TIDMRLE
RNS Number : 3635M
Real Estate Investors PLC
21 September 2021
Real Estate Investors Plc
("REI", the "Company" or the "Group")
Half Year Results
For the six months ended 30 June 2021
ROBUST H1 PERFORMANCE WITH IMPROVING OCCUPIER AND INVESTOR
MARKET
Real Estate Investors Plc (AIM: RLE), the UK's only
Midlands-focused Real Estate Investment Trust (REIT) with a
portfolio of 1.53 million sq ft of commercial property across all
sectors, is pleased to report its unaudited half year results for
the six-month period ended 30 June 2021.
FINANCIAL
-- Uplift in pre-tax profit to GBP9 million (H1 2020: GBP3.8
million loss) allowing for a 1.88% increase in property values and
interest hedging costs surplus of GBP716,000
-- EPRA** NTA per share of 57.7p (FY 2020: 55.2p) up 4.5%
-- Revenue of GBP7.7 million (H1 2020: GBP8.2 million) down 6%
-- Underlying profit before tax* of GBP3.8 million (H1 2020: GBP4.1 million) down 7%
-- EPRA** EPS of 2.1p (H1 2020: 2.20p) down 3.2%
-- The Company will make a fully covered quarterly dividend
payment of 0.75p per share in respect of Q2 2021 and anticipates
that this will also be the level of dividend for Q3 2021, with the
intention to pay an uplifted final quarterly dividend payment at
the year end
OPERATIONAL
-- On a like for like basis the portfolio valuation has improved
on December 2020 by 1.88%, demonstrating portfolio stability in an
extremely challenging marketplace
-- GBP195.2 million gross portfolio valuation (after asset
disposals) (FY 2020: GBP201.3 million)
-- Completed 15 value enhancing lease events (including 5 lease renewals)
-- Completed 7 portfolio disposals totalling GBP9.4 million (net
of costs) and 1 inventory sale for GBP1.15 million (aggregate
uplift of 10.3% above book value, 14.0 % uplift on portfolio
disposals) taking advantage of the increase in private investors
and their focus on acquiring smaller units
-- WAULT*** improved to 5.01 years to break/6.70 years to expiry (FY 2020: 4.84/6.54 years)
-- Contracted rental income of GBP14.7 million p.a. (H1 2020:
GBP17.0 million p.a.) down 13.5% due to known lease events and
disposals (to be recycled into income producing assets)
-- Occupancy levels at 83.43% (FY 2020: 91.60%), now increased to 86.07% post period
-- Non-Executive directorate changes, further strengthening the Board
BANKING
-- March 2021 renewal of GBP51 million facility with National
Westminster Bank plc for 3 years at 2.25% above LIBOR with GBP4.1
million repaid since March 2021
-- Fixing of GBP35 million of GBP51 million NatWest facility at
competitive rates from 1 January 2022
-- As at 30 June 2021, hedge facility has improved by GBP716,000 for half year to 30 June 2021
-- GBP9.1 million cash at bank to fund value-add opportunistic acquisitions
-- Average cost of debt 3.4% (FY 2020: 3.4%) with 46% fixed debt
(FY 2020: 86%) (84% from 1 Jan 2022)
-- 45% Loan to Value (net of cash) (FY 2020: 49.2%) (target LTV net of cash 40% or below)
-- All banking covenants continue to be met with headroom
available and the ability to correct through substitute security or
cash deposits and reduction
RENT COLLECTION
-- Strong rent collection for H1 2021 of 98.53% (adjusted for
monthly and deferred agreements) improved from 97.22% reported in
our 5 July 2021 trading update despite the disappointing UK
Government extension on the moratorium on unpaid rents in June
2021
-- June quarter (June to September 2021) rent collection so far
is 97.43% (adjusted for monthly and deferred agreements), up from
90.20% reported in our 5 July 2021 trading update
-- Covid period - overall rent collection level for 2020, has
risen to 98.82% (adjusted for monthly and deferred agreements) up
from 98.75% reported in our 5 July 2021 trading update.
POST PERIOD ACTIVITY
-- Completed sales of GBP987,500
-- Sales awaiting completion in H2 of GBP5.83 million
-- New pipeline sales of GBP780,000 in legals
-- Completed additional 6 lease events which include 2 lease
renewals, 1 break removal and 12 lettings in legals, which will
improve occupancy further
ENVIRONMENTAL SOCIAL AND GOVERNANCE
-- We remain committed to acting responsibly and operating a
sustainable business, whilst engaging with and fulfilling the needs
of our stakeholders - we are working to create a business ESG
framework and we will report our progress in this area at the
appropriate time.
Paul Bassi, Chief Executive, commented:
"We are pleased to report promising signs of market recovery
after an extremely volatile 18 months. Both the investor and
occupier markets are improving with little distress evident and
enquiry levels gathering pace in Q2. Our diverse portfolio has
continued to show resilience, shielding us from over exposure to
specific sector downturn and supporting robust rent collection
levels, with our like for like portfolio value increasing in the
first half.
Whilst we are seeing opportunities and renewed interest in an
invigorated investor market, the legacy of the pandemic is still
visible, with our occupancy and income levels yet to fully recover
and a small decrease in both our revenue to GBP7.7 million (H1
2020: GBP8.2 million) and underlying profit before tax to GBP3.8
million (H1 2020: GBP4.1 million). That said, with occupier demand
and decisions rising, strong investor interest and a healthy
pipeline of new lettings on our void space, we expect this activity
to translate into rising occupancy, improved income and further
valuation recovery over the coming months, contributing to a rise
in our NAV and supporting our progressive dividend policy. We are
already benefitting from this rising activity with the letting of
one of our largest void properties, West Plaza to a
well-established hotel operator.
We have taken advantage of the opportunity to make a number of
portfolio disposals at attractive prices to a growing private
investor market in the period, achieving an aggregate uplift of 14%
above book value, demonstrating private investor appetite, market
confidence and the break up ability of our portfolio to extract
value, to satisfy the strong private investor demand. We will use
some of our disposal proceeds to secure value-add acquisitions in
strong subsectors, whilst also reducing our LTV.
