TIDMRDI
RNS Number : 1076F
RDI REIT PLC
25 October 2018
RDI REIT P.L.C.
("RDI" or the "Company" or the "Group")
(formerly; Redefine International P.L.C.)
(Registration number 010534V)
LSE share code: RDI
JSE share code: RPL
ISIN: IM00B8BV8G91
LEI: 2138006NHZUMMRYQ1745
PRELIMINARY RESULTS FOR THE YEARED 31 AUGUST 2018
delivering on strategic targets
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
year ended 31 August 2018.
Financial highlights Year ended
Year ended 31 August
31 August 2018 2017 Change
------------------------------- ---------------- ----------- ---------
Income statement
Underlying earnings (GBPm) 53.5 49.8 +7.4%
Underlying earnings per share
(p) 2.84 2.75 +3.3%
Dividend per share (p) 2.70 2.60 +3.8%
Balance sheet
EPRA NAV per share (p) 42.8 41.4 +3.4%
Portfolio valuation (incl. JV
share) (GBPm) 1,620.4 1,538.7 +0.1%(1)
Loan-to-value (%) 46.2 50.0(2) -380bps
------------------------------- ---------------- ----------- ---------
(1) Like-for-like valuation growth; +0.6% local currency
like-for-like valuation growth
(2) Pro forma LTV adjusted from 51.3%, reflecting transactions
completed between 31 August 2017 and 26 October 2017
The table above includes non-IFRS performance measures
Positive trend in key metrics
-- Underlying earnings per share of 2.84 pence, an increase of 3.3%
-- Net rental income increased 2.1% on a like-for-like basis
-- EPRA cost ratio (excluding direct vacancy costs) improved to 15.6% (31 August 2017: 17.2%)
-- Total dividend of 2.70 pence per share, an increase of 3.8%, fully covered
Portfolio quality enhanced through significant recycling
activity
-- Disposal proceeds totalling GBP255.7 million at an average premium of 8.9% to book value
-- Increased stake in GBP104.4 million IHL hotel portfolio to
74.1% (31 August 2017: 17.2%) at an implied net initial yield of
6.9% and yield on equity of over 10%
-- Acquisition of an 80% interest in the GBP161.7 million London
Serviced Office ("LSO") portfolio at an implied net initial yield
of over 6% and yield on equity of over 9%
-- Increased exposure to the distribution and industrial sector
post period end with a GBP26.3 million acquisition of Southwood
Business Park, Farnborough and a GBP26.0 million forward funding of
Link 9 at Bicester
Further progress in strengthening the balance sheet
-- EPRA NAV per share increased 3.4% to 42.8 pence
-- Portfolio valuation increased by 0.6% in local currency terms
despite challenging market conditions
-- The IHL and LSO portfolio acquisitions increased by 14.0% and
1.0% above the acquisition values, respectively
-- LTV reduced by 380bps to 46.2% (31 August 2017 pro-forma: 50.0%)
-- Total annualised accounting return (growth in NAV plus dividends paid) of 9.8%
Income-led active asset management reflected in solid
operational metrics
-- EPRA occupancy remains high at 97.1% (31 August 2017: 97.7%)
-- Long WAULT of 7.0 years to first break and 8.4 years to lease
expiry (excludes hotels managed by RBH and the newly acquired
London serviced office portfolio)
-- London serviced offices trading in line with expectations;
occupancy remains high at 92.2%, EBITDA per sqft increased by 0.3%
since acquisition and EBITDA conversion remained at 63.4%
-- Primark took occupation of the 7,000 sqm (75,000 sqft) unit
in Ingolstadt and commenced trading in August 2018
Gavin Tipper, Chairman, commented:
"Today's results are further evidence of the steps the business
is taking in its aim to become the UK's leading income focused
REIT. The team continues to deliver against our medium term targets
and has made significant progress in all aspects of the business
over the last year. This constitutes a particularly strong set of
results given the structural changes in the property sector and
uncertain economic and political backdrop. We look to the future
with confidence."
Mike Watters, Chief Executive, commented:
"I am very pleased with the progress against our strategic
priorities contained in these results. We continue to deliver one
of the highest yields on net asset value in the sector, with our
performance underpinned by a strong balance sheet and a
significantly improved portfolio.
"The investments we have made over the last three years have
improved the quality of our income and the defensive nature of our
portfolio, positioning us well for the future. The structural
changes in occupier demand that are placing a far higher emphasis
on operational platforms and services have been addressed. This is
an area we have already made great strides in through our latest
major acquisitions of limited service hotels and our expansion into
London serviced offices. Security of our operational income is
supported by our best in class strategic partnerships with RBH and
Office Space in Town.
"The year ahead will no doubt bring its own set of challenges.
With this in mind, we are placing more emphasis on maintaining
liquidity and lower leverage in order to enable us to continue
delivering long term sustainable and growing income for our
shareholders."
Results presentation, webcast and conference call
A meeting for analysts and investors will take place on Thursday
25 October 2018 at 9.00 a.m. (UK time) at FTI Consulting, 200
Aldersgate, Aldersgate Street, London, EC1A 4HD. There will be a
presentation and a live webcast at 9.00 a.m. (UK time), 10.00 a.m.
(SA time) on Thursday 25 October 2018, 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: 642876
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
Janine Ackermann 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. Forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of RDI REIT P.L.C. to be materially
different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Any
information contained in this release on the price at which shares
or other securities in RDI REIT P.L.C. 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.
STRATEGIC REPORT
Chief Executive's report
I am pleased to report on a period of continued progress against
our strategic objectives. Despite macro-economic and political
uncertainty, underlying occupational and investment markets have
proven resilient for the majority of the sectors in which we are
invested.
The RDI portfolio has been enhanced through the recycling of
capital from mature and ex-growth assets into locations and assets
benefitting from stronger occupier demand and rental growth
prospects. Acquisition and disposal activity over the period
totalled GBP519.7 million resulting in a lower net debt position
and loan to value ratio. Underlying earnings and dividends are in
line with medium term guidance, a pleasing result given the level
of capital recycling and the resulting reduction in balance sheet
gearing.
Results and dividend
Underlying earnings increased by 7.4 per cent to GBP53.5 million
(31 August 2017: GBP49.8 million). Underlying earnings per share
increased by 3.3 per cent to 2.84 pence per share (31 August 2017:
2.75 pence per share), in line with our medium term growth target
of 3.0 to 5.0 per cent per annum.
EPRA NAV increased by 3.4 per cent to 42.8 pence per share (31
August 2017: 41.4 pence per share) supported by disposal proceeds
of GBP255.8 million at an average 8.9 per cent premium to book
value. Despite the continued fall in UK Shopping Centre values, the
like-for-like portfolio value increased 0.1 per cent, testament to
the strong valuation performance delivered elsewhere. The
acquisition of the IHL and London serviced office ("LSO")
portfolios in the first half of the year are excluded from the
like-for-like valuation movements but increased in value by 14.0
per cent and 1.0 per cent respectively relative to their purchase
prices.
The Board has declared a second interim dividend of 1.35 pence
per share taking the full year dividend to 2.70 pence per share, a
3.8 per cent increase on the same period last year. The dividend
reflects a pay-out ratio of 95.1 per cent of underlying earnings
for the full year, in line with our objective of distributing
superior income returns fully covered by underlying earnings and
aligned with operating cash flow. The total accounting return for
the year was 9.8 per cent.
Strategic priorities
Our strategic priorities remain unchanged with a focus on
delivering sustainable and growing income returns for our
shareholders. To support this we have invested in assets which can
deliver long term sustainable and growing rental income streams,
strengthened the balance sheet and aligned our dividend with
underlying earnings and operating cash flow.
Enhancing our income focused portfolio
It has been an exceptionally active year with a number of major
transactions being concluded which has enhanced the overall quality
of the portfolio. The Leopard portfolio of German supermarkets was
sold in December 2017 for EUR205 million, EUR20 million above the
combined 31 August 2017 market value. Two significant acquisitions
were also concluded during the period totalling GBP266.1
million.
Our investment in IHL was increased from 17.2 per cent to 74.1
per cent with IHL subsequently being de-listed and fully integrated
into our hotel portfolio. The IHL portfolio was valued at GBP104.4
million immediately prior to acquisition.
The acquisition of an 80 per cent interest in the GBP161.7
million LSO portfolio in January 2018 provides us with exposure to
a sector benefitting from positive structural change as occupiers
move towards more flexible lease structures, higher quality
services and an office environment which helps employers to attract
and retain talent.
Exposure to the industrial and distribution sectors was
increased post period end through a GBP26.0 million forward funding
of a development of two distribution units in Bicester and the
acquisition of an industrial estate in Farnborough for GBP26.3
million, at a net initial yield of 6.2 per cent.
The retail sector suffered several retailer failures and
restructurings with retailers' business models and physical store
portfolios continuing to adjust to changes in consumer behaviour
and spending patterns. Whilst capital values across our UK Shopping
Centre portfolio are down, this was largely attributable to
increased investment yields as we maintained occupancy and income
through active management. Occupancy in the UK Shopping Centre
portfolio remained high at 96.4 per cent (31 August 2017: 96.7 per
cent) whilst like-for-like net rental income was broadly flat over
the period. Our retail park portfolio, although not immune to the
challenges in the retail sector, increased in value by 1.6 per cent
largely the result of asset management initiatives.
Efficient capital structure
Following a period of net disposals, our cash position was circa
GBP59.0 million at year end. Net debt has been reduced to GBP748.4
million (31 August 2017: GBP788.8 million) resulting in a reduction
in our LTV ratio to 46.2 per cent (31 August 2017: 50.0 per cent).
Following two post year end acquisitions, LTV has increased to 47.3
per cent on a pro forma basis, which is still 270bps lower than the
prior year. Despite the increase in available cash balances, we
remain disciplined in assessing reinvestment opportunities both in
terms of pricing and asset quality.
The weighted average cost of debt increased to 3.4 per cent (31
August 2017: 3.1 per cent) driven largely by a net increase in the
average cost of debt associated with acquisitions and disposals.
Interest cover improved to 3.5 times (31 August 2017: 3.2 times) as
a result of lower leverage which, combined with an average debt
maturity of 6.7 years and covenant headroom, ensures strong
operating cash flow cover and limited refinancing risk.
Financial discipline
In addition to the reduction in leverage, further progress
against key financial metrics has been delivered. The full year
dividend is covered by underlying earnings with a payout ratio of
95.1 per cent. While the payout ratio is at the upper end of our
target range of 90 per cent to 95 per cent, net disposals during
the period resulted in a higher cash balance and lower LTV. The
EPRA cost ratio, a measure of the Group's administrative and
operating costs relative to rental income, decreased to 15.6 per
cent (31 August 2017: 19.8 per cent) enhancing the conversion of
gross rental income to shareholder dividends.
Appointment of new Chairman
I would like to take the opportunity to thank Greg Clarke for
his leadership of the Board over the past seven years, having
overseen the Company's growth and transformation into a leading
income focused UK-REIT. He was an outstanding Chairman and steered
the Company forward in a strong yet balanced manner, ensuring that
the highest corporate governance and ethical standards were met at
all times, whilst providing support for our entrepreneurial culture
in assessing business opportunities.
I'm pleased to welcome Gavin Tipper as our new Chairman.
Following a comprehensive search process including both internal
and external candidates, the Board selected Gavin as the strongest
candidate. Gavin has been an independent Non-executive Director of
RDI since August 2011 and brings significant experience and
expertise to the role, whilst also benefiting from a thorough
understanding of the Company's strategic direction and dual-listed
shareholder base.
Appointment of KPMG UK as auditor
KPMG Ireland have acted as the Company's auditor since 2010.
With the scheduled rotation of the audit partner due at the end of
this year, the Board took the opportunity to retender the audit.
Three firms were invited to tender and after a rigorous process,
and a recommendation from the Audit and Risk Committee, the Board
appointed the UK firm of KPMG to act as the Company's auditor for
the financial year ending 31 August 2019. The appointment of KPMG
UK will be subject to the approval of shareholders at the AGM to be
held in January 2019. Our sincere thanks and gratitude are extended
to Niamh Marshall and her team at KPMG Ireland.
Growing our business sustainably
We are committed to measuring and improving our environmental,
social and governance performance. We participate annually in the
Global Real Estate Sustainability Benchmark ("GRESB") Real Estate
assessment and have increased in our GRESB score for the third
consecutive year. In our Annual Report we report on sustainability
performance using the latest EPRA Sustainability Best Practices
Recommendations ("sBPR") and we are proud to have received our
first EPRA Best Practice sBPR award for our 2017 report.
Outlook
We are witnessing a polarisation in investment demand and
widening in pricing between prime and secondary assets, with
investors taking an increasingly narrow view of the definition of
prime real estate. The same trend has been marked in the pricing of
assets and sectors benefiting from positive structural change in
occupier demand compared to those experiencing challenges from many
of the same structural trends. The strength of the industrial and
distribution market compared to weakness in the retail sector is
the most obvious example and is clearly evident in the divergent
performance within our own portfolio. We have responded to these
changes by increasing our exposure to stronger demographics and
focusing on areas of growth in occupier demand such as London
serviced offices, distribution and multi-let industrials while
retail, and more specifically UK shopping centres, now form a
smaller part of the overall portfolio. This is a trend we will look
to continue, subject to market conditions, over the short to medium
term.
Given the level of uncertainty around the UK's exit from the EU,
the outlook for interest rates and the change in occupier
requirements, we are prepared to be patient with the reinvestment
of recent disposal proceeds and will retain a disciplined
acquisition strategy. In the current environment, we believe the
benefit of maintaining reasonable levels of liquidity and lower
leverage outweighs the risk to earnings growth in the short term.
However, we remain active in looking for value enhancing
opportunities to support our commitment to delivering our
medium-term earnings targets.
Longer term, our investment strategy will take account of the
pace at which real estate is changing with increasing requirements
from occupiers for flexibility and service. Technology,
demographics and transport infrastructure are all impacting future
real estate strategies and the ability of assets to deliver long
term sustainable income returns. The changing nature of real estate
and occupier demand is placing a far higher emphasis on operational
platforms and services. We believe RDI has a unique market position
to capitalise on this trend, with our leading operational partners
in RBH and Office Space in Town.
Mike Watters
Chief Executive Officer
25 October 2018
STRATEGIC REPORT
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
7.0 years to the first potential lease break and 8.4 years to
expiry;
-- 27.0 per cent of gross rental income subject to inflation-linked or fixed increases;
-- rental growth potential with a reversionary yield of 6.3 per
cent, 70 bps higher than the current portfolio net initial
yield;
-- high and stable occupancy demonstrating robust occupier demand;
-- RBH managed hotels and London serviced offices account for
31.1 per cent of the portfolio by annualised gross rental income;
delivering robust income 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.
Annualised
gross EPRA EPRA
Market rental EPRA topped Reversionary occupancy
Portfolio summary value income ERV NIY up yield yield WAULT by ERV Indexed
31 August 2018 GBPm GBPm(1) GBPm % % % yrs(2) %(2) %
-------------------- -------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
UK Commercial 515.9 29.7 31.5 5.1 5.2 5.6 5.3 98.1 16.0
UK Retail 481.0 38.7 38.1 6.4 6.8 7.3 7.8 95.9 20.6
UK Hotels 364.9 26.0 26.0 5.9 5.9 6.4 18.2 100.0 9.3
-------------------- -------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
Total UK 1,361.8 94.4 95.6 5.8 6.0 6.4 7.5 96.8 16.0
Europe 258.6 15.2 15.2 4.4 4.9 5.5 5.0 98.0 95.1
-------------------- -------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
Total 1,620.4 109.6 110.8 5.6 5.8 6.3 7.0 97.1 27.0
-------------------- -------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
Controlled assets 1,595.0 107.8 109.0 5.6 5.8 6.3 7.0 97.0 26.6
Held in joint
ventures
(proportionate
share) 25.4 1.8 1.8 6.4 6.4 6.7 5.5 100.0 52.9
-------------------- -------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
(1) Gross annualised rent 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.
Portfolio positioning by business plan
Each asset in the portfolio has an income led business plan and
is viewed in terms of its ability to deliver sustainable income
returns and/or growth. Approximately 79 per cent of the current
portfolio is classified as either "Core income" or "Growth income".
Core income assets typically exhibit long lease lengths, high cash
on cash returns and are predominantly multi-let, often with some
form of indexation. Growth income assets constitute approximately
37 per cent of the current portfolio. These assets are typically
lower yielding but with higher intrinsic growth prospects.
18 per cent of the portfolio comprises properties which have
shorter term, more intensive asset management plans underway. These
opportunities are typically income-led with a significant
percentage of pre-let income being secured before development
commences. The Company's ability to create marginal revenue and
enhance the quality of assets is fundamental to its overall
strategy.
Where RDI has maximised the potential of individual assets or
where the market is prepared to pay a higher price than its view of
the assets' intrinsic value, the Company will look to sell and
recycle that capital into new opportunities. Approximately 3 per
cent of the portfolio is currently considered mature with a number
of those assets being considered for sale.
Annualised Annualised
Portfolio by gross gross EPRA EPRA
business rental rental EPRA topped Reversionary occupancy
plan income income ERV NIY up yield yield WAULT by ERV Indexed
31 August 2018 % GBPm(1) GBPm % % % yrs(2) %(2) %
----------------- ----------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
Core income 42 45.7 44.9 5.9 6.1 6.7 7.5 97.3 53.9
Growth income 37 40.8 42.2 5.7 5.7 6.2 4.2 100.0 0.7
Asset management 18 19.5 20.0 4.7 5.3 5.5 6.9 95.8 19.1
Mature 3 3.6 3.7 5.5 6.5 6.9 5.4 94.4 27.4
----------------- ----------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
Total 100 109.6 110.8 5.6 5.8 6.3 7.0 97.1 27.0
----------------- ----------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
(1) Gross annualised rent 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.
Valuation overview
The like-for-like portfolio value increased by GBP1.2 million or
0.1 per cent net of capital expenditure. On a local currency basis,
like-for-like valuations increased by 0.6 per cent. The change in
value was driven by a 2.1 per cent increase in like-for-like
annualised net rental income, partly offset by a 10 bps outward
shift in net initial yields. The overall portfolio currently
reflects a 5.8 per cent EPRA topped up net initial yield and a 6.3
per cent reversionary yield.
The UK Commercial portfolio delivered the strongest growth
increasing GBP23.1 million or 7.5 per cent, largely as a result of
the strength of the industrial and distribution portfolio which
increased 17.7 per cent or GBP20.2 million, and London offices
which were up 1.8 per cent or GBP1.7 million. UK Hotels and Europe
(in local currency) increased 2.1 and 2.2 per cent respectively, a
steady performance. Performance in the UK Retail portfolio was
mixed. UK shopping centres declined by GBP29.0 million or 9.2 per
cent despite occupancy being maintained at 96.4 per cent and net
income remaining in line with the prior year. UK retail parks
increased by GBP2.9 million or 1.6 per cent supported by the
completion of asset management initiatives.
Leasing activity
It has been an active period with 176 leasing events being
concluded providing total rent of GBP19.4 million, an 8.2 per cent
(GBP1.5 million) increase above the previous passing rent and a 3.5
per cent (GBP0.7 million) increase on ERV. Pro active asset
management ensured that the portfolio occupancy remained high and
stable at 97.1 per cent (31 August 2017: 97.7 per cent).
Previous
Number of Lettable Contracted passing
Lease events lease area rent rent ERV
31 August 2018 events sqft GBPm % %
------------------------ ---------- ---------- ----------- --------- -----
UK Commercial 12 196,094 3.3 +12.1 -0.5
UK Retail 78 925,127 13.2 +5.7 +4.3
Europe 86 148,878 2.9 +15.7 +4.3
------------------------ ---------- ---------- ----------- --------- -----
Total 176 1,270,099 19.4 +8.2 +3.5
------------------------ ---------- ---------- ----------- --------- -----
Developments completed 3 75,264 1.7
------------------------ ---------- ---------- ----------- --------- -----
-- 73 rent reviews were completed in the period resulting in
total rent of GBP14.0 million, a 9.0 per cent (GBP1.2 million)
increase above the previous passing rent and 8.7 per cent (GBP1.2
million) ahead of ERV. The largest rent reviews included a fixed
rental uplift on the Tesco lease at Weston Favell, Northampton; up
11.8 per cent or GBP0.4 million on the previous passing rent and
the open market rent review of the UK Power Network lease at
Newington House, Southwark; up 46.5 per cent or GBP0.4 million on
the previous passing rent.
-- 103 leases were either re-let or renewed on break or expiry
accounting for a total rent of GBP5.4 million, 8.1 per cent (GBP0.5
million) below ERV. The underperformance against ERV was as a
result of two leases at Grand Arcade, Wigan. Excluding these two
lease renewals and new leases were in line with ERV.
In addition to the leasing activity above, completed
developments contributed a further uplift of GBP1.7 million in
gross annualised rent. These included Primark in Ingolstadt which
commenced trading in August 2018 and TK Maxx in Derby which
commenced trading in February 2018.
Overall, recent retailer administrations and CVAs resulted in a
loss of GBP0.8 million in gross annualised rent, however,
encouraging progress has been made in the re-letting of the
remaining vacant units. Further detail is provided in the UK Retail
section.
Acquisitions
The first half of the year included the acquisition of both the
IHL hotel portfolio and the LSO portfolio. These acquisitions have
increased our exposure to London and the South East, and represent
sectors and operating platforms which provide yield premiums from
high quality real estate. Both of these acquisitions were
successfully integrated into the portfolio during the second half
of the year. This capital allocation has created a stronger
alignment of the portfolio to sectors supported by strong occupier
demand and positive structural change.
Post the year end exposure to the industrial and distribution
sector was increased through a 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, at a net initial yield of 6.2 per cent.
Expected
Market Net rental Implied yield
value at income at NIY on on
Completion Ownership acquisition(1) acquisition(2) acquisition equity
Acquisitions date % GBPm GBPm % %
------------------- ------------ ---------- ---------------- ---------------- ------------- ---------
November
IHL portfolio 2017 74.1 104.4 7.7 6.9 >10.0
Canbury Business December
Park, Kingston 2017 100.0 18.8 1.2 5.8 n/a(3)
London Serviced January
Office portfolio 2018 80.0 161.7 10.3 >6.0 >9.0
Total 284.9 19.2 >6.3 >9.0
--------------------------------- ---------- ---------------- ---------------- ------------- ---------
(1) Value of IHL reflects agreed acquisition pricing. Valuation
details relevant to the date the Group acquired control of IHL, are
set out in Note 9.
(2) Net rental income at acquisition for the London serviced
office portfolio included as EBITDA net of management fees and
FF&E.
(3) Canbury Business Park, Kingston has no debt funding.
International Hotel Properties Limited ("IHL")
RDI increased its holding in IHL from 17.2 per cent to 74.1 per
cent following a successful scheme of arrangement in November 2017.
The majority of the acquisition consideration was settled by way of
a share-for-share exchange with IHL shareholders. Additional
information is provided in Note 9 to the financial statements.
The IHL portfolio comprises nine high quality UK limited service
hotels. Four Travelodge hotels, comprising 27.7 per cent of the
portfolio, are let on long term leases with an average unexpired
lease term of over 20 years. These assets were acquired at an
implied net initial yield of 5.3 per cent and benefit from five
yearly upward only CPI escalations which offer attractive rental
growth prospects, particularly in a higher inflationary
environment. The remaining five hotels are leased to the Company's
associate, RBH Hotel Group. Four of the hotels are franchised to
Holiday Inn Express and one to Hampton by Hilton. The five
franchised hotels are expected to deliver a net initial yield of
over 7.5 per cent on acquisition pricing.
The integration of the IHL business was completed to plan with
associated cost savings being achieved through the de-listing and
integration of the hotel assets into the Company's existing hotel
portfolio and REIT status.
As at 31 August 2018, the IHL portfolio was valued at GBP119.0
million, a 14.0 per cent increase in the portfolio value on
acquisition pricing.
Canbury Business Park, Kingston
On 22 December 2017, Canbury Business Park was acquired for
GBP18.8 million excluding transaction costs at a net initial yield
of 5.8 per cent. The property is within a short walk of the
Kingston-upon-Thames mainline railway station and forms part of a
wider strategic site with medium to long term development
potential. The business park includes 3,480 sqm (37,457 sqft) of
offices and a number of smaller light industrial and business
units. The acquisition provides a combination of an attractive
near-term yield and medium term redevelopment opportunities. The
acquisition is in line with the Company's strategy of increasing
exposure to assets with strong fundamentals, including proximity to
good transport links.
London Serviced Office Portfolio ("LSO")
On 15 January 2018, RDI acquired an 80.0 per cent interest in a
portfolio of four London serviced offices valued at GBP161.7
million. The acquisition provides exposure to good quality London
offices at a yield in excess of 6.0 per cent. The longevity of
income is supported by the Company's experienced operational
partner, Office Space in Town ("OSIT"), which will continue as the
operator of these assets. OSIT is an industry leading operator of
serviced offices and has a strong alignment of interests through
its 20.0 per cent retained investment in the assets and an EBITDA
based management fee.
