2023 Full Year Results

About this update from Regional Reit Ltd.

[{"type":"text","content":"\n 26 March 2024 \n Regional REIT Limited \n (\"Regional REIT\", the \"Group\" or the \"Company\") \n   \n 2023 Full Year Results \n Resilient operational performance in challenging macroeconomic conditions \n   \n Regional REIT (LSE: RGL), the regional office specialist today announces its full results for the year ended 31 December 2023. \n   \n Financial highlights: \n ·   Resilient valuation performance in a challenging environment, with a like-for-life portfolio valuation decline of 9.3% during the year significantly outperforming a -17.4% decline for the MSCI Rest of UK offices Index \n ·    A high level of rent collection was achieved over the year. As at 15 March 2024, rent collection was strong, with FY 2023 collections reaching 99.0%, the equivalent date in 2023 when 98.7% had been collected \n ·    Rent roll for the year was £67.8m (31 December 2022: £71.8m) \n ·    Portfolio valuation of £700.7m (31 December 2022: £789.5m) \n ·    Net initial yield increased to 6.2% (31 December 2022: 6.0%), the equivalent yield was 9.9% (31 December 2022: 9.0%) and the reversionary yield was 10.8% (31 December 2022: 10.2%) \n ·    EPRA EPS of 5.23p per share (\"pps\") for the year (31 December 2022: 6.6pps) \n ·    Covered Dividend of 5.25pps (31 December 2022: 6.6pps). Since the end of the year, the Company has declared a dividend for the fourth quarter of 2023 of 1.20pps, ensuring REIT compliance \n ·    EPRA NTA per share 56.4pps (31 December 2022: 73.5pps); IFRS NAV of 59.3pps (31 December 2022: 78.1pps) \n ·    The Group's cost of debt (incl. hedging) remained low at 3.5%, the same for the previous period. 100% of this was fixed, swapped or capped \n ·    Weighted average debt duration 3.5 years (31 December 2022: 4.5 years); the earliest maturity being August 2024 for the £50m retail bond. Significant preparatory work has been undertaken to date in respect of both the debt and equity refinancing options \n ·    Net LTV 55.1% (31 December 2022: 49.5%) before unamortised costs. The Board continues to target a net LTV ratio of 40% \n   \n Operational highlights: \n ·   During the period, the Company completed 88 new lettings. When fully occupied, these will provide an additional gross rental income of £3.8 million per annum \n ·    Energy Performance Certificate (\"EPC\") ratings have been reviewed across 98.4% of the portfolio. To date, the weighted average EPC ratings have improved from 56.9% to 73% EPC C and above \n ·    At the period end, 92.1% (31 December 2022: 91.8%) of the portfolio valuation was offices, 3.1% retail (31 December 2022: 3.6%), industrial 3.2% (31 December 2022: 3.1%) and 1.7% other (31 December 2022: 1.4%) \n ·    The portfolio continues to remain diversified with 144 properties (31 December 2022: 154), 1,483 units (31 December 2022: 1,552) and 978 tenants (31 December 2022: 1,076) \n ·    By income, office assets accounted for 91.3% of gross rental income (31 December 2022: 91.5%) and 4.2% (31 December 2022: 4.5%) was retail. The balance was made up of industrial, 2.8% (31 December 2022: 2.6%), and other, 1.7% (31 December 2022: 1.3%) \n ·    Disposals during the year totalled £25.0 million (net of costs), reflecting an average net initial yield of 4.5% (7.9% excluding vacant properties) \n ·    At the period end, the portfolio valuation split by region was as follows: England 78.4% (31 December 2022: 78.3%), Scotland 16.2% (31 December 2022: 16.7%) and the balance of 5.4% (31 December 2022: 6.0%) was in Wales \n ·    EPRA Occupancy rate of 80.0% (31 December 2022: 83.4%) \n ·   The Company submitted its Third Global Real Estate Sustainability Benchmark (\"GRESB\") assessment resulting in an increased score to 66 from 60 \n Post period end \n Disposals \n ·    Since 31 December 2023, the Company has completed eight disposals and two part sales for an aggregate total of £13.4m (before costs) in line with the 2023 year end valuation. \n The current disposal programme comprises of 58 assets totalling c £130m: \n ·    one disposal contracted for £405,000; \n ·    10 disposals totalling c. £22 million under offer and in legal due diligence; \n ·    9 further disposals totalling c. £20 million are in negotiation; \n ·    24 further disposals totalling c. £42 million are on the market; and \n ·    14 potential disposals totalling c. £46 million are being prepared for the market \n Lettings \n Since 1 January 2024, the Group has exchanged on four notable leases to new tenants totalling 45,891 sq. ft. amounting to £0.8m per annum (\"pa\") of rental income when fully occupied, achieving a rental uplift of 10.7% against December 2023 ERVs. In addition, five notable leases have renewal amounting to 90,418 sq. ft. and £1.3m per annum (\"pa\") of rental income, delivering a rental uplift of 5.2% against December 2023 ERVs. \n   \n Noteworthy new and renewed lease are set out below: \n ·   Clearblue Innovation Centre, Bedford - SPD Development Co Ltd renewed its lease to September 2033, at a rental income of £825,000 pa (£14.18/ sq. ft.) on 58,167 sq. ft. of space. \n ·    The Foundation Chester Business Park, Chester - GB Group Plc renewed its lease to July 2028, with a break option in July 2026, at a rental income of £289,500 pa (£18.21/ sq. ft.) on 15,902 sq. ft. of space. \n ·    Lightyear Building, Glasgow Airport, Glasgow - Heathrow Airport Ltd has leased 15,154 sq. ft. of space until March 2039, with break option in 2034, at a rent of £264,618 pa (£17.46/ sq. ft.). \n ·    Park House , Bristol - Serco Ltd has leased 10,035 sq. ft. of space until September 2031, with break option in 2029, at a rent of £230,000 pa (£22.92/ sq. ft.). \n ·    Oakland House, Manchester - Please Hold (UK) Ltd has leased 10,926 sq. ft. of space until March 2029, with break option in 2027, at a rent of £147,501 pa (£13.50/ sq. ft.). Additionally, Please Hold (UK) Ltd renewed existing lease (5,450 sq. ft.) until March 2025, at a rent of £68,125 pa (£12.50/ sq. ft.). \n ·    Delta Business Park, Swindon - Improve International Ltd has leased 9,776 sq. ft. of space until February 2034, with break option in 2029, at a rent of £185,744 pa (£19.00/ sq. ft.). \n ·    Equinox North, Almondsbury, Bristol - Qualcomm Technologies Int Ltd renewed its lease to March 2029, with a break option in March 2027, at a rental income of £97,155 pa (£15.00/ sq. ft.) on 6,477 sq. ft. of space. \n ·    Cardiff Gate Business Park, Cardiff - SMS Energy Services Ltd renewed its lease to February 2025 at a rental income of £61,908 pa (£14.00/ sq. ft.) on 4,422 sq. ft. of space. \n Stephen Inglis, CEO of London and Scottish Property Investment Management, the Asset Manager, commented: \n 2023 was another active period for the Company, in which we completed 88 new lettings, 7.1% above the Company's external valuer's estimated rental value (ERV) as at the 2023 year end. In addition, as part of the Company's asset disposal programme to reduce the LTV, disposals during the year amounted to £25m (net of costs). \n Since 31 December 2023, the Company has completed eight disposals and two part sales for an aggregate total of £13.4m (before costs), in line with 2023 year end valuation. Currently, there are some 58 assets at various stages of disposal amounting to some £130m. \n Significant preparatory work has been undertaken to date in respect of both the debt and equity options for the refinancing of the £50m August 2024 retail bond. We look forward to providing an update in due course.\" \n   \n Forthcoming Events \n   \n \n \n \n \n 22 May 2024 \n \n \n 2024 Q1 2024 Trading Update and Outlook Announcement \n \n \n \n \n 10 September 2024 \n \n \n Interim Results Announcement \n \n \n \n \n 13 November 2024 \n \n \n Q3 2024 Trading Update \n \n \n \n \n \n- ENDS - \n Enquiries: \n   \n \n \n \n \n Regional REIT Limited \n \n \n   \n \n \n \n \n Press enquiries through Buchanan \n \n \n \n \n \n \n \n \n \n \n \n \n ARA Europe Private Markets Limited \n \n \n Tel: +44 (0) 20 7845 6100 \n \n \n \n \n Investment Adviser to the Group \n \n \n \n \n \n \n \n Adam Dickinson, Investor Relations \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n London & Scottish Property Investment Management  \n \n \n Tel: +44 (0) 141 248 4155 \n \n \n \n \n Asset Manager to the Group \n \n \n \n \n \n \n \n Stephen Inglis \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Buchanan Communications \n \n \n Tel: +44 (0) 20 7466 5000 \n \n \n \n \n Financial PR \n \n \n \n \n \n \n \n Charles Ryland, Henry Wilson, George Beale \n \n \n \n \n \n \n \n   \n About Regional REIT \n   \n About Regional REIT \n Regional REIT Limited (\"Regional REIT\" or the \"Company\") and its subsidiaries (the \"Group\") is a United Kingdom (\"UK\") based real estate investment trust that launched in November 2015. It is managed by London & Scottish Property Investment Management Limited, the Asset Manager, and ARA Europe Private Markets Limited, the Investment Adviser. \n Regional REIT's commercial property portfolio is comprised wholly of income producing UK assets and, predominantly, of offices located in the regional centres outside of the M25 motorway. The portfolio is geographically diversified, with 144 properties and 978 occupiers as at 31 December 2023, with a valuation of c.£700.7m. \n Regional REIT pursues its investment objective by investing in, actively managing and disposing of regional core and core plus property assets. It aims to deliver an attractive total return to its Shareholders, targeting greater than 10% per annum, with a strong focus on income supported by additional capital growth prospects. \n The Company's shares were admitted to the Official List of the UK's Financial Conduct Authority and to trading on the London Stock Exchange on 6 November 2015. For more information, please visit the Group's website at  www.regionalreit.com . \n   \n   \n   \n Financial Key Points \n Year Ended 31 December 2023 \n   \n Income focused - opportunistic buying and strategic selling, coupled with intensive asset management, continues to secure long-term income. \n   \n \n \n \n \n Portfolio Valuation     \n \n \n £700.7m (31 December 2022: £789.5m) \n \n \n \n \n IFRS NAV per Share \n \n \n 59.3p (31 December 2022: 78.1p) \n \n \n \n \n EPRA* NTA per Share \n \n \n 56.4p (31 December 2022: 73.5p) \n \n \n \n \n EPRA* earnings per Share \n \n \n 5.2p (31 December 2022: 6.6p) \n \n \n \n \n Dividend per Share \n \n \n 5.25p (31 December 2022: 6.6p) \n \n \n \n \n Net Loan to Value Ratio** \n \n \n 55.1% (31 December 2022: 49.5%) \n \n \n \n \n Weighted Average Cost of Debt** \n \n \n 3.5% (31 December 2022: 3.5%) \n \n \n \n \n Weighted Average Debt Duration** \n \n \n 3.5 yrs (31 December 2022: 4.5 yrs) \n \n \n \n \n   \n The European Public Real Estate Association (\"EPRA\") \n The EPRA's mission is to promote, develop and represent the European public real estate sector. As an EPRA member, we fully support the EPRA Best Practices Recommendations. Specific EPRA metrics can be found in the Company's financial and operational highlights, with further disclosures and supporting calculations can be found within the full Annual Report. \n   \n * The European Public Real Estate Association (EPRA) \n ** Alternative Performance Measures. Details are