REI is extremely well-positioned in an active region, that
continues to attract population migration from London and the South
East along with global businesses such as Goldman Sachs. We expect
to benefit further from our locality once our already vibrant
region is thrust into the global spotlight in 2022 when it hosts
the highly anticipated Commonwealth Games."
FINANCIAL & OPERATIONAL RESULTS
30 June 2021 30 June 2020 Change
Revenue GBP7.8 million GBP8.2 million -4.88%
--------------- ---------------- -------
Underlying profit before
tax* GBP3.8 million GBP4.1 million -7.32%
--------------- ---------------- -------
Contracted rental income GBP14.7 million GBP17.0 million -13.5%
--------------- ---------------- -------
EPRA EPS** 2.1p 2.2p -3.18%
--------------- ---------------- -------
Pre-tax Profit/(loss) GBP9 million (GBP3.8 million) -
--------------- ---------------- -------
Dividend per share 1.5p 1.0p +50%
--------------- ---------------- -------
Average cost of debt 3.4% 3.4% -
--------------- ---------------- -------
Like for like rental income GBP14.8 million GBP16.4 million -10.07%
--------------- ---------------- -------
30 Jun 2021 31 December 2020 Change
Gross property assets GBP195.2 million GBP201.3 million -3.03%
---------------- ---------------- -------
EPRA NTA per share** 57.7p 55.2p +4.53%
---------------- ---------------- -------
Like for like capital
value psf GBP125.64 GBP123.31 + 1.88%
---------------- ---------------- -------
Like for like valuation GBP192.8 million GBP189.3 million +1.88%
---------------- ---------------- -------
Tenants 250 262 -4.58%
---------------- ---------------- -------
WAULT*** 5.01 years 4.84 years +3.51%
---------------- ---------------- -------
1.53 million 1.59 million sq
Total ownership (sq ft) sq ft ft -1.9%
---------------- ---------------- -------
Net assets GBP103 million GBP97.7 million +5.48%
---------------- ---------------- -------
Loan to value 49.8% 51.3% -2.92%
---------------- ---------------- -------
Loan to value (net of
cash) 45.1% 49.2% -8.33%
---------------- ---------------- -------
Definitions
* Underlying profit before tax excludes profit/loss on
revaluation and sale of properties and interest rate swaps
** EPRA = European Public Real Estate Association
*** WAULT = Weighted Average Unexpired Lease Term
Enquiries:
Real Estate Investors Plc
Paul Bassi/Marcus Daly +44 (0)121 212 3446
Cenkos Securities
Katy Birkin/Ben Jeynes +44 (0)20 7397 8900
Liberum
Jamie Richards/William Hall +44 (0)20 3100 2000
Novella Communications
Tim Robertson/Fergus Young +44 (0)20 3151 7008
About Real Estate Investors Plc
Real Estate Investors Plc is a publicly quoted, internally
managed property investment company and REIT with a portfolio of
1.53 million sq ft of mixed-use commercial property, managed by a
highly-experienced property team with over 100 years of combined
experience of operating in the Midlands property market across all
sectors. The Company's strategy is to invest in well located, real
estate assets in the established and proven markets across the
Midlands, with income and capital growth potential, realisable
through active portfolio management, refurbishment, change of use
and lettings. The portfolio has no material reliance on a single
asset or occupier. On 1st January 2015, the Company converted to a
REIT. Real Estate Investment Trusts are listed property investment
companies or groups not liable to corporation tax on their rental
income or capital gains from their qualifying activities. The
Company aims to deliver capital growth and income enhancement from
its assets, supporting its progressive dividend policy. Further
information on the Company can be found at www.reiplc.com .
CHAIRMAN & CHIEF EXECUTIVE'S STATEMENT
As the UK emerges from the grip of the global pandemic, there is
good evidence of market recovery as we are witnessing renewed
activity amongst property agents, a surge in enquiries from
occupiers and heightened demand for the diverse assets within our
regional portfolio from investors. We are therefore pleased to
report pre-tax profits of GBP9 million (H1 2020: GBP3.8 million
loss).
As uncertainty fades and a sense of normality returns, the key
factor in measuring operational success for a commercial landlord
continues to be rent collection and, following a robust collection
record during 2020 of 98.82%, this has continued for REI in H1,
with overall collection for the period standing at 98.53% (adjusted
for monthly and deferred agreements) improved from 97.22% reported
in our 5 July 2021 trading update. Current quarter (June to
September 2021) rent collection so far is 97.43% (again adjusted
for monthly and deferred agreements), up from 90.20% reported in
our 5 July 2021 trading update.
Whilst our portfolio occupiers enjoy renewed trading levels, our
community and essential services assets continue to gain the
attention of private investors, who are willing to pay a premium
for smaller, well-located and pandemic-resilient assets. We are
securing sales pricing at levels that surpass valuer and market
expectations and we expect this activity to continue or gain pace
as market normalisation continues in H2 and the highly-anticipated
2022 Commonwealth Games approaches, fuelling regional demand
further, as Birmingham and the Midlands is showcased on a global
platform.
In addition to period disposals noted, since the period end we
have completed a further GBP987,500 of sales with a further GBP5.83
million exchanged and awaiting completion. In addition to those
assets that have exchanged or completed during or post-period
mentioned above, we currently have a further GBP780,000 of sales in
legals, with no sign of buyer interest slowing down.
Private investor demand is expanding especially for small
individual assets, in particular community retail. Management has
analysed our retail portfolio and has identified 171 units that
have the potential to be sold off individually to secure a higher
break-up value than they could achieve as a collective
parade/asset, subject to maintaining sufficient income levels to
support our dividend policy. These assets represent GBP8.4 million
p.a. rental income across the portfolio and would be ideal assets
to satisfy private investor demand.
With only limited market comparable evidence now available to
valuers, who were understandably cautious in December 2020, we have
seen a modest rise in our gross property valuations and anticipate
further valuation recovery going forward. Taking into account all
of the disposals completed during the period, we have seen our like
for like valuations increase by 1.88% on year end 2020 as a result
of this, we are pleased to report an increase in our EPRA NTA per
share to 57.7p (FY 2020: 55.2p) up 4.5%.
