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Annual Report and Accounts for the year ended 31 December 2018 Annual Report and Accounts for the year ended 31 December 2018

Contents

Overview About Us 1 Headlines 2 At a Glance 5 A Year in Review 6

Strategic Report Chairman’s Statement 10 Investment Strategy and Business Model 14 Asset and Investment Managers’ Report 22 Overview 1 - 9 Overview Property Portfolio 34 Environmental Matters 40 Financial Review 43 Principal Risks and Uncertainties 49 Management Arrangements 54

Corporate Governance Board of Directors 58 Report of the Directors 60 Statement of Directors’ Responsibilities 67 Corporate Governance Statement 68 Audit Committee Report 79 Management Engagement and Remuneration Committee Report 82 Remuneration Report 84 Independent Auditor’s Report 86 Appendix: Auditor’s responsibilities for the audit of the financial statements 89

Financial Statements Consolidated Statement of Comprehensive Income 91 Consolidated Statement of Financial Position 92 Consolidated Statement of Changes in Equity 93 Consolidated Statement of Cash Flows 94 Notes to the Consolidated Financial Statements 95

Additional Information EPRA Performance Measures 131 Notes to the EPRA Performance Measures 132 Property Related Capital Expenditure Analysis 134 Glossary of Terms 135 AIFMD Disclosure 137 Company Information 139 Forthcoming Events 140 Shareholder Information 141 Dividend History 142 Share Price Performance 145

Cover photo: 800 Aztec West, Bristol

B Annual Report and Accounts for the year ended 31 December 2018

About Us

Regional REIT Limited (“Regional REIT” Regional REIT’s commercial property Regional REIT pursues its investment Overview 1 - 9 or the “Company”) and its subsidiaries1 portfolio is comprised wholly of UK assets objective by investing in, actively managing (the “Group”) is a United Kingdom (“UK”) and comprises, predominantly, offices and disposing of regional Core Property and based real estate investment trust that and industrial units located in the regional Core Plus Property assets. It aims to deliver launched in November 2015. It is managed centres outside of the M25 motorway. an attractive total return to its Shareholders, by London & Scottish Investments Limited The portfolio is highly diversified, with 150 targeting greater than 10% per annum (“pa”), (“LSI”), the Asset Manager, and Toscafund properties, 1,192 units and 874 tenants as with a strong focus on income supported by Asset Management LLP (“Toscafund”), the at 31 December 2018, with a valuation of additional capital growth prospects. Investment Manager. £718.4m.

Office Industrial Retail/Other

One & Two Newstead Court, Annesley Juniper Park, Basildon The Brunel Centre, Bletchley

For more information visit the Group’s website at www.regionalreit.com.

1 Regional REIT Limited is the parent Company of a number of subsidiaries which together comprise a group within the definition of The Companies (Guernsey) Law 2008, as amended (the “Law”) and the International Financial Reporting Standard (“IFRS”) 10, ‘Consolidated Financial Statements’, as issued by the International Accounting Standards Board (“IASB”) and as adopted by the European Union (“EU”). Unless otherwise stated, the text of this Annual Report does not distinguish between the activities of the Company and those of its subsidiaries. 1 Headlines Financial Highlights Dividend and NAV increased – driven by buying and selling well, coupled with intensive asset management – securing long-term income

£718.4m £67.4m 115.2p Portfolio Valuation Total Net Profit IFRS NAV per share 115.5p 8.05p 38.3% EPRA NAV per share Dividend declared per share Net Loan to Value Ratio 3.8% 3.5% 6.4 years Weighted Average Cost of Debt Weighted Average Cost of Debt Weighted Average Debt (“WACD”) (Excl. ZDPs) Duration 7.1 years Weighted Average Debt Duration (Excl. ZDPs)

Operational Highlights Deliberately diversified portfolio by location and tenant – regions remain strong 150 1,192 874 Properties Units Tenants £59.7m Contracted Rent Roll

Diversified portfolio (by value) Transactional activity (by value)

82.0% £73.3m £149.3m England & Wales Property acquisitions (before Profitable property disposals costs) (net of costs) 91.6% 30 Office & Industrial 16 (plus 9 part sales) Number of properties Number of properties Annual Report and Accounts for the year ended 31 December 2018

Active management building occupancy

% 85.5% % 87.3 89.4 Overview 1 - 9 by value by area by EPRA ERV 5.4 years 3.4 years WAULT to expiry WAULT to first break

Performance Highlights The high dividend distributions are a major component of the total return

Dividends declared per share:

8.05p 7.85p 7.65p 2018 2017 2016

EPRA:

15.5% 37.5 % EPRA NAV since Admission* EPRA Total Return (Admission: 100p) attributable to Shareholders since Admission

Member of FTSE All Share Index since March 2016 Member of FTSE EPRA NAREIT UK Index since June 2016

* Admission: 6 November 2015

Total Shareholder Return (from IPO) (EPRA NAV & dividend declared)

10 3 oember 201 13

130 December 201 12

120 December 201

11 December 201

ence per share 110

10 December 2018 100

3 Property Name: 800 Aztec West, Bristol Sector: Office Annual Report and Accounts for the year ended 31 December 2018

At a Glance Overview 1 - 9 Reported Proﬁt (£m) £67.4m 1 Net Rental Income (£m) £54.4m 1 EPRA Occupancy (%) 89.4% 1

67.4 54.4 89.4 8 381

21 882 13 A 201 201 2018 201 201 2018 201 201 2018

Average rent psf (£) £9.40 1 Net LTV (%) 38.3% 1 WACD (%) 3.8% 0

9.40 0 38 3.8 3 0 38.3 818

3 201 201 2018 201 201 2018 201 201 2018

EPRA NAV – diluted (pps) 115.5p Average Property Value (£m) £4.8m EPRA-Eps-Adj* diluted (p) 7.5p 13 ecludn performance fee 115.5 4.8 8

8 10 1 10 7.5

201 201 2018 201 201 2018 201 201 2018

Number of Properties 150 Rent Roll (£m) £59.7m Dividend per share (p) £8.05p 3

1 1 59.7 8.05 150 123 0 8

201 201 2018 201 201 2018 201 201 2018

WAD (years) 6.4yrs WAULT to ﬁrst break (years) 3.4yrs 3 Tenants 874 1

6.4 3 102 0 3 3.4 874 1

201 201 2018 201 201 2018 201 201 2018

Units 1,192 13

138 1,192 1

201 201 2018

Terms are defined in the glossary of terms on pages 135 and 136. 5 Annual Report and Accounts for the year ended 31 December 2018

A Year in Review Overview 1 - 9 Overview HBOS Campus Clearblue Innovation Arena Point Aylesbury Bedford Leeds

31 December 2017 31 March 30 June 30 September 31 December Properties: 164 160 151 153 150 Units: 1,368 1,339 1,294 1,246 1,192 PORTFOLIO Tenant: 1,026 996 950 915 874 Portfolio: £737.3m £727.0m £758.7m £723.2m £718.4m Contracted rent roll: £61.9m pa £61.7m pa £61.3m pa £59.4m pa £59.7m pa LTV: 45.0% 41.2% 41.2% 37.1% 38.3%

26 June 10 September KEY Amount: £35.2m £31.4m ACQUISITIONS Description: 5 assets 8 ofﬁce Net initial yield: 8.4% 8.66%

12 February 18 May 24 August 10 September 11 December 21 December 21 December Rent: £235,000 £160,000 £6.9m £680,000 £335,952 £290,000 £640,000 KEY Location: Building 2, Aylesbury Building 2, Aylesbury 800 Aztec West, 800 Aztec West, Bristol 120 Wellington Street, 2800 The Crescent, 800 Aztec West, Bristol, LETTINGS / Area: 13,832 sq. ft. 9,068 sq. ft. Bristol 31,000 sq. ft. Leeds Birmingham, Business Park 32,000 sq. ft. REFURBISHMENTS Description: Letting completed in advance 2 lettings Completion of Rent at £21.50 Rent at 5-year lease, with 13,356 sq. ft. Ministry of Defence at £22.00 of the Group’s £3.36m “back to shell” an option to purchase Rent at £22.00 rent. Now 87% let within ﬁve refurbishment scheme. refurbishment months of refurbishment. 2018

20 June 8 August 8 August 13 August Amount: £14.1m £39.1m £12.2m £26.4m KEY Location: The Point, Glasgow Industrial property Arena Point, Leeds Wardpark, Cumbernauld DISPOSALS Description: Net initial yield 6.6% portfolio, net initial 227.6% uplift against Uplift of 21.1% against the yield of 6.9%. Uplift Dec 17 valuation. 31 Dec 2017 valuation. of 24.1% against the Regional REIT retains 31 Dec 2017 valuation. the ofﬁce building.

7 August 25 September 6 December 6 December Amount: £50m £50m £36m £15m DEBT Description: Successful raise of bond Repaid of £65m Agreed for a new secured Repaid in full at an annual rate of 4.5%, 5% ICG Longbow Ltd 10-year facility with 5% ICG Longbow Ltd matures on 6 August 2024. loan facility. Scottish Widows Ltd. loan facility.

22 February 17 May 31 August 15 November Amount: 2.45p 1.85p 1.85p 1.85p DIVIDENDS Period: Q4 2017 Q1 2018 Q2 2018 Q3 2018

6 Annual Report and Accounts for the year ended 31 December 2018 Overview 1 - 9

III Acre, Princeton Drive 2800 The Crescent 800 Aztec West Stockton On Tees Birmingham Bristol

26 June 10 September KEY Amount: £35.2m £31.4m ACQUISITIONS Description: 5 assets 8 ofﬁce Net initial yield: 8.4% 8.66%

22 February 17 May 31 August 15 November Amount: 2.45p 1.85p 1.85p 1.85p DIVIDENDS Period: Q4 2017 Q1 2018 Q2 2018 Q3 2018

7 Property Name: Portland Street, Manchester Sector: Office

Strategic Report 10 - 57 The Chairman’s Statement forms part of the Strategic Report The formspart and covers of 2018. the Chairman’sthe Strategic ended31December Statement year Chairman’s Statement 2 CoStar UK Commercial Property Investment Review Q4 2018 ReviewInvestment Q4 CoStar Property UKCommercial “ ahead”. in theyear uncertainty economic andgeopolitical both the through momentum which shouldunderpin our platforma strong created haveWe cost ofourdebt. the and figure the loan–to-value reducing whilst significantly occupancy, increased further portfolio and the refreshed have we objectives, strategic Inline return. with total our dividend with anattractive leadingShareholders a sector our to have againdelivered of £67.4m. profit record We a generating REIT, Regional for2018 was agoodyear Chairman Kevin McGrath,

is due which bond, issue ofthis £50.0m through the platform. The Group successfully raised the London Stock Exchange Retail Bonds of a4.5%retail eligiblebond quoted on diversified its fundingbase by theissue increases. In August 2018, the Group further whilst mitigating the risk of interest rate maturity dates; andincreased flexibility, average cost of increaseddebt; andstaggered 2018. This hasresulted inareduction in the borrowing strategyin the earlierpart of phase ofour Welatest executed the capital expenditure. (net of costs),andundertook£7.0m of properties for anaggregate value of £149.3m costs), disposedof (before £73.3m value of acquired properties with anaggregate astargeted. halfofthe year first The Group with the vast majoritycompletingin the activea yearvery for transactions, was 2018 cash drag effectgoing forward. producing assets to minimiseany potential been generatedintohigh quality income has capital that recycledmuch ofthe realised returns. We have alsopromptly maximise management objectives to asset properties which hadmet their individual portion of itsindustrialassetsand of substantial a opportunistic disposalsof 2017.in During theyear, the made Group steady at87.3% compared with 85.0% Occupancy ratesby value continue to remain both geographically andby tenant type. remains diversifiedportfolio ensuring the be bestemployed, whilst deliberately our assetmanagementinitiatives can strategy of acquiringproperties where We have continued to execute our rental incomeandcapital appreciation. both add valueto and which finance teams, unique offering propertyof integratedasset, closelywith ourtenants workedvia our on the 7.85pps dividend for 2017. We have c.3% increase of an 8.05pps, for theyear of 18.1pps (2017:9.1pps) with a total dividend share (“pps”)(2017: 8.6pps),IFRSearnings diluted earningspershare were 7.5 penceper 149% on 2017).EPRAcompany adjusted with Group profit after tax of£67.4m (up continued to achieve strong positive growth, the Group hadanother very active year and It gives megreat pleasure to report that in August 2024. 10 its proven businessmodel. term asitcontinues to successfully execute medium its developmentshort to overof the stage positioned the next Groupwell for the The combination of the above initiatives has target aratio of approximately 40%. increase inproperty valuations. We continue to with the coupled properties, on thedisposalof predominately asaresult of the realised gains end comparative for 2017 of 45.0%and was 2018. lower thantheyear considerably was This gross investments properties asat31 38.3% of borrowings to reducednet ouroverall with the line Group’sIn strategy for theyear, we 9 ZDPs on repayment ofthe 3.5% following the 3.8%) to 2017: c.3.8% at31 December2018(31 December cost of debt includinghedgingcosts, from reduction in the Group’s weighted average These successfulinitiatives resulted ina of 3.4%andproceeds from property disposals. 10-year facility from Scottish Widows atarate was repaid during the year with anew£36.0m of the ICGLongbow facility, atarate of 5.0%, Longbow facility. The remaining £13mbalance early repayment of the Company’s £65mICG 9 matured on subsidiary, Regional REITZDPPlc, which (“ZDPs”) issuedby the Company’s indirect £39.9m 6.5%Zero DividendPreference Shares since been deployed inpart to settle the The proceeds from the bondissuancehave higher thanthe average.five-year quarter of 2018 reaching £8.1 billion, 16% exchange rates, with investment in the final advantage of continued totake favourable surrounding Brexit, overseas investors from CoStar total investment in2018,according to data markets accounted for almosthalf(49%) of 2018. Overseas investment in the UK property markets witnessing record levels of up-take in the office andindustrialmarkets, withboth by strong occupier fundamentals inboth Increased investment hasbeenunderpinned figure recorded since2006. markets in2018 to £21.3billion, the highest brought total investment in the regional and 13%above the quarterly average. This £5.6 billion,up8% on the previous quarter reached London regions outsideof in the investment 2018, volumes final quarterof at pacein the secondhalf of 2018.In the investment in the regional markets continued start totheyear,strong Followinga Market Environment 2 . Despite ongoing uncertainty January 2019,andalso the for the year ended31 December2018 Annual Report and Accounts January 2019. December December Strategic Report 10 - 57 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for January 2019, the Company Outlook Group remains for the positive. The outlook we whilst a long-term business and are We the uncertain political and of mindful remain of also conscious we are economic backdrop, our and trends, and customers’ cycles market the positioning by confidence is underpinned asset base and customer diversified our of orientated business model. the of Group For remainder is 2019, the for returns achieving good of confident momentum the maintaining by Shareholders, and of asset management initiatives of all income streams, grow to continuing opportunities further which should provide Group The value enhancement. for capital for remains alert to the opportunities potential acquisitions or disposals which may future. near the arise in McGrath Kevin Chairman and Independent Director Non-Executive 2019 27 March Subsequent Events On 10 announced the of the repayment Regional full, in REIT ZDP Plc 6.5% ZDP shares with totalling £39.9m, and in accordance Association has been placed of Articles its in a reduction This resulted into liquidation. of borrowing cost weighted average the in to c. 3.8% from (including hedging costs) c. 3.5%. On 4 February 2019, the Company of Norfolk House the acquisition announced with a net initial for £20.0m, in Birmingham occupied The building is 98.8% of 7.9%. yield of c. £1.69m. with a net income In accordance with the management with In accordance Asset Manager and the arrangements, each entitled Manager are Investment of fee of a performance to a 50% share in excess return total shareholder of 15% The of 8%. rate of an annual hurdle from fee period ran initial performance December 2018 to 31 2015 6 November fee in an inaugural performance resulting crystallisation of £8.9m. Further details of on pages found fee can be the performance 54 and 55. 68. 11 January 2019, and we will June 2018 Frances replaced June 2018 Frances Performance accounting return total The EPRA on 6 November performance since listing The to 37.5%. 2015 has amounted total has generated an annualised Company with a 2018 of 10.6% return shareholder Total 16.6%. of return total shareholder by was achieved for 2018 return shareholder our successful individual asset management fruition and associated to plans coming with together realised, being profits gains. property investment unrealised Strong Relationships Strong a long-term business and ultimately are We the experience of our tenants, suppliers and the communities operate will in which we influence ouroverriding Our performance. of the needs and expectations to meet aim is to with endeavouring our customers, coupled maintain working with strong relationships mindful we are whilst ensuring our suppliers, impact. our environmental of William Audit Eason the Chair of as the Chair the was appointed as William Committee. Management, Engagement Company’s the of the and remains Committee and Remuneration Director. Senior Independent Non-Executive No other significant during changes occurred the year of the view and the Board is that the operatesGroup of the governance structure open culture. and with a positive effectively offocus a key remains governance Corporate we continue that and I am satisfied the Board to comply with the 2016 edition of the Association of Code Companies Investment Code”). Governance of Corporate (the “AIC compliance Company’s Further details on the thefound in can be Code AIC the with Statement on Governance Corporate page Following an internal review of the Board’s the Board’s of an internal review Following we to ensure drive of a and as part effectiveness of with the development appropriately evolve on the Group, 20 The with the Board, assistance of the will be undertaking a Secretary, Company full of our review governance against the Code, AIC published of the in version 2019 2019, February which financial applies to our commencing 1 year due course. further in report the with has been pleased The Board Asset Manager and the of both performance timing the well as as Manager, Investment transactions of both property and execution in an uncertain political and and borrowings economic environment. (continued) I am grateful to my fellow Directors for their their for fellow Directors to my I am grateful active very this through skills and expertise during which we welcomed Frances year, Daley as an Independent Non-Executive has on Frances 2018. Director 1 February to experience financial PLC extensive brought the Board. Board of Board Directors Shareholder Engagement Shareholder its develop to has continued Company The engaging closely with investors, relations with its The Shareholders. website Company’s was updated during (www.regionalreit.com) further enhance to of 2018 the latter half communications Shareholders. with In the absence of unforeseen circumstances, circumstances, of unforeseen the absence In to pursue intention the Board’s it remains dividend policy and covered a progressive continue to dividends. pay quarterly The dividend is the major generator of the total declared Company The total return. comprising dividends of for the year, 8.05pps dividends of quarterly of three 1.85pps each, and dividend of fourth quarterly a 2.50pps, an of increase c.3% on the year’s previous This a yield of represented total dividend. the close on of 92.50p price 8.7% at a share December 2018. of 31 Dividends Given the overarching backdrop of the backdrop the overarching Given remains the Board negotiations, Brexit vigilant Asset of the Manager’s supportive and opportunistic to approach acquisitions and disposals, whilst continuing to grow to income and responding rental underlying the needs of our tenants. The Asset Manager continues to see robust to see robust Asset Manager continues The occupational demand in the office regional tenant retention of with high rates markets growth. of rental well as good levels as of advantage taken Asset Manager has The for light industrial pricing strong historically assets with tactical and opportunistic sales. been recycled disposals have of The proceeds which complement office assets into regional of the tenant the diversity base. Chairman’s Statement Chairman’s

Property Name: Templeton On The Green, Glasgow Sector: Office Strategic Report 10 - 57 Investment Strategy andBusinessModel BORROWINGS – locatedpredominantly in the regional centres of the UK. industrial properties – or debt portfoliossecured on suchproperties The Group will invest in,actively manageand dispose of offices and INVES S INVES TRATEGY POLICY TMENT TMENT 14 OBJECTIVES for the year ended31 December2018 Annual Report and Accounts Strategic Report 10 - 57 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for (continued) 15 The Group targets a ratio of net borrowings to Gross Investment Properties Value of 40% over the longer term, with a term, the longer over of 40% Value Properties Investment Gross to of net borrowings a ratio targets Group The of 50%. maximum limit BORROWINGS INVESTMENT OBJECTIVE Company is to deliver of the an of Objective The than total Shareholders to attractive greater Investment 10% return per office and industrial the in predominantly property, UK commercial in investing from on income focus with a strong annum, the M25 motorway. of outside and urban areas centres sectors in major regional INVESTMENT POLICY motorway. the M25 of outside UK and the situated in that are office and light industrial properties in will invest Group The situated inside value) are market (by the properties of to 50% which up portfolios in in property may also invest Group The the M25 motorway. at Value Properties Investment Gross Group’s the of 10% will exceed of business, no single property course ordinary the In the the time of the Board may investment; consider taking this exceptionally, up to 20%. of within a portfolio an asset is where is £5m, except investment for a single property value The normal minimum shall be no such minimum. there which for properties of undertaking or group tenant one to any be exposed shall Value Properties Investment Gross the of than 20% No more that tenant. is not been pre-let) which have refurbishment, under construction, but excluding (properties development Speculative at Value Properties Investment Gross of of 15% maximum to an aggregate is restricted development other Any prohibited. or investment commencement. The Group aims to acquire a portfolio of interests that, together, offers Shareholders a diversification of investment risk, by risk, of investment diversification a Shareholders offers together, that, of interests a portfolio to acquire aims Group The letting properties, through tenants and of assets and a number and sectors across of geographical areas in a range investing where possible, to low-risk tenants. strategy and enhance to implement its investment of leverage, other sources and will use gearing, borrowings Group The equity returns. INVESTMENT STRATEGY INVESTMENT Investment Strategy and Business Model Business Model and Strategy Investment Strategic Report 10 - 57 Investment Strategy andBusinessModel OUR APPROACH to 5.3% – a trend that has been witnessed over the last threewitnessed overbeen years. the has a trend that – 5.3% to Regional offices have outperformedcentral London offices, delivering superior returns of11.5%in2018compared will outweigh availablesupply. grow, the UK domestic economy will continue to remain robust and tenant demand for offices andindustrialsites That the “regions remain strong” in UK commercial real estate,believing that capitalinflowsinto the regions will RegionsRemain Strong Total Shareholder Return of 37.5% sinceIPO and10.6%annualisedin2018(8.8%2017). each property’s assetmanagementplan. The Asset Manager operates through anumber of regional offices, implementing a targeted investment policyand The Group seeks to enhanceincomegrowth andcapital values through the services of the Asset Manager. M25 motorway, broadly based on the region’s economic worth andpopulationmix. The investment policy focuses on abalancedportfolio of offices andlightindustrialsiteslocated outside of the ADD VALUEWE HOW experienced asset manager R r Highl str emain egions ong y pr appr Opportunistic operty mark Diversiﬁed Business P Model oach ortfolio 16 (continued) to the et income-pr management the pr Investing in Activ assets operties oducing e of for the year ended31 December2018 Annual Report and Accounts Strategic Report 10 - 57 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for (continued) 17 HOW HOW WE VALUE ADD aiming the legacy portfolio, from capital of the recycling and property UK commercial to opportunistic approach An Asset Manager. the of the expertise through value can add Group the where properties to acquire taking undermanaged and underinvested of properties, values and capital the income growth to build Seeking to properties being to attractive for disposal. investments for yield or be retained will exploit Group The UK banks. of with a number in place with long-term relationships An established borrower utilising leverage. total returns to improve opportunities costs. funding its to reduce aims Group the facilities, existing to renegotiate opportunities debt maturing and With with of £149.3m, of costs) disposals (net costs) and totalled £73.3m (before acquisitions in 2018 Completed of c. 8.7% and c. 5.7% respectively. yields net initial average total in resulting £102.9m, were totalled £101.5m, new borrowings facility payments debt During 2018, with 2017 at 3.8%. in line funding costs (including hedging) remained The average of £380.3m. borrowings Opportunistic Approach to the to the Approach Property Market Opportunistic plus and primary and core regional core mismatches between on exploiting pricing inefficiencies and focus A yields. property to be that it believes estate real hold and sell commercial will acquire, Group the opportunities, such From prospects. good income and capital growth mispriced and have the business. of the acquisitions capability to build Utilising leverage OUR APPROACH Investment Strategy and Business Model Business Model and Strategy Investment Strategic Report 10 - 57 Investment Strategy andBusinessModel OUR APPROACH OUR APPROACH 87.3% (31 December2018). Active and intenseassetmanagement to improve occupancy: from 85.0%(by value) (312017) to December dilapidations, servicecharges or improved property rental income. Net capitalexpenditure of £7.0m in2018(£13.4m2017);muchcapitalexpenditure isrecovered through The Asset Managerutilises a range of approaches to each asset, tailoring the project programme for eachproperty. The Managerscanrespond in the bestinterests of the Group andits Shareholders. tenants, with animmediateunderstanding of their requirements andbetter decision-making capability. The Asset Managerundertakes all of the principalproperty managementactivitiesin-houseandremains close to its ADD VALUEWE HOW Our aimis to provide aconsistentapproach to improving returns, thereby enhancing the quality of the underlying portfolio. management of itsproperties, a very hands-onapproach. The Group pridesitself on maintainingacloserelationship with its tenants andin the intensive granular Properties Management ofthe Active Declared dividends pershare of 8.05p for 2018(7.85p in2017). Average rents have increased to £9.40persq. (31ft. December2017:£8.18 persq. ft.) Contracted rental income of £59.7masatend2018(31 December2017:£61.9m). Speculative development strictly limited to refurbishment programmes. for active assetmanagement. future incomegrowth; sectorandgeographicprospects; leaselength;initialandequivalent yields; and the potential Investment decisions are based prospects for on identifying strong underlying alia; fundamentals, includinginter ADD VALUEWE HOW returnattractive toour Shareholders. total an delivering The Group hasastrictset of investment criteria to invest, predominantly, inincomeproducing assetscapable of Investing inIncomeProducing Assets 18 (continued) for the year ended31 December2018 Annual Report and Accounts Strategic Report 10 - 57 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for (continued) 19 HOW HOW WE ADD VALUE team, including knowledge, expertise and established the management of track record The capabilities and secondary regional UK fragmented the operating in for advantage an important competitive provide relationships, market. property with a experience, of property years 180 over have Asset Manager collectively the of team The senior management value. of creating record proven the 2008-12 through basis on a like-for-like for a similar portfolio income rental property Management grew recession. the 64 staff of vast majority the with UK, the offices around of Glasgow and has a number LSI is based in REIT. on Regional working December 2018, as at 31 employed, The Asset Manager has the heritage of a long-established property investment management company. management company. investment of a long-established property the heritage Asset Manager has The Highly Experienced Asset Manager Experienced Highly HOW HOW WE VALUE ADD UK the of regions the across well spread offices and light industrial units, geographically of The portfolio consists tenants. of mix with a broad the M25 motorway and of outside December 2018. tenants as at 31 874 units and 1,192 150 properties, tenant the largest value and Properties Investment Gross the of 4.6% only is single property The largest Income. Rental Gross of 2.7% only December 2017: 77.6%); value (31 Properties Investment Gross the of 82.0% represent Wales England & the remainder. Scotland represents December 2017: 90.6%). 91.6% (31 offices and industrial sites are Diversified Portfolio Diversified portfolio. property commercial diverse and large distinctive A An the that diversifies approach investment risk of the portfolio and enables better of the timing of management and new lettings. lease re-gears OUR APPROACH OUR APPROACH Investment Strategy and Business Model Business Model and Strategy Investment Property Name: Ashby Park, Ashby De La Zouch Sector: Office

Strategic Report 10 - 57 market with a focus on income. in the looking identify value forward, the continue to Companywill optimistic, despite wider politicaland economicuncertaintyand, maintaining our incomeaccretive strategy. Our outlook for 2019is whilst acquisition yields, and between disposalyields opportunities As aresult, we have demonstrated our ability to identifyarbitrage weighted average netinitial yield of c.8.7%(December2017:7.9%). with property acquisitionsin2018 of £73.3m(before costs), with a and carefully selectassets where we can add value and drive yields, year. We have alsocontinued to redeploy proceeds throughout 2018 sales programme by disposing of 23industrial properties during the view regarding our industrialportfolioandcontinued our proactive c. 5.7% (December2017:6.3%). The Group took acountercyclical totalled £149.3m(net of costs)atanaverage netinitial yield of which hasbeenreflected inastrong set of results. Disposalsin2018 2018 hasbeenanotherincredibly active year for the Company, • • • • • 2018: Highlights from Asset andInvestment Managers’Report 3 https://www.lsh.co.uk/-/media/files/lsh/research/2019/2019-01-10584-ukit-q42018.ashx?la=en&hash=818DC1417D4DD899079049E9CFECE3BBFCF19C4C to deliver strong income and capital growth opportunities for our investor.” investor.” for our opportunities capital growth income and strong deliver to and markets industrialproperty the strength strategy willcontinue andlight of that office regional our core our continuing placed to deal will bebetter with from any changesresulting this better than our rivals and peer group. We confident remain that we ensures platform management unique ofthe Our Company’s assets. occupancy improve and maintain to necessary if events and canreact but monitoring negotiations are Brexit of the continuing result for ourassetsasa demand occupier to notable difference see any to yet have We occupancy. increased againachieving initiatives with our management asset intensive to approach successful our implement to continue We “ c. buildingthe atoffice Aztec lettingsfor and announced West, recently we have mostnotably of the refurbishment a number of projects, asset management delivered successfully in theyear have We ofourtenants. anddiversity quality in the possible as spread as wide a creating on focussed remain of ourassetsand spread thegeographic increase to continue We opportunities. management asset assets with additional in quality re-invest been ableto have value and offering targets acquisition off-market identify to continue valuation. We2017 December 21%) (c. over profits our substantial has generated assets, with somenon-core what our industrialportfoliointo together identifiedwe as an market, overheated REIThashad Regional another strong year. decision sellc.47%to Our strategic of Chief Executive Officer of London & Scottish Investments, the AssetManagerScottish Investments, REITLimited. of of Chief Executive Officer London & Regional Inglis, Stephen

contracted rental income of 4.2%. The leaserenewals throughout 2018achieved anupliftin 31 December 2018,up from 64%inDecember2017. Increase of retention of income to 74% (by value) asat period. year, adjusting for capitalexpenditure and disposals during the Valuation increase of 4.5% on alike-for-like basis from the prior December 2017 to £9.40persq. inDecember2018. ft. Average rent by letsq. upbyft. 14.9% from £8.18 persq. in ft. 2018, anincrease from 85.0% from the previous 12months. Occupancy rate(by value) up2.7% to 87.3% asat31 December 86% of the building. 86% ofthe

22 2018 investment volumes 61% and52%above average, respectively. investment occurring in the NorthEastand the EastMidlands, with each of the UK’s regional markets, with the largest increase inregional notes that annualinvestment in2018 was above the average volume in to £21.3billion, the highest figure recorded since2006.LSH research average. This brought total investment in the regional markets in2018 £5.6 billion,up8% on the previous quarter and13%above the quarterly 2018, investment volumes in the regions outside of Londonreached continued atpacein the secondhalf of 2018.In the final quarter of Following astrong start to the year, investment in the regional markets reaching £4.0billion,10%higher than the five-year quarterly average. in portfolios was particularly strong in the final quarter of 2018, investment totalling £14.0billionin2018,up3% on 2017. Investment proved to beanotherstrong year for investment inportfolio deals, with H1 2018, which helped boost overall investment figures for2018.2018 reached £33.6 billion,indicatinganincrease of 19% when compared to was slightly lower than Q3 2018 volumes, investment inH22018 decade (after2015). Although investment in the final quarter of2018 five-year average, resulting in thesecondlargest annual figure a in Hampton (“LSH”) £61.8 billion in2018,according to research from Lambert Smith Investment in the UK commercial property market reached in UKCommercialInvestmentProperty Activity 3 , 3%higher than 2017 volumes and4%above the for the year ended31 December2018 Annual Report and Accounts Strategic Report 10 - 57 . 6 UK Rest of industrial Specialist East South Annual Report and Accounts and Report Annual industrial All roperty eear uarterly Aerae uarterly Aerae All for the year ended 31 December 2018 December ended 31 year the for industrial UK ofﬁces Rest of 0 0 20 0 20 0 2018 East South ofﬁces Rest of 3 2018 All 2

2018 ofﬁce 1 2018 ofﬁces London Central 201 . 5 3 201 All property 23 2 (continued) 201 1 201 warehouse Distribution 201 -use Mixed 3 201 2 201 Shops 1 201 . Overall, Property Data recorded £4.29 billion of deals in the first two months of 2019, with the with of 2019, two months first the deals in of billion £4.29 Data recorded Property Overall, . 4 & 201 Hotels leisure 3 201 Retail 2 201 warehouse 1 201 park Business 201 -year Average -year Five 3 All 201 retail 2 201 1 centre 201 Shopping 0 0

10 1 2 20 60 20 40

-60 -40 -80

-20

bllon % https://www.propertyweek.com/news/investment-volumes-plunge-ahead-of-brexit/5101760.article CoStar UK Commercial UK Commercial Property CoStar Q4 Investment Review 2018 https://www.propertyweek.com/news/real-estate-funds-see-five-consecutive-months-of-capital-outflows-/5101749.article ure 1 ambert mth ampton ebruary 201 Figure 2: Lambert Smith Hampton (February 2019) Overseas investment in the UK property markets accounted for almost half (49%) of total investment in 2018, according to data from CoStar from data to in 2018, according total investment of for almost half (49%) accounted markets UK property the in investment Overseas 2018 Volumes vs 2018 Volumes Quarterly Quarterly Volumes Investment The previous evidence of strong regional investment throughout 2018 has been followed by muted investment at the beginning of 2019. The of 2019. the beginning at muted investment followed by 2018 has been throughout investment regional of strong evidence The previous taking a “wait and see” position. investors of potential the expected period followed by to be appears to market” “rush -Brexit expected pre of 2019 two months first the deals in UK investment of volume the of 43% in decline Data shows a sharp Property from figures Provisional the same period in 2018 to when compared Asset and Investment Managers’ Report Report Managers’ Investment Asset and 5 6 4 decline in investment volumes more significant in the central London office market. Additionally, data from Calastone reveals that real estate that reveals Calastone from data Additionally, office market. the central London significant in more volumes decline in investment February 2019 months ending five the billion in of £1.1 outflow funds saw an Research from CBRE indicates that regional offices have outperformed in comparison to central London offices, delivering superior returns superior delivering offices, to central London outperformed in comparison offices have that regional CBRE indicates from Research years. three the past over witnessed that has been trend of 5.3% – a returns office to central London of 11.5% in 2018 in comparison the was above which regions, the of 2.2% in rental growth well as as rental growth) by returns (driven better capital Outperformance reflected on to capitalise Regional REIT to continue, enabling trend this Asset Manager expects The office market. London Central the witnessed in 1.1% markets. regional UK’s the throughout of assets and spread size Group’s the of as a result returns greater Despite ongoing uncertainty surrounding Brexit, overseas investors continued to take advantage of favourable exchange rates, with investment with investment rates, exchange favourable of advantage take to continued investors overseas Brexit, uncertainty surrounding ongoing Despite record was a that 2018 CoStar indicate from average. Figures five-year the than billion, 16% higher reaching £8.1 of 2018 quarter final the in fall in despite a year the during Far East investment overall which helped support Singapore, and Korea South from for capital inflows year investment overseas total that became net sellers in 2018. LSH estimate American investors North Conversely, China/Hong Kong. from spend average. the 10-year than billion, 33% higher £27.9 for 2018 reached Strategic Report 10 - 57 becoming akey driver of leasingactivity & sector; WakefieldCushman with continue, flexibility expectthistrend to Demand for regional office spacealso grew within the flexible workspace take-up in the regional cities,accounting for 11%and10% respectively. services sectoraccounted for the secondand third largest proportion of the technology, media& telecoms sectorand the business&consumer the highestproportion of take-up at18%.Following the publicsector, Asset andInvestment Managers’Report 12 11 10 9 8 7 markets regional office nine across space estimates thattake-up ofoffice Savills Market Occupational Demandin the UK Regional Office Total Return Relatives: RoUK vs Central London Offices Central London&Regional Office Returns (12months toDecember2018) 2019 for the third year in a row.a 2019 for thethirdin year take-up in the flexible workspacesector willbe over 0.5millionsq. in ft. Property Unit (GPU) deals (GPU) Property Unit twoGovernment final the included fromup Centralwhich Government, strong yearsector,another oftake- public with by was driven the demand recorded in2017, and25%above the 10-year average. Occupational Figure 4:CBRE(February2018) Nine regional office markets mentioned by Savillsinclude: Aberdeen, Birmingham, Bristol, Cambridge, Cardiff, Edinburgh, Glasgow, LeedsandManchester Figure 3:CBRE(February2019) http://www.cushmanwakefield.co.uk/en-gb/research-and-insight/uk/united-kingdom-office-snapshot https://www2.avisonyoung.co.uk/media/55201/the-big-nine-q4-2018.pdf Cushman & Wakefield, UKPre-Let Report- Race for Space2019 https://www2.avisonyoung.co.uk/media/55201/the-big-nine-q4-2018.pdf Savills, Regional Office Market Q42018 % % -10 -4 -6 -8 20 -2 25 10 15 0 4 6 2 0 5 Dec 13 7 reached 7millionsq. 3%higher ft., than the 6.8millionsq. ft. 22.9% 2014 19.3% 8 , resulting in the publicsectoraccounting for Dec 14 18.5% 2015 9 . Additionally, that GVApredicts 16.3% Dec 15 0.9% 2016 2.7% Dec 16 8.0% (continued) 24 2017 a shortage of office stock, with Cushman& Wakefield construction are already pre-let. Therefore, there islikely to remain increase, aconsiderableproportion of office buildings currently under construction. However, although the supply of office stockislikely to of approximately 4.7msq. ft. of office spacecurrently under (Birmingham, Manchester, LeedsandBelfast); with a total heightened constructionactivityincertainregional cities The mostrecent Deloitte Crane 2019),suggests Survey (January office stockhas declined. average. 10-year supply consecutive of marks the year that fifth This 11.5 millionsq. acrossft. nineregional office markets, 27%below the reduce availability, with total availability falling by 14%in2018 to uncertainty are continuing to restrict new development According to GVA, buildcostinflationand future economic that demand for pre-lets will increase across the regional markets. is only 1.9%, which has driven pre-let activity. The expectationis that the vacancy rate for newandrefurbished stockin the regions low. Savills levels. The supply of offices in thecore regional markets remains regional cities will continue to puta downward pressure on vacancy According to Cushman & Wakefield, alack of qualitystockin the 12.0% Dec 17 10 research indicates that occupier demand continues to researchindicates thatoccupierdemand 5.3% 2018 11.5% Dec 18 Rest ofUKofﬁces Central Londonofﬁces Total returnrelative for the year ended31 December2018 Annual Report and Accounts 11 highlighting 12 . Strategic Report 10 - 57 2018 . 17 201 10year aerae ardff 201 201 Annual Report and Accounts and Report Annual 201 ambrde anchester for the year ended 31 December 2018 December ended 31 year the for 2013 rstol eeds 2012 2011 rmnham laso 2010 200 research was within the shows that of take-up research East 37% Aberdeen dnburh 16 2008

2 8 0

12 1 1 10 18 20 upply mllon s ft s mllon upply Cushman and Wakefield research highlights that eRetailers were the were that eRetailers highlights research Wakefield Cushman and for 26% 2018, accounting throughout take-up of terms in most active of annual take-up. CBRE In terms of development, indicates that availability levels rose schemes. development speculative in to an increase due in 2018 is there for 2019, that suggests research Wakefield Cushman & of space under construction, 17% ft. 6.9 million sq. approximately the five-year above average. Occupier Demand Strengthens in the UK the in Strengthens Occupier Demand Industrial Market ft., million sq. totalled 11.1 of 2018 quarter final the in Take-up ft., a 30% to 35.9 million sq. during 2018 take-up pushing annual recorded take-up the highest annual and 2017 levels from increase took place in both deals of the same number Although since 2008. of large to a number due 30% by increased take-up 2018 and 2017, to 191,000 sq. deal size the average deals increasing to suit’ ‘built ft.. CBRE Midlands – the highest proportion for a region since 2006. Following since 2006. Following for a region the highest proportion Midlands – a strong South East all recorded East, North and Yorkshire, this, performance throughout 2018. in terms of take-up to benefit continues the industrial market within demand Occupier accounts currently online retailing online shopping, as in growth from for 18.8% of total retail sales ONS UK, to the in the according Supply: Annual Office Supply by Region by Supply Office Annual Supply: ure alls ebruary 201 25 (continued) 2018 201 . 13 10year aerae ardff 201 . The Asset Manager 15 201 December 2018 201 ambrde anchester 2013 . Similarly, Colliers Colliers International. Similarly, 14 rstol eeds 2012 2011 rmnham laso 2010 200 December 2017: 3.1 years). December 2017: 3.1 December 2017, shows that occupancy increased to 85.3% occupancy increased that shows December 2017, Aberdeen dnburh 2008 1 2 3 8 0

December 2017: 84.1%). WAULT to first-break was 3.0 years was 3.0 first-break to WAULT December 2017: 84.1%). was first break to WAULT like-for-like years); December 2017: 3.1 December 2017: 83.2%); occupancy by area was 84.4% area occupancy by December 2017: 83.2%); the of comparison A like-for-like December 2017: 82.4%).

