TIDMRLE
RNS Number : 8738Z
Real Estate Investors PLC
20 March 2017
Real Estate Investors Plc
("REI" or the "Company" or the "Group")
Final Results
For the year ended 31 December 2016
Continued growth driving profitability and income returns
Financial Highlights
-- Gross property assets of GBP201.9 million (2015: GBP157.5 million), up 28.2%
-- EPRA** NAV per share of 66.2p (2015: 64.5p), up 2.7%
-- EPRA** EPS 2.8p (2015: 0.8p), up 250%
-- Revenue GBP13.5 million (2015: GBP8.4 million), up 60.7%
-- Underlying profit before tax* of GBP5.2 million (2015: GBP1.4 million), up 271%
-- Total dividend per share for 2016 of 2.625p, up 31.3%, final dividend 0.75p per share
-- Net loan to value of 37.2% (2015: 22.4%)
-- Average cost of debt reduced to 4.1% (2015: 5.9%)
-- Cash and available facilities of GBP17 million
Operational Highlights
-- Contracted rental income of GBP14.9 million (2015: GBP11.9 million) up 25.2%
-- Like for like portfolio valuation of GBP158.3 million (2015: GBP152.3 million), up 3.9%
-- Acquisitions of criteria compliant properties totalling
GBP38.6 million, at a net initial yield of 8.98% and reversionary
yield of 9.97%
-- Non-core property disposal proceeds totalling GBP5.2 million,
as REI recycle capital into criteria compliant assets
-- Active asset management with 25 new lettings and 5 lease renewals
-- Overall occupancy increased to 93% (2015: 89%) - up 4.4%
-- 232 tenants (2015: 211) up 9.9%
-- GBP45.2 million of new bank facilities, GBP41million secured
at 1.75% above LIBOR and GBP4.2 million at 2.0% above base
-- WAULT*** 4.71 years to break and 6.76 years to lease expiry
(2015: 5.28 years to break and 6.67 years to lease expiry)
-- Total ownership 1.4 million sq ft (2015: 1.1 million sq ft) up 27.2%
-- Prime Birmingham City ownership of 156,425 sq ft
-- GBP6.1 million of acquisitions since the year end
Definitions
* underlying profit excludes profit/loss on revaluation and interest rate swaps and tax
** EPRA = European Public Real Estate Association
*** WAULT = Weighted Average Unexpired Lease Term
Paul Bassi, CEO of Real Estate Investors Plc commented:
"Another excellent year of progress, despite an uncertain
economic and political backdrop, during which we secured record
property ownership, revenue and contracted rental income, with our
underlying profits rising 271% to GBP5.2 million, and set to grow
further as we start to see the full contribution from the
acquisitions made in the prior year. Our like for like portfolio
valuation was up 3.9% over the year, reflecting the active asset
management that we have undertaken. With the benefit of our clear
pathway to future growth in rental income, we also anticipate
further growth in our dividend payments.
London and the South East have enjoyed over 50 years of
exceptional economic prosperity, but we are now seeing a political,
social and economic re-balancing within the UK. The regions, in
particular Birmingham and the West Midlands, look set to enter a
new golden era, propelled in part by the arrival of major projects
such as HSBC's HQ move and HS2, but also by the continued
commercial growth in the area."
Enquiries:
Real Estate Investors Plc
Paul Bassi +44 (0)121 212 3446
Smith & Williamson Corporate
Finance Limited
Azhic Basirov/David Jones +44 (0)20 7131 4000
Liberum
Jamie Richards/Ben Roberts +44 (0)20 3100 2000
Gable Communications Limited +44 (0)20 7193 7463
John Bick +44 (0)7872 061 007
About Real Estate Investors Plc
Real Estate Investors Plc is a publicly quoted property
investment company with a portfolio of 1.4 million sq ft of
commercial property managed by a highly-experienced property team
with over 100 years of combined experience of operating in the
Midlands property market across all sectors.
The Company's strategy is to invest in well located, real estate
assets in the established and proven markets of central Birmingham
and the Midlands, with income and capital growth potential,
realisable through active portfolio management, refurbishment,
change of use and lettings. The portfolio has no material reliance
on a single asset or occupier.
On 1st January 2015, the Company converted to a REIT. Real
Estate Investment Trusts are listed property investment companies
or groups not liable to corporation tax on their rental income or
capital gains from their qualifying activities.
The Company aims to deliver capital growth and income
enhancement from its assets, supporting a progressive dividend
policy. Further information on the Company can be found at
www.reiplc.com.
Chairman's and Chief Executive's Statement
Overview - Another Strong Financial Performance in a year of
Change
The marketplace has been dominated by the European Referendum
which resulted in uncertainty that provided a small window of
opportunity shortly before and after the referendum result. Since
then, strong demand for investment property within our region has
resulted in valuations holding firm or rising, due to the level of
demand from a cross section of investors. These investors have been
property companies, with access to debt, quoted REITs and high net
worth individuals, of which foreign investment represented 21% of
volume. Equally, there has been limited demand from institutional
investors.
We find ourselves in a strong regional investment market, with
demand outstripping supply against the backdrop of a resurgent
regional economy which has been boosted by the fall in sterling
and, also the availability of capital and investors who are
increasingly recognising the attractiveness of the commercial
property market in the Midlands.
We secured GBP38.6 million of criteria compliant assets, during
the period of uncertainty, and as demand returned, we sold GBP5.2
million of our assets into a strong investment market (all sales
were exchanged during the year but completed in 2017).
Occupancy has improved to 93% and rental income increased by
27.2%. Retail demand was exceptionally strong and we anticipate
rent reviews and lease renewals to improve our rent roll and WAULT
during 2017. Active asset management has resulted in 25 new
lettings, 5 lease renewals and a number of soft rent deals are set
to be reviewed.
The record contracted rental income has supported our dividend
payment to our shareholders, and will continue to support our
dividend strategy going forward. Our revenue was GBP13.5 million,
up 60.7%, and our underlying profit GBP5.2 million, up by 271%,
despite receiving no material benefit in H1 from our
acquisitions.
We believe that 2017 will continue to see demand for regional
real estate as investors look outside London, and we will see the
return of institutional and pension fund buyers alongside existing
demand from property companies, HNWs and REITs.