provided in the full Annual Report. \n   \n Operational KEY POINTS \n   \n Year Ended 31 December 2023 \n   \n Income focused with intensive asset management. \n   \n \n \n \n \n Properties \n \n \n 144 \n \n \n \n \n Units \n \n \n 1,483 \n \n \n \n \n Tenants \n \n \n 978 \n \n \n \n \n Rent Roll \n \n \n £67.8m \n \n \n \n \n Portfolio by region and sector (by value) \n \n \n \n \n \n \n \n England & Wales \n \n \n 83.8% \n \n \n \n \n Office \n \n \n 92.1% \n \n \n \n \n Property disposal proceeds (net of costs) \n \n \n £25.0m \n \n \n \n \n Number of properties \n \n \n 10 \n \n \n \n \n EPRA Occupancy by ERV* \n \n \n 80.0% \n \n \n \n \n WAULT to expiry \n \n \n 4.7 yrs \n \n \n \n \n WAULT to first break by ERV* \n \n \n 2.8 yrs \n \n \n \n \n   \n * Alternative Performance Measures. Details are provided in the full Annual Report. \n   \n Performance Key Points \n Year ended 31 December 2023 \n   \n A key focus on delivering high dividend distributions to shareholders. \n   \n \n \n \n \n Dividends declared per Share \n \n \n Pence per share \n \n \n \n \n 2023 \n \n \n 5.25 \n \n \n \n \n 2022 \n \n \n 6.60 \n \n \n \n \n 2021 \n \n \n 6.50 \n \n \n \n \n 2020 \n \n \n 6.40 \n \n \n \n \n 2019 \n \n \n 8.25 \n \n \n \n \n 2018 \n \n \n 8.05 \n \n \n \n \n 2017 \n \n \n 7.85 \n \n \n \n \n 2016 \n \n \n 7.65 \n \n \n \n \n 2015 \n \n \n 1.00 \n \n \n \n \n   \n \n \n \n \n Total EPRA Return (from IPO) (EPRA NTA and dividend declared) \n \n \n Pence per share \n \n \n \n \n Dec 2023 \n \n \n 112.7 \n \n \n \n \n Dec 2022 \n \n \n 124.2 \n \n \n \n \n Dec 2021 \n \n \n 141.2 \n \n \n \n \n Dec 2020 \n \n \n 136.3 \n \n \n \n \n Dec 2019 \n \n \n 142.9 \n \n \n \n \n Dec 2018 \n \n \n 137.5 \n \n \n \n \n Dec 2017 \n \n \n 119.9 \n \n \n \n \n Dec 2016         \n \n \n 113.2 \n \n \n \n \n Dec 2015 \n \n \n 107.8 \n \n \n \n \n IPO Nov 2015 \n \n \n 100.0 \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n EPRA Total Return attributable to Shareholders since Admission^ \n \n \n \n 12.7% \n \n \n \n \n EPRA Annual Total Return attributable to Shareholders \n \n \n 1.5% \n \n \n \n \n              \n ^Admission: 6 November 2015.                                             \n Member of FTSE All-Share Index since March 2016. \n Member of FTSE EPRA NAREIT UK Index since June 2016. \n Terms are defined in the Glossary of Terms in the Annual Report. \n   \n Chairman's Statement \n \n \"In a challenging environment for REITs, the Company maintained a resilient operational performance, which was underpinned by the asset and property management teams who continue to provide vibrant spaces, allowing our tenants to thrive over the long term.\" \n Kevin McGrath , Chairman \n   \n Overview \n In a challenging environment for REITs, the Company continued to see a rise in tenants' return to the office with an average of 4.1 days per week and increased space enquiries across the portfolio. The Asset Manager's survey showed an increased 71.4% active office occupation* across the portfolio (June 2023: 65.4%) and that current active occupation is 102% of the pre-pandemic occupancy levels and is expected to grow further. However, the Company was not immune from the wider macro-economic environment with inflation continuing to impact costs and in-turn potential occupiers taking a 'wait and see' position on office requirement or downsizing in the near-term, reflected in EPRA earnings reducing to 5.23p (31 December 2022: 6.6p) with a dividend per share of 5.25p (31 December 2022: 6.6p). \n   \n The near-term focus of the Board has been upon the maturity of the £50.0m 4.5% Retail Eligible Bond maturing in August 2024. At the date of this statement, the Board's election of the most appropriate refinancing option is still subject to commercial and practical considerations, though significant progress has been made with the options being considered. \n   \n In the challenging 'higher for longer' interest rate environment, real estate values across most sectors were impacted but the Company outperformed against a -17.4% decline for the MSCI Rest of UK offices Index. Against this backdrop initiatives undertaken by the Asset Manager mitigated some of the wider valuation decrease. However, the Company's portfolio still decreased in value by 11.2% to £700.7 million (31 December 2022: £789.5m); after adjusting for acquisitions, disposals and capital expenditure, reflecting a decrease of 9.3% on a like-for- like basis. \n   \n During 2023, the Company continued to make strides towards reducing the Company's LTV with the continued asset disposal programme. Though market conditions continued to be constrained with limited transactional activity, selected disposals were achieved of non-core assets amounting to £25.0 million (net of costs) and net initial yields of 4.5% (7.9% excluding vacant units). In addition, the rolling capital expenditure programme continued to be executed, partially mitigating the wider market valuation decline and being targeted at non- speculative earnings accretive projects. In the year, the rolling programme amounted to £10.2 million (net after costs) (31 December 2022: £10.0m). No acquisitions were transacted in 2023 reflecting our focus on de-risking the offering in the short to medium term. \n   \n Rent roll remained robust at £67.8m (2022: £71.8m) and the EPRA occupancy stands at 80% (2022: 83.4%). As of 31 December 2023, the net initial yield on the portfolio was 6.2% (2022: 6.0%). The fully occupied rental income was estimated at ERV £87.0m (2022: £92.0m) with an equivalent yield of 9.9% (2022: 9.0%). \n   \n The Company continues to enjoy robust levels of rental collection, reaching 99.0% for the period up to 15 March 2024 (2022: equivalent period 98.7%). \n   \n * If a company has 100 desks then on average during business hours 71.4% of desks would be actively occupied, with the balance unoccupied due to absences from holidays, illness, or out of the office on business. \n   \n \n \n \n \n 5.25pps 2023 Dividend (2022: 6.60pps) \n \n \n \n \n £234.5 million of dividends have been declared since inception \n \n \n \n \n £700.7 million Portfolio Valuation \n \n \n \n \n   \n Financial Resources \n The Company's EPRA NTA reduced to £290.8 million (IFRS NAV: £306.1 million) as at 31 December 2023, down from £379.2 million (IFRS NAV: £402.9 million) as at 31 December 2022. This was the result of the previously mentioned investment property portfolio revaluation which reflected the challenging market environment. We retained a strong cash balance of £34.5 million as of 31 December 2023 (31 December 2022: £50.1 million), of which £30.2 million is unrestricted (31 December 2022: £41.3 million). \n   \n The debt position comprising of 100.0% fixed and hedged interest rate debt, meant the Company was able to mitigate rate volatility and ensured the weighted average cost of debt remained stable at 3.5% at the end of 2023 (31 December 2022: 3.5%). As previously mentioned, the maturity of the £50m 4.5% Retail Eligible Bond in August 2024, has been a particular focus of the Board. The most appropriate refinancing option is still subject to commercial and practical considerations, though significant preparatory work has been undertaken to date in respect of both the debt and equity options, which remain under active consideration. \n   \n The challenging real estate valuation environment in 2023 resulted in net borrowings Net Loan-to-Value (LTV) of 55.1% as of 31 December 2023, up from 49.5% on 31 December 2022. The Company continues to execute its disposal programme and active asset management initiatives to reduce the LTV to our long-term target of approximately 40%. \n   \n Sustainability \n I am delighted to share the considerable progress made by the ESG working party throughout the year, leading to a 10% improvement in the Company's Global Real Estate Sustainability Benchmark (GRESB) from 60 to 66, achieving two Green Star Status. Furthermore, we have seen enhancements in our EPRA sustainability accreditation and EPC ratings across the portfolio. EPC ratings of C+ reached 73.7% (compared to 55.9% on 31 December 2022), and EPC B plus and Exempt increased to 42.1% (compared to 23.6% on 31 December 2022). This brings us closer to achieving the Minimum Energy Efficiency Standard ('MEES') target of EPC B, well in advance of 2030. \n   \n The Company conducted a baseline exercise to access the carbon performance and form a 1.5-degree carbon pathway. With this we plan to develop asset level action plans to address risks. For 2024 we plan to expand the effort in occupier data collection so our baseline and 1.5-degree pathway can be undertaken with greater accuracy. The end goal for 2024 is to be able to develop a science- based target initiative (SBTI) aligned target. \n   \n Market Environment \n Investment in commercial property amounted to £36.7 billion during 2023, according to research by Lambert Smith Hampton (\"LSH\"), 34.5% below the volumes recorded in 2022, and 23.5% below the five-year average. However, improving investment volumes in the final quarter suggest the market bottomed out in 2023, signalling the early stages of an upward trend and a reason to be optimistic moving into 2024. \n   \n Overall, investment in regional offices, throughout the UK reached £2.4 billion in 2023, and although investment in regional offices across 2023 was 40.2% below trend, optimism in the regional markets continues to be supported by strong employment levels and a fall in the number of employees exclusively working from home. As demonstrated with Q4 2023 investment volumes being 62.1% higher than the previous quarter, reaching £0.8 billion. \n   \n According to monthly data from MSCI, rental value growth held up well for the rest of UK office markets in the 12 months ended December 2023 with growth of 2.3%. Conversely, central London offices experienced modest growth of 1.7% over the same period. \n   \n Dividends \n The dividend continues to represent a significant component of total shareholder returns. Over the period under review, the Company declared total dividends of 5.25pps (2022: 6.6pps), ensuring compliance with the HMRC REIT regime. Since inception, the Company has declared dividends amounting to 57.55pps and to date the Company has distributed c.