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AnnuAl RePoRT And ACCounTs 2019
CGI of the new HS2 Curzon Street Station, Birmingham
THe MIdlAnds
InVesToR
INTRODUCTION
ReAl esTATe
InVesToRs PlC
ReI Plc is the uK’s only Midlands-
focused, Birmingham-based ReIT.
uniquely positioned in a regional
economy that is enjoying a period
of rebirth, the Company has built a
diverse, attractive and well-occupied
portfolio of mixed-use commercial
assets, valued at £228.9 million. The
Company operates a robust business
model with a proven track record of
delivering consistent returns.
41
Financial Statements
Independent Auditor’s Report to the
Members of Real estate Investors Plc
Consolidated statement of
Comprehensive Income
45
Consolidated statement of Changes in equity 46
Company statement of Changes in equity
46
Consolidated statement of Financial Position 47
48
Company statement of Financial Position
49
Consolidated statement of Cash Flows
50
Company statement of Cash Flows
51
notes to the Financial statements
71
our Advisers
Contents
Strategic Report
At a Glance
our Progress
our Investment Proposition
simplified debt
our Performance
delivering Returns
Property Report
our Business Model
Chairman’s & Chief executive’s Review
our Region
our Portfolio
Business Model in Action
Finance director’s Report
Principal Risks and uncertainties
Governance
Board of directors and Management
Corporate Governance Report
directors’ Remuneration Report
directors’ Report
1
2
4
5
6
8
9
12
14
16
20
24
28
30
32
34
38
40
“Another excellent set of results,
reflecting the unique position of
ReI in a vibrant and transformational
regional economy. ReI will benefit
further from the emergence of
Hs2 and the upcoming 2022
Commonwealth Games, both
of which will spearhead future
prosperity for the Midlands.”
Andy Street
Mayor of the West Midlands
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AT A GLANCE
The Company’s purpose is to
be the best at strategic asset
management and to provide the
accommodation to allow others
to socialise, live and work
successfully, whilst growing
income streams and improving
capital values to maximise returns
to its shareholders.
Who we are
ReI Plc is a publicly quoted, internally managed property
investment Company with a portfolio of approximately
1.6 million sq ft of mixed-use commercial property in the
Midlands region. Managed by a highly experienced
property team with over 100 years of combined experience.
The Company’s strategy is to invest in well located, real
estate assets in the established and proven markets of the
Midlands, with income and 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 and is multi-sector diverse, reducing
the Company’s exposure to any sector specific downturn.
The Company aims to deliver capital growth and income
enhancement from its assets, supporting its progressive
dividend policy. since the commencement of the policy in
2012, the fully covered and quarterly paid dividend has
enjoyed 7 years of consecutive growth and has paid
£29 million in dividend payments to shareholders.
Management are fully aligned with over 6% holding
in the Company and are committed to delivering a
progressive dividend.
Outlook for 2020
2020 will be dominated by recent events, in particular the
spread of CoVId-19 and the impact of this on the uK and
global economies.
ReI’s conservative gearing and excellent banking
relationships, combined with its experienced management
team who have a proven track record of operating in
moments of crisis, means it is well positioned to weather this
storm, whilst protecting its staff and supporting occupiers
through an extremely challenging period.
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
1
“With a diversified property
portfolio, an experienced
management team and
conservative gearing, we are
well placed to navigate our
way through the challenges
presented by CoVId-19.”
Paul Bassi CBE D.Univ
Chief executive
OUR PROGRESS
AnoTHeR YeAR
oF PRoGRess
As a Real estate Investment Trust since 2015, we generate rental income
and capital growth, with the intention of delivering a progressive dividend
payment to our shareholders.
Financial highlights
• Underlying profit before tax* of £8.0 million
(2018: £7.2 million) up 11.1%
• Revenue to £16.6 million (2018: £15.6 million)
up 6.4%
• EPRA** EPS of 4.3p (2018: 3.9p) up 12.2%
• EPRA** NAV per share of 67.4p (2018: 69.3p)
• Total dividend per share for 2019 of 3.8125p
(2018: 3.5625p) up 7%
• NET LTV of 42.2%
• Record low average cost of debt of 3.4% (2018:
3.7%), with 72% of the Company’s debt fixed
• Like-for-like valuation £219.1 million
(2018: £222.8 million)
• Like-for-like rental income £16.9 million
(2018: £17.0 million)
underlying profit before tax*
dividend per share
£8.0m
+11.1%
ePRA ePs**
4.3p
+12.2%
3.8125p
+7.0%
Revenue
£16.6m
+6.4%
* underlying profit before tax excludes profit/loss on
revaluation and sale of properties and interest rate swaps
** ePRA = european Public Real estate Association
*** WAulT = Weighted Average unexpired lease Term
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REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
“2019 saw a solid performance
from the business, despite an
uncertain marketplace. The strategic
acquisitions in H2 2019, along with
our proactive approach to asset
management across the portfolio has
paid off with underlying Profits,
Contracted Rental Income and Gross
Property Assets all increased.”
Marcus Daly FCA
Finance director
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Operational highlights
• Contracted rental income of £17.7 million
(net of sales) (2018: £17.0 million) up 4.1%
• Gross property assets of £228.9 million
(2018: £224.8 million) up 1.8%
Gross property assets
£228.9m
+1.8%
• Completed 2 acquisitions in Leamington Spa
for £9.25 million (net of costs)
• Expected post period disposal proceeds of
£2.6 million from the sale of City Gate
House, Leicester
• Active asset management with 280 occupiers
and 53 assets with 53 lease events during
the period
• Occupancy at 96.3% (2018: 96.1%)
• WAULT*** of 3.82 years to break and
5.79 years to expiry (2018: 4.24 years
to break and 6.24 years to expiry)
Contracted rental income
£17.7m
+4.1%
occupancy
96.3%
+0.2%
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
3
OUR INVESTMENT PROPOSITION
A RoBusT And
sCAlABle PlATFoRM
We aim to deliver capital growth and income
enhancement through active asset management.
Uniquely positioned in
an Emerging Economy:
Internally Managed by
an Experienced Team:
Secure Financial
Structure:
• Focused on the transformational and
• Specialist internal asset management and
• Prudent leverage providing certainty
vibrant region of the Midlands
investment teams
and security
• Fastest growing regional economy with
• Over 100 years of combined property
• Long-standing banking relationships
1.6% GVA growth in 2019
experience
and access to capital
• HS2 confirmed – promising further
prosperity and home of 2022
Commonwealth Games
• Unparalleled market and regional
knowledge with a privileged network
of external relationships
• UK’s number 1 regeneration hot spot
• Excellent reputation amongst market
• Booming regional residential market
• Leading region for Foreign Direct
Investment
participants
• Management track record of successfully
operating in periods of uncertainty
• Aligned management with 6.77%
shareholding
• Multi-banked to avoid risk and take
advantage of competitive rates
• Low average cost of debt – 3.4%
• High proportion of the Company’s debt
fixed – 72%
• Ability to execute quickly on deals
due to available capital
SEE PAGES 16–19 FOR MORE INFORMATION
SEE PAGES 32 AND 33 FOR MORE INFORMATION
SEE PAGE 5 FOR MORE INFORMATION
Active Asset
Management Structure:
Diversified
Regional Portfolio:
REIT with Progressive
Covered Dividend:
• Acquisitions at attractive initial yields
• Multi-sector diversification
• Value creation through rent reviews, lease
• Deliberate strategy to focus on
• On 1st January 2015, REI Plc converted
to a Real Estate Investment Trust (”REIT“)
renewals, lettings, change of use
resilient subsectors, mitigating risk
• Real Estate Investment Trusts are listed
• Realising permitted development value
• No material reliance on any single
from within existing portfolio
occupier or asset
• Disposals at/above book value when
asset management initiatives have been
completed
• Capital recycled into value-add
opportunities
• Capacity to grow portfolio further
with existing cost structure
• Geographically focused in a region
where management have expertise
• Strong tenant covenants
• Robust occupancy rates
property investment companies not liable
to corporation tax on their rental income
or capital gains from their qualifying
activities
• A REIT must pay out 90% of its taxable
profits as dividends
• Dividend policy commenced in 2012
and has enjoyed 7 years of consecutive
growth
• Dividend fully covered by EPRA earnings
• Paid quarterly to shareholders
SEE PAGES 26 AND 27 FOR MORE INFORMATION
SEE PAGES 20–23 FOR MORE INFORMATION
SEE PAGE 8 FOR MORE INFORMATION
4
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
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SIMPLIFIED DEBT
Net Debt at
31 December 2019 (£m)
Debt Structure at
31 December 2019 (%)
Floating
28%
net debt
Borrowings
Cash
31 Dec
2019
£m
105.2
(10.1)
95.1
31 dec
2018
£m
98.8
(10.8)
88.0
Debt Maturity at
31 December 2019 (£m)
£45m
£38m
2020
£7m
2021
2023
2027
£8m
2030
£6m
2031
£1m
72%
Fixed
Cost of Debt Versus Income (%)
Cost of debt
nIY
Reversionary Yield
10
8
6
4
2
0
2014
2015
2016
2017
2018
2019
3.4%
Average cost of debt
lowered to 3.4% at
31 december 2019
(2018: 3.7%)
42.2%
Property net lTV
(2018: 39.8%)
72%
of debt is fixed
£8.5m
new facility with Barclays Bank
at 1.90% over lIBoR
£10m
existing facility fixed with lloyds
Banking Group at 3.2%
including bank margin
3.3x
Interest cover
(2018: 2.9x)
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
5
OUR PERFORMANCE
PRoVen
TRACK ReCoRd
despite the economic and political
volatility and the unprecedented
challenges faced by the retail sector
throughout the last 12 months, ReI Plc has
enjoyed another excellent year of
progress, during which we secured
record gross property assets, increased
revenue and contracted rental income.
“In a flat year, we have
delivered portfolio, revenue,
earnings and dividend growth.
our economies of scale drove
underlying profits to £8 million,
up 11.1%, and ePRA ePs to
4.3p, up 12.2%. our portfolio
now stands at £228.9 million
and has delivered total dividend
payments to our shareholders
of £29 million since the
commencement of our dividend
policy 7 years ago.”