In line with management's intention to operate the portfolio
with sensible gearing levels, we will be using a proportion of the
cash proceeds from disposals made in 2021 to reduce gearing levels
to around 40% and below. The remaining disposal cash proceeds,
combined with banking facilities, will be used to target resilient
subsector or under-performing acquisitions with upside
potential.
With 250 tenants across 47 assets, the portfolio is currently
diversified by tenant, asset and sector. We closely monitor trends
and subsector growth in the region and the wider UK market and we
are keen to maintain this diversification which has proved a
successful strategy throughout many economic and political
downturns over the last 15 years, to include the financial crisis,
Brexit and Covid-19.
During H1 2021, our proactive in-house asset management team
completed 15 lease events including 5 lease renewals. This
portfolio activity has led to an improved WAULT of 5.01 years to
break and 6.70 years to expiry (FY 2020: 4.84 years / 6.54 years)
(3.51% increase), further supporting valuation recovery. We
currently have numerous ongoing lease events that are being managed
by our asset management team, which we expect to translate into
rising occupancy levels and WAULT in H2.
Occupancy as at 30 June 2021 was 83.43% (FY 2020: 91.60%) with
the reduction almost predominantly due to known lease events,
including the loss of Npower at Oldbury and Premier Inn at West
Plaza. The latter has now been let to a hotel operator, recovering
some of our occupancy loss. We expect our occupancy levels and
contracted rental income to improve further due to existing
pipeline lettings, combined with interest from occupiers in space
that can now be occupied as a result of planning changes.
Our increase in pre-tax profits demonstrates our ability to
navigate economic and market uncertainty via a diversified
portfolio, whilst maintaining resilient income and value.
FINANCIAL RESULTS
Our profit before tax for the period under review has increased
to GBP9 million (H1 2020: GBP3.8 million loss) which includes a
property revaluation surplus of GBP3.3 million (2020: loss GBP7.3
million), a surplus on sale of investment property of GBP1.2
million (2020: GBPnil) and a surplus on our hedge value of
GBP716,000 (2020: loss GBP657,000).
Gross property valuations across the portfolio are up 1.88% on a
like for like basis to GBP195.2 million, enhanced by gradual market
recovery, carefully executed tenant liaison and asset management
and renewed interest from investors for our smaller neighbourhood
and convenience assets. We have taken advantage of current market
interest levels and have completed 7 portfolio disposals totalling
(net of costs) GBP9.4 million and 1 inventory sale for GBP1.15
million (aggregate uplift of 10.3% above book value, 14.0% uplift
on portfolio disposals).
Our revenue, impacted predominantly by the loss of income
associated with Npower at Oldbury and Premier Inn at West Plaza,
(both of which were known lease events), combined with increase in
vacancy levels, has reduced to GBP7.7 million (H1 2020: GBP8.2
million). Our underlying profits for the period to 30 June 2021
were GBP3.8 million (H1 2020: GBP4.1 million), down 7.3%.
In line with the reduction in revenue and underlying profits
before tax, our contracted rental income has also reduced to
GBP14.7 million (H1 2020: GBP17.0 million), down 13.5%, contributed
to by disposals and known lease events.
We remain committed to enhancing the value of the portfolio via
intensive asset management. We will seek to repurpose cash from
disposals to reduce our portfolio gearing and secure value-add
acquisitions, with a view to growing our rental income, increasing
our Net Asset Value and supporting our continued commitment to a
progressive dividend policy.
FINANCE & BANKING
In March 2021 the Group announced the renewal of its GBP51
million facility with National Westminster Bank plc for 3 years at
2.25% above LIBOR. Since March 2021, GBP4.2 million of this
facility has been repaid with a contribution from disposal
proceeds.
Furthermore, with a view to preserving low interest costs, we
have fixed GBP35 million of the remaining facility with effect from
1 January 2022 until 1 March 2024. From 1 January 2022, our fixed
debt ratio will increase to 84% (currently 46%) with our average
cost of debt remaining at 3.4%.
The Group has total drawn down debt of GBP96 million (FY 2020:
GBP101 million) with a loan to value of 45% (net of cash). All
banking covenants continue to be met with headroom available.
Should the need arise, we have the ability to repay debt from
existing cash and property sales, or to secure debt on unencumbered
assets and provide substitute security.
Our hedge facility has improved by GBP716,000 for the half year
to 30 June 2021 and has seen a further improvement post period
end.
The Board remains committed to reducing costs and operating at a
sensible LTV of around 40% and below and anticipate further
portfolio valuation improvement as market conditions normalise,
alongside opportunistic disposals at or above book value, to
support a reduction in gearing levels.
The Group has GBP9.1 million cash at bank to fund value-add and
income producing acquisitions to support the progressive dividend
policy.
DIVID
As a Real Estate Investment Trust (REIT), we are required to pay
90% of the Company's rental taxable profit in dividends to
shareholders. REI currently pays in excess of the required level of
dividend.
Despite the challenges faced by the property industry during the
global pandemic, the Board made a decision during 2020 to continue
providing our shareholders with a dividend, albeit at a reduced
level to compensate for market volatility.
In line with the Board's commitment to a progressive dividend
policy and to recognise the renewed confidence in the marketplace
and operational stability of the business, the Board increased the
Q1 2021 dividend to 0.75p per share in June 2021.
We are pleased to confirm that the Board has decided to pay a Q2
2021 quarterly dividend of 0.75p in October 2021 (representing a
minimum annual payment of 3p per share for 2021) and reflecting a
yield of 7.5% based on a mid-market opening price of 40.00p on 20
September 2021.
The proposed timetable for the dividend, which will be a
Property Income Distribution (PID), is as follows:
Ex-dividend date: 7 October 2021
Record date: 8 October 2021
----------------
Dividend payment date: 29 October 2021
----------------
RENT COLLECTION
Following strong rent collection levels in 2020, the portfolio
diversification has given the business a level of resilience
against sector downturn and insolvencies and this lack of exposure,
coupled with intensive asset and tenant management has led to a
continued high level of rent collection in the first six months of
2021.