£234 million in dividends. \n   \n Performance \n For the period under review, the Company's total shareholder return was -31.7%, versus the return of 10.7% for the FTSE EPRA NAREIT UK Total return Index over the same period. \n   \n The EPRA total return from listing on 6 November 2015 was 12.7% (2022: 24.2%) and the annualised EPRA Total Return was 1.5% p.a. (2022: 3.1% p.a.). Total Shareholder Return was -30.7%, versus the FTSE EPRA NAREIT UK Total Return Index of -8.1%. \n   \n Management Agreements \n The Board announced on 13 April 2023 that ARA Asset Management Limited acquired a majority shareholding in London & Scottish Property Investment Management (\"Asset Manager\"), with Stephen Inglis retaining a significant minority interest. All the Asset Manager's staff remained unchanged, including Stephen Inglis as CEO of the Asset Manager, which ensured that there was no disruption to the services provided to Regional REIT. \n   \n The Board announced on 11 October 2023 that ARA Europe Private Markets Limited (\"ARA Europe\"), was appointed as the Company's Investment Adviser, having acquired the role from Toscafund Asset Management LLP (\"Toscafund\"). \n   \n The Board believes the appointment of ARA Europe will enhance the overall strength and capabilities to the benefit of the Company's long-term strategy. \n   \n Both of the management agreements continue on the existing terms to November 2026. Toscafund remains the Company's Alternative Investment Fund Manager (\"AIFM\") on an interim basis until ARA receives its AIFM licence. \n   \n Annual General Meeting \n The notice for the 2024 AGM will be published on our website and will be circulated to Shareholders in accordance with the requirements of the Company's Articles of Incorporation. \n   \n All Directors will stand for re-election at the 2024 AGM in accordance with the Company's articles and the AIC Code. The Directors ensure that they maintain their continuing professional development 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. \n   \n The Board does not intend to appoint new Directors in the short-term and will incorporate discussions to ensure an orderly refreshment of the Board in its current succession planning. \n   \n The Board very much looks forward to meeting with Shareholders at the AGM. \n   \n Shareholder and Stakeholder Engagement \n Ultimately, the satisfaction of our tenants and other stakeholders will influence our performance. Our objective is to consistently provide exceptional working environments, catering to diverse needs, whether it be a small flexible unit or a prominent corporate headquarters, fostering an environment where our tenants can flourish. \n   \n Active involvement with our tenants is a pivotal aspect of our asset management initiatives, enabling us to grasp their requirements and recognise both opportunities and challenges. We actively encourage transparent and collaborative communication with our tenants, fostering an environment that facilitates continuous enhancement of our workspaces and ensures mutual advantages. This collaborative approach extends to our stakeholders, aiming to enhance our operational efficiency. \n   \n The Company welcomes engagement with its shareholders and more details on the Company can be found on the Company's website www.regionalreit.com. Further information on Shareholder and stakeholder engagement can be found in the full Annual Report. \n   \n Outlook \n Although the economic activity in the UK regions continues to improve, the Board expects the macroeconomic challenges to remain in the near term, particularly around the availability of funding, given the prolonged monetary policy tightening. Operationally, the Company continues to perform well, delivering against the factors which are within its control, as demonstrated by the robust rent collections. \n   \n The Board's focus remains to continue to offer vibrant spaces to enable our current and future tenants the ability to grow and thrive, leading to increased occupancy and in-turn a reduction in the carrying costs associated with the vacant space. We look forward to growing the portfolio's rent roll which underpins the quarterly dividend distributions; and the execution of the Company's asset management plans to drive property values over the long term. \n   \n Kevin McGrath \n Chairman \n 25 March 2024 \n   \n Asset Manager and Investment Adviser's Report \n \"2023 was another active period for the Company, in which we completed on 88 new lettings, 7.1% above ERV. Additionally, the Company disposed of £25 million of assets to support the balance sheet and reduce the Company's LTV.\" \n   \n Stephen Inglis \n CEO of London & Scottish Property Investment Management, \n Asset Manager \n   \n Overview \n 2023 saw a continuation of the challenging market environment for REITs that we witnessed throughout 2022. The sector continued to be sentiment driven, as cautious investors shunned areas of the commercial property sector they deemed less attractive. The office market once again faced the brunt of the storm, which was reflected in the Company's portfolio valuation  declining by 9.3% from 31 December 2022 to 31 December 2023 on a like-for-like basis, albeit this was considerably better than the 17.4% decline for the MSCI Rest of UK offices Index. This resulted in a further increase in our LTV, which reached 55.1% at the end of the period. Whilst this is above our target, it's important to note that the debt position is comprised of 100% fixed and hedged interest rate debt with the weighted average cost of debt remaining stable at 3.5% at the end of 2023. \n   \n The Company is taking steps to reduce the LTV back to the approximate 40% target and has disposed of certain assets whilst halting acquisition activity. During the year, the Company disposed of assets totalling £25m, reflecting an average net initial yield of 4.5%. \n   \n Operational performance was robust with 88 new lettings completed in 2023, totalling 242,908 sq. ft., which, when fully occupied, will provide a gross rental income of c. £3.8 million and equates to the average rent by sq. ft. of £15.70. \n   \n Furthermore, rent collection has once again remained strong, with 99.0% achieved at FY 23, better than previous reporting periods. This can be attributed to our careful selection of tenants with investment grade credit which can be relied upon throughout the most challenging economic cycles. \n   \n In addition, at the time of writing the Company has been focused upon identifying refinancing options for the near term maturity of the Retail Eligible Bond in August 2024, which are the most appropriate both commercial and practical for the Company. \n   \n   \n Key Points from 2023 \n \n ·     High level of rent collection \n Achieved a high level of rent collection. As at 15 March 2024, rent collection continued to strengthen, with FY 2023 collections increasing to 99.0%, adjusting for monthly rent and agreed collections plans, which is similar to the equivalent date in 2023 when 98.7% had been collected. \n ·     88 new lettings \n Completed 88 new lettings in 2023, totalling 242,908 sq. ft., which when fully occupied will provide a gross rental income of c. £3.8 million. \n ·     £25.0 million of disposals \n Disposals during 2023 totalled £25.0 million (net of costs), reflecting an average net initial yield of 4.5% (7.9% excluding vacant properties). \n ·     Increase in average rent \n Average rent by let sq. ft. increased by 1.3% from £13.65 per sq. ft. in December 2022 to £13.82 per sq. ft. in December 2023. MSCI monthly data shows rental growth of 1.5% for rest of UK offices over the same period. \n ·     Decrease in capital value \n The like-for-like value of the portfolio decreased by 5.9% from 30 June 2023 to 31 December 2023 after adjusting for capital expenditure, acquisitions and disposals during the period (5.5% excluding capital expenditure adjustment). MSCI monthly data shows capital value decline of 11.0% for rest of UK offices over the same period. \n ·     Increase in GRESB Score \n The Company submitted its Third Global Real Estate Sustainability Benchmark (\"GRESB\") assessment resulting in an increased score of 66 from 60. \n   \n Investment Activity in the UK Commercial Property Market \n 2023 proved to be a challenging year for investment in the UK commercial property market, with overall investment in commercial property of £36.7 billion during 2023, according to research by Lambert Smith Hampton (\"LSH\") 1 , 34.5% below the volumes recorded in 2022, and 23.5% below the five-year average. However, improving investment volumes in the final quarter suggest the market bottomed out in 2023, signalling the early stages of an upward trend and a reason to be optimistic moving into 2024. Investment volumes in the final quarter of 2023 reached £10.2 billion, up 13.8% on the previous quarter and the highest level recorded since Q3 2022. Investment in Q4 2023 pushed H2 2023 investment volumes £19.1 billion, 8.2% above the first half of 2023. Additionally, Savills research suggests that optimism for the future can be derived from the anticipated fall in the UK base rate in the second half of 2024, which is expected to result in opportunistic buying in 2024. \n   \n The UK regions outside of London attracted £3.7 billion of investment in Q4 2023, 17.0% above the previous quarter, but 14.5% lower than the five-year quarterly average. Investment in Q4 brought the annual 2023 total to £13.3 billion, 22.5% below the level recorded in 2022. Research by LSH highlights the importance of the regional markets, with the regions outperforming when compared with London. At £2.7 billion, investment in single assets across the UK regional markets in Q4 2023 was 34.7% higher than the level of investment in Greater London - well above the five-year quarterly average margin of 5.2%. Two regions that experienced robust levels of investment in 2023 were the South East and North West of England. Total investment in the South East reached £2.9 billion. Data from LSH shows that £2.4 billion was the investment in the North West of England. It is worth noting that the only regional market that recorded investment volumes above the five-year average was the West Midlands with annual investment of £2.1 billion in 2023. \n   \n Investment volumes in the UK regional office market reached £0.8 billion in Q4 2023, 62.1% higher than the previous quarter. Overall, investment in regional offices reached £2.4 billion in 2023. Although investment in regional offices in 2023 was 40.2% below trend, optimism in the regional markets continues to be supported by strong employment levels and a fall in the number of employees exclusively working from home. The most recent data from the ONS shows that the UK employment rate remained steady at 75.0% in the three months to December 2023 2 . Additionally, data from the ONS shows that despite the rise in hybrid working as a result of Covid-19, the vast majority of people do not work from home, with only 12% of workers reporting that they worked exclusively from home - down from 26% in mid- January 2022. Additionally, those aged 16 to 29 were less likely to exclusively work from home with only 6% stating that they did not travel to work 3 . \n   \n 1 Lambert Smith Hampton, UKIT Q4 2023 \n 2 Labour Market Overview, UK, December 2023 \n 3 ONS, Public Opinions and social trends, Great Britain: 17 to 29 March 2023, June 2023 \n   \n Overseas investment in the UK property market accounted for just under half (48.8%) of total investment in 2023, according to data from LSH. LSH estimates that total overseas investment in 2023 reached £17.2 billion, 32.8% lower than 2022 volumes and 25.1% below the five-year  average. However, improved investment volumes in the final quarter of 2023 reflects international investors' confidence in UK commercial property. Overseas investment in Q4 2023 amounted to £5.1 billion, 39.4% above Q3 levels, but 16.1% below the five-year quarterly average. International investors were net buyers in Q4 for the fourth consecutive quarter with net purchasing of £2.9 billion - c. 13% above trend. It is worth noting that overseas investment was largely supported by North American buyers with the largest share of international inflows in Q4 for the sixth successive quarter. \n   \n LSH research highlights that