Paul Bassi CBE D.Univ
Chief executive
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REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
strategic pillar
GENERATE
SHAREHOLDER VALUE
IMPROVE INCOME
STREAMS AND
CAPITAL GROWTH
DELIVER
STRONG RETURNS
INCREASE
EPRA EARNINGS
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strategic pillar
KPIs
Revenue
2019
2018
2017
2016
2015
2014
£16.6m
£15.6m
£14.9m
£13.5m
£8.4m
£8.0m
£16.6m
Gross property assets £228.9m
2019
2018
2017
2016
2015
2014
£228.9m
£224.8m
£213.1m
£201.9m
£157.5m
£104.4m
occupancy
96.3%
number of tenants
280
Contracted rental income
£17.7m
2019
2018
2017
2016
2015
2014
96.3%
96.1%
94.0%
93.0%
89.0%
84.6%
2019
2018
2017
2016
2015
2014
280
269
258
232
211
175
2019
2018
2017
2016
2015
2014
£17.7m
£17.0m
£16.2m
£14.9m
£11.9m
£7.7m
Profit before tax
£3.7m
dividend per share
3.8p
underlying profit before tax £8.0m
2019
2018
2017
2016
2015
2014
£3.7m
£8.4m
£11.3m
£8.2m
£12.2m
£6.0m
2019
2018
2017
2016
2015
2014
3.8p
3.562p
3.125p
2.625p
2.0p
1.5p
£8.0m
£7.2m
£6.2m
£5.2m
2019
2018
2017
2016
2015
£1.4m
2014
£0.3m
ePRA ePs
2019
2018
2017
2016
2015
0.8p
2014
0.3p
4.3p
3.9p
3.3p
2.8p
4.3p
ePRA nAV per share
67.4p
2019
2018
2017
2016
2015
2014
67.4p
69.3p
68.9p
66.2p
64.5p
61.3p
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
7
DELIVERING RETURNS
PRoGRessIVe
dIVIdend PolICY
The Company aims to deliver capital
growth and income enhancement from
its assets, supporting its progressive
dividend policy.
since the commencement of the dividend policy in 2012, the dividend
has performed particularly well in its peer group, enjoying 7 years of
consecutive growth and paying over £29 million in payments to its
shareholders. The dividend is fully covered by ePRA earnings and is paid
quarterly. Management are fully aligned with over 6% holding in the
Company and are committed to delivering a progressive dividend.
Record of attractive
financial returns
— 3.8125p ToTAl dIVIdend
PeR sHARe FoR 2019
— £29 MIllIon ToTAl
PAId To sHAReHoldeRs
sInCe 2012
— FullY CoVeRed BY
ePRA eARnInGs
— QuARTeRlY PAId
dIVIdend PAYMenT
7 years of consecutive growth
Increasing shareholder distribution year on year
+7%
1p
+14%
0.937p
+19%
0.875p
+31%
0.75p
0.875p
0.937p
0.75p
0.75p
0.75p
0.625p
0.625p
0.625p
0.875p
0.937p
0.875p
0.937p
Interim
Final
+33%
1p
+50%
0.75p
+100%
1p
0.5p
1p
0.75p
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
FY 2017
FY 2018
FY 2019
8
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PRoPeRTY RePoRT
Investment market overview
(subject to the impact of Covid-19)
overall property investment volumes slowed across the uK in 2019, as
investors reflected on a political standstill – we expect the full year total to be
around £45 billion, down from £65 billion in 2018 (source: CBRe Research).
The Midlands region also saw a decline in volumes during the period.
However, after a subdued 2019, we expect investment volumes to increase
throughout 2020, as confidence returns to the market and pricing remains
attractive.
There is still a significant weight of capital targeting commercial property in
the wider Midlands region. Prime investment yields within Birmingham city
centre remain at 5.00%, and we anticipate this to improve as the market
strengthens throughout 2020. Most property forecasters are anticipating a
rebound in transaction volumes in 2020, which will impact positively on
capital values and investor demand that will be strengthened further with the
recent lowering of interest rates.
For those investors seeking value and enhanced returns, acute shortages of
quality supply in the regions makes a compelling case for asset management
plays. We see 2020 being the year where private and institutional investors,
from outside the region, look to the Midlands for higher yielding regional
stock and we believe that this will create opportunities for ReI to dispose of
mature assets. ReI has a number of properties where asset management has
been completed, these can be re-cycled into new opportunities with the
potential for higher returns.
The REI portfolio
our portfolio is stable, secure and diversified across many sectors, with no
material reliance on any single asset or occupier. The portfolio includes
offices (37.7%) of which 6.4% is government income and, due to the lack of
new build over the last decade and some existing office stock being
converted to residential under permitted development rights, we are noting a
significant undersupply of office space and experiencing rental growth across
our office ownership, in particular, in our non-city centre stock across the
Midlands. our traditional retail assets continue to perform extremely well and
due to current anti-retail sentiment; we believe are undervalued. our retail
exposure remains focused on convenience, town centre and neighbourhood
outlets.
The portfolio is valued at £228.9 million (2018: £224.8 million), an increase
of 1.8% and contracted rental income has grown to £17.7 million p.a. (2018:
£17.0 million p.a.), up 4.1%. The Company’s property portfolio comprised
280 assets with 53 tenants and a net initial yield of 7.85% with a reversionary
yield of 8.63%.
The portfolio remains well placed with excellent occupancy levels in excess of
96% and with potential for positive capital and rental performance in this
coming year.
our retail holdings have seen a 6.2% decline in values throughout the period,
which is entirely linked to market sentiment in respect of retail, due to highly
publicised insolvencies including debenhams, House of Fraser and Toys R us.
We do not have any such holdings and anticipate valuation recovery as the
marketplace recognises our strong neighbourhood and convenience assets.
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
9
PROPERTY REPORT continued
We continue to pursue a pipeline of new investment opportunities from our
privileged network of property market professionals. We believe a selective
approach to acquisitions yields the best investment opportunities in the current
market and consider ourselves well positioned with long-term debt facilities
and low net gearing to take advantage of opportunities as they arise.
We remain committed to a strategy focused on regional property, with a
broad tenant mix.
According to savills, the end of year take-up figures in Birmingham city centre
is forecast to exceed 1 million sq ft, resulting in Birmingham’s strongest year
on record.
The majority of our office buildings are in out-of-town locations, and 2018
witnessed the highest level of out-of-town activity since 2015 with 358,115 sq ft
leased. With available space in out-of-town markets at an all-time-low
(452,929 sq ft), we anticipate rising rents and capital values.
In the retail sector, January 2020 witnessed some green shoots of recovery
with Bdo reporting a 5.7% jump in like-for-like-in-store sales for the month
across uK high streets, with the sector experiencing its strongest month since
2014, likely due to the easing of the political turmoil.
our continued retail focus on convenience, town centre and neighbourhood
shopping (a strong sub-sector), with no department stores/indoor shopping
centres or out-of-town stand-alone retail, has resulted in only two small retail
units affected by insolvency in the year, representing 0.56% of income.
There is strong occupier demand for neighbourhood and convenience retail
and our deliberate focus on this subsector has seen overall occupancy across
the portfolio remain at a robust level of 96.3%.
Portfolio mix
The current sector weightings are:
Sector
Rent £
31 Dec 2019
% by Income
31 Dec 2018
% by Income
1,135,300
1,011,150
6,659,625
office
Traditional Retail
3,785,116
discount Retail - Poundland/B&M etc 1,650,902
Medical and Pharmaceutical – Boots
etc
Food stores - sainsburys, lidl etc
Restaurant/Bar/Coffee – Costa
Coffee etc
Financial/licences/Agency -
ladbrokes etc
leisure - The Gym Group etc
Hotel
Car Park
Industrial
Assured shorthold Tenancy
845,002
537,596
511,000
424,613
52,500
16,520
1,035,150
TOTAL
17,664,474
37.70%
21.43%
9.35%
37.86%
19.60%
10.07%
6.43%
5.72%
6.69%
5.94%
5.86%
6.12%
4.78%
3.04%
2.89%
2.41%
0.30%
0.09%
100%
4.62%
3.16%
3.00%
2.50%
0.34%
0.10%
100%
Acquisitions
In line with our strategy, we acquired mixed-use investment properties during
the period for a combined total of £9.25 million, with a blended net initial
yield of 8.13%. The investments are both located in Royal leamington spa,
Warwickshire, with established occupiers including; o2, Toni & Guy,
Mcdonald’s, Tiger uK, Moss Bros and Timpson, with significant potential to
improve rental income and capital valuations.
since acquiring the properties, we have completed a number of lease events
and within a very short period of time expect to have extended the average
unexpired lease term and added significant value. These recent acquisitions
provide a good working example of our investment objectives and capabilities.
Sales
We did not actively seek to make any new sales during 2019, but we did
identify a number of properties in the portfolio that are suitable for sale and
we will monitor this position over the coming months, and anticipate securing
some sales at or above existing book values.
subject to the impact of Covid-19, we anticipate acquiring a further £10
million of assets during H1 2020, to grow our portfolio and income, whilst
maintaining a balanced and diversified asset, sector and occupier base.
With our established network of regional contacts and our well-established
reputation for efficient transactions we will continue to target good income
with low gearing in a diversified regional portfolio and continue to focus on
delivering stable long-term returns for shareholders.
Occupational market overview
Prospects for the West Midlands region remain strong. Hs2 has been secured
and, with Coventry named as the uK’s City of Culture for 2021 and
Birmingham hosting the 2022 Commonwealth Games, the region has a
rare opportunity to showcase everything it has to offer on a global stage.
We are seeing unprecedented levels of investment across the entire region
in infrastructure, housing, education, innovation and culture. This is making
our towns and cities a compelling proposition to domestic and overseas
businesses and we expect our region to take advantage of this level of inward
investment. In January 2020, segro announced a £400 million gateway
scheme for Coventry, anticipated to create over 7,000 jobs.
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Asset management
Office sector provides stability and growth
despite the negative sentiment that has prevailed within the retail
sector, ReI’s strategy of holding a mixed-used portfolio has paid
dividends.
The asset management initiatives employed have partially offset the
impact of the retail sector sentiment. our strongest sector has been
offices, where values have increased by 4%. The majority of that
increase has come from lease renewals, where the strong relationships
forged with the tenants, together with an understanding of their
business needs, has resulted in sensible deals that have benefitted both
parties. Combined with targeted refurbishments, enabling old space to
be let at better terms, this has delivered a solid performance for 2019.
Key asset management initiatives undertaken during the period include:
Avon House, Bromsgrove
AFH PlC occupied the entirety of the building by way of three separate
leases with simultaneous expiries. The three leases were surrendered
and a 10-year full repairing lease for the whole building was signed
from september 2019. The annual rent was held at passing subject to
an RPI review at the 5th year. The benefit to ReI was that we were able
to reduce our operational shortfalls within the building by way of
eliminating our service charge caps whilst securing a 10-year term to
an established and well-respected wealth management Company. This
resulted in a valuation gain from december 2018.
Topaz Business Park, Bromsgrove
In 2019, we were able to conclude various initiatives including an
open-market letting at our Topaz office scheme, setting a new rental
tone of £19 psf for the business park. The rest of the park is fully let
and we have completed a reversionary lease to Instinctive
Technologies, with effect from March 2020 for an additional 5 years
to 2025 as well as a lease renewal to Park Place Technologies for
further 5 years to 2024. The overall annual rent for the park has
increased by 18.6% to £340,402 p.a. and coupled with the positive
sentiment for well-placed office stock resulted in a valuation gain from
december 2018.
Westgate House, Warwick
In december 2019, Moore & Tibbitts (“M&T”), who occupy part of the
first floor, surrendered their lease for a new 10-year lease taking
additional space within the building. In order to facilitate this ReI
undertook works to take back part of Boots’ 1st floor storage space
thus creating the additional office accommodation required for M&T.
As part of the deal Boots agreed a new 6-year lease, a year ahead of
their previous contractual expiry. due to pro-active asset management
ReI were able to retain M&T in the building whilst being able to
capitalise in the conversion from storage space to office space,
resulting in an increased rent and improved WAulT.