Despite Christmas and Q1 lockdowns, and the disappointing steps
taken in June 2021 by the UK Government to extend the moratorium,
we are pleased to report 97.43% rental c ollection for H1 2021
(adjusted for monthly and deferred agreements) improved from 97.22%
reported in our 5 July 2021 trading update.
The current quarter (June to September 2021) rent collection so
far is 96.58% (adjusted for monthly and deferred agreements), up
from 90.20% reported in our 5 July 2021 trading update.
The overall collection level for 2020, taking into account
recently received income that has been secured following
negotiations and in line with agreements made with tenants, has
risen to 98.82% (adjusted for monthly and deferred agreements) up
from 98.75% reported in our 5 July 2021 trading update.
There has been a small number of tenants who have the ability to
pay but have continued to take advantage of UK Government
legislation on overdue rents. In these cases, we have taken
permitted measures towards enforcing rent collection, which has
resulted in overdue rents being collected and further rents
expected over time.
INSURANCE CLAIM
In an attempt to recover lost rents resulting from the pandemic
and following a recent UK insurance ruling, REI has lodged a claim
with its insurers in connection with its policy pandemic clause, to
claim any lost rent due to Covid-19. REI continues to monitor the
ongoing and everchanging situation around the Covid-19 Insurance
Claim. There have been some recent cases that have supported the
claim. Whilst these are not directly comparable, the principle that
they have established further supports the claim. In conjunction
with our advisors, the matter will be dealt with accordingly, at
the correct time to maximise the claim.
OUTLOOK
With a strong investor market and reinvigorated occupier market,
the second half of 2021 onwards looks promising. We anticipate the
increased enquiry and market activity levels witnessed in Q2 to
continue over the next few months as markets begin to normalise and
uncertainty settles, paving the way for pent up decisions to be
made and opportunities to reveal themselves.
We will continue to focus our efforts on taking advantage of
market recovery and will dispose of assets on an opportunistic
basis where we have fully pursued asset management initiatives and
where a premium to book value can be achieved, with a view to
repurposing some of the proceeds into income-producing and
value-enhancing assets. We evaluate our existing portfolio on a
regular basis for assets that are prime for change of use,
residential conversion and break-up value to ensure that we
maximise portfolio value.
Strengthened confidence amongst occupiers and buyers, coupled
with an already strong economy puts REI in a strong position to
benefit from valuation recovery and improving occupancy levels and
further improve our basic NAV now up to 56.1p (FY 2020: 54.5p) and
our EPRA NTA at 57.7p (FY 2020: 55.2p).
MARKET CONSOLIDATION
Following transactions over the last few years involving
Mucklow, St Modwen and others, we recognise the growing need for
market consolidation within the real estate and REIT markets and we
expect to see this activity continue as the UK recovery emerges.
Management remains alert to options that align with the interests
of our shareholders. Our primary aim remains to provide our
shareholders with an attractive total return on their investment,
with a progressive dividend policy.
INVESTMENT MARKET OVERVIEW
UK real estate investment volumes reached GBP24 billion at the
half-year point of 2021 (Source BNP Paribas). This translates to a
12% increase on H1 2019, signifying an encouraging return to
pre-pandemic levels. In light of improving economic conditions, BNP
have also upgraded their forecast for UK real estate investment
volume in 2021 to c. GBP56.5 billion. This represents a c. 20%
increase on last year, ahead of the volume growth expected in
France and Germany.
Fears of investment activity slowing at the start of the year
due to a renewed lockdown now seem overplayed. Hopes are therefore
justifiable that ongoing travel restrictions may not result in a
dramatic weakening of transactional activity similar to what we
have seen during the multiple lockdowns in 2020. With equity and
commodity markets volatile and yields on 10-year treasuries, gilts
and bonds all falling recently, commercial property remains a
desirable asset class for investors.
Demand remains high for certain well-let assets with secure
income streams and there is no sign of this demand dissipating,
driven by low costs of debt and the weight of equity. From across
the Midlands region and the local property investment markets we
are seeing little or no distress, with noticeable increasing demand
from private investors. We anticipate larger property companies and
institutions will shortly follow suit in search of higher yielding
returns.
Currently, we are witnessing a growing appetite from smaller
private investors, looking to achieve attractive income returns
from lot sizes between GBP200,000 and GBP1 million but at levels
above our pre-pandemic book values and we are capitalising on this
by selling individual lots from otherwise larger retails parades,
demonstrated by the uplift we achieved on disposals during the
period under review. However, with current market interest in mind,
we continue to evaluate the potential enhanced break-up value of
some assets to satisfy investor appetite.
From an investor's perspective, the retail sector is currently
being watched with interest. With UK household spending and
footfall set to rise in the coming months, we anticipate appetite
for retail investment to continue throughout this year,
particularly retail warehousing, where some investors now view
retail park values as attractive, after a c.50% drop over the last
five years. It remains very difficult to call the bottom of the
retail market, but we think values have now rebased enough to merit
deploying capital into the sector.
The developing recovery in retail investment continued into
2021, with Q1 volume of GBP1.7 billion just 7% below the three-year
high of the previous quarter in Q4 2020. However, as in Q4 2020,
the improvement reflected strong demand for supermarkets alongside
opportunity-driven appetite for retail warehousing, the latter
seeing volume reach a three-year high of GBP650 million in Q1
(Source: LSH Research).
With these green shoots of recovery and new market trends being
witnessed across the market, it is worth saying that we are not
immune to future downturns entirely and the UK is still not yet
fully out of the woods, with investment volumes for both 5-year and
10-year averages reduced. Capital growth for investment values
across the Midlands has been limited, with vendors holding onto
assets with expectations of higher 'pre-pandemic' valuations.
REI PORTFOLIO
The portfolio is comprised of 250 tenants across 47 assets and
has a net initial yield of 7.35%, with a reversionary yield of
8.25%.
Taking into account the disposals in H1 2021, the portfolio's
gross property assets have increased by 1.88% to GBP195.2 million
(on a like for like basis).