aeup mllon s ft s mllon aeup http://www.cushmanwakefield.co.uk/en-gb/research-and-insight/uk/united-kingdom-office-snapshot https://www.cbre.co.uk/research-and-reports/United-Kingdom-Logistics---The-Property-Perspective-H2-2018 https://www2.avisonyoung.co.uk/media/55201/the-big-nine-q4-2018.pdf https://www.colliers.com/-/media/files/emea/uk/research/market-overview/colliers_international_real_estate_investment_forecasts_q4_2018.pdf?la=en-GB https://www.ons.gov.uk/businessindustryandtrade/retailindustry/bulletins/retailsales/january2019#whats-the-story-in-online-sales believes regional office markets will continue to experience rental to experience will continue office markets regional believes in anwill result A space Grade for shortages that supply and growth plus properties. and core quality core for good uplift in rents expects the rest of the UK expects the of the South and rest East office to markets sustain the 2019-2022 period over growth rental positive The CBRE Monthly Index shows that rental value growth for the rest of the rest for value growth that rental Index shows CBRE Monthly The was 2.2%, the 12 months ending December 2018 in office markets UK Cushman offices. for central London growth rental the 1.1% than higher to be to continue regions the in rental growth expect Wakefield and London in core that rents but anticipate demand, strong fuelled by pressure under will remain markets 16 17 13 14 15 (31 2.9 years (31 31 versus (31 (31 31 value, by occupancy offices regional Group’s Regional REIT’s Office Assets Regional REIT’s officesrose toregional 86.5% Group’s Occupancy value of the by (31 A lack of availability in the Big Nine regional markets has put an markets the Big Nine regional of availability in A lack on pressure downward a well as as on headline rents pressure upward net in city centre of 4.1% to an increase has led which incentives, rent GVA to the last 12 months, according over rents effective Rental Growth Growth in the UK OfficeRental Regional Market Demand: Annual Office Take-Up by Region by Take-Up Office Annual Demand: The Asset Manager believes that the current supply/demand dynamics within the regional office markets will remain unchanged and that the that remain unchanged and will office markets the regional within dynamics supply/demand the current that Asset Manager believes The space in good office plus core and core quality and good refurbished for recently demand drive to will continue for prime stock of supply lack the locations throughout regional markets. Asset and Investment Managers’ Report Report Managers’ Investment Asset and ure alls ebruary 201 Strategic Report 10 - 57 Industrial Rental GrowthIndustrial Continues 2019 islikely estimate that further rental growth in the industrialmarket during recorded2018. International monthsto Colliersfor thethreeJune December 2018,indicatingacceleration from the 1.3%rental growth which showedrental growth of 4.6% for the 12months to the end of compared data from the monthly MSCI Index for December2018, standard industrial spaceled to rental growth in2018. The research Research by BNPParibas Real Estateillustrates that competition for Asset andInvestment Managers’Report 18 rental value growth expected for 2019is0.2%. UK Consensus Forecast predicts that the All Property average annual growth ratesrespectively for 2020and2021.Incomparison, the IPF IPF UK Consensus Forecast predicts 2.2%and2.0%average rental 2019, providing evidence of sustainedgrowth. Additionally, the 2019, anticipatesrental growth in the industrialsector of 2.0%in The Investment Property Forum UK Consensus Forecast, February https://www.colliers.com/-/media/files/emea/uk/research/market-overview/colliers_international_property_snapshot_january_2019.pdf?la=en-GB 18 . (continued) 26 break was 5.1 years (31 December2017:5.1 years). (315.4 years December2017:4.1 years); like-for-like WAULT to first was fully anticipatedin our projections. WAULT to first break was lease expiryat Southview/Southstar, Aberdeen (20,825sq. ft), which some vacant properties. The reduction canalsobeattributed to one which included the disposal of some fully letmature assets as well as is duetothe Group’soccupancy programme duringtheyear,sales (31 312017,2018 versus December 87.7%shows thatoccupancy fell to of the Group’s industrialsites’ occupancy by value, 31 December to 88.0%(31 December2017:86.4%). A like-for-like comparison 88.6% (31 December2017:87.9%); occupancy by area alsoincreased Occupancy by value of the Group’s industrialsitesincreased to Regional REIT’s Industrial Assets December2017:89.1%). Inpart, this reduction inlike-for-like for the year ended31 December2018 Annual Report and Accounts Strategic Report 10 - 57 9.1 7.2 7.5 7.3 7.8 9.2 8.2 9.4 9.4 8.8 8.8 8.8 10.6 Reversionary Reversionary 8.1 7.5 7.2 7.4 7.4 8.7 8.5 9.3 8.8 8.0 8.4 8.2 8.2 Yield (%) Yield (%) Equivalent Equivalent Annual Report and Accounts and Report Annual 7.1 5.1 6.1 7.3 6.7 5.0 6.3 6.9 6.6 8.3 6.0 6.5 6.5 Net Net initial initial for the year ended 31 December 2018 December ended 31 year the for rate rate 77.62 97.22 45.18 87.55 (£psf) (£psf) 81.43 75.36 80.28 80.43 Capital Capital 96.64 96.64 137.54 126.35 154.62 5.1 9.1 1.7 7.8 6.8 0.8 10.1 ERV ERV ERV ERV 18.9 14.6 10.0 55.0 (£m) (£m) 70.0 70.0 7.52 9.22 8.47 9.85 8.33 3.63 6.88 9.40 9.40 11.83 rent rent rent rent 10.55 12.66 14.66 (£psf) (£psf) Average Average Average Average 7.9 7.9 1.6 0.7 5.3 5.9 9.6 5.0 17.4 12.0 46.2 59.7 59.7 (£m) (£m) Gross Gross Gross Gross rental rental rental rental income income 3.1 3.1 6.5 5.6 3.3 5.4 3.9 8.3 3.4 3.0 3.0 3.4 3.4 December 2017: 1,026). If the portfolio was fully occupied at fully was the portfolio If December 2017: 1,026). was 8.8% yield the reversionary and December 2017: 8.3%), December 2017: 9.2%). December 2017: £73.8m). December 2018 (31 (yrs) (yrs) break break break break to first to first WAULT WAULT WAULT WAULT December 2017: 164), in the portfolio, the portfolio, in December 2017: 164), (31 150 properties were There tenants units and 874 December 2017: 1,368) units (31 with 1,192 (31 rents, of market view Jones Lang LaSalle’s and Wakefield’s Cushman & per annum as at would be £70.0m income the contracted rental 31 December the 2018, As at 31 net the initial yield on portfolio was was 8.2% yield the equivalent December 2017: 6.5%), 6.5% (31 (31 (31 27 (continued) 87.5 87.9 92.3 90.5 94.5 95.8 95.0 82.8 88.2 90.0 84.6 89.4 89.4 (%) (%) (EPRA) (EPRA) 59.1 74.7 87.6 78.7 78.6 89.7 94.9 88.9 89.8 85.5 84.4 88.0 85.5 (%) (%) (by area) area) (by (by area) area) (by Occupancy Occupancy 75.1 92.1 87.3 87.3 94.2 82.6 88.5 86.5 94.9 90.0 88.6 84.6 88.8 (%) (%) (by value) (by (by value) (by 1.31 0.12 1.55 1.28 1.66 0.25 4.32 0.52 2.46 0.45 7.43 0.94 7.43 (mil) (mil) Sq. ft. Sq. ft. 7.1 1.4 2.7 9.7 76.1 15.5 15.6 13.8 10.6 29.7 18.0 100.0 100.0 % by % by % by % by valuation valuation 9.9 19.7 76.4 69.5 98.9 50.8 111.3 111.8 213.0 129.0 718.4 718.4 546.4 (£m) (£m) Valuation Valuation Valuation Valuation 2 2 17 12 14 22 25 30 30 40 106 150 150 Properties Properties Total Total Wales South West North West Midlands Total Total Other North East Retail South East Industrial Scotland Location Office Sector Property Portfolio by UK Region UK Region by Portfolio Property December 2017, December 2017, 31 versus December 2018 basis, 31 On a like-for-like and December 2017: 85.5%) was 86.4% (31 value occupancy by December 2017: 84.4%). was 84.6% (31 area occupancy by Property Portfolio Property valued at was portfolio property Group’s the December 2018, As at 31 income with contracted rental December 2017: £737.3), £718.4m (31 occupancy rate by and an December 2017: £61.9m), of £59.7m (31 area Occupancy by December 2017: 85.0%). (31 of 87.3% value occupancy EPRA December 2017: 84.3%). to 85.5% (31 amounted December 2017: 88.2%). to 89.4% (31 increased Asset and Investment Managers’ Report Report Managers’ Investment Asset and Tables may not sum due to rounding.due not sum may Tables Strategic Report 10 - 57 Top 15Investments (market value) asat31 December2018 Asset andInvestment Managers’Report Tables may notsum due rounding. to Total Bletchley Brunel Centre, The Manchester Oakland House, Green, Glasgow TempletonOn The Beverley Business Park, Tokenspire Manchester Portland Street, De LaZouch Park, AshbyAshby Coventry Columbus House, Winsford Industrial Estate, 4 Winsford Road Annesley Newstead Court, & Two One Bristol West,800 Aztec Eastleigh Corporate Park, Hampshire Aylesbury HBOS Campus, Buildings 2&3 Park, Woking Genesis Business Basildon Juniper Park, Property Glasgow Tay House, Retail Office Office Industrial Office Office Office Industrial Office Office Office Office Office Industrial Sector Office Chemist Ltd, WHSmith Plc Ltd, Poundland Ltd,Boots The Hardware Stores Wilkinson Surveyors) Ltd,Rentsmart Ltd CVS (Commercial Valuers & Ltd, PleaseHold(UK) HireService Group HSS Beers Ltd,Fore DigitalLtd Heidi Sports Council,Scottish Ministers, The Scottish The TAPCO Europe Ltd Ltd, Electrical Services Ltd, Sargent (Pantomimes) QDOS Entertainment Darwin Loan Solutions Ltd Ltd, MottMacDonald Manchester New College Ltd, Alstom Power Ltd Ceva LogisticsLtd,HillRom UK TUI NorthernEurope Ltd Jiffy Packaging Ltd E.ON UK Plc E.ON UK of State for Defence State for of Edvance SAS, The Secretary Energy Ltd Utilita Ltd, Daisy Wholesale Royal Bank of Scotland Plc, Aviva Health UK Ltd, The Ltd Society, Agria Pet Insurance Life Assurance Equitable Plc, The Scotland of Bank Retirement LifestylesLtd Ltd, McCarthy & Stone AssemblySolutions UK Wick HillLtd, Alpha Services Ltd Sons Ltd, Vanguard Logistics Schenker Ltd, A Share & of Glasgow Barclays BankPlc, University Anchor tenants 264.0 Market 29.3 33.2 24.9 value 10.4 16.4 24.7 13.3 13.3 (£m) 15.6 13.5 10.7 19.7 11.0 11.0 17.2 (continued) 28 portfolio 36.7 % of 4.6 3.4 2.4 2.3 3.5 2.2 2.7 1.8 1.9 1.9 1.5 1.5 1.5 1.5 4.1 2,153,474 246,209 146,262 156,933 140,676 141,320 277,228 322,211 167,247 98,359 54,959 85,422 53,253 73,292 98,351 Lettable 91,752 (sq. ft.) area 100.0 100.0 100.0 100.0 100.0 100.0 95.0 90.8 98.4 99.2 86.7 92.5 93.7 Let by 97.4 87.7 77.9 area (%) 100.0 100.0 100.0 100.0 100.0 94.0 94.0 86.3 96.9 92.6 99.5 96.7 Let by 92.7 rental 97.0 87.5 value 77.1 (%) Annualised gross rent for the year ended31 December2018 (£m) 21.0 0.8 0.9 2.0 2.2 2.5 1.0 1.0 1.0 1.4 1.4 1.4 1.3 1.9 1.2 1.1 Annual Report and Accounts income rental Gross % of 35.2 3.4 2.0 3.6 2.4 2.4 3.3 4.2 2.3 2.2 1.8 1.4 1.8 1.6 1.6 1.3 WAULT to first break (years) 15.7 3.5 4.0 0.9 3.4 4.3 5.0 4.2 3.2 2.5 2.7 1.8 1.6 1.3 1.7 4.1 Strategic Report 10 - 57 1.1 1.1 1.1 1.1 1.2 1.3 1.3 1.6 1.4 2.7 2.2 2.3 2.4 2.4 2.0 25.3 rental rental income % of Gross % of Gross 1.5 1.2 1.3 1.6 1.4 1.4 1.0 0.7 0.7 0.7 0.7 0.7 0.8 0.8 0.8 15.1 (£m) rent gross Annualised Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for area area 75,791 58,167 42,612 67,882 31,549 29,707 92,978 53,253 48,372 55,586 (sq. ft.) 78,044 88,394 111,076 Lettable 146,262 246,209 1,225,882 1.6 2.7 2.5 3.2 2.9 3.5 5.0 5.4 0.5 3.6 3.0 6.8 0.4 0.0 0.0 15.7 break break to first (years) WAULT WAULT Sector Financial and insurance activities Financial and insurance activities Electricity, gas, Electricity, steam and air conditioning supply Professional, Professional, scientific and technical activities Public sector Financial and insurance activities Manufacturing Professional, Professional, scientific and technical activities Public sector Construction Public sector Wholesale and trade retail Electricity, gas, Electricity, steam and air conditioning supply Financial and insurance activities Financial and insurance activities 29 (continued) Property Tay Glasgow House, Tay Buildings 3 HBOS Campus, Aylesbury Aylesbury Campus, Buildings 3 HBOS High Street, Dumfries One & Two Newstead Court, Annesley Court, Newstead Two One & Columbus Columbus House, Coventry Calton House, Edinburgh Quadrant House, Dundee On Templeton The Green, Glasgow The Courtyard, Falkirk Hampshire Corporate Park, Eastleigh Park, Corporate Hampshire Building, Rotherham Cyan Road 4 Winsford Industrial Estate, Winsford Industrial Estate, Winsford 4 Road Clearblue Innovation Centre, Bedford Centre, Clearblue Innovation Bennett House, Hanley House, Lincoln Cromwell Oakland House, Manchester Brennan House, Farnborough Brennan Festival Court, Glasgow Court, Festival Bristol Court, St Brendans 1-4 Llansamlet Retail Park, Swansea Swansea Park, 1-4 Llansamlet Retail Basildon Juniper Park, 800 Aztec West, 800 Aztec West, Bristol Victory House Meeting House Lane, Chatham Victory House Meeting House Lane, Hampshire Corporate Park, Eastleigh Park, Corporate Hampshire

Tenant Bank Plc Barclays Bank of Scotland Plc E.ON UK E.ON Plc TUI Northern Ltd Europe The Scottish Ministers The Royal Bank of Bank The Royal Scotland Plc Jiffy Packaging Ltd Jiffy Packaging SPD Development SPD Development Ltd Co Sec of State for & Communities Local Govt Fluor Limited The Secretary of State The Secretary for Transport A Share A Share & Sons Ltd Edvance SAS Lloyds Bank Plc Lloyds Aviva Health UK Ltd Health Aviva Total Top 15 Tenants (share of rental income) as at 31 December 2018 income) as at 31 of rental (share Tenants 15 Top Asset and Investment Managers’ Report Report Managers’ Investment Asset and Table may not sum due to rounding.due not sum may Table Strategic Report 10 - 57 Charts may notsum due rounding. to Regional splitby valuation 2018 Sector splitby valuation 2018 the NorthEast. England, the largest regions were the South East, the Midlandsand (2017: 74.0%); the balance of 2.7%(2017:3.6%) was in Wales. In represented 18.0%(2017:22.4%) of the portfolioandEngland79.3% and other 9.4%).By UK region, asat312018, Scotland December The balance was madeup of retail, 7.1%, and other, 1.4%(2017:retail market value was offices and15.5%(2017:23.3%) wasindustrial. As at31 December2018,76.1% (2017:67.3%) of the portfolioby By Valuation Property Portfolio Sector andRegion Splits by Valuation andIncome Asset andInvestment Managers’Report ales 2 outh est orth est10 orth ast138 dlands 1 cotland 180 outh ast2 Other (1.4%) Retail (7.1%) Industrial (15.5%) Ofﬁce (76.1%) (continued) 30 the North East. the NorthEast. England, the largest regions were the South East, the Midlandsand (2017: 70.7%); the balance of 2.7% was in Wales (2017:3.6%).In represented 20.1% (2017:25.7%) of the portfolioandEngland77.2% and other 10.0%).By UK region, asat312018, Scotland December balance was madeup of retail, 8.3%,and other, 1.2%(2017:retail income was offices and13.2%(2017:23.2%) wasindustrial. The As at31 December2018,77.3% (2017:66.9%) of the portfolioby By Income Regional splitby income2018 Sector splitby income2018 for the year ended31 December2018 Annual Report and Accounts ales 2 orth est88 outh est orth ast132 dlands 11 cotland 201 outh ast21 Other (1.2%) Retail (8.3%) Industrial (13.2%) Ofﬁce (77.3%) Strategic Report 10 - 57 202 202 01 year 101 12 years 2 years 30 years 1 2028 2028 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for 202 202 202 202 202 202 Lease expiry income profile Lease expiry income 202 202 31 (continued) 2023 2023 2022 2022 2021 2021 2020 2020 201 201

1 2 2 3 8 0 8 0

10 12 1

ontracted Rental ncome m ncome Rental ontracted ontracted Rental ncome m ncome Rental ontracted Charts may not sum due to rounding.due sum not Charts may Lease expiry to first break income profile by year by income profile first break to Lease expiry Lease expiry income profile by year by Lease expiry income profile Lease Expiry Profile Lease Expiry Profile WAULT years); (2017: 5.4 years is 5.4 the portfolio on WAULT The 31 December 2018, As at years). years (2017: 3.5 is 3.4 first break to will expire which leases, from was of income (2017: 14.1%) 10.1% 34.0% years, between 1 and 2 4.4% (2017: 10.4%) year, within 1 45.8%) after (2017: 51.6% and years 2 and 5 (2017: 29.7%) between 5 years. Asset and Investment Managers’ Report Report Managers’ Investment Asset and Strategic Report 10 - 57 UK Property Locationsas at31 December2018 Asset andInvestment Managers’Report Other Retail Industrial Ofﬁce (continued) 32 for the year ended31 December2018 Annual Report and Accounts Strategic Report 10 - 57 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for Professional, scientiﬁc and technical activities (11.5%) Administrative and support service activities (10.4%) Wholesale and retail trade (10.1%) Public sector (9.6%) Banking (9.3%) Information and communication (8.8%) Manufacturing (7.4%) Financial and insurance activities (other) (6.3%) (4.2%) Electricity, gas, steam and air conditioning supply Construction (3.7%) Transportation and storage (3.5%) Education (3.2%) Other (12.1%) No tenant represents more than 3.0% of the Group’s contracted rent contracted rent Group’s the of than 3.0% more tenant represents No being 2.7%. the largest December 2018, as at 31 roll 33 (continued) rent) gross (% of Other - Human health and social work activities; Not specified; Real estate activities; Other service activities; Arts; Entertainment and recreation; Accommodation recreation; Arts; Entertainment and Other service activities; Real estate activities; Not specified; work activities; Other - Human health and social supply; Water and bodies; organisations of extraterritorial Activities social security; Compulsory defence; administration and food service activities; Public and activities; and Residential. management and remediation Waste Sewerage;

Chart may not sum due to rounding.due not sum Chart may * Tenants SIC Codes by Tenants December 2018, 11.5% of income was from tenants in the tenants in from was of income December 2018, 11.5% As at 31 sector (2017: 10.6%), technical activities scientific and professional, and support service activities sector the administrative from 10.4% sector (2017: trade and retail wholesale the from (2017: 8.7%), 10.1% from the public sector (2017: 8.9%) and 9.3% from 13.8%), 9.6% is broadly exposure The remaining 4.4%). the banking sector (2017: spread. Tenants by Standard Industrial Classification as atClassification Industrial Standard by Tenants December 2018 31 Asset and Investment Managers’ Report Report Managers’ Investment Asset and Strategic Report 10 - 57 Top 15Properties by Sector: Office • • • • • • • Asset andInvestment Managers’Report TayHouse, Glasgow Genesis BusinessPark, Woking open planrefurbished floor plates with the Glasgowcitycentre market. Explore potential ofincreasing Regus’ Spaces occupation. Management Ongoing Asset (First FloorEast Wing) atagross rental income of £18.50persquare foot (“psf”) for a ten-year term. Tenant Expansion– RemovedBreak Option Secure Income– Asset ManagementInitiatives –Letbalance of refurbished space. Seek to improve WAULT by removal of future break options. Rental ToneImproving centre. Established BusinessPark – WAULT (to (years) first break) Annualised gross rent (£m) Lettable area (sq. Market value (£m) Market value Let by value (%) Anchor tenants Let by area (%) Barclays leasesre-geared inDecember2015,securingincome until October 2021at the earliest. Agreement for leasesigned with the University of Glasgow to take 9,791sq. ft. of additionalspace within the building – Letting of part of ground floor in Unit1 to WickHillLimitedat£22.50persq. ft. – Sector : Removal of the University of Glasgow’s break option in September 2019,securing incomeuntil September 2024. Genesis is the premier out is the Genesis : ft.) – continue to market the remaining space on the first flooragainst thebackground oflimitedsupply oflarge : : : : : 2.5 156,933 Office 6.4 (3.2) 87.5 87.7 of Glasgow Plc, University Bank Barclays 33.2 - of- town office parkin the town,situatedapproximately 1mile from Woking town WAULT (to (years) first break) Annualised gross rent (£m) (continued) 34 Lettable area (sq. Market value (£m) Market value Let by value (%) Anchor tenants Let by area (%) Sector : : ft.) : : : : : : 24.9 98,359 1.9 Office 100.0 100.0 Lifestyles Ltd UK Ltd,McCarthy & Stone Retirement Solutions Ltd, Alpha Assembly Hill Wick 6.0 (2.7) for the year ended31 December2018 Annual Report and Accounts Strategic Report 10 - 57 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for 5.0 (4.0) Bank of Scotland Plc, The Equitable Life The Equitable Life Scotland Plc, of Bank Insurance Agria Pet Society, Assurance Ltd 92.5 92.6 140,676 24.7 Office 2.2 : : : : : : ft.) : Sector : Let by area (%) area Let by Anchor tenants Let by value (%) Let by Market value Market (£m) Lettable area (sq. Lettable area 35 (continued) Annualised gross rent (£m) rent Annualised gross first break) (years) (to WAULT months whilst the works were ongoing. the works were months whilst (continued) 19.7 3.2 (1.7) Office 1.4 85,422 of Bank The Royal UK Ltd, Health Aviva Utilita Wholesale Ltd, Scotland Plc, Daisy Ltd Energy 99.2 99.5 : : : : : : ft.) : – Additional lettings on the fourth floor to Prospitalia and Identify Group. These tenancies provide a combined tenancies provide These Group. and Identify to Prospitalia floor fourth the on lettings Additional – Sector : Let by area (%) area Let by Anchor tenants Let by value (%) Let by – Comprehensive refurbishment programme of Building 2 now completed with gross capital expenditure of c. £3.3m and capital expenditure with gross of Building 2 now completed programme refurbishment Comprehensive – Market value value Market (£m) Lettable area (sq. Lettable area Annualised gross rent (£m) rent Annualised gross first break) (years) (to WAULT – Exercise underway to re-brand location and re-establish development in the local market as high-quality, as high-quality, the local market in development location and re-establish to re-brand underway – Exercise Asset Management Initiative of available space. ft. remaining 10,553 sq. to let order office space in cost-effective Continued Continued Letting Activity Adding Value Value Adding town. the the best accommodation in now property gross rental income c. £160,000pa across 9,068 sq. ft. (Additionally, 5,380 sq. ft. of space is under offer at a gross rental income of £17psf for of £17psf income rental offer at a gross of space is under ft. 5,380 sq. ft. (Additionally, 9,068 sq. income c. £160,000pa across rental gross a term). 10-year – The local letting market remains strong and the supply of similar suitable properties is limited. (Agreement is limited. (Agreement of similar suitable properties the supply and strong remains The local letting market – Asset Management Initiatives term). three-year for a of £22psf income rental ft.) at a gross sq. House lease (42,612 Chilworth for UK Health Aviva with for lease signed – Interior and exterior refurbishment of Hampshire House. By advance programming and marketing, the void the and marketing, House. By advance programming of Hampshire – Interior and exterior refurbishment Successful Refurbishment for the period building was five limited to only Hampshire Corporate Park, Eastleigh Park, Corporate Hampshire Buildings 2 & 3 HBOS Campus, Aylesbury Campus, Buildings 2 & 3 HBOS • • • • • Top 15 Properties by Sector: Office Sector: by 15 Properties Top Asset and Investment Managers’ Report Report Managers’ Investment Asset and Strategic Report 10 - 57 Top 15Properties by Sector: Office • • • • • • Asset andInvestment Managers’Report • Columbus House, CoventryColumbus Bristol West,800 Aztec One & Two Newstead Court, Annesley Asset ManagementInitiative –Letbalance of spaceandgrow rental value of the property. Secretary of State for Defence on a ten-year lease from December2018atagross rental income of £20.00psf. £21.50psf with interest in other space.Following completion of refurbishment works, the Ground Floor(32,007 sq. hasbeenlet ft.) to The Lettings Secured Major with limitedcitycentre supply. Successful Refurbishment –Major“back to shell”refurbishment of the whole buildingcompletedin August 2018intoactive Bristolmarket recently been acquired by Shell Petroleum Company Limited. Asset Management Initiatives –Potential to agree leasesurrender with TUI, with benefits of existingsublets toFirst Utility whohave rent. underpinning tothe an Income Profile –Let to TUI until2024 on ageared lease with fixed annualuplifts. TUIhassublet theentire space toFirst Utility thatprovides 2020. The renegotiated lease of Building1attaineda10%improvement in the rental rate. Income Streams Securing Quality Assets High WAULT (to (years) first break) WAULT (to (years) first break) Annualised gross rent (£m) Annualised gross rent (£m) Lettable area (sq. Lettable area (sq. Market value (£m) Market value (£m) Market value Let by value (%) Let by value (%) Anchor tenants Anchor tenants Let by area (%) Let by area (%) – Two modern office pavilionsinanestablishedbusinesspark. – First floor (31,670 sq. pre-let ft.) toEdvance(EDF) on ten-year lease from August2018atagross rental income of Sector : Sector : – Newleasesagreed with E.ON on bothbuildingsuntil April 2025, with areview and tenant break options inMay : ft.) : ft.) : : : : : : : : : : : : 1.3 73,292 Office 1.4 Office 86.3 86.7 Defence Edvance SAS, The Secretaryof State for 53,253 9.8 (4.2) 100.0 100.0 TUI NorthernEurope Ltd 5.0 (5.0) 13.5 17.2 (continued) WAULT (to (years) first break) Annualised gross rent (£m) (continued) 36 Lettable area (sq. Market value (£m) Market value Let by value (%) Anchor tenants Let by area (%) Sector : : ft.) : : : : : : 16.4 146,262 1.4 Office 100.0 100.0 Plc E.ON UK 6.6 (1.6) for the year ended31 December2018 Annual Report and Accounts Strategic Report 10 - 57

Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for 3.4 (1.8) Ceva Logistics Ltd, Hill Rom UK Ltd, Ltd, Hill Rom Logistics Ceva Ltd Alstom Power 100.0 100.0 91,752 13.3 Office 1.1 8.2 (4.3) The Scottish Ministers, The Scottish Sports The Scottish Ministers, Digital Ltd Heidi Beers Ltd, Fore Council, 93.7 92.7 141,320 11.0 Office 1.2 : : : : : : : : : : : : ft.) : ft.) : Sector : Sector : Let by area (%) area Let by Anchor tenants Let by area (%) area Let by Anchor tenants Let by value (%) Let by Let by value (%) Let by Market value Market (£m) Market value Market (£m) Lettable area (sq. Lettable area Lettable area (sq. Lettable area 37 (continued) Annualised gross rent (£m) rent Annualised gross Annualised gross rent (£m) rent Annualised gross first break) (years) (to WAULT first break) (years) (to WAULT (continued) 13.3 3.8 (2.5) Office 0.8 54,959 Manchester Ltd, Mott College New Solutions Ltd MacDonald Ltd, Darwin Loan 100.0 96.9 : : : : : : ft.) : Sector : – Occupancy by value has increased by 3.6% in the 12 months to 31 December 2018, reaching 92.7%. December 2018, reaching to 31 the 12 months 3.6% in by value has increased Occupancy by – 11 lettings took place during 2018 to ten tenants, providing a combined gross rental income of c. £170,000 acrossof c. £170,000 income rental a combined gross tenants, providing ten to during 2018 place took 11 lettings Let by area (%) area Let by Anchor tenants Let by value (%) Let by – Completed legacy issues from previous developer’s refurbishment. Building now fully let and improved rental level - now set level rental let and improved fully Building now refurbishment. developer’s previous from legacy issues Completed – Market value value Market (£m) Lettable area (sq. Lettable area Annualised gross rent (£m) rent Annualised gross first break) (years) (to WAULT – Multi-let to 39 tenants on 48 leases. on 48 tenants to 39 Income – Multi-let Diversified – Seek to re-gear the lease with Ceva Logistics to secure longer income. to secure Logistics Ceva with lease the to re-gear Seek – Asset Management Initiatives – Dilapidations on the inherited vacated space agreed. Jigsaw agreed new lease over revised area with Dunwoody Airline Services Airline Dunwoody with area revised over new lease Jigsaw agreed vacated space agreed. the inherited on Let – Dilapidations Fully taking the void. remaining 16,500 sq. ft. Reducing Vacancy Vacancy Reducing Further Lettings – at £19.50/sq. ft. Action Taken Taken Action levels. rental at increased reviews and rent re-gears to secure Opportunity – Asset Management Initiatives Templeton On The Green, Glasgow The Green, On Templeton Portland Street, Street, Manchester Portland Ashby Park, Ashby De La Zouch Ashby Park, Ashby • • • • • • • Top 15 Properties by Sector: Office Sector: by 15 Properties Top Asset and Investment Managers’ Report Report Managers’ Investment Asset and Strategic Report 10 - 57 • • • • Top 15Properties by Sector: Industrial • • • Top 15Properties by Sector: Office Asset andInvestment Managers’Report • Road 4 Winsford IndustrialEstate, Winsford Oakland House,Manchester Juniper Park, Basildon Ongoing Asset Management Ongoing Asset £10psf, with nobreak option. New Letting–leaseagreed with Optimal Claim Ltd for 5,479sq. ft. on the third floor fora five year termata gross rentalincomeof building. “landmark” the signage to Adding Value Business Plan– Seek to sellre-geared low-yielding longlease. Long-Term Lease –Let to Jiffy Packaging Limited until2034. Asset ManagementInitiatives – Various initiatives ongoing with respect to re-gearing or renewal of leases with existing tenants. income of £60,610pa, anuplift of 3.8%. Income Streams Securing Diversified Income–Multi-let to 11 tenants on 13leases. WAULT (to (years) first break) WAULT (to (years) first break) Annualised gross rent (£m) Annualised gross rent (£m) Lettable area (sq. Lettable area (sq. Market value (£m) Market value (£m) Market value – Front of house works undertaken to improve immediatepresentation andinstallation of high-level externalilluminated Let by value (%) Let by value (%) Anchor tenants Anchor tenants Let by area (%) Let by area (%) Sector : Sector : – Re-gear of lease to Johnson Controls BuildingEfficiency UKLimiteduntil2023atanincreased gross rental : ft.) : ft.) – 10,900sq. iscurrentlyft. under offer to two tenants, which would provide agross rental income of £12.50psf. : : : : : : : : : : : : 1.0 167,247 Office 1.0 Industrial 77.1 77.9 Surveyors) Ltd,Rentsmart Ltd (UK) Ltd, CVS (Commercial Valuers & HSS Hire Service Group Ltd,PleaseHold 246,209 5.7 (4.1) 100.0 100.0 Jiffy Packaging Ltd 15.7 (15.7) 15.6 10.7 (continued) WAULT (to (years) first break) Annualised gross rent (£m) (continued) 38 Lettable area (sq. Market value (£m) Market value Let by value (%) Anchor tenants Let by area (%) Sector : : ft.) : : : : : : 29.3 277,228 2.0 Industrial 97.0 98.4 Vanguard Logistics Services Ltd Schenker Ltd, A Share & Sons Ltd, 2.7 (1.3) for the year ended31 December2018 Annual Report and Accounts Strategic Report 10 - 57 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for 1.9 (0.9) QDOS Entertainment (Pantomimes) Ltd, (Pantomimes) QDOS Entertainment TAPCO Ltd, Services Electrical Sargent Ltd Europe 97.4 96.7 322,211 11.0 Industrial 0.9 : : : : : : ft.) : Sector : Let by area (%) area Let by Anchor tenants Let by value (%) Let by Market value Market (£m) Lettable area (sq. Lettable area 39 (continued) Annualised gross rent (£m) rent Annualised gross first break) (years) (to WAULT (continued) 10.4 3.6 (3.4) Retail 1.0 98,351 Ltd, Stores Wilkinson Hardware Chemist Ltd, The Ltd, Boots Poundland WHSmith Plc 90.8 94.0 : : : : : : ft.) : Sector : – Since acquisition 11 new lettings, 6 existing tenants expanding into larger premises/taking additional space and premises/taking tenants expanding into larger Since acquisition 11 new lettings, 6 existing – Let by area (%) area Let by Anchor tenants Let by value (%) Let by Market value value Market (£m) Lettable area (sq. Lettable area Annualised gross rent (£m) rent Annualised gross first break) (years) (to WAULT numerous lease re-gears completed. Take-up since acquisition of 93,574 sq. ft., with occupancy by value increasing by c.31% to 96.7% c.31% by value increasing occupancy by with ft., sq. of 93,574 since acquisition Take-up completed. lease re-gears numerous £180,000pa. by has increased The contracted rent December 2018). (31 tone. the rental having improved market into strong of selling investment potential – Explore Market Investment Strong Driving Rental Growth Driving Growth Rental – Secured four lease re-gears with existing tenants since acquisition which will provide a combined gross rental income of income rental a combined gross will provide which tenants since acquisition with existing four lease re-gears Secured – Retention Tenant the earliest. until 2027 at this secured of with c. 54% £112,500pa, tenants. with existing of leases or renewal to re-gearing with respect ongoing initiatives Various – Asset Management Initiatives vacant space. to let office space and seek on works out minor refurbishment to carry Opportunities The Brunel Centre, Bletchley Centre, The Brunel Tokenspire Business Park, Beverley Business Park, Tokenspire • • • • Top 15 Properties by Sector: Industrial Sector: Industrial by 15 Properties Top Asset and Investment Managers’ Report Report Managers’ Investment Asset and Top 15 Properties by Sector: Retail Sector: by 15 Properties Top Strategic Report 10 - 57 Environmental Matters they have sufficient resources tomeetlegal requirements. guidelines andlaws. All subcontractorsare assessed to ensure that on larger projects, to ensure they are inaccordance with relevant Asset Managermonitors the work directly and with project managers Development andrefurbishments projects are subcontracted. The Developments andRefurbishments undertaken. are always considered when repair or refurbishment programmes are consultant to advise on energy efficiencies.Energy improvements for the payment of the supply. Ithasalsoengagedanenergy consumption issues where the Asset Managerhasresponsibility resourcewith tenants. with tenantson engages Manager The Asset closely work needs to Manager and thetenants’demise, Asset In order to reduce energy consumptionbothinlandlords’ areas Improving Resource Managementat our Assets • • • • • portfolio: impact ofthe environmental of the The Asset Managercurrently has five mainaspects toitsmanagement Asset andInvestment Managers’Report regulations. All newleasesseek to commit occupiers to environmental environmental issuesreported to the Board. All sitesare visited atleastannually with materialevident identify andprevent pollution. incoming tenants iscarried out by way of siteinspections to Ongoing riskexaminations of the activities of current and environment.hazards ordamagetothe health considers the choice of materialsandequipmentused to avoid The process of development andrefurbishment projects contamination. historic andcurrent usage of the siteand the extent of any acquisitions which considers,amongst other matters, the An independentenvironmental report isrequired for allpotential (continued) 40 and 3.8%,respectively. by EstimatedRental Value (ERV) and floor area, representing 3.3% or properties sold. These unitsrepresent less than 5% of the portfolio costs maybeincludedin wider dilapidation andrefurbishment works leases endandre-letting events occur. Inaddition,anelement of the EPC to E or higherinpractice will bespread over anumber of years as re-assessment ofthe allow works to assets. undertaking cost of The In total, F& G EPC ratingscurrently apply to 31 unitsacross eight rated property to anEPCcategory of E or higher. specific works thatmightbe required toimprove any current F or G we have arecord of their EPCstatusand to allowus to planany An exercise was undertaken in2018 to review allproperties to ensure and either carry out such works or exhibit a Display Energy Certificate. Plan to identify where energy efficiencyimprovements canbemade square metersare currently obliged to carry out a Section 63 Action lettings but owners of buildings with a floor area greater than1,000 different inapproach. NominimumEPCrequirement isset for Regulations for non-domesticbuildingsin Scotland are materially from 1 Energy Efficiency Standards Regulations (MEES) willmake itunlawful For commercial properties locatedinEnglandand Wales, Minimum Implications Energy Performance Certificate (“EPC”)Ratingsand April 2019 to letbuildings with anEPCratinglower than E. for the year ended31 December2018 Annual Report and Accounts Strategic Report 10 - 57 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for facing facades facing inward. The north and south-facing facades facing building inward. 41 (continued) pipe fan coil air conditioning system with new control grillage/ductwork. Following the grillage/ductwork. Following with new control system fan coil air conditioning four pipe facing facades -facing outward leaning and the west east and points) points) East Wing: C (45 Wing: C West (44 Original EPC rating: E (120 points) Original EPC rating: E points) New EPC rating: D (80 New EPC rating: • • Original EPC rating: D (59 points) Original EPC rating: D (99 points) C (62 points) New EPC rating: Tay House, Glasgow is a landmark modern Grade A office building. The building is of steel frame construction, comprising a series of circular of circular frame construction, comprising a series of steel The building is office building. A Grade Glasgow is a landmark modern House, Tay of the main section within floor plate offering a column-free the steel beams which support fabric the building to section columns external the M8 motorway. spanning of columns a number slab supported by built in situ concrete deck comprises a previously The bridge the building. office providing general of the main building levels floor third second and the tying into been introduced floors have office two Subsequently, a double from property benefits The office accommodation. modern the building provides of The internal specification accommodation. tiled ceiling system incorporating metal floor, full raised access a new provide to refurbished floor has been first The hall. height reception toilet accommodation and a LED lighting, recessed C (45 points) and of Performance Rating Energy which had an improved of wing, both west was split into an east and floor the refurbishment, C (44 points), respectively. • Tay House, Glasgow Tay • 2800, The Crescent, Birmingham • • • Buildings 2 & 3 HBOS Campus, Aylesbury Campus, Buildings 2 & 3 HBOS • Asset and Investment Managers’ Report Report Managers’ Investment Asset and Case Studies was refurbished in 2017/18 to provide feature double glazed reception doors, new reception with café and informal meeting areas, new toilet new with café and informal meeting areas, doors, new reception reception double glazed feature to provide in 2017/18 was refurbished floor. ground the entire to service air conditioning system has been installed VRF refrigerant A new zoned accommodation and shower block. water the hot of replacement the building services including of the performance and efficiency to improve out carried were works In addition, throughout all fitted installed, LED lighting were new high efficiency single unit,with a new high efficiency condensing boilers tanks storage use. energy to reduce with sensors installed modules the building and lighting control of areas style office buildings within a mature landscaped campus-style landscaped within a mature office buildings opposing HQ-style two large comprises Aylesbury Campus, Buildings 2 & 3 HBOS formed in been predominately roofs, elevations have flat floors and with concrete framed structures concrete The buildings are setting. ground over arranged was constructed in 1984 and is Building 2 faced cavity brick and blockwork. with red walling curtain aluminium glazed full height specialist with formed are walls façade The external central atrium. a feature around wrap floorplates The floor levels. four upper and glazed curtain walling, with Following the Severn Trent lease expiry in March 2016, the building has been substantially refurbished including a remodelled reception, lift reception, including a remodelled refurbished the building has been substantially 2016, lease expiry in March Trent Severn the Following VRF A spec – LED lighting Grade with new entrance floor and first the ground/ on both WC cores new floor level, ground at core and lobby the building and of efficiency the energy at improving targeted various improvements included refurbishment design The heating and cooling. January completed in works The refurbishment throughout. system and LED lights new HVAC of a works included installation the of as part C (62 points). to D (99 points) from building the for Rating Performance Energy in an improved 2018 and resulted 2800 The Crescent, Birmingham Business Park, Birmingham is a two storey ‘L’ shaped property with facing brick façade under a pitched tiled tiled pitched façade under a facing brick with shaped property ‘L’ two storey Birmingham is a Birmingham Business Park, Crescent, The 2800 terms of 1:200. In 150 parking spaces a ratio provides which on a self-contained site sits The property ft. sq. of 30,262 area with a lettable roof two being from the location also benefits the M42 and M6 motorways, to the city adjacent of the east to is situated the property of location, stations. and railway Airport Birmingham International from miles Property Name: Tokenspire Business Park, Beverley Sector: Industrial Strategic Report 10 - 57 17.4 £m) 16.9 13.4 14.8 ( 228.1 231.3 Year ended Year 2018 115.5 31 Dec 31 December 2017 31 (2.3) Annual Report and Accounts and Report Annual of goodwill Performance fee & impairment 7.0 9.8 £m) 76.3 73.3 ( 152.5 149.3 for the year ended 31 December 2018 December ended 31 year the for (8.0) Dividends Year ended Year 31 December 2018 31 (0.5) Taxation December 2017: £737.3m). The decrease since the since decrease The December 2017: £737.3m). Net (4.2) December 2017: 105.9pps). This is after the payment after This is December 2017: 105.9pps). ﬁnance expense 6.2 Gain on disposal of properties investment 43 (continued) (1.9) Net capital expenditure 8.3 capital (incl. net Valuation expenditure) (31 totalled £718.4m, December 2018 fee) (2.8) December 2017 is predominately sourced from the revaluation of investment properties held properties of investment the revaluation from sourced December 2017 is predominately Admin performance expenses (excl. 14.6 Net rental income 0.2 reversal Dilution December 2018, the EPRA NAV of the Group rose to £430.5m (IFRS: £429.5m) from £395.7m (IFRS: £392.9m) as at £395.7m (IFRS: £392.9m) from to £430.5m (IFRS: £429.5m) rose Group the of the EPRA NAV December 2018, December 2018, the valuation increased on a like-for-like basis by 4.5%. basis by on a like-for-like valuation increased the December 2018, 2017 105.9 31 Dec December 2017 amounting to £23.9m, and the gain on disposal of investment properties of £23.1m. properties of investment disposal on the gain and to £23.9m, December 2017 amounting 95 90 115 135 110 105 130 125 120 100

to 115.5pps (31 of 9.6pps diluted NAV in to an increase which equates December 2017,