Both of the deals highlight the positive sentiment that each tenant has
towards Westgate House demonstrating its well-placed position within
the popular town centre.
31 Dec 2019
Central Birmingham
other Birmingham
West Midlands
other Midlands
other locations
land
Total
Value
(£000)
Area
(sq ft)
Contracted
Rent (£)
ERV
£
NIY*
%
RY
%
Occupancy
%
30,975
35,225
82,375
73,730
2,770
3,780
114,049
215,895
647,387
586,347
28,779
-
1,568,835
2,681,532
6,450,533
6,679,172
284,402
-
2,046,836
2,855,319
7,200,236
7,021,069
310,326
-
228,855
1,592,457
17,664,474
19,433,786
5.06
7.61
7.83
9.06
10.27
-
7.85
6.61
8.11
8.74
9.52
11.25
-
8.63
82.85
95.80
95.65
99.96
96.15
-
96.35
*our land holdings are excluded from the yield calculations
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
11
OUR BUSINESS MODEL
A VAlue-
Add
sTRATeGY
We create value for our
stakeholders through our
active approach to asset
management and capital
recycling.
our resources and relationships
How we create value
ACQUISITION
• Selective opportunistic cash
buyer
• Mixed-use commercial assets
• Orphan disposals by
institutions/closed-end funds
• Properties with strong
prospects of income and
capital growth
• Lot sizes of £2 million
– £20 million
• Target yield of 7%–20%
Acquisitions (net of acquisition costs)
£9.25m
RESOURCE
Expertise & Reputation
• Aligned management team
with 100+ years’ experience
• Substantial knowledge of the
local market
• Outstanding reputation and
preferred buyer status in the
marketplace
Unique Relationships
• Access to wider property
business network via
management connections
• Long-standing relationships with
property agents and advisers
• Unrivalled market intelligence
and access to prospective
investments
Structure & Track Record
• Strong banking relationships
and access to capital
• Conservative debt structure
with prudent low gearing
• Ability to exchange in 7–10
days as a trusted cash buyer
20%
“We look to ‘create’ rather than ‘buy’
investments, through an active strategy
of repositioning properties and recycling
and conserving capital, while generating
cash flow, maximising occupancy rates
and crystallising reversions.”
Ian Clark BSc (Hons) MRICS
Asset Management
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REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
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How we create value
The value we create for our stakeholders
CAPITAL RECYCLING
ASSET
MANAGEMENT
DISPOSAL
• Lettings
• Rent reviews
• Lease renewals
• Change of use
• Permitted development rights
• Refurbishment
• Portfolio windfalls
• Premium value vendor
• Sale to institutional buyers
• Crystallise value or retain
for income
• Recycle proceeds into
new opportunities
occupiers
280
disposal proceeds
£2.1m
OUTCOME
Gross property assets
£228.9m
+1.8%
Revenue
£16.6m
+6.4%
underlying profit before tax
£8.0m
+11.1%
occupancy
96.3%
+0.2%
7%
YIELD
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
13
CHAIRMAN’S & CHIEF EXECUTIVE’S REVIEW
BuIldInG A BusIness
oF suBsTAnCe
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. Real
estate assets have income and capital
growth potential, realisable through active
portfolio management, refurbishment,
change of use and lettings.
Overview
during 2019, we experienced high levels of political and economic
uncertainty which led to an inactive property market. our strategy and
business model remained robust against the challenges that uK businesses
and in particular the real estate sector faced, and delivered another year of
excellent progress, benefitting in particular from the Company’s focus on
resilient subsectors.
downward valuation pressure on our retail assets of 6.2%, due to the negative
sentiment towards the retail sector generally, despite the fact that we do not
have any exposure to department stores, indoor shopping centres or
out-of-town stand-alone retail. However, we continue to maintain a long-term
track record of out performance versus the MsCI IPd Quarterly Property Index
which during 2019, reported a capital loss of -12% on an ungeared basis
during 2019 (source: MsCI).
Revenues grew to £16.6 million, up 6.4% in the last 12 months and this
allowed us to pay a 3.8p covered dividend for 2019, providing a total of
£29 million paid to shareholders since the commencement of our dividend
payments in 2012. our diverse portfolio now stands at £228.9 million and
has no material exposure to any asset, sector or occupier and has delivered
underlying profits of £8.0 million, up 11.1% year on year, our highest revenues
and underlying profits since the inception of ReI in 2004.
We are aware of significant opportunities, with a pipeline of acquisition
opportunities. due to the constraints of our available capital and our policy
to retain our gearing at existing levels, we remain extremely selective.
The availability of further capital would allow us to take advantage of
these significant mis-priced opportunities, which have been driven by the
distress and uncertainty caused by Brexit discussions and forced sellers at
open-ended funds.
our portfolio had 280 occupiers across 53 assets and during the period,
we completed 53 lease events and our occupancy levels remain strong at
96.3%. We experienced strong occupier demand for offices, our largest
sector weighting at 37.7%. low levels of new build and existing stock being
converted to residential under permitted development rights, has also driven
strong rental increases across a number of our office assets such as Topaz
Business Park, Bromsgrove, which achieved an 18.6% p.a. rental increase.
In January 2020, post the year end, we achieved a good start to the year
by completing new lettings and lease renewals totalling £726,000 p.a.
our permitted development potential continues to remain high with
approximately 250,000 sq ft of potential residential conversion identified
across the portfolio.
We made two excellent mixed-use acquisitions during the year in leamington
spa, Warwickshire, for the combined sum of £9.25 million and believe
that these have been well bought during a period of uncertainty, providing
immediate opportunities to add value and secure long-term income from
prime real estate assets.
The office portfolio, representing 37.7% of the total portfolio, of which 6.4%
is government income, comprises our largest sector weighting and has
performed exceptionally well, with strong demand, excellent occupancy levels
and capital growth of 4%, achieved in a static marketplace through asset
management initiatives and improving demand. The portfolio has seen some
14
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
We also remain alert to corporate opportunities and we anticipate a period
of consolidation in the real estate sector.
Financial results
Underlying profits, up 11.1%
our portfolio value has grown to £228.9 million, up 1.8%. Revenue for the
period under review is up 6.4% and contracted rental income is at a record
£17.7 million p.a., up 4.1%, with underlying profits up 11.1% to £8.0 million.
our like-for-like rental income declined by £100,000, predominantly due to
known lease events that provide asset management opportunities to improve
rental income and lease terms and enhance capital value.
Further acquisitions and asset management initiatives will enhance our asset
base and income whilst supporting our net Asset Value growth, together with
delivering on our commitment of a progressive dividend policy.
Pre-tax profits of £3.7 million allow for £470,000 of acquisition costs and a
reduction in our portfolio valuations of £4.3 million allows for property
revaluations and hedge costs (both non-cash items), whilst our office portfolio
increased by 4%, our retail assets were downgraded by 6.2%. underlying
profits of £8.0 million have helped support the growth of our fully covered
dividend for 2019 of 3.81p, up 7%, over the period, representing a seventh
year of consecutive growth.
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11 YEARS OF
REVENUE GROWTH
Revenue
£16.6m
£16.6m
£15.6m
£14.9m
£13.5m
Underlying profit before tax
£8.0m
£8.0m
£7.2m
£6.2m
£5.2m
£8.0m
£8.4m
£6.7m
£6.1m
£4.9m
£4.0m
£3.0m
£3.2m
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
£1.4m
£0.3m
2014
2015
2016
2017
2018
2019
Finance and banking
Reduced cost of debt
With our long-standing banking relationships and access to debt, we will
continue to secure additional bank facilities when appropriate, to support
future growth and improve profitability. We will maintain a policy of being
multi-banked across a number of established lenders.
We remain conservatively geared at 42.2% lTV (net of cash) and have
significantly reduced the cost of our debt over the last few years and intend to
maintain our gearing at the existing levels.
our bank facilities were successfully restructured during the year with 72%
of our debt fixed, through facilities secured with 6 banks and average cost
of debt reducing to 3.4% (2018: 3.7%), down 8.1%. We continue to review
long-term rates to fix low cost debt when appropriate.
In december 2019, ReI finalised a facility of £8.5 million with Barclays Bank
for 4 years at 1.9% over lIBoR secured against a portfolio of assets, drawn
down on 30 december 2019.
Dividend
7 years of continued dividend growth
one of our principal objectives has been to deliver attractive, sustainable,
higher level dividend returns and we are pleased to have increased our fully
covered dividend for 2019 of 3.81p, an uplift of 7% on 2018.
We have paid the first three quarterly dividends of 0.937p and propose to
pay a final dividend of 1p.
The proposed timetable for the final dividend, which will be a Property
Income distribution (“PId”), is as follows:
Outlook
Stable business platform but Covid-19 uncertainty ahead
our portfolio remains well positioned to benefit from a vibrant regional
economy that has finally seen the Hs2 project confirmed and, in Q1 2020 to
date, we have already evidenced transactional market activity that reveals
strong occupier demand and renewed investor appetite. However, in view of
the rapid and changing situation relating to Covid-19, the property market
conditions remain uncertain.
our intention is to continue to add value to our existing assets whilst alert to
other opportunities that will further enhance our profitability.
Covid-19
The unprecedented and fast-changing circumstances surrounding Covid-19
provide us with an uncertain landscape, however we have a strong, stable
business platform and management have a proven track record of performing
during periods of uncertainty, as demonstrated in the past.
We are alert to the potential impact of Covid-19, an unforeseen human
tragedy on a global scale. ReI has a risk averse strategy, stable portfolio
with high levels of occupancy and multi-sector diversification, together with
controlled overheads. We remain vigilant and, in common with all businesses,
we are closely monitoring the situation. To date, there has been no noticeable
effect on the business, however, it is too early to quantify what the impact
may be in the future.
should it be necessary, our resourceful team is able to work from home
without any restrictions and all provisions have been made to ensure that the
business can continue to operate efficiently. Furthermore, we have received
assurance from all third-party providers and partners that they all have
contingency measures in place to support ReI. All necessary actions are being
taken to safeguard our staff and ensure the continued progress and success of
the business, through difficult and unprecedented global circumstances.
Dividend timetable
ex-dividend date:
Record date:
dividend payment date:
26 March 2020
27 March 2020
30 April 2020
John Crabtree OBE D. Univ
Chairman
16 March 2020
Paul Bassi CBE D.Univ
Chief Executive
16 March 2020
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
15
OUR REGION
An eMeRGInG
eConoMY
The Next London?
West Midlands is gaining the title
as the fastest growing economy
outside of London and the
South East, with productivity
across the region expected to
grow by 1.7% p.a. until 2021.
Population Migration
No. 1 destination for those migrating from
London. Boosted by infrastructure/major
business relocations – attracting young
professionals and families to the region’s
homes, schools and jobs. 40% of Birmingham’s
population is under 25 years of age, making it
one of Europe’s youngest cities.
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REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
Business Confidence
According to the latest Business
Barometer from Lloyds Bank Commercial
Banking, companies in the West
Midlands reported higher confidence
in their business prospects, up 23%;
the most confident UK region.
