 million). The Company incurred a loss after finance
items and before taxation of £31.2 million (2019: gain £26.3 million).
This reduction is predominately the result of two factors: firstly, a loss
in the fair value of investment properties over the year as a result of
the impact of the COVID-19 pandemic on the property market and
secondly a loss on the disposal of investment properties. 2020 included
the rent roll for properties held from the 31 December 2019, plus the
partial rent roll for properties disposed or acquired during the year.
Rental and property income amounted to £62.1 million, excluding
recoverable service charge income and other similar items (2019: £64.4
million). The decrease was primarily the result of the decrease in the
rent roll being held over the year to 31 December 2020.
Currently more than 80% of the rental income is collected within 30
days of the due date and bad debts in the year were £1.1 million (2019:
£0.5 million).
Non-recoverable property costs, excluding recoverable service charge
income and other similar costs, amounted to £8.8 million (2019: £9.4
million), and the rent roll decreased to £64.2 million (2019: £64.3
million).
Realised loss on the disposal of investment properties amounted to £1.1
million (2019: gain £1.7 million). These losses were incurred on smaller
lot-size vacant properties so to mitigate future on–going operating
costs, and to allow the redeployment of under-performing capital. The
change in the fair value of investment properties amounted to a loss
of £54.8 million (2019: loss of £3.5 million). Net capital expenditure
amounted to £8.8 million (2019: £5.8 million). The change in value
of right of use asset amounted to a charge of £0.2 million (2019: £0.2
million).
Finance expenses amount to £14.1 million (2019: £13.9 million). The
increase is primarily due to the drawdown of the available borrowing
headroom. On 26 March 2020, the Group drew down £30.7 million
from the Santander and Royal Bank of Scotland facilities, ensuring
ample liquidity.
The EPRA cost ratio, including direct vacancy costs, was 32.4% (2019:
31.6%). The EPRA cost ratio, excluding direct vacancy costs was 19.6%
(2019: 18.7%). The ongoing charges for the year ending 31 December
2020 were 4.6% (2019: 4.5%).
The EPRA Total Return from Listing to 31 December 2020 was 36.3%
(2019: 43.0%), an annualised rate of 6.2% pa (2019: 9.0% pa).
Dividend
In relation to the year from 1 January 2020 to 31 December 2020, the
Company declared dividends totalling 6.40pps (2019: 8.25pps). Since
the end of the year, the Company has declared a dividend for the fourth
quarter of 2020 of 1.50pps. A schedule of dividends can be found on
page 149.
Debt Financing and Gearing
Borrowings comprise third-party bank debt which is secured over
properties owned by the Group and repayable over the next four to
nine years, with a weighted average maturity of 6.4 years (2019: 7.3
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 2020 amounted to £316.2 million (2019:
£294.0m) (before unamortised debt issuance costs), with £5.7 million
available to be drawn, and in addition to the bank borrowings, the
Group has a £50 million 4.5% retail eligible bond which is due for
repayment in August 2024. In aggregate, the total debt available at
31 December 2020 amounted to £371.9 million (2019: £371.9 million).
To ensure the Group retained ample liquidity following the
implementation of the Government COVID-19 regulations, £30.7
million was drawn down on 26 March 2020 from the Santander UK and
the Royal Bank of Scotland facilities.
At 31 December 2020, the Group’s cash and cash equivalent balances
amounted to £67.4 million (2019: £37.3 million), of which £55.0 million
(2019: £34.7 million) was unrestricted cash.
The Group’s net loan to value (“LTV”) ratio stands at 40.8% (2019:
38.9%) before unamortised costs. The Board continues to target a net
LTV ratio of 40%, with a maximum limit of 50%.
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Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
ASSET AND INVESTMENT MANAGERS’ REPORT continued
PRINCIPAL RISKS AND UNCERTAINTIES
Debt Profile and LTV Ratios as at 31 December 2020
RISK FRAMEWORK
Original
facility
£'000
55,000
36,000
65,870
321,870
50,000
371,870
Lender
Royal Bank of Scotland
Scottish Widows & Aviva
Investors Real Estate Finance
Scottish Widows
Santander UK
Retail eligible bond
* Before unamortised debt issue costs
** Based on Cushman and Wakefield property valuations
Table may not sum due to rounding
Outstanding
debt*
£'000
Maturity
date
Gross loan
to value**
%
52,349
June 2024
165,000
165,000
December 2027
36,000
December 2028
62,822
June 2029
Annual
interest rate
%
2.15 over
3 months £ LIBOR
3.28 Fixed
3.37 Fixed
2.20 over
3 months £ LIBOR
45.7
47.4
41.0
39.8
316,171
50,000
366,171
August 2024
NA
4.50 Fixed
The Managers continue to monitor the borrowing requirements of the Group. As at 31 December 2020, the Group had substantial headroom
against its borrowing covenants.
The net gearing ratio (net debt to Ordinary Shareholders’ equity (diluted)) of the Group was 71.0% as at 31 December 2020 (2019: 63.4%). Interest
cover, excluding amortised costs, stands at 3.4 times (2019: 3.6 times) and including amortised costs, stands at 3.0 times (2019: 3.2 times).
Tax
The Group entered the UK REIT regime on 7 November 2015 and all
of the Group’s UK property rental operations became exempt from UK
corporation tax from that date. The exemption remains subject to the
Group’s continuing compliance with the UK REIT rules.
On 9 January 2018, the Company registered for VAT purposes in
England.
During 2020, the Group recognised a tax credit of £0.2 million (2019:
£0.3 million), which comprised tax provisions for the year offset by
releases of tax previously provided for in prior years which are now
concluded and not payable.
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
Thereof:
Fixed
Swap
Cap
WACD1
31 December
2020
%
31 December
2019
%
101.6
108.1
68.6
16.5
16.5
3.3
73.0
17.6
17.6
3.5
Table may not sum due to rounding
1 WACD – Weighted Average Effective Interest Rate including the cost of hedging
The over-hedged position has arisen due to the entire Royal Bank of
Scotland and Santander UK facilities, including any undrawn balances,
being hedged by interest rate cap derivatives which have no ongoing
cost to the Group.
Identify
Evaluate
Mitigate
The Board has overall responsibility for the Company’s system of risk management and internal controls and for ensuring their effectiveness.
The Board recognises the importance of identifying and actively monitoring its strategic, valuation, tenant, financial, operational, regulatory,
environmental risks and any other long-term emerging threats, trends and challenges facing the business. The Audit Committee supports the Board
in the management of risk and is responsible for determining the principal risks facing the business and reviewing, at least annually, the effectiveness
of the Company’s financial control, risk management and internal control processes.
IDENTIFICATION, EVALUATION AND MITIGATION
The identification of risk, its evaluation and management is an
ongoing process. The Company maintains a detailed and formal matrix
of current principal risks, which uses risk scoring to evaluate risks
consistently. This allows the risks to be monitored and mitigated as part
of a risk management process with the Audit Committee undertaking
at a minimum on a six-monthly basis, or more frequently if required, a
robust evaluation of risks facing the Group.
Risks are identified and weighted according to their potential impact
on the Company and to their likelihood of occurrence. The Audit
Committee uses the risk matrix to prioritise individual risks, allocating
scores to each risk for both the likelihood of its occurrence and the
severity of its impact. The combined scores are then colour coded,
applying a traffic light system of green, amber and red to emphasise
those posing the greatest threats to the Company. Those with the
highest gross rating in terms of impact are highlighted as top risks
within the matrix and are defined as principal risks.
While the Board believes that it has a robust framework of internal
controls in place, this can provide only reasonable, and not absolute,
assurance against material financial misstatement or loss and is
designed to manage, not eliminate risk.
EMERGING RISKS
The Board is cognisant of emerging risks defined as potential trends,
sudden events or changing risks which are characterised by a high
degree of uncertainty in terms of probability of occurrence and possible
effects on the Company. Once emerging risks become sufficiently clear,
they may be classed as a principal risk and added to the risk matrix.
To help manage emerging risks and discuss other wider matters
affecting property, the Board has an annual strategy meeting. The
Board considers having a clear strategy is the key to managing and
mitigating emerging risk.
COVID-19
During 2020, the principal risks and uncertainties faced by the
Company were exacerbated by the impact of the Government’s
reaction to the COVID-19 pandemic. As uncertainty increased, the
Board has worked even closer with the Asset Manager, Investment
Manager and its third-party suppliers to maintain resilience in the
operations of the Company and management of the property portfolio.
The primary aim being to preserve and enhance the Company’s net
income and capital values, meeting all regulatory and stakeholder
obligations, whilst looking to the longer term to identify strategic
opportunities.
RISK APPETITE
Risk appetite will vary over time but the Board is responsible for
defining the level and type of risk that the Company takes on in
accordance with the strategy. The Board, in conjunction with the Asset
Manager and Investment Manager, regularly reviews the risk appetite
of the Company in association with the latest information available
and the Company is able to assess and respond quickly to new and
emerging risks.
This threat has an ongoing effect on many of our principal risks and
the Board meet regularly with the Asset and Investment Managers to
assess these risks and how they can be managed.
The below list, in no particular order, sets out the current identifiable
principal and emerging risks, including their impact and the actions
taken by the Company to mitigate them. It does not purport to be an
exhaustive list of all the risks faced by the Group.
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Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
PRINCIPAL RISKS AND UNCERTAINTIES continued
Evolution of the trend during the year
Link to Strategy
MOVEMENT IN THE PERIOD
LINK TO STRATEGY
PRINCIPAL RISK SUMMARY
Principal Risk
1. STRATEGIC
2. VALUATION
3. COVID-19
4. ECONOMIC AND POLITICAL
5. FUNDING
6. TENANT
7. FINANCIAL AND TAX CHANGES
8. OPERATIONAL
9. ACCOUNTING, LEGAL AND REGULATORY
10. ENVIRONMENTAL AND ENERGY EFFICIENCY STANDARDS
Read more about the Company’s business model and strategy on pages 18 to 22, which are listed below.
BUSINESS MODEL AND STRATEGY
Regions
primed for
growth
Opportunistic
approach to the
property market
Investing in
income
producing assets
Active
management of
the properties
Geographically
diversified
portfolio
Highly
experienced
asset manager
1. STRATEGIC
Potential impact
Mitigation
Movement in the period
An inappropriate investment
strategy, and/or failure to
implement the strategy could
result in lower income and
capital returns to Shareholders.
A clearly defined investment strategy which is
reviewed annually.
A defined and rigorous investment appraisal
process.
The property portfolio remains balanced across a
range of geographical areas and large number of
investment properties.
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.
All the above steps are monitored to ensure the
strategy is implemented.
Predominately acquiring office 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.
No single property, in the ordinary course of
business, is expected to exceed 10% of the
Group’s aggregate Investment Properties
valuation. 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.
No more than 20% of the Group’s investment
property value shall be exposed to any single
tenant or group undertaking of that tenant.
Speculative development (i.e., properties under
construction, but excluding any refurbishment
works, which have not been pre-let) is prohibited.
The Group continues to purchase properties in the
UK outside the M25 motorway.
Tay House (2019: Tay House) is the highest valued
property, which equates to 3.8% (2019: 4.3%) of
the Group’s investment properties.
The Group’s largest single tenant exposure is 3.5%
(2019: 2.5%) of gross rental income, being Barclays
Execution Services Ltd. (2019: Barclays Execution
Services Ltd.).
No speculative construction was undertaken during
the year under review.
The value of the properties is protected as far
as possible 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.
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Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
PRINCIPAL RISKS AND UNCERTAINTIES continued
MOVEMENT IN THE PERIOD
LINK TO STRATEGY
MOVEMENT IN THE PERIOD
LINK TO STRATEGY
2. VALUATION
Potential impact
Mitigation
Movement in the period
Potential impact
Mitigation
Movement in the period
3. COVID-19
The valuation of the Group’s
portfolio affects its profitability
and net assets.
The Company’s external valuer, Cushman &
Wakefield, provides independent valuations for all
properties on a six-monthly basis in accordance
with the RICS Red Book.
Cushman & Wakefield independently provide the
valuation for the entire portfolio, valuing each
individual asset.
The Audit Committee has the opportunity to
discuss the basis of the valuations with the
external valuer. The Audit Committee membership
includes an experienced chartered surveyor.
The Asset Manager’s experience and extensive
knowledge of the property market. The Asset
Manager is able to challenge the external valuers’
findings.
The Company’s Auditor engages an independent
third party to evaluate the Cushman & Wakefield
valuation.
The Group has continued to scrutinise all current
risk mitigation approaches employed and to work
closely with all parties through this disruptive
period.
The economic disruption
resulting from the COVID-19
virus could continue to
impact rental income, the
ability to access funding at
competitive rates, adherence
to banking covenants, maintain
a progressive dividend policy,
and adhere to the HMRC REIT
regime requirements, especially
if associated restrictions remain
in place for a significant period.
The Asset Manager continues to adapt, as
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
UK Government.
The property portfolio has been deliberately
constituted to ensure a diverse range of tenants
by standard industrial classification comprised of
52% of government designated essential services.
A large proportion of the available borrowing
facility headroom was drawn down from
Santander UK and the Royal Bank of Scotland
ensuring substantial working capital was available.
Close relationships with lenders ensuring
continued dialogue around covenants and ability
to access funding as required at competitive rates.
Initial vetting of all third-party providers with
annual due diligence reviews, including the review
of business continuity capabilities to minimise
when remote working has been necessitated.
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Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
PRINCIPAL RISKS AND UNCERTAINTIES continued
MOVEMENT IN THE PERIOD
LINK TO STRATEGY
MOVEMENT IN THE PERIOD
LINK TO STRATEGY
4. ECONOMIC AND POLITICAL
5. FUNDING
Potential impact
Mitigation
Movement in the period
Potential impact
Mitigation
Movement in the period
Significant political events
could impact the health of
the UK economy, resulting in
borrowing constraints, changes
in demand by tenants for
suitable properties, the quality
of the tenants, and ultimately
the property 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 898 (2019:
904) income streams which are located in areas of
expected economic growth.
The Board receives advice on macro-economic
risks, including Brexit, 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
post Brexit transition period.
The Group may not be able
to secure further debt or on
acceptable terms, which may
impinge upon investment
opportunities and the ability to
grow the Group.
Bank reference interest
rates may be set to rise
accompanying higher inflation.
Breach of covenants within
the Group’s funding structure
could lead to a cancellation of
debt funding if the Company is
unable to service the debt
The Asset Manager has a Corporate Finance team
dedicated to optimising the Group’s funding
requirements.
Funding options are constantly reviewed with an
emphasis on reducing the weighted average cost
of capital and lengthening the weighted average
debt to maturity.
Borrowings are currently provided by a range of
institutions with targeted staggered maturities.
Strong relationships with key long-term lenders.
Continual monitoring of LTV.
Policy of hedging at least 90% of variable interest
rate borrowings.
Borrowings are currently provided by a range of
institutions with targeted staggered maturities.
The Asset Manager’s Corporate Finance team
reviews the applicable covenants on a regular
basis and are considered in future operational
decisions.
Compliance certificates and requested reports are
prepared as scheduled.
Weighted average debt term decreased to 6.4 years
from 7.3 years in 2019.
Weighted average cost of capital, including
hedging costs was 3.3% (2019: 3.5%).
LTV increased to 40.8% from 38.9% as at
31 December 2019.
Continued adherence to the hedging policy.
The Group continues to have substantial headroom
against the applicable borrowing covenants.
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Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
PRINCIPAL RISKS AND UNCERTAINTIES continued
MOVEMENT IN THE PERIOD
LINK TO STRATEGY
MOVEMENT IN THE PERIOD
LINK TO STRATEGY
8. OPERATIONAL
Potential impact
Business disruption could
impinge on the normal
operations of the Group.
6. TENANT
Potential impact
Mitigation
Movement in the period
Type of tenant and
concentration of tenant could
result in lower income from
reduced lettings or defaults.
An active asset management programme with
a focus on the Asset Manager working with
individual tenants to assess any occupational
issues and to manage any potential bad debts.
A high concentration of lease
term maturity and/or break
options could result in a more
volatile contracted rent roll.
Diversified portfolio of properties let, where
possible, to a large number of low-risk tenants
across a wide range of standard industrial
classifications throughout the UK.
Potential acquisitions are reviewed for tenant
overlap and potential disposals are similarly
reviewed for tenant standard industrial
classification concentration.
The portfolio lease and maturity concentrations
are monitored by the experienced Asset Manager
to minimise concentration.
There is a focus on securing early renewals and
increased lease periods.
The requirement for suitable tenants and
the quality of the tenant is managed by the
experienced Asset Manager which maintains close
relationships with current tenants and with letting
agents.
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 898 at the
year-end (2019: 904).
The WAULT to first break as at 31 December 2020
was 3.2 years (2019: 3.5 years)
The largest tenant is 3.5% (2019: 2.5%) of the
gross rental income, being Barclays Execution
Services Ltd.
The Asset Management team remains vigilant to
the financial wellbeing of our current tenants and
continues to liaise with occupiers and agents.
MOVEMENT IN THE PERIOD
LINK TO STRATEGY
Information security and
cyber threat resulting in data
loss, or negative regulatory,
reputational, operational
(including GDPR), or financial
impact.
Mitigation
Movement in the period
The Asset and Investment Managers each have
contingency plans in place to ensure there are no
disruptions to the core infrastructure which would
impinge on the normal operations of the Group.
These plans have been implemented in adherence
to COVID-19 Government guidelines, with limited
disruption to operations.
An annual due diligence exercise is carried out on
all principal third-party service providers.
As an externally managed investment Company,
there is a continued reliance on the Asset and
Investment Managers and other third-party
service providers.
Both the Asset and Investment Managers annually
review their Disaster and Business Continuity Plans.
The annual due diligence visits were curtailed due
to Government restrictions. However, assurances
were received as required from third party service
providers.
No concerns were identified.
Both the Asset and Investment Manager are viable
going concerns.
All acquisitions undergo a rigorous due diligence
process and all multi-let properties undergo an
annual comprehensive fire risk.
The Asset Manager continues to monitor 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 and Investment Manager each has a
dedicated Information Technology team which
monitors information security, privacy risk and
cyber threats ensuring their respective operations
are not interrupted.
As required the building management systems are
reviewed for cyber security risk.
The Asset Manager reviews the adequacy of
insurance cover on an ongoing basis.
The Managers review the respective Information
Technology polices and the material third party
service suppliers on as required basis to ensure they
reflect current and possible future threats.
7. FINANCIAL AND TAX CHANGES
Potential impact
Mitigation
Movement in the period
Changes to the UK REIT and
non–REIT regimes tax and
financial legislation.
The Board receives advice on these changes where
appropriate and will act accordingly.
Advice is received from several corporate advisers,
including tax adviser Grant Thornton UK LLP and
the Group adapts to changes as required.
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Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
PRINCIPAL RISKS AND UNCERTAINTIES continued
MOVEMENT IN THE PERIOD
LINK TO STRATEGY
MOVEMENT IN THE PERIOD
LINK TO STRATEGY
9. ACCOUNTING, LEGAL, AND REGULATORY
Potential impact
Mitigation
Movement in the period
Potential impact
Mitigation
Movement in the period
10. ENVIRONMENTAL AND ENERGY EFFICIENCY STANDARDS
Changes to accounting, legal
and/or regulatory legislation
could result in changes to
current operating processes.
Loss of REIT status
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 HMRC REIT regime requirements are
monitored by the Asset and Investment
Manager, and external advisors including the
Company’s tax adviser Grant Thornton UK LLP
and its sub-administrator Link Alternative Fund
Administrators Limited.
The 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.
The Group continues to receive advice from
external advisers on any anticipated future changes
to the REIT regime.
The Group’s cost base could be
impacted, and management
time diverted, due to climate
changes and associated
legislation.
The Board receives regular updates on
environmental, social, governance and potential
legislation changes (e.g. the Government Green
Finance Strategy July 2019) from its advisers.
The Group has engaged an environmental
consultancy to assist with achieving the Global
Real Industry Sustainability Benchmark (GRESB).
This will provide a platform from which improved
sustainability activities can be built upon.
Additional attention is currently being devoted
in this area to ensure the appropriate approach is
applied and embedded in Group activities.