The decision to expand into serviced offices is in line with the
Company's strategy of recycling capital into assets and locations
benefiting from sustainable long term growth opportunities,
structural change in occupational demand and strategic
infrastructure investment. Two of the assets are located in close
proximity to the new Elizabeth Line Crossrail stations and Boundary
Row, Waterloo adding to the Company's existing exposure to the
rapidly developing Southbank area.
The LSO portfolio provides a premium flexible office service at
mid-market rates and has consistently delivered high levels of
occupancy and client satisfaction. The newly acquired assets offer
a high ratio of quality shared amenity space, while design and
services are focused on key client requirements including sound
attenuation and market leading IT services. All four properties
have been extensively refurbished and redeveloped by OSIT in the
last four years and each presents a unique offering with
flexibility in design to accommodate customers' bespoke
requirements.
As at 31 August 2018, the LSO portfolio was valued at GBP163.4
million, a 1.0 per cent increase in value since acquisition.
Disposals
Disposal proceeds in the period totalled GBP255.7 million at an
average premium to book value of 9.0 per cent. Over the past two
years, disposals of GBP403.9 million have been completed capturing
significant value and repositioning the portfolio toward locations
and assets with stronger growth prospects.
The sale of the German supermarket portfolio completed on 29
December 2017. The consideration reflected a purchase price for the
portfolio of EUR205 million, a 10.8 per cent (EUR20 million)
premium to book value. The disposal capitalised on a very strong
German investment market, enabling capital to be recycled out of
mature assets. The portfolio consisted of 66 individual retail
assets with a small average lot size of EUR3.1 million and resulted
in a reduction in overall retail exposure and an effective increase
in the average lot size of the remaining portfolio.
Other disposals included regional offices in Leeds, Edinburgh,
Bristol, Plymouth, Sparkhill and Edgbaston, altogether reducing
exposure to regional offices which offered limited further rental
growth opportunities following successful letting activity in many
cases.
The House of Fraser department store in Hull was sold in
November 2017 for GBP11.0 million. Despite being sold at a discount
to book value, the Company proactively removed exposure to a
potential covenant risk which has proven to have been a wise
decision.
Annualised
triple Reversionary
net EPRA NIY yield on
Sales rental on sales
Market value price income sales price price
Disposals Completion GBPm GBPm GBPm % %
----------------------- ------------ ------------- ------- ----------- ------------- -------------
German supermarket December
portfolio 2017 163.7(1) 181.5 11.3 5.8 6.1
November
House of Fraser, Hull 2017 12.9 11.0 1.2 9.7 9.7
Regional offices Various 54.9 59.8 4.1 6.4 7.0
Colchester April 2018 3.3 3.4 - - 7.7
Total 234.8 255.7 16.6 6.1 6.5
------------------------------------- ------------- ------- ----------- ------------- -------------
(1) Market value at 31 August 2017 retranslated at the date of
disposal, 29 December 2017.
Development and capital expenditure
A number of successful development and capital projects have
been completed or have reached key milestones. Primark and TK Maxx
have both taken occupation of redeveloped units in Ingolstadt and
Derby, respectively. In both cases, the introduction of successful
discount fashion operators is expected to significantly enhance the
quality of the surrounding retail pitch and the value of the
assets. 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 year end was GBP9.5 million.
Outstanding
capital Total capital Yield on
expenditure expenditure cost
Significant projects Description Completion GBPm GBPm %
--------------------------- --------------------- ------------ ------------- -------------- ---------
February
Albion Street, Derby TK Maxx development 2018 - 1.4 9.8
City Arcaden, Ingolstadt Primark development March 2018 1.9 22.6 4.6
Drive through December
UK Retail Park expansions pods 2018 1.4 1.9 13.7
--------------------------- --------------------- ------------ ------------- -------------- ---------
Albion Street, Derby and City Arcaden, Ingolstadt yields reflect
overall scheme yields.
Albion Street, Derby
TK Maxx took occupation of the new 2,005 sqm (21,581 sqft) store
in February 2018. The redevelopment and introduction of TK Maxx is
expected to significantly improve the retail pitch. The location
links Derby's Intu Shopping Centre to Primark and the historic old
town.
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 Watford
will commence in late 2018. The development will deliver additional
rental income of GBP0.2 million reflecting a rental of GBP85.1 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
December 2018 and is expected to yield approximately 9.0 per cent
on total development costs.
Sustainability
Following the disclosure of our sustainability objectives and
performance, we are committed to a more a pro-active approach to
addressing ESG issues related to our assets under management. In
the past year RDI has launched a programme to increase the number
of our assets that hold green building certificates, to both verify
building performance as well as aid identification of improvement
opportunities. We have undertaken our first BREEAM In-Use
assessment at our Southwark Hotel and are set to achieve a Very
Good rating for performance. Once complete, this will be one of
only a few hotels certified under the In-Use scheme in the UK. We
are also proud to have received a Bronze rating under the SKA
assessment scheme for sustainable fit-out in respect of the
recently refurbished food court at West Orchards Shopping Centre,
Coventry. Other initiatives include electric vehicle charging
points at four of our shopping centres, which have been a
resounding success. To date, 2,457 reported charging cycles have
been completed by customers and over seven tonnes of CO2 saved in
the process.
UK Commercial
The UK Commercial portfolio has undergone significant change.
The Company has continued to dispose of regional offices into a
strong, but maturing investment market, particularly where it has
completed asset management initiatives and where rental growth
opportunities are more limited. Reinvestment has targeted assets
with strong property fundamentals and occupier demand, notably
well-located London serviced offices as well as distribution and
industrial assets.
Annualised
gross EPRA EPRA
Market rental EPRA topped Reversionary occupancy
UK Commercial value income ERV NIY up yield yield WAULT by ERV Indexed
28 February 2018 GBPm GBPm(1) GBPm % % % yrs(2) %(2) %
-------------------- ------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
Offices - Serviced 163.4 11.0 10.9 6.0 6.0 6.0 n/a n/a -
Offices - Greater
London 113.3 5.1 5.9 4.0 4.0 4.8 3.6 96.7 13.3
Offices - Regions 60.7 4.4 4.5 5.8 6.6 7.0 5.1 95.5 22.0
-------------------- ------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
UK Offices 337.4 20.5 21.3 5.3 5.4 5.8 4.3 96.2 8.1
Distribution &
Industrial 134.7 6.4 7.9 4.4 4.4 5.5 4.2 100.0 3.1
Automotive 43.8 2.8 2.3 6.2 6.2 4.9 11.3 100.0 100.0
-------------------- ------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
UK Commercial 515.9 29.7 31.5 5.1 5.2 5.6 5.4 98.1 16.0
-------------------- ------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
(1) Gross annualised rent 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")
Demand for serviced office space continues to show strong growth
in London with 16 per cent of all take-up coming from serviced
office operators over the last 12 months (source: Knight Frank).
Despite London being a global leader in this trend, serviced
offices still only account for approximately 7.0 per cent of
Central London office stock with the potential to reach 30.0 per
cent by 2030 (source: JLL). Growth in 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
to move 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 portfolio and operational platform have been aligned and the
management team is proving to be a strong cultural fit, focused on
delivering sustainable and growing income. Since acquisition in
January 2018, the portfolio has achieved stable occupancy and
revenue with the average length of stay approaching two and half
years. EBITDA since acquisition has been marginally ahead of
expectations with a stable outlook. While there has been a clear
increase in supply in the London market, this has been matched by
an increase in demand. The increase in take-up of serviced offices
has had a noticeable impact on demand for traditional office space
of less than 5,000 sqft highlighting a transfer in value from often
outdated space let on inflexible terms to flexible serviced space.
During the year the Pure Gym rent review was completed at Little
Britain, located near St Paul's underground station, resulting in a
38.0 percent increase in rent to GBP138,000.
The portfolio was valued at GBP163.4 million, a 1.0 per cent
increase on the purchase price of GBP161.7 million.
London serviced office portfolio
Operational metrics 31 August 2018 At acquisition Change
---------------------------------- --------------- --------------- ---------
Total EBITDA per sqft (GBP) 68.3 68.1 +0.3%
EBITDA conversion from total
revenue (%) 63.4 63.4 -
Average total revenue per
available desk (GBP) 819.1 815.2 +0.5%
Average monthly desk rate
- license fee only (GBP) 685 695 -1.4%
Desk occupancy (%) 92.2 93.8 -160 bps
Average weighted stay (months)
(1) 29 28 +3.6%
---------------------------------- --------------- --------------- ---------
(1) Excluding St. Dunstan's which opened in 2015.
Greater London and regional offices
The office portfolio is now nearly 80 per cent weighted to
Greater London including the London serviced office portfolio. The
Company is a long term investor and London provides exposure to the
largest economy of any city in Europe, where the population is
expected to grow from 8.8 million to over 10 million people by
2030. London has proved resilient in the wake of the EU Referendum,
with occupational demand ahead of long run averages in both the
City and West End markets. The supply/demand balance remains
healthy with current vacancy rates running at 3.9 per cent and 5.3
per cent in the West End and City respectively.
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 House, Southwark and Canbury
Business Park, Kingston.
The portfolio increased in value by 1.2 per cent on a
like-for-like basis supported by a 4.5 per cent increase in
annualised net rental income leading to an increase in ERV. The six
regional office disposals during the year are not reflected in the
like-for-like numbers. These were sold at an average of 8.9 per
cent ahead of book value, generating a profit of GBP4.9
million.
Key leasing activity completed during the year:
-- Canbury Business Park, Kingston - four lease renewals were
signed since acquiring the asset in December 2017 with agreed rents
totalling GBP0.2 million, 14.8 per cent above passing rent and 9.9
per cent above ERV. The weighted average lease length increased to
4.1 years to expiry from 0.8 years at acquisition;
-- Newington House, Southwark - a rent review on 3,920 sqm
(42,216 sqft) was agreed at a rent of GBP1.4 million, 46.5 per cent
above passing rent and 11.1 per cent higher than ERV; and
-- Bretonside, Plymouth - a ten year lease renewal was agreed
with the Secretary of State for Communities and Local Government,
reducing their floor space to 3,290 sqm (35,400 sqft) from 5,380
sqm (57,981 sqft) resulting in an overall reduction in rental
income of GBP0.5 million.
Distribution, industrial and automotive
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 produced exceptional capital growth
through a combination of rental uplifts, reversionary potential and
tightening investment yields. The portfolio increased in value by
17.7 per cent on a like-for-like basis supported by ERV growth of
9.6 per cent and a 50 basis point reduction in net initial
yields.
Key leasing activity completed during the year:
-- Camino Park, Crawley - one rent review was completed at
GBP0.2 million, a 13.0 per cent increase on passing rent. Over 60
per cent of rental income at Camino Park, Crawley totalling GBP2.0
million is subject to rent review and is expected to show strong
growth against the average passing rent of GBP7.70 per sqft;
-- Kingsthorne Industrial Park, Kettering - a rent review on
3,920 sqm (42,216 sqft) was agreed at a rental of GBP0.2 million, a
10.1 per cent increase on passing rent and 11.1 per cent higher
than ERV; and
-- BP petrol filling station, St Ives - a rent review was
completed with an agreed rent of GBP0.2 million, a 13.1 per cent
increase on passing rent and 4.7 per cent higher than ERV.
UK Retail
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, certain retailers are still rationalising
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
31 August 2018 GBPm GBPm GBPm % % % yrs % %
------------------ ------- ----------- ------ ----- ---------- ------------- ------ ----------- --------
Shopping centres 290.9 26.1 25.8 6.9 7.3 8.1 7.7 96.4 25.8
Retail parks 184.8 12.0 11.9 5.7 5.9 6.0 8.2 94.7 10.2
Other retail 5.3 0.6 0.4 5.9 9.0 7.6 3.9 100.0 -
------------------ ------- ----------- ------ ----- ---------- ------------- ------ ----------- --------
UK Retail 481.0 38.7 38.1 6.4 6.8 7.3 7.8 95.9 20.6
------------------ ------- ----------- ------ ----- ---------- ------------- ------ ----------- --------
Administrations and Company Voluntary Arrangements ("CVAs")
2018 has seen a number of retail failures, although many of
these were largely anticipated. RDI has been pro-active in
addressing many of these challenges resulting in modest overall
impact on rental income, and in some cases an uplift on rent where
new occupiers have been secured.
During the year, GBP2.2 million of gross annualised rent was
impacted by recent retailer administrations and CVAs. GBP1.2
million of the total was subject to rent reductions under CVAs
(including New Look, Mothercare, Carpetright and Select) and
resulted in the tenants remaining at a gross annualised rent of
GBP0.9 million; 27.3 per cent lower than the previous passing rent.
4,650 sqm (50,072 sqft) relating to the remaining GBP1.0 million of
rental income was vacated. At the end of the financial year, two of
these units measuring to 1,684 sqm (18,131 sqft) have been re-let
achieving GBP0.6 million in gross annualised rent, an impressive
16.8 per cent increase on the previous passing rent for those
units.
In total, units affected by administrations or CVAs resulted in
a 0.7 per cent (GBP0.8 million) reduction in the Group's total
annualised gross rental income as at 31 August 2018. This includes
seven units of 2,700 sqm (29,077 sqft) which remain vacant and
which have an ERV of GBP0.6 million.
Maintaining an open dialogue with our occupiers is a fundamental
part of our approach to asset management. Wherever possible, we
monitor the performance of our occupiers and take a pro-active
approach to supporting their occupational requirements and managing
our assets for long term value.
Key leasing transactions included:
-- Priory Park, Merton - an agreement for lease has been signed
with ALDI to take over the Toys R Us unit on a 20 year lease at an
agreed rent of GBP0.4 million per annum with six months rent free.
The rent reflects a 17.7 per cent increase on the previous passing
rent and is 37.9 per cent above ERV; and
-- Banbury Cross Retail Park, Banbury - 740 sqm (7,997 sqft) was
let to Hobbycraft at a rent of GBP0.2 million ahead of the
anticipated liquidation of Countrywide, resulting in a 19.4 per
cent increase in passing rent and 11.9 per cent above ERV.
Shopping centres
The majority of RDI's 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 96.4 per cent (31 August 2017: 96.7 per cent) and a stable
income position, with gross annualised rent at year end only
marginally down (0.4 per cent) compared to the position at 31
August 2017. Net rental income on annualised basis was flat,
supported by operating cost and efficiency improvements across the
portfolio.
Despite maintaining net income and occupancy levels, the market
value of the shopping centre portfolio declined 9.2 per cent on a
like-for-like basis due to a 50bps outward topped up yield shift,
reflecting CVAs and continued weak investor sentiment.
Key asset management initiatives and leasing events completed
during the year:
-- the food court at West Orchards, Coventry has been
refurbished resulting in a GBP0.8 million increase in net income
and a 16.7 per cent return on the GBP2.6 million capital investment
with two smaller units still to be let to further enhance the
return. This asset management initiative to reduce operating costs
and reconfigure space demonstrates the Company's focus on
delivering sustainable and growing income;
-- in-house commercialisation activities, many of which have a
strong community and CSR foundation, delivered GBP1.4 million in
the period, a small decrease on the same period last year;
-- in the last 12 months, 18 rent reviews were agreed providing
a total rent of GBP10.2 million, 5.8 per cent (GBP0.6 million)
above the passing rent and 12.6 per cent (GBP1.1 million) ahead of
ERV. The largest rent review included a fixed rental uplift on the
Tesco lease at Weston Favell, Northampton; an increase of 11.8
percent or GBP0.4 million on the previous passing rent; and
-- 60 new lettings or renewals were completed in the period
providing a total rent of GBP2.8 million, a 5.5 per cent increase
on passing rent but 16.6 per cent (GBP0.6 million) below ERV. The
underperformance against ERV was a result of two leases agreed at
Grand Arcade, Wigan.
Retail parks and other retail
The retail park sector also experianced its share of retailer
administrations and CVAs, however RDI remains confident in the
longer term demand for these assets, with over 80 per cent of its
portfolio by value in London, Edinburgh and the Southern part of
the UK and underpinned by strong demographics.
The market value of the retail park portfolio increased 1.6 per
cent on a like-for-like basis due to successful letting activity.
This clearly demonstrates the importance of RDI's strategy of
investing in the right locations. Occupancy decreased to 94.7 per
cent (31 August: 96.2 per cent).
Key asset management initiatives and leasing events completed
during the year:
-- RDI continued to capitalise on strong demand from national
fast food and coffee operators. The Company will complete a new
unit for Costa at Arches Retail Park, Watford in early 2019 which
will generate GBP0.2 million in gross annualised rent and a return
of over 15 per cent on the GBP1.1 million development cost; and
-- Milton Road, Edinburgh - a rent review with The Range was
completed on an 8,990 sqm (96,734 sqft) unit. The agreed rent of
GBP0.8 million reflects a 5.1 per cent increase on the previous
passing rent and is 0.6 per cent above ERV.
UK Hotels
The UK hotel market has experienced a sustained period of growth
supported by a rise in both business and leisure travel. 2018 has
seen more modest growth following an exceptional 2017 which was in
part driven by a weaker pound.
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. Edinburgh continues to outperform
with both the DoubleTree by Hilton and the Holiday Inn Express
producing underlying trading results well ahead of management
expectations.
RBH managed hotel portfolio
(excluding IHL)
Operational metrics 31 August 2018 31 August 2017 Change
------------------------------- --------------- --------------- -------
Weighted average RevPar (GBP) 89.1 88.0 +1.3%
Weighted average occupancy
(%) 84.8 85.0 -20bps
------------------------------- --------------- --------------- -------
Like-for-like net income during the year increased by GBP0.5
million, or 3.4 per cent, following annual rents set on strong
underlying trading conditions in the prior year. An
inflation-linked rent review at the Travelodge, Enfield resulted in
an 11 per cent increase in net income for the year. The Travelodge
portfolio is expected to show continued growth over the next few
years through upward only inflation linked rent reviews.
The portfolio was valued at GBP364.9 million, a 2.1 per cent
like-for-like increase which excludes a 14.0 per cent increase in
the IHL portfolio compared to the value on acquisition. Following
the IHL acquisition, the hotel portfolio is now 82.1 per cent
weighted towards Greater London, Edinburgh and Gatwick airport with
13.0 per cent of the total rental income subject to uncapped CPI
escalations, principally from the Travelodge portfolio.
Annualised
gross EPRA EPRA
Market rental EPRA topped Reversionary occupancy
UK Hotels value income ERV NIY up yield yield WAULT by ERV Indexed
31 August 2018 GBPm GBPm GBPm % % % yrs(1) %(1) %
--------------------- ------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
Greater London 186.5 12.5 12.5 5.7 5.7 6.3 n/a n/a -
Regional 130.9 11.0 10.9 6.6 6.6 7.0 n/a n/a 0.9
--------------------- ------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
RBH managed
portfolio 317.4 23.5 23.4 6.1 6.1 6.6 n/a n/a 0.4
Travelodge(2) 47.5 2.4 2.6 4.8 4.8 5.1 18.2 100.0 95.3
--------------------- ------- ----------- ------ ----- ---------- ------------- -------- ----------- --------
UK Hotels 364.9 26.0 26.0 5.9 5.9 6.4 18.2 100.0 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. RBH has established
itself as the leading independent hotel operator in the UK and
manages more than 11,000 rooms across 75 hotels in the UK.
Alignment of interests is ensured through RDI's ownership of a 25.3
per cent stake in RBH (formerly RedefineBDL).
The holding in RBH contributed GBP0.3 million to underlying
earnings during the year.
Europe
The momentum in the German investment market has remained strong
driven largely by domestic investors. Demand for prime retail
centres remains high, however investors are becoming increasingly
discerning with a focus on rental levels. RDI's portfolio is
heavily weighted by value 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 increased in value by 2.2 per cent in local
currency and on a like-for-like basis supported by local currency
ERV growth of 0.8 per cent and a 20bps reduction in net initial
yields. The Leopard portfolio disposal during the year which is not
reflected in the like-for-like numbers, generated a profit of
EUR20.0 million, a 10.8 per cent premium to book value.
Annualised
gross EPRA EPRA
Market rental EPRA topped Reversionary occupancy
Europe value income ERV NIY up yield yield WAULT by ERV Indexed
31 August 2018 GBPm GBPm GBPm % % % yrs % %
--------------------- ------- ----------- ------ ----- ---------- ------------- ------ ----------- --------
German shopping
centres 190.6 10.5 10.4 3.9 4.6 5.1 5.0 98.7 94.9
German supermarkets
and retail parks 68.0 4.7 4.8 5.7 5.7 6.6 5.2 96.6 95.4
--------------------- ------- ----------- ------ ----- ---------- ------------- ------ ----------- --------
Europe 258.6 15.2 15.2 4.4 4.9 5.5 5.0 98.0 95.1
--------------------- ------- ----------- ------ ----- ---------- ------------- ------ ----------- --------
Occupancy across the German portfolio remains high at 98.0 per
cent (31 August 2017: 98.8 per cent) with annualised gross rental
income 9.9 per cent higher on a like-for-like basis and in constant
currency terms as a result of the completion of Primark at
Ingolstadt. Rental income from the portfolio benefits from high
levels of indexation, with 95.1 per cent of annualised gross rental
income subject to various forms of inflation linked rent reviews.
Following a period of ultra low inflation, the benefit of index
linked rents is expected to increase with consumer prices rising
above 2.0 per cent in September 2018.
Key asset management initiatives and leasing events completed
during the year:
-- Primark took occupation of their 7,000 sqm (75,000 sqft) unit
in Ingolstadt in March 2018. This lease will provide an additional
EUR1.5 million of annual rental income;
-- in the last 12 months, 50 rent reviews were agreed providing
a total rent of GBP1.8 million, 6.7 per cent (GBP0.1 million) above
the passing rent and 4.8 per cent ahead of ERV. The largest rent
review included a fixed rental uplift on the Lidl lease at Hamburg,
up 6.8 percent on the previous passing rent; and
-- 36 new lettings or renewals were completed in the period
providing a total rent of GBP1.0 million, a 3.3 per cent increase
on ERV.
Financial review
Overview
The 2018 financial year has again delivered a solid set of
results with underlying earnings of 2.84 pence per share and EPRA
NAV growth of 3.4 per cent, collectively supporting a total
accounting return (dividends paid plus growth in NAV) of 9.8 per
cent.
This has been underpinned by both earnings and distribution
growth and the significant profits which have been realised
following disposals during the year, most notably in the first
half. Capital released has either been recycled into new
investments which demonstrate longer term income and capital growth
potential or applied against carefully selected debt reduction
initiatives.
The Group is committed to ensuring income security is maintained
whilst driving LTV toward the lower end of our medium term target
range of 45 - 50 per cent. At 31 August 2018, LTV stood at 46.2 per
cent, or 47.3 per cent when adjusted for two significant
acquisitions completed shortly after the balance sheet date. This
is down from 50.0 per cent at the previous year end. This is
considered a sound result in what has been a challenging year for
the real estate sector, particularly for UK retail.
Underlying earnings were GBP53.5 million or 2.84 pence per
share, representing growth of 3.3 per cent over prior year earnings
on a per share basis. This is the combined result of growth in
like-for-like net rent, lower finance costs following a meaningful
reduction in net debt and an improved cost ratio.
Acquisition and disposal activity during the year added GBP23.8
million or 1.3 pence per share to EPRA net asset value, driven by
the disposal of a EUR185.0 million German supermarket portfolio in
December which generated, after costs, an EUR18.1 million (GBP16.1
million) profit. Proceeds from this sale were promptly recycled
into a portfolio acquisition of four London serviced offices for
GBP161.7 million, at an initial yield of over 6.0 per cent and the
acquisition of a strategic site in an area of potential
regeneration in Kingston-upon-Thames, south west London for GBP20.9
million.
Other notable transactions during the year included the
acquisition of the former listed hotels business, IHL, which
resulted in a gain of GBP5.5 million following delisting and the
acquisition of control.
A number of smaller disposals were also completed during the
year, generating net profits of GBP2.6 million. All were completed
at or above book value with the exception of the House of Fraser
unit in Hull, where a timely exit removed the covenant risk.
At 31 August 2018, EPRA net asset value per share was 42.8 pence
and the property portfolio was valued at over GBP1.6 billion.
Performance against strategic financial targets
In February 2017 the Group set out a range of medium term
strategic targets with clear linkage to strategic priorities and
long-term incentives to ensure alignment of interests and
accountability. These targets focus on income growth and
strengthening the balance sheet across all aspects of the business.
Progress during the year is set out below.