Relocations
Major corporate relocations
are boosting confidence.
HSBC – 1,000 staff
HMRC – 3,500 staff
PWC – 1,500 staff
Funding
In June 2019, the government
announced its intention to
invest £778 million in
Birmingham and the West
Midlands in advance of staging
the 2022 Commonwealth
Games.
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Manufacturing,
Engineering & Technology
Jaguar Land Rover has reported record US sales for 2019
with the manufacturing giant selling 125,787 cars in the year,
up 3% on 2018; JCB sales jumped 22% to £4.1 billion during
its latest financial year, outpacing the global construction
market; Vodafone has turned on its high-speed 5G network
across 7 UK cities including Birmingham, providing a
fast-speed network for consumers and transforming the way
businesses operate.
Big Wins
2021 Coventry City of Culture
is a unique opportunity for the
city to boost its economy.
2022 Commonwealth Games
expected to boost the region’s
economy by £1.5 billion.
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
17
OUR REGION continued
ReBIRTH
oF A ReGIon
Infrastructure
A new era of vast infrastructure
with HS2 arrival confirmed
and a £2 billion package of
improvements submitted to
transform East-West connections on
the Midlands’ rail network.
Housing
Zoopla names the West Midlands
as Britain’s best-performing region,
with average property increases
of £36.58 a day, or £6,695 in total;
in H1 2019; and a 4.8% increase in
residential asking rents across the
City throughout 2019.
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REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
Education
With 12 universities & 50 tech
centres of excellence, the
region boasts over 73,000
graduates per year and
retains more than any other
region post-graduation.
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Tourism & Leisure
Birmingham Airport has published
its final Master Plan for expansion,
to increase annual passenger
numbers to 18 million by 2033.
£500 million is to be invested to
generate more than £2 billion in
regional economic benefit.
Employment
The West Midlands recorded the
highest employment growth of all
UK regions in the year to November
2019, with 81,000 jobs created in
the period.
Flexible Working
Birmingham is set to be at the
forefront of the flexible office
sector due to the high proportion
of start-ups and entrepreneurs,
as it looks to grow to
1.2 million sq ft by 2023.
“ReI is uniquely positioned in a region that is
undergoing a rebirth. Major infrastructure projects,
unprecedented regeneration of urban areas,
significant direct foreign investment, leading
universities and career opportunities, are attracting
a migration of people and businesses to the region
to live, work and socialise.”
Anna Durnford
Head of Investor Relations
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
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OUR PORTFOLIO
A dIVeRsIFIed
ReGIonAl PoRTFolIo
It is management’s objective to maintain a diverse multi-
sector portfolio. This approach ensures that there is no
material reliance on any sector, occupier or asset, mitigating
risk and reducing exposure to any sector-related negative
sentiment, whilst delivering strong occupancy, rising income
and capital growth across the portfolio.
£228.9 MIllIon
PoRTFolIo
96.3%
PoRTFolIo
oCCuPAnCY
22.9%
Top 10 tenants represent only
22.9% of ReI’s contracted income
5%
no tenant to represent more than
5% of Group contracted rent
10%
no asset to represent more than
10% of Group portfolio value
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REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
Portfolio mix – multi-sector diversification
0.30%
0.09%
2.41%
2.89%
3.04%
4.78%
5.86%
5.72%
6.43%
9.35%
Sector
office
Traditional Retail
discount Retail
Food store
Medical and Pharmaceutical
Restaurant/Bar/Coffee
Financial/licences/Agency
Hotel
leisure
Car Park
Industrial
Assured shorthold Tenancies
37.70%
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Rent £
31 Dec 2019
% by income
6,659,625
3,785,116
1,650,902
1,135,300
1,011,150
1,035,150
845,002
537,596
511,000
424,613
52,500
16,520
37.70%
21.43%
9.35%
6.43%
5.72%
5.86%
4.78%
3.04%
2.89%
2.41%
0.30%
0.09%
TOTAL
17,664,474
100.00%
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
21
OUR PORTFOLIO continued
locations of our properties
CREWE
M6
STOKE-ON-TRENT
M6
TELFORD
M54
WOLvERHAMPTON
DERBY
M42
NUNEATON
COvENTRY
RUGELEY
M6 TOLL
WALSALL
M6
BIRMINGHAM
M6
DROITWICH SPA
ROYAL LEAMINGTON SPA
M40
REDDITCH
KEY
Properties
Sold properties
Airports
Main roads
Rail
£228.9 MILLION
PoRTFolIo
96.3%
PoRTFolIo
oCCuPAnCY
1.6 MILLION SQ FT
oWneRsHIP
53
AsseTs
280
TenAnTs
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REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
M1
NOTTINGHAM
LEICESTER
M1
locations of our properties
CREWE
M6
STOKE-ON-TRENT
M6
DERBY
M1
NOTTINGHAM
Boundary House, Wythall
33 Bennetts Hill, Birmingham
Castlegate House, Dudley
37a Waterloo Street,
Birmingham
Crewe Retail Park
York House, Birmingham
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TELFORD
M54
WOLvERHAMPTON
RUGELEY
M6 TOLL
WALSALL
M6
M42
Gateway House, Birmingham
75/77 Colmore Row,
Birmingham
BIRMINGHAM
M6
NUNEATON
COvENTRY
DROITWICH SPA
ROYAL LEAMINGTON SPA
M40
REDDITCH
LEICESTER
M1
Avon House, Bromsgrove
Topaz Business Park,
Bromsgrove
“We take pride in our ownership of
quality institutional assets, located in the
proven markets of the Midlands. We
are internally managed with expertise in
value-add asset management, providing
our occupiers with the accommodation
they require to thrive.”
Catherine Gee IWFM
Property Management
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
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BUSINESS MODEL IN ACTION
neW MIXed-use
ACQuIsITIons
one of our key requirements is that
we are able to add value and income
to our acquisitions.
during 2019, we experienced high levels of political and economic uncertainty
which led to an inactive property market. our strategy and business model
remained robust against the challenges that uK businesses and in particular
the real estate sector faced, and delivered another year of excellent progress,
benefitting in particular from the Company’s focus on resilient subsectors.
We made two excellent mixed-use acquisitions during the year in leamington
spa, Warwickshire, for the combined sum of £9.25 million and believe that
these have been well bought during a period of uncertainty and provide
immediate opportunities to add value and secure long-term income from prime
real estate assets.
ResIlIenT
suB-seCToRs
Our acquisition criteria
• Prime and good secondary assets
• Properties acquired in locations expected
to benefit from a continued upswing
• scope for value enhancement
through active asset management
• Properties with strong prospects
of generating income to support
the Company’s dividend policy
• Properties that have been undermanaged
and undercapitalised
Our niche areas of activity include:
• non-core ‘orphan’ disposals by institutions
• Assets not easily financed by
private or corporate investors
• distressed and deadline purchases
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REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
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30–40 The Parade and 47, 49, 53
& 59a Warwick Street, Royal
Leamington Spa
The property, which includes 12 property units,
produces £639,500 p.a. with a WAULT at purchase
of 2.8 years to break and 5.5 years to expiry.
Comprising 31,660 sq ft of prime space in a
prosperous Warwickshire town centre, this is a
popular shopping destination let to well-known
tenants including: McDonald’s, Tiger UK, Moss Bros,
Timpson Limited, Oxfam, Clydesdale Bank, Savers
Health and Beauty, and EE. The investment is
multi-occupied to a diverse tenant line-up with asset
management opportunities to increase capital and
rental income with potential residential permitted
development of the upper parts.
53–57 Parade, Royal Leamington Spa
The property is situated in the centre of Royal
Leamington Spa’s prime pitch, on Parade. Three
attractive Regency buildings provide retail, ancillary
and office accommodation. Approximately
10,228 sq ft (950.2 sq m) NIA, arranged over
basement, ground and 3 upper floors. Fully let
Telefonica UK Limited t/a O2 and Toni & Guy
(South) Limited t/a Toni & Guy (with Mascolo Limited
as Guarantor). Royal Leamington Spa benefits from
excellent road communications and also has the
potential for residential permitted development of
the upper parts.
ConVenIenCe
And
neIGHBouRHood
“We are well placed, with capital
reserves and a strong network of
market contacts to maintain our
opportunistic approach to acquiring
further criteria compliant assets and
anticipate concluding some of our
growing pipeline acquisitions in
the near future.”
Andrew Osborne BSc (Hons)
Investment Management
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
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BUSINESS MODEL IN ACTION continued
ACTIVe AsseT
MAnAGeMenT
office sector provides stability and growth.
despite the negative sentiment that has prevailed within the retail sector, ReI’s
strategy of holding a mixed-use portfolio has paid dividends. The asset
management initiatives employed have partially offset the impact of the retail
sector sentiment. our strongest sector has been offices, where values have
increased by 4%. The majority of that increase has come from lease renewals,
where the strong relationships forged with the tenants, together with an
understanding of their business needs, has resulted in sensible deals that have
benefitted both parties. Combined with targeted refurbishments, enabling old
space to be let at better terms, this has delivered a solid performance for 2019.
Key asset management initiatives undertaken during the period include:
What our occupiers say about us
“A trusted and proactive landlord,
who has accommodated our needs,
allowing us the flexibility to expand
and consolidate our leases, whilst
controlling our costs.”
Alan Hudson
Chief executive officer
AFH Wealth Management
Avon House, Bromsgrove
AFH PLC occupied the entirety of the building
by way of 3 separate leases with simultaneous
expiries. The 3 leases were surrendered and
a 10-year full repairing lease for the whole
building was signed from September 2019.
The annual rent was held at passing subject
to an RPI review at the 5th year. The benefit
to REI was that we were able to reduce our
operational shortfalls within the building by way
of eliminating our service charge caps whilst
securing a 10-year term to an established and
well-respected wealth management Company.
This resulted in a valuation gain from
December 2018.
£17.7 MIllIon
ConTRACTed
RenTAl InCoMe
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REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
PosT PeRIod
leTTInGs And
leAse ReneWAls
£726,000
4%
uPlIFT In
oFFICe
PoRTFolIo
Topaz Business Park, Bromsgrove
In 2019, we were able to conclude various
initiatives including an open-market letting at our
Topaz office scheme, setting a new rental tone of
£19 psf for the business park. The rest of the park
is fully let and we have completed a reversionary
lease to Instinctive Technologies, with effect from
March 2020 for an additional 5 years to 2025 as
well as a lease renewal to Park Place Technologies
for further 5 years to 2024. The overall annual
rent for the park has increased by 18.6% to
£340,402 p.a. and coupled with the positive
sentiment for well-placed office stock resulted in
a valuation gain from December 2018.
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Westgate House, Warwick
In December 2019, Moore & Tibbitts (M&T), who occupy
part of the first floor, surrendered their lease for a new
10-year lease taking additional space within the building.
In order to facilitate this REI undertook works to take back
part of Boots’ 1st floor storage space thus creating the
additional office accommodation required for M&T. As part
of the deal Boots agreed a new 6-year lease, a year ahead
of their previous contractual expiry. Due to pro-active asset
management REI were able to retain M&T in the building
whilst being able to capitalise in the conversion from storage
space to office space, resulting in an increased rent and
improved WAULT.