North American investors purchased £1.9 billion of UK commercial real estate in Q4 2023. Additionally, Middle Eastern investors purchased £0.8 billion in the final quarter of 2023, the highest quarterly volume over the last three years. \n   \n Occupational Demand in the UK Regional Office Market \n Avison Young estimates that take-up of office space across nine regional office markets 4 totalled 7.1 million sq. ft. in 2023; 11.7% below the level of take-up recorded in 2022 and 6.0% lower than the 5-year average. That said, it is worth noting that take-up in 2023 was 24.9% above the level reported in 2020. Take-up in the final quarter of 2023 was 1.4% above the five-year average at 1.9 million sq. ft., marking the highest quarterly take-up figure in 2023. Approximately 63.2% of take-up in Q4 2023 was transacted in city centres, with 36.8% transacted in the out of town market - both the city centre and out of town markets were in-line with the quarterly trend in Q4 2023. Avison Young highlights that occupiers have increasingly sought greater quality space to attract and retain talent. \n   \n Occupational demand was driven by the professional sector, which accounted for the highest proportion of take-up at 23.4% in 2023. Following the professional sector, the public services, education & health sector and technology, media & telecoms sector accounted for the second and third largest proportion of take-up in the regional cities, accounting for 16.1% and 15.4% \n respectively. Research from Savills shows that these sectors were also the most active sectors pre-covid from 2015 to 2019 5 . \n   \n According to data from CoStar, there was an increase in availability for all regional office stock with total supply rising by 2.4% in 2023 to 82.0 million sq. ft. However, it is worth highlighting that supply remains 2.0% below the 10-year average. Availability for prime office stock experienced a larger increase when compared to the previous year, increasing by 2.7% compared to 2.3% for secondary office stock. According to Savills the overall vacancy rate regional offices across ten regional UK markets 6 ticked upwards from 12.4% in 2022 to 13.0% in 2023, 2.8% below the long-term average 7 . \n   \n Furthermore, it is estimated that approximately 4.2 million sq. ft. of office space is currently under construction in the Big Nine regional markets, with Manchester, Bristol and Glasgow accounting for 24.8%, 22.7% and 12.6%, respectively. Approximately 30.2% of office buildings currently under construction are already pre-let. Additionally, 3.3 million sq. ft. (78.7%) is due to complete in 2024. \n   \n The Asset Manager's opinion is that occupational market fundamentals remain robust despite the recent fall in capital values. Overall, there appears to be a disconnect between the investment market and the occupational market. The Asset Manager's view is that the market bottomed out in 2023, signalling the early stages of an upward trend and a reason to be optimistic moving into 2024. \n   \n 4 Nine regional office markets mentioned by Avison Young include: Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Liverpool, Manchester & Newcastle \n 5 Savills: The Regional Office Market Overview, Q4 2023 \n 6 Ten regional office markets mentioned by Savills include: Aberdeen, Birmingham, Bristol, Cambridge, Cardiff, Edinburgh, Glasgow, Leeds, Manchester and Oxford \n 7 Savills: The Regional Office Market Overview, Q4 2022 \n   \n Rental Growth in the UK Regional Office Market \n A ccording to monthly data from MSCI, rental value growth held up well for the rest of UK office markets in the 12 months ended December 2023 with growth of 2.3%. Conversely, central London offices experienced modest growth of 1.7% over the same period 8 . The most recent figures from MSCI shows that there is evidence of sustained rental growth in the majority of the regional office markets. According to the monthly MSCI digest index, Rest of UK and Mid-Town & West End offices recorded the strongest rental growth in December 2023. Avison Young expects rental growth to continue across most markets for the remainder of 2024 and 2025 9 . Demand for quality office space has put an upward pressure on rents, with growth of 5.0% recorded across the Big Nine regional markets in 2023, 27.2% above the five-year average rental growth figure. Average headline rents now sitting at £36.50 per sq. ft., according to research from Avison Young. \n   \n Research from Savills highlights that optimism in occupational markets is set to be driven by limited development starts in 2023 and 2024, which in turn will cause downward pressure on vacancy rates and result in rental growth. Moreover, rental growth and positivity surrounding exit yields will reinstate confidence among not only opportunistic investors but a more diverse  range of investors in 2025. Subsequently, this will trigger yield recovery that mirrors the kind of recovery witnessed in previous cycles, according to Savills 10 . \n   \n Regional REIT's Office Assets \n EPRA occupancy of the Group's regional offices declined to 79.2% (2022: 82.8%). A like-for-like comparison of the Group's regional offices' EPRA occupancy, as at 31 December 2023 versus 31 December 2022, shows occupancy of 79.2% (2022: 84.2%). WAULT to first break was 2.6 years (2022: 2.7 years); like-for-like WAULT to first break of 2.6 years (2022: 2.7 years). \n   \n 8 MSCI, Colliers, UK Property Snapshot, February 2024 \n 9 Avison Young, Big Nine Q4 2023, February 2024 \n 10 Savills, Market in Minutes, January 2024 \n   \n Property Portfolio \n As at 31 December 2023, the Group's property portfolio was valued at £700.7 million (2022: £789.5 million), with rent roll of £67.8 million (2022: £71.8 million), and an EPRA occupancy of 80.0% (2022: 83.4%). \n   \n On a like-for-like basis, 31 December 2023 versus 31 December 2022, EPRA occupancy was 80.0% (2022: 84.7%). \n   \n There were 144 properties (2022: 154) in the portfolio, with 1,483 units (2022: 1,552) and 978 tenants (2022: 1,076). If the portfolio was fully occupied at Colliers International Property Consultants Ltd's view of market rents, the rental income would be £87.0 million per annum as at 31 December 2023 (2022: £92.0 million). \n   \n As at 31 December 2023, the net initial yield on the portfolio was 6.2% (2022: 6.0%), the equivalent yield was 9.9% (2022: 9.0%) and the reversionary yield was 10.8% (2022: 10.2%). \n \n \n Property Portfolio by Sector \n \n \n \n \n   \n \n \n   \n \n \n Valuation \n \n \n % by \n \n \n Sq. ft. \n \n \n Occupancy (EPRA) \n \n \n WAULT to first break \n \n \n Gross rental income \n \n \n Average rent \n \n \n ERV \n \n \n Capital rate \n \n \n Net Initial Yield \n \n \n Equivalent \n yield \n \n \n Reversionary \n yield \n \n \n \n \n Sector \n \n \n Properties \n \n \n (£m) \n \n \n valuation \n \n \n (m) \n \n \n (%) \n \n \n (yrs) \n \n \n (£m) \n \n \n (£psf) \n \n \n (£m) \n \n \n (£psf) \n \n \n (%) \n \n \n (%) \n \n \n (%) \n \n \n \n \n Office \n \n \n 122 \n \n \n 645.0 \n \n \n 92.1 \n \n \n 5.5 \n \n \n 79.2 \n \n \n 2.6 \n \n \n 61.9 \n \n \n 14.72 \n \n \n 81.6 \n \n \n 117.14 \n \n \n 6.1 \n \n \n 10.0 \n \n \n 11.0 \n \n \n \n \n Retail \n \n \n 15 \n \n \n 21.9 \n \n \n 3.1 \n \n \n 0.3 \n \n \n 93.6 \n \n \n 3.5 \n \n \n 2.9 \n \n \n 11.55 \n \n \n 2.4 \n \n \n 81.93 \n \n \n 8.9 \n \n \n 9.2 \n \n \n 9.5 \n \n \n \n \n Industrial \n \n \n 4 \n \n \n 22.1 \n \n \n 3.2 \n \n \n 0.4 \n \n \n 86.2 \n \n \n 5.0 \n \n \n 1.9 \n \n \n 5.27 \n \n \n 2.1 \n \n \n 52.76 \n \n \n 5.9 \n \n \n 7.6 \n \n \n 8.0 \n \n \n \n \n Other \n \n \n 3 \n \n \n 11.7 \n \n \n 1.7 \n \n \n 0.1 \n \n \n 100.0 \n \n \n 10.3 \n \n \n 1.1 \n \n \n 12.36 \n \n \n 0.9 \n \n \n 120.86 \n \n \n 7.1 \n \n \n 8.5 \n \n \n 7.0 \n \n \n \n \n Total \n \n \n 144 \n \n \n 700.7 \n \n \n 100.0 \n \n \n 6.3 \n \n \n 80.0 \n \n \n 2.8 \n \n \n 67.8 \n \n \n 3.82 \n \n \n 87.0 \n \n \n 111.40 \n \n \n 6.2 \n \n \n 9.9 \n \n \n 10.8 \n \n \n \n \n Property Portfolio by Region \n \n \n \n \n   \n \n \n   \n \n \n Valuation \n \n \n % by \n \n \n Sq. ft. \n \n \n Occupancy (EPRA) \n \n \n WAULT to first break \n \n \n Gross rental income \n \n \n Average rent \n \n \n ERV \n \n \n Capital rate \n \n \n Net Initial Yield \n \n \n Equivalent yield \n \n \n Reversionary \n yield \n \n \n \n \n Region \n \n \n Properties \n \n \n (£m) \n \n \n valuation \n \n \n (m) \n \n \n (%) \n \n \n (yrs) \n \n \n (£m) \n \n \n (£psf) \n \n \n (£m) \n \n \n (£psf) \n \n \n (%) \n \n \n (%) \n \n \n (%) \n \n \n \n \n Scotland \n \n \n 33 \n \n \n 113.8 \n \n \n 16.2 \n \n \n 1.2 \n \n \n 72.4 \n \n \n 4.0 \n \n \n 10.7 \n \n \n 13.31 \n \n \n 16.5 \n \n \n 98.62 \n \n \n 5.1 \n \n \n 10.4 \n \n \n 11.7 \n \n \n \n \n South East \n \n \n 26 \n \n \n 126.5 \n \n \n 18.1 \n \n \n 0.9 \n \n \n 83.7 \n \n \n 2.1 \n \n \n 12.3 \n \n \n 16.46 \n \n \n 15.5 \n \n \n 135.77 \n \n \n 6.4 \n \n \n 9.6 \n \n \n 10.6 \n \n \n \n \n North East \n \n \n 21 \n \n \n 112.5 \n \n \n 16.0 \n \n \n 1.0 \n \n \n 77.2 \n \n \n 3.0 \n \n \n 9.8 \n \n \n 13.03 \n \n \n 13.1 \n \n \n 113.59 \n \n \n 5.4 \n \n \n 9.7 \n \n \n 10.5 \n \n \n \n \n Midlands \n \n \n 26 \n \n \n 142.7 \n \n \n 20.4 \n \n \n 1.4 \n \n \n 85.2 \n \n \n 3.1 \n \n \n 15.2 \n \n \n 13.29 \n \n \n 17.8 \n \n \n 101.40 \n \n \n 6.4 \n \n \n 9.9 \n \n \n 10.9 \n \n \n \n \n North West \n \n \n 18 \n \n \n 97.7 \n \n \n 13.9 \n \n \n 0.9 \n \n \n 73.4 \n \n \n 2.0 \n \n \n 9.1 \n \n \n 13.50 \n \n \n 12.1 \n \n \n 108.71 \n \n \n 5.9 \n \n \n 10.0 \n \n \n 11.1 \n \n \n \n \n South West \n \n \n 14 \n \n \n 69.8 \n \n \n 10.0 \n \n \n 0.5 \n \n \n 85.9 \n \n \n 2.1 \n \n \n 6.7 \n \n \n 16.81 \n \n \n 7.9 \n \n \n 147.44 \n \n \n 8.3 \n \n \n 10.0 \n \n \n 10.6 \n \n \n \n \n Wales \n \n \n 6 \n \n \n 37.8 \n \n \n 5.4 \n \n \n 0.4 \n \n \n 90.4 \n \n \n 3.5 \n \n \n 3.8 \n \n \n 10.22 \n \n \n 4.0 \n \n \n 86.85 \n \n \n 7.9 \n \n \n 8.8 \n \n \n 9.1 \n \n \n \n \n Total \n \n \n 144 \n \n \n 700.7 \n \n \n 100.0 \n \n \n 6.3 \n \n \n 80.0 \n \n \n 2.8 \n \n \n 67.8 \n \n \n 13.82 \n \n \n 87.0 \n \n \n 111.40 \n \n \n 6.2 \n \n \n 9.9 \n \n \n 10.8 \n \n \n \n \n \n * Tables may not sum due to rounding \n   \n   \n Top 15 Investments (market value) as at 31 December 2023 \n \n \n \n \n Property \n \n \n Sector \n \n \n Anchor tenants \n \n \n Market value \n (£m) \n \n \n % of portfolio \n \n \n Lettable area \n (sq ft) \n \n \n EPRA Occupancy \n (%) \n \n \n Annualised gross rent \n (£m) \n \n \n % of gross rental income \n \n \n WAULT to first break (years) \n \n \n \n \n 300 Bath Street, Glasgow \n \n \n Office \n \n \n University of Glasgow, Glasgow Tay House Centre Ltd, Fairhurst Group LLP, London & Scottish Property Investment Management \n \n \n 19.4 \n \n \n 2.8% \n \n \n 156,853 \n \n \n 87.2% \n \n \n 1.2 \n \n \n 1.8% \n \n \n 1.9 \n \n \n \n \n Hampshire Corporate Park, Eastleigh \n \n \n Office \n \n \n Aviva Central Services UK Ltd, Lloyd's Register EMEA, Complete Fertility Ltd, Silverstream Technologies (UK)Ltd \n \n \n 19.0 \n \n \n 2.7% \n \n \n 84,043 \n \n \n 100.0% \n \n \n 1.8 \n \n \n 2.7% \n \n \n 3.2 \n \n \n \n \n Eagle Court, Coventry Road, Birmingham \n \n \n Office \n \n \n Virgin Media Ltd, Rexel UK Ltd \n \n \n 18.8 \n \n \n 2.7% \n \n \n 132,416 \n \n \n 62.8% \n \n \n 1.3 \n \n \n 