On the whole, taking into account the reduction in valuation on
our void properties, office valuations have remained relatively
stable and from a contracted rental perspective, account for 33.05%
of the portfolio income. The notable rises in our portfolio
valuations have been around the retail warehousing, demonstrated by
an increase in Jasper, Tunstall and further gains on leisure and
smaller single-let assets in peripheral locations.
The portfolio occupancy sits at 83.43% (FY 2020: 91.60%),
impacted predominantly by the loss of Npower at Oldbury and Premier
Inn at West Plaza, combined with the loss of tenants associated
with disposals during the period. Within this reduction, there is
very little income lost due to Covid-19 related CVAs or
insolvencies. Our top 10 tenants represent only 26.13% of our
portfolio income, with 6.50% secured to the Government.
Since the period end, we have recovered our occupancy levels to
86.07% (following the letting of the hotel space at West Plaza) and
anticipate further occupancy improvement in the next 12 months.
Furthermore, we have previously mentioned the change in planning
legislation in October 2020 which has boosted interest from a new
class of occupiers (predominantly medical, pharmaceutical,
restaurant and bar occupiers to date). Prior to this change, these
tenants would have been unable to occupy specific retail space
without a lengthy and risky planning process. We will continue to
market this space accordingly with a view to attracting new tenants
at a higher ERV.
Commodore Court, Nottingham where we have successfully achieved
a new 10-year lease to an NHS affiliated tenant that specializes in
eyecare, which was previously a large local supermarket, in doing
so we have achieved rental levels significantly higher than
previously anticipated.
DISPOSALS
We ended the period having completed 7 portfolio disposals
totalling (net of costs) GBP9.4 million and 1 inventory sale for
GBP1.15 million (aggregate uplift of 10.3% above book value, 14.0 %
uplift on portfolio disposals). The capital from these sales will,
in due course, be used to reduce our gearing levels and the
remaining cash will be recycled into new assets with higher total
return potential. The income associated with these disposed assets
is GBP392,652 per annum.
POST-PERIOD DISPOSALS
-- Completed sales of GBP987,500
-- Sales awaiting completion in H2 of GBP5.83 million
-- New pipeline of GBP780,000 in legals
As these transactions complete, they will provide further
valuation comparables to support valuation recovery for existing
assets within the retained portfolio. In the meantime, we are also
seeing valuation gains on certain assets from asset management
initiatives.
We are considering the sale of individual units at levels only
above valuation.
ACQUISITIONS
We have not made any acquisitions during the period. With the
absence of any distress or need to sell, vendors are holding onto
historic valuations. From our extensive local and London based
networks, we continue to see investment sales and monitor the
positions where appropriate. However, we remain patient and will
make suitable acquisitions when we believe we can secure value and
income enhancing opportunities in line with investment criteria. On
the whole, across the region volumes have been reduced and the
market has not been open for acquisitions at what we believe to be
sustainable levels.
We continue to monitor the market closely and have cash and
banking facilities readily available for suitable
opportunities.
OCCUPATIONAL MARKET OVERVIEW
Occupationally, the West Midlands and the wider regional markets
have been recovering following the pandemic, as COVID vaccinations
help bring us somewhere closer to normality and businesses are
gaining confidence. In light of the improved market sentiment,
occupiers are making swifter decisions as renewed confidence
continues, reflected in better yields and rents in line with our
ERVs.
Many businesses are encouraging employees back to the office.
With the lessons learned and the experiences had during the
pandemic, there are plenty of occupiers still yet to establish what
their office operations look like going forward. That being said,
many have between now and their lease expiries to establish this -
some will require less space and some will, in fact, need more. An
impact of the pandemic is a desire for flexibility, and this is
thought to be turning some businesses that would normally be in
office space on a traditional lease, to serviced space. From our
experience, out of town offices market appears more buoyant than
city centre office markets.
The office development pipeline across the region remains
relatively thin, with very little speculative development and
secondary office space being converted to residential or other
alternative uses. With limited supply, headline rents in Birmingham
have remained relatively steady, despite the trauma in 2020. There
has, however, been a softening of incentives as landlords are now
competing harder to secure new tenants, where leases are still
being signed for 10 years with a 5-year break. We have been
successful in agreeing terms with Government (DWP) and NHS
affiliated (Community Health & Eyecare Limited) operators on
new leases at higher than expected rental levels on this basis.
Convenience retailers were the most successful performers during
the pandemic, so much so, that convenience store giants Coop, Spar,
Aldi and Lidl are looking for more units including those in
neighborhood centres and retail parades. Despite the negative press
around the wider retail market, convenience retail and retail
warehousing have seen a resurgence.
With easy access and large retail foot prints, we are seeing
that retail warehousing occupiers are very active at the moment
albeit terms are still lagging pre-covid rental values, but we
anticipate this changing over the coming years.
We have seen a remarkable increase in occupier demand from
roadside/fast food and drive thru occupiers and have identified
sites that have previously been either unoccupied or redundant
land. Furthermore, with a growing appetite from occupiers, we have
been able to negotiate extremely favourable terms to good covenants
that will bring increases in value. This includes obtaining
planning consent for a new drive thru unit in Crewe, which is let
to Burger King. Additionally, we in the process of agreeing terms
on two other sites (subject to planning); one to a fast-food
retailer and the other a coffee operator.
We anticipate building these units from existing cash, as they
offer an attractive return on capital, but are more than aware that
there is good investor appetite to acquire such propositions by way
of forward funded development agreements and we are exploring the
prospects of this as an attractive option.
INCOME MIX
The current sector weightings are:
Rent
Sector GBP % by Income
Office 4,865,051 33.05
----------- ------------
Traditional Retail 2,911,048 19.77
----------- ------------
Discount Retail - Poundland/B&M etc 1,751,402 11.90
----------- ------------
Medical and Pharmaceutical - Boots/Holland
& Barrett etc 1,225,049 8.32
----------- ------------
Restaurant/Bar/Coffee - Costa Coffee,
Loungers etc 963,400 6.54
----------- ------------
Financial/Licences/Agency - Lloyds
TSB, Santander UK Plc, Bank of Scotland
etc 637,250 4.33
----------- ------------
Food Stores - M&S, Aldi, Co-op, Iceland
etc 885,690 6.02
----------- ------------
Other - Hotels (Premier Inn/Travelodge),
Leisure (The Gym Group, Luda Bingo),
Car parking, AST 1,483,364 10.07
----------- ------------
14,722,254 100
----------- ------------
ACTIVE ASSET MANAGEMENT
The first 6 months of 2021 have been significantly busier and,
during the period, 15 key lease events have been completed
including 5 lease renewals with a number of further matters now
ongoing - either in legals or at an advanced discussion stage,
demonstrating a sharp increase in enquiries and activity across the
market.