Both of the deals highlight the positive sentiment that each
tenant has towards Westgate House demonstrating its
well-placed position within the popular town centre.
“our preferred buyer status in the Midlands
market allows us to identify opportunities
and enhance our asset base and income
streams via proactive asset management
and value-add initiatives.”
Jack Sears BSC (Hons) MRICS
Asset Management
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27
FINANCE DIRECTOR’S 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 into investment properties, continue our
progressive dividend policy, and increase our underlying profit before tax, ePRA earnings per share and
net assets per share. These objectives have been achieved with the exception of net assets per share
which has reduced following the revaluation deficit on our property portfolio.
Gross property assets
underlying profit before tax
Profit before tax
Revenue
ePRA ePs
ePRA nAV per share
ePRA nnnAV per share
net assets
loan to value
loan to value net of cash
Average cost of debt
dividend per share
like-for-like rental income
like-for-like capital value per sq ft
like-for-like valuation
31 December 2019
31 December 2018
£228.9 million
£8.0 million
£3.7 million
£16.6 million
4.3p
67.4p
66p
£125.4 million
46.7%
42.2%
3.4%
3.81p
£16.9 million
£141.31 sq ft
£219.1 million
£224.8 million
£7.2 million
£8.4 million
£15.6 million
3.9p
69.3p
67.9p
£128.7 million
44.7%
39.8%
3.7%
3.56p
£17.0 million
£143.74 sq ft
£222.8 million
Change
+1.8%
+11.1%
-56.0%
+6.4%
+12.2%
-2.7%
-2.8%
-2.5%
+4.5%
+6.0%
-8.1%
+7.0%
-1.9%
-1.6%
-1.6%
Results for the year
our underlying profit before tax rose to £8.0 million (2018: £7.2 million). Profit before tax (“IFRs”) totalled
£3.7 million (2018: £8.4 million), including a surplus on sale of investment properties of £8,000 (2018:
loss £42,000) and a loss on revaluation of investment properties of £4.3 million (2018: surplus
£578,000), together with a loss on the market value of our interest rate hedging instruments of £41,000
(2018: surplus £706,000).
Acquisitions of investment properties totalled £9.3 million (net of acquisition costs) during the year. Rental
income for the year was up 6.4% to £16.6 million (2018: £15.6 million). The investment properties were
revalued externally at 31 december 2019 and resulted in a loss on revaluation of £4.3 million mainly
due to the pessimistic view on retail, which resulted in a write down of £2 million on our retail centre in
Crewe, and absorbing costs of £470,000 on property acquisitions.
The decision to dispose of certain properties during the year resulted from properties reaching maturity,
receiving an offer substantially higher than valuation 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 which were stable at £3.5
million (2018: £3.3 million) after charging a bonus provision, (plus employers’ national Insurance) of
£940,000 (2018: £940,000) and a provision for costs of the long-Term Investment Plan of £100,000
(2018: nil).
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REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
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Interest costs for the year fell to £3.6 million (2018: £3.7 million) as the
weighted average cost of debt fell to 3.4% (2018: 3.7%) as a result of new
debt at variable rates and the fixing of £10 million of our facility with lloyds
Banking Group.
earnings per share were:
Basic: 2.0p (2018: 4.5p)
diluted: 1.9p (2018: 4.4p)
ePRA: 4.3p (2018: 3.9p)
shareholders’ funds decreased to £125.4 million at 31 december 2019
(2018: £128.7 million) as a result of the loss on property portfolio revaluation.
Basic nAV: 67.3p (2018: 69.0p)
ePRA nAV: 67.4p (2018: 69.3p)
ePRA nnnAV: 66.0p (2018: 67.9p)
Finance and banking
Total drawn debt at 31 december 2019 was £105 million (2018: £99
million). In december 2019, the Group agreed a new £8.5 million facility
with Barclays Bank at 1.90% over lIBoR and during the year the Company
fixed a £10 million facility with lloyds Banking Group at 3.2% including bank
margin. As a result, the weighted average cost of debt has decreased to
3.4% (2018: 3.7%) and the weighted average debt maturity was 3.25 years
(2018: 4.5 years), with 72% of debt fixed and 28% variable. The loan to
value (lTV) at 31 december 2019 was 46.7% (2018: 44.7%) and the lTV net
of cash was 42.2% (2018: 39.8%).
Long-Term Incentive Plan (“LTIP”)
The lTIP is designed to promote retention and to incentivise the executive
directors to grow the value of the Group and to maximise returns. A provision
has been made in the accounts of £100,000 (2018: £nil) in respect of
the lTIP. Based on the results, 42% of the options awarded for 2017 are likely
to vest.
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 0.937p per share were paid in July 2019, october 2019
and January 2019 and the Board proposes a final dividend of 1.0p per share
payable in April 2020 as a Property Income distribution making a total of
3.8125p for the year (2018: 3.5625p) an increase of 7%. The allocation of
dividend payments between PId and non-PId will continue to vary.
Marcus Daly
Finance Director
16 March 2020
Key performance indicators (“KPIs”)
The following KPIs are some of the tools used by
management to monitor the performance of the Group
against the aim of creating sustainable long-term returns
for shareholders:
ePRA ePs
4.3p
4.3p
3.9p
3.3p
2.8p
2019
2018
2017
2016
2015
0.8p
2014
0.3p
underlying profit before tax £8.0m
£8.0m
£7.2m
£6.2m
£5.2m
2019
2018
2017
2016
2015
£1.4m
2014
£0.3m
ePRA nAV
67.4p
2019
2018
2017
2016
2015
2014
67.4p
69.3p
68.9p
66.2p
64.5p
61.3p
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
29
PRINCIPAL RISKS AND UNCERTAINTIES
Review of business
Real estate Investors Plc is a commercial property investment Company specialising in the established and proven markets
of the greater Midlands area. The Group’s business model is based on generating rental and capital growth from an
active approach to the management and development of a portfolio of quality buildings, predominantly within the office
and retail sectors.
Recurring rental income from the portfolio underpins profits, which are supplemented by gains from the sale of investment
properties. disposal proceeds are recycled into new acquisitions with better growth prospects, whilst maintaining
compliance with the terms of flexible secured bank finance.
The Group has built up a portfolio of good quality assets concentrated in these resilient established markets,
without reliance on one sector or location (see pages 1 to 15 for the review of the business which forms part of this
strategic Report).
Principal risks and uncertainties
The directors consider the principal risks of the Group and the strategy to mitigate these risks, as follows:
Risk area
Mitigation
Movement
• not reliant on one single tenant or business sector
• Focused on established business locations for investment
• Monitor asset concentration
• Portfolio diversification between office and retail properties
• Building specifications not tailored to one user
• Continual focus on current vacancies and expected
changes
• low gearing policy
• Fixed rate debt and hedging in place
• existing facilities sufficient for spending commitments
• ongoing monitoring and management of the forecast
cash position
• Internal procedures in place to track compliance with
bank covenants
• Remuneration structure reviewed
• Regular assessment of performance
• long-term incentive plan
• external investor and public relations consultancy
• Management system and support from specialist external
advisers
• IT systems and anti-virus software and firewalls
Increased risk
decreased risk
no change
Investment portfolio
• Tenant default
• Change in demand for space
• Market pricing affecting value
• Brexit
Financial
• Reduced availability or
increased cost of debt
• Interest rate sensitivity
People
• Retention/recruitment
Corporate
• Reputational risk
• Health & safety
• IT/Cyber
BY oRdeR oF THe BoARd
Marcus Daly
Secretary
16 March 2020
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REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
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BOARD OF DIRECTORS AND MANAGEMENT
JOHN CRABTREE OBE D.UNIV
NON-EXECUTIVE CHAIRMAN
WILLIAM WYATT
NON-EXECUTIVE DIRECTOR
PETER LONDON
NON-EXECUTIVE DIRECTOR
William joined Caledonia in 1997 from Close
Brothers Group Plc. He was appointed a
director in 2005 and Chief executive in 2010.
As well as Caledonia and ReI, he is a
non-executive director of Cobehold s.A.,
Chairman of newmarket Racecourses and a
Trustee of The Rank Foundation.
Peter is an Independent Financial Adviser with
Ascot lloyd. He has a lifetime of experience in
providing independent financial advice to high
net worth individuals and sold his IFA company
to a swiss Bank in 2007. Peter is also non-
executive Chairman of a number of property
related companies.
John has a variety of business, community and
charitable interests, predominantly in the West
Midlands. until 2003, he was senior partner of
Wragge & Co, the leading Birmingham based
national firm of solicitors. He is currently
Chairman of Glenn Howells Architects, White &
Black limited and Brandauer Holdings limited.
John is a former President of Birmingham
Chamber of Commerce & Industry, previous
High sheriff of the West Midlands and is Her
Majesty’s lord-lieutenant of the West Midlands.
John is currently Chair of the Birmingham
organising Committee for the 2022
Commonwealth Games.
PAUL BASSI CBE DL D.UNIV DSC
CHIEF EXECUTIVE
MARCUS DALY FCA
FINANCE DIRECTOR
Paul is also non-executive Chairman of likewise
Group Plc, listed on the International stock
exchange, non-executive Chairman of Bond
Wolfe and formerly non-executive Chairman of
CP Bigwood Chartered surveyors. Paul was
formerly the Regional Chairman & strategy
Adviser to Coutts Bank (West Midlands), former
director of the Birmingham Hippodrome and
past President of the Birmingham Chamber of
Commerce. Paul was appointed High sheriff for
the County of West Midlands for 2009 and
deputy lieutenant. Paul has received Honorary
doctorates from both Birmingham City and
Aston university, and was awarded a CBe in
the 2010 new Year’s Honours list.
Marcus is a Chartered Accountant and has over
30 years of experience in advising clients on
strategic matters and corporate planning,
particularly in the property sector. He has
responsibility for all financial and group
accounting matters, together with corporate
finance matters. Marcus is also formerly
non-executive Chairman of the Tipton & Coseley
Building society, and former non-executive
director of CP Bigwood Chartered surveyors.
32
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
ANNA DURNFORD
HEAD OF INVESTOR RELATIONS
IAN CLARK BSC (HONS) MRICS
ASSET MANAGEMENT
ANDREW OSBORNE BSC (HONS)
INVESTMENT MANAGEMENT
Anna has over 20 years’ experience within
the legal, financial, accountancy and property
sectors. Anna started her career in financial
services, before joining ernst & Young as PA
to the Managing Partner in Birmingham.
Anna joined ReI in 2007 to provide executive
support to the Board and is also head of
investor relations.
Ian is a qualified chartered surveyor with over
23 years’ experience in the property market
and is responsible for co-ordinating the asset
management strategy across the portfolio.
After qualifying with a niche practice, Ian
joined GVA Grimley (Avison Young), acting for
institutional landlords. Prior to joining ReI, Ian
worked for Argent estates limited for 10 years
as Asset Manager and was responsible for the
asset management of the 1.5 million sq ft
Brindleyplace estate.
