TIDMRDI
RNS Number : 0125X
RDI REIT PLC
25 April 2019
RDI REIT P.L.C.
("RDI" or the "Company" or the "Group")
(Registration number 010534V)
LSE share code: RDI
JSE share code: RPL
ISIN: IM00BH3JLY32
LEI: 2138006NHZUMMRYQ1745
INTERIM RESULTS FOR THE SIX MONTHSED 28 FEBRUARY 2019
STRONG OPERATIONAL METRICS DESPITE HEADWINDS
RDI, the income focused UK-REIT, which has a primary listing on
the London Stock Exchange and a secondary listing on the
Johannesburg Stock Exchange, today announces its results for the
six months ended 28 February 2019.
Financial highlights Six months ended Six months ended Six months ended
28 February 2019 28 February 2019 28 February 2018
(excluding Aviva
portfolio)
---------------------------- ------------------ ------------------- -------------------
Income statement
Underlying earnings (GBPm) 22.7 26.4 27.4
Underlying earnings per
share (p) 5.97 6.94 7.32(1)
Dividend per share (p) 4.00 4.00 6.75(1)
Balance sheet As at As at As at
28 February 2019 28 February 2019 31 August 2018
EPRA NAV per share (p) 190.2 204.4 213.8
Portfolio valuation (incl.
JV share) (GBPm) 1,440.4 1,617.6(2) 1,620.4
Loan-to-value (%) 45.4 48.5 46.2
---------------------------- ------------------ ------------------- -------------------
The table above includes non-IFRS performance measures which are
explained and reconciled in the Alternative Performance Measures
table
(1) Prior period has been re-presented as a result of the 1 for
5 share consolidation
(2) 1.8 per cent like-for-like valuation decline on a constant
currency basis
Strong operational performance and asset management
-- Net rental income increased 0.2 per cent on a like-for-like
basis or 1.9 per cent when excluding GBP0.7 million of hotel
refurbishment charges
-- EPRA occupancy remains high at 96.9 per cent (31 August 2018: 97.1 per cent)
-- Long WAULT of 6.5 years to first break and 8.1 years to lease
expiry (excluding hotels managed by RBH and the London serviced
office portfolio)
-- 100 lease events completed in the period, 3.4 per cent ahead of ERV
-- UK retail occupancy and net income remained broadly stable
with strong leasing activity across the retail parks portfolio
-- Footfall across UK Shopping Centre portfolio increased 1.1
per cent, outperforming national average (down 3.3 per cent)
Financial highlights
-- Underlying earnings per share of 6.94 pence (5.2 per cent
down on H1 2018: 7.32 pence; 1.2 per cent up on H2 2018: 6.86
pence)
-- EPRA diluted NAV per share ("EPRA NAV") declined by 4.4 per
cent to 204.4 pence per share (31 August 2018: 213.8 pence per
share)
-- Like-for-like portfolio value declined by 2.5 per cent (1.8
per cent on a constant currency basis) impacted by lower values for
UK Shopping Centres and strengthening of Sterling against the
Euro
-- Excluding UK Retail, valuations broadly stable
-- First half dividend of 4.0 pence per share. Full year
dividends to be weighted towards second half with expectation to
revert to regular pay-out ratio alongside full year results
Robust demand from operational platforms
-- RBH managed hotels continue to trade in line with
expectations; occupancy increased marginally to 83.9 per cent and
average room rates and revenue per available room increased by 1.4
per cent and 2.3 per cent respectively
-- London serviced offices continue to trade ahead of
expectations; occupancy improved to 94.5 per cent, EBITDA per sqft
increased by 0.9 per cent over the period and EBITDA conversion
remains high at 63.4 per cent
Focusing capital allocation to sectors backed by occupational
demand
-- GBP26.3 million acquisition of Southwood Business Park
Industrial Estate, Farnborough reflecting a net initial yield of
6.2 per cent
-- GBP26.0 million forward funding of two distribution units at
Link 9 in Bicester; targeting a yield on cost of 6.5 per cent
-- Material reduction to retail exposure targeted through the
proposed disposal of four UK shopping centres financed by Aviva
(GBP177.2 million, 11.0 per cent by market value) and the planned
German retail portfolio disposal (GBP244.2 million, 15.1 per cent
by market value)
Stronger capital structure to be prioritised
-- LTV increased to 48.5 per cent (31 August 2018: 46.2 per cent)
-- Pro-forma LTV of 45.4 per cent excluding the Aviva financed
UK Shopping Centre portfolio - consensual sales process agreed
-- Further reductions in LTV to be delivered through the
disposal of the German portfolio, whilst enabling a single
geographic focus
-- Revised medium-term LTV target of 30 - 40 per cent in line with stronger capital structure
-- GBP275.0 million UK debt facility extended for five years on favourable terms
Gavin Tipper, Chairman, commented:
"While this has been a challenging period on a number of fronts,
operational performance has remained robust. Excluding the impact
of the Aviva financed UK Shopping Centre portfolio, the core
business delivered strong results and is well positioned for the
future. I am confident that the current initiatives to further
reduce retail exposure and facilitate a stronger capital structure
will deliver sustained long term shareholder value."
Mike Watters, Chief Executive, commented:
"We have faced some challenging market conditions during the
period which have emphasised the defensive nature of our income,
following the progress made against our strategic objectives over
the last three years. Strong operational results continue to be
achieved across the majority of our portfolio which highlights the
strength of the underlying business and the success of our asset
management efforts.
"Following unprecedented weak sentiment towards the UK retail
sector and the resulting negative impact on asset valuations, RDI
has reached an inflexion point that will see us taking decisive
action to accelerate delivery against our strategic priorities.
These include a lower leverage capital structure, more focused
capital allocation and continued reduction to retail exposure.
These priorities will support a simplified, single geography
investment proposition with an enhanced portfolio weighted towards
our preferred sectors of beds, sheds and desks.
"Notwithstanding the near term impact on earnings, we remain
confident that delivery against our strategic objectives will best
position RDI for the future whilst enabling us to maximise
shareholder returns from a more robust business that offers
attractive income growth opportunities."
Results presentation, webcast and conference call
A meeting for analysts and investors will take place on
Thursday, 25 April 2019 at 9.00 a.m. BST (10.00 a.m. SA time) at
FTI Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A
4HD. This will be accompanied by a live webcast, which can be
accessed via the homepage of the Company's website:
www.rdireit.com.
Conference call dial-in numbers and access code
Participant Access Code: 851879
United Kingdom Toll Free: 0800 640 6441
United Kingdom (Local): 020 3936 2999
South Africa Toll Free: 080 017 2952
South Africa (Local): 087 550 8441
All other locations: +44 20 3936 2999
For further information, please contact:
RDI REIT P.L.C.
Mike Watters, Stephen Oakenfull Tel: +44 (0) 20 7811
0100
FTI Consulting
UK Public Relations Adviser
Dido Laurimore, Claire Turvey, Tel: +44 (0) 20 3727
Ellie Sweeney 1000
rdireit@fticonsulting.com
Instinctif Partners
SA Public Relations Adviser
Frederic Cornet Tel: +27 (0) 11 447 3030
JSE Sponsor
Java Capital Tel: +27 (0) 11 722 3050
Disclaimer
This release includes statements that are forward-looking in
nature. These statements are based on the current expectations of
the management of RDI and are naturally subject to uncertainty and
changes in circumstances. Forward-looking statements include
statements typically containing words such as "will", "may",
"should", "believe", intends", "expects", "anticipates", "targets",
"aims", "plans", "estimates" and words of similar nature.
Forward-looking statements by their nature involve known and
unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of RDI to be materially
different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Many
factors can cause actual results and developments to differ
materially from those expressed or implied by such forward-looking
statements. These factors include but are not limited to: local and
global political and economic conditions; changes in consumer
habits and preferences; foreign exchange rate fluctuations; legal
or regulatory developments and changes; the impact of any
acquisitions, disposals or similar transactions; competitive
pricing pressures; success of business initiatives; and changes in
the level of capital investment. Other unknown or unpredictable
factors could cause actual results to differ materially from those
in the forward-looking statements. Any information contained in
this release on the price at which shares or other securities in
RDI have been bought or sold in the past, or on the yield on such
shares or other securities, should not be relied upon as a guide to
future performance.
CHIEF EXECUTIVE'S REPORT
We have made significant progress against our strategic
objectives over the last three and a half years which has resulted
in a far higher quality portfolio. At the same time we have been
subject to very challenging market conditions including heightened
political and economic risks and significant uncertainty around the
future of retail at many levels, including consumer behaviour,
changing requirements for retailers' delivery channels and their
future relationship with physical real estate.
These risks and uncertainties have resulted in difficulties
during the last six months; principally in relation to the
valuation of the UK Shopping Centre portfolio and more specifically
in addressing the Aviva financing facility. However, outside of
these largely retail issues, strong operational results continue to
be achieved which highlights the strength of the underlying
business when viewed in isolation to the negative impact and
sentiment associated with a limited number of retail assets.
In order to address long-term shareholder value, we believe many
of our existing strategic initiatives including reducing leverage
and retail exposure, need to be delivered more aggressively.
Further detail in this regard is set out below.
Earnings and dividend
Operational performance across the portfolio remained strong,
including a resilient income performance from the UK Retail
portfolio. EPRA occupancy remains high at 96.9 per cent (31 August
2018: 97.1 per cent) and occupational demand remains positive
across the majority of the portfolio.
Proportionate net rental income totalling GBP50.5 million grew
by 0.2 per cent on a like-for-like basis. Underlying earnings
decreased by 3.7 per cent to GBP26.4 million (28 February 2018:
GBP27.4 million), in part a reflection of the stronger first half
results in 2018 which were supported by the phased acquisition of
the IHL Hotel portfolio. Underlying earnings per share decreased by
5.2 per cent to 6.94 pence per share (28 February 2018: 7.32 pence
per share) but were marginally higher when compared to the second
half of the last financial year.
As previously announced, underlying earnings for the period have
not been matched by cashflow as a result of the net operating
cashflows from the Aviva financed UK Shopping Centre portfolio
being retained within the facility. At period end, GBP11.6 million
of cash, including cash previously injected into the facility, was
restricted and retained within the facility. In this context, the
Board has declared a first half dividend of 4.0 pence per
share.
It is the Company's intention to continue to meet the UK REIT
rules in respect of distributions, therefore, total dividends for
the year can be expected to be weighted towards the second half and
reflect a regular full year pay-out ratio of at least 90 per cent
of underlying earnings, excluding earnings attributable to the
Aviva financed UK Shopping Centre portfolio.
Balance sheet and financing
EPRA NAV decreased by 4.4 per cent to 204.4 pence per share (31
August 2018: 213.8 pence per share) largely as a result of a
GBP22.3 million (7.7 per cent) valuation decline in the UK Shopping
Centre portfolio. We have actively improved the quality of the
overall portfolio by reducing exposure to UK shopping centres to
16.6 per cent (2015: 33.0 per cent) and increasing exposure to
sectors and assets supported by structural change and occupier
demand. Outside of UK Retail, representing 28.2 per cent of the
portfolio, valuations were broadly stable on a constant currency
basis.
Leverage increased slightly to 48.5 per cent (31 August 2018:
46.2 per cent) as a result of the lower portfolio valuation, but
remains below 50 per cent following the ongoing focus on leverage
and liquidity. Leverage excluding the Aviva financed UK Shopping
Centre portfolio and financing facility was 45.4 per cent.
Early refinancing of AUK facility
As previously announced, the early extension of our principal UK
loan facility was completed in January. The total facility
commitments of GBP275.0 million includes a GBP137.5 million term
loan and a GBP137.5 million revolving credit facility. The facility
is currently drawn to GBP250.0 million with the revolving credit
facility providing flexibility in managing the Company's capital
and liquidity. The term of the facility has been extended to
January 2024, extending the Group's average debt maturity profile
and securing a key financing facility at attractive rates.
The early refinancing resulted in a non-recurring charge of
GBP0.9 million which will be reflected as an increase in finance
costs for the current financial year. The ongoing interest cost of
the refinanced facility has increased by approximately 25 basis
points.
Aviva shopping centre facility
Four of the Company's UK shopping centres namely Grand Arcade
(Wigan), Weston Favell (Northampton), Birchwood (Warrington) and
Byron Place (Seaham), are financed by a long-term fixed rate debt
facility with Aviva. The facility is non-recourse to the Company
and had an outstanding principal balance of GBP144.7 million at
period end with a fixed rate of 5.5 per cent per annum and a
maturity date in April 2042.
As announced on 8 April 2019, the lender instructed a valuation
of the assets post period end which resulted in the loan to value
covenant of 85 per cent being exceeded. A standstill period has
subsequently been agreed to 11 October 2019 during which time Aviva
has confirmed that it will not take any action to accelerate its
security under the facility agreement (the "Standstill Agreement").
RDI and Aviva have agreed to progress a consensual sales process or
restructuring of the facility during this standstill period.
Notwithstanding the Standstill Agreement, Aviva will retain all of
its rights under the facility agreement.
As is customary with long-dated fixed rate debt, material break
costs are associated with early repayment and a disposal of one or
all of the assets is not expected to result in any equity being
realised from the net disposal proceeds. As previously disclosed,
the Aviva financed UK Shopping Centre portfolio currently
contributes approximately GBP6.5 million in net operating cashflows
on an annualised basis and GBP54.1 million in EPRA net assets, or
14.2 pence per share. Until late April when the Standstill
Agreement was finalised, these net operating cashflows continued to
be retained in the facility.
A disposal would result in an improvement in the Group's LTV
ratio which would reduce from 48.5 per cent to 45.4 per cent and
reduce exposure to UK Retail from 28.2 per cent to 19.3 per cent,
by value.
The Board has agreed not to commit further capital to the
facility to reduce the loan to value ratio to below the covenant of
85 per cent. In arriving at the current position, the Board has
carefully considered the options available including injecting
additional capital into the facility and potential restructuring
options. However, given the ongoing and potentially long-term
structural challenges facing the retail sector, combined with
concerns over certain department stores and mid-market fashion
brands, a comprehensive restructuring of the facility including a
material reduction in leverage would be necessary to ensure
sufficient covenant headroom going forward. Given the strategic
objectives of reducing leverage and retail exposure, utilising
capital for new opportunities in our preferred sectors and
maintaining lower leverage is expected to be of greater benefit to
long term shareholder value.
Discussions with Aviva have been cooperative with the lender
recognising RDI's constructive approach and strong asset management
credentials.
Further details are contained in the Financial Review.
Strategic priorities
Despite near term challenges in the UK Shopping Centre
portfolio, our strategic priorities remain unchanged with a focus
on delivering sustainable and growing income returns to our
shareholders.
Over the last three and a half years we have made material
progress against a set of challenging strategic objectives.
Acquisitions totalling GBP809.0 million have been successfully
completed over that period delivering a significantly enhanced
portfolio and crystallising disposal proceeds of GBP452.6 million
at an average premium of 10.0 per cent to the prevailing book
values. Recent acquisitions, accounting for over 45 per cent of the
current portfolio by value, have delivered strong results improving
the long-term growth prospects of the portfolio. Leverage has been
reduced over this period and remains below 50 per cent LTV despite
the recent valuation declines within the UK Shopping Centre
portfolio.
Notwithstanding the progress that has been made, the Board is
actively progressing options to accelerate the delivery of a lower
leverage capital structure, a more focused allocation of capital
and a reduction in exposure to retail assets.
Capital allocation
Our capital allocation strategy will continue to focus on
increasing exposure to assets in stronger demographics and sectors
benefiting from structural change. Over the last three and a half
years we have successfully reduced overall exposure to retail
assets from 59 per cent in 2015 to 43.2 per cent, in favour of
stronger demographics and sectors benefiting from sustained
occupier demand. These include the distribution and industrial
sectors, London serviced offices and limited serviced hotels.
Reducing retail exposure
In order to deliver on our strategic priorities, a disposal of
the German portfolio is being actively progressed. The assets make
up 15.1 per cent of our portfolio and consist of 13 principally
retail assets valued at EUR284.8 million (GBP244.2 million) at a
relatively low net initial yield of 4.9 per cent; in part a
reflection of the current strength of the German investment market.
The portfolio is financed with debt totalling EUR162.3 million
(GBP139.2 million) at a weighted average cost of 2.0 per cent and a
gross LTV of 56.6 per cent. A disposal of the portfolio would
support a material reduction in retail exposure and leverage, with
the additional benefit of streamlining the portfolio and corporate
structure.
The potential disposal of the German retail portfolio and the
Aviva financed UK Shopping Centre portfolio are aimed at
accelerating a reduction in retail exposure and leverage. The
combined effect of these potential disposals, and certain mature
assets, would reduce retail exposure by approximately 20 per cent
on a pro-forma basis resulting in retail assets comprising circa 22
per cent of the remaining portfolio prior to any reinvestment
assumptions. The remaining retail assets are largely well-located
retail parks with a proven track record of strong occupational
demand and are currently operating at an occupancy rate of 96.5 per
cent.
Lower leverage capital structure
The benefit of a lower leverage capital structure has become
increasingly important and, in the Board's opinion, more highly
valued by investors. We expect the near-term impact of disposals
and lower leverage on income returns to be outweighed in the longer
term by greater financial flexibility, enhanced access to capital
and more consistent shareholder returns across real estate and
economic cycles.
Leverage of between 30 - 40 per cent LTV will be targeted over
the medium-term with an immediate focus on the Aviva facility,
which would reduce the existing Group LTV to 45.4 per cent. The
disposal of the EUR284.8 million (GBP244.2 million) German
portfolio and approximately GBP88.2 million of mature assets would
support a further material reduction in leverage.
Maintaining operational efficiency
The existing EPRA cost ratio target of below 15 per cent will be
retained. A disposal of the German portfolio would result in a
reduction in overhead and administration costs of approximately
GBP1.4 million (approximately ten per cent of the gross rental
income from the German portfolio) representing a proportionately
higher ratio than the current Group average of seven per cent. A
disposal of the Aviva financed UK Shopping Centre portfolio would
also provide scope for a further reduction in overheads and
administration costs.
2019 Annual General Meeting ("AGM") update statement
As required by Provision 4 of the 2018 UK Corporate Governance
Code, the Company wishes to provide its update statement relating
to the four resolutions which received substantial votes
against.
Resolutions 15 and 16, relating to the Directors authority to
issue shares. Although the authority levels were below standard UK
recommendations, they exceeded South African guidelines. This
position is not uncommon, with most of our dual listed peers
receiving similar votes against. The Company will liaise with
shareholders before the next AGM, to agree an authority level that
may be more acceptable to our South African shareholder base.
Resolutions 10 and 12, concerning the re-appointment of two
directors. The Company has engaged with the shareholders to
understand their concerns.
Pursuant to Provision 4 of the Code, the Company will include a
final statement in its Annual Report and in the AGM notice, of the
actions taken or changes to the resolutions proposed.
Share consolidation
On 11 February 2019 every five ordinary shares were consolidated
into one ordinary share of 40 pence each. The consolidation
resulted in 380,089,923 new consolidated ordinary shares being in
issue which trade under the new International Securities
Identification Number code (ISIN) of IM00BH3JLY32. Historic per
share metrics throughout this statement have been adjusted to
reflect the consolidation in order that the current per share
metrics for this period are comparable to historic figures.
Board Appointment
Following Bernie Nackan's retirement from the Board in January
2019, Pieter Prinsloo was appointed as a non-executive director of
the Company, with effect from 24 April 2019 and represents Redefine
Properties Limited, RDI's largest shareholder, on the Board,
alongside Marc Wainer.
Pieter has over 30 years of experience in property development,
management and finance. In the last five years he has held the post
of CEO of Hyprop Investments Limited, a South African property REIT
and this year accepted the position of CEO of Redefine Europe B.V.,
a subsidiary of Redefine Properties Limited.
Growing our business sustainably
Embedded within our core business strategy and operations is our
firm commitment to measuring and benchmarking our environmental,
social and governance performance via our annual response to the
Global Real Estate Sustainability Benchmark ("GRESB") Real Estate
Assessment. We continue to voluntarily collect and report data in
accordance with the latest EPRA Sustainability Best Practices
Recommendations ("SBPR") and in September 2018 we were awarded a
Bronze Level Certificate for compliance with EPRA Sustainability
Best Practices Recommendations for our 2017 CSR Annual Report. Our
established building certification strategy promotes independent
green ratings for our assets. We were pleased to be awarded a
BREEAM In-Use rating of Very Good for the Holiday Inn Express
Southwark and we are planning for further certifications across
other asset classes this year. We have committed to introducing an
Environmental Management System certified to ISO 14001 standard at
St George's Shopping Centre, Harrow, as we continue to adopt a
responsible approach to managing our environmental risks. Good
progress has been made following completion of asset level energy,
water and waste management audits which have identified various
opportunities for progression toward our 25 per cent energy
reduction target set last year.
Outlook
Notwithstanding the challenges during this interim period, we
are confident about the future of our business and our ability to
deliver on our strategic priorities of a lower leverage capital
structure, reduced retail exposure and a simplified investment
proposition. Our strategy of superior, sustainable and growing
income remains unchanged but with a clearer focus on our preferred
sectors of beds, sheds and desks.
Mike Watters
Chief Executive Officer
25 April 2019
OPERATING REVIEW
Portfolio overview
The portfolio has strong income characteristics with clear
visibility of the medium-term income profile and growth
opportunities.
Key portfolio characteristics include:
-- a weighted average lease length, excluding serviced space, of
6.5 years to the first potential lease break and 8.1 years to
expiry;
-- 26.7 per cent of gross rental income subject to inflation-linked or fixed increases;
-- rental growth potential with a reversionary yield of 6.2 per
cent, 50 basis points higher than the current portfolio net initial
yield;
-- high and stable occupancy demonstrating robust occupier demand;
-- RBH managed hotels and London serviced offices (excluding
leases to gym operators) account for 30.2 per cent of the portfolio
by annualised gross rental income and deliver robust income growth
supported by strong occupier demand; and
-- over 500 tenants with no single tenant accounting for more
than 3.2 per cent of gross rental income.
Portfolio Annualised EPRA EPRA
summary Market gross rental EPRA topped Reversionary occupancy
28 February value income ERV NIY up yield yield WAULT by ERV Indexed
2019 GBPm GBPm(1) GBPm % % % yrs(2) %(2) %
----------------- -------- -------------- ------ ----- ---------- ------------- -------- ----------- --------
UK Commercial 553.0 31.6 33.9 5.1 5.2 5.6 4.6 96.9 15.4
UK Retail 455.5 39.2 34.6 6.8 7.3 7.0 7.3 95.9 22.1
UK Hotels 364.9 25.9 26.1 5.7 5.7 6.4 17.7 100.0 9.3
----------------- -------- -------------- ------ ----- ---------- ------------- -------- ----------- --------
Total UK 1,373.4 96.7 94.6 5.8 6.0 6.3 6.8 96.5 16.5
Europe 244.2 14.5 14.2 4.9 5.0 5.4 5.1 98.9 94.9
----------------- -------- -------------- ------ ----- ---------- ------------- -------- ----------- --------
Total 1,617.6 111.2 108.8 5.7 5.9 6.2 6.5 96.9 26.7
----------------- -------- -------------- ------ ----- ---------- ------------- -------- ----------- --------
Controlled
assets 1,593.0 109.4 107.0 5.7 5.9 6.2 6.5 96.9 26.3
Held in JVs
(proportionate
share) 24.6 1.8 1.8 6.5 6.5 6.8 5.0 99.9 51.8
----------------- -------- -------------- ------ ----- ---------- ------------- -------- ----------- --------
(1) Annualised gross rental income for the London serviced
office portfolio included as EBITDA net of management fees.
(2) Excluding the RBH managed hotels and London serviced office
portfolios. Relevant operational metrics disclosed separately.
Capital allocation and portfolio strategy
To support the strategic objectives of a lower leverage capital
structure and a continued reduction in retail exposure, a number of
disposals are being actively considered or progressed. The targeted
disposals of the German Retail portfolio and the Aviva financed UK
Shopping Centre portfolio are aimed at accelerating a reduction in
retail and leverage. Marketing of the German portfolio is well
progressed and an agreement has been reached with Aviva to commence
a consensual sales process. In addition, a number of mature assets,
principally secondary retail and regional office assets, are being
considered for sale subject to various ongoing asset management
initiatives. A successful disposal of these assets has the
potential to reduce overall retail exposure from 43 per cent to
approximately 22 per cent. The remaining retail exposure,
consisting predominantly of well-located and performing retail
parks, would have an approximate 62 per cent weighting by value to
Greater London.
The potential repositioning of the portfolio would provide a
materially higher residual exposure to growth areas from within the
existing portfolio including strong operational platforms across
hotels and serviced offices, increased exposure to the distribution
and industrial portfolio and a significant re-weighting of the
overall portfolio to Greater London and the South East with
approximately 79 per cent of the pro-forma portfolio located in
these stronger economic locations.
EPRA Weighted EPRA
Market topped Reversionary average voids
Portfolio summary value Annualised gross rental income ERV up yield yield lease (by ERV) Indexed
28 February 2019(3) % GBPm GBPm(1) GBPm EPRA NIY % % length(2) %(2) %
---------------------- ------ -------- ------------------------------- ------ --------- ---------- ------------- ----------- ---------- --------
UK Hotels 23.0 364.9 25.9 26.1 5.7 5.7 6.4 17.7 100.0 9.3
UK Offices 17.0 277.3 15.9 16.8 5.1 5.2 5.5 3.2 99.5 4.2
UK Industrial &
distribution 13.0 216.5 11.3 12.3 4.9 4.9 5.3 5.3 98.5 28.5
UK Retail Parks &
Other 15.0 249.3 17.5 16.3 5.6 6.3 6.1 6.0 97.5 12.2
---------------------- ------ -------- ------------------------------- ------ --------- ---------- ------------- ----------- ---------- --------
68.0 1,108.0 70.6 71.5 5.4 5.5 5.9 6.2 98.3 12.0
Identified for
disposal
Shopping centres -
Aviva 11.0 177.2 18.1 14.8 8.0 8.3 7.6 8.7 94.5 36.1
Germany 15.0 244.2 14.5 14.2 4.9 5.0 5.4 5.1 98.9 94.9
Mature 6.0 88.2 8.0 8.3 7.3 7.6 8.7 5.5 91.6 12.1
---------------------- ------ -------- ------------------------------- ------ --------- ---------- ------------- ----------- ---------- --------
Total 100.0 1,617.6 111.2 108.8 5.7 5.9 6.2 6.5 96.9 26.7
---------------------- ------ -------- ------------------------------- ------ --------- ---------- ------------- ----------- ---------- --------
(1) Annualised gross rental income for the London serviced
office portfolio included as EBITDA net of management fees and
FF&E.
(2) Excluding the RBH managed hotels and London serviced office
portfolios. Relevant operational metrics disclosed separately.
(3) Assuming no reinvestment.
Valuation overview
The like-for-like portfolio value decreased by GBP39.0 million
or 2.5 per cent net of capital expenditure; impacted by further
declines in UK Shopping Centre valuations and a 4.6 per cent
decline in the Euro relative to Sterling. On a local currency
basis, like-for-like valuations decreased by 1.8 per cent. The
portfolio valuation reflects a 5.9 per cent EPRA topped up net
initial yield and a 6.2 per cent reversionary yield.
UK valuation movements excluding shopping centres were broadly
stable and resulted in a modest 0.6 per cent reduction in
like-for-like values. The UK Commercial portfolio delivered modest
growth increasing GBP1.2 million or 0.2 per cent, largely as a
result of the strength of the Industrial and Distribution portfolio
which increased 1.2 per cent or GBP2.2 million. Valuations for UK
retail parks were down 2.5 per cent despite strong letting activity
during the period. UK Hotels decreased by GBP2.8 million or 0.7 per
cent.
UK Shopping Centres (16.6 per cent of the portfolio by market
value) declined by GBP22.3 million or 7.7 per cent despite
occupancy being maintained at 95.9 per cent (31 August 2018: 96.4
per cent) and triple net annualised rental income increasing 2.8
per cent since 31 August 2018. The valuation decline was driven by
a 60 basis point outward shift in the topped up net initial yield
reflecting an exceptionally weak investment market.
In Germany, the like-for-like portfolio value was largely
unchanged in local currency terms but declined by GBP10.5 million
or 4.7 per cent in Sterling terms.