Medium term 31 August 28 February 31 August
Strategic metrics target 2018 2018 2017
------------------------------------- ------------ --------- ----------- ---------
Growth in underlying EPS
(%) 3.0 - 5.0 3.3 8.2 n/a
Dividend pay-out ratio (%) 90.0 - 95.0 95.1 92.5 94.5
Rental income growth (like-for-like)
(%) 2.0 - 5.0 2.1 2.1 3.7
>95% within
Rent collection 7 days 98.0 89.3 94.3
LTV (%) 45.0 - 50.0 46.2(1) 48.0 50.0(2)
Interest cover (times) >3.0 3.5 3.5 3.2
Cost of debt (%) 3.2 - 3.4 3.4 3.3 3.1
EPRA cost ratio (excl. direct
vacancy costs)(2) (%) <15.0 15.6 15.7 19.8(4)
------------------------------------- ------------ --------- ----------- ---------
(1) 47.3 per cent when adjusted for transactions occurring post
year end
(2) Pro-forma adjusted to reflect transactions occurring post
year end
(3) Excludes the London Services Office portfolio due to the
operational nature of that business
(4) 17.2 per cent when adjusted for non-recurring items
Presentation of financial information
The Board reviews information and reports presented on a
proportionately consolidated basis, which includes the Group's
proportionate share of interests in joint ventures. In addition,
the Board uses a number of financial measures to assess and monitor
its performance, some of which are considered alternative
performance measures. Although these are typically industry
standard measures, they are not defined under IFRS. In addition, to
align with how the Group is managed, this financial review presents
financial information on a proportionately consolidated basis and
includes alternative performance measures alongside IFRS.
Detailed disclosures of alternative performance measures follow
this financial review.
Income statement 31 August 2018 31 August 2017
-------------------------------- --------------------------------
Joint Group Joint Group
IFRS ventures(1) total IFRS ventures(1) total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- ------- ------------- -------- ------- ------------- --------
Gross rental income 110.2 1.8 112.0 97.2 5.9 103.1
Property operating expenses (11.1) (0.2) (11.3) (9.0) (0.6) (9.6)
-------------------------------------------- ------- ------------- -------- ------- ------------- --------
Net rental income 99.1 1.6 100.7 88.2 5.3 93.5
Other operating income 1.8 - 1.8 4.7 (2.0) 2.7
Administrative expenses (14.2) (0.2) (14.4) (15.3) (0.3) (15.6)
-------------------------------------------- ------- ------------- -------- ------- ------------- --------
Net operating income 86.7 1.4 88.1 77.6 3.0 80.6
Net finance costs (28.2) (0.8) (29.0) (27.7) (1.3) (29.0)
Profits from joint ventures (allocated to
individual line items) 0.6 (0.6) - 1.7 (1.7) -
Non-controlling interests (4.4) - (4.4) (3.0) - (3.0)
Tax and other (1.2) - (1.2) 1.2 - 1.2
-------------------------------------------- ------- ------------- -------- ------- ------------- --------
Underlying earnings 53.5 - 53.5 49.8 - 49.8
Company adjustments:
Debt fair value accretion adjustments (0.8) - (0.8) (0.9) - (0.9)
Foreign exchange movement (0.8) - (0.8) 2.0 - 2.0
-------------------------------------------- ------- ------------- -------- ------- ------------- --------
EPRA earnings 51.9 - 51.9 50.9 - 50.9
-------------------------------------------- ------- ------------- -------- ------- ------------- --------
Net gain on sale of joint venture interests (0.1) - (0.1) 4.9 - 4.9
Fair value gain/(loss) on investment
property, assets held for sale and listed
shares 11.7 (0.2) 11.5 6.6 (0.9) 5.7
Other finance expenses (0.4) - (0.4) (5.9) 0.3 (5.6)
Gain on disposal of investment property and
non-current assets held for sale 3.3 - 3.3 10.7 - 10.7
Gain on disposal of subsidiaries 15.4 - 15.4 - - -
Net gain on business combinations 4.4 - 4.4 - - -
Change in fair value of derivatives 6.1 0.7 6.8 4.5 1.1 5.6
Share of non-underlying joint venture
gains/(losses) 0.3 (0.3) - (0.8) 0.8 -
Deferred tax on unrealised property
revaluation 0.5 (0.2) 0.3 (3.5) (0.6) (4.1)
NCI (3.0) - (3.0) (0.6) - (0.6)
Tax and other (1.2) - (1.2) (0.7) (0.7) (1.4)
-------------------------------------------- ------- ------------- -------- ------- ------------- --------
IFRS profit attributable to shareholders 88.9 - 88.9 66.1 - 66.1
-------------------------------------------- ------- ------------- -------- ------- ------------- --------
Weighted average ordinary shares (millions) 1,886.5 1,809.9
Underlying earnings per share (pence) 2.84 2.75
EPRA earnings per share (pence) 2.75 2.80
-------------------------------------------- ------- ------------- -------- ------- ------------- --------
(1) Reallocates joint venture EPRA earnings of GBP0.6 million
(31 August 2017: GBP1.7 million) from a single line item as
required by IFRS to presentation on a proportionate line-by-line
basis
Net rental income increased by GBP7.2 million or 7.7 per cent
primarily due to the acquisition of the formerly listed IHL
business which added nine hotels to the Group's hotel portfolio.
Excluding the impact of acquisitions and disposals, net rental
income increased 2.1 per cent on a like-for-like basis.
UK Commercial experienced the strongest like-for-like
performance, with net rental income up 6.3 per cent year-on-year.
This follows strong rent review activity, particularly at the
Group's Camino Park Distribution Centre in Crawley and within the
London office portfolio.
UK Hotels achieved 3.4 per cent in like-for-like growth in net
rental income. At the operating level, occupancy has held steady at
84 per cent with continued growth in RevPar, which was a good
result given the backdrop of increased supply and underlying
operational costs.
Despite the challenges in UK Retail, like-for-like income held
firm at GBP34.6 million, largely the result of maintaining
occupancy levels at 95.9 per cent (versus 96.8 per cent in the
prior year). Net UK Shopping Centre income increased GBP0.4 million
year-on-year, but this was offset by vacancies at the Group's
retail parks, largely the result of CVAs and tenants in
administration.
Like-for-like net rents in Europe were marginally down (1.2 per
cent) in Euro terms and up 0.4 per cent in Sterling terms following
a strengthening in the average exchange rate during the year. In
local currency terms the fall in net rent was attributable to
marginally lower occupancy levels compared to the prior year.
Year ended Year ended Local currency
31 August 2018 31 August 2017 Change change
Net rental income GBPm GBPm % %
--------------------------------- ---------------- ---------------- ------- ---------------
UK Retail 34.6 34.6 0.0 0.0
UK Commercial 18.3 17.2 6.3 6.3
UK Hotels 15.3 14.8 3.4 3.4
UK total 68.2 66.6 2.4 2.4
Europe 10.8 10.7 0.4 (1.2)
--------------------------------- ---------------- ---------------- ------- ---------------
Like-for-like net rental income 79.0 77.3 2.1 1.9
Acquisitions 15.1 -
Development 0.6 -
Disposals and other 6.0 16.2
Total net rental income 100.7 93.5
--------------------------------- ---------------- ---------------- ------- ---------------
Other income of GBP1.8 million was generated primarily from the
ancillary service income from the newly acquired London Serviced
Office portfolio comprising, for example, telephone and IT profits.
These can therefore be considered recurring in nature. In the prior
year, other income comprised a non-recurring performance fee
generated on disposal of the VBG portfolio of German offices.
Administrative costs have reduced by GBP1.2 million, largely due
to the non-recurring termination fee charged in the previous
financial year in respect of a legacy asset management contract.
The growth in rental income and the Group's careful management of
operational costs, resulted in the EPRA cost ratio falling from
17.2 per cent to 15.6 per cent.
Net finance costs have held steady despite the enlarged
portfolio, reflecting both lower leverage and the full year impact
of refinancing activity completed during the prior year.
Non-controlling interests reflects the share of income
attributable to the minority shareholders, most notably within the
newly acquired IHL hotel portfolio (25.9 per cent), the London
serviced office portfolio (20.0 per cent) and the non IHL hotel
portfolio (17.5 per cent).
Due to market expectations of rising interest rates, a
significant gain has been recorded on the fair value of the Group's
interest rate derivative contracts. This credit is removed from
both the Group's underlying earnings measure and EPRA earnings.
Balance sheet 31 August 2018 31 August 2017
------------------------------ ------------------------------
Joint Group Joint Group
IFRS Ventures Total IFRS Ventures Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- -------- ---------- -------- -------- ---------- --------
Property portfolio
carrying value(1) 1,598.0 25.4 1,623.4 1,520.7 25.6 1,546.3
Investment in and
loans to joint ventures 7.1 (7.1) - 6.2 (6.2) -
Net borrowings (730.6) (14.8) (745.4) (769.0) (15.7) (784.7)
Other net assets/(liabilities) (11.7) (3.5) (15.2) 4.3 (3.7) 0.6
NCI (59.5) - (59.5) (21.8) - (21.8)
-------------------------------- -------- ---------- -------- -------- ---------- --------
IFRS NAV 803.3 - 803.3 740.4 - 740.4
-------------------------------- -------- ---------- -------- -------- ---------- --------
Fair value of derivatives 1.9 7.4
Deferred tax 9.8 10.5
-------------------------------- -------- ---------- -------- -------- ---------- --------
EPRA NAV 815.0 758.3
-------------------------------- -------- ---------- -------- -------- ---------- --------
Diluted number of
shares (millions) 1,906.2 1,830.1
EPRA NAV per share
(pence) 42.8 41.4
-------------------------------- -------- ---------- -------- -------- ---------- --------
(1) Market value of property, including property assets held for
sale, adjusted to include head leases and tenant lease
incentives.
Property portfolio
Local
Valuation (1) currency
31 August 31 August
2018 2017 Gain/(loss) Gain/(loss) Gain/(loss)
Market value of the property portfolio GBPm GBPm GBPm % %
---------------------------------------------- ---------- ---------- ------------ ------------ ------------
UK Commercial 332.0 307.4 23.1 7.5 7.5
UK Retail 481.0 501.8 (26.1) (5.2) (5.2)
UK Hotels 245.9 239.6 5.1 2.1 2.1
---------------------------------------------- ---------- ---------- ------------ ------------ ------------
UK Total 1,058.9 1,048.8 2.1 0.2 0.2
Europe 226.1 226.5 (0.9) (0.4) 2.2
---------------------------------------------- ---------- ---------- ------------ ------------ ------------
Like-for-like property portfolio 1,285.0 1,275.3 1.2 0.1 0.6
Acquisitions 303.3 -
Development 32.1 23.4
Disposals - 240.0
Total market value of the property portfolio 1,620.4 1,538.7
---------------------------------------------- ---------- ---------- ------------ ------------ ------------
(1) Valuation includes the effect of capital expenditure,
amortisation of head leases, tenant lease incentives and foreign
currency translation where applicable
EPRA NAV increased 3.4 per cent to 42.8 pence per share, largely
attributable to disposals which were completed, on the whole, at
premiums to book value.
On a like-for-like basis, the property portfolio valuations were
up by 0.1 per cent overall, with strong valuation gains recorded on
the UK Commercial portfolio being offset by a decline in the
valuation of the UK Retail portfolio.
UK Commercial continues to perform well, recording a GBP23.1
million or 7.5 per cent increase in like-for-like values. This was
driven by rent review activity in the London offices and the
distribution warehouse portfolio.
Ongoing challenges in the UK retail market have continued to
weigh on investor sentiment, with an outward yield shift driving a
6.3 per cent decline in the Group's UK shopping centre portfolio
during the second half of the year, a decline of 9.2 per cent
across the full year. UK retail parks experienced an improved
rental outlook following successful letting activity.
Hotels continued a steady valuation performance in the second
half, recording a 2.1 per cent like-for-like increase across the
full year. The strongest performance being achieved by those hotels
located in London and Edinburgh.
In local currency terms, the Group's investments in Germany were
valued up 2.2 per cent, benefiting from a strong investment market
and low interest rates. The strength of the Euro at the prior year
end eased during the year such that, in Sterling terms, the
portfolio recorded a marginal decline in value.
Debt and gearing
31 August 31 August
2018 2017
GBPm GBPm
--------------------------------------- --------- ---------
Nominal value of drawn debt (808.2) (842.2)
Cash and short term deposits 59.8 53.4
--------------------------------------- --------- ---------
Net debt (748.4) (788.8)
Market value of the property portfolio 1,620.4 1,538.7
--------------------------------------- --------- ---------
LTV (%) 46.2 51.3
LTV pro forma (%)(1) 47.3 50.0
Weighted average debt maturity (years) 6.7 7.3
Weighted average interest rate (%) 3.4 3.1
Interest cover (times)(2) 3.5 3.2
Debt with interest rate protection (%) 99.6 93.0
--------------------------------------- --------- ---------
(1) Pro forma adjusted for transactions completed post year
end
(2) Calculated as net rental income over net finance expense
Net debt has reduced by over GBP40.0 million since the prior
year end reflecting continued efforts to reduce the Group's
LTV.
A net GBP65.0 million was prepaid against the Group's revolving
credit facility while refinancing activities and scheduled
amortisation reduced various other facilities by GBP17.0
million.
The Group acquired debt facilities of GBP54.4 million via the
acquisition of IHL, which was geared to 52 per cent at acquisition
and GBP73.5 million on acquisition of the London Serviced Office
Portfolio which was initially geared at 45.5 per cent.
The Group's LTV continues to move downwards towards the lower
end of the Group's medium term target range. On a pro forma basis,
after incorporating transactions completed shortly after 31 August
2018, it stood at 47.3 per cent.
Debt maturity, average cost of debt, interest cover and debt
with interest rate protection remain comfortable and in line with
strategic targets. Refinancing of the Group's largest facility, the
GBP303 million AUK facility, is underway and we expect to conclude
this during the first half of the 2019 financial year.
Cash flow 31 August 2018 31 August 2017
------------------------------ ----------------------------
Joint Group Joint Group
IFRS ventures total IFRS ventures total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ -------- ---------- -------- ------- ---------- -------
Operating cash flows 58.1 0.7 58.8 49.4 2.2 51.6
Disposals 188.0 - 188.0 114.5 (0.8) 113.7
Acquisitions and development (106.4) - (106.4) (58.7) (1.0) (59.7)
Other (0.3) 0.2 (0.1) 0.5 (0.7) (0.2)
Investing cash flows 81.3 0.2 81.5 56.3 (2.5) 53.8
Net debt repaid (81.9) (0.7) (82.6) (37.3) (1.4) (38.7)
Dividends paid (41.1) - (41.1) (39.5) - (39.5)
Other (9.2) - (9.2) (6.5) - (6.5)
------------------------------ -------- ---------- -------- ------- ---------- -------
Financing cash flows (132.2) (0.7) (132.9) (83.3) (1.4) (84.7)
Net cash flow 7.2 0.2 7.9 22.4 (1.7) 20.7
------------------------------ -------- ---------- -------- ------- ---------- -------
Cash and available facilities were GBP134.8 million at 31 August
2018. Although two significant acquisitions which completed in
September 2018 have reduced this to GBP100.6 million, this provides
considerable operational flexibility.
Operating cash flows were GBP58.8 million, an increase of GBP7.2
million on the prior year, comfortably covering the cash dividends
paid of GBP41.1 million. Cash outlays on acquisitions, development
and debt repayments were balanced by proceeds from disposals.
Dividend
The Directors have declared a second interim dividend of 1.35
pence per share for 2018. When paid, taken together with the first
interim dividend paid to shareholders in June, this will represent
a yield of 6.3 per cent on EPRA NAV at 31 August 2018 or 8.0 per
cent based on the Company's closing share price on 31 August
2018.
The full year dividend of 2.7 pence per share represents a 95.1
per cent pay-out ratio on underlying earnings of 2.84 pence per
share and is covered by operational cash flows.
Details of the forthcoming payment will be announced separately
today. The dividend payment date has been set for 18 December 2018,
with a record date of 30 November 2018.
Due to the Company's share price trading at a discount to net
asset value, the Board has decided to suspend the scrip
alternative. The dividend will therefore be paid entirely in
cash.
Going concern
At 31 August 2018, the Group's cash and undrawn facilities were
GBP134.8 million and its capital commitments were GBP9.5 million.
Mindful of transactions occurring post the balance sheet date and
having considered severe but plausible scenarios, the Directors are
satisfied that the security of the Group's income taken together
with an average debt maturity profile of 6.7 years, headroom
against financial covenants and strong interest cover, continue to
provide a reasonable expectation that the Group will have the
resources it requires to meet ongoing and future commitments.
Accordingly, the 2018 consolidated financial statements have been
prepared on a going concern basis.
Donald Grant
Chief Financial Officer
25 October 2018
EPRA and other Alternative Performance Measures
EPRA disclosures
The following is a summary of the EPRA performance measures
included in the Group's results, which are a set of standard
disclosures for the property industry as defined by the EPRA Best
Practice Recommendations.
Note/
Measure Definition of measure Reference 2018 2017
---------------- ------------------------------------------ ------------------- ---------- ----------
Earnings GBP51.9
Earnings from operational activity Note 34 m GBP50.9m
Net asset NAV adjusted for investments held Note 35
value at fair value and excluding items
not expected to be realised GBP815.0m GBP758.3m
Triple net EPRA NAV adjusted to include fair Note 35
asset value value of financial instruments,
debt and deferred taxes GBP799.6m GBP735.4
Annualised income based on passing
rent less non--recoverable operating
Net initial expenses expressed as a percentage
yield of the market value of property Other information 5.6% 5.7%
Topped--up Net initial yield adjusted for
initial the expiration of rent free periods
yield or other incentives Other information 5.8% 5.9%
Estimated rental value of vacant
Vacancy space divided by that of the portfolio
rate as a whole N/A 2.9% 2.3%
Cost ratio
(incl. direct Administrative and operating costs
vacancy expressed as a percentage of gross
costs) rental income Other information 20.1% 24.6%
Cost ratio Administrative and operating costs,
(excl. direct adjusted for direct vacancy costs,
vacancy expressed as a percentage of gross
costs) rental income Other information 15.6% 19.8%(1)
Net income generated by assets
which were held by the Group throughout
both the current and comparable
periods for which there has been
no significant development which
materially impacts upon income.
Like-for-like Is used to illustrate change in Financial
rental income comparable income values review 2.1% 3.7%
Property which has been held at
both the current and comparative
balance sheet dates for which
there has been no significant
Like-for-like development. Is used to illustrate Financial
capital change in comparable capital values review 0.1% 3.0%
---------------- ------------------------------------------ ------------------- ---------- ----------
(1) 17.2% when adjusted for non-recurring items.
Other EPRA investment property reporting
Accounting basis
Refer to accounting policies adopted in relation to the Group's
property portfolio in Note 2 of the financial statements.
Valuation information
Refer to Note 14 of the financial statements for valuation
information.
Investment and development assets
Refer to the Operating review for detailed disclosure on the
Group's sub-portfolio metrics and further information on the
Group's significant development projects during the year ended 31
August 2018.
Capital expenditure analysis
Refer to Other information for detailed disclosure on the
Group's capital expenditure during the year ended 31 August
2018.
Other 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
additional non-EPRA APMs included in these results.
Note/
Measure Definition of measure Reference 2018 2017
------------------------- ---------------------------------------------- ------------------- ---------- ----------
Underlying earnings EPRA earnings adjusted for the impact of Note 34
non-cash debt accretion charges and FX gains
and
losses reflected in the income statement GBP53.5m GBP49.8m
Headline earnings Additional earnings per share measure as Note 34
required by the JSE which excludes separately
identifiable
remeasurements in accordance with Circular
04/2018 GBP57.1m GBP47.3m
Net debt Total nominal value of the Group's Note 22
proportionate bank borrowings less cash and
cash equivalents GBP748.4 GBP788.8m
The ratio of net debt divided by the market
Loan-to-value value of investment property Financial review 46.2%(1) 51.3%
The Group's net rental income divided by net
Interest Cover finance expenses Other information 3.5 3.2
Dividends paid during the year plus growth in
Total accounting return NAV as a percentage of opening NAV Other information 9.8% 10.0%
Total dividend per share paid out to
shareholders relative to the underlying
earnings per
Dividend pay-out ratio share during the year Other information 95.1% 94.5%
Dividend yield Total dividends to be paid to shareholders
for the financial year relative to EPRA NAV
or
the Group's share price at the reporting
date Other information 6.3% 8.0% 6.3% 6.6%
------------------------- ---------------------------------------------- ------------------- ---------- ----------
(1) Pro forma adjusted to 47.3% to reflect transactions between
31 August 2018 and 25 October 2018 (31 August 2017: 50.0%)
Statement of Directors' responsibilities
The statement of Directors' responsibilities has been prepared
in relation to the Group's Annual Report 2018. Certain parts of the
Annual Report are not included in this announcement.
We confirm to the best of our knowledge:
-- the Group financial statements, which have been prepared in
accordance with IFRS, give a true and fair view of the assets,
liabilities, financial position and profit of the Group; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Group.
By order of the Board
Mike Watters Donald Grant
Chief Executive Officer Chief Financial Officer
25 October 2018
Consolidated Income Statement
for the year ended 31 August 2018
Year ended Year ended
31 August 31 August
2018 2017
Continuing operations Note GBPm GBPm
----------------------------------------------------- ----- ---------- ----------
Revenue 3 112.0 102.1
----------------------------------------------------- ----- ---------- ----------
Rental income 4 110.2 97.2
Rental expense 5 (11.1) (9.0)
----------------------------------------------------- ----- ---------- ----------
Net rental income 99.1 88.2
Other operating income 6 1.8 4.7
Administrative costs and other fees 7 (14.2) (15.3)
----------------------------------------------------- ----- ---------- ----------
Net operating income 86.7 77.6
Gain on revaluation of investment property 14 10.8 10.8
Gain/(loss) on revaluation of investment property
held for sale 21 0.9 (3.9)
Gain on disposal of investment property 14 1.5 9.2
Gain on disposal of investment property held
for sale 21 1.8 1.5
Net gain on disposal of subsidiaries 8 15.4 -
Net gain on acquisition of subsidiaries 9 4.4 -
Other income and expense 10 (0.4) (0.3)
Foreign exchange loss (0.8) -
Profit from operations 120.3 94.9
Finance income 11 0.6 3.4
Finance expense 11 (29.3) (28.4)
Other finance expense 12 (0.6) (6.5)
Change in fair value of derivative financial
instruments 6.1 4.5
----------------------------------------------------- ----- ---------- ----------
97.1 67.9
Net (loss)/gain on sale of joint venture interests 16 (0.1) 4.9
Net impairment reversal/(impairment) of joint
ventures and associate interests 16,17 0.1 (0.1)
Share of post-tax loss from joint ventures 16 - (2.3)
Share of post-tax profit from associate 17 0.3 1.1
Transfer of foreign currency translation on disposal
of joint venture interest 16 - 2.0
Profit before tax 97.4 73.5
Taxation 13 (1.1) (3.9)
Profit for the year 96.3 69.6
----------------------------------------------------- ----- ---------- ----------
Profit attributable to:
Equity holders of the Parent 88.9 66.1
Non-controlling interests 28 7.4 3.5
96.3 69.6
----------------------------------------------------- ----- ---------- ----------
Earnings per share
Weighted average number of shares (millions) 34 1,886.5 1,809.9
Diluted weighted average number of shares (millions) 34 1,892.3 1,811.9
Basic earnings per share (pence) 34 4.7 3.7
Diluted earnings per share (pence) 34 4.7 3.6
----------------------------------------------------- ----- ---------- ----------
The accompanying notes form an integral part of these
consolidated financial statements.
Consolidated Statement of Comprehensive Income
for the year ended 31 August 2018
Continuing operations Year ended Year ended
31 August 31 August
2018 2017
Note GBPm GBPm
------------------------------------------------------------------------------------- ---- ---------- ----------
Profit for the year 96.3 69.6
Other comprehensive income/(expense)
Items that may be transferred to the income statement
Transfer of foreign currency translation on disposal of joint venture interests 27 - (4.2)
Foreign currency translation on subsidiary foreign operations (5.3) 15.9
Foreign currency translation on joint ventures held by subsidiary foreign operations 16 (0.2) 1.0
Total other comprehensive (expense)/income (5.5) 12.7
------------------------------------------------------------------------------------- ---- ---------- ----------
Total comprehensive income for the year 90.8 82.3
------------------------------------------------------------------------------------- ---- ---------- ----------
Total comprehensive income attributable to:
Equity holders of the Parent 83.4 78.7
Non-controlling interests 7.4 3.6
------------------------------------------------------------------------------------- ---- ---------- ----------
90.8 82.3
------------------------------------------------------------------------------------- ---- ---------- ----------
The accompanying notes form an integral part of these
consolidated financial statements.
