Final Results

30th March 2021

RNS Number : 8699T
Real Estate Investors PLC
30 March 2021
 

 

 

Real Estate Investors Plc

(“REI” or the “Company” or the “Group”)

 

Final Results

For the year ended 31 December 2020

 

Resilient Portfolio & Well Positioned for Valuation Recovery

 

Real Estate Investors Plc (AIM: RLE), the UK’s only Midlands-focused Real Estate Investment Trust (REIT) with a portfolio of 1.59 million sq ft of investment property across all sectors, is pleased to report its final results for the year ended 31 December 2020.

 

Resilient operational performance

·      Increased underlying profit before tax* of £8.1 million (FY 2019: £8.0 million)

·      Revenue of £16.4 million (FY 2019: £16.6 million)

·      EPRA EPS of 4.5p (FY 2019: 4.3p)

·      EPRA NAV per share of 55.2p (FY 2019: 67.4p)

·      Loss before tax totalled £20.2 million (FY 2019: profit £3.7 million) allows for property revaluations and hedge costs totalling £28.4 million (both non-cash items)

·      Average cost of debt 3.4% (FY 2019: 3.4%), with 86% of the Company’s debt fixed

·      LTV net of cash at 49.2% (FY 2019: 42.2%)

 

Delivering attractive returns in challenging markets

·      Final dividend of 1.5p per share, payable in April 2021 as a Property Income Distribution (PID)

·      Total dividend per share for 2020 of 3p (FY 2019: 3.8125p)

·      Total declared/paid to shareholders since commencement of dividend policy of £36.4 million

 

Opportunistic Share Buyback Scheme

·      Announced a share buyback, to purchase up to £2 million of the Company’s shares – repurchased 7,042,700 shares at an average price of 28.40 pence, representing a 49% discount to the EPRA NAV of 55.2p at 31 December 2020

 

Active asset management and strong rental collection through diversity

·      Overall rent collection during the year of 96.35%

·      Gross property assets of £201.3 million (FY 2019: £228.9 million), reduction in the value of certain assets relates to uncertainty over the impact of the pandemic

·      Completed 34 lease events, including 7 lease renewals

·      Ended the period with 262 occupiers across 53 assets

·      WAULT improved to 4.84 years to break and 6.54 years to expiry (FY 2019: 3.82 years to break and 5.79 years to expiry)

·      Ended the period with £9.725 million of unconditionally exchanged disposals – due for completion in 2021

·      Occupancy at 91.60% (FY 2019: 96.3%) a 4.9% reduction, predominantly due to known lease events, as most new letting decisions have been on hold due to the pandemic

 

Government planning changes announced in 2020

·      REI set to materially benefit from changes in use on planning legislation and a new Class E allowing flexibility in uses and attracting demand for conversions

 

2021 sales and new lettings

·      Exchanged contracts on a further 5 assets totalling £1.480 million of sales, at pre-Covid19 valuations due for completion in H1 2021

·      Healthy pipeline of new lettings in legals of £338,000, with space under offer to the NHS/Department for Work and Pensions

·      Strong occupier interest in neighbourhood and convenience retail assets (36.6% of the portfolio) and out-of-town office stock (approximately 71.83% of our offices)

 

Renewed banking facility

·      Renewed £51 million facility with National Westminster Bank plc (following its merger with RBS) for 3 years at 2.25% above LIBOR in March 2021

 

Paul Bassi, CEO of Real Estate Investors Plc, commented:

 

“This was a resilient operational performance under uniquely difficult circumstances which has produced stable underlying profits of £8.1 million up 1.2% from last year.  This has only been possible due to the diversity of our portfolio, resulting in a covered dividend of 3p for the year.”

 

“Valuation declines are symptomatic of market uncertainty and sentiment, caused on this occasion by the impact of a global pandemic. They are understandable and we expect them to reverse as investment activity recommences. We can already see from the prices achieved in the market place, that confidence in the Midlands property market is returning, alongside the Government’s timetable for lifting of lockdown restrictions.  Management are currently focused on certain sales to satisfy investor demand, which will further assist in reducing the Company’s gearing, leaving existing cash and bank facilities available to make strategic and opportunistic acquisitions.”

 

Financial and Operational Results

 

 

31 Dec 2020

31 Dec 2019

Change

Revenue

£16.4 million

£16.6 million

-1.2%

Underlying profit before tax

£8.1 million

£8.0 million

+1.2%

Contracted rental income

£16.7 million

£17.7 million

-5.6%

EPRA EPS**

4.5p

4.3p

+4.7%

Basic EPS

(11.5)p

2.0p

Pre-tax (loss)/profit

(£20.2 million)

£3.7 million

Dividend per share

3p

3.81p

-21.3%

Average cost of debt

3.4%

3.4%

Like for like rental income

£16.7 million

£17.6 million

-5.3%

 

31 Dec 2020

31 Dec 2019

 

Gross property assets

£201.3 million

£228.9 million

-12.0%

EPRA NAV per share

55.2p

67.4p

-18.1%

EPRA NNNAV per share

53.3p

66.0p

-19.2%

Like for like capital value psf

£126.41 psf

£143.71 psf

-12.0%

Like for like valuation

£201.3 million

£228.9 million

-12.0%

Tenants

262

280

-6.4%

WAULT***

4.84 years

3.82 years

+25.7%

Total ownership (sq ft)

1.59 million sq ft

1.59 million sq ft

Net assets

£97.7 million

£125.4 million

-22.1%

Loan to value

51.3%

46.7%

+9.9%

Loan to value net of cash

49.2%

42.2%

+16.6%

 

Definitions

*        Underlying profit before tax excludes profit/loss on revaluation and sale of properties and interest rate swaps

**       EPRA = European Public Real Estate Association

***      WAULT = Weighted Average Unexpired Lease Term

 

Certain of the information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the UK version of the EU Market Abuse Regulation (2014/596) which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended and supplemented from time to time.

 

Enquiries:

 

Real Estate Investors Plc

Paul Bassi/Marcus Daly

 

+44 (0)121 212 3446

 

Cenkos Securities

Katy Birkin/Ben Jeynes

 

+44 (0)20 7397 8900

Liberum

Jamie Richards/William Hall

 

+44 (0)20 3100 2000

 

Allenby Capital

Nick Naylor/Asha Chotai

 

+44 (0)20 3328 5656

 

Novella Communications

Tim Robertson/Fergus Young

 

+44 (0)20 3151 7008

 

 

About Real Estate Investors Plc

 

Real Estate Investors Plc is a publicly quoted, internally managed property investment company and REIT with a portfolio of 1.59 million sq ft of mixed-use commercial property, managed by a highly-experienced property team with over 100 years of combined experience of operating in the Midlands property market across all sectors.  The Company’s strategy is to invest in well located, real estate assets in the established and proven markets across the Midlands, with income and capital growth potential, realisable through active portfolio management, refurbishment, change of use and lettings.  The portfolio has no material reliance on a single asset or occupier.  On 1st January 2015, the Company converted to a REIT.  Real Estate Investment Trusts are listed property investment companies or groups not liable to corporation tax on their rental income or capital gains from their qualifying activities.  The Company aims to deliver capital growth and income enhancement from its assets, supporting its progressive dividend policy.  Further information on the Company can be found at www.reiplc.com.