Valuation EPRA
Local
Market Market currency topped Reversionary
Overview value value Gain/(loss) gain/(loss) up NIY yield
28 February 2019 % GBPm GBPm % % %
--------------------------- ------- -------- ------------ ------------- --------- -------------
London serviced offices 10.1 163.4 - - 5.8 5.8
London & regional offices 10.7 173.1 (1.0) (0.6) 5.0 5.9
Distribution, industrial
& automotive 11.2 180.6 2.2 1.2 4.9 5.3
UK Commercial 32.0 517.1 1.2 0.2 5.2 5.7
--------------------------- ------- -------- ------------ ------------- --------- -------------
Shopping centres 16.6 269.1 (22.3) (7.7) 7.9 7.6
Retail parks & other 11.5 186.4 (4.6) (2.5) 6.4 6.1
UK Retail 28.1 455.5 (26.9) (5.6) 7.3 7.0
--------------------------- ------- -------- ------------ ------------- --------- -------------
Managed hotels 19.6 316.5 (3.6) (1.1) 5.9 6.6
Travelodge portfolio 3.0 48.4 0.8 1.9 4.7 5.0
UK Hotels 22.6 364.9 (2.8) (0.7) 5.7 6.4
--------------------------- ------- -------- ------------ ------------- --------- -------------
Total UK 82.7 1,337.5 (28.5) (2.1) 6.1 6.3
--------------------------- ------- -------- ------------ ------------- --------- -------------
Shopping centres 9.3 150.7 (8.0) (0.7) 4.7 5.1
Retail parks & other 3.8 62.2 (2.5) 0.6 5.8 6.5
Europe 13.1 212.9 (10.5) (0.3) 5.0 5.4
--------------------------- ------- -------- ------------ ------------- --------- -------------
Total (like-for-like) 95.8 1,550.4 (39.0) (1.8) 5.9 6.2
Acquisitions 2.3 35.9
Development 1.9 31.3
--------------------------- ------- -------- ------------ ------------- --------- -------------
Total property portfolio
market value 100.0 1,617.6
--------------------------- ------- -------- ------------ ------------- --------- -------------
Leasing activity
It has been an active period with 100 leasing events being
concluded totalling GBP6.8 million, a 31.2 per cent (GBP1.6
million) increase in annualised gross rental income, (including 19
previously vacant units), and a 3.4 per cent (GBP0.2 million)
increase above ERV. Proactive asset management ensured that the
portfolio occupancy remained high and stable at 96.9 per cent (31
August 2018: 97.1 per cent).
Annualised Annualised
gross rental gross rental
income income
Number of Lettable 28 February 31 August Relative
Lease events lease area 2019 2018 to ERV
28 February 2019 events sqft GBPm GBPm GBPm
------------------- ---------- --------- -------------- -------------- ---------
UK Commercial 8 191,116 2.2 +0.6 +0.4
UK Retail 36 140,961 2.6 +0.8 -0.2
Europe 56 133,774 2.0 +0.2 -
------------------- ---------- --------- -------------- -------------- ---------
Total 100 465,851 6.8 +1.6 +0.2
------------------- ---------- --------- -------------- -------------- ---------
-- 41 rent reviews were completed in the period resulting in
total rent of GBP4.0 million, a 9.6 per cent (GBP0.3 million)
increase above the previous passing rent and 5.1 per cent (GBP0.2
million) ahead of ERV;
-- 27 leases amounting to 50,727 sqft were renewed on break or
expiry accounting for a total rent of GBP1.5 million, 15.7 per cent
(GBP0.2 million) ahead of passing rent and 12.6 per cent (GBP0.2
million) ahead of ERV; and
-- 32 new leases were signed, including new lettings of vacant
space totalling 46,217 sqft across 19 units, generating an
additional GBP1.3 million in gross annualised rent.
Acquisitions
The Company increased its exposure to the industrial and
distribution sector through the GBP26.0 million forward funding of
a development of two modern distribution units in Bicester and the
acquisition of a multi-let industrial estate in Farnborough for
GBP26.3 million (excluding costs). Both investments are in line
with the strategy of increasing exposure to assets underpinned by
strong demographics and occupier demand supported by structural
change.
Southwood Business Park, Farnborough
Southwood Business Park is within an established commercial area
in Farnborough, Hampshire and conveniently located within the M3
corridor, approximately 41 miles from Central London. The nine-acre
estate consists of 18 warehouse units totalling 154,849 sqft
(14,385 sqm) with a low site cover of 37 per cent. On acquisition
in September 2018 the asset was 91.9 per cent occupied with a
weighted average lease length of over five years to expiry. There
is limited available space within competing industrial units in the
surrounding area with demand being driven by research &
development occupiers linked to the aerospace and technology
sectors.
The asset currently produces annualised net income of GBP1.8
million with average rents of GBP13.0 per sqft (GBP12.9 per sqft on
acquisition). The acquisition provides an attractive net initial
yield of 6.2 per cent and opportunities to support medium to long
term income growth through identified asset management
initiatives.
Bicester forward funding
Approximately 13.5 acres of land was acquired in Bicester as
part of a GBP26.0 million forward funding opportunity with Albion
Land to develop two high quality distribution units of 120,000 sqft
and 168,000 sqft respectively. The site is part of the successful
Link 9 industrial and distribution development with good access to
the M40.
Unit 1a of 120,000 sqft was completed in April 2019 and unit 1b
is anticipated to be completed in late 2019. The supply of modern
distribution units along this section of the M40 corridor remains
limited and current enquiries demonstrate healthy levels of
interest. The transaction provides an opportunity to increase
exposure to well-located modern distribution units and is
anticipated to deliver a 6.5 per cent yield on total cost once
fully let.
Development and capital expenditure
A number of successful developments and capital projects have
been completed or have reached key milestones. Development activity
is typically income-led and focused on redeveloping existing assets
to provide space that meets modern occupier requirements. Total
committed and outstanding capital expenditure at the period end was
GBP22.7 million, including outstanding commitments in respect of
the Bicester forward funding agreement.
Outstanding Total Yield
capital capital on
Significant expenditure expenditure cost
projects Description Completion GBPm GBPm %
---------------- ---------------------------------- ------------ ------------- ------------- -------
City Arcaden, Phase 2 - office and residential September
Ingolstadt development 2019 2.5 2.8 8.5(1)
UK Retail Park October
expansions Drive through pods 2019 1.0 2.0 12.7
---------------- ---------------------------------- ------------ ------------- ------------- -------
(1) Yield reflects overall scheme yield
City Arcaden, Ingolstadt
The completion of the 7,000 sqm (75,000 sqft) Primark unit in
March 2018 has significantly de-risked the development. Of the
total anticipated rent roll of EUR2.4 million, 87 per cent has been
secured with the works to complete the remaining 3,000 sqm (22,000
sqft) of offices and residential units anticipated to complete in
2019.
UK retail park expansions
The construction of a new Costa 'drive-thru' unit at The Arches
Retail Park, Watford is expected to complete in October 2019. The
development will deliver additional rental income of GBP0.2 million
reflecting a rental of over GBP85 per sqft and a highly accretive
15.0 per cent yield on cost. A further Costa 'drive-thru' unit at
Milton Link, Edinburgh has received planning permission with
construction expected to complete in May 2019 and is expected to
yield approximately 8.5 per cent on cost.
Charing Cross Road, London
An application for planning permission has been submitted for an
extension to the Charing Cross Road office in London in order to
increase the existing lettable area of 40,000 sqft by approximately
50 per cent. The property remains fully occupied. Timing of any
potential development will be subject to market conditions, but
could commence in 2021 subject to planning.
Sustainability
Two significant awards have been received during the period as a
result of initiatives commenced in 2017. The Holiday Inn Express,
Southwark received a Very Good BREEAM In-Use ("BIU") rating, the
first BIU operational green building certificate since RDI's
long-term objective was set to improve portfolio certification in
2017, and the Company's CSR Annual Report for the 2017 financial
year was awarded a Bronze Certificate for achieving compliance with
EPRA Sustainability Best Practices Recommendations. The Company has
improved disclosure of its environmental performance significantly;
aligning to the EPRA Best Practice Reporting (3rd version) in the
Company's 2018 and 2019 financial years, including social and
governance measures in addition to environmental reporting.
Progress on the CSR objective to undertake third party
verification of our EPRA environmental performance measures
(utilities data for managed assets) is underway. Third party
assurance of our sustainability data is of growing importance to
the Company, its investors and the broader stakeholder community.
To underpin this exercise, closer attention has been given to
enabling the robust collation of energy, water and waste data. This
has been combined with social and governance measures to align with
EPRA and to support our annual response to the GRESB Real Estate
assessment. The Group achieved an 11 per cent year on year
improvement in its GRESB score.
Progress to date on the CSR objectives has been focused on
meeting corporate energy targets including a commitment to reduce
energy usage by 25 per cent by 2030. The Real Estate Environmental
Benchmark (REEB) is a publicly available operational benchmark of
environmental performance for commercial property in the UK. Good
progress has been made following the completion of individual asset
audits in order to ensure the asset managers and CSR Committee are
aware of opportunities to reduce energy usage. REEB measures are
one of the only benchmarks based on the performance of buildings
'in-use' are increasingly becoming the industry standard used by
investors, fund managers and property owners to compare the
performance of their assets with similar assets from portfolios
across the UK.
UK Commercial (34.2 per cent of portfolio by market value)
The UK Commercial portfolio has been significantly repositioned
over the last three years. The office portfolio, including the
recently acquired serviced office portfolio, is now 82.4 per cent
weighted to Greater London. The portfolio has positive exposure to
locations benefiting from Crossrail, the regeneration of London's
Southbank and the positive structural change taking place as a
result of occupiers' requirements for highly serviced and flexible
office space. Exposure to the distribution and industrial sector
has been increased at attractive prices and through the forward
funding of well located, modern distribution units in areas of
limited supply.
Annualised
gross EPRA EPRA
UK Commercial Market rental EPRA topped Reversionary occupancy
28 February value income ERV NIY up yield yield WAULT by ERV Indexed
2019 GBPm GBPm(1) GBPm % % % yrs(2) %(2) %
-------------------- ------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
Offices - Serviced 163.4 10.6 10.7 5.8 5.8 5.8 n/a n/a -
Offices - Greater
London 113.9 5.3 6.1 4.1 4.2 4.9 3.2 99.5 12.8
Offices - Regions 59.2 4.4 4.8 6.4 6.5 7.7 4.6 89.6 22.0
-------------------- ------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
UK Offices 336.5 20.3 21.6 5.3 5.4 5.9 3.8 95.1 8.1
Distribution
& Industrial 172.8 8.4 10.0 4.5 4.5 5.4 3.4 98.2 3.6
Automotive 43.7 2.9 2.3 6.3 6.3 4.9 10.9 100.0 100.0
-------------------- ------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
UK Commercial 553.0 31.6 33.9 5.1 5.2 5.6 4.6 96.9 15.4
-------------------- ------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
(1) Annualised gross rental income for the London serviced
office portfolio included as EBITDA net of management fees.
(2) Excluding London serviced office portfolio. Relevant
operational metrics disclosed separately.
London Serviced Offices ("LSO"; 10.1 per cent of portfolio by
value)
Demand for serviced office space continues to show strong growth
in London. Demand for flexible, highly serviced space is being
driven by multiple factors including the adoption of technology and
its impact on flexible working arrangements, the strategic
importance of real estate to large corporates in attracting and
retaining talent and a general trend towards flexible lease
arrangements that offer both value and service to clients. This is
expected to represent a permanent structural change in the way in
which offices are occupied.
The London serviced office portfolio has performed strongly
despite a marked increase in supply of flexible office space in
London. This is a function of the assets proximity to transport
supported by a high quality and professional service for customers
at mid-market desk rates. Unlike many competitors operating
leasehold models, ownership of the assets allows direct benefit
from and control over asset management initiatives and the cost
base resulting in higher and more sustainable profit margins. The
portfolio is highly cash generative with EBITDA as a percentage of
total revenue at 63.4 per cent.
RDI's strategic operating partner Office Space in Town ('OSIT')
prioritises client retention over short term profitability. Density
is on average 80 sqft per available desk compared to certain
competitors at approximately 50 sqft per desk. The design led
offices provide high levels of amenity space, natural light, good
sound insulation and industry leading IT.
Since acquisition in January 2018, the portfolio has maintained
a high occupancy rate. Occupancy currently stands at 94.5 per cent
(31 August 2018: 92.2 per cent) and total revenue per available
desk has increased to GBP826, 0.9 per cent higher than the position
at 31 August 2018. The average length of stay has increased to 30
months demonstrating the resilience of the income stream. Net
service income representing approximately 25 per cent of EBITDA has
delivered good growth largely as a result of improved meeting room
occupancy and margin improvements from catering and café
facilities. A number of operational improvements and marketing
initiatives have also started to deliver measurable improvements
across sales and marketing channels. The quality of the OSIT
service is reflected in consistent five star customer ratings on
Google.
The market value of the London serviced office portfolio held
steady at GBP163.4 million.
London serviced office portfolio 28 February
Operational metrics 2019 31 August 2018 At acquisition
---------------------------------- ------------ --------------- ---------------
Total EBITDA per sqft (GBP) 69.0 68.3 68.1
EBITDA conversion from total
revenue (%) 63.4 63.4 63.4
Average total revenue per
available desk (GBP) 826.2 819.1 815.2
Average monthly desk rate
- license fee only (GBP) 685 685 695
Desk occupancy (%) 94.5 92.2 93.8
Average weighted stay (months)
(1) 30 29(1) 28(1)
---------------------------------- ------------ --------------- ---------------
(1) Excluding St. Dunstan's which opened in 2015.
Greater London and regional offices (10.7 per cent of portfolio
by value)
Outside of London serviced offices, the portfolio is well
positioned to capture growth from locations benefiting from major
regeneration and capital investment into infrastructure and
transport projects. Further progress has been made on planning and
development options at Charing Cross Road and strong rent reviews
have been captured at both Newington Causeway, Southwark and
Canbury Business Park, Kingston.
The portfolio decreased in value by 0.6 per cent on a
like-for-like basis with a 10 basis point adverse shift in the
topped up net initial yield, which was partly offset by a 1.9 per
cent increase in ERVs.
Key asset management initiatives and leasing activity completed
during the period:
-- A new lease was completed at Newington Causeway, Southwark on
the 5,950 sqft third floor generating GBP0.2 million of annualised
gross rental income from a previously vacant unit; and
-- An application for planning permission has been submitted for
an extension to the Charing Cross Road office in London in order to
increase the existing lettable area of 40,000 sqft by approximately
50 per cent. The property remains fully occupied.
Distribution, industrial and automotive (13.4 per cent of
portfolio by value)
The industrial and distribution sector continues to see strong
structural support as retailers adjust their business models to
fewer stores and enhanced distribution networks. Rental growth
prospects in the sector are driving strong investment demand with
the weight of capital targeting the sector pushing yields lower.
Despite strong occupational demand, some caution is required around
pricing of new investments given the competitive nature of the
investment market. In light of this, RDI has sought to increase
exposure to the sector through forward funding arrangements or
acquisitions providing higher yields.
The distribution portfolio continued to produce capital growth
through a combination of rental uplifts, reversionary potential and
tightening investment yields. The portfolio increased in value by
1.2 per cent on a like-for-like basis.
Key asset management initiatives and leasing activity completed
during the period:
-- Express Park in Bridgwater - a rent review was completed on a
133,651 sqft unit delivering GBP0.9 million of gross annualised
rent; 13.6 per cent ahead of previous passing and 8.0 per cent
above ERV;
-- BP petrol filling station, Egerton Park - a rent review was
completed with an agreed rent of GBP0.2 million, a 13.1 per cent
increase on passing rent and 2.1 per cent lower than ERV; and
-- Further, rent reviews across the distribution and industrial
portfolio are progressing in line with expectations. Post period
end a rent review was concluded at Camino Park, Crawley generating
GBP2.5 million gross annualised rent (+GBP0.9 million or +55.4 per
cent on previous passing rent). A further GBP0.4 million of rental
income is subject to review at Camino Park, Crawley and is
anticipated to conclude in 2019 and achieve an average increase of
over 60 per cent.
UK Retail (28.1 per cent of portfolio by market value)
General investor sentiment towards the sector remains weak,
influenced by the ongoing themes of structural change, the impact
of online retailing, slowing retail sales and weaker consumer
confidence. As a result, there is continued pressure on certain
retailers to rationalise their physical store portfolios to fit the
new retail landscape.
Annualised
gross EPRA EPRA
Market rental EPRA topped Reversionary occupancy
UK Retail value income ERV NIY up yield yield WAULT by ERV Indexed
28 February 2019 GBPm GBPm GBPm % % % yrs % %
------------------- ------- ----------- ------ ----- ---------- ------------- ------ ----------- --------
Shopping centres
- Aviva 177.2 18.1 14.8 8.0 8.3 7.6 8.7 94.5 36.1
Shopping centres
- Other 91.9 8.2 7.6 7.1 7.3 7.5 4.5 98.6 9.3
------------------- ------- ----------- ------ ----- ---------- ------------- ------ ----------- --------
Shopping centres 269.1 26.3 22.4 7.7 7.9 7.6 7.4 95.9 27.7
Retail parks 181.6 12.3 11.8 5.5 6.3 6.1 7.4 96.5 11.1
Other retail 4.8 0.6 0.4 6.4 9.8 8.4 3.6 79.7 -
------------------- ------- ----------- ------ ----- ---------- ------------- ------ ----------- --------
UK Retail 455.5 39.2 34.6 6.8 7.3 7.0 7.3 95.9 22.1
------------------- ------- ----------- ------ ----- ---------- ------------- ------ ----------- --------
Shopping centres (16.6 per cent of portfolio by value)
The majority of the UK Shopping Centre exposure outside Greater
London is focused on food, discount and convenience retailing to
local communities. This part of the market continues to be more
resilient in terms of consumer spend, footfall and the impact of
online retailing. This is evidenced by the ongoing high occupancy
of 95.9 per cent (31 August 2018: 96.4 per cent) and a stable
income position, with annualised gross rental income marginally
down (0.2 per cent) compared to the position at 31 August 2018. Net
rental income on an annualised basis improved by 2.8 per cent,
supported by operating cost efficiencies across the portfolio and
contracted rent free periods coming to an end. Footfall across the
UK Shopping Centre portfolio increased by 1.1 per cent,
significantly outperforming the national average over the same
period which was down by 3.3 per cent (source: Springboard).
Despite maintaining net income and occupancy levels, the market
value of the shopping centre portfolio declined 7.7 per cent on a
like-for-like basis due to a 60 basis point outward yield shift in
the topped up net initial yield, reflecting continued weak investor
sentiment and concerns over certain retailers including department
stores and certain mid-market fashion brands.
Key asset management initiatives and leasing events completed
during the period:
-- 8 rent reviews were agreed providing total rent of GBP1.0
million, 2.1 per cent above the passing rent however 4.0 per cent
lower than ERV;
-- 26 new lettings or renewals were completed in the period
providing total rent of GBP0.9 million, 13.4 per cent (GBP0.2
million) below ERV. The underperformance against ERV was largely a
result of one lease agreed at Grand Arcade, Wigan which does not
reflect potential income from an agreed top-up rent above certain
levels of turnover;
-- Of the 26 new lettings and renewals, 10 new leases were
signed on 15,629 sqft of previously vacant space amounting to
GBP0.4 million of gross annualised rental income, which more than
offset the gross annualised rent on 9 units (59,251 sqft) vacated
during the period (loss of GBP0.2 million); and
-- In-house commercialisation activities, many of which have a
strong community and CSR foundation, resulted in GBP0.6m of rent
received for the six months ended 28 February 2019, an increase of
2.8 per cent compared to the prior year. Demand remains robust from
both national and local operators with three new long-term leases,
23 lease renewals and 239 short-term licences signed across the
portfolio during the period.
Retail parks and other retail (11.5 per cent of portfolio by
value)
RDI remains confident in the longer term demand for its well
located retail parks, with over 80 per cent of its portfolio by
value in London, Edinburgh and the Southern part of the UK
underpinned by strong demographics. Occupancy in retail parks
increased to 96.2 per cent (31 August 2018: 94.7 per cent). These
assets present further high yielding development opportunities to
fulfil strong demand from 'drive-thru' occupiers.
Despite successful letting activity during the period, the
market value of the retail park portfolio decreased 2.5 per cent on
a like-for-like basis. This was largely due to a 40 basis point
outward shift in the topped up net initial yield and a modest 0.6
per cent decline in ERVs.
Key asset management initiatives and leasing events completed
during the period:
-- At Priory Retail Park in Merton, South West London two units,
that were previously subject to a Company Voluntary Arrangement
("CVA"), were signed to Aldi and The Gym Group on long leases of 20
years and 15 years respectively. These new lettings have been
agreed on more attractive terms and higher rents compared to the
pre-CVA terms, with no void period in the interim. Priory Retail
Park remains fully occupied and the new tenants complement the
current mix of bulky goods retailers and F&B operators,
continuing to drive footfall at this well-located asset;
-- Bargain Buys, a new concept from the team behind
Poundstretcher, has increased its unit size at Banbury Cross Retail
Park in Oxfordshire, signing a seven year term on the 7,477 sqft
adjoining unit increasing its store to 17,533 sqft; and
-- At Queens Drive Retail Park in Kilmarnock, the gross
annualised rent on a 10,000 sqft unit, which was previously subject
to a CVA, has been reinstated to the previous passing rent of
GBP0.2 million, resulting in a 33 per cent increase on the
previously reported figure.
UK Hotels (22.6 per cent of portfolio by market value)
The UK hotel market has experienced a sustained period of growth
supported by a rise in both business and leisure travel. PwC has
forecast growth in the average rate per available room ("RevPar")
for 2019 in London and the Regions of 0.3 per cent and 1.2 per cent
respectively, driven by expectations of modest reductions in
occupancy but continued nominal room rate growth. This lower growth
outlook for London hotels reflects a forecast 2.8 per cent net
increase in the number of rooms in 2019 following the strong
increases in supply in previous years. Despite pressure from rising
labour and operating costs, continued growth in London RevPars
highlights the City's resilience as a leading global hotel
market.
Following the IHL acquisition in 2018, the UK Hotels portfolio
is weighted close to 90 per cent by value to Greater London,
Edinburgh and Gatwick airport with 10.9 per cent of the total net
rental income subject to uncapped CPI escalations, principally from
the Travelodge portfolio. The RBH managed hotel portfolio,
including 13 limited service hotels, has seen positive movements on
all key operational metrics. This was largely driven by the seven
London limited service hotels and the Hampton by Hilton hotel at
Gatwick Airport which continues to produce trading results ahead of
management expectations. Following a very strong 2018, the
Edinburgh hotel market has slowed slightly and occupancy in the
three smaller regional hotels has been affected by weaker trading
conditions.
RBH managed hotel portfolio
(excluding IHL) 28 February 28 February
Operational metrics 2019 31 August 2018 2018
---------------------------------- ------------ --------------- ------------
Weighted average room rate (GBP) 95.5 96.6 94.2
Weighted average revenue per
available room (RevPAR) (GBP) 81.3 82.4 79.5
Weighted average occupancy (%) 83.9 84.8 83.3
---------------------------------- ------------ --------------- ------------
Like-for-like net income during the period decreased by GBP0.7
million, or 6.2 per cent, following additional refurbishment costs
allocated to maintaining the quality of these assets. Underlying
gross rental income, excluding the increased investment, was
consistent with the prior period. The Travelodge portfolio is
expected to show continued income growth over the next few years
through upward only inflation linked rent reviews.
The portfolio was valued at GBP364.9 million, a like-for-like
decrease of 0.7 per cent.
Annualised
gross EPRA EPRA
UK Hotels Market rental EPRA topped Reversionary occupancy
28 February value income ERV NIY up yield yield WAULT by ERV Indexed
2019 GBPm GBPm GBPm % % % yrs(1) %(1) %
---------------- ------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
Greater London 186.7 12.3 12.3 5.5 5.5 6.2 n/a n/a -
Regional 129.9 11.2 11.2 6.4 6.4 7.3 n/a n/a 0.9
---------------- ------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
RBH managed
portfolio 316.6 23.5 23.5 5.9 5.9 6.6 n/a n/a 0.4
Travelodge(2) 48.3 2.4 2.6 4.7 4.7 5.0 17.7 100.0 95.3
---------------- ------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
UK Hotels 364.9 25.9 26.1 5.7 5.7 6.4 17.7 100.0 9.3
---------------- ------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
(1) Excluding RBH managed hotels portfolio. Relevant operational
metrics disclosed separately.
(2) Three of the five hotels let to Travelodge carry landlord
lease extension options of eight years or more.
Strategic operational partner - RBH
Operating performance from the managed portfolio is supported by
the Company's strategic partnership with RBH (formerly
RedefineBDL). RBH has established itself as the leading independent
hotel operator in the UK. Alignment of interests is ensured through
RDI's ownership of a 25.3 per cent stake in RBH.
The holding in RBH contributed GBP0.5 million to underlying
earnings during the six months.
Europe (15.1 per cent of portfolio by market value)
The momentum in the German investment market has remained strong
driven largely by domestic investors. However, investors are
becoming increasingly discerning with a focus on rental levels,
particularly in the retail sector. The portfolio is heavily
weighted to Berlin and Hamburg, two of Europe's strongest
investment destinations. The centres in these cities are integrally
linked into the public transport network providing high levels of
footfall.
The portfolio decreased in value by 0.1 per cent in local
currency and on a like-for-like basis due to a 10 basis point
adverse shift in topped up net initial yields whilst local currency
ERVs were marginally down.
Annualised
gross EPRA EPRA
Europe Market rental EPRA topped Reversionary occupancy
28 February value income ERV NIY up yield yield WAULT by ERV Indexed
2019 GBPm GBPm GBPm % % % yrs % %
--------------------- ------- ----------- ------ ----- ---------- ------------- ------ ----------- --------
German shopping
centres 182.0 10.2 9.9 4.6 4.7 5.1 5.1 99.2 95.0
German supermarkets
and retail
parks 62.2 4.3 4.3 5.8 5.8 6.5 5.1 98.3 94.7
--------------------- ------- ----------- ------ ----- ---------- ------------- ------ ----------- --------
Europe 244.2 14.5 14.2 4.9 5.0 5.4 5.1 98.9 94.9
--------------------- ------- ----------- ------ ----- ---------- ------------- ------ ----------- --------
Occupancy across the German portfolio remains high at 98.9 per
cent (31 August 2018: 98.0 per cent) with annualised gross rental
income 1.7 per cent higher on a like-for-like basis and in constant
currency terms; largely due to a new retail letting to Action at
Bremen on an 8,740 sqft unit delivering GBP0.1 million of gross
annualised rent. Rental income from the portfolio benefits from
high levels of indexation, with 94.9 per cent of annualised gross
rental income subject to various forms of inflation linked rent
reviews. Following a period of exceptionally low inflation, the
benefit of index linked rents is expected to increase with consumer
price inflation expected to reach 1.3 per cent in March 2019.
56 lease events were completed during the period, totalling
GBP2.0 million of gross annualised rental income at an average
premium of 13.7 per cent to the previous passing rent and 2.1 per
cent above ERV. This included:
-- 27 rent reviews providing total rent of GBP1.3 million, 6.4
per cent (GBP0.1 million) above the passing rent although 0.6 per
cent below ERV. The largest rent review included a fixed rental
uplift on the 40,273 sqft MediaMarkt lease at Hamburg, up 7.3
percent on the previous passing rent;
-- 29 new lettings or renewals were completed in the period
providing total rent of GBP0.8 million, 6.7 per cent above ERV;
and
-- Of the 29 new lettings and renewals, 7 new leases were signed
on 13,235 sqft of previously vacant space amounting to GBP0.1
million, which more than offset gross annualised rent on 5 small
units (3,499 sqft) vacated during the period (loss of less than
GBP0.1 million).
FINANCIAL REVIEW
Overview
Despite a challenging first half, the Group's operational
performance has remained robust across all segments in which we
operate. Occupancy remains high at 96.9 per cent and was
underpinned by strong leasing activity in the period which saw 100
lease events concluded at rental levels above both previous passing
rent and ERV.
As indicated alongside our Full Year Results in October, the
Group has prioritised leverage and liquidity in the short term.
Although this resulted in a 3.7 per cent reduction in underlying
earnings (versus the same period last year), we believe this was
the right decision to have taken.
On a per share basis, underlying earnings fell 5.2 per cent to
6.94 pence, compared to 7.32 pence per share for the first half of
2018, albeit the first half of 2018 was particularly strong due to
the phased acquisition of nine hotels comprising the International
Hotel Properties Group, which concluded in November 2017. The
second half of 2018 resulted in a more comparable 6.86 pence per
share in underlying earnings.
EPRA Net Asset Value per share fell 4.4 per cent from 213.8
pence to 204.4 pence. This was the result of valuation decline,
principally in the UK retail segment, and an adverse movement in
the Euro relative to Sterling, recording a 4.6 per cent decline
across the period.
The Group's principal debt facility, a GBP303.0 million term
loan and revolving credit facility, was refinanced in January 2019
at a reduced level of GBP275.0 million. This resulted in a marginal
increase to finance costs, but locked in a competitive rate for a
new five-year term and removed the associated refinancing risk.
Share consolidation and subsequent re-presentation
Following Shareholder approval at the Company's Annual General
Meeting, the Company completed a consolidation of its shares on a
one for five basis, with the nominal value per share increasing
from 8 pence to 40 pence per share. The Company's issued share
capital on the record date for the consolidation, being Friday, 8
February 2019, was 1,900,449,536. On Monday, 11 February 2019, the
first day of trading in the newly consolidated shares, the
Company's issued share capital stood at 380,089,923. Where
applicable throughout this review and the condensed consolidated
financial statements which follow, the comparative 'per share'
numbers have been re-presented accordingly.
Aviva financed UK Shopping Centre portfolio
Four of the Group's UK shopping centres, namely Grand Arcade,
Wigan; Weston Favell, Northampton; Birchwood, Warrington and Byron
Place, Seaham, are financed by a GBP144.7 million long-term
fixed-rate debt facility with Aviva.
During the period, given the deterioration in values for UK
Shopping Centres as well as concerns over certain key retailers,
Aviva undertook a valuation of the four assets secured by the
facility. The valuation resulted in a lender's LTV exceeding the 85
per cent loan to value covenant. The Group paid GBP9.7 million to
cure the loan to value covenant and in addition all net operating
cashflows from the portfolio were retained within the facility to
reduce the outstanding facility balance.