Net (after dilapidations) Net (after costs) Net (after costs) Gross dilapidations) Gross (before Gross (before costs) (before Gross Gross (before costs) (before Gross

e Capital Expenditure shar per Pence Disposals Acquisitions December 2017 year end is largely a reflection of the aforementioned investment property valuations offset by realised property disposals. In realised property by offset valuations property investment the aforementioned of a reflection end is largely year December 2017 to 31 the 12 months periods: the respective for disposals and capital expenditure the acquisitions, out table sets The below EPRA Net Asset Value – diluted Bridge 2018 – Value Asset EPRA Net of some £34.8m since 31 increase The EPRA NAV 31 to 8.00pps. the period amounting dividends in of at 31 valuation as at 31 portfolio property The investment Net Asset Value Net Asset Value In the year ended 31 Financial Review Asset and Investment Managers’ Report Report Managers’ Investment Asset and Strategic Report 10 - 57 Table may notsum due rounding. to 6 November 2015 to 31 December2018 was 37.5% (31 December2017:19.9%),anannualised rate of 10.6%pa(31 December2017:8.8%pa). ongoing charges for the periodending31 December 2018 were 4.4%(31 December2017:4.5%). The Total EPRAReturn to Shareholders from The Company isamember of the Association of Investment Companies (“AIC”). Inaccordance with the AIC Code of Corporate Governance, the (“ZDP shares”) on 9 Eligible Bond2024 (the“Retail Bond”)issued on 6 Finance expensesamount to £16.0m(31 December2017:£14.7m).Inpart, the increase isaresult of the issuance of a£50m4.5%Retail (31 Non-recoverable property costsamounted to £7.7m (31 December2017:£6.5m),and the contractedrental incomereduced to £59.7m vacancy costsandexcluding the performance fee, was 28.6%(31 December2017:26.6%). value of the investment properties, resulting inaperformance fee of £7.0m (31 December2017:£1.6m). The EPRAcostratio, including direct ratio is ostensibly areflection of the realised gains from the disposal ofinvestment properties in theperiod,coupled with thechangein the fair The EPRAcostratio, including direct vacancy costs, was 40.1% (31 December2017:29.7%),adjusting for ground rent. The increase in the cost (31 Currently more than 80% of the rental incomeiscollected within 28 days of the due date andbad debts in the period were £0.4m portfolio heldin2018. Rental incomeamounted to £62.1m (31 December2017:£52.3m): the increase was primarily the result of the enlarged investment property maximise returns. the opportunistic disposal of asubstantialportion of the industrialportfolio, includingproperties which hadmet their individualassetplans to properties amounted to again of £23.9m(31 December2017:£5.9m). These gains were primarily driven by assetmanagementinitiatives, and Realised gain on disposal of investment properties amounted to £23.1m (31 December2017:£1.2m). The change in the fair value of investment roll for properties heldasat31 December2017, plus the partialrent roll for properties acquired and disposed of during the period. (31 Operating profit before gainsandlosses onproperty assetsand otherinvestments for the year ended 31 December2018amounted to £36.8m Income Statement The diluted EPRANAV pershare increased to 115.5pps(31 December2017:105.9pps). The EPRANAV isreconciled in the table below : Asset andInvestment Managers’Report Closing EPRANAV EPRA NAV before EPRA NAV after Opening EPRANAV Opening EPRANAV Performance FeePerformance Shares Dividends paid Taxation goodwill Impairment of expense Net finance Change in the fair value of investment properties propertiesinvestment Gain onthedisposalof Administration and other expenses Net rental income 31 Dec2017 dilution reversal December2017:£61.9m). December2017:£0.5m). December2017:£36.4m).Profit after financeitemsandbefore taxation was£67.9m (31 December2017:£28.7m).2018includeda full rent operating profit dividends paid January 2019. August 2018 to fund the repayment of the £30m6.5%zero dividend preference shares (continued) 44 Year ending 430.5 479.5 395.7 395.7 for the year ended31 December2018 461.2 (29.8) (15.7) 54.4 (17.6) 23.9 2018 ( (0.6) (0.9) (2.0) 23.1 £m) Annual Report and Accounts ence per Share) (pence Year ending 128.6 105.9 123.7 115.5 106.1 14.6 2018 (8.0) (0.5) (0.2) (4.2) (4.7) (0.1) 6.4 0.2 6.2 Strategic Report 10 - 57 1.85p 1.85p 1.85p 1.80p 1.80p 1.80p 2.45p 2.50p Pence per Share Fixed Fixed Fixed Fixed over 3mth £ LIBOR over over 3mth £ LIBOR over over 3mth £ LIBOR over Fixed Annual Report and Accounts and Report Annual Annual Interest Rate Annual Interest 2.15% 2.15% 3.37% 3.28% 6.50% 4.50% 2.00% for the year ended 31 December 2018 December ended 31 year the for 14 Jul 2017 13 Jul 2018 11 Apr 2019 12 Apr 2018 13 Oct 2017 15 Oct 2018 22 Dec 2017 21 Dec 2018 N/A N/A 51.4 (%) 36.7 45.9 45.4 38.8 Payment Date Payment to Value** Gross Loan Gross Jan-19 Dec-21 Dec-21 Dec-27 Dec-28 Aug-24 Nov-22 Ex Date Maturity Date May 2018 8 Jun 2017 7 Sep 2017 1 Mar 2018 13 Sep 2018 28 Feb 2019 28 Feb 23 Nov 2017 23 Nov 24 22 Nov 2018 22 Nov 45 (continued) 19,003 26,458 39,820 44,026 50,000 36,000 (£’000) 290,487 380,307 165,000 Outstanding Debt* 21 Feb 2019 21 Feb 31 Aug 31 2017 22 Feb 2018 22 Feb 31 Aug 31 2018 14 Nov 2017 14 Nov 15 Nov 2018 15 Nov 17 May 2018 25 May 2017 19,003 39,879 26,458 44,026 (£’000) 50,000 36,000 290,487 380,366 165,000 August 2018 to fund the repayment of the ZDP shares and to part fund early repayment of the 5% of repayment fund early to part and the ZDP shares of the repayment fund to August 2018 Announcement Date Original Facility December 2018, the Company declared dividends totalling 8.05pps (2017: 7.85pps). Since dividends totalling declared December 8.05pps Company the 2018, (2017: to 31 7.85pps). January 2018 December 2017: £44.6m), which includes December 2017: £44.6m), to £104.8m (31 amounted cash and cash equivalent balances Group’s the December 2018, Before unamortised debt issue costs unamortised Before valuations property Jones Lang LaSalle and Wakefield Cushman and on Based Scottish Widows Ltd Zero Dividend Preference Shares Dividend Preference Zero Retail Eligible Bond Retail 1 Apr 2018 to 30 Jun 2018 to 30 2018 Apr 1 Sep 2018 to 30 Jul 2018 1 Dec 2018 to 31 Oct 2018 1 1 Jan 2017 to 31 Mar 2017 to 31 Jan 2017 1 Jun 2017 to 30 Apr 2017 1 Sep 2017 to 30 Jul 2017 1 Dec 2017 31 to Oct 2017 1 Mar 2018 31 to Jan 2018 1 Period Covered Period Royal Bank of Scotland Royal Lender HSBC Santander UK Scottish Widows Ltd. & Aviva Aviva Widows Ltd. & Scottish Estate Finance Real Investors * ** to rounding due may not sum Table *** Debt Profile and Loan-to-Value Ratios as at 31 December 2018 Ratios as at and Loan-to-Value Debt Profile December 2017: £339.1m) (before unamortised debt issuance unamortised (before December 2017: £339.1m) to £290.5m (31 December 2018 amounted facilities at 31 bank borrowing Total The December 2017: £37.4m). to £39.9m (31 amounted the ZDP shares on total amount payable The down. drawn fully costs), having been on 6 was raised Eligible Bond £50.0m Retail a target to continues The Board unamortised costs. December 2017: 45.0%) before net loan-to-value ratio stands at 38.3% (31 Group’s The of 50%. with a maximum limit of 40%, net loan-to-value ratio The Group’s borrowing facilities are with Scottish Widows Ltd., Royal Bank of Scotland, HSBC and Santander UK, and Aviva Investors Real Real Investors Aviva UK, and Santander Scotland, HSBC and of Bank Widows Ltd., Royal Scottish with facilities are borrowing Group’s The December 2018, and a £50m 4.5% in issue as at 31 had £30m 6.5% ZDP shares Group the the bank borrowing, to Estate Finance. In addition December 2017: £376.5m). to £380.4m (31 December 2018 amounted debt available at 31 total the aggregate In Bond 2024. Eligible Retail At 31 Bond. Retail the aforementioned from proceeds Borrowings Borrowings comprise third-party bank debt which Group the is owned and the over properties over next one-to-ten years, secured by repayable years). December 2017: 6.0 (31 years of 6.4 maturity average weighted with a facility. £65m ICG Longbow Ltd. Debt Financing and Gearing Debt Financing and Dividend 1 from the period to In relation the end of the of fourth quarter Company for the has declared period, the a dividend 2018 of 2.50pps. Asset and Investment Managers’ Report Report Managers’ Investment Asset and Strategic Report 10 - 57 Please seenote36 on page130. Subsequent Events after the Reporting Period subsequently released in2018,and£0.4m of tax on revenue incurred by activityexternal to the REITregime. property held for trading within the HamiltonHillEstatesLtd,an offsetting £1.4m of deferred tax raisedin the prior year for the sameproperty 31 At that which ithasincurred sinceNovember 2015, when it first becameactive. consultation with the Company’s advisors, the Company hasregistered for VAT andintends to recover VAT which itincursin the future as well as policy andhave publishednewguidance on the circumstances in which VAT canberecovered. Inaccordance with the newguidelines,andin On 9 tax from that date. The exemption remains subject to the Group’s continuingcompliance with the UK REITrules. The Group entered the UK REITregime on 7 Tax 2018. repayments during arisen duetothedebt has position hedged The over 2 1 exposure. 90% ofthedebt least at volatility on The Group appliesaninterest hedgingstrategy that isaligned to the property managementstrategyandaims to mitigateinterest rate Hedging ZDP shares on 9 ZDP shares (31 December2017:3.5 times). The reduction is due to the temporary increase inborrowing, which reduced on repayment of the Interest cover stands,includingamortisedcosts,at2.3 times (31 December2017:3.0 times) including the ZDP, and2.7 times excluding the properties.investment in the fair value ofthe change with the coupled 84.5%). The decrease ispredominantly aresult of the reflection of the realised gains from the disposal ofinvestment properties in theperiod, The netgearingratio(net debt to ordinary Shareholders’ equity(diluted)) of the Group was 64.1% asat31 December2018(31 December2017: had substantialheadroom againstitsborrowing covenants. Both the Asset andInvestment Managerscontinue to monitor the borrowing requirements of the Group. the Group2018, As at31 December Asset andInvestment Managers’Report WACD – Weighted Average Interest Rateincluding the cost of hedging Zero DividendPreference Shares which were assumed on 24th March 2017 WACDZDPs –excluding the WACD Cap Swap Fixed Thereof: Borrowings interest ratehedged(incl.ZDP)

January 2018, the Company registered for VAT purposesinEngland.Following developments incaselaw, HMRC have updated their December 2018, the Group’s taxation charge amounted to £0.6m, which comprised of corporation tax of £1.6m for the sale of a 1 January 2019. 2 November 2015andall of the Group’s UK rental operations becameexempt from UK corporation (continued) 46 31 December for the year ended31 December2018 102.0 2018 76.5 12.8 12.8 (%) 3.8 3.5 Annual Report and Accounts 31 December 2017 2017 89.8 71.0 (%) 9.4 9.4 3.8 3.5 Property Name: Tay House, Glasgow Sector: Office Property Name: One & Two Newstead Court, Annesley Sector: Office Strategic Report 10 - 57 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for Movement in the period in Movement The Group continues to purchase to purchase continues Group The UK outside the properties in the M25 motorway. valued property, the highest House is Tay which equates to Group’s 4.6% of the properties. investment tenant exposure single largest Group’s The being income, rental of gross is 2.7% Bank PLC. Barclays tenant exposure single largest Group’s The being income, rental of gross is 2.7% Bank PLC. Barclays to actively Asset Manager continues The in properties investment the manage the conditions and with market accordance individual asset programme. The property portfolio remains balanced portfolio remains The property and of geographical areas a range across properties. of investment number large Trend down Trend 49 Trend up Trend Mitigation No single property, in the ordinary course ordinary the in No single property, 10% to exceed of business, is expected Investment aggregate Group’s the of in may, the Board However, Properties. consider a circumstances, exceptional of to 20% of up value having a property value at property investment Group’s the the time of investment. No than Group’s more 20% of the value shall be property investment exposed to any single tenant or group undertaking of that tenant. (i.e., properties development Speculative any under construction, but excluding not beenwhich have works, refurbishment is prohibited. pre-let) an by the assets is protected of value The asset management programme, active the against reviewed which is regularly each property. for business plan An annual review of the investment the investment of An annual review strategy. investment defined and rigorous A appraisal process. Acquire portfolios which offer Shareholders by risk of investment diversification of geographical areas in a range investing of properties. and number and industrial office acquiring Only UK properties in the and outside of the may Group the However, M25 motorway. to which up portfolios in in property invest value) market (by the properties of 50% motorway. the M25 within situated are No change An inappropriate investment strategy investment An inappropriate in lower income and capital could result to Shareholders. returns Strategic Risks impact Potential Key to risk trend to risk Key While it is not possible to identify or anticipate every risk due to the changing business environment, the Group has established a risk has established Group the the changing business environment, to due risk every or anticipate to identify While it is not possible the reviews Committee Audit The them. than eliminating possible, rather where identifiable risks to monitor and mitigate management process the which order particular identifiable principal risks in no the current out The below list sets basis. on a six-monthly risk management matrix that material new risks is aware The Board Group. the faced by the risks of all list to be an exhaustive does not purport is monitoring but Board Group the identified, such risks are when and As to monitor. resources warrant significant deemed material nor not date, are to which, will arise to monitor and mitigate. will put in place controls The Board recognises that effective risk management is essential to the Group achieving its strategy and has carried out a robust assessment of assessment out a robust achieving its strategy and has carried Group the to is essential risk management that effective recognises The Board or liquidity. performance, solvency future its business model and threaten would that those including Group, the facing the principal risks Principal Risks and Uncertainties Risks and Principal Strategic Report 10 - 57 Principal Risksand Uncertainties rise accompanying higherinflation. Bank reference interest ratesmaybeset to Group. grow the ability to and the opportunities which mayimpingeuponinvestment acceptable terms, further debton The Group maynotbeable to secure Potential impact Funding Risk portfolio value. ultimatelythe and properties, thequalityoftenants, change in demand by tenants for suitable resulting inborrowing constraints, economy,health ofthe UK impact the of Article 50 of the Lisbon Treaty, could and thetriggering EU leave the decision to Significant politicalevents, including the Potential impact Economic andPolitical Risk affects itsprofitability and netassets. The valuation ofthe Group’sportfolio Potential impact Valuation Risk staggered maturities. with targetedinstitutions range of a Borrowings are currently provided by interest rateborrowings. Policy of hedgingatleast90% of variable loan to value. monitoring of Continual maturity.average debtto weighted average cost of capitalandlengthening the with anemphasis on reducing the weighted Funding options are constantly reviewed lenders. Strong relationships with key long-term staggered maturities. with targeted institutions range of a Borrowings are currently provided by and other advisorsand will actaccordingly. economic risks from the Investment Manager The Board receives advice on macro- economic growth. which are locatedinareas of expected generating inexcess of 800incomestreams classification oftenants industry standard a deliberately diverse with positioned exchange exposure. Itremains well the UK regions, with no foreign currency sole focus on a The Groupwith operates valuations. basis oftheir external valuers the the with discuss CommitteeThe Audit independent valuations for allproperties. and Jones LangLasalle,provide & WakefieldCushman valuers, External Mitigation Mitigation Mitigation (continued) 50 policy. hedging adherenceContinued tothe 45.0% at31 December2017. 38.3% Loan to value decreasedfrom to 3.5%. the ZDPs on 9 2017 3.8%)and following settlement of hedging costs was 3.8%(31 December Weighted average cost of capital,including 9 ZDPs on of the 7.1increased to settlement years following to 6.4 years from 6.0 years in2017and Weightedincreasedaverage debtterm is negotiated. uncertainty period of while this impacted and the occupancy market maybe remains arisk that property valuations Following50, there thetriggeringof Article valuers. There hasbeenno change in the external Movement in the period Movement in the period Movement in the period for the year ended31 December2018 January 2019reduces to January 2019. Annual Report and Accounts Strategic Report 10 - 57 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for December 2017: 1,026). December 2018 was 3.4 years. was 3.4 December 2018 Movement in the period in Movement the period in Movement Movement in the period in Movement Advice is received from a number of a number from is received Advice adapts Group the corporate advisors and to changes as required. Managers Asset and Investment the Both their Disaster and Business review annually Plans. Continuity visits Annual due diligence were principal with undertaken the Company’s suppliers. Manager Asset and Investment the Both viable going concerns. are The tenant mix and their underlying their underlying tenant mix and The activity with the diversified, remains number of tenants amounting to 874 (31 as at first break to WAULT The 31 the gross of is 2.7% tenant The largest Bank PLC. income, being Barclays rental team remains Asset Management The vigilant to the health of tenants current and occupiers with to liaise and continues agents. 51 (continued) Mitigation Mitigation Mitigation The Board receives advice on these changes on advice receives The Board will act accordingly. and appropriate where Managers Asset and Investment The to contingency plans in place each have there are ensure no disruptions to the core including cyber security infrastructure, which measures, would impinge on the Group. normal operations of the is carried diligence exercise due An annual suppliers. on all principal out managed investment As an externally on is a continued reliance there Company, Managers. Asset and Investment the An active asset management programme programme asset management An active Asset with the focus on Manager working a to assess any tenants with individual any to manage occupational issues and potential debts. bad let, of properties portfolio Diversified of number to a large possible, where of wide range a tenants across low risk industrial classifications standard different the UK. throughout for reviewed acquisitions are Potential tenant overlap. The portfolio lease and maturity the by monitored concentrations are to minimise Asset Manager experienced concentration. renewals on securing early focus is a There lease period. and increased tenants and for suitable The requirement the quality of the tenant is managed by which Manager Asset the experienced with current maintains close relationships with letting agents. tenants and Business disruption could impinge on the Group. normal operations of the Operational Risk impact Potential Changes to the UK REIT and non-REIT the to Changes financial legislation. tax and regimes, Financial and Tax Change Risk Tax Financial and impact Potential Type of tenant and of tenant concentration Type reduced from in lower income could result lettings or defaults. Tenant Risk Tenant impact Potential A high concentration of lease term of lease A high concentration options, could result maturity and/or break roll. contracted rent volatile in a more Principal Risks and Uncertainties Uncertainties Risks and Principal Strategic Report 10 - 57 Principal Risksand Uncertainties be let or sold. below isrequired for each assetin order to An Energy Performance Rating of Eand upon theoperationsof Group. Changes to the environment could impact Potential impact Environmental andEnergy Efficiency Standards processes.current operating changes to or regulatory legislationcouldresult in Changes to the accountinglegaland/ Potential impact Accounting, Legal,andRegulatory Operational Risk(continued) the buying duediligence. the acquisitions is fully considered aspart of The energy efficiency ofinvestment Performance Ratingrequirements. property to ensure adherence with Energy The Group continues to review each process. properties, and the annualinsurancereview byway ofinspectionsthe frequent for any detrimental environmental impact, The Asset Managermonitors the portfolio environmental assessment. due diligence process, includingan Property acquisitionsundergo arigorous Financial Advisor. All complianceissuesare raised with the be made. need to announcements that all aware of attend allBoard meetingsin order to be the Companyand Secretary Accountant, The Administrator, initscapacityas Group legal advisors. All contractsare reviewed by the Group’s requirements, andListingRules. adherence legal,regulatory to accounting, Robust processes are inplace to ensure leases. “self-insure” arrangementscovered under with the exception of asmallnumber of service charge plus terrorism insurance comprehensive buildings,loss of rent and mitigated by ensuringallare covered by a destruction to investment properties is The impact of physical damage and comprehensive risk. fire let properties undergo anannual due diligence process andallmulti- All acquisitionsundergo arigorous Mitigation Mitigation (continued) 52 minimum requirement. Energy Performance Ratings to exceed the reviewingenhancing the feasibility of The Asset Manageriscontinually reviewed with the aim of enhancingit. assessments process continues to be environmental rigour ofthe The in conjunction with the Financial Advisor. Board meetingsandadvise on ListingRules The Administrator continues to attendall incorporated changes where required. from itscorporateadvisorsandhas The Group continues to receive advice of insurancecover on an ongoing basis. The Asset Managerreviews the adequacy changes inHealthand Safety regulations. The Asset Managerremains vigilant to Movement in the period Movement in the period for the year ended31 December2018 Annual Report and Accounts Property Name: Juniper Park, Basildon Sector: Industrial Strategic Report 10 - 57 Management Agreement. Agreement are to becomeaninternalresource of the Company inlieu of the appointment of the Investment Managerunder the Investment which neither the Investment Managernoritsassociatesmay vote) that individualsproviding the servicesunder the Investment Management EPRA NAV exceeds £750,000,000, the Board and the Investment Managermay decide, with the approval of an ordinary resolution (upon (ii)the which first dateon Management Investment and Agreement anniversary ofthedate (i) the fifth later of after the anyAt time the Company requesting the same to beremedied. served notice to terminate) or (ii) which iscapable of beingremedied and failing to remedy the same within 30 days afterservice of noticeby or the Investment Managercommittingamaterialbreach of its obligations either(i)notcapable of beingremedied (after the Company has including the Investment Managerceasing for any reason to beauthorisedunderFSMA to carry out the regulated activity of managingan AIF, Notwithstanding the initial term, the Investment Management Agreement shall terminate with immediateeffectincertaincircumstances, Period.end ofthe Subsequent at the agreementwill terminate (“Subsequent Periods”). Notice to terminate maybegiven nolater than one year prior to the end of a Subsequent Period, in which case the year after the expiry of the InitialPeriod. Ifnotice to terminate isnotgiven, the agreement shallcontinue for recurring three-year periods period of five the years from thedateof Admission ofthe Company’s agreement willterminateone casethe which in Shares totrading), Notice of termination of the Investment Management Agreement maybeserved atany time on or before the expiry of anInitialPeriod (being (“AIFMD”). The Investment Manageris the Alternative Investment FundManager(“AIFM”) under the Alternative Investment FundManagersDirective management ofthe Company’sPolicyInvestmentday- to-day Investment ofthe and the Company.subject tothe Objectiveinvestments, related services to Midcoand the respective companies which holdproperty directly). The Investment Managerisresponsible for the The Company appointed Toscafund Asset ManagementLLP(“Toscafund”) as the Company’s Investment Manager(and to provide certain Investment Managerand Alternative Investment FundManager property within the Portfolio. A Property Management fee of 4%,basedupon the gross rental yield, ischarged perannum. London and Scottish Property Asset ManagementLimitedhasbeenappointed to manage the day-to-day property management of each Property Manager are to becomeaninternalresource of the Company inlieu of the appointment of the Asset Managerunder the Asset Management Agreement. which neither the Asset Managernoritsassociatesmay vote) that individualsproviding the servicesunder the Asset Management Agreement NAV exceeds £750,000,000, the Board and the Asset andInvestment Managersmay decide, with the approval of an ordinary resolution (upon EPRA (ii)the which anniversary firstdateon Management ofthedate (i) the and fifth Agreement Asset later of after the anyAt time in the event of the liquidation or insolvency (oranalogousevent) of the Asset Manager. The Company or Midcomay terminate the Asset Management Agreement with immediateeffectby giving written notice to the Asset Manager circumstances, including amaterialunremedied breach by the Asset Manager or by the Investment Manager. Notwithstanding the initial term, the Asset Management Agreement mayalsobe terminated earlier with immediateeffectincertain Period.end ofthe Subsequent at the agreementwill terminate (“Subsequent Periods”). Notice to terminate maybegiven nolater than one year prior to the end of a Subsequent Period, in which case the year after the expiry of the InitialPeriod. Ifanotice to terminate isnotgiven, the agreement shall continue for recurring three-year periods period of five the years from thedateof Admission ofthe Company’s agreement willterminateone casethe which in Shares totrading), Notice of termination of the Asset Management Agreement maybeserved atany time on or before the expiry of anInitialPeriod (being The Asset Manager will alsoadvise the Company on the acquisition,managementand disposal of the real estateassets of the Company. subject to the Investment Objective of the Company anditsInvestment PolicyBoard. (asset supervision ofthe out andtheoverall on page15) Under the Asset Management Agreement, the Asset Managerisresponsible for the day-to-day assetmanagement of the Property Portfolio, Company’s shares beingadmitted to trading on the London Stock Exchange on 6November 2015. Regional Commercial MidcoLimited(“Midco”)and the respective limitedcompanies which hold the properties directly) with effect from the London & Scottish Investments Limited was appointedas the Asset Manager to provide assetmanagementservic 54 for the year ended31 December2018 Annual Report and Accounts Strategic Report 10 - 57 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for 55 (continued) December. January to 31 Kevin McGrath Kevin Director Chairman and Independent Non-Executive 2019 27 March On behalf of the Board Link Company Matters Limited was appointed to provide company secretarial services pursuant to a Company Secretarial Services Agreement. Agreement. Services Secretarial Company to a services pursuant secretarial company to provide was appointed Matters Limited Company Link to six months prior either party at least by termination is served of for 12-month periods unless notice renew will automatically This agreement each period. of the end Company Secretary Secretary Company The Administration Agreement was for an initial term of one year, following which it will automatically renew for 12-month periods unless renew will automatically which it following year, one of term for an initial was Agreement Administration The of each period. the end to days prior either party at least 90 by termination is served of notice The Company appointed Jupiter Fund Services Limited as the Administrator to the Company pursuant to an Administration Agreement. Agreement. Administration to an pursuant Company the to Administrator the Services Limited as Jupiter Fund appointed Company The general functions administrative such Administrator Company’s is for the the Agreement, responsible Administration Under the terms of the has Administrator The Administrator. Designated Company’s the and acting as and statutory registers records Company’s as maintaining Sub-Administrator. Limited as Administrators Fund Alternative to Link Agreement Administration the of its services under certain outsourced these services. of in respect Sub-Administrator and Administrator the to Company the is payable by of £130,180 fee An annual Administrator Continuing Appointment of Asset Manager and Investment Manager Asset Manager and Investment of Appointment Continuing of each the continued appointment that the Board to recommended (“MERC”) Committee The Management Engagement and Remuneration details can Further this recommendation. with agreed the Directors and be approved agreements their respective of terms the on the Managers on pages 82 and 83. Report the MERC found in be , the Company has paid an initial Performance Fee of £8.91m to the Asset and Investment Asset and Investment the to of £8.91m Fee has paid an initial Performance Company the on page 10, Statement Chairman’s the in As reported Managers. Initial Performance Fee Initial Performance In accordance with the Financial Conduct Authority’s (“FCA”) Listing Rule 15.4.11, the Company cannot issue shares for cash at a price below cannot issue shares Company the 15.4.11, Listing Rule (“FCA”) Authority’s Conduct the Financial with In accordance would in any such issue any this and do to approval Shareholder does not have Company The approval. Shareholder without per share the NAV will be Fee the Performance situation, this that, in clarify to been amended have Agreements the Management Accordingly, dilutive. be event day business within a 20 the Managers of on behalf the market in shares to acquire will be used amount that of in cash but 50% paid entirely of of publication date the from in cash and be acquired for entirely will be paid the shares occasion this On do so. to on an instruction period the Managers should that intention commercial the underlying to preserve made were These amendments 2018 annual results. the preliminary in shares. Fee the Performance of 50% receive normally A Performance Fee is only payable in respect of a Performance Period where the EPRA NAV per Ordinary Share exceeds the High-water exceeds Share Ordinary per the EPRA NAV where Period of a Performance respect payable in only is Fee A Performance the Placing Price or Period Performance previous any in Share Ordinary EPRA NAV year-end highest the of the greater to which is equal Mark, on pages 183 to 185 of the given are IPO Prospectus, Fee published on the Managers’ Performance of details Full Share). Ordinary (100p per 2015. 3 November In addition, the Asset and Investment Managers are each entitled to 50% of a Performance Fee. The fee is calculated at a rate of 15% of of 15% fee is calculated at a rate The Fee. of a Performance to 50% each entitled are Managers Asset and Investment the In addition, for any Returns Shareholder Total Period. Performance the relevant for of 8% Rate the annual Hurdle of in excess Returns Shareholder Total Share Ordinary dividends per total the and Share Ordinary per in EPRA NAV decrease or increase of any the sum of consists Period Performance Subsequent Performance December 2018. to 31 2015 6 November from ran Period The initial Performance Period. the Performance in declared 1 from annual, are Periods Management and Performance Fees Performance Management and on a scaled fee of an annual management to 50% thereof) year (or part financial each entitled in each are Managers Asset and Investment The in arrears. quarterly in cash fee shall be payable The £500,000,000. over on net assets to 0.9% reducing NAV, Company’s the of of 1.1% rate Management Arrangements Arrangements Management Property Name: Hampshire Corporate Park, Eastleigh Sector: Office

Corporate Governance 58 - 90 Foundation, and the John HampdenFund.Heisalso abusiness fellow of Gray’s Inn. governor of HenleyManagement School andiscurrently a trustee of Marshall’s Charity, The Gordon the Chartered Institute for Securities andInvestment. Amongst hischaritableroles Billhasactedasa Services Ltd.Heisan Associate of the Society of Investment Professionals anda Chartered Fellow of Bill iscurrently a director of HendersonInternationalIncome Trust plcandInstitutionalProtection Cruickshank Investment Managementandisa former chairman of HendersonHighIncome Trust plc. a member of the London Stock Exchange in1976. Bill was chiefinvestment & officer atLaing Laing & Cruickshank. Hehasmanaged diversified highnet worthportfoliossince1973 andbecame William (“Bill”)Eason was previously head of charities with Quilter Cheviot and, before that, with 3 Length of Service: 16 2015 October Appointed: (Senior IndependentNon-Executive Director) William Eason DirectorsBoard of y ears, 5months ears,

(Chairman andIndependentNon-Executive Director) Kevin McGrathMRICSDL OBE (Independent Non-Executive Director) Daniel Taylor senior investment surveyor with HermesInvestment Management. to he that, was a founding equitypartnerinREIT havingpreviouslyAsset Management, worked asa Kevin was previously managing director andsenioradviser of F&CREIT Asset Managementand,prior recruitto attract, andmanageinternationalstudentsinasafe,compliantcost-efficient way. a technology andsupportservice company that assistseducationinstitutions from across the world Kevin ischairman of M&MProperty Asset Managementand the non-executive chairman of INTCAS, Lieutenant for HammersmithandFulham. Kevin was The High Sherriff for Greater Londonin2014/15andis the Representative Deputy Trust; andLondon South Bank University. co-founded; he The Old Restaurantwhich Vic Charity Prison Theatre Clink Trust; QPRCommunity Surveyors andisaFreeman of the City of London.Heisa Trustee of several charitiesincluding The RoyalInstitution of member ofthe Chartered Surveyors,a the is Worshipful Company of Chartered Kevin McGrathisachartered surveyor who has worked in the property industry for over 35 years. He 3 Length of Service: 16 2015 October Appointed: Advisor; and CF27-Investment Management. Reporting; CF21-Investment Laundering firms: CF10-Complianceauthorised Oversight; CF11-Money an investment manager(CF30)and CF1-Director andhasheld the following controlled functions at corporate governance. Hehasactive registered status with the Financial Conduct Authority (“FCA”) as listed companiesandhasextensive experience ininvestment corporate management, finance and Over hiscareer, Danhasheldbothexecutive andnon-executive directorships for various privateand Regus plc. Office Group plc, the UK’s secondlargest serviced office provider until thesale of thebusinessto From 2011 to 2015, Dan was chairman andaprincipalshareholder of AIM-listed Avanta Serviced which Westchester Capital isaprincipalinvestor. partner of Bourne Office Space Group Ltd,aprivately held servicedin officebusinessbasedin London, investment andadvisory firm specialisingin real estate.Hecurrently holds the role asmanaging Daniel (“Dan”) Taylor is the founder andchiefexecutive officer of Westchester CapitalLimited,an 3 Length of Service: 16 2015 October Appointed: y y ears, 5months ears, ears, 5months ears, 58

for the year ended31 December2018 Annual Report and Accounts Corporate Governance 58 - 90 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for

59 ears, 5 months y Stephen Inglis Director) (Non-Executive Appointed:October 2015 16 of Service: Length 3 London & Asset Manager, the of officer and co-founder the chief executive Stephen Inglis is He market. property the commercial experience in years’ 30 over He has Scottish Investments. investment from structure, Asset Manager’s the within functions for all property has responsibility management. to asset and property management for worked sectors, having development and the investment of his experience is in The majority Glasgow and London. consultants in international property several totalling deals 300 assets in over sold or acquired June 2013, Stephen has, since role, In his current Tosca both was instrumental in establishing, equity raising and investing than £850 million. He more REIT. of Regional the subsequent IPO Fund II and Property Tosca Fund I and Property and is a Surveyors Chartered of Institution the Royal of Stephen has, since 1991, been a member Forum. Property the Investment of member (continued)

ear, 8 months ear, 2 months y y Timothy Bee Timothy Director) (Non-Executive Timothy (“Tim”) Bee is the chief legal counsel of the Investment Manager. Tim joined Toscafund in Toscafund Tim joined Manager. the Investment of the chief legal counsel (“Tim”) Bee is Timothy firms. He London-based law two leading been a corporate partner at May 2014 having previously and acquisitions, equity capital experience in mergers qualified as a solicitor in 1988 and has extensive financial services. and markets Appointed: 2017 July 7 of Service: Length 1 Frances Daley is a chartered accountant who qualified with a predecessor firm to Ernest & Young, & to Ernest firm with a predecessor qualified who accountant Daley is a chartered Frances roles. officer financial various chief years in by 18 followed finance, in corporate years spending nine the Group, Lifeways backed the private equity of director finance was group to 2012, she 2007 From disabilities and mental health needs. with learning adults to support of specialist provider largest UK’s Emergingof Baring Plc and chair Trust Opportunities of Henderson director is a non-executive Frances School. Girls’ Allen’s James Hospice and Children’s House of Haven chair She is also Plc. Europe Frances Daley Frances Director) (Independent Non-Executive Appointed: 2018 1 February Board of Board Directors Length of Service: Length 1 Corporate Governance 58 - 90 for VAT and hasrecovered VAT incurred sinceNovember 2015. the Company’swith registeredconsultation the Companyadvisors, VAT canberecovered. Inaccordance with the newguidelinesandin policy andpublishednewguidance on the circumstances in which England. Following developments incaselaw, HMRC updated their On 9 implications of aREITshouldconsult their own tax advisers. Shareholders who are inany doubt concerning the taxation appropriate. as allowances andother costs after deductionofdebt financing to UK Income Tax. Ineachinstance, any tax due iscomputed subsidiaries andassociates, the majority of which are subject During the year, the Company’s properties have beenheldin various the Company to payanannual fee of £1,200. income Exemptiontax. under the above-mentioned Ordinance entails without deductionof accumulated Guernsey be distributedor may Bodies) (Guernsey) Ordinance, 1989and the income of the Company exemption from Guernsey income tax under the Income Tax (Exempt The Director of Income Tax in Guernsey hasgranted the Company for TaxationStatus (“AIC”). 2015. Itisamember of the Association of Investment Companies amended and the Registered Collective Investment Schemes Rules to the Protection of Investors (Bailiwick of Guernsey) Law1987, as Registeredpursuant InvestmentScheme Closed-EndedCollective is registered with the Guernsey Financial Services Commission asa The Company was incorporated in Guernsey, Channel Islandsand Status motorway. centresM25 regional ofthe UK outsidethe in the predominately debt portfoliossecured on suchproperties, which are located in, holdingandmanagingcommercial property investments, or The Company hasbeenincorporated for the purpose of investment Principal Activity of strategicimportance. the ) as 57 Strategic Reportthe Board (pages10to considers them to be normally includedin the Directors’ Report have insteadbeenincludedin one another, and the Strategic Report. As permitted,some of the matters of the Annual Report and Accounts shouldberead inconjunction with Transparency Rules, the reports within the Corporate Governance section In accordance with the ListingRulesand the Disclosure Guidance and ended 31 statementsofthe Groupaudited financial forthe consolidated year the The Directors of Regional REITare pleased to present their report and ReportDirectors ofthe January 2018, the Company registered for VAT purposesin December 2018. December 2018. 60 Company Secretary and other advisors on aregular basis. their respective professions as well asreceiving briefings from the development requirements inaccordance with the requirements of The Directors ensure that they maintain their continuingprofessional AIC Codeof Corporate Governance. with the Company’s Articles of Incorporation(the“Articles”) and the General Meeting(“AGM”) on Thursday, 23May2019inaccordance 59. All Directors will stand for re-election at the forthcoming Annual The full biographies of the Directors canbe found on pages58and who was appointed on 1February 2018. year ended31 December2018, with the exception of Frances Daley, Directors ofthe wholeofthe All Companyin officeduringthe were Directors forms part of this report by reference. been applied. This statementmaybe found on pages68to the recommendationshaveof AICCodeof Corporate Governance The Directors have prepared astatement on how the principlesand Group’s affairs. accountable to Shareholdersgovernance is ofthe for the Board The Board works closely with the Company Secretary in this regard. standards of corporategovernance, inline with bestpractice. The The Directors are committed to establishingandmaintaininghigh Corporate GovernanceStatement indemnity provisions in force. in the provisionsno qualifyingthird-partyare Articles, there Investment Manager’s own insurancepolicy. Save for the indemnity Directors and Officers Liabilityinsuranceismaintained through the Directors and Officers LiabilityInsurance regard Board.benefits ofdiversity with due onthe for the Board appointmentsare made against on merit, objective criteriaand not consider that it would beappropriate to set diversity targets asall Frances DaleyinFebruary 2018.Notwithstanding this, the Board does throughout the selectionprocess inrespect of the appointment of gender balance of the Board andgender diversity was aconsideration The Board recognises the importanceandbenefits ofimproving the one female. The Board of Directors of the Company comprises of five malesand Diversity for the year ended31 December2018 Annual Report and Accounts 74 and Corporate Governance 58 - 90 0.01 0.20 0.05 0.09 0.04 0.08 capital % Interest in share share in % Interest March 2019 March Annual Report and Accounts and Report Annual At 27 At 297,030 752,549 150,000 30,000 350,000 200,000 for the year ended 31 December 2018 December ended 31 year the for Number of Ordinary Shares Ordinary 0.01 0.20 0.05 0.09 0.04 0.08 capital % Interest in share in share % Interest cause the Company or any of its securities to be required under to be required of its securities or any Company the cause similar or any Act Securities US the Act, US Exchange the legislation; Private a “Foreign not being considered Company the cause US the defined in rule 3b-4(c) under term is as such Issuer”, Act; Exchange as a to register to be required Manager the Investment cause Act; US Exchange the municipal advisor under cause the Company’s assets to be deemed “plan Company’s for the cause the assets” of 1986 (as amended), Code US Internal Revenue the of purposes (as of 1974 Act Security Income Retirement US Employee or amended); as an “investment to register to be required Company the cause 1940; Act Company US Investment the under company” December 2018