Consolidated BALANCE SHEET
as at 31 August 2018
Note 31 August 31 August
2018 2017
GBPm GBPm
-------------------------------------------- ----- --------- ---------
Non-current assets
Investment property 14 1,598.0 1,494.9
Investment at fair value through profit or
loss 15 - 8.5
Investment in joint ventures 16 1.9 1.9
Loans to joint ventures 16 5.2 4.3
Investment in associate 17 9.1 9.4
Other non-current assets 18 1.3 1.2
Derivative financial instruments 23 1.1 0.4
Other receivables 19 11.2 8.4
-------------------------------------------- ----- --------- ---------
Total non-current assets 1,627.8 1,529.0
-------------------------------------------- ----- --------- ---------
Current assets
Trade and other receivables 19 7.1 15.5
Cash and cash equivalents 20 59.0 52.8
-------------------------------------------- ----- --------- ---------
66.1 68.3
Non-current assets held for sale 21 - 27.3
Total current assets 66.1 95.6
-------------------------------------------- ----- --------- ---------
Total assets 1,693.9 1,624.6
-------------------------------------------- ----- --------- ---------
Non-current liabilities
Borrowings, including finance leases 22 (784.2) (818.9)
Derivative financial instruments 23 (2.9) (7.8)
Deferred tax 24 (9.5) (10.4)
Other payables 25 (0.2) -
-------------------------------------------- ----- --------- ---------
Total non-current liabilities (796.8) (837.1)
-------------------------------------------- ----- --------- ---------
Current liabilities
Borrowings, including finance leases 22 (5.4) (2.9)
Trade and other payables 25 (26.9) (21.2)
Tax liabilities (2.0) (1.2)
-------------------------------------------- ----- --------- ---------
Total current liabilities (34.3) (25.3)
-------------------------------------------- ----- --------- ---------
Total liabilities (831.1) (862.4)
-------------------------------------------- ----- --------- ---------
Net assets 862.8 762.2
-------------------------------------------- ----- --------- ---------
Equity
Share capital 26 152.0 146.2
Share premium 26 534.6 511.8
Other components of equity 116.7 82.4
-------------------------------------------- -----
Total attributable to equity holders of the
Parent 803.3 740.4
Non-controlling interests 28 59.5 21.8
-------------------------------------------- ----- --------- ---------
Total equity 862.8 762.2
-------------------------------------------- ----- --------- ---------
The accompanying notes form an integral part of these
consolidated financial statements.
The consolidated financial statements were approved by the Board
of Directors on 25 October 2018 and were signed on its behalf
by:
Mike Watters Donald Grant
Chief Executive Officer Chief Financial Officer
Consolidated Statement of Changes In Equity
for the year ended 31 August 2018
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 16 - - - - (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 26 4.9 19.4 - - - 24.3 - 24.3
Scrip dividends 26 2.0 7.5 (9.0) - - 0.5 - 0.5
Buy-back of
shares 26 (1.1) (4.1) - - - (5.2) - (5.2)
Dividends paid - - (41.1) - - (41.1) - (41.1)
Release of
share-based
payment reserve 26 - - 1.8 (1.9) - (0.1) - (0.1)
Fair value of
share-based
payments 27 - - - 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 28 - - - - - - (3.4) (3.4)
Recognition of
non-controlling
interest on
acquisition of
subsidiaries 28 - - - - - - 33.8 33.8
Net gain on
acquisition of
non-controlling
interests 29 - - 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
consolidated financial statements.
Consolidated Statement of Changes In Equity
for the year ended 31 August 2018
Total
attributable
Foreign to equity
Reverse Retained currency holders
Share Share acquisition profit/ Other translation of the Non-controlling Total
capital premium reserve (loss) reserves reserve Parent interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1
September 2016 143.6 502.1 134.3 (94.2) 3.2 10.8 699.8 33.6 733.4
Profit for the
year - - - 66.1 - - 66.1 3.5 69.6
Items that may be
transferred
to the income
statement
Transfer of
foreign currency
translation on
disposal of
joint venture
interests 27 - - - - - (4.2) (4.2) - (4.2)
Foreign currency
translation
on subsidiary
foreign
operations - - - - - 15.8 15.8 0.1 15.9
Foreign currency
translation
on joint venture
interests
held by
subsidiary
foreign
operations 16 - - - - - 1.0 1.0 - 1.0
----------------- ---- ------- ------- ----------- -------- -------- ----------- ------------ --------------- ------
Total
comprehensive
income
for the year - - - 66.1 - 12.6 78.7 3.6 82.3
Transactions with
equity holders
of the Parent
Dividends paid - - - (39.5) - - (39.5) - (39.5)
Scrip dividends 26 2.6 9.7 - (12.3) - - - - -
Merger reserve
release - - (134.3) 134.3 - - - - -
Fair value of
share-based
payments 27 - - - - 1.0 - 1.0 - 1.0
----------------- ---- ------- ------- ----------- -------- -------- ----------- ------------ --------------- ------
2.6 9.7 (134.3) 82.5 1.0 - (38.5) - (38.5)
Changes in
ownership
interests
in subsidiaries
Reclassification
of
non-controlling
interest
shareholder
loans
to liabilities 28 - - - - - - - (0.3) (0.3)
Dividends paid to
non-controlling
interests 28 - - - - - - - (1.7) (1.7)
Non-controlling
interests
on acquisition
of control
of former joint
venture 28 - - - - - - - (0.7) (0.7)
Acquisition of
non-controlling
interests 29 - - - 0.4 - - 0.4 (12.7) (12.3)
- - - 0.4 - - 0.4 (15.4) (15.0)
Balance at 31
August 2017 146.2 511.8 - 54.8 4.2 23.4 740.4 21.8 762.2
----------------- ---- ------- ------- ----------- -------- -------- ----------- ------------ --------------- ------
The accompanying notes form an integral part of these
consolidated financial statements.
The reverse acquisition reserve of GBP134.3 million arose on the
reverse acquisition of the Company in August 2011 and reflected the
difference between the capital structure of the Company, as the
legal acquirer, and the Company's subsidiary, as the accounting
acquirer, at the date of the transaction. On 28 July 2017, the
capital of the subsidiary was reduced by way of a capital reduction
and transfer to retained earnings which, on consolidation, also
resulted in the release of GBP134.3 million from the reverse
acquisition reserve to retained earnings of the Group.
Consolidated Statement of CASH FLOWs
for the year ended 31 August 2018
Year ended Year ended
31 August 31 August
2018 2017
Continuing operations Note GBPm GBPm
------------------------------------------------------- ---- ---------- ----------
Cash generated from operations 30 87.0 75.6
Interest received 0.4 2.6
Interest paid (27.7) (26.6)
Capitalised interest paid (0.7) (0.4)
Tax paid (0.9) (1.8)
Net cash inflow from operating activities 58.1 49.4
------------------------------------------------------- ---- ---------- ----------
Cash flows from investing activities
Net cash acquired on acquisition of subsidiaries 9 7.8 -
Acquisition of subsidiaries 9 (80.6) -
Net cash disposed on sale of subsidiaries 8 (1.8) -
Net proceeds on sale of subsidiaries 8 126.2 -
Net proceeds on sale of investment property 14 22.7 54.9
Net proceeds on sale of investment property held
for sale 21 39.6 40.9
Purchase and development of investment property (33.6) (18.9)
Acquisition of property, plant and equipment 18 (0.6) -
Distributions from investments at fair value 15 - 0.7
Net proceeds received on sale of joint venture
interests (0.1) 18.7
Acquisition of control of joint venture - (42.1)
Cash transferred on acquisition of control of
joint venture - 2.3
Increase in investments in joint ventures (0.1) -
Increase in loans to joint ventures 16 (0.2) 0.7
Distributions from associate (including held
for sale) 16 0.7 1.2
Disposal of other non-current assets held for
sale 21 1.3 -
Increase in loan to external party - (2.1)
------------------------------------------------------- ---- ---------- ----------
Net cash inflow from investing activities 81.3 56.3
------------------------------------------------------- ---- ---------- ----------
Cash flows from financing activities
Share issue costs paid (0.1) -
Buy-back of shares 26 (5.2) -
Proceeds from borrowings 22 10.0 199.5
Repayment of borrowings 22 (91.9) (236.8)
Payment of Aviva share of profit - (1.4)
Settlement of Aviva profit share right on refinancing 12 - (5.5)
Other finance expense (0.6) (0.6)
Derivative financial instruments purchased and
settled - (0.1)
Dividends paid to equity holders (41.1) (39.5)
Dividends paid and loans re-paid to non-controlling
interests (3.4) (1.5)
Acquisitions from non-controlling interests 28 0.1 -
Movement in restricted cash and cash equivalents - 2.6
Net cash outflow from financing activities (132.2) (83.3)
------------------------------------------------------- ---- ---------- ----------
Net increase in unrestricted cash and cash equivalents 7.2 22.4
Effect of exchange rate fluctuations on cash
and cash equivalents (1.0) 1.0
Unrestricted cash and cash equivalents at 1 September 52.1 28.7
------------------------------------------------------- ---- ---------- ----------
Unrestricted cash and cash equivalents at 31
August 58.3 52.1
Restricted cash and cash equivalents at 31 August 0.7 0.7
------------------------------------------------------- ---- ---------- ----------
Cash and cash equivalents at 31 August 59.0 52.8
------------------------------------------------------- ---- ---------- ----------
The accompanying notes form an integral part of these
consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 August 2018
1. General Information
RDI REIT P.L.C. (formerly Redefine International 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 presented here does not amount to
statutory financial statements. The Annual Report 2018 for the year
ended 31 August 2018 will be available on the Company's website
(www.rdireit.com) in early December 2018. The auditor, KPMG, has
reported on the audited financial statements and its report was
unmodified. A copy is available upon request from the Company's
registered office at Merchant's House, 24 North Quay, Douglas, Isle
of Man, IM1 4LE.
2. Significant Accounting Policies
2.1 Statement of Compliance
The consolidated financial statements for the year ended 31
August 2018 have been prepared in accordance with International
Financial Reporting Standards ("IFRS") as issued by the
International Accounting Standards Board ("IASB"). The relevant new
standards, amendments and interpretations that have been adopted
during the year are set out in the following table:
International Financial Reporting Standard
Annual improvements to IFRSs 2014-2016 cycle
IFRS 12 'Disclosure of Interests in Other Entities' (amendment) ("IFRS 12")
IAS 28 'Investments in Associates and Joint Ventures' (amendment) ("IAS 28")
Other amendments
IAS 7 'Statement of Cash Flows' (amendment) ("IAS 7")
IAS 12 'Income Taxes' (amendment) ("IAS 12")
The adoption of these improvements and amendments has not had a
material impact on the financial statements of the Group.
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 and have not been early adopted.
International Financial Reporting Standard 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) 1 January 2019
------------------------------------------------
IAS 23 'Borrowing Costs' (amendment) ("IAS 23") 1 January 2019
------------------------------------------------
Other amendments
------------------------------------------------
IFRS 2 'Share-Based Payment' (amendment) ("IFRS 2") 1 January 2018
------------------------------------------------
IFRS 9 'Financial Instruments' ("IFRS 9") 1 January 2018
------------------------------------------------
IFRS 9 'Financial Instruments' (amendment) ("IFRS 9") 1 January 2019
------------------------------------------------
IFRS 15 'Revenue from Contracts with Customers' ("IFRS 15") 1 January 2018
------------------------------------------------
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")
------------------------------------------------
IAS 40 'Investment Property' (amendment) ("IAS 40") 1 January 2018
------------------------------------------------
Interpretations
------------------------------------------------
IFRIC 22 'Foreign Currency Transactions and Advance Consideration' 1 January 2018
------------------------------------------------
IFRIC 23 'Uncertainty over Income Tax Treatments' 1 January 2019
------------------------------------------------
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 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 will be effective for the Group from
1 September 2018. The changes required to the recognition and
classification of financial instruments will 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 will replace the incurred loss
model but will not have a material impact on the net asset position
of the Group as it will apply primarily to trade receivables and
loans to joint ventures. As at 31 August 2018, trade receivables,
before impairment, accounted for GBP1.9 million or 0.2 per cent of
total net assets of GBP862.8 million. At 31 August 2018, 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 will
change the nature and extent of the disclosures made by the
Group.
IFRS 15 is the new standard for the recognition of revenue, will
replace IAS 18 'Revenue' and IAS 11 'Construction Contracts' and
will be 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 will 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 (GBP1.5 million
for the year annualised) and has determined that the new standard
will not have a material quantitative impact on the Group and will
result in minimal qualitative changes to revenue disclosures.
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, 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 consolidated 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, certain assets held for
sale, 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 financial statements have been
prepared on a going concern basis.
2.3 Key Judgements and Estimates
The preparation of the consolidated 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 year. 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
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 make reference to market
evidence of transaction prices for similar properties. Where there
is a lack of comparable transactional evidence, as is currently the
case for UK shopping centres, then the degree of potential
variability in valuations may widen. Further details in respect of
assumptions and estimation uncertainties are provided in Note
14.
corporate and property acquisitions
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 'Business Combinations'
("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
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
business 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
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 will be
recognised immediately in the income statement insofar as the fair
value measurement is based on observable inputs. The deemed fair
value will subsequently be accreted through profit or loss over the
term of the loan using the effective interest rate method.
Lease Classification
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 present value of 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 Accounting Policies
Basis of Consolidation
Investment in Subsidiaries
A subsidiary undertaking is an investee controlled by the Group.
The Group controls an investee when it has power over the investee,
is exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns
through its power over the investee. Subsidiaries are consolidated
in the Group's financial statements from the date on which control
commences until the date that control ceases. The Group reassesses
whether it controls a subsidiary when facts and circumstances
indicate that there are changes to one or more elements of
control.
The Group accounts for business combinations using the
acquisition method, under which the consideration transferred is
measured at fair value, and acquisition related costs are
recognised in the income statement as incurred. Any excess in the
purchase price of business combinations over the Group's share of
the fair value of the assets, liabilities and contingent
liabilities acquired is recognised as goodwill while any discount
received is credited immediately to the income statement. If it is
determined that an acquisition does not constitute a business
combination, the transaction is accounted for as an asset
acquisition and the relevant IFRSs are applied in the recognition
of a group of assets and liabilities. No goodwill arises on initial
recognition but any premium paid or discount received is allocated
to the individual identifiable assets and liabilities based on
their relative fair values.
The Group recognises non-controlling interests on the basis of
their proportionate share in the subsidiary's identifiable net
assets. Non-controlling interests are presented separately from the
equity of the owners of the Parent on the balance sheet. Profit or
loss and total comprehensive income for the year attributable to
non-controlling interests are presented separately in the income
statement and the statement of comprehensive income.
If the Group loses control of a subsidiary, the Group:
- derecognises the assets (including any goodwill) and
liabilities of the former subsidiary at their carrying amounts at
the date control is lost;
- derecognises the carrying amount of any non-controlling
interests in the former subsidiary at the date control is lost
(including amounts of other comprehensive income attributed to
non-controlling interests);
- recognises the fair value of any consideration received;
- reclassifies to profit or loss, or transfers directly to
retained earnings, amounts recognised in other comprehensive income
in relation to the subsidiary on the same basis as would be
required if the Parent had directly disposed of the related assets
or liabilities;
- recognises any investment retained in the former subsidiary at
its fair value at the date when control is lost; and
- recognises any resulting difference of the above items as a
gain or loss in the income statement.
The Group subsequently accounts for any investment retained in
the former subsidiary in accordance with IAS 39 'Financial
Instruments' ("IAS 39"), or when appropriate, in accordance with
IAS 28. For a change in the Group's interest in a subsidiary that
does not result in a loss of control, the Group adjusts the
carrying amounts of the controlling and non-controlling interest to
reflect the changes in their relative interests. Any difference
between the value of the non-controlling interest acquired or
disposed of and the fair value of the consideration is recognised
directly in equity and attributed to the equity holders of the
Parent.
Transactions eliminated on Consolidation
Intra-group balances, transactions, any unrealised gains and
losses or income and expenses arising from intra-group transactions
are eliminated in preparing the consolidated financial statements.
Unrealised losses are eliminated in the same way as unrealised
gains, but only to the extent that there is no evidence of
impairment.
Investment in Associates and Joint Ventures
Associates are entities over whose financial and operating
policies the Group has the ability to exercise significant
influence but not control and which are neither subsidiaries nor
joint arrangements. The Group classifies its interests in joint
arrangements as either joint operations or joint ventures depending
on the Group's contractual rights to the assets and obligations for
the liabilities. When making this assessment, the Group considers
the structure of the arrangements, the legal form of any separate
vehicles, the contractual terms and other facts and circumstances
specific to each transaction.
Investments in associates and joint ventures are initially
recorded at cost and subsequently increased or decreased each year
by the Group's share of the post-acquisition net profit or loss and
other movements recognised in other comprehensive income or
directly in equity. The Group's share of the post-tax results of
the associate or joint venture reflects the Group's proportionate
interest in the relevant undertaking.
Goodwill arising on the acquisition of an associate or joint
venture is included in the carrying amount of the investment. When
the Group's share of losses in an associate or joint venture has
reduced the carrying amount to zero, including any other unsecured
receivables, the Group does not recognise further losses, unless it
has incurred obligations to make payments on behalf of the
associate or joint venture.
As goodwill forms part of the carrying amount of the net
investment, it is not recognised separately and it is not tested
for impairment separately. Instead, the entire amount of the
investment in an associate or joint venture is tested for
impairment as a single asset where there is objective evidence that
the investment may be impaired. Reversals of impairment are
recorded as an adjustment to the investment balance to the extent
that the recoverable amount of the associate or joint venture
increases.
Capital contributions result from the non-reciprocal transfer of
resources to an associate or joint venture without a corresponding
increase in the Group's equity interest. Capital contributions are
also accounted for as an increase in the Group's net investment and
are subject to impairment.
Unrealised gains and losses arising from transactions with
associates and joint ventures are eliminated to the extent of the
Group's interest in those entities.
Where the Group obtains significant influence or joint control
over an investment that was previously accounted for as a financial
instrument under IAS 39, the Group's previously held interest is
re-measured to fair value through profit or loss. The deemed cost
of the associate or joint venture is the fair value of the existing
investment plus the fair value of any consideration given to
achieve significant influence or joint control.
When the Group ceases to have significant influence or joint
control, it is accounted for as a disposal of the entire interest
under the equity method, with a resulting gain or loss being
recognised in the income statement. Any retained interest in the
investment at the date when significant influence or joint control
is lost is recognised at fair value on initial recognition of a
financial asset or, when appropriate, treated as the deemed cost on
initial recognition of an investment in an associate.
Any gain or loss on the dilution of an interest in an equity
accounted investee is calculated as the difference between the
carrying amounts of the investment in the equity accounted
investee, immediately before and after the transaction that
resulted in the dilution and is recognised in the income
statement.
Intangible Assets
Intangible assets arising on business combinations are carried
at cost less impairment. Amortisation of intangible assets is
recognised in profit or loss on a straight-line basis over their
estimated useful life from the date that they are available for
use.
Currency Translation
Foreign Currency Transactions
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
reporting date are translated to the functional currency at the
foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the income
statement. Non-monetary assets and liabilities denominated in
foreign currencies that are stated at fair value are translated to
the functional currency at the foreign exchange rates ruling at the
date that the values are determined.
Foreign Operations
Exchange differences arising from the translation of the net
investment in foreign operations are taken to the foreign currency
translation reserve. Cumulative exchange differences are
subsequently released to the income statement upon disposal or
partial disposal. On consolidation, the balance sheets of foreign
subsidiaries are translated at the closing rate and the income
statement and statement of comprehensive income are translated at
the transaction date rates or at an average rate for the year where
this is a reasonable approximation.
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
availed of.
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.
Service Charges
Where the Group invoices budgeted service charges to tenants,
amounts received are not recognised as income as the risks in
relation to the subsequent provision of actual goods and services
are primarily borne by the tenants during the service charge
period. Consequently, amounts received are recognised as a
liability on the balance sheet and reduced by the actual service
charge expenditure incurred. Any non-recoverable service charge
expenses suffered by the Group, as a result of void or capped
units, are included within rental expense in the income
statement.
Employee Benefits and Share-Based Payments
Employee benefits, such as salaries and other benefits, are
accounted for on an accruals basis over the period during which
employees have provided services. Bonuses are recognised to the
extent that the Group has a legal or constructive obligation to its
employees that can be measured reliably.
Share-based incentives are provided to certain employees and
Executive Directors for services rendered. The Group's share-based
payments are all equity-settled. The fair value of each award
granted is calculated at the grant date, using the Monte Carlo and
Black-Scholes valuation methodologies. The fair value is not
subsequently re-measured and is recognised in the share based
payment reserve in equity on a straight-line basis over the vesting
period as adjusted for the Group's estimate of the awards that will
eventually vest at each reporting date. The corresponding
compensation cost is recognised as an administrative expense over
the vesting period.
At the end of the performance period, a reserves transfer occurs
with no further charge reflected in the income statement.
Income Tax
Income tax on the profit or loss for the year comprises current
and deferred tax. Income tax is recognised in the consolidated
income statement except to the extent that it relates to items
recognised in other comprehensive income or directly in equity, in
which case it is recognised in other comprehensive income.
Current tax is based on taxable profit or loss for the year and
is calculated using tax rates that have been enacted or
substantively enacted by the reporting date. Taxable profit differs
from net profit as reported in the income statement because it
excludes items of income that are not taxable or expenses that are
not tax deductible.
Deferred tax is recognised using the balance sheet liability
method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and their relative tax base. The amount of deferred tax provided is
based on the expected manner of realisation or settlement, using
tax rates enacted or substantively enacted at the reporting
date.
The following temporary differences are not provided for: those
arising from goodwill not deductible for tax purposes; those
arising from the initial recognition of assets or liabilities that
affect neither accounting or taxable profit; and those relating to
investments in subsidiaries and joint ventures where the timing of
the reversal can be controlled and it is probable that the
temporary difference will not reverse in the foreseeable
future.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised and is reduced to the extent that
it is no longer probable that the related tax benefit will be
realised. Deferred tax liabilities are provided only to the extent
that there are not sufficient tax losses to shield the charge.
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 14 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.
Acquisition and disposals of investment property are recognised
when 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
pending 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.
Property, plant and equipment
Items of property, plant and equipment are measured at cost less
accumulated depreciation and any accumulated impairment losses.
Subsequent expenditure is capitalised only if it is probable that
the future economic benefits associated with the expenditure will
flow to the Group. Depreciation is calculated to write off the cost
of items less their estimated residual values using the straight
line method over their estimated useful lives and is generally
recognised in profit or loss. Leased assets are depreciated over
the shorter of the lease term and their useful lives unless it is
reasonably certain that the Group will obtain ownership by the end
of the lease term. Property, plant and equipment are depreciated
over a period of between two to five years.
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
Financial assets not carried at fair value through profit or
loss are assessed at each reporting date to determine whether there
is objective evidence of impairment. A financial asset is impaired
if objective evidence indicates that a loss event has occurred and
factors include: adverse changes in the payment status of a debtor
or issuer; default or delinquency by a debtor; restructuring of an
amount due on terms that the Group would not consider otherwise;
potential bankruptcy of a debtor or issuer; and economic conditions
that correlate with defaults or the disappearance of an active
market for a security.
An impairment loss is calculated as the difference between the
carrying amount of the financial asset and the present value of the
estimated future cash flows discounted at the asset's original
effective interest rate. When a subsequent event objectively causes
the amount of impairment loss to decrease, the decrease in
impairment loss is calculated on a basis consistent with the
impairment charge but the carrying value after any reversal must
not exceed the original carrying value.
Impairment losses and reversals are recognised in the income
statement and reflected in an allowance account against loans and
receivables. Finance income on impaired interest-bearing assets
continues to be recognised.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances on hand, cash
deposited with financial institutions and short term call deposits.
Cash and cash equivalents are recognised at fair value and have
maturities of less than three months. Restricted cash comprises
cash deposits that are restricted until the fulfilment of certain
conditions.
Non-Current Assets and Disposal Groups Held for Sale
A non-current asset or a disposal group (comprising assets and
liabilities) is classified as held for sale if it is expected that
the carrying value will be recovered by the Group principally
through sale rather than through continuing use and the sale is
highly probable. The asset or disposal group must be available for
immediate sale, be actively marketed at a reasonable approximation
to fair value and the sale must have the appropriate level of
management commitment. The sale may complete beyond a period of one
year from classification so long as there is sufficient evidence of
a firm commitment from both parties and the circumstances of the
delay are beyond the Group's control.
Where there is commitment to a sale plan involving the loss of
control of a subsidiary, the loss of joint control of a joint
venture or significant influence over a joint venture and the
criteria set out above are met, the Group classifies all the assets
and liabilities of that subsidiary or the equity accounted
investment in the joint venture or associate as held for sale. This
classification is appropriate regardless of whether the Group will
retain a non-controlling interest in its former subsidiary after
the sale. Where significant influence over an associate will not be
lost, only that portion of the investment for which there is a
commitment to sell shall be reclassified as held for sale.
On initial classification as held for sale, non-current assets
and disposal groups are ordinarily measured at the lower of the
previous carrying amount and fair value less costs to sell, with
any adjustments recognised in the income statement and subsequently
re-measured at each reporting date. Certain assets such as
financial assets within the scope of IAS 39 and investment property
in the scope of IAS 40 continue to be measured in accordance with
those standards.
Gains and losses on re-measurement and impairment losses
subsequent to classification as held for sale are presented within
continuing operations in the income statement, unless they meet the
definition of a discontinued operation. Non-current assets held for
sale are presented separately under current assets on the balance
sheet. Comparatives are not reclassified.
Borrowings
Interest-bearing borrowings are recognised initially at fair
value less directly attributable transaction costs. Any difference
between the transaction price and the deemed fair value of the
borrowing is treated as a gain or loss in the income statement when
the determination of fair value is based on observable inputs.
Subsequent to initial recognition, interest-bearing borrowings are
measured at amortised cost. Any differences between cost and the
redemption value as a result of transaction costs incurred or fair
value adjustments are recognised in the income statement over the
contractual term of the borrowings on an effective interest rate
basis.
A financial liability is derecognised when it is extinguished.