Net operating cashflows from the four shopping centres, after
interest costs, are approximately GBP6.5 million on an annualised
basis.
In April, post period end, a further valuation was called by
Aviva, resulting in a further 5.7 per cent decline in value and a
lenders LTV of 89.4 per cent. After careful consideration, the
level of capital required to maintain compliance was not considered
to be in the best interests of long-term shareholder value. The
Group therefore agreed with Aviva that a consensual disposal of the
properties, or the introduction of third-party capital, would be in
the best interests of both parties.
Given the facilities term and fixed rate of interest, a
significant break cost would ordinarily become payable on early
termination. Although the facility remains non-recourse to the
Group, given the termination charge that will be applied by the
lender on sale, no equity is expected to be returned to the Group
following disposal. As a result, we set out below the pro-forma
impact of the disposal on underlying earnings and net asset value,
both at 28 February 2019.
UK retail
Underlying portion
Underlying earnings EPRA net EPRA net of portfolio
earnings per share asset asset value Loan Cost market
28 February (6 months) (6 months) value per share to value of debt value
2019 GBPm pence GBPm pence % % %
-------------------- ------------ ------------ --------- ------------- ---------- --------- --------------
As reported 26.4 6.94 779.7 204.4 48.5 3.5 28.2
Aviva portfolio(1) (3.7) (0.97) (54.1) (14.2) (3.1) (0.4) (8.9)
-------------------- ------------ ------------ --------- ------------- ---------- --------- --------------
Excluding Aviva
portfolio(1) 22.7 5.97 725.6 190.2 45.4 3.1 19.3
(1) Four Aviva financed UK Shopping Centre portfolio
The above illustrates a scenario where a disposal is concluded
and no net disposal proceeds are received by the Group. This
results in a decrease in net asset value of GBP54.1 million (14.2
pence per share) and a reduction in underlying earnings of
approximately GBP6.5 million per year (1.7 pence per share). It
should be noted that restricted cash, held by Aviva of GBP11.6
million at 28 February 2019, is included in the net asset value
stated above.
Other planned disposals
As announced in the CEO's report, the Group has embarked on a
marketing exercise for the sale of the Group's residual German
portfolio. Although contemplated by the Board for some time, the
decision to seek offers for this separately identifiable line of
business was taken post period end and has therefore not been
disclosed as held for sale within these condensed consolidated
financial statements.
Acquisitions
In September 2018, the Group increased its exposure to the
industrial and distribution sectors via the acquisition of two
property interests located in the South East of England. The first,
a GBP26.3 million (excluding costs) acquisition of an industrial
estate in Farnborough, Hampshire; and the second, a GBP7.9 million
(excluding costs), 13.5 acre land interest in Bicester,
Oxfordshire. The land interest was consented for the development of
two distribution units totalling 288,000 sqft in size. At the same
time, the Group entered into a development agreement for the
construction of the units and made a commitment to further payments
on completion of the units of GBP7.8 million and GBP10.3 million.
Completion of unit one took place in early April and unit two is
due to complete in December 2019.
Performance against strategic financial targets
Medium term 28 February 31 August 28 February 31 August 28 February
Strategic metrics target 2019 2018 2018 2017 2017
------------------------------- -------------- ------------ ---------- ------------ ---------- ------------
Growth in underlying
EPS (%) 3.0 - 5.0 (5.2) 3.3 8.2 n/a n/a
Dividend pay-out
ratio (%) 90.0 - 95.0 57.6 95.1 92.5 94.5 96.3
Income growth (like-for-like)
(%) 2.0 - 5.0 0.2 2.1 2.1 3.7 3.3
>95% within
Rent collection 7 days 95.3 98.0 89.3 94.3 94.0
Reduced to
LTV (%) 30.0 - 40.0 48.5 47.3(1) 48.0 50.0(1) 49.9
Interest cover (times) >3.0 3.1 3.5 3.5 3.2 3.1
Cost of debt (%) 3.2 - 3.4 3.5 3.4 3.3 3.1 3.3
EPRA cost ratio (excl.
direct vacancy costs)
(%) <15.0 16.2 15.6 15.7 19.8 20.7
------------------------------- -------------- ------------ ---------- ------------ ---------- ------------
(1) Pro forma adjusted to reflect transactions post year end
until the date of results announcements
Earnings decreased in the first half due to prioritising higher
liquidity levels and maintaining a focus on leverage reduction.
The Group fell short of its like-for-like income growth target
this period due the commitment of additional funds to the
refurbishment of the UK Hotels portfolio, a sector that has
performed well in recent years. Excluding the additional charge of
GBP0.7 million, like-for-like growth of 1.9 per cent would have
been achieved.
LTV increased during the period, driven by declining asset
valuations, principally UK Retail portfolio valuations.
Notwithstanding this, the Group's focus on leverage reduction has
ensured LTV has remained within target range. The planned disposal
of the European portfolio, and the consensual sale or restructure
of the Aviva financed UK Shopping Centre portfolio, should
materially reduce the Group's LTV. Once these disposals are
concluded, the Group expects to adjust its LTV downwards and target
gearing between 30 - 40 per cent.
Cost of debt has increased marginally above the target range at
3.5 per cent, but has reduced to 3.4 per cent post period end.
The EPRA cost ratio remains above target, notwithstanding the
progress made in the past two years. The planned disposal of the
European portfolio should result in a net improvement in the ratio
due to the modest scale of the residual portfolio and the
relatively high cost of maintaining the requisite operational
platform in Germany.
The dividend pay-out ratio has fallen significantly below the
Group's target of 90 - 95 per cent. This is discussed in more
detail at the conclusion of this financial review. All other
metrics remain within target.
Presentation of financial information
The Board reviews information and reports presented on a
proportionately consolidated basis, which includes the Group's
share of interests in joint ventures. To align with how the Group
is managed, this financial review has been presented on the same
basis.
Income statement 28 February 2019 28 February 2018
---------------------------------------------------------- ---------------------------- ----------------------------
IFRS Joint Group IFRS Joint Group
basis Ventures Total basis Ventures Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------------------- ------- ---------- ------- ------- ---------- -------
Gross rental income 55.8 0.9 56.7 54.6 0.9 55.5
Property operating expenses (6.2) - (6.2) (4.8) (0.1) (4.9)
---------------------------------------------------------- ------- ---------- ------- ------- ---------- -------
Net rental income 49.6 0.9 50.5 49.8 0.8 50.6
Other income 1.3 - 1.3 0.6 - 0.6
Administrative expenses (7.3) 0.1 (7.2) (7.2) (0.1) (7.3)
---------------------------------------------------------- ------- ---------- ------- ------- ---------- -------
Net operating income 43.6 1.0 44.6 43.2 0.7 43.9
Net finance costs (15.9) (0.5) (16.4) (14.3) (0.3) (14.6)
Joint venture profits (allocated to individual line
items) 0.3 (0.3) - 0.2 (0.2) -
Tax and other 0.3 (0.2) 0.1 (1.2) (0.2) (1.4)
Non-controlling interest (2.5) - (2.5) (1.8) - (1.8)
EPRA earnings 25.8 - 25.8 26.1 - 26.1
Company Adjustments:
Debt fair value accretion adjustments 0.4 - 0.4 0.4 - 0.4
Foreign exchange loss 0.2 - 0.2 0.9 - 0.9
---------------------------------------------------------- ------- ---------- ------- ------- ---------- -------
Underlying earnings 26.4 - 26.4 27.4 - 27.4
---------------------------------------------------------- ------- ---------- ------- ------- ---------- -------
Fair value (loss)/gain on investment property, assets
held for sale and listed shares (30.4) (0.2) (30.6) 8.5 (0.2) 8.3
(Loss)/gain on disposal of investment property and
non-current assets held for sale (0.2) - (0.2) 0.4 - 0.4
Gain on disposal of subsidiaries - - - 14.3 - 14.3
Net gain on acquisition of subsidiaries - - - 4.6 - 4.6
Fair value movement on derivatives (2.2) 0.1 (2.1) 5.2 0.6 5.8
Deferred tax provision movement 1.7 - 1.7 0.1 (0.2) (0.1)
Tax and other (1.1) 0.1 (1.0) (2.6) (0.2) (2.8)
Non-controlling interest 0.9 - 0.9 (2.7) - (2.7)
---------------------------------------------------------- ------- ---------- ------- ------- ---------- -------
IFRS profit attributable to shareholders (4.9) - (4.9) 55.2 - 55.2
---------------------------------------------------------- ------- ---------- ------- ------- ---------- -------
Weighted average ordinary shares (millions) 380.1 374.2
EPRA earnings per share (pence) 6.79 6.97
Underlying earnings per share (pence) 6.94 7.32
---------------------------------------------------------- ------- ---------- ------- ------- ---------- -------
Net rental income was broadly in line with the prior period,
marginally down in absolute terms but 0.2 per cent higher on a
like-for-like basis. The increase in property operating expenses is
attributable to the operational nature of the Group's recently
acquired London Serviced Office portfolio. This also accounts for
the increase in Other Income, the result of the various additional
services provided to licensees at a margin.
Administrative costs have fallen marginally, however, not yet at
a rate sufficient to achieve the Group's EPRA cost ratio target,
which recorded a deterioration from 15.7 per cent to 16.2 per
cent.
Net finance costs increased by GBP1.8 million, GBP0.9 million of
which relates to a charge on refinancing the Group's principal debt
facility in January 2019. Compared to the prior period, the
residual increase arises from capital recycled from Germany to the
UK in January 2018 and the related finance cost differential across
the two geographies.
Non-controlling interests reflects the share of income
attributable to the minority shareholders, most notably within our
UK Hotels portfolio and London Serviced Offices portfolio. The
increase arises due to the timing of acquisitions in the prior
period, which did not reflect a full six month period.
Like-for-like net rental income analysis
Six months ended 28 February Six months ended 28 February Local currency
2019 2018 Change change
Net rental income GBPm GBPm % %
------------------------------ ----------------------------- ----------------------------- ------- ---------------
UK Commercial 9.2 8.5 8.2 8.2
UK Retail 17.6 17.6 - -
UK Hotels 10.9 11.6 (6.0) (6.0)
----------------------------- ----------------------------- ------- ---------------
UK Total 37.7 37.7 - -
Europe 5.4 5.3 1.9 2.5
------------------------------ ----------------------------- ----------------------------- ------- ---------------
Like-for-like net rental
income 43.1 43.0 0.2 0.3
Acquisitions 6.5 1.6
Disposals - 5.7
Development and other 0.9 0.3
------------------------------ ----------------------------- ----------------------------- ------- ---------------
Total net rental income 50.5 50.6
------------------------------ ----------------------------- ----------------------------- ------- ---------------
Like-for-like income in the UK Commercial portfolio increased
8.2 per cent, largely due to successful rent reviews, principally
at Camino Park, Crawley and Express Park, Bridgwater.
Despite headwinds, UK Retail net rents were stable. This was
driven by focused asset management ensuring occupancy remained high
and income was maximised through commercialisation of available
space within the centres.
The decrease of 6.0 per cent in like-for-like income in UK
Hotels is primarily due to additional funds being committed towards
the refurbishment of the UK Hotels, a sector that has performed
well in recent years. This ensures the portfolio is kept current
and helps maintain occupancy levels. Refurbishment costs are
recognised as tenant incentives and are charged to income.
Europe like-for-like net rent in local currency was up 2.5 per
cent, primarily due to a number of lease events completed during
the period. In Sterling terms, income was up 1.9 per cent,
reflecting the weaker average EUR/GBP rate in the first six months
of 2019.
Balance sheet 28 February 2019 31 August 2018
------------------------------ ------------------------------
Joint Group Joint Group
IFRS Ventures Total IFRS Ventures Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ -------- ---------- -------- -------- ---------- --------
Property portfolio carrying
value(1) 1,593.6 24.6 1,618.2 1,598.0 25.4 1,623.4
Investment in and loans
to joint ventures 7.0 (7.0) - 7.1 (7.1) -
Net borrowings (765.2) (14.3) (779.5) (730.6) (14.8) (745.4)
Other assets and liabilities (7.6) (3.3) (10.9) (11.7) (3.5) (15.2)
Non-controlling interest (59.8) - (59.8) (59.5) - (59.5)
------------------------------ -------- ---------- -------- -------- ---------- --------
IFRS NAV 768.0 - 768.0 803.3 - 803.3
------------------------------ -------- ---------- -------- -------- ---------- --------
Fair value of derivatives 3.7 1.9
Deferred tax liabilities 8.0 9.8
------------------------------ -------- ---------- -------- -------- ---------- --------
EPRA NAV 779.7 815.0
------------------------------ -------- ---------- -------- -------- ---------- --------
Diluted number of shares
(millions) 381.4 381.2
EPRA NAV per share (pence) 204.4 213.8
------------------------------ -------- ---------- -------- -------- ---------- --------
(1) Market value adjusted to reflect finance lease liabilities
and lease incentives
Property portfolio
Local
Valuation (1) currency
28 February 2019 31 August 2018 Gain/(loss) Gain/(loss) Gain/(loss)
Market value of the property portfolio GBPm GBPm GBPm % %
---------------------------------------- ----------------- --------------- ------------ ------------ ------------
UK Commercial 517.1 515.9 1.2 0.2 0.2
UK Retail 455.5 481.0 (26.9) (5.6) (5.6)
UK Hotels 364.9 364.9 (2.8) (0.7) (0.7)
---------------------------------------- ----------------- --------------- ------------ ------------ ------------
UK Total 1,337.5 1,361.8 (28.5) (2.1) (2.1)
Europe 212.9 223.0 (10.5) (4.7) (0.3)
---------------------------------------- ----------------- --------------- ------------ ------------ ------------
Like-for-like property portfolio 1,550.4 1,584.8 (39.0) (2.5) (1.8)
Acquisitions 35.9 -
Disposals - 3.4
Development 31.3 32.2
---------------------------------------- ----------------- --------------- ------------ ------------ ------------
Total property portfolio market value 1,617.6 1,620.4
---------------------------------------- ----------------- --------------- ------------ ------------ ------------
(1) Valuation includes the effect of capital expenditure,
amortisation of head leases, tenant lease incentives and foreign
currency translation where applicable
UK Commercial valuations were broadly flat across the half year,
with the strongest performance in distribution and industrial
assets and the weakest in regional offices.
The downward valuation in UK Retail of GBP26.9 million, driven
by the UK Shopping Centres, reflects the broad negative investor
sentiment towards this sector. As occupancy and income within the
portfolio were high and stable relative to 31 August 2018, the
valuation decline was almost entirely attributable to yield
shift.
The Hotel portfolio value decreased by GBP2.8 million, primarily
due to capital expenditure and tenant incentives in the period.
In local currency terms, the German portfolio held steady, down
by 0.3 per cent. An adverse 4.6 per cent movement in the exchange
rate reduced the Sterling value by GBP10.5 million, or 4.7 per
cent.
Debt and gearing
28 February 2019
(excluding Aviva portfolio) 28 February 2019 31 August 2018
GBPm GBPm GBPm
----------------------------------------- ---------------------------- ---------------- --------------
Nominal value of drawn debt (689.2) (833.9) (808.2)
Cash and short-term deposits 35.7 49.4 59.8
----------------------------------------- ---------------------------- ---------------- --------------
Net debt (653.5) (784.5) (748.4)
Market value of the property portfolio 1,440.4 1,617.6 1,620.4
----------------------------------------- ---------------------------- ---------------- --------------
LTV (%) 45.4 48.5 46.2
LTV (%, pro forma)(1) - - 47.3
Weighted average debt maturity (years) 3.7 7.1 6.7
Weighted average interest rate (%) 3.1 3.5 3.4
Interest cover (times) 3.6 3.1 3.5
Debt with interest rate protection (%) 92.3 93.6 99.6
----------------------------------------- ---------------------------- ---------------- --------------
(1) Pro forma LTV adjusted for transactions completed between 31
August 2018 and 25 October 2018.
The increase in net debt of GBP36.1 million is principally due
to the acquisition of two industrial and distribution property
interests in Farnborough and Bicester in September 2018.
Loan to value increased to 48.5 per cent due to the reduction in
valuation of the UK Retail portfolio but remains within the Group's
previous target range of 45 - 50 per cent.
Debt maturity increased following refinancing activities
completed in January, with interest cover falling due to costs
associated with the refinancing which were incurred in the
period.
Given the significance of the four Aviva financed UK Shopping
Centres on the above debt and gearing metrics, these have been
presented on a pro-forma basis to illustrate the position excluding
these four shopping centres and their related net debt
contribution.
Cash flow 28 February 2019 28 February 2018
---------------------------- ----------------------------
Joint Group Joint Group
IFRS Ventures Total IFRS Ventures Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------- ---------- ------- ------- ---------- -------
Operating cash flows 25.7 0.3 26.0 25.4 0.6 26.0
Disposals 2.6 - 2.6 142.6 - 142.6
Acquisitions and development (39.9) - (39.9) (99.9) - (99.9)
Other (0.8) (0.1) (0.9) (0.7) 0.2 (0.5)
===================================== ------- ---------- ------- ------- ---------- -------
Investing cash flows (38.1) (0.1) (38.2) 42.0 0.2 42.2
Net debt drawn/(repaid) 31.6 (0.2) 31.4 (44.1) (0.4) (44.5)
Dividends paid (25.7) - (25.7) (18.8) - (18.8)
Other (3.7) - (3.7) (2.4) - (2.4)
Financing cash flows 2.2 (0.2) 2.0 (65.3) (0.4) (65.7)
Impact of foreign exchange movement (0.2) - (0.2) (1.0) - (1.0)
------------------------------------- ------- ---------- ------- ------- ---------- -------
Net cash flow (10.4) - (10.4) 1.1 0.4 1.5
------------------------------------- ------- ---------- ------- ------- ---------- -------
Operating cash flows are aligned to the Group's underlying
earnings and are a key metric for ensuring dividend cover. The
overall net cash outflow reflects reinvestment activity since 31
August 2018 which followed significant capital recycling activity
in the prior year. The final dividend for the year ended 31 August
2018 was paid entirely in cash in December 2018. Cash on the
balance sheet at 28 February 2019 was GBP49.4 million, of which
GBP12.3 million was held in restricted accounts, principally with
Aviva.
Dividend
As set out above, during the period cash totalling GBP11.6
million was applied or retained in the Aviva UK Shopping Centre
facility. Consequently, this cash is restricted and is unavailable
to the Group to fund its operations or to allocate to shareholders
in the form of dividend.
The Board has had to carefully consider its liquidity
requirements in the context of the above restriction. Given these
circumstances, the Board has declared a more modest first half
dividend of 4.0 pence per share, which will be payable on 25 June
2019 to shareholders on the register on 7 June 2019.
It remains the Company's intention to continue to meet the UK
REIT rules in respect of distributions. These rules require the
Company to pay a minimum of 90 per cent of its UK Group property
rental profits to shareholders within 12 months of its financial
year end. As a guide, in respect to this six-month period ended 28
February 2019, the Group could reasonably be expected to pay an
additional GBP5 million to shareholders alongside its required
distribution for the second half of the year.
Donald Grant
Chief Financial Officer
25 April 2019
Alternative Performance Measures
An alternative performance measure (APM) is a financial measure
of historical or future financial performance, position or cash
flows of an entity which is not a financial measure defined or
specified in IFRS. APMs are presented to provide a balanced view
and useful information to the readers of the Group's results and
are consistent with industry standards. The Group has considered
the European Securities and Markets Authority (ESMA) 'Guidelines on
Alternative Performance Measures' in disclosing additional
information on its APMs.
All APMs are prepared on a proportionate basis to align with how
the Group is managed. Further discussion of these measures can be
found in the Financial review. The table below summarises the APMs
included in these results, each of which has been reconciled to the
appropriate IFRS measure as referenced in the table.
Definition of Note/
Measure measure Reference 28 February 2019 28 February 2018 31 August 2018
--------------------- -------------------- ------------------ ----------------- ----------------- ---------------
Underlying earnings EPRA earnings
adjusted for the
impact of non-cash
debt accretion
charges and FX
gains and
losses reflected in
the income
statement Note 30 GBP26.4m GBP27.4m GBP53.5m
Headline earnings An earnings per
share measure
required by the
JSE, which excludes
separately
identifiable
remeasurements in
accordance with
Circular 04/2018 Note 30 GBP23.6m GBP28.9m GBP57.1m
Net debt Total nominal value
of the Group's
proportionate bank
borrowings less
cash and cash
equivalents Note 19 GBP784.5m GBP789.8m GBP748.4m
The ratio of net
debt divided by
the market value
of investment
Loan-to-value property Financial review 48.5% 48.0% 46.2%(1)
The Group's net
rental income
divided by net
Interest Cover finance expenses Financial review 3.1 3.5 3.5
Total dividend per
share paid out to
shareholders
relative to the
underlying
earnings per
Dividend pay-out share during the
ratio year Financial review 57.6% 92.5% 95.1%
--------------------- -------------------- ------------------ ----------------- ----------------- ---------------
(1) Pro forma adjusted to 47.3% to reflect transactions between
31 August 2018 and 25 October 2018
PRINCIPAL RISKS
Below are the key risks to which the Group is exposed, along
with their potential impact and mitigation factors.
Strategic risk
Risk Impact potential Mitigation factors
---------------- ---------------------------------------------------------- ------------------------------------------------------------
Failure to
formulate * Declining net asset value and total property return * Annual review of investment strategy
and execute (income and capital), particularly with respect to
appropriate UK
investment Shopping Centres * Defined asset appraisal process
strategy,
including but
not limited * Declining total shareholder returns and increased * Investment Committee reviews all opportunities
to gearing share price volatility against pre-determined criteria
levels and
diversification
* Monitoring of macro economic and property market
trends
* Flexible and agile decision making
* Dedicated investor relations resource
* Clear messaging of Group strategy to the market and
to analysts
* Ongoing dialogue and communication with lenders and
brokers
---------------- ---------------------------------------------------------- ------------------------------------------------------------
Continuing
uncertainty * Ongoing and heightened economic and political * Close relationships with key shareholders and lenders
surrounding the uncertainty leading to general market dislocation,
political increased volatility with potential impact on
and economic property valuations, share price and delayed * Close monitoring of loan covenants and required cash
climate, strategic decision making of investors, lenders and cures
for example, occupiers
negotiations
on the UK exit * Ongoing monitoring of proposals and emerging policy
from the * Constrained access to debt or capital markets and legislation
European Union impacting ability to address liquidity or covenant
results concerns
in increased * Balance sheet structure provides a degree of
uncertainty flexibility
over future
policy and
legislation
---------------- ---------------------------------------------------------- ------------------------------------------------------------
Significant
business * Inability to access or operate properties * Close relationships with key shareholders and lenders
interruption or
terrorist
event * Operational interruption and disruption * Close monitoring of loan covenants and required cash
cures
* Significant reduction in footfall
* Ongoing monitoring of proposals and emerging policy
and legislation
* Injury or loss of life of occupier, customer,
employee or contractor
* Balance sheet structure provides a degree of
flexibility
* Loss of key employee or supplier
---------------- ---------------------------------------------------------- ------------------------------------------------------------
Change in
investment * Adverse movement in share price * Close relationships maintained with key shareholders
strategy of and partners
significant
shareholder or * Perceived loss of confidence
joint * Dedicated investor relations resource
venture partner
* Clear income focused total return strategy targeting
upper quartile performance
* Actively target new investors
---------------- ---------------------------------------------------------- ------------------------------------------------------------
Financial Risks
Risk Impact potential Mitigation factors
------------- ----------------------------------------------------------- ------------------------------------------------------------
Decline in
market * Reduced availability of financing and refinancing at * Mix of lenders and maturities of facilities
conditions acceptable cost
and
structural * Non-recourse debt structure
changes * Inability to fund property investments
in retail
consumer * Early refinancing of debt
behaviour * Increased cost of finance
* Sufficient liquidity to meet commitments and
* Declining valuations leading to covenant breaches plausible stress scenarios
* Pressure on income and dividend sustainability * Regular assessment of market conditions including
bi-annual external valuations and monitoring of
covenants
* Detailed capital planning and forecasting
* Portfolio diversified across sectors and geography
------------- ----------------------------------------------------------- ------------------------------------------------------------
Adverse
interest * Increased cost of borrowing and hedging reducing * Interest rate hedging policy providing interest rate
rate financial and operational flexibility protection
movements
and
inflationary * Adverse impact on property valuations * Target staggered debt maturities
pressures
* Early refinancing where economically viable to lock
in lower rates for longer
------------- ----------------------------------------------------------- ------------------------------------------------------------
Adverse
foreign * Decreased asset values * Debt facilities arranged in the currency of the
currency related investment act as a partial hedge
movements
* Reduced operating income
* Exchange rates continuously monitored
* Reduced liquidity
* Amounts converted to Sterling at earliest opportunity
* Foreign currency forward contracts entered into prior
to significant transactions
------------- ----------------------------------------------------------- ------------------------------------------------------------
Operational risks
Risk Impact potential Mitigation factors
-------------- ------------------------------------------------------- ---------------------------------------------------------
Failure to
anticipate * Reduced investment demand and declining property * Bi annual external valuation of properties
changes in values
the property
cycle * Diversified portfolio
* Potential pressure on banking covenants
* Active asset management
* Regular monitoring of covenants, including scenari
o
modelling
-------------- ------------------------------------------------------- ---------------------------------------------------------
Reduced
occupier * Reduced rental income and cash flow * Diverse tenant base
demand
for space,
increased * Loss of key tenants * Long leases and strong tenant covenants
supply, or
occupier
defaults * Increased void costs * Open dialogue with tenants and property managers
* Declining property values * Review consumer trends
* Regular monitoring of tenants at risk
* Reputable property managers and efficient rent
collection procedures
-------------- ------------------------------------------------------- ---------------------------------------------------------
Inappropriate
cladding * Increased devastation in case of fire * Annual fire risk assessment
or
construction
materials * Comprehensive review of cladding and insulation in
place across portfolio and close liaison with
national Health & Safety Executive
-------------- ------------------------------------------------------- ---------------------------------------------------------
Legal & regulatory risks
Risk Impact potential Mitigation factors
-------------- --------------------------------------------------------- --------------------------------------------------------
Health,
safety and * Loss or injury to employees, tenants or contractor * Policies in place with audit and risk assessments
environmental s undertaken
risk
* Impact on reputation, adverse publicity or financi * Environmental programme in place
al
impact
* All properties actively managed
* Appointed dedicated Health & Safety Manager
* Comprehensive tendering process for contractors
-------------- --------------------------------------------------------- --------------------------------------------------------
Changes in or
breach * Financial or reputational impact * Sound governance and internal policies
of regulatory
or
legislative * Reduced financial returns as a result of increased * Appointment of appropriately qualified employees,
requirements taxes across non-REIT business corporate advisers and administrators in all
jurisdictions with active engagement
* Adverse tenant behaviour
* Regular review of compliance e.g. REIT legislatio
n
* Proactive identification of changes in legal and
regulatory environment with planned response to
changes prior to implementation
-------------- --------------------------------------------------------- --------------------------------------------------------
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the condensed
consolidated interim financial statements, in accordance with
applicable laws and regulations.
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU;
-- the interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules
, being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
The operating and financial review refers to important events
which have taken place during the period.
Related party transactions are set out in Note 29 to the
condensed consolidated interim financial statements.
By order of the Board
Mike Watters Donald Grant
Chief Executive Chief Financial Officer
25 April 2019
Independent Review Report to RDI REIT P.L.C.
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 28 February 2019 which comprises condensed
consolidated balance sheet, condensed consolidated income
statement, condensed consolidated statement of other comprehensive
income, condensed consolidated statement of changes in equity,
condensed consolidated statement of cash flows and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 28
February 2019 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU and the Disclosure Guidance and Transparency Rules ("the
DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
The impact of uncertainties due to the UK exiting the European
Union on our review
Uncertainties related to the effects of Brexit are relevant to
understanding our review of the condensed financial statements.