 

 

Chairman’s and Chief Executive’s Statement

Overview

As the global, economic and human impact of the COVID-19 pandemic began to materialise in Q1 2020, our first priority was the safety and wellbeing of our staff and tenants.  We took swift action to ensure that our offices provided a safe environment for our team and invested in our IT resources to support efficient home working. 

 

Additionally, we worked closely with our managing agents to ensure that our portfolio buildings and spaces were safe and compliant before beginning a positive, ongoing dialogue with our tenants, offering a constructive approach to solving the unprecedented problems many were facing.  We secured a good outcome for REI from a rent collection perspective, against the backdrop of very unfavourable Government restrictions on landlords.

 

We are pleased that our portfolio of £201.3 million has delivered improved underlying profits of £8.1 million, up 1.2% in the last 12 months and our revenue has remained stable at £16.4 million – both clearly held back by the uncollected rent, classified as bad debt, and COVID-19 related rent incentives granted, totalling £1 million in aggregate.

 

The Company’s portfolio has 262 occupiers across 53 assets, which offers multi-sector diversification with no material reliance on any single sector, asset or occupier and this is the foundation of our stability and rent collection.

 

These results allow us to pay a total fully covered dividend of 3p for 2020 and the Board remains committed to a progressive dividend policy going forward.  A total of £36.4 million has been declared/paid to shareholders since the commencement of our dividend payments in 2012.

 

Periods of political, financial and economic volatility, such as the recession in the early 90’s and the financial crisis of 2008 trigger sector instability and often rapid valuation decline.  Our experience in understanding, managing and capitalising on these events has shaped our business model and strategy in building a diversified portfolio, reducing sector exposure and securing strong rent collection in unprecedented circumstances.

 

During such times, we believe the fundamental metric for our business is rent collection.  Despite the remarkable challenges faced by businesses over the last 12 months, we have continued a positive dialogue with our tenants, resulting in a strong overall rental collection performance for 2020 of 96.35%, improved from 95.29% previously stated in January 2021.

 

We anticipate a further improvement in this overall figure as tenants who (despite having the ability to pay) have chosen to hide behind or take advantage of Government legislation on overdue rents, begin to pay their historic and current rents, and tenants who are currently closed, re-commence trading in 2021. 

 

For Q1 2021, rent collection stands at 90.21% and is expected to improve.

 

A summary of each quarter and the overall rent collection for 2020 (96.35%) is shown below (adjusted for monthly and deferred agreements):

 

Rent Collections

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

(to date)

Collected

 

99.60%

86.99%

90.20%

93.75%

82.97%

Deferred arrangement

 

0.28%

8.19%

4.35%

1.49%

7.24%

Total

 

99.88%

95.18%

94.55%

95.24%

90.21%

Debtors

0.12%

4.82%

5.45%

4.76%

9.79%

 

 

COVID-19 Impact & Our Response

 

Whilst the impact of COVID-19 has been profound across the global economy, the business has been faced with both challenges and opportunities and we are well positioned to act on further opportunities that a post-COVID-19 environment presents as and when they arise.

 

 

COVID-19 Impact:

·      Bad debt and rent incentives granted together totalled £1 million

·      The portfolio experienced valuation declines in the following assets, principally due to retail sentiment – 6 of our assets decreased in total by £13.3m (Acocks Green/Tunstall/Birch/Crewe/Bradford St Walsall/33 Bennetts Hill)

·      The balance of £14.6 million is spread across the remainder of our retail and office portfolio, with void properties absorbing most of the reduction, which will correct with the benefit of a letting

·      Occupancy dropped to 91.60% from 96.3% predominantly due to known lease events, that would let in a normalised market however, occupiers understandably have deferred decisions in the current climate

 

Management actions:

·      Maintained a close dialogue with all tenants throughout challenging trading period leading to strong rental collection performance of 96.35% during 2020         

·      Offered constructive and supportive actions/concessions in exchange for positive lease events resulting in 34 lease events (including 7 lease renewals), materially improving the portfolio WAULT to 4.84 years to break and 6.54 years to expiry (2019: 3.82 years to break and 5.79 years to expiry)

·      Enhanced service charge controls to restrict costs during periods of low occupancy

·      Conducted a robust overview of all insurance policies to maximise protection and assess claim viability

·      Maintained intensive rent collection/cash management throughout the period

·      Prioritised cash preservation/contracts exchanged on £9.725 million of disposals to support debt reduction and cash generation

 

Our occupancy at the year-end was 91.60% (2019: 96.3%) a reduction of which over 70% can be attributed almost entirely to known lease events and which are predominantly in our office portfolio.  Such lease events in a normalised marketplace, would likely result in valuation growth by providing capital uplift opportunities and improvements in our WAULT via lease renewals and re-letting void space.  On this occasion they have in part contributed to what we believe will be a short-term valuation decline.

 

Over the last few years, our decision to expand our portfolio in resilient sub-sectors has been rewarded as these sub-sectors enjoy growth and renewed occupier and investor demand as the pandemic has driven increases in turnover for essential services and convenience-store operators. 

 

Our healthy exposure (36.6% of portfolio) to the ‘convenience, neighbourhood and essential retail’ sector (also referred to as community or suburban retail) has revealed high occupier and investor demand for these resilient assets.

 

We have a good pipeline of new lettings in legals, with space under offer to the NHS (Community Health & Eyecare Limited)/Department for Work and Pensions and interest from Co-op and Cap Gemini, plus strong occupier requirements across our convenience retail, from multiples and independents.  These lettings, combined with asset management events across the existing portfolio, will provide additional rental income, support valuation recovery and our progressive dividend policy.  In addition to the new lettings, we continue to re-gear existing leases with tenants and seek out value add lease events, such as Break Date removals. 

 

Whilst we saw some valuation decline at the half year stage, the subsequent Q4 lockdowns have had a material impact on the real estate sector as a whole.

 

The 12.0% valuation decline was predominantly across a small number of assets that have suffered as a result of negative retail sentiment – 6 of our assets dropped in total by £13.3 million.  While an understandable response, we believe valuations will recover once the economy and real estate market normalises, particularly in our out-of-town offices (71.83% of our office stock) and convenience and retail portfolio (36.6% of portfolio), both of which are performing extremely well and have enjoyed strong rent collection performance throughout 2020.

 

Due to the COVID-19 backdrop and the subsequent slowing of the property markets, we did not complete any sales in 2020.  However, we ended the period with £9.725 million unconditionally exchanged contracts on a number of assets, which are due to complete in 2021. The associated rental reduction from the properties sold is only £457,500 per annum.

 

In these unprecedented times, external valuers are cautious, which we fully understand.  The evidence however, from these recently completed sales and other properties under offer, suggests that this is a temporary reduction as we are able to achieve higher pricing on our assets. 

 

This demonstrates that investor confidence and appetite for our stock is stronger than external valuers’ expectations.  We anticipate making further sales in 2021 at valuations that are comfortably ahead of our year end 2020 valuations.