This may happen when:
- full repayment is made to the lender;
- the borrower is legally released from primary responsibility
for the financial liability; or
- where there is an exchange of debt instruments with
substantially different terms or a substantial modification to the
existing terms of a debt instrument.
In the event of a substantial modification of terms, any
difference between the carrying amount of the original liability
and the consideration paid is recognised in the income statement.
The consideration paid includes non-financial assets transferred
and the assumption of liabilities, including the new modified
financial liability. The modified borrowing is recognised initially
at fair value and subsequently carried at amortised cost under the
effective interest rate method. Any costs or fees incurred are
recognised as part of the gain or loss on extinguishment.
Where existing borrowings are exchanged for new or amended
borrowings and the terms are not substantially different, the new
borrowings are recognised initially at the carrying amount of the
existing borrowings. Any costs or fees incurred adjust the carrying
amount of the borrowings and are amortised over the remaining
term.
Ongoing finance costs and debt servicing payments are recognised
in the income statement on an accruals basis, using the effective
interest rate method.
Provisions
A provision is recognised if, as a result of a past event, the
Group has a present legal or constructive obligation that can be
estimated reliably and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are
determined by discounting the expected cash flows to present value
using an appropriate discount rate that reflects the risks specific
to the liability.
Where it is not probable that an outflow of economic benefits
will be required, or the amount cannot be estimated reliably, the
obligation is disclosed as a contingent liability, unless the
probability of outflow of economic benefits is remote. Capital
commitments are disclosed when the Group has a contractual future
obligation to a third party which has not been provided for at the
balance sheet date.
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.
Dividends
Dividends to shareholders are recognised when they become
legally payable. In the case of interim dividends, this is when the
dividends are declared and paid 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.
In line with the JSE Listing Requirements, the Group also
presents headline earnings per share.
Segmental Reporting
An operating segment is a component of the Group that engages in
business activities from which it may earn revenues and in respect
of which it may incur expenses, including revenues and expenses
that relate to transactions with any of the Group's other
components. An operating segment's operating results are reviewed
regularly by the Chief Operating Decision Maker to inform decisions
about resources to be allocated to the segment and to assess its
performance, and for which discrete financial information is
available as disclosed in Note 3.
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 (nine of which were acquired as part of the
IHL transaction - refer to Note 9):
* 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 (an additional 5.1 per cent, previously
classified as held for sale, was disposed on 14 February 2018).
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, comprising 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 and
carry stores. In the prior period, the Group's interests also
included Government-let offices until 1 January 2017; 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 consolidated
financial 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 16, 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
Other segmental information Commercial Retail Hotels Europe Other Total adj total
for the year ended 31 August 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ----------- ------- ------- ------- ----- ----- -------- ------
Inter-segmental revenue and expense:
Management fee income - - - - 5.7 5.7 - 5.7
Management fee expense (1.6) (1.6) (0.6) (1.3) (0.6) (5.7) - (5.7)
(1.6) (1.6) (0.6) (1.3) 5.1 - - -
------------------------------------- ----------- ------- ------- ------- ----- ----- -------- ------
Inter-segmental revenue and expense relate to intercompany
investment management fees that eliminate on consolidation.
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 16, 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).
Joint
UK UK UK venture IFRS
Other segmental information Commercial Retail Hotels Europe Total adj total
as at 31 August 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ----------- ------- ------- ------ ----- -------- ------
Additions to investment property during the year per reportable segment:
Business combinations (Note 9) 161.7 - 115.4 - 277.1 - 277.1
Acquisition of property 20.9 - - - 20.9 - 20.9
Capitalised expenditure 1.0 4.0 3.2 5.9 14.1 - 14.1
Capitalised finance costs - - - 0.7 0.7 - 0.7
183.6 4.0 118.6 6.6 312.8 - 312.8
------------------------------- ----------- ------- ------- ------ ----- -------- ------
Segmental income statement Joint
for the year ended 31 August 2017 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 24.8 39.8 14.8 23.7 - 103.1 (5.9) 97.2
Other operating income(1) - - - 0.1 2.6 2.7 2.0 4.7
Distributions from investment at fair value - - 0.2 - - 0.2 - 0.2
Total revenue 24.8 39.8 15.0 23.8 2.6 106.0 (3.9) 102.1
---------------------------------------------- ----------- ------- ------- ------ ----- ------ -------- ------
Rental income 24.8 39.8 14.8 23.7 - 103.1 (5.9) 97.2
Rental expense (1.0) (5.1) - (3.5) - (9.6) 0.6 (9.0)
---------------------------------------------- ----------- ------- ------- ------ ----- ------ -------- ------
Net rental income 23.8 34.7 14.8 20.2 - 93.5 (5.3) 88.2
Other operating income(1) - - - 0.1 2.6 2.7 2.0 4.7
Gain/(loss) on revaluation of investment
property 27.8 (21.2) 6.6 (3.3) - 9.9 0.9 10.8
Loss on revaluation of investment property
held for sale - (3.9) - - - (3.9) - (3.9)
Gain on disposal of investment property 5.9 3.3 - - - 9.2 - 9.2
Gain on disposal of investment property held
for sale 0.9 - - 0.6 - 1.5 - 1.5
Distributions from investment at fair value - - 0.2 - - 0.2 - 0.2
Loss on revaluation of investment at fair
value - - (0.3) - - (0.3) - (0.3)
Finance income on loans to joint ventures - - - - - - 2.7 2.7
Other underlying finance income - - - - 0.7 0.7 - 0.7
Finance expense (6.3) (15.6) (3.3) (4.5) - (29.7) 1.3 (28.4)
Other finance income and expense (0.1) (6.3) - 0.3 (0.1) (6.2) (0.3) (6.5)
Change in fair value of derivative financial
instruments 2.8 2.2 (0.7) 1.3 - 5.6 (1.1) 4.5
Group gain on sale of joint venture interests - - - 5.6 - 5.6 (0.7) 4.9
Joint venture loss on sale of subsidiaries - - - (0.7) - (0.7) 0.7 -
Impairment of investment in associate - - (0.5) - - (0.5) - (0.5)
Share of post-tax profit from associate - - 1.1 - - 1.1 - 1.1
Transfer of foreign currency translation on
disposal of joint venture interest - - - 2.0 - 2.0 - 2.0
Total per reportable segments 54.8 (6.8) 17.9 21.6 3.2 90.7 0.2 90.9
Unallocated income and expenses:(2)
Administrative costs and other fees(1) (15.6) 0.3 (15.3)
Amortisation of intangible assets (0.2) - (0.2)
Profit before tax 74.9 0.5 75.4
Taxation (4.4) 0.5 (3.9)
---------------------------------------------- ----------- ------- ------- ------ ----- ------ -------- ------
70.5 1.0 71.5
Joint venture adjustments:
Movement of losses restricted in joint ventures(3) (0.9) 0.9 -
Reversal of impairment of loans to joint ventures - 0.4 0.4
Share of post-tax loss from joint ventures - (2.3) (2.3)
IFRS profit for the year 69.6 - 69.6
------------------------------------------------------ ----- ----- -----
(1) Other operating 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 earned or incurred
centrally which are neither directly attributable nor can be
reasonably allocated to individual segments.
(3) As detailed in Note 16, the Group's interest in the
Esplanade has been reduced to date 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
Other segmental information Commercial Retail Hotels Europe Other Total adj total
for the year ended 31 August 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ----------- ------- ------- ------- ----- ----- -------- ------
Inter-segmental revenue and expense:
Management fee income - - - - 6.9 6.9 - 6.9
Management fee expense (2.3) (1.6) (0.1) (1.4) (1.5) (6.9) - (6.9)
(2.3) (1.6) (0.1) (1.4) 5.4 - - -
------------------------------------- ----------- ------- ------- ------- ----- ----- -------- ------
Inter-segmental revenue and expense relate to intercompany
investment management fees that eliminate on consolidation.
Joint
UK UK UK venture IFRS
Segmental balance sheet Commercial Retail Hotels Europe Total adj total
as at 31 August 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------------ ----------- ------- ------- ------- ------- -------- -------
Investment property 355.7 507.5 239.3 418.0 1,520.5 (25.6) 1,494.9
Investment at fair value through profit or loss - - 8.5 - 8.5 - 8.5
Investment in associate - - 9.4 - 9.4 - 9.4
Trade and other receivables 3.6 7.8 0.8 7.8 20.0 (0.4) 19.6
Cash and cash equivalents 28.1 5.2 5.0 5.3 43.6 (0.6) 43.0
Non-current assets held for sale 9.3 12.9 1.5 3.6 27.3 - 27.3
Borrowings, including finance leases (188.9) (317.3) (113.1) (218.8) (838.1) 16.3 (821.8)
Trade and other payables (2.9) (9.4) (1.2) (4.3) (17.8) 0.8 (17.0)
Segmental net assets 204.9 206.7 150.2 211.6 773.4 (9.5) 763.9
Unallocated assets and liabilities:
Other non-current assets 1.2 - 1.2
Trade and other receivables 4.3 - 4.3
Cash and cash equivalents 9.8 - 9.8
Net derivative financial instruments (10.9) 3.5 (7.4)
Deferred tax (10.8) 0.4 (10.4)
Trade and other payables (4.2) - (4.2)
Current tax liabilities (1.2) - (1.2)
761.6 (5.6) 756.0
Joint venture adjustments:
Joint venture non-controlling interest (0.1) 0.1 -
Cumulative losses restricted in joint ventures (1) 0.7 (0.7) -
Investment in joint ventures - 1.9 1.9
Loans to joint ventures - 4.3 4.3
IFRS net assets 762.2 - 762.2
----------------------------------------------------- ----- ----- -----
(1) As detailed in Note 16, the Group's interest in the
Esplanade has been reduced to date 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 not recognised on an equity accounted basis at the
reporting date are presented to reconcile segmental information to
the IFRS statements.
Joint
UK UK UK venture IFRS
Other segmental information Commercial Retail Hotels Europe Total adj total
as at 31 August 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------------- ----------- ------- ------- ------ ----- -------- ------
Additions to investment property during the year per reportable segment:
Capitalised expenditure 1.0 3.5 2.9 12.2 19.6 - 19.6
Capitalised finance costs and debt issue costs - - 0.2 0.3 0.5 - 0.5
Acquisition of control of former joint venture - - - 80.8 80.8 75.0 155.8
----------------------------------------------- ----------- ------- ------- ------ ----- -------- ------
1.0 3.5 3.1 93.3 100.9 75.0 175.9
----------------------------------------------- ----------- ------- ------- ------ ----- -------- ------
4. Rental INcome
31 August 31 August
2018 2017
GBPm GBPm
---------------------------------------------------- --------- ---------
Gross lease payments from third parties 88.2 83.2
Gross lease payments from related parties (Note 32) 22.0 14.0
---------------------------------------------------- --------- ---------
Rental income 110.2 97.2
---------------------------------------------------- --------- ---------
The future aggregate minimum rent receivable under
non-cancellable operating leases at the balance sheet date are as
follows:
Not later than one year 104.8 98.0
Later than one year not later than five years 312.2 329.8
Later than five years 351.5 347.7
---------------------------------------------- ----- -----
768.5 775.5
---------------------------------------------- ----- -----
5. RENTAL EXPENSE
31 August 31 August
2018 2017
GBPm GBPm
------------------------------------------------- --------- ---------
Non-recoverable service charge 3.3 4.1
Direct property operating expenses 4.9 4.7
Operating lease expense (1) 1.4 -
Letting costs 0.6 0.2
Serviced office portfolio direct staff and sales
costs 0.9 -
Rental expense 11.1 9.0
------------------------------------------------- --------- ---------
(1) Refer to Note 22 for the undiscounted future minimum lease
obligations under non-cancellable operating leases at reporting
date.
6. Other OPERATING Income
31 August 31 August
2018 2017
GBPm GBPm
------------------------------------------------------------ --------- ---------
Service fee income 1.8 -
Service fee expense (0.8) -
------------------------------------------------------------ --------- ---------
Service fee margin (1) 1.0 -
Management fees from joint ventures - including Performance
Fee (2) (Note 32) 0.1 3.8
Insurance rebates 0.3 0.4
Salary recharges 0.3 0.3
Other property related income 0.1 0.2
Other income 1.8 4.7
------------------------------------------------------------ --------- ---------
(1) Service fees relates to recoverable costs incurred by the
Group in the newly acquired serviced office portfolio that are
recharged to tenants at a margin.
(2) The Group was responsible for the investment management of
the property portfolio of the Wichford VBG Holding S.Ã .r.l. joint
venture. The Group was incentivised during the investment period by
a Performance Fee dependent upon the internal rate of return
achieved on disposal which occurred during the year ended 31 August
2017.
7. ADMINISTRATIVE COSTS and other fees
31 August 31 August
2018 2017
GBPm GBPm
------------------------------------------------------- --------- ---------
Staff costs 6.3 5.5
Professional fees 2.9 2.7
Share-based payments (Note 27) 1.0 1.0
General administrative expenses 3.4 4.5
Investment management fees to related party (Note
32) 0.6 -
Non-recurring costs:
Investment management fees to third parties (including
termination fee) - 1.6
Administrative costs and other fees 14.2 15.3
------------------------------------------------------- --------- ---------
8. DISPOSAL of subsidiaries
The impact of corporate disposals during the year 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 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 was comprised of 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 14).
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.
No subsidiaries of the Group were disposed of during the year
ended 31 August 2017.
9. BUSINESS COMBINATIONS
The impact of business combinations during the period and the
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 17) - (13.5) (13.5)
Non-controlling interests proportionate share
of the identifiable net assets (Note 28) (17.8) (16.0) (33.8)
Transaction costs(1) (1.1) - (1.1)
----------------------------------------------- ------ ------ ---------
Net 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 Hold Co
Limited and LSO Services Limited ("LSO Portfolio"), for a
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 (see Note 15). During the 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 17).
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 interests
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 14. Receivables acquired
were GBP1.9 million, all of which were settled subsequent to
acquisition. Revenue from IHL since acquisition was GBP9.1
million.
10. OTHER income and expense
31 August 31 August
2018 2017
GBPm GBPm
------------------------------------------------------ --------- ---------
Distributions from investment at fair value - 0.2
Loss on revaluation of investment at fair value (Note
15) - (0.3)
Amortisation of intangible assets (Note 18) (0.3) (0.2)
Loss on disposal of other non-current assets held
for sale (Note 21) (0.1) -
Other income and expense (0.4) (0.3)
------------------------------------------------------ --------- ---------
11. FINANCE INCOME AND FINANCE EXPENSE
31 August 31 August
2018 2017
GBPm GBPm
------------------------------------------------------- --------- ---------
Finance income on loans to external parties 0.2 0.2
Finance income on loans to joint ventures (Note 32) 0.3 2.7
Finance income on loans to other related parties
(Note 32) 0.1 0.5
Finance income 0.6 3.4
Finance expense on secured bank loans (27.2) (25.8)
Interest capitalised to qualifying investment property
under development 0.7 0.4
Amortisation of debt issue costs (1.2) (1.3)
Accretion of fair value adjustments (0.8) (0.9)
Finance lease interest (0.8) (0.8)
------------------------------------------------------- --------- ---------
Finance expense (29.3) (28.4)
Net finance expense (28.7) (25.0)
------------------------------------------------------- --------- ---------
Interest is capitalised on the basis of the Group's weighted
average cost of debt of 3.4 per cent (31 August 2017: 3.0 per cent)
at the reporting date applied to the cost of property under
development during the year.
12. Other Finance Expense
31 August 31 August
2018 2017
GBPm GBPm
---------------------------------------------------- --------- ---------
Aviva profit share:
- share of earnings for the period - 0.2
- re-measurement of financial liability - 1.3
Net change in fair value adjustments on substantial
modification of borrowings - 4.3
Write-off of unamortised debt issue costs 0.2 0.4
Other finance costs 0.4 0.3
Other finance expense 0.6 6.5
---------------------------------------------------- --------- ---------
Aviva profit share
As part of the Aviva debt restructure in 2013, Aviva retained
the right to participate in 50 per cent of the income generated by
Grand Arcade Shopping Centre, Wigan (after all costs, expenses and
interest). The profit share participation right was recognised as a
financial liability, initially at fair value and was subsequently
measured at amortised cost. During the year ended 31 August 2017
the debt was again restructured and, following a break cost payment
of GBP5.5 million to terminate the existing facility, the Group was
released from the historic profit arrangement and, therefore,
released the financial liability of GBP4.2 million. This resulted
in a net charge of GBP1.3 million to the income statement. Aviva
was entitled to GBP0.2 million of the net income of Grand Arcade
Shopping Centre up to date of termination.
13. taxation
a) Tax recognised in the consolidated income statement:
31 August 31 August
2018 2017
GBPm GBPm
------------------------------------------------------- --------- ---------
Current income tax
Income tax in respect of current year 0.8 0.3
Adjustments in respect of prior years 0.8 0.1
Deferred tax
On revaluation of investment property 6.0 3.5
On non-UK losses (1.4) -
On derivatives (0.4) -
Reversal on disposal of Leopard portfolio (4.7) -
Tax charge for the year recognised in the consolidated
income statement 1.1 3.9
------------------------------------------------------- --------- ---------
There was GBPNil tax recognised in equity or other comprehensive
income during the year (31 August 2017: GBPNil).
b) Reconciliation
The tax rate for the year is lower than the average standard
rate of corporation tax in the UK of 19 per cent (31 August 2017:
19.58 per cent). The differences are explained below:
31 August 31 August
2018 2017
GBPm GBPm
------------------------------------------------------------ --------- ---------
Profit before tax 97.4 73.5
Profit before tax multiplied by standard rate of
corporation tax 18.5 14.4
Effect of:
- Revaluation of investment property (1.0) 1.3
- Gain on disposal of investment property (0.7) (2.1)
- Gain on disposal of subsidiaries (2.9) -
- Gain on business combinations (0.9) -
- Loss on revaluation of investment at fair value - 0.1
- Debt fair value adjustments - 1.0
- Change in fair value of derivative financial instruments (1.6) (0.9)
- Income not subject to UK income tax (2.5) (3.4)
- REIT exempt property rental profits (8.3) (7.9)
- Losses utilised (0.1) (0.1)
- Non-UK losses carried forward (1.3) -
- Unutilised losses carried forward 0.1 0.7
- Impact of foreign tax 0.6 0.3
- Expenses not deductible for tax 0.4 0.4
- Adjustments in respect of prior periods 0.8 0.1
------------------------------------------------------------ --------- ---------
Tax charge for the year recognised in the consolidated
income statement 1.1 3.9
------------------------------------------------------------ --------- ---------
As shown in the reconciliation above, the effective tax rate of
the Group was 1.1 per cent for the year ended 31 August 2018 (31
August 2017: 5.3 per cent).
The enactment of Finance (No. 2) Act 2015 and Finance Act 2016
reduced the main rate of corporation tax to 19 per cent with effect
1 April 2017. There will be 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. 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.
14. investment property
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 1.0 4.0 3.2 5.9 14.1 4.0 10.1
Capitalised finance costs
(Note 11) - - - 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 (Note 21) (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 (Note 21) 0.9 - - 3.6 4.5 3.6 0.9
Gain/(loss) 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 22) (1.9) (10.1) (0.4) (1.5) (13.9) - (13.9)
Tenant lease incentives (Note
19) 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 16) 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
----------------------------------------- ----------- ------- ------- --------- ------- -------- ---------
UK UK UK
Commercial Retail Hotels Europe(1) Total Freehold Leasehold
31 August 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- ----------- ------- ------- --------- ------- -------- ---------
Opening carrying value at
1 September 2016 407.3 541.9 229.6 217.6 1,396.4 1,052.2 344.2
Capitalised expenditure 1.0 3.5 2.9 12.2 19.6 7.0 12.6
Capitalised finance costs
and debt issue costs - - 0.2 0.3 0.5 0.2 0.3
Acquisition of control of
former joint venture (Note
33) - - - 155.8 155.8 155.8 -
Disposals through the sale
of property (42.6) (2.1) - - (44.7) (42.9) (1.8)
Transfer to non-current assets
held for sale (Note 21) (49.0) (16.8) - (9.7) (75.5) (65.3) (10.2)
Head lease movements (0.5) 2.2 - (0.1) 1.6 71.6 (70.0)
(Loss)/gain on revaluation
of investment property 27.9 (21.2) 6.6 (2.5) 10.8 32.1 (21.3)
Foreign exchange movement
in foreign operations - - - 30.4 30.4 29.0 1.4
-------- ---------
IFRS carrying value at 31
August 2017 344.1 507.5 239.3 404.0 1,494.9 1,239.7 255.2
Adjustments:
Non-current assets held for
sale (Note 21) 9.2 12.9 - 3.7 25.8 19.3 6.5
Minimum payments under head
leases
(Note 21) (2.6) (10.1) (0.4) (1.7) (14.8) - (14.8)
Tenant lease incentives (Note
19) 1.9 4.3 0.7 0.3 7.2 5.2 2.0
-------- ---------
Market value of Group portfolio
at 31 August 2017 352.6 514.6 239.6 406.3 1,513.1 1,264.2 248.9
----------------------------------------- ----------- ------- ------- --------- -------- ---------
Joint ventures
Share of joint venture investment
property (Note 16) 11.6 - - 14.0 25.6 25.6 -
-------- ---------
Market value of total portfolio
at 31 August 2017 (on a proportionately
consolidated basis) 364.2 514.6 239.6 420.3 1,538.7 1,289.8 248.9
----------------------------------------- ----------- ------- ------- --------- -------- ---------
(1) Included within the Europe segment at 31 August 2018 is
property under development of GBP32.1 million (31 August 2017:
GBP23.4 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
business of five of the nine hotels acquired was 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 the Group's
existing hotel portfolio. The Group therefore considers
classification as investment property on initial recognition to be
appropriate.
Valuation
The carrying value of investment property is its market value 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. Fees paid to valuers are based on arms-length fixed
price contracts.
The fair value of the Group's property for the period ended 31
August 2018 was assessed by independent and appropriately qualified
valuers in accordance with the Royal Institute of Chartered
Surveyors ("RICS") standards and IFRS 13. The valuations are
performed by BNP Paribas Real Estate for the UK Shopping Centres
(2017: Strutt & Parker LLP) and the Esplanade and by Savills
for remainder of the Group's 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, having regard for: tenant covenant
strength; lease maturity; quality and location of the property;
occupancy; non-recoverable costs and head rents. 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 are consistent with IFRS 13 and use
significant unobservable inputs. Valuation techniques can change at
each valuation round depending on prevailing market conditions,
market transactions 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 all its investment property to fall within
'Level 3', as defined by IFRS 13 (refer to Note 31). There has been
no transfer of property within the fair value hierarchy during the
year. The key unobservable valuation inputs are set out in the
tables below:
Weighted Weighted Average
Market Lettable Average rent average average Net initial market rent
31 August 2018 value area per sqm lease length net initial yield yield per sqm
Group (GBPm) (sqm) (GBP) (years) (%) (% range) (GBP)
---------------- -------- --------- ------------- -------------- ------------------- ------------ -------------
UK Retail 481.0 223,826 179.1 8.5 6.4 5.0 - 9.2 170.2
UK Commercial 504.6 167,862 175.2 5.4 5.1 3.2 - 13.5 182.3
UK Hotels 364.9 77,391 336.0 18.2 5.9 4.6 - 7.6 336.0
Europe 244.5 87,184 67.3 4.9 4.3 3.4 - 7.8 162.9
Joint ventures
UK Commercial 11.3 2,752 327.0 3.7 7.1 7.1 327.0
Europe 14.1 10,666 93.8 7.1 5.8 5.6 - 6.0 93.8
---------------- -------- --------- ------------- -------------- ------------------- ------------ -------------
Total 1,620.4 569,681
---------------- -------- --------- ------------- -------------- ------------------- ------------ -------------
Average Weighted Weighted Average
31 August Lettable rent per average average Net initial market rent
2017 Market value area sqm lease length net initial yield per sqm
Group (GBPm) (sqm) (GBP) (years) Yield (%) (% range) (GBP)
-------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------
UK Retail 514.6 239,350 172.2 8.4 6.3 4.8 - 8.6 168.0
UK Commercial 352.6 181,670 123.2 5.2 5.1 3.2 - 30.6 124.4
UK Hotels 239.6 41,323 367.8 9.3 5.9 4.2 - 7.6 392.0
Europe 406.3 226,241 117.4 6.4 5.4 3.7 - 21.9 118.0
Joint
ventures
UK Commercial 11.6 2,752 327.0 4.7 6.9 6.9 290.7
Europe 14.0 10,357 96.5 7.9 5.9 5.7 - 6.1 96.5
-------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------
Total 1,538.7 701,693
-------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------
There are interrelationships between the unobservable inputs as
they are determined by market conditions; an increase in more than
one input could impact on the valuation.