Brexit is one of the most significant economic events for the UK,
and at the date of this report its effects are subject to
unprecedented levels of uncertainty of outcomes, with the full
range of possible effects unknown. An interim review cannot be
expected to predict the unknowable factors or all possible future
implications for a company and this is particularly the case in
relation to Brexit.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
The annual financial statements of the group are prepared in
accordance with International Financial Reporting Standards as
adopted by the EU. The directors are responsible for preparing the
condensed set of financial statements included in the half-yearly
financial report in accordance with IAS 34 as adopted by the
EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Richard Kelly
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
25 April 2019
CONDENSED Consolidated Income Statement
for the six months ended 28 February 2019
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
28 February 28 February 31 August
2019 2018 2018
Continuing operations Note GBPm GBPm GBPm
----------------------------------------------------- ---- ------------ ------------ -----------
Revenue 3 57.1 55.2 112.0
----------------------------------------------------- ---- ------------ ------------ -----------
Rental income 4 55.8 54.6 110.2
Rental expense 5 (6.2) (4.8) (11.1)
----------------------------------------------------- ---- ------------ ------------ -----------
Net rental income 49.6 49.8 99.1
Other income 6 1.3 0.6 1.8
Administrative costs and other fees 7 (7.3) (7.2) (14.2)
----------------------------------------------------- ---- ------------ ------------ -----------
Net operating income 43.6 43.2 86.7
(Loss)/gain on revaluation of investment property 13 (30.4) 8.5 10.8
Gain on revaluation of investment property held
for sale 13 - - 0.9
(Loss)/gain on disposal of investment property 13 (0.2) 0.6 1.5
(Loss)/gain on disposal of investment property
held for sale - (0.1) 1.8
Net gain on disposal of subsidiaries 8 - 14.3 15.4
Net (loss)/gain on business combinations 9 (0.1) 4.6 4.4
Other income and expense 16 (0.1) (0.3) (0.4)
Foreign exchange loss (0.2) (0.9) (0.8)
----------------------------------------------------- ---- ------------ ------------ -----------
Profit from operations 12.6 69.9 120.3
Finance income 10 0.3 0.4 0.6
Finance expense 10 (16.2) (14.5) (29.3)
Other finance expense 11 - (0.6) (0.6)
Change in fair value of derivative financial
instruments (2.2) 5.2 6.1
----------------------------------------------------- ---- ------------ ------------ -----------
(5.5) 60.4 97.1
Loss on sale of joint venture interests - - (0.1)
Net impairment reversal on loans to joint ventures 0.1 0.1 0.1
Share of post-tax profit from joint ventures 0.2 - -
Share of post-tax profit from associate 15 0.5 0.3 0.3
(Loss)/profit before tax (4.7) 60.8 97.4
Taxation 12 1.4 (1.1) (1.1)
(Loss)/profit for the period (3.3) 59.7 96.3
----------------------------------------------------- ---- ------------ ------------ -----------
(Loss)/profit attributable to:
Equity holders of the Parent (4.9) 55.2 88.9
Non-controlling interests 1.6 4.5 7.4
(3.3) 59.7 96.3
----------------------------------------------------- ---- ------------ ------------ -----------
Earnings per share (re-presented)
Weighted average number of shares (millions) 30 380.1 374.2(1) 377.3(1)
Diluted weighted average number of shares (millions) 30 381.4 375.1(1) 378.5(1)
Basic earnings per share (pence) 30 (1.3) 14.8(1) 23.6(1)
Diluted earnings per share (pence) 30 (1.3) 14.7(1) 23.5(1)
----------------------------------------------------- ---- ------------ ------------ -----------
(1) As a result of the share consolidation approved at the
Annual General Meeting on 24 January 2019, the comparative weighted
average number of shares and related earnings per share have been
re-presented for comparability (refer to note 23).
The accompanying notes form an integral part of these condensed
consolidated interim financial statements.
CONDENSED Consolidated Statement of Comprehensive Income
for the six months ended 28 February 2019
Continuing operations Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
28 February 28 February 31 August
2019 2018 2018
GBPm GBPm GBPm
-------------------------------------------------------------------------- ------------ ------------ -----------
(Loss)/profit for the period (3.3) 59.7 96.3
Other comprehensive expense
Items that may be transferred to the income statement
Foreign currency translation on subsidiary foreign operations (4.8) (6.7) (5.3)
Foreign currency translation on joint ventures held by subsidiary foreign
operations - (0.3) (0.2)
Total other comprehensive expense (4.8) (7.0) (5.5)
--------------------------------------------------------------------------- ------------ ------------ -----------
Total comprehensive (expense)/income for the period (8.1) 52.7 90.8
--------------------------------------------------------------------------- ------------ ------------ -----------
Total comprehensive (expense)/income attributable to:
Equity holders of the Parent (9.7) 48.2 83.4
Non-controlling interests 1.6 4.5 7.4
--------------------------------------------------------------------------- ------------ ------------ -----------
(8.1) 52.7 90.8
-------------------------------------------------------------------------- ------------ ------------ -----------
The accompanying notes form an integral part of these condensed
consolidated interim financial statements.
CONDENSED Consolidated BALANCE SHEET
as at 28 February 2019
Note Unaudited Audited
28 February 31 August
2019 2018
GBPm GBPm
-------------------------------------------- ----- ------------ ----------
Non-current assets
Investment property 13 1,593.6 1,598.0
Investment in joint ventures 14 2.0 1.9
Loans to joint ventures 14 5.0 5.2
Investment in associate 15 9.2 9.1
Other non-current assets 16 1.1 1.3
Derivative financial instruments 20 0.2 1.1
Trade and other receivables 17 12.6 11.2
-------------------------------------------- ----- ------------ ----------
Total non-current assets 1,623.7 1,627.8
-------------------------------------------- ----- ------------ ----------
Current assets
Trade and other receivables 17 9.3 7.1
Cash and cash equivalents 18 48.6 59.0
-------------------------------------------- ----- ------------ ----------
Total current assets 57.9 66.1
-------------------------------------------- ----- ------------ ----------
Total assets 1,681.6 1,693.9
-------------------------------------------- ----- ------------ ----------
Non-current liabilities
Borrowings, including finance leases 19 (774.1) (784.2)
Derivative financial instruments 20 (3.9) (2.9)
Deferred tax 21 (7.4) (9.5)
Trade and other payables 22 (0.1) (0.2)
-------------------------------------------- ----- ------------ ----------
Total non-current liabilities (785.5) (796.8)
-------------------------------------------- ----- ------------ ----------
Current liabilities
Borrowings, including finance leases 19 (39.7) (5.4)
Trade and other payables 22 (27.9) (26.9)
Tax liabilities (0.7) (2.0)
-------------------------------------------- ----- ------------ ----------
Total current liabilities (68.3) (34.3)
-------------------------------------------- ----- ------------ ----------
Total liabilities (853.8) (831.1)
-------------------------------------------- ----- ------------ ----------
Net assets 827.8 862.8
-------------------------------------------- ----- ------------ ----------
Equity
Share capital 23 152.0 152.0
Share premium 23 534.6 534.6
Other components of equity 81.4 116.7
-------------------------------------------- -----
Total attributable to equity holders of the
Parent 768.0 803.3
Non-controlling interests 25 59.8 59.5
-------------------------------------------- ----- ------------ ----------
Total equity 827.8 862.8
-------------------------------------------- ----- ------------ ----------
The accompanying notes form an integral part of these condensed
consolidated interim financial statements.
The condensed consolidated interim financial statements were
approved by the Board of Directors on 25 April 2019 and were signed
on its behalf by:
Mike Watters Donald Grant
Chief Executive Officer Chief Financial Officer
CONDENSED Consolidated Statement of Changes In Equity
for the six months ended 28 February 2019
Total
Foreign attributable
currency to equity
Share Share Retained Other translation holders of Non-controlling Total
capital premium earnings reserves reserve the Parent interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1
September 2018 152.0 534.6 95.5 3.3 17.9 803.3 59.5 862.8
(Loss)/profit for
the period - - (4.9) - - (4.9) 1.6 (3.3)
Foreign currency
translation on
subsidiary
foreign
operations - - - - (4.8) (4.8) - (4.8)
Total
comprehensive
income for the
period - - (4.9) - (4.8) (9.7) 1.6 (8.1)
Transactions with
equity holders
of the Parent
Dividends paid 23 - - (25.7) - - (25.7) - (25.7)
Release of
share-based
payments
reserve 24 - - 1.7 (1.7) - - - -
Release of
non-distributable
reserve 24 - - 1.0 (1.0) - - - -
Additional payment
in relation to
restricted stock
plan 24 - - (0.2) - - (0.2) - (0.2)
Fair value of
share-based
payments - - - 0.3 - 0.3 - 0.3
------------------ ---- -------- -------- --------- -------- ----------- ------------ --------------- -------
- - (23.2) (2.4) - (25.6) - (25.6)
Changes in
ownership
interests in
subsidiaries
Dividends paid to
non-controlling
interests 25 - - - - - - (1.3) (1.3)
- - - - - - (1.3) (1.3)
Balance at 28
February 2019 152.0 534.6 67.4 0.9 13.1 768.0 59.8 827.8
------------------ ---- -------- -------- --------- -------- ----------- ------------ --------------- -------
The accompanying notes form an integral part of these condensed
consolidated interim financial statements.
Total
Foreign attributable
currency to equity
Share Share Retained Other translation holders of Non-controlling Total
capital premium earnings reserves reserve the Parent interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1
September 2017 146.2 511.8 54.8 4.2 23.4 740.4 21.8 762.2
Profit for the
period - - 55.2 - - 55.2 4.5 59.7
Foreign currency
translation on
subsidiary
foreign
operations - - - - (6.7) (6.7) - (6.7)
Foreign currency
translation on
joint venture
interests held
by
subsidiary
foreign
operations - - - - (0.3) (0.3) - (0.3)
---------------- ---- -------- --------- --------- --------- ----------- ------------ --------------- -------
Total
comprehensive
income for the
period - - 55.2 - (7.0) 48.2 4.5 52.7
Transactions
with equity
holders
of the Parent
Issue of shares 4.9 19.4 - - - 24.3 - 24.3
Dividends paid - - (18.8) - - (18.8) - (18.8)
Scrip dividends 23 1.3 4.4 (5.7) - - - - -
Release of
share-based
payments
reserve 24 - - 1.9 (2.0) - (0.1) - (0.1)
Fair value of
share-based
payments - - - 0.5 - 0.5 - 0.5
---------------- ---- -------- --------- --------- --------- ----------- ------------ --------------- -------
6.2 23.8 (22.6) (1.5) - 5.9 - 5.9
Changes in
ownership
interests in
subsidiaries
Dividends paid
to
non-controlling
interests 25 - - - - - - (1.7) (1.7)
Non-controlling
interests on
business
combinations 25 - - - - - - 33.8 33.8
Net gain on
acquisition of
non-controlling
interests 25 - - 0.1 - - 0.1 0.1 0.2
- - 0.1 - - 0.1 32.2 32.3
Balance at 28
February 2018 152.4 535.6 87.5 2.7 16.4 794.6 58.5 853.1
---------------- ---- -------- --------- --------- --------- ----------- ------------ --------------- -------
The accompanying notes form an integral part of these condensed
consolidated interim financial statements.
Total
Foreign attributable
currency to equity
Share Share Retained Other translation holders of Non-controlling Total
capital premium profit reserves reserve the Parent interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1
September 2017 146.2 511.8 54.8 4.2 23.4 740.4 21.8 762.2
Profit for the
year - - 88.9 - - 88.9 7.4 96.3
Items that may
be transferred
to the income
statement
Foreign currency
translation on
subsidiary
foreign
operations - - - - (5.3) (5.3) - (5.3)
Foreign currency
translation on
joint venture
interests held
by subsidiary
foreign
operations 14 - - - - (0.2) (0.2) - (0.2)
---------------- ---- --------- -------- --------- --------- ----------- ------------ --------------- -------
Total
comprehensive
income for the
year - - 88.9 - (5.5) 83.4 7.4 90.8
Transactions
with equity
holders of the
Parent
Issue of shares 23 4.9 19.4 - - - 24.3 - 24.3
Scrip dividends 23 2.0 7.5 (9.0) - - 0.5 - 0.5
Buy-back of
shares 23 (1.1) (4.1) - - - (5.2) - (5.2)
Dividends paid - - (41.1) - - (41.1) - (41.1)
Release of
share-based
payment reserve - - 1.8 (1.9) - (0.1) - (0.1)
Fair value of
share-based
payments - - - 1.0 - 1.0 - 1.0
---------------- ---- --------- -------- --------- --------- ----------- ------------ --------------- -------
5.8 22.8 (48.3) (0.9) - (20.6) - (20.6)
Changes in
ownership
interests in
subsidiaries
Dividends paid
to
non-controlling
interests 25 - - - - - - (3.4) (3.4)
Recognition of
non-controlling
interest on
acquisition of
subsidiaries 25 - - - - - - 33.8 33.8
Net gain on
acquisition of
non-controlling
interests 26 - - 0.1 - - 0.1 (0.1) -
- - 0.1 - - 0.1 30.3 30.4
Balance at 31
August 2018 152.0 534.6 95.5 3.3 17.9 803.3 59.5 862.8
---------------- ---- --------- -------- --------- --------- ----------- ------------ --------------- -------
The accompanying notes form an integral part of these condensed
consolidated interim financial statements.
CONDENSED Consolidated Statement of CASH FLOWs
for the six months ended 28 February 2019
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
28 February 28 February 31 August
2019 2018 2018
Continuing operations Note GBPm GBPm GBPm
------------------------------------------------------ ---- ------------ ------------ -----------
Cash generated from operations 27 40.2 40.3 87.0
Interest received 0.3 0.2 0.4
Interest paid (14.8) (14.0) (27.7)
Capitalised interest paid (1) - (0.3) (0.7)
Net tax paid - (0.8) (0.9)
Net cash inflow from operating activities 25.7 25.4 58.1
------------------------------------------------------ ---- ------------ ------------ -----------
Cash flows from investing activities
Net cash acquired on acquisition of subsidiaries - 7.8 7.8
Acquisition of subsidiaries (0.3) (80.7) (80.6)
Net cash disposed on sale of subsidiaries 8 - (1.6) (1.8)
Net proceeds on sale of subsidiaries (0.3) 112.7 126.2
Net proceeds on sale of investment property 2.9 20.7 22.7
Net proceeds on sale of investment property held
for sale - 10.8 39.6
Purchase and development of investment property (39.6) (28.5) (33.6)
Acquisition of property, plant and equipment 16 (0.1) (0.5) (0.6)
Additional costs on sale of joint venture interests - - (0.1)
Movement in loans to joint ventures 14 0.1 (0.3) (0.3)
Distributions from associate (including held
for sale) 0.3 0.3 0.7
Disposal of other non-current assets held for
sale - 1.3 1.3
Settlement of taxes relating to investment held
at fair value (1.1) - -
Net cash (outflow)/inflow from investing activities (38.1) 42.0 81.3
------------------------------------------------------ ---- ------------ ------------ -----------
Cash flows from financing activities
Buy-back of shares 23 - - (5.2)
Share issue costs paid - (0.1) (0.1)
Proceeds from borrowings 19 38.7 10.0 10.0
Repayment of borrowings 19 (7.1) (54.1) (91.9)
Other finance expense (2.3) (0.5) (0.6)
Derivative financial instruments purchased and
settled (0.1) - -
Dividends paid to equity holders (25.7) (18.8) (41.1)
Dividends paid to non-controlling interests (1.3) (1.7) (3.4)
Acquisitions from non-controlling interests 25 - (0.1) 0.1
Movement in restricted cash and cash equivalents (11.6) - -
Net cash outflow from financing activities (9.4) (65.3) (132.2)
------------------------------------------------------ ---- ------------ ------------ -----------
Net (decrease)/increase in unrestricted cash
and cash equivalents (21.8) 2.1 7.2
Effect of exchange rate fluctuations on cash
and cash equivalents (0.2) (1.0) (1.0)
Unrestricted cash and cash equivalents at 1 September 58.3 52.1 52.1
------------------------------------------------------ ---- ------------ ------------ -----------
Unrestricted cash and cash equivalents at end
of the period 36.3 53.2 58.3
Restricted cash and cash equivalents 18 12.3 0.7 0.7
------------------------------------------------------ ---- ------------ ------------ -----------
Cash and cash equivalents at end of the period 48.6 53.9 59.0
------------------------------------------------------ ---- ------------ ------------ -----------
(1) Investment property under development is now substantially
complete and there is no capitalised interest during the period to
28 February 2019.
The accompanying notes form an integral part of these condensed
consolidated interim financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the six months ended 28 February 2019
1. General Information
RDI REIT P.L.C. was incorporated in the Isle of Man on 28 June
2004 (Registered Number: 111198C) and was re-registered under the
Isle of Man Companies Act 2006 on 3 December 2013 (Registered
Number: 010534V).
On 4 December 2013, the Company converted to a UK-REIT and
transferred its tax residence from the Isle of Man to the United
Kingdom ("UK").
The Company holds a primary listing on the Main Market of the
London Stock Exchange ("LSE") and a secondary listing on the Main
Board of the Johannesburg Stock Exchange ("JSE").
The financial information contained in these interim financial
statements does not constitute a complete set of financial
statements and does not include all of the information required for
full annual financial statements (including all comparative figures
and all required notes) prepared in accordance with International
Financial Reporting Standards ("IFRS"). The comparative figures for
the financial year ended 31 August 2018 are not in the same format
as the company's statutory accounts for that financial year. Those
accounts have been reported on by the company's auditor and
delivered to the registrar of companies. The report of the auditor
was (i) unqualified, (ii) did not include a reference to any
matters to which the auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006.
The interim financial statements should therefore be read in
conjunction with the consolidated financial statements as at and
for the year ended 31 August 2018 which are available on the
Company's website (www.rdireit.com).
2. Significant Accounting Policies
2.1 statement of compliance
These condensed consolidated interim financial statements
("interim financial statements") for the six months ended 28
February 2019 have been prepared in accordance with IAS 34 'Interim
Financial Reporting' ("IAS 34") as issued by the International
Accounting Standards Board ("IASB"). The relevant new standards,
amendments and interpretations that have been adopted during the
period are set out in the following table:
International Financial Reporting Standard
IFRS 9 'Financial Instruments' ("IFRS 9")
IFRS 15 'Revenue from Contracts with Customers' ("IFRS 15")
IAS 40 'Investment Property' (amendment)
The adoption of these amendments is considered below. The
accounting policies applied by the Group are the same as those
applied in the audited consolidated financial statements as at and
for the year ended 31 August 2018, as set out on pages 125-130 of
the 2018 Annual Report, with the exception of the application of
two new standards IFRS 9 and IFRS 15 and the amendment to IAS 40
from 1 September 2018.
IFRS 9 applies to the recognition, classification, measurement
and derecognition of financial assets and financial liabilities,
introduces new rules for hedge accounting and a new impairment
model for financial assets and is effective for the Group from 1
September 2018. The changes required to the recognition and
classification of financial instruments do not have a quantitative
impact on the financial statements and the Group does not apply
hedge accounting. The changes required in assessing substantial
modification of financial liabilities, namely consideration of the
transaction as a whole, will not result in adjustments to the
treatment of debt restructurings that have been recognised in the
Group's financial statements. The introduction of the expected
credit losses model replaces the incurred loss model but does not
have a material impact on the net asset position of the Group as it
applies primarily to trade receivables and loans to joint ventures.
As at 28 February 2019, trade receivables, before impairment,
accounted for GBP1.6 million or 0.2 per cent of total net assets of
GBP827.8 million. At 28 February 2019, the Group's recognised joint
venture was in a net asset position, had serviced all payment
obligations under the loan advanced and the loan was not considered
impaired. The introduction of the credit loss model would not
result in an impairment of this loan on transition to IFRS 9 as the
probability of default is low. The expanded disclosure requirements
and changes to presentation change the nature and extent of the
disclosures made by the Group.
IFRS 15 is the new standard for the recognition of revenue,
replaces IAS 18 'Revenue' and IAS 11 'Construction Contracts' and
is effective for the Group from 1 September 2018. The new standard
is based on the principle that revenue is recognised when control
of a good or service transfers to a customer and sets out a
five-step model for revenue recognition. IFRS 15 does not apply to
rental income (which is currently measured in accordance with IAS
17, to be replaced by IFRS 16 as discussed below) which is the
Group's primary revenue stream but does apply to other sources of
income generated by the Group such as: service and management fee
income and income from corporate and property disposals. The Group
has considered the criteria of IFRS 15, in particular with
reference to the income generated from several ancillary services
offered to the customers in the serviced offices (GBP2.6 million
for the year annualised) and has determined that the new standard
does not have a material quantitative impact on the Group and has
resulted in minimal qualitative changes to revenue disclosures.
The Group adopted the amendments to IAS 40 using the prospective
application method permitted by the standard. The Group has
assessed the impact of the amendment to IAS 40 on the
classification of existing property as at 1 September 2018 and has
concluded that no reclassifications are required on adoption of the
amendment.
Disclosed in the table below are the relevant new standards,
amendments and interpretations that have been issued by the IASB
but are not yet effective or have not been early adopted.
International Financial Reporting Standards Effective annual periods beginning on or after:
Annual improvements to IFRSs 2015-2017 cycle
------------------------------------------------
IFRS 3 'Business combinations' (amendment) ("IFRS 3") 1 January 2019
------------------------------------------------
IFRS 11 'Joint arrangements' (amendment) ("IFRS 11") 1 January 2019
------------------------------------------------
IAS 12 'Income Taxes' (amendment) ("IAS 12") 1 January 2019
------------------------------------------------
IAS 23 'Borrowing costs' (amendment) ("IAS 23") 1 January 2019
------------------------------------------------
Other amendments
------------------------------------------------
IFRS 9 'Financial Instruments' (amendment) ("IFRS 9") 1 January 2019
------------------------------------------------
IFRS 16 'Leases' ("IFRS 16") 1 January 2019
------------------------------------------------
IAS 19 'Employee benefits' (amendment) ("IAS 19") 1 January 2019
------------------------------------------------
IAS 28 'Investments in Associates and Joint Ventures' (amendment) 1 January 2019
("IAS 28")
------------------------------------------------
The Group has assessed the impact of the new standards and those
standards which could be expected to have an impact on the
consolidated financial statements are discussed in further detail
below.
IFRS 16 is the new leasing standard and will be effective for
the Group from 1 September 2019. Accounting for leases whereby the
Group is the lessor will not significantly change under the new
leasing standard. Changes required to leasing arrangements whereby
the Group acts as lessee, however, will result in the recognition
of operating leases as a liability on the Group's balance sheet
with a corresponding right-of-use asset. The Group holds long
leasehold interests in certain hotel and serviced office properties
acquired during 2018 that have been treated as operating leases. At
the effective date, additional estimated lease liabilities of
GBP40.9 million and corresponding right-of-use assets which will be
disclosed within Investment Property, could be expected to be
recognised.
2.2 basis of preparation
The interim financial statements are presented in Great British
Pounds, which is the functional currency of the Company and the
presentational currency of the Group and rounded to the nearest
hundred thousand pounds. They are prepared using the historical
cost basis except for investment property, derivative financial
instruments and financial instruments designated at fair value
through profit and loss, all of which are carried at fair
value.
Going Concern
The Directors are satisfied that the Group has adequate
resources to continue in operational existence for the foreseeable
future and for this reason the interim financial statements have
been prepared on a going concern basis.
Share consolidation and subsequent re-presentation
Following Shareholder approval at the Company's Annual General
Meeting, the Company completed a consolidation of its shares on a
one for five basis, with the nominal value per share increasing
from 8 pence to 40 pence per share. The Company's issued share
capital on the record date for the consolidation, being Friday 8
February 2019, was 1,900,449,536. On Monday 11 February 2019, the
first day of trading in the newly consolidated shares, the
Company's issued share capital stood at 380,089,923. Where
applicable throughout the condensed consolidated financial
statements, the comparative 'per share' numbers have been
re-presented accordingly.
2.3 key judgements and estimates
The preparation of the interim financial statements in
conformity with IFRS requires the use of judgements and estimates
that affect the reported amounts of assets and liabilities at the
reporting date and the reported amounts of revenues and expenses
during the period. Although these estimates are based on the
Directors' best knowledge of the amount, event or actions, actual
results may differ materially from those estimates.
The principal areas where such judgements and estimates have
been made are detailed below:
Investment Property Valuation
Accounting estimate
The Group uses valuations determined by independent valuers in
accordance with IFRS 13 'Fair Value Measurement' ("IFRS 13") as the
fair value of its investment property. The valuations are based
upon assumptions including estimated rental values, future rental
income, anticipated maintenance costs, future development costs and
appropriate market yields. The valuers also make reference to
market evidence of transaction prices for similar properties. Where
there is a lack of comparable transactional evidence then the
degree of potential variability in valuations may widen. Further
details in respect of assumptions and estimation uncertainties are
provided in Note 13.
corporate and property acquisitions
Accounting judgement
When control is obtained over an entity or group of entities,
judgement is required in determining whether the transaction
constitutes a business combination with reference to the inputs,
processes and outputs of the subsidiary or subsidiary group
acquired. If it is determined that the transaction is a business
combination, the requirements of IFRS 3 are applied.
In addition, when a property is acquired directly, the Directors
have regard to the substance of the transaction and whether related
processes and activities have been assumed which would represent a
business. When such an acquisition is considered to be the
acquisition of a business, the requirements of IFRS 3 apply as
above, otherwise the transaction is treated as an acquisition of a
property asset in line with IAS 40.
Classification of UK Hotels as Investment Property
Accounting judgement
The UK Hotels are held for capital appreciation and to earn
rental income. Apart from five Travelodge branded hotels, the
hotels have been let to wholly-owned subsidiaries of RBH Hotel
Group Limited (collectively "RBH" - formerly named RedefineBDL
Hotel Group Limited), on lease terms which are subject to annual
review. At each review, the revised rent is set with reference to
the forecast EBITDA of each hotel. RBH runs the hotels' operating
businesses and is therefore exposed to fluctuations in the
underlying trading performance of each hotel under management. RBH
is responsible for the key decision making of the business
operations and the day-to-day upkeep of the properties. The Group
is not involved with the operation of the hotel management business
and there are limited transactions between RDI and RBH. As a
result, the hotels are classified as investment property in
accordance with IAS 40.
The Group cumulatively holds a 25.3 per cent shareholding in
RBH. Having considered the guidance in IFRS 10 'Consolidated
Financial Statements' ("IFRS 10"), the respective rights of each of
the shareholders in RBH and the relative size of the Group's
shareholding, the Directors have determined that the Group has the
ability to exercise significant influence over but does not control
RBH. The investment in RBH has therefore been classified as an
associate.
Fair Value of Restructured Liabilities
Accounting judgement
New borrowings or existing borrowings which have been
substantially modified are recognised at fair value. The
determination of fair value involves the application of judgement.
The Group determines fair value by discounting the cash flows
associated with the liability at a market discount rate. The key
judgement surrounds the determination of an appropriate market
benchmark. Management determine the discount rate on a loan by loan
basis having regard to the term, duration and security arrangements
of the new liability and an estimation of the current rates charged
in the market for similar instruments issued to companies of
similar sizes.
This judgement is made more difficult given the bespoke nature
of certain loans obtained by the Group. Any difference between the
nominal value of the loan and its fair value equivalent is
recognised immediately in the income statement insofar as the fair
value measurement is based on observable inputs. The deemed fair
value adjustment will subsequently be accreted through the income
statement over the term of the loan using the effective interest
rate method.
Lease Classification
Accounting judgement
The Group considers the appropriateness of the classification of
its leasehold interests in investment property as operating or
finance leases on a property-by-property basis, based on the terms
and conditions of each lease on inception. The assessment is based
on a balanced evaluation of both the specific contractual terms and
substance of each arrangement, such as: the lease term constituting
a major part of the economic life of the property; the fair value
of each asset relative to the present value of the minimum lease
payments; a qualitative review of the transfer of the significant
risks and rewards of ownership; and the allocation of the lease
payments to the land and building elements of each property.
2.4 significant accounting policies
Revenue Recognition
Rental income, including fixed stepped rent, is recognised in
the income statement on a straight-line basis over the lease term.
Tenant lease incentives, including rent-free periods granted and
cash contributions paid, which are an integral part of securing
leases, are amortised as a reduction of rental income over the
lease term. Surrender premiums that are paid by the Group to
tenants to vacate a property are also treated as lease incentives
if the surrender results in an enhanced future rental income
stream. Licence fee income from customers of the London Serviced
Office portfolio is recognised on a basis consistent with rental
income from other tenants of the Group, albeit shorter term in
nature. Room-hire income of this portfolio is recognised at the
fair value of the consideration receivable once the room has been
used.
Contingent rents are recognised as they arise. Rent reviews are
recognised as income or as a reduction thereof from the date it is
probable that the revised terms will be agreed. Surrender premiums
paid by the tenant to terminate a lease early are recognised
immediately in the income statement.
Other income includes service fees, management fees and other
general property related income. Service fee income is recognised
when the services have been rendered by the Group, the associated
costs and recharge margin on those costs can be measured reliably
and with reference to the stage of completion of the service.
Management fees receivable from joint ventures are recognised in
other income during the year in which the services are rendered and
specific performance fees are recognised when the conditions are
satisfied. All sources of other income are only recognised when it
is probable that the economic benefits will flow to the Group.
Dividends from listed property investments are recognised on the
date the Group's right to receive payment is established.
Interest earned on loans receivable and on cash invested is
recognised on an accruals basis using the effective interest rate
method.
Financial Instruments - recognition, classification and
measurement
Non-derivative financial instruments
A financial instrument is recognised when the Group becomes a
party to the contractual provisions of the instrument. Financial
assets are derecognised when the Group's contractual rights to the
cash flows from those assets expire or when the Group transfers the
assets to another party without retaining control or substantially
all risks and rewards of ownership. Regular way purchases and sales
of financial assets are accounted for at trade date. Financial
liabilities are derecognised when the Group's obligations specified
in the contract expire.
Non-derivative financial instruments are recognised initially at
fair value plus, for those instruments not designated at fair value
through profit or loss, any directly attributable transaction
costs. Non-derivative financial instruments comprise investments in
equity securities, trade and other receivables, cash and cash
equivalents, loans and borrowings and trade and other payables.
Loan receivables and payables are subsequently measured at
amortised cost using the effective interest rate method.
Investments at fair value through profit or loss
An instrument is classified at fair value through profit or loss
if it is held for trading or is designated as such upon initial
recognition. Financial instruments are designated as fair value
through profit or loss if the Group manages such investments and
makes purchase and sale decisions based on their fair value. Upon
initial recognition, attributable transaction costs are recognised
in profit or loss as incurred. Financial instruments at fair value
through profit or loss comprise equity securities and are measured
at fair value with changes therein at each reporting date
recognised in the income statement. Fair values are determined by
reference to their quoted bid price at the reporting date.