Changes to the environment
could impact upon the
operations of the Group.
Property acquisitions undergo a rigorous due
diligence process, including an environmental
assessment.
The rigour of the environmental assessments
process continues to be reviewed with the aim of
enhancing it.
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 may impact the
Group’s ability to sell or lease
an asset.
The Group continues to review each property to
ensure adherence with Energy Performance Rating
requirements.
The Asset Manager is continually reviewing the
feasibility of enhancing Energy Performance
Ratings to exceed the minimum requirement.
The energy efficiency of investment acquisitions
is fully considered as part of the due diligence
process for the acquisition of a property.
CHANGES TO THE PRINCIPAL RISKS AND UNCERTAINTIES
The Board, via the Audit Committee, has agreed the movement during the period under review to each of the identified principal risks and
uncertainties following review of these risks, having considered the characteristics of these and the economic and geopolitical factors. Any impact of
these risks to the Company’s future strategy is considered on an ongoing basis.
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Regional REIT Ltd | Annual Report and Accounts 2020
Strategic Report
GOING CONCERN AND VIABILITY STATEMENT
SECTION 172 STATEMENT
Assessment of Review Period
The Board chose to conduct the review for a three-year period giving
consideration to:
• The Group’s WAULT of 3.2 years to first break.
• The Group’s detailed forecast covering a rolling three-year period.
• The Group’s weighted average debt to maturity was 6.4 years as at
31 December 2020.
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.
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,
notwithstanding the current economic and political environment.
The Board’s expectation is further underpinned by the regular briefings
provided by each of the Asset Manager and Investment Manager. These
briefings consider market conditions, investment opportunities, the
Company’s ability to raise third-party funds and deploy these promptly,
changes in the regulatory landscape and current political and economic
risks and uncertainties. These risks, and other potential risks which may
arise, continue to be closely monitored by the Board.
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 into account the Group’s current
position, the principal risks and uncertainties and, on the assumption
that the current economic turbulence resulting from the impact of
COVID-19 will reduce as the UK Governments lift restrictions.
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.
GOING CONCERN
The Directors confirm that they have a reasonable expectation that
the Group has adequate resources to continue as a going concern.
This expectation is underpinned by having made an assessment of
the Group’s ability to continue in operational existence, giving due
consideration to the Group’s cash resources, borrowing facilities, rental
income, acquisition and disposals of investment properties, elective and
committed capital expenditure, dividend distributions and the current
uncertainties created by the COVID-19 pandemic.
The Group ended the year under review with £67.4 million of cash and
cash equivalents, of which £55.0 million was unrestricted cash. The
borrowing facilities remained compliant with all loan covenants, with
an LTV of c. 40.8%, based upon the value of the Group’s investment
properties as at 31 December 2020. Rental income collections
remained robust with 98.2% of rent invoiced in the year collected as at
12 March 2021*.
Given the substantial amount of unrestricted cash currently held
by the Group and, with the next borrowing due to mature being the
Company’s Retail Eligible Bond in August 2024, the Directors are
satisfied that the Group and Company have adequate resources to
continue in operational existence for a period of at least 12 months
from the date that these Financial Statements were approved.
Based on the above, together with available market information,
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
continue to prepare the Financial Statements on a going concern basis.
VIABILITY STATEMENT
In accordance with the Association of Investment Companies Code of
Corporate Governance (the “AIC Code”) and, taking into consideration
the current uncertainties created by the COVID- 19 pandemic, 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. Following this review, the Board determined that three years
to 31 December 2023 is the maximum timescale over which the
performance of the Group can be forecast with any material degree of
accuracy and is therefore an appropriate period over which to consider
the Group’s viability.
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
forecast. However, the Board’s forecast provides a longer-term outlook
against which strategic decisions can be made.
* As at 12 March 2021, rent collections to 31 December 2020 amounted to 98.2%; actual rent
collected 96.1%, monthly rents 0.5% and deals agreed of 1.6%.
STAKEHOLDER ENGAGEMENT AND BOARD DECISION MAKING
In accordance with the AIC Code, 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 Companies Act 200618 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 interests of the company's employees*;
• 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, underpins good governance and
creates long-term Shareholder 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. The relevance of each stakeholder group may increase
or decrease by reference to the issue in question, so the Board seeks
to understand the needs and priorities of each group during its
discussions. Examples of material matters discussed during the year are
set out in the Chairman’s Statement on pages 14 to 17 and below. In
addition, the Investment Strategy and Business Model set on pages 18
to 22 gives examples of how we approach each specific element of our
strategy which supports the business model, including 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
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, Managers,
other Service Providers and Lenders. The section below sets out 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 investment 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 (“LSP”) to manage the
day-to-day property management and tenant interaction. LSP regularly
visit properties and communicates with existing tenants to understand
their needs and improve their satisfaction. This improves retention
rates and also attracts prospective tenants.
Following the outbreak of the COVID-19 pandemic, the Asset Manager
has worked even closer with tenants to understand their needs during
the crisis. The Board firmly believes that by supporting tenants now and
strengthening existing relationships, the Company will have improved
future occupancy levels, which in turn will maintain and generate
income for the Company.
The Asset Manager reports at a high level on its engagement with
tenants at every Board meeting.
The Board recognises that the Company has certain responsibilities to
its stakeholders and the wider society. As an externally managed REIT,
the Company itself does not have employees. However, the Company
aims to conduct itself responsibly, ethically and fairly. Further details
can be found on pages 40 to 43.
An example of how the interests of our tenants were taken into
consideration and acted upon at the onset of COVID-19 was the re-
orientation of the Asset Management platform to increase the lines of
communication to all tenants. This allowed guidance and assistance
to be provided promptly, as required, to all our tenants in order to
navigate the evolving Government COVID-19 financial assistance
schemes. Building upon this assistance, the Asset Manager was again
able to react promptly to the changing Government COVID-19
restriction guidelines to implement and assist with the necessary
property updates.
As detailed on page 40, during 2020, the Company’s occupiers took
part in a survey designed by the Asset Manager to gain a greater insight
and understanding of their requirements and determine whether
any likely changes were envisaged in the foreseeable future. Further
surveys are likely to be scheduled, maintaining another channel of
communication and engagement with the Company’s occupiers.
Shareholders
Continued Shareholder support and engagement are critical to the
existence of the Company and the delivery of its long-term strategy.
The Board’s primary focus is to promote the long-term success of the
Company for the benefit of its Shareholders as a whole. The Board
oversees the delivery of the investment objective, policy and strategy,
as agreed by the Company’s Shareholders. The Board welcomes all
Shareholder’s views and aims to act fairly between all Shareholders.
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 includes
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
18 Although Section 172 of the Companies Act 2006 does not apply to the Company, being a Guernsey incorporated company, the AIC Code requires that the matters stated under Section 172 are
reported on by all companies irrespective of domicile.
* not applicable to the Company as it has no employees.
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Regional REIT Ltd | Annual Report and Accounts 2020
SECTION 172 STATEMENT continued
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
pages 84 and 85.
On 3 November 2020, the Company held a virtual Capital Markets
Day for analysts and institutional investors. The Company's Managers
provided information on the UK economy and the regional office
market, with a particular focus on the current shortage of supply,
considerable demand imbalance and the inherent value within the
portfolio. The Managers also provided further insight into the ongoing
attractions of the Company’s office sector assets following the
COVID-19 pandemic, the Company's strategy for continued income
generation and growth and their thoughts on the future of the market.
All Shareholders are encouraged to vote at the 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. The Board has made
the decision to delay the 2021 AGM to later in the year in the hope that
Shareholders will be able to attend the AGM in person.
Shareholders ordinarily have an opportunity to meet the Directors
and to ask the Managers or any of the Directors questions at the AGM.
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
147.
The Company releases regular trading updates and announcements
to the market regarding performance. 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 London
Stock Exchange and are also available on the Company’s website.
Following the announcement of the Company’s full year and half yearly
results, a presentation is held for analysts and investors.
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 each of the Managers;
• Recognising that the interests of Shareholders and the Managers
HOW HAS THE BOARD ENGAGED WITH STAKEHOLDERS DURING THE YEAR?
Strategic Report
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;
• Supporting the Managers in their philanthropic activities; 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.
The Board receives presentations from the Asset Manager at every
Board meeting to help it to exercise effective oversight of the Asset
Manager and the Company’s Strategy.
On behalf of the Company’s Shareholders, the Management
Engagement and Remuneration Committee (the “MERC”) conducts an
annual review of the performance of the Asset Manager and Investment
Manager. More details on the conclusion of this review is set out on
page 92.
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 page 91.
The MERC 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 92.
Lenders
Availability of funding and liquidity are crucial to the Company’s ability
to take advantage of investment opportunities as they arise.
Considering how important the availability of funding is, the Company
aims to demonstrate to lenders that it is a well-managed business,
and in particular, that the Board focuses regularly and carefully on the
management of risk.
The above mechanisms for engaging with stakeholders are kept under
review by the Board and will be discussed on a regular basis at Board
meetings to ensure that they remain effective.
Stakeholder
How the Board has engaged
1. Tenants
• Engagement of a dedicated property Manager, LSPAM.
2. Shareholders
• Regular property visits and communication with tenants are
made by LSPAM
• Since the Covid-19 crisis LSPAM has worked even more closely
with tenants to understand their needs and provide assistance
during the crisis.
• The Board as a whole has a clear understanding of the views
of shareholders through the regular updates provided by the
Company’s Corporate Broker and Financial Advisers.
• Relations with Shareholders are considered as part of the
annual Board evaluation.
• The Board at every Board meeting receives an investor
relations update from the Investment Manager which
includes Shareholder feedback.
• Shareholders can meet and ask questions to the Board at the
Company’s AGM.
3. The Asset
and Investment
Manager
• The Board encourages open discussion with the Managers.
• Board members, with their relevant property market
experience, support the Managers in monitoring and
developing the Company’s property portfolio.
4. Other
Service
Providers
• The Board maintains regular contact with its key third-party
service providers. Their advice, as well as the needs and views
of the third-party service providers are routinely taken into
account.
BOARD DECISION-MAKING
The major decisions taken by the Board during 2020 are summarised
below and show how the Board had regard to its stakeholders and the
longer-term success of the Company:
Principal decision – Focus on office sector
For the foreseeable future, the Board has decided that the Company will
focus its investment solely on properties in the office sector in the main
regional centres of the UK outside of the M25 motorway. The Company
will in due course seek to exit all other commercial property sector
investments, including its industrial and remaining retail sites, while
promptly recycling the capital into regional offices. This will ensure
the Group is able to maximise its investment objectives of delivering
Shareholders an attractive and sustainable income focused total return
over the long term.
Principal decision – 2020 Dividend
The Board is committed to paying a full year dividend of 6.40pps,
conscious of our commitment to Shareholders to maintain an
uninterrupted quarterly dividend.
Principal decision – Buybacks
Where the Board considers it to be accretive to do so, the Company
may undertake a buyback of its own shares using proceeds from asset
sales. However, the Company will take a balanced approach, continuing
to seek to identify attractive new acquisitions which present long term
shareholder value.
Principal decision – Commitment to sustainability strategy
The Board is cognisant of the Group’s environmental impact, its
continued transparent approach to corporate governance and its social
responsibility. It has now committed to a more formal approach to
sustainability with its intention to join GRESB in 2021. This will provide
a platform from which sustainability policies and actions will be built
upon over the coming years.
Further details on the Company’s approach to Corporate Social
Responsibility can be found on pages 40 to 43.
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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.
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, Investment Manager and other third-party service providers.
The Asset Manager and Investment Manager are in frequent contact
with the Board and the Asset Manager supplies the Directors with
regular updates on the Company’s activities and detailed reports at
each Board meeting.
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 18) 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.
Notice of termination of the Asset Management Agreement may be
given no later than one year prior to the end of 3 November 2023. If a
notice to terminate is not given, the agreement shall continue for the
next three-year period.
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.
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 has 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
Objective and the Investment Policy of the Company. The Investment
Manager is also the Alternative Investment Fund Manager (“AIFM”)
under the Alternative Investment Fund Managers Directive (“AIFMD”).
Notice of termination of the Investment Management Agreement may
be given no later than one year prior to the end of 3 November 2023. If
a notice to terminate is not given, the agreement shall continue for the
next three-year period.
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 Financial Services and Markets Act
2000 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 AND PERFORMANCE FEES
The Asset and Investment Managers are each entitled, in every 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
Strategic Report
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.
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.
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 16, a performance
fee was not crystallised for the performance fee period from 1 January
2020 to 31 December 2020.
Continuing Appointment of Asset Manager and Investment Manager
The Board keeps the performance of both the Asset Manager and
Investment Manager under continual review. The MERC, comprising the
independent non-executive Directors, conducts an annual review of the
performance of the Asset Manager and Investment Manager. Further
details can be found on page 92.
It is considered that the Asset Manager and Investment Manager
has each executed the Company’s investment strategy according to
the Board’s expectations. Accordingly, the Directors believe that the
continuing appointment of London & Scottish Property Investment
Management Limited as the Asset Manager of the Company and,
Toscafund Asset Management LLP as the Investment Manager of the
Company, on the terms agreed, is in the best interests of the Company
and its Shareholders as a whole.
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 £136,637 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.
62
63
Strategic Report
2 Lochside Avenue, Edinburgh
Regional REIT Ltd | Annual Report and Accounts 2020
OTHER 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
In accordance with the Guernsey economic
substance legislation effective 1 January 2019,
the Company has opted for Non-Tax Resident
status. This status allows the Company to
distribute or accumulate income without
deduction of Guernsey income tax.
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.
The Company is registered for VAT purposes
in England.
Shareholders who are in any doubt
concerning the taxation implications of a REIT
should consult their own tax advisers.
CULTURE
The Board has established core values for
the Company that align with the Company’s
purpose, culture and strategy. These are set
out on the inside front cover. 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 92. 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. Details of each of the Manager’s
philanthropic activity during the year is set
out on pages 40 to 41.
The Strategic Report has been approved by
the Board at its meeting held on 24 March
2021 and signed on its behalf.
On behalf of the Board
KEVIN MCGRATH
Chairman and Independent Non-Executive
Director
24 March 2021
64
65
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
68
70
76
77
88
92
94
96
66
67
Regional REIT Ltd | Annual Report and Accounts 2020
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.
Kevin 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
has worked in the property industry for over 37 years
and graduated from the Polytechnic of the South
Bank with a BSc (Distinction) in Estate Management
and obtained a postgraduate diploma in
Property Investment (Award Winner) from the
College of Estate Management.
Kevin was appointed an Officer of the Most Excellent
Order of the British Empire in the Queen’s 2016
Birthday Honours List for Services to Charities.
He was The High Sheriff of the County of Greater
London for 2014/15 and is the Representative
Deputy Lieutenant for the London Borough of
Hammersmith and Fulham. Kevin was awarded
an Honorary Degree award of the Doctor of the
University from the University of Surrey in 2017 in
recognition of an outstanding contribution to
the arts.
He is a trustee of several charities including
The Old Vic Theatre Trust, The Clink Prison
Restaurant Charity and Arts Education
(ArtsEds) Schools for the Performing Arts.
68
Corporate Governance
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.
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 has acted as
chairman of Henderson High Income Trust
plc, a non-executive director of The European
Investment Trust plc and Senior Independent
Director of Henderson International Income
Trust plc. Bill is currently a director 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
director 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 an
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. Dan graduated
from Stanford University in 1980.
FRANCES 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.
Ms Daley is a non-executive director of
Henderson Opportunities Trust Plc and chair
of Barings Emerging EMEA Opportunities PLC.
She is also chair of Haven House Children’s
Hospice.
Ms Daley graduated from Cambridge
University in 1980 with a degree in Land
Economy.
69
Regional REIT Ltd | Annual Report and Accounts 2020
REPORT 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 2020.
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 14 to 19)
as the Board considers them to be of strategic importance.
DIRECTORS
All Directors of the Company were in office during the year and at the date of this report. Their full
biographies can be found on pages 68 and 69. Details of the Directors’ terms of appointment can be
found in the Corporate Governance Statement and the Directors’ remuneration report.
None of the Directors or any persons connected with them had a material interest in the transactions
and arrangements of, or the agreement with, the Managers during the year, other than Mr Inglis who
is the Chief Executive Officer and Founder of London & Scottish Property Investment Management,
the Company’s Asset Manager and Mr Bee who is the Legal Counsel of Toscafund Asset Management
LLP, the Company’s Investment Manager and are not therefore considered to be independent.
In the event of any conflict between their positions as Chief Executive Officer and Founder of
London & Scottish Property Investment Management, the Company’s Asset Manager, Legal Counsel
of Toscafund Asset Management LLP, the Company’s Investment Manager, Mr Inglis and Mr Bee
respectively, will comply with the provisions in the Company’s Articles of Incorporation concerning
the declaration of Directors’ interests and authorisation of conflicts of interest and any other limits or
conditions imposed by the Board.
All Directors will stand for re-election at the 2021 AGM in accordance with the Company’s Articles
and the AIC Code.
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 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.
70
Corporate Governance
Left to right: William Eason, Timothy Bee, Kevin McGrath, Stephen Inglis, Daniel Taylor, Frances Daley.
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 2020
At 24 March 2021
Number of
Ordinary Shares
% Interest in
share capital
Number of
Ordinary Shares
% Interest in
share capital
334,158
225,000
709,998
76,948
1,097,912
232,031
0.08
0.05
0.16
0.02
0.25
0.05
334,158
225,000
709,998
76,948
1,097,912
232,031
0.08
0.05
0.16
0.02
0.25
0.05
71
Regional REIT Ltd | Annual Report and Accounts 2020
REPORT OF THE DIRECTORS continued
SHARE CAPITAL
As at 31 December 2020, the Company’s total issued share capital was
431,506,583 Ordinary Shares (2019: 431,506,583).
All of the Company’s Ordinary Shares are listed on the premium
segment of the London Stock Exchange and each Ordinary Share carries
one vote.
There is only one class of Ordinary Shares in issue for the Company,
in adherence to the REIT requirements. The only other shares the
Company may issue are particular types of non-voting restricted
preference shares, of which none (2019: none) are currently in issue.
SHARE ISSUES
At the AGM held on 5 August 2020, the Directors were granted
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 issued
share capital on 25 June 2020). The Directors were also granted the
authority to disapply pre-emption rights in respect of the allotment of
Ordinary Shares up to a maximum number of 21,575,329 shares (being
5% of the issued share capital on 25 June 2020) where the allotment of
such shares is for the sole purpose of financing an acquisition or other
capital investment as defined by the Pre-Emption Group’s Statement of
Principles.
No shares were issued under these authorities during the year under
review, and the authorities will expire at the Company’s 2021 AGM
where resolutions for their renewal will be sought, or, if sooner, on
5 November 2021.
PURCHASE OF OWN SHARES
At the AGM held on 5 August 2020, the Company was authorised to
purchase up to a maximum of 43,150,658 of its own Ordinary Shares
(being 10% of the Company’s issued share capital on 25 June 2020).
No shares have been purchased under this authority during the year
under review, which will expire at the Company’s 2021 AGM where a
resolution for its renewal will be sought, or, if sooner, on 5 November
2021.
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 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;
• 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.
RESTRICTIONS ON VOTING RIGHTS
The Company does not have any restrictions on shareholder voting
rights.
Corporate Governance
SUBSTANTIAL SHAREHOLDINGS
The Company has received notification of the following disclosable interests in the voting rights of the Company:
Shareholder
Toscafund Asset Management LLP
Unicorn Asset Management Limited
At 31 December 2020
At 24 March 2021
Number of
Ordinary Shares
notified
27,154,198
21,670,216
% Interest in
share capital
6.29
5.02
Number of
Ordinary Shares
notified
27,154,198
21,670,216
% Interest in
share capital
6.29
5.02
The Company has not been informed of any other changes to the notifiable interests between 31 December 2020 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 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 the Company’s 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 for the foreseeable future.
RESULTS AND DIVIDENDS
A summary of the Company’s performance during the year and the
outlook for the forthcoming year is set out in the Chairman’s Report
and the Asset and Investment Managers’ Report on pages 14 to 17 and
18 to 46, respectively.