1.9% \n \n \n 3.4 \n \n \n \n \n Beeston Business Park, Nottingham \n \n \n Office/ Industrial \n \n \n Metropolitan Housing Trust Ltd, SMS Electronics Ltd, Heart Internet Ltd SMS Product Services Ltd \n \n \n 16.5 \n \n \n 2.3% \n \n \n 215,330 \n \n \n 78.6% \n \n \n 1.4 \n \n \n 2.1% \n \n \n 4.6 \n \n \n \n \n Norfolk House, Smallbrook Queensway, Birmingham \n \n \n Office \n \n \n Global Banking School Ltd, Accenture (UK) Ltd \n \n \n 16.3 \n \n \n 2.3% \n \n \n 118,530 \n \n \n 98.9% \n \n \n 1.9 \n \n \n 2.9% \n \n \n 6.8 \n \n \n \n \n 800 Aztec West, Bristol \n \n \n Office \n \n \n NNB Generation Company (HPC) Ltd, EDF EPR Engineering UK Ltd \n \n \n 16.3 \n \n \n 2.3% \n \n \n 73,292 \n \n \n 100.0% \n \n \n 1.5 \n \n \n 2.3% \n \n \n 1.2 \n \n \n \n \n Manchester Green, Manchester \n \n \n Office \n \n \n Chiesi Ltd, Ingredion UK Ltd, Assetz SME Capital Ltd, Contemporary Travel Solutions Ltd \n \n \n 16.3 \n \n \n 2.3% \n \n \n 107,760 \n \n \n 79.3% \n \n \n 1.4 \n \n \n 2.1% \n \n \n 2.7 \n \n \n \n \n Orbis 1, 2 & 3, Pride Park, Derby \n \n \n Office \n \n \n First Source Solutions UK Ltd, DHU Health Care C.I.C., Tentamus Pharma (UK) Ltd \n \n \n 14.8 \n \n \n 2.1% \n \n \n 121,883 \n \n \n 100.0% \n \n \n 1.8 \n \n \n 2.7% \n \n \n 3.4 \n \n \n \n \n Capitol Park, Leeds \n \n \n Office \n \n \n Hermes Parcelnet Ltd, BDW Trading Ltd \n \n \n 13.4 \n \n \n 1.9% \n \n \n 98,340 \n \n \n 41.6% \n \n \n 0.7 \n \n \n 1.1% \n \n \n 4.1 \n \n \n \n \n Linford Wood Business Park, Milton Keynes \n \n \n Office \n \n \n IMServ Europe Ltd, Aztech IT Solutions Ltd, Autotech Recruit Ltd \n \n \n 13.3 \n \n \n 1.9% \n \n \n 107,352 \n \n \n 79.9% \n \n \n 1.3 \n \n \n 2.0% \n \n \n 1.8 \n \n \n \n \n Oakland House, Manchester \n \n \n Office \n \n \n Please Hold (UK) Ltd, A.M.London Fashion Ltd, CVS (Commercial Valuers & Surveyors) Ltd \n \n \n 13.1 \n \n \n 1.9% \n \n \n 161,502 \n \n \n 74.3% \n \n \n 1.0 \n \n \n 1.5% \n \n \n 1.9 \n \n \n \n \n Portland Street, Manchester \n \n \n Office \n \n \n Evolution Money Group Ltd, Mott MacDonald Ltd, NCG (Manchester) Ltd, Simard Ltd \n \n \n 13.0 \n \n \n 1.9% \n \n \n 55,787 \n \n \n 95.9% \n \n \n 1.1 \n \n \n 1.6% \n \n \n 1.9 \n \n \n \n \n Lightyear - Glasgow \n Airport, Glasgow \n \n \n Office \n \n \n Rolls-Royce Submarines Ltd, Loganair Ltd, Cefetra Ltd, Taylor Wimpey UK Ltd \n \n \n 12.3 \n \n \n 1.8% \n \n \n 73,499 \n \n \n 88.4% \n \n \n 1.1 \n \n \n 1.6% \n \n \n 4.7 \n \n \n \n \n Origin 1& 2 Crawley                          \n \n \n Office \n \n \n Knights Professional Services Ltd, DMH Stallard LLP, Spirent Communications Plc, Travelopia Holdings Ltd \n \n \n 11.7 \n \n \n 1.7% \n \n \n 45,855 \n \n \n 100.0% \n \n \n 1.1 \n \n \n 1.6% \n \n \n 1.0 \n \n \n \n \n Buildings 2, Bear Brook Office Park, Aylesbury \n \n \n Office \n \n \n Utmost Life and Pensions Ltd, Musarubra UK Subsidiary 3 Ltd, Agria Pet Insurance Ltd \n \n \n 10.9 \n \n \n 1.5% \n \n \n 61,642 \n \n \n 94.5% \n \n \n 1.0 \n \n \n 1.5% \n \n \n 3.5 \n \n \n \n \n Total \n \n \n   \n \n \n   \n \n \n 224.9 \n \n \n 32.1% \n \n \n 1,614,084 \n \n \n 84.6% \n \n \n 19.7 \n \n \n 29.1% \n \n \n 3.2 \n \n \n \n \n \n * Tables may not sum due to rounding \n   \n   \n   \n Top 15 Tenants (share of rental income) as at 31 December 2023 \n \n \n \n \n Tenant \n \n \n Property \n \n \n Sector \n \n \n WAULT to first break (years) \n \n \n Lettable area \n (sq ft) \n \n \n Annualised gross rent (£m) \n \n \n % of gross rental income \n \n \n \n \n EDF Energy Ltd \n \n \n 800 Aztec West, Bristol \n Endeavour House, Sunderland \n \n \n Electricity, gas, steam and air conditioning supply \n \n \n 4.3 \n \n \n 109,114 \n \n \n 1.7 \n \n \n 2.5% \n \n \n \n \n Global Banking School Ltd \n \n \n Norfolk House, Smallbrook Queensway, Birmingham \n \n \n Education \n \n \n 8.5 \n \n \n 73,628 \n \n \n 1.4 \n \n \n 2.1% \n \n \n \n \n Shell Energy Retail Ltd \n \n \n Columbus House, Coventry \n \n \n Electricity, gas, steam and air conditioning supply \n \n \n 0.0 \n \n \n 53,253 \n \n \n 1.4 \n \n \n 2.0% \n \n \n \n \n Virgin Media Ltd \n \n \n Eagle Court, Coventry Road, Birmingham \n Southgate Park, Peterborough \n \n \n Information and communication \n \n \n 3.4 \n \n \n 75,309 \n \n \n 1.3 \n \n \n 2.0% \n \n \n \n \n Secretary of State for Communities & Local Government \n \n \n 1 Burgage Square, Merchant Square, Wakefield \n Albert Edward House, Preston \n Bennett House, Stoke-On-Trent \n Oakland House, Manchester \n Waterside Business Park, Swansea \n \n \n Public sector \n \n \n 3.6 \n \n \n 108,915 \n \n \n 1.1 \n \n \n 1.6% \n \n \n \n \n First Source Solutions UK Ltd \n \n \n Orbis 1, 2 & 3, Pride Park, Derby \n \n \n Administrative and support service activities \n \n \n 3.3 \n \n \n 62,433 \n \n \n 1.0 \n \n \n 1.5% \n \n \n \n \n E.ON UK Plc \n \n \n Two Newstead Court, Nottingham \n \n \n Electricity, gas, steam and air conditioning supply \n \n \n 1.3 \n \n \n 99,142 \n \n \n 0.9 \n \n \n 1.4% \n \n \n \n \n NNB Generation Company (HPC) Ltd \n \n \n 800 Aztec West, Bristol \n \n \n Electricity, gas, steam and air conditioning supply \n \n \n 1.6 \n \n \n 41,743 \n \n \n 0.9 \n \n \n 1.3% \n \n \n \n \n SPD Development Co Ltd \n \n \n Clearblue Innovation Centre, Bedford \n \n \n Professional, scientific and technical activities \n \n \n 1.8 \n \n \n 58,167 \n \n \n 0.8 \n \n \n 1.2% \n \n \n \n \n Aviva Central Services UK Ltd \n \n \n Hampshire Corporate Park, Eastleigh \n \n \n Other service activities \n \n \n 0.9 \n \n \n 42,612 \n \n \n 0.8 \n \n \n 1.1% \n \n \n \n \n Odeon Cinemas Ltd \n \n \n Kingscourt Leisure Complex, Dundee \n \n \n Information and communication \n \n \n 11.8 \n \n \n 41,542 \n \n \n 0.8 \n \n \n 1.1% \n \n \n \n \n Care Inspectorate \n \n \n Compass House, Dundee \n Quadrant House, Dundee \n \n \n Public Sector \n \n \n 4.3 \n \n \n 51,852 \n \n \n 0.7 \n \n \n 1.0% \n \n \n \n \n SpaMedica Limited \n \n \n 1175 Century Way, Thorpe Park, Leeds \n Albert Edward House, Preston Fairfax House, Wolverhampton Southgate Park, Peterborough The Foundation Chester Business Park, Chester \n \n \n Human health and social work activities \n \n \n 2.5 \n \n \n 40,529 \n \n \n 0.6 \n \n \n 0.9% \n \n \n \n \n University of Glasgow \n \n \n 300 Bath Street, Glasgow \n \n \n Education \n \n \n 0.7 \n \n \n 29,885 \n \n \n 0.6 \n \n \n 0.9% \n \n \n \n \n Homeserve Membership Ltd \n \n \n 1175 Century Way, Thorpe Park, Leeds \n Aspect House, Bennerley Road, Nottingham \n \n \n Construction \n \n \n 2.7 \n \n \n 37,818 \n \n \n 0.6 \n \n \n 0.9% \n \n \n \n \n Total \n \n \n \n \n \n \n \n \n 3.5 \n \n \n 925,942 \n \n \n 14.5 \n \n \n 21.5% \n \n \n \n \n   \n *Tables may not sum due to rounding. \n \n \n Property Portfolio Sector and Region Splits by Valuation and Income as at 31 December 2023 \n \n By Valuation \n As at 31 December 2023, 92.1% (2022: 91.8%) of the portfolio by market value was offices and 3.1% (2022: 3.6%) was retail. The balance was made up of industrial, 3.2% (2022: 3.1%) and other, 1.7% (2022: 1.4%). By UK region, as at 31 December 2023, Scotland represented 16.2% (2022: 16.7%) of the portfolio and England 78.4% (2022: 78.3%); the balance of 5.4% (2022: 5.0%) was in Wales. In England, the largest regions were the Midlands, the South East and the North East. \n   \n By Income \n As at 31 December 2023, 91.3% (2022: 91.5%) of the portfolio by income was offices and 4.2% (2022: 4.5%) was retail. The balance was made up of industrial, 2.8% (2022: 2.6%), and other, 1.7% (2022: 1.3%). By UK region, as at 31 December 2023, Scotland represented 15.8% (2022: 16.5%) of the portfolio and England 78.6% (2022: 78.2%); the balance of 5.6% was in Wales (2022: 5.3%). In England, the largest regions were the Midlands, the South East and the North East. \n   \n Lease Expiry Profile \n The WAULT on the portfolio is 4.7 years (2022: 4.7 years); WAULT to first break is 2.8 years (2022: 3.0 years). As at 31 December 2023, 15.9% (2022: 14.5%) of income was from leases, which will expire within one year, 10.7% (2022: 14.0%) between one and two years, 33.3% (2022: 29.5%) between two and five years and 40.1% (2022: 42.0%) after five years. \n   \n \n \n \n \n Lease Expiry Income Profile \n \n \n % of rent \n \n \n \n \n 0-1 years \n \n \n 15.9% \n \n \n \n \n 1-2 years \n \n \n 10.7% \n \n \n \n \n 2-5 years \n \n \n 33.3% \n \n \n \n \n 5+ years \n \n \n 40.1% \n \n \n \n \n Total \n \n \n 100.0% \n \n \n \n \n Source: LSPIM \n   \n Tenants by Standard Industrial Classification as at 31 December 2023 \n As at 31 December 2023, 12.2% of income was from tenants in the information and communication sector (2022: 12.2%), 11.5% from the Professional, scientific and technical activities sector (2022: 14.2%), 10.4% from the administrative and support service activities sector (2022: 11.3%), 8.7% from the financial and insurance activities sector (2022: 9.4%) and 8.0% from the wholesale and retail trade (2022: 8.3%). The remaining exposure is broadly spread. \n   \n No tenant represents more than 2.5% of the Group's rent roll as at 31 December 2023, the largest being 2.5% (2022: 2.4%). \n \n \n Financial Review \n   \n Net Asset Value \n In the year ended 31 December 2023, the EPRA NTA* of the Group decreased to £290.8 million (IFRS NAV: £306.1 million) from £379.2 million (IFRS NAV: £402.9 million) as at 31 December 2022, equating to a decrease in the diluted EPRA NTA of 17.1pps to 56.4pps (IFRS: 59.3pps). This is after the dividends declared in the year amounting to 5.70pps. \n   \n The EPRA NTA decrease of £88.4 million since 31 December 2022 was predominately due to a £73.3 million reduction in the revaluation of the property portfolio held as at 31 December 2023; £13.0m from the accounting treatment being amended in accordance with IAS 40 paragraph 50, recognising the prepayment cannot be recovered when the investment properties are sold (see Note 3.1.1 below); and £0.7 million realised loss on the disposal of properties. \n   \n The investment property portfolio valuation as at 31 December 2023 amounted to £700.7 million (2022: £789.5 million). The property valuation decrease since the December 2022 year end is a reflection of £73.3 million in property revaluation, £25.0 million of net property disposals and loss on the disposals of £0.7 million, offset by subsequent expenditure of £10.2 million. \n   \n Overall, on a like-for-like basis, the portfolio value decreased by 9.3% during the year. \n   \n The table below sets out the acquisitions, disposals and capital expenditure for the respective periods: \n   \n \n \n \n \n \n \n \n \n \n \n Year ended \n \n \n Year ended \n \n \n \n \n \n \n \n \n \n \n 31 December \n 2023 \n \n \n 31 December \n 2022 \n \n \n \n \n \n \n \n \n \n \n (£m) \n \n \n (£m) \n \n \n \n \n Acquisitions \n \n \n \n \n \n \n \n \n \n \n \n \n \n Net (after costs) \n \n \n 0.1 \n \n \n 79.3 \n \n \n \n \n \n \n \n Gross (before costs) \n \n \n 0.0 \n \n \n 74.7 \n \n \n \n \n Disposals \n \n \n   \n \n \n \n \n \n \n \n \n \n \n Net (after costs) \n \n \n 25.0 \n \n \n 84.1 \n \n \n \n \n \n \n \n Gross (before costs) \n \n \n 26.1 \n \n \n 90.0 \n \n \n \n \n Capital Expenditure \n \n \n   \n \n \n \n \n \n \n \n \n \n \n Net (after dilapidations) \n \n \n 10.2 \n \n \n 10.0 \n \n \n \n \n \n \n \n Gross (before