Derivative financial instruments
The Group holds derivative financial instruments to manage its
interest rate risk exposures. Derivatives are recognised initially
at fair value on the date the Group becomes party to the contract;
any attributable transaction costs are recognised in the income
statement as incurred. Derivatives are subsequently re-measured to
fair value at each reporting date, and changes therein are
accounted for in the income statement and presented under change in
fair value of derivative financial instruments. The Group does not
apply hedge accounting.
Impairment of financial assets
The Group assesses the expected credit losses associated with
its financial assets carried at amortised cost on a forward-looking
basis. The impairment methodology applied depends on whether there
has been a significant increase in credit risk. Financial assets
are specifically impaired when there is no reasonable expectation
of recovery. Indicators that there is no reasonable expectation of
recovery include, among others, the probability of insolvency or
significant financial difficulties of the debtor. Impaired debts
are derecognised when they are assessed as uncollectible. For
general provisioning, the Group's financial assets are subject to
the expected credit loss model. The Group applies the simplified
approach permitted by IFRS 9 to trade receivables, which requires
expected lifetime losses to be recognised from initial recognition
of the receivables. Expected loss rates are based on the historic
payment profiles of customers and the corresponding historical
credit losses experienced over the same period. The resulting loss
rates are then adjusted to reflect current and forward-looking
information on macroeconomic factors: namely economic, regulatory,
technological and environmental factors, (industry outlook, GDP,
employment and politics); external market indicators; and the
current tenant base.
Investment Property
In accordance with IAS 40, Paragraph 14, judgement may be
required to determine whether a property qualifies as investment
property. The Group has developed criteria so that it can exercise
judgement consistently in recognising investment property, namely:
property held for long-term capital appreciation; property owned
(or held under finance leases) and leased out under one or more
operating leases; and property that is being developed for future
use as investment property. The recognition and classification of
property as investment property principally assumes that the
Group:
- does not retain significant exposure to the variation in cash
flows arising from the underlying operations of tenants; and
- will recover the carrying value through continuing rental
income streams and longer-term capital appreciation.
Investment properties are initially recognised at cost,
including directly attributable transaction costs, and subsequently
measured at fair value. The portfolios are valued on a bi-annual
basis by external, independent and professionally qualified
valuers, having recent experience in the location and category of
the property being valued. The fair values are based on market
values, being the estimated amount for which the property could be
exchanged on a highest and best use basis between a willing buyer
and seller in an arm's length transaction.
The valuations are determined by considering comparable and
timely market transactions for sales and lettings and having regard
for the current leases in place. In the case of lettings, this
includes consideration of the aggregate net annual market rents
achievable for the property and associated costs. A yield which
reflects the risks inherent in the future cash flows is applied to
the net annual rents to arrive at the property valuation.
The bi-annual valuations of investment property are based upon
estimates and subjective judgements that may vary materially from
the actual values and sales prices that may be realised by the
Group upon ultimate disposal. The critical assumptions made in
determining the valuations have been included in Note 13 to the
financial statements.
In determining fair value, the market value of the property as
determined by the independent valuers is reduced by the carrying
amount of tenant lease incentives and increased by the carrying
amount of fixed head leases.
Gains or losses arising from changes in the fair value of
investment property are included in the income statement in the
year in which they arise.
Subsequent expenditure is capitalised to investment property
when the expenditure incurred enhances the future economic benefits
associated with the property, such as enhanced future rental
income, capital appreciation or both. Contributions to tenant
refurbishments under lease arrangements are treated as tenant lease
incentives and amortised against rental income over the term of the
lease.
As the fair value model is applied, property under construction
or redevelopment for future use as investment property continues to
be measured at fair value unless the fair value cannot be measured
reliably and the property is measured at cost. All finance costs
directly associated with the acquisition and construction of a
qualifying development property are capitalised during the period
of active development until practical completion. The rate applied
is the actual rate payable on specific borrowings or the weighted
average cost of debt of the Group for development spend that is
financed out of general funds.
Acquisitions and disposals of investment property are recognised
when the significant risks and rewards attached to the property
have transferred to, or from, the Group. This will ordinarily occur
on exchange of contracts unless there are significant conditions to
be met prior to completion. Such transactions are recognised when
these conditions are satisfied. The profit or loss on disposal of
investment property is recognised separately in the income
statement and is the difference between the net sales proceeds and
the opening fair value asset plus any capital expenditure during
the period to disposal.
A property ceases to be recognised as investment property and is
transferred at its fair value to property held for sale when it
meets the criteria of IFRS 5.
Property held by the Group under long term leases is also
treated as investment property in line with IAS 40 'Investment
Property' ("IAS 40"). The Group's leasehold interests are
classified as either finance or operating leases dependent on
whether the risks and rewards of ownership of the property have
substantially transferred to the Group. Finance leases are
recognised as both an asset and a liability and are measured at the
lower of fair value and the present value of any future minimum
lease payments. The finance lease obligation to the superior
leaseholder is recognised within borrowings on the balance sheet.
Lease payments are apportioned between the finance charges and the
capital reduction of the lease obligation so as to achieve a
constant rate of interest on the remaining balance of the liability
over the lease term. Finance charges are charged through profit or
loss as they arise. Operating lease payments are charged to the
income statement as a rental expense on a straight-line basis over
the lease term.
Share Capital
Ordinary share capital
Ordinary shares are classified as equity. External costs
directly attributable to the issue of new shares, net of tax, are
shown as a deduction from any recognised share premium.
Where the Company's own equity instruments are purchased as the
result of a share buy-back, the consideration paid by the Group,
including any directly attributable incremental costs net of tax,
is deducted from equity attributable to the owners as treasury
shares until the shares are cancelled or reissued.
Where the Company performs a share consolidation the number of
shares is reduced for the current period and re-presented for the
prior period comparative.
Dividends
Dividends to shareholders are recognised when they become
legally payable. In the case of interim dividends, this is when the
dividends are declared by the Board.
Earnings per Share
The Group presents basic and diluted earnings per share (EPS)
data for its ordinary shares. Basic EPS is calculated by dividing
the profit or loss attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares
outstanding during the year. Diluted EPS is determined by dividing
the profit or loss attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding, adjusted
for the effects of all dilutive potential ordinary shares.
Where the Company performs a share consolidation the weighted
average number of shares is reduced without any consideration for
time apportionment so that the effect of the share consolidation on
EPS is constant for current and prior period comparatives and
subsequent periods. The prior period comparative weighted average
number of shares is also reduced for comparability.
In line with the JSE Listing Requirements, the Group also
presents headline earnings per share.
3. Segmental Reporting
As required by IFRS 8 'Operating Segments' ("IFRS 8"), the
information provided to the Board, which is the Chief Operating
Decision Maker, has been classified into the following
segments:
UK Commercial: The Group's portfolio of Greater London and regional offices,
London serviced offices, roadside service stations and logistics
distribution centres;
UK Retail: The Group's portfolio of shopping centres, retail parks and
other high street retail assets;
UK Hotels: The Group's hotel portfolio comprising 18 predominantly limited-service
branded hotels:
- five Travelodge branded and externally managed hotels;
and
- thirteen RBH managed hotels, of which ten are Holiday-Inn
Express, two Hilton branded and one Crowne Plaza.
The Group's hotel interests also include the 25.3 per cent
investment in RBH. RBH is an independent hotel management
company engaged in developing and managing a diverse portfolio
of hotels in partnership with reputable international hotel
brands;
Europe: The Group's portfolio in Germany, comprised of shopping centres,
discount supermarkets and retail parks. On 29 December 2017,
the Group disposed of its interests in the Leopard Portfolio
which comprised 66 retail properties, being a mixture of
stand-alone supermarkets, food-store anchored retail parks
and cash & carry stores; and
Other: The Group's holding and management companies that carry out
the head office and centralised asset management activities
of the Group.
Management information, as presented to the Chief Operating
Decision Maker, is prepared on a proportionately consolidated
basis. Segmental reporting is therefore reported in line with
management information, with the Group's share of joint ventures
presented line-by-line. Joint venture adjustments are disclosed to
reconcile segmental performance and position to the condensed
consolidated financial statements.
Segmental income statement Joint
for the six months ended 28 February 2019 UK UK UK Venture IFRS
Commercial Retail Hotels Europe Other Total Adj Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
Revenue
Rental income 18.7 19.3 11.5 7.2 - 56.7 (0.9) 55.8
Other income 0.8 - - - 0.5 1.3 - 1.3
Total revenue 19.5 19.3 11.5 7.2 0.5 58.0 (0.9) 57.1
---------------------------------------------- ----------- ------- ------- ------ ----- ------ -------- ------
Rental income 18.7 19.3 11.5 7.2 - 56.7 (0.9) 55.8
Rental expense (3.0) (1.7) (0.6) (0.9) - (6.2) - (6.2)
---------------------------------------------- ----------- ------- ------- ------ ----- ------ -------- ------
Net rental income 15.7 17.6 10.9 6.3 - 50.5 (0.9) 49.6
Other income 0.8 - - - 0.5 1.3 - 1.3
Gain/(loss) on revaluation of investment
property 0.3 (27.0) (2.7) (1.2) - (30.6) 0.2 (30.4)
Loss on disposal of investment property - - - (0.2) - (0.2) - (0.2)
Net loss on business combinations - - (0.1) - - (0.1) - (0.1)
Foreign exchange gain/(loss) 0.3 0.2 - (0.5) (0.2) (0.2) - (0.2)
Other underlying finance income - - - - 0.1 0.1 0.2 0.3
Finance expense (5.0) (7.1) (2.7) (1.7) - (16.5) 0.3 (16.2)
Change in fair value of derivative financial
instruments (1.1) (0.6) (0.1) (0.3) - (2.1) (0.1) (2.2)
Share of post-tax profit from associate - - 0.5 - - 0.5 - 0.5
Total per reportable segments 11.0 (16.9) 5.8 2.4 0.4 2.7 (0.3) 2.4
Unallocated income and expenses: (1)
Administrative costs and other fees (7.2) (0.1) (7.3)
Amortisation of intangible assets (0.1) - (0.1)
Profit before tax (4.6) (0.4) (5.0)
Taxation 1.3 0.1 1.4
---------------------------------------------- ----------- ------- ------- ------ ----- ------ -------- ------
(3.3) (0.3) (3.6)
Joint venture adjustments:
Share of post-tax profit from joint ventures - 0.2 0.2
Reversal of impairment of loans to joint ventures - 0.1 0.1
IFRS profit for the period (3.3) - (3.3)
----------------------------------------------------- ----- --- -----
(1) Unallocated income and expenses are items incurred centrally
which are neither directly attributable nor can be reasonably
allocated to individual segments.
(2) As detailed in Note 14, the share of losses no longer
exceeded the costs of the Group's joint venture interest in the
Esplanade and the Group has started recognising its share of
profits by way of reversal of impairment of the loan to the joint
venture. On a proportionate basis, the Group's share in the net
liabilities of the Esplanade are recognised line-by-line.
Joint
UK UK UK Venture IFRS
Segmental balance sheet Commercial Retail Hotels Europe Total Adj Total
as at 28 February 2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ----------- ------- ------- ------- ------- -------- -------
Investment property 553.1 459.2 362.6 243.3 1,618.2 (24.6) 1,593.6
Investment in associate - - 9.2 - 9.2 - 9.2
Trade and other receivables 4.3 8.4 3.4 3.6 19.7 (0.4) 19.3
Cash and cash equivalents 10.8 20.5 8.2 2.9 42.4 (0.8) 41.6
Borrowings, including finance leases (257.5) (270.0) (161.7) (139.7) (828.9) 15.1 (813.8)
Trade and other payables (9.5) (11.9) (2.8) (2.0) (26.2) 0.5 (25.7)
Segmental net assets 301.2 206.2 218.9 108.1 834.4 (10.2) 824.2
Unallocated assets and liabilities:
Other non-current assets 1.1 - 1.1
Trade and other receivables 2.6 - 2.6
Cash and cash equivalents 7.0 - 7.0
Net derivative financial instruments (6.3) 2.6 (3.7)
Deferred tax (8.0) 0.6 (7.4)
Trade and other payables (2.3) - (2.3)
Current tax liabilities (0.7) - (0.7)
827.8 (7.0) 820.8
Joint venture adjustments:
Investment in joint ventures - 2.0 2.0
Loans to joint ventures - 5.0 5.0
IFRS net assets 827.8 - 827.8
------------------------------- ----- --- -----
(1) As detailed in Note 14, the Group's interest in the
Esplanade has been reduced to GBPNil in the financial statements in
line with IAS 28. On a proportionate basis, the Group's share in
the net liabilities of the Esplanade are recognised line-by-line.
The cumulative losses of this joint venture that the Group has not
recognised on an equity accounted basis at the reporting date are
presented to reconcile segmental information to the IFRS
statements.
Segmental income statement Joint
for the six months ended 28 February 2018 UK UK UK Venture IFRS
Commercial Retail Hotels Europe Other Total Adj Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
Revenue
Rental income 13.2 19.6 12.2 10.5 - 55.5 (0.9) 54.6
Other income 0.2 - - - 0.4 0.6 - 0.6
Total revenue 13.4 19.6 12.2 10.5 0.4 56.1 (0.9) 55.2
---------------------------------------------- ----------- ------- ------- ------ ----- ------ -------- ------
Rental income 13.2 19.6 12.2 10.5 - 55.5 (0.9) 54.6
Rental expense (1.5) (1.2) (0.6) (1.6) - (4.9) 0.1 (4.8)
---------------------------------------------- ----------- ------- ------- ------ ----- ------ -------- ------
Net rental income 11.7 18.4 11.6 8.9 - 50.6 (0.8) 49.8
Other income 0.2 - - - 0.4 0.6 - 0.6
Gain/(loss) on revaluation of investment
property 10.3 (12.1) 4.0 6.1 - 8.3 0.2 8.5
Gain/(loss) on disposal of investment property 0.7 - - (0.1) - 0.6 - 0.6
Loss on disposal of investment property held
for sale (0.1) - - - - (0.1) - (0.1)
Net gain on disposal of subsidiaries - (1.9) - 16.2 - 14.3 - 14.3
Net gain on business combinations (0.9) - 5.5 - - 4.6 - 4.6
Loss on disposal of other non-current assets
held for sale - - (0.1) - - (0.1) - (0.1)
Foreign exchange loss - - - (0.9) - (0.9) - (0.9)
Finance income on loans to joint ventures - - - - - - 0.2 0.2
Other underlying finance income - - - - 0.2 0.2 - 0.2
Finance expense (3.3) (7.4) (2.5) (1.6) - (14.8) 0.3 (14.5)
Other finance expense - - - (0.6) - (0.6) - (0.6)
Change in fair value of derivative financial
instruments 1.7 1.8 1.1 1.2 - 5.8 (0.6) 5.2
Reversal of impairment of loan to joint
venture 0.1 - - - - 0.1 - 0.1
Share of post-tax profit from associate - - 0.3 - - 0.3 - 0.3
Total per reportable segments 20.4 (1.2) 19.9 29.2 0.6 68.9 (0.7) 68.2
Unallocated income and expenses: (1)
Administrative costs and other fees (7.3) 0.1 (7.2)
Amortisation of intangible assets (0.2) - (0.2)
Profit before tax 61.4 (0.6) 60.8
Taxation (1.3) 0.2 (1.1)
---------------------------------------------- ----------- ------- ------- ------ ----- ------ -------- ------
60.1 (0.4) 59.7
Joint venture adjustments:
Movement of losses restricted in joint ventures (3) (0.4) 0.4 -
IFRS profit for the period 59.7 - 59.7
------------------------------------------------------- ----- --- ----
(1) Other income includes management fee income from joint
ventures. On a proportionate basis, and for segmental reporting
purposes, the Group share of the total joint venture investment
management expense has been reclassified from administrative costs
and other fees.
(2) Unallocated income and expenses are items incurred centrally
which are neither directly attributable nor can be reasonably
allocated to individual segments.
(3) As detailed in Note 14, the Group's joint venture interest
in the Esplanade has been reduced to GBPNil in the financial
statements in line with IAS 28. On a proportionate basis, the
Group's share in the net liabilities of the Esplanade are
recognised line-by-line. Movements in the losses of the Esplanade
that are not recognised on an equity accounted basis during each
reporting period are presented to reconcile segmental information
to the IFRS statements.
Joint
UK UK UK Venture IFRS
Segmental balance sheet Commercial Retail Hotels Europe Total Adj Total
as at 28 February 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ----------- ------- ------- ------- ------- -------- -------
Investment property 512.2 499.0 359.6 253.5 1,624.3 (25.3) 1,599.0
Investment in associate - - 9.2 - 9.2 - 9.2
Trade and other receivables 6.1 8.6 6.5 2.6 23.8 (0.1) 23.7
Cash and cash equivalents 23.2 10.4 6.1 5.8 45.5 (1.0) 44.5
Non-current assets held for sale 26.9 - - - 26.9 - 26.9
Borrowings, including finance leases (221.6) (321.8) (167.3) (130.2) (840.9) 15.8 (825.1)
Trade and other payables (9.0) (10.7) (5.8) (2.5) (28.0) 0.7 (27.3)
Segmental net assets 337.8 185.5 208.3 129.2 860.8 (9.9) 850.9
Unallocated assets and liabilities:
Other non-current assets 1.4 - 1.4
Trade and other receivables 1.3 - 1.3
Cash and cash equivalents 9.4 - 9.4
Net derivative financial instruments (5.6) 2.9 (2.7)
Deferred tax (10.5) 0.6 (9.9)
Trade and other payables (1.8) - (1.8)
Current tax liabilities (2.1) - (2.1)
852.9 (6.4) 846.5
Joint venture adjustments:
Joint venture non-controlling interests (0.1) 0.1 -
Cumulative losses restricted in joint ventures (1) 0.3 (0.3) -
Investment in joint ventures - 1.9 1.9
Loans to joint ventures - 4.7 4.7
IFRS net assets 853.1 - 853.1
----------------------------------------------------- ----- ----- -----
(1) As detailed in Note 14, the Group's interest in the
Esplanade has been reduced to GBPNil in the financial statements in
line with IAS 28. On a proportionate basis, the Group's share in
the net liabilities of the Esplanade are recognised line-by-line.
The cumulative losses of this joint venture that the Group has not
recognised on an equity accounted basis at the reporting date are
presented to reconcile segmental information to the IFRS
statements.
Segmental income statement Joint
for the year ended 31 August 2018 UK UK UK venture IFRS
Commercial Retail Hotels Europe Other Total adj total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
Revenue
Rental income 31.3 38.4 24.5 17.8 - 112.0 (1.8) 110.2
Other operating income 1.1 - - - 0.7 1.8 - 1.8
Total revenue 32.4 38.4 24.5 17.8 0.7 113.8 (1.8) 112.0
---------------------------------------------- ----------- ------- ------- ------ ----- ------ -------- ------
Rental income 31.3 38.4 24.5 17.8 - 112.0 (1.8) 110.2
Rental expense (4.5) (2.8) (1.3) (2.7) - (11.3) 0.2 (11.1)
---------------------------------------------- ----------- ------- ------- ------ ----- ------ -------- ------
Net rental income 26.8 35.6 23.2 15.1 - 100.7 (1.6) 99.1
Other operating income 1.1 - - - 0.7 1.8 - 1.8
Gain/(loss) on revaluation of investment
property 24.3 (26.1) 6.2 6.2 - 10.6 0.2 10.8
Gain on revaluation of investment property
held for sale 0.9 - - - - 0.9 - 0.9
Gain/(loss) on disposal of investment property 1.6 - - (0.1) - 1.5 - 1.5
Gain on disposal of investment property held
for sale 1.8 - - - - 1.8 - 1.8
Net gain/(loss) on disposal of subsidiaries 1.2 (1.9) - 16.1 - 15.4 - 15.4
Net gain/(loss) on acquisition of subsidiaries (1.1) - 5.5 - - 4.4 - 4.4
Loss on disposal of other non-current assets
held for sale - - (0.1) - - (0.1) - (0.1)
Foreign exchange loss - - - - (0.8) (0.8) - (0.8)
Finance income on loans to joint ventures - - - - - - 0.3 0.3
Other underlying finance income - - - - 0.3 0.3 - 0.3
Finance expense (7.1) (15.0) (5.1) (2.9) - (30.1) 0.8 (29.3)
Other finance expense (0.1) - - (0.5) - (0.6) - (0.6)
Change in fair value of derivative financial
instruments 2.4 2.8 0.9 0.7 - 6.8 (0.7) 6.1
Reversal of impairment of loan to joint
venture 0.1 - - - - 0.1 - 0.1
Loss on sale of joint venture interests - - - (0.1) - (0.1) - (0.1)
Share of post-tax profit from associate - - 0.3 - - 0.3 - 0.3
Total per reportable segments 51.9 (4.6) 30.9 34.5 0.2 112.9 (1.0) 111.9
Unallocated income and expenses: (1)
Administrative costs and other fees (14.4) 0.2 (14.2)
Amortisation of intangible assets (0.3) - (0.3)
Profit before tax 98.2 (0.8) 97.4
Taxation (1.3) 0.2 (1.1)
---------------------------------------------- ----------- ------- ------- ------ ----- ------ -------- ------
96.9 (0.6) 96.3
Joint venture adjustments:
Movement of losses restricted in joint ventures(2) (0.6) 0.6 -
IFRS profit for the year 96.3 - 96.3
------------------------------------------------------ ----- --- ----
(1) Unallocated income and expenses are items earned or incurred
centrally which are neither directly attributable nor can be
reasonably allocated to individual segments.
(2) As detailed in Note 15, the Group's joint venture interest
in the Esplanade has been reduced to GBPNil in the financial
statements in line with IAS 28. On a proportionate basis, the
Group's share in the net liabilities of the Esplanade are
recognised line-by-line. Movements in the losses of the Esplanade
that are not recognised on an equity accounted basis during each
reporting period are presented to reconcile segmental information
to the IFRS statements.
Joint
UK UK UK venture IFRS
Segmental balance sheet Commercial Retail Hotels Europe Total adj total
as at 31 August 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ----------- ------- ------- ------- ------- -------- -------
Investment property 515.9 485.4 364.1 258.0 1,623.4 (25.4) 1,598.0
Investment in associate - - 9.1 - 9.1 - 9.1
Trade and other receivables 4.0 6.7 1.7 3.9 16.3 (0.5) 15.8
Cash and cash equivalents 20.1 9.9 7.5 5.1 42.6 (0.8) 41.8
Borrowings, including finance leases (199.8) (309.1) (164.9) (131.4) (805.2) 15.6 (789.6)
Trade and other payables (9.0) (11.4) (2.6) (2.3) (25.3) 0.6 (24.7)
Segmental net assets 331.2 181.5 214.9 133.3 860.9 (10.5) 850.4
Unallocated assets and liabilities:
Other non-current assets 1.3 - 1.3
Trade and other receivables 2.5 - 2.5
Cash and cash equivalents 17.2 - 17.2
Net derivative financial instruments (4.6) 2.8 (1.8)
Deferred tax (10.1) 0.6 (9.5)
Trade and other payables (2.4) - (2.4)
Current tax liabilities (2.0) - (2.0)
862.8 (7.1) 855.7
Joint venture adjustments:
Investment in joint ventures - 1.9 1.9
Loans to joint ventures - 5.2 5.2
IFRS net assets 862.8 - 862.8
------------------------------- ----- --- -----
(1) As detailed in Note 14, the Group's interest in the
Esplanade is carried at GBPNil in the financial statements in line
with IAS 28. On a proportionate basis, the Group's share in the net
liabilities of the Esplanade are recognised line-by-line. At 31
August 2018, cumulative losses equalled the Group's net investment
in the joint venture (31 August 2017: exceeded by GBP0.7
million).
4. Rental INcome
Unaudited Unaudited Audited
28 February 28 February 31 August
2019 2018 2018
GBPm GBPm GBPm
---------------------------------------------------- ------------ ------------ ----------
Gross lease payments from third parties 45.5 43.6 88.2
Gross lease payments from related parties (Note 29) 10.3 11.0 22.0
---------------------------------------------------- ------------ ------------ ----------
Rental income 55.8 54.6 110.2
---------------------------------------------------- ------------ ------------ ----------
The future aggregate minimum rent receivable under
non-cancellable operating leases at the balance sheet date is as
follows:
Not later than one year 105.0 96.9 104.8
Later than 1 year not later than 5 years 300.7 294.6 312.2
Later than 5 years 268.3 338.8 351.5
----------------------------------------- ----- ----- -----
674.0 730.3 768.5
----------------------------------------- ----- ----- -----
5. RENTAL EXPENSE
Unaudited Unaudited Audited
28 February 28 February 31 August
2019 2018 2018
GBPm GBPm GBPm
------------------------------------------------- ------------ ------------ ----------
Non-recoverable service charge 2.8 1.9 3.3
Direct property operating expenses 1.1 1.8 4.9
Operating lease expense 0.8 0.6 1.4
Letting costs 0.4 0.3 0.6
Serviced office portfolio direct staff and sales
costs 1.1 0.2 0.9
Rental expense 6.2 4.8 11.1
------------------------------------------------- ------------ ------------ ----------
6. Other Income
Unaudited Unaudited Audited
28 February 28 February 31 August
2019 2018 2018
GBPm GBPm GBPm
---------------------------------------------- ------------ ------------ ----------
Service fee income 1.4 0.4 1.8
Service fee expense (0.5) (0.2) (0.8)
------------ ------------ ----------
Service fee margin (1) 0.9 0.2 1.0
Management fees from joint ventures (Note 29) - - 0.1
Insurance rebates 0.2 0.1 0.3
Salary recharges 0.2 0.2 0.3
Other property related income - 0.1 0.1
Other income 1.3 0.6 1.8
---------------------------------------------- ------------ ------------ ----------
(1) Service fees relates to recoverable costs incurred by the
Group in the serviced office portfolio that are recharged to
tenants at a margin.
7. ADMINISTRATIVE COSTS and other fees
Unaudited Unaudited Audited
28 February 28 February 31 August
2019 2018 2018
GBPm GBPm GBPm
-------------------------------------------------- ------------ ------------ ----------
General administrative expenses 1.9 1.8 3.4
Professional fees 1.1 1.6 2.9
Staff costs 3.8 3.7 7.3
Investment management fees to related party (Note
29) 0.5 0.1 0.6
Administrative costs and other fees 7.3 7.2 14.2
-------------------------------------------------- ------------ ------------ ----------
8. DISPOSAL of subsidiaries
There were no disposals of subsidiaries in the six months to 28
February 2019.
The impact of corporate disposals during the year to 31 August
2018 and the related net cash inflow is presented below:
Lochside View, Edinburgh Paragon 31 August
GBPm Square, Hull Leopard Portfolio 2018
GBPm GBPm GBPm
------------------------------------------ ------------------------ ------------- ----------------- ---------
Carrying value of net assets disposed
Investment property (11.2) (12.9) (158.4) (182.5)
Trade and other receivables (0.4) - (0.2) (0.6)
Cash and cash equivalents (0.2) - (1.6) (1.8)
Borrowings - - 73.1 73.1
Trade and other payables 0.2 0.2 0.8 1.2
------------------------------------------ ------------------------ ------------- ----------------- ---------
Net assets disposed (11.6) (12.7) (86.3) (110.6)
Consideration received (1) 13.0 11.0 103.6 127.6
Transaction costs (1) (0.2) (0.2) (1.2) (1.6)
------------------------------------------ ------------------------ ------------- ----------------- ---------
Net gain/(loss) on disposal of subsidiary 1.2 (1.9) 16.1 15.4
------------------------------------------ ------------------------ ------------- ----------------- ---------
(1) Net cash received at 31 August 2018 was GBP126.2 million as
transaction costs on the Lochside disposal had not been paid at the
reporting date.
The Leopard Portfolio comprised 66 retail properties - a mixture
of stand-alone supermarkets, food-store anchored retail parks and
cash and carry stores. On 29 December 2017, the Group disposed of
all but one of the property-owning subsidiaries of the Leopard
Portfolio to an external party for GBP103.6 million (EUR116.6
million), after the deduction of transaction costs of GBP1.2
million (EUR1.3 million). On the date of sale, the carrying value
of investment property within these subsidiaries was GBP158.4
million (EUR178.4 million), on which GBP73.1 million (EUR82.3
million) of bank debt was secured. The net assets of the target
group on the date of sale was GBP86.3 million (EUR97.2 million) and
the Group recognised a gain on disposal of GBP16.1 million (EUR18.1
million). The investment property of the remaining property-owning
entity was acquired by the same party by way of a direct asset sale
(see Note 13).
Redefine Paragon Square Limited, a wholly owned subsidiary of
the Group, owned the House of Fraser department store in Hull. On
15 November 2017, the Group disposed of this subsidiary for GBP11.0
million. The net assets of the subsidiary were GBP12.7 million on
disposal and the Group recognised a loss of GBP1.9 million in the
income statement, after transaction costs. Net cash received at the
balance sheet date, after transactions costs paid, was GBP10.8
million.
Redefine Lochside View Edinburgh Limited, a wholly owned
subsidiary of the Group, owned a regional office in Edinburgh. On
31 August 2018, the Group disposed of this subsidiary for GBP13.0
million subject to a completion adjustment. The net assets of the
subsidiary were GBP11.6 million on disposal and the Group
recognised a gain of GBP1.2 million in the income statement, after
transaction costs. Net cash received at the balance sheet date was
GBP13.0 million as transaction costs had not yet been paid.