 

The sales proceeds from these additional disposals will be used to reduce the Company’s gearing, whilst leaving existing cash and bank facilities available to make strategic and opportunistic acquisitions. 

 

Within the existing portfolio, there are multiple opportunities to add value through lease events, letting voids, planning gains and permitted development.  We continue to identify assets that have potential for permitted development (in addition to the 250,000 sq ft already eligible), providing excellent embedded opportunities for capital uplift.  We assess each eligible asset on its own merit with regards to the commercial viability of a residential conversion against the opportunity to re-let the space.

 

In respect of our dividend and in view of the impact of the COVID-19 related lockdowns in Q4 2020 and Q1 2021, combined with the subsequent valuation reductions, it is prudent for the Company to pay 1.5p in respect of the final dividend, reflecting a total fully covered dividend payment for 2020 of 3p.  The Board remains committed to growing the dividend further, as market conditions normalise.

 

Financial Results

 

As expected, our results for 2020 have been materially affected by the COVID-19 pandemic, particularly in the last quarter of the year. However, the strength and diversification of our portfolio has insulated the business from over exposure to weaker sectors, and we have worked tirelessly with our tenants to assist them where we can and improve terms where it suited both parties.

 

Underlying profit for the year was up at £8.1 million (2019: £8 million). Our earnings have been affected by £1 million of bad debts on rent not collected and incentives granted on extending lease terms. However, this has been counteracted by the Board’s decision that it would not be appropriate for any bonuses to be declared for the executive directors and significantly reduced bonuses for other members of staff.

 

We have recorded a net loss before tax for the year of £20.2 million as a result of independent investment portfolio revaluation deficit of £27.9 million. 

 

Our like-for-like rental income has reduced by 5.3%, predominantly due to known lease events that provide asset management opportunities to improve rental income and lease terms and enhance capital value.

 

Loss before tax (IFRS) totalled £20.2 million (2019: profit £3.7 million), after accounting for non-cash items being a loss on revaluation of investment properties of £27.9 million (2019: £4.3 million), together with a loss on the market value of our interest rate hedging instruments of £483,000 (2019: £41,000). Since the year end the market value on our hedging instruments has recovered by £523,000.

 

The underlying profits of £8.1 million support our total fully covered dividend for 2020 of 3p per share.

 

Share Buyback

 

On 20 October 2020, we announced a share buyback, to purchase an aggregate market value up to £2 million of the Company’s ordinary shares.  In aggregate, between 20 October 2020 and 27 November 2020, the Company repurchased 7,042,700 ordinary shares at an average purchase price of 28.40 pence per share, representing a 49% discount to the EPRA NAV of 55.2p at 31 December 2020.

 

Finance and Banking

 

With our longstanding banking relationships and access to debt, we will continue to secure additional bank facilities when appropriate, to support future growth and improve profitability.  We will continue to maintain a policy of being multi-banked across a number of established lenders.

 

Our bank facilities were successfully restructured during the year with 86% of our debt fixed, through facilities secured with 5 banks and average cost of debt remaining at 3.4% (2019: 3.4%). We continue to review long term rates to fix low-cost debt when appropriate.

 

 

In April 2020, REI finalised a facility of £3.5 million with Barclays Bank for 4 years and subsequently fixed the total facility of £12 million with Barclays at 2.2% including margin against a portfolio of assets. In addition, we repaid our facility of £7 million with Santander Bank plc. In March 2021, post year end, we successfully renewed our £51 million facility with National Westminster Bank PLC for 3 years at 2.25% above LIBOR.

 

We continue to meet our bank covenant requirements however as a result of the downward valuations on our investment portfolio, the LTV (net of cash) has risen to 49.2%, which we expect to reduce in the current year, through sales to satisfy investor demand and valuation recovery. The bank covenants are measured against the LTV of the loans to property values and the interest cover measured against rental income. On average, property values would have to fall a further 10% and rental income by 40% to breach the covenants and, in addition, the Group has £11 million of unencumbered properties, which could be provided as further security.  Following the renewal of the NatWest facility our average cost of debt remains at 3.4%, with 46% of debt fixed and 54% variable.

 

Dividend

Attractive returns in a period of uncertainty

 

Despite the challenges faced throughout the pandemic, the proactive asset management approach that has been taken across the portfolio and the subsequent income has supported the continuation of our dividend payments, which were paid at a level of 0.50p per quarter in 2020. 

 

One of our principal objectives continues to be to deliver a covered and progressive dividend.

 

We are pleased to announce an uplift in our Q4 dividend in respect of 2020 to 1.5p, reflecting a total fully covered dividend payment for 2020 of 3p.

 

The proposed timetable for the final dividend, which will be a Property Income Distribution (PID), is as follows:

 

Dividend Timetable 

 

Ex-dividend date:

8 April 2021

Record date:

9 April 2021

Dividend payment date:

30 April 2021

 

Outlook

Post COVID-19 recovery with strong investor demand

 

Whilst the pandemic continues to present unique and unprecedented challenges, the resilience of our portfolio is underpinned by its diversity and the intensive asset management strategy, which has resulted in strong levels of rent collection, though we are not immune to a negative valuation sentiment.

 

Our business remains well positioned to capitalise on a growing occupier demand for the convenience and neighbourhood assets and our out-of-town offices.  As the market place normalises, we anticipate a healthy recovery in valuations and sales at pre-COVID-19 levels with a strong investor demand for regional assets that performed well during the global pandemic, supported by high levels of equity and low costs of debt available for real estate.

 

Signs of market recovery are emerging, supported by the recent budget announcement, with many business owners optimistic about future trading.  Recent Rightmove data suggests that 35% more users registered for Rightmove Commercial in the first two months of 2021, than the equivalent months in 2020.  

 

Our regional economy looks set to recover from the pandemic and looks forward to the economic boost from HS2, Coventry City of Culture 2021 and the Commonwealth Games 2022.

 

We anticipate consolidation in the quoted real estate sector, particularly amongst UK REITs.  The Board remain open to all possibilities to maximise shareholder value. 

 

Investment Market Overview

 

Although there was an end-of year surge in investment activity, preliminary data suggests that this surge was far weaker than in previous years.  Overall investment volumes for 2020 stand at £44 billion, down almost 20% from the 2019 level and the weakest since 2012 (Source: Colliers International).

 

Overseas investors accounted for over 50% of all investment, its highest ever share. The Midlands region also saw a decline in volumes during the period.  However, after a subdued 2020, we expect investment volumes to increase throughout 2021, as confidence returns to the market and pricing remains attractive and this view is supported by market commentators and the investor community.  Analysts are predicting growth and acceleration in the second half of 2021; CBRE have forecast £48 billion worth of investment this year, up 30% from £37 billion in 2020 and Colliers International are predicting commercial property investment in the UK will accelerate by 36%.

 

There is still a significant weight of capital targeting commercial property in the wider Midlands region. Prime investment yields moved out during the year, but Birmingham city centre remains resilient and we anticipate this will improve as the market strengthens throughout 2021.