Financial Results - Well placed for further growth in 2017
We are pleased with our performance this year, delivering
underlying profits of GBP5.2 million, up 271% on 2015, having
absorbed our purchase costs, including the increased stamp duty
charge in March 2016. We delivered pre-tax profits of GBP8.2
million, which included a GBP1.6 million reduction in value of our
BHS property in Walsall. We anticipate recovering this in 2017 as
part of the property is under offer to a national retailer, and the
loss on our interest rate swap of GBP566,000, both non-cash items.
Furthermore, these results have been achieved, despite receiving no
material benefit in H1 from our GBP38.6 million of
acquisitions.
The investment property market was strong in the final quarter
of 2016, with limited available opportunities that matched our
strict investment criteria. Our available capital will be allocated
during H1 2017 and will contribute towards our growing rent roll
and further support our dividend growth objectives.
At the year end, our portfolio was valued at GBP201.9 million,
up 28.2%, (pre-sales) and it is our intention to maintain the
portfolio at this level or above, whilst delivering on our
commitment of paying a progressive, fully covered dividend. Our
contracted rent is up 25.2%, despite disposals comprising
GBP509,000 of contracted rent, and our revenue is up 60.7% to
GBP13.5 million. Our like for like valuation and capital value per
square foot have also increased by 3.9%.
Net loan to value has increased to 37.2%, capitalising on our
ability to secure debt on favourable terms and benefit from
historically low interest rates, and investing this capital to grow
our portfolio. Average cost of debt has fallen to 4.1%.
Post year end, we have secured a further GBP6.1 million
acquisition, providing GBP469,875 of rent per annum, with a WAULT
of 12.29 years to break, which represents a net initial yield of
7.22%. Our total contracted rents have risen to GBP15.5 million, up
from GBP14.9 million at 31 December 2016, plus an additional
GBP370,000 of new lettings in legals.
Dividend - continued growth
One of our key objectives is to deliver on our commitment to a
progressive, fully covered, dividend, which has now risen for 4
consecutive years. Our total dividend paid for 2016, is 2.625p,
which is 31.3% up on the previous year. This was paid quarterly at
a rate of 0.625p for each of the first three quarters, with the
final quarter payment being 0.75p. The first three quarterly
payments for 2017 will be 0.75p per quarter, with a final dividend
for the fourth quarter to be confirmed. The proposed dividend
timetable for the final dividend is as follows:
Dividend Timetable
Ex-dividend date: 30 March 2017
----------------------- --------------
Record date: 31 March 2017
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Dividend payment date: 28 April 2017
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Finance and Banking
Whilst the banking industry continues to restructure, we believe
that it has finally normalised in respect of its lending objectives
and appetite to lend. All of our bankers have a strong desire to
lend to us, on competitive terms. The general market place also has
access to bank debt, and this has in part contributed to the
strengthening and competitiveness of the regional investment
market. Our average cost of debt has reduced significantly to 4.1%,
and is set to reduce further.
We have secured new facilities of GBP41 million with RBS at
1.75% above Libor and GBP4.2 million with AIB(GB) at 2% above
base.
Outlook - Strong regional economy and investor appetite
We anticipate some volatility and uncertainty around Brexit
discussions, but also opportunities. We believe that there will be
windows that will allow us to secure property on favourable terms
where we know we can add value. At the same time, we also
anticipate a strong marketplace for making strategic sales where we
can secure a premium, mindful of our need to retain income to
underpin our dividend capability.
In overall terms, the combination of our market reputation,
financial strength, access to capital, regional knowledge and the
foundation of our existing portfolio and the income derived from
it, places us in an excellent position to continue to grow the rent
roll and occupancy and deliver on our commitment to pay a
progressive dividend.
The REI Portfolio
Market Update - income and capital growth potential
Much of the capital chasing regional property assets is seeking
"defensive-income" rather than the intensive asset management
opportunities that are sought by REI. We believe that other
investors are proceeding mainly on a macro basis; that these
markets offer good value and that yields will continue to run close
to long-term averages and rental growth will further bolster
performance. All of this is likely, but the strategy of REI is at a
more micro level; we acquire property assets, from distressed
vendors or less asset management intensive organisations, which
require significant time and resources to manage, and produce a
stable, growing income stream.
We have seen yields continue to fall for the 'stabilised-income'
property assets, driven by the weight of money from investors now
seeking opportunities in the UK's regions.
Investment activity in UK commercial property reached a record
level of GBP61.5 billion, according to Lambert Smith Hampton.
Regional commercial property markets are now well placed to see
capital growth through demand, reaching a record investment volume
of GBP39.5 billion in 2016. This is set to continue, which should
drive further outperformance in the regional markets.
Passing rents in regional office markets are below the levels of
rent required to make new development viable. This low level of
rent limits supply and leads to rental growth as the need for new
space forces tenants to accept higher rents.
Retail is split between high street and retail warehousing. On
the high street, strong competitive retail pitches in dominant
regional towns continue to show very low vacancy rates and offer
stable long-term cash flow, with the opportunity for rental growth.
We are also witnessing rental growth in some smaller market towns
where rents over-corrected in the downturn.
It would be wrong to deduce from the failure of BHS and Austin
Reed that high street retailing is finished. Both of these
retailers had structural problems, some of which continue to be
debated in the press, but it is important to remember that shopping
remains the nation's favourite pastime. Our high streets are
constantly evolving and remain an essential element of
multi-channel retailing. This is evidenced by most BHS units having
been re-let across the UK, and our unit in Walsall is also under
offer to a national retailer.
Retail warehousing is witnessing close to record low vacancy
rates as a restrictive planning policy and lack of development
combine with retailers' requirements to offer large format stores,
free parking and 'click and collect' to consumers.
With our improving portfolio, we expect rental growth to offer
REI the potential for further dividend growth and sustainable
capital growth over time. The occupational market story is
particularly resonant in smaller lot size regional property. As the
majority of fund managers set a minimum target lot size for
individual assets of GBP10 million to GBP15 million, market pricing
of smaller lots has been more stable, having not experienced the
excess demand pressure seen in the broader investment market.