Andrew qualified as a Chartered surveyor in
1997 and specialises in property investment
activity. Prior to joining ReI in June 2014, he
worked for a property associated subsidiary of
Goldman sachs. He began his career as an
Investment surveyor in the commercial markets
team at CBRe and as a Property Fund Manager
at Canada life and a Regional director of
Highcross in Birmingham.
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JACK SEARS BSC (HONS) MRICS
ASSET MANAGEMENT
Jack joined ReI Plc in July 2016 following a short
time at BnP Paribas Real estate where he
assisted corporate clients with the management
of their residual properties when they became
surplus to their day to day business requirements.
Prior to this Jack spent 5 years at Bilfinger GVA
(Avison Young) where, after qualifying in 2013,
he began working in the occupational
Management team on behalf of a major
national bank, focusing on their northern
retail and office portfolio.
CATHERINE GEE IWFM
SPECIAL PROJECTS / PROPERTY
MANAGEMENT
Catherine joined ReI Plc in February 2015
having spent 8 years with northwood Investors
(formally Highcross strategic Advisers),
where she was involved in the day to day
administration and management of properties
across all sectors. Her skills and experience
bring a broad range of property related
support in areas of Health and safety, system
Training and Property/Asset Management.
DONNA MOONEY
RECEPTIONIST/ADMINISTRATOR
donna has had a long and varied career as a
Personal Assistant within Insurance, Advertising
and Accountancy, most recently supporting
members of the uK&I leadership team within
Corporate Finance and Tax at ernst & Young llP.
donna joins ReI plc to take up position as Front
of House / Administrator and to provide
additional support to the executive and
operations team.
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
33
CORPORATE GOVERNANCE REPORT
2018 UK CORPORATE GOVERNANCE CODE
AND S172 REPORTING
This report sets out how we have applied and complied with the uK
Corporate Governance Code 2016 in the financial year ended
31 december 2019.
• Culture – we have identified the need to articulate the Company’s
values to preserve and strengthen our culture
• understanding the views of all our stakeholders – bi-annually we meet
with shareholders and analysts to discuss the annual and half yearly
results’ presentation
• engaging with our employees – having a small number of employees
in one location there is a high level of employee engagement and
communication
• engaging with our shareholders – we believe that communication with
our shareholders is key. In addition to our bi-annual investor relations’
presentations we are always available to talk and meet with our
shareholders
• Management of risk and opportunities – consideration of risk is an
integral part of how the Company operates on a daily basis and is
part of any transaction appraisal.
STATEMENT OF COMPLIANCE WITH THE QCA
CORPORATE GOVERNANCE CODE
Introduction
on 28 september 2018, the Board of ReI decided to apply the QCA
Corporate Governance Code (2018 edition) (the “QCA Code”). The
choice of code to adopt was important to us. We wanted to be sure that
we would proactively embrace whatever code we opted for and not end
up with a code that could stifle us and result, on a comply or explain
basis, with us describing why certain requirements were not appropriate.
We believe that the QCA Code provides us with the right governance
framework: a flexible but rigorous outcome-orientated environment in
which we can continue to develop our governance model to support
our business.
Corporate governance principles applicable to REI
As a result of deciding to apply the QCA Code, the corporate
governance principles which now apply to us are those contained in the
QCA Code. These are:
Corporate governance principles
• establish a strategy and business model which promotes long-term
value for shareholders.
• seek to understand and meet shareholder needs and expectations.
• Take into account wider stakeholder and social responsibilities and
their implications for long-term success.
• embed effective risk management, considering both opportunities and
threats, throughout the organisation.
• Maintain the Board as a well-functioning, balanced team led by the
chair.
• ensure that between them the directors have the necessary up-to-date
experience, skills and capabilities.
• evaluate Board performance based on clear and relevant objectives,
seeking continuous improvement.
• Promote a corporate culture that is based on ethical values and
behaviours.
• Maintain governance structures and processes that are fit for purpose
and support good decision-making by the Board.
• Communicate how the Company is governed and is performing by
maintaining a dialogue with shareholders and other relevant
stakeholders.
34
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
Application of the QCA Code and required disclosures in our
Annual Report or on our website
The correct application of the QCA Code requires us to apply the
principles set out above and also to publish certain related disclosures;
these can appear in our Annual Report, be included on our website or we
can adopt a combination of the two approaches. Recommended
locations for each disclosure are specified in the QCA Code; we have
chosen to follow these.
Principle 1: Establish a strategy and business model which
promotes long-term value for shareholders
The Company is a commercial property investment Company specialising
in the established and proven markets of the greater Midlands area. The
Group’s business model is based on generating rental and capital growth
from an active approach to the management and development of a
portfolio of quality buildings, predominantly within the office and retail
sector. Recurring rental income from the portfolio underpins profits, which
are supplemented by gains from the sale of investment properties.
disposal proceeds are recycled into new acquisitions with better growth
prospects, whist maintaining compliance with the terms of flexible secured
bank finance. How the Company creates value is shown on pages 12
and 13.
With effect from 1 January 2015, the Group converted to Real estate
Investment Trust (ReIT) status under which the Group is not liable to
corporation tax on its rental income or capital gains from qualifying
activities.
one of the Company’s principal objectives is to deliver on a commitment
to a progressive dividend policy, which is underpinned by the Company’s
ReIT status.
Principle 2: Seek to understand and meet shareholder needs
and expectations
The Company remains committed to listening and communicating openly
with its shareholders to ensure that its strategy, business model and
performance are clearly understood. understanding what analysts and
investors think about us, and in turn, helping these audiences understand
our business, is a key part of driving our business forward and we actively
seek dialogue with the market. We do so via investor roadshows,
attending investor conferences and our regular reporting.
The AGM is the main forum for dialogue with retail shareholders and the
Board. The notice of Meeting is sent to shareholders at least 21 days
before the meeting. The chairs of the Board and all committees, together
with all other directors, routinely attend the AGM and are available to
answer questions raised by shareholders. For each vote, the number of
proxy votes received for, against and withheld is announced at the
meeting. The results of the AGM are subsequently published on the
Company’s corporate website.
Institutional shareholders
The directors actively seek to build a relationship with institutional
shareholders. shareholder relations are managed primarily by the Chief
executive officer supported by the Finance director. The Chief executive
officer and Finance director make presentations to institutional
shareholders and analysts each year immediately following the release of
the full-year and half-year results.
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The Board as a whole is kept informed of the views and concerns of
major shareholders by briefings from the Chief executive officer and
Finance director. Any significant investment reports from analysts are also
circulated to the Board. The non-executive Chairman is available to
meet with major shareholders if required to discuss issues of importance
to them.
Principle 3: Take into account wider stakeholder and social
responsibilities and their implications for long-term success
our business model which explains how we create value is set out on
pages 12 and 13.
This business model has been in place for many years. As such, any of
the key resources and relationships needed by the Group have now been
in place for quite some time.
The Group’s stakeholders include shareholders, members of staff,
customers, suppliers, regulators, industry bodies and creditors (including
the Group’s lending banks). The principal ways in which their feedback on
the Group is gathered are via meetings and conversations. Following this
feedback, the Group has continued its clearly defined, customer-focused
and people-led strategy and accompanying conservative approach to
acquisitions and financing.
The Board has ultimate responsibility for the Group’s system of internal control
and for reviewing its effectiveness. However, any such system of internal
control can provide only reasonable, but not absolute, assurance against
material misstatement or loss. The Board considers that the internal controls in
place are appropriate for the size, complexity and risk profile of the Group.
The principal elements of the Group’s internal control system include:
• Close management of the day-to-day activities of the Group by the
executive directors.
• An organisational structure with defined levels of responsibility, which
promotes entrepreneurial decision-making and rapid implementation
while minimising risks.
• A comprehensive annual budgeting process producing a detailed
integrated profit and loss, balance sheet and cash flow, which is
approved by the Board.
• detailed quarterly reporting of performance against budget.
• Central control over key areas such as capital expenditure
authorisation and banking facilities.
Principle 5: Maintaining the Board as a well-functioning,
balanced team led by the Chair
The Board comprises the non-executive Chairman, two executive
directors and two non-executive directors. The Board considers, after
careful review, that both the non-executive directors are independent.
engaging with our stakeholders strengthens our relationships and helps us
make better business decisions to deliver on our commitments. The Board
is regularly updated on wider stakeholder engagement feedback to stay
abreast of stakeholder insights into the issues that matter most to them and
our business, and to enable the Board to understand and consider these
issues in decision-making.
The Board is satisfied that it has a suitable balance between independence
on the one hand, and knowledge of the Company on the other, to enable
it to discharge its duties and responsibilities effectively. All directors are
encouraged to use their independent judgement and to challenge all
matters, whether strategic or operational. during 2019, 4 Board meetings
took place – all Board members attended all such meetings.
Principle 4: Embed effective risk management, considering
both opportunities and threats, throughout the organisation
Audit, risk and internal control
The Company has an established framework of internal financial controls,
the effectiveness of which is regularly reviewed by the executive
Management, the Audit Committee and the Board in light of an ongoing
assessment of significant risks facing the Company.
• The Board is responsible for reviewing and approving overall
Company strategy, approving revenue and capital budgets and plans,
and for determining the financial structure of the Company including
treasury, tax and dividend policy.
• The Audit Committee assists the Board in discharging its duties
regarding the financial statements, accounting policies and the
maintenance of proper internal business, and operational and
financial control.
• There are comprehensive procedures for budgeting and planning, for
monitoring and reporting to the Board business performance against
those budgets and plans, and for forecasting expected performance
over the remainder of the financial period. These cover profits, cash
flows, capital expenditure and balance sheets. Quarterly results are
reported against budget and compared with the prior year, and
forecasts for the current financial year are regularly revised in light of
actual performance.
• The Company has a consistent system of prior appraisal for
investments, overseen by the Finance director and Chief executive
officer, with defined financial controls and procedures.
Audit Committee Meetings took place – all members attended such
meetings. Remuneration Committee meetings took place – all members
attended such meetings.
Key Board activities this year included:
• Input into the Group corporate plan.
• Continued an open dialogue with the investment community.
• Considered our financial and non-financial policies.
• discussed strategic priorities.
• discussed the Group’s capital structure and financial strategy, including
capital investments, shareholder returns and the dividend policy.
• discussed internal governance processes.
• Reviewed feedback from shareholders post full-year
and half-year results.
Directors’ conflict of interest
The Company has effective procedures in place to monitor and deal with
conflicts of interest. The Board is aware of the other commitments and
interests of its directors, and changes to these commitments and interests
are reported to and, where appropriate, agreed with the rest of
the Board.
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
35
CORPORATE GOVERNANCE REPORT continued
Principle 6: Ensure that between them the Directors have the
necessary up-to-date experience, skills and capabilities
The Board is satisfied that, between the directors, it has an effective and
appropriate balance of skills and experience. All directors receive regular
and timely information on the Group’s operational and financial
performance. Relevant information is circulated to the directors in advance
of meetings. The business reports quarterly on its headline performance
against its agreed budget, and the Board reviews the quarterly update on
performance and any significant variances are reviewed at each meeting.