dilapidations) \n \n \n 11.0 \n \n \n 10.9 \n \n \n \n \n \n * Further details of the new EPRA performance measures can be found in the Annual Report. \n   \n The EPRA NTA per share decreased to 56.4pps (2022: 73.5pps). The EPRA NTA is reconciled in the table below: \n   \n \n \n \n \n   \n \n \n £m \n \n \n Pence per Share \n \n \n \n \n Opening EPRA NTA (31 December 2022) \n \n \n 379.2 \n \n \n 73.5 \n \n \n \n \n Net rental and property income \n \n \n 53.7 \n \n \n 10.4 \n \n \n \n \n Administration and other expenses \n \n \n (10.6) \n \n \n (2.1) \n \n \n \n \n Loss on the disposal of investment properties \n \n \n (0.7) \n \n \n (0.1) \n \n \n \n \n Change in the fair value of investment properties \n \n \n (86.4) \n \n \n (16.7) \n \n \n \n \n Change in value of right of use \n \n \n (0.1) \n \n \n (0.0) \n \n \n \n \n EPRA NTA after operating loss \n \n \n 335.1 \n \n \n 65.0 \n \n \n \n \n Net finance expense \n \n \n (16.1) \n \n \n (3.1) \n \n \n \n \n Realised gain on derivative financial instruments \n \n \n 1.2 \n \n \n 0.2 \n \n \n \n \n Taxation \n \n \n 0.0 \n \n \n 0.0 \n \n \n \n \n EPRA NTA before dividends paid \n \n \n 320.2 \n \n \n 62.1 \n \n \n \n \n Dividends paid \n \n \n (29.4) \n \n \n (5.7) \n \n \n \n \n Closing EPRA NTA (31 December 2022) \n \n \n 290.8 \n \n \n 56.4 \n \n \n \n \n   \n Table may not sum due to rounding \n   \n As at 31 December 2023, the total number of Shares in issue are 515,736,583. \n   \n Income Statement \n Operating profit before gains and losses on property assets and other investments for the year ended 31 December 2023 amounted to £43.1 million (2022: £51.2 million). Loss after finance and before taxation of £67.5 million (2022: loss £65.2 million). 2023 included the rent roll for properties held from 31 December 2022, plus the partial rent roll for properties disposed of during the year. \n   \n Rental and property income amounted to £70.1 million, excluding recoverable service charge income and other similar items (2022: £76.3 million), due to a decrease in the rent roll being held during the year to 31 December 2023. \n   \n More than 80% of the rental income was collected within 30 days of the due date and the allowance for doubtful debts in the year amounted to a £0.5 million (2022: release of £0.4 million). \n   \n Non-recoverable property costs, excluding recoverable service charge income and other similar costs, amounted to £16.4 million (2022: £13.7 million), and the rent roll amounted to £67.8 million (2022: £71.8 million). \n   \n Realised losses on the disposal of investment properties amounted to £0.7 million (2022: loss £8.6 million). The loss on the disposals were from the aggregate disposal of 10 properties and four part sales in the period, on which individual asset management plans had been completed and/or were of sub-optimal asset size. The change in the fair value of investment properties amounted to a loss \n of £73.3 million (2022: loss of £113.2 million), and an adjustment of £13.0m from rent smoothing, due to the Group now recognising the fair value of investment property as equal to the independent property valuer's valuation of £700.7m, which is presented net of the prepayments arising from rent smoothing. \n   \n Net capital expenditure amounted to £10.3 million (2022: £10.0 million). The gain on the disposal of the right of use assets amounted to nil million (2022: £0.1 million). The change in value of right of use assets amounted to a charge of £0.1 million (2022: charge £0.2 million). \n   \n Interest income amounted to £0.1 million (2022: £0.1 million). \n   \n Finance expenses amount to £16.2 million (2022: £17.3 million). The decrease is due to £20.0m of net borrowings being repaid during 2023. \n   \n The EPRA* cost ratio, including direct vacancy costs, was 38.5% (2022: 32.8%). The increase in the cost ratio is ostensibly a reflection of the increase in Other property expenses and irrecoverable costs. The EPRA cost ratio, excluding direct vacancy costs was 16.4% (2022: 16.2%). The ongoing charges for the year ending 31 December 2023 were 7.5% (2022: 5.3%) and 3.2% excluding void costs (2022: 2.6%). \n   \n The EPRA Total Return from Listing to 31 December 2023 was 12.7% (2022: 24.2%), with an annualised rate of 1.5% pa (2022: 3.1% pa). \n   \n * Alternative Performance Measures, Details are provided in the Glossary of Terms and the EPRA Performance measures in the Annual Report. \n   \n Dividend \n In relation to the year from 1 January 2023 to 31 December 2023, the Company declared dividends totalling 5.25pps (2022: 6.60pps). Since the end of the year, the Company has declared a dividend for the fourth quarter of 2023 of 1.20pps. A schedule of dividends can be found in note 13 below. \n   \n Debt Financing and Gearing \n Borrowings comprise third-party bank debt and the retail eligible bond. The bank debt is secured over properties owned by the Group and repayable over the next two to six years. The weighted average maturity of the bank debt and retail eligible bond is 3.5 years (2022: 4.5 years). \n   \n The Group's borrowing facilities are with: the Royal Bank of Scotland, Bank of Scotland and Barclays; Scottish Widows Ltd. & Aviva Investors Real Estate Finance; Scottish Widows Ltd. and Santander UK. The total bank borrowing facilities at 31 December 2023 amounted to £370.8 million (2022: £390.8 million) (before unamortised debt issuance costs). 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 2023 amounted to £420.8 million (2022: £444.9 million). \n   \n At 31 December 2023, the Group's cash and cash equivalent balances amounted to £34.5 million (2022: £50.1 million), of which £25.7 million (2022: £37.8 million) was unrestricted cash. \n   \n The Group's net loan to value (\"LTV\") ratio stands at 55.1% (2022: 49.5%) before unamortised costs. The Board continues to target a net LTV ratio of 40%. \n   \n Debt Profile and LTV Ratios as at 31 December 2023 \n \n \n \n \n   \n \n \n Facility \n \n \n Outstanding debt* \n \n \n Maturity date \n \n \n Gross loan to value** \n \n \n Annual interest rate \n \n \n \n \n Lender \n \n \n £'000 \n \n \n £'000 \n \n \n % \n \n \n % \n \n \n \n \n Royal Bank of Scotland, Bank of Scotland & Barclays \n \n \n 122,221 \n \n \n 122,221 \n \n \n Aug-26 \n \n \n 54.5 \n \n \n 2.40 over 3 months \n £ SONIA \n \n \n \n \n Scottish Widows Ltd. and Aviva Investors Real Estate Finance \n \n \n 152,500 \n \n \n 152,500 \n \n \n Dec-27 \n \n \n 52.9 \n \n \n 3.28 Fixed \n \n \n \n \n Scottish Widows Ltd. \n \n \n 36,000 \n \n \n 36,000 \n \n \n Dec-28 \n \n \n 47.2 \n \n \n 3.37 Fixed \n \n \n \n \n Santander UK \n \n \n 60,029 \n \n \n 60,029 \n \n \n Jun-29 \n \n \n 52.1 \n \n \n 2.20 over 3 months \n £ SONIA \n \n \n \n \n \n \n \n 370,750 \n \n \n 370,750 \n \n \n \n \n \n \n \n \n \n \n \n \n \n Retail eligible bond \n \n \n 50,000 \n \n \n 50,000 \n \n \n Aug-24 \n \n \n NA \n \n \n 4.50 Fixed \n \n \n \n \n \n \n \n 420,750 \n \n \n 420,750 \n \n \n \n \n \n \n \n \n \n \n \n \n \n * Before unamortised debt issue costs \n ** Based on Colliers International Property Consultants Ltd. \n   \n Table may not sum due to rounding. \n   \n As at 31 December 2023, the Group had headroom against its borrowing covenants. \n   \n The net gearing ratio (net debt to Ordinary Shareholders' equity (diluted)) of the Group was 126.2% as at 31 December 2023 (2022: 96.9%). \n   \n Interest cover, excluding amortised costs, stands at 2.9 times (2022: 3.4 times) and including amortised costs, stands at 2.7 times (2022: 3.0 times). \n   \n Hedging \n 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. \n   \n \n \n \n \n \n \n \n \n \n \n 31 December 2023 \n \n \n 31 December 2022 \n \n \n \n \n \n \n \n \n \n \n % \n \n \n % \n \n \n \n \n   \n Borrowings interest rate hedged \n \n \n \n \n \n 100.0 \n \n \n 100.9 \n \n \n \n \n Thereof: \n \n \n \n \n \n \n \n \n \n \n \n \n \n Fixed \n \n \n \n \n \n 56.7 \n \n \n 56.9 \n \n \n \n \n Swap \n \n \n \n \n \n 28.6 \n \n \n 27.8 \n \n \n \n \n Cap \n \n \n \n \n \n 14.7 \n \n \n 16.2 \n \n \n \n \n WACD 1 \n \n \n \n \n \n 3.5 \n \n \n 3.5 \n \n \n \n \n \n 1 WACD - Weighted Average Effective Interest Rate including the cost of hedging. \n Table may not sum due to rounding \n \n \n \n \n   \n There is no over-hedged position as at 31 December 2023. The position was over-hedged as at 31 December 2022, due to the entire Royal Bank of Scotland, Bank of Scotland & Barclays and Santander UK facilities, including any undrawn balances, being hedged by interest rate cap derivatives, which had no ongoing cost to the Group. \n   \n Tax \n 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. \n   \n On 9 January 2018, the Company registered for VAT purposes in England. \n   \n During 2023, the Group recognised a deferred tax charge of £8,431 (2022: tax credit of £5,570). \n   \n Principal Risks and Uncertainties \n Effective risk management is embedded throughout Regional REIT and underpins the execution of the Company's strategy, the positioning of the business for growth and maintaining the regular income over a long-term sustainable horizon. \n   \n Risk Framework and Approach \n The Board recognises the importance of embedding a framework to identify, actively monitor, manage and mitigate its risks, which include, but are not limited to: strategic, valuation, healthcare, economic and political, funding, tenant, financial and tax charges, operational, regulatory, environmental risks and emerging risks. \n   \n The Board has overall responsibility for the Company's system of risk management and internal controls. The Board is supported by the Audit Committee in the management of risk. The Audit Committee is responsible for determining the principal risks facing the business and reviewing, at least annually, the effectiveness of the Company's financial control, risk management and internal control processes. \n   \n Over the long term, the business will face other challenges and emerging threats for which it remains vigilant. \n   \n However, the Board also views the potential risks as opportunities which, when handled appropriately, can drive performance. Thus, having an effective risk management process is key to support the delivery of the Company's strategy. \n   \n Approach to Managing Risk - Identification, Evaluation and Mitigation \n The risk management process is focussed upon being risk aware and is designed to identify, evaluate, manage and mitigate, rather than eliminate, risks faced. The Company maintains a detailed and formal matrix of current principal risks, which uses risk scoring to evaluate risks consistently. This allows the risks to be monitored and mitigated as part of a risk management process with the Audit Committee undertaking, at a minimum on a six-monthly basis or more frequently if required, a robust evaluation of these risks facing the Company. \n   \n Risks are identified and weighted according to their potential impact on the Company and to their likelihood of occurrence. The Audit Committee uses the risk matrix to prioritise individual risks, allocating scores to each risk for both the likelihood of its occurrence and the severity of its impact. Those with the highest gross rating in terms of impact are highlighted as top risks within the matrix and are defined as principal