Accordingly, returns have been more closely linked to the
underlying occupational market performance, and across the REI
portfolio, we are witnessing rental growth and low vacancy rates,
with the portfolio moving from a position of over-rent, to one of
reversionary potential over the last two years. We are also seeing
significant investor demand from HNW and private property
companies, supported by traditional bank debt for property valued
between GBP1 million to 5 million.
Property Report - Continued Portfolio Growth
Our property portfolio continues to grow in size and scale and
was valued at GBP201.9 million at the year-end (2015: GBP157.5
million), up 28.2%. The investment market was characterised by
changeable degrees of investor confidence, brought about by
political and economic instability, which we sought to take
advantage of. We committed to acquiring in the first half of the
year while prices were still discounted and selling towards the end
of the year when we saw investor confidence improving and demand
returning.
We acquired six properties with a purchase price of GBP38.6
million and a combined average net yield of 8.98%. We have seen
good value in well located regional offices, having purchased
office properties during the year with average net initial yields
of 8.86% and capital value prices of GBP91 per square foot. We have
witnessed an improving appetite from the institutional and UK
funds, refocusing from London to UK regions. In taking advantage of
this position, we successfully disposed of 3 properties with a
total value of GBP5.2 million.
The current sector weightings are (table below excludes disposal
properties which completed in 2017):
Value % Sq Ft Contracted ERV Net Reversionary Occupancy
GBPm Rent GBP Initial Yield %
GBP Yield %
%
----------------- ------- ----- ---------- ------------ ----------- ---------- -------------- -----------
Birmingham
City Centre 37.5 19.0 156,425 1,979,148 2,770,970 5.28 7.40 78.77
----------------- ------- ----- ---------- ------------ ----------- ---------- -------------- -----------
Other Midlands 151.4 77.0 1,190,356 12,596,613 13,786,086 8.32 9.10 87.77
----------------- ------- ----- ---------- ------------ ----------- ---------- -------------- -----------
Total Core 188.9 96.0 1,346,781 14,575,761 16,557,006 7.72 8.76 86.72
----------------- ------- ----- ---------- ------------ ----------- ---------- -------------- -----------
Non-Core
Portfolio 4.1 2.1 32,007 332,826 382,326 8.04 9.23 100.00
----------------- ------- ----- ---------- ------------ ----------- ---------- -------------- -----------
Land 3.7 1.9 - - - - - (-)
----------------- ------- ----- ---------- ------------ ----------- ---------- -------------- -----------
Total Portfolio 196.7 100 1,378,788 14,908,587 16,939,332 7.58 8.62 92.93%
----------------- ------- ----- ---------- ------------ ----------- ---------- -------------- -----------
The portfolio is split between the main commercial property
sectors, in line with the Company's objective to maintain a
suitably balanced investment portfolio, but with a relatively high
exposure to retail and offices and a low exposure to industrial and
'other' property sectors. The portfolio is split (by income) into
the following sectors: Retail (56%); Offices (42%); and other
(2%).
Acquisitions - Successful Strategy acquiring income growth
REI has an investment strategy of targeting income generation in
a well-diversified regional portfolio. We believe it is still
possible to identify 'value' in the market, despite recent price
inflation, by targeting properties where provable rental growth
will underpin long term capital growth. We remain confident this
strategy can deliver enhanced income cover to the Company's target
dividend in the years ahead and provide the stable long term
returns to reward our shareholders.
We have enjoyed an active period, successfully executing
property acquisitions of GBP38.6 million with a combined income of
GBP3.5 million and a potential reversion to GBP3.9 million, showing
an 8.98% net initial yield and 9.97% reversionary yield (excluding
land acquisition). New tenants from acquisitions include Grafton
Group, C&J Clark, Iceland, Argos, B&M Ltd, Wilko Retail,
Sainsburys, Bathstore, Hewlett Packard, Boots Opticians and Premier
Inn. We have seen our contracted rental income rise to a record
GBP14.9 million per annum, up 25.2% since the same time last year,
even after deducting contracted rental income from investment sales
of GBP509,000. We would have liked to have secured additional
assets during H2, but this reflects the limited number of criteria
compliant opportunities available and the desire by vendors to
retain assets for income, unless they secure a premium sale price.
We remain disciplined and well placed to acquire further criteria
compliant properties in the region with longer term income and
capital growth potential.
New acquisitions include:
-- Market Square Shopping Centre, Crewe - June 2016 (Retail -
GBP20 million, excluding acquisition costs), acquired from a major
UK based fund, representing a net initial yield of 9.0%. The
covered shopping centre incorporates 25 retail units with
predominantly ground floor retail accommodation and first floor
ancillary. In total, there is 154,130 square feet of retail and
ancillary accommodation, with 294 external car parking spaces.
Current tenants include River Island, Halifax, Superdrug,
Brighthouse, Ernest Jones, Hutchinson 3G, Argos, Iceland, B&M,
Peacocks and Poundworld. The retail space has 100% occupancy, with
a weighted average unexpired lease term (WAULT) of 5.1 years to
expiry and 4.4 years to break.
The acquisition provides significant opportunities to 'add
value' through rent reviews, lease renewals and the creation of
additional units on the substantial external car parking facility
to increase the retail footprint of the overall site which is
attractive for retailers and consumers alike. There is also scope
to restructure the scheme, which will provide potential for
significant capital uplift. The location will further benefit from
nearby substantial developments of a new college and offices.
Since acquiring the property in June we have opened discussions
with adjoining land owners and are in discussions to amalgamate the
adjoining land which would significantly improve overall value and
open better prospects for sale value.
-- West Plaza, West Bromwich - May 2016 (Mixed Hotel and offices
- GBP8 million, excluding acquisition costs). This investment
comprises a ten-storey building adjoining Metro Court - an existing
REI building. 95,400 sq ft with a strong / diverse spread of
tenants. The current rent reflects a low overall rental rate of
GBP6.90 per square foot, with good scope for reversionary
potential. Broadly 50% of the income is underpinned to Whitbread,
trading as Premier Inn, at GBP310,000 p.a., which is reversionary
following an outstanding rent review. The existing WAULT to expiry
is 10.6 years and 4.7 years to break options. We are currently in
discussions with Premier Inn. There is also a longer-term
opportunity for residential development, as the building lends
itself to residential occupation, with significant capital upside
potential.