Valuation sensitivities
The tables below set out the financial impact of positive and
negative shifts in the two primary unobservable inputs on the
valuation of the Group's controlled property segments:
Impact on valuation Impact on valuation
---------------- ------------- ---------------------- ----------------------
+5% -5% -25bps +25bps
31 August 2018 Market value ERV ERV yield yield
Group (GBPm) (GBPm) (GBPm) (GBPm) (GBPm)
---------------- ------------- ---------- ---------- ---------- ----------
UK Retail 481.0 16.9 (16.6) 18.8 (17.6)
UK Commercial 504.6 16.5 (17.0) 14.9 (13.8)
UK Hotels 364.9 10.2 (9.7) 12.7 (11.0)
Europe 244.5 22.5 (22.9) 26.4 (24.1)
Total 1,595.0 66.1 (66.2) 72.8 (66.5)
---------------- ------------- ---------- ---------- ---------- ----------
An increase in the current or future rental stream would
increase capital value while a higher yield or discount rate would
decrease capital value. There are interrelationships between these
unobservable inputs however as they are partially determined by
market conditions. The valuation movement in any one period depends
on the balance between them.
The Directors have furthered considered the impact of a
significant valuation decline of up to 20 per cent impacting the
Group's UK Shopping Centres, brought about by continued negative
sentiment and tenant failure, the results of which are set out in
the Group's viability statement in the Annual Report. Based on the
31 August 2018 market value of this portfolio, a 20 per cent
reduction in valuation would result in a fair value loss to the
income statement of GBP58.2 million.
Acquisitions
During the year ended 31 August 2018, the Group acquired four
serviced offices and nine hotels for GBP161.7 million and GBP115.4
million respectively, by way of business combinations. Refer to
Note 9 for further information. The Group also acquired a
commercial property during the year for GBP20.9 million, including
acquisition costs, in Kingston, Southwest London.
Disposals
The Group disposed of two assets from the UK Commercial
portfolio and two assets from the European portfolio (part of the
Leopard Portfolio disposal) during the year by way of assets sales,
realising a net gain after disposal costs of GBP1.5 million (31
August 2017: GBP9.2 million). As at 31 August 2018, net proceeds of
GBP22.7 million had been received by the Group (31 August 2017:
GBP54.9 million) after adjusting for additional prior year disposal
costs. The Group disposed of the six held for sale assets during
the year, one from the UK Retail portfolio and five from the UK
Commercial portfolio.
Sales
proceeds Disposal costs Net sales proceeds Carrying value Gain/(loss) on disposal
31 August 2018 GBPm GBPm GBPm GBPm GBPm
------------------------- --------- -------------- ------------------ -------------- -----------------------
The Crescent Centre,
Bristol 15.0 (0.2) 14.8 (14.1) 0.7
Bunde & Uelzen, Germany
(Leopard asset disposal) 5.9 - 5.9 (6.0) (0.1)
Haynesfield House,
Sparkhill 2.1 - 2.1 (1.2) 0.9
Disposals during the year 23.0 (0.2) 22.8 (21.3) 1.5
-------------------------- --------- -------------- ------------------ -------------- -----------------------
Two further sales, namely of Lochside View, Edinburgh and the
remaining properties in the Leopard Portfolio were structured as
corporate sales. Refer to Note 8 for further information.
Sales Net sales
proceeds Disposal costs Tenant incentives proceeds Carrying value Gain on disposal
31 August 2017 GBPm GBPm GBPm GBPm GBPm GBPm
----------------- --------- -------------- ----------------- ----------------- -------------- ----------------
201 Deansgate,
Manchester 29.2 (0.3) - 28.9 25.5 3.4
Exchange House,
Watford 13.3 (0.2) - 13.1 11.8 1.3
1A Parliament
Square,
Edinburgh 4.0 - - 4.0 3.5 0.5
Delta 900,
Swindon 3.6 (0.1) (1.0) 2.5 1.8 0.7
Single unit -
Priory Retail
Park, Merton 5.5 (0.1) - 5.4 2.1 3.3
-------------- ----------------
Disposals during
the year 55.6 (0.7) (1.0) 53.9 44.7 9.2
----------------- --------- -------------- ----------------- ----------------- -------------- ----------------
Committed expenditure
The Group was contractually committed to expenditure of GBP8.3
million for the future development and enhancement of investment
property at 31 August 2018 (31 August 2017: GBP16.5 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.
15. investment at fair value THROUGH Profit or loss
The following table details the movement in the Group's
investment in International Hotel Properties Limited, designated at
fair value through profit or loss:
31 August 31 August
2018 2017
GBPm GBPm
------------------------------------------------ --------- ---------
Opening balance at 1 September 8.5 7.9
Transfer to investment in associate (Note 17) (8.5) -
Additions - 0.9
Loss on revaluation of investment at fair value - (0.3)
Closing balance - 8.5
------------------------------------------------ --------- ---------
As at 31 August 2017, the Group held 9.7 million of IHL's 56.0
million total issued shares at a fair value of GBP8.5 million and
the Directors determined that the classification of IHL as an
investment at fair value through profit or loss was
appropriate.
On 15 September 2017, the Group obtained consent from the
shareholders of IHL to acquire 16.4 million shares (29.3 per cent)
from minority shareholders via a scheme of arrangement. From this
date, the Group was considered to have significant influence over
IHL and the investment was reclassified as an investment in
associate (Note 17).
16. INvestment in and loans to joint ventures
31 August 31 August
2018 2017
GBPm GBPm
-------------------------------------------------- --------- ---------
Investment in joint ventures
Opening balance at 1 September 1.9 5.8
Additional investment in joint ventures 0.1 -
Acquisition of control of former joint venture - (1.1)
Loss on disposal of joint venture interests - (0.7)
Share of post-tax loss from joint ventures - (2.3)
Foreign currency translation (0.1) 0.2
-------------------------------------------------- --------- ---------
Investment in joint ventures 1.9 1.9
Loans to joint ventures
Opening balance at 1 September 4.3 52.9
Increase in loans to joint ventures 1.0 -
Acquisition of control of former joint venture - (36.6)
Disposal of loan to joint venture - (12.5)
Repayment of loans by joint ventures (0.1) (0.7)
Reversal of impairment of loans to joint ventures 0.1 0.4
Foreign currency translation (0.1) 0.8
-------------------------------------------------- --------- ---------
Loans to joint ventures 5.2 4.3
Carrying value of interests in joint ventures 7.1 6.2
-------------------------------------------------- --------- ---------
During the year ended 31 August 2018, 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.Ã .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.Ã .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.Ã .r.l. and Wichford VBG Holding
S.Ã .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.Ã .r.l.
On 1 January 2017, Wichford VBG Holding S.Ã .r.l. exchanged on
the sale of its four German office assets. The disposal was
structured as a share sale of the joint venture's property-owning
subsidiaries. The joint venture recognised a net loss on disposal
of these subsidiaries of GBP1.4 million (Group share: GBP0.7
million) after settlement of loans with nominal carrying values
with the joint venture partners. The Group, however, recognised a
net gain on disposal of GBP4.9 million, including cumulative
foreign currency translation of GBP2.2 million for the year ended
31 August 2017. During the year ended 31 August 2018, the Group
incurred additional transaction costs of GBP0.1 million which have
been presented as loss on sale of joint venture.
Leopard Portfolio
The Group originally held a 50 per cent interest in the Leopard
Portfolio, a joint venture with Redefine Properties Limited
("RPL"), the Company's largest shareholder. This portfolio included
66 retail properties in Germany comprising a mix of stand-alone
supermarkets, food-store anchored retail parks and cash & carry
stores.
During the 2017 financial year, the Group acquired 88 per cent
of RPL's equity interest and all RPL's shareholder loan interests
in the Leopard Portfolio. The Leopard Portfolio became a controlled
subsidiary group with economic effect from 1 March 2017. The
Group's joint venture equity and loan interests were derecognised
on loss of joint control and the acquisition of control. See Note
33 for further details.
The Group has subsequently sold the majority of its interest in
the Leopard Portfolio as detailed in Note 8.
Interest in joint ventures not recognised
Under the equity method, the Esplanade was carried at GBPNil in
the Group's financial statements at 1 September 2017 and remains at
GBPNil at 31 August 2018. This investment is in a net liability
position with the cumulative losses to date exceeding or equalling
the cost of the Group's investment. The Group has ceased to
recognise further losses beyond the original cost of this joint
venture and loans advanced have been fully impaired in line with
IAS 28. At 31 August 2018, cumulative losses equalled the Group's
net investment in the joint venture (31 August 2017: exceeded by
GBP0.7 million). On a proportionate basis and for segmental
reporting purposes, the Group's interest in the Esplanade is
recognised line-by-line. Refer to Note 3.
Fair value disclosures
The fair value of the Group's loans to joint venture at 31
August 2018 was GBP5.3 million and the Group considers that this
financial asset falls within 'Level 3' as defined by IFRS 13 (refer
to Note 31).
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.Ã .r.l. S.Ã .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(1) (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) (1.2) (1.5) 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 1.3 1.7 (0.9) 0.8
Taxation - (0.4) - (0.4) 0.2 (0.2)
--------------------------------------- -------------- -------------- --------- ------ ----------- -------------
(Loss)/profit and total comprehensive
(expense)/income (0.2) 0.2 1.3 1.3 (0.7) 0.6
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 - - (0.6) (0.6) - (0.6)
--------------------------------------- -------------- -------------- --------- ------ ----------- -------------
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(2) (Note
32) - 5.2 - 5.2 - 5.2
Cumulative losses restricted(3) - - 3.3 3.3 - 3.3
--------------------------------------- -------------- -------------- --------- ------ ----------- -------------
Carrying value of interests in
joint ventures 0.4 6.7 - 7.1 - 7.1
--------------------------------------- -------------- -------------- --------- ------ ----------- -------------
RI Elimination
Wichford Menora of joint
VBG German venture
Holding Holdings Leopard partners' Proportionate
S.Ã .r.l. S.Ã .r.l. Portfolio Esplanade Total interest total
31 August 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------------- -------------- ---------- --------- ------ ----------- -------------
Percentage ownership
interest 49% 50.5% 50% 50%
Summarised income statement
Rental income 2.4 1.8 6.0 1.7 11.9 (6.0) 5.9
Rental expense (0.3) (0.1) (0.8) - (1.2) 0.6 (0.6)
--------------------------- -------------- -------------- ---------- --------- ------ ----------- -------------
Net rental income 2.1 1.7 5.2 1.7 10.7 (5.4) 5.3
Administrative costs and
other fees(1) (4.0) (0.2) (0.5) - (4.7) 2.4 (2.3)
--------------------------- -------------- -------------- ---------- --------- ------ ----------- -------------
Net operating
(expense)/income (1.9) 1.5 4.7 1.7 6.0 (3.0) 3.0
Loss on revaluation of
investment
property - (0.9) (0.6) (0.2) (1.7) 0.8 (0.9)
Loss on sale of
subsidiaries (1.4) - - - (1.4) 0.7 (0.7)
Finance expense on loans
from joint venture
partners (1.6) (0.5) (3.0) - (5.1) 2.4 (2.7)
Finance expense (0.5) (0.5) (0.6) (1.2) (2.8) 1.5 (1.3)
Other finance income - 0.6 - - 0.6 (0.3) 0.3
Change in fair value of
derivative
financial instruments 0.2 0.2 0.1 1.8 2.3 (1.2) 1.1
(Loss)/profit before tax (5.2) 0.4 0.6 2.1 (2.1) 0.9 (1.2)
Taxation (0.8) 0.2 (0.3) (0.3) (1.2) 0.7 (0.5)
--------------------------- -------------- -------------- ---------- --------- ------ ----------- -------------
(Loss)/profit and total
comprehensive
(expense)/income (6.0) 0.6 0.3 1.8 (3.3) 1.6 (1.7)
Reconciliation to IFRS:
Elimination of
non-controlling
and joint venture
partners'
interests 3.0 (0.3) (0.2) (0.9) 1.6 (1.6) -
Movement in losses
restricted
in joint ventures - - - (0.9) (0.9) - (0.9)
--------------------------- -------------- -------------- ---------- --------- ------ ----------- -------------
Group share of joint
venture
results (3.0) 0.3 0.1 - (2.6) - (2.6)
Presented as:
Reversal of impairment of
loans to joint ventures - 0.3 0.1 - 0.4 - 0.4
Loss on disposal of joint
venture interests(4) (0.7) - - - (0.7) - (0.7)
Share of post-tax loss from
joint ventures (2.3) - - - (2.3) - (2.3)
--------------------------- -------------- -------------- ---------- --------- ------ -----------
Summarised balance sheet
Investment property - 27.8 - 23.2 51.0 (25.4) 25.6
Trade and other receivables 0.6 0.1 - 0.1 0.8 (0.4) 0.4
Cash and cash equivalents 0.5 0.2 - 0.5 1.2 (0.6) 0.6
--------------------------- -------------- -------------- ---------- --------- ------ ----------- -------------
Total assets 1.1 28.1 - 23.8 53.0 (26.4) 26.6
--------------------------- -------------- -------------- ---------- --------- ------ ----------- -------------
External borrowings - (14.8) - (17.6) (32.4) 16.1 (16.3)
Loans from joint venture
partners - (8.2) - (6.6) (14.8) 7.2 (7.6)
Derivative financial
instruments - - - (6.9) (6.9) 3.4 (3.5)
Deferred tax - (0.8) - - (0.8) 0.4 (0.4)
Trade and other payables - (1.0) - (0.7) (1.7) 0.9 (0.8)
--------------------------- -------------- -------------- ---------- --------- ------ ----------- -------------
Total liabilities - (24.8) - (31.8) (56.6) 28.0 (28.6)
--------------------------- -------------- -------------- ---------- --------- ------ ----------- -------------
Non-controlling interests - (0.3) - - (0.3) 0.2 (0.1)
--------------------------- -------------- -------------- ---------- --------- ------ ----------- -------------
Net assets/(liabilities) 1.1 3.0 - (8.0) (3.9) 1.8 (2.1)
Reconciliation to IFRS:
Elimination of joint
venture
partners' interests (0.6) (1.6) - 4.0 1.8 (1.8) -
Loan to joint ventures (2)
(Note 32) - 4.3 - - 4.3 - 4.3
Cumulative losses
restricted(3) - - - 4.0 4.0 - 4.0
--------------------------- -------------- -------------- ---------- --------- ------ ----------- -------------
Carrying value of interests
in joint ventures 0.5 5.7 - - 6.2 - 6.2
-------------- -------------- ---------- --------- ----------- -------------
(1) Included within administrative costs and other fees of
Wichford VBG at 31 August 2017 is the Performance Fee expense of
GBP3.4 million, payable to the Group as investment manager, on
disposal of the property portfolio.
(2) Loans to joint ventures include the opening balance, any
advances or repayments and foreign currency movements during the
year.
(3) Cumulative losses restricted represent the Group's share of
losses in the Esplanade which exceed the cost of the Group's
investment. As a result, the carrying value of the investment is
GBPNil in accordance with the requirements of IAS 28.
(4) Presented within 'Net gain on sale of joint venture
interests' in the condensed consolidated income statement(.)
17. Investment in associate
31 August 31 August
2018 2017
GBPm GBPm
Associate investment in IHL and RBH
Opening balance at 1 September 9.4 10.2
IHL
Transfer from investment at fair value through profit
or loss (Note 15) 8.5 -
Additions 5.0 -
Reclassification as investment in subsidiary (Note
9) (13.5) -
RBH
Share of post-tax profit from associate 0.3 0.9
Distributions from associate (Note 32) (0.6) (1.2)
Net impairment of investment in associate - (0.5)
Carrying value of net investment in associate 9.1 9.4
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 (Note 15).
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 further to
74.1 per cent). 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 the net gain on bargain
purchase of IHL as a stepped acquisition.
RBH
The summarised financial information of RBH Hotel Group Limited
("RBH") is set out below.
Re-presented
31 August 31 August
2018 2017
GBPm GBPm
------------------------------------
Summarised income statement
Revenue 78.3 57.9
Other income 1.6 2.5
Expenses (78.1) (54.9)
Profit from operations 1.8 5.5
Taxation (0.7) (1.3)
------------------------------------
Profit for the year 1.1 4.2
------------------------------------
Elimination of third party interest (0.8) (3.1)
------------------------------------
Group share of results 0.3 1.1
Classified as:
Share of post-tax profit 0.3 0.9
Impairment adjustment - 0.2
The comparative summarised income statement has been
re-presented to gross up the trading income and expense of the IHL
and RHH hotels operating business' in line with current year
presentation.
31 August 31 August
2018 2017
GBPm GBPm
----------------------------------------------------------
Summarised balance sheet
Non-current assets 4.1 4.7
Intangible asset 28.1 28.1
Trade and other receivables 9.3 6.3
Cash and cash equivalents 3.9 3.7
----------------------------------------------------------
Total assets 45.4 42.8
----------------------------------------------------------
Current liabilities (13.6) (8.7)
----------------------------------------------------------
Total liabilities (13.6) (8.7)
----------------------------------------------------------
Net assets 31.8 34.1
----------------------------------------------------------
Capital contribution adjustment 1.1 -
----------------------------------------------------------
Adjusted net assets 32.9 34.1
----------------------------------------------------------
Elimination of third party interest (24.6) (25.5)
----------------------------------------------------------
Share of net assets attributable to the Group 8.3 8.6
Recoverable amount of excess net investment in associate 0.8 0.8
----------------------------------------------------------
Carrying value of the Group's net investment in associate 9.1 9.4
During the year ended 31 August 2017, the Group's cumulative
investment in RBH increased from 25.3 to 30.4 per cent. On 7
February 2017, the Group acquired an additional 5.1 per cent
interest in RBH for GBP1.3 million which was classified as held for
sale on initial recognition as the shares were acquired exclusively
with a view to subsequent re-sale. The shares were subsequently
sold on 14 February 2018. Refer to Note 21 for further information.
The table above includes movements in the Group's existing 25.3 per
cent interest in RBH only.
Distributions from the associate for the year ended 31 August
2018 were GBP0.6 million (31 August 2017: GBP1.2 million), GBP0.7
million in total including the investment in associate held for
sale.
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. The independent valuation was determined
on a value-in-use basis but was also cross-checked to market
comparables. Using a discount rate range of 11.5 - 12.5 per cent,
an enterprise value range of GBP33.5 - GBP40.5 million was
attributed to the investment, with a mid-point valuation of GBP37.0
million (Group share: GBP9.4 million). This resulted in an
impairment charge of GBP0.5 million. At 31 August 2018, 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.
18. OTHER NON-CURRENT ASSETS
INTANGIBLE ASSETS
31 August 31 August
2018 2017
GBPm GBPm
-------------------------------
Opening balance at 1 September 1.1 1.3
Amortisation (0.3) (0.2)
Closing balance 0.8 1.1
-------------------------------
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
was just over three years at 31 August 2018.
PROPERTY, PLANT AND EQUIPMENT
31 August 31 August
2018 2017
GBPm GBPm
--------------------------------------------
Opening balance at 1 September 0.1 0.1
Additions 0.6 -
Depreciation (0.2) -
Closing balance 0.5 0.1
--------------------------------------------
Total other non-current assets at 31 August 1.3 1.2
19. receivables
31 August 31 August
2018 2017
GBPm GBPm
Non-current
Tenant lease incentives(1) 8.1 5.4
Tenant lease incentives to related parties(1) (Note
32) 0.4 0.4
Loans to external parties 1.6 1.6
Letting costs 1.1 1.0
Total non-current other receivables 11.2 8.4
Current
Rent receivable 1.0 1.1
Tenant lease incentives(1) 1.6 1.0
Tenant lease incentives to related parties(1) (Note
32) 0.8 0.4
Other amounts receivable from related parties (Note
32) 0.3 0.5
Consideration outstanding on disposal of investment
property held for sale - 6.6
Loans to external parties - 2.2
Prepayments and accrued income 2.5 2.1
Other receivables 0.9 1.6
Total current trade and other receivables 7.1 15.5
Total receivables 18.3 23.9
(1) Total tenant lease incentives of GBP10.9 million (31 August
2017: GBP7.2 million) have been deducted from investment property
in determining fair value at the balance sheet date. Refer to Note
14.
20. cash and cash equivalents
31 August 31 August
2018 2017
GBPm GBPm
Unrestricted cash and cash equivalents 58.3 52.1
Restricted cash and cash equivalents 0.7 0.7
Cash and cash equivalents 59.0 52.8
At 31 August 2018, cash and cash equivalents to which the Group
did not have instant access amounted to GBP0.7 million (31 August
2017: GBP0.7 million). The restricted cash is held on deposit in
Germany under an hereditable building right agreement for the
property at Ingolstadt.
The Group's share of total cash and cash equivalents, including
its share of joint venture cash, at 31 August 2018 was GBP59.8
million (31 August 2017: GBP53.4 million), with a further GBP75.0
million of undrawn committed facilities available (31 August 2017:
GBP10.0 million).
21. Non-Current assets held for sale
UK UK UK
Retail Commercial Hotels Europe Total
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ----------- ------- -------- ------
Investment property
Opening balance at 1 September
2017 12.9 9.2 - 3.7 25.8
Transfers from investment
property (Note 14)(1) - 23.1 - - 23.1
Transfers to investment property
(Note 14) - (0.9) - (3.6) (4.5)
Disposals through the sale
of subsidiary (12.9) - - - (12.9)
Disposals through the sale
of property - (31.4) - - (31.4)
Foreign currency translation - - - (0.1) (0.1)
--------------------------------- ----------- ------- -------- ------
- - - - -
--------------------------------- ----------- ------- -------- ------
Investment in associate
Opening balance at 1 September
2017 - - 1.5 - 1.5
Distributions from associate
(Note 32) - - (0.1) - (0.1)
Disposals - - (1.4) - (1.4)
--------------------------------- ----------- ------- -------- ------
- - - - -
Closing balance at 31 August
2018 - - - - -
--------------------------------- ----------- ------- -------- ------
(1) Investment property was revalued before being reclassified
as held for sale in line with IFRS 5. This resulted in a gain in
the income statement of GBP0.9 million.
No property assets have been classified as held for sale at the
reporting date as the criteria outlined in IFRS 5 have not been
met. This resulted in two properties, with a carrying value of
GBP4.5 million, being transferred back to investment property.
UK UK UK
Retail Commercial Hotels Europe Total
GBPm GBPm GBPm GBPm GBPm
------------------------------- ----------- ------- -------- ------
Investment property
Opening balance at 1 September
2016 - - - - -
Transfers from investment
property (Note 14) 16.8 49.0 - 9.7 75.5
Disposals - (39.8) - (6.0) (45.8)
Loss on revaluation (3.9) - - - (3.9)
------------------------------- ----------- ------- -------- ------
12.9 9.2 - 3.7 25.8
------------------------------- ----------- ------- -------- ------
Investment in associate
Opening balance at 1 September
2016 - - - - -
Additions - - 1.3 - 1.3
Share of post-tax profit - - 0.2 - 0.2
------------------------------- ----------- ------- -------- ------
- - 1.5 - 1.5
Closing balance at 31 August
2017 12.9 9.2 1.5 3.7 27.3
------------------------------- ----------- ------- -------- ------
All non-current assets held for sale fall within 'Level 3', as
defined by IFRS 13 (refer to Note 31). Accordingly, there has been
no transfer within the fair value hierarchy over the year.
Investment property held for sale
As at 31 August 2017, the Group carried six properties as held
for sale. During the year ended 31 August 2018, two properties were
reclassified as held for sale, while two were transferred back to
investment property (Note 14).
The Group disposed of the five held for sale assets during the
year, one from the UK Retail portfolio and five from the UK
Commercial portfolio. One of the sales, Paragon Square, Hull was
structured as a corporate sale. Refer to Note 8 for further
details. From the four asset sales, the Group realised a net gain,
after disposal costs, of GBP1.8 million (31 August 2017: loss
GBP1.5 million). As at 31 August 2018, net proceeds of GBP39.6
million had been received by the Group which included the proceeds
from a prior year sale - refer to Note 19 (31 August 2017: GBP40.9
million).
Sales Fair value Carrying Gain/(loss) on
proceeds Disposal costs adjustments Net sales proceeds value disposal
31 August 2018 GBPm GBPm GBPm GBPm GBPm GBPm
Duchess Place,
Edgbaston 1.6 - 0.7 2.3 (2.3) -
West Point and
Centre Court,
Plymouth 2.7 (0.1) - 2.6 (2.7) (0.1)
City Point, Leeds 26.1 (0.6) (0.5) 25.0 (23.1) 1.9
Severalls,
Colchester 3.4 (0.1) - 3.3 (3.3) -
Disposals during
the year 33.8 (0.8) 0.2 33.2 (31.4) 1.8
Sales Carrying
proceeds Disposal costs Net sales proceeds value Gain/(loss) on disposal
31 August 2017 GBPm GBPm GBPm GBPm GBPm
---------
The Observatory, Chatham 4.0 (0.1) 3.9 3.6 0.3
Woodlands, Bedford 11.0 (0.3) 10.7 11.5 (0.8)
London Road, High Wycombe 26.1 - 26.1 24.7 1.4
Brückmuhl, Germany 6.6 - 6.6 6.0 0.6
---------
Disposals during the year 47.7 (0.4) 47.3 45.8 1.5
---------
Investment in associate held for sale
On 7 February 2017, as part of the settlement of the loan
outstanding from 4C UK Investments Limited ("4C Investments"), the
Company acquired 659 shares in RBH for an attributed value of
GBP1,942 per share (refer to Note 32). This represented 5.1 per
cent of the issued share capital of RBH. As part of the settlement
agreement, 4C Investments had the right to buy back the shares at
the transfer price of GBP1.3 million at any time on or before 31
January 2018 subject to written notice. This right was extended by
the Group and 4C Investments served notice and formally re-acquired
the shares on 14 February 2018. As the carrying value of the
investment was GBP1.4 million, the Group has recognised a loss of
GBP0.1 million in the income statement on disposal.