9. BUSINESS COMBINATIONS
There were no business combinations in the six months to 28
February 2019. Further transactions costs of GBP0.1 million were
incurred during the six months to 28 February 2019 relating to the
acquisition of International Hotel Properties Limited ("IHL").
The impact of business combinations during the year to 31 August
2018 and the related net cash outflow is presented below:
31 August
LSO IHL 2018
GBPm GBPm GBPm
------------------------------------------------------------------ ------ ------ ---------
Fair value of identifiable net assets acquired
Investment property 161.7 115.4 277.1
Trade and other receivables 0.9 1.9 2.8
Cash and cash equivalents 5.7 2.1 7.8
Borrowings (73.5) (54.4) (127.9)
Derivative financial instruments 0.4 (1.0) (0.6)
Trade and other payables (6.2) (2.2) (8.4)
------------------------------------------------------------------ ------ ------ ---------
Net assets acquired 89.0 61.8 150.8
Consideration transferred:
* Equity (share-for-share exchange) - (19.3) (19.3)
* Cash(1) (71.2) (7.5) (78.7)
------------------------------------------------------------------ ------ ------ ---------
(71.2) (26.8) (98.0)
Investment in associate (Note 15) - (13.5) (13.5)
Non-controlling interests proportionate share of the identifiable
net assets (Note 26) (17.8) (16.0) (33.8)
Transaction costs(1) (1.1) - (1.1)
------------------------------------------------------------------ ------ ------ ---------
Net (loss)/gain on business combinations (1.1) 5.5 4.4
------------------------------------------------------------------ ------ ------ ---------
(1) Net cash paid at 31 August 2018 was GBP80.6 million
including transaction costs and settlement of tax liabilities
assumed of GBP0.8 million.
LSO
On 12 January 2018, RDI completed the corporate acquisition of
80 per cent of the issued share capital of St Dunstan's HoldCo
Limited and LSO Services Limited ("LSO Portfolio"), for an equity
consideration of GBP71.2 million. The LSO portfolio consists of the
freehold and long-leasehold interests in four established
high-quality flexible offices in London. This acquisition
significantly enhanced the quality of the overall property
portfolio of the Group with strong property fundamentals and
reduced leverage. Our strategic partner, OSIT, operates the
serviced office business of each property under management
contracts, while the Group employs staff directly for the
day-to-day operations.
It has been determined that the transaction constitutes a
business combination after due consideration of the assets and
related processes that have been assumed, notably the management
contract with OSIT.
The fair value of the net assets acquired on 12 January 2018 was
GBP89.0 million. OSIT's minority share of the identifiable net
assets is GBP17.8 million. As the consideration was determined with
reference to net asset value, the Group did not pay a premium or
obtain a discount. Transaction costs of GBP1.1 million were
incurred by the Group which have been expensed in the income
statement within the net gain on business combinations. This
portfolio has been classified as investment property in line with
the Group's accounting policies. Receivables acquired were GBP0.9
million, all of which were fully collectable. Revenue from LSO
since acquisition was GBP10.8 million comprising rental and net
services income. Had the acquisition occurred on 1 September 2017,
LSO would have generated GBP16.2 million assuming a consistent
revenue stream throughout the year.
IHL
International Hotel Properties Limited ("IHL") is established as
a hotel investment company and was listed on the Euro MTF market of
the LuxSE and on the AltX of the JSE. IHL comprises nine limited
service UK hotels and at 31 August 2017 the Group held a 17.2 per
cent interest, classified as an investment at fair value through
profit or loss. During the 2017 financial year, RDI submitted a
proposal to the IHL board to increase its shareholding in IHL by
way of a scheme of arrangement. RDI would acquire the shares of all
scheme participants, being the minority interests (29.3 per cent)
of IHL. IHL shareholder approval was obtained on 15 September 2017,
at which point the transaction became subject only to Court
approval. The Group was considered to have significant influence
over IHL from this date and the investment was reclassified as an
investment in associate (Note 15).
On 13 November 2017 and on fulfilment of all conditions
precedent to the scheme of arrangement, the Group acquired 16.4
million shares in IHL from scheme participants and 1.9 million
shares from Redefine Properties, increasing RDI's interest in IHL
from 26.2 to 58.9 per cent. The value attributed to each IHL share
was GBP1, settled in a share-for-share exchange with RDI shares at
a value of 40.0 pence. 45.9 million RDI shares were issued in total
representing gross consideration of GBP18.3 million. On 17 November
2017, 8.5 million shares in IHL were purchased at GBP1 per share.
Consideration for these shares was GBP7.5 million in cash and the
issuance of 2.5 million RDI shares at 40.0 pence per share (GBP1.0
million in total). The transactions increased the Group's interest
in IHL to 74.1 per cent. The residual 25.9 per cent non-controlling
interest in IHL is held by one party, Southern Sun Africa ("TSogo
Sun").
Since 13 November 2017, the Group has directed the operating and
financial decisions of IHL and has been exposed to its variable
returns. RDI acquired control of IHL on this date, which is also
considered the acquisition date for the purposes of IFRS 3. The
transaction has been accounted for as a business combination,
having regard for the integrated set of assets, processes and
outputs that were acquired and that are capable of producing a
return for the Group.
The fair value of the net assets of IHL acquired on the
acquisition date of 15 September 2017 was GBP61.8 million. The fair
value of the cash and equity consideration transferred was GBP26.8
million, while the carrying value of the Group's associate interest
was GBP13.5 million. TSogo Sun's proportionate share of the
identifiable net assets was GBP16.0 million and, as a result, the
Group has recognised a net gain on bargain purchase of IHL of
GBP5.5 million. This represents the difference between the share
price and swap ratio agreed with shareholders and the net assets
based on a third-party valuation of the investment property at
completion date. The gain has been recognised in the income
statement within the net gain on business combinations. Minimal
acquisition costs were incurred by the Group on account of the
structuring of the transaction. RDI share issue costs have been
recognised directly in equity as a reduction of share premium. The
hotels acquired have been classified as investment property on
initial recognition as outlined in Note 13. Receivables acquired
were GBP1.9 million, all of which were settled subsequent to
acquisition.
10. FINANCE INCOME AND FINANCE EXPENSE
Unaudited Unaudited Audited
28 February 28 February 31 August
2019 2018 2018
GBPm GBPm GBPm
------------------------------------------------------- ------------ ------------ ----------
Finance income on bank deposits 0.1 - -
Finance income on loans to external parties - 0.2 0.2
Finance income on loans to joint ventures (Note 29) 0.2 0.2 0.3
Finance income on loans to other related parties
(Note 29) - - 0.1
Finance income 0.3 0.4 0.6
Finance expense on bank and external loans (14.7) (13.4) (27.2)
Interest capitalised to qualifying investment property
under development - 0.3 0.7
Amortisation of debt issue costs (0.6) (0.6) (1.2)
Accretion of fair value adjustments (0.4) (0.4) (0.8)
Finance lease interest (0.5) (0.4) (0.8)
------------------------------------------------------- ------------ ------------ ----------
Finance expense (16.2) (14.5) (29.3)
Net finance expense (15.9) (14.1) (28.7)
------------------------------------------------------- ------------ ------------ ----------
There was no capitalised interest during the period to 28
February 2019 as the qualifying investment property under
development is now substantially complete. Interest was capitalised
on the basis of the Group's weighted average cost of debt of 3.4
per cent at 31 August 2018 (3.3 per cent at 28 February 2018)
applied to the cost of property under development during that
year.
11. Other Finance Expense
Unaudited Unaudited Audited
28 February 28 February 31 August
2019 2018 2018
GBPm GBPm GBPm
------------------------------------------ ------------ ------------ ----------
Write-off of unamortised debt issue costs - 0.1 0.2
Other finance costs - 0.5 0.4
Other finance expense - 0.6 0.6
------------------------------------------ ------------ ------------ ----------
12. taxation
a) Tax recognised in the consolidated income statement:
Re-presented(1)
Unaudited Unaudited Audited
28 February 28 February 31 August
2019 2018 2018
GBPm GBPm GBPm
---------------------------------------------- ------------ --------------- ----------
Current income tax
Income tax in respect of current period 0.1 0.5 0.8
Adjustments in respect of prior periods 0.2 0.6 0.8
Deferred tax
On fair value of investment property (0.4) 6.0 6.0
On non-UK losses (1.3) (1.3) (1.4)
On derivatives - - (0.4)
Reversal on disposal of Leopard portfolio - (4.7) (4.7)
Tax (credit)/charge for the period recognised
in the consolidated income statement (1.4) 1.1 1.1
---------------------------------------------- ------------ --------------- ----------
(1) Tax has been re-presented at 28 February 2018 to split out
the reversal on disposal of the Leopard portfolio
There was no tax recognised in equity or other comprehensive
income during the period (28 February 2018: GBPnil, 31 August 2018:
GBPnil).
b) Reconciliation
The tax rate for the period is lower than the average standard
rate of corporation tax in the UK of 19.0 per cent (28 February
2018: 19.0 per cent, 31 August 2018: 19.0 per cent). The
differences are explained below:
Re-presented(1)
Unaudited Unaudited Audited
28 February 28 February 31 August
2019 2018 2018
GBPm GBPm GBPm
------------------------------------------------ ------------ --------------- ----------
(Loss)/profit before tax (4.7) 60.8 97.4
(Loss)/profit before tax multiplied by standard
rate of corporation tax (0.9) 11.6 18.5
Effect of:
- Revaluation of investment property 5.4 (0.3) (1.0)
- Gain on disposal of investment property - (0.1) (0.7)
- Gain on disposal of subsidiaries - (2.7) (2.9)
- Gain on business combinations - (0.9) (0.9)
- Change in fair value of derivative financial
instruments 0.4 (1.0) (1.6)
- Income not subject to UK income tax (0.9) (1.5) (2.5)
- REIT exempt property rental profits (5.2) (4.9) (8.3)
- Losses utilised - - (0.1)
- Non-UK losses carried forward (1.3) (1.3) (1.3)
- Unutilised losses carried forward 0.4 1.1 0.1
- Impact of foreign tax 0.1 0.5 0.6
- Expenses not deductible for tax 0.3 - 0.4
- Adjustments in respect of prior periods 0.3 0.6 0.8
------------------------------------------------ ------------ --------------- ----------
Tax (credit)/charge for the period recognised
in the consolidated income statement (1.4) 1.1 1.1
------------------------------------------------ ------------ --------------- ----------
(1) Tax has been re-presented at 28 February 2018 to split out
the reversal on disposal of the Leopard portfolio
In the reconciliation above for the period ended 28 February
2019, the effective tax rate of the Group was negative 29.8 per
cent (28 February 2018: 1.8 per cent, 31 August 2018: 1.1 per
cent).
The enactment of Finance (No. 2) Act 2015 and Finance Act 2016
reduced the main rate of corporation tax from 20 per cent to 19 per
cent with effect 1 April 2017, with a further reduction to 17 per
cent from April 2020.
On 4 December 2013, the Group converted to a UK-REIT. As a
result, the Group does not pay UK Corporation Tax on the profits
and gains from qualifying rental business in the UK provided
certain conditions are met. Non-qualifying profits and gains of the
Group continue to be subject to corporation tax such as the profits
and gains outside of the UK. The Directors intend the Group to
continue as a REIT for the foreseeable future. As a result,
deferred tax is no longer recognised on temporary differences
relating to the UK property rental business which is within the
REIT structure.
13. investment property
UK UK UK
Commercial Retail Hotels Europe(1) Total Freehold Leasehold
28 February 2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ ----------- ------- ------- ---------- ------- -------- ---------
Opening carrying value at
1 September 2018 504.6 485.4 364.1 243.9 1,598.0 1,165.8 432.2
Acquisition of property 36.5 - - - 36.5 36.5 -
Capitalised expenditure 0.4 0.7 1.3 1.1 3.5 0.8 2.7
Disposals through sale of
property - - - (3.3) (3.3) (3.3) -
Gain/(loss) on revaluation
of investment property 0.6 (26.9) (2.8) (1.3) (30.4) (15.2) (15.2)
Foreign exchange movement
in foreign operations - - - (10.7) (10.7) (9.2) (1.5)
-------- ---------
IFRS carrying value at 28
February 2019 542.1 459.2 362.6 229.7 1,593.6 1,175.4 418.2
Adjustments:
Minimum payments under head
leases
(Note 19) (1.9) (10.1) (0.4) (1.4) (13.8) - (13.8)
Tenant lease incentives (Note
17) 1.8 6.4 2.7 2.3 13.2 8.6 4.6
-------- ---------
Market value of Group portfolio
at 28 February 2019 542.0 455.5 364.9 230.6 1,593.0 1,184.0 409.0
------------------------------------ ----------- ------- ------- ---------- -------- ---------
Joint ventures
Share of joint venture investment
property (Note 14) 11.0 - - 13.6 24.6 24.6 -
------------------------------------ ----------- ------- ------- ---------- ------- -------- ---------
Market value of total portfolio
at 28 February 2019
(on a proportionately consolidated
basis) 553.0 455.5 364.9 244.2 1,617.6 1,208.6 409.0
------------------------------------ ----------- ------- ------- ---------- ------- -------- ---------
UK UK UK
Commercial Retail Hotels Europe(1) Total Freehold Leasehold
31 August 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ----------- ------- ------- ---------- ------- -------- ---------
Opening carrying value at
1 September 2017 344.1 507.5 239.3 404.0 1,494.9 1,239.7 255.2
Business combinations (Note
9) 161.7 - 115.4 - 277.1 104.9 172.2
Acquisition of property 20.9 - - - 20.9 20.9 -
Capitalised expenditure 0.9 4.0 3.2 6.0 14.1 4.0 10.1
Capitalised finance costs - - - 0.7 0.7 - 0.7
Disposals through sale of
subsidiaries (Note 8) (11.1) - - (158.4) (169.5) (169.5) -
Disposals through the sale
of property (15.3) - - (6.0) (21.3) (20.3) (1.0)
Transfer to assets held for
sale (23.1) - - - (23.1) (23.1) -
Gain on revaluation of investment
property prior to reclassification
as held for sale 0.9 - - - 0.9 0.9 -
Transfer from assets held
for sale 0.9 - - 3.6 4.5 3.6 0.9
(Loss)/gain on revaluation
of investment property 24.6 (26.1) 6.2 6.1 10.8 16.0 (5.2)
Foreign exchange movement
in foreign operations - - - (12.0) (12.0) (11.3) (0.7)
-------- ---------
IFRS carrying value at 31
August 2018 504.6 485.4 364.1 243.9 1,598.0 1,165.8 432.2
Adjustments:
Minimum payments under head
leases
(Note 19) (1.9) (10.1) (0.4) (1.5) (13.9) - (13.9)
Tenant lease incentives (Note
17) 1.9 5.7 1.2 2.1 10.9 6.9 4.0
-------- ---------
Market value of Group portfolio
at
31 August 2018 504.6 481.0 364.9 244.5 1,595.0 1,172.7 422.3
-------------------------------------- ----------- ------- ------- ---------- -------- ---------
Joint ventures
Share of joint venture investment
property (Note 15) 11.3 - - 14.1 25.4 25.4 -
-------------------------------------- ----------- ------- ------- ---------- ------- -------- ---------
Market value of total portfolio
at
31 August 2018 (on a proportionately
consolidated basis) 515.9 481.0 364.9 258.6 1,620.4 1,198.1 422.3
-------------------------------------- ----------- ------- ------- ---------- ------- -------- ---------
(1) Included within the Europe segment at 28 February 2019 is
property under development of GBP31.3 million (31 August 2018:
GBP32.1 million; 28 February 2018: GBP30.4 million).
The tables above present both segmental and market value
investment property information prepared on a proportionately
consolidated basis. Properties that have been classified as held
for sale in the current year are also included so that the market
value of the total portfolio can be determined. This format is not
a requirement of IFRS and is for informational purposes as it is
used in reports presented to the Group's Chief Operating Decision
Maker.
Recognition
Judgement may be required to determine whether a property
qualifies as an investment property. Investment property comprises
a number of retail and commercial properties in the UK and Europe
that are leased to unconnected third parties.
The UK Hotel portfolio is held for capital appreciation and to
earn rental income. Apart from the five Travelodge branded hotels,
the hotel portfolio has been let to RBH to separately manage the
operating business of each hotel for a fixed rent. The rent is
subject to annual review which takes into account the forecast
EBITDA. As detailed in the key judgements and estimates in Note 2,
aside from the Group's associate interest in RBH and the receipt of
rental and dividend income, RDI is not involved in the hotel
management business and there are limited transactions between RDI
and RBH. As a result, the Directors consider it appropriate to
classify the hotel portfolio as investment property in line with
IAS 40.
On acquisition of control of the IHL group, the operating
businesses of five of the nine hotels acquired were managed
internally, such that these hotels were considered owner-occupied
prior to acquisition by RDI. With effect from 1 September 2017, RDI
restructured the operating business model of these hotels to a
property rental business model by disposing of the operating
businesses to RBH to manage in the same manner as Group's existing
hotel portfolio. The Group therefore considers classification as
investment property on initial recognition to be appropriate.
Valuation
The carrying amount of investment property is the market value
of the property as determined by appropriately qualified
independent valuers and adjusted for minimum payments under head
leases and tenant lease incentives. Valuations are based on what is
determined to be the highest and best use. When considering the
highest and best use a valuer will consider, on a property by
property basis, and in limited circumstances in aggregation with
other assets, its actual and potential uses which are physically,
legally and financially viable. Where the highest and best use
differs from the existing use, the valuer will consider the cost
and the likelihood of achieving and implementing this change to
determine an appropriate valuation.
The fair value of the Group's property for the period ended 28
February 2019 was assessed by independent and appropriately
qualified valuers in accordance with the Royal Institute of
Chartered Surveyors ("RICS") Valuation - Global Standards 2017
(incorporating the IVSC International Valuation Standards), if
relevant, the RICS Valuation - Professional Standards UK January
2014 (revised April 2015) and IFRS 13. The valuations are performed
by BNP Paribas Real Estate for the UK Shopping Centres and the
Esplanade and by Savills for rest of the portfolio. The valuations
are reviewed internally by senior management and presented to the
Audit and Risk Committee. The presentation includes discussion
around the assumptions used by the external valuers, as well as a
review of the resulting valuations.
Valuation inputs
The fair value of the property portfolio has been determined
using either a discounted cash flow or a yield capitalisation
technique, whereby contracted and market rental values are
capitalised at a market rate. The resulting valuations are
cross-checked against the net initial yield and the fair market
values per square foot of comparable recent market
transactions.
The valuation techniques described above are consistent with
IFRS 13 and use significant unobservable inputs. Valuation
techniques can change at each valuation round depending on
prevailing market conditions and the property's highest and best
use at the reporting date. Where there is a lack of market
comparable transactions, the level of estimation and judgement
increases on account of less observable inputs and the degree of
variability could be expected to widen. This is of particular
relevance to the Group's UK Retail sector where there is continued
weakening of investor sentiment, retail failures and ongoing
structural change in consumer behaviour.
The Group considers that all of its investment property falls
within 'Level 3', as defined by IFRS 13 (refer to Note 28). There
has been no transfer of property within the fair value hierarchy
during the period.
Acquisitions
The Group acquired 13.5 acres of land interest in Bicester,
Oxfordshire for GBP7.9 million (excluding costs) and an industrial
estate in Farnborough, Hampshire (Southwood Business Park) for a
total consideration of GBP26.3 million (excluding costs).
Disposals
The Group made one disposal during the period to 28 February
2019 from the European portfolio, namely a retail warehouse in
Eilenberg, Germany. The sale at book value realised a net loss
after costs of GBP0.2 million.
Sales
proceeds Disposal costs Net sales proceeds Carrying value Gain/(loss) on disposal
28 February 2019 GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- -------------- ------------------ -------------- -----------------------
Eilenburg 3.3 (0.2) 3.1 3.3 (0.2)
Disposals during the period 3.3 (0.2) 3.1 3.3 (0.2)
---------------------------- --------- -------------- ------------------ -------------- -----------------------
Committed expenditure
The Group was contractually committed to expenditure of GBP22.7
million for the future development and enhancement of investment
property at 28 February 2019 (31 August 2018: GBP8.3 million).
Commercial Property Price Risk
The Board draws attention to the risks associated with
commercial property investments. Although over the long term
property is considered a low risk asset, investors must be aware
that significant short and medium term risk factors are inherent in
the asset class. Investments in property are relatively illiquid
and usually more difficult to realise than listed equities or bonds
and this restricts the Group's ability to realise value in cash in
the short-term.
14. INvestment in and loans to joint ventures
Unaudited Audited
28 February 31 August
2019 2018
GBPm GBPm
-------------------------------------------------- ------------ ----------
Investment in joint ventures
Opening balance at 1 September 1.9 1.9
Additional investment in joint ventures - 0.1
Share of post-tax profit from joint ventures 0.2 -
Foreign currency translation (0.1) (0.1)
-------------------------------------------------- ------------ ----------
Investment in joint ventures 2.0 1.9
Loans to joint ventures
Opening balance at 1 September 5.2 4.3
Increase in loans to joint ventures - 1.0
Repayment of loans by joint ventures (0.1) (0.1)
Reversal of impairment of loans to joint ventures 0.1 0.1
Foreign currency translation (0.2) (0.1)
-------------------------------------------------- ------------ ----------
Loans to joint ventures 5.0 5.2
Carrying value of interests in joint ventures 7.0 7.1
-------------------------------------------------- ------------ ----------
During the period ended 28 February 2019, the Group's material
investments in joint ventures which are presented in the tables of
this note included the following interests:
(i) 52 per cent interest in RI Menora German Holdings S.à.r.l.,
a joint venture with Menora Mivtachim, which ultimately owns
properties in Waldkraiburg, Huckelhoven and Kaiserslautern,
Germany. The Group acquired an additional 1.5 per cent interest in
the joint venture in November 2017 following the acquisition of a
non-controlling interest. Notwithstanding the economic
shareholding, the contractual terms provide for joint control and
so the Company does not control the entity;
(ii) 49 per cent interest in Wichford VBG Holding S.à.r.l., a
joint venture with Menora Mivtachim, which owned Government-let
properties in Dresden, Berlin, Stuttgart and Cologne, Germany. The
joint venture disposed of its property-owning subsidiaries on 1
January 2017 as detailed below; and
(iii) 50 per cent interest in TwentySix The Esplanade Limited, a
joint venture with Rimstone Limited, which owns an office building
in St. Helier, Jersey.
The Group's interest in joint venture entities is in the form
of:
1) an interest in the share capital of the joint venture companies; and
2) loans advanced to the joint venture entities.
RI Menora German Holdings S.à.r.l. and Wichford VBG Holding
S.à.r.l. both have accounting year ends of 31 December which differ
from the Group so as to align with the year end of the joint
venture partner, Menora Mivtachim.
Wichford VBG Holding S.à.r.l.
On 1 January 2017, Wichford VBG Holding S.à.r.l. exchanged on
the sale of its four German office assets. During the year ended 31
August 2018, the Group incurred additional transaction costs of
GBP0.1 million which have been presented as a loss on sale of the
joint venture.
Interest in joint ventures previously not recognised
Under the equity method, the Esplanade was carried at nil in the
Group's financial statements at the prior period end on 28 February
2018. At 28 February 2019, the share of these cumulative losses no
longer exceeds the Group's cumulative cost of investment in and
loans to, the Esplanade. As such, the Group can begin to recognise
its share of profits by way of reversal of previous impairment
charges taken against the loans made to the joint venture. On a
proportionate basis and for segmental reporting purposes, the
Group's interest in the Esplanade is recognised on a line-by-line
basis. Refer to Note 3.
Summarised Financial Information
The summarised financial information of the Group's joint
ventures is set out separately below:
RI Elimination
Wichford Menora of joint
VBG German venture
Holding Holdings partners' Proportionate
S.à.r.l. S.à.r.l. Esplanade Total interest Total
28 February 2019 GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Percentage ownership interest 49% 52% 50%
Summarised Income Statement
Rental income - 0.9 0.9 1.8 (0.9) 0.9
Rental expense - (0.1) - (0.1) 0.1 -
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Net rental income - 0.8 0.9 1.7 (0.8) 0.9
Administrative costs and other
fees - (0.1) 0.3 0.2 (0.1) 0.1
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Net operating (expense)/income - 0.7 1.2 1.9 (0.9) 1.0
Gain/(loss) on revaluation of
investment property - 0.2 (0.6) (0.4) 0.2 (0.2)
Finance expense on loans from
joint venture partners - (0.3) - (0.3) 0.1 (0.2)
Finance expense - (0.1) (0.5) (0.6) 0.3 (0.3)
Change in fair value of derivative
financial instruments - - 0.3 0.3 (0.1) 0.2
(Loss)/profit before tax - 0.5 0.4 0.9 (0.4) 0.5
Taxation (0.1) - (0.1) (0.2) 0.1 (0.1)
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
(Loss)/profit and total comprehensive
(expense)/income (0.1) 0.5 0.3 0.7 (0.3) 0.4
Reconciliation to IFRS:
Elimination of non-controlling
and joint venture partners'
interests - (0.2) (0.2) (0.4) 0.3 (0.1)
Movement in losses restricted
in joint ventures - - (0.1) (0.1) - (0.1)
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Group share of joint venture
results (0.1) 0.3 - 0.2 - 0.2
Summarised Balance Sheet
Investment property - 26.2 21.9 48.1 (23.6) 24.5
Trade and other receivables - 0.8 0.1 0.9 (0.4) 0.5
Cash and cash equivalents 0.8 0.3 0.6 1.7 (0.8) 0.9
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Total assets 0.8 27.3 22.6 50.7 (24.8) 25.9
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
External borrowings - (13.0) (16.8) (29.8) 14.6 (15.2)
Loans from joint venture partners - (8.9) (6.6) (15.5) 7.7 (7.8)
Derivative financial instruments - - (5.3) (5.3) 2.6 (2.7)
Deferred tax - (1.2) - (1.2) 0.6 (0.6)
Trade and other payables (0.1) (0.7) (0.3) (1.1) 0.5 (0.6)
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Total liabilities (0.1) (23.8) (29.0) (52.9) 26.0 (26.9)
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Non-controlling interests - (0.3) - (0.3) 0.1 (0.2)
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Net assets/(liabilities) 0.7 3.2 (6.4) (2.5) 1.3 (1.2)
Reconciliation to IFRS:
Elimination of joint venture
partners' interests (0.3) (1.6) 3.2 1.3 (1.3) -
Loan to joint ventures (1) (Note
29) - 4.9 0.1 5.0 - 5.0
Cumulative losses restricted
(2) - - 3.2 3.2 - 3.2
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Carrying value of interests
in joint ventures 0.4 6.5 0.1 7.0 - 7.0
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
(1) Loans to joint ventures include the opening balance, any
advances or repayments and foreign currency movements during the
period.
(2) Cumulative losses restricted represent the Group's share of
losses in the Esplanade which previously exceeded the cost of the
Group's investment. At 28 February 2019 the Group's share of losses
in the Esplanade no longer exceeded the cost of the Group's
investment and the Group has started recognising its share of
profits by way of reversal of impairment of the loan to the joint
venture.
RI Elimination
Wichford Menora of joint
VBG German venture
Holding Holdings partners' Proportionate
S.à.r.l. S.à.r.l. Esplanade Total interest total
31 August 2018 GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Percentage ownership interest 49% 52% 50%
Summarised income statement
Rental income - 1.8 1.7 3.5 (1.7) 1.8
Rental expense - (0.3) - (0.3) 0.1 (0.2)
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Net rental income - 1.5 1.7 3.2 (1.6) 1.6
Administrative costs and other
fees (0.2) (0.2) - (0.4) 0.2 (0.2)
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Net operating (expense)/income (0.2) 1.3 1.7 2.8 (1.4) 1.4
Gain/(loss) on revaluation of
investment property - 0.2 (0.6) (0.4) 0.2 (0.2)
Finance expense on loans from
joint venture partners - (0.6) - (0.6) 0.3 (0.3)
Finance expense - (0.3) (1.1) (1.4) 0.7 (0.8)
Change in fair value of derivative
financial instruments - - 1.4 1.4 (0.7) 0.7
(Loss)/profit before tax (0.2) 0.6 1.4 1.8 (0.9) 0.8
Taxation - (0.4) - (0.4) 0.2 (0.2)
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
(Loss)/profit and total comprehensive
(expense)/income (0.2) 0.2 1.4 1.4 (0.7) 0.7
Reconciliation to IFRS:
Elimination of non-controlling
and joint venture partners'
interests 0.1 (0.1) (0.7) (0.7) 0.7 -
Movement in losses restricted
in joint ventures - - (0.7) (0.7) - (0.7)
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Group share of joint venture
results (0.1) 0.1 - - - -
Summarised balance sheet
Investment property - 27.2 22.5 49.7 (24.3) 25.4
Trade and other receivables - 0.8 0.2 1.0 (0.5) 0.5
Cash and cash equivalents 0.8 0.3 0.4 1.5 (0.7) 0.8
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Total assets 0.8 28.3 23.1 52.2 (25.5) 26.7
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
External borrowings - (13.7) (17.0) (30.7) 15.1 (15.6)
Loans from joint venture partners - (9.4) (6.6) (16.0) 7.8 (8.2)
Derivative financial instruments - - (5.5) (5.5) 2.7 (2.8)
Deferred tax - (1.2) - (1.2) 0.6 (0.6)
Trade and other payables - (0.7) (0.6) (1.3) 0.5 (0.8)
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Total liabilities - (25.0) (29.7) (54.7) 26.7 (28.0)
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Non-controlling interests - (0.3) - (0.3) 0.2 (0.1)
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Net assets/(liabilities) 0.8 3.0 (6.6) (2.8) 1.4 (1.4)
Reconciliation to IFRS:
Elimination of joint venture
partners' interests (0.4) (1.5) 3.3 1.4 (1.4) -
Loan to joint ventures(1) (Note
32) - 5.2 - 5.2 - 5.2
Cumulative losses restricted(2) - - 3.3 3.3 - 3.3
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Carrying value of interests
in joint ventures 0.4 6.7 - 7.1 - 7.1
-------------------------------------- -------------- -------------- --------- ------ ----------- -------------
(1) Loans to joint ventures include the opening balance, any
advances or repayments and foreign currency movements during the
period.