-- Titan House, Euston Park, Telford - February 2016 (offices -
GBP2.75 million, excluding acquisition costs). Acquired from
receivers, the building is situated on a modern business park,
adjacent to Telford Central Station and Junction 5 of the M54.
Titan House comprises 33,166 sq ft of modern office accommodation
over four floors and 103 car parking spaces. The property is let to
Hewlett Packard Enterprise Service UK Ltd with 4.5 years remaining
and a current rental income of GBP270,000 p.a. The purchase price
reflects a net initial yield of 9.9% and a low capital value rate
of GBP83 per square foot. Whilst the property is fully occupied,
the tenant currently benefits from a rent-free period until lease
expiry in October 2020 over the entire first floor, which offers
good prospects for rental improvement.
-- Boundary House, 2 Wythall Green Way, Birmingham - February
2016 (offices - GBP2.45 million, excluding acquisition costs). This
comprises a modern 2-storey office building, positioned in a good
strategic location on the southern side of Birmingham. The property
is fully let to Grafton Group (UK) Plc with an unexpired term of
6.5 years at a low rent equivalent to GBP11.4 per square foot,
producing total rental income of GBP243,547 p.a. at a net initial
yield of 9.4%. Grafton Group (UK) Plc, (which has a Dun &
Bradstreet rating of 5A1), has historically expanded within the
building as space has become available, taking the majority for its
Selco subsidiary and the remainder for its group executive.
-- Commodore Court, Nuthall Road, Nottingham - April 2016 (Mixed
Retail and Residential - GBP2.38 million, excluding acquisition
costs), acquired from a private property company. The investment
comprises a prominent mixed use development, situated on a busy
arterial route in Nottingham. The building incorporates three fully
occupied retail units, occupied by Sainsbury's Supermarkets,
Barnardos and Bathstore, with WAULT to expiry of 11.3 years and 5.3
years to break options. Since acquisition, we have extended the
lease to Bathstore for a further 5 years. The property produces a
rental income of GBP216,710 p.a. and the purchase price reflects a
net initial yield of 8.53%.
-- 62/68 High Street, Bromsgrove - November 2016 (Mixed Retail
with Residential - GBP1.3 million excluding acquisition costs). The
property occupies a prominent and improving location on the High
Street and was acquired at an attractive initial yield of 8.44%,
which offers good prospects for capital improvement. The investment
is well let to Boots Opticians, Thorntons, Smart Ideas and Loritas
Bakery. Rents within the subject property have been 'rebased' over
the past five years to a level where we feel there is good scope
for medium term future improvement.
-- Land at Bourne Street, Coseley - April 2016 (Land GBP1.1
million, excluding acquisition costs) which has been acquired with
a view to securing planning approval for approximately 100
residential units for subsequent sale. The application has the
support of the planning officers.
With our established regional contacts, we actively sought new
investments throughout H2 and appraised and made formal offers on
over ninety million pounds' worth of opportunities. In the majority
of cases, we felt that pricing was unrealistic and decided not to
take them further, and we felt comfortable in the knowledge that
better opportunities would come along in the future.
Sales
We regularly receive approaches for our assets although we
firmly believe that we are set to benefit from rental and capital
growth, and so decline most approaches, unless we can secure a
premium or strategic sale.
We have seen an improvement in competition for assets and
investment values have risen as a consequence. We have identified a
number of properties that are suitable for sale. In principle, we
will only make sales at or above existing book values and will
consider sales on the basis that we can maintain our income to
support our dividend growth strategy. Two of the property assets
sold, Norwich and Crawley, were classified as non-core. Total sales
were GBP5.2 million, with contracted rental of GBP509,000 per
annum, all of which exchanged in 2016 but completed in 2017.
Asset management
Successful asset management strategies including rent reviews,
new lettings, lease extensions and the retention of tenants beyond
their contractual break clauses have helped to minimise the natural
decrease in WAULT and offset the impact on valuations of
acquisition costs and the recent increase in SDLT. We have actively
sought to vacate some of our properties for refurbishment and
re-letting at higher rents and longer lease terms, which will
improve our WAULT over the next 12 months.
As part of our usual activities we are in proactive discussions
with a number of tenants across the portfolio regarding various
asset management initiatives, including new lettings, lease
renewals, lease extensions, rent reviews, lease surrenders,
refurbishment, or a combination of the above. Our portfolio has
continued to benefit from steady occupier demand. In terms of
rental levels, new benchmarks set over the previous twelve months
are still being achieved on lettings. We are also now seeing higher
rental values starting to be reflected in our current property
valuations. This combined activity should provide further
revaluation surplus.
Key asset management initiatives include: -
-- Gateway House, 50-53 High St, Birmingham - the building
comprises a mixed retail and office scheme of 26,878 sq. ft.
extending over seven floors. In the ground floor retail unit, we
have recently agreed a surrender from the previous tenant Arcadia,
which has allowed a new 10 year lease to Holland & Barrett.
Shelter has surrendered their lease, previously on a single floor
and we have agreed a new overriding 10 year lease over two floors
with Shelter, at higher rents and overall improved WAULT. The
second floor offices have also been refurbished, with prospects to
increase rental and capital values.
-- Acocks Green Shopping Centre, Acocks Green - the property
comprises a 65,645 sq ft retail scheme in Acocks Green on the
outskirts of Solihull and Birmingham. The scheme is anchored by
Wilkinson, Boots, Argos and Lloyds Bank, with a WAULT at purchase
of 3.7 years. We have agreed dilapidations on two retail units,
where the proceeds will support the cost of capital improvements.
We have recently agreed a new lease to a national retailer on 10
year terms at levels in excess of our assumed rental tone. We are
also under offer for a new 20-year lease term to a national
restaurant operator - the agreement incorporates three void units
and eliminates a void unit which was otherwise difficult to let. We
have re-geared a number of existing leases, which has extended the
unexpired lease term. Since acquiring the property in 2015, our
management initiatives have reduced voids and associated costs and
we further future anticipate capital appreciation through current
lease restructuring and letting activity. The Wilkinson lease is to
be extended by 10 years and Lloyds Bank has agreed to remove the
December 2017 break, effectively adding 5 years to the term. The
successful implementation of these events should provide further
capital growth potential.