As a result of initiatives during the period, our WAULT has
improved to 5.01 years to break and 6.70 years to expiry (YE 2020:
4.84 years to break and 6.54 years to expiry), as at 30 June
2021.
Examples of the lease event activity across the portfolio during
the period are as follows:
-- Acocks Green - 15-year lease secured with Merkur Slots (t/a Cashino)
-- Barracks Road, Newcastle under Lyme - JD Sports Gyms Limited
has taken a 15-year lease, taking the unit on from Xercise4Less
which was in administration
-- Commodore Court, Nottingham - Community Health and Eyecare
Limited has taken a 10-year lease replacing Sainsburys
-- Crewe - A number of existing operators with lease ends/breaks
have chosen to remain at the scheme; Superdrug, Bank of Scotland
being key examples
-- Park Street, Walsall - Superdrug and Waterstones have all
committed to their respective units
-- Leamington Spa, Warwickshire - TUI have committed to their unit
-- Post period activity includes - the letting of the hotel
space at West Plaza to a well-established hotel operator boosting
both occupancy levels, contracted rental income and WAULT
All of the above demonstrate that tenants are feeling confident
about making commitments to well-located schemes. REI continues to
work closely with existing and new tenants to ensure that both
parties agree terms that are partnership based and ensure the
ongoing success of the respective businesses within their
locations.
New tenants to newly let space within the portfolio in H1
include JD Sports Gyms Limited; Department of Work and Pensions,
Community Health and Eyecare Limited (NHS Contract) and Merkur
Slots UK Limited.
30 Jun 2021 Value Area Contracted ERV NIY EQY RY Occupancy
GBP (sq ft) Rent (GBP) GBP % % % %
Central
Birmingham 24,255,000 101,477 1,293,602 1,838,210 4.98 6.92 7.08 74.31
------------ ---------- ------------ ----------- ----- ---- ----- ----------
Other Birmingham 30,825,000 215,895 2,644,008 2,189,985 9.69 8.27 8.02 95.41
------------ ---------- ------------ ----------- ----- ---- ----- ----------
West Midlands 71,650,000 636,548 5,149,167 6,399,509 6.75 8.25 8.39 75.21
------------ ---------- ------------ ----------- ----- ---- ----- ----------
Other Midlands 64,200,000 558,924 5,494,477 5,939,680 8.00 8.57 8.65 90.11
------------ ---------- ------------ ----------- ----- ---- ----- ----------
Other Locations 1,882,500 21,847 141,000 144,700 7.16 7.44 7.35 96.66
------------ ---------- ------------ ----------- ----- ---- ----- ----------
Land 2,380,350 - - - - - -
------------ ---------- ------------ ----------- ----- ---- ----- ----------
Total 195,192,850 1,534,691 14,722,254 16,512,084 7.35 8.18 8.25 83.43
------------ ---------- ------------ ----------- ----- ---- ----- ----------
*Our land holdings are excluded from the yield calculations
DIRECTORATE CHANGES
As a result of our Board succession planning, we recently
announced the retirement of John Crabtree OBE as Non-Executive
Chairman who departed with our sincere thanks for his many years of
leadership and guidance. At the AGM 2021, we welcomed our incoming
Non-Executive Chairman, William Wyatt, (CEO of Caledonia
Investments) who is very well placed to assist in driving the
business forward.
We also announced the appointment of a new independent
Non-Executive Director to the Board, Ian Stringer, former
Non-Executive Chairman of GVA and current Principal of Avison
Young. Ian is a highly respected figure in the Midlands property
market who brings a wealth of experience and a first-class
reputation with him.
OUR STAKEHOLDERS
Our ongoing sincere thanks to our shareholders, advisors,
occupiers and staff for their support and assistance during a
unique and challenging period.