 

The suggestion that Birmingham is high on investors’ radar for 2021, is supported by the fact that the city has been ranked 18th on the list of European cities based on real estate prospects in rents and capital values, up 9 places on last year, according to the annual ’Emerging Trends in Real Estate Europe 2021 report’ by PwC and Urban Land Institute (ULI).  The investment of £5.1bn in Birmingham’s transport systems, including HS2, Europe’s largest infrastructure project, combined with the fast-emerging City sectors of technology and sciences are unpinning the City’s resilience with investors expecting to spend stockpiled cash rapidly when markets get moving.

 

The REI Portfolio

 

The portfolio’s gross property assets have reduced by 12.0% to £201.3 million (2019: £228.9 million).  The portfolio is comprised of 53 assets with 262 tenants and a net initial yield of 7.95%, with a reversionary yield of 8.60%.

 

The portfolio has reduced occupancy levels of 91.60% (2019: 96.3%) with potential for positive capital and rental performance in 2021 from reletting void space. This reduction is almost entirely from known lease events, that in a normalised market place would re-let rapidly and add value and income to our business.  We are noting a significant undersupply of office space and experiencing rental growth across some of our office ownership, in particular, in our non-city centre stock across the Midlands that does not require occupiers to use public transport, with readily available on-site parking and areas where historic office stock has been converted to residential. The office assets comprise 35.6% of the portfolio, of which 71.83% is out-of-town.  Of our income, 6.08% is Government income.

 

Our retail holdings have seen a decline in values throughout the period, which is entirely linked to sector market sentiment, due to highly publicised insolvencies including Debenhams, House of Fraser and Arcadia Group. We do not have any such holdings and anticipate valuation recovery as the market recognises our strong neighbourhood and convenience assets which make up 36.6% of our total portfolio.

 

Disposals

 

We ended the year with £9.725 million of unconditionally exchanged contracts.  Completion is expected on these during 2021 and REI will continue to receive rent between exchange and completion on these assets:

 

·      Aldi supermarket, Bearwood, Edgbaston – due to the strong trading performance of this unit, Aldi have acquired the freehold for £5.350 million, representing a yield of 5.26%.  The sale price reflects an increase of £1.296 million (32% uplift) in value against the December 2019 year end valuation of £4.053 million.  As part of the sale agreement, the Company negotiated an extended completion date of September 2021 and REI will continue to benefit from £300,000 per annum rental income until this date, demonstrating heightened demand for convenience retail.

 

·      City Gate House, Leicester – sold for £2.6 million (at a premium due to permitted development rights) following exchange in 2018 and completion due in December 2020, now extended to H1 2021 (following an extension request from the purchaser). REI has benefitted from the ongoing rental income during the interim period.  REI secured an additional £100,000 for delayed completion.

 

·      Land at Coseley, West Midlands – sold for a minimum of £1.150 million, with a potential additional £350,000, subject to the completion of a local authority grant application by the purchaser, Countryside Properties PLC. Completion took place on 15 February 2021.

 

·      315-317 & 319 High Street, West Bromwich - vacated offices which have become in need of refurbishment, sold for £625,000, which reflects our December 2019 valuation and now due to complete in H1 2021.

 

The associated rental reduction from the disposal consideration of £9.725 million is only £457,500 per annum.

 

Disposals (Post Period – Q1 2021)

 

Post year end, we have transacted disposals on the following, at levels at or above our pre-COVID-19 valuations, demonstrating the understandably cautious valuations provided by our external valuers at year end 2020:

 

·      54-56 High St, Bromsgrove – a high street retail unit, let to WHSmith, but with a diminishing unexpired lease term. In view of recent appetite from smaller private investors, we sold the property on 10 February 2021 for £450,000.

 

·      Betting Shop High Street Portfolio – a portfolio of 3 high street retail units including; 82 High Street, Gillingham, 12-14 High Street, Ringwood and 3 Hanover Buildings Southampton, which are part vacant or part let to Done Brothers (Cash Betting) Ltd, but on short unexpired lease terms.   The properties are under offer and in legals to a private investor for £850,000.

 

·      124-125 Osborne Road, Pontypool – a high street retail unit that is part vacant and part let to Lloyds Pharmacy.  We have conditionally exchanged to sell this non-core asset to a private investor for £180,000.

 

These sales reduce our retail exposure and demonstrate the market detachment from valuation pricing to investor demand.

We have received approaches on a number of properties in the portfolio that are suitable for sale and we will monitor this position over the coming months and anticipate securing sales positively above our year end valuations.

Material Change of Use – Upside Potential

In addition to the permitted development potential of approximately 250,000 sq ft, from 1 September 2020, a new Use Class E (Commercial, Business and Service) was introduced by the Government. 

The changes provide for three new use classes: Class E (Commercial, business and service), Class F.1 (Learning and non-residential institutions) and Class F.2 (Local community).  The changes will combine: Shops (A1), financial/professional services (A2), cafés/restaurants (A3), indoor sports/fitness (D2 part), medical health facilities (D1 part), creche/nurseries and office/business uses (B1) will be subsumed into a new single Use Class E.

This amendment was designed to allow more flexibility in moving between uses and affords landlords the opportunity to attract tenants to vacant units more easily as a major planning hurdle has been removed. We are seeing increased enquiries for conversions to alternative use improve significantly and we believe this will impact rental and capital values positively. For example, Unit 1 Commodore Court, Nottingham comprises a large unit with retail planning use only.  Under the new planning rules, this can now be used as per Class E above and is under offer to a medical practice at £90,000 per annum.   Our assumptions on ERV have been £77,500 per annum.

Acquisitions

 

We anticipate acquiring mispriced assets during 2021, to grow our portfolio and income, whilst maintaining a balanced and diversified asset, sector and occupier base.  With our established network of regional contacts and our well-established reputation for efficient transactions we will continue to target good income with low gearing in a diversified regional portfolio and continue to focus on delivering stable long-term returns for shareholders.

 

Occupational Market Overview

Post-COVID-19 Recovery Ahead

 

Prospects for the West Midlands region remain strong. HS2 has been secured and, with Coventry named as the UK’s City of Culture for 2021 and Birmingham hosting the 2022 Commonwealth Games, the region has a rare opportunity to showcase everything it has to offer on a global stage.

Furthermore, we are seeing unprecedented levels of investment across the entire region in infrastructure, housing, education, innovation and culture. This is making our towns and cities a compelling proposition to domestic and overseas businesses and we expect our region to take advantage of this level of inward investment.

Before COVID-19, Birmingham’s economy had been performing relatively well and accelerating. It had higher GDP growth than the UK and European city averages in three of the last five years and the highest population growth in the UK outside of London.

Its strength in the professional & other private services sector, which accounts for roughly a quarter of regional output, is one of the underlying factors that has been driving the healthy economic performance since the global financial crisis. Only the South East and London have a larger share of GVA in this sector.

Investment in infrastructure is having a transformative effect on Birmingham and will continue to improve this year with the completion of the second phase of the Metro extension, helping boost the economy and unlock development opportunities. The guarantee of HS2, whilst some time away, will be a key long-term driver of change. We expect to see inward investment from London and south eastern occupiers which will increase demand and maintain healthy levels of occupancy across the wider Midlands office market and throughout the REI portfolio. 