-- Peat House, 1 Waterloo Way, Leicester - a prominent 43,295
sq. ft. office building located in the city's central office core
and directly opposite Leicester railway station. We have increased
the rental tone during the year, having recently completed the
refurbishment of two floors, utilising dilapidations receipts. We
have subsequently completed a new 10 year lease to Bellrock FM at
GBP13.50 per square foot and the remainder of the space is either
in legals or under offer.
-- Dudley Street, Wolverhampton -acquired from NAMA (as a
distressed asset) for the sum of GBP2 million in December 2015. The
unit is occupied by River Island, with a lease expiry in March
2016. River Island were suggesting that they would like to vacate
the property and we were under offer to sell the freehold to a
well-known owner occupier at GBP3.2 million. However, negotiations
with the tenant continued throughout the year and we are pleased to
confirm that we have agreed a new 10-year lease at GBP189,000,
which is a proven market rent.
-- Bearwood Shopping Centre - a number of tenant negotiations
concluded during the year; Alan Warwick took a new 10-year lease at
a higher rent, Greggs subsequently agreed to a lease renewal for 10
years, Lloyds Pharmacy extended their lease by a further 5 years at
the same rent and we are in solicitors hands to let the former
Store 21 Unit (which went into receivership) to Costa Coffee on a
10 year lease at a higher rent than the previous tenant.
-- Park Street, Walsall - we are under offer to Poundstretcher
to take the whole of the ground floor of the store previously
occupied by BHS. Additionally, we are in discussions with local
developers to buy a long leasehold of the upper floors with a view
to re-developing the upper floors for residential use. The collapse
of BHS has continued to have a negative impact on our December 2016
valuation figures, but we are working to an effective solution and
remain confident of a positive outcome.
-- Commodore Court, Nottingham - we have extended Bathstore's
lease from June 2021 to June 2026 at the same rent with a 6 month
rent free period.
-- Dutton Road Coventry - we have agreed a 5 year extension to
the lease expiry to July 2024, subject to a reduction in the rent
of GBP5.50 per square foot (open market rent) and a 3-month rent
free period. Subsequently, we are under offer to sell the long
leasehold interest to a local authority at a level significantly
above historical valuations.
New tenants to our existing portfolio include: Holland &
Barrett, Viva Brazil, Footasylum, Costa Coffee and Poundworld.
We expect recent asset management initiatives to improve the
WAULT of the portfolio, with tenants keen to agree lease extensions
or to waive their options to break, enhancing the rent roll as
increases are agreed at review or renewal.
REI's Regional Review
Economy/Trade/Business/Employment
-- Prime Minister Theresa May confirmed a HS2-fuelled GBP1
billion investment in Birmingham city centre, with new offices,
tram line and 4,000 new homes around the planned Curzon Street HS2
rail station, creating 36,000 new jobs and generating GBP1.4
billion for Birmingham's economy
-- City's region economic growth outperforms UK rivals with 4.7
per cent increase in economic output between 2014 and 2015 to
GBP44.5 billion
-- Birmingham has been named the most entrepreneurial city
outside London in a report released by Start-Up Britain, with
figures showing that 17,473 new businesses were registered in
Birmingham during 2016, a 25% increase on 2015
-- Firms in the West Midlands experienced the fastest rate of
growth in 3 months during June to August following the Brexit
vote
-- The Office for National Statistics confirms that the West
Midlands is bucking the national trend with a 0.9% rise in
employment thanks to a buoyant local economy, compared to a
decrease across the UK of 0.1%
-- West Midlands companies took on new staff at the highest rate
since April 2015 in February 2017, according to the latest Lloyds
Bank Regional Purchasing Managers' Index (PMI) survey.
Property
-- Regional commercial property markets experience record
investment volume of GBP39.5 billion in 2016
-- In 2016, office take up in Birmingham city centre hit 800,000
sq ft, ahead of the 5 year average
-- City centre prime headline rents have risen by 8% to above
pre-recession levels at GBP32.50psf, compared to GBP30 psf in 2015
with further uplift to GBP33.50 psf anticipated by year-end
2017
-- Deals in the City were up in 2016 with 139 transactions completed, compared to 132 in 2015
-- In 2016, two City centre deals above 50,000 sq ft completed,
with the largest being the pre-let of 90,000 sq ft to PwC at One
Chamberlain Square
-- The GBP200 million forward funding of Three Snowhill agreed
between M&G Real Estate and developer Ballymore was the largest
investment transaction of any major regional city during 2016
-- Birmingham continued to see strong interest from overseas
buyers in 2016, with foreign investment representing 21% of
volumes
-- JLL forecasts that Birmingham house price growth will outpace
the rest of the UK over the next 5 years, with a predicted growth
of 21.7%, driven by the increasing appetite for City centre
living
-- HMRC led amalgamation of government departments set to
relocate to 240,000 sq ft in Birmingham City centre
-- The Annual Crane Survey states that Birmingham and Leeds are
building offices at the highest rate in a decade with 1.4 million
sq ft of new office space being built, a 50% rise on the previous
year and the highest activity since the report began 15 years
ago
-- The 148-acre Birmingham Business Park, home to 24 businesses,
enjoyed its lowest vacancy rates for a decade thanks to a surge in
regional investment and development
-- A joint venture between Singaporean wealth manager GIC and
student property group Unite announced a deal to purchase Aston
Student Village for GBP227 million.
Manufacturing/Technology
-- Jaguar Land Rover achieved best February on record with sales
at 40,978, a 9% increase on February 2016, having sold more than
580,000 vehicles worldwide in 2016, its best ever performance and
equal to one vehicle sold per minute, a 20% increase on 2015
-- London Stock Exchange listed global technology firm Lombard
Risk has revealed plans for a major new technology hub in
Birmingham
-- Birmingham has over 400 schools, 15 universities and 3
university colleges within an hour's drive of the City centre.