Shares • • • • • If any Ordinary Shares are owned directly, indirectly or beneficially or beneficially indirectly directly, owned are Shares Ordinary If any to be a “Non-Qualified Holder” the Board by believed a person by to such person requiring notice may give the Board (see below), of such of receipt days within 30 the Board to provide him either: (i) to satisfy documentary evidence sufficient satisfactory with notice to or (ii) that such person is not a Non-Qualified Holder, the Board who is not a Non- to a person Shares Ordinary transfer his or sell to provide days within such 30 days and within 30 Qualified Holder transfer and or of such sale satisfactory evidence with the Board of the exercise may suspend the Board transfer, or pending such sale or attend of notice to receive or consent rights and rights voting any dividends receive to rights and any Company the of meeting any Where or other distributions with Shares. to Ordinary respect such of the serving days after within 30 or (ii) is not satisfied condition (i) of such the expiration deemed, upon will be the person the notice, (i) in its the Board or (ii) if Shares Ordinary forfeited his to have days, 30 Company absolute discretion may dispose of the so determines, the the obtainable and pay the best price reasonably at Shares Ordinary net of proceeds such former a disposal to the holder. ownership whose person defined as any A Non-Qualifying Holder is to Shares such Ordinary or the transfer of person, Shares, Ordinary of may: At 31 297,030 752,549 150,000 30,000 350,000 200,000 61 Number of Ordinary Number of Ordinary hares in any any in Shares hares was Shares granted to the rdinary Ordinary (continued) rdinary Ordinary April 2018. The Company has not issued any has not issued any Company The April 2018. Held by his minor children. Held by his spouse. Held by Daniel Taylor Director William Eason Stephen Inglis McGrath* Kevin Frances Daley Frances Tim Bee** Restrictions on the Transfer of Shares Shares of Transfer on the Restrictions securities laws, foreign well as applicable Articles, as the to Subject of his or any transfer all may Shareholder a Company at the last AGM on 17 May 2018 AGM and on the date of expires the last at Company to buy the authority that proposing are The Directors AGM. the next on 23 May 2019. AGM forthcoming the at be renewed back shares which other manner in any or the Law which is permitted by manner the to time time from by Board. is approved Purchase of Own Shares Purchase for The latest authority year. the been bought back in have No shares to Company purchase the its own Disapplication of Pre-emption Rights of Pre-emption Disapplication for to allot shares authority received Company the AGM, the 2018 At issued Company’s the of to 10% basis up on a non-pre-emptive cash as at 4 capital share This authority will expire shares under this authority during the year. at will be proposed Resolutions AGM. the 2019 of the conclusion at for to issue shares authority Company’s the to renew AGM the 2019 will be sought in These authorities basis. on a non-pre-emptive cash Statement of Principles. Group’s with the accordance Pre-Emption There is only one class of Ordinary Shares in issue for the Company, Shares There one in Company, is only Ordinary for the class of issue other The only the shares in to the adherence REIT requirements. restricted non-voting of types particular may issue are Company in issue. currently none) are which none (2017: of shares, preference Share Capital Share capital total issued share Company’s the December 2018, As at 31 December 2017: 372,821,136). (31 Shares Ordinary was 372,821,136 Shares are listed on the Ordinary premium Company’s All of the Ordinary and each Stock Exchange the London of listing segment Share carries one vote. * ** The Companybeneficial of the are of the set out interests Directors in the table below: Directors the in to hold shares for Directors their appointment of terms the or of Incorporation Articles Company’s the under is no requirement There Company. Report of the Directors Report Corporate Governance 58 - 90 adversely impacts Shareholders’ rights. qualifying property rental businessincome,itisnot thought that this 23 May2019. Given the requirement to distribute atleast90% of under the Lawat the Company’s AGM scheduled to beheld on a dividend requiredpayment of not to arevoteShareholders onthe 28 February 2019. 1 March 2019. business on close of at the The ex-dividend date was dividend will bepaid on 11 2019. This 21 Februaryended 31was declared2018 on December 1.85pps. 2.50pps A each of for theyearfourth quarterly dividendof 2018, the CompanyDuring declared three quarterly dividends, Company’s Investment Policy. reinvest proceeds from disposals of assetsinaccordance with the compliance with REITstatus requirements. The Directors intend to subject to earnings, recurring sustainable views ontheoutlook for to sustainablelevels of dividend cover andreflects theDirectors’ The Directors maintaina dividend policy which has due regard rightsofthe inthe interests voting Company: receivednotification ofthe followingdisclosable The has Company published via aRegulatory Information Service and on the Company’s website. Information on majorinterests inshares provided to the Company under the Disclosure Guidance and Transparency Rules of the FCAis Substantial Shareholdings • • ReportDirectors ofthe Dividends Dividends Transparency Rule5)are 5%,10%,15%,20%,25%,30%,50%and75%. As acompany registered in Guernsey, the disclosure thresholds for suchanon-UKissuer(inaccordance with Disclosure Guidance & Shareholder AXA Investment Managers Toscafund Asset ManagementLLP Internal Revenue Code of 1986(asamended), Section 708; under US partnership a terminationofthe US purposes or cause aloss of partnershipstatus for US federal income tax Act; pursuant to Rule506 of Regulation Dunder the US Securities result in the Company being disqualified from issuingsecurities April 2019 to Shareholders on the register2019 to Shareholders onthe April (continued) Number of OrdinaryNumber Shares notified 18,778,679 27,154,198 At 31 At 62

December 2018 Shareholders, thus improving their cashflow return profile. its quarterly dividends provide asource of regular income for intends to continue to pursueaprogressive dividend policyand centres andurbanareas outside of the M25motorway. The Company predominantly in the office andindustrialsectorsinmajor regional strong focus on income, from investing in UK commercial property, returna attractive to Shareholders, total with an was todeliver IPO, the AtCompany’s thetimeof Investment stated Objective • • • • • • with its obligations underexchange of informationagreements. the Company within formation that itrequires in order to comply be aNon-QualifiedHolder by virtue of their refusal toprovide is deemedto who person any pecuniary ortaxdisadvantage 1986, (asamended), or maycause the Company to sufferany RevenueInternal 957 ofthe CodeUS purposes of of Section the cause the Company to bea“controlled foreign corporation” for Company from timetotime;or transfer restrictions put forth inany prospectus publishedby the result inapersonholding paid approximately one monthafterbeing declared. 30 June, 30 September and31 December. The dividends will be time after the end of the relevant quarter dates, being31 March, The Board will resolve to declare any dividends atanappropriate requirement.REIT distribution with the financial year willbe declared toatleastmanagecompliance or split). The fourth-quarter dividend inrelation to that same (if necessary, asadjusted for any consolidation capitalraising, be declared at or near the samelevel on apencepershare basis expectedto specific financialare any year and third quartersof basis. a quarterly dividends on second The dividends for the first, It is the Company’s intention to continue to declare andpay outlook and to market conditions. the Company’s performance,its financial position, thebusiness The paymentandlevel of dividends will always remain subject to accounts for bothproperty incomeandinterest income. qualifying property income,notwithstanding that the Company treat all of itsnetincome from the Property Related Businessas choose to dividend distribution,the continues to Company a availableprofits for Forpurpose ofdeterminingthe the % Interest inshare capital 5.03 7.28 Ordinary Ordinary Shares 18,778,679 27,154,198 Number of for the year ended31 December2018 hares in violation ofthe Shares notified At 27 Annual Report and Accounts March 2019

% Interest inshare capital 5.03 7.28 Corporate Governance 58 - 90 55. Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for Financial Risk Management the and Group the faced by The principal risks and uncertainties to on pages 49 out set are these risks for managing policies Group’s financial instruments, including to relating financial risks The principal the risk of details eligible sterling bonds, and retail Company’s the out set financial instruments are these to factors relating mitigation in note 30. Going Concern the that reasonable expectation that it has a confirms The Board operational existence in to continue has adequate resources Group the Directors this conclusion, In arriving at future. foreseeable the for ability Group’s the the portfolio and of the liquidity considered have of at least 12 months for a period due fall they as obligations to meet date that these the from Statements Financial were approved. to that it is appropriate considers of Directors the Board Accordingly, on a going concern basis. Statements the Financial prepare Shareholders are encouraged to attend and vote at the Company’s Company’s the at vote to attend and encouraged are Shareholders with both private for communication forum a which provides AGM, itself available makes The Board alike. Shareholders and institutional Chairman, The and as to questions. Shareholder AGM answer at the to meet also available are the Board, of other members necessary all the year. throughout Shareholders with to all despatched is Accounts and Annual Report Group’s The AGM, the days before working post at least 20 by Shareholders accompanied of the the details to by resolutions be proposed and the Shareholders are able to via the AGM. votes their lodge notice of the Annual the with sent card the proxy returning or by CREST system withheld against and for, votes of proxy the number of Details Report. AGM the the meeting and in at disclosed will be for each resolution RNS announcement. resolutions, including proposed AGM of notice Annual Report, The Group, the other announcements by and all the interim results and Shareholders, In addition, website. Group’s the on made available are the of for email alerts parties, can register other interested and any announcements. Group’s on its of building ways of will consider a number Group The and potential sell-side analysts Shareholders, with engagement of 2019. the course in investors 63 hares, Shares, rdinary Ordinary (continued) July 2018. July hareholders. Shareholders. terling Retail Eligible Bonds terling Retail S August 2018. Further details of the bond issue can be found in the found in the bond issue can be of details August 2018. Further The Board receives a regular investor relations report summarising report relations investor a regular receives The Board and media coverage, research, contact, sell-side analysts’ Shareholder from feedback receives the Board In addition, movements. price share issues. Shareholder on its Broker The Company also encourages investors and analysts to utilise and analysts also encourages investors Company The a developed facilities and communications and has on-line its Group-specific informationwebsite of comprehensive and other trust investors estate investment to real useful information generally and analysts. During the year, a site visit was undertaken for institutional and was undertaken visit a site year, the During In addition, Manchester. Street, wealth managers at Portland and Manchester Liverpool Jersey, conducted in were roadshows and potential meeting current The Company places considerable emphasis on maintaining an open on maintaining an places considerable emphasis Company The wealth and and in particular institutions Shareholders, with dialogue of announcements and additional schedule managers. It has a regular with held In addition, meetings are announcements as required. institutional Shareholders, wealth private Shareholders, managers, and financial Group’s the to present and sell-side equity analysts the strategy and business model, as discuss to and operational results market. property commercial UK regional the well as Communication with Shareholders remains of critical importance to importance of critical remains Shareholders with Communication the who Board, that believe Shareholders views of understanding the and successful direction strategic Group’s the factor in is a key of the development business. dated 18 prospectus Company’s with Shareholders Relations Following the successful raise of £50.0m in a retail eligible bond issue, of £50.0m in a retail the successful raise Following the bonds were admitted to trading on the Stock on London Exchange 7 Issue of 4.5% credited as fully paid, instead of cash in respect of all or any part of part or any of all of cash in respect paid, instead fully as credited following a time, and the current At dividend). dividend (a scrip any to intention the Directors’ it is not Shareholders, with consultation offer a scrip dividend option. The Company to offer ordinary Company has the resolution, The by ability, the Shareholders to right further elect to receive In order to maintain REIT status, the Company is required to meet a is required Company the to maintain REIT status, order In that it is a REIT. for each accounting period test distribution minimum to distribute This Company the distribution test minimum requires normal calculated using (broadly, the income profits of at least 90% the to the tax from Group that they extent the rules) of derived are Property than any (other Group the of Business Related Property tax resident non-UK UK by the outside on Business carried Related Group). members of the Report of the Directors Report Corporate Governance 58 - 90 foreseeable future. financial resources tocontinuein operationalexistence for the The Directors have satisfied themselves that the Group have adequate The Directors have carefully reviewed areas of potential financial risk. continue to beclosely monitored by the Board. uncertainties. These risks,and other potentialrisks which mayarise, regulatory landscape,and the current politicalandeconomicrisks raise third-party funds and deploy these promptly, andchangesin the briefings considermarket conditions, opportunities, theability to provided by each of the Asset andInvestment Manager. These The Board’s expectationis further underpinnedby the regular briefings 31 The Group’s weighted average debt to maturity was 6.4 years asat include the re-letting andrent reversions arising from tenancy reviews. and the WAULT3.4 years to allowsthefirst-break, of forecast which to upon the Group’s detailed budgetcovering arolling four-year period; The Board chose to conduct the review for a four-year periodbased current andeconomicpoliticalenvironment. its principalrisksanduncertaintiessuccessfully, taking intoaccount the intended. The Board believes that the Group is well placed to manage that the mitigationsandmanagement systemsare operating as year period. The riskreview process provided the Board with assurance model, strategy, future performance,solvency or liquidity over the four- business its would threatenfacing the including thosethat Group, carried out arobust assessment of the principalrisksanduncertainties During 2018, the Board, inconjunction with the Audit Committee, risks anduncertaintiesreport. principal risksasset out in the Chairman’s Statement and the principal account ofthe next Group’sfour years, taking and position current will beable to operate andmeetitsliabilitiesas they fall due over the The Board confirms thatithasa reasonable expectation that the Group the 12monthsrequired by the ‘Going Concern’ provision. viability over a four-year period from the year end,beinglonger than The Directors have assessed the prospects of the Group and future Viability Statement ReportDirectors ofthe

December 2018. December 2018. (continued) 64 will beproposed at the forthcoming AGM. re-appointment and for the Directors to determine itsremuneration continue in office as Auditor to the Company and resolutions forits on listing on 6November 2015.RSMhasexpressed its willingness to RSM UK Audit LLP(“RSM”) was appointedasauditor to the Company Auditor details canbe found . 42 on pages40to behalf ofthe Further propertiesGroup. on management ofthe the issue to bemonitored by the Asset Manager, who isresponsible for considers the environmental impact of the Group to beanimportant Company’s own direct environmental impactisminimal, the Board its environmental impactand,asa Company with noemployees, the Although the Group isnotrequired by statute to provide reporting on important tothe Group.is properties impact ofour environmental The Group hasno direct social or communityresponsibilities, but the Corporate responsibility covers many different aspects of business. Responsibility Corporate, Social andEnvironmental are set out innote35. Managers details ofthe Investment Agreementsand with the Asset of significancein whichaDirector is or wasmaterially interested. The contract anyexception ofthedetails with the 9.8.4, Rule Listing Directors confirm that there are no disclosures required in relation to cross reference table indicating where the informationisset out. The information inasingleidentifiablesection of the Annual Report ora Listing Rule9.8.4Rrequires the Company to includespecified Listing RulesDisclosures information. aware ofthat establish thatthe Company’sand to information audit Auditor have taken asaDirector to make themselves aware of any relevant steps thattheyoughtto all the has takenDirector each and unaware; is norelevant auditinformation of which the Company’s Auditor is Directors’ Report confirm so that, faras theyare eachaware, there approval ofthis atthedateof held office Directorswho The Audit Information for the year ended31 December2018 Annual Report and Accounts is Corporate Governance 58 - 90 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for 65 May 2019, (continued) Kevin McGrath Kevin Director Chairman and Independent Non-Executive 2019 27 March For For and on behalf of the Board The Directors look forward to meeting Shareholders at the AGM. the at Shareholders to meeting forward look The Directors The AGM is the Company’s principal forum for communication with for communication forum principal Company’s the is AGM The Chairman of the The Chairmen of theBoard and the Shareholders. together with the other Committees, will Directors, be available to questions AGM. Shareholders’ answer at the The Board considers that all the resolutions to be put to the AGM are are AGM the to to be put the resolutions that all considers The Board whole as a Shareholders and its Company the of the best interests in own shares. their with of all resolutions favour in voting be will and The notice of AGM, which sets out the resolutions to be proposed, to be proposed, the resolutions out sets which AGM, of The notice proposed, the resolutions of with an explanation together the on found and can also be Annual Report this accompanies website at (www.regionalreit.com). Company’s at the offices of the Company’s solicitors, Macfarlanes LLP, 20 Cursitor solicitors, 20 MacfarlanesCompany’s LLP, at the offices of the London EC4A 1LT. Street, Annual General Meeting 23 Thursday, on will be held at 11am AGM Company’s The Subsequent Events 36. out in note set are events of significant subsequent Details Report of the Directors Report Property Name: Oakland House, Manchester Sector: Office Corporate Governance 58 - 90 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for The Financial Statements, prepared in accordance with the the with in accordance prepared Statements, The Financial the EU as adopted by Standards Reporting International Financial financial position the assets, liabilities, of view fair true and a give the included in the undertakings and Group the of and profit whole; as a taken consolidation fair review include a Managers’ Report Asset and Investment The of the development and of the performance business and the Group and the position of the undertakings included in the consolidation taken as a whole, together with a description of face; and they the principle risks and uncertainties fair whole, are as a taken Accounts, and Annual Report The the information balanced and understandable and provide position and Group’s the to assess for shareholders necessary performance, business model and strategy. Responsibility Statement of the Statement of the Directors inResponsibility Annual Report Consolidated of the respect on pages listed functions are whose names and the Directors, of Each knowledge: of each person’s the best to that 58 and 59, confirms • • • This responsibility statement was approved by the Board of Directors of Directors the Board by was approved statement This responsibility on its behalf by: 2019 and signed on 27 March McGrath Kevin Director Chairman and Independent Non-Executive 2019 27 March Legislation in Guernsey governing the preparation and dissemination of dissemination and the preparation governing Guernsey Legislation in other jurisdictions. legislation in from differ may financial statements 67 prepare the Financial Statements on the going concern basis the on Statements the Financial prepare will continue Group the that to presume unless it is inappropriate in business. state that the Financial Statements have been prepared in been prepared Statements have the Financial that state to any the EU, subject IFRS as adopted by with accordance disclosed material departures and explained financial in the statements; and make judgements and estimates that are reasonable and reasonable that are judgements and estimates make prudent; present information, including accounting policies, in a manner information, including accounting policies, present understandable comparable and reliable, relevant, that provides information; select suitable accounting policies and then apply them then apply select suitable accounting policies and consistently; • • • • • In preparing the Group Financial Statements, the Directors are are the Directors Statements, Financial Group the In preparing to: required The financial statements are required by law to give a true and fair true and a to give by law required financial statements are The affairs at the financial view of the end of the Group’s state of the period for thatand of the or period Group profit loss of the and are financial the fairly to present the EU by IFRS adopted by required Group financialand the position of the Group. performance of the The Law requires the Directors to prepare financial statements for for statements financial to prepare the Directors The Law requires accepted accounting with generally year in accordance financial each of the Listing Rules under required are The Directors principles. with financial statements in accordance group to prepare the FCA (“IFRS”) as adopted by Standards Reporting International Financial Union (“EU”). the European The Directors are responsible for preparing the Annual Report and the and Report Annual the for preparing responsible are The Directors with applicable law and in accordance Statements Financial Group the Listing Rules of the requirements including applicable regulations, Rules. Transparency Guidance and the Disclosure and Statement of Directors’ Responsibilities of Directors’ Statement The Directors are responsible for the maintenance and integrity of the of and integrity the maintenance for responsible are The Directors website. Group’s the on information included financial corporate and The Directors are responsible for keeping accounting records which are accounting records for keeping responsible are The Directors to such as transactions and are Group’s the show and explain to sufficient the of financial position the time accuracy at any with reasonable disclose Statements comply the Financial that to ensure them and enable Group FinancialGroup the the Law and, as regards of the requirements with for also responsible They are the IAS Regulation. of Article 4 Statements, the Group safeguarding and assets of the for taking hence reasonable for the steps fraud prevention and detection of and other irregularities. Corporate Governance 58 - 90 are deemed to meet the requirementsmeet the ofthe areGFSC deemedto Code. the against AICCodethe Company. includes report which Companies registered or authorisedascollective investment schemes, which a licence from the GFSC under the regulatory laws or which are and publishedinFebruary 2016,applies to allcompanies that hold updated “GFSC Code”), (the Sector Codeof Corporate Governance The Guernsey Financial Services Commission’s (“GFSC”) Finance statement. within this set out with the compliance AIC is Code requirements containedin the ListingRules.Details of the Company’s relatedunder the disclosureUK andthe fullyCode their obligations members who report against the AIC Code and the AIC Guide meet and the AIC Guide. mean that AIC endorsement FRC The termsofthe the endorsed AIC Code has responsiblethe UKCode,for governance (“FRC”), the UK’s independentregulator for corporatereporting and specific relevance to the Company. TheFinancial Reporting Council additional principlesandrecommendations on issues that are of Corporate Governance Code (the“UK Code”), as well assetting out by the AIC Guide, addresses all the principlesset out in the UK “AIC Guide”), except asset out below. The AIC Code, asexplained the (the InvestmentAIC Corporate Companies Governance for Guide Governance (the“AIC Code”), publishedin July 2016,by reference to principals ofthe AIC with the complied Code of has CorporateBoard Investmentmember ofthe (“AIC”),Association of a Companies As the governance code to which the issuerissubject. the principlesandcomplied with the provisions of the corporate of the FCArequire listedcompanies to disclose how they have applied The ListingRulesand the Disclosure Guidance and Transparency Rules code of corporategovernance that ithaschosen to adopt. governance that the Board hasadoptedandits compliance with the corporate principles of sets outthe Reportsection ofthe Annual to the Shareholdersgovernance ofthe for the Group’saffairs. This requirements for companieslistedin the UK. The Board isaccountable corporate governance, which meet the statutoryandregulatory The Company iscommitted to maintaininghigh standards of Directors. This CorporateReport Governance ofthe part ofthe Statement forms Corporate Governance Statement 68 in respect of these provisions.respect ofthese in internal operations. The Company has therefore notreported further a result, the Company hasnoexecutive Directors, employees or areadministration outsourcedparties. functions tothirdand As company. Inparticular, all of the Company’s day-to-day management the Company’s position,beinganexternally managedinvestment Code, the Board considers that these provisions are notrelevant to For the reasons set out in the AIC Guide, andasexplainedin the UK The UK Corporate Governance Code includes provisions relatingto: provisions The UKCorporateincludes Governance Code and the relevant provisions of the UK Code, except asset out below. ensuremeasures thatthe with the complies to CompanyAIC Code better information. Accordingly, the Company has taken appropriate Code, andby reference the AIC Guide, will provide Shareholders with reporting against the principlesandrecommendations of the AIC recogniseDirectors the believevalue ofthe that The AIC and Code at www.gfsc.gg.GFSC website www.frc.org.uk.at copy be obtained ofthe via the A GFSC can Code website at www.theaic.co.uk. A copy of the UK Code canbe obtained copy ofthe be obtained A via the AIC and the can CodeAIC AIC Guide • • executive Directors’ remuneration. the role of the chiefexecutive; and for the year ended31 December2018 Annual Report and Accounts Corporate Governance 58 - 90

who are . Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for 69 (continued) Compliance Statement Compliance The Chairman, Kevin McGrath, was independent of each of the Asset and Investment Investment Asset and the of of each was independent McGrath, Kevin Chairman, The Chairman has not been The so. of his appointment and remains time the Manager at did he act to his appointment, nor years prior five the the Managers in of either by employed of an directorship other does not hold any that period and he to either Manager in as advisor either Manager. managed by company investment Asset the the Directors, Chairman, the between of responsibility division is a clear There service providers. third-party other Company’s the and Manager the Investment Manager, the performance discussed met and Senior Independent Director the led by The Board, The Chairman being present. the without Chairman, including his independence the of Chairman was deemed independent. The Board consists of six Non-Executive Directors; four Independent Directors (Kevin (Kevin four Independent Directors Directors; of six Non-Executive consists The Board of each independent who are Taylor) Eason and Daniel William Daley, McGrath, Frances (Stephen two Non-Independent Directors Manager; and Asset and Investment the of each Asset the of of each the activities on and report Board the on who sit Bee) Timothy Inglis and Manager respectively. and Investment of separate companies managed by Directors Daley are William Eason and Frances the Board, by This has been considered Henderson. Janus manager investment satisfied that they are demonstrably independent and that their independence as Directors as Directors their independence that and independent demonstrably they are that satisfied these manager, the same investment managed by Although is not affected. Company the of other the Therefore, Company. this and other each from separate entirely appointments are Director that each satisfied were this relationship, of the impact having considered Directors Company. the of duties as a Director their in approach objective took an impartial and in maintaining good Company the to is important the Directors of The independence the annual evaluation of is assessed as part of each Director The independence governance. is the Board of each Director, the performance and independence Having assessed process. independent Tim Bee, bring strong Stephen Inglis and including all Directors, that satisfied demonstrate independence in judgement and character. to and continue oversight All Directors submit themselves for annual re-election by Shareholders at the AGM of the of AGM the at Shareholders by for annual re-election themselves submit All Directors Company. asChairman, the by is evaluated annually of each Director The individual performance Senior Independent Director The evaluation process. Board the annual through well as The led the recommendations made to evaluation of the Chairman. performance of the of the vote to favour of in Shareholders re-election all AGM are Directors based on the at the on page 76 described fully which is process, evaluation the Board of outcome Principle The Chairman should be Chairman should The independent The independence of Directors Directors should be submitted Directors at regular for re-election intervals. Nomination for should not be re-election on assumed but based and disclosed procedures continued satisfactory performance 1. The Board; Manager; and the Investment with the relationship Meetings and 2. Board Communications. 3. Shareholder 1 AIC Code 2 3 The Board

The Principles of the AIC Code The AIC of the Principles sections, covering: three split into of 21 principles up is made Code AIC The Corporate Governance Statement Governance Corporate Corporate Governance 58 - 90 Corporate Governance 6 5 4 AIC Code knowledge ofthe Company length of serviceand a balance of skills,experience, The Board shouldaim to have Board of informationabout the There shouldbe full disclosure annual report in the is disclosable policy ontenure,which The Board shouldhave a Principle (continued) merit, merit, therefore nomeasurable targets in relation to Board diversity will currently beset. account inrespect of Board appointments, the overriding priorityshouldbeappointment on importance. Ithasagreed that while the benefits of diversity, includinggender, willbe taken into The Board believes that diversity of experienceandapproach amongstBoard membersis of great pages set outon Directors, The experience,skillsandknowledge of the Directors is detailed in the biographies of the adequate time isavailable for discussion of allagendaitems,inparticularstrategicmatters. information. The Chairman isresponsible for setting the Board’s agendaandensuring that its role andheisresponsible for ensuring that allDirectors receive accurate, timely andclear The Chairman isresponsible for leading the Board, ensuringitseffectiveness inallaspects of considered. As part of the annualBoard evaluationprocess, the effectiveness of the committeestructure is the size of the Company, itisnotappropriate to establishaseparateNomination Committee. The Board considers asitiscomprised that, of amajority of Non-Executive Directors andgiven Independent Directors. The Chairman isamember of the MERC. caveat thatthe MERC, byChairman’swith the theother Chair the set remunerationwas own of the Company,appropriatealso Board was forthe to Boardit Chairman ofthe thefeltthat the MERC. Whilst notincompliance with the AlC’s recommendation, due to the size andnature For the period from 1 all the IndependentDirectors anditisnowchaired by William Eason. The MERC report is set out on pages 82 and 83 of this Report. The MERC membership comprises The Chairman isamember of the Audit Committee but does notchairit. membership comprisesall the IndependentDirectors anditisnowchaired by Frances Daley. The Audit Committee report issetReport. out 81ofthis on pages79to The Audit Committee available onthe areCompany’s website. Details of the Board’s Committees andcompositionare set out in the Terms of Reference which demonstrate the wide range of skills,knowledgeandexperience they bring to the Board. The biographical details for eachDirector are set and out Report on pages58and59ofthis Daniel Taylor, Stephen Inglisand William Eason for a further three-year term. During the year, the Board agreed to extend the appointmentperiod of Kevin McGrath, Director.interestindependence ofthe ofthe Company,account the into having taken period of three years, ifboth the individualDirector and the Board believes this isin the buteachDirectorappointment, maybeinvited by the Board to serve for anadditional engagement asaDirector of the Company. These letters detail aninitial three-year Each Director hasasigned letter of appointment which formalises the terms of their Board membership cansignificantly enhance theeffectiveness of theBoard asa whole. board hasabearing on independence. An individualDirector’s experienceandcontinuity of the Directors. The Board does notbelieve that length of service on a wholly non-executive of the Board and,assuch, there iscurrently nolimit on the overall length of service of any of tenure is that continuityandexperienceare considered to addsignificantly to thestrength The Board acknowledges the AIC Code provisions relating to tenure. The Board’s policy on Compliance Statement January 2018 to 20 70 of this Report. 58 and59ofthis June 2018, the Chairman of the Board was also Chair of also Chair of Boardwas 2018, the Chairman of the June for the year ended31 December2018 Annual Report and Accounts Corporate Governance 58 - 90 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for . 71 Compliance Statement Compliance It is the Board’s policy to evaluate the performance of the Board, Board Committees and Committees Board the Board, of the performance to evaluate policy the Board’s It is of The independence on an annual basis. an assessment process through individual Directors this process. of as part is also considered each Director questionnaires of way during 2018 by of performance out an evaluation carried The Board Committees. and its the Board of weakness and the strengths to assess designed specifically the the assessment covers and each Director completed by were questionnaires The the Board of the effectiveness of whole and a similar review as a the Board of functioning the of Details is undertaken. the Directors of individual performance the and Committees on page 76 shown for 2018 are evaluation The performance of the Chairman is evaluated by the other Directors on an annual basis other Directors the Chairman is evaluated by the of The performance using the questionnaires, under the Senior leadership of the Independent Director. Details of the Directors’ remuneration is contained in the Directors’ Remuneration Report Report Remuneration the Directors’ is contained in remuneration the Directors’ of Details on page 84 of this Report. with its these will compare (and the Directors to fees paid the reviews annually The MERC of commitment the level taking into account the REIT industry generally), and peer group member. of each Board and responsibility The Company does not utilise a separate Nomination Committee as this function is carried this as Committee does not utilise a separate Nomination Company The the Board. of the size given thought appropriate It is not the Board. out by of any appointment the of the process to lead would be expected The Independent Directors the for process the recruitment the 2017 report, in As reported the Board. to new Director open Neither directors. the independent by undertaken was Daley of Frances appointment process. the recruitment used in were consultancy or an external search advertising New Directors receive a full induction pack containing key information and governance information and governance full induction pack containing key a receive New Directors will also be given They appointed. they are when Secretary Company the from documents they arise. as and statutory requirements regulatory Company’s the on information key Asset and the of with each induction programme tailored a offered be will they In addition, to approach the Managers’ portfolio and investment the which covers Managers, Investment investment. training and updates as necessary periodic relevant to receive will continue All Directors to enhance and other service providers legal advisors and Secretary, Company the from their knowledge. refresh any to identify opportunity with an Directors provides evaluation process The annual Board training or development requirements. its through Secretary Company the of and services the advice to access have The Directors appointed representative. Principle 11 applies to the launch of new investment companies and is, therefore, not therefore, companies and is, new investment of the launch to Principle 11 applies Company. applicable to the (continued) Principle The Board should undertake should undertake The Board formal and rigorous a annual of evaluation its own performance that of and its committees and individual Directors Director remuneration remuneration Director should their duties, reflect responsibilities and the value of their time spent The independent Directors The independent Directors the should take lead in the of new Directors appointment should be the process and the annual report disclosed in Directors should be offered offered should be Directors training relevant and induction The Chairman (and the Board) the Board) Chairman (and The the into should be brought of structuring a new process stage launch at an early AIC Code 7 8 9 10 11 Corporate Governance Governance Corporate Corporate Governance 58 - 90 Corporate Governance 15 14 13 12 AIC Code manager with, the arrangements of, andcontractual review both the performance The Board shouldregularly attention to overall strategy attention tooverall Boards shouldgive sufficient issues information andindustry investor relations, peergroup asset allocation,marketing/ matters, suchasgearing, performance andassociated be areview of investment Board meetingsshould The primary focus atregular environment and open co-operative operate inasupportive, Boards andmanagers should Principle (continued) provides an Annual DepositaryReport to the Audit Committee. assets andsecurity of the Shareholders’ investment isbeingmaintained. The Depository safeguardingby,providedensure ofthe thatthe Company’s services Depository to the of the Company. and the The with, Audit arrangements reviewsCommittee the further Manager’s complianceandcontrol systemsin operation insofaras they relate to the affairs InvestmentThe behalf ofthe reviews Committee,and Audit the Chairman, on Asset remuneration). appointments andcontractualarrangements(including the structure andlevel of Asset andInvestment Manager andconsiders the appropriateness of their continued The MERC meetatleast once annually to review the overall performance of each of the meets once a year to focus exclusivelya yearstrategy. to focus meets once on The Board isresponsible for setting the overall strategic objectives of the Company and its agreed strategy on an ongoing basis. The Board isresponsible for the strategy of the Company andmonitorsperformance against reports to the Board asrequired. clear informationand through the Company Secretary ensures that eachserviceprovider The Chairman isresponsible for ensuring that the Directors receive accurate, timely and The Board regularly considers the merits of ashare buyback. activity, includingestimatedrental values and vacant properties. to previous quarters, yields on properties within the portfolio, leaselengthsandletting from the Asset Manager on property market conditionsand trends, movements compared and performancecomparisons,share priceandNAV performance.Italsoreceives anupdate analyses of assetallocation,peergroup information, the economy generally, transactions The Board, atitsregular meetings,undertakes reviews of key investment and financial data, Investment Manager without Board approval. activities ofthe restrictions onthe sets out Manager Investment Agreementwith the investment and the level of permitted gearingandborrowings. The Investment Management The Board isresponsible for establishing the investment objectives, strategy, the type of Asset andInvestment Managers. At eachmeeting, the Board receives areport on the performance of the Group from the annual strategymeeting. and Investment Managersandseniormembers of the teams are alsoinvited to the Board’s In addition,informalmeetings take placeregularly between the Directors and the Asset respond to queries andrequests by Directors as they arise. Board meetings.Between meetings, the Managersupdate the Board on developments and Interaction between the Board and the Asset andInvestment Managersisnotrestricted to foster asupportive andco-operative approach for allparticipants. meetings. Board at encourages opendebateto DirectorsreportingThe Chairman tothe which facilitates communicationbetween them and the Board andsupplements the regular Representatives of each of the Asset andInvestment Managerare appointed to the Board, both the Asset andInvestment Managers. Managers’ teams to interactand for Directors to receive reports andprovide challenge to Formal Board meetingsprovide important forums for the Directors andkey members of the Compliance Statement 72 for the year ended31 December2018 Annual Report and Accounts Corporate Governance 58 - 90 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for 73 Compliance Statement Compliance The Master Asset Management Agreement between the Company and the Asset Manager the and Company the between Agreement Asset Management The Master is approval which Board beyond authority, Asset Manager’s the of the limits out sets which of value the portfolio property, of any disposal or for example an acquisition required, £15m. exceeds and Company the between Agreement Services Management and The Master Investment beyond authority, Manager’s the Investment of the limits out Manager sets the Investment is required. approval which Board the of meeting Managers attend each Asset and Investment the of both Representatives to seek approval issues and specific matters and operational on questions to address Board the Board. to referred to be required which are transaction for specific gearing and membership, for matters such as Board responsibility has retained The Board buy-backs. share The Company’s share price is monitored by the Investment Manager on a daily basis. The basis. daily on a Manager the Investment by price is monitored share Company’s The on via email the Board to bulletin relations an investor Manager also circulates Investment discount price the share other information, This bulletin contains, amongst basis. a monthly or premium. and reviews to NAV or premium discount the considers the Board meeting, each Board At the previous price since the share and in or premium discount of the level the changes in Board meeting the and over longer term. On the Company’s behalf, the Investment Manager monitors the performance and systems Manager monitors the Investment behalf, Company’s the On service providers. third-party the by employed and controls service providers third-party Company’s the of the performance and cost reviews The MERC the of Manager in respect the Investment from the recommendations and considers continuing appointment of these third parties. should be replaced. considers if a provider ultimately The Board The Board believes that the maintenance of good relations with its Shareholders is Shareholders its with of good relations the maintenance that believes The Board Company’s AGM is the The for the important Company. long-term of the prospects to answer available are and Directors Shareholders with for communication forum principal questions Shareholders’ at the meeting. its corporate brokers. from Shareholders of views the on feedback receives The Board an to ensure and Shareholders of views the to monitor seeks the Board this process, Through communication programme. effective feedback is Any Shareholders. major with discussions Asset Manager holds regular The two with Chairman met the During 2018, the Board. valued by to and greatly provided principal Shareholders. would be to Directors being paid the remuneration on Shareholders by views expressed Any of remuneration. levels when reviewing the MERC into consideration by taken wishing to Shareholders Chairman, or communicate with the other any member of the Secretary at for the Company attention of the Board, may do so Company, writing to the by Office address. the Registered a will make Asset Manager The AGM. the of business the out Meeting sets of The Notice the Shareholders to covering performance presentation and Company at the strategy of the The view of welcome the Directors Shareholders. all AGM. (continued) ompany and ompany C Principle The Board should agree should agree The Board policies with the manager operational covering key issues Board should monitor The Board price the share of the level (if any) or premium discount and, if desirable, take action it to reduce The Board should monitor The Board other service and evaluate providers put in place a system for put in place a system canvassing views shareholder and for communicating the view to Shareholders Board’s The Board should regularly should regularly The Board monitor the shareholder of the profile AIC Code 16 17 18 19 Corporate Governance Governance Corporate Corporate Governance 58 - 90 Corporate Governance 21 20 AIC Code the shares they are exposedby holding risk: reward balance to which understand the for themto with sufficientinformation Shareholders are provided The Board shouldensure that act asspokesperson. Investment Managerisasked to Manager or if the Asset issues regarding majorcorporate communications content of involvementa directin, the take responsibility for, andhave The Board shouldnormally Principle (continued) accounts. Details of the Company’s bankingcovenants are disclosed innote23. Details ofthe Group’spages set outon areborrowings any investee companies. Investment Manager’s remit regarding voting andcorporategovernance issuesinrespect of As the Company only invests inproperty, itisnotrelevant for the Board to determine the security. management policiesincluding treasury borrowing policies,hedging, limitsandcorporate objectives, strategy, raisingnewcapital,major financing facilitiesandspecificrisk Manager. The set of mattersreserved for the Board includesestablishing the investment Investment and the Manager each ofthe Asset making of limits thedecision Agreement, terms of the Master Asset Management Agreement andMasterInvestment Management There isa formal set of mattersreserved for decision by the Board which, together with the Top 15properties are shown39. on pages34to available onthe Company’sportfolio ofthe is propertyGroup list ofthe The full website. The The goingconcernand viability statements of the Group are set out on pages63and64. The ongoing charge is disclosed in the FinancialReview section of the Report. on page55. Details of the Performance Fees payable to the Asset andInvestment Managersare set out the Asset andInvestment Managerisset out on pages82and83. on anannualbasisby the MERC. Details of the MERC’s review of the performance of both pages 22to is discussed in the Chairman’s Statement and the Asset andInvestment ManagersReport on The performance of the Company and that of the Asset ManagerandInvestment Manager The Investment Objective andPolicy are set out on page15. 52. pages 49to Details of the Director’s assessment of the PrincipalRisksand their mitigation are set out on Shareholders. prepared by the Investment Manager, provides the nature andkey risks of the Company to The publication of the Key InformationDocument on the Company’s website, which is the risk:reward balance to which they arethe Company.in exposedby holdingshares The Board believes that sufficientinformationisavailable to Shareholders tounderstand of the Annual Report andHalf-Year Reports. investment objective, policyandactivities,itsperformance the principalrisksby means The Board aims to provide Shareholders with a full understanding of the Company’s of any substantive communicationisrequired. appropriate, the Auditor, Legal Adviser, Broker and Company Secretary. Formal Board approval Board taking intoaccountrepresentations from the Asset andInvestment Managersand,as All substantive communicationsregarding any majorcorporatematterare discussed by the Compliance Statement 46. The performance of each of the Asset andInvestment Managerisconsidered 74 and in the notes tothe in the and 45 and46 for the year ended31 December2018 Annual Report and Accounts Corporate Governance 58 - 90 5 5 5 5 5 5 Number attended Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for Scheduled Board Meetings Scheduled Board 5 5 5 5 5 5 to attend Number entitled Director McGrath Kevin William Eason Daniel Taylor Daley Frances Stephen Inglis Tim Bee Additional Board meetings were also held as required during the year, year, the during also held as required were meetings Board Additional such as events other specific transactions and with deal to including were financings and debt the bond issue and dividends, acquisitions, time. the available at those Directors attended by the by which is approved formal agenda, follows a The Board in advance Secretary Company the by Chairman and circulated of the meeting to all the Directors and other A typical attendees. performance, investment of investment agenda includes a review financial performance, asset allocation, Company’s the opportunities, or governance regulatory and specific relations on investor updates to invited are advisors Company’s the of matters. Representatives attend time to time, Company’s Board from the particularly meetings and lawyers. valuers, brokers focus and to review day whole for a year once a meets The Board of the Directors of June 2018, all In strategy. Company’s the on the of one the strategy meeting held at attended Company the located in Bristol. properties Company’s Conflicts ofConflicts Interest where to act in a situation Articles permit a Director Company’s The that interest of an and extent the nature disclosed has a Director Group in the of the interests with conflict, may possibly or conflicts, with the accordance Law. actual and whereby formal process has established a The Board who the Directors by considered are of interests potential conflicts to authorise whether decide then who the matter, in no interest have to such authorisations. to be attached conditions the conflict and any when giving or conditions impose limits to able are The Directors A the circumstances. in this is appropriate think they authorisation, if Secretary Company the by of potential conflicts is maintained register authorised that any to ensure meeting at each Board and is reviewed confirm at to required are Directors remain appropriate. conflicts their position. to change has been any there whether these meetings Board Operation Board times four held at least meetings, Board meet at regular The Directors the During as necessary. with additional meetings arranged year, a meetings of scheduled Board the number December 2018, to year 31 follows: was as each Director attended by 75 hareholder Shareholder 58 and 59. (continued) a service contract, but letters of has a service contract, but letters Long lists of potential non-executive Directors will always will always Directors potential non-executive of Long lists merit. of appropriate candidates diverse include who have firms search engage executive only will The Board on Conduct of gender diversity Code signed voluntary up to the and best practice. All Board appointments will be made on merit, in the context on merit, in will be made appointments All Board the for needed that are knowledge and experience the skills, of to be effective. Board • • • The Board does not feel that it would be appropriate to set diversity diversity to set would be appropriate that it feel does not The Board objective on merit and as all appointments must be made targets into taken will be generally diversity gender and criteria. However, the skills, knowledge and experience when evaluating consideration the has established The Board vacancy. fill each Board to desirable for on the following objectives achieving diversity Board: The Board acknowledges the benefits of greater diversity, including diversity, of greater the benefits acknowledges The Board Company’s the that to ensuring committed and remains gender, of skills, knowledge, experience, wide range bring a Directors and perspectives. backgrounds Board Diversity Diversity Board William Eason was appointed as the Senior Independent Director Senior Independent Director the was appointed as William Eason for any a channel on 1 December 2016. He provides the annual in the lead takes Chairman and the concerns regarding Chairman. evaluation of the Senior Independent Director None of the Directors The Board is responsible for all matters of direction and control of the of and control direction of for all matters is responsible The Board policy and strategy, including its investment Group, the and Company The decision-making. of powers one individual has unfettered and no the to relevant of business expertise wide range possess a Directors Company and of the direction they consider that commit sufficient affairs. Company’s time to the appointment of their setting out the terms appointment are in place. office. of for loss compensation to any not entitled are Directors the for inspection at available of appointment are the letters of Copies for up will be made available and office address registered Company’s to 15 minutes prior to the AGM. start of the The Board of Directors The Board and has no Directors of Non-Executive consists entirely The Board who Company details of the Biographical employees. of the Directors held office during the period areon shown pages Corporate Governance Governance Corporate Corporate Governance 58 - 90 does not act as committee chairman. does notactascommittee chairman. member ofthe but Audit a The CommitteeChairman ofthe is Company subsequently becamechairman of the Audit Committee in June 2018. Directors. Frances was appointedasamember on 1 Throughout 2018, the Audit Committee comprised the four Independent Audit Committee available onthe areCompany’s Committees,which website. The Board hasestablished formal terms of reference for each of the Nomination Committee. separate Company, itisnot felt appropriate for the Company to have a Remuneration and Committee.size ofthe Engagement Given the certain responsibilities to its Audit Committee anditsManagement The Board has two Committees in operation andhas delegated Board Committees open discussion. There were noconcerns to report. Chairman) to discuss the evaluationresults andprovide a forum for absence ofthe (in the Directors with theother separate discussion a In addition,post the year end, the Senior IndependentDirector led continued to strongly andeffectively lead the Board of the Company. considered that the Chairman remained independentand that he The Chairman’s review was positive, and the other Directors the Company. and direction of leadership relevanteffective to experience foster the all the current Directors contributeeffectively andhave the skillsand As evidencedby the result of the evaluation, the Board considers that discussed by the Board asa whole. The results of the 2019Board evaluationprocess were reviewed and Board. effectivenessrelating ofthe Directors tothe amongst the concerns of the property sector viewed asstrengths. There were nosignificant engagement andpreparation for meetings,andcombinedknowledge Overall, the results of the evaluation were positive, with Director succession planning. strategic operational oversight, shareholder engagementand discussions. The Board was alsoasked to considerBoard support, any additionalinformationmayberequired to facilitate betterBoard the operation of suchmeetings was appropriate, as well as whether efficiency ofBoard and Committee meetings,and toassess whether analyse the focus of Board compositionandeffectiveness, the structured to was using tailoredand questionnairesconducted and the performance of itscommittees. The evaluation was independence of the Board and the Chairman, individualDirectors evaluation specifically designed toassess thestrengths and The Directors have opted to undertake aninternalperformance necessary at this stage;however agreed that the use of anexternalevaluationserviceprovider was not feedback mechanism for improving Board effectiveness. The Board undertaking aregular Board evaluationexercise, providing a valuable improve performanceandrecognise that this canbeachieved through The Directors are aware of the need to continually monitorand BoardEvaluation Corporate Governance , this would bekept underreview. (continued) February 2018and 76 objective by the Board,by throughobjective the the Audit Committee. context ofthe Company’sin the undertaken investment overall Regular riskassessmentsandreviews of internalcontrols are 79 to attend asnecessary. An Audit Committee Report isset out on pages discretion andrepresentatives of the externalauditorare invited to Committee mayinvite anyone to attend Committee meetingsatits entitled to attend or to vote atitsmeetings.However, the Audit Any individual who isnotamember of the Audit Committee isnot recent andrelevant financial experience. is alsosatisfied thatatleast onemember of the Audit Committee has experience in the industryin which the Company operates. The Board All members of the Audit Committee are considered to have relevant Report isset out on pages82and83. Committee mayinvite anyone to attendatits discretion. A MERC not entitled to attendand vote on mattersatitsmeetings, the Although anindividual who isnota member of the MERC is member ofthe stepped down as Chairman of the MERC in June 2018butremains a Directors andisnow chaired by William Eason.Kevin McGrath Throughout 2018, the MERC comprised the four Independent Committee (“MERC”) Management EngagementandRemuneration • • • • Board managesrisksasset out below: procedures are designed to managerather than eliminaterisk. The information from the Asset andInvestment Managers. These relying on regular reporting on performanceand other management of financial, compliance,reporting, operationaland overall risks by safeguard the Company’s assets. The Board exercises its oversight evaluating andmanagingsignificantrisks with theaim ofhelping to The Board hasestablishedan ongoing process for identifying, operations. risk managementandcontrol processes are embeddedin day-to-day internal controls and for reviewing their effectiveness, ensuring that The Board has overall responsibility for the Company’s systems of Management of RiskandInternal Controls for disposals exceeding £15m in value. required for purchases of property exceeding £15min value and the Company and the Asset Manager, Board-level approval is Management Under thetermsof between AgreementAsset manager provides reports ateachmeeting of the Board; and Managers outside of scheduledBoard meetingsandeach The Board iskept regularly updatedby the Asset andInvestment safeguardareproviders the designedto Company’s assets; proceduresservice and the ofthethird-partysegregated, accountancyand management, depository functions are The responsibilities for the investment asset management, party serviceproviders; procedurescontrols ofthe internal Company’sprincipal third- control assessment on anannualbasis,includingareview of the The Board, through the Audit Committee, will conductariskand 81. C ommittee. for the year ended31 December2018 Annual Report and Accounts Corporate Governance 58 - 90 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for 77