In contrast to the pre-COVID trend of the city centre performing better, in 2021 we expect out of town destinations and some local high streets to continue to be relative beneficiaries, as people will still be spending more time closer to home.  Essential retailers have remained open throughout the year and have had a very different experience, which will be reflected in the investment market, viewed as secure income, and convenience stores have proved resilient.

 

With planning legislation relaxing, we have seen an increase in investor demand for high street retail assets which can be repurposed and are underpinned by alternative uses. We anticipate this trend to continue in 2021 as the effects of CVAs and shop closures conclude.

 

The majority of the REI portfolio office buildings are in fringe locations of the Birmingham office market which were more resilient in 2020 than Birmingham city centre. In 2019, 10% of office take-up took place in Birmingham’s fringe locations, yet in 2020, it accounted for 18%.  The office lettings market has already seen an increase in enquiries for satellite office locations reflecting this trend which is positive for REI’s portfolio of small out of town regional offices and we anticipate rising rents and capital values.

 

Assets let to essential retailers, such as foodstores, have seen a surge in demand as they are considered to be sustainable convenience.  We expect demand to improve for convenience-led retail assets first. There is strong occupier demand for neighbourhood and convenience retail and our deliberate focus on this subsector has seen overall occupancy across the portfolio remain at a robust level of 91.6%.

 

Portfolio Mix

 

The current sector weightings are:

 

 

Sector

£ per annum

% by Income

Office

Office

5,982,801

35.64

TR

Traditional Retail

3,234,897

20.27

DR

Discount Retail – Poundland/B&M etc

1,751,402

9.87

M&P

Medical and Pharmaceutical – Boots/Holland & Barrett etc

1,135,300

6.79

RBC

Restaurant/Bar/Coffee – Costa Coffee, Loungers etc

1,160,150

6.74

FIN

Financial/Licences/Agency – Lloyds TSB, Santander UK Plc, Bank of Scotland etc

774,652

4.62

FS

Food Stores – M&S, Aldi, Co-op, Iceland etc

885,690

5.29

Other

Other – Hotels (Premier Inn/Travelodge), Leisure (The Gym Group, Luda Bingo), Car parking, AST

1,803,009

10.78

 

 

16,727,901

100

 

Asset management 

 

Diversity is key

 

REI’s strategy of holding a diversified, mixed used portfolio really came to the fore in 2020.  With a global pandemic affecting real estate generally, REI’s drive to limit exposure to any single occupier and focus on convenience and neighbourhood retail has protected the portfolio. 

Rental collection has remained high; partly due to the above strategy – but also because the Company, early on, adopted a proactive approach towards those tenants that have been affected and have had little Government support. 

 

Some tenants deferred rental payments and others chose to re-gear leases or remove tenant break options.  Alongside this, other asset management initiatives have taken place, adding to the WAULT of the portfolio.

 

Change of Use/Planning Gains

 

Permitted Development Residential

 

We continue to identify assets that have potential for permitted development and this remains in excess of 250,000 sq ft across the portfolio:

 

Ø We are seeking to secure office development consent on surplus land at Topaz Business Park in Bromsgrove, at Junction 1 of the M42, together with a Costa Coffee drive through.  Any material land value and planning gain in respect of these initiatives are not included in our existing valuations

 

Ø Additionally, the town centre hybrid scheme of retail park style outlets/large car park/adjoining high street site in Crewe has the potential for residential on a large section of the scheme (25,000 sq ft) and we are in dialogue with the Council and a local developer.  Again, this change of use planning gain is not included within the existing valuation

 

 

Key asset management initiatives undertaken during the period include:

 

Virginia House, Worcester

 

Discussions had been underway for a long period with an operator of student accommodation who had another operation close by.  Pro-active asset management work allowed the building to be delivered to the tenant with vacant possession secured.  The tenant signed a 125-year lease and commenced fit-out.  When the pandemic hit, discussions around timings of the lease and rent commencement took place, and both parties reached an agreement that was mutually beneficial.  This resulted in a scheme that is performing exceptionally well for the operator and added value to the portfolio for REI.

 

Brandon Court, Coventry

 

When a neighbouring tenant vacated, REI worked closely with an existing tenant to explore opportunities to allow them to expand their operation.  This resulted in the tenant taking additional space and extending and combining two units into one lease, with a longer term, allowing the tenant the ability to consolidate and grow its operation from the site, adding value to the asset with limited void period.

 

The Parade, Leamington Spa

 

Following the acquisition in November 2019, REI quickly identified key asset management opportunities.  One of these was McDonalds, who had a lease event and a potential desire to refurbish the unit.  By approaching the tenant, it was established that a new, longer, lease would benefit both parties and the matter was concluded in June 2020.  The longer term allowed the tenant to invest in the unit and REI increased the WAULT and secured a key tenant for a further ten years.

 

Lloyds Bank, Acocks Green

 

With an intimate knowledge of the local market and an understanding of what our tenants are doing, it was established that Lloyds Bank were seeking opportunities to secure new terms at well-performing locations, in return for some rent-free period.  This resulted in a new five-year lease being agreed; adding certainty for both parties, confirming that small, local, retail parades are key for REI and its tenants.

 

 

Westgate House, Warwick

 

Further to the deals with Boots and Moore & Tibbitts in late 2019, REI concluded a deal with Heaphys, a long-term tenant, to provide security for their future business operations.  Heaphys approached REI about any options to extend and keen to support and work with the tenant, REI worked up a deal that was, once again, beneficial to both parties. 

 

All of the above deals highlight the positive sentiment that the tenants have about their locations and have proven, once again, that REI is keen to work with tenants, on a case-by-case approach, to support them, whilst ensuring that the portfolio mix and values remain protected.

 

31 Dec 2020

Value

£

Area

(sq ft)

Contracted Rent (£)

ERV

£

NIY

%

RY

%

Occupancy

%

Central Birmingham

          27,265,000

 

114,049

        

1,582,770

        

2,046,837

 

5.44%

 

7.04%

 

84.12%

Other Birmingham

           30,545,000

 

215,895

        

2,651,632

        

2,775,690

 

8.14%

 

8.52%

 

96.67%

West Midlands

 73,775,000

 

647,207

        

6,352,119

        

6,862,526

 

8.09%

 

8.74%

 

93.17%

Other Midlands

         63,275,000

 

586,435

        

5,862,728

        

6,175,951

 

8.70%

 

9.16%

 

89.25%

Other Locations

               2,660,000

 

28,779

          

278,652

        

   236,810

 

10.08%

 

8.57%

 

96.15%

Land

               3,795,967

 

 

 

 

 

 

Total

          201,315,967

 

1,592,365

    

 16,727,901

     

18,097,814

 

7.95%

 

8.60%

 

91.60%

 

*Our land holdings are excluded from the yield calculations

 

Our Stakeholders

 

Our continued thanks to our shareholders, advisors, occupiers and staff for their support and assistance during an unprecedented year of uncertainty. 