William Wyatt Paul Bassi CBE D.UNIV
Chairman Chief Executive
20 September 2021 20 September 2021
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
For the 6 months ended 30
June 2021
Six months Six months
to to Year ended
31 December
30 June 2021 30 June 2020 2020
(Unaudited) (Unaudited) (Audited)
Note GBP'000 GBP'000 GBP'000
Revenue 7,782 8,204 16,425
Cost of sales (836) (716) (1,397)
------------- ------------- -------------------------------
Gross profit 6,946 7,488 15,028
Administrative expenses (1,488) (1,552) (3,262)
Surplus on sale of investment
properties 1,157 - -
Change in fair value of investment
properties 3,331 (7,284) (27,896)
------------- ------------- -------------------------------
Profit/(loss) from operations 9,946 (1,348) (16,130)
Finance income 1 14 14
Finance costs (1,634) (1,857) (3,637)
Profit/(loss) on financial
liabilities held at fair value 716 (657) (483)
------------- ------------- -------------------------------
Profit/(loss) on ordinary
activities before taxation 9,029 (3,848) (20,236)
Income tax charge - - (405)
------------- ------------- -------------------------------
Net profit/(loss) after taxation
and total comprehensive income 9,029 (3,848) (20,641)
------------- ------------- -------------------------------
Basic earnings/(loss) per
share 6 5.0p (2.0)p (11.5)p
------------- ------------- -------------------------------
Diluted earnings/(loss) per
share 6 4.9p (2.0)p (11.5)p
------------- ------------- -------------------------------
EPRA earnings per share 6 2.1p 2.2p 4.5p
------------- ------------- -------------------------------
CONSOLIDATED STATEMENT OF CHANGES
IN EQUITY
for the 6 months ended 30 June 2021
Share Share Capital Other Retained Total
Capital Premium Redemption Reserves Earnings
Account Reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 December 2019 18,642 51,721 45 1,102 53,933 125,443
Share based payment - - - (93) - (93)
Dividends - final 2019 - - - - (1,864) (1,864)
Dividends - interim
2020 - - - - (932) (932)
-------- ------------------ ----------- --------- --------- ---------
Transactions with owners - - - (93) (2,796) (2,889)
-------- ------------------ ----------- --------- --------- ---------
Loss for the period
and total comprehensive
income - - - - (3,848) (3,848)
At 30 June 2020 18,642 51,721 45 1,009 47,289 118,706
Share based payment - - - (400) - (400)
Share buy back (704) - - - (1,306) (2,010)
Transfer re capital - - 704 - (704) -
Dividends - interim
2020 - - - - (1,829) (1,829)
-------- ------------------ ----------- --------- --------- ---------
Transactions with owners (704) - 704 (400) (3,839) (4,239)
-------- ------------------ ----------- --------- --------- ---------
Profit for the period
and total comprehensive
income - - - - (16,793) (16,793)
At 31 December 2020 17,938 51,721 749 609 26,657 97,674
Share based payment - - - 75 - 75
Dividends - final 2020 - - - - (2,500) (2,500)
Dividends - interim
2021 - - - - (1,250) (1,250)
-------- ------------------ ----------- --------- --------- ---------
Transactions with owners - - - 75 (3,750) (3,675)
-------- ------------------ ----------- --------- --------- ---------
Loss for the period
and total comprehensive
income - - - - 9,029 9,029
At 30 June 2021 17,938 51,721 749 684 31,936 103,028
======== ================== =========== ========= ========= =========
CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
as at 30 June 2021
31 December
30 June 2021 30 June 2020 2020
(Unaudited) (Unaudited) (Audited)
Note GBP'000 GBP'000 GBP'000
Assets
Non-current assets
Investment properties 5 192,813 218,005 197,520
Property, plant and
equipment 3 6 5
Deferred taxation - 405 -
192,816 218,416 197,525
------------- -------------------------------- ------------
Current assets
Inventories 2,380 3,785 3,796
Trade and other receivables 4,798 3,632 4,340
Cash and cash equivalents 9,085 8,983 4,238
16,263 16,400 12,374
------------- -------------------------------- ------------
Total assets 209,079 234,816 209,899
============= ================================ ============
Liabilities
Current liabilities
Bank loans 3,979 49,188 45,579
Trade and other payables 7,183 7,413 7,337
11,162 56,601 52,916
------------- -------------------------------- ------------
Non-current liabilities
Bank loans 92,071 55,801 55,775
Financial liabilities 2,818 3,708 3,534
94,889 59,509 59,309
------------- -------------------------------- ------------
Total liabilities 106,051 116,110 112,225
============= ================================ ============
Net assets 103,028 118,706 97,764
============= ================================ ============
Equity
Ordinary share capital 17,938 18,642 17,938
Share premium account 51,721 51,721 51,721
Capital redemption
reserve 749 45 749
Other reserves 684 1,009 609
Retained earnings 31,936 47,289 26,657
------------- -------------------------------- ------------
Total equity 103,028 118,706 97,674
------------- -------------------------------- ------------
CONSOLIDATED STATEMENT OF CASHFLOWS
for the 6 months ended 30 June 2021
Six months Six months
to to Year ended
30 June 31 December
2021 30 June 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Cashflows from operating activities
Profit/(loss) after taxation 9,029 (3,848) (20,641)
Adjustments for:
Depreciation 2 3 3
Surplus on sale of investment
property (1,157) - -
Net valuation deficits (3,331) 7,284 27,896
Share based payment 75 (93) (250)
Finance income (1) (14) (14)
Finance costs 1,634 1,857 3,637
(Surplus)/deficit on financial
liabilities held at fair value (716) 657 483
Taxation charge recognised in
profit and loss - - 405
Decrease/(increase) in inventories 1,416 (5) (16)
Increase in trade and other
receivables (458) (1,209) (1,917)
(Decrease)/increase in trade
and other payables (506) 114 74
5,987 4,746 9,660
======================== ================= =====================
Cash flows from investing activities
Purchase of investment properties (228) (214) (341)
Purchase of property, plant
and equipment - - -
Proceeds from sale of property,
plant and equipment 9,423 - -
Interest received 1 14 14
9,196 (200) (327)
======================== ================= =====================
Cash flow from financing activities
Interest paid (1,634) (1,857) (3,637)
Share buyback - - (2,010)
Share based payment - - (243)
Equity dividends paid (3,398) (3,612) (5,476)
Proceeds from bank loans - 3,500 3,500
Repayment of bank loans (5,304) (3,686) (7,321)
(10,336) (5,655) (15,187)
======================== ================= =====================
Net increase/(decrease) in cash
and cash equivalents 4,847 (1,109) (5,854)
Cash and cash equivalents at
beginning of period 4,238 10,092 10,092
Cash and cash equivalents at
end of period 9,085 8,983 4,238
======================== ================= =====================
NOTES TO THE INTERIM FINANCIAL INFORMATION
for the 6 months ended 30 June 2021
1. BASIS OF PREPARATION
Real Estate Investors Plc, a Public Limited Company, is
incorporated and domiciled in the United Kingdom.
The interim financial report for the period ended 30 June 2021
(including the comparatives for the year ended 31 December 2020 and
the period ended 30 June 2020) was approved by the board of
directors on 20 September 2021.
It should be noted that accounting estimates and assumptions are
used in preparation of the interim financial information. Although
these estimates are based on management's best knowledge and
judgement of current events and action, actual results may
ultimately differ from these estimates. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the interim financial
information are set out in note 3 to the interim financial
information.
The interim financial information contained within this
announcement does not constitute statutory accounts within the
meaning of the Companies Act 2006. The full accounts for the year
ended 31 December 2020 received an unqualified report from the
auditor and did not contain a statement under Section 498 of the
Companies Act 2006.
2. ACCOUNTING POLICIES
The interim financial information has been prepared under the
historical cost convention.
