H1 Trading Update

5 July 2021

Real Estate Investors Plc

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

H1 Trading Update

Real Estate Investors Plc (AIM:RLE), the UK’s only Midlands-focused Real Estate Investment Trust (REIT), with a portfolio of 1.6 million sq ft of commercial property across all sectors, is pleased to provide the following update:

H1 2021 Highlights

·    Strong Rent Collection for H1 2021 of 97.22% (adjusted for monthly and deferred agreements)

·    Completed 8 asset disposals totalling £10.7 million (an aggregate uplift of 10.3% above book value)

·    Pipeline disposals of £5.53 million (£5.35 million unconditionally exchanged and £0.18 million conditionally exchanged)

·    Occupancy levels at 83.43% with near-term potential to rise to 88.15% (based on 4.72% in pipeline lettings) with the reduction in occupancy dominated by the loss of Npower in Oldbury and Premier Inn in West Bromwich

·    Improved WAULT to 5.01 years to break and 6.70 years to expiry (FY 2020: 4.84 years / 6.54 years)

·    March 2021 renewal of £51 million facility with National Westminster Bank plc for 3 years at 2.25% above LIBOR with £4.1 million repaid since March 2021

·    Fixing of £35 million of £51 million NatWest facility at competitive rates

·    As at 1 July 2021, hedge facility has improved by £716,000 for half year to 30 June 2021

·    All banking covenants continue to be met with headroom available

·    Non-Executive directorate changes in line with succession planning

·    Dividend payment of 0.75p per share for Q1 2021

Paul Bassi, Chief Executive, commented:

“Following a very uncertain 2020, we are beginning to see some early signs of market normalisation coupled with a strong investor market place.  Whilst we are not immune to the ongoing impact of COVID-19 on the wider UK property market, we are very well positioned in an active regional Midlands market, with a healthy exposure to resilient and sought-after community assets.

As we apply our extensive local market knowledge and utilise our unrivalled property network, we continue to achieve strong pricing on our disposals.  We intend to use the cash generated from these disposals to continue our focus on resilient and emerging sub-sectors and will look to secure opportunistic acquisitions which offer the real prospect of capital growth and rental income, with a view to improving our NAV and further support our progressive dividend policy.

Occupier demand is beginning to strengthen across the market place, with decision makers less cautious and naturally eager to move forward after a uniquely challenging 18 months.  We have a healthy pipeline of new lettings on our void space, which is expected to improve our occupancy levels and support our valuation recovery.

The diversity of our portfolio continues to underpin our strong rental collection in an unstable environment and it is this resilience, combined with numerous initiatives rolled out by our specialist in-house asset management team on specific assets, that we expect to lead to some recovery in our property valuations over 2021/2022 as transactional evidence becomes apparent, which will contribute to a rise in our NAV and a reduction in our gearing.”

Strong Midlands Investor Market – Disposals

The investment market remains free of distress with strong demand, in particular, from private investors.  We are currently evaluating the potential enhanced break-up value of some assets to satisfy this particular investor appetite.

Since the year end, we have completed 8 asset disposals totalling £10.7 million, an aggregate uplift of 10.3% on December 2020 book value. The capital from these sales will, in due course, be recycled into new assets with higher total return potential.  The income associated with these disposed assets is £392,652 per annum. 

There are a further £5.53 million of assets for disposal (£5.35 million unconditionally exchanged and £0.18 million conditionally exchanged) which will provide REI with income until the completion date, scheduled for later this year. As these transactions complete, they will provide further valuation comparables to support valuation recovery.  In the meantime, we are also seeing valuation gains on certain assets from asset management initiatives.

Rent Collection Normalising

Following a robust rent collection during 2020, we are pleased to confirm that the business has continued to benefit from its tenant, sector and asset diversification across the portfolio, resulting in strong rental collection performance in H1 2021 despite the challenges of continued lockdowns. 

Our proactive property team have maintained positive dialogue with our occupiers and as anticipated, the overall rent collection for 2020 has recently improved further from 96.35% to 98.75% (adjusted for monthly and deferred agreements) as outstanding rents from tenants who have recently recommenced trading in 2021 have now been collected and attributed to the relevant rental periods in 2020.  For the current quarter (June to September 2021), rent collection to date stands at 90.20%, which will improve further. 

As previously announced, there remain a number of tenants who have the ability to pay but have continued to take advantage of government legislation on overdue rents.  In these cases, despite the disappointing extension of the moratorium announced by the government in June 2021, we have taken permitted measures towards enforcing rent collection, which in some cases has resulted in overdue rents being collected.

Occupancy

Our portfolio diversification has underpinned our operational resilience during a challenging period and our portfolio remains stable with 250 occupiers across 47 assets.

Our occupancy now sits at 83.43%, with a further 4.72% in the pipeline (YE 2020: 91.60% occupancy). This reduction is almost entirely due to known lease events and, whilst we continue to see an understandable level of caution due to COVID-19 uncertainty, Q2 has seen demand for our neighbourhood and convenience assets continue to strengthen, often surpassing local market expectations and interest in non-City centre offices improve.

We currently have 16.57% void space, which includes the former Premier Inn at West Bromwich, Npower at Oldbury and Titan House in Telford (where we have already let the ground floor to the Department of Work and Pensions) where we have interest and discussions and we are hopeful of concluding new lettings.  We would normally have seen these units re-let earlier and we remain confident that, as lockdown rules relax, occupiers will make decisions which will lead to an increase in occupancy. The successful letting of these will further improve our occupancy, WAULT and will assist in further capital value recovery, all of which will add to the Company’s NAV.

Furthermore, the change in planning legislation in October 2020 has led to a renewed interest from a new class of occupiers (predominantly medical, pharmaceutical, restaurant and bar occupiers to date) for retail space that, prior to the legislative change, they would have been unable to occupy without a lengthy and risky planning process and this has, in some instances, led to lettings which have exceeded our ERV.

New tenants to newly let space within the portfolio in H1 include JD Sports Gyms Limited; Department of Work and Pensions, Community Health and Eyecare Limited (NHS Contract) and Merkur Slots UK Limited.

WAULT

REI completed 15 value-add lease events (including 5 lease renewals) in 2021.  As a result of these initiatives, our WAULT has improved to 5.01 years to break and 6.70 years to expiry (YE 2020: 4.84 years to break and 6.54 years to expiry), as at 30 June 2021.

Banking & Capital

We recently announced that we had taken advantage of the low interest rate environment and fixed £35 million of our £51 million NatWest facility (taken out in March 2021) to preserve our low interest costs.  With a contribution from sales, we have already repaid £4.1 million of the £51 million NatWest facility.  The fixing is with effect from 1 January 2022, increasing our fixed debt ratio from that date to 82% with our average cost of debt remaining at 3.4%.

The Board is pleased with securing this facility, which further limits the Company’s exposure to rising interest rates and the confidence lenders have in our strong covenant cover and asset management track record.

All banking covenants continue to be met with headroom available and as at 1 July 2021 our hedge facility has improved by £716,000 for the half year to 30 June 2021.

The Board’s objective remains to maintain responsible gearing and a secure cost of debt and we anticipate valuation recovery going forward during 2021/2022, that will reduce our gearing.

Dividend Payment

As announced on 21 June 2021, a fully covered dividend payment in respect of Q1 2021 of 0.75p per share (Q1 2020: 0.5p per share) will be paid on 23 July 2021 as a Property Income Distribution (PID), to all shareholders on the register as at 2 July 2021.  The ex-dividend date is 1 July 2021.

It is the intention of the Company to continue with a dividend payment of 0.75p per quarter for 2021, (representing a minimum annual payment of 3p per share for 2021) and reflecting a yield of 7.5% based on a mid-market closing price of 40.0p on 2 July 2021.

Management remains committed to a progressive dividend policy.

Directorate Changes

As a result of our Non-Executive succession planning, we recently announced the retirement of John Crabtree OBE as Non-Executive Chairman who departed with our sincere thanks for his many years of leadership and guidance.  At the AGM 2021, we welcomed our incoming Non-Executive Chairman, William Wyatt, (CEO of Caledonia Investments) who is very well placed to assist in driving the business forward.

We also announced the appointment of a new independent Non-Executive Director to the Board, Ian Stringer, former Non-Executive Chairman of GVA and current Principal of Avison Young.  Ian is a highly respected figure in the Midlands property market who brings a wealth of experience and a first-class reputation with him.

Enquiries:

About Real Estate Investors Plc

Real Estate Investors Plc is a publicly quoted, internally managed property investment company and REIT with a portfolio of 1.6 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.barques.dev.