 

Chairman’s Succession

 

The Board would like to announce that John Crabtree OBE will be retiring as Non-Executive Chairman of the Company at the next Annual General Meeting (‘AGM’) in May 2021. 

 

The Board is pleased to announce that William Wyatt, current Non-Executive Director of the Company will be appointed as Chairman with effect from the AGM in 2021.  William has served on the Board of the Company since 2010 and is well placed to continue the strategic direction and focus of the business.  William has extensive knowledge of the business and has enjoyed a successful executive career and is currently Chief Executive of Caledonia, having joined in 1997 from Close Brothers Group Plc.

 

This appointment is the result of our Chairman succession planning, an ongoing process which identifies necessary competencies and works to assess what would be required to ensure a continuing of leadership for all critical positions.

 

John Crabtree OBE, Chairman, commented:

“It has been a privilege to act as Chairman. The Company remains in the excellent hands of a strong team and is very well positioned for the future.” 

 

William Wyatt, Non-Executive Director commented:

“I am delighted to accept the role of Chairman and, on behalf of the Board, I would like to express my deep thanks to John for his invaluable contribution to the Company since its early days. Despite the difficulties caused by the Covid-19 pandemic, he leaves the business in excellent condition, well placed to continue to deliver resilient and growing income together with attractive capital growth.”

 

Paul Bassi, Chief Executive commented:

“I would like to take this opportunity on behalf of the Board, to express our heartfelt gratitude to John for his dedication and service to the Company since his appointment and his significant contribution to the success of REI Plc.”

 

The Board of REI sincerely wish John the very best in his future endeavours and particularly in his role of Chairman of the Organising Committee of the 2022 Commonwealth Games, a significant event in the history of our region and one which we all anticipate eagerly.

 

 

 

 

 

 

John Crabtree OBE D. Univ                                                     Paul Bassi CBE D. Univ

Chairman                                                                                Chief Executive

29 March 2021                                                                       29 March 2021

 

 

 

 

FINANCIAL REVIEW

 

Overview

 

Our results for 2020 were materially affected by the COVID-19 pandemic, particularly in the last quarter of the year, due to the further Q4 lockdown. However, the strength and diversification of our portfolio have delivered strong rental receipts, and we have worked tirelessly with our tenants to assist them where we can and improve terms where it suited both parties.

 

Underlying profit for the year was up 1.2% to £8.1 million (2019: £8 million).  Our earnings have been affected by £1 million, particularly in Q4 2020, a result of bad debts on rent not collected and incentives granted on extending lease terms where appropriate. This impact however has been counteracted by the Board decision that it would not be appropriate for any bonuses to be declared for the executive directors and significantly reduced bonuses for the management team.

 

We have recorded a net loss before tax for the year of £20.2 million as a result of an investment portfolio revaluation deficit of £27.9 million. The majority of our investment portfolio has been revalued externally.

 

As a result, our EPRA NAV per share has fallen to 55.2p (2019: 67.4p). This has impacted our LTV (net of cash) on our banking facilities which has risen to 49.2% (2019: 42.2%). We continue to remain within our covenants with our bankers and in March 2021 we successfully concluded the refinance of our £51 million facility with National Westminster Bank PLC and are in negotiations to renew our £4.2 million facility with Allied Irish Bank (GB) plc for 5 years. The bank covenants are measured against the LTV of the loans to property values and the interest cover measured against rental income. On average, property values would have to fall a further 10% and rental income by 40% to breach the covenants and, in addition, the Group has £11 million of unencumbered properties, which could be provided as further security.  Following the renewal of this facility our average cost of debt remains at 3.4%, with 46% of debt fixed and 54% variable.

 

The Board decided at the start of the pandemic to honour the payment in April 2020 of the final dividend for 2019 and decided that dividends should be continued to be paid for 2020 but to reduce the quarterly dividends to 0.5p per share. The final dividend for the year has been declared at 1.5p and is fully covered, representing a total covered dividend for 2020 of 3p (2019: 3.8125p).

 

Our share price has continued to trade at a significant discount to NAV and as a result the Company embarked on a share buyback of £2 million. In aggregate, between 20 October 2020 and 27 November 2020, the Company repurchased 7,042,700 ordinary shares at an average purchase price of 28.40 pence per share, representing a 49% discount to the EPRA NAV of 55.2p at 31 December 2020.

 

 

31 December 2020

31 December 2019

Change

Gross Property Assets

£201.3 million

£228.9 million

-12.0%

Underlying profit before tax

£8.1 million

£8.0 million

+1.2%

(Loss)/profit before tax

(£20.2 million)

£3.7 million

Revenue

£16.4 million

£16.6 million

-1.2%

EPRA EPS

4.5p

4.3p

+4.7%

EPRA NAV per share

55.2p

67.4p

-18.1%

EPRA NNNAV per share

53.3p

                       66.0p

-19.2%

Net Assets

£97.7 million

£125.4 million

-22.1%

Loan to value

51.3%

46.7%

+9.9%

Loan to value net of cash

49.2%

42.2%

+16.6%

Average cost of debt

3.4%

3.4%

Dividend per share

3p

                     3.81p

-21.3%

Like for like rental income

£16.7 million

£17.6 million

5.3%

Like for like capital value per sq ft

£126.41 sq ft

£141.71 sq ft

-12.0%

Like for like valuation                      

£201.3 million

£228.9 million

-12.0%

 

Results for the year

 

Our underlying profit before tax rose to £8.1 million (2019: £8 million). Loss before tax (IFRS) totalled £20.2 million (2019: £3.7 million profit), after accounting for a loss on revaluation of investment properties of £27.9 million (2019: £4.3 million), together with a loss on the market value of our interest rate hedging instruments of £483,000 (2019: £41,000).

 

We did not purchase any new investment properties during the year.  Revenues for the year were down 1.2% to £16.4 million (2019: £16.6 million). As noted previously the majority of our investment properties were revalued externally at 31 December 2020 and resulted in a loss on revaluation of £27.9 million. As expected, this was mainly due to a cautious view taken on retail, combined with a fall in car park revenues, which resulted in an aggregate write down of £13.3 million for the Company’s Acocks Green, Tunstall, Birch, Crewe, Bradford St Walsall and 33 Bennetts Hill assets. The balance of £14.6 million is spread across the remainder of our retail and office portfolio, with void properties absorbing most of the reduction, which will correct with the benefit of a letting.

 

We continue to control our overhead base and administrative expenses which were stable at £3.3 million (2019: £3.5 million) having made provision for bad debts of £825,000 (2019: £25,000), providing for a reduced bonus provision, (plus employers’ National Insurance) of £55,000 (2019: £940,000) and releasing a provision for costs of the Long-Term Investment Plan of £250,000 (2019: charge £100,000). The Board agreed that bonuses for the executive directors for 2020 were not appropriate. 

 

Interest costs for the year remained stable at £3.6 million (2019: £3.6 million) and the weighted average cost of debt remained stable at 3.4% (2019: 3.4%) as a result of fixing our £12 million of debt of with Barclays. 