(continued) (continued) have reviewed the effectiveness of the risk management and of the effectiveness reviewed have were failings systems and no significant internal controls identified. are satisfied that they have carried out a robust assessment of robust assessment out a carried they have that satisfied are and Group; the facing the principal risks • • Taking into account the principal risks provided on pages 49 to 52 the principal risks provided into account Taking Committee in Audit and the ongoing work of the monitoring the risk the of Board, on behalf systems management and internal control Directors: The Audit Chairman, on behalf of the Audit Committee, Committee, Chairman, on meets Audit with Audit of the behalf The to discuss and their review Toscafund of LSI representatives and depository services under Depository provides The internal controls. Company and to the AIFMD on reports the an annual basis to the specific monitoring on its reports, quarterly to in addition Company, verification. transactions and asset of cash Most functions for the day-to-day management of the Company for the day-to-day functions Company are Most of the management assurances obtain regular therefore the Directors sub-contracted, and the suppliers regarding third-party principal from and information In organisations. their operated in internal systems and controls LSI parties, excluding third material Company’s the of addition, each each on internal controls of its report s a copy and Toscafund, provide Committee. Audit the by which is reviewed year, The Board reviews financial information produced by the Investment Investment the by financial information produced reviews The Board basis. on a regular Sub-Administrator the Manager and The principal risks that have been identified by the Board are set out set are the Board by been identified that have The principal risks on pages 49 to 2. 5 A risk matrix has been produced against which the risks identified and the risks which against produced A risk matrix has been The those risks can be monitored. to mitigate in place the controls risks are assessed on the basis of the of them likelihood happening, the on the impact business to occur if they were and the effectiveness is reviewed This risk register them. to mitigate in place the controls of six months. every Committee Audit the by Corporate Governance Governance Corporate Management of Risk and Internal Management Controls Kevin McGrath Kevin Director Chairman and Independent Non-Executive 2019 27 March By order of the By order Board Property Name: Columbus House, Coventry Sector: Office Corporate Governance 58 - 90 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for to the review policy on the Auditor to engagement of the supply non-audit services; and objectivity; and independence Auditor’s the to safeguard function. for an internal audit the need review to regularly to keep under review the adequacy of the Company’s third- to keep under the Company’s review adequacy of the risk management and internal controls party service providers’ systems; and including significant and risk register, Company’s the review risks. emerging Auditor, external Company’s the with the relationship to manage re-appointment, remuneration, Auditor’s the including reviewing objectivity and independence and of engagement, terms the to recommendations committee makes The performance. as appropriate; Board • • • Risk Management and Control and Risk Management • • External Audit • 79 as the requested to by the Annual Board, review contents of the taken whether, on the Board and advise Accounts and Report balanced and understandable and fair, is the report whole, as a to assess with sufficient information shareholders provides model and position and performance, business Company’s the strategy. to review and report to the Board on any significant financial significant on any the Board to and report to review matters to any issues and judgments, having regard reporting Auditor; and the to it by communicated to monitor the integrity of the half-yearly financial statements, financial statements, the half-yearly of the integrity to monitor results financial statements and preliminary full-year Company; announcement of the • • Financial Reporting • Role of the Audit Committee Audit of the Role Committee The are: Audit principal duties of the The Committee is a Board Committee with governance responsibilities that include the oversight of financial disclosures and corporate disclosures financial of oversight the that include responsibilities with governance Committee is a Board Committee The twice to meet at least Committee is The and efficiently. effectively operates Committee the that important therefore and it is reporting Manager or Investment Asset the to either connected are Committee the of the members of two members. None quorum is and its annually it considered have Committee The Company. the of Chairman he is also Director McGrath is an independent Whilst Kevin Auditor. the to or his experience. Kevin and to have beneficial December 2018, this being my first report as Chairman of the Audit Audit the of Chairman report as first this being my December 2018, ended 31 year the for Report Committee Audit the to present I am pleased an chaired and have Accountant Chartered William Eason. I am a from the chairmanship over taken having (the “Committee”) Committee audit committee previously. Audit Committee Audit Committee Report Corporate Governance 58 - 90 Attendance at these meetings was as follows: Investment Manager. best practiceandareas of significantjudgmentundertaken by the Committee on changes to accountingpolicies,legislationand The Administrator and the Investment Managerupdate the Audit 49 to the riskmatrix. The Company’s principalriskscanbe found on pages The Audit Committee hasreviewed andupdated, where appropriate, the Board, aftereach meeting. quorum is two members.Itreports andmakes recommendations to The Audit Committee is to meet atleast twice annually andits • • • • • • • • has: Audit Committee end. meetings, the post theyearAt these and once on three occasions 31ended December2018, During theyear the Audit Committee met the Year Matters Consideredbyin the Audit Committee • • Other • Property ValuationExternal ReportAudit Committee Daniel Taylor Kevin McGrath William Eason Frances Daley(Chairman) Member Board accordingly. reviewed the Group’s Financial Statements andadvised the and independence ofthe reviewedAuditor; the reviewed the provision of non-auditservicesby the Auditor; audit; results ofthe reportwith the receivedand discussed onthe Auditor their (“JLL”); as Cushman & Wakefield) and JonesLangLaSalleIncorporated Cushman & Wakefield Debenham TieLeungLimited(trading reviewed the half-year andannual valuation reports from areas of focus, andagreed the audit fee; agreed the auditplan with the Auditor, including the principal results; reviewed financial key third-party serviceproviders; reviewed the internalcontrols andriskmanagementsystems of responsibilities. to report to the Board on howithas discharged its effectiveness; and to review the Committee’s terms of reference andperformance full-year external valuations of the Group’s property portfolio. to review the quality andappropriateness of the half-yearly and 55. Number of meetings meetings Number of Scheduled Audit CommitteeScheduled Audit to attend entitled 3 3 3 3 (continued)

attended Number Meetings 3 3 3 3 80 MERC, asset out in their report on pages82and83. The performance of the valuers isassessed on anannualbasisby the Audit Committeesatisfied with were the reports. valuation reports andhas discussed these reports with the Asset Manager. The reviewedend, the the Since theyearvaluation Audit has Committee direct access to them aspart of the auditprocess. various elements of the property valuations. The Auditor alsohas challenge and throughoutprocess theyear todiscuss onthe valuation with the valuers held opendiscussions has Manager The Asset valuations are compliant with International Valuation Standards. within the RICS Valuation-Professional Standards 2014. The Applications and United Kingdom Valuation Standards contained RICS Global ValuationStatements, Practice Practice Guidance– sections of the RICSProfessional Standards, RICS Global Valuation The valuations are prepared inaccordance with the appropriate party serviceproviders, Cushman & Wakefield and JLL. asset value. Properties are independently valued by specialist third and that errors couldhave amaterialimpact on the Company’s net within the Company’s portfolioiscentral to the Company’s business The propertiesAudit recognises Committee thatthe valuation ofthe Portfolio ValuationProperty position andperformance,business modelandstrategy. the informationnecessary for shareholders to assess the Company’s taken asa whole, is fair, balancedandunderstandable andprovides review, the Report,Audit is oftheopinionthat Committee Annual Following the consideration of the above mattersandits detailed standardappropriate duringtheyear. and competence of the audit team, hadbeen maintainedatan external Auditor’sknowledge the qualityof and the work, and the Audit concluded that ended Committee just of theyear would bereported to the Board. Noconcerns were raisedinrespect Any concerns with the effectiveness of the externalauditprocess Investment Managers. and communicationbetween the audit team and the Asset and the competenceandexpertise of the audit team, the resources, of the staffincluding the performance of the leadauditpartner, the Auditor.amongst other factors, thequality comprised, review The of the externalauditprocess andconsidered the reappointment of The Audit Committee hasundertaken areview of the effectiveness external auditandconsiderevaluateany findings. with the meet They Auditor todiscussthe further findings ofthe annual results are prepared to discuss the scope to the auditplan. Each year, the beforewith the Audit meets the CommitteeAuditor engagement ofthe Auditor.and termsof remuneration appointment, report andmakes recommendations to the Board on the re- undertakes a detailed review of the auditplanand the audit results effectiveness of the externalauditprocess for the Annual Report, Each year,reviews the and the Audit monitors Committee Process External Audit for the year ended31 December2018 Annual Report and Accounts Corporate Governance 58 - 90 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for Internal Audit for an is no need there that determined has Committee Audit The the of and complexity the limited size function given internal audit and business. Company Effectiveness Committee the Board carried out During the year, an facilitated internally This Committees. of its that of its performance and evaluation Committee evaluation continued to operate Audit that the confirmed standard. at an appropriate Daley Frances Chairman Audit Committee 2019 27 March 81 (continued) January 2026. audit partner five every Following consideration of the performance of the Auditor, the consideration of the Following Auditor, performance of the service during the year and provided a their of review independence Committee has Audit to the the recommended Board and objectivity, Company’s the Audit LLP as UK of RSM the continued appointment external independent auditor. Review of Auditor Appointment Review Having considered the Auditor’s independence in Auditor’s of the year Having respect the considered the with is satisfied Committee Audit the December 2018, ended 31 objectivity and independence. performance, Auditor’s In accordance with requirements relating to the appointment of the appointment to relating with requirements In accordance tender no later to conduct an audit will need Company the auditors, the accounting period beginning 1 for than The Audit Committee received confirmation from RSM that they that RSM from confirmation received Committee Audit The with applicable in line internal safeguards maintain appropriate standards. professional Independence and Objectivity of the AuditorIndependence Objectivity of the and since Company the to Audit LLP (“RSM”) has been auditor UK RSM time Mr Euan Banks, which during listing on 2015, 6 November with the audit. In line on the audit partner at RSM, has been Partner the Company’s mandatory of the rotation considered Committee Audit the performance, In evaluating RSM’s the of the effectiveness audit taking process, consideration of the Auditor’s the fees and staff expertise, audit delivery, of quality the audit. during with matters raised independence, along years, Mr Banks will rotate as audit partner year financial will rotate after the Mr Banks years, December 2019. ending 31 for the No tender Company audit of the has been undertaken. Deloitte LLP have been engaged to advise on all ongoing taxation ongoing on all to advise been engaged Deloitte LLP have matters. The cost of non-audit services provided by the Auditor to the to Auditor the by of non-audit services provided The cost for the financialyear Company ended31 December 2018 was to These services related December 2017: £122,998). £26,000 (31 separate corporate a LLP, Finance Corporate RSM by work undertaken Audit Auditor UK LLP) body to that of the (RSM in of respect corporate finance services. In order to help safeguard the external Auditor’s independence and independence Auditor’s the external to help safeguard order In engagement the on has a policy Committee Audit the objectivity, the taking into account services, non-audit to supply Auditor the of All non-audit Practices Board. Accounting the of recommendations Audit the by be approved Auditor must the out by to be carried work will not be granted in such approval in advance and Committee that the or considered nature cost of the where circumstances it’s independence. Auditor’s external the with work could interfere Audit Fees and Non-Audit Services and Non-Audit Audit Fees the of audit the of in respect has been agreed of £77,500 fee An audit December 2017: for the year December 2018 (31 ended Company 31 December ended 31 year the for fees audit Group’s The £75,000). December 2017: £246,000). totalled £222,500 (31 2018 Audit Committee Audit Committee Report Corporate Governance 58 - 90 annually and its quorum is two members. the Board aftereachmeeting. The MERC is to meetatleast once remuneration. The MERC reports, andmakes recommendations, to No individualis to beinvolved in discussions abouthis/her own executive Directors. MERC alsoconsidered the remuneration of the independentnon- the Company’s corporateadvisersandprincipalserviceproviders. The and Investment Managersand the continuedappointment of all of considered the continuedappointmentandremuneration of the Asset It end. post year and once met twiceduringtheyearMERC The the YearDuring Activities • • • • • are:MERC principal dutiesofthe The Remuneration(“MERC”) Committee Role of the ManagementEngagementand the year ended31 December2018. Management EngagementandRemuneration Committee Report for As newly appointed Chairman, Iampleased to present the EngagementandRemunerationManagement, Committee Report incentive paymentsandshare options or other share awards. package of eachDirector and the Managers,includingbonuses, remuneration individual the Chairman, todeterminethetotal within the terms of the agreed policyandinconsultation with and providers; service appointment ofthethird-party appropriateness oftheongoing monitor the and recommend to the Company; appointment of the Asset ManagerandInvestment Manager of appropriateness oftheongoing monitor the and recommend to Company; Directors, Asset ManagerandInvestment Manager of the to monitor the level andstructure of remuneration of the the Companyand Chairman; Directors to have responsibility for setting the remuneration policy for all 82 should beretained. Committee recommends that all other third-party serviceproviders resultset out ofthetender,areto the which detailsof value inrespect of the servicesitprocures from third The MERC was satisfied that the Company wasbenefiting from added and its Shareholders asa whole. interests ofthe best Company in the Manager,agreed,was ontheterms continued appointment of each of the Asset ManagerandInvestment Board recommend thatthe agreed tothe Investment to and Objective, Investment Managerand their ability to support the Company’s and Manager eachofthe Asset performanceof withthe satisfied On the basis of the review undertaken by the MERC, the MERC was review. The Board keeps the performance of bothManagersundercontinual strategyof the and Company. performance discuss the financial the Company’s investments and discuss the market generally and to of bothManagersattendallBoard meetings, to update the Board on communication between the Managersand the Board, representatives decisions madeby the Asset Manager. To ensure open andregular On aregular basis, the Board reviews the investment and disposal Managers. service providers. The MERC alsoreviews the resourcing at the the additionaladded value given by the Managersand the Company’s requirement for the provision of suchservices, the fees paid to and providers. Itassessed the performance, quality of serviceand ongoing performance of the Managersand the Company’s key service The MERC conducteditsannualcomprehensive review of the appointed. the MERC to subsequently recommend to the Board the party to be recommendations to the MERC as to apreferred party to enable tender includes the current incumbents. The Asset Manager will make of the Company’s portfolio valuation asat30 portfolio, with a view of engaging the successfulpartyinadvance position of valuer tothe re-tenderCompany’s ofthe a property The Asset Manager, on behalf of the MERC, iscurrently undertaking for the year ended31 December2018 Annual Report and Accounts June 2019. This re- parties. Subject parties. Subject above , the Corporate Governance 58 - 90 Annual Report and Accounts and Report Annual (continued) for the year ended 31 December 2018 December ended 31 year the for 83 2 2 2 2 Number attended 2 2 2 2 Scheduled MERC Meetings Scheduled MERC entitled to attend Number of meetings Member Bill Eason (Chairman) Kevin McGrath Kevin Daniel Taylor Frances Daley Frances William Eason Chairman Committee MERC 2019 27 March During the year, the Board carried out During the year, an facilitated internally This Committees. of its that of its performance and evaluation evaluation Committee confirmed that the continued to MERC operate at a high standard. Committee Effectiveness Committee Attendance at these meetings was as follows: was as meetings these at Attendance Management, Engagement and Remuneration Committee Report Report Committee Management, and Remuneration Engagement Corporate Governance 58 - 90 non-statutory benefits. benefits, long-termincentive schemes orshare options orany other for non-executive Directors. The Directors do notreceive pension of the Directors as the Board does notbelieve that this isappropriate There are noperformanceconditionsattaching to the remuneration Additional Remuneration duties asaDirector. in the furtherance oftheir concerns them matter that any advice on expenses properly incurred by them seeking independentprofessional or out-of-pocket expensesproperly incurred by them inattendingBoard The Directors maybepaidallreasonable travel, hoteland other chief legalcounsel of the Investment Manager. receives noremuneration from the Company due to hispositionas his positionaschiefexecutive officer of the AssetManager. TimBee Stephen Inglisreceives noremuneration from the Company due to the of Audit Committee.as Chairman role Director. Frances Daleyreceives noadditionalremuneration for her Chairman of the MERC or as Senior IndependentNon-Executive William Easonreceives noadditionalremuneration for hisrole as shall frommeeting timetodetermine). general £300,000 inany financial year (orsuchsumas the Company in receive fees for their services, suchsumsnot to exceed inaggregate organisations andappointments. The Directors shallbeentitled to of the Board asa whole, determined with reference to comparable The level of remuneration hasbeenset to reflect theexperience Directors’ Remuneration Company’s Articles of Association of £300,000perannum. within well within the approved maximumaggregate set out in the Company’s inceptionin2015. The increase inDirectors’ fees remains remuneration. Directors ’ abstained Directorfrom individual votingEach ontheirown Senior IndependentDirector. payable tothe Chairman ofthe be Audit andthe Committeewould £50,000) perannum for other Directors. Noadditionalincrease in fees £70,000) perannum for the Chairman and£52,500(previously 1 required of eachDirector. As aresult of this review, with effect from market ratesgenerally and the time commitmentandresponsibilities activity ofthe Company,level of considering the its results, financial no employees. Annually, the MERC reviews Directors remuneration, consists entirely of non-executive Directors and the Company has As at31 ended 31 I ampleased to present the Directors’ remuneration report for the year fromStatement the Chairman Remuneration Report

April 2019, fees will beincreased by 5% to £73,500(previously C ommittee meetings or generalmeetings,andallreasonable December 2018 and the date of this report, the Board report, the and thedateofthis 2018 December December 2018. fees have notbeenincreased since the 84 27 March 2019 MERC Chairman William Eason BoardBy order ofthe reviewing levels of remuneration. Directors would be taken intoconsiderationby the MERC when Any views expressed by Directors duringtheyear.paid tothe remunerationwas additional No * services duringtheyear: The following amounts were paid to the Directors as fees for their Total Director Remuneration so. appropriate ordesirable todo engagement of remuneration consultantsin the future ifitis thought consultant during the periodunderreview. The Board will consider the The Group did notengage the services of anexternalremuneration Remuneration Consultants No paymenthasbeenmade to any former Director for loss of office. of Office Loss Paymentfor Aggregate: Tim Bee Stephen Inglis Frances Daley* Daniel Taylor William Eason Kevin McGrath Director Appointed on 1February 2018 hareholders on the fees being paid to Shareholdersbeing onthe fees 31 December2018 Feespaid to £215,832 £50,000 £50,000 £45,833 £70,000 for the year ended31 December2018 – – Annual Report and Accounts 31 December2017 £170,000 Feespaid to £50,000 £50,000 £70,000 – – – Property Name: Buildings 2 & 3 HBOS Campus, Aylesbury Sector: Office Corporate Governance 58 - 90 • attention to: add ordraw material to anything have reportwe toyouwhether to in the annualreport, inrelation to which the ISAs(UK)require us We have nothing to report inrespect of the following information concern and viability statement Conclusions relating to principalrisks,going basis for ouropinion. a provideappropriate to believe that the auditevidence we have obtained issufficientand ethical responsibilities inaccordance with these requirements. We to listedpublicinterest entities,and we have fulfilled our other statements in the UK, including the FRC’s Ethical Standard asapplied audit ofthe relevantfinancial requirementsare toour ethical that our report. We are independent of the group inaccordance with the sectionof statements responsibilitiesaudit ofthe financial for the arein the standards Auditor’s furtherdescribed under those on Auditing (UK)(ISAs(UK))andapplicablelaw. Our responsibilities We conducted our auditinaccordance with International Standards opinion Basis for • • • In ouropinion: European Union. International FinancialReporting Standards (IFRSs)asadoptedby the that hasbeenappliedin their preparation isapplicablelawand of significantaccountingpolicies. The financial reporting framework Flows andnotes to the financial statements,includingasummary of Cash and ConsolidatedStatement Equity in of Changes Statement Position, ConsolidatedFinancial of Income, ConsolidatedStatement of Comprehensivethe ConsolidatedStatement comprise which 2018 and itssubsidiaries(the‘group’) for the year ended31 December We have audited the financial statements of Regional REITLimited Opinion Independent Auditor’s Report to the Members of Regional REITLimited managed or mitigated; managed or that describe the principalrisksandexplainhow they are being the disclosures in the annual report set out on pages49to and “Law”) Article 4 of the IASRegulation. the requirements of the Companies (Guernsey) Law2008(the the financial statementshave beenprepared inaccordance with accordance with IFRSsasadoptedby the European Union; and the financial statementshave beenproperly prepared in profit ended; forthe year then the group’s affairsasat31 December2018and of the group’s the financial statementsgive a trueand fair view of thestate of 52 86 • • • • are diversified across the UK witha widegeographical spread. 31 retail. and at industrial, office portfolio Thetotal value ofthe Vehicles (SPVs) aportfolio of investment properties which include The group owns or controls through aportfolio of Special Purpose pages financial statementson significant accountingpolicies onpages98 to 102andnote14 to the significant accountingjudgementsandestimates onpages96 to 98; This is detailed in the Audit Committee report on pages79to Risk of material misstatement the group Valuation of investment properties heldby thereon, and we do notprovide aseparate opinion on these matters. the group financial statementsasa whole,andin forming our opinion team. These matters were addressed in the context of our audit of of resources in and the audit; directing the efforts of the engagement strategy,allocation audit effect on:theoverall the greatest had the which identified. includedthose due to we matters fraud) that These significant assessedrisks ofmaterialmisstatement(whether ornot financial statements of thecurrent periodandinclude themost judgment, were of mostsignificancein ouraudit of thegroup Key auditmattersare those matters in that, our professional Key auditmatters December2018 was £718.4m(2017:£737.3m). These properties assumptions. necessary qualificationsor any attention to disclosures drawing due over the period of includinganytheir assessment, related to continuein operation andmeetitsliabilitiesas they fall they have areasonable expectation that the group will beable period to beappropriate, and their statementas to whether over what period they have done soand why they consider that report as to how they have assessed the prospects of the group, the Directors’ explanation set out on page64in the annual or audit; in the 9.8.6R(3) ismaterially inconsistent with our knowledge obtained required under the ListingRulesinaccordance with ListingRule whether the approval statements; ofthe the dateof financial to continue to do so over a period of at least twelve months from identification ofany materialuncertainties to thegroup’s ability in preparing the financial statementsand theDirectors’ appropriate to adopt the goingconcernbasis of accounting whether the about statements the Directors’ statement set the financial in out on page63 liquidity; threaten itsbusiness model, future performance,solvency or would including thosethat group,risks facing the principal assessment ofthe robust a carried out havereport thatthey the Directors’ confirmation set out onpage64in the annual Directors’ statement relating to goingconcern 107 to 109. 107 to Directors considered it for the year ended31 December2018 Annual Report and Accounts 81; the Corporate Governance 58 - 90 81 – the ompany’s ompany’s C (continued) irectors’ statement Directors’ Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for , other than the financial 84, other than the – the parts of the 74 68 to compliance with the AIC Code containing provisions specified for specified containing provisions Code AIC the with compliance with Listing Rule 9.8.10R(2) the auditor in accordance by review of provision a relevant from departure disclose a do not properly the AIC Code. Fair, balanced and understandable set out on page 67 out – the set balanced and understandable Fair, that they the Directors consider the annual by statement given balanced fair, whole is as a taken financial statements and report for the information necessary and understandable and provides performance, business model the group’s to assess Shareholders our knowledge with inconsistent is materially and strategy, obtained in the audit; or on pages 79 to out set Audit committee reporting section describing the work of the audit committee does not the audit to us matters communicated by address appropriately committee; or set Code AIC the with of compliance statement Directors’ out on pages the to Rules relating the Listing under required • • • An overview of the An overview scope of our audit and profit group revenue, of group 100% Our audit scope covered set the materiality levels to was performed assets, and total group as noted above. auditing were audit matters The key out above. Other information the included in the information other information comprises The on pages 1 to out set annual report are The Directors thereon. report our auditor’s statements and for the other information. responsible financialOur opinion on the does statements not the other cover stated otherwise explicitly the extent to information and, except conclusion of assurance form any do not express we our report, in financial statements, the of audit our with In connection thereon. doing so, other information and, in the to read is our responsibility inconsistent is materially other information the whether consider financialwith the statements or our knowledge obtained in the audit we identify such misstated. If to be materially otherwise appears or we material misstatements, or apparent material inconsistencies is a material misstatement there whether determine to required are financialin the statements or a material misstatement of the other information. is a there that we conclude performed, we have work the on based If, material misstatement of the other information, we to are required this regard. in to report nothing have We fact. that report our to in regard to report nothing also have we this context, In to responsibility followingspecifically the items address in the other of material misstatements as uncorrected to report information and the other we information where conclude that those items meet the following conditions: 87 financial statements observations When establishing our overall audit strategy, we set certain thresholds thresholds we set certain audit strategy, overall our When establishing which help us to determine the timing nature, and extent of our audit of misstatements, the effects whether When evaluating procedures. whole, could financial statements as a the on and both individually reasonably influence the economic decisions of the users we take into account the qualitative nature and the of the size misstatements. financial statements as a the group for During planning materiality changedwas not significantly which was calculated as £8m, whole Committee Audit during the with the agreed course of our We audit. of in excess differences them all unadjusted to report would we that £150,000, as well that, as differences below that threshold view, in our warranted on qualitative grounds. reporting Our application of materiality Our application Key Key values of the fair concluded that the investment properties We being appropriate. were the group adopted by We tested ownership for a sample of properties by reference to land reference by of properties for a sample ownership tested We documents. registry We tested the inputs used by the valuer and ensured these reflected these reflected valuer and ensured the the inputs used by tested We of properties. for a sample inputs the correct We audited the additions and disposals made in the year and agreed and agreed year the disposals made in the additions and audited We the we also confirmed to completion statements, these of a sample bank accounts. the transacted through funds group’s were appropriate the prior period than higher materially were disposals Where valuation, we valuer to challenged the for understand the reasons disposal. on profit the resultant and these movements Audit approach adopted Audit approach properties of investment valuations the independent audited We for all on a consistent basis they had been prepared to ensure considered and are with RICs standards and in accordance properties the in recorded and correctly to be appropriate with considering value, along by top 20 properties the reviewed We more by moved valuation the where those additional properties than the £500,000 or tenant where current profile seemed to discussed and challenged We valuation. in the movement contradict movements and significant properties these large of valuation the detailed demonstrated a who valuer, manager and the property with the knowledge of geographical each the tenant location, property, status and the overall asset desirability. in line with Accounting Standards. We assessed both external We Standards. Accounting with in line valuers qualifications andexpertise and their terms of considered other objectivity and any their we also considered engagement, was no there that and concluded group the with existing relationships objectivity had been compromised valuers’ that either evidence The valuation is carried out by external valuers, Jones Lang LaSalle valuers, external out by valuation is carried The out in the methodology set with in line Wakefield Cushman & and note 14. The Directors’ value of the assessment of the investment properties to due audit matter a key is considered date, end year the at the of the total magnitude amount, the potential impact of the the subjectivity and and results, the reported on value in movement valuation complexity of the process. Independent Auditor’s Report to the Members of Regional REIT Limited REIT Limited of Regional the Members to Report Auditor’s Independent Corporate Governance 58 - 90 functions. audit todischargerely those on the not should who management material misstatement, whether causedby fraud or error, rests with are free from statements the financial that ensuring responsibility for and performedinaccordance with the ISAs.However, the principal may notbe detected, even though the auditisproperly planned that somematerialmisstatements of the financial statements the inherent limitations of anaudit, there isanunavoidable risk assets andliabilitiesrecorded in the accountingrecords. Owing to by the maintained account of the businessandcontrol environment establishedand group andparent company to fraud and other irregularities, taking susceptibility ofthe consider the will we audit, part ofour As statements. basis ofthese takenfinancial onthe reasonably beexpected to influence the economic decisions ofusers considered materialif, individually or in the aggregate, they could when itexists.Misstatementscanarise from fraud or error andare accordance with ISAs(UK) will always detect amaterialmisstatement of assurance,butisnotaguarantee that anauditconductedin that includes our opinion. Reasonable assuranceisahighlevel whether due to fraud or error, and to issueanauditor’s report financial statementsasa whole are free from materialmisstatement, whether the about assurance reasonableare Our objectives toobtain financial statements responsibilitiesaudit ofthe Auditor’s forthe or to cease operations, or have norealistic alternative but to do so. Directors eitherintend to liquidate the group or the parent company concern andusing the goingconcernbasis of accountingunless the as agoingconcern, asapplicable,mattersrelateddisclosing, to going for assessing the group’s and the parent company’s ability to continue preparing statements,the the In financial error.whether dueto fraud or misstatement, free material from is necessary to enable the preparation of financial statements thatare and fair view, and for suchinternalcontrol as the Directors determine the financial statementsand forbeingsatisfied that theygive a true page out on As explainedmore fully in the Directors’ responsibilities statementset Responsibilities of • • • opinion: reportif,in our toyourequiresus to Law relationwhich the to We have nothing to report inrespect of the following mattersin by exception Matters on which we are required to report Independent Auditor’s Report to the Members of Regional REITLimited purposes of our audit. audit. purposes ofour which, to the bestknowledgeandbelief, are necessary for the we have failed to obtain all the informationandexplanations records;accounting or with the the parent company financial statementsare notinagreement company; or proper accounting records have notbeenkept by the parent 67 , the irectors, as well as the nature oftransactions, as the well as Directors, Directors are responsible for the preparation of D irectors Directors are responsible 88 auditor’s report. report. This description, which islocated part of our on page89, forms financial statementsisincludedin theappendix to thisauditor’s responsibilitiesaudit ofthe A further descriptionofour for the committee. Our audit opinion isconsistent with the additionalreport to the audit audit. independent of the group and the parent company inconducting our not provided to the group or the parent company and we remain The non-auditservicesprohibited by the FRC’s Ethical Standard were the years ending31 December2015 to 31 December2018. The period of total uninterruptedengagementis four years, covering periods. subsequent financial the financial statements for the year ending 31 December2015and appointed by the auditcommittee on 6November 2015 to audit werewe committee, audit Followingrecommendation ofthe the Other matters which we are required to address 27 March 2019 EC4A 4AB London Farringdon Street25 Chartered Accountants LLP,UK Audit RSM Auditor have report,formed. or we for theopinions and the Company’s membersasabody, for our audit work, for this anyoneresponsibility otherthanthe to Companyassume accept or no other purpose. To the fullest extentpermittedby Law, we do not matters we are required to state to them inanauditor’s report and for state tothe Company’smight we so that undertakenmembers those accordance with Section 262 of the Law. Our audit work hasbeen This report ismadesolely to the Company’s members,asabody, in report Use ofour for the year ended31 December2018 Annual Report and Accounts (continued) Corporate Governance 58 - 90 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for We communicate with those charged with governance regarding, regarding, with governance those charged with communicate We the audit and of timing the planned scope and other matters, among deficiencies in any significant findings, including significant audit internal that we control identify during our audit. with a statement governance with charged those also provide We regarding ethical requirements with relevant complied we have that as applied Standard Ethical the FRC’s independence, including them all with communicate entities, and to listed public interest to thought be that may reasonably other matters and relationships safeguards. applicable, related where our independence, and on bear with those charged with the matters communicated From we determine those governance, of matters that were most financial statements the consolidated of the audit significance in We audit matters. the key therefore period and are the current of or regulation unless law report our auditor’s these matters in describe when, in extremely or the matter about disclosure public precludes should not be that a matter determine we circumstances, rare consequences the adverse because our report communicated in the public outweigh to be expected would reasonably doing so of of such communication. benefits interest 89 s’ Director use of the s. Director Obtain sufficient appropriate audit evidence regarding the regarding audit evidence Obtain sufficient appropriate within or business activities the entities of financial information the to group express an opinion on the financial consolidated supervision and direction, the for responsible are We statements. for responsible solely remain We audit. the group of performance our audit opinion. Evaluate the overall Evaluate the overall presentation, structure and content of the financial statements, the disclosures, including and whether the transactions and the underlying represent financial statements fair presentation. that achieves in a manner events going concern basis of accounting and, based on the audit on of accounting and, based going concern basis a material uncertainty exists related whether obtained, evidence to or events conditions that may cast significant doubt on the we conclude as a going concern. If to continue ability group’s draw to required we are that a material uncertainty exists, in disclosures the related to report our auditor’s attention in inadequate, are disclosures if such or, financial statements the to Our modify our opinion. conclusions are based on the audit evidence obtained report. up to the date of our auditor’s to group the may cause or conditions events future However, to continue as a going concern. cease Conclude on the of the Conclude appropriateness Evaluate the appropriateness of accounting policies used and the of accounting policies used and the appropriateness Evaluate disclosures of accounting estimates and related reasonableness made the by Obtain an understanding of internal control relevant to the audit to relevant of internal control Obtain an understanding to design in order that audit are procedures appropriate in the opinion an of expressing the purpose for but not circumstances, internal control. the group’s of the effectiveness on Identify and assess the risks of material misstatement of the of of material misstatement the risks Identify and assess design financial fraud or statements, whether due to error, those risks, and to responsive and perform audit procedures to and appropriate that is sufficient obtain audit evidence detecting a of not The risk opinion. our for a basis provide for than fraud is higher from resulting material misstatement forgery, collusion, may involve fraud as error from one resulting of or the override intentional omissions, misrepresentations, internal control. • • • • • • As part of an audit in accordance with ISAs (UK), we exercise we exercise with ISAs (UK), of an audit in accordance As part scepticism professional judgment and maintain professional also: We the audit. throughout Appendix: Auditor’s responsibilities for the Statements Appendix:Auditor’s financial of the audit responsibilities Property Name: 800 Aztec West, Bristol Sector: Office Financial Statements 91 - 130 9.1p 9.1p 217 215 (557) 2017 1,234 5,893 £’000 (1,632) 61,610 (9,429) 27,060 36,418 45,847 28,692 43,545 (15,763) (14,728) (restated) Year ended Year 31 December 31 Annual Report and Accounts and Report Annual 415 268 (557) (567) 18.1p 18.1p 2018 £’000 23,127 for the year ended 31 December 2018 December ended 31 year the for 67,373 74,019 83,797 67,940 23,881 54,375 36,789 (17,586) (15,983) (19,644) Year ended Year 31 December 31 7 5 9 6 11 16 14 14 10 12 12 26 Notes 91 Net movement in fair value of derivative financial instruments derivative of value fair in Net movement tax Profit before Taxation Finance expense Impairment of goodwill Earnings per share – diluted – Earnings per share Earnings per share – basic Earnings per share Total comprehensive for the year income comprehensive (attributable to owners of the parent company) Total Change in fair value of investment properties of investment value fair Change in Operating profit Finance income Operating profit before gains and losses on property assets and other investments assets and on property gains and losses before Operating profit Gain on disposal of investment properties Net rental income Net rental other expenses and Administrative Property costs Property Continuing Operations Continuing Revenue income Rental Total comprehensive income arises from continuing operations. continuing from income arises comprehensive Total The notes below are an integral part of these consolidated financial statements. these consolidated of an integral part The notes below are Consolidated Statement of Comprehensive Income Statement Comprehensive of Consolidated the year 2018 December ended For 31 Financial Statements 91 - 130 27 March 2019 Chairman andIndependentNon-Executive Director Kevin McGrath on itsbehalfby: These consolidatedgroup financial statements were approved by theBoard ofDirectors andauthorised forissue on27March 2019andsigned The notesbeloware anintegralpart of these consolidated financial statements. As at31 December2018 Consolidated Statement of FinancialPosition Net asset value pershare – diluted Net asset value pershare –basic parentTotalattributable toownersofthe equity Retained earnings Stated capital Equity Net assets Total liabilities Derivative financial instruments Derivative financial Retail eligiblebonds Zero dividend preference shares Bank andloanborrowings Non-current liabilities Zero dividend preference shares Bank andloanborrowings Trade and other payables Current liabilities Liabilities Total assets Cash andcashequivalents Trade and other receivables Current assets Taxation liabilities Deferred income loan receivablesNon-current ontenant Goodwill Investment properties Non-current assets Assets 92 Notes 17b 20 28 28 26 23 23 24 24 25 22 27 18 14 16 19 21 31 December (334,672) (418,357) (285,199) 720,886 104,823 126,986 429,515 429,515 370,316 847,872 (30,663) (83,685) 718,375 (39,816) (49,136) (11,043) 59,199 22,163 for the year ended31 December2018 115.2p 115.2p £’000 (1,763) 1,396 2018 (400) 1,115 (337) – Annual Report and Accounts 31 December (333,981) (414,616) 392,899 392,899 (371,972) 740,928 370,318 (42,644) 737,330 807,515 (26,941) 44,640 (12,667) (37,239) 66,587 105.4p 22,581 21,947 (2,636) 105.1p £’000 1,926 1,672 (400) 2017 (752) – – Financial Statements 91 - 130 (2) 814 (930) Total Total £’000 £’000 (2,586) 67,373 27,060 98,687 (22,811) (29,825) 291,735 429,515 392,899 392,899 Annual Report and Accounts and Report Annual – – – 814 (930) £’000 17,518 £’000 67,373 for the year ended 31 December 2018 December ended 31 year the for 59,199 22,581 22,581 27,060 (22,811) (29,825) earnings Retained earnings Retained – – – – – – (2) £’000 Attributable to owners of the to owners of Attributable parent company £’000 (2,586) Stated capital Stated 98,687 capital 274,217 Attributable to owners of the to owners parent Attributable company 370,316 370,318 370,318 93 13 13 27 27 27 35 35 Notes Notes January 2018 January 2017 December 2017 Balance at 31 Dividends paid December 2018 Balance at 31 Share based payments Share issue costs Share Balance at 1 income comprehensive Total Dividends paid Issue of share capital of share Issue issue costs Share Balance at 1 income comprehensive Total based payments Share Consolidated Statement of Changes in Equity Changes of Statement Consolidated the year 2018 December ended For 31 The notes below are an integral part of these consolidated financial statements. these consolidated of an integral part The notes below are For the year ended December 2017 year the For Financial Statements 91 - 130 The notesbeloware anintegralpart of these consolidated financial statements. 31Forended December2018 theyear Flows Consolidatedof Cash Statement Net cash flow generated from operatingactivities Taxation paid Finance costs Financial income generated fromoperations Cash Decrease in deferred income Increase in trade and other payables Increase in trade and other receivables Finance expense Finance income goodwill Impairment of propertiesinvestment– Gain ondisposalof Profit before forthetaxation year activities Cash flowsfrom operating Cash andcashequivalentsat the end of the year Cash andcashequivalentsat the start of the year Net increase incashandequivalents Net cash flow (usedin)/generated from financingactivities Bond issuecostspaid Proceeds from Bondissue Acquisition of subsidiaries,net of cashacquired Interest received Sale of investment properties Purchase of investment properties Investing activities Share basedpayments instruments derivative of financial value in fair – Change – Change in fair value of investment properties Bank borrowing costspaid Bank borrowings repaid Bank borrowings advanced paid onthedisposalofderivatives costs Net Dividends paid Share issuecosts sharesProceeds issue of from the Financing activities Net cash flow generated from/(used in)investing activities 94 31 December Year ended (101,506) 104,823 149,276 (33,436) (29,429) (48,675) (32,629) (23,881) 44,640 50,000 50,959 (23,127) 25,427 67,940 15,983 (12,173) 38,817 60,183 68,192 for the year ended31 December2018 (2,358) £’000 (1,345) (1,467) (1,190) 5,323 2018 (930) (268) (925) (415) 250 220 557 (7) – – Annual Report and Accounts 31 December Year ended (165,619) 179,540 (60,108) (51,866) 44,640 30,848 (23,321) (25,188) 28,692 (10,155) 28,441 72,654 40,251 14,728 (5,893) 16,921 (5,479) 16,199 (1,398) 57,701 (1,234) (3,714) £’000 8,617 2017 (236) (441) (215) (217) 988 (119) 814 557 25 – – Financial Statements 91 - 130 Annual Report and Accounts and Report Annual . 57 for the year ended 31 December 2018 December ended 31 year the for 95 , zero dividend preference shareholders were were shareholders dividend preference on page 130, zero detailed in note 36 January 2019 and, as June 2015 and is registered with the Guernsey Financial Services Commission as a Registered Closed- as a Registered Commission Services Guernsey Financial the with June 2015 and is registered nformation i Basis of preparation Corporate Corporate Business combinations Going concern Functional and presentation currency Functional and presentation At the time of acquisition, the Group considers whether each acquisition represents the acquisition of a business or the acquisition of an the acquisition or of a business the acquisition whether each acquisition represents considers Group the of acquisition, time the At the for accounts Group the the property, to in addition acquired of activities are an integrated set where of a business an acquisition asset. For (“IFRS 3”). Combinations acquisition as a business combination under IFRS 3 Business to the cost as business combinations. Rather, treated not they are of a business the acquisition to be not judged such acquisitions are Where the values at fair relative their the entity based upon of the identifiable assets and liabilities the corporate entity is allocated between acquire no goodwill or tax Accordingly, deferred additional arises. acquisition date. 2.3. The assessments of going concern are prepared in accordance with the FRC Guidance issued September 2014. September Guidance issued the FRC with in accordance prepared of going concern are The assessments zero PLC Regional REIT ZDP The forecasts. flow reviewed cash financial risk and have of potential areas considered carefully have The Directors on 9 matured shares dividend preference to continue as a going concern ability Group’s the would influence which detected been end. No material uncertainties have year the paid after to continue in resources financial has adequate Group the that themselves satisfied have The Directors than 12 months. not less of for a period operational future. existence for the foreseeable financial statements. the the going concern basis in preparing to adopt continue of Directors the Board Accordingly, 2.2. 2.1. the nearest to rounded values are and all functional currency, the which is also Sterling Pounds in financial information is presented The otherwise indicated. where thousand (£’000) pound, except 2. and Guidance the Disclosure with on a going concern basis in accordance been prepared financial statements have Consolidated Group’s The issued (“IFRIC”) as Committee (“IFRS”) and IFRS Interpretation Standards with International Financial Reporting the FCA and of Rules Transparency the Law. and the IAS Regulations of Article 4 with Union (“EU”), in accordance the European adopted by the IASB and as by properties and investment Group’s the for as modified on a historical cost basis, been prepared financial statements have consolidated Group’s The or loss. profit through value fair instruments) at derivative financial liabilities (including financial assets and certain been costs have income and property for revenue Income Comprehensive of Statement Consolidated Group’s the information in Comparative overall is no There and note 6. in note 2.4, note 5 given Details are with customers’. contracts from of IFRS 15 ‘Revenue the adoption to due restated income. on net rental impact Ended Collective Investment Scheme pursuant to The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended, and the as amended, and 1987, Guernsey) Law, of (Bailiwick of Investors Protection The to Scheme pursuant Investment Collective Ended 2015. Schemes Rules Investment Collective Registered trading until 6 November 2015 when the did not begin were shares admitted to trading on the LSE. Company The on pages 10 to Strategic Report the out in set operations and its principal activities are Group’s the of The nature 1. subsidiaries and its Company the of results the 31 December 2018 comprise year ended the for financial statements consolidated Group’s The 2019. on 27 March for issue and authorised the Board by approved were and Group”) “the(together constituting “Law”). 2008, as amended (the Law, (Guernsey) Companies The under Guernsey incorporated in shares limited by is a company Company The a division of theConduct Shares Financial Officialare admitted to the Ordinary UK Authority List of the Listing (“UKLA”), Company’s The (“LSE”). Exchange Stock the London on traded and Authority (“FCA”), on 22 was incorporated Company The Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 The address of the registered office is Mont Crevelt House, Bulwer Avenue, St. Sampson, Guernsey GY2 4LH. Guernsey Sampson, St. Avenue, Bulwer House, Crevelt office is Mont the registered of The address Financial Statements 91 - 130 2.4. liability affectedin future periods. about these assumptionsandestimatescouldresult in outcomes that require amaterialadjustment to the carryingamount of the asset or amounts of revenues, expenses,assetsandliabilities the disclosure of contingentliabilitiesat the reporting date. However, uncertainty The preparation of the financial statements requires management tomake judgements,estimatesandassumptions thataffect the reported 3. ‘Leases’IFRS 16, have notbeenappliedinpreparing these financial statements. Theseare: A number of newstandards, amendments to standards andinterpretations are effective for periodsbeginning on or after1 2.5. contracts with customers’ from ‘Revenue IFRS 15, ‘FinancialInstruments’ IFRS 9, 2018 have hadanimpact on the financial statementsas follows: New standards, amendments to standards andinterpretations which cameintoeffect for accountingperiodsstarting on or after1 2. 31Forended December2018 theyear Notes totheFinancial Statements Consolidated on the impairment of debtors at 31at December2017.impairment ofdebtors on the A review of comparative figures has taken placeandithasbeen determined that theaccountingpolicychangehasnothadamaterialimpact are classifiedasa financialassetand valuedat fair value. loss model when calculatingimpairmentlosses on its trade and other receivables. Rental guaranteesincluded with trade and other receivables within unrealised gainsand finance costs. of approximately £618,000 perannumbeingrecognised innon-recoverable property costs,equivalentamounts will insteadberecognised respectively so the overall impact on net assets will benegligible. The overall impact on profits willalsobenegligible.However The Directors anticipate that the value of the right to useassetand the financial liabilityat 31 December2018are £7,614,000 and £7,614,000 comparative informationisnotrequired to berestated uponadoptionif the “modified retrospective” approach isapplied. reduce the financial liabilityandany furtherchanges to the value of the financialliability willbe recognised as financecosts. UnderIFRS16, payments. Leasepayments(alsoknownasground rent) which are currently recognised within non-recoverable property costs will instead financial liability willbe recognised in the Consolidated Statement ofFinancial Position which willbe valuedat thepresent value of future lease will be valued at fair value. Changes in fair value will berecognised in the Consolidated Statement of Comprehensive Income.Inaddition,a will recognise the right-to-use-asset (classifiedasaninvestment property) in the Consolidated Statement ofFinancial Position and this investment properties. At 31 December2018, there was £50,614,000 ground rent committedunder these leases. Under IFRS16, the Group As detailed innote33, the Group hasanumber of operating leasesconcerning the long-termlease of landassociated with itslongleasehold from IAS17. make future leasepayments. This isasignificantchange for thelessee,however, IFRS 16substantially carries forward existinglessoraccounting “right-to-use-assets” by recognising the present value of the leasepaymentsasanassetanda financial liability representing the obligation to changes to opening reserves at1 31ended December2017.for theyear As aresult there hasbeennoimpact to the profit position for the year ended December2017andno 31 This hasresulted inanincrease inrental income of £9,216,000andacorresponding increase innon-recoverable property costs of £9,216,000 updated. income andproperty costs have beengrossed up for recoverable servicecharge incomeandexpenditure andcomparative figures have been recharged to tenants isnowrecognised innetrental incomeas the Directors consider that the Group actsasprincipalin this respect. Rental from renting aproperty isnot within the scope of this standard and the accounting treatment isunchanged.Incomearising from expenses New standards, amendmentsandinterpretations New standards, amendmentsandinterpretations effective for future accountingperiods Significant accountingjudgements,estimatesand assumptions preparation Basis of , iseffective for accountingperiodsbeginning on or after1 January 2017. , effective for annualperiodsbeginning on or after1 (continued) , iseffective for accountingperiodsbeginning on or after1 96 January 2019. Under IFRS16,mostleasedassetsare capitalisedas (continued) January 2018. The Group nowapplies anexpectedcredit for the year ended31 December2018 January 2018.Incomearising Annual Report and Accounts January 2019,and , instead of costs January Financial Statements 91 - 130 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for (continued) (continued) 97 185 of the IPO Prospectus. Significant accounting judgements, estimates and assumptions judgements, estimates and Significant accounting Operating lease contracts – the Group as lessor Group Operating lease contractsthe – Performance Fee Critical judgements in applying the Group’s accounting policies Group’s the Critical judgements in applying Estimated impairment of goodwill Fair valuation of interest rate derivatives Valuation of investment propertyValuation Critical accounting estimates and assumptions Critical accounting