Contracts are available for inspection at the Company’s registered office
and at the Annual General Meeting (“AGM”).
The Company does not provide formal training for the directors at present
but may do so in the future. However, the directors understand their duties
as directors of a Company quoted on AIM. The directors have access to
the Company’s nominated Adviser, auditors, solicitors and other advisers
as and when required. These advisers may provide formal training to the
Board from time to time. The directors are also able, at the Company’s
expense to obtain advice from external advisers if required.
All directors retire by rotation at regular intervals in accordance with the
Company’s Articles of Association.
Appointment, removal and re-election of Directors
The Board makes decisions regarding the appointment and removal of
directors, and there is a formal, rigorous and transparent procedure for
appointments. The Company’s Articles of Association require that one-third
of the directors must stand for re-election by shareholders annually in
rotation; that all directors must stand for re-election at least once every
3 years; and that any new directors appointed during the year must stand
for election at the AGM immediately following their appointment.
Principle 8: Promote a culture that is based on ethical values
and behaviours
The Board aims to lead by example and to do what is best in the interests
of the Company, its stakeholders and employees and it is the Board’s
responsibility to ensure that good standards of corporate governance are
embraced within the Group. The Board sets clear standards concerning
the Group’s culture, values and behaviours. The management team have
regular meetings and updates with the executive directors, who firmly
believe that encouraging the right way of thinking and behaving reinforces
our corporate governance culture.
Principle 9: Maintain governance structures and processes that are
fit for purpose and support good decision-making by the Board
Board programme
The Board meets at least 4 times each year in accordance with its
scheduled meeting calendar. The Board sets direction for the Company
through a formal schedule of matters reserved for its decision. Prior to the
start of each financial year, a schedule of dates for that year’s Board
meetings is compiled to align as far as reasonably practicable with the
Company’s financial calendar.
The Board and its committees receive appropriate and timely information
prior to each meeting; a formal agenda is produced for each meeting,
and Board and committee papers are distributed several days before
meetings take place. Any director may challenge Company proposals
and decisions are taken democratically after discussion. Any director who
feels that any concern remains unresolved after discussion may ask for that
concern to be noted in the minutes of the meeting, which are then
circulated to all directors. Any specific actions arising from such meetings
are agreed by the Board or relevant committee and then followed up by
the Company’s management.
Independent advice
All directors are able to take independent professional advice in the
furtherance of their duties, if necessary, at the Company’s expense. In
addition, the directors have direct access to the advice and services of
the Finance director.
Principle 7: Evaluate Board performance based on clear and
relevant objectives, seeking continuous improvement
John Crabtree, as Chairman, has been assessing the individual
contributions of each of the members of the team to ensure that:
• their contribution is relevant and effective;
• that they are committed; and
• where relevant, they have maintained their independence.
The above assessment is in progress and any results will be disclosed on
this website in due course.
succession planning is an ongoing process that identifies necessary
competencies, and then works to assess what would be required to
ensure a continuity of leadership for all critical positions.
over the next 12 months we intend to review the performance of the team
as a unit to ensure that the members of the Board collectively function in
an efficient and productive manner.
Roles of the Board, Chairman and Chief Executive Officer
The Board is responsible for the long-term success of the Company. There is a
formal schedule of matters reserved to the Board. It is responsible for overall
Group strategy; approval of major investments; approval of the annual and
interim results; annual budgets; dividend policy; and Board structure. It monitors
the exposure to key business risks and reviews the strategic direction of the
Group. There is a clear division of responsibility at the head of the Company.
The Chairman is responsible for running the business of the Board and for
ensuring appropriate strategic focus and direction. The Chief executive officer
is responsible for proposing the strategic focus to the Board, implementing it
once it has been approved and overseeing the management of the Company
through the executive Team.
All directors receive regular and timely information on the Group’s
operational and financial performance. Relevant information is circulated
to the directors in advance of meetings. The business reports quarterly on
its headline performance against its agreed budget, and the Board
reviews the quarterly update on performance and any significant
variances are reviewed at each meeting. senior executives below
Board level attend Board meetings where appropriate to present
business updates.
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REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
Executive team
The executive Team consists of Paul Bassi and Marcus daly with input
from the management team. They are responsible for formulation of the
proposed strategic focus for submission to the Board, the day-to-day
management of the Group’s businesses and its overall trading, operational
and financial performance in fulfilment of that strategy, as well as plans
and budgets approved by the Board of directors. It also manages and
oversees key risks, management development and corporate responsibility
programmes. The Chief executive officer reports to the Board on issues,
progress and recommendations for change. The controls applied by the
executive Team to financial and non-financial matters are set out earlier in
this document, and the effectiveness of these controls is regularly reported
to the Audit Committee and the Board.
Board committees
The Board is supported by the Audit and Remuneration Committees. each
committee has access to such resources, information and advice as it
deems necessary, at the cost of the Company, to enable the committee to
discharge its duties. The terms of reference of each committee are
available at www.reiplc.com.
Audit Committee
Its primary focus is on corporate reporting (from an external perspective)
and on monitoring the Company’s internal control and risk management
systems (from an internal perspective).
Remuneration Committee
Its primary function is to determine, on behalf of the Board, the
remuneration packages of the executive directors.
Principle 10: Communicate how the Company is governed and
is performing by maintaining a dialogue with shareholders
and other relevant stakeholders
The Company communicates with shareholders through the Annual Report
and Accounts, full-year and half-year announcements, the Annual General
Meeting (AGM) and one-to-one meetings with large existing or potential
new shareholders. A range of corporate information (including all
Company announcements and presentations) is also available to
shareholders, investors and the public on the Company’s corporate
website, www.reiplc.com.
The Board receives regular updates on the views of shareholders through
briefings and reports from the Chief executive officer, Finance director
and the Company’s brokers. The Company communicates with institutional
investors frequently through briefings with management. In addition,
analysts’ notes and brokers’ briefings are reviewed to achieve a wide
understanding of investors’ views.
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REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
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DIRECTORS’ REMUNERATION REPORT
Remuneration Committee
As a Company trading on AIM, the Company is not obliged to comply with the provisions of the directors’ Remuneration Reports Regulations.
However, as part of its commitment to good corporate governance practice the Company provides the following information.
The Remuneration Committee is made up of the 3 non-executive directors and the Chief executive, by invitation. The terms of reference of the
committee are to review and make recommendations to the Board regarding the terms and conditions of employment of the executive directors.
Service agreements
no director has a service agreement with a notice period that exceeds 12 months.
Policy on Directors’ remuneration
The executive directors’ remuneration packages are designed to attract, motivate and retain directors of the high calibre needed to help the Group
successfully compete in its marketplace. The Group’s policies are to pay executive directors a salary at market levels for comparable jobs in the sector
whilst recognising the relative size of the Group. The executive directors do not receive any benefits apart from their basic salaries, bonuses and
lTIP awards.
The performance management of the executive directors and the determination of their annual remuneration package is undertaken by the
Remuneration Committee. no director plays a part in any decision about his own remuneration. Annual bonuses will be paid at the discretion of the
Remuneration Committee as an incentive and to reward performance during the financial year pursuant to specific performance criteria. In exercising its
discretion the committee will take into account (among other things) nAV growth, dividend growth, rental growth, management performance and
overall financial performance. The Remuneration Committee believes that incentive compensation should recognise the growth and profitability of
the business.
Directors’ remuneration (forming part of the financial statements and subject to audit)
The remuneration of directors for the year ended 31 december 2019 was as follows:
P P s Bassi
M H P daly
J Crabtree
W Wyatt
P london
salary in
lieu of
benefits
£000
110
69
–
–
–
179
salary
£000
440
275
–
–
38
753
Fees
£000
–
–
44
38
–
82
Bonus
£000
440
275
–
–
–
715
share-based
payment
expense
£000
–
–
–
–
–
–
employers’
national
insurance
contributions
£000
130
81
–
–
4
215
Total
£000
990
619
44
38
38
1,729
2019
Total
£000
1,120
700
44
38
42
2018
Total
£000
1,202
747
44
38
42
share
options
2019
number
846
529
–
–
–
share
options
2018
number
822
514
–
–
–
1,944
2,073
1,375
1,336
salary in lieu of benefits is paid in recognition for the fact that the directors do not receive any benefits in kind.
during the year P P s Bassi and M H P daly exercised options on nil (2018: 146,737) shares and nil (2018: 83,850) shares respectively.
no post-employment benefits, including pension contributions, are received by the directors.
Policy on Non-Executive Directors’ remuneration
The remuneration of the non-executive directors is determined by the Board and based upon independent surveys of fees paid to non-executive
directors of similar companies. The non-executive directors do not receive any benefits apart from their salary and fees which are paid directly to the
individual involved.
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REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
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Long-Term Incentive Plan
At the Annual General Meeting held in June 2010 a resolution was passed approving the adoption of a new 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 incentivise the
executive directors to grow the value of the Group and to maximise returns:
• The lTIP has a ten-year life from January 2010 to december 2019.
• Performance conditions:
– 50% of the award subject to absolute nAV growth plus dividends with threshold vesting – 30% of this part of the award, at 8.5% annual growth
including dividends and full vesting at 14.0% annual growth.
– 50% subject to absolute total shareholder return (share price growth plus dividends) with threshold vesting – 30% of this part of the award, at
8.5% annual growth and full vesting at 14.0%.
• Amounts payable will be satisfied in full (save as below) by the issue of ordinary shares or the grant of zero/nominal cost options to any
participant. The price at which shares will be issued will be the weighted average mid-market closing price for the first 20 business days following
announcement of the latest full-year results. on issue, the ordinary shares will rank pari passu with the existing issued ordinary shares.
• The number of ordinary shares which can be issued under the lTIP is limited to 10% of the Company’s then issued share capital. Any excess
earned above this level will be paid in cash provided that the Remuneration Committee consider it prudent to do so at that stage, otherwise
payment will be deferred until the Remuneration Committee deem it prudent.
• The Remuneration Committee may from time to time make any alteration to the plan which it thinks fit, including for legal, regulatory or tax reasons,
in order to ensure the smooth workings of the plan in line with its objectives.
• Conditional awards of shares made each year.
• Awards vest after 3 years subject to continued employment and meeting objective performance conditions.
on 17 March 2017 and 19 March 2018 and 25 March 2019 the Group granted each of P P s Bassi and M H P daly an option under the scheme
which entitles them to subscribe for or acquire ordinary shares in the Company at a price of 10p per share (in the case of new ordinary shares) or
0p per share (in the case of a transfer of existing shares). The grant and exercise of the options is subject to the rules of the lTIP and cannot be
exercised unless the relevant performance criteria are met, as discussed above.
Based on the results and particularly the share price for 2019 42% of the options awarded in 2017 are likely to vest.
Approved by the Board of directors
P London
Chairman, Remuneration Committee
16 March 2020
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
39
DIRECTORS’ REPORT
The directors present their report together with the audited consolidated
financial statements for the year ended 31 december 2019.