22. borrowings, including Finance Leases
31 August 31 August
2018 2017
GBPm GBPm
Non-current
Bank loans 787.9 822.8
Less: unamortised debt issue costs (2.7) (3.9)
Less: fair value adjustments (14.1) (14.7)
771.1 804.2
Other external loans - 0.8
Finance leases 13.1 13.9
Total non-current borrowings, including finance leases 784.2 818.9
Current
Bank loans 4.7 3.1
Less: unamortised debt issue costs (0.2) (0.3)
Less: fair value adjustments (0.6) (0.8)
3.9 2.0
Other external loans 0.7 -
Finance leases 0.8 0.9
Total current borrowings, including finance leases 5.4 2.9
Total borrowings, including finance leases 789.6 821.8
Analysis of movement in net borrowings, including finance
leases
The table below presents the movements in net borrowings for the
year ended 31 August 2018, 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
2017 818.9 2.9 (52.8) 769.0
Financing activities (cash)
Borrowings drawn 10.0 - (10.0) -
Borrowings repaid (87.4) (4.5) 91.9 -
(77.4) (4.5) 81.9 -
Financing activities (non-cash)
Debt release on disposal of
subsidiaries (Note 8) (73.1) - - (73.1)
Debt assumed on business combinations
(Note 9) 127.9 - - 127.9
Debt issue costs movements 1.4 - - 1.4
Accretion of fair value adjustments 0.8 - - 0.8
Finance lease movements (0.8) - - (0.8)
Reclassification between current
and non-current (7.0) 7.0 - -
49.2 7.0 - 56.2
Other net cash movements (0.2) - (87.1) (88.3)
Foreign currency translation (6.3) - (1.0) (7.3)
Closing balance as at 31 August
2018 784.2 5.4 (59.0) 730.6
Bank loans
31 August 2018 31 August 2017
Carrying Nominal Fair Carrying Nominal Fair
value value value value value value
GBPm GBPm GBPm GBPm GBPm GBPm
Non-current liabilities
Bank loans 787.9 787.9 787.9 822.8 822.8 822.8
Less: unamortised debt
issue costs (2.7) - - (3.9) - -
Less: fair value adjustments (14.1) - (10.3) (14.7) - (10.6)
------- ------ --------
Total non-current bank
loans 771.1 787.9 777.6 804.2 822.8 812.2
------- ------ --------
Current liabilities
Bank loans 4.7 4.7 4.7 3.1 3.1 3.1
Less: unamortised debt
issue costs (0.2) - - (0.3) - -
Less: fair value adjustments (0.6) - (0.6) (0.8) - 0.1
Total current bank loans 3.9 4.7 4.1 2.0 3.1 3.2
-------
Total IFRS bank loans 775.0 792.6 781.7 806.2 825.9 815.4
------- ------ --------
Joint ventures
Share of joint ventures
bank loans 15.6 15.6 15.6 16.3 16.3 16.3
Total bank loans (on a
proportionately consolidated
basis) 790.6 808.2 797.3 822.5 842.2 831.7
-------
Cash and cash equivalents (59.0) (59.0) (59.0) (52.8) (52.8) (52.8)
Share of joint ventures
cash and cash equivalents (0.8) (0.8) (0.8) (0.6) (0.6) (0.6)
------- ------ --------
Net debt (on a proportionately
consolidated basis) 730.8 748.4 737.5 769.1 788.8 778.3
------- ------ --------
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.
At 31 August 2018, the Group's bank loans are secured over
investment property of GBP1,525.4 million (31 August 2017:
GBP1,484.1 million) and are carried at amortised cost. On a
proportionately consolidated basis, bank loans are secured over
investment property of GBP1,550.8 million (31 August 2017:
GBP1,509.7 million).
The Group's nominal value of drawn debt (on a proportionately
consolidated basis) has decreased during the year to GBP808.2
million (31 August 2017: GBP842.2 million) following scheduled
amortisation payments, principal repayments following disposals,
some minor refinancings and most significantly, the major
transactions the Group has completed during the year. These
include:
- the acquisition of the IHL portfolio in November 2017. The
Group assumed a number of facilities with Santander, totalling
GBP54.4 million. The facilities have a range of rates from 2.7 to
3.4 per cent and are due to mature between July 2020 and December
2021. GBP2.0 million of the IHL debt was prepaid in June 2018 to
strengthen the related covenant;
- in December 2017, the disposal of the majority of the Group's
interest in the Leopard Portfolio. As part of the transaction, all
associated bank debt with Berlin Hyp and BayernLB was settled. The
Berlin Hyp debt was held at rates of 1.3 to 2.9 per cent;
- in January 2018, the assumption of a further GBP73.5 million
of bank debt on completion of the LSO transaction. The balance is
held across facilities with Barclays and Deutsche Bank, due to
mature in December 2019 and August 2022 respectively. The rates
range from 2.6 to 2.9 per cent and there are derivative caps in
place ranging from 3.1 to 4.1 per cent;
- in September 2017, following the Brückmuhl disposal from the
Premium Portfolio, GBP3.7 million of sales proceeds were repaid
against the loan held with MunchenerHyp;
- in September and October 2017, the Group also finalised
extensions for the BayernLB facilities secured against one property
in the RI Menora joint venture (June 2024) and both German OBI
properties (December 2022). These included prepayments of GBP0.2
million (Group share) and GBP0.1 million respectively and under the
amended agreements, the loans will carry fixed interest rates of
1.59 to 1.72 per cent;
- in June 2018, the outstanding HSBC debt of GBP3.5 million
secured against the road-side garage portfolio was repaid in full;
and
- during the year, the Group also applied a net of GBP65.0
million of available cash against the AUK revolving credit facility
("RCF").
The maturity of Group bank loans, gross of unamortised debt
issue costs and fair value adjustments is as follows:
31 August 31 August
2018 2017
GBPm GBPm
Less than one year 4.7 3.1
Between one year and five years 585.5 620.5
More than five years 202.4 202.3
792.6 825.9
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
GBP695.0 million, fall within 'Level 3' as defined by IFRS 13
(refer to Note 31).
During 2017 the Aviva debt was restructured which was considered
a significant modification to the existing loan. The existing loan
facility was extinguished and the debt recognised at fair value on
refinancing in April 2017. The refinancing resulted in a fair value
adjustment of GBP14.3 million as the refinanced debt was considered
to have been negotiated on off-market terms. At 31 August 2017, the
carrying value of this debt was classified by the Group as 'Level
2' as a result of recent refinancing activity. As the fair value of
the restructured debt is no longer determined with reference to
observable inputs at 31 August 2018, it has been transferred to
'Level 3'.
Finance leases
Obligations under finance leases at the reporting date are as
follows:
31 August 31 August
2018 2017
GBPm GBPm
Minimum lease payments under finance lease obligations:
Not later than one year 0.8 0.9
Later than one year not later than five years 3.2 3.3
Later than five years 109.6 113.9
113.6 118.1
Less: finance charges allocated to future periods (99.7) (103.3)
Present value of minimum lease payments 13.9 14.8
Present value of minimum finance lease obligations:
Not later than one year 0.8 0.9
Later than one year not later than five years 2.6 2.8
Later than five years 10.5 11.1
Present value of minimum lease payments 13.9 14.8
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 31 August 2018 was GBP15.9 million and the Group
considers that these liabilities fall within 'Level 3' as defined
by IFRS 13 (refer to Note 31).
Operating leases
The undiscounted future minimum lease obligations under
non-cancellable operating leases at the balance sheet date are as
follows:
31 August 31 August
2018 2017
GBPm GBPm
Investment property
Not later than one year 1.4 -
Later than 1 year not later than 5 years 5.5 -
Later than 5 years 505.7 -
512.6 -
Head office
Not later than one year 0.3 0.1
Later than 1 year not later than 5 years 0.9 -
1.2 0.1
Total minimum operating lease payments 513.8 0.1
The Group acquired operating leasehold interests in investment
property through business combinations during the year ended 31
August 2018.
23. 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.
31 August 31 August
2018 2017
GBPm GBPm
Derivative assets
Non-current
Interest rate cap 0.4 0.2
Interest rate swaps 0.7 0.2
1.1 0.4
Derivative liabilities
Non-current
Interest rate swaps (2.9) (7.8)
(2.9) (7.8)
Net derivative financial instruments (1.8) (7.4)
The Group holds interest rate cap assets at rates of 1.0 to 3.0
per cent, maturing between December 2019 and November 2021. The
interest rate swap assets are held at a rate of 1.1 per cent,
maturing from April 2021 to January 2022. The interest rate swap
liabilities have maturities from January 2019 to January 2022 and
the rates range from 0.4 to 2.0 per cent.
24. Deferred tax
The table below presents the recognised net deferred tax
liability and movement during the year:
On
On derivative
investment financial
property instruments On losses carried forward Total
GBPm GBPm GBPm GBPm
Opening balance 1 September 2016 3.4 - - 3.4
Additions on acquisition of control of joint venture 2.8 - - 2.8
Expense for the year recognised in the income statement 3.5 - - 3.5
Foreign currency translation 0.7 - - 0.7
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)
Closing balance at 31 August 2018 11.3 (0.4) (1.4) 9.5
There were no unrecognised deferred tax assets at 31 August 2018
(31 August 2017: GBP0.2 million).
25. payables
31 August Re-presented
2018 31 August
GBPm 2017
GBPm
Non-current
Other sundry payables 0.2 -
Total non-current other payables 0.2 -
Current
Amounts payable to related parties (Note 32) 0.4 0.6
Rent received in advance 5.0 4.3
Trade payables 0.7 1.1
Service charge 4.6 0.7
Accrued interest 2.7 2.4
VAT payable 4.7 4.0
Accruals 5.9 6.1
Tenant deposits(1) 2.9 0.1
Other sundry payables - 1.9
Total current trade and other payables 26.9 21.2
Total payables 27.1 21.2
(1) At 31 August 2018, GBP2.8 million of tenant deposits relate
to the London Serviced Office portfolio acquired during the
year.
Prior year other payables have been re-presented to separately
disclose service charge and tenant deposits and ensure consistency
with current year presentation.
26. share capital and share premium
Authorised Authorised
Number of share capital
shares GBPm
-------------
- At 31 August 2017 (ordinary shares of 8 pence
each) 3,000,000,000 240.0
- At 31 August 2018 (ordinary shares of 8 pence
each) 3,000,000,000 240.0
-------------
Issued, Called Up and Fully Paid Share Share
capital premium
Number of shares GBPm GBPm
At 31 August 2016 1,794,598,650 143.6 502.1
Scrip dividend - issued December 2016 17,141,172 1.3 5.3
Scrip dividend - issued June 2017 16,320,324 1.3 4.4
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 Transactions
In October 2016, the Company declared a second interim dividend
of 1.575 pence per share for the six months ended 31 August 2016
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 489.1 million ordinary shares of 8 pence each
representing a 27.3 per cent take up by shareholders, in respect of
which 17.1 million scrip dividend shares were issued in December
2016.
In April 2017, the Company declared an interim dividend of 1.3
pence per share for the six months ended 28 February 2017 and
offered shareholders an election to receive either a cash dividend
or a scrip dividend by way of an issue of new Redefine
International shares credited as fully paid up. The Company
received election forms from shareholders holding 522.2 million
ordinary shares of 8 pence each representing a 28.8 per cent take
up by shareholders, in respect of which 16.3 million scrip dividend
shares were issued in June 2017.
On 1 November 2017, the Group issued 12.5 million shares to
Redefine Properties at 40.0p 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 formally 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.
27. RESERVES
Other Reserves
Share-based payment reserve
The share-based payment reserve at 31 August 2018 of GBP2.3
million (31 August 2017: GBP3.2 million) arises from outstanding
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.
During the year, the Group released from the reserve to retained
earnings GBP1.9 million of cumulative IFRS 2 charge on lapsed and
vested awards. The Group incurred a further GBP0.1 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 year in relation to
share-based payments was GBP1.8 million. Detailed information on
the share-based payment plans in place will be included in the 2018
Annual Report. The IFRS 2 share-based payment charge for the year
was GBP1.0 million (31 August 2017: GBP1.0 million).
Other Reserves
Other reserves of GBP1.0 million (31 August 2017: GBP1.0
million) arose from the acquisition of subsidiaries.
Foreign Currency Translation Reserve
The foreign currency translation reserve at 31 August 2018 of
GBP17.9 million (31 August 2017: GBP23.4 million) represents
exchange differences arising from the translation of the Group's
net investment in foreign operations, including both subsidiary and
joint venture interests. GBP4.2 million of cumulative translation
gains were transferred to the income statement during the year
ended 31 August 2017 on disposal of joint venture interests. GBP2.2
million related to the disposal of the property-owning subsidiaries
of Wichford VBG and GBP2.0 million related to the disposal of the
Leopard joint venture. Refer to Note 16.
28. Non - controlling Interests
31 August 31 August
2018 2017
GBPm GBPm
---------------------------------------------------------
Opening balance at 1 September 21.8 33.6
Comprehensive income for the year:
Share of profit for the year 7.4 3.5
Foreign currency translation on subsidiary foreign
operations - 0.1
Changes in ownership interest in subsidiaries:
Recognition of non-controlling interests on acquisition
of subsidiaries 33.8 -
Acquisition of non-controlling interests (Note 29) (0.1) (12.7)
Dividends paid to non-controlling interests (3.4) (1.7)
Recognition of non-controlling interests on acquisition
of control of former joint venture (1) - (0.7)
Reclassification of non-controlling interest shareholder
loans to liabilities - (0.3)
Total non-controlling interests 59.5 21.8
---------------------------------------------------------
(1) On acquisition of control of the Leopard Portfolio (Note
33), the non-controlling interest's proportionate share (6 per
cent) of the identifiable net liabilities of GBP0.7 million was
recognised.
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.
31 August 2018 31 August 2017
Other Other
individually Total individually Total non-
immaterial non-controlling immaterial controlling
LSO IHL RHHL subsidiaries interests RHHL subsidiaries interests
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Principal place United United United United
of business Kingdom Kingdom Kingdom Kingdom
Country of Isle of
incorporation Man BVI BVI BVI
NCI % 20.0% 25.9% 17.52% 17.52%
Summarised
balance sheet
Investment
property 163.4 119.0 229.0 223.7
Derivative
financial
instruments 0.3 - 0.1 -
Trade and other
receivables 0.8 0.2 2.6 8.0
Cash and cash
equivalents 4.0 2.7 4.7 -
Borrowings,
including
finance leases (72.8) (51.7) (113.3) (113.1)
Trade and other
payables (5.1) (3.1) - (1.0)
Adjusted net
assets 90.6 67.1 123.1 117.6
NCI share of
adjusted net
assets 18.1 17.4 21.6 20.6
Tax attributable
to NCI - - - -
Carrying amount
of NCI 18.1 17.4 21.6 2.4 59.5 20.6 1.2 21.8
Summarised
statement of
comprehensive
income
Revenue 9.8 9.1 14.6 14.0
Profit for the
year 6.6 7.3 15.9 14.2
Profit
attributable to
NCI 1.3 1.9 2.8 1.4 7.4 3.0 0.5 3.5
Other
comprehensive
income
attributable to
NCI - - - - - - 0.1 0.1
Dividends paid to
NCI 1.0 0.6 1.8 - 3.4 1.6 0.1 1.7
Summarised cash
flow statement
Cash inflow from
operating
activities 10.7 5.5 4.1 11.4
Cash
(outflow)/inflow
from investing
activities (0.5) - 5.6 (3.0)
Cash outflow from
financing
activities (10.4) (2.8) (5.7) (5.4)
Net increase in
cash and cash
equivalents (0.2) 2.7 4.0 3.0
29. TRANSACTIONS WITH non--controlling interests
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 year ended 31 August 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
GBP0.5 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 GBPNil
million and therefore a loss of GBP0.4 million has been recognised
directly in equity. The gain attributable to equity holders of the
Parent as a result of these disposals is set out in the table
below:
31 August 31 August
2018 2017
GBPm GBPm
Carrying amount of non-controlling interest acquired:
4C Investments 0.5 12.7
Non-controlling interests of LGPEd2 - -
0.5 12.7
Transfer value attributed to 4C Investments (net of transaction costs) - (12.3)
Consideration paid to non-controlling interests of LGPEd2 (0.4) -
Increase in equity attributable to equity holders of the Parent 0.1 0.4
30. cash GENERATED FROM OPERATIONS
31 August 31 August
2018 2017
Continuing operations Note GBPm GBPm
Cash flows from operating activities
Profit before tax 97.4 73.5
Adjustments for:
Straight lining of rental income (0.5) (1.1)
Depreciation 18 0.2 -
Share-based payments 27 1.0 1.0
Gain on revaluation of investment property 14 (10.8) (10.8)
Gain/(loss) on revaluation of investment property
held for sale 21 (0.9) 3.9
Gain on disposal of investment property 14 (1.5) (9.2)
Gain on disposal of investment property held
for sale 21 (1.8) (1.5)
Net gain on disposal of subsidiaries 8 (15.4) -
Net gain on business combinations 9 (4.4) -
Other income and expense 10 0.4 0.3
Foreign exchange loss 0.8 -
Finance income 11 (0.6) (3.4)
Finance expense 11 29.3 28.4
Other finance expense 12 0.6 6.5
Change in fair value of derivative financial
instruments (6.1) (4.5)
Net gain on sale of joint venture interests 16 0.1 (4.9)
Net impairment of joint ventures and associate
interests (0.1) 0.1
Share of post-tax loss from joint ventures 16 - 2.3
Share of post-tax profit from associate 17 (0.3) (1.1)
Transfer of foreign currency translation on
disposal of joint venture interest - (2.0)
87.4 77.5
Changes in working capital (0.4) (1.9)
Cash generated from operations 87.0 75.6
31. 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 31 August 2018 and 31
August 2017.
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm fair value
GBPm
31 August 2018
Financial assets
Derivative financial assets (Note
23) - 1.1 - 1.1
- 1.1 - 1.1
Financial liabilities
Derivative financial liabilities
(Note 23) - (2.9) - (2.9)
- (2.9) - (2.9)
31 August 2017
Financial assets
Investment at fair value (Note 15) 8.5 - - 8.5
Derivative financial assets (Note
23) - 0.4 - 0.4
8.5 0.4 - 8.9
Financial liabilities
Derivative financial liabilities
(Note 23) - (7.8) - (7.8)
- (7.8) - (7.8)
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. In the 2017
financial year, the investment in IHL was categorised as a 'Level
1' investment and priced using quoted prices in an active market;
the AltX of the JSE.
As stated in Note 14 and 21 respectively, the Group considers
investment property and non-current assets held for sale to be
categorised as 'Level 3'. As stated in Note 22, the Group considers
all bank loans to be categorised as 'Level 3'. GBP131.6 million of
fixed rate debt was reclassified by the Group from 'Level 2' during
the year. Finance lease obligations are as classified as 'Level 3,
the fair value of which is presented in Note 22.
The fair value of loans to joint ventures is presented in Note
16 and this financial asset is classified as 'Level 3'.
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.
32. 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.
31 August 31 August
2018 2017
GBPm GBPm
Related party transactions
Revenue ransactions
Rental income
RBH 22.0 14.0
Other income
Joint Venture investment management and performance fee income
RI Menora German Holdings S.Ã .r.l. 0.1 -
Leopard Portfolio - 0.3
Wichford VBG Holding S.Ã .r.l. - 3.5
- 3.8
Administration costs and other fees
OSIT investment management fees (0.6) -
Distribution received from investment at fair value
International Hotel Properties Limited - 0.2
Finance income
Joint Venture loan interest income
Leopard Portfolio - 1.5
Wichford VBG Holding S.Ã .r.l. - 0.8
RI Menora German Holdings S.Ã .r.l. 0.3 0.4
Related parties of Menora joint venture 0.1 -
4C UK Investments Limited - 0.5
0.4 3.2
31 August 31 August
2018 2017
GBPm GBPm
Capital transactions
Investment property (capitalised expenditure)
Project monitoring fee to RBH - construction works 0.2 0.1
Investment at fair value through profit or loss
International Hotel Properties Limited (shares acquired/transferred at cost) - 1.0
Investment in associate
Transfer price of 4C Investments interest in RBH (1.3) 1.3
Dividends received from RBH (including held for sale investment) (0.7) (1.2)
Non-controlling interests
Transfer price of 4C UK Investments Limited's interests in RHHL - 12.1
Adjustment to carrying value of the non-controlling interest in RHHL (Note 29) 0.6 -
Related party balances
Loans to joint ventures
RI Menora German Holdings S.Ã .r.l. 5.2 4.3
Trade and other receivables
RBH - tenant lease incentives 1.2 0.8
RI Menora German Holdings S.Ã .r.l - interest receivable and trading balances 0.3 0.5
1.5 1.3
Trade and other payables
RI Menora German Holdings S.Ã .r.l (0.4) -
Wichford VBG Holding S.Ã .r.l - (0.6)
(0.4) (0.6)
31 August 31 August
2018 2017
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 14.8 13.8
Redefine Properties Limited - scrip dividends - 1.7
Redefine Properties Limited
On 1 November 2017, the Group issued 12.5 million shares to
Redefine Properties at 40.0p 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 40.0p 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 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. All transactions are considered to be at
arms-length.
4C UK Investments Limited
On 7 February 2017, the Company exercised its security against a
loan advanced to 4C Investments that had matured. In settlement of
the GBP14.2 million balance outstanding, the following investments
were transferred to the Group:
- 4C Investments' non-controlling interest in RHHL for a
transfer price of GBP12.1 million (Note 29);
- 4C Investments' shareholding in RBH for a transfer price of GBP1.3 million (Note 21); and
- 4C Investments' shareholding in IHL for a transfer price of GBP1.0 million.
As the total transfer price for the shares was GBP14.4 million,
GBP0.2 million cash was paid back by the Company to 4C Investments.
On the same date, 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 29.
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.
Directors
Non-executive Directors and Executive Directors represent key
management personnel. The remuneration paid to Non-executive
Directors for the year ended 31 August 2018 was GBP0.5 million (31
August 2017: GBP0.4 million) which represents Directors' fees only.
The remuneration payable to Executive Directors for the year ended
31 August 2018 was GBP2.6 million (31 August 2017: GBP2.7 million),
representing salaries, benefits and bonuses. 5.8 million contingent
share awards were issued to Executive Directors during the year (31
August 2017: 4.9 million). The IFRS 2 share-based payment charge
associated with the cumulative contingent share awards to the
Executive Directors was GBP0.9 million (31 August 2017: GBP0.9
million) for the year.
The table below shows Directors' dealings in shares for the
period 1 September 2016 to 31 August 2018:
Number of Price per
ordinary shares ordinary share
Name Date of transaction Transaction acquired acquired
Marc Wainer 4 December 2015 Scrip dividend 3,052 52.4p
25 November
Adrian Horsburgh 2016 Scrip dividend 347 38.9p
25 November
Bernard Nackan 2016 Scrip dividend 682 38.9p
27 February
Stephen Oakenfull 2017 Share acquisition 50,000 36.6p
27 February
Adrian Horsburgh 2017 Share acquisition 50,000 36.4p
27 February
Donald Grant 2017 Share acquisition 50,000 36.3p
Adrian Horsburgh 26 June 2017 Scrip dividend 1,842 36.2p
Bernie Nackan 26 June 2017 Scrip dividend 619 36.2p
13 November
Marc Wainer 2017 IHL consideration 3,157,846 40.0p
13 November
Mike Watters 2017 IHL consideration 70,790 40.0p
Donald Grant 16 January 2018 Share acquisition 25,000 35.9p
Mike Watters 17 January 2018 Share acquisition 67,000 35.9p
Bernard Nackan 25 June 2018 Scrip dividend 669 35.4p
Adrian Horsburgh 25 June 2018 Scrip dividend 1,989 35.4p
33. ACQUISITION OF SUBSIDIARIES (ASSET ACQUISITION)
On 6 April 2017, the Group reached a conditional agreement to
acquire the controlling interest in the Leopard Portfolio,
previously held as a joint venture with RPL (refer to Note 16).
Shareholder approval was subsequently received on 25 April 2017 and
the transaction completed with economic effect from 1 March 2017.
Aggregate consideration paid to RPL was EUR49.0 million (GBP41.9
million) and allocated as follows:
- EUR0.3 million (GBP0.3 million) for the equity interests acquired; and
- EUR48.7 million (GBP41.6 million) for the shareholder loans acquired.
Including transaction costs, the total cash outflow in respect
of the acquisition was GBP42.1 million.
On completion, the Group obtained control of the Leopard
Portfolio, becoming exposed to the variable returns of the
portfolio and having the ability to affect those returns by
directing its activities. The Group therefore began consolidating
the Leopard Portfolio on a line-by-line basis from 1 March 2017,
with the resulting elimination of intra-group shareholder loans.