The Asset Manager and the Investment Manager are each entitled to 50% of the Performance Fee. The fee is calculated at a rate of 15% of the of of 15% fee is calculated at a rate The Fee. the Performance of to 50% each entitled Manager are the Investment Asset Manager and The for any Return Shareholder Total Period. Performance the relevant for of 8% per annum rate the Hurdle of in excess Return Shareholder Total Share Ordinary dividends per total the and Share Ordinary per in EPRA NAV decrease or increase of any the sum of consists Period Performance Period. the Performance in declared the High-water Mark exceeds Share Ordinary per EPRA NAV the where Period of a Performance payable in respect only is Fee A Performance the Placing Price (100p or Period Performance previous in any Share Ordinary EPRA NAV year-end the highest of the greater to which is equal the Managers’ of details Full thereafter. December 2018, and annually on 31 is calculated initially Fee The Performance Share). Ordinary per on pages 183 to given are Fee Performance 3.2.2. 3.2.1. based determined, has Group The tenants. with leases property to commercial subject that are properties investment has acquired Group The terms and minimum lease payments, the lease of duration the particularly the arrangements, of conditions terms and the of on an evaluation operating leases. the leases as for and so accounts these properties of ownership of rewards risks and the significant of all that it retains In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant which have following judgements, the accounting policies, management has made Group’s the of applying the process In financial statements: the in the amounts recognised on effect 3.2. 3.1.3. been of cash generating units have amounts The recoverable impairment. any whether goodwill has suffered tests annually Group The the the goodwill at of value The carrying of estimates. the use These calculations require value-in-use calculations. on determined based December 2017: £1,672,000). (31 was £1,115,000 date reporting In accordance with IAS 39, the Group values its interest rate derivatives at fair value. The fair values are estimated by the respective the respective estimated by values are fair The value. fair at derivatives rate values its interest Group the IAS 39, with In accordance fair the determining of assumptions in will use a number The counterparties basis. quarterly on a occurring with revaluation counterparties the of value the net present represents value fair The flows. cash future therefore rates and interest future over values, including estimations reporting the at derivatives the of value The carrying valuation rate. the rate and the contracted by flows produced the cash between difference the interest of value fair the The significant methods and assumptions used in estimating December 2017: £752,000). (31 £337,000 was date out in note 26. set are derivatives rate 3.1.2. December 2017: £737,330,000), is December 2017: £737,330,000), (31 of £718,375,000 date the reporting value at which has a carrying property, of investment value fair The the of date the on exchange should which a property for the estimated amount to be valuation experts independent property determined by valuation experts use recognised valuation The basis. on an individual valued been have Properties transaction. length valuation in an arm’s IFRS 13. of both IAS 40 and the principles techniques applying Standards – Professional Valuation (“RICS”) Surveyors Chartered of Institution the Royal with in accordance been prepared valuations have The The significant rentals, lease lengths and location. conditions, annual market current include reflected Book”). Factors January 2014 (the “Red out in note 14. set are property of investment value fair the valuers in estimating methods and assumptions used by the from exit EU In to has the ongoing relation Brexit, UK’s negotiations meant that of the to the terms with property regards market is there uncertainty, market the property despite that, comfortable valuation experts are The independent property uncertainty has increased. property. of investment value fair the to support date reporting the evidence at transactional market sufficient The principal estimates that may be material to the carrying amount of assets and liabilities are as follows: as and liabilities are of assets amount the carrying to that may be material The principal estimates 3.1.1. 3. Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 3.1. Financial Statements 91 - 130 3.3. necessary, amountsreported by subsidiarieshave beenadjusted to conform to the Group’s accountingpolicies. Inter-company transactions, balances and unrealised gainsand losses on transactions between Group companiesare eliminatedin full. When and liabilitiesin the Group based on their relative fair values at the date of acquisition. Such transactions or events do notgive rise to goodwill. For acquisitions of subsidiariesnotmeeting the definition ofabusiness, the Group allocates thecostbetween the individualidentifiableassets and itssubsequentsettlementis accounted for within equity. value of the contingentconsideration isrecognised inprofit orloss. Contingent consideration thatisclassifiedasequitynot re-measured, Any contingent consideration to be transferred by the Group isrecognised at fair value at the acquisition date. Subsequent changes to the fair Acquisition-related costsare expensedasincurred. basis, eitherat fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiablenetassets. at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition by the Group. Identifiableassetsandliabilitiesacquired andcontingentliabilitiesassumedinabusinesscombinationare measured initially issued interests equity and the incurredacquiree tothe liabilities former ownersofthe assets transferred,is the the fair values ofthe subsidiary The Group applies the acquisitionmethod to account for business combinations. The consideration transferred for the acquisition of a date that control ceases. entity.is transferredoverarecontrol to the consolidated the Group.from Subsidiaries fullywhich thedateon are deconsolidated They from the exposed to, or hasrights to, variable returns from its involvement with the entityandhas the ability to affect those returns through itspower Subsidiaries are allentities(includingstructured entities) over which the Group hascontrol. The Group controls anentity when the Group is 4.2. of FinancialPosition. The consolidated financial statementscomprise the financialstatements of the Company anditssubsidiaries,asat the date of the Statement 4.1. have beengrossed up for servicecharge incomeandexpenditure; however timethisyeareffectivethe first for standards adopted, 2017 andhave beenconsistently applied for the year ended31 December2018. The accountingpoliciesadoptedin this report are consistent with those appliedin the financial statements for the year ended 31 December 4. the acquisition of abusinessas outlined IFRS3above. periods, with littlein the way of processes acquired. Ithas therefore concludedineachcase that the acquisitions did notmeet the criteria for The companiesacquired in the year have comprisedportfolios of investment properties andexistingleases with multiple tenants over varying participants. Furthermore, abusinessconsists of inputsandprocesses applied to those inputs that have the ability to create outputs. membersor investorsbenefits directly or otherowners, to economic costs orother lower in the returnform ofdividends, a providing of A businessis defined inIFRS3asanintegratedset ofactivitiesandassets thatiscapable ofbeingconductedandmanaged for thepurpose liabilities. Directors consider whether the acquisitionmet the definition of theacquisition ofabusiness or theacquisition ofagroup ofassetsand During the year, the Group hasmade two purchases of subsidiarycompanies which own investment properties. For eachacquisition, the 3.4. note 15. results for the year andin the netassets of the Group are nil. There isnorecourse to the non-controlling interest. Further details are disclosed in power to control. The View Castle Group hasa deficiency ofshareholders’ fundsand for this reason thenon-controlling interest in the Group’s agreement means that the Group isexposed to, andhasrights to, variable returns from itsinvolvement with the View Castle Group through its View Castle Group for anominal consideration.Despitehavingnoequityholding, the Group controls the View Castle Group as the option the previous amended andrestated Call Option Agreement, under this new option the Group mayacquire any of the properties heldby the new call option was entered into dated 9November 2018 with View Castle Limitedand5 of itssubsidiaries(the“View Castle Group”). As per Credential Sub Group were transferred into two new SPVs with two additionalproperties to be transferred into these SPVs atalater date. A 3 November 2015.Following arestructuredated Option Agreement of the Credential Sub Group, the majority of properties held within the Credential Investment HoldingsLimited),andits27subsidiaries(the“Credential Sub Group”) by virtue of the amendedandrestated Call Management considered that upuntil9November 2018, the Group had de facto control of View Castle Limited(p Consolidation of entitiesin which the Group holdsless than 50% Subsidiaries consolidation Basis of Acquisitions of subsidiarycompanies Summary of significantaccountingpolicies Significant accountingjudgements,estimatesandassumptions , assummarisedinnote2.4. As detailed innote2.4rental incomeandproperty expenses 98 there is no overall impact on profits or assetsoftheprofits Group. or impact on no overall is , there There are nosignificantchangesarising from accounting (continued) (continued) for the year ended31 December2018 Annual Report and Accounts Financial Statements 91 - 130 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for (continued) 99 (continued) Summary of significant accounting policies of significant Summary Derivative financialDerivative instruments Goodwill Investment property Investment Segmental information Disposal of subsidiaries Subsidiaries (continued)

4.2. 4.6. value at fair recognised at initially for hedging purposes, are rate caps and swaps comprising interest financial instruments, Derivative transfer or to sell or pay would receive Group the that the estimated amount value being fair at measured subsequently acquisition and are the lender and its of rating credit the current rate expectations and interest taking into account current date, the period end at the agreement Comprehensive of Statement Consolidated Group’s the in date is recognised value remeasurement fair or loss at each The gain counterparties. Income. Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the Group’s Goodwill arises on the interest fair in the acquisition of subsidiaries Group’s the the and of the over excess represents consideration transferred the of interest the non-controlling of the amount plus the acquiree of the net identifiable assets, liabilities and contingent liabilities of value acquiree. of or groups the subsidiaries, of to each in a business combination is allocated testing, goodwill acquired of impairment the purpose For is the goodwill which to of subsidiaries, or group the combination. Each subsidiary of the synergies from to benefit that is expected subsidiaries, for internal management purposes. the goodwill is monitored which the entity at within lowest level the allocated, represents indicate a potential or changes in circumstances if events frequently or more annually, undertaken are Goodwill impairment reviews less value fair the value in use and of the higher which is amount, the recoverable to of goodwill is compared value The carrying impairment. reversed. as an expense and is not subsequently immediately impairment is recognised Any disposal. of costs 4.5. 4.4. for than or both, rather for capital appreciation, or to earn rentals held that are or leasehold properties freehold comprises property Investment functions. or administrative for use in production or of business course ordinary the sale in and is measured transferred been have ownership of the risks and rewards when on legal completion, usually, is recognised, property Investment other costs incurred for legal services and fees professional taxes, transfer costs include Transaction transaction costs. at cost including initially to initial Subsequent the manner intended. of being utilised in to be capable for it the condition necessary to the property to bring order in Group’s the included in values are fair the changes in from or losses arising Gains value. fair is stated at property investment recognition Property’. IAS 40, ‘Investment they arise under which the period in Income in Comprehensive of Statement Consolidated future results in identifiable when it is classified as capital Expenditure only. of a capital nature include costs property to investment Additions Statement Consolidated Group’s the in is charged expenditure other property All Group. the to to accrue expected which are economic benefits, Income as incurred. Comprehensive of economic future use and no from withdrawn permanently or of disposed been they have when to be recognised cease properties Investment the of the start value at fair the the asset (being of the carrying amount and disposal proceeds the net between difference The benefit is expected. the recognised in or losses are gains Any property. of investment disposal or retirement the or losses at result in either gains would year) financial Income Comprehensive Statement of in the Consolidated or disposal. period of retirement Group’s 4.3. The chief decision-maker. operating the chief to provided the internal reporting with in a manner consistent reported Operating segments are operating decision-maker is the or person that group to allocates and resources assesses the performance of the operating segments of an Group has determined that The its chief operating decision-maker is the of Board entity. Directors. operating segment and one has Group the that determined was for management purposes, it the information provided of After a review financial statements. these consolidated disclosed in segmental information is not therefore 4.2.1. when date the value at fair to its the entity is re-measured in interest retained any an entity, over control to have ceases Group the When the purposes for the initial carrying amount value is fair The or loss. profit in the carrying amount recognised the change in with is lost, control amounts previously financial asset. In addition, any or venture as an associate, joint interest the retained for accounting of subsequently assets the related of disposed directly had Group the for as if accounted that entity are of income in respect other comprehensive in recognised or loss. to profit reclassified income are other comprehensive in recognised that amounts previously may mean This or liabilities. The of the excess consideration transferred, and the amount of any value of the non-controlling fair interest the in the over acquiree as goodwill. recognised is acquired, identifiable net assets 4. Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 Financial Statements 91 - 130 recognised atamortisedcostusing the effective interest method. The leasesurrender receivable relates to aleasesurrender payment which hasbeenreceived ininstalments. The amountreceivable hasbeen using the effective interest method. The tenant loanrelates to aloanmade to a tenant which issubject to interest. The amountreceivable hasbeenrecognised atamortisedcost represents the value the liability isrecognised atinitialrecognition, plus the accruedentitlement to the date of these financial statements. accordance with IAS32 FinancialInstruments:Presentation. After initialrecognition, these liabilitiesare measured atamortisedcost, which Zero DividendPreference Shares (“ZDPshares”) are recognised asliabilitiesin the Group’s Consolidated Statement of FinancialPosition in 4.12. measured using atamortisedcost, the effective interest method. Comprehensive Income over the life of the debt instrument on astraight-line basis. After initialrecognition, allbankand other borrowings are amortised throughare the borrowings Group’s bank issue ofthe relating tothe costs Statement of costs. attributable transaction Any All bankand other borrowings (comprisingbankloansandretail eligiblebonds)are initially recognised atcostnet of attributable transaction 4.11. subsequently measured atamortisedcostusing the effective interest method. Trade payables are initially recognised at their fair value; being at their invoiced value inclusive of any VAT that maybeapplicable.Payables are 4.10. amounts heldinrestricted accounts that are unavailable for everyday use. Cash andcashequivalentsincludeinhand deposits heldatbanks with original maturities of three months or less. Cash also includes 4.9. commencement toterminationdate. Lease premiums and other leaseincentives provided to tenants are recognised asanassetandamortised over the period from date of lease confirmation that the trade receivable willnotbecollectable thegross carrying value of theassetis written offagainst theassociatedprovision. account with the lossbeingrecognised within administrationcosts within the Consolidated Statement of Comprehensive Income. On conditions at the reporting date. Impaired balancesare reported however net, that are specific to the debtors,generaleconomicconditionsandanassessment ofboth thecurrent as wellas the forecast direction of The expectedcredit losses on these financial assetsare estimatedbased on the Group’s historicalcredit lossexperience,adjusted for factors credit losses. The amount of expectedcredit lossesisupdatedateachreporting date to reflect changesincredit risksinceinitial recognition. The Group recognises aloss allowance for expectedcredit losses(ECL) on trade receivables. The lossallowanceisbased on lifetime expected provisions are recognised based on the expectedcredit lossmodel detailed within IFRS9. Where the time value of money ismaterial,receivables are carriedatamortised costusing the effective interest method.Impairment Trade and other receivables are recognised initially at fair value andsubsequently carriedatamortisedcostlessprovision for impairment. 4.8. The Group’s ‘trade andfinancial assetscomprise other receivables’ subsequently carriedatamortisedcostbeing the effective interest ratemethod,lessprovision for impairment. and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issueandare financial assets where the objective is tohold theseassetsin order tocollectcontractualcash flows whichcomprise thepayment ofprincipal Assets heldatamortisedcostariseprincipally from the provision of goodsandservices(e.g. trade receivables), butalsoincorporate other was acquired. Currently the Group does nothave any financial assets whichithasclassifiedat fair value through profit orloss. The Group classifiesits financialassetsasat fair value through profit orloss oratamortisedcost, depending on thepurpose for which theasset 4.7. whole. maximising the use of relevant observable inputsandminimising the use of unobservableinputssignificant to the fair valuemeasurement asa The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient dataisavailable tomeasure fair value, 4. 31Forended December2018 theyear Notes totheFinancial Statements Consolidated 4.6 Zero DividendPreference Shares Bank and other borrowings Trade payables Cash andcashequivalents Trade and other receivables Financial assets Derivative financial instruments Derivative financial Summary of significantaccountingpolicies (continued) (continued) ‘tenant loan’ , ‘tenant 100 , impairmentprovisions are recorded within aseparateprovision , ‘surrender premium’ and‘cashcashequivalents’. (continued) for the year ended31 December2018 Annual Report and Accounts Financial Statements 91 - 130 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for (continued) 101 (continued) Summary of significant accounting policies of significant Summary Dividends payable to Shareholders Finance costs Taxation Dividend income Interest income Interest Property costs Property Rental income Rental 4.13. 4.19. UK. the in tax resident to be UK, it is considered the in is managed and controlled Company the As Consolidated in the reported profit as from net differs Taxable profit the period. for taxable profit the on payable is based tax currently The further and it years other deductible in or taxable that are or expense of income items Income because it excludes Comprehensive of Statement that have tax rates tax is calculated using deferred and for current liability Group’s The deductible. or taxable never that are items excludes been enacted or substantively enacted Statement of at the date of the Financial Position. UK Group’s the of the profits UK REIT rules exempt The 2015. 7 November from with effect UK REIT as a treated to be elected Group The trading for not held they are that tax, provided from also exempt are UK properties on Gains Tax. Corporation UK from business rental property Tax. or Group is otherwise The Corporation sold UK years subject to in the three after completion of development. 4.18. other with bank and that an entity incurs in connection fees, Arrangement occur. they which the period in expensed in costs are Interest , borrowings the term of the are amortised over loan. 4.17. payment is established. to receive the right when Dividend income is recognised Interest income is recognised as interest accrues on cash balances held by the Group. Interest charged to a tenant on any overdue rental rental overdue on any tenant to a charged Interest Group. the on cash balances held by accrues as interest income is recognised Interest income. within interest income is also recognised 4.16. recoverable property costs contain service and management charges related to empty properties and ground rents charges. rents and ground to empty properties related management charges costs contain service and property Non-recoverable rendered. are the services which the accounting period in in recognised are Service and management charges rendered. the services are which period in the accounting in recognised other similar costs are and service charges Recoverable Payments properties. of long leasehold investment ownership the with operating leases associated payments made under are rents Ground made under these operating of the the term leases Income over lease on Comprehensive are Statement of a expensed Consolidated in the detailed in note 33. operating leases are these commitments under basis. Future straight-line 4.15. Rental income arising from operating leases on investment property is accounted for on a straight-line basis over the lease terms and is the lease over basis on a straight-line for accounted is property on investment operating leases from income arising Rental in negotiating costs incurred direct Income. Initial Comprehensive of Statement Consolidated Group’s the income in rental included in gross on term the lease over as an expense recognised are the lease asset and of the carrying amount to added are operating lease and arranging an the lease income. the same basis as the over basis on a straight-line recognised such uplifts is from rental income arising the minimum uplifts, or fixed which contain leases For lease term. term is The lease the lease. of term the over basis on a straight-line revenue of rental as a reduction recognised are lease incentives Tenant the non-cancellable of the period lease together for with the tenant which further term any has the option to continue the lease where, at the inception of the lease, the Directors are reasonably that option. the tenant certain that will exercise of Statement Group’s the in recognised are premises or surrender terminate leases to tenants from received premiums Surrender them arises. to receive the right when Income Comprehensive as revenue. income, is recorded than gross the commission, rather is acting as an agent, Group the When Service charges the compensation becomes receivable. which in year the in tenants is recognised to expenses recharged from Income arising acts as principal in Group the consider the Directors costs as the related of income gross included in net rental are other similar receipts and this respect. Equity dividends are recognised when paid. recognised dividends are Equity 4.14. 4. Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 Financial Statements 91 - 130 Comparative figures have beenupdatedas detailedinnote2.4 5. receive 50% of the Performance Fee inshares. 2018 annualresults. These amendments were made to preserve the underlying commercial intention that the Managersshouldnormally instruction to do so. On this occasion the shares will bepaid for entirely incashandbeacquired from the date of publication of the preliminary cash but50% of that amount will beused to acquire shares in the market on behalf of the Managers within a20business day period on an Accordingly, the Management Agreements have beenamended to clarify in that, this situation, the Performance Fee will bepaidentirely in Shareholder approval. The Company does nothave Shareholder approval to do this andany suchissue would inany event be dilutive. In accordance with the FCA’s ListingRule15.4.11, the Company cannotissueshares for cashatapricebelow the NAV pershare without change and the fee isnolongersettledby the issue of shares then the amountspreviously credited to Equityreserves are reversed. period, and the costrecognised asanexpense. The part of the obligation to besettledinshares iscredited to equityreserves. Ifcircumstances in equityand the equityportionis therefore ashare–based paymentarrangement. The fair value of the obligation ismeasured ateachreporting the netasset value of the Group exceeding aHurdle Rate of return over aPerformance Period. The fee will bepartly settledincashandpartly The Group hasentered into Performance Fee arrangements with the Asset ManagerandInvestment Manager which depend on the growth in 4.22. Stated capitalrepresents the considerationreceived by the Company for the issue of Ordinary 4.21. from 1 The current rate of UK Corporation Tax is19%.Reductions in UK Corporation Tax have beenenacted,reducing the rate to and18% with effect rules. REIT tax Deferred tax hasbeenrecognised on the unrealised property valuation gains of properties owned by Group entities which fall outside of the offset. available for date of the Statement of FinancialPosition. A deferred tax assetisrecognised only to the extent that it isprobable that future profits willbe in the period when the liabilityissettled or the assetisrealised based on tax rates(and tax laws)enacted or substantively enactedat the on the expectedmanner of realisation or settlement of the carryingamount of assetsandliabilities,using tax rates that are expected to apply financial statementsand thecorresponding taxbasesusedin thecomputation of taxableprofit. Theamount of deferred tax provided isbased Deferred tax is the tax expected to bepayable or recoverable on differences between the carryingamounts of assetsandliabilitiesin the 4.20. gains. There are asmallnumber of entities within the Group which fall outside the REITrulesandare subject to UK taxes on profits andproperty 4. 31Forended December2018 theyear Notes totheFinancial Statements Consolidated 4.19. Taxation Total Recoverable servicecharge incomeand other similaritems Rental income–longleaseholdproperty Rental income– freehold property April 2020.Ithasbeenenacted that the rate will be further reduced to 17% from 1 Share basedpayments Stated capital Deferred tax Rental income Summary of significantaccountingpolicies (continued) (continued) 102 (continued) S April 2020. hares. Ordinary 31 December S hares are classedasequity. Year ended 11,944 74,019 54,107 for the year ended31 December2018 £’000 7,968 2018 Annual Report and Accounts 31 December Year ended (restated) 44,505 61,610 £’000 7,844 9,261 2017 Financial Statements 91 - 130 70 28 30 68 190 140 108 702 563 689 348 (794) 2017 2017 2017 1,972 1,610 1,732 1,739 9,261 1,493 5,939 9,429 £’000 £’000 £’000 15,763 (restated) Year ended Year Year ended Year Year ended Year 31 December 31 31 December 31 31 December 31 Annual Report and Accounts and Report Annual – – 78 87 26 171 172 618 275 235 595 663 1,714 2018 2018 2018 7,082 7,046 2,264 2,405 2,405 £’000 £’000 £’000 17,586 for the year ended 31 December 2018 December ended 31 year the for 11,944 19,644 Year ended Year Year ended Year Year ended Year 31 December 31 31 December 31 31 December 31 (continued) 103 Administrative and other expenses other and Administrative Non-recoverable property costs property Non-recoverable

VAT recoverable for previous periods for previous recoverable VAT Marketing and promotion Marketing debts) costs (including bad Other administrative Bank charges Directors’ remuneration (see note 8) remuneration Directors’ fees Administration fees Legal and professional Property Property management fees fees Performance Asset management fees Investment Investment management fees Total Audit of the for their subsidiaries respective periods of account issue with share associated Fees Audit of the consolidated and parent company financial statements company the consolidated and parent of Audit financial statements year the half of services in respect Audit related Total Total Operating lease expenses costs irrecoverable expenses and Other property other similar costs income and charge service Recoverable The number of persons employed by the Group in the year was six, being the Directors, whose remuneration is set out in note 8. is set whose remuneration the Directors, was six, being year the in Group the by of persons employed The number auditor and its associates Company’s the by Services provided auditor and its associates: Company’s the from following services the obtained has Group The VAT recoverable for previous periods represents amounts recovered following the Company’s VAT registration in 2018. registration VAT Company’s the following recovered amounts periods represents for previous recoverable VAT 7. Non-recoverable property costs represent direct operating expenses which arise on investment properties that generate rental income. generate rental that properties on investment which arise operating expenses direct costs represent property Non-recoverable detailed in note 2.4 been updated as have figures Comparative 6. Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 Financial Statements 91 - 130 11. 10. 9. Report. Key managementcomprises the Directors of the Company. A summary of the Directors’ emolumentsisset out in the Directors’ Remuneration 8. 31Forended December2018 theyear Notes totheFinancial Statements Consolidated Total Unwinding of the discount on financial assets Unwinding ofthediscounton financial Total Total creditor(Decrease)/increasein deferred tax charge Corporation tax Total Bond issuecostsamortised Bond interest Loan arrangement fees recognised early due to refinancing Break costsassociated with refinancing Amortisation of ZDPshare acquisitioncosts Amortisation of loanarrangement fees Accrued capitalentitlement on ZDPshares Interest payable on bankborrowings Interest income Employer Directors’ fees Taxation Finance expense Finance income Directors’ remuneration ’ s NationalInsurancecontributions 104 (continued) 31 December 31 December 31 December 31 December Year ended Year ended Year ended Year ended 15,983 for the year ended31 December2018 11,267 £’000 £’000 £’000 £’000 (1,416) 2,430 1,983 2018 2018 2018 2018 1,172

906 268 235 224 567 216 147 44 19 61 – – Annual Report and Accounts 31 December 31 December 31 December 31 December Year ended Year ended Year ended Year ended 14,728 £’000 £’000 £’000 £’000 9,550 1,968 1,424 1,632 1,769 2017 2017 2017 2017 208 605 190 190 722 170 215 114 20 25 – – Financial Statements 91 - 130 – 461 2017 1,632 1,424 5,523 (1,134) £’000 (4,642) 28,692 19.25% Year ended Year 31 December 31 Annual Report and Accounts and Report Annual 25 567 2018 1,592 (1,416) £’000 (4,537) for the year ended 31 December 2018 December ended 31 year the for (8,006) 12,909 67,940 19.00% Year ended Year 31 December 31 (continued) 105 corporation tax rate (continued) Earnings per share Revaluation gain on investment properties on investment gain Revaluation Permanent differences Permanent the tax from exempt business Profits Adjustments to tax charge in respect of previous periods of previous in respect tax charge to Adjustments Deferred tax Deferred movement UK corporation tax rate tax Theoretical at UK Effects of: Profit before taxation Profit before Total 11. Taxation of Statement the in the profit to can be reconciled year the for tax charge The tax exemptions. UK REIT the by is reduced tax charge The current follows: Income as Comprehensive Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 12. the by Company the of equity holders ordinary to year attributable the for dividing profits calculated by (“EPS”) amounts are Earnings per share dilutive were instruments outstanding As there December 2018, at weighted Shares 31 in average Ordinary number of issue during the year. disclosed below. are diluted earnings per share both basic and detailed in note 35, a As Shares. Ordinary of the issue by Fee the Performance of settlement the partial to instruments relate Dilutive An estimate financial statements. the in was recognised for the from December 2017 commencement of trading to period Fee Performance 31 the Performance that It should be noted December 2017. at 31 the EPRA NAV on would be issued based that of shares the number of was made the on will be based fee charge the to settle to be issued of shares the number December 2018 and to 31 2015 6 November from is period Fee December 2018. as at 31 EPRA NAV Permanent differences are the differences between an entity’s taxable profits and its results as stated in the financial statements. These arise financial statements. the results as stated in and its taxable profits an entity’s between differences the are differences Permanent no or allowances have tax charges or because certain disallowable, or non-taxable are of income and expenditure types because certain financial statements. the amount in corresponding UK Group’s the of the profits exempt UK REIT rules The 2015. 7 November from with effect UK REIT as a treated to be elected Group The or sold trading for not held they are tax, provided from also exempt are UK properties on Gains tax. corporation from business rental property Group is otherwise The UK years subject to in the three after corporation tax UK of development. completion and tax.income To net income. exempted Group’s the of least 90% to at equal Income Distributions to pay Property REIT Ltd is required Regional As a REIT, qualifying Group’s the Group, the of the principal company of to be met in respect of conditions a number are there UK REIT status, retain these conditions. to meet continues Group The of business. activity and its balance the REIT of form part do not consolidated accounts but Group the of form part which on entities tax arise UK income and tax UK corporation group. no future, foreseeable the in obtain approval to the conditions required to continue meeting REIT status and its intention Group’s the to Due entities held by of investments disposal or the revaluation on or losses arising capital gains on any tax deferred for has been made provision REIT group. the within taxable profits. future of the unpredictability to due forward of losses carried in respect recognised tax asset has been deferred No Financial Statements 91 - 130 The calculation of basicand diluted earningspershare isbased on the following: receive 50% of the Performance Fee inshares. 2018 annualresults. These amendments were made to preserve the underlying commercial intention that the Managersshouldnormally instruction to do so. On this occasion the shares will bepaid for entirely incashandbeacquired from the date of publication of the preliminary cash but50% of that amount will beused to acquire shares in the market on behalf of the Managers within a20business day period on an Accordingly, the Management Agreements have beenamended to clarify in that, this situation, the Performance Fee will bepaidentirely in Shareholder approval. The Company does nothave Shareholder approval to do this andany suchissue would inany event be dilutive. In accordance with the FCA’s ListingRule15.4.11, the Company cannotissueshares for cashatapricebelow the NAV pershare without 12. 31Forended December2018 theyear Notes totheFinancial Statements Consolidated Company specificadjustedearningspershare – diluted Company specificadjustedearningspershare –basic EPRA Earningspershare – diluted EPRA Earningspershare –basic Earnings pershare – diluted Earnings pershare –basic Adjusted weighted average number of Ordinary Shares goodwill Impairment of Dilutive instruments Weighted average number of Ordinary Shares Company specificadjustedearnings figure performance fee Add EPRA Netprofit attributable to Ordinary Shareholders and derivativesborrowings costs on Close out profits charge ondisposal Income tax charge Deferred tax propertyinvestment Gain ondisposalof Changes in fair value of interest rate derivatives and financial assets Changes in value of investment properties remove:Adjustments to Net profit attributable to Ordinary Shareholders Calculation of Earningspershare Earnings pershare (continued) 106 (continued) 31 December 372,821,136 372,821,136 Year ended (23,881) 20,892 (23,127) 27,938 67,373 for the year ended31 December2018 £’000 (1,416) 7,046 2018 1,416 18.1p 18.1p (459) 5.6p 5.6p 430 7.5p 7.5p 557 – Annual Report and Accounts 31 December 296,807,647 297,683,399 Year ended 875,752 25,624 24,014 27,060 (5,893) (1,234) £’000 2,507 1,424 1,610 2017 (407) 8.6p 8.6p 557 8.1p 8.1p 9.1p 9.1p – Financial Statements 91 - 130 2017 6,581 5,410 5,410 5,410 £’000 22,811 Year ended Year 31 December 31 September 2018. June 2018. The Annual Report and Accounts and Report Annual 9,134 2018 6,897 6,897 6,897 £’000 for the year ended 31 December 2018 December ended 31 year the for 29,825 to 30 2018 July December to 31 October 2017 December to 31 October 2018 Year ended Year April 2018 to 30 April 2018 31 December 31 March March to 31 January 2018 2018. The September 2018. (continued) 107