Directors
The directors who served during the year and subsequently were as
follows:
J R A Crabtree
W Wyatt
P london
P P s Bassi
M H P daly
Chairman – non-executive director
non-executive director
non-executive director
Chief executive
Finance director
W Wyatt and M H P daly will retire and submit themselves for re-election
at the forthcoming Annual General Meeting.
Substantial shareholdings
The Company has been notified of the following interests that represent
3% or more of the issued share capital of the Company at 28 February
2020:
Perpetual Income & Growth Investment Trust
J o Hambro Capital Management
M&G Investment Management
Hargreaves lansdown Asset Management
Premier Miton defensive Growth Fund
P P s Bassi
eFG Harris Allday
Ruffer Absolute Return Fund
Invesco Perpetual uK equity Pension Fund
Invesco Perpetual uK strategic Income Fund
Premier Miton Global opportunities
Aberdeen standard Investments
CF Ruffer Total Return Fund
number
16,776,000
15,290,016
12,636,976
11,419,913
10,396,100
10,266,737
9,370,607
8,081,289
7,783,423
7,057,739
6,760,000
6,050,957
5,622,594
%
9.00
8.20
6.78
6.13
5.58
5.51
5.03
4.33
4.18
3.79
3.63
3.25
3.02
Other matter
Financial risk management objectives and policies are included in note 15
to the financial statements.
Real Estate Investment Trust (“REIT”)
With effect from 1 January 2015, the Group converted to ReIT status
under which the Group is not liable to Corporation Tax on its rental
income or capital gains from qualifying activities.
40
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
Statement of Directors’ responsibilities
The directors are responsible for preparing the strategic Report, directors’
Report and the financial statements in accordance with applicable law
and regulations.
Company law requires the directors to prepare financial statements for
each financial year. under that law the directors have prepared the
Company and Group financial statements in accordance with
International Financial Reporting standards (“IFRss”) as adopted by the
european union. under Company law the directors must not approve the
financial statements unless they are satisfied that they give a true and fair
view of the state of affairs and the profit or loss of the Company and
Group for that period. In preparing these financial statements, the
directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and
prudent;
• state whether applicable IFRss have been followed, subject to any
material departures disclosed and explained in the financial
statements; and
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company and Group will continue
in business.
The directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company’s and Group’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and Group and enable them to ensure
that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company
and Group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The directors confirm that:
• so far as each director is aware, there is no relevant audit information
of which the Company’s and Group’s auditor is unaware; and
• the directors have taken all the steps that they ought to have taken as
directors in order to make themselves aware of any relevant audit
information and to establish that the auditor is aware of that
information.
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website.
legislation in the united Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
Annual General Meeting
The Annual General Meeting will be held at 75-–77 Colmore Row,
Birmingham, B3 2AP on 15 May 2020 at 11.00 am.
Auditor
Grant Thornton uK llP offers itself for re-appointment as auditor in
accordance with section 489 of the Companies Act 2006.
BY oRdeR oF THe BoARd
M H P Daly
Secretary
16 March 2020
Company no. 5045715
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF REAL ESTATE INVESTORS PLC
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Real estate Investors PlC (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended
31 december 2019 which comprise the consolidated statement of comprehensive income, consolidated and company statement of changes in
equity, consolidated and company statement of financial position, consolidated and company statement of cashflows and notes to the financial
statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of
the group financial statements is applicable law and International Financial Reporting standards (IFRss) as adopted by the european union and, as
regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
In our opinion:
• the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 december 2019 and of
the group’s profit for the year then ended;
• the group financial statements have been properly prepared in accordance with IFRss as adopted by the european union;
• the parent company financial statements have been properly prepared in accordance with IFRss as adopted by the european union and as
applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International standards on Auditing (uK) (IsAs (uK)) and applicable law. our responsibilities under those
standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report. We are independent of the
group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the uK, including
the FRC’s ethical standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
The impact of uncertainties arising from the UK exiting the European Union on our audit
our audit of the financial statements requires us to obtain an understanding of all relevant uncertainties, including those arising as a consequence of the
effects of Brexit. All audits assess and challenge the reasonableness of estimates made by the directors and the related disclosures and the
appropriateness of the going concern basis of preparation of the financial statements. All of these depend on assessments of the future economic
environment and the group’s future prospects and performance.
Brexit is one of the most significant economic events for the uK, and at the date of this report its effects are subject to unprecedented levels of
uncertainty, with the full range of possible outcomes and their impacts unknown. We applied a standardised firm-wide approach in response to these
uncertainties when assessing the group’s future prospects and performance. However, no audit should be expected to predict the unknowable factors
or all possible future implications for a group associated with a course of action such as Brexit.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the IsAs (uK) require us to report to you where:
• the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or
the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when
the financial statements are authorised for issue.
In our evaluation of the directors’ conclusions, we considered the risks associated with the group’s business model, including effects arising from Brexit,
and analysed how those risks might affect the group’s financial resources or ability to continue operations over the period of at least twelve months from
the date when the financial statements are authorised for issue. In accordance with the above, we have nothing to report in these respects.
However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor’s report is not a guarantee that the
group will continue in operation.
Overview of our audit approach
• overall materiality: £2.5m, which represents approximately 1% of the group’s total assets;
• In addition, we applied a lower materiality of £0.75m to revenue for the year; and
• We identified investment property valuation as a Key Audit Matter.
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF REAL ESTATE INVESTORS PLC continued
Key audit matters
The graph below depicts the audit risks identified and their relative significance based on the extent of the financial statement impact and the extent of
management judgement.
High
Potential
financial
statement
impact
Low
Valuation of
financial liabilities
Existence of investment
property and inventory
Improper revenue
recognition
Investment
property valuation
Existence of
debtors
Management override
of control
Low
Extent of management judgement
High
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included
those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
Key Audit Matter – Group
How the matter was addressed in the audit – Group
Investment property valuation
The Group and parent’s investment property portfolio is required to be
held at fair value under IAs 40 ‘Investment Property’. The Group’s
portfolio is split between retail and office properties across the uK.
The valuation of the investment property portfolio is inherently subjective
due to, among other factors, the individual nature of each property, its
location and the expected future rentals for that particular property.
The valuations of all but five investment properties were carried out by
third party valuers. The valuers were engaged by the directors and
performed their work in accordance with the Royal Institution of Chartered
surveyors (‘RICs’) Valuation – Professional standard. The valuers used by
the Group and parent have considerable experience in the markets in
which the Group and parent operates.
In determining a property’s valuation, the valuers consider property-
specific information such as the current tenancy agreements and rental
income. They apply assumptions for yields and estimated market rent,
which are influenced by prevailing market yields and comparable market
transactions, to arrive at the final valuation.
Five properties were not valued at the year end by third party valuers.
These were valued by the directors instead. Two were in the process of
being sold with contracts having been exchanged at the year end and
two were purchased shortly prior to the year end.
The significance of the estimates and judgements involved, coupled with
the fact that only a small percentage difference in individual property
valuations, when aggregated, could result in a material misstatement,
warrants specific audit focus in this area.
We therefore identified investment property valuation as a significant risk,
which was the most significant assessed risk of material misstatement.
our audit work included, but was not restricted to:
• obtaining year end valuations for each property, ensuring that the
valuation approach for each was appropriate in accordance with the
requirements of IAs 40 and in line with RICs “red book”, and that any
factual inputs were accurate by comparing the rental data used in a
sample of the valuers’ calculations to the rental schedule prepared by
management;
• assessing the valuers’ competence, capabilities and objectivity;
• analysing year-on-year valuation movements, including discussion with
both management and the third party valuers;
• benchmarking, for outlier properties identified by the analysis above,
valuation yields against comparable published market data and
seeking further corroboration for those that fall outside a pre-
determined range informed using a suitably qualified auditor’s expert;
• evaluating evidence of the reliability of valuation estimations by
comparing the historical trend of investment property sales with the
related carrying values;
• obtaining the contracts for sale which were exchanged prior to the
year end for the two properties in the process of being sold at year
end and confirming the directors’ valuation agrees to these; and
• obtaining the purchase contracts for the two properties purchased
shortly prior to the year end and confirming the directors’ valuation
agrees to these.
The group’s accounting policy on investment property valuation is shown
in note 1 to the financial statements and related disclosures are included
in note 9 and note 16.
Key observations
We found that the judgements and assumptions used in the valuation of
investment properties were balanced, and we did not identify any
inconsistencies between the valuations recorded in the financial
statements, the third party valuations, the directors’ valuations and the
other evidence obtained during the audit.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our audit work and in
evaluating the results of that work.
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Materiality was determined as follows:
Materiality measure
Group
Parent
Financial statements as a whole
Performance materiality used to
drive the extent of our testing
specific materiality
£2.5m which was determined based on
approximately 1% of total assets. This benchmark is
considered the most appropriate because total assets
includes investment properties, the ownership and
valuation of which we consider to be of critical
importance to the users of the financial statements and
are a key area of audit focus.
£2.48m which was determined based on
approximately 1% of total assets. This benchmark is
considered the most appropriate because total assets
includes investment properties, the ownership and
valuation of which we consider to be of critical
importance to the users of the financial statements and
are a key area of audit focus.
We have chosen to maintain our materiality level at the
same level as determined for the year ended
31 december 2018, as there have been no significant
changes to the business in the current year and there were
no significant adjustments identified in the prior year which
suggest a lower materiality may be necessary.
Materiality for the current year is higher than the level
that we determined for the year ended 31 december
2018 reflecting the increase in total asset value in the
parent company in the year.
75% of financial statement materiality.
75% of financial statement materiality.
We applied a lower materiality of £0.75m to
revenue, determined with reference to the group’s
revenue and profitability for the year.
not applicable on the basis no separate parent
company statement of comprehensive income
is presented.
We believe misstatement of revenue of a lesser
amount than materiality for the financial statements as
a whole could reasonably be expected to influence
the Company’s members’ assessment of the financial
performance of the group.
In 2018, we applied a lower materiality to all income
statement line items above profit from operations
excluding surplus on sale of investment property and
change in fair value of investment properties. This
captured cost of sales and administrative expenses in
addition to revenue. We have not chosen to repeat
this in 2019 as both cost of sales and administrative
expenses balances are stable and we consider there
to be limited risk associated with them, as transactions
affecting these balances are straightforward
and involve insignificant levels of judgement
or estimation.
specific materiality
We also applied a lower level of specific materiality
for directors’ remuneration.
We also applied a lower level of specific materiality
for directors’ remuneration.
Communication of misstatements to
the audit committee
£0.125m and misstatements below that threshold that,
in our view, warrant reporting on qualitative grounds.
£0.124m and misstatements below that threshold that,
in our view, warrant reporting on qualitative grounds.
An overview of the scope of our audit
our audit approach was a risk-based approach founded on a thorough understanding of the group’s business, its environment and risk profile and in
particular included:
The components of the Group were evaluated by the audit team based on a measure of materiality considering each as a percentage of total Group
assets and revenues to assess the significance of the component and to determine the planned audit response. For significant components requiring a
full scope approach we evaluated the processes and controls over the financial reporting system identified as part of our risk assessment, reviewed the
financial statement production process and addressed critical accounting matters such as those related to the key audit matