Trading Update

23 May 2024

Real Estate Investors Plc

(“REI”, the “Company” or the “Group”)

TRADING UPDATE

Further Sales Completed, Debt Repayment & Strong Lettings

Real Estate Investors Plc (AIM: RLE), the UK’s only Midlands-focused Real Estate Investment Trust (REIT) with a portfolio of commercial investment property across all sectors, is pleased to announce the following update on disposals, debt repayment and portfolio lettings in advance of its Annual General Meeting (“AGM”), which will take place at 11 a.m. today at 2nd floor, 75-77 Colmore Row, Birmingham B3 2AP. The Company will announce the results of its AGM following the conclusion of the meeting.

Further Disposals

Despite widespread market inertia and a lack of transactional activity, REI is fortunate to have a diversified portfolio that has allowed us to complete further sales since the year-end to private investors and owner occupiers at prices at or better than our year-end book values, totalling  £5.442 million (the loss of income associated with these sales equates to £360,000 p.a.).  We also have an additional number of properties that have exchanged and are set to complete subject to deferred completions, vacant possession and change of use/planning consents. 

We have a further strong pipeline of sales in legals, which is pleasing, though transactions are typically taking months from conception to completion. 

We are retaining our larger assets for income and will look to sell these once we see a likely improvement in pricing and investor appetite for these assets, which we anticipate will be triggered by a reduction in interest rates and a clearer picture post the General Election.  Research from Avison Young suggests that the UK office market is particularly subdued, with transactional volumes of £324 million recorded in Q1 2024, nearly half the long-term average.  In contrast, the retail and industrial sectors show more positive activity. 

Debt Repayment

The proceeds from recently completed disposals, combined with existing cash has been used to reduce the Group’s debt by a further £3 million, taking the total debt repaid since the year end to £5.7 million.  This has resulted in our total drawn debt reducing to £48.7 million at the time of writing (FY 2023: £54.4 million).  We remain focused on debt reduction as a priority, using sales proceeds to accelerate our debt reduction objectives.

Strong Letting Activity

Against a sluggish property investment market, the occupier market is relatively buoyant and our occupancy has improved to 86.84% (FY 2023: 83.03%) and portfolio WAULT to 5.26 years to break and 6.24 years to expiry (FY 2023:  5.24 years to break and 6.01 years to expiry).  Contracted rental income is now £10.9 million p.a. (FY 2023: £10.9 million p.a.) despite selling £360,000 p.a. of income and a number of known lease events, recent lettings (including Birch House) and other asset management initiatives have ensured the rent remains at parity.

Birch House, Oldbury – Following the announcement in October 2023 that an Agreement for Lease had been signed by DHU Health Care CIC to take the entire 35,749 sq ft space at the previously vacant Birch House, Practical Completion and subsequent Lease completion has now taken place following the refurbishment of the space by REI.  DHU have taken a 10-year lease at £625,608 p.a., with a 5-year break and 6-months’ rent free.  NHS England have awarded the Midlands NHS111 contract to DHU Healthcare CIC, making DHU the largest provider of NHS111 services in England, with responsibility for 11 million patients.

Signed Agreement for Leases Awaiting Completion

Jasper Park, Tunstall - McDonalds have signed an Agreement for Lease for a 20-year lease at £55,000 p.a on a previously vacant unit, with breaks at years 10 and 15.

Market Centre, Crewe – British Heart Foundation have signed an Agreement for Lease to take the ground floor/part first floor of the former Argos unit, on a 10-year lease at £57,500 p.a. with a 5-year break and a rent review in year 5.

Topaz Business Park, Bromsgrove - Following the signing of an Agreement for Lease at £89,000 p.a. by Costa in 2023, the forward sale of the Lease has now exchanged for £1.6 million.  The contract to build the Costa unit has been secured with completion due in September 2024.  This sale is not included in the property sales year to date.

Maypole – An Agreement for Lease has been signed with InHealth Limited, The UK’s largest specialist provider of diagnostic and healthcare solutions.  They will be taking the old Halfords unit (4,500 sq ft) on a 15 year Lease at a rent of £65,000 p.a.

Once these Agreement for Lease deals complete, the collective new contracted rental income from these transactions will amount to £177,500 p.a. (excluding Costa at Topaz Business Park as unit is pre-sold as above). Completion of these deals will boost our occupancy further to 88.42% and our contracted rental income from £10.9 million p.a. to £11 million p.a.  With further pipeline lettings due to complete, we anticipate further improvement in these areas, subject to the pace of our disposal programme.

Paul Bassi, Chief Executive, commented:

“In a challenging market we are pleased to report the ongoing lettings progress across our portfolio, which will maximise our rental income and occupancy levels, supporting our ongoing dividend commitment.

The portfolio is continuously subject to active asset management which provides quality assets for disposal as part of our strategic sales programme and increases occupancy, revenue and capital values.

Although private investors and special purchasers continue to invest, we anticipate that the market for larger property investment transactions will pick up once interest rates decrease and this year’s General Election concludes.

We remain focused on sales and debt reduction and have a strong sales pipeline in legals.  The key objective of the Board is to deliver on the stated strategy of an orderly sales programme to maximise the return of capital to shareholders.”

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About Real Estate Investors Plc

Real Estate Investors Plc is a publicly quoted, internally managed property investment company and REIT with a portfolio 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 dividend policy. Further information on the Company can be found at www.reiplc.com.