March 2018. as at 2 March the register on to shareholders April 2018 March 2019. The financial statements do not reflect this reflect do not financial statements The 2019. as at 1 March the register on to shareholders April 2019 December 2017 March 2018 March July 2018 to shareholders on the register as at 25 May 2018. the register on to shareholders 2018 July October 2018 to shareholders on the register as at 14 the register on to shareholders October 2018 June 2018 September 2018 April 2018 – 30 July 2018 – 30 July January 2018 – 31 October 2017 – 31 Investment properties Investment Dividends August 2018, the Company announced a dividend of 1.85 pence per share in respect of the period 1 of in respect of 1.85 pence per share dividend announced a Company the August 2018, for the period 1 for for the period 1 for for the period 1 for the period 1 for Share Ordinary per of 1.85 (2017: 1.80) pence Dividend Share Ordinary of 1.85 (2017: 1.80) pence per Dividend Dividend of 1.85 (2017: 1.80) pence per Ordinary Share Ordinary per of 1.85 (2017: 1.80) pence Dividend Dividend of 2.45 (2017: 2.40) pence per Ordinary Share Ordinary per of 2.45 (2017: 2.40) pence Dividend dividend payment was made on 15 was made dividend payment the period 1 of in respect share of 1.85 pence per dividend announced a Company the 2018, On 15 November 14. valued at has been independently property investment Property’, IAS 40, ‘Investment Standard, Accounting with International In accordance recognised with valuers independent both accredited who are Surveyors Chartered Jones Lang LaSalle, and Wakefield & Cushman value by fair valued. being properties the investment of the locations and categories recent experience in with qualifications and professional and relevant Valuation the International of the recommendations Book and incorporate the Red with in accordance been prepared valuations have The 13. out in IFRS the principles set with consistent which are Committee Standards the independent assumptions used in establishing the critical Accordingly, the Directors. of the ultimate responsibility valuations are The the Board. by reviewed valuation are than business combinations. rather purchased properties as treated been have year the during All corporate acquisitions February 2018, the Company announced a dividend of 2.45 pence per share in respect of the period 1 of in respect of 2.45 pence per share dividend announced a Company the 2018, On 22 February 2017. The dividend payment was made on 12 was made dividend payment The 2017. the period 1 of in respect of 1.85 pence per share dividend announced a Company the On 17 May 2018, on 13 was made dividend payment On 31 2018. as at 22 November the register on to shareholders on 21 December 2018 was made dividend payment The the period 1 of in respect of 2.50 pence per share dividend announced a Company the 2019, On 21 February on 11 will be paid dividend The 2018. dividend. dividends. quarterly to pay dividend policy and continue to peruse a progressive intends The Board 13. Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 Financial Statements 91 - 130 The hierarchy levels are defined innote26. The following table provides the fair value measurement hierarchy for investment property: The historiccost of the properties is£675,808,000(31 December2017:£628,723,000). £15,687,000propertiesamounted to disposedofduringtheyearbook value of net The . 14. 31Forended December2018 theyear Notes totheFinancial Statements Consolidated 31 31 of valuation: Date Valuation at31 December2017 period in fair value duringthe Change propertiesinvestment Gain/(loss) onthedisposalof Property disposals Property additions–subsequentexpenditure Property additions–acquisitions Valuation at1 31 Movement ininvestment properties for the year ended £126,149,000propertiesamounted to disposedofduringtheyearbook value of net The . Valuation at31 December2018 in fair value duringtheyearChange propertiesinvestment Gain/(loss) onthedisposalof Property disposals Property additions – subsequentexpenditure Property additions – acquisitions Valuation at1 31 Movement ininvestment properties for the year ended Group December2017 December2017 December2018 December2018 Investment properties January 2017 January 2018 (continued) 737,330 718,375 £’000 Total 108 active prices active prices (continued) (142,505) 636,600 636,600 Freehold Property 625,020 424,310 212,332 Quoted Quoted (level 1) 24,000 (16,921) 23,856 76,334 12,444 £’000 £’000 6,735 3,201 1,234 – – observable inputs Long Leasehold Significant Property 100,730 100,730 (level 2) 93,355 18,994 for the year ended31 December2018 78,115 £’000 £’000 (6,771) 2,692 (729) (119) 244 929 – – – – – Annual Report and Accounts unobservable inputs Significant Significant (149,276) (level 3) 502,425 231,326 737,330 737,330 737,330 718,375 718,375 (16,921) 76,334 23,881 13,373 23,127 £’000 £’000 5,893 6,979 1,234 Total Financial Statements 91 - 130 – 2017 1,234 5,893 £’000 (16,921) 737,330 502,425 244,699 Year ended Year 31 December 31 Annual Report and Accounts and Report Annual – 2018 £’000 23,127 for the year ended 31 December 2018 December ended 31 year the for 83,313 23,881 718,375 737,330 (149,276) Year ended Year £3,092,226 per annum (2017: 31 December 31 (continued) 109 (continued) 29.23%). ental growth per annum). 26.98% (2017: 0.00%– properties Investment £3,092,125 Balance at the year end of the Gain on the disposal of investment properties Change value during the year fair in Assets transferred from level 2 level from transferred Assets Additions Disposals Balance at the start of the year 14. the table below shows The 3 category. the level portfolio should be classified under properties investment the entire that determined It has been on the movement in the year level 3 category: Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 £2,860– to judgement and is open valuation is portfolio property Group’s the above, the significant accounting estimates and judgements within out As set transaction. determined in a sales be only values can and actual nature, by subjective inherently Observable input: net initial yield of purchase the costs price including purchase gross the of as a percentage expressed of purchase, date the at a property from The initial net income range: 0.00%– Observable input: r estimations and contractual agreements. on both market is based in rent increase The estimated average The rent at which space could be let in the market conditions prevailing at the date of valuation range: £1,500– of date the at conditions prevailing the market which space could be let in at The rent Under the market comparable method (or market approach), a property fair value is estimated based on comparable transactions in the market. in transactions on comparable value is estimated based fair a property approach), comparable method (or market the market Under rental Observable input: market The following descriptions The and definitions valuation techniquesrelate to andkey observable inputs made values: fair in determining the comparable method technique: market Valuation Techniques used for valuing investment properties valuing investment for used Techniques The determination of the fair value of the investment properties held by each consolidated subsidiary requires unobservable inputs, such each consolidated subsidiary requires held by properties investment the of value fair the of determination The future tenants’ profiles, into consideration lettings, take which properties, investment from flows cash future the estimated of the use as repair and condition overall the matters and environmental any fittings, plant and machinery, and fixtures of values capital streams, revenue and Estimated (passing rent) comprise contracted rent streams revenue those assets. Future to rates applicable discount and the property, of new to secure to be granted lease incentives future of the potential impact In calculating ERV, the contract period. after (“ERV”) Value Rental date. the reporting conditions existing at market on local based are these estimates All into consideration. taken contracts is Financial Statements 91 - 130 List of subsidiaries which are 100% owned andcontrolled by the Group 15. 31Forended December2018 theyear Notes totheFinancial Statements Consolidated Tosca Rosalind Ltd Tosca North West Limited Tosca NorthEastLimited Tosca MidlandsLimited Tosca Glasgow IILimited ToscaLimited Garnet ToscaChurchill Limited Way Tosca Chandlers Ford Limited Limited TCP Channel Limited TCP Arbos Tay Properties Limited Regional REITZDPPLC (inliquidation) RR Wing Portfolio Limited RR UK (South)Limited RR UK (Port Solent) Limited RR UK (Cheshunt)Limited RR UK (Central) Limited Limited RR Skylar RR Sea TOPP ILimited RR Sea TOPP BletchleyLimited Limited Sea TAPPRR Limited RR SeaStrand Limited RR SeaStafford Limited Helens RR SeaSt. RR Sea LamontIIILtd RR Sea LamontIILtd RR Sea LamontILtd Limited Hannover St. RR Sea RR Sea DundeeLimited RR RangeLimited RR Rainbow(South)Limited RR Rainbow(North)Limited RR Rainbow(Aylesbury) Limited RR Hounds Gate Limited Eureka SARL RR RR BristolLtd Limited CourtRR Aspect Regional Commercial MIDCOLimited Blythswood HouseLLP Investment insubsidiaries 110 (continued) United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom Luxembourg incorporation Country of Guernsey Guernsey Guernsey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey for the year ended31 December2018

Annual Report and Accounts Ownership 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% %

Financial Statements 91 - 130

% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Ownership Annual Report and Accounts and Report Annual

for the year ended 31 December 2018 December ended 31 year the for Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Jersey Country of Country incorporation (continued) 111 (continued) in subsidiaries Investment Tosca Scotland Limited Tosca RR Star Limited Limited South West Tosca Swansea Limited Tosca Limited Thorpe Park Tosca UK CP II Tosca Limited UK CP Limited Tosca Victory House Limited Tosca Winsford Limited Tosca Limited Bennett House Toscafund Limited Street Bishopgate Toscafund Limited Blythswood Toscafund Limited Street Brand Toscafund Chancellor Court Limited Toscafund Way Limited Crompton Toscafund Espedair Limited Toscafund House Limited Fairfax Toscafund Glasgow Limited Toscafund Limited Harvest Toscafund Limited Milburn House Toscafund Minton Place Limited Toscafund Limited Court Newstead Toscafund North Esplanade Limited Toscafund Limited Street Portland Toscafund Sheldon Court Limited Toscafund South Gyle Limited Toscafund House Limited Georges St Toscafund St James Court Limited Toscafund BP Limited Strathclyde Toscafund Wallington Limited Toscafund Limited Road Welton Toscafund House Limited Westminster Toscafund 15. Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 All of the above entities have been included in the Group’s consolidated financial statements. consolidated Group’s the been included in entities have the above of All of had control Group the that consider the Directors 2015, dated 3 November Agreement Option Call Amended and Restated of an virtue By Group”). subsidiaries (the “Credential Holdings Limited) and its 27 Investment Credential Castle Limited (previously View for a option notice issuing an by Group Credential the held by the properties of any to acquire the ability has Group the option, this Under The nominal of the option recipient consideration of notice will £1. be obliged to convey its title within one month after of the option receipt notice. is exposed Group the that the effect has option agreement the as Group Credential the controls Group the Despite having no equity holding, to control. its power through Group Credential the with its involvement from returns variable to, and has rights to, List of subsidiaries which are 100% owned and controlled by the Group (continued) Group the by owned and controlled 100% which are of subsidiaries List Financial Statements 91 - 130 An updatedcall option was putinplace to include View Castle (Properties) Limitedand View Castle (Milton Keynes) Limited. properties to be transferred atalater date. The entities from which the properties were transferred are to beplacedintoliquidationin2019. View Castle (Properties) Limitedand View Castle (Milton Keynes) Limited,bothsubsidiaries of View Castle Limited, with the two outstanding On 9November 2018, the Credential Group was restructured. All but two properties held within the Credential Group were transferred into All of the above entitieshave beenincludedin the Group’ List of subsidiaries that are controlled by the Group: The companies which make up the View Castle Group are as follows: 15. 31Forended December2018 theyear Notes totheFinancial Statements Consolidated View Castle Limited View Castle View Castle (MiltonKeynes) Limited View Castle (Properties) Limited The Legal Services Centre Limited Stock Residential LettingsLimited Squeeze Newco2Limited Squeeze Newco(Elmbank)Limited Rocket Unit TrustRocket Old Rutherglen Road Limited Old Mill Studios Limited London & Scottish Property ManagementLimited(inliquidation) Limited Lilybank Terrace Limited Lilybank Church Hamiltonhill EstatesLimited Dumbarton Road Limited(inliquidation) Douglas Shelf Seven Limited(inliquidation) Credential Tay HouseLimited Credential SHOP Limited(inliquidation) Credential Residential FinanceLimited Credential MuirhouseLimited(inliquidation) Credential EstatesLimited Limited Credential CharingCross Credential Bath Street Limited Credential (Wardpark South) Limited Credential (Wardpark North)Limited Credential (Peterborough) Limited(inliquidation) Credential (Greenock) Limited Credential (Baillieston) Limited Caststop Limited Castlestream Limited Investment insubsidiaries (continued) s consolidated financial statementsup to 31 December2018. 112 (continued) United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom incorporation Country of Jersey for the year ended31 December2018

Annual Report and Accounts Ownership 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% %

Financial Statements 91 - 130 – 190 206 206 206 (557) (988) 2017 2017 1,672 2,229 1,004 £’000 £’000 31 December 31 31 December 31 Annual Report and Accounts and Report Annual – – – – 44 206 (557) 1,115 (250) 1,672 2018 2018 £’000 £’000 for the year ended 31 December 2018 December ended 31 year the for 31 December 31 31 December 31 (continued) 113 (continued) Non-current receivables Non-current Goodwill in subsidiaries Investment Non-current receivables on lease surrender premium on lease surrender receivables Non-current Asset due after 1 year At At end of year Asset due within 1 year At At start of year Movement in year of discount Unwinding Impairment At end of year Group At start of year In May 2014, the tenant of one of the subsidiaries (Blythswood House) surrendered their lease resulting in a lease surrender premium to be premium in a lease surrender their lease resulting House) surrendered the subsidiaries (Blythswood of one of tenant the In May 2014, due The amount 2018. 31 March quarter ending the final instalment paid in the with years four over tenant in equal instalments the paid by the of The unwinding method. interest the effective at amortised cost using recorded value and subsequently fair at initially was recognised finance income. discount is included in 17. 17a. Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred, the amount of any non-controlling non-controlling of any the amount transferred, the consideration of the excess of subsidiaries and represents the acquisition on Goodwill arises the identifiable of value fair the over the acquiree in equity interest previous of any value fair the acquisition-date and the acquiree in interest fair at measured held interest and previously recognised interest non-controlling transferred, of consideration total the If net assets acquired. directly is recognised difference the purchase, of a bargain the case in subsidiary acquired the of the net assets of value fair the than value is less Statement Income. of Comprehensive in the Group’s indicate a potential or changes in circumstances if events frequently or more annually undertaken are Goodwill impairment reviews disposal. of value less costs fair the value in use and of the higher which is amount, recoverable the to The goodwill is compared impairment. pre-tax group on based is The impairment review reversed. as an expense and is not subsequently immediately impairment is recognised Any which is based of 4.8%, factor discount whole as a single cash generating unit, using a as a Group the of of cost savings flow projections cash would of goodwill amount the recoverable assumption, occurs in a key change available. If a reasonable currently margins the borrowing on which is predominately period, five-year a over was conducted review The impairment value. the carrying to to be equal still be expected value. terminal in a nil will result terms, and facility the borrowings from derived 16. There have been no new business combinations entered into in the financial year. financial the into in combinations entered been no new business have There two were there subsidiary company to acquisitions that took During the year, the Group acquire place for the investment property in order fair The see note 3.4. details further combination. For as a business treated not been These acquisitions have that company. owned by was paid consideration Total £36,300,000. totalled of subsidiary companies the purchase through acquired properties of investment value liabilities net current above, mentioned properties, investment the included the companies acquired of The assets and liabilities £33,740,000. of £1,960,000. income) and bank borrowings deferred and debtors, cash, creditors comprising totalling £600,000 (principally 15. Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 Business Combinations Financial Statements 91 - 130 The Directors consider the fair value of receivables equals their carrying amount. The agedanalysis of trade receivables that are past due butnotimpaired was as follows: collateral assecurity. The maximumexposure to credit riskat the reporting date is the carrying value of the amounts disclosed above. The Group does notholdany 18. of the Bank of Scotland andisrepayable ininstalments over ten years. During 2016, the Group entered intoaloanagreement with a tenant for £1,926,000. The loanissubject to interest of 4%above the baserate 17. 31Forended December2018 theyear Notes totheFinancial Statements Consolidated 17b. Less provision for impairment 60 days > 30-60 days 30 days < Prepayments Other receivables Current receivables – tenant loans(note17b) Current receivables –surrender premium (note17a) Net amountreceivable from tenants Less provision for impairment Gross amountreceivable from tenants 1 year after Asset due 1 year within Asset due Atend ofyear in theyear loaned Amounts start ofyearAt Trade and other receivables Non-current receivables Non-current receivables on tenant loans (continued) 114 (continued) 31 December 31 December 31 December 22,163 for the year ended31 December2018 12,198 £’000 £’000 £’000 2,600 3,256 1,396 1,926 1,926 1,926 3,974 7,294 7,294 2018 2018 2018 (1,115) (1,115) 6,179 6,179 530 530 720 – – Annual Report and Accounts 31 December 31 December 31 December 21,947 (1,033) (1,033) £’000 £’000 £’000 9,888 6,926 9,744 1,926 1,926 1,926 1,926 1,959 4,715 8,711 7,138 8,171 2017 2017 2017 206 859 – – – Financial Statements 91 - 130 – (57) 225 607 258 2017 2017 1,033 £’000 £’000 11,207 33,433 44,640 31 December 31 31 December 31 Annual Report and Accounts and Report Annual – 928 (452) 1,115 (394) 2018 2018 1,033 £’000 £’000 for the year ended 31 December 2018 December ended 31 year the for 79,616 25,207 104,823 31 December 31 31 December 31 (continued) 115 (continued) other receivables and Trade Cash and cash equivalents £0 (2017: £409,000) of funds held in blocked rent accounts which are controlled by one of the Group’s lenders and will be released to free free to will be released and lenders Group’s the of one by controlled which are accounts rent funds held in blocked of £0 (2017: £409,000) without restriction. end year cash post £1,268,000 (2017: £1,957,000) of funds held in blocked bank accounts which are controlled by one of the Group’s lenders and are released released lenders and are Group’s the of one by controlled which are bank accounts funds held in blocked of £1,268,000 (2017: £1,957,000) the by guarantees given to rental held in relation on net proceeds funds arose The restricted met. are once certain conditions cash free to the outstanding loans in to repay the lender and used withheld by be only funds can These Group. the by purchased of properties seller 2019. March 31 cash before free to will be released this balance of default. £1,256,000 of a event £2,780,000 (2017 £4,198,000) of funds which represent service charge income received from tenants for settlement of future service future of settlement for tenants from income received service charge which represent funds of (2017 £4,198,000) £2,780,000 expenditure. charge deposits. rental tenants’ which represent funds of £900,000 (2017: £2,144,000) £20,259,000 (2017: £2,499,000) of funds held in blocked bank accounts which are controlled by one of the Group’s lenders and are lenders and are Group’s the of one by controlled which are bank accounts funds held in blocked of £20,259,000 (2017: £2,499,000) disposals property investment from on net proceeds funds arose The restricted met. once certain loan conditions are cash free to released end. year the after released were and Restricted cash held at bank Restricted At end of year Group Cash held at bank Receivables written off as uncollectable written Receivables reversed Unused provision At end of year Provision for impairment Provision in the year of subsidiary companies Upon acquisition At At start of year 18. to These relate due but not impaired. past which are table above the in included trade receivables of analysis the aged shows table above The default. of history is no recent there whom for tenants follows: as movement trade receivables of for impairment Provision Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 • • • • Restricted cash balances of the Group comprise: Group the of cash balances Restricted • 19. Other categories within trade and other receivables do not include impaired assets. do not include impaired other receivables trade and within Other categories March 2019. March 31 will be available before cash balances All restricted Financial Statements 91 - 130 22. Deferred rental incomerepresents rent received inadvance from tenants. 21. Other payablesprincipally includesrent deposits heldandservicecharge costs. 20. 31Forended December2018 theyear Notes totheFinancial Statements Consolidated Atend ofyear propertiesinvestmentDeferred taxonthe valuation of start ofyearAt The movement on deferred tax liabilityisshownbelow: Deferred tax Income tax Atend ofyear Accruals Accruals of incidentalcosts for fund raiseandacquisitions Valueadded tax Other payables Trade payables paid Withholding taxdueondividends Taxation liabilities Deferred income Trade and other payables 116 (continued) 31 December 31 December 30,663 16,028 for the year ended31 December2018 £’000 £’000 (1,416) 9,905 2,050 2,462 1,302 2018 2018 1,763 1,129 634 634 939 27 Annual Report and Accounts 31 December 31 December 26,941 £’000 £’000 9,493 2,050 2,050 2,636 2,593 3,739 1,424 9,912 2017 2017 906 586 298 626 Financial Statements 91 - 130 400 2017 2,690 £’000 (2,618) (4,765) (4,693) 65,400 108,274 339,074 334,381 334,381 165,000 (165,619) 284,633 220,060 31 December 31 none MP MP MP MP Amortisation none none % Annual Report and Accounts and Report Annual 3.37 Fixed 3.37 3.28 Fixed 6.50 Fixed 4.50 Fixed 400 400 1,172 2018 (1,367) £’000 for the year ended 31 December 2018 December ended 31 year the for (4,693) 52,919 (4,888) 88,687 339,074 285,599 285,599 201,000 290,487 (101,506) Annual Interest Rate Annual Interest 31 December 31 2.15 over 3mth £ LIBOR over 2.15 3mth £ LIBOR over 2.15 2.00 over 3mth £ LIBOR over 2.00 % n/a n/a 51.4 36.7 45.9 45.4 38.8 (continued) to Value** Gross Loan Gross 117 Jan ‘19 Dec ‘21 Dec ‘21 Dec ‘27 Aug ‘24 Dec ‘28 Nov ‘22 Nov Maturity Date £’000 Debt* 19,003 26,458 39,820 44,026 50,000 36,000 290,487 380,307 165,000 Outstanding

£’000 Facility Original 19,003 39,879 26,458 44,026 50,000 36,000 290,487 380,366 165,000 Bank and loan borrowings Bank drawn borrowings repaid Bank borrowings Bank drawn borrowings at end of year Bank drawn borrowings at start of year Unamortised loan issue costs Repayable between 2 to 5 years 5 to between 2 Repayable years than 5 after more Repayable Add: loan issue costs amortised in the year the loan issue costs amortised in Add: At end of year Less: unamortised costs at start of year of Less: unamortised costs at start year the in Less: loan issue costs incurred Retail Eligible Bond Retail Royal Bank of Scotland Royal Scottish Widows Ltd Lender Repayable between 1 to 2 years 2 to between 1 Repayable Maturity of bank borrowings Maturity within Repayable 1 year HSBC Santander UK & Widows Ltd. Scottish Estate Real Investors Aviva Finance bank borrowings Total ZDP shares Total 23. The banks also hold subsidiaries. certain asset-holding held by properties investment individual over charges by secured are Bank borrowings fees in arranging associated Any those subsidiaries. of intermediary holding companies of certain subsidiaries and any the shares over charges table below: the facilities as shown in the on drawn offset against amounts end are year the as at unamortised the bank borrowings Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 * Before unamortised debt issue costs unamortised * Before valuations Jones Lang LaSalle property and Wakefield Cushman & ** Based upon LIBOR = London Interbank Offered Rate (Sterling) Offered LIBOR = London Interbank MP = Mandatory prepayment As detailed in notes 24 and 25 the Group also has 30,000,000 ZDP shares in issue and £50,000,000 Retail Eligible Bond in issue. in issue and £50,000,000 Retail also has 30,000,000 ZDP shares Group the and 25 detailed in notes 24 As borrowings. Group’s the table below lists The Financial Statements 91 - 130 on the London Stock Exchange ORB platform. During the year, the Company launched £50,000,0004.5%Retail eligiblebonds with amaturity date of 6 25. entitlement of the ZDPshares will rankahead of certain proposals which would belikely to materially affect their position.In the event of a winding-up of Regional REITZDPPLC, the capital The ZDPshares do notcarry the right to vote at generalmeetings of Regional REITZDPPLC, although they carry the right to vote asaclass on will be£39,879,269. During the period, the Group accrued£2,430,000(31 December2017:£1,769,000) of capitalpayable. The total amountrepayable atmaturity Exchange (LSE:RGLZ). As detailed innote36, the repayment of the Regional REITZDPPlc6.5%shares in full took placeafter the year end. equivalent to 6.5%perannum,resulting ina final capitalentitlement of132.9 pencepershare. TheZDPshares are listed on theLondon Stock maturity date, but do notreceive any dividends or income distributions. Additional capitalaccrues to the ZDPshares on a daily basisatarate originally issued at 100pencepershare. The ZDPshares have anentitlement to receive a fixed cashamount on9 The Group entityRegional REITZDPPLC, has30,000,000zero dividend preference shares (“ZDPshares”) inissue. The ZDPshares were 24. Group’s exposure to interest rate volatility isminimal. As showninnote26, the Group usesacombination of interest rateswapsand fixed ratebearingloans tohedgeagainstinterest raterisks. The to the interest income foregone by the lendersas aresult of the repayment. these circumstances early repayment fees will apply, which are generally based on apercentage of the loanrepaid or calculated with reference respective facility, giving the lender butnot the right, the obligation, to declare the loanimmediately due andpayable. Where aloanisrepaid in interest cover, loan to value cover, and debt servicecover. A breach of agreed covenant levels would typically result inanevent of default of the by these consolidated financial statements.Each facilityhas distinctcovenants whichgenerally include:historicinterest cover, projected The Group hasbeenincompliance with all of the financial covenants relating to theabove facilitiesasapplicable throughout the year covered 3.8% perannum(31 December2017:3.8%perannum). The Group weighted average interest rate,including the ZDPshares, Retail EligibleBondandhedgingcostsat the periodendamounted to 3.7%). average interest ratepayableby the Group on its debt portfolio, excluding hedgingcosts,asat the periodend was 3.7%(31 December2017: (316.4 years maturity ofthe December2017:6.0 was Group’saverageend termto years). weighted period The at the debt The weighted 23. 31Forended December2018 theyear Notes totheFinancial Statements Consolidated Atend ofyear Amortisation of issuecosts Issue costs Bonds issuedin the period Atend ofyear Accrued capitalentitlement Amortisation of acquisitioncosts Acquisition costs subsidiaries acquisition of Fairarising onthe value start ofyearAt Retail EligibleBonds Zero dividend preference shares Bank andloanborrowings (continued) Ordinary Shares butbehind other creditors of Regional REITZDP PLC. 118 (continued) 31 December 31 December August 2024. The Bonds are listed 50,000 39,816 49,136 37,239 for the year ended31 December2018 £’000 £’000 2,430 2018 2018 January 2019,being the (925) 147 61 – – Annual Report and Accounts 31 December 31 December 35,620 37,239 £’000 £’000 1,769 2017 2017 (264) 114 – – – – – Financial Statements 91 - 130 % 217 103 441 n/a n/a n/a (752) Rate 1.32 1.32 2017 2017 (1,513) £’000 £’000 1.605 1.605 88.7% 70,700 339,074 300,700 230,000 31 December 31 31 December 31 nil n/a n/a £’000 Annual Report and Accounts and Report Annual – – Cap 13,229 Cap 35,350 415 (752) (337) Swap Swap 13,229 2018 2018 Swap Swap 35,350 97,158 £’000 £’000 for the year ended 31 December 2018 December ended 31 year the for 102.6% 298,158 Notional Amount 201,000 290,487 % 31 December 31 31 December 31 3.37 Fixed 3.37 3.38 Fixed Annual Interest rate Annual Interest 2.15 over 3mth £ LIBOR over 2.15 2.15 over 3mth £ LIBOR over 2.15 (continued) 2.00 over 3mth £ LIBOR over 2.00 119 Dec ‘21 Dec ‘21 Dec ‘27 Dec ‘28 Nov ‘22 Nov Maturity Date £’000 19,003 26,458 44,026 36,000 290,487 165,000 Outstanding Debt £’000 19,003 26,458 44,026 36,000 290,487 165,000 Original Facility Derivative financialDerivative instruments HSBC Santander UK Scottish Widows Ltd. Real Investors Aviva & Estate Finance Total Royal Bank of Royal Scotland Scottish Widows Ltd Lender Value of fixed rate debts of Value of Proportion debt hedged Total bank borrowings Total rate caps and swaps of interest value Notional Revaluation Revaluation in the year value at Fair end of year Fair value at Fair start of year financial value of derivative instruments on the arising Fair acquisition of subsidiaries Net financial disposing of derivative costs of instruments It is the Group’s target to hedge at least 90% of the total debt portfolio using interest rate derivatives and fixed-rate facilities. As at the year the As at facilities. fixed-rate and derivatives rate debt portfolio using interest total the of to hedge at least 90% target Group’s the It is hedged position has arisen over The end, the total of proportion hedged debt equated to December 2017: 88.5%), as shown below. 102.6% (31 due to debt during repayments 2018. The maximum exposure to credit risk at the reporting date is the fair value of the derivative liabilities. derivative the of value fair the date is the reporting risk at to credit The maximum exposure December 2017: 3.5%) inclusive of hedging costs but excluding the ZDP. of hedging costs but excluding December 2017: 3.5%) inclusive was 3.5% (31 rate interest effective weighted average Group The LIBOR = London Interbank Offered Rate (Sterling) Offered LIBOR = London Interbank December 2017: £35.35m). £48.58m (31 were the swap notional arrangements December 2018, As at 31 The calculation of fair value of interest rate caps and swaps is based on the following calculation: the notional amount multiplied by the difference difference the the notional amount multiplied by following calculation: the on rate caps and swaps is based of interest value fair of The calculation discounted. and the contract on remaining years of the number then multiplied by rate and market the current the swap rate and between facilities: loan Group’s the of details the the hedging and swap notional amounts and rates against details table below The 26. variable rate borrowings. entering into of as a result that arises rate risk the interest to mitigate in place are rate caps and swaps Interest Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 Financial Statements 91 - 130 transfers have occurred betweenlevels in the hierarchy by reassessing categorisationat the end of eachreporting period. For assetsandliabilities that are recognised in the consolidated financial statements ona recurring basis, the Group determines whether Fairhierarchy value Stated capitalrepresents the considerationreceived by the Company for the issue of Ordinary Shares. 27. The Group hasnotadoptedhedgeaccounting. There have beenno transfers betweenlevels during the year. that interest rates will exceed strike rates and discounting these future cash flows at theprevailing market ratesasat the year end. The fair value of these contractsisrecorded in the Consolidated Statement of FinancialPosition andis determined by forming anexpectation Level 3: Level 2: Level 1: The different levels are defined as follows. The following table provides the fair value measurement hierarchy for interest rate derivatives. 26. 31Forended December2018 theyear Notes totheFinancial Statements Consolidated observable. Atend oftheyear Shares issued21/12/2017 Shares issued24/03/2017 start oftheyearAt Number of shares inissue Atend oftheyear Share issuecosts Shares issued21/12/2017 Shares issued24/03/2017 start oftheyearAt Issued and fully paidshares of nopar value Group 31 31 rate derivativesInterest December2017 December2018 Quoted (unadjusted)market pricesinactive markets for identicalassets or liabilities. Valuation techniques for which the lowestlevel input that issignificant to the fair valuemeasurement is directly orindirectly Valuation techniques for which the lowestlevel input that issignificant to the fair valuemeasurement isunobservable. Stated capital Derivative financial instruments Derivative financial (continued) £’000 Total (337) (752) 120 active prices active prices (continued) Quoted Quoted (level 1) £’000 – – observable inputs 31 December 372,821,136 372,821,136 Significant 370,318 370,316 (level 2) for the year ended31 December2018 £’000 £’000 2018 (337) (752) (2) – – – – Annual Report and Accounts unobservable inputs 31 December 372,821,136 274,217,264 26,326,644 72,277,228 Significant Significant (level 3) 370,318 274,217 73,000 25,687 (2,586) £’000 £’000 2017 – – Financial Statements 91 - 130 752 2017 2,050 £’000 105.1p 106.1p 105.9p 105.4p 395,701 875,752 392,899 372,821,136 373,696,888 31 December 31 Annual Report and Accounts and Report Annual – 337 634 2018 £’000 115.2p 115.2p 115.5p 115.5p for the year ended 31 December 2018 December ended 31 year the for 429,515 430,486 372,821,136 372,821,136 31 December 31 (continued) 121 Net asset value per share (NAV) value per share Net asset December 2017, only 50% of the Performance Fee was recognised within accruals and as there was the intention to pay the remainder of the remainder to pay the intention was there and as within accruals was recognised Fee the Performance of 50% only December 2017, Deferred tax Deferred liability EPRA net assets Net asset value per Consolidated Statement of Financial Position Statement Consolidated value per Net asset Group Group EPRA net asset value per share – diluted – value per share EPRA net asset Net asset value per share – diluted – value per share Net asset – basic value per share EPRA net asset Dilutive instruments Dilutive Adjusted Shares number of Ordinary – basic value per share Net asset Number of Ordinary Shares in issue Shares Ordinary of Number Adjustment for calculating EPRA net assets: Adjustment financialDerivative instruments Net asset values have been calculated as follows: been calculated as values have Net asset EPRA NAV is a key performance measure used in the real estate industry which highlights the fair value of net assets on an ongoing long-term ongoing long-term on an of net assets value fair the which highlights estate industry the real used in performance measure is a key EPRA NAV taxes deferred and derivatives of value fair the such as in normal circumstances to crystallise not expected that are Assets and liabilities basis. excluded. therefore valuation surpluses are on property the fee through the fee through issue of the dilutive outstanding instruments shares, were that date. at At 31 In accordance with the FCA’s Listing Rule 15.4.11, the Company cannot issue shares for cash at a price below the NAV per share without per share the NAV for cash at a price below cannot issue shares Company the Rule 15.4.11, Listing the FCA’s with In accordance dilutive. be event would in any such issue this and any do to approval Shareholder does not have Company The approval. Shareholder in be paid entirely will Fee the Performance this situation, that, in to clarify been amended have Agreements the Management Accordingly, on an day period within a 20 business the Managers of on behalf the market in shares acquire to be used will that amount of cash but 50% the preliminary of of publication date the from in cash and be acquired for entirely will be paid the shares occasion this On do so. to instruction the Managers should normally that intention commercial the underlying to preserve made were These amendments 2018 annual results. in shares. Fee the Performance of 50% receive Dilutive instruments relate to the partial settlement of the Performance Fee by the future issue of Ordinary Shares. As detailed in note 35, a As Shares. Ordinary of issue future the by Fee the Performance of the partial settlement to instruments relate Dilutive An estimate financial statements. the in was recognised for the from December 2017 of trading to commencement period Fee Performance 31 first the that It should be noted December 2017. 31 at the EPRA NAV on would be issued based that of shares the number of was made will be the charge to settle issued the shares December 2018 and 31 to 2015 6 November from the period for runs charge Fee Performance December 2018. at 31 as diluted EPRA NAV the on based December 2017, both basic and diluted earnings per share are disclosed below. disclosed are per share diluted earnings both basic and dilutive outstanding instruments were As there December 2017, at 31 28. the of equity holders ordinary to attributable of Financial Position Statement the the net assets in dividing is calculated by per share Basic NAV outstanding Shares the at the parent Ordinary by of number end of the year. Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 Financial Statements 91 - 130 29.2. • • The Group hasaccounted for the following non-cashtransactions: 29.1. 29. 31Forended December2018 theyear Notes totheFinancial Statements Consolidated Balance at31 December2018 Non-current liabilities Current liabilities Financial Position as follows: Balances are includedin the Statement of Balance at31 December2018 Totalchanges other value in fair Change Accrued capitalentitlement Amortisation of issuecosts Costs from subsidiaryacquisitions Arising from subsidiaryacquisitions Total cashflows changes from financing Bank andBondborrowing costspaid Bank borrowings repaid Bank andBondborrowings advanced cashflows: Changes from financing Balance at1 31 December2018 for the consideration prior to the subsequent reversal subsequent ofthattransaction. prior tothe consideration for the During the year ended31 December2017, the value of Performance F determined that the Performance Fees will be fully paidby cash.(seenote35) During the year ended31 December2018, the reversal of share-based paymentadjustmentsmadeinprevious years asithasnowbeen Reconciliation of changesinliabilities to cash flows arising from financingactivities Non-cash transactions Notes to the Statement of Cash Flows Notes tothe Statement of Cash January 2018 Bank loansand borrowings (101,506) 285,599 285,599 334,381 285,199 (51,892) 50,959 (1,345) 1,960 £’000 3,110 1,172 400 (22) – – 122 Zero dividend preference ees expensed within the ees Group where Ordinaryissued be Shares will 39,816 39,816 39,816 37,239 2,430 shares 2,577 £’000 147 – – – – – – – - (continued) Retail Eligible 50,000 49,075 49,136 49,136 49,136 Bonds £’000 (925) 61 61 – – – – – – – instruments for the year ended31 December2018 Derivative Derivative financial £’000 (415) (415) Annual Report and Accounts 337 337 337 752 – – – – – – – – – 374, 888 (101,506) 374,888 334,672 100,959 372,372 40,216 (2, 817) (2,270) 2,430 5,333 1,380 1,960 £’000 Total (415) (22) Financial Statements 91 - 130 400 (217) Total (441) 1,769 £’000 9,766 (1,315) 2,804 (3,714) 371,972 143,651 372,372 372,372 140,610 218,955 179,540 (165,619) – – – – – – – Annual Report and Accounts and Report Annual 752 752 752 (217) (103) (441) (441) (320) 1,513 £’000 financial Derivative for the year ended 31 December 2018 December ended 31 year the for instruments (continued) – – – – – – – – – – – – – – – – £’000 Bonds Retail EligibleRetail (continued) – – – – – – – – 114 (264) 1,769 £’000 shares 37,239 37,239 37,239 37,239 35,620 preference 123 Zero dividend Zero – – – (continued) 400 £’000 2,690 (1,051) (3,714) 10,207 217,442 106,732 179,540 333,981 105,093 334,381 334,381 (165,619) borrowings Bank loans and January 2017 Reconciliation of changes in liabilities to cash flows arising from financing activities activities financing from flows arising cash to of changes in liabilities Reconciliation Notes to the Statement of Cash Statement of Notes to the Flows

December 2017 December 2017 Balance at 31 Changes from financingChanges from cash flows: Net costs of paid on the disposal derivatives Balances are included in the Statement of Statement the included in Balances are follows: as Financial Position liabilities Current Arising from subsidiary acquisitions from Arising 31 Balance at 1 Non-current liabilities Non-current Costs of subsidiary acquisitions allocated Costs December 2017 Balance at 31 Bank borrowings advanced Bank borrowings Amortisation of issue costs Amortisation Bank borrowings repaid Bank borrowings Accrued capital entitlement Accrued Bank borrowing costs paid Bank borrowing Total financingchanges from cash flows Total Change in fair value Total other changes Total 29.2 29. Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 Financial Statements 91 - 130 net assetsas follows: If interest rates were to increase by the following rates, this would increase the annualinterest charge to the Group and thus reduce profits and borrowings from floating rates to fixed rates.Interest ratecapslimit theexposure toaknown level. floating to fixed interest rateswaps,interest ratecapsandinterest rateswaptions.Interest rateswapshave theeconomiceffect ofconverting Borrowings issuedat fixed ratesexpose the Group to fair valueinterest raterisk. The Group managesitscash flowinterest raterisk by using The Group’s interest rateriskarises from long term borrowings issuedat variable rates, which expose the Group to cash flow interest raterisk. into to mitigateinterest raterisk. held by the Group that are affectedby market riskare principally the Group’s bankbalancesalong with anumber of interest rateswapsentered Market riskis the risk that the fair values of financial instruments will fluctuatebecause ofchangesinmarket prices. The financialinstruments 30.3. risks. The Board of Directors reviews andagrees policies for managingeach of these risks that are summarisedbelow. The Group isexposed to market risk(includinginterest raterisk),credit riskandliquidityrisk. The Board of Directors oversees the management of these 30.2. financial statements: Set out belowisacomparisonby class of the carryingamountsand fair value of the Group’s financial instruments thatare carriedin the of the Group’s investment property portfolio. Zero DividendPreference Shareholders andinterest rate derivatives, the mainpurpose of which is to finance theacquisitionand development payables andcashequivalents. The Group’s other principal financial liabilitiesare bankand otherloanborrowings, amounts due to The Group’s principal financial assetsandliabilitiesare those thatarise directly from its operations: tradeand other receivables, tradeand other 30.1. 30. 31Forended December2018 theyear Notes totheFinancial Statements Consolidated 1.00% 0.75% 0.50% 0.25% 0.00% Interest rateincrease rate derivativesInterest Financial liabilities–measured at fair value through profit orloss Retail EligibleBonds Zero dividend preference shares Bank andloanborrowings Trade and other payables Financial liabilities–measured atamortisedcost Cash andshort-term deposits Trade and other receivables Financial assets–measured atamortisedcost Group Market risk Risk management Financial instruments Financial riskmanagement 124 Book value (continued) (285,599) 104,823 (39,816) (29,361) (49,136) 31 11,891 £’000

(337) December 2018 Fair value (285,599) 104,823 (50,038) (29,361) (39,150) Increase to the annualinterest charge 11,891 £’000 31 December (337) for the year ended31 December2018 £’000 2018 409 307 102 24 Book value – (334,381) Annual Report and Accounts (26,035) 44,640 (37,239) 13,985 31 £’000 (752)