Travel/Tourism
-- Birmingham voted a better place to live than Rome, LA and
Dubai. The quality of life in Birmingham is better than major
global cities such as Rome, Los Angeles and Dubai, according to a
new report. Birmingham is the highest-ranked English city aside
from London in the 2017 Quality of Living Index which is published
by financial services firm Mercer
-- HS2 is expected to spark a West Midlands renaissance with the
Midlands HS2 growth strategy estimating that the project will
create 104,000 jobs and 2,000 apprenticeships
-- Birmingham Airport has reported not only its busiest year in
history but also plans to invest GBP100 million in its facilities
and infrastructure and has since reported a record January with
775,176 passengers using the terminal, a rise of 16.1% on January
2016. The airport also announced that British Airways is to return
to operation from the airport following a decade-long hiatus
-- Birmingham announces it is bidding to host the 2026
Commonwealth Games, bringing the biggest sporting event in the
history of the city, in a move that could generate GBP390 million
for the local economy
-- Official statistics reveal that in the first 9 months of
2016, there were a record breaking 12.2 million visits to English
regions outside London, up 4% on 2015, with spend up 2%
-- With under 25s accounting for over 40% of its population,
Birmingham is one of the youngest cities in Europe. One third of
the city's inhabitants are of ethnic minority, making it one of the
most multicultural places in the UK.
Our Stakeholders
Our thanks to the dedicated support of our staff, advisers,
tenants and shareholders, without whom our continued growth would
not be possible, and for this we thank them and look forward to
another year of progress and prosperity for Real Estate Investors
Plc.
John Crabtree Paul Bassi
Chairman Chief Executive
17 March 2017 17 March 2017
FINANCE DIRECTOR REPORT
FINANCIAL REVIEW
Overview
Our main objectives for the year were to continue to increase
shareholder value, refinance unencumbered properties and deploy the
funds generated in criteria compliant investment properties,
continue our progressive dividend policy, and increase our
underlying profit before tax, EPRA earnings per share and net
assets per share. All of these objectives have been achieved.
31 December 31 December Change
2016 2015
------------------------- ----------------- --------------- -------
GBP201.9 GBP157.5
Gross Property Assets million million +28.2%
------------------------- ----------------- --------------- -------
Underlying profit
before tax GBP5.2 million GBP1.4 million +271%
------------------------- ----------------- --------------- -------
EPRA EPS 2.8p 0.8p +250%
------------------------- ----------------- --------------- -------
EPRA NAV per share 66.2p 64.5p +2.7%
------------------------- ----------------- --------------- -------
EPRA NNNAV per share 64.2p 62.8p +2.2%
------------------------- ----------------- --------------- -------
GBP121.2 GBP117.9
Net Assets million million +2.8%
------------------------- ----------------- --------------- -------
Loan to value 43.1% 28.0% -53.9%
------------------------- ----------------- --------------- -------
Loan to value net
of cash 37.2% 22.4% -66.1%
------------------------- ----------------- --------------- -------
Dividend per share 2.625p 2.0p +31.3%
------------------------- ----------------- --------------- -------
Like for like growth
in rental income GBP11.3 million* GBP11.4million -0.9%
------------------------- ----------------- --------------- -------
Like for like capital GBP149.33 GBP143.68
value per sq ft sq ft sq ft +3.9%
------------------------- ----------------- --------------- -------
GBP158.3 GBP152.3
Like for like valuation million million +3.9%
------------------------- ----------------- --------------- -------
*Includes loss of BHS rental income at Walsall
Results for the year
Our underlying profit before tax rose to GBP5.2 million (2015:
GBP1.4 million). Profit before tax (IFRS) totalled GBP8.2 million
(2015: GBP12.2 million), including a surplus on sale of investment
properties of GBPnil (2015: GBP1.7 million) and a surplus on
revaluation of investment properties of GBP3.5 million (2015:
GBP8.6 million), together with a deficit on the market value of our
interest rate hedging instruments of GBP566,000 (2015: profit
GBP669,000).
Acquisitions of investment properties totalled GBP38.6 million
during the year on criteria compliant properties. Rental income for
the year was up 60.7% to GBP13.5 million (2015: GBP8.4 million) but
the full benefit of these purchases will be realised in 2017. The
investment properties are revalued externally at 31 December and
generated a surplus on revaluation of GBP3.5 million.
The decision to dispose of certain properties during the year
resulted from properties reaching maturity, receiving an offer that
could not be refused and continuing to dispose of the "legacy"
portfolio which we inherited and is out of area.
We continue to review our overhead base and administrative
expenses of GBP3.5 million (2015: GBP3.1 million) rose mainly as a
result of an increase in employee numbers, a bonus provision, (plus
employers' National Insurance) of GBP865,000 (2015: GBP732,000) and
a provision for costs of the Long Term Investment Plan of
GBP500,000 (2015: GBP300,000).
Interest costs for the year rose to GBP3.2 million (2015: GBP2.6
million) and the weighted average cost of debt reduced to 4.1%
(2015: 5.9%) as a result of the new facilities taken out during the
year with Royal Bank of Scotland of GBP41 million at 1.75% over
LIBOR and with Allied Irish Bank (GB) of GBP4.2 million at 2% over
base rate.
Earnings per share were:
Basic - 4.3p (2015: 7.5p)
Diluted - 4.3p (2015: 7.4p)
EPRA - 2.8p (2015: 0.8p)
Shareholders' funds increased to GBP121.2 million at 31 December
2016 (2015: GBP117.9 million) and the NAV per share increased:
Basic NAV - 65p (2015: 63.1p)
EPRA NAV - 66.2p (2015: 64.4p)
EPRA NNNAV - 64.2p (2015: 62.6p)
Finance and banking
Total drawn debt at 31 December was GBP85 million (2015: GBP44
million) with undrawn facilities of GBP5 million (2015: GBP2
million). During the year, the Group agreed a new GBP41 million
facility with Royal Bank of Scotland at 1.75% above LIBOR and a new
GBP4.2 million facility with Allied Irish Bank GB at 2% above base.
The weighted average cost of debt is 4.1% (2015: 5.9%) and the
weighted average debt maturity was 5 years (2014: 5.8 years). The
loan to value (LTV) at 31 December 2016 was 43% (2015: 28%) and the
LTV net of cash was 37.2% (2015: 22%).