During 2020, the Company declared three quarterly dividends, one of
1.90pps and two of 1.50pps. A fourth quarterly dividend of 1.50pps for
the year ended 31 December 2020 was declared on 25 February 2021.
This dividend was paid on 9 April 2021 to Shareholders on the register
at the close of business on 5 March 2021. The ex-dividend date was
4 March 2021.
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 77 to 87 forms part of
this report.
ARTICLES OF INCORPORATION
In accordance with the Articles of Incorporation, the Board must seek
Shareholder approval to amend the Articles of Incorporation. During
the year under review, the Board did not propose a change to the
Articles of Incorporation.
72
73
Regional REIT Ltd | Annual Report and Accounts 2020
REPORT OF THE DIRECTORS continued
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 59 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. During the
year, the Asset Manager met with and sought the views of some of
the Company’s Shareholders regarding the Company conducting share
buybacks. This played a role in the Board’s decision to buyback the
Company's shares where it is considered accretive to do so. As the
parameters around buybacks that were agreed by the Board had not
been met, as set out on page 72, the Company did not purchase any of
its own shares during the year.
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.
The Board receives a regular investor relations report summarising
Shareholder contact, sell-side analysts’ research, media coverage,
and share price movements. The Investment Manager regularly
participates in Investor Relations programmes to raise the profile of
the Company and to attract new Shareholders. This year, the Company
was represented by the Investment and Asset Manager at the virtual
Capital Markets Event. In addition, the Board receives feedback from its
Corporate Broker and Financial Adviser on Shareholder matters.
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 47 to 57.
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 4.11.
CORPORATE, SOCIAL AND ENVIRONMENTAL RESPONSIBILITY
Corporate responsibility covers many different aspects of business. We
believe in conducting our business activities ethically and responsibly. Our
approach is set out on pages 40 and 41. Whilst the Group has no direct social
or community responsibilities, the Company is supportive of the Managers’
philanthropic activities, details of which are set out on pages 40 and 41.
74
The environmental impact of our properties is important to the Group.
The Company launched its commitment to a sustainability strategy
in 2020, with the intention to join GRESB in 2021. This will be used as
a platform from which sustainability policies and actions will be built
upon over the coming years. Further details can be found on page 42.
AUDITOR
RSM UK Audit LLP was appointed as auditor to the Company on listing
on 6 November 2015. RSM UK Audit LLP has expressed its willingness
to continue in office as Auditor to the Company and resolutions for
its re-appointment and for the Audit Committee 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, except for the details of any arrangements under
which a director of the company has waived any emoluments from
the company and the details of any contract of significance in which a
Director is or was materially interested.
As set out on page 94, Mr Bee and Mr Inglis do not receive any
remuneration from the Company. The details of the Agreements with
the Asset Manager and Investment Manager are set out in note 35.
FUTURE DEVELOPMENTS
Information on future developments is detailed within the Strategic
Report on page 15.
ANNUAL GENERAL MEETING
The Company’s 2021 AGM was due to be held on 19 May 2021.
However, in view of the evolving UK Government restrictions on public
gatherings, the Board has made the decision to delay the AGM until
later in the year in the hope that Shareholders can attend in person. A
further announcement will be made in due course.
For and on behalf of the Board
KEVIN MCGRATH
Chairman
24 March 2021
Corporate Governance
Tay House, Glasgow
HBOS Campus, Aylesbury
Genesis Business Park, Woking
Newstead Court, Nottingham
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Regional REIT Ltd | Annual Report and Accounts 2020
Corporate Governance
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
CORPORATE GOVERNANCE STATEMENT
The Directors are responsible for preparing
the Annual Report and the Group Financial
Statements in accordance with applicable law
and regulations.
Guernsey company law requires the directors
to prepare financial statements for each
financial year. The Directors are required
under the Listing Rules of the Financial
Conduct Authority to prepare the group
financial statements in accordance with
international financial reporting standards
adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European
Union.
The financial statements of the Group are
required by law to give a true and fair view of
the state of the Group’s affairs at the end of
the financial period and of the profit or loss
of the Group for that period and are required
by international financial reporting standards
adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European
Union to present fairly the financial position
and performance of the Group.
In preparing each of the Group financial
statements, the Directors are required to:
• select suitable accounting policies and then
apply them consistently;
• make judgements and accounting
estimates that are reasonable and prudent;
• state whether they have been prepared
in accordance with international financial
reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies
in the European Union;
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the group
will continue in business.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Group’s
transactions and disclose with reasonable
accuracy at any time the financial position
of the group and enable them to ensure that
the financial statements comply with the
requirements of The Companies (Guernsey)
Law 2008 and, as regards the Group financial
statements, international financial reporting
standards adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the
European Union. They are also responsible
for safeguarding the assets of the group and
hence for taking reasonable steps for the
prevention and detection of fraud and other
irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on
Regional REIT’s website.
Legislation in the Guernsey governing the
preparation and dissemination of financial
statements may differ from legislation in
other jurisdictions.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
CONSOLIDATED ANNUAL REPORT
Each of the Directors, whose names and functions are listed on pages 68 and 69, confirms that to the best of each person’s knowledge:
• the financial statements, prepared in
• the Strategic Report, including the Asset
• the Annual Report and Accounts,
accordance with international financial
reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies
in the European Union, give a true and
fair view of the assets, liabilities, financial
position and loss of the group and the
undertakings included in the consolidation
taken as a whole;
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
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 24 March 2021 and signed on its behalf by:
KEVIN MCGRATH
Chairman
24 March 2021
76
This Corporate Governance Statement forms part of the Report of the Directors.
The Listing Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority 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.
INTRODUCTION FROM THE CHAIRMAN
I am pleased to introduce this year’s Corporate Governance Statement.
The Company is committed to high standards of corporate
governance. This statement, together with the Statement of Directors’
Responsibilities on page 76, indicates how the Company has applied
the principles of recommended governance of the Financial Reporting
Council (“FRC”) 2018 UK Corporate Governance Code (the “UK Code”)
and the AIC Code of Corporate Governance issued in 2019, (the “AIC
Code”), which complements the UK Corporate Governance Code and
provides a framework of best practice for investment trusts.
The Board considers that reporting against the principles and provisions
of the AIC Code, which has been endorsed by the FRC and the Guernsey
Financial Services Commission (“GFSC”), provides more relevant
information to Shareholders and that by reporting against the AIC Code
the Company has met its obligations in relation to the UK Code and
associated disclosure requirements under paragraph 9.8.6 of the Listing
Rules.
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.
The UK Code is available on the FRC website (www.frc.org.uk). The
AIC Code is available on the AIC website (www.theaic.co.uk) and
includes an explanation of how the AIC Code adapts the principles
and provisions set out in the UK Code to make them relevant for
investment companies.
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 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
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.
COMPLIANCE WITH THE AIC CODE
The Board attaches great importance to the matters set out in the AIC
Code (incorporating the UK Code) and strives to observe its principles.
Accordingly, the table below reports on the Company’s compliance
with the recommendations of the AIC Code throughout the year.
Throughout the year ended 31 December 2020, 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. It should be noted
that, as an investment company, all of the Directors are non-executive
and being externally managed, the day-to-day responsibilities of the
Company are delegated to third parties.
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.
Moreover, the principles and provisions of the AIC Code have been
complied with throughout the year, except for the following:
• as a Guernsey incorporated entity, there are no statutory
requirements for the Company to develop a remuneration 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 pages 92 and 93.
• 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.
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Corporate Governance
CORPORATE GOVERNANCE STATEMENT continued
BOARD LEADERSHIP AND PURPOSE
DIVISION OF RESPONSIBILITIES
AIC Code Principle
Compliance statement
AIC Code Principle
Compliance statement
A. A successful company is led by an
effective board, whose role is to promote
the long-term sustainable success of
the Company, generating value for
Shareholders and contributing to wider
society.
B. The Board should establish the
Company’s purpose, values and strategy,
and satisfy itself that these and its culture
are aligned. All directors must act with
integrity, lead by example and promote the
desired culture.
C. The Board should ensure that the
necessary resources are in place for the
Company to meet its objectives and
measure performance against them. The
Board should also establish a framework
of prudent and effective controls, which
enable risk to be assessed and managed.
D. In order for the Company to meet
its responsibilities to Shareholders and
stakeholders, the Board should ensure
effective engagement with, and encourage
participation from, these parties.
The Board considers the long-term sustainable success of the Company to be its main focus
and all decisions are considered from this point of view.
The opportunities and risks faced by the business are considered, monitored and assessed on
a regular basis. An example of this was the Board’s decision to alter the Company’s strategy to
become a regional office specialist. This was based upon the Asset Manager’s unique operating
platform and experience coupled with the observed supply and demand imbalance in the
office sector. Further details can be found in the Chairman’s Statement on pages 14 to 17.
Details regarding the principal risk and uncertainties and the sustainability of the business
model can be found in the Strategic Report on pages 47 to 57.
The purpose of the Company, as set out on page 1, is to deliver long-term returns for
Shareholders with income generated from investment in UK office space outside of the M25
motorway. The strategy that the Board follows in order to execute this is outlined in the
Strategic Report on pages 14 to 65.
As outlined on the inside front cover, the Board has adopted some key values which are
embedded into the culture of the business and are key to any decision made by the Company.
The Directors agree that establishing and maintaining an open and inclusive culture among the
Board and in its interaction with the Asset and Investment Managers, Shareholders and other
stakeholders, will support the delivery of its purpose, values, and strategy.
The values and culture of the business are considered as part of the annual Board evaluation
process to ensure that they remain a key focus that all decisions are based on.
The Board and the MERC regularly review the performance of the Company and the
performance and resources of the Investment Manager, the Asset Manager and the Company’s
services providers to ensure that the Company can continue to meet its objectives.
The Board assesses performance in a number of different ways including regularly reviewing
the financial forecasts and KPIs, as well as debt financing and gearing.
The Audit Committee is responsible for assessing and managing risks. The Company’s principal
risks and uncertainties can be found on pages 47 to 57. Risks are reviewed as part of the Audit
Committee’s review of the internal controls reports of the Company’s key service providers.
A risk matrix is maintained, which is also regularly reviewed by the Audit Committee. Further
details can be found on page 47.
The Board understands its responsibilities to Shareholders and stakeholders and considers the
opinions of all such parties when making any decision. The Board considers that, other than
Shareholders, the Company’s other key stakeholders are the Company’s tenants, its third-party
providers and its Asset Manager and Investment Manager.
The Board considers the impact any decision will have on all stakeholders to ensure that they
are making a decision that promotes the long-term success of the Company, whether this be in
relation to dividends, property acquisitions or disposals, etc.
Further details can be found on pages 59 to 61.
The Directors place considerable importance on Shareholder engagement and on
communications with them and all other stakeholders. Shareholders who wish to contact
the Board may do so by emailing rgl_cosec@linkgroup.co.uk. All Directors make themselves
available to meet Shareholders at the Company’s AGM or any other such times as required by
Shareholders. The Board has made the decision to delay the 2021 AGM to later in the year in
the hope that Shareholders can attend in person.
F. The chair leads the Board and is
responsible for its overall effectiveness
in directing the Company. They should
demonstrate objective judgement
throughout their tenure and promote a
culture of openness and debate. In addition,
the chair facilitates constructive board
relations and the effective contribution of
all non-executive directors, and ensures
that directors receive accurate, timely and
clear information.
There is a clear division of responsibility between the Chairman, the Directors, the Asset
Manager, the Investment Manager and the Company’s other third-party service providers.
The Board has approved a policy which sets out the responsibilities of the Chairman, Mr
McGrath and Senior Independent Director, Mr Eason, a copy of which is available on the
Company’s website. The Chairman is responsible for leading the Board and is responsible for
its overall effectiveness in directing the affairs of the Company. The Chairman ensures that
all Directors receive accurate, timely and clear information and helps promote a culture
of openness and debate in Board meetings by encouraging and facilitating the effective
contribution of other Directors towards a consensus view. The Chairman also takes a leading
role in ensuring effective communications with Shareholders and other stakeholders.
G. The Board should consist of an
appropriate combination of directors (and,
in particular, independent non-executive
directors) such that no one individual or
small group of individuals dominates the
Board’s decision making.
The Board meets regularly throughout the year and representatives of the Asset Manager and
Investment Manager are in attendance, when appropriate, at each Board and/or Committee
meeting.
The Board has agreed a schedule of matters specifically reserved for decision by the Board.
This includes establishing, following consultation with the Asset Manager and the Investment
Manager, the Company’s investment policy, long-term objectives, commercial strategy, the
gearing policy and the setting of any limits and any treasury policies.
Prior to each Board and Audit Committee meeting, Directors are provided with a
comprehensive set of papers giving detailed information on the Company’s portfolio including
property acquisitions/disposals and financial position and all Directors have timely access to
all relevant management financial and regulatory information.
All of the Directors are non-executive and are independent of the Asset Manager and
Investment Manager and the other service providers (with the exception of Mr Inglis who is the
Chief Executive Officer and Founder of London & Scottish Property Investment Management,
the Company’s Asset Manager and Mr Bee who is the Legal Counsel of Toscafund Asset
Management LLP, the Company’s Investment Manager).
A majority of the Board will at all times be independent of the Asset and Investment
Managers.
The Chairman, Mr McGrath, was independent of the Asset Manager and Investment Manager
at the time of his appointment and remains so. The Board is aware of the AIC’s guidance on
this issue and regards Mr McGrath as independent.
None of the Directors is a director of another investment company managed by the
Company’s Asset Manager or Investment Manager nor has any Board member been an
employee of the Company or currently have any connection to any of its service providers
(with the exception of Mr Inglis and Mr Bee).
During the year under review, Mr Eason and Ms Daley continued to be directors of separate
companies managed by the investment manager Janus Henderson. This has been considered
by the Board, which was satisfied that they were demonstrably independent and that their
independence as Directors of the Company was 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. Mr Eason retired from the board of the Henderson International
Income Trust PLC on 8 December 2020.
The board evaluation concluded that each Director provides a valuable contribution to Board
meeting discussions and exercises appropriate levels of challenge and debate.
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Corporate Governance
CORPORATE GOVERNANCE STATEMENT continued
DIVISION OF RESPONSIBILITIES
AIC Code Principle
Compliance statement
COMPOSITION, SUCCESSION AND EVALUATION
AIC Code Principle
Compliance statement
H. Non-executive directors should have
sufficient time to meet their board
responsibilities. They should provide
constructive challenge, strategic guidance,
offer specialist advice and hold third-party
service providers to account.
I. The Board, supported by the Company
Secretary, should ensure that it has the
policies, processes, information, time and
resources it needs in order to function
effectively and efficiently.
As part of the Board evaluation process, the contributions of each Director, as well as the time
commitments made by each board member are considered and reviewed. It was concluded
that each Director provided appropriate levels of challenge and provided the Company and
each of the Asset Manager and Investment Manager with guidance and advice when required.
The MERC reviews the performance and cost of the Company’s third-party service providers on
an annual basis. More information regarding the work of the MERC can be found on pages 92
and 93.
The Directors have access to the advice and services of the Company Secretary who is
responsible to the Board for ensuring that Board procedures are in place and followed and that
applicable rules and regulations are complied with. The Company Secretary is also responsible
for ensuring good information flows between all parties.
COMPOSITION, SUCCESSION AND EVALUATION
AIC Code Principle
Compliance statement
J. Appointments to the Board should
be subject to a formal, rigorous and
transparent procedure, and an effective
succession plan should be maintained.
Both appointments and succession plans
should be based on merit and objective
criteria and, within this context, should
promote diversity of gender, social and
ethnic backgrounds, cognitive and personal
strengths.
K. The Board and its committees should
have a combination of skills, experience
and knowledge. Consideration should be
given to the length of service of the Board
as a whole and membership regularly
refreshed.
The Board has adopted a diversity policy, which acknowledges the benefits of greater diversity,
and remains committed to ensuring that the Company’s Directors bring a wide range of skills,
knowledge, experience, backgrounds and perspectives to the Board.
Whilst the Board does not feel that it would be appropriate to set targets as all appointments
are made on merit, the following objectives for the appointment of Directors have been
established:
• 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 should include diverse candidates of
appropriate merit; and
• to only engage executive search firms who have signed up to the voluntary Code of Conduct
on gender diversity and best practice.
The Company is committed to ensuring that any vacancies to the Board arising in the future
are filled by the most qualified candidates, whilst ensuring the benefits of greater diversity.
Directors’ biographical details are set out on pages 68 and 69 of this Report. These
demonstrate the wide range of skills and experience that the Directors bring to the Board
including in of the property sector, investment trusts, and financial and public company
management.
The Board has approved a tenure policy, which encompasses the whole Board and Chairman,
to ensure that the Board continues to have the right balance of skills and experience.
Each Director was appointed with a view to establishing a Board with a good combination of
skills, experience and knowledge. This is reviewed as part of the annual Board process. When
considering new appointments, the Board will review the skills of the Directors and seek to add
persons with complementary skills or who possess skills and experience which fill any gaps in
the Board’s knowledge or experience and who can devote sufficient time to the Company to
carry out their duties effectively. Where appropriate, the need for diversity on the Board will be
taken into account when considering new appointments. The Company’s diversity policy can
be found on page 70.
L. Annual evaluation of the Board should
consider its composition, diversity and
how effectively members work together to
achieve objectives. Individual evaluation
should demonstrate whether each director
continues to contribute effectively.
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 during the year ended 31 December 2020. However, this will be kept under review.
During the year, the Company implemented a thorough appraisal process to review the
effectiveness of the Board as a whole, its Committees and individual Directors (including the
independence of each Director and their ability to commit sufficient time to the Company's
activities). The internal appraisal process was conducted by the Chairman, following the year
end, through individual interviews with each Director. In order to ensure a consistency of
approach, the Chairman referred to an outline of the topics and questions that he wanted to
cover during each appraisal.
The appraisal of the Chairman followed the same process and was carried out by the Board as
a whole under the leadership of Mr Eason (the Senior Independent Director), who obtained the
views from other Directors.
The results of the appraisal process, which were discussed collectively by the Board at its
March meeting, indicated that the Board and its Committees continue to work well at a
high standard and there are no significant concerns among the Directors about the Board’s
effectiveness. In particular, the Directors believed that there was a continued emphasis on
strategy and the longer term when making decisions. More time will be allocated next year to
the Board’s longer-term succession planning. Other areas of strength included the skills and
experience of Board members, in particular to both challenge and support the Managers.
Additionally, the review of the Chairman’s performance was positive, and the other Directors
considered that the Chairman remained independent and that he continued to strongly and
effectively lead the Board.
As a result of the evaluation, the Board is satisfied that all Directors are independent, with the
exception of Mr Inglis and Mr Bee, and that all Directors contribute effectively and have the
skills and experience relevant to foster the effective leadership and direction of the Company.
All Directors are able to commit sufficient time to the Company’s activities.
It is recommended that Shareholders vote in favour of each Director’s re-election at the
forthcoming AGM. All Directors are subject to annual re-election by Shareholders. More
information regarding the proposed re-election of each Director can be found in the Notice of
Annual General Meeting.
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Corporate Governance
N. The Board should present a fair,
balanced and understandable assessment
of the Company’s position and prospects.
The Audit Committee has considered the Audited Annual Report and Financial Statements as
a whole and agreed that it presents a fair, balanced, and understandable assessment of the
Company’s position and prospects.
Board Independence
as at 31 December 2020
CORPORATE GOVERNANCE STATEMENT continued
AUDIT, RISK AND INTERNAL CONTROL
AIC Code Principle
Compliance statement
M. The Board should establish formal and
transparent policies and procedures to
ensure the independence and effectiveness
of external audit functions and satisfy itself
on the integrity of financial and narrative
statements.
The Audit Committee has put in a place a non-audit services policy, which ensures that
any work outside the scope of the standard audit work requires prior approval by the Audit
Committee. This enables the Committee to ensure that the external auditors remain fully
independent.
In addition, the Audit Committee carries out a review of the performance of the external
auditor on an annual basis. Feedback from other third parties, including the Asset Manager and
Investment Manager, is included as part of this assessment to ensure the Audit Committee
takes into account the views of different parties who have a close working relationship with
the external auditor.