December 2017 – 31 December Fair value (334,381) (38,550) (26,035) 44,640 13,985 £’000 £’000 2017 (752) 368 552 184 737 – – Financial Statements 91 - 130 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for (continued) 125 A+ Stable A+ Stable Fitch Ratings (continued) A+ Rating Watch Negative Watch A+ Rating Negative Watch A+ Rating Negative Watch A+ Rating AA- Negative Rating Watch Financial risk management Financial risk management Liquidity risk Credit risk related to financial instruments and cash deposits financial instruments and cash to risk related Credit Credit risk related to trade receivables to risk related Credit Credit risk Credit Barclays Barclays Bank Scotland of Royal Santander UK HSBC Aviva Bankers Scottish Widows* Liquidity risk arises from the Group’s management of working capital and, going forward, the finance charges and principal repayments on repayments principal and finance charges the forward, working capital and, going of management Group’s the from Liquidity risk arises the of the majority due, as fall they obligations as financial in meeting its difficulty will encounter Group the that the risk It is its borrowings. it has sufficient available to ensure is objective Group’s The realisable. not readily therefore and are properties investment assets are Group’s by flows and actual cash forecast of continuous monitoring by This is achieved fund its capital expenditure. to operations and for its funds management. * rating relates to parent entity – Lloyds Banking Group plc Group Banking entity – Lloyds to parent * rating relates 30.7. One of the principal credit risks of the Group arises with the banks and financial institutions. The Board of Directors believes that the credit risk the credit that believes of Directors The Board financial institutions. the banks and with arises Group the of risks the principal credit of One the to committed lenders who are banks, are the counterparties limited because account cash balances are deposits and current on short-term agencies. international credit-rating assigned by ratings credit with high Group, follows: was as ratings, their latest Fitch credit with Group, the for of bankers The list 30.6. 30.5. Credit for impairment. of provisions net Position of Financial Statement Group’s the in presented are tenant rentals, primarily receivables, Trade to acquisition. prior of covenant strength tests around in advance and performing to pay rentals tenants requiring managed by risk is primarily end. year the after shortly received were end year the due as at past trade receivables Any Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial to a customer contract, or leading financial instrument a obligations under will not meet its that a counterparty the risk risk is Credit financial with banks and deposits including financing activities, both its leasing activities and from risk to credit is exposed Group The loss. the of quality The credit obligations. their lease advance under in to pay rentals being required tenants mitigated by risk is Credit institutions. agreement. of entering into a lease time the at rating scorecard credit on an extensive tenant is assessed based of each value the carrying date is the reporting risk at to credit The maximum exposure monitored. regularly are trade receivables Outstanding class of financial asset. 30. Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 30.4. Financial Statements 91 - 130 30.7 relationship with the property sector. debt type, maturityprofile, substitutionrights,covenant andsecurity requirements, lender type, diversity, and thelender’s knowledgeand The optimal debt financing structure for the Group willhave consideration for the key metricsincluding: fixed or floatinginterest ratecharged, the priorapproval of Ordinary Shareholders ina General Meeting. the Board deems appropriate. The Group’s netborrowings maynotexceed 50percent. of the Investment Property Values atany time without conditions, relative costs of debt andequity capital, fair value of the Company’s assets, growth andacquisition opportunities or other factors the Board maymodify the Group’s borrowing policy(including the level of gearing) from time to time inlight of then-current economic Based on current market conditions, the Board will target Group netborrowings of 40% of Investment Property Values atany time. However, REIT. low cost of funds, while maintaining flexibility in theunderlying security requirements, and thestructure ofboth theportfolioand of Regional The Group’s policy on borrowings isas follows: the level of borrowing will be on aprudentbasis for the asset class,and will seek to achieve a dividend distribution and to maintainsustainablereturns for Shareholders. monitors andreviews the Group’s capitalsoas to promote the long-termsuccess of the business, facilitate expansion, deliver a quarterly The Group’s capitalisrepresented by reserves andbankborrowings. The Board, with the assistance of the Investment and Asset Managers, status. The primary objective of the Group’s capitalmanagementis to ensure that itremains agoingconcernandcontinues to qualify for UK REIT 31. The table belowsummarises the maturityprofile of the Group’s financialliabilitiesbased oncontractualundiscountedpayments: 30. 31Forended December2018 theyear Notes totheFinancial Statements Consolidated Zero DividendPreference Shares rate derivativesInterest Bank borrowings Trade and other payables Group at31 December2017 Retail eligiblebonds Zero DividendPreference Shares Interest rate derivativesInterest Bank borrowings Trade and other payables Group at31 December2018

Liquidity risk(continued) Capital management Financial riskmanagement (continued) (80,680) (38,296) (26,035) (39,879) (29,361) (12,019) Within Within Within Within (8,926) (2,250) £’000 £’000 1 year 1 year (264) (242) – 126 1 to 2 years 1 to 1 to 2 years 1 to Between Between Between Between (115,720) (39,879) (75,599) (11,453) (8,959) (2,250) £’000 £’000 (244) (242) – – – (continued) 2 to 5 years 2 to 2 to 5 years 2 to Between Between Between Between (113,026) (132,412) (120,194) (131,712) (6,750) £’000 £’000 (700) (418) – – – – for the year ended31 December2018 (280,967) (191,793) (191,793) (228,717) (52,250) 5 years 5 years £’000 £’000 After After After After Annual Report and Accounts – – – – – – (493,294) (359,628) (478,221) (411,123) (26,035) (63,500) (39,879) (39,879) (29,361) £’000 £’000 (1,184) Total Total (926) Financial Statements 91 - 130 471 471 2017 2017 1,414 £’000 £’000 47,979 49,621 36,001 38,357 66,437 38,678 202,715 31 December 31 31 December 31 Annual Report and Accounts and Report Annual 618 618 2018 2018 1,854 £’000 £’000 for the year ended 31 December 2018 December ended 31 year the for 51,337 37,365 38,109 54,427 457,411 275,529 106,408 31 December 31 31 December 31 (continued) 127 Segmental information Operating lease commitments Operating leases Payable between 1–2 years between 1–2 Payable years between 2–5 Payable years after 5 Payable Group within Payable 1 year Receivable between 2–5 years between 2–5 Receivable years after 5 Receivable Receivable between 1–2 years between 1–2 Receivable Receivable within Receivable 1 year Group 34. After a of the review for information management provided Group it has one determined that the was purposes during the year, current financial statements. these consolidated disclosed in segmental information is not therefore operating segment and Total commitments on operating leases in respect of land and buildings are as follows: as are of land and buildings operating leases in respect on commitments Total The Group’s operating lease commitments at the year end were spread across 13 separate operating leases with the two largest leases at two largest the with operating leases 13 separate across spread were end year the operating lease commitments at Group’s The the balance. of Witham making up 41% and Basingstoke 33. The Group has in excess of 889 operating leases. The number of years remaining on these operating leases varies between 1 and 80 years. The years. varies between 1 and 80 operating leases these on remaining years of The number operating leases. of 889 has in excess Group The to end a wishes tenant on each lease. If a point the next lease break to up income receivable total rental represent disclosed above amounts income received. the shortfall in rental to cover be charged will premium point a surrender the break to lease prior 32. as portfolio are property Group’s the of operating leases in respect non-cancellable under minimum lease payments receivable future The follows: Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 Financial Statements 91 - 130 * Includingirrecoverable VAT charged where appropriate Property Manager on a quarterly basis:31 March, 30 Property Asset ManagementLimitedisappointedas the Property Manager. A property management fee of 4%perannumischarged by the In respect of eachportfolioproperty, the Asset Managerhasprocured and shall, with the Company in future, procure that London & Scottish payable incash quarterly inarrears. management fee on ascaledrate of 1.1% of the EPRAnetasset value, reducing to 0.9% on netassets over £500,000,000. The fee shallbe In consideration for the provision of servicesprovided, the Asset Managerisentitledineach financial year (orpart thereof) to50% ofanannual contracted to actas the Asset Manager of the Group and the latteras the Property Manager. Investments Limited(“LSI”)anda director of London& Scottish Property Asset ManagementLimited. The former company hasbeen Stephen Inglisisanon-executive Director of Regional REITLimited,as well asbeing the Chief Executive Officer ofLondon& Scottish Property Limited Asset Management Transactions with Limited the and Manager,the Property London Investments &Scottish Asset Manager, London &Scottish The following tables show the fees charged in the year and the amount outstanding at the end ofthe year: at the amount outstanding and the in theyear charged show the fees The following tables The Asset Managerisalsoentitled to aPerformance Fee. Details of the Performance Fee are given below. renunciations butexcluding any sumspaidinconnection with servicecharges or insurancecosts. yield means the rents due under the property’s lease for the peacefulenjoyment of the property, includingany value paidinrespect of rental Directors (and their spouses or minorchildren) on the holdings: the OrdinaryDuring theyear, Report.SharesDirectors’ ofthe areCompanyreceivedbywithin the the were disclosed the following dividends Directors’ remuneration is disclosed within the Remuneration Report andnote 8 to the financial statements.Directors’ beneficialinterests in Directors the with Transactions 35. 31Forended December2018 theyear Notes totheFinancial Statements Consolidated Total* outstanding fees Total charged Performance fees Property management fees charged* Asset management fees charged* Total Timothy Bee Frances Daley Stephen Inglis Daniel Taylor William Eason Kevin McGrath Transactions with related parties June, 30 September, and31 December, basedupon the gross rental yield. Gross rental 128 (continued) 31 December 31 December 31 December Year ended Year ended for the year ended31 December2018 £’000 £’000 £’000 2,405 2,264 5,263 3,523 2018 2018 2018 8,192 142 60 28 24 16 12 2 Annual Report and Accounts 31 December 31 December 31 December Year ended Year ended £’000 £’000 £’000 2017 4,525 1,882 1,739 1,972 2017 2017 814 86 49 10 16 11 – – Financial Statements 91 - 130 814 2017 2017 1,732 1,378 2,546 £’000 £’000 July July Year ended Year 31 December 31 31 December 31 Annual Report and Accounts and Report Annual 2018 2018 3,523 5,928 2,405 5,044 £’000 £’000 for the year ended 31 December 2018 December ended 31 year the for Year ended Year 31 December 31 31 December 31 (continued) December 2018, is payable 50% in cash, and 50% in Ordinary Shares. Ordinary December 2018, is payable 50% in cash, and 50% in 129 December 2017, 50% of the fee was accrued as a liability totalling £930,000 and the £930,000 and totalling was accrued as a liability fee the of 50% December 2017, December 2018, and annually thereafter. Full details of the Managers’ Performance of details Full thereafter. December 2018, and annually to 31 2015 November (continued) December 2017: £1,859,000). This fee has been accrued in the consolidated financial statements. the consolidated fee has been accrued in This December 2017: £1,859,000). December 2018, the Performance Fee liability, for the period from commencement of trading totrading of commencement from the period for liability, Fee the Performance December 2018, 185 of the IPO Prospectus. Transactions with related parties with related Transactions was estimated at £8,905,000 (31 December 2018

Total fees outstanding Total Performance fees Performance charged Total Investment management fees charged management Investment Transactions with the Investment Manager, Toscafund Asset Management LLP Toscafund the Investment with Manager, Transactions Martin McKay was a non-executive Director of the Company and the Chief Financial Officer of Toscafund Asset Management LLP until 7 Asset Management Toscafund of Officer Chief Financial the and Company the of Director was a non-executive Martin McKay 35. Notes to the Consolidated Consolidated Statements Financial to the Notes the year 2018 December ended For 31 The following tables The fees show the charged in the year and the amount outstanding at the end of the year: The Investment Manager is also entitled to a Performance Fee. Details of the Performance Fee are given below. given are Fee the Performance of Details Fee. to a Performance Manager is also entitled The Investment In consideration for the provision of services provided, the Investment Manager is entitled in each financial year (or part thereof) to 50% of an to 50% thereof) (or part year financial entitled in each Manager is the Investment of services provided, the provision for In consideration fee is The £500,000,000. over on net assets to 0.9% value, reducing the EPRA net asset of of 1.1% on a scaled rate fee annual management in arrears. quarterly payable in cash 2017. With effect from that date he was replaced on the Board by Tim Bee, Chief Legal Counsel of Toscafund Asset Management LLP. Toscafund Toscafund Management LLP. Asset Toscafund of Counsel Chief Legal Tim Bee, by the Board on was replaced date he that from effect With 2017. Group. the of Manager the Investment has been contracted as Asset Management LLP 31 would be charge Fee the Performance of payment future the that so would prevail conditions that market was assumed period, it the comparative In at 31 Therefore, of shares. the issue cash and 50% by met 50% by Changes in Equity. of Statement Consolidated the based payment in a share as was reflected Shares Ordinary of the issue fee, payable by the of 50% The Asset Manager and the Investment Manager are each entitled to 50% of a Performance Fee. The fee is calculated at a rate of 15% of the Total Total the of of 15% at a rate fee is calculated The Fee. of a Performance to 50% each entitled Manager are the Investment Asset Manager and The year financial any for Return Shareholder Total performance period. the relevant for of 8% per annum Rate the Hurdle of in excess Return Shareholder consists of the sum of declared financialany or decrease in the Share Share in and the total dividends increase Ordinary Ordinary EPRA per per NAV the High-water mark exceeds Share Ordinary per the EPRA NAV where of a performance period payable in respect only is Fee A Performance year. the Placing price (100p peror performance period previous in any Share Ordinary EPRA NAV year-end the highest of the greater to which is equal on 31 is calculated initially Fee Performance The Share). Ordinary as at 31 Group the of the EPRA NAV on Based Performance Fee ofwith 50% price per share, the prevailing again at Shares, Ordinary payable 34% in cash and 66% in are years for subsequent Fees The Performance the for one year and shares locked-in 50% of the years. for two shares locked-in In accordance with the FCA’s Listing Rule 15.4.11, the Company cannot issue shares for cash at a price below the NAV per share without Shareholder without per share the NAV for cash at a price below cannot issue shares Company the Listing Rule 15.4.11, the FCA’s with In accordance the Management Accordingly, dilutive. be event would in any such issue this and any do to approval Shareholder does not have Company The approval. will be usedthat amount of in cash but 50% will be paid entirely Fee the Performance this situation, that, in to clarify been amended have Agreements will be the shares occasion this On do so. to on an instruction day period within a 20 business the Managers of on behalf the market in shares to acquire to preserve made were These amendments 2018 annual results. the preliminary of of publication date the from in cash and be acquired for entirely paid in shares. Fee the Performance of 50% receive the Managers should normally that intention commercial the underlying Fee are given on pages 183 to given are Fee Period, 6 Performance first the for Fee The Performance year. one for to be locked-in of issue and are date the at Share Ordinary price per the prevailing at to be issued are The shares Financial Statements 91 - 130 building is98.75% occupied with anetincome of c.£1.69m On 4February 2019, the Company announced the acquisition of NorfolkHouseinBirmingham for £20m, with anetinitial yield of 7.92%. The now beenplacedintoliquidation. resulted inareduction in the weighted average cost of borrowing (includinghedgingcosts) from c.3.8% to c.3.5%.Regional REITZDPPlchas On 10 36. 31Forended December2018 theyear Notes totheFinancial Statements Consolidated January 2019, the Company announced the repayment of the Regional REITZDPPlc6.5%shares in full totalling £39.9m. This Subsequent events 130 (continued) for the year ended31 December2018 Annual Report and Accounts Additional Information 131 - 142 8.1p 8.1p 8.6p 8.6p 6.5% 6.6% 2017 105.9p 104.8p £24,014,000 £25,624,000 31 December 31 £395,701,000 £391,588,000 Annual Report and Accounts and Report Annual 7.5p 7.5p 5.6p 5.6p 2018 6.5% 6.6% 115.1p 115.5p for the year ended 31 December 2018 December ended 31 year the for £27,938,000 31 December 31 £20,892,000 £427,966,000 £430,486,000 131 EPRA Performance Measure EPRA NNNAV (diluted) per share NNNAV EPAR Yield EPRA Net Initial EPRA Earnings (basic)EPRA Earnings per share (diluted) EPRA Earnings per share Earnings Adjusted (basic)EPRA Earnings per share (diluted) EPRA Earnings per share EPRA Net Asset Value (diluted) per share EPRA NAV EPRA ‘Topped-up’ Net Initial Yield Net Initial EPRA ‘Topped-up’ ee charged in ee charged erformance F Definition EPRA NAV adjusted to include adjusted EPRA NAV the fair values of (i) financial debt and (iii) instruments, (ii) taxes. deferred income based Annualised rental the passing at rents the cash on date, less non- balance sheet operating property recoverable expenses, divided the by market value of the withproperty costs. (estimated) purchasers’ Company SpecificCompany Earnings the adds back which Measure P Net Asset Value adjusted and to include properties interest other investment to exclude value and fair at certain items not expected to crystallise in a long-term business property investment model. Earnings from operational Earnings from activities. the accounts This measure incorporates an This measure adjustment to the ERA NIY in of the respect expiration other (or of rent-free-periods such lease incentives unexpired periods and rent discounted as stepped rents) EPRA NET INITIAL YIELD EPRA NNNAV EPRA NAV Company Company Earnings Adjusted EPRA EARNINGS EPRA Performance Measure EPRA ‘TOPPED- UP’ NIY EPRA have developed and defined the following performance measures to give transparency, comparability and relevant of financial reporting financial of relevant comparability and transparency, to give following performance measures the defined and developed EPRA have calculated in which are following measures the disclose to is pleased Group The accounting standards. different which may use entities across with EPRA guidance: accordance The Group is a member of the European Public Real Estate Association (“EPRA”). Estate Public Real the European of is a member Group The EPRA Performance Measures EPRA Performance Additional Information 131 - 142 2. For calculations,pleaserefer to note12 to the financial statements. 1. Notes to the calculation of EPRAperformancemeasures 2018 Awards EPRA EPRA Performance Measures EPRA NAV pershare Dilutive number of shares EPRA NAV liability Deferred tax Fair instruments value ofderivative financial Diluted NAV instruments Effect ofdilutive NAV per the financial statements RATIO EPRA COSTS RATE EPRA VACANCY Measure Performance EPRA EPRA NAV earnings EPRA by gross rental income costs ofdirect vacancy divided costs (including&excluding & operating Administrative portfolio ERVbywhole ofthe (ERV)space divided of vacancy Estimated Market Rental Value Definition

T S

R O (continued)

V (excluding direct vacancy costs) (excludingdirect vacancy Ratio EPRA Costs Ratio EPRA Costs Rate EPRA Vacancy Measure EPRA Performance E D D A W A R 132

31 December 31 December 372,821,136 430,486 429,515 429,515 for the year ended31 December2018 115.5p £’000 29.9% 10.6% 40.1% 2018 2018 634 337 – Annual Report and Accounts 31 December 31 December 373,696,888 392,899 392,899 395,701 29.7% 19.0% 105.9p 11.8% £’000 2017 2,050 2017 752 – Additional Information 131 - 142 – – 639 (752) 2017 2017 2017 8,247 6.5% 6.6% (1,311) £’000 11.8% £’000 £’000 57,011 (2,050) 53,182 (4,468) 70,034 104.8p 52,543 395,701 391,588 765,288 31 December 31 373,696,888 31 December 31 31 December 31 Annual Report and Accounts and Report Annual – 666 443 7,128 (337) (902) (634) 2018 6.5% 6.6% 2018 2018 £’000 10.6% £’000 £’000 115.5p 67,042 for the year ended 31 December 2018 December ended 31 year the for (4,650) 54,710 50,503 50,060 718,375 429,279 430,486 372,821,136 31 December 31 31 December 31 31 December 31 133 (continued) EPRA NNNAV EPRA Vacancy EPRA Vacancy Rate EPRA Net Initial Yield EPRA Net Initial EPRA NIY up NIY topped EPRA Topped-up net annualised rent Topped-up Investment properties Investment Deferred tax Deferred liability Zero Dividend Preference Shares Dividend Preference Zero bonds eligible Retail Fair value of derivative financial value of derivative instruments Fair value of debt: fair for the Adjustment Bank and loan borrowings EPRA NAV Estimated Market Rental value (ERV) of whole portfolio of value (ERV) Rental Estimated Market EPRA Vacancy Rate Estimated Market Rental Value (ERV) of vacant space of (ERV) Value Rental Estimated Market Add notional rent expiration of rent free periods or other lease incentives or periods free of rent expiration notional rent Add Property outgoings Property Annualised net rents Annualised cash passing rental income Annualised cash passing rental Dilutive number of shares number Dilutive per share EPRA NAV EPRA NNNAV 3. EPRA Performance Measures Measures EPRA Performance 5. 4. annualised net rents: divided by properties of investment value the Calculated as Additional Information 131 - 142 property. Subsequent capitalexpenditure – this represents capitalexpenditure which has taken placepost the initialacquisition of aninvestment legal tax, fees, agents’ fees, valuations andsurveys. Acquisitions – this represents the purchase cost of investment properties andassociatedincidentalpurchase expensessuchasstamp duty land Property Related Capital Expenditure Analysis The Group hasnotcapitalisedany overhead or operating expensesin the accounting years disclosed above –LSI to confirm 31 It shouldbenoted that the EPRA Costs in the above calculationsinclude the performance fee cost for the period of £7,046,000 ended (year 6. EPRA Performance Measures Total capital expenditure Subsequent capitalexpenditure Acquisitions EPRA Cost Ratio(excluding direct vacancy costs) EPRA Cost Ratio(including direct vacancy costs) EPRA Cost Ratio(excluding direct vacancy costs) EPRA Cost Ratio(including direct vacancy costs) Gross rental incomelessground rents Less ground rent Less recoverable servicecharge incomeand other similaritems Gross rental income EPRA costs(excluding direct vacancy costs) costs Direct vacancy EPRA costs(including direct vacancy costs) Add administrative and other expenses Less recoverable servicecharge incomeand other similarcosts Less ground rent Operating costs December2017:£1,610,000). The EPRAcostratioexcluding the Performance Fee from costs would beas follows: EPRA Cost Ratios EPRA Cost (continued) 134 31 December 31 December (11,944) (11,944) 18,384 24,624 76,334 19,644 83,313 28.6% 74,019 61,414 29.9% (6,240) for the year ended31 December2018 17,586 18.5% £’000 £’000 40.1% 6,979 2018 2018 (662) (661) Annual Report and Accounts 31 December 31 December 244,699 231,326 15,368 13,373 51,786 26.6% 15,763 61,610 29.7% 19.0% (5,522) 15.9% (9,261) (9,261) £’000 £’000 9,846 9,429 2017 2017 (563) (563) Additional Information 131 - 142 . Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for occupancy expressed as a percentage being the being as a percentage occupancy expressed Rate – Vacancy EPRA vacant of Vacancy space divided of the ERV whole by ERV portfolio. but for all completed properties, be calculated only Rate should development under which are those properties excluding Equivalent Yield – weighted of the average initial yield and will a property that the return yield, representing reversionary produce occupancy data of the tenant based on the leases. (MR) – Rent valuers’ external or Market (ERV) Value Estimated Rental opinion as to what the open value of the market rental property is to be be expected which could reasonably date and valuation the on the obtainable on rent a new letting of that valuation on the property date. The of a property. valuer External Valuer – independent external Jones Lang and Wakefield Cushman & are Valuers External Company’s LaSalle. Adjustment the book to change Value – accounting adjustment Fair value. to its market or liability of an asset value Gross Asset Value – the value of the total aggregate of the assets the accounting principles with in accordance determined as Company time to time. from Company adopted the by the encompassing properties Assets – investment Property Gross and leasehold assets. freehold of portfolio property entire income under IFRS. – accounting based rental Income Rental Gross the lease tenants to its lease incentives provides Group the When basis on a straight-line term the lease over recognised are incentives Rent the cash Passing income is rental Gross IFRS. with in accordance as for the of these adjusted spreading incentives. Ratio – (Borrowings)/(Investment (LTV) Loan-to-Value Gross as percentage. expressed Value), Properties REIT Limited and its subsidiaries. – Regional Group the established by IAS – an international accounting standard International Accounting Standards Board. the London to admission Company’s The Offering. IPO – Initial Public 2015. on 6 November was Stock Exchange tenant and a binding contract between a landlord Lease – legally which sets out the basis on which the tenant is permitted to occupy a the lease length. including property, – Lease Incentive payment used to encourage on a tenant to take a to of money tenant a sum paying a a landlord for example new lease, offit-out acontribute to the orby property cost of allowing a tenant’s period. free a rent – of Lease Re-gear renegotiation a lease during the term and often or Rent Option a Break for example event, to another lease linked Review. tenant at the existing with of a lease – renegotiation Lease Renewal its contractual expiry. 135 . The movement in EPRA NAV plus the dividend the plus in EPRA NAV The movement – Return Total EPRA the of as a percentage the period expressed during distributions paid the period. of the beginning at EPRA NAV IFRS assets excluding the mark- – IFRS assets excluding (EPRA NAV) Value Asset EPRA Net debt instruments related flow hedges and cash on effective to-market taxation and deferred revaluations. profit after taxation excluding investments and investments taxation excluding after EPRA Earnings – profit disposals, on and gains/losses revaluations property development financial instruments and associated of value fair the changes in taxation. their related close-out costs and European Public Real Estate Association, a real estate industry a real Association, Estate Public Real EPRA – European to provide which has issued Best Practice Recommendations body, reporting across financial estate in real transparency consistency and Europe. ratio of overheads and operating expenses against and overheads of Ratio – ratio Cost EPRA to operating expenses relate and overheads income. Net rental gross of joint the share operating expenses including and all administrative fees, service of any operating expenses, net and overheads ventures’ or other recharges income specifically overhead intended to cover expenses. and property Energy Performance Certificate. Performance EPC – Energy the Directors of the Company whose Company – the names of the Directors Directors are out on set page 58 and 59. growth and income properties with the ability to the ability with and income properties – growth Plus property Core . asset management initiatives through flows cash increase stable income properties with low risk. – stable income properties property Core annualised rent, adjusting for the inclusion of rent- the inclusion for adjusting – annualised rent, Rent Contracted Rent. See also Passing guarantees. periods and rental free Regional REIT Limited (Company Number 60527). REIT Limited (Company – Regional Company Capital expenditure relates to spend used by the organisation organisation the to spend used by relates Capital expenditure Capex – assets. or upgrade physical to maintain a clause in a lease which provides the landlord or the landlord Option Break which provides – a clause in a lease its contractual before the lease terminate to an ability with tenant expiry date. Board – the Company of Board of the Board Directors Alternative Investment Fund Manager. The entity which The entity Fund Manager. Investment Alternative AIFM – AIFM ensures the Company complies The Company’s with the AIFMD. Asset Management LLP. Toscafund is Alternative Investment Fund Managers Directive. Issued by Issued by Directive. Fund Managers Investment Alternative AIFMD – requires the Directive in 2012 and 2013, Parliament the European Fund Manager Investment Alternative to appoint an Company the of a closed-ended investment of Directors The Board (AIFM). the of for all aspects responsible fully remains nevertheless company regulations. with operations and compliance strategy, Company’s Alternative Investment Fund. Investment Alternative AIF – Association of Investment Companies. A trade body for closed- trade body A Companies. of Investment Association AIC – companies (www.theaic.co.uk) end investment Glossary Glossary of Terms Additional Information 131 - 142 provided for within aleaseagreement. Rent Review –periodicreview of rent during the term of alease, as Act 2013. ongoing qualifications asset outunder section 705 E of theFinance engaged inproperty investments activitiesandmustmeetcertain be listed on arecognised stockexchange, mustbepredominantly Estate Investment Trust for tax purposes.In the UK suchentitiesmust REIT –a qualifying entity which haselected to be treated asReal Prospectus – the Company’s prospectus issued on 5 December 2017. withholding tax. dividends, callednon-PIDs, which are treated as notsubject to without withholding Propertytax. companiesalsopay out normal Shareholder (i.e.,pension funds) are tax exempt andreceive PIDs behalf ofthe authorities on to thetax paid net of withholding currentlytax, at20%, which the REITpays hands ofthe business distributedto Property IncomeDistributions(PIDs)–profits from property related for leaseincentives. This phraseis often used for Contracted Rent. Passing Rent – the rent that ispayableatany particular time, allowing Over Rented – when the Contracted Rent ishigher than the ERV. and unitscurrently let to tenants. properties all Occupancy Percentageareapercentage of ofthetotal – Majority inaccordance with the Companies Law Ordinary Resolution –aresolution passedby more than 50percent. Properties Value) expressed aspercentage. Net Loan-to-Value (LTV) Ratio–(Borrowings –lesscash)/(Investment Yield (NNNIY). Properties Value). This phrase isregularly used for Triple NetInitial recoverable property expenses,suchasemptyrates)/(Investment Net Initial Yield –(Annualisedcurrent passingrent lessnon- Shares +Retained Earnings). – (Borrowings –cashandequivalents)/(TotalNet Gearing Issued debt. Net Debt– Total cashandequivalentslessshortlong term underlying value of aninvestment company atapointin time. and debtors, lessborrowings andany other creditors. Itrepresents the investments and other assets of aninvestment company, pluscash Net Asset Value (NAV) (or Shareholders’ Funds)–the value ofthe Manager is Toscafund Asset ManagementLLP. London & Scottish Investments Limited.ItsexternalInvestment Manager – the Company’s external Asset andProperty Manageris asset or liabilityanditsmarket value. Mark-to-Marketan book value of between the (MTM)–difference party totheother.bypremium one surrender of aBreak Option. This will frequently involve the negotiation of a a lease to anend other than by contractualexpiry or the exercise – agreement Lease Surrender whereby the landlord and tenant bring of TermsGlossary Shareholders asproperty income.PIDsare normally hareholders which are subject to tax in the subject totax are Shareholderswhich (continued) Shareholder. Certain typesof . 136 property decreases, measured inbasispoints. a equivalent yieldof net when the – occurs Yield Compression in issueat the periodend. and hedging derivative costsperannum divided by total Group debt Weighted Average Effective Interest Rate– the Group’s loaninterest result is divided by total Group debt inissueat the period end. debt ismultipliedby the remaining period to itsmaturityand the Weighted Average Debt to Maturity(WAD)each trancheof Group – where relevant. calculation excludes residential leasesand development properties weighted by contractedrental income(includingrent-frees). The lease term remaining to first break, orexpiry, across theportfolio Weighted Average Unexpired Lease Term (WAULT) –is the average (the three “nets”))/(Investment Properties Value). of property related taxes, buildinginsurance, andmaintenancecosts Triple NetInitial Yield (NNNIY)–(Annualisedcurrent passing rent net Shareholder –aholder of Shares in the Company Shares – as apercentage. Estimated Rental Value. ERV/Investment Properties Value expressed which the NetInitial Yield will rise(or fall) once the rent reaches the – anticipated Reversionaryyield, excluding leaseexpiry, Yield to increases to rent arise on rent reviews andlettings. External Valuers, where the passingrent isbelow the ERV. The Reversion –expectedincrease inrent estimatedby the Company’s Ordinary Shares issuedby the Company for the year ended31 December2018 Annual Report and Accounts . . Additional Information 131 - 142 July July 2014. The Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for July 2014. The aggregate amount of remuneration in of remuneration amount The aggregate 2014. July 137 December 2018 was £3,027,376 (2017: £1,864,542). was £3,027,376 December 2018 to 31 January 2018 126 of the Statements. Financial to The Board considers that the following are the principal risks associated with investing in the Group: investment risk, market risk, liquidity risk risk, market investment Group: the in with investing the principal risks associated following are the that considers The Board financial instruments are to with respect the policy and practice managed and they are these risks and how of An explanation risk. and credit on pages 124contained in note 30 Principal risks and uncertainties The AIFM has established and maintains a permanent and independent risk management function to ensure that there is a comprehensive is a comprehensive there that to ensure function and maintains a permanent and independent risk management AIFM has established The the covers Group the to The risk policy applicable with risk limits. to monitor compliance risk management policy in place and and effective the of the adequacy and effectiveness and approves AIFM reviews the portfolio and investment the of the management with risks associated AIFM sets risk limits The for each risk area. and limits and controls the risk management processes least an annual basis, including on at policy AIFM monitors The and strategy. objectives well as its investment as portfolio, investment Group’s the of the risk profile into account take that at regular risk limit reports AIFM reviews The risks. to key sensitivity the portfolio’s assesses and periodically the risk limits, including leverage, its risk committee. of meetings Risk management by the AIFM the Risk management by Continuing AIFM Continuing appointment of the and Management Engagement Committee Audit its through The Board, AIFM and LSI. the of the performance reviews continually The Board the of its engagement. It is terms the AIFM and the of the performance has considered “Committees”), (the Committee and Remuneration opinion of the that the Board continuing AIFM on the terms appointment of the agreed is This in the Shareholders of as is interests a whole. to terms and compared fair both in absolute AIFM is the of the remuneration and because Group the of the good performance of because the of EPRA NAV, the basis on fee the management calculating that by believe The Board companies. of similar investment of managers that AIFM of the are closely interests aligned Shareholders. with those of the Toscafund was authorised as an Alternative Investment Fund Manager (“AIFM”), by the UK’s Financial Conduct Authority on 21 Authority Conduct Financial UK’s the by Fund Manager (“AIFM”), Investment Alternative was authorised as an Toscafund The Investment Management Agreement between the Company and Toscafund (the “Management Agreement”) may be terminated by either terminated by may be Agreement”) (the “Management Toscafund and Company the between Agreement Management The Investment than other this agreement of termination the on AIFM the to written notice. No additional compensation is payable party giving 12 months’ the notice period. during fees payable the Management Agreement Toscafund Asset Manager and Limited (“LSI”) as Scottish Investments appointed London & Company the 2015, 6 November from With effect fee of an annual management half each receive Toscafund LSI and Manager. as Investment the “AIFM”) or (“Toscafund” Asset Management LLP A Performance £500m. to £500m and 0.9% above value up net asset Association Estate Public Real the European of % of 1.1 on a scaled rate Toscafund. to LSI and will also be paid Fee of 21 as which is effective policy (the “Policy”), AIFM has implemented a remuneration of the risk profile on a material impact whose actions have AIFM the of of staff of senior management and members Company the of respect period 1 the during REIT Limited the Regional The Alternative Investment Fund Managers’ Directive (“AIFMD”), requires certain information to be made available to investors in Alternative Alternative in to investors to be made available certain information requires (“AIFMD”), Managers’ Directive Fund Investment Alternative The of each report the annual in disclosed this information be to that material changes and requires they invest before Funds (“AIFs”) Investment which can Offering (“IPO”) Prospectus, the Initial Public within included are to be made pre-investment required that are disclosures Those AIF. the IPO within contained disclosures the to changes been no material have There www.regionalreit.com. at:website Group’s the on found be 2015. on 3 November document since its publication AIFMD AIFMD Disclosure Additional Information 131 - 142 to the Shareholders.to In accordance with the AIFMD, any changes to the maximumlevel of leverage setby the Group will becommunicated via the Group’s website Leverage Leverage At 31 At limit of 400 for both the Gross and Commitment Methods of calculatingleverage. The AIFMD introduced arequirement for the AIFM to setmaximumlevels of leverage for the Group. The Company’s AIFM hassetamaximum while the Gross Methodaggregates the exposure. Commitment Methodenables derivative instruments to benetted off to reflect hedgingarrangementsand theexposure iseffectively reduced, equity or currency hedgingand derivatives exposure against the netasset value. The principal difference between the two methodsis that the found by referring to the AIFMD. Insummary, these methodsexpress leverage asaratio of the exposure of non-sterlingcurrency,debt, to becalculatedinaccordance with both the Gross Methodand the Commitment Method.Details of these methods of calculationcanbe Leverage hasbeenmeasured in terms of the Group’s exposure, andisexpressed asaratio of netasset value. The AIFMD requires this ratio £339.1mdrawing on been fullyhave drawn. secured available debt debt. facilities of All leverage embeddedin derivative positions or by any other means. The Group hasentered into five separatebanking facilities during theperiod, Leverage is defined in the AIFMDasany method by which the Group increases itsexposure, whether through borrowing ofcash orsecurities, or AIFMD Disclosure Actual Maximum Leverage Exposure December 2018, this givesthe followingfigures: this 2018, December (continued) Gross Method 400 190 Commitment Method 138 400 214 for the year ended31 December2018 Annual Report and Accounts Additional Information 131 - 142

Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for Tie Leung Limited (trading as Cushman & Wakefield) 125 Old Street Broad London EC2N 2BQ Jones Lang LaSalle Street 30 Warwick London W1B 5NH REIT Limited; Regional ISIN: GG00BYV2ZQ34 SEDOL: BYV2ZQ3 Legal Entity Identifier: 549300D8G4NKLRIKBX73 Website Company www.regionalreit.com Public Relations Buchanan Communications Limited 107 Cheapside London EC2V 6DN Valuers Debenham Wakefield Cushman & 139 Registrar Registrar Limited Services (Guernsey) Link Market The Registry Road 34 Beckenham Beckenham Kent BR3 4TU Depositary Estera Depositary (UK) Limited Centre Innovation Science Park Northern Ireland Queens Road Belfast Antrim County 9DT BT3 Auditor RSM UK Audit LLP 25 Street Farringdon London EC4A 4AB Administrator Services Limited Jupiter Fund Mont Crevelt House, Avenue, Bulwer St. Sampson, Guernsey GY2 4LH Sub-Administrator Link Alternative Fund Administrators Limited Beaufort House New North Road 51 Exeter Devon EX4 4EP Legal Adviser to the Company Company to the Adviser Legal Macfarlanes LLP 20 Cursitor Street London EC4A 1LT (Independent Non-Executive Director) (Independent Non-Executive Joint Broker Securities plc Cenkos Yard Tokenhouse 6.7.8 London EC2R 7AS Peel Hunt LLP Peel Moor House 120 London Wall London EC2Y 5ET Financial Adviser and Joint Broker and Adviser Financial Toscafund Asset Management LLP Toscafund 7th Floor 90 Long Acre London 9RA WC2E Investment ManagerInvestment London & Scottish Investments Limited Scottish Investments London & Venlaw 349 Bath Street Glasgow G2 4AA Asset Manager Registered office Registered REIT Limited Regional Mont Crevelt House Avenue Bulwer St. Sampson Guernsey GY2 4LH Link Company Matters Limited Company Link Beaufort House New North Road 51 Exeter Devon EX4 4EP Company Secretary Secretary Company Directors Director) Non-Executive McGrath (Chairman and Independent Kevin Chairman) Committee Management Engagement and Remuneration Director, William Eason (Senior Independent Non-Executive Daniel Taylor Chairman) Audit Committee Daley (Independent Frances Non-Executive Director, Director) Stephen Inglis (Non-Executive Director) (Non-Executive Bee Timothy Company Information Company Additional Information 131 - 142 Note: all future dates are provisional andsubject to change. Forthcoming Events Q3 2019 Trading Update andDividend Announcement 2019 InterimResults Announcement Q2 2019Dividend Announcement 2019 Annual General Meeting Q1 2019 Trading Update, AGM Statement andDividend Announcement 140 for the year ended31 December2018 Annual Report and Accounts 10 14 November 2019 September 2019 29 23 May2019 23 May2019 August 2019 Additional Information 131 - 142 Annual Report and Accounts and Report Annual for the year ended 31 December 2018 December ended 31 year the for 141 es: Share Register Enquiri Register Share Phone: 0871 664 0300 will be UK the outside Calls 0300. 664 371 United Kingdom call +44 the outside If access charge. provider’s your plus Calls cost 12p per minute public holidays in England and (excluding to Friday open between 09:00 and 17:30 Monday rate. Lines are at applicable international charged email [email protected]. enquiries please shareholder For Wales). Shareholder Information Shareholder Additional Information 131 - 142 Dividend History Q4 2018 Period Q3 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016 2015 Full Year

Date Announcement 21 February 2019 15 November 2018 31 17 May2018 22 February 2018 14 November 2017 31 25 May2017 23 February 2017 17 November 2016 1 27 May2016 7 March 2016 September 2016

August 2018 August 2017 Ex-Date 28 February 2019 22 November 2018 13 24 1 March 2018 23 November 2017 7 8 2 March 2017 24 8 9 17 March 2016 September 2017 June 2016 June 2017 September 2016 May2018 November 2016 September 2018 1 March 2019 Record Date 23 November 2018 14 25 May2018 2 March 2018 24 8 9 3 March 2017 25 November 2016 9 10 18 March 2016 June 2017 September 2016 September 2017 November 2017 September 2018 June 2016 142 11 April 2019 11 April Payment Date 21 December2018 15 October 2018 15 October 13 July 2018 13 July 12 April 2017 12 April 22 December2017 13 October 2017 13 October 14 July 2017 14 July 13 April 2017 13 April 22 December2016 7 October 2016 7 October 8 July 2016 8 July 15 April 2016 15 April of which PID:2.50pps 2.50pps Pence pershare (pps) Total Dividend of which PID:1.85pps 1.85pps of which PID:1.85pps 1.85pps of which PID:1.85pps 1.85pps of which non-PID:0.245pps of which PID:2.205pps 2.45pps of which non-PID:0.18ppsof which of which PID:1.62pps 1.80pps of which non-PID:0.72pps of which PID:1.08pps 1.80pps of which non-PID:0.54pps of which PID:1.26pps 1.80pps of which non-PID:0.2400pps of which PID:2.1600pps 2.40pps of which non-PID:0.1155pps of which PID:1.6345pps 1.75pps of which non-PID:0.2487pps of which PID:1.5013pps 1.75pps of which non-PID:0.3921pps of which PID:1.3579pps 1.75pps of which non-PID:0.3428pps of which PID:0.6572pps 1.00pps for the year ended31 December2018 Annual Report and Accounts Annual Report and Accounts for the year ended 31 December 2018

Notes

143 Annual Report and Accounts for the year ended 31 December 2018

Notes

144 Share Price Performance

140 RGL LN Equity

130 FTSE All Share Index

120

Total Returns since inception 110 (Gross dividends reinvested) Pence 100 FTSE EPRA NAREIT UK Index

70 5 Nov 5 Mar 5 Jul 5 Nov 5 Mar 5 Jul 5 Nov 5 Mar 5 Jul 5 Nov 5 Mar 2015 2016 2016 2016 2017 2017 2017 2018 2018 2018 2019 Source: Bloomberg Data Mont Crevelt House, Bulwer Avenue, St. Sampson, Guernsey GY2 4LH www.regionalreit.com