The transaction was not considered a business combination, having
regard to associated processes acquired, and was therefore
recognised as an asset acquisition. The net assets of Leopard on
acquisition were EUR87.2 million (GBP74.5 million). The carrying
value of the Group's existing joint venture interest, which was
derecognised on loss of joint control, was EUR44.3 million (GBP37.7
million).
The premium paid to RPL on acquisition of EUR6.8 million (GBP5.9
million) including transactions costs, was solely allocated to
investment property as it was not separately identifiable. The
carrying value of the Leopard property portfolio on 1 March 2017
was EUR175.5 million (GBP149.9 million) and, as a result, the total
amount recognised as an addition on consolidation was EUR182.3
million (GBP155.8 million). Refer to Note 14.
The Group has subsequently sold the majority of its interest in
the Leopard Portfolio during the year ended 31 August 2018 as
further outlined in Note 8.
34. earnings per share
Earnings per share is calculated on the weighted average number
of shares in issue and the profit attributable to shareholders.
31 August 31 August
2018 2017
GBPm GBPm
--------------------------------------------------------- --------- ---------
Profit attributable to equity holders of the Parent 88.9 66.1
Group adjustments:
Gain on revaluation of investment property (10.8) (10.8)
(Gain)/loss on revaluation of investment property
held for sale (0.9) 3.9
Gain on disposal of investment property (1.5) (9.2)
Gain on disposal of investment property held for
sale (1.8) (1.5)
Net gain on disposal of subsidiaries (15.4) -
Net gain on business combinations (4.4) -
Loss on revaluation of investment at fair value - 0.3
Loss on disposal of other non-current assets held
for sale 0.1 -
Amortisation of intangible assets 0.3 0.2
Re-measurement of financial liability - 1.3
Net change in fair value adjustments on substantial
modification of borrowings - 4.3
Other finance costs 0.4 0.3
Change in fair value of derivative financial instruments (6.1) (4.5)
Loss/(gain) on sale of joint venture interests 0.1 (5.6)
Net (impairment reversal)/impairment of joint ventures
and associate interests (0.1) 0.2
Deferred tax (0.5) 3.5
Current tax 0.7 -
Joint venture adjustments:
Loss on revaluation of investment property 0.2 0.9
Loss on sale of subsidiaries - 0.7
Change in fair value of derivative financial instruments (0.7) (1.1)
Deferred tax 0.2 0.6
Elimination of joint venture unrecognised profits(1) 0.4 0.8
Non-controlling interest adjustments:
Gain on revaluation of investment property 1.4 1.1
Change in fair value of derivative financial instruments 0.2 (0.1)
Gain on disposal of subsidiaries 1.1 -
Impairment of investment in associate - (0.1)
Deferred tax 0.1 (0.4)
EPRA earnings 51.9 50.9
Company adjustments:
Accretion of fair value adjustments 0.8 0.9
Foreign currency movements 0.8 (2.0)
Underlying earnings 53.5 49.8
Number of ordinary shares (millions)
Weighted average 1,886.5 1,809.9
Dilutive effect of:
Contingently issuable share awards under the Long
Term Performance Share Plan 4.6 1.3
Contingently issuable share awards under the Long
Term Restricted Stock Plan 1.2 0.7
--------------------------------------------------------- --------- ---------
Diluted weighted average 1,892.3 1,811.9
--------------------------------------------------------- --------- ---------
Earnings per share (pence)
- Basic 4.7 3.7
- Diluted 4.7 3.6
EPRA earnings per share (pence) 2.75 2.8
Diluted EPRA earnings per share (pence) 2.74 2.8
Underlying earnings per share (pence) 2.84 2.75
Dividend per share (pence) 2.7 2.6
First interim dividend per share (pence) 1.35 1.3
Second interim dividend per share (pence) 1.35 1.3
--------------------------------------------------------- --------- ---------
(1) The Group has ceased to recognise the Esplanade in the IFRS
statements as the cumulative losses of the joint venture to date
have equalled or exceeded the cost of the Group's investment (refer
to Note 16). This adjustment eliminates the restricted losses for
the year 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.
31 August 31 August
2018 2017
GBPm GBPm
-------------------------------------------------------------- --------- ---------
Profit attributable to equity holders of the Parent 88.9 66.1
Group adjustments:
Gain on revaluation of investment property (10.8) (10.8)
(Gain)/loss on revaluation of investment property
held for sale (0.9) 3.9
Gain on disposal of investment property (1.5) (9.2)
Gain on disposal of investment property held for
sale (1.8) (1.5)
Net gain on disposal of subsidiaries (15.4) -
Net gain on business combinations (5.5) -
Loss on disposal of other non-current assets held
for sale 0.1 -
Loss/(gain) on sale of joint venture interests 0.1 (5.6)
Net (impairment reversal)/impairment of joint ventures
and associate interests (0.1) 0.2
Transfer of foreign currency translation on disposal
of joint venture interests - (2.0)
Deferred tax 1.3 3.5
Joint Venture Adjustments:
Loss on revaluation of investment property 0.2 0.9
Loss on sale of subsidiaries - 0.7
Deferred tax 0.2 0.6
Elimination of joint venture unrecognised profits/(losses)(1) (0.3) (0.1)
Non-controlling interest adjustments:
Gain on revaluation of investment property 1.4 1.1
Gain on disposal of subsidiaries 1.1 -
Impairment of investment in associate - (0.1)
Deferred tax 0.1 (0.4)
Headline earnings attributable to equity holders
of the Parent 57.1 47.3
Number of ordinary shares (millions)
Weighted average 1,886.5 1,809.9
Diluted weighted average 1,892.3 1,811.9
-------------------------------------------------------------- --------- ---------
Headline earnings per share (pence)
Basic 3.0 2.6
Diluted 3.0 2.6
-------------------------------------------------------------- --------- ---------
(1) The Group has ceased to recognise the Esplanade in the IFRS
statements as the cumulative losses of the joint venture to date
have equalled or exceeded the cost of the Group's investment (refer
to Note 16). This adjustment eliminates the restricted losses for
the year attributable to the Esplanade.
35. net asset value per share
31 August 31 August
2018 2017
GBPm GBPm
Net assets attributable to equity holders of the
Parent 803.3 740.4
Group adjustments:
Fair value of derivative financial instruments 1.8 7.4
Deferred tax 9.5 10.4
Joint venture adjustments:
Fair value of derivative financial instruments 2.8 3.5
Elimination of unrecognised derivative financial
instruments(1) (2.8) (3.5)
Deferred tax 0.6 0.4
Non-controlling interest adjustments:
Fair value of derivative financial instruments 0.1 -
Deferred tax (0.3) (0.3)
EPRA NAV 815.0 758.3
Group adjustments:
Fair value of derivative financial instruments (1.8) (7.4)
Excess of fair value of debt over carrying value (3.7) (5.0)
Deferred tax (9.5) (10.4)
Joint venture adjustments:
Fair value of derivative financial instruments (2.8) (3.5)
Elimination of unrecognised derivative financial
instruments (1) 2.8 3.5
Deferred tax (0.6) (0.4)
Non-controlling interest adjustments:
Fair value of derivative financial instruments (0.1) -
Deferred tax 0.3 0.3
EPRA NNNAV 799.6 735.4
Number of ordinary shares (millions)
In issue 1,900.4 1,828.1
Dilutive effect of:
Contingently issuable share awards under the Long
Term Performance Share Plan 4.6 1.3
Contingently issuable share awards under the Long
Term Restricted Stock Plan 1.2 0.7
Diluted 1,906.2 1,830.1
Net asset value per share (pence):
- Basic 42.3 40.5
- Diluted 42.1 40.5
EPRA diluted NAV per share (pence) 42.8 41.4
EPRA diluted NNNAV per share (pence) 41.9 40.2
(1) The Group has ceased to recognise the Esplanade in the IFRS
statements as the cumulative losses of the joint venture to date
have equalled or exceeded the cost of the Group's investment (refer
to Note 16). This adjustment eliminates the derivative financial
instruments attributable to the Esplanade from the proportionate
adjustments.
36. contingencies, guarantees and commitments
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 into liquidation in January 2018.
At 31 August 2018, the Group was contractually committed to
expenditure of GBP9.5 million (31 August 2017: GBP16.8 million), of
which GBP8.3 million was committed to the future development and
enhancement of investment property.
37. SUBSEQUENT events
On 10 September 2018, the Group completed on the acquisition of
a 13.5 acre land interest in Bicester, Oxfordshire for GBP7.9
million. The site has been consented for the development of two
distribution units totalling 288,000 sqft in size. On the same day,
the Group entered into a development agreement with Albion Land to
construct the two units. In this respect, the Group has committed
to further payments of GBP7.8 million and GBP10.3 million which
become payable on practical completion of the first and second unit
respectively. The first unit is expected to achieve practical
completion in April 2019 and the second by the end of December
2019.
On 27 September 2018, the Group completed the acquisition of
Southwood Business Park, an industrial estate in Farnborough,
Hampshire for a total consideration of GBP26.3 million, reflecting
a net initial yield of 6.2 per cent.
On 12 October 2018, the Group drew EUR19.4 million from a new
facility secured over its property at Ingolstadt in Germany
following completion of the main development and handover to
Primark. The facility matures in June 2023 and carries a margin of
1.3 per cent. and amortises by EUR0.3 million per annum.
38. DIVIDS
During the year ended 31 August 2018, the second interim
dividend of 1.3 pence per share for the half year ended 31 August
2017 was distributed, as well as the interim dividend of 1.35 pence
per share for the six month period ended 28 February 2018. Both
dividends were settled partly in cash and partly through the issue
of scrip dividends.
The Board has declared a second interim dividend in respect of
the year ended 31 August 2018 of 1.35 pence per share. The record
date for the dividend will be Friday 30 November 2018, with payment
made on Tuesday 18 December 2018. The payment will be made entirely
in cash with no scrip alternative offered.
39. approval of financial statements
The financial statements were approved by the Board on 25
October 2018.
OTHER INFORMATION
EPRA property analysis
The following tables and disclosures provide additional
quantitative and qualitative information of the Group's property
portfolio in line with the EPRA Best Practice Recommendations.
Portfolio summary
The following tables present the key property metrics of the
Group's property portfolio and sub-sectors:
31 August 2018 Annualised EPRA
gross topped EPRA
Market rental EPRA up Reversionary occupancy
value income ERV NIY yield yield WAULT by ERV Indexed
GBPm GBPm GBPm % % % yrs % %
UK Commercial 515.9 29.7 31.5 5.1 5.2 5.6 5.3 98.1 16.0
UK Retail 481.0 38.7 38.1 6.4 6.8 7.3 7.8 95.9 20.6
UK Hotels 364.9 26.0 26.0 5.9 5.9 6.4 18.2 100.0 9.3
Total UK 1,361.8 94.4 95.6 5.8 6.0 6.4 7.5 96.8 16.0
Europe 258.6 15.2 15.2 4.4 4.9 5.5 5.0 98.0 95.1
Total 1,620.4 109.6 110.8 5.6 5.8 6.3 7.0 97.1 27.0
Controlled assets 1,595.0 107.8 109.0 5.6 5.8 6.3 7.0 97.0 26.6
Held in joint ventures
(proportionate share) 25.4 1.8 1.8 6.4 6.4 6.7 5.5 100.0 52.9
UK Commercial
31 August 2018 Market Annualised ERV EPRA EPRA Reversionary WAULT EPRA Indexed
value gross GBPm NIY topped yield yrs occupancy %
GBPm rental % up % by ERV
income yield %
GBPm %
Offices - Serviced 163.4 11.0 10.9 6.0 6.0 6.0 n/a n/a -
Offices - Greater London 113.3 5.1 5.9 4.0 4.0 4.8 3.6 96.7 13.3
Offices - Regions 60.7 4.4 4.5 5.8 6.6 7.0 5.1 95.5 22.0
UK Offices 337.4 20.5 21.3 5.3 5.4 5.8 4.3 96.2 8.1
Distribution & Industrial 134.7 6.4 7.9 4.4 4.4 5.5 4.2 100.0 3.1
Automotive 43.8 2.8 2.3 6.2 6.2 4.9 11.3 100.0 100.0
UK Commercial 515.9 29.7 31.5 5.1 5.2 5.6 5.4 98.1 16.0
UK Retail
31 August 2018 Market Annualised ERV EPRA EPRA Reversionary WAULT EPRA Indexed
value gross GBPm NIY topped yield yrs occupancy %
GBPm rental % up % by ERV
income yield %
GBPm %
UK Shopping Centres 290.9 26.1 25.8 6.9 7.3 8.1 7.7 96.4 25.8
UK Retail Parks 184.8 12.0 11.9 5.7 5.9 6.0 8.2 94.7 10.2
UK Other Retail 5.3 0.6 0.4 5.9 9.0 7.6 3.9 100.0 -
UK Retail 481.0 38.7 38.1 6.4 6.8 7.3 7.8 95.9 20.6
UK Hotels
31 August 2018 Market Annualised ERV EPRA EPRA Reversionary WAULT EPRA Indexed
value Gross GBPm NIY Topped yield yrs Occupancy %
GBPm Rental % Up % by ERV
GBPm Yield %
%
Greater London 186.5 12.5 12.5 5.7 5.7 6.3 n/a n/a -
Regional 130.9 11.0 10.9 6.6 6.6 7.0 n/a n/a 0.9
RBH managed portfolio 317.4 23.5 23.4 6.1 6.1 6.6 n/a n/a 0.4
Travelodge 47.5 2.4 2.6 4.8 4.8 5.1 18.2 100.0 95.3
UK Hotels 364.9 26.0 26.0 5.9 5.9 6.4 18.2 100.0 9.3
Europe
31 August 2018 Market Annualised ERV EPRA EPRA Reversionary WAULT EPRA Indexed
value gross GBPm NIY topped yield yrs occupancy %
GBPm rental % up % by ERV
Income yield %
GBPm %
German Shopping Centres 190.6 10.5 10.4 3.9 4.6 5.1 5.0 98.7 94.9
German Supermarkets and
Retail Parks 68.0 4.7 4.8 5.7 5.7 6.6 5.2 96.6 95.4
Europe 258.7 15.2 15.2 4.4 4.9 5.5 5.0 98.0 95.1
EPRA NIY
The below table presents the calculation of the Group's net
initial yield which is the annualised rental income based on the
cash rents passing at the reporting date less estimated
non-recoverable property operating over gross market value of the
property portfolio. The topped up yield allows for the expiration
of rent-free periods.
UK UK UK Europe Group
Commercial Retail Hotels GBPm total
GBPm GBPm GBPm GBPm
Investment property - wholly owned 504.6 481.0 364.9 244.5 1,595.0
Investment property - held in joint ventures 11.3 - - 14.1 25.4
Market value of total portfolio 515.9 481.0 364.9 258.6 1,620.4
Allowance for estimated purchasers' costs 35.1 32.7 24.8 16.6 109.2
Grossed up property portfolio valuation 551.0 513.7 389.7 275.2 1,729.6
Triple net rent 28.3 33.1 23.1 12.0 96.5
Impact of expiration of rent-free periods 0.5 1.8 - 1.4 3.7
Topped-up triple net rent 28.8 34.9 23.1 13.4 100.2
EPRA NIY (%) 5.1 6.4 5.9 4.4 5.6
EPRA topped-up NIY (%) 5.2 6.8 5.9 4.9 5.8
EPRA Cost Ratio
The below table presents the calculation of the Group's cost
ratio which is the Group's operating costs (as adjusted for certain
items) as a percentage of the Group rental income net of ground
rent.
UK UK UK Europe Other Group
Commercial Retail Hotels GBPm GBPm total
GBPm GBPm GBPm GBPm
Rental income 31.3 38.4 24.5 17.8 - 112.0
Operating lease expense (0.3) - (1.1) - - (1.4)
Adjusted for:
Serviced Office rental income and operating lease expense (1) (9.5) - - - - (9.5)
Esplanade restricted income (2) (0.9) - - - - (0.9)
EPRA adjusted rental income 20.6 38.4 23.4 17.8 - 100.2
Rental expense (4.5) (2.8) (1.3) (2.7) - (11.3)
Administration expenses (1.1) (0.3) (0.8) (0.9) (11.3) (14.4)
Operating lease expense 0.3 - 1.1 - - 1.4
Adjusted for:
Serviced Office rental and administrative expenses (1) 4.2 - - - - 4.2
EPRA adjusted operating expenses (1.1) (3.1) (1.0) (3.6) (11.3) (20.1)
Direct vacancy costs 0.6 2.7 0.1 1.1 - 4.5
EPRA adjusted operating expenses (excluding direct vacancy
costs) (0.5) (0.4) (0.9) (2.5) (11.3) (15.6)
EPRA Cost Ratio (%) inc. direct vacancy costs 20.1%
EPRA Cost Ratio (%) exc. direct vacancy costs 15.6%
(1) Excludes the London Services Office portfolio due to the
operational nature of that business
(2) As detailed in Note 16 of the financial statements, the
Group's interest in the Esplanade has been reduced to date to
GBPNil due to the share of losses to date being in excess of the
Group's investment. Rental income attributable to the Esplanade is
therefore excluded from total rental income for the purpose of
calculating the Cost Ratio which is prepared on a proportionate
basis. There is negligible rental expense attributable to this
joint venture.
EPRA capital expenditure analysis
31 August 2018 UK UK UK Total Joint Group
Commercial Retail Hotels Europe IFRS ventures total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Capital expenditure on like-for-like portfolio(1) 1.0 4.0 3.2 5.9 14.1 - 14.1
Capitalised
finance costs - - - 0.7 0.7 - 0.7
Capital expenditure 1.0 4.0 3.2 6.6 14.8 - 14.8
31 August 2017 UK UK UK Total Joint Groups
Commerical Retail Hotels Europe IFRS ventures total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Capital expenditure on like-for-like portfolio(1) 1.0 3.5 2.9 12.2 19.6 - 19.6
Capitalised
finance costs - - 0.2 0.3 0.5 - 0.5
Capital expenditure 1.0 3.5 3.1 12.5 20.1 - 20.1
(1) Capital expenditure on the like-for-like portfolio
includes:
UK Commercial
Office
GBP0.7 million of planning costs incurred on Charing Cross and
GBP0.3 million on the refurbishment of additional London office
space in advance of letting (31 August 2017: GBP0.3 million);
Distribution and Industrial
During 2017, GBP0.4 million on the refurbishment of vacant space
at Severalls Industrial Estate, Colchester and GBP0.3 million on
the refurbishment of a unit at Camino Park, Crawley in advance of
letting to DFS Trading Limited;
UK Retail
UK Shopping Centres
GBP1.7 million expenditure on the phased development of the food
court at West Orchards Shopping Centre, Coventry in addition to
external works. GBP0.7 million on refurbishment works of the car
park at St. Georges Shopping Centre, Harrow. GBP0.5 million of
general improvement works across the rest of the shopping centres
(GBP1.5 million total expenditure across portfolio in 2017);
UK Retail Parks and Other Retail
GBP0.7 million on several expansion schemes across UK Retail
Parks (31 August 2017: GBP1.4 million). GBP0.4 million on the
redevelopment of Albion Street, Derby to combine the basement,
ground, first and second floors of three existing units into a
single, modern space to accommodate TK Maxx (31 August 2017: GBP0.6
million);
UK Hotels
GBP2.4 million on the refurbishment of the Holiday Inn Express,
Edinburgh and commencement of extension works. GBP0.8 million
primarily on completion of the 12-room extension of the Holiday Inn
Express, Southwark (31 August 2017: GBP2.9 million); and
Europe
GBP5.7 million on the redevelopment of the existing shopping
centre in Ingolstadt, Germany (31 August 2017: GBP11.9 million).
GBP0.2million was also spent on the first phase of the food court
refurbishment in the Berlin shopping centre (31 August 2017: GBP0.3
million).
Top ten tenants
Ranking Tenant Portfolio Sector Annualised Total gross Number of
gross rental rental units held
income income by tenant
GBPm %
1 B&Q Plc UK Retail Home and DIY 3.5 3.2 5
2 Tesco Stores Ltd UK Retail Groceries 3.5 3.2 1
3 Primark UK Retail Fashion 3.1 2.9 8
4 UK Government bodies UK Commercial Government associated 2.8 2.6 11
5 Travelodge UK Hotels Limited Service 2.4 2.2 6
6 Royal Mail UK Commercial Services 2.0 1.8 2
7 OBI Europe Home and DIY 1.7 1.5 3
8 Wilko's UK Retail Discount and value 1.5 1.4 3
9 Debenhams UK Retail Department store 1.6 1.4 2
10 Refresco Gerber UK Ltd UK Commercial Distribution 1.4 1.3 2
23.6 21.5 43
Top 20 assets
Portfolio EPRA
by Annualised Topped EPRA
Market market Gross EPRA Up Occupancy
As at Value value Area Rental ERV NIY Yield WAULT By ERV Indexed
31 August 2018 GBPm % m(2) GBPm GBPm % % yrs % %
------ ------ -----
Berlin, Schloss
Centre 84.0 5.2 18,581 4.4 4.4 4.2 4.2 5.1 97.1 91.0
Northampton, Weston
Favell 78.2 4.8 30,757 6.5 6.7 6.8 7.4 7.4 94.4 53.9
Hamburg, Bahnhoff
Altona 74.5 4.6 15,042 4.3 4.1 4.8 4.8 3.5 99.8 97.8
Crawley, Camino
Park Distribution
Center 72.4 4.5 33,171 2.7 4.0 3.5 3.5 4.7 100.0 7.1
London, Harrow,
St Georges 70.2 4.3 20,133 5.0 4.8 5.7 5.8 3.4 98.6 4.0
Wigan, Grand Arcade 69.9 4.3 41,487 7.4 6.7 7.7 8.0 8.1 97.5 36.8
London, Monument,
St Dunstans 66.2 4.1 5,428 4.6 4.5 6.1 6.1 n/a n/a -
London, Charing
Cross Road 58.5 3.6 3,716 2.0 2.4 3.2 3.2 4.4 100.0 33.7
Banbury, Banbury
Cross Retail Park 51.0 3.1 16,610 3.2 3.6 5.0 5.5 6.8 82.5 13.4
London, Watford,
The Arches Retail
Park 50.0 3.1 11,599 3.2 2.8 6.0 6.0 9.0 100.0 -
Top ten assets 674.8 41.6
Bridgwater, Express
Park Distribution
Center 48.5 3.0 47,207 2.8 3.1 5.4 5.4 3.3 100.0 -
London, Southwark
Holiday Inn Express 47.0 2.9 3,936 2.7 2.7 5.0 5.0 n/a n/a -
Edinburgh, DoubleTree
Hilton 43.3 2.7 7,250 3.0 2.9 6.1 6.1 n/a n/a 3.3
London, Merton,
Priory Retail Park 36.2 2.2 6,255 1.9 2.0 5.0 5.0 8.7 100.0 -
London, Liverpool
Street, New Broad
Street 33.8 2.1 3,291 2.2 2.1 5.4 5.4 n/a n/a -
London, Earl's Court
Holiday Inn Express 33.1 2.0 2,781 2.2 2.2 5.9 5.9 n/a n/a -
London, St Pauls,
Little Britain 32.8 2.0 3,429 1.9 1.9 5.3 5.3 n/a n/a -
Ingolstadt, City
Arkaden 32.2 2.0 12,211 1.9 1.8 1.1 5.0 8.2 100.0 97.5
London, Limehouse
Holiday Inn Express 31.5 1.9 5,747 2.0 2.0 5.6 5.6 n/a n/a -
London, Waterloo,
Boundary Row 30.6 1.9 3,326 2.4 2.3 7.2 7.2 n/a n/a -
Top 20 assets 1,043.8 64.5
Other Alternative Performance measures
The following tables provide the basis of calculation of APMs
that are not otherwise reconciled in other sections of this results
announcement. Further discussion of these APMs is provided in the
Financial Review.
Interest cover
31 August 31 August
2018 2017
Group (proportionately consolidated) GBPm GBPm
Net rental income 99.1 93.5
Net finance expense (28.7) (29.0)
Interest cover (times) 3.5 3.2
Total Accounting Return
31 August 31 August
2018 2017
Group (proportionately consolidated) Per share Per share
Dividends paid (pence) 2.65 2.6
Growth in EPRA NAV (pence) 1.4 1.4
4.1 4.0
Prior year EPRA NAV (pence) 41.4 40.0
Total Accounting Return (%) 9.8 10.0
Dividend Yield
31 August 31 August
2018 2017
Group (proportionately consolidated) Per share Per share
Dividends declared (pence) 2.7 2.6
EPRA NAV (pence) 42.8 41.4
Dividend Yield (%) - on EPRA NAV 6.3 6.3
Dividends declared (pence) 2.7 2.6
Group share price at reporting date (pence) 33.8 39.4
Dividend Yield (%) - on Group share price 8.0 6.6
Dividend Pay-out Ratio
31 August 31 August
2018 2017
Group (proportionately consolidated) Per share Per share
Dividends declared (pence) 2.7 2.6
Underlying earnings (pence) 2.84 2.75
Dividend Pay-out ratio (%) 95.1 94.5
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
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
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
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
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