Further information regarding the work of the Audit Committee can be found on pages 88 to 91.
O. The Board should establish procedures
to manage risk, oversee the internal control
framework, and determine the nature and
extent of the principal risks the Company is
willing to take in order to achieve its long-
term strategic objectives.
P. Remuneration policies and practices
should be designed to support strategy and
promote long-term sustainable success.
Q. A formal and transparent procedure for
developing policy remuneration should be
established. No director should be involved
in deciding their own remuneration
outcome.
R. Directors should exercise independent
judgement and discretion when authorising
remuneration outcomes, taking account of
company and individual performance, and
wider circumstances.
Risks faced by the Company are considered, monitored and assessed on a regular basis by the
Audit Committee. For details in respect to the Company’s principal risks and uncertainties and
the appropriate measures taken to mitigate each risk can be found on pages 47 to 57.
Given the nature of the business, the Company is reliant on its service providers and their
internal controls. The Audit Committee reviews reports from the principal service providers
on compliance and the internal and financial control systems in operation and relevant
independent audit reports thereon. The Chairman of the Audit Committee meets, at least
annually, with representatives of each of the Asset Manager and Investment Manager
independently, to review and discuss the internal controls within their businesses.
In respect of Directors’ remuneration, the Company follows the recommendation of the AIC
Code that non-executive Directors’ remuneration should reflect the time commitment and
responsibilities of the role. As stated in the Remuneration Report on page 94, the Company’s
approach to non-executive director’s remuneration is that remuneration should reflect the
experience of the Board as a whole and the responsibilities and time commitments each
Director would have to devote to the Company’s affairs.
The MERC considers at least annually the level of Directors’ fees and compares these with the
fees paid by the Company’s peer group and industry generally, taking into account the time
commitment and responsibility of each Board member.
Further details on the Directors’ remuneration are contained in the Directors’ Remuneration
Report on pages 94 and 95. No Director is involved in deciding their own remuneration.
Any decision with regard to remuneration is taken by the MERC after considering the
performance of the Company and the current market conditions.
HIGHLIGHTS AT A GLANCE
Board and Committee Meeting Attendance
for the year ended 31 December 2020
Female Representation on our Board
as at 31 December 2020
100%
16.7%
66.7%
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 68 and 69.
A review of Board composition and balance is included as part of the
annual performance evaluation of the Board, details of which may be
found below.
The Company’s culture is set out on the inside front cover. The values
of the Company are set out on the inside front cover. These values are
considered in Board decision making. The purpose of the Company is
the investment objective, which can be found on page 18. The strategy
that the Board follows to meet this objective is outlined in the Strategic
Report on page 18. The business model that the Company operates is
set out on pages 19 to 23.
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, as well as debt financing and
gearing. Further details can be found on pages 8 and 9 and pages 44 to
46 of the Strategic Report.
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 40 to 57.
BOARD OPERATION
There is a clear division of responsibilities between the Board and the
Managers. The Directors have agreed a formal schedule of matters
specifically reserved for their approval. The schedule of matters
reserved to the Board includes, but is not limited to the following:
• approval of asset acquisitions and disposals over £15 million;
• approval of capital expenditure;
• 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;
• 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 the schedule of matters reserved for the Board can be found
on the Company’s 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, 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.
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Corporate Governance
CORPORATE GOVERNANCE STATEMENT continued
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
under review, the number of scheduled Board meetings attended by
each Director was as follows:
Director
Kevin McGrath
William Eason
Daniel Taylor
Frances Daley
Stephen Inglis
Timothy Bee
Scheduled Board Meetings
Number entitled
to attend
Number
attended
4
4
4
4
4
4
4
4
4
4
4
4
Additional Board meetings were also held as required during the
year, including to deal with corporate transactions such as property
disposals and acquisitions, dividends, establishment of a share buyback
programme 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.
BOARD COMPOSITION
CONFLICTS OF INTEREST
It is the responsibility of each individual Director to avoid a conflict-of-
interest situation arising. 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.
The 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.
During the year, the Company implemented a thorough appraisal
process to review the effectiveness of the Board as a whole, its
Committees and individual Directors (including the independence
of each Director and their ability to commit sufficient time to the
Company's activities). The internal appraisal process was conducted
by the Chairman, following the year end, through individual appraisals
with each Director. In order to ensure a consistency of approach,
the Chairman referred to an outline of the topics and questions that
he wanted to cover during each appraisal that addressed a broad
range of issues and which enabled them to provide comments on
a range of matters. The questions covered, but was not limited to,
Board performance, culture, relationships between Board members,
relationships between the Board and the Managers, content and scope
1
1
2
2
(cid:31)(cid:30)Male
(cid:31)(cid:30)Female
(cid:31)(cid:30)Independent Chairman
(cid:31)(cid:30)Independent Non-
Executive Directors
(cid:31)(cid:30)Non-Independent
Non-Executive Directors
5
3
(cid:30)Under 2 years
(cid:31)(cid:30)3 to 5 years
(cid:31)(cid:30)Over 6 years
4
Gender Diversity
Independence
Board Tenure
of topics covered at Board meetings and the nature and dynamics
of Director contributions to meeting. The operation of the Board’s
committees was also addressed.
is subject to an annual performance evaluation and the approval of
Shareholders at each AGM, in accordance with corporate governance
best practice.
The appraisal of the Chairman followed the same process and was
carried out by the Board as a whole under the leadership of Mr Eason
(the Senior Independent Director), who obtained the views from other
Directors.
The results of the appraisal process, which were discussed collectively
by the Board at its March meeting, indicated that the Board and
its Committees continue to work well at a high standard and there
are no significant concerns among the Directors about the Board’s
effectiveness. In particular, the Directors believed that there was a
continued emphasis on strategy and the longer term when making
decisions. More time will be allocated next year to the Board’s longer-
term succession planning, with focus on developing a diverse pipeline
for succession and the Chairman is keen to increase his engagement
with key Shareholders. Other areas of strength included the skills and
experience of Board members, in particular to both challenge and
support the Managers.
Additionally, the review of the Chairman’s performance was positive,
and the other Directors considered that the Chairman remained
independent and that he continued to strongly and effectively lead the
Board.
As a result of the evaluation, the Board is satisfied that all Directors
are independent, with the exception of Mr Inglis and Mr Bee, and that
all Directors 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.
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 2020 the Board agreed to extend the appointment period of Mr Bee
for a further three-year term. In 2018, the Board had agreed to extend
the appointment period of Mr McGrath, Mr Taylor, Mr Inglis and Mr
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
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.
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Corporate Governance
CORPORATE GOVERNANCE STATEMENT continued
BOARD COMMITTEES
The Board has delegated authority to the following Committees and there are written terms of reference for each, outlining its authority and duties,
which can be found on the Company’s website, www.regionalreit.com.
THE BOARD
CHAIRMAN: Kevin McGrath
COMPRISES: Six Non-Executive Directors
ROLE:
• Responsible to the Shareholders for the long-term strategy, control and leadership of the Group
BOARD COMMITTEES
AUDIT COMMITTEE
(Four members)
MANAGEMENT ENGAGEMENT AND
REMUNERATION COMMITTEE (“MERC”)
(Four members)
CHAIRMAN: Frances Daley
CHAIRMAN: William Eason
COMPRISES:
Four Independent Non-Executive Directors
(including the Audit Chairman)
COMPRISES:
Four Independent Non-Executive Directors
(including the MERC Chairman)
ROLES:
ROLES:
• Review and report to the Board on the Group’s financial
• Monitor the level and structure of the remuneration of the
statements.
Directors, Chairman and the Managers.
• Review the internal controls and risk management systems of
• Review the performance of the Managers and the Company’s
the Company’s key third-party service providers.
• Review the half-year and annual property valuation reports.
• Oversee the Company’s relationship with the external auditor.
key third-party service providers and recommend to the Board,
if appropriate, of their ongoing appointment.
• Appointment of a remuneration consultant if required.
BOARD COMMITTEES
The Board has two Committees in operation and has delegated certain
responsibilities to the Audit Committee and the MERC. Given the size
of the Company, it is not felt appropriate for the Company to have a
separate nomination committee.
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
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 Ms 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 88 to 91.
MANAGEMENT ENGAGEMENT AND REMUNERATION
COMMITTEE
The MERC comprises the four Independent Directors and is chaired by
Mr 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. The MERC Report is set
out on pages 92 and 93.
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.
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,
• under the terms of the Asset Management Agreement between
the Company and the Asset Manager, Board approval is required
for purchases of property exceeding £15 million in value and for
disposals exceeding £15 million 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 are 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 47 to 57.
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 depository 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.
Taking into account the principal and emerging risks provided on pages
47 to 57 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.
This statement was approved by the Board of Directors and signed on
its behalf by
LINK COMPANY MATTERS LIMITED
Company Secretary
24 March 2021
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Regional REIT Ltd | Annual Report and Accounts 2020
AUDIT COMMITTEE REPORT
Corporate Governance
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 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.
The Audit Committee’s role and responsibilities are set out in the terms
of reference, which were last updated in March 2021 and are available
on the Company’s website at www.regionalreit.com.
MEETINGS
The Audit Committee met on three occasions during the year and once
post the year end to consider the audit findings report and the Financial
Statements.
Attendance at these scheduled meetings was as follows:
Member
Frances Daley (Chairman)
William Eason
Kevin McGrath
Daniel Taylor
Scheduled Audit Committee Meetings
Number entitled
to attend
Number
attended
3
3
3
3
3
3
3
3
MATTERS CONSIDERED BY THE AUDIT COMMITTEE IN
THE YEAR
At these meetings, the Audit Committee has:
Left to right: Kevin McGrath, William Eason, Frances Daley, Daniel Taylor.
• reviewed the internal controls and risk management systems of key
I am pleased to present the Audit Committee Report for the year ended 31 December 2020, 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.
As set out on page 87, 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
meets at least twice annually, and its quorum is two members.
FINANCIAL REPORTING
It is a principal responsibility of the Audit Committee 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 2020 Annual Report and
the audited Financial Statements taken as a whole are 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
On an annual basis, the Audit Committee reviews the internal controls
and risk management systems of the Company’s key third-party service
providers. No significant matters of concern were raised. On an annual
basis, the Chairman of the Audit Committee meets with representatives
of each of the Asset Manager and Investment Manager to discuss and
review their internal controls and compliance. There were no significant
matters of concern identified from these meetings.
The Audit Committee has reviewed and updated, where appropriate,
the risk matrix. This is done on a six-monthly basis. The Company’s
principal risks and uncertainties are set out on pages 47 to 57.
AUDIT COMMITTEE COMPOSITION
During the year under review, the membership of the Audit Committee,
which remained unchanged, comprised the four independent non-
executive Directors. None of the members of the Committee are
connected to either the Asset Manager 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.
third-party service providers;
• reviewed financial results;
• reviewed and, where appropriate, updated the Company’s Financial
Position and Prospects Procedures;
• reviewed the Group’s banking arrangements;
• reviewed the assessment of the Company’s prospects and viability
made by the Investment Manager for the next three years which
formed the basis for the viability statement (see page 58);
• 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);
• reviewed whether an internal audit function would be of value;
• 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;
• reviewed the Group’s Financial Statements and advised the Board
accordingly; and
• considered the Audit Quality Review from the FCA.
SIGNIFICANT MATTERS CONSIDERED BY THE AUDIT COMMITTEE
The Committee considered the following key matters in relation to the
Company during the period:
COVID-19
The Committee has considered the continuing impact of the COVID-19
pandemic on the principal and emerging risks facing the Company and
the Group and on its financial performance, through both its scheduled
meetings and at additional update meetings which have been held
regularly since March 2020. Further information on the impact of
COVID-19 on the Group is set out on pages 15 and 51 and in the going
concern and viability disclosures on page 58.
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.
Furthermore, as part of the annual independent Audit process, the
Company’s auditor, RSM UK Audit LLP carry out an assessment of the
property portfolio valuation provided by Cushman & Wakefield which
includes using their own expert, providing the Committee further
comfort that property valuations are accurate.
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 Auditor has also
engaged its own independent expert to consider the valuation.
The Committee reviewed the half year valuation as at 30 June 2020
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 was 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 92.
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Regional REIT Ltd | Annual Report and Accounts 2020
AUDIT COMMITTEE REPORT continued
Going Concern and Long-Term Viability of the Company
The Audit Committee considered the Company’s financial requirements
for the next twelve months and concluded that it has sufficient
resources to meet its commitments and any outstanding loan
covenants. Consequently, the financial statements have been prepared
on a going concern basis.
The Audit Committee also considered the longer-term viability
statement within the annual report for the year ended 31 December
2020, covering a three-year period, and the underlying factors and
assumptions which contributed to the Committee deciding that three
years was an appropriate length of time to consider the Company’s
long-term viability. The Company’s viability statement can be found on
page 58.
FRC Audit Quality Review
During 2019, 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 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.
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 with RSM. RSM has confirmed that it has
enhanced its audit procedures to address the specific matters raised
in the AQR findings, which in respect of the valuation of investment
properties includes the engagement of an independent expert to value
the Company’s investment properties in the audit process.
EXTERNAL AUDITOR
The Audit Committee has primary responsibility for overseeing the
relationship with the external auditor, RSM UK Audit LLP. This includes
assessing their performance, effectiveness and independence annually
and recommending to the Board their reappointment or removal.
RSM UK Audit LLP has been auditor to the Company since listing
on 6 November 2015, during which time Mr Euan Banks, Partner at
RSM UK Audit LLP, was the lead audit partner on the audit. However,
following the 2019-year end audit, Mr Euan Banks reached the end
of his five-year term as audit partner and was replaced by Mr Alan
Aitchison. The transitionary arrangements were discussed with RSM
UK Audit LLP and the Investment Manager and Asset Manager to
ensure a smooth handover and induction process. 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 from 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.
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 a particular focus on risk and materiality. The external
Auditor further meets with the Audit Committee post the year end
audit work being completed to discuss the findings of the external
audit and to 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 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 Manager and
Investment Manager.
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 ended 31 December 2020 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.
AUDIT FEES AND NON-AUDIT SERVICES
An audit fee of £84,500 was agreed in respect of the audit of the
Company for the year ended 31 December 2020 (2019: £102,500). An
additional fee of £20,000 was paid to the Auditor for the additional
work undertaken on the 2019 Annual Report and Accounts in respect
of COVID-19. The Group’s audit fees for the year ended 31 December
2020 totalled £197,000 (2019: £219,000).
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. The scope and
nature of 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 Auditor provided audit-related services in respect of agreed-upon
procedures on the Group’s interim financial statements for the period
ended 30 June 2020. The fee charged for this service was £26,500
(2019: £26,500). The Audit Committee considered this service to be
closely aligned to the role as auditor. The Auditor did not provide any
non-audit services to the Company for the year under review (2019:
£80,000).
Corporate Governance
Risk Management and Control
• to keep under review the adequacy of the Company’s Asset and
Investment Manager and 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.
The Audit Committee reports and makes recommendations to the
Board, as appropriate.
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
Chairman
Audit Committee
24 March 2021
INDEPENDENCE AND OBJECTIVITY OF THE AUDITOR
The Audit Committee has considered the independence and objectivity
of the Auditor and has conducted a review of non-audit services
which the Auditor has provided during the year under review. The
Audit Committee receives an annual assurance from the Auditor that
its independence is not compromised by the provision of non-audit
services and that it maintains appropriate internal safeguards in line
with applicable professional standards.
In evaluating the performance of the Auditor, 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.
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.
The Audit Committee reviews the continuing appointment of the
Auditor on an annual basis and gives regular consideration to the
Auditor’s fees and independence, along with matters raised during each
audit.
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 reviewed whether an internal audit function
would be of value and concluded 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.
In addition, given the limited size and complexity of the business, it was
agreed that an internal audit function would provide minimal added
comfort at considerable extra cost to the Company.
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 audited financial statements and to 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.
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Regional REIT Ltd | Annual Report and Accounts 2020
Corporate Governance
MANAGEMENT ENGAGEMENT AND REMUNERATION COMMITTEE REPORT
In addition, the Investment Manager undertakes continual review of
the competitiveness of the fees of the Company’s service providers and
advises the MERC as appropriate.
The MERC also considered the remuneration of the independent non-
executive Directors, details of which can be found in the Remuneration
Report on pages 94 and 95. No individual was involved in discussions
about his/her own remuneration.
DIRECTORS INTERESTS
The Company’s Articles of Incorporation 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 as at
31 December 2020 and the date of this report can be found on page 71.
REMUNERATION ADVISERS
The Company has not sought the advice or service by any outside
persons or consultants in respect of the consideration of Directors’
remuneration.
ROLE OF THE MANAGEMENT ENGAGEMENT AND
REMUNERATION COMMITTEE
The principal duties of the MERC are:
• to recommend and monitor the appropriateness of the ongoing
appointment of the Asset Manager and Investment Manager of the
Company and make a recommendation to the Board thereon;
• to recommend and monitor the appropriateness of the level of
fees of the Asset Manager and Investment Manager and make a
recommendation to the Board thereon;
• to recommend and monitor the appropriateness of the ongoing
appointment of the third-party service providers and make a
recommendation to the Board thereon;
• to monitor and agree the level and structure of remuneration of the
Directors of the Company;
• to authorise the policy for authorising claims for expenses from the
Directors; and
• to select, appoint and set the terms for any remuneration consultant
who advise the committee.
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 MERC continued to operate at a high
standard.
WILLIAM EASON
Chairman
Management Engagement and Remuneration Committee
24 March 2021
93
Left to right: William Eason, Kevin McGrath, Daniel Taylor, Frances Daley.
I am pleased to present the Management Engagement and
Remuneration Committee (“MERC”) Report for the year ended
31 December 2020.
COMPOSITION AND MEETINGS
The MERC, whose membership remained unchanged and consists
solely of the independent non-executive Directors and myself as
Chairman, met once 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:
Scheduled MERC Meetings
Number entitled
to attend
Number
attended
1
1
1
1
1
1
1
1
Member
Bill Eason (Chairman)
Kevin McGrath
Daniel Taylor
Frances Daley
92
ACTIVITIES DURING THE YEAR
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 the performance 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 Asset Manager provide regular updates to the
Board on the Company’s assets and the property market generally.
The Investment Manager provides regular updates to the Board on the
Company’s financial performance. 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 for the year ended 31 December 2020
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. It
recommended to the Board that all third-party service providers be
retained.
Regional REIT Ltd | Annual Report and Accounts 2020
Corporate Governance
DIRECTORS’ 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 the year ended
31 December 2020. This report has been prepared in accordance with
the relevant requirements of the Listing Rules. As set out on page 87
in the corporate governance statement, the MERC comprises only the
non-executive Directors of the Company.
As at 31 December 2020 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, having regard to 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.
The MERC reviews Directors’ fees on an annual basis. No Director is
involved in determining their own 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. The
MERC met once during the year.
In the year under review, the MERC decided to not make any changes
to the Directors’ remuneration. The annual fees for Directors were last
increased on 1 April 2019, having been set in 2015.
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). The fee for any new
Director appointed will be determined on the same basis.
Mr Eason receives no additional remuneration for his role as chairman
of the MERC or as Senior Independent Non-Executive Director. Ms
Daley receives no additional remuneration for her role as chairman of
the Audit Committee.
Mr Inglis has waived his right to receive remuneration from the
Company due to his position as chief executive officer of the Asset
Manager. Mr Bee has waived his right to receive 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 AND PAYMENTS TO PAST
DIRECTORS
Compensation will not be made upon early termination of
appointment. No payment has been made to any former Director for
loss of office (2019: none). There were no payments for past Directors
in the year ended 31 December 2020 (2019: none).
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 remuneration paid to the Directors as fees for their services during
the year is set out in the table below:
Director
Kevin McGrath
William Eason
Daniel Taylor
Frances Daley
Stephen Inglis
Tim Bee
Aggregate:
Fees paid to
31 December 2020
Fees paid to
31 December 2019
£73,500
£52,500
£52,500
£52,500
–
–
£72,625
£51,875
£51,875
£51,875
–
–
£231,000
£228,250
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.
No additional remuneration was paid to the Directors during the year.
No Director claimed any expenses during the year.
The basic fee payable to Directors in respect of the year ended
31 December 2020 and the expected fees payable in respect of the year
ending 31 December 2021 are set out in the table below:
Director
Chairman
Non-executive director
Total remuneration paid to
Directors
Expected annual
fees for the year to
31 December 2021
Annual fees
for the year to
31 December 2020
£73,500
£52,500
£73,500
£52,500
£231,000
£231,000
The approval of Shareholders would be required to increase the
aggregate limit of Directors’ fee of £300,000, as set out in the
Company’s articles of incorporation.
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 71.
SHAREHOLDER ENGAGEMENT
The Company is committed to ongoing shareholder dialogue and any
views expressed by Shareholders on the fees being paid to Directors
would be taken into consideration by the MERC in the annual review of
Directors’ fees.
By order of the Board
WILLIAM EASON
Chairman of the Management Engagement and Remuneration
Committee
24 March 2021
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Regional REIT Ltd | Annual Report and Accounts 2020
Corporate Governance
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF REGIONAL REIT LIMITED
OPINION
We have audited the financial statements of Regional REIT Limited
(the ‘group’) for the year ended 31 December 2020 which comprise
the consolidated statement of comprehensive income, consolidated
statement of financial position, consolidated statement of changes
in equity, consolidated statement of cash flows and notes to the
financial statements, including significant accounting policies. The
financial reporting framework that has been applied in their preparation
is applicable law and international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union.
the headroom in banking covenants; and the ability to make dividend
payments;
• assessing the reasonableness of assumptions and explanations
provided by management to supporting information, where
available;
• stress-testing management’s cashflow forecasts to assess the impact
of assumptions worse than those included in management’s model;
and
• auditing the accuracy of disclosures made in the financial statements
in respect of risks, going concern and viability.
In our opinion, the financial statements:
• give a true and fair view of the state of the group’s affairs as at
31 December and of the group’s loss for the year then ended;
• are in accordance with international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union; and
• comply with the requirements of The Companies (Guernsey) Law,
2008 and Article 4 of the IAS Regulation.
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.
Our evaluation of the directors’ assessment of the group’s ability to
continue to adopt the going concern basis of accounting included
gaining an understanding of their assessment of the underlying
risks relating to going concern, the key facts and variables within
that assessment and the judgements they applied in reaching
their conclusion. We concluded that the directors’ assessment was
appropriate in the circumstances.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the group’s ability to
continue as a going concern for a period of at least twelve months from
when the financial statements are authorised for issue.
In relation to the entities reporting on how they have applied the AIC
Code of Corporate Governance, we have nothing material to add or
draw attention to in relation to the directors’ statement in the financial
statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect
to going concern are described in the relevant sections of this report.
SUMMARY OF OUR AUDIT APPROACH
CONCLUSIONS RELATING TO GOING CONCERN
In auditing the financial statements, we have concluded that the
directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our evaluation
of the directors’ assessment of the group’s ability to continue to adopt
the going concern basis of accounting included:
Key audit matters
Materiality
• checking the integrity and accuracy of the cashflow forecasts and
covenant calculations prepared by management;
Scope
• challenging management on the reasonableness of the assumptions
made in the forecasts particularly in respect of; the non-payment of
rent by tenants; the drawdown of funds from existing bank facilities;
Group
• Valuation of Investment Property
Group
• Overall materiality: £9,570,000
(2019: £5,314,000)
• Performance materiality: £7,170,000
(2019: £2,657,000)
Our audit procedures covered 85%
of revenue, 93% of total assets and 95%
of loss before tax.
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) we identified, including
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.
Investment Properties
Key audit matter
description
This is detailed in the Audit Committee report on pages 88 to 91; the significant accounting judgements and estimates
on page 109; note 4 of the significant accounting policies to the financial statements on page 111.
How the matter was
addressed in the audit
The Group owns or controls through a portfolio of Special Purpose Vehicles (SPV’s) a portfolio of investment properties
which include industrial, office and retail properties. The total value of the portfolio at 31 December 2020 was
£732.4 million (2019: £787.9 million). These properties are diversified across the UK with a wide geographical spread.
The 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.
We audited the independent valuations of investment properties to evaluate whether 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 consolidated financial statements in line with financial reporting framework. 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 engaged a property valuation specialist, as our auditor’s expert, and based on our initial discussions we identified
46 properties for detailed testing, where the current year valuation fell outside their current market expectations, or
where the property was 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 27 of these properties with the 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, our auditor’s expert, carried out a review of the valuations for the remaining 19 properties. Our expert
considered the specific inputs to these valuations and also considered the comparable transaction evidence that was
used by management’s expert in preparing their valuation.
We audited the additions and disposals made in the year and agreed a sample of these to completion statements.
We tested the inputs used by the valuer and ensured these reflected the correct inputs for a sample of properties.
Key observations
We concluded that the fair values of the investment properties being adopted by the group were appropriate.
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Corporate Governance
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF REGIONAL REIT LIMITED
continued
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. Based on our
professional judgement, we determined materiality as follows:
Overall materiality
£9,570,000 (2019: £5,314,000)
Basis for determining overall materiality
1.1% of Total Assets
Group
Rationale for benchmark applied
Total assets was used as a benchmark as it was assessed that the shareholders will be primarily
interested in the growth in the value of property, represented by the property valuation.
In the prior year our materiality was based on a blend of measures including total assets,
revenue, and result before tax.
Performance materiality
£7,170,000 (2019: £2,657,000)
Basis for determining performance materiality
75% of overall materiality
Materiality levels for those classes of transactions
where materiality levels are lower than overall
materiality
The statement of comprehensive income was tested to the lower Performance Materiality
figure of £1,680,000 to reflect that those values are significantly lower than those in the
statement of financial position.
Reporting of misstatements to the Audit
Committee
Misstatements in excess of £478,000 and misstatements below that threshold that, in our
view, warranted reporting on qualitative grounds.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
The group consists of 90 components, located in the following countries; Guernsey; Jersey; and the United Kingdom.
The coverage achieved by our audit procedures was:
15%
7%
17%
Revenue
Total assets
85%
76%
5%
41%
Loss before tax
54%
(cid:31)(cid:30)Full scope
(cid:31)(cid:30)Specific audit procedures
(cid:31)(cid:30)Analytical procedures
Full scope audits were performed for 11 components, specific audit procedures for 21 components and analytical procedures at group level for the
remaining 58 components.
The specific audit procedures for 19 components include the review of the investment properties held by those components. The specific audit
procedures for the remaining two components included procedures on cash and cash equivalents.
All audit work on the components was performed by RSM UK Audit LLP with no work performed by other component auditors.
OTHER INFORMATION
The other information comprises the information included in the
annual report, other than the financial statements and our auditor’s
report thereon. The directors are responsible for the other information
contained within the annual report. Our opinion on the financial
statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
• Board’s confirmation that it has carried out a robust assessment of
the emerging and principal risks set out on page 87;
• The section of the annual report that describes the review of
effectiveness of risk management and internal control systems set
out on page 87; and,
• The section describing the work of the audit committee set out on
pages 88 to 91.
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 course of 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 this gives rise to a material
misstatement in the financial statements themselves. If, based on
the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that
fact.
We have nothing to report in this regard.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY
EXCEPTION
We have nothing to report in respect of the following matters where
The Companies (Guernsey) Law 2008 requires us to report to you if, in
our opinion:
• proper accounting records have not been kept by the parent
company; or
• the 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 of our knowledge and belief, are necessary for the
purposes of our audit.
CORPORATE GOVERNANCE STATEMENT
The Listing Rules require us to review the directors’ statement in
relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the parent company’s
compliance with the provisions of the AIC Code of Corporate
Governance specified for our review.
Based on the work undertaken as part of our audit, we have concluded
that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements or our
knowledge obtained during the audit:
• Directors’ statement with regards the appropriateness of adopting
the going concern basis of accounting and any material uncertainties
identified set out on page 58;
• Directors’ explanation as to its assessment of the group’s prospects,
the period this assessment covers and why this period is appropriate
set out on page 58;
• Directors’ statement on fair, balanced and understandable set out on
page 76;
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities statement set
out on page 76, 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.
AUDITOR’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.
THE EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE
OF DETECTING IRREGULARITIES, INCLUDING FRAUD
Irregularities are instances of non-compliance with laws and
regulations. The objectives of our audit are to obtain sufficient
appropriate audit evidence regarding compliance with laws and
regulations that have a direct effect on the determination of material
amounts and disclosures in the financial statements, to perform audit
procedures to help identify instances of non-compliance with other
laws and regulations that may have a material effect on the financial
statements, and to respond appropriately to identified or suspected
non-compliance with laws and regulations identified during the audit.
In relation to fraud, the objectives of our audit are to identify and assess
the risk of material misstatement of the financial statements due to
fraud, to obtain sufficient appropriate audit evidence regarding the
assessed risks of material misstatement due to fraud through designing
and implementing appropriate responses and to respond appropriately
to fraud or suspected fraud identified during the audit.
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Regional REIT Ltd | Annual Report and Accounts 2020
Corporate Governance
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF REGIONAL REIT LIMITED
continued
APPENDIX:
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
However, it is the primary responsibility of management, with the
oversight of those charged with governance, to ensure that the entity's
operations are conducted in accordance with the provisions of laws and
regulations and for the prevention and detection of fraud.
In identifying and assessing risks of material misstatement in respect
of irregularities, including fraud, the group audit engagement team and
component auditors:
• obtained an understanding of the nature of the industry and sector,
including the legal and regulatory framework, that the group
operates in and how the group is complying with the legal and
regulatory framework;
• inquired of management, and those charged with governance, about
their own identification and assessment of the risks of irregularities,
including any known actual, suspected or alleged instances of fraud;
and
• discussed matters about non-compliance with laws and regulations
and how fraud might occur including assessment of how and
where the financial statements may be susceptible to fraud, having
obtained an understanding of the effectiveness of the control
environment.
All relevant laws and regulations identified at a Group level and
areas susceptible to fraud that could have a material effect on the
consolidated financial statements were communicated to component
auditors. Any instances of non-compliance with laws and regulations
identified and communicated by a component auditor were considered
in our group audit approach.
The most significant laws and regulations were determined as follows:
Legislation/
Regulation
Additional audit procedures performed
by the Group audit engagement team
and component auditors included:
IFRS; The Companies
(Guernsey) Law 2008;
AIC Code of Corporate
Governance; and Listing
and Transparency Rules
Review of the financial statement
disclosures and testing to supporting
documentation; Completion of disclosure
checklist to identify areas of non-
compliance.
Tax compliance; and UK
REIT regulations
Inspection of advice received from external
tax advisors; Input from an internal
auditor’s expert was obtained regarding
compliance with the UK REIT regulations.
Land and Building
Regulations
Inspection of technical due diligence report
and legal due diligence report.
Environmental Policies
and Regulations
Inspection of environmental due diligence
report.
Health and Safety
Regulations
Inspection of health and safety risk report.
The areas that we identified as being susceptible to material
misstatement due to fraud were:
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.
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.
• 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 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.
• 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
• 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.
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 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.
Risk
Management
override of
internal controls
Audit procedures performed by the
Group audit engagement team and
component auditors:
Testing the appropriateness of journal
entries and other adjustments;
Assessing whether the judgements made in
making accounting estimates are indicative
of a potential bias; and
Evaluating the business rationale of any
significant transactions that are unusual or
outside the normal course of business.
A further description of our responsibilities for the audit of the financial
statements is included in the appendix of this auditor’s report. This
description, which is located on page 101, 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 06 November 2015 to audit
the financial statements for the year ending 31 December 2015 and
subsequent financial periods.
The period of total uninterrupted consecutive appointments is six years,
covering the years ending 31 December 2015 to 31 December 2020.
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 Companies (Guernsey) Law 2008.
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.
ALAN AITCHISON
FOR AND ON BEHALF OF RSM UK AUDIT LLP, AUDITOR
Chartered Accountants
Third Floor, Centenary House
69 Wellington Street
Glasgow
G2 6HG
24 March 2021
100
101
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
104
105
106
107
108
102
103
Regional REIT Ltd | Annual Report and Accounts 2020
Financial Statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2020
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2020
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
(Loss)/gain on disposal of investment properties
Change in fair value of investment properties
Change in fair value of right of use assets
Operating (loss)/profit
Finance income
Finance expenses
Impairment of goodwill
Net movement in fair value of derivative financial instruments
(Loss)/profit before tax
Taxation
Total comprehensive (loss)/income for the year
(attributable to owners of the parent Company)
Total comprehensive income arises from continuing operations.
(Losses)/earnings per share – basic and diluted
The notes below are an integral part of these consolidated financial statements.
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
Notes
5
6
7
14
14
27
9
10
16
26
11
12
75,941
(22,662)
53,279
(11,329)
41,950
(1,073)
(54,793)
(195)
(14,111)
99
(14,108)
(558)
(2,523)
(31,201)
203
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
(30,998)
26,511
(7.2)p
6.6p
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
Deferred tax liabilities
Non-current liabilities
Bank and loan borrowings
Retail eligible bonds
Derivative financial instruments
Lease liabilities
Total liabilities
Net assets
Equity
Stated capital
(Accumulated losses)/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
2020
£’000
31 December
2019
£’000
Notes
14
27
16
17
18
19
20
21
22
23
25
26
27
28
29
732,380
16,156
–
1,011
749,547
33,690
67,373
101,063
850,610
(33,809)
(14,584)
(690)
(49,083)
(310,692)
(49,441)
(4,339)
(16,473)
(380,945)
(430,028)
420,582
430,819
(10,237)
420,582
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
97.5p
112.1p
104
105
These consolidated Group financial statements were approved by the Board of Directors and authorised for issue on 24 March 2021 and signed on
its behalf by:
KEVIN MCGRATH
Chairman and Independent Non-Executive Director
24 March 2021
Regional REIT Ltd | Annual Report and Accounts 2020
Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2020
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2020
Attributable to owners of the parent company
Retained
earnings/
(Accumulated
losses)
£’000
52,909
(30,998)
(32,148)
(10,237)
Stated
capital
£’000
430,819
–
–
430,819
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
Total
£’000
483,728
(30,998)
(32,148)
420,582
Total
£’000
429,515
26,511
62,500
(1,997)
(32,801)
483,728
Notes
13
Notes
28
28
13
Balance at 1 January 2020
Total comprehensive loss
Dividends paid
Balance at 31 December 2020
Balance at 1 January 2019
Total comprehensive income
Issue of share capital
Share issue costs
Dividends paid
Balance at 31 December 2019
The notes below are an integral part of these consolidated financial statements.
106
Cash flows from operating activities
(Loss)/profit for the year before taxation
– Change in fair value of investment properties
– Change in fair value of financial derivative instruments
– Loss/(gain) on disposal of investment properties
– Change in fair value of right of use assets
Impairment of goodwill
Finance income
Finance expenses
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Increase in deferred income
Cash generated from operations
Finance costs
Taxation received/(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 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
Bond issue costs paid
Lease repayments
Net cash flow used in financing activities
Net increase/(decrease) 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
2020
£’000
Year ended
31 December
2019
£’000
(31,201)
54,793
2,523
1,073
195
558
(99)
14,108
(2,821)
7,595
1,283
48,007
(12,515)
174
35,666
(53,759)
53,428
101
–
(230)
–
–
(26,672)
–
39,200
(17,029)
(192)
–
(618)
(5,311)
30,125
37,248
67,373
26,254
3,513
1,479
(1,662)
194
557
(155)
13,880
(7,881)
(12,416)
2,259
26,022
(12,165)
(839)
13,018
(49,917)
24,294
163
(43,943)
(69,403)
62,500
(1,997)
(32,534)
(39,879)
22,911
(19,398)
(2,168)
(7)
(618)
(11,190)
(67,575)
104,823
37,248
107
Regional REIT Ltd | Annual Report and Accounts 2020
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2020
1. CORPORATE INFORMATION
The Group’s consolidated financial statements for the year ended
31 December 2020 comprise the results of the Company and its
subsidiaries (together constituting the “Group”) and were approved by
the Board and authorised for issue on 24 March 2021.
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.
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 14 to 64.
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, the requirements of The Companies
(Guernsey) Law 2008 and with International Financial Reporting
Standards (“IFRS”) and IFRS Interpretation Committee (“IFRIC”) as
issued by the IASB adopted pursuant to Regulation (EC) No 1606/2002
as it applies in the European Union.
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 Directors have carefully considered areas of potential financial
risk and have reviewed cash flow forecasts, evaluating a number of
scenarios which included extreme downside sensitivities in relation
to rental cash collection, no property acquisitions, no elective capital
expenditure, REIT regime compliance, and no dividends. A range
of scenarios of up to 12 months of nil rental cash collection were
considered, and taking into account mitigating management actions,
the company had adequate resources to continue is operations. Further
effects of the COVID-19 outbreak are documented in the going concern
and viability statements on page 58 and within principal and emerging
risks on pages 47 to 57.
Accordingly, the Board of Directors continue to adopt the going
concern basis in preparing the financial statements.
2.3. Business combinations
At the time of acquisition, the Group considers whether each
acquisition represents the acquisition of a business or the acquisition
of an asset. For an acquisition of a business where an integrated set of
activities are acquired in addition to the property, the Group accounts
for the acquisition as a business combination under IFRS 3 Business
Combinations (“IFRS 3”).
Where such acquisitions are not judged to be the acquisition of a
business, they are not treated as business combinations. Rather,
the cost to acquire the corporate entity is allocated between the
identifiable assets and liabilities of the entity based upon their
relative fair values at the acquisition date. Accordingly, no goodwill or
additional deferred tax arises.
2.4. New standards, amendments and interpretations
New standards, amendments to standards and interpretations which
came into effect for accounting periods starting on or after 1 January
2020 and have had an impact on the financial statements are as
follows:
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 amendments to this standard
have not had any 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.
Amendments to IFRS16 ‘Leases’ (effective from June 2020 onwards)
– were issued in response to the COVID-19 pandemic to address
accounting treatment for rent concessions granted to lessees as
a direct result of the pandemic. The Group has not received any
rent concessions for its long leasehold investment properties and
therefore accounting treatment has not been affected.
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 2021 and have not been applied in preparing these financial
statements. These are:
Interest Rate Benchmark Reform—Phase 2:
Amendments to IFRS 9 ‘Financial Instruments’, IAS 39 ‘Financial
Instruments; Recognition and Measurement’, IFRS 7 ‘Financial
Instruments: Disclosures’, IFRS 4 ‘Insurance Contracts’ and IFRS
16 ‘Leases’ (effective for periods beginning on or after 1 January
2021) These amendments address issues that might affect financial
reporting when an existing interest rate benchmark is replaced with an
alternative benchmark interest rate.
The Group’s borrowings with Royal Bank of Scotland and Santander
UK will be transitioning from the London Interbank Offer Rate (LIBOR)
benchmark to Sterling Overnight Index Average (SONIA) benchmark by
31 December 2021. There is expected to be negligible cost involved in
the borrowing facility transition and the respective hedge instrument
amendments.
The Directors are currently assessing the impact of the changes
in accounting standards but as the Group does not apply hedge
accounting, it is anticipated that the accounting standard amendments
will not have a significant impact on the preparation of the financial
statements.
Amendments to IAS 1 ‘Presentation of Financial Statements’ (effective
for periods beginning on or after 1 January 2023) – clarifies that
liabilities are classified as either current or non-current, depending
on the rights that exist at the end of the reporting period and
not expectations of or actual events after the reporting date. The
amendments also give clarification to the definition of settlement of a
liability. The amendments are not expected to have a significant impact
on the preparation of the financial statements.
Amendments to IFRS 3 ‘Business Combinations’ (effective for periods
beginning on or after 1 January 2022) – gives clarification on the
recognition of contingent liabilities at acquisition and clarifies that
contingent assets should not be recognised at the acquisition date.
The amendments are not expected to have a significant impact on the
preparation of the financial statements.
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 £732,380,000 (31 December 2019: £787,915,000),
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 recently completed negotiations with regards
to the terms of the UK’s exit from the EU has meant that property
market remains uncertain. There is some uncertainty concerning
the impact of COVID 19 however the independent valuers note the
following in their report.
“The pandemic and the measures taken to tackle COVID-19 continue
to affect economies and real estate markets globally. Nevertheless, as
at the valuation date property markets are mostly functioning again,
with transaction volumes and other relevant evidence at levels where an
adequate quantum of market evidence exists upon which to base opinions
of value. Accordingly, and for the avoidance of doubt, our valuation is not
reported as being subject to ‘material valuation uncertainty’ as defined by
VPS 3 and VPGA 10 of the RICS Valuation – Global Standards.“
3.1.2. Fair valuation of interest rate derivatives
In accordance with IFRS 13, the Group values its interest rate
derivatives at fair value. The fair values are estimated by the respective
counterparties with revaluation occurring on a quarterly basis. The
counterparties will use a number of assumptions in determining the fair
values, including estimations over future interest rates and therefore
future cash flows. The fair value represents the net present value of the
difference between the cash flows produced by the contracted rate and
the valuation rate. The carrying value of the derivatives at the reporting
date was £4,339,000 liability (31 December 2019: £1,816,000 liability).
The significant methods and assumptions used in estimating the fair
value of the interest rate derivatives are set out in note 26.
108
109
Regional REIT Ltd | Annual Report and Accounts 2020
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
For the year ended 31 December 2020
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 the discount rate. At 31 December 2020, there were
13 leases with the range of the period left to run being 46 and 105
years. The Directors have determined that the discount rate to use
in the calculation for each lease is 3.5% being the Group’s weighted
average cost of debt at the date of transition.
3.1.4. Dilapidation income
The Group recognises dilapidation income in the Group’s Statement of
Comprehensive Income when the right to receive the income arises. In
determining accrued dilapidations, the Group has considered historic
recovery rates, while also factoring in expected costs associated with
recovery.
3.2. Critical judgements in applying the Group’s accounting policies
In the process of applying the Group’s accounting policies, management
has made the following judgements, which have the most significant
effect on the amounts recognised in the financial statements:
3.2.1. Operating lease contracts – the Group as lessor
The Group has acquired investment properties that are subject
to commercial property leases with tenants. The Group has
determined, based on an evaluation of the terms and conditions of
the arrangements, particularly the duration of the lease terms and
minimum lease payments, that it retains all of the significant risks and
rewards of ownership of these properties and so accounts for the leases
as operating leases.
3.2.2. Consolidation of entities in which the Group holds less than 50%
Management considered that up until 9 November 2018, the Group
had de facto control of View Castle Limited and its 27 subsidiaries (the
“View Castle Sub Group”) by virtue of the amended and restated Call
Option Agreement dated 3 November 2015. Following a restructure of
the View Castle Sub Group, the majority of properties held within the
View Castle Sub Group 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
For each acquisition, the Directors consider whether the acquisition
met the definition of the acquisition of a business or the acquisition of
a group of assets and liabilities.
A business is defined in IFRS 3 as an integrated set of activities and
assets that is capable of being conducted and managed for the purpose
of providing a return in the form of dividends, lower costs or other
economic benefits directly to investors or other owners, members or
participants. Furthermore, a business consists of inputs and processes
applied to those inputs that have the ability to create outputs.
The companies acquired in the year have comprised portfolios of
investment properties and existing leases with multiple tenants over
varying periods, with little in the way of processes acquired. It has
therefore concluded in each case that the acquisitions did not meet the
criteria for the acquisition of a business as outlined above.
3.2.4. Recognition of income
Service charges and other similar receipts are included in net rental and
property income gross of the related costs as the Directors consider the
Group acts as principal in this respect.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted in this report are consistent with those
applied in the financial statements for the year ended 31 December
2019 and have been consistently applied for the year ended
31 December 2020.
4.1. Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and its subsidiaries as at the date of the
Statement of Financial Position.
4.2. Subsidiaries
Subsidiaries are all entities (including structured entities) over which
the Group has control. The Group controls an entity when the Group is
exposed to, or has rights to, variable returns from its involvement with
the entity and has the ability to affect those returns through its power
over the entity. Subsidiaries are fully consolidated from the date on
which control is transferred to the Group. They are deconsolidated from
the date that control ceases.
The Group applies the acquisition method to account for business
combinations. The consideration transferred for the acquisition of a
subsidiary is the fair value of the assets transferred, the liabilities incurred
to the former owners of the acquiree and the equity interests issued by
the Group. Identifiable assets and liabilities acquired, and contingent
liabilities assumed, in a business combination are measured initially at
their fair values at the acquisition date. The Group recognises any non-
controlling interest in the acquiree on an acquisition-by-acquisition basis,
either at fair value or at the non-controlling interest's proportionate
share of the recognised amounts of the acquiree's identifiable net assets.
Acquisition-related costs are expensed as incurred.
Any contingent consideration to be transferred by the Group is
recognised at fair value at the acquisition date. Subsequent changes to
the fair value of the contingent consideration are recognised in profit
or loss. Contingent consideration that is classified as equity is not re-
measured, and its subsequent settlement is accounted for within equity.
For acquisitions of subsidiaries not meeting the definition of a business,
the Group allocates the cost between the individual identifiable assets
and liabilities in the Group based on their relative fair values at the date
of acquisition. Such transactions or events do not give rise to goodwill.
Inter-company transactions, balances and unrealised gains and losses
on transactions between Group companies are eliminated in full. When
necessary, amounts reported by subsidiaries have been adjusted to
conform to the Group’s accounting policies.
The excess of the consideration transferred, and the amount of any
non-controlling interest in the acquiree over the fair value of the
identifiable net assets acquired, is recognised as goodwill.
4.2.1. Disposal of subsidiaries
When the Group ceases to have control over an entity, any retained
interest in the entity is re-measured to its fair value at the date when
control is lost, with the change in the carrying amount recognised in
profit or loss. The fair value is the initial carrying amount for the purposes
of subsequently accounting for the retained interest as an associate,
joint venture or financial asset. In addition, any amounts previously
recognised in other comprehensive income in respect of that entity are
accounted for as if the Group had directly disposed of the related assets
or liabilities. This may mean that amounts previously recognised in other
comprehensive income are reclassified to profit or loss.
4.3. Segmental information
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker. The
chief operating decision-maker is the person or group that allocates
resources to and assesses the performance of the operating segments
of an entity. The Group has determined that its chief operating
decision-maker is the Board of Directors.
After a review of the information provided for management purposes,
it was determined that the Group has one operating segment and
therefore segmental information is not disclosed in these consolidated
financial statements.
4.4. Investment property
Investment property comprises freehold or leasehold properties that
are held to earn rentals or for capital appreciation, or both, rather than
for sale in the ordinary course of business or for use in production or
administrative functions.
Investment property is recognised, usually, on legal completion,
when the risks and rewards of ownership have been transferred and,
is measured initially at cost including transaction costs. Transaction
costs include transfer taxes, professional fees for legal services and
other costs incurred in order to bring the property to the condition
necessary for it to be capable of being utilised in the manner intended.
Subsequent to initial recognition, investment property is stated at fair
value. Gains or losses arising from changes in the fair value are included
in the Group’s Consolidated Statement of Comprehensive Income in
the period in which they arise under IAS 40, ‘Investment Property’.
Additions to investment property include costs of a capital nature
only. Expenditure is classified as capital when it results in identifiable
future economic benefits, which are expected to accrue to the Group.
All other property expenditure is charged in the Group’s Consolidated
Statement of Comprehensive Income as incurred.
Investment properties cease to be recognised when they have been
disposed of or withdrawn permanently from use and no future
economic benefit is expected. The difference between the net disposal
proceeds and the carrying amount of the asset (being the fair value
at the start of the financial year) would result in either gains or losses
at the retirement or disposal of investment property. Any gains or
losses are recognised in the Group’s Consolidated Statement of
Comprehensive Income in the period of retirement or disposal.
4.5. Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the
excess of the consideration transferred over the Group's interest in
the fair value of the net identifiable assets, liabilities and contingent
liabilities of the acquiree plus the amount of the non-controlling
interest of the acquiree.
For the purpose of impairment testing, goodwill acquired in a business
combination is allocated to each of the subsidiaries, or groups of
subsidiaries, that is expected to benefit from the synergies of the
combination. Each subsidiary or group of subsidiaries to which the
goodwill is allocated represents the lowest level within the entity at
which the goodwill is monitored for internal management purposes.
Goodwill impairment reviews are undertaken annually, or more
frequently if events or changes in circumstances indicate a potential
impairment. The carrying value of goodwill is compared to the
recoverable amount, which is the higher of the value in use and the
fair value less the costs of disposal. Any impairment is recognised
immediately as an expense and is not subsequently reversed.
4.6. Derivative financial instruments
Derivative financial instruments, comprising interest rate caps and
swaps for hedging purposes, are initially recognised at fair value and are
subsequently measured at fair value, being the estimated amount that
the Group would receive or pay to sell or transfer the agreement at the
period end date, taking into account current interest rate expectations
and the current credit rating of the lender and its counterparties. The
gain or loss at each fair value remeasurement date is recognised in the
Group’s Consolidated Statement of Comprehensive Income.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data is available to measure
fair value, maximising the use of relevant observable inputs and
minimising the use of unobservable inputs significant to the fair value
measurement as a whole.
110
111
Regional REIT Ltd | Annual Report and Accounts 2020
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
For the year ended 31 December 2020
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.
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.
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’ and 'cash and cash equivalents'.
The tenant loan relates to a loan made to a tenant which is subject to
interest. The amount receivable has been recognised at amortised cost
using the effective interest method.
4.8. Trade and other receivables
Trade and other receivables are recognised initially at fair value and
subsequently carried at amortised cost less provision for impairment.
Where the time value of money is material, receivables are carried
at amortised cost using the effective interest method. Impairment
provisions are recognised based on the expected credit loss model
detailed within IFRS 9.
The Group recognises a loss allowance for expected credit losses on
trade receivables. The loss allowance is based on lifetime expected credit
losses. The amount of expected credit losses is updated at each reporting
date to reflect changes in credit risk since initial recognition. The
expected credit losses on these financial assets are estimated based on
the Group’s historical credit loss experience, adjusted for factors that are
specific to the debtors, general economic conditions and an assessment
of both the current as well as the forecast direction of conditions at the
reporting date. Impaired balances are reported net, however, impairment
provisions are recorded within a separate provision account with the loss
being recognised within administration costs within the Consolidated
Statement of Comprehensive Income. On confirmation that the trade
receivable will not be collectable, the gross carrying value of the asset is
written off against the associated provision.
Lease premiums and other lease incentives provided to tenants are
recognised as an asset and amortised over the period from date of lease
commencement to termination date.
4.9. Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held
at banks with original maturities of three months or less. Cash also
includes amounts held in restricted accounts that are unavailable for
everyday use.
112
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 and accrued from the date declared
and when they are no longer at the discretion of the Company.
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.
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.
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 a Group 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.
4.20. Deferred tax
Deferred tax is provided in full using the liability method on temporary
differences between the carrying amounts of assets and liabilities in
the financial statements and the corresponding tax bases used in the
computation of taxable profit. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the carrying
amount of assets and liabilities, using tax rates that are expected to apply
in the period when the liability is settled or the asset is realised based on
tax rates (and tax laws) enacted or substantively enacted at the date of the
Statement of Financial Position. A deferred tax asset is recognised only to
the extent that it is probable that future profits will be available for offset.
The deferred tax liability in relation to investment properties that is
measured at fair value is determined assuming that the property will be
recovered entirely through sale.
Deferred tax has been recognised on the unrealised property valuation
gains of properties owned by Group entities which fall outside of the
REIT tax rules.
The current rate of UK Corporation Tax is 19%.
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.
113
Regional REIT Ltd | Annual Report and Accounts 2020
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
For the year ended 31 December 2020
5. RENTAL AND PROPERTY INCOME
Rental income – freehold property
Rental income – long leasehold property
Recoverable service charge income and other similar items
Total
6. PROPERTY COSTS
Other property expenses and irrecoverable costs
Recoverable service charge income and other similar costs
Total
Year ended
31 December
2020
£’000
55,382
6,695
13,864
75,941
Year ended
31 December
2020
£’000
8,798
13,864
22,662
Year ended
31 December
2019
£’000
53,404
10,989
11,252
75,645
Year ended
31 December
2019
£’000
9,429
11,252
20,681
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:
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts*
Fees payable to the group's auditor and its associates for the audit of the Company's subsidiaries
Total fees payable for audit services
Fees payable to the group's auditor and its associates for other services:
Audit-related services
Corporate finance services
Total
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
105
105
210
26
–
236
83
114
197
26
80
303
* The current year charge includes fees of £20,000 in respect of additional audit work required for the 2019 audit due to the COVID-19 pandemic.
8. DIRECTORS’ REMUNERATION
Key management comprises the Directors of the Company. A summary of the Directors’ emoluments is set out in the Directors’ Remuneration
Report.
Property costs represent direct operating expenses which arise on investment properties that generate rental income.
7. ADMINISTRATIVE AND OTHER EXPENSES
Investment management fees
Property management 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
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
2,577
2,266
2,579
255
634
1,674
69
1,257
18
11,329
2,356
2,280
2,356
255
746
2,107
96
657
51
10,904
Directors’ fees
Employer’s National Insurance contributions
Total
9. FINANCE INCOME
Interest income
Total
Year ended
31 December
2020
£’000
231
24
255
Year ended
31 December
2020
£’000
99
99
Year ended
31 December
2019
£’000
228
27
255
Year ended
31 December
2019
£’000
155
155
114
115
Regional REIT Ltd | Annual Report and Accounts 2020
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
For the year ended 31 December 2020
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
(Decrease)/increase in deferred tax creditor
Total
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
10,257
–
857
–
2,250
155
8
581
14,108
9,904
60
912
3
2,250
157
11
583
13,880
Year ended
31 December
2020
£’000
(157)
(46)
(203)
Year ended
31 December
2019
£’000
(359)
102
(257)
The current tax charge is reduced by the UK REIT tax exemptions. The tax charge for the year can be reconciled to the (loss)/profit in the Statement
of Comprehensive Income as follows:
(Loss)/profit before taxation
UK Corporation Tax rate
Theoretical tax at UK Corporation Tax rate
Effects of:
Revaluation of investment property
Permanent differences
Profits from the tax-exempt business
Deferred tax movement
Total
Year ended
31 December
2020
£’000
(31,201)
Year ended
31 December
2019
£’000
26,254
19%
(5,928)
10,410
(363)
(4,276)
(46)
(203)
19%
4,988
668
(556)
(5,459)
102
(257)
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 (losses)/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.
The calculation of basic and diluted earnings per share is based on the following:
Calculation of earnings per share
Net (loss)/profit attributable to Ordinary Shareholders
(30,998)
26,511
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
Adjustments to remove:
Changes in value of investment properties
Changes in fair value of interest rate derivatives and financial assets
Loss/(gain) on disposal of investment property
Impairment of goodwill
Deferred tax (credit)/charge
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
(Loss)/earnings per share – basic and diluted
EPRA earnings per share – basic and diluted
Company specific adjusted earnings per share – basic and diluted
54,793
2,523
1,073
558
(46)
–
27,903
–
27,903
3,513
1,479
(1,662)
557
102
487
30,987
–
30,987
431,506,583
398,867,828
(7.2)p
6.5p
6.5p
6.6p
7.8p
7.8p
116
117
Regional REIT Ltd | Annual Report and Accounts 2020
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
For the year ended 31 December 2020
13. DIVIDENDS
Dividend of 2.55 (2019: 2.50) pence per Ordinary Share
for the period 1 October 2019 – 31 December 2019
Dividend of 1.90 (2019: 1.90) pence per Ordinary Share
for the period 1 January 2020 – 31 March 2020
Dividend of 1.50 (2019: 1.90) pence per Ordinary Share
for the period 1 April 2020 – 30 June 2020
Dividend of 1.50 (2019: 1.90) pence per Ordinary Share
for the period 1 July 2020 – 30 September 2020
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
11,004
8,198
6,473
6,473
32,148
9,321
7,084
8,198
8,198
32,801
Group
Movement in investment properties for the year ended 31 December 2020
Valuation at 1 January 2020
Property additions – acquisitions
Property additions – subsequent expenditure
Property disposals
(Loss)/gain on the disposal of investment properties
Change in fair value during the year
Valuation at 31 December 2020
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 payment was made on 9 April 2020 to Shareholders on the register as at 6 March 2020.
On 21 May 2020, the Company announced a dividend of 1.90 pence per share in respect of the period 1 January 2020 to 31 March 2020. The
dividend payment was made on 17 July 2020 to Shareholders on the register as at 5 June 2020.
Movement in investment properties for the year ended 31 December 2019
On 26 August 2020, the Company announced a dividend of 1.50 pence per share in respect of the period 1 April 2020 to 30 June 2020. The dividend
payment was made on 16 October 2020 to Shareholders on the register as at 4 September 2020.
On 12 November 2020, the Company announced a dividend of 1.50 pence per share in respect of the period 1 July 2020 to 30 September 2020. The
dividend payment was made on 8 January 2021 to Shareholders on the register as at 20 November 2020.
On 25 February 2021, the Company announced a dividend of 1.50 pence per share in respect of the period 1 October 2020 to 31 December 2020.
The dividend will be paid on 9 April 2021 to Shareholders on the register as at 5 March 2021. 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, an accredited independent valuer with recognised and relevant professional qualifications and
with recent experience in the locations and categories of the investment properties being valued. The valuations have been prepared in accordance
with the Red Book and incorporate the recommendations of the International Valuation Standards Committee which are consistent with the
principles set out in IFRS 13.
In relation to Brexit, the recently completed negotiations with regards to the terms of the UK’s exit from the EU has meant that the property market
remains uncertain. There is some uncertainty concerning the impact of COVID 19 however the independent valuers note the following in their
report.
“The pandemic and the measures taken to tackle COVID-19 continue to affect economies and real estate markets globally. Nevertheless, as at the
valuation date property markets are mostly functioning again, with transaction volumes and other relevant evidence at levels where an adequate
quantum of market evidence exists upon which to base opinions of value. Accordingly, and for the avoidance of doubt, our valuation is not reported as
being subject to ‘material valuation uncertainty’ as defined by VPS 3 and VPGA 10 of the RICS Valuation – Global Standards.“
The valuations are the ultimate responsibility of the Directors. Accordingly, the critical assumptions used in establishing the independent valuation
are reviewed by the Board.
All corporate acquisitions during the year have been treated as properties purchased rather than business combinations.
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 period
Valuation at 31 December 2019
The net book value of properties disposed of during the year amounted to £54,501,000 (2019: £22,623,000).
The historic cost of the properties is £759,705,000 (31 December 2019: £751,638,000).
Bank borrowings are secured by charges over investment properties held by certain asset-holding subsidiaries. The banks also hold charges over
the shares of certain subsidiaries and any intermediary holding companies of those subsidiaries. The value of investment properties secured at
31 December 2020 was £705,130,000 (31 December 2019: £748,715,000).
The following table provides the fair value measurement hierarchy for investment property:
Total
£’000
732,380
787,915
Quoted
active prices
(level 1)
£’000
Significant
observable inputs
(level 2)
£’000
Significant
unobservable inputs
(level 3)
£’000
–
–
–
–
732,380
787,915
Date of valuation:
31 December 2020
31 December 2019
The hierarchy levels are defined in note 31.
Freehold
property
£’000
Long leasehold
property
£’000
697,908
44,956
8,446
(47,035)
(1,128)
(43,715)
659,432
Freehold
property
£’000
625,020
89,920
5,527
(24,003)
1,679
(235)
697,908
90,007
–
357
(6,393)
55
(11,078)
72,948
Long leasehold
property
£’000
93,355
–
238
(291)
(17)
(3,278)
90,007
Total
£’000
787,915
44,956
8,803
(53,428)
(1,073)
(54,793)
732,380
Total
£’000
718,375
89,920
5,765
(24,294)
1,662
(3,513)
787,915
118
119
Regional REIT Ltd | Annual Report and Accounts 2020
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
For the year ended 31 December 2020
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:
15. INVESTMENT IN SUBSIDIARIES
List of subsidiaries which are 100% owned and controlled by the Group
Balance at the start of the year
Additions
Disposals
(Loss)/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
2020
£’000
Year ended
31 December
2019
£’000
787,915
53,759
(53,428)
(1,073)
(54,793)
732,380
718,375
95,685
(24,294)
1,662
(3,513)
787,915
The determination of the fair value of the investment properties held by each consolidated subsidiary requires the use of estimates such as future
cash flows from investment properties, which take into consideration lettings, tenants’ profiles, future revenue streams, capital values of fixtures
and fittings, any environmental matters and the overall repair and condition of the property, and discount rates applicable to those assets. Future
revenue streams comprise contracted rent (passing rent) and estimated rental value after the contract period. In calculating ERV, the potential
impact of future lease incentives to be granted to secure new contracts is taken into consideration. All these estimates are based on local market
conditions existing at the reporting date.
As at 31 December 2020, the estimated fair value of each property has been primarily derived using comparable recent market transactions on
arm's length terms and, assessed in accordance with the relevant parts of the RICS Valuation – Global Standards and the RICS Valuation UK National
Supplement.
Techniques used for valuing investment properties
The following descriptions and definitions relate to valuation techniques and key observable inputs made in determining the fair values: -
Valuation technique: market comparable method
Under the market comparable method (or market approach), a property fair value is estimated based on comparable transactions in the market.
Observable input: market rental
The rent at which space could be let in the market conditions prevailing at the date of valuation range: £9,000 – £3,092,291 per annum (2019:
£6,000 – £3,092,291 per annum).
Observable input: rental growth
The estimated average increase in rent is based on both market estimations and contractual agreements.
Observable input: net initial yield
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%-25.64% (2019: 0.00%-28.70%).
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.
120
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Country of
incorporation
United Kingdom
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
United Kingdom
United Kingdom
Jersey
Jersey
Jersey
United Kingdom
United Kingdom
United Kingdom
Guernsey
Guernsey
Guernsey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
United Kingdom
Jersey
Jersey
Jersey
Jersey
Jersey
United Kingdom
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Ownership
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
121
Regional REIT Ltd | Annual Report and Accounts 2020
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
For the year ended 31 December 2020
Toscafund Blythswood Ltd
Toscafund Brand Street Ltd
Toscafund Chancellor Court Ltd
Toscafund Crompton Way Ltd
RR Falcon Ltd
Toscafund Glasgow Ltd
Toscafund Harvest Ltd
Toscafund Milburn House Ltd
Toscafund Minton Place Ltd
Toscafund Newstead Court Ltd
Toscafund Portland Street Ltd
Toscafund St Georges House Ltd
Toscafund St James Court Ltd
Toscafund Strathclyde BP Ltd
Toscafund Wallington Ltd
Toscafund Welton Road Ltd
Toscafund Westminster House Ltd
Toscafund Sheldon Court Ltd
RR Skylar Ltd
Country of
incorporation
Ownership
%
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
All of the above entities have been included in the Group’s consolidated financial statements.
By virtue of an Amended and Restated Call Option Agreement dated 3 November 2015, the Directors consider that the Group has control of View
Castle Limited and its subsidiaries (the “View Castle Group”).
Under this option, the Group has the ability to acquire any of the properties held by the View Castle Group by issuing an option notice for a nominal
consideration of £1. The recipient of the option notice will be obliged to convey its title within one month after receipt of the option notice.
Despite having no equity holding, the Group controls the View Castle Group as the option agreement has the effect that the Group is exposed to,
and has rights to, variable returns from its involvement with the View Castle Group through its power to control.
The companies which make up the View Castle Group are as follows:
List of subsidiaries that are controlled by the Group:
Old Rutherglen Road Ltd
Rocket Unit Trust
Squeeze Newco (Elmbank) Ltd (in liquidation)
Squeeze Newco 2 Ltd
The Legal Services Centre Ltd
View Castle (Properties) Ltd
View Castle (Milton Keynes) Ltd
Country of
incorporation
United Kingdom
Jersey
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Ownership
%
100%
100%
100%
100%
100%
100%
100%
All of the above entities have been included in the Group’s consolidated financial statements up to 31 December 2020.
Business Combinations
There have been no new business combinations entered into in the financial year.
16. GOODWILL
Group
At start of year
Impairment
At end of year
31 December
2020
£’000
31 December
2019
£’000
558
(558)
–
1,115
(557)
558
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. As at 31 December 2020 the goodwill has been fully impaired to a nil value.
Castlestream Ltd
Caststop Ltd (in liquidation)
Credential (Baillieston) Ltd (in liquidation)
Credential (Greenock) Ltd
Credential (Wardpark North) Ltd
Credential (Wardpark South) Ltd (in liquidation)
Credential Bath Street Ltd (in liquidation)
Credential Charring Cross Ltd (in liquidation)
Credential Estates Ltd
View Castle Ltd
Credential Residential Finance Ltd (in liquidation)
Credential Tay House Ltd (in liquidation)
Hamiltonhill Estates Ltd (in liquidation)
Lilybank Church Ltd (in liquidation)
Lilybank Terrace Ltd (in liquidation)
Old Mill Studios Ltd (in liquidation)
122
Country of
incorporation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Ownership
%
17. NON-CURRENT RECEIVABLES
Non-current receivables on tenant loans
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
At start of year
Amounts repaid in the year
At end of year
Asset due within 1 year (note 18)
Asset due after 1 year
31 December
2020
£’000
31 December
2019
£’000
1,348
(145)
1,203
192
1,011
1,203
1,926
(578)
1,348
192
1,156
1,348
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.
123
Regional REIT Ltd | Annual Report and Accounts 2020
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
For the year ended 31 December 2020
18. TRADE AND OTHER RECEIVABLES
19. CASH AND CASH EQUIVALENTS
Gross amount receivable from tenants
Less provision for impairment
Net amount receivable from tenants
Current receivables – tenant loans (note 17)
Value added tax
Income tax
Other receivables
Prepayments
31 December
2020
£’000
31 December
2019
£’000
11,768
(1,458)
10,310
192
–
52
1,458
21,678
33,690
8,206
(891)
7,315
192
1,415
70
6,385
16,781
32,158
The maximum exposure to credit risk at the reporting date is the carrying value of the amounts disclosed above. The Group does not hold any
collateral as security.
The aged analysis of trade receivables that are past due but not impaired was as follows:
Group
Cash held at bank
Restricted cash held at bank
At end of year
Restricted cash balances of the Group comprise:
31 December
2020
£’000
31 December
2019
£’000
54,958
12,415
67,373
34,731
2,517
37,248
• £10,752,000 (2019: £124,000) of funds held in blocked bank accounts which are controlled by the Group’s lenders and are released to free cash
once certain loan conditions are met. The restricted funds arose on net proceeds from investment property disposals and were released after the
year end.
• £1,663,000 (2019: £2,312,000) of funds which represent tenants’ rental deposits.
• £nil (2019: £81,000) is held in other locked accounts.
All restricted cash balances will be available before 31 March 2021.
In addition, £7,462,000 (2019 £4,225,000) 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.
31 December
2020
£’000
31 December
2019
£’000
20. TRADE AND OTHER PAYABLES
< 30 days
30 – 60 days
> 60 days
Less provision for impairment
6,000
915
4,853
11,768
(1,458)
10,310
4,369
1,055
2,782
8,206
(891)
7,315
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.
Withholding tax due on dividends paid
Dividends announced but not paid
Trade payables
Other payables
Value added tax
Accruals
At end of year
Provision for impairment of trade receivables movement as follows:
Other payables principally include rent deposits held and service charge costs.
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.
124
31 December
2020
£’000
31 December
2019
£’000
891
1,787
(719)
(501)
1,458
1,115
562
(537)
(249)
891
21. DEFERRED INCOME
Deferred rental income represents rent received in advance from tenants.
22. TAXATION LIABILITIES
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
31 December
2020
£’000
31 December
2019
£’000
572
6,473
2,262
11,205
3,662
9,635
33,809
1,569
–
3,650
8,544
–
8,390
22,153
31 December
2020
£’000
31 December
2019
£’000
690
690
736
(46)
690
736
736
634
102
736
125
Regional REIT Ltd | Annual Report and Accounts 2020
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
For the year ended 31 December 2020
23. BANK AND LOAN BORROWINGS
Bank borrowings are secured by charges over investment properties held by certain asset-holding subsidiaries. The banks also hold charges over the
shares of certain subsidiaries and any intermediary holding companies of those subsidiaries. Any associated fees in arranging the bank borrowings
unamortised as at the year end are offset against amounts drawn on the facilities as shown in the table below:
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
31 December
2020
£’000
294,000
39,200
(17,029)
316,171
(6,144)
(192)
857
310,692
–
–
52,349
263,822
(5,479)
310,692
31 December
2019
£’000
290,487
22,911
(19,398)
294,000
(4,888)
(2,168)
912
287,856
–
–
48,584
245,416
(6,144)
287,856
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
Scottish Widows Ltd & Aviva
Investors Real Estate Finance
Original
facility
£’000
55,000
Outstanding
debt*
£’000
Maturity
date
Gross loan
to value**
%
52,349
June 2024
45.7
Annual
interest rate
% Amortisation
2.15 over
3 months £ LIBOR
Mandatory
prepayment
165,000
165,000 December 2027
47.4
3.28 Fixed None
Scottish Widows Ltd
36,000
36,000 December 2028
41.0
3.37 Fixed None
The weighted average term to maturity of the Group’s debt at the period end was 6.4 years (31 December 2019: 7.3 years). The weighted average
interest rate payable by the Group on its debt portfolio, excluding hedging costs, as at the period end was 3.1% (31 December 2019: 3.4%).
The Group weighted average interest rate, including the retail eligible bonds and hedging costs at the period end, amounted to 3.3% per annum
(31 December 2019: 3.5% per annum).
The Group has been in compliance with all of the financial covenants relating to the above facilities as applicable throughout the year covered by
these consolidated financial statements. Each facility has distinct covenants which generally include: historic interest cover, projected interest cover,
LTV cover and debt service cover. A breach of agreed covenant levels would typically result in an event of default of the respective facility, giving
the lender the right, but not the obligation, to declare the loan immediately due and payable. Where a loan is repaid in these circumstances, early
repayment fees will apply, which are generally based on a percentage of the loan repaid or calculated with reference to the interest income foregone
by the lenders as a result of the repayment.
As shown in note 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.
In line with recent announcements from the Bank of England and the FCA, the Royal Bank of Scotland and Santander UK borrowings will be
transitioning from the London Interbank Offer Rate (LIBOR) benchmark to Sterling Overnight Index Average (SONIA) benchmark by 31 December
2021. There is expected to be negligible cost involved in the borrowing facility transition and the respective hedge instrument amendments.
24. ZERO DIVIDEND PREFERENCE SHARES
At start of year
Amortisation of acquisition costs
Accrued capital entitlement
Repayment
At end of year
31 December
2020
£’000
–
–
–
–
–
31 December
2019
£’000
39,816
3
60
(39,879)
–
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
The Company has in issue £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.
Santander UK
Total bank borrowings
Retail eligible bond
Total
65,870
321,870
50,000
371,870
62,822
316,171
50,000
366,171
LIBOR = London Interbank Offered Rate (Sterling)
MP = Mandatory prepayment
* Before unamortised debt issue costs
** Based upon Cushman & Wakefield property valuations
June 2029
39.8
2.20 over
3 months £ LIBOR
Mandatory
prepayment
Bond principal at start of year
Unamortised issue costs at start of year
Issue costs
Amortisation of issue costs
At end of year
31 December
2020
£’000
50,000
(714)
–
155
49,441
31 December
2019
£’000
50,000
(864)
(7)
157
49,286
126
127
Regional REIT Ltd | Annual Report and Accounts 2020
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
For the year ended 31 December 2020
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.
27. LEASES
As from 1 January 2019, the Group has adopted IFRS16 accounting treatment as described in note 2.4.
Group
Fair value at start of year
Revaluation in the year
Fair value at end of year
31 December
2020
£’000
31 December
2019
£’000
(1,816)
(2,523)
(4,339)
(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.
The table below details the hedging and swap notional amounts and rates against the details of the Group’s loan facilities.
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
52,349
June 2024
2.15 over
3 months £ LIBOR
swap £27,500
cap £27,500
165,000
165,000 December 2027
3.28 Fixed
36,000
65,870
36,000 December 2028
3.37 Fixed
62,822
June 2029
2.20 over
3 months £ LIBOR
swap £32,935
cap £32,935
Rate
%
1.26
1.26
n/a
n/a
1.45
1.45
n/a
n/a
Right of use asset
At start of year
Value recognised at 1 January 2020
Fair value movement
Lease liability
At start of year
Value recognised at 1 January 2020
Lease payments
Interest charges
31 December
2020
£’000
31 December
2019
£’000
16,351
–
(195)
16,156
16,510
–
(618)
581
16,473
–
16,545
(194)
16,351
–
16,545
(618)
583
16,510
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 39% of the balance. Total commitments on leases in respect of land and buildings are as
follows:
31 December
2020
£’000
31 December
2019
£’000
618
618
1,854
50,346
53,436
618
618
1,854
50,964
54,054
Total
321,870
316,171
LIBOR = London Interbank Offered Rate (Sterling)
As at 31 December 2020, the swap notional arrangements were £60.44m (31 December 2019: £60.50m) and the cap notional arrangements
amounted to £60.44m (31 December 2019: £60.50m).
The Group weighted average effective interest rate was 3.3% (31 December 2019: 3.5%) inclusive of hedging costs.
The maximum exposure to credit risk at the reporting date is the fair value of the derivative liabilities.
It is the Group’s target to hedge at least 90% of the total debt portfolio using interest rate derivatives and fixed-rate facilities. As at the year end,
the total proportion of hedged debt equated to 101.8% (31 December 2019: 109.5%), 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.
Group
Payable within 1 year
Payable between 1 – 2 years
Payable between 2 – 5 years
Payable after 5 years
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.
31 December
2020
£’000
31 December
2019
£’000
316,171
120,870
201,000
321,870
101.8%
294,000
121,000
201,000
322,000
109.5%
128
129
Regional REIT Ltd | Annual Report and Accounts 2020
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
For the year ended 31 December 2020
28. STATED CAPITAL
Stated capital represents the consideration received by the Company for the issue of Ordinary Shares.
30. NOTES TO THE STATEMENT OF CASH FLOWS
Reconciliation of changes in liabilities to cash flows arising from financing activities
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
2020
£’000
31 December
2019
£’000
430,819
–
–
430,819
370,316
62,500
(1,997)
430,819
431,506,583
–
372,821,136
58,685,447
431,506,583
431,506,583
29. NET ASSET VALUE PER SHARE (NAV)
Basic NAV per share is calculated by dividing the net assets in the Statement of Financial Position attributable to ordinary equity holders of the
parent by the number of Ordinary Shares outstanding at the end of the year.
In October 2019, EPRA issued new best practice recommendations that replaced EPRA net asset value (NAV) with three new measures of net asset
value. The Group has determined that EPRA net tangible assets (NTA) is the most relevant measure hence this is now reported in place of EPRA
NAV. Prior year comparatives are stated under the new definition on EPRA NTA. Further detail of the new EPRA performance measures can be found
on pages 140 to 142.
31 December 2020
Balance at 1 January 2020
Changes from financing cash flows:
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
Unwinding of discount
Change in fair value
Total other changes
Balance at 31 December 2020
Bank loans and
borrowings
£’000
Retail eligible
bonds
£’000
Derivative
financial
instruments
£’000
Lease
liabilities
£’000
Total
£’000
287,856
49,286
1,816
16,510
355,468
39,200
(17,029)
(192)
–
21,979
857
–
–
857
310,692
–
–
–
–
–
155
–
–
155
49,441
–
–
–
–
–
–
–
2,523
2,523
4,339
–
–
–
(618)
(618)
–
581
–
581
39,200
(17,029)
(192)
(618)
21,361
1,012
581
2,523
4,116
16,473
380,945
Bank loans and
borrowings
£’000
Zero Dividend
Preference
Shares
£’000
Retail eligible
bonds
£’000
Derivative
financial
instruments
£’000
Lease
liabilities
£’000
Total
£’000
Net asset values have been calculated as follows:
31 December 2019
Group
Net asset value per Consolidated Statement of Financial Position
420,582
483,728
31 December
2020
£’000
31 December
2019
£’000
Adjustment for calculating EPRA net tangible assets:
Derivative financial instruments
Deferred tax liability
Goodwill
EPRA Net Tangible Assets
Number of Ordinary Shares in issue
Net asset value per share – basic and diluted
EPRA Net Tangible Assets per share – basic and diluted
4,339
690
–
425,611
1,816
736
(558)
485,722
431,506,583
431,506,583
97.5p
98.6p
112.1p
112.7p
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
Unwinding of discount
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)
3
60
–
–
63
–
–
–
–
(7)
–
(7)
157
–
–
–
157
49,286
–
–
–
–
–
–
–
–
–
1,479
1,479
1,816
–
–
–
–
(618)
(618)
–
–
583
–
583
(39,879)
22,911
(19,398)
(2,175)
(618)
(39,159)
1,072
60
583
1,479
3,194
16,510
355,468
130
131
Regional REIT Ltd | Annual Report and Accounts 2020
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
For the year ended 31 December 2020
31. FINANCIAL RISK MANAGEMENT
31.1. Financial instruments
The Group’s principal financial assets and liabilities are those that arise directly from its operations: trade and other receivables, trade and other
payables and cash and cash equivalents. The Group’s other principal financial liabilities are bank and other loan borrowings, amounts due to interest
rate derivatives, the main purpose of which is to finance the acquisition and development of the Group’s investment property portfolio.
Set out below is a comparison by class of the carrying amounts of the Group’s financial instruments that are carried in the financial statements and
their fair value:
Group
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
Retail eligible bonds
Lease liability
Financial liabilities – measured at fair value through profit
or loss
12,971
67,373
(33,237)
(310,692)
(49,441)
(16,473)
12,971
67,373
(33,237)
(327,409)
(49,500)
(16,473)
16,463
37,248
(20,584)
(287,856)
(49,286)
(16,510)
16,463
37,248
(20,584)
(294,875)
(51,860)
(16,510)
Interest rate derivatives
(4,339)
(4,339)
(1,816)
(1,816)
31 December 2020
31 December 2019
Book value
£’000
Fair value
£’000
Book value
£’000
Fair value
£’000
31 December 2020
Interest rate derivatives
Fair value hierarchy
The following table provides the fair value measurement hierarchy for financial liabilities measured at fair value through profit or loss.
Quoted
active
prices
(level 1)
£’000
Significant
observable
inputs
(level 2)
£’000
Significant
unobservable
inputs
(level 3)
£’000
–
(4,339)
–
Quoted
active
prices
(level 1)
£’000
Significant
observable
inputs
(level 2)
£’000
Significant
unobservable
inputs
(level 3)
£’000
–
(1,816)
–
Total
£’000
(4,339)
Total
£’000
(1,816)
31 December 2019
Interest rate derivatives
The different levels are defined as follows.
• Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
• Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
• Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the 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.
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:
There have been no transfers between levels during the year.
• The fair value of bank and loan borrowings is determined by reference to mark to market valuations provided by the lenders.
• The fair value of Retail Eligible Bonds is determined by their published market value.
• The fair value of the lease liability has been determined as the present value of future cash flows discounted using the Group’s incremental
borrowing rate.
The following financial 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.
31.2. 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.
31.3. 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.
132
133
Regional REIT Ltd | Annual Report and Accounts 2020
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
For the year ended 31 December 2020
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
2020
£’000
31 December
2019
£’000
–
137
274
411
547
–
81
155
184
212
The Group’s borrowings with Royal Bank of Scotland and Santander UK will be transitioning from the London Interbank Offer Rate (LIBOR)
benchmark to Sterling Overnight Index Average (SONIA) benchmark by 31 December 2021. There is expected to be negligible cost involved in the
borrowing facility transition and the respective hedge instrument amendments.
31.4. 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.
31.5. 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.
31.7. 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 2020
Trade and other payables
Bank borrowings
Interest rate derivatives
Retail eligible bonds
Lease liability
Group at 31 December 2019
Trade and other payables
Bank borrowings
Interest rate derivatives
Retail eligible bonds
Lease liability
Within
1 year
£’000
(33,237)
(9,262)
(805)
(2,250)
(618)
(46,172)
Within
1 year
£’000
(20,584)
(9,579)
(487)
(2,250)
(618)
Between
1 to 2 years
£’000
Between
2 to 5 years
£’000
–
(9,262)
(805)
(2,250)
(618)
(12,935)
–
(79,509)
(1,898)
(54,500)
(1,854)
(137,761)
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)
(33,518)
(12,930)
(136,303)
After
5 years
£’000
–
(283,232)
(1,611)
–
(50,346)
(335,189)
After
5 years
£’000
–
(273,944)
–
–
(50,964)
(324,908)
Total
£’000
(33,237)
(381,265)
(5,119)
(59,000)
(53,436)
(532,057)
Total
£’000
(20,584)
(369,690)
(2,081)
(61,250)
(54,054)
(507,659)
31.6. 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:
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 105 years.
Bankers
Barclays
Royal Bank of Scotland
Santander UK
Aviva
Scottish Widows
Bank of Scotland plc
Fitch Ratings
A+ Negative
A+ Negative
A+ Negative
A+ Stable
A+ Negative
A+ Negative
32. CAPITAL MANAGEMENT
The primary objective of the Group’s capital management is to ensure that it remains a going concern and continues to qualify for UK REIT status.
The Group’s capital is represented by reserves and bank borrowings. The Board, with the assistance of the Investment and Asset Managers, monitors
and reviews the Group’s capital so as to promote the long-term success of the business, facilitate expansion, deliver a quarterly dividend distribution
and to maintain sustainable returns for Shareholders.
The Group’s policy on borrowings is as follows: the level of borrowing will be on a prudent basis for the asset class and will seek to achieve a low
cost of funds, while maintaining flexibility in the underlying security requirements and the structure of both the portfolio and of Regional REIT.
Based on current market conditions, the Board will target Group net borrowings of 40% of Investment Property Values at any time. However, the
Board may modify the Group’s borrowing policy (including the level of gearing) from time to time in light of then-current economic conditions,
relative costs of debt and equity capital, fair value of the Company’s assets, growth and acquisition opportunities or other factors the Board deems
appropriate. The Group’s net borrowings may not exceed 50% of the Investment Property Values at any time without the prior approval of Ordinary
Shareholders in a General Meeting.
The optimal debt financing structure for the Group will have consideration for key metrics including: fixed or floating interest rate charged, debt
type, maturity profile, substitution rights, covenant and security requirements, lender type, diversity and the lender’s knowledge and relationship
with the property sector.
134
135
Regional REIT Ltd | Annual Report and Accounts 2020
Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
For the year ended 31 December 2020
33. OPERATING LEASES
The future minimum lease payments receivable under non-cancellable operating leases in respect of the Group’s property portfolio are as follows:
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:
Group
Receivable within 1 year
Receivable between 1 – 2 years
Receivable between 2 – 5 years
Receivable after 5 years
31 December
2020
£’000
31 December
2019
£’000
50,739
38,103
57,404
40,102
186,348
50,038
41,696
61,181
36,202
189,117
The Group has in excess of 890 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.
34. SEGMENTAL INFORMATION
After a review of the information provided for management purposes, it was determined that the Group has one operating segment and therefore
segmental information is not disclosed in these consolidated financial statements.
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
2020
£’000
Year ended
31 December
2019
£’000
20
13
42
63
3
14
155
21
17
42
103
3
13
199
Transactions with the Asset Manager, London & Scottish Property Investment Management Limited and the Property Manager, London &
Scottish Property Asset Management Limited
Stephen Inglis is a non-executive Director of Regional REIT Limited, as well as being the Chief Executive Officer of London & Scottish Property
Investment Management Limited (“LSPIM”) and a director of London & Scottish Property Asset Management Limited. The former company has
been contracted to act as the Asset Manager of the Group and the latter as the Property Manager.
In consideration for the provision of services provided, the Asset Manager is entitled in each financial year (or part thereof) to 50% of an annual
management fee on a scaled rate of 1.1% of the EPRA net asset value, reducing to 0.9% on net assets over £500,000,000. The fee shall be payable
in cash quarterly in arrears.
In respect of each portfolio property, the Asset Manager has procured and shall, with the Company in 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.
136
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
2020
£’000
2,579
2,266
–
4,845
31 December
2020
£’000
1,190
Year ended
31 December
2019
£’000
2,356
2,280
–
4,636
31 December
2019
£’000
1,275
Transactions with the Investment Manager, Toscafund Asset Management LLP
Tim Bee is a non-executive Director of the Company, as well as being Chief Legal Counsel of the Investment Manager.
In consideration for the provision of services provided, the Investment Manager is entitled in each financial year (or part thereof) to 50% of an
annual management fee on a scaled rate of 1.1% of the EPRA net asset value, reducing to 0.9% on net assets over £500,000,000. The fee is payable
in cash quarterly in arrears.
The Investment Manager is also entitled to a Performance Fee. Details of the Performance Fee are given below.
The following tables show the fees charged in the year and the amount outstanding at the end of the year:
Investment management fees charged
Performance fees charged
Total
Total fees outstanding
Year ended
31 December
2020
£’000
2,577
–
2,577
31 December
2020
£’000
612
Year ended
31 December
2019
£’000
2,356
–
2,356
31 December
2019
£’000
591
Performance Fee
The Asset Manager and the Investment Manager are each entitled to 50% of a performance fee. The fee is calculated at a rate of 15% of the total
shareholder return in excess of the hurdle rate of 8% per annum for the relevant performance period. Total shareholder return for any financial year
consists of the sum of any increase or decrease in EPRA NAV per Ordinary Share and the total dividends per Ordinary Share declared in the financial
year. A performance fee is only payable in respect of a performance period where the EPRA NAV per Ordinary Share exceeds the high-water mark
which is equal to the greater of the highest year-end EPRA NAV Ordinary Share in any previous performance period. The performance fee was
calculated initially on 31 December 2018 and is assessed annually thereafter.
The performance fees are now payable 34% in cash and 66% in Ordinary Shares, at the prevailing price per share, with 50% of the shares locked-in
for one year and 50% of the shares locked-in for two years
No performance fee has been earned for the years ending 31 December 2020 or 31 December 2019.
137
Additional Information
EPRA Performance Measures
Notes to the Calculation of
EPRA Performance Measures
Property Related Capital
Expenditure Analysis
Glossary of Terms
AIFMD Disclosure
Company Information
Forthcoming Events in 2021
Shareholder Information
Dividend History
140
141
143
144
146
147
148
148
149
138
139
Regional REIT Ltd | Annual Report and Accounts 2020
EPRA PERFORMANCE MEASURES
NOTES TO THE CALCULATION OF EPRA PERFORMANCE MEASURES
Additional Information
EPRA BPR AWARDS 2020
In 2020, the Company was pleased to be
recognised by EPRA for a third consecutive
year and be granted its second 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.
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 EARNINGS
Earnings from operational activities
Company Adjusted
Earnings
Company Specific Earnings Measure which adds
back the performance fee charged in the accounts
EPRA Performance
Measure
EPRA Earnings
EPRA Earnings per share
(basic and diluted)
Adjusted Earnings
EPRA Earnings per share
(basic and diluted)
31 December
2020
£27,903,000
6.5p
31 December
2019
£30,987,000
7.8p
£27,903,000
6.5p
£30,987,000
7.8p
The EPRA NAV set of metrics make adjustments to the NAV per the IFRS financial statements to provide stakeholders with the most relevant
information on the fair value of the assets and liabilities of a real estate investment company, under different scenarios.
1. EPRA EARNINGS AND COMPANY ADJUSTED EARNINGS
For calculations, please refer to note 12 to the financial statements.
2. EPRA NET REINSTATEMENT VALUE
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 NET TANGIBLE ASSETS
NAV per the financial statements
Fair value of derivative financial instruments
Deferred tax liability
Goodwill
EPRA Net Tangible Assets
Dilutive number of shares
EPRA Net
Reinstatement Value
EPRA NAV metric which assumes that entities
never sell assets and aims to represent the value
required to rebuild the entity.
EPRA Net Tangible
Assets
EPRA NAV metric which assumes that entities
buy and sell assets, thereby crystallising certain
levels of unavoidable deferred tax.
EPRA Net
Reinstatement Value
EPRA Net
Reinstatement Value
per share (diluted)
EPRA Net Tangible
Assets
EPRA Net Tangible
Assets per share
(diluted)
EPRA NAV metric which represents the
Shareholders’ value under a disposal scenario,
where deferred tax, financial instruments and
certain other adjustments are calculated to the full
extent of their liability, net of any resulting tax.
EPRA Net Disposal
Value
EPRA Net Disposal
Value per share
(diluted)
EPRA Net Disposal
Value
EPRA NET INITIAL
YIELD
£425,611,000
£486,280,000
98.6p
112.7p
£425,611,000
£485,722,000
EPRA Net Tangible Assets per share
98.6p
112.6p
4. EPRA NET DISPOSAL VALUE
£404,365,000
£473,575,000
93.7p
109.7p
NAV per the financial statements
Annualised rental income based on the cash
rents passing at the balance sheet date, less
non-recoverable property operating expenses,
divided by the market value of the property with
(estimated) purchasers’ costs.
EPRA Net Initial Yield
6.9%
6.2%
EPRA ‘TOPPED-UP’ NIY This measure incorporates an adjustment to the
ERA NIY in respect of the expiration of rent-free-
periods (or other unexpired lease incentives such
as discounted rent periods and stepped rents).
EPRA ‘Topped-up’
Net Initial Yield
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)
7.4%
6.9%
10.6%
32.4%
19.6%
10.6%
31.6%
18.7%
Goodwill
Adjustment for the fair value of bank borrowings
Adjustment for the fair value of retail eligible bonds
EPRA Net Disposal Value
Dilutive number of shares
EPRA Net Disposal Value per share
31 December
2020
£’000
420,582
4,339
690
425,611
31 December
2019
£’000
483,728
1,816
736
486,280
431,506,583
431,506,583
98.6p
112.7p
31 December
2020
£’000
420,582
4,339
690
–
425,611
31 December
2019
£’000
483,728
1,816
736
(558)
485,722
431,506,583
431,506,583
98.6p
112.6p
31 December
2020
£’000
31 December
2019
£’000
420,582
–
(16,717)
500
404,365
483,728
(558)
(7,019)
(2,576)
473,575
431,506,583
431,506,583
93.7p
109.7p
140
141
Regional REIT Ltd | Annual Report and Accounts 2020
Additional Information
NOTES TO THE CALCULATION OF EPRA PERFORMANCE MEASURES continued
PROPERTY RELATED CAPITAL EXPENDITURE ANALYSIS
Acquisitions
Subsequent capital expenditure
Total capital expenditure
31 December
2020
£’000
44,956
8,803
53,759
31 December
2019
£’000
89,920
5,527
95,685
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.
5. EPRA NET INITIAL YIELD
Calculated as the value of investment properties divided by annualised net rents:
Investment properties
Purchaser costs
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
6. EPRA VACANCY RATE
Estimated Market Rental Value (ERV) of vacant space
Estimated Market Rental Value (ERV) of whole portfolio
EPRA Vacancy Rate
7. EPRA COST RATIOS
Property costs
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
Gross rental income less ground rents
EPRA Cost Ratio (including direct vacancy costs)
EPRA Cost Ratio (excluding direct vacancy costs)
The Group has not capitalised any overhead or operating expenses in the accounting years disclosed above.
31 December
2020
£’000
31 December
2019
£’000
732,380
48,068
780,448
59,754
(5,586)
54,168
3,198
57,366
6.9%
7.4%
787,915
51,561
839,476
57,067
(5,104)
51,962
6,157
58,119
6.2%
6.9%
31 December
2020
£’000
7,733
72,874
10.6%
31 December
2019
£’000
7,853
73,897
10.6%
31 December
2020
£’000
31 December
2019
£’000
22,662
(13,864)
11,329
20,127
(7,967)
12,160
75,941
(13,864)
62,077
32.4%
19.6%
20,681
(11,252)
10,904
20,333
(8,312)
12,021
75,645
(11,252)
64,393
31.6%
18.7%
142
143
Regional REIT Ltd | Annual Report and Accounts 2020
GLOSSARY 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.
Auditor – RSM UK Audit LLP
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).
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).
Company Adjusted Earnings – a company
specific earnings measure which adds back
the performance fee charged in the accounts
to EPRA Earnings.
EPRA Net Tangible Assets (EPRA NTA) – EPRA
Net Asset Value Measure assumes that entities
buy and sell assets, thereby crystallising certain
levels of unavoidable deferred tax.
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 68 and 69.
EPC – Energy Performance Certificate.
EPRA Total Return – The movement in EPRA
NTA plus the dividend distributions paid during
the period expressed as a percentage of the
EPRA NTA 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.
ESG – Environmental, Social, and Corporate
Governance refers to the three central factors in
measuring the sustainability and societal impact
of an investment in a company or business.
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.
GRESB – The Global Real Estate Sustainability
benchmark. The assessment is the investor
driven global ESG benchmark and reporting
framework for listed property companies,
private property funds, developer and
investors that invest directly in real estate.
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.
Additional Information
ISA – Individual Savings Account.
IPO – Initial Public Offering. The Company’s
admission to the London Stock Exchange was
on 6 November 2015.
Law – The Companies (Guernsey) Law 2008,
as amended
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.
LIBOR – London Interbank Offer Rate
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) (Prior EPRA methodology) – 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 per cent. majority in
accordance with the Companies Law.
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.
Occupancy Percentage – percentage of the
total area of all properties and units currently
let to tenants.
Shareholder – a holder of Shares in the
Company.
SIPP – Self-invested personal pension.
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.
Prospectus – the Company’s prospectus
issued on 5 December 2017.
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.
SONIA – Sterling Overnight Index Average
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.
144
145
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 2020, this gives the following
figures:
Leverage
Exposure
Maximum
Actual
Gross
Method
Commitment
Method
400
203
400
219
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.
Regional REIT Ltd | Annual Report and Accounts 2020
AIFMD DISCLOSURE
The Alternative Investment Fund Managers’
Directive (“AIFMD”) 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
£500 million and 0.9% above £500 million.
A Performance Fee may also be paid to LSPIM
and Toscafund.
Toscafund was authorised as an Alternative
Investment Fund Manager, by the UK’s
Financial Conduct Authority on 21 July 2014.
The AIFM has implemented a remuneration
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 the Company during the
period 1 January 2020 to 31 December 2020
was £1,691,591 (2019: £3,650,400).
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 31 on pages 132 to 134.
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.
COMPANY INFORMATION
Additional 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
5th Floor
15 Marylebone Road
London
NW1 55D
LEGAL ADVISER TO THE COMPANY
Macfarlanes LLP
20 Cursitor Street
London
EC4A 1LT
PUBLIC RELATIONS
Buchanan Communications Limited
107 Cheapside
London
EC2V 6DN
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
Third Floor
Centenary House
69 Wellington Street
Glasgow
G2 6HG
PROPERTY VALUERS
Cushman & Wakefield Debenham
Tie Leung Limited (trading as
Cushman & Wakefield)
125 Old Broad Street
London
EC2N 1AR
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
FINANCIAL ADVISER AND JOINT BROKER
Peel Hunt LLP
7th Floor
100 Liverpool Street
London
EC2M 2AT
REGISTRAR
Link Market Services (Guernsey) Limited
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
JOINT BROKER
Panmure Gordon
1 New Change
London
EC4M 9AF
DEPOSITARY
Ocorian Depositary (UK) Limited
20 Fenchurch Street
London
EC3M 3BY
146
147
Regional REIT Ltd | Annual Report and Accounts 2020
FORTHCOMING EVENTS IN 2021
DIVIDEND HISTORY
Q1 TRADING
UPDATE
1919
ANNUAL GENERAL
MEETING
TBCTBC
INTERIM RESULTS
ANNOUNCEMENT
1616
Q3 TRADING
UPDATE
1111
Note: all future dates are provisional and subject to change.
* The Company’s 2021 AGM was due to be held on 19 May 2021.
However, in view of the evolving UK Government restrictions on
public gatherings, the Board has made the decision to delay the AGM
until later in the year in the hope that Shareholders can attend in
person. A further announcement will be made in due course.
SHAREHOLDER INFORMATION
SHARE REGISTER ENQUIRIES: LINK GROUP
For any questions about:
• Changing your address or other details;
• Questions about your shares;
• Buying and selling shares.
Phone: 0371 664 0300
Calls are charged at the standard geographic rate and will vary by provider.
Calls outside the United Kingdom will be charged at the applicable
international rate. The Registrar is open between 09:00 – 17:30, Monday
to Friday excluding public holidays in England and Wales. For Shareholder
enquiries please email shareholderenquiries@linkgroup.co.uk.
POSTAL ADDRESS
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Period
Year
0 Q4 2020
2
Q3 2020
0
2
Q2 2020
Announcement date
Ex-date
Record date
Payment date
25/02/2021
12/11/2020
04/03/2021
05/03/2021
09/04/2021
19/11/2020
20/11/2020
08/01/2021
26/08/2020
03/09/2020
04/09/2020
16/10/2020
Q1 2020
21/05/2020
04/06/2020
05/06/2020
17/07/2020
9 Q4 2019
1
Q3 2019
0
2
Q2 2019
27/02/2020
14/11/2019
29/08/2019
05/03/2020
06/03/2020
09/04/2020
21/11/2019
22/11/2019
19/12/2019
05/09/2019
06/09/2019
15/10/2019
Q1 2019
23/05/2019
06/06/2019
07/06/2019
12/07/2019
8 Q4 2018
1
Q3 2018
0
2
Q2 2018
21/02/2019
15/11/2018
31/08/2018
28/02/2019
01/03/2019
11/04/2019
22/11/2018
23/11/2018
21/12/2018
13/09/2018
14/09/2008
15/10/2018
Q1 2018
17/05/2018
24/05/2018
25/05/2018
13/07/2018
7 Q4 2017
1
0
2
Q3 2017
Q2 2017
22/02/2018
14/11/2017
31/08/2017
01/03/2018
02/03/2018
12/04/2018
23/11/2017
24/11/2017
22/12/2017
07/09/2017
08/09/2017
13/10/2017
Q1 2017
25/05/2017
08/06/2017
09/06/2017
14/07/2017
6 Q4 2016
1
Q3 2016
0
2
Q2 2016
23/02/2017
17/11/2016
01/09/2016
02/03/2017
03/03/2017
13/04/2017
24/11/2016
25/11/2016
22/12/2016
08/09/2016
09/09/2016
07/10/2016
Q1 2016
27/05/2016
09/06/2016
10/06/2016
08/07/2016
07/03/2016
17/03/2016
18/03/2016
15/04/2016
5 FY 2015*
1
0
2
Q1
Q2
Q3
Q4
1 Jan to 31 Mar
1 Apr to 30 Jun
1 Jul to 30 Sep
1 Oct to 31 Dec
Additional Information
Non-PID
Total dividend
Pence per share
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.25
0.18
0.72
0.54
1.69
0.24
0.12
0.25
0.39
1.00
0.34
0.34
1.50
1.50
1.50
1.90
6.40
2.55
1.90
1.90
1.90
8.25
2.50
1.85
1.85
1.85
8.05
2.45
1.80
1.80
1.80
7.85
2.40
1.75
1.75
1.75
7.65
1.00
1.00
PID
1.50
1.50
1.50
1.90
6.40
2.55
1.90
1.90
1.90
8.25
2.50
1.85
1.85
1.85
8.05
2.21
1.62
1.08
1.26
6.17
2.16
1.63
1.50
1.36
6.65
0.66
0.66
* Full year represents 06/11/2015 to 31/12/2015
148
149
Regional REIT Ltd | Annual Report and Accounts 2020
Additional Information
NOTES
NOTES
150
151
Regional REIT Ltd | Annual Report and Accounts 2020
NOTES
152