(2) Cumulative losses restricted represent the Group's share of
losses in the Esplanade which equalled the cost of the Group's
investment at 31 August 2018. As a result, the carrying value of
the investment was GBPNil in accordance with the requirements of
IAS 28.
15. Investment in associate
Unaudited Audited
28 February 31 August
2019 2018
GBPm GBPm
------------------------------------------------------ ------------ ----------
Associate investment in IHL and RBH
Opening balance at 1 September 9.1 9.4
IHL
Transfer from investment at fair value through profit
or loss - 8.5
Additions - 5.0
Reclassification as investment in subsidiary (Note
9) - (13.5)
RBH
Share of post-tax profit from associate 0.5 0.3
Distributions from associate (Note 29) (0.4) (0.6)
Carrying value of net investment in associate 9.2 9.1
------------------------------------------------------ ------------ ----------
IHL
On 15 September 2017, the Group obtained consent from the
shareholders of IHL to acquire 16.4 million shares (29.3 per cent)
being all of the non-controlling interest in IHL via a scheme of
arrangement. From this date, the Group was considered to have
significant influence over IHL and the investment was reclassified
from an investment at fair value through profit or loss. On 26
October 2017, the Group acquired an additional 5.0 million shares
in IHL for GBP5.0 million from Redefine Properties and increased
its interest to 26.2 per cent. The additional interests acquired
allowed RDI to continue to participate in the financial and
operating decisions of IHL, but not to direct those decisions, and
therefore the cumulative investment of GBP13.5 million continued to
be classified as an associate.
On 13 November 2017, the scheme of arrangement completed, and
the Group acquired 16.4 million shares from scheme participants and
1.9 million shares from Redefine Properties, increasing RDI's
interest in IHL from 26.2 to 58.9 per cent (increased to 74.1 per
cent at period end). The Group could, from this date, direct the
operating and financial decisions of IHL and was exposed to the
variable returns of the property group as a result. RDI had
acquired control of IHL from this date and this is considered the
acquisition date for the purposes of IFRS 3. The fair value of the
Group's associate interest in IHL of GBP13.5 million was,
therefore, included in the determination of net gain on bargain
purchase of IHL as a stepped acquisition.
RBH
The summarised financial information of RBH is set out
below.
Unaudited Audited
28 February 31 August
2019 2018
GBPm GBPm
---------------------------------------------------------- ------------ ----------
Summarised Income Statement
Revenue 37.1 78.3
Other income 2.0 1.6
Expenses (36.6) (78.1)
---------------------------------------------------------- ------------ ----------
Profit from operations 2.5 1.8
Taxation (0.5) (0.7)
---------------------------------------------------------- ------------ ----------
Profit for the period 2.0 1.1
---------------------------------------------------------- ------------ ----------
Elimination of third party interest (1.5) (0.8)
---------------------------------------------------------- ------------ ----------
Group share of results 0.5 0.3
Classified as:
Share of post-tax profit 0.5 0.3
Summarised Balance Sheet
Non-current assets 4.1 4.1
Intangible asset 28.1 28.1
Trade and other receivables 9.3 9.3
Cash and cash equivalents 4.0 3.9
---------------------------------------------------------- ------------ ----------
Total assets 45.5 45.4
---------------------------------------------------------- ------------ ----------
Current liabilities (13.2) (13.6)
---------------------------------------------------------- ------------ ----------
Total liabilities (13.2) (13.6)
---------------------------------------------------------- ------------ ----------
Net assets 32.3 31.8
---------------------------------------------------------- ------------ ----------
Capital contribution adjustment 1.1 1.1
---------------------------------------------------------- ------------ ----------
Adjusted net assets 33.4 32.9
---------------------------------------------------------- ------------ ----------
Elimination of third party interest (25.0) (24.6)
---------------------------------------------------------- ------------ ----------
Share of net assets attributable to the Group 8.4 8.3
Recoverable amount of excess net investment in associate 0.8 0.8
---------------------------------------------------------- ------------ ----------
Carrying value of the Group's net investment in associate 9.2 9.1
---------------------------------------------------------- ------------ ----------
Distributions received from the associate for the period ended
28 February 2019 of GBP0.4 million (31 August 2018 of GBP0.6
million).
Following an internal impairment assessment and on receipt of an
independent valuation of RBH, the Directors considered that the
recoverable amount of the Group's net investment in RBH was GBP9.4
million at 31 August 2017. At 28 February 2019, the Directors
considered this valuation still to be an appropriate reference for
assessing the carrying value of RBH and any impairment indicators.
There is no objective evidence of impairment at the reporting
date.
16. OTHER NON-CURRENT ASSETS
INTANGIBLE ASSETS
Unaudited Audited
28 February 31 August
2019 2018
GBPm GBPm
------------------------------- ------------ ----------
Opening balance at 1 September 0.8 1.1
Amortisation (0.1) (0.3)
Closing balance 0.7 0.8
------------------------------- ------------ ----------
Intangible assets were recognised on the acquisition of Redefine
International Management Holdings Limited Group ("RIMH") and
represented the fair value of the advisory agreements acquired by
the Group. The value attributed to the contracts between RIMH and
third parties, including joint ventures of the Group and the
non-controlling interests, was GBP1.9 million. The intangible asset
is being amortised on a straight-line basis over the remaining term
of the contracts, which have an average life of eight years, and a
remaining life of just under three years at 28 February 2019.
PROPERTY, PLANT AND EQUIPMENT
Unaudited Audited
28 February 31 August
2019 2018
GBPm GBPm
------------------------------------------ ------------ ----------
Opening balance at 1 September 0.5 0.1
Additions 0.1 0.6
Depreciation (0.1) (0.2)
Disposals net of accumulated depreciation (0.1) -
Closing balance 0.4 0.5
------------------------------------------ ------------ ----------
Total other non-current assets 1.1 1.3
------------------------------------------ ------------ ----------
17. receivables
Unaudited Audited
28 February 31 August
2019 2018
GBPm GBPm
----------------------------------------------------- ------------ ----------
Non-current
Tenant lease incentives (1) 9.0 8.1
Tenant lease incentives to related parties (1) (Note
29) 0.8 0.4
Loans to external parties 1.6 1.6
Letting costs 1.2 1.1
----------------------------------------------------- ------------ ----------
Total non-current other receivables 12.6 11.2
----------------------------------------------------- ------------ ----------
Current
Rent receivable 1.6 1.0
Tenant lease incentives (1) 1.5 1.6
Tenant lease incentives to related parties (1) (Note
29) 1.9 0.8
Other amounts receivable from related parties (Note
29) - 0.3
Prepayments and accrued income 2.7 2.5
Other receivables 1.6 0.9
----------------------------------------------------- ------------ ----------
Total current trade and other receivables 9.3 7.1
----------------------------------------------------- ------------ ----------
Total receivables 21.9 18.3
----------------------------------------------------- ------------ ----------
(1) Total tenant lease incentives of GBP13.2 million (31 August
2018: GBP10.9 million) have been deducted from investment property
in determining fair value at the balance sheet date. Refer to Note
13.
18. cash and cash equivalents
Unaudited Audited
28 February 31 August
2019 2018
GBPm GBPm
--------------------------------------- ------------ ----------
Unrestricted cash and cash equivalents 36.3 58.3
Restricted cash and cash equivalents 12.3 0.7
--------------------------------------- ------------ ----------
Cash and cash equivalents 48.6 59.0
--------------------------------------- ------------ ----------
At 28 February 2019, cash and cash equivalents to which the
Group did not have instant access amounted to GBP12.3 million (31
August 2018: GBP0.7 million). GBP0.7 million of the restricted cash
is held on deposit in Germany under an hereditable building right
agreement for the property at Ingolstadt and GBP11.6 million is
held by Aviva in respect of a facility which has a charge against
four shopping centres, namely: Grand Arcade, Wigan; Weston Favell,
Northampton; Birchwood, Warrington and Byron Place, Seaham.
The Group's share of total cash and cash equivalents, including
its share of joint venture cash, at 28 February 2019 was GBP49.4
million (31 August 2018: GBP59.8 million), with a further GBP25.0
million of undrawn committed facilities available (31 August 2018:
GBP75.0 million).
19. borrowings, including Finance Leases
Unaudited Audited
28 February 31 August
2019 2018
GBPm GBPm
------------------------------------------------------- ------------ ----------
Non-current
Bank loans 779.0 787.9
Less: unamortised debt issue costs (4.9) (2.7)
Less: fair value adjustments (13.6) (14.1)
760.5 771.1
Other external loan 0.6 -
Finance leases 13.0 13.1
------------------------------------------------------- ------------ ----------
Total non-current borrowings, including finance leases 774.1 784.2
------------------------------------------------------- ------------ ----------
Current
Bank loans 39.8 4.7
Less: unamortised debt issue costs (0.3) (0.2)
Less: fair value adjustments (0.6) (0.6)
------------ ----------
38.9 3.9
Other external loan - 0.7
Finance leases 0.8 0.8
Total current borrowings, including finance leases 39.7 5.4
------------------------------------------------------- ------------ ----------
Total borrowings, including finance leases 813.8 789.6
------------------------------------------------------- ------------ ----------
Analysis of movement in net borrowings, including finance
leases
The table below presents the movements in net borrowings for the
period ended 28 February 2019, split between cash and non-cash
movements and as required by IAS 7.
Cash and cash
Non-current Current equivalents Net debt
GBPm GBPm GBPm GBPm
------------------------------------ ----------- ------- ------------- --------
Opening balance at 1 September
2018 784.2 5.4 (59.0) 730.6
Financing activities (cash)
Borrowings drawn 38.7 - (38.7) -
Borrowings repaid (4.7) (2.4) 7.1 -
Debt issue cost additions (3.0) - 3.0 -
31.0 (2.4) (28.6) -
Financing activities (non-cash)
Debt issue costs movements 0.6 - - 0.6
Accretion of fair value adjustments 0.4 - - 0.4
Reclassification between current
and non-current (36.7) 36.7 - -
----------- ------- ------------- --------
(35.7) 36.7 - 1.0
Other net cash movements - - 39.0 39.0
Foreign currency translation (5.4) - - (5.4)
------------------------------------ ----------- ------- ------------- --------
Closing balance as at 28 February
2019 774.1 39.7 (48.6) 765.2
------------------------------------ ----------- ------- ------------- --------
Bank loans
28 February 2019 31 August 2018
-------------------------
Carrying Nominal Fair Carrying Nominal Fair
Value Value Value Value Value Value
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- ------- ------ -------- ------- ------
Non-current liabilities
Bank loans 779.0 779.0 779.0 787.9 787.9 787.9
Less: unamortised debt
issue costs (4.9) - - (2.7) - -
Less: fair value adjustments (13.6) - (10.8) (14.1) - (10.3)
------------------------------- -------- ------- ------ -------- ------- ------
Total non-current bank
loans 760.5 779.0 768.2 771.1 787.9 777.6
------------------------------- -------- ------- ------ -------- ------- ------
Current liabilities
Bank loans 39.8 39.8 39.8 4.7 4.7 4.7
Less: unamortised debt
issue costs (0.3) - - (0.2) - -
Less: fair value adjustments (0.6) - (0.6) (0.6) - (0.6)
Total current bank loans 38.9 39.8 39.2 3.9 4.7 4.1
------------------------------- -------- ------- ------ -------- ------- ------
Total IFRS bank loans 799.4 818.8 807.4 775.0 792.6 781.7
------------------------------- -------- ------- ------ -------- ------- ------
Joint ventures
Share of joint ventures
bank loans 15.1 15.1 15.1 15.6 15.6 15.6
Total bank loans (on a
proportionately consolidated
basis) 814.5 833.9 822.5 790.6 808.2 797.3
------------------------------- -------- ------- ------ -------- ------- ------
Cash and cash equivalents (48.6) (48.6) (48.6) (59.0) (59.0) (59.0)
Share of joint ventures
cash and cash equivalents (0.8) (0.8) (0.8) (0.8) (0.8) (0.8)
------------------------------- -------- ------- ------ -------- ------- ------
Net debt (on a proportionately
consolidated basis) 765.1 784.5 773.1 730.8 748.4 737.5
------------------------------- -------- ------- ------ -------- ------- ------
The table above presents bank loans, cash and cash equivalents
and net debt information prepared on a proportionately consolidated
basis. This format is not a requirement of IFRS and is presented
for informational purposes only as it is used in reports presented
to the Group's Chief Operating Decision Maker.
The Group's bank loans are secured over investment property of
GBP1,559.3 million (31 August 2018: GBP1,525.4 million) and are
carried at amortised cost. On a proportionately consolidated basis,
bank loans are secured over investment property of GBP1,584.0
million (31 August 2018: GBP1,550.8 million).
The Group's nominal value of drawn debt (on a proportionately
consolidated basis) has increased during the period to GBP833.9
million (31 August 2018: GBP808.2 million) following refinancings,
drawdowns and most significantly the major transactions the Group
has been engaged in over the last six months. These include:
- in September 2018, following the Eilenburg disposal from the
Premium portfolio, EUR3.1 million of sales proceeds were repaid
against the loan held with Münchener Hypothekenbank eG;
- on 12 October 2018, the Group drew EUR19.4 million from a new
facility, which matures in June 2023, secured over its property at
Ingolstadt in Germany following completion of the main development
and handover to Primark;
- at 31 August the total drawn balance on the AUK facility was
GBP228.0 million and on 21 September 2018 the group drew a further
GBP15m on the AUK revolving credit facility ("RCF");
- in October 2018 the Group voluntarily cancelled GBP28.0
million of the AUK facility reducing the total available facility
from GBP303.0 million to GBP275.0 million (with a drawn balance of
GBP243.0 million and an undrawn balance of GBP32.0 million);
- in late October 2018, following a lender valuation, the Group
was notified that the lenders loan to value on the Aviva facility
was in excess of its 85 per cent covenant. The loan, which is
secured against four of the Group's UK Shopping Centres (namely
Grand Arcade, Wigan, Weston Favell, Northampton, Birchwood,
Warrington and Byron Place, Seaham) has an outstanding principal
balance of GBP144.7 million (at 28 February 2019), a fixed rate of
interest of 5.5 per cent and matures in April 2042. As permitted
within the facility agreement, the Group subsequently paid GBP9.7
million to cure the loan to value covenant to below 85 per cent.
Since October 2018 and at the compliance reporting date in January
2019, the Group remained in an operational cash trap whereby net
operating cash flows are retained within the facility and are
anticipated to be used to reduce the principal balance outstanding.
At 28 February 2019 the cash paid to cure the covenant, together
with the trapped operational cashflow (GBP11.6 million), is
disclosed as Restricted Cash within Note 18. In April 2019, post
period end, a further event of default occurred. See Note 33 for
further details;
- in January 2019 the group reported an event of default on a
facility held with Santander secured over three hotels controlled
by the Group, namely the Holiday Inn Express, Dunstable; the
Holiday Inn Express, Southampton; and the Holiday Inn Express,
Redditch. The event of default was in respect to both historic
interest service cover and historic loan to EBITDA. As permitted
within the facility agreement, the Group subsequently prepaid
GBP3.0 million against the facility. No further covenant concerns
have arisen;
- in January 2019 the Group completed the early refinancing of
the AUK facility with total facility commitments of GBP275.0
million and the Group drew down an additional GBP7.0 million on
refinancing to bring the total drawn amount to GBP250.0 million
with an undrawn facility commitment of GBP25.0 million. The
refinancing is not a substantial modification and related debt
issue costs are being amortised over the remaining term of the
refinanced facility; and
- in January 2019 the Group prepaid GBP3.0 million of the IHL
debt to strengthen the related covenant.
Maturity
The maturity of Group bank loans, gross of unamortised debt
issue costs and fair value adjustments is as follows:
Unaudited Audited
28 February 31 August
2019 2018
GBPm GBPm
-------------------------------- ------------ ----------
Less than one year 39.8 4.7
Between one year and five years 613.0 585.5
More than five years 166.0 202.4
818.8 792.6
-------------------------------- ------------ ----------
Certain borrowing agreements contain financial and other
covenants that, if contravened, could alter the repayment
profile.
Fair value disclosures
The nominal value of floating rate borrowings is considered to
be a reasonable approximation of fair value. The fair value of
fixed rate borrowings at the reporting date has been calculated by
discounting cash flows under the relevant agreements at a market
interest rate for similar debt instruments. The market interest
rate has been determined having regard to the term, duration and
security arrangements of the relevant loan and an estimation of the
current rates charged in the market for similar instruments issued
to companies of similar sizes.
The Group considers that all bank loans, including the Group's
share of joint venture bank loans at a total carrying value of
GBP833.9 million, fall within 'Level 3' as defined by IFRS 13
(refer to Note 28).
Finance leases
Obligations under finance leases at the reporting date are as
follows:
Unaudited Audited
28 February 31 August
2019 2018
GBPm GBPm
-------------------------------------------------------- ------------ ----------
Minimum lease payments under finance lease obligations:
Not later than one year 0.8 0.8
Later than one year not later than five years 3.2 3.2
Later than five years 109.2 109.6
113.2 113.6
Less: finance charges allocated to future periods (99.4) (99.7)
-------------------------------------------------------- ------------ ----------
Present value of minimum lease payments 13.8 13.9
-------------------------------------------------------- ------------ ----------
Present value of minimum finance lease obligations:
Not later than one year 0.8 0.8
Later than one year not later than five years 2.7 2.6
Later than five years 10.3 10.5
Present value of minimum lease payments 13.8 13.9
-------------------------------------------------------- ------------ ----------
Finance lease obligations relate to the Group's leasehold
interests in investment property. Finance leases are effectively
secured obligations, as the rights to the leased asset revert to
the lessor in the event of default. The discount rates used in
calculating the present value of the minimum lease payments range
from 1.8 to 6.3 per cent. The fair value of the finance lease
obligations at 28 February 2019 was GBP17.1 million (31 August
2018: GBP15.9 million) and the Group considers that these
liabilities fall within 'Level 3' as defined by IFRS 13 (refer to
Note 28).
20. derivative financial instruments
The Group enters into interest rate swap and interest rate cap
agreements to manage the risks arising from the Group's operations
and its sources of finance.
Interest rate swaps and caps are employed by the Group to manage
the interest rate profile of financial liabilities. In accordance
with the terms of the majority of bank debt arrangements, the Group
has entered into interest rate swaps to convert the rates from
floating to fixed which has eliminated exposure to interest rate
fluctuations. Likewise, interest rate caps are used to limit the
downside exposure to significant changes to the low interest rates
currently prevailing in the market.
It is the Group's policy that no economic trading in derivatives
is undertaken.
Unaudited Audited
28 February 31 August
2019 2018
GBPm GBPm
------------------------------------- ------------ ----------
Derivative Assets
Non-current
Interest rate caps 0.2 0.4
Interest rate swaps - 0.7
0.2 1.1
Derivative Liabilities
Non-current
Interest rate swaps (3.9) (2.9)
(3.9) (2.9)
------------------------------------- ------------ ----------
Net derivative financial instruments (3.7) (1.8)
------------------------------------- ------------ ----------
The Group holds interest rate cap assets at rates of 1.0 to 3.0
per cent, maturing between November 2019 and June 2023. The
interest rate swap assets are held at a rate of 1.1 per cent,
maturing from July 2020 to November 2021. The interest rate swap
liabilities have maturities from February 2020 to February 2024 and
the rates range from 0.4 to 2.0 per cent.
21. Deferred tax
The table below presents the recognised deferred tax liability
and movement during the period:
On
derivative
financial
On investment property instruments On losses carried forward Total
GBPm GBPm GBPm GBPm
------------------------------------------- ---------------------- ------------ ------------------------- -----
Opening balance 1 September 2017 10.4 - - 10.4
Expense/(credit) for the year recognised in
the income statement 1.3 (0.4) (1.4) (0.5)
Foreign currency translation (0.4) - - (0.4)
-------------------------------------------- ---------------------- ------------ ------------------------- -----
Opening balance 1 September 2018 11.3 (0.4) (1.4) 9.5
Credit for the period recognised in the
income statement (0.4) - (1.3) (1.7)
Foreign currency translation (0.5) - 0.1 (0.4)
-------------------------------------------- ---------------------- ------------ ------------------------- -----
Closing balance at 28 February 2019 10.4 (0.4) (2.6) 7.4
-------------------------------------------- ---------------------- ------------ ------------------------- -----
There are no unrecognised deferred tax assets at 28 February
2019 (31 August 2018: None).
22. trade and other payables
Unaudited Audited
28 February 31 August
2019 2018
GBPm GBPm
--------------------------------------------- ------------ ----------
Non-current
Other sundry payables 0.1 0.2
--------------------------------------------- ------------ ----------
Total non-current trade and other payables 0.1 0.2
--------------------------------------------- ------------ ----------
Current
Amounts payable to related parties (Note 29) 0.7 0.4
Rent received in advance 5.0 5.0
Trade payables 0.7 0.7
Service charge 4.3 4.6
Accrued interest 3.4 2.7
VAT payable 5.7 4.7
Accruals 5.2 5.9
Tenant deposits(1) 2.9 2.9
Total current trade and other payables 27.9 26.9
--------------------------------------------- ------------ ----------
Total trade and other payables 28.0 27.1
--------------------------------------------- ------------ ----------
(1) At 28 February 2019, GBP2.9 million of tenant deposits
relate to the London Serviced Office portfolio acquired during the
year ended 31 August 2018.
23. share capital and share premium
authorised Authorised
Number of Share Capital
Shares GBPm
------------------------------------------- --------------- --------------
- At 31 August 2018 (Ordinary shares of 8
pence each) 3,000,000,000 240.0
- Share consolidation (1 share for every 5
shares issued) - 11 February 2019 (2,400,000,000) -
- At 28 February 2019 (Ordinary shares of
40 pence each) 600,000,000 240.0
------------------------------------------- --------------- --------------
issued, called up and fully paid Share Share
Number of capital premium
Shares GBPm GBPm
------------------------------------------------ --------------- -------- --------
At 31 August 2017 1,828,060,146 146.2 511.8
Share issuance - 1 November 2017 12,500,000 1.0 4.0
Share issuance - 13 November 2017 41,074,224 3.3 13.1
Share issuance - 13 November 2017 4,783,697 0.4 1.5
Share issuance - 24 November 2017 2,496,630 0.2 0.8
Scrip dividend - issued December 2017 16,218,190 1.3 4.5
Share buy-back programme - 15 May to 8 June
2018 (14,054,524) (1.1) (4.1)
Scrip dividend - issued June 2018 9,371,173 0.7 3.0
At 31 August 2018 1,900,449,536 152.0 534.6
Share consolidation (1 share for every 5 shares
issued) - 11 February 2019 (1,520,359,613) - -
At 28 February 2019 380,089,923 152.0 534.6
------------------------------------------------ --------------- -------- --------
share transactions
On 1 November 2017, the Group issued 12.5 million shares to
Redefine Properties at 40.0 pence per share to acquire 5.0 million
shares in IHL valued at GBP1 per share.
On 13 November 2017 and on fulfilment of the scheme of
arrangement, the Group issued 41.1 million shares at 40.0 pence per
share in consideration for the acquisition of 16.4 million shares
in IHL from scheme participants. On the same date, the Group also
issued 4.8 million shares to Redefine Properties at 40.0p per share
to acquire 1.9 million shares in IHL valued at GBP1 per share.
On 24 November 2017, the Group issued 2.5 million shares to
Redefine Properties at 40.0p per share in settlement of the 1.0
million shares in IHL that had been acquired on 17 November 2017 at
GBP1 per share.
In October 2017, the Company declared a second interim dividend
of 1.3 pence per share for the six months ended 31 August 2017 and
offered shareholders an election to receive either a cash dividend
or a scrip dividend by way of an issue of new RDI shares credited
as fully paid up. The Company received election forms from
shareholders holding 512.9 million ordinary shares of 8 pence each
representing a 27.2 per cent take up by shareholders, in respect of
which 16.2 million scrip dividend shares were issued in December
2017.
Following an announcement on 9 May 2018, the Company entered
into a share buy-back programme between 15 May 2018 and 8 June
2018. In total, 14.0 million shares were acquired for total
consideration of GBP5.2 million, including transaction costs.
In May 2018, the Company declared an interim dividend of 1.35
pence per share for the six months ended 28 February 2018 and
offered shareholders an election to receive either a cash dividend
or a scrip dividend by way of an issue of new RDI shares credited
as fully paid up. The Company received election forms from
shareholders holding 282.1 million ordinary shares of 8 pence each
representing a 14.9 per cent take up by shareholders, in respect of
which 9.3 million scrip dividend shares were issued in June
2018.
In October 2018, the Company declared a second interim dividend
of 1.35 pence per share for the year ending 31 August 2018 to be
paid in cash.
Following approval by the Board on 24 January 2019 the Group
consolidated every five Ordinary Shares issued and to be issued on
11 February 2019 into one ordinary share of 40 pence each. The
consolidation resulted in 380,089,923 ordinary shares of 40 pence
each being in issue.
24. RESERVES
other reserves
Share-Based Payment Reserve
The share-based payment reserve at 28 February 2019 of GBP0.9
million (31 August 2018: GBP2.3 million) arises from conditional
awards of shares in the Company made to certain employees and the
Executive Directors. The awards will vest on the third anniversary
of the grant, subject to certain performance conditions being
achieved over the vesting period. The Group released from the
reserve to retained earnings GBP1.7 million of cumulative IFRS 2
charge on lapsed and vested awards. The Group incurred a further
GBP0.2 million in relation to awards that vested with certain
employees and has recognised the charge directly in retained
earnings such that the net credit to retained earnings for the
period in relation to share-based payments was GBP1.4 million.
Detailed information on the share-based payment plans in place is
included in the 2018 Annual Report.
Other Reserves
Other reserves of GBP1.0 million at 31 August 2018 arose from
the acquisition of subsidiaries. During the period ended 28
February 2019 this reserve was released on liquidation of the
related subsidiary.
foreign currency translation reserve
The foreign currency translation reserve at 28 February 2019 of
GBP13.1 million (31 August 2018: GBP17.9 million) represents
exchange differences arising from the translation of the Group's
net investment in foreign operations, including both subsidiary and
joint venture interests.
25. Non - controlling Interests
Unaudited Audited
28 February 31 August
2019 2018
GBPm GBPm
------------------------------------------------------------------ ------------ ----------
Opening balance at 1 September 59.5 21.8
Comprehensive income for the period:
Share of profit for the period 1.6 7.4
Foreign currency translation on subsidiary foreign operations - -
Changes in ownership interest in subsidiaries:
Recognition of non-controlling interests on business combinations
(Note 9) - 33.8
Acquisition of non-controlling interests (Note 26) - (0.1)
Dividends paid to non-controlling interests (1.3) (3.4)
Total non-controlling interests 59.8 59.5
------------------------------------------------------------------ ------------ ----------
The following table summarises the financial information
relating to the Group's material non-controlling interests in LSO,
IHL and RHHL, before any intra-group eliminations.