Long Term Incentive Plan (LTIP)
On 8 June 2015, the terms of the LTIP were revised and previous
options cancelled. The LTIP is designed to promote retention and to
incentivise the executive directors to grow the value of the Group
and to maximise returns. A provision has been made in the accounts
of GBP500,000 (2015: GBP300,000) in respect of the LTIP.
Taxation
The Group converted to a Real Estate Investment Trust (REIT) on
1 January 2015. Under REIT status the Group does not pay tax on its
rental income profits or on gains from the sale of investment
properties. The tax charge for the year is in respect of bank
interest received and the movement on the deferred tax asset is in
respect of the financial instruments. The Group continues to meet
all of the REIT requirements to maintain REIT status.
Dividend
Under the REIT status the Group is required to distribute at
least 90% of rental income taxable profits arising each financial
year by way of a Property Income Distribution. REI commenced paying
quarterly dividends in 2016. Interim dividends of 0.625p per share
were paid in July, October and January and the Board proposes a
final dividend of 0.75p per share payable in April 2017 making a
total of 2.625p for the year (2015: 2.0p) an increase of 31.3%. All
of these dividends were paid as ordinary dividends and the
allocation of future dividends between PID and non PID will
continue to vary.
Marcus Daly
Finance Director
17 March 2017
Real Estate Investors plc
Consolidated statement of comprehensive income
For the year ended 31 December 2016
Note 2016 2015
GBP000 GBP000
Revenue 13,453 8,381
Cost of sales (1,600) (1,477)
-------- ---------
Gross profit 11,853 6,904
Administrative expenses (3,503) (3,072)
Surplus on sale of investment property - 1,687
Change in fair value of investment properties 3,531 8,552
-------- ---------
Profit from operations 11,881 14,071
Finance income 45 113
Finance costs (3,157) (2,609)
(Loss)/profit on financial liabilities at fair value through profit and loss (566) 669
-------- ---------
Profit on ordinary activities before taxation 8,203 12,244
Income tax charge (121) (157)
Net profit after taxation and total comprehensive income 8,082 12,087
-------- ---------
Total and continuing earnings per ordinary share
Basic 3 4.34p 7.46p
Diluted 3 4.28p 7.40p
EPRA 3 2.81p 0.81p
-------- ---------
The results of the Group for the period related entirely to
continuing operations.
Real Estate Investors plc
Consolidated statement of changes in equity
For the year ended 31 December 2016
Share Capital
Share premium redemption Other Retained
capital account reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 January
2015 11,142 15,533 45 - 37,843 64,563
Issue of new
shares 7,500 - - - - 7,500
Premium on issue
of new shares - 37,500 - - - 37,500
Expenses of share
issue (1,312) (1,312)
Share based payment - - - 300 - 300
Dividends - - - - (2,700) (2,700)
--------- --------- ------------ --------- ---------- --------
Transactions
with owners 7,500 36,188 - 300 (2,700) 41,288
--------- --------- ------------ --------- ---------- --------
Profit for the
year and total
comprehensive
income - - - - 12,087 12,087
At 31 December
2015 18,642 51,721 45 300 47,230 117,938
--------- --------- ------------ --------- ---------- --------
Share based payment - - - 500 - 500
Dividends - - - - (5,359) (5,359)
Transactions
with owners - - - 500 (5,359) (4,859)
--------- --------- ------------ --------- ---------- --------
Profit for the
year and total
comprehensive
income - - - - 8,082 8,082
At 31 December
2016 18,642 51,721 45 800 49,953 121,161
========= ========= ============ ========= ========== ========
Real Estate Investors plc
Consolidated statement of financial position
At 31 December 2016
Note 2016 2015
GBP000 GBP000
Assets
Non current
Intangible assets - 171
Investment properties 4 198,202 155,092
Property, plant and equipment 14 16
Deferred tax 685 806
--------- ---------
198,901 156,085
--------- ---------
Current
Inventories 3,695 2,380
Trade and other receivables 2,925 3,385
Cash and cash equivalents 11,775 8,777
--------- ---------
18,395 14,542
--------- ---------
Total assets 217,296 170,627
========= =========
Liabilities
Current
Bank loans (20,412) (20,499)
Provision for current taxation (23) (23)
Trade and other payables (6,000) (4,554)
--------- ---------
(26,435) (25,076)
--------- ---------
Non current
Bank loans (65,106) (23,585)
Financial liabilities (4,594) (4,028)
--------- ---------
(69,700) (27,613)
--------- ---------
Total liabilities (96,135) (52,689)
========= =========
Net assets 121,161 117,938
========= =========
2016 2015
GBP000 GBP000
Equity
Share capital 18,642 18,642
Share premium account 51,721 51,721
Capital redemption reserve 45 45
Other reserve 800 300
Retained earnings 49,953 47,230
-------- ---------------
Total Equity 121,161 117,938
======== ===============
Net assets per share 3 65.0p 63.3p
======== ===============
Real Estate Investors plc
Consolidated statement of cash flows
For the year ended 31 December 2016
2016 2015
GBP000 GBP000
Cash flows from operating activities
Profit after taxation 8,082 12,087
Adjustments for:
Depreciation 4 3
Net goodwill written off 53 -
Net surplus on valuation of investment property (3,531) (8,552)
Surplus on sale of investment property - (1,687)
Share based payment 500 300
Finance income (45) (113)
Finance costs 3,157 2,609
Loss/(profit) on financial liabilities at fair value through profit and loss 566 (669)
Income tax charge 121 157
Increase in inventories (1,315) (14)
Decrease in trade and other receivables 461 360
Increase in trade and other payables 281 1,291
--------- ---------
8,334 5,772
Interest paid (3,157) (2,609)
Net cash from operating activities 5,177 3,163
--------- ---------
Cash flows from investing activities
Purchase of investment properties (39,462) (58,175)
Purchase of property, plant and equipment (2) (13)
Proceeds from sale of investment properties - 15,339
Interest received 45 113
--------- ---------
(39,419) (42,736)
--------- ---------
Cash flows from financing activities
Proceeds from issue of share capital net of expenses - 43,688
Equity dividends paid (4,194) (2,700)
Proceeds from new bank loans 42,200 7,000
Payment of bank loans (766) (5,912)
--------- ---------
37,240 42,076
--------- ---------
Net increase in cash and cash equivalents 2,998 2,503
Cash, cash equivalents and bank overdrafts at beginning of period 8,777 6,274
--------- ---------
Cash, cash equivalents and bank overdrafts at end of period 11,775 8,777
========= =========
NOTES:
Cash and cash equivalents consist of cash in hand and balances
with banks only.
Real Estate Investors plc
Notes to the preliminary announcement
For the year ended 31 December 2016
1. Basis of preparation
The consolidated financial statements have been prepared under
the historical cost convention, except for the revaluation of
properties and financial instruments held at fair value through the
profit and loss account, and in accordance with International
Financial Reporting Standards (IFRS) adopted by the European
Union.
It should be noted that accounting estimates and assumptions are
used in preparation of the financial statements. Although these
estimates are based on management's best knowledge and judgement of
current events and actions, actual results may differ from those
estimates. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are
significant to the financial statements, are set out in the Group's
annual report and financial statements.
The consolidated financial statements incorporate the financial
statements of the Company and its subsidiaries made up to 31
December each year. Material intra-group balances and transactions,
and any unrealised gains arising from intra-group transactions, are
eliminated on consolidation. Unrealised losses are also eliminated
unless the transaction provides evidence of an impairment of the
asset transferred.
The principal accounting policies are detailed in the Group's
annual report and financial statements.
Going concern
The Group has prepared and reviewed forecasts and made
appropriate enquiries which indicate that the Group has adequate
resources to continue in operational existence for the foreseeable
future. These enquiries considered the following:
-- the significant cash balances the Group holds and the low
levels of historic and projected operating cashflows
-- any property purchases will only be completed if cash
resources or loans are available to complete those purchases
-- the Group's bankers have indicated their continuing support
for the Group. The Group's GBP20 million facility with Lloyds
Banking Group is due for renewal in April 2017. Whilst the process
of agreeing terms for the renewal of these facilities, which would
be subject to credit approval, documentation and due diligence, has
not commenced at the present time the bank have confirmed the
intention to roll the facilities at a similar level for a period of
three to five years from the expiry of the facilities.
-- In June 2016, the Group agreed a new GBP41 million facility
with Royal Bank of Scotland and a GBP4.2 million facility with
Allied Irish Bank (GB).
For these reasons, the directors continue to adopt the going
concern basis in preparing the financial statements.
2. Gross profit
2016 2015
GBP000 GBP000
Revenue - Rental income 13,019 8,152
- Surrender premiums 434 229
13,453 8,381
-------- --------
Cost of sales - Direct costs (1,600) (1,477)
11,853 6,904
======== ========
3. Earnings per share
The calculation of earnings per share is based on the result for
the year after tax and on the weighted average number of shares in
issue during the year.
Reconciliations of the earnings and the weighted average numbers
of shares used in the calculations are set out below.
2016 2015
Average Average
number of Earnings per number of Earnings
Earnings shares Share Earnings shares per share
GBP000 GBP000
Basic earnings per share 8,082 186,420,598 4.34p 12,087 161,968,543 7.46p
Diluted earnings per share 8,082 188,827,343 4.28p 12,087 163,968,543 7.40p
============================ ========= ============ ============= =========== ============ ===========
The European Public Real Estate Association indices below have
been included in the financial statements to allow more effective
comparisons to be drawn between the Group and other business in the
real estate sector.
EPRA EPS per share
2016 2015
Earnings per Earnings
Earnings Shares Share Earnings Shares per share
GBP000 No p GBP000 No p
Basic earnings per share 8,082 186,420,598 4.34 12,087 161,968,543 7.46
Net surplus on valuation of
investment properties (3,531) (8,552)
Profits on disposal of investment
properties - (1,687)
Change in fair value of derivatives 566 (669)
Deferred tax 121 134
--------- -----------
EPRA earnings 5,238 186,420,598 2.81 1,313 161,968,543 0.81
========= ===========
EPRA NAV per share
2016 2015
Net asset Net asset
value per value per
Net assets Shares share Net assets Shares share
GBP000 No P GBP000 No P
Basic 121,161 186,420,598 65.0 117,938 186,420,598 63.3
Dilutive impact of share options and
warrants - 2,406,745 - 1,375,000
----------- ------------ ----------- ------------
Diluted 121,161 188,827,343 64.2 117,938 187,795,598 62.8
Adjustment to fair value of
derivatives 4,594 - 4,028 -
Deferred tax (685) - (806) -
----------- ------------ ----------- ------------
EPRA NAV 125,070 188,827,343 66.2 121,160 187,795,598 64.5
Adjustment to fair value of
derivatives (4,594) - (4,028) -
Deferred tax 685 - 806 -
----------- ------------ ----------- ------------
EPRA NNNAV 121,161 188,827,343 64.2 117,938 187,795,598 62.8
----------- ------------ ----------- ------------
4. Investment properties
Investment properties are those held to earn rentals and for
capital appreciation.
The carrying amount of investment properties for the periods
presented in the consolidated financial statements is reconciled as
follows:
GBP000
Carrying amount at 1 January 2015 102,017
Additions - acquisition of new properties 57,689
Additions - subsequent expenditure 486
Disposals (13,652)
Change in fair value 8,552
---------
Carrying amount at 31 December 2015 155,092
Additions - acquisition of new properties 38,642
Additions - subsequent expenditure 820
Adjustment 117
Change in fair value 3,531
Carrying amount at 31 December 2016 198,202
=========
5. Publication
The financial information set out in this preliminary
announcement does not constitute statutory accounts as defined in
section 434 of the Companies Act 2006. The consolidated statement
of financial position at 31 December 2016 and the consolidated
statement of comprehensive income, the consolidated statement of
changes in equity, the consolidated statement of cash flows and the
associated notes for the year then ended have been extracted from
the Group's financial statements upon which the auditor's opinion
is unqualified and does not include any statement under section 498
of the Companies Act 2006. The statutory accounts for the year
ended 31 December 2016 will be delivered to the Registrar of
Companies following the Group's Annual General Meeting.
6. Copies of the announcement
Copies of this announcement are available for collection from
the Company's offices at 2(nd) Floor, 75-77 Colmore Row,
Birmingham, B3 2AP.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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