The principal accounting policies and methods of computation
adopted to prepare the interim financial information are consistent
with those detailed in the 2020 financial statements approved by
the Board on 29 March 2021.
Some accounting pronouncements which have become effective from
1 January 2021 and have therefore been adopted do not have a
significant impact on the Group's financial results or
position.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future.
The resulting accounting estimates will, by definition, seldom
equal actual results. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next accounting year
are as follows:
Investment property revaluation
The Group uses the valuations performed by its independent
valuers or the directors as the fair value of its investment
properties. The valuation is based upon assumptions including
future rental income, anticipated maintenance costs, anticipated
purchaser costs and the appropriate discount rate. The valuer and
the directors also make reference to market evidence of transaction
prices for similar properties.
Interest rate swap valuation
The Group carries the interest rate swap as a liability at fair
value through the profit or loss at a valuation. This valuation has
been provided by the Group's bankers.
Critical judgements in applying the Group's accounting
policies
The Group makes critical judgements in applying accounting
policies. The critical judgement that has been made is as
follows:
REIT Status
The Group elected for REIT status with effect from 1 January
2015. As a result, providing certain conditions are met, the
Group's profit from property investment and gains are exempt from
UK corporation tax. In the Directors' opinion the Group have met
these conditions.
4. SEGMENTAL REPORTING
Primary reporting - business segment
The only material business that the Group has is that of
investment in commercial properties. Revenue relates entirely to
rental income from investment properties.
5. INVESTMENT PROPERTIES
The carrying amount of investment properties for the periods
presented in the interim financial information is reconciled as
follows:
GBP'000
Carrying amount at 31 December 2019 225,075
Additions 214
Disposals -
Revaluation (7,284)
-----------------
Carrying amount at 30 June 2020 218,005
Additions 127
Disposals -
Revaluation (20,612)
-----------------
Carrying amount at 31 December 2020 197,520
Additions 228
Disposals (8,266)
Revaluation 3,331
Carrying amount at 30 June 2021 192,813
=================
6. EARNINGS AND NAV PER SHARE
The calculation of the basic earnings per share is based on the
profit attributable to ordinary shareholders divided by the
weighted average number of shares in issue during the period. The
calculation of the diluted earnings per share is based on the basic
earnings per share adjusted to allow for all dilutive potential
ordinary shares.
The calculation of the basic NAV per share is based on the
balance sheet net asset value divided by the weighted average
number of shares in issue during the period. The calculation of the
diluted NAV per share is based on the basic NAV per share adjusted
to allow for all dilutive potential ordinary shares.
The European Public Real Estate Association ("EPRA") earnings
and NAV figures have been included to allow more effective
comparisons to be drawn between the Group and other businesses in
the real estate sector.
EPRA EPS per share
30 June 2021 30 June 2020
Earnings Shares Earnings per share Earnings Shares Earnings per share
GBP'000 No P GBP'000 No P
Basic earnings/(loss)
per share 9,029 179,377,898 5.03 (3,848) 186,420,598 (2.06)
Fair value of investment
properties (3,331) 7,284
Profit on disposal of
investment properties (1,157) -
Change in fair value of
derivatives (716) 657
Deferred tax in respect
of EPRA adjustments - -
---------- ------------ --------- ------------
EPRA Earnings 3,825 179,377,898 2.13 4,093 186,420,598 2.20
========== ============ =================== ========= ============ ===================
NET ASSET VALUE PER SHARE
The Group has adopted the new EPRA NAV measures which came into
effect for accounting periods starting 1 January 2020. EPRA issued
new best practice recommendations (BPR) for financial guidelines on
its definitions of NAV measures. The new NAV measures as outlined
in the BPR are EPRA net tangible assets (NTA), EPRA net
reinvestment value (NRV) and EPRA net disposal value (NDV).
The Group considered EPRA Net Tangible Assets (NTA) to be the
most relevant NAV measure for the Group and we are now reporting
this as our primary NAV measure, replacing our previously reported
EPRA NAV and EPRA NNNAV per share metrics. EPRA NTA excludes the
intangible assets and the cumulative fair value adjustments for
debt-related derivatives which are unlikely to be realised.
30 June 2021
EPRA NTA EPRA NRV EPRA NDV
GBP'000 GBP'000 GBP'000
Net assets 103,028 103,028 103,028
Fair value of derivatives 2,818 2,818 -
Real estate transfer tax - 12,838 -
EPRA NAV 105,846 118,684 103,028
------------ ------------ ------------
Number of ordinary shares issued for diluted and EPRA net assets per share 183,508,983 183,508,983 183,508,983
EPRA NAV per share 57.7p 64.7p 56.1p
============ ============ ============
The adjustments made to get to the EPRA NAV measures above are
as follows:
-- Real estate transfer tax: Gross value of property portfolio
as provided in the Valuation Certificate (i.e. the value prior to
any deduction of purchasers' costs).
-- Fair value of derivatives: Exclude fair value financial
instruments that are used for hedging purposes where the company
has the intention of keeping the hedge position until the end of
the contractual duration.
31 December 2020
EPRA NTA EPRA NRV EPRA NDV
GBP'000 GBP'000 GBP'000
Net assets 97,674 97,674 97,674
Fair value of derivatives 3,534 3,534 -
Real estate transfer tax - 12,623 -
----------------------------------------------------------------------
EPRA NAV 101,208 113,831 97,674
---------------------------------------------------------------------- -------------- ------------ ------------
Number of ordinary shares issued for diluted and EPRA net assets per
share 183,369,382 183,369,382 183,369,382
EPRA NAV per share 55.2p 62.1p 53.3p
====================================================================== ============== ============ ============
30 JUNE 2021 31 DECEMBER 2020
No of Shares No of Shares
Number of ordinary shares issued at end of period 179,377,898 179,377,898
Dilutive impact of options 4,131,085 3,991,484
Number of ordinary shares issued for diluted and EPRA net assets per
share 183,508,983 183,369,382
---------------------------------------------------------------------- -------------- --------------------------
Net assets per ordinary share
Basic 57.4p 54.5p
Diluted 56.1p 53.3p
EPRA NTA 57.7p 55.2p
====================================================================== ============== ==========================
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