28 February 2019
----------------------------------------------------------------------------------------------------------------------
Total Total non-
non-controlling controlling
LSO IHL RHHL Other interest LSO IHL RHHL Other interest
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- -------- -------- ----- ---------------- -------- -------- -------- ----- -----------
Principal
place of United United United United United United
business Kingdom Kingdom Kingdom Kingdom Kingdom Kingdom
Country of Isle of Isle of
incorporation Man BVI BVI Man BVI BVI
NCI % 20.0% 25.9% 17.52% 20.0% 25.9% 17.52%
Summarised
balance sheet
Investment
property 163.4 117.4 228.5 509.3 163.4 119.0 229.0
Derivative
assets 0.2 - - 0.2 0.3 - 0.1
Other
non-current
assets 0.1 - 0.8 0.9 - - -
Trade and
other
receivables 0.5 0.9 1.6 3.0 0.8 0.2 2.6
Cash and cash
equivalents 5.8 3.0 5.2 14.0 4.0 2.7 4.7
Borrowings,
including
finance
leases (72.3) (48.3) (113.4) (234.0) (72.8) (51.7) (113.3)
Derivative
liabilities - (0.1) - (0.1) - - -
Trade and
other
payables (3.5) (6.5) (1.5) (11.5) (5.1) (3.1) -
Adjusted net
assets 94.2 66.4 121.2 281.8 90.6 67.1 123.1
-------------- ------- -------- -------- ----- ---------------- -------- -------- -------- ----- -----------
NCI share of
adjusted net
assets 18.8 17.2 21.2 57.2 18.1 17.4 21.6
Tax -
attributable
to NCI - - - - - -
-------------- ------- -------- -------- ----- ---------------- -------- -------- -------- ----- -----------
Carrying
amount of NCI 18.8 17.2 21.2 2.6 59.8 18.1 17.4 21.6 2.4 59.5
-------------- ------- -------- -------- ----- ---------------- -------- -------- -------- ----- -----------
Summarised
statement of
comprehensive
income
Revenue 7.9 4.3 6.8 19.0 9.8 9.1 14.6
-------------- ------- -------- -------- ----- ---------------- -------- -------- -------- ----- -----------
Profit/(loss)
for the
period 3.9 (0.5) 4.3 7.7 6.6 7.3 15.9
-------------- ------- -------- -------- ----- ---------------- -------- -------- -------- ----- -----------
Profit/(loss)
attributable
to NCI 0.8 (0.1) 0.8 0.1 1.6 1.3 1.9 2.8 1.4 7.4
Other
comprehensive
income
attributable
to NCI - - - - - - - - - -
-------------- ------- -------- -------- ----- ---------------- -------- -------- -------- ----- -----------
Dividends paid
to NCI 0.3 - 1.1 - 1.4 1.0 0.6 1.8 - 3.4
Summarised
cash flow
statement
Cash inflow
from
operating
activities 3.6 1.9 6.7 10.7 5.5 4.1
Cash outflow
from
investing
activities - (0.9) - (0.5) - 5.6
Cash outflow
from
financing
activities (1.8) (0.7) (6.2) (10.4) (2.8) (5.7)
-------------- ------- -------- -------- ----- ---------------- -------- -------- -------- ----- -----------
Net increase
in cash and
cash
equivalents 1.8 0.3 0.5 (0.2) 2.7 4.0
-------------- ------- -------- -------- ----- ---------------- -------- -------- -------- ----- -----------
26. TRANSACTIONS WITH non--controlling interests
There were no transactions with equity holders during the period
ended 28 February 2019.
At 1 September 2016, 4C Investments was a non-controlling
shareholder of RHHL, with an 11.43 per cent equity interest (1,938
shares) in the issued share capital. The Company had a loan balance
outstanding from 4C Investments, for which a share charge was
created in favour of the Company over 4C Investment's entire
shareholding in RHHL. The total loan balance outstanding, of both
principal and interest, was GBP14.2 million on maturity at 31
December 2016. In the absence of repayment, the Company exercised
its security over the shares. On 7 February 2017, the 1,938 shares
formally transferred to the Company for an agreed transfer price of
GBP6,295 per share, valuing the total shareholding at GBP12.1
million. The carrying value of the non-controlling interest at the
date of transfer was GBP12.7 million and, as a result, a gain of
GBP0.4 million was recognised directly in equity after transaction
costs including tax paid by the Group on behalf of 4C Investments.
During the period ended 28 February 2018, the Group clawed back
historic tax paid on behalf of 4C Investments. This has been
treated as an adjustment to the carrying amount of the
non-controlling interest acquired and has resulted in a gain of
GBP0.6 million directly in equity.
In advance of the Leopard Portfolio disposal (refer to Note 8),
the non-controlling interest of a Leopard Portfolio subsidiary,
Leopard Germany Property Ed 2 GmbH & Co. KG ("LGPEd2") was
acquired by the Group for GBP0.4 million. The non-controlling
interest's share of net liabilities at the date of sale were GBP0.1
million and therefore a loss of GBP0.5 million has been recognised
directly in equity.
Unaudited Audited
28 February 31 August
2019 2018
GBPm GBPm
Carrying amount of non-controlling interest acquired:
4C Investments - 0.5
- 0.5
Consideration paid to non-controlling interests of LGPEd2 - (0.4)
Increase in equity attributable to equity holders of the Parent - 0.1
---------------------------------------------------------------- ------------
27. cash GENERATED FROM OPERATIONS
Unaudited Unaudited Audited
28 February 28 February 31 August
2019 2018 2018
Continuing operations Note GBPm GBPm GBPm
------------ ----------
Cash flows from operating activities
(Loss)/profit before tax (4.7) 60.8 97.4
Adjustments for:
Straight lining of rental income (0.4) - (0.5)
Depreciation 16 0.1 0.1 0.2
Fair value of share-based payments 24 0.2 0.4 1.0
Employee share award costs recognised
directly in equity (0.2) - -
Loss/(gain) on revaluation of investment
property 13 30.4 (8.5) (10.8)
Gain on revaluation of investment property
held for sale 13 - - (0.9)
Loss/(gain) on disposal of investment
property 0.2 (0.6) (1.5)
Loss/(gain) on disposal of investment
property held for sale - 0.1 (1.8)
Net gain on disposal of subsidiaries 8 - (14.3) (15.4)
Net gain on business combinations 9 - (4.6) (4.4)
Other income and expense 16 0.1 0.3 0.4
Foreign exchange loss 0.2 0.9 0.8
Finance income 10 (0.3) (0.4) (0.6)
Finance expense 10 16.2 14.5 29.3
Other finance expense 11 - 0.6 0.6
Change in fair value of derivative financial
instruments 2.2 (5.2) (6.1)
Loss on sale of joint ventures - - 0.1
Net impairment reversal on loans to
joint ventures (0.1) (0.1) (0.1)
Share of post-tax profit from joint
venture (0.2) - -
Share of post-tax profit from associate 15 (0.5) (0.3) (0.3)
43.2 43.7 87.4
Changes in working capital (3.0) (3.4) (0.4)
------------ ----------
Cash generated from operations 40.2 40.3 87.0
------------ ----------
28. fair value of Financial Instruments
basis for determining fair values
The Group measures fair values using the following fair value
hierarchy that reflects the significance of the inputs used in
making the measurements.
Level 1: Quoted market price (unadjusted) in an active market
for an identical instrument.
Level 2: Valuation techniques based on observable inputs, either
directly (i.e. as prices) or indirectly (i.e. derived from prices).
This category includes instruments valued using: quoted market
prices in active markets for similar instruments; quoted prices for
identical or similar instruments in markets that are considered
less than active; or other valuation techniques where all
significant inputs are directly or indirectly observable from
market data.
Level 3: Valuation techniques using significant unobservable
inputs. This category includes all instruments where the valuation
technique includes inputs not based on observable data and the
unobservable inputs have a significant effect on the instrument's
valuation. This category includes instruments that are valued based
on quoted prices for similar instruments where significant
unobservable adjustments or assumptions are required to reflect
differences between the instruments.
The fair value of financial instruments that are traded in
active markets is based on quoted market prices or dealer price
quotations. For all other financial instruments, the Group uses
valuation techniques to arrive at a fair value that reflects a
price that would have been determined by willing market
participants acting at arm's length at the reporting date. For
common and simple financial instruments, such as over-the-counter
interest rate swaps and caps, the Group uses widely recognised
valuation models for determining the fair value. The models use
only observable market data and require little management judgement
which reduces the uncertainty associated with the determination of
fair values. For other financial instruments, the Group determines
fair value using net present value or discounted cash flow models
and comparisons to similar instruments for which market observable
prices exist. Varying degrees of judgement are required in the
determination of an appropriate market benchmark. Assumptions and
inputs used in valuation techniques include risk-free and benchmark
interest rates, credit spreads and other premia used in estimating
discount rates, foreign currency exchange rates and expected price
volatilities and correlations. Availability of observable market
prices and inputs vary depending on the products and markets and is
prone to changes based on specific events and general conditions in
the financial markets.
The tables below present information about the Group's financial
instruments carried at fair value as of 28 February 2019 and 31
August 2018.
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm Fair Value
GBPm
28 February 2019
Financial assets
Derivative financial assets (Note
20) - 0.2 - 0.2
- 0.2 - 0.2
Financial liabilities
Derivative financial liabilities
(Note 20) - (3.9) - (3.9)
- (3.9) - (3.9)
31 August 2018
Financial assets
Derivative financial assets (Note
20) - 1.1 - 1.1
- 1.1 - 1.1
Financial liabilities
Derivative financial liabilities
(Note 20) - (2.9) - (2.9)
- (2.9) - (2.9)
Derivative financial instruments have been categorised as 'Level
2', as although they are priced using directly observable inputs,
the instruments are not traded in an active market.
As stated in Note 13, the Group considers investment property to
be categorised as 'Level 3'. As stated in Note 19, the Group
considers all bank loans to be categorised as 'Level 3'. Finance
lease obligations are as classified as 'Level 3, the fair value of
which is presented in Note 19.
The carrying values of trade and other receivables, cash and
cash equivalents and trade and other payables are considered to be
a reasonable approximation of fair value.
29. related party transactions
Related parties of the Group include: associate undertakings;
joint ventures; Directors and key management personnel; connected
parties; the major shareholder Redefine Properties Limited ("RPL");
as well as entities connected through common directorships.
Unaudited Unaudited
six months six months Audited
ended ended Year ended
28 February 28 February 31 August
2019 2018 2018
GBPm GBPm GBPm
Related Party Transactions
Revenue Transactions
Rental income
RBH 10.3 11.0 22.0
Other income
Joint Venture investment management and performance fee income
RI Menora German Holdings S.à.r.l. - - 0.1
- - 0.1
Administration costs and other fees
OSIT investment management fees (Note 7) (0.5) (0.1) (0.6)
Finance income
Joint Venture loan interest income
Wichford VBG Holding S.à.r.l. - - -
RI Menora German Holdings S.à.r.l. (Note 10) 0.2 0.2 0.3
Related parties of Menora joint venture - - 0.1
0.2 0.2 0.4
Unaudited Audited
As at As at
28 February 31 August
2019 2018
GBPm GBPm
Capital Transactions
Investment property (capitalised expenditure)
Project monitoring fee to RBH - construction works 0.1 0.2
Investment in associate
Transfer price of 4C Investments interests in RBH - (1.3)
Dividends received from RBH (including held for sale investment) (Note 15) (0.4) (0.7)
Non-controlling interests
Adjustment to carrying value of the non-controlling interest in RHHL (Note
26) - 0.6
Total capital transactions (0.3) (1.2)
Related Party Balances
Loans to joint ventures
RI Menora German Holdings S.à.r.l. (Note 14) 4.9 5.2
26 The Esplanade 0.1 -
5.0 5.2
Trade and other receivables
RBH - tenant lease incentives (Note 17) 2.7 1.2
RI Menora German Holdings S.à.r.l.- interest receivable (Note 17) - 0.3
2.7 1.5
Trade and other payables
RI Menora German Holdings S.à.r.l. - other payables (Note 22) (0.7) (0.4)
(0.7) (0.4)
Total related party balances 7.0 6.3
Unaudited Audited
28 February 31 August
2019 2018
GBPm GBPm
Related Party Transactions with equity holders of the Parent
Redefine Properties Limited - IHL acquisition - share-for-share exchange - 7.9
Redefine Properties Limited - IHL acquisition - cash - 7.5
Redefine Properties Limited - cash dividends 7.6 14.8
Total related party transactions with equity holders of the Parent 7.6 30.2
Redefine Properties Limited
On 1 November 2017, the Group issued 12.5 million shares to
Redefine Properties at 40.0 pence per share to acquire 5.0 million
shares in IHL valued at GBP1 per share. On 13 November 2017, the
Group issued 4.8 million shares to Redefine Properties at 40.0
pence per share to acquire 1.9 million shares in IHL valued at GBP1
per share. On 24 November 2017, the Group issued 2.5 million shares
to Redefine Properties at 40.0 pence per share in settlement of the
1.0 million shares in IHL that had been acquired with effect from
17 November 2017 at GBP1 per share. On the same date, the Group
paid Redefine Properties GBP7.5 million in settlement of 7.5
million shares in IHL that had transferred at GBP1 per share with
effect from 17 November 2017.
4C UK Investments Limited
On 7 February 2017, the Company entered into a lock-up agreement
with 4C Investments whereby the latter had the right to buy back
the transferred shares in RHHL and RBH on or before 31 January 2018
at the transfer price. 4C Investments did not exercise the right to
reacquire the RHHL shares before 31 January 2018. The right to
acquire the RBH shares was formally extended and 4C Investments
formally re-acquired the shares on 14 February 2018. As part of the
transaction, 4C Investments contractually agreed to reimburse the
Group for historic non-resident landlord tax paid on 4C Investments
behalf in relation to its non-controlling interest in RHHL. This
reimbursement has been treated as an adjustment to the carrying
amount of the non-controlling interest. Refer to Note 26.
OSIT
OSIT indirectly holds the 20 per cent non-controlling interest
in the newly acquired LSO portfolio and is contracted as the
manager of each property. RDI entered into revised management
contracts on acquisition for OSIT to continue as manager for a
minimum term of ten years. Management fees are payable on a
ratcheted basis with reference to the forecast EBITDA of each
property. OSIT has charged GBP0.6 million of management fees since
the Group acquired control of the portfolio on 12 January 2018 up
to 31 August 2018 and GBP0.5 million of management fees for the six
months ended 28 February 2019.
Directors
Non-executive Directors and Executive Directors represent key
management personnel. The remuneration paid to Non-executive
Directors for the period ended 28 February 2019 was GBP0.2 million
(31 August 2018: GBP0.5 million) which represents Directors fees
only. The remuneration payable to Executive Directors for the
period ended 28 February 2019 was GBP1.7 million (31 August 2018:
GBP2.6 million), representing salaries, benefits and bonuses. 1.3
million contingent share awards were issued to Executive Directors
during the period (31 August 2018: 1.2 million, re-presented for
comparability as a result of the share consolidation). The IFRS 2
share-based payment charge associated with the cumulative
contingent share awards to the Executive Directors was GBP1.6
million (31 August 2018: GBP0.9 million) for the period.
The table below shows Directors dealings in shares for the
period 1 September 2017 to 28 February 2019:
Number of Price per
ordinary shares ordinary share
Name Date of Transaction Transaction acquired acquired
13 November
Marc Wainer 2017 IHL consideration 631,569 200.0p
13 November
Mike Watters 2017 IHL consideration 14,158 200.0p
Donald Grant 16 January 2018 Share acquisition 5,000 179.70p
Mike Watters 17 January 2018 Share acquisition 13,400 179.75p
Bernard Nackan 25 June 2018 Scrip dividend 133 177.0p
Adrian Horsburgh 25 June 2018 Scrip dividend 398 177.0p
The Directors dealings above are adjusted for the effects of the
share consolidation referred to in note 23.
30. earnings per share
Earnings per share is calculated on the weighted average number
of shares in issue and the profit attributable to shareholders.
Unaudited Unaudited Audited
28 February 28 February 31 August
2019 2018 2018
GBPm GBPm GBPm
--------------------------------------------------------- ------------ ----------
Profit attributable to equity holders of the Parent (4.9) 55.2 88.9
Group Adjustments:
Loss/(gain) on revaluation of investment property 30.4 (8.5) (10.8)
Gain on revaluation of investment property held for sale - - (0.9)
Loss/(gain) on disposal of investment property 0.2 (0.6) (1.5)
Loss/(gain) on disposal of investment property held for
sale - 0.1 (1.8)
Net gain on disposal of subsidiaries - (14.3) (15.4)
Loss/(gain) on business combinations 0.1 (4.6) (4.4)
Loss on disposal of other non-current assets held for
sale - - 0.1
Amortisation of intangible assets 0.1 0.2 0.3
Other finance costs 0.1 0.5 0.4
Change in fair value of derivative financial instruments 2.2 (5.2) (6.1)
Gain on sale of joint venture interests - - 0.1
Net impairment reversal of joint ventures (0.2) (0.1) (0.1)
Deferred tax (1.7) - (0.5)
Current tax 0.3 0.6 0.7
Joint Venture Adjustments:
Loss on revaluation of investment property 0.2 0.2 0.2
Change in fair value of derivative financial instruments (0.1) (0.6) (0.7)
Deferred tax - 0.2 0.2
Elimination of joint venture unrecognised profits (1) - 0.3 0.4
Non-Controlling Interest Adjustments:
Gain on revaluation of investment property (0.8) 1.1 1.4
Change in fair value of derivative financial instruments (0.1) 0.3 0.2
Gain on disposal of subsidiaries - 1.3 1.1
Deferred tax - - 0.1
EPRA earnings 25.8 26.1 51.9
Company Specific Adjustments:
Accretion of fair value adjustments 0.4 0.4 0.8
Foreign currency movements 0.2 0.9 0.8
Underlying earnings 26.4 27.4 53.5
Number of ordinary shares (millions)
- Weighted average 380.1 374.2 377.3
Dilutive effect of:
Contingently issuable share awards under the Long Term
Performance Share Plan 1.1 0.7 0.9
Contingently issuable share awards under the Long Term
Restricted Stock Plan 0.2 0.2 0.3
------------ ------------ ----------
- Diluted weighted average 381.4 375.1 378.5
--------------------------------------------------------- ------------ ------------ ----------
Earnings per share (pence)
- Basic 1.3 14.8 23.6
- Diluted 1.3 14.7 23.5
EPRA earnings per share (pence) 6.79 6.97 13.76
Diluted EPRA earnings per share (pence) 6.76 6.96 13.71
Underlying earnings per share (pence) 6.94 7.32 14.18
Dividend per share (pence) 4.0 6.75 13.5
First interim dividend per share (pence) 4.0 6.75 6.75
Second interim dividend per share (pence) - - 6.75
--------------------------------------------------------- ------------ ------------ ----------
(1) Cumulative losses restricted represent the Group's share of
losses in the Esplanade which previously exceeded the cost of the
Group's investment. At 28 February 2019 the Group's share of losses
in the Esplanade no longer exceeded the cost of the Group's
investment and the Group has started recognising its share of
profits by way of reversal of impairment of the loan to the joint
venture (refer to note 14). This adjustment eliminates the
restricted losses for the period attributable to the Esplanade.
Headline earnings per share is calculated in accordance with
Circular 04/2018 issued by the South African Institute of Chartered
Accountants ("SAICA"), a requirement of the Group's JSE listing.
This measure is not a requirement of IFRS.
Unaudited Unaudited Audited
28 February 28 February 31 August
2019 2018 2018
GBPm GBPm GBPm
----------------------------------------------------------- ------------ ----------
Profit attributable to equity holders of the
Parent (4.9) 55.2 88.9
Group Adjustments:
Loss/(gain) on revaluation of investment property 30.4 (8.5) (10.8)
Gain on revaluation of investment property held for sale - - (0.9)
Loss/(gain) on disposal of investment property 0.2 (0.6) (1.5)
Loss/(gain) on disposal of investment property held for
sale - 0.1 (1.8)
Net gain on disposal of subsidiaries 0.1 (14.3) (15.4)
Loss/(gain) on acquisition of subsidiaries 0.2 (5.5) (5.5)
Loss on disposal of other non-current assets held for
sale - 0.1 0.1
Loss on sale of joint venture interests - - 0.1
Net impairment reversal of joint ventures and associate
interests 0.1 (0.1) (0.1)
Deferred tax (1.7) - 1.3
Joint Venture Adjustments:
Loss on revaluation of investment property 0.3 0.2 0.2
Deferred tax - 0.2 0.2
Elimination of joint venture unrecognised profits/(losses)
(1) (0.3) (0.3) (0.3)
Non-Controlling Interest Adjustments:
Gain on revaluation of investment property (0.8) 1.1 1.4
Gain on disposal of subsidiaries - 1.3 1.1
Deferred tax - - 0.1
Headline earnings attributable to equity holders
of the Parent 23.6 28.9 57.1
Number of ordinary shares (millions)
- Weighted average 380.1 374.2 377.3
- Diluted weighted average 381.4 375.1 378.5
----------------------------------------------------------- ------------ ------------ ----------
Headline earnings per share (pence)
- Basic 6.2 7.7 15.1
- Diluted 6.2 7.7 15.1
----------------------------------------------------------- ------------ ------------ ----------
(1) Cumulative losses restricted represent the Group's share of
losses in the Esplanade which previously exceeded the cost of the
Group's investment. At 28 February 2019 the Group's share of losses
in the Esplanade no longer exceeded the cost of the Group's
investment and the Group has started recognising its share of
profits by way of reversal of impairment of the loan to the joint
venture (refer to note 14). This adjustment eliminates the
restricted losses for the period attributable to the
Esplanade(.)
31. net asset value per share
Unaudited Audited
28 February 31 August
2019 2018
GBPm GBPm
---------------------------------------------------- ------------ ----------
Net assets attributable to equity holders of the
Parent 768.0 803.3
Group Adjustments:
Fair value of derivative financial instruments 3.7 1.8
Deferred tax 7.4 9.5
Joint Venture Adjustments:
Fair value of derivative financial instruments 2.6 2.8
Elimination of unrecognised derivative financial
instruments (1) (2.6) (2.8)
Deferred tax 0.6 0.6
Non-Controlling Interest Adjustments:
Fair value of derivative financial instruments - 0.1
Deferred tax - (0.3)
EPRA NAV 779.7 815.0
Group Adjustments:
Fair value of derivative financial instruments (3.7) (1.8)
Excess of fair value of debt over nominal value (26.0) (3.7)
Deferred tax (7.4) (9.5)
Joint Venture Adjustments:
Fair value of derivative financial instruments (2.6) (2.8)
Elimination of unrecognised derivative financial
instruments (1) 2.6 2.8
Deferred tax (0.6) (0.6)
Non-Controlling Interest Adjustments:
Fair value of derivative financial instruments - (0.1)
Deferred tax 0.1 0.3
---------------------------------------------------- ------------ ----------
EPRA NNNAV 742.1 799.6
Number of ordinary shares (millions)
- In issue 380.1 380.1
Dilutive effect of:
Contingently issuable share awards under the Long
Term Performance Share Plan 1.1 0.9
Contingently issuable share awards under the Long
Term Restricted Stock Plan 0.2 0.2
------------ ----------
- Diluted 381.4 381.2
---------------------------------------------------- ------------ ----------
Net asset value per share (pence):
- Basic 202.1 211.3
- Diluted 201.4 210.7
EPRA diluted NAV per share (pence) 204.4 213.8
EPRA diluted NNNAV per share (pence) 194.6 209.7
---------------------------------------------------- ------------ ----------
(1) Cumulative losses restricted represent the Group's share of
losses in the Esplanade which previously exceeded the cost of the
Group's investment. At 28 February 2019 the Group's share of losses
in the Esplanade no longer exceeded the cost of the Group's
investment and the Group has started recognising its share of
profits by way of reversal of impairment of the loan to the joint
venture (refer to note 14). This adjustment eliminates the
restricted losses for the period attributable to the Esplanade.
32. CONTINGENCIES, guarantees and commitments
At 28 February 2019, the Group was contractually committed to
expenditure of GBP22.7 million (31 August 2018: GBP9.5 million), of
which GBP22.7 million (31 August 2018: GBP8.3 million) was
committed to the future development and enhancement of investment
property.
A former subsidiary of the Group, Redefine Australian
Investments Limited, has undergone a review by the Australian Tax
Office in respect of its calculation of Capital Gains Tax arising
on the disposal of securities formerly held in Cromwell Property
Group during 2013, 2014 and 2015. The Directors remain of the view,
having sought advice from reputable tax agents and advisers, that
the respective filing positions were correct and therefore
following the orderly wind down of activities, the Directors placed
the company in liquidation in January 2018.
33. SUBSEQUENT events
In March 2019, the Board approved a marketing exercise for the
prospective sale of the Europe portfolio, a separately identifiable
line of business containing the Group's investment properties
located in Germany. Subsequently, the segment is now considered as
held for sale.
On 8 April 2019 the Group announced it had been informed by
Aviva, the lender with security against four of the Group's UK
Shopping Centres, namely Grand Arcade (Wigan), Weston Favell
(Northampton), Birchwood (Warrington) and Byron Place (Seaham),
that following a further valuation the lender's loan to value
exceeded the 85 per cent loan to value covenant. After careful
consideration the Board concluded that the level of capital
required to maintain compliance was not considered to be in the
best interests of long-term shareholder value and therefore agreed
with Aviva that an orderly and consensual disposal of the
properties or the introduction of third party capital was in both
parties' best interests. As a consequence, at conclusion of the
contractual cure period on 23 April 2019, the Group ceased to
control the assets. Subsequent to this date, income from these four
centres ceased to accrue to the Group and the net asset value was
derecognised. Had loss of control occurred on 1 September 2018, the
Group's profit after tax for the period ended 28 February 2019
would have been GBP14.5 million higher and the Group's net asset
value at 28 February 2019 would have been GBP54.1 million
lower.
On 12 April 2019 the Group took practical completion of a
distribution unit constructed at Bicester. This follows the
September 2018 announcement that the Group had acquired a 13.5 acre
land interest in Bicester, Oxfordshire for GBP7.9 million and
committed to two forward funding payments following practical
completion of two distribution units, collectively totalling
288,000 sqft in size. Following practical completion, the Group
will pay now GBP7.8 million on 1 May 2019, with a second and final
payment of GBP10.3 million anticipated to be made in December 2019
following completion of the second unit.
GLOSSARY
Annualised gross Annualised gross rent generated by the asset at the
rental income balance sheet date, which is made up of the contracted
rent, including units that are in rent-free periods,
and estimates of turnover rent
AUK Aegon UK property portfolio
Aviva Aviva Commercial Finance Limited
Board The Board of Directors of RDI REIT P.L.C.
BVI British Virgin Islands
CPI Consumer Price Index
EBITDA Earnings Before Interest, Tax, Depreciation and Amortisation
EPRA European Public Real Estate Association
EPRA cost ratio Administrative and operating costs expressed as a percentage
of gross rental income as defined by EPRA
EPRA earnings Earnings from operational activities as defined by
EPRA's Best Practice guidelines
EPRA NAV European Public Real Estate Association Net Asset Value
EPRA NIY European Public Real Estate Association Net Initial
Yield. The annualised rental income based on the cash
rents passing at the balance sheet date, less non-recoverable
property operating expenses, divided by the gross market
value of the property
EPRA NNNAV European Public Real Estate Association Triple Net
Asset Value
EPRA occupancy Occupancy expressed as a percentage of ERV, representing
a measure of let space
EPRA topped-up initial Net initial yield adjusted for the expiration of rent
yield free periods or other incentives
EPS Earnings per share
ERV The estimated market rental value of lettable space
which could reasonably be expected to be obtained on
a new letting or rent review
EU European Union
EUR or Euro Euro, the lawful common currency of participating member
states of the European Monetary Union
GBP, Pound or Sterling Great British Pound, the legal currency of the UK
GRESB Global Real Estate Sustainability Benchmark
IASB International Accounting Standards Board
IFRS International Financial Reporting Standards
IHL International Hotel Properties Limited
Indexed leases A lease with rent review provisions which are dependent
upon calculations with reference to an index such as
the consumer price index or the retail price index
IPD Investment Property Databank
JSE JSE Limited, licensed as an exchange and a public company
incorporated under the laws of South Africa and the
operator of the Johannesburg Stock Exchange
Lease incentives Any incentives offered to occupiers to enter into a
lease. Typically, the incentive will be an initial
rent-free period, or a cash contribution to fit out
or similar costs
Like-for-like net Net income generated by assets which were held by the
rental income Group throughout both the current and comparable periods
for which there has been no significant development
which materially impacts upon income and used to illustrate
change in comparable income values
Like-for-like property Property which has been held at both the current and
comparative balance sheet dates for which there has
been no significant development and used to illustrate
change in comparable capital values
LSE The London Stock Exchange plc
LSO London Serviced Office Portfolio
Loan-to-value or The ratio of net debt divided by the market value of
LTV investment property. Calculated on a proportionate
(share of value) basis. See Financial Review for basis
of calculation
LuxSE The Luxembourg Stock Exchange
NAV Net Asset Value
NCI Non-controlling interest
Net debt Total nominal value of bank borrowings less cash and
cash equivalents
OSIT Office Space in Town, the Group's strategic partner
and non-controlling shareholder in the LSO portfolio
RCF Revolving Credit Facility
RDI REIT P.L.C. RDI, RDI REIT P.L.C. and, when taken together with all its
the Company or the subsidiaries and Group undertakings, collectively referred
Group to as the "Group"
RBH RBH Hotel Group Limited, formerly RedefineBDL Hotel
Group Limited
Redefine Properties Redefine Properties Limited, a company listed on the
or RPL JSE, and the majority shareholder of the Company
Reversionary yield The anticipated yield to which the initial yield will
rise (or fall) once the rent reaches the ERV
RevPar Revenue per available room
RICS Royal Institute of Chartered Surveyors
RIHL Redefine International Holdings Limited
RIMH Redefine International Management Holdings Limited
RHHL Redefine Hotel Holdings Limited
SAICA South African Institute of Chartered Accountants
TSogo Sun Southern Sun Africa Limited
UK United Kingdom
UK-REIT A UK Real Estate Investment Trust. A REIT must be a
publicly quoted company with at least three-quarters
of its profits and assets derived from a qualifying
property rental business. Income and capital gains
from the property rental business are exempt from tax
but the REIT is required to distribute at least 90
per cent of those profits to shareholders. Tax is payable
on non-qualifying activities of the residual business
Underlying earnings EPRA earnings adjusted for the impact of non-cash debt
accretion charges and FX gains and losses reflected
in the income statement
WAULT Weighted average unexpired lease term
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR PGUBGCUPBGMC
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