 

Earnings per share were:

Basic: Loss 11.5p (2019: profit 2.0p)

Diluted: Loss 11.5p (2019: profit 1.9p)                                      

EPRA: 4.5p (2019:  4.3p)

 

Shareholders’ funds decreased to £97.7 million at 31 December 2020 (2019: £125.4 million) as a result of the deficit on property portfolio revaluation.

 

Basic NAV: 54.5p (2019: 67.3p)

EPRA NAV: 55.2p (2019: 67.4p)

EPRA NNNAV: 55.3p (2019: 66.0p)

 

Finance and banking

 

Total drawn debt at 31 December 2020 was £101 million (2019: £105 million).  In April 2020, the Group agreed a new £3.5 million facility with Barclays Bank, subsequently fixed the total £12 million facility with Barclays at 2.2% and repaid the facility of £7 million with Santander. As a result, the weighted average cost of debt has remained at 3.4% (2019: 3.4%) and the weighted average debt maturity was 2.25 years (2019: 3.25 years), with 86% of debt fixed and 14% variable. The loan to value (LTV) at 31 December 2020 was 51.3% (2019: 46.7%) and the LTV (net of cash) was 49.2% (2019: 42.2%). 

 

In March 2021, the Group renewed the £51 million facility with National Westminster Bank PLC for 3 years at 2.25% above LIBOR. This extends the debt maturity profile to 3.4 years.  In addition, the Group is in negotiation to renew the facility of £4.2 million with Allied Irish Bank (GB) plc for a further 5 years.

 

We continue to meet our facility covenants with our lenders.

 

Long Term Incentive Plan (LTIP)

 

The LTIP is designed to promote retention and to incentivise the executive directors to grow the value of the Group and to maximise returns. Based on the results none of the options awarded for 2018 or 2019 are likely to vest and so a release of the provision of £250,000 (2019: £100,000 charge) has been made in the accounts in respect of the LTIP.

 

Taxation

 

The Group converted to a Real Estate Investment Trust (REIT) on 1 January 2015. Under REIT status the Group does not pay tax on its rental income profits or on gains from the sale of investment properties. The tax charge for the year is in respect of bank interest received and the movement on the deferred tax asset is in respect of the financial instruments. The Group continues to meet all of the REIT requirements to maintain REIT status.   

 

Dividend

 

Under the REIT status the Group is required to distribute at least 90% of rental income taxable profits arising each financial year by way of a Property Income Distribution. REI commenced paying quarterly dividends in 2016. As a result of the pandemic the quarterly interim dividends were reduced to 0.5p per share and were paid in July 2020, October 2020 and January 2021. The Board proposes a final dividend of 1.5p per share payable in April 2021 as a Property Income Distribution making a total of 3p for the year (2019: 3.8125p). The allocation of dividend payments between PID and non PID will continue to vary.

 

 

 

 

 

Marcus Daly, Finance Director

29 March 2021

 

 

 

 

Real Estate Investors plc

Consolidated statement of comprehensive income

For the year ended 31 December 2020

 

 

 

Note

2020

2019

 

 

£000

£000

 

 

 

 

Revenue

 

16,425

16,596

 

 

 

 

Cost of sales

 

(1,397)

  (1,485)

Gross profit

 

15,028

15,111

 

 

 

 

Administrative expenses

 

(3,262)

(3,553)

Surplus on sale of investment property

 

8

Change in fair value of investment properties

 

(27,896)

(4,349)

(Loss)/profit from operations

 

(16,130)

7,217

Finance income

 

14

41

Finance costs

 

(3,637)

(3,554)

Loss on financial liabilities at fair value through profit and loss

 

(483)

(41)

 

 

 

 

(Loss)/profit on ordinary activities before taxation

 

(20,236)

3,663

 

 

 

 

Income tax charge

 

(405)

 

 

 

 

Net (loss)/profit after taxation and total comprehensive income

 

(20,641)

3,663

 

 

 

 

Total and continuing (loss)/earnings per ordinary share

 

 

 

Basic

3

(11.51)p

1.96p

Diluted

3

(11.51)p

1.93p

EPRA

3

4.54p

4.32p

 

The results of the Group for the period related entirely to continuing operations.

 

 

 

Real Estate Investors plc

Consolidated statement of changes in equity

For the year ended 31 December 2020

 

 

 

Share

capital

Share

premium

account

Capital

redemption

reserve

Other reserve

Retained

earnings

Total

 

£000

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

At 1 January 2019

18,642

51,721

45

1,002

57,261

128,671

 

 

 

 

 

 

 

Share based payment

100

100

Dividends

(6,991)

(6,991)

Transactions with owners

100

(6,991)

(6,891)

 

 

 

 

Profit for the year and total comprehensive income

3,663

3,663

At 31 December 2019

18,642

51,721

45

1,102

53,933

125,443

 

 

 

 

Share based payment

(493)

(493)

Share buy back

(704)

(1,306)

(2,010)

Transfer re capital

704

(704)

Dividends

(4,625)

(4,625)

Transactions with owners

(704)

704

(493)

(6,635)

(7,128))

 

 

 

 

Loss for the year and total comprehensive income

 

(20,641)

(20,641)

At 31 December 2020

17,938

51,721

749

609

26,657

97,674

 

 

 

 

Real Estate Investors plc

Consolidated statement of financial position

At 31 December 2020

 

 

 

Note

2020

2019

 

 

£000

£000

Assets

 

 

 

Non-current

 

 

 

Intangible assets

 

Investment properties

4

197,520

225,075

Property, plant and equipment

 

5

8

Deferred tax

 

405

 

 

197,525

225,488

Current

 

 

 

Inventories

 

3,796

3,780

Trade and other receivables

 

4,340

2,423

Cash and cash equivalents

 

4,238

10,092

 

 

12,374

16,295

 

 

 

 

Total assets

 

209,899

241,783

Liabilities

 

 

 

Current

 

 

 

Bank loans

 

(45,579)

(7,368)

Trade and other payables                               

 

(7,337)

(8,114)

 

 

(52,916)

(15,482)

Non-current

 

 

 

Bank loans

 

(55,775)

(97,807)

Financial liabilities

 

(3,534)

(3,051)

 

 

(59,309)

(100,858)

Total liabilities

 

(112,225)

(116,340)

 

 

 

 

Net assets

 

97,674

125,443

 

Equity

 

 

 

Share capital

 

17,938

18,642

Share premium account

 

51,721

51,721

Capital redemption reserve

 

749

45

Other reserve

 

609

1,102

Retained earnings

 

26,657

53,933

 

 

 

 

Total Equity

 

97,674

125,443

Net assets per share

3

                 

54.5p

           67.3p

 

 

 

 

 

 

 

 

 

Real Estate Investors plc

Consolidated statement of cash flows

For the year ended 31 December 2020

 

 

 

 

2020

2019

 

 

£000

£000

Cash flows from operating activities

 

 

 

(Loss)/profit after taxation

 

(20,641)

3,663

Adjustments for:

 

 

 

Depreciation

 

3

5

Net deficit on valuation of investment property

 

27,896

4,349

Surplus on sale of investment property

 

(8)

Share based payment

 

(250)

100

Finance income

 

(14)

(41)