risks. \n   \n 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. \n   \n Risk Appetite \n The Board is responsible for defining the level of risk that the Company assumes and ensuring that it remains in-line with the Company's strategy. Risk appetite is integral to the Board's approach to risk management, business planning and decision making. The level and type of risk that the Company is willing to bear will vary over time. \n   \n The Board, in conjunction with the Asset Manager and Investment Adviser, and with the latest information available, regularly reviews the risk appetite of the Company allowing a prompt response to identified emerging risks. \n   \n Changes to the Principal Risks \n Although the risks associated with Covid-19 pandemic lessened considerably during the year, the conflicts in Ukraine, Israel and Palestine exacerbated geopolitical tensions resulting in volatility in commodity prices, particularly energy related commodities, interrupted supply chains, and exacerbated inflationary pressures, all of which has increased economic headwinds. \n   \n Emerging Risks \n 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. \n   \n 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. \n   \n The Company's principal risks consist of the ten most significant risks which are composed of eight strategic and two operational risks. The strategic risks relate to investment strategy, valuation, healthcare, economics and political, funding, tenant, financial and tax changes, and environmental and energy efficiency standards; operational risk encompasses business disruption, and accounting, legal and regulatory. \n   \n 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 Company. \n   \n Principal Risk Summary \n \n \n \n \n Principal Risk \n \n \n Evolution of the trend during the year \n \n \n \n \n 1.   \n \n \n Strategic \n \n \n ó \n \n \n \n \n 2.   \n \n \n Valuation \n \n \n ö \n \n \n \n \n 3.   \n \n \n Healthcare       \n \n \n ⇩ \n \n \n \n \n 4.   \n \n \n Economic and political \n \n \n ó \n \n \n \n \n 5.   \n \n \n Funding \n \n \n ö \n \n \n \n \n 6.   \n \n \n Tenant \n \n \n ó \n \n \n \n \n 7.   \n \n \n Financial and tax changes       \n \n \n ó \n \n \n \n \n 8.   \n \n \n Operational \n \n \n ó \n \n \n \n \n 9.   \n \n \n Accounting, legal and regulatory \n \n \n ó \n \n \n \n \n 10. \n \n \n Environmental and energy efficiency standards \n \n \n ö \n \n \n \n \n   \n 1.   Strategic \n \n \n \n \n \n \n \n \n Potential Impact \n \n \n Mitigation \n \n \n Movement in the period ó \n \n \n \n \n An inappropriate investment strategy, and/or failure to implement the strategy could result in lower income and capital returns to Shareholders. \n \n \n ·    A clearly defined investment strategy, which is reviewed annually. \n ·    A defined and rigorous investment appraisal process. \n ·    Acquire portfolios, which offer Shareholders diversification of investment risk by investing in a range of geographical areas and number of properties. \n ·    Supply and demand market information is reviewed continuously to assist in acquisitions and disposals. \n ·    All the above steps are monitored to ensure the strategy is implemented. \n \n \n \n ·    The property portfolio remains balanced across a range of geographical areas and a large number of investment properties. \n \n \n \n \n \n \n \n ·    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. \n \n \n \n ·    The Group continues to purchase properties in the UK outside the M25 motorway. \n \n \n \n \n \n \n \n ·    No single property, in the ordinary course of business, is expected to exceed 10% of the Company's aggregate Investment Properties valuation. However, the Board may, in exceptional circumstances, consider a property having a value of up to 20% of the Company's investment property value at the time of investment. \n \n \n \n ·    300 Bath Street (2022: 300 Bath Street) is the highest valued property, which equates to 2.8% (2022: 3.0%) of the Company's investment properties. \n \n \n \n \n \n \n \n ·    No more than 20% of the Company's investment property value shall be exposed to any single tenant or group undertaking of that tenant. \n \n \n ·    The Company's largest single tenant exposure is 2.5% (2022: 2.4%) of gross rental income, being EDF Energy Ltd (2022: Virgin Media Ltd) \n \n \n \n \n \n \n \n ·    Speculative development (i.e., properties under construction, but excluding any refurbishment works, which have not been pre-let) is prohibited. \n \n \n \n ·    No speculative construction was undertaken during the year under review. \n \n \n \n \n \n \n \n ·    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. \n \n \n ·    The Asset Manager continues to actively manage the investment properties in accordance with market conditions and the individual asset programme. \n \n \n \n \n \n \n \n \n \n   \n 2.   Valuation \n \n \n \n \n Potential Impact \n \n \n Mitigation \n \n \n Movement in the period ö \n \n \n \n \n The valuation of the Company's portfolio affects its profitability and net assets. \n \n \n ·    The Company's external valuer, Colliers International Property Consultants Ltd, provide independent valuations for all properties on a six-monthly basis in accordance with the RICS Red Book. \n ·    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. \n ·    The Asset Manager's experience and extensive knowledge of the property market. The Asset Manager is able to challenge the external valuers' findings. \n ·    The Asset Manager produces asset management plans for each individual asset to enhance both income and long term value. These actions also mitigate the macro economic factors which may impact valuations. \n \n \n \n ·    Colliers International Property Consultants Ltd. independently provides the valuation for the entire portfolio, valuing each individual asset. \n \n \n \n \n   \n 3.   Healthcare \n \n \n \n \n Potential Impact \n \n \n Mitigation \n \n \n Movement in the period ⇩ \n \n \n \n \n The economic disruption resulting from COVID-19 and other social health issues could continue to impact rental income; the ability of Valuers to discern valuations; the ability to access funding at competitive rates, adherence to banking covenants, maintain its dividend policy, and adhere to the HMRC REIT regime requirements. \n   \n \n \n ·    The Asset Manager continues to adapt and, as required, to support tenants. \n ·    The property portfolio has been deliberately constituted to ensure a diverse range of tenants by standard industrial classification; which ensured the many tenants, being designated as essential services, continued to operate throughout the recent pandemic. \n ·    Close relationships with lenders ensuring continued dialogue around covenants and ability to access funding as required at competitive rates. \n ·    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. \n \n \n ·    The Group has continued to scrutinise all current risk mitigation approaches employed and to work closely with all parties. \n   \n \n \n \n \n   \n 4.   Economic and Political \n \n \n \n \n \n \n \n \n Potential Impact \n \n \n Mitigation \n \n \n  Movement in the period ó \n \n \n \n \n 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. \n \n \n ·    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 978 (2022: 1,076) income streams which are located in areas of expected economic growth. \n ·    The Board receives advice on macro-economic risks from the Asset Manager and Investment Adviser and other advisers and acts accordingly. \n   \n   \n \n \n ·    There remains a risk that property valuations and the occupancy market may be impacted by change in the political landscape. \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n 5.   Funding \n \n \n \n \n Potential Impact \n \n \n Mitigation \n \n \n Movement in the period ö \n \n \n \n \n The Group may not be able to secure, be that bank lending, private credit or the bond markets, on acceptable terms, which may impinge upon investment opportunities, the ability to grow the Company and distribute an attractive dividend. \n \n \n ·    The Asset Manager has a Corporate Finance team dedicated to optimising the Company's funding requirements. \n ·    Both debt and equity funding options are constantly reviewed with an emphasis on reducing the weighted average cost of capital and lengthening the weighted average debt to maturity. \n ·    Borrowings are currently provided by a range of institutions with targeted staggered maturities. \n ·    Strong relationships with key long-term lenders. \n ·    Continual monitoring of LTV. \n   \n \n \n ·    Weighted average debt term decreased to 3.5 (2022: 4.5 years). \n ·    Weighted average cost of capital, including hedging costs was 3.5% (2022: 3.5%). \n ·    LTV increased to 55.1% (2022: 49.5%). \n ·    Maturity of the £50m 4.5% retail eligible bond on 6 August 2024. \n \n \n \n \n Bank reference interest rates may be set to become more volatile, accompanying volatile inflation \n \n \n ·    Policy of hedging at least 90% of variable interest rate borrowings. Fixed, swapped and capped borrowing amounted to 100.0% (31 December 2022: 100.9%) \n ·    Borrowings are currently provided by a range of institutions with targeted staggered maturities. \n   \n \n \n ·    Continued adherence to the hedging policy. \n \n \n \n \n Breach of covenants within the Company's funding structure could lead to a cancellation of debt funding if the Company is unable to service the debt. \n \n \n ·    The Asset Manager's corporate finance team reviews the applicable covenants on a regular basis and these are considered in future operational decisions. \n ·    Compliance certificates and requested reports are prepared as scheduled. \n \n \n ·    The Group continues to have headroom against the applicable borrowing covenants. \n \n \n \n \n   \n 6.   Tenant \n \n \n \n \n Potential Impact \n \n \n Mitigation \n \n \n Movement in the period ó \n \n \n \n \n Type of tenant and concentration of tenant could result in lower income from reduced lettings or defaults. \n \n \n ·    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. \n ·    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. \n ·    Potential acquisitions are reviewed for tenant overlap and potential disposals are similarly reviewed for tenant standard industrial classification concentration. \n \n \n \n ·    This risk remains stable in view of the increasing diversification of properties, tenants and geographies in the portfolio. \n ·    The tenant mix and their underlying activity remains diversified, with the number of tenants amounting to 978 at the year-end (2022: 1,076). \n \n \n \n \n A high concentration of lease term maturity and/or break options could result in a more volatile contracted rent roll. \n \n \n ·    The portfolio lease and maturity concentrations are monitored by the experienced Asset Manager to minimise concentration. \n ·    There is a focus on securing early renewals and increased lease periods. \n ·    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. \n \n \n ·    The WAULT to first break as at 31 December 2023 was 2.8 years (2022: 3.0 years) \n ·    The largest tenant is 2.5% (2022: 2.4%) of the gross rental income, being EDF Energy Limited. \n ·    The Asset Management team remains vigilant to the financial well-being of our current tenants and continues to liaise with tenants and agents. \n \n \n \n \n   \n   \n \n \n \n \n 7.    Financial and Tax Changes \n \n \n \n \n Potential Impact \n \n \n Mitigation \n \n \n Movement in the period ó \n \n \n \n \n Changes to the UK REIT and non-REIT regimes tax and financial legislation. \n \n \n ·    The Board receives advice on these changes where appropriate and will act accordingly. \n \n \n ·    Advice is received from several corporate advisers, including tax adviser KPMG LLP and the Company adapts to changes as required. \n \n \n \n \n   \n 8.  Operational \n \n \n \n \n Potential Impact \n \n \n Mitigation \n \n \n Movement in the period ó \n \n \n \n \n Business disruption could impinge on the normal operations of the Group. \n \n \n ·    The Asset Manager and Investment Adviser 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 Company. \n \n \n \n ·    Both the Asset Manager and Investment Adviser annually review their Disaster and Business Continuity Plans. \n   \n \n \n \n \n \n \n \n ·    An annual due diligence exercise is carried out on all principal third-party service providers. \n \n \n ·    The annual due diligence visits were undertaken with the Company's principle third-party service providers. No concerns were identified from the visits. \n \n \n \n \n \n \n \n ·    As an externally managed investment company, there is a continued reliance on the Asset Manager and Investment Adviser and other third-party service providers. \n ·    All acquisitions undergo a rigorous due diligence process and all multi-let properties undergo an annual comprehensive fire risk. \n ·    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. \n \n \n \n ·    Both the Asset and Investment Adviser are viable going concerns. \n ·    The Asset Manager continues to monitor changes in Health and Safety regulations. \n ·    The Asset Manager reviews the adequacy of insurance cover on an ongoing basis. \n \n \n \n \n Information security and cyber threat resulting in data loss, or negative regulatory, reputational, operational (including GDPR), or financial impact. \n \n \n ·    The Asset Manager and Investment Adviser each has a dedicated Information Technology team which monitors information security, privacy risk and cyber threats ensuring their respective operations are not interrupted. \n ·    As required the building management systems are reviewed for cyber security risk. \n \n \n \n ·    The Asset Manager and Investment Adviser review the respective Information Technology policies and the material third party service suppliers as required to ensure they reflect current and possible future threats. \n \n \n \n \n   \n 9.  Accounting, Legal, and Regulatory \n \n \n \n \n Potential Impact \n \n \n Mitigation \n \n \n Movement in the period ö \n \n \n \n \n Changes to accounting, legal and/or regulatory legislation, including sanctions could result in changes to current operating processes. \n \n \n ·    Robust processes are in place to ensure adherence to accounting, legal and regulatory requirements, including sanctions and Listing Rules. \n ·    All contracts are reviewed by the Company's legal counsel. \n ·    The Administrator, Sub-Administrator and the Company Secretary attend all relevant Board meetings in order to be aware of all announcements that need to be made. \n ·    All compliance issues are raised with the Company's Financial Adviser. \n \n \n \n ·    The Company continues to receive advice from its corporate advisers and has incorporated changes where required. \n ·    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. \n   \n \n \n \n \n Loss of REIT status \n \n \n ·    The HMRC REIT regime requirements are monitored by the Asset Manager and Investment Adviser, and external advisors including the Company's tax adviser KPMG LLP and its Sub-Administrator Link Alternative Fund Administrators Limited. \n \n \n \n ·    The Company continues to receive advice from external advisers on any anticipated future changes to the REIT regime. \n \n \n \n \n   \n 10. Environmental and Energy Efficiency Standards \n \n \n \n \n Potential Impact \n \n \n Mitigation \n \n \n Movement in the period ö \n \n \n \n \n The Company's cost base could be impacted, and management time diverted, due to climate changes and associated legislation. \n \n \n ·    The Board receives regular updates on environmental, social, governance and potential legislation changes from its advisers. \n ·    The Company has engaged an environmental consultancy to assist with achieving and improving the Global Real Industry Sustainability Benchmark (GRESB). \n   \n \n \n ·    Additional attention is currently being devoted to this area to ensure the appropriate approach is applied and embedded in Company activities. \n \n \n \n \n Changes to the environment could impact upon the operations of the Company. \n \n \n ·    Property acquisitions undergo a rigorous due diligence process, including an environmental assessment. \n ·    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. \n   \n \n \n ·    The rigour of the environmental assessments process continues to be reviewed with the aim of enhancing it. \n \n \n \n \n An Energy Performance Rating of E and below may impact the Company's ability to sell or lease an asset. \n \n \n ·    The Company continues to review each property to ensure adherence with Energy Performance Rating requirements. \n ·    The energy efficiency of investment acquisitions is fully considered as part of the due diligence process for the acquisition of a property. \n \n \n \n ·    The Asset Manager is continually reviewing the feasibility of enhancing Energy Performance Ratings to exceed the minimum requirement. \n \n \n \n \n   \n Changes to the Principal Risks and Uncertainties \n   \n The Board, via the Audit Committee, has reviewed and agreed the movement during the year 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. The potential impact of these risks to the Company's future strategy is considered on an ongoing basis. \n   \n Extract FROM the Report of the Directors \n   \n Share Capital \n As at 31 December 2023, the Company's total issued share capital was 515,736,583 Ordinary Shares (2022: 515,736,583). \n   \n 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. \n   \n 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 (2022: none) are currently in issue. \n   \n At the AGM held on 25 May 2023, the Directors were granted authority to allot Ordinary Shares on a non- pre-emptive basis for cash up to a maximum number of 51,573,658 Shares (being 10% of the issued Share capital on 24 March 2023). 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 51,573,658 Shares (being 10% of the issued Share capital on 24 March 2023) 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. \n   \n No Shares were issued under these authorities during the year under review, and the authorities will expire at the Company's 2024 AGM where resolutions for their renewal will be sought, or, if sooner, on 25 August 2024. \n   \n At the AGM held on 25 May 2023, the Company was authorised to purchase up to a maximum of 51,573,658 of its own Ordinary Shares (being 10% of the Company's issued Share capital on 24 March 2023). \n   \n No Shares have been purchased under this authority during the year under review, which will expire at the Company's 2024 AGM where a resolution for its renewal will be sought, or, if sooner, on 25 August 2024. \n   \n Restrictions on Voting Rights \n Other than those discussed in the full Annual Report, the Company does not have any restrictions on Shareholder voting rights. \n   \n STATEMENT OF DIRECTORS' RESPONSIBILITIES \n   \n The Directors are responsible for preparing the Annual Report and the Group Financial Statements in accordance with applicable law and regulations. \n   \n 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 UK-adopted International Accounting Standards.  \n   \n 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 UK-adopted International Accounting Standards to present fairly the financial position and performance of the Group. \n   \n In preparing each of the Group financial statements, the Directors are required to: \n   \n ·    select suitable accounting policies and then apply them consistently; \n ·    make judgements and accounting estimates that are reasonable and prudent; \n ·   state whether they have been prepared in accordance with UK-adopted International Accounting Standards; \n ·    prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. \n   \n The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions; disclose with reasonable accuracy at any time the financial position of the Group; enable them to ensure that the financial statements comply with the requirements of The Companies (Guernsey) Law 2008 and, as regards the Group financial statements, the UK-adopted International Accounting Standards. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. \n   \n The Directors are responsible for the maintenance and integrity of the corporate and financial information included on Regional REIT's website. \n   \n Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. \n   \n RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE CONSOLIDATED ANNUAL REPORT \n   \n Each of the Directors, whose names and functions are listed below, confirms that to the best of each person's knowledge: \n   \n ·    the financial statements, prepared in accordance with UK-adopted International Accounting Standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group and the undertakings included in the consolidation taken as a whole; \n ·   the Strategic Report, including the Asset Manager and Investment Advisers' 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 \n ·    the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Group's position, performance, business model and strategy. \n   \n This responsibility statement was approved by the Board of Directors on 25 March 2024 and signed on its behalf by: \n   \n Kevin McGrath \n Chairman \n 25 March 2024 \n \n \n   \n Consolidated Statement of Comprehensive Income For the year ended 31 December 2023 \n \n \n \n \n \n \n \n   \n   \n   \n Notes \n \n \n Year ended \n 31 December \n 2023 \n £'000 \n \n \n \n \n \n Year ended \n       31   \n          December  2022 \n £'000 \n \n \n \n \n Continuing Operations \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n Revenue \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n Rental and property income \n \n \n 5 \n \n \n 91,880 \n \n \n \n \n \n 93,318 \n \n \n \n \n Property costs \n \n \n 6 \n \n \n (38,161) \n \n \n \n \n \n (30,672) \n \n \n \n \n Net rental and property income \n \n \n \n \n \n 53,719 \n \n \n   \n \n \n 62,646 \n \n \n \n \n Administrative and other expenses \n \n \n 7 \n \n \n (10,626) \n \n \n \n \n \n (11,421) \n \n \n \n \n Operating profit before gains and losses on property assets and other investments \n \n \n \n \n \n 43,093 \n \n \n   \n \n \n 51,225 \n \n \n \n \n Loss on disposal of investment properties \n \n \n 14 \n \n \n (726) \n \n \n \n \n \n (8,636) \n \n \n \n \n Change in fair value of investment properties \n \n \n 14 \n \n \n (86,350) \n \n \n \n \n \n (1...

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