Finance costs

 

3,637

3,554

Loss on financial liabilities at fair value through profit and loss

 

483

41

Income tax charge

 

405

Increase in inventories

 

(16)

(16)

Increase in trade and other receivables

 

(1,917)

(146)

Increase in trade and other payables   

 

    74

113

Net cash from operating activities

 

9,660

11,614

 

 

Cash flows from investing activities

 

 

 

Purchase of investment properties

 

(341)

(10,384)

Purchase of property, plant and equipment

 

(2)

Proceeds from sale of investment properties

 

2,008

Interest received

 

14

41

 

 

(327)

(8,337)

Cash flows from financing activities

 

 

 

Interest paid

 

(3,637)

(3,554)

Share based payment

 

(243)

Share buy back

 

(2,010)

Equity dividends paid

 

(5,476)

(6,874)

Proceeds from new bank loans

 

3,500

8,500

Payment of bank loans

 

(7,321)

(2,100)

 

 

(15,187)

(4,028)

 

 

 

 

Net decrease in cash and cash equivalents

 

(5,854)

(751)

Cash, cash equivalents and bank overdrafts at beginning of period

 

 10,092

10,843

Cash, cash equivalents and bank overdrafts at end of period

 

4,238

10,092

 

NOTES:

Cash and cash equivalents consist of cash in hand and balances with banks only.

 

Real Estate Investors plc

Notes to the preliminary announcement

For the year ended 31 December 2020

 

1.  Basis of preparation

 

The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of properties and financial instruments held at fair value through the profit and loss account, and in accordance with International accounting standards in conformity with the requirements of the Companies Act 2006.

It should be noted that accounting estimates and assumptions are used in preparation of the financial statements.  Although these estimates are based on management’s best knowledge and judgement of current events and actions, actual results may differ from those estimates.  The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are set out in the Group’s annual report and financial statements.

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year.  Material intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated on consolidation.  Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

 

The principal accounting policies are detailed in the Group’s annual report and financial statements.

 

Going concern

 

The Group has prepared and reviewed forecasts and made appropriate enquiries which indicate that the Group has adequate resources to continue in operational existence for the foreseeable future. These enquiries considered the following:

 

·      the significant cash balances the Group holds and the low levels of historic and projected operating cashflows

·      any property purchases will only be completed if cash resources or loans are available to complete those purchases

·      the Group’s bankers have indicated their continuing support for the Group. The Group’s £51 million facility with National Westminster Bank PLC was renewed for three years in March 2021.  In addition, the Group is in negotiation to renew the facility of £4.2 million with Allied Irish Bank (GB) plc for a further 5 years

·      Management have performed various sensitivities which demonstrate that the Group has sufficient cash resources to continue in operational existence for the foreseeable future

·      The Directors have, at the time of approving these financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future being a period of not less than 12 months from the date of approval of these financial statements

 

Thus, for these reasons, the Group therefore continues to adopt the going concern basis in preparing the consolidated financial statements.

 

2.  Gross profit

 

2020

2019

 

£000

£000

 

 

 

Revenue             -     Rental income

15,691

16,401

-     Surrender premiums

734

195

 

16,425

16,596

 

 

 

Cost of sales       -     Direct costs

(1,397)

(1,485)

 

15,028

15,111

 

3.  Earnings per share

 

The calculation of earnings per share is based on the result for the year after tax and on the weighted average number of shares in issue during the year.

 

Reconciliations of the earnings and the weighted average numbers of shares used in the calculations are set out below.

 

 

2020

2019

 

Earnings

Average

number of

shares

Earnings per

Share

 

Earnings

Average

number of

shares

Earnings

per share

 

£000

 

 

£000

 

 

 

 

 

 

 

 

 

Basic (loss)/earnings per share

(20,641)

179,377,898

 

(11.51)p

3,663

186,420,598

1.96p

Diluted (loss)/earnings per share

(20,641)

183,369,382

(11.51)p

3,663

190,176,814

1.93p

 

The European Public Real Estate Association indices below have been included in the financial statements to allow more effective comparisons to be drawn between the Group and other business in the real estate sector.

 

EPRA EPS per share

 

 

2020

2019

 

Earnings

Shares

Earnings per

Share

 

Earnings

Shares

Earnings

per share

 

£000

No

                   p    

£000

No

P

 

 

 

 

 

 

 

Basic (loss)/earnings per share

(20,641)

179,377,898

(11.51)                  

3,663

186,420,598

              1.96      

Net loss on valuation of investment properties

27,896

 

 

4,349

 

 

Surplus on disposal of investment properties

 

 

(8)

 

 

Change in fair value of derivatives

483

 

 

41

 

 

Deferred tax

405

 

 

 

 

EPRA earnings per share

8,143

179,377,898

4.54

8,045

186,420,598

      4.32 

 

 

EPRA NAV per share

 

2020

2019

 

Net assets

Shares

Net asset

value per

share

Net assets

Shares

Net asset

value per

share

 

£000

No

P

£000

No

P

 

 

 

 

 

 

 

Basic

97,674

179,377,898

54.5

125,443

186,420,598

67.3

Dilutive impact of share options and warrants

3,991,484

 

3,756,216

 

Diluted

97,674

183,369,382

53.3

125,443

190,176,814

66.0

Adjustment to fair value of derivatives

3,534

 

3,051

 

Deferred tax

 

(405)

 

EPRA NAV

101,208

183,369,382

55.2

128,089

190,176,814

67.4

Adjustment to fair value of derivatives

(3,534)

 

(3,051)

 

Deferred tax

 

405

 

EPRA NNNAV

97,674

183,369,382

53.3

125,443

190,716,814

66.0

 

 

4.  Investment properties

 

Investment properties are those held to earn rentals and for capital appreciation.

 

The carrying amount of investment properties for the periods presented in the consolidated financial statements is reconciled as follows:

 

 

£000

 

 

 

Carrying amount at 1 January 2019

 

221,040

Additions – acquisition of new properties

 

9,723

Additions – subsequent expenditure

 

661

Disposals

 

(2,000)

Change in fair value

 

(4,349)

 

 

 

Carrying amount at 31 December 2019

 

225,075

Additions – acquisition of new properties

 

Additions – subsequent expenditure

 

341

Disposals

 

Change in fair value

 

(27,896)

Carrying amount at 31 December 2020

 

197,520

 

5.  Publication

 

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 434 of the Companies Act 2006.  The consolidated statement of financial position at 31 December 2020 and the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows and the associated notes for the year then ended have been extracted from the Group’s financial statements upon which the auditor’s opinion is unqualified and does not include any statement under section 498 of the Companies Act 2006.  The statutory accounts for the year ended 31 December 2020 will be delivered to the Registrar of Companies following the Company’s Annual General Meeting.

 

6.  Copies of the announcement

 

Copies of this announcement are available for collection from the Company’s offices at 2nd Floor, 75-77 Colmore Row, Birmingham, B3 2AP and from the Company’s website at www.reiplc.com. The report and accounts for the year ended 31 December 2020 are available from the Company’s website and will be posted to shareholders in May 2021.

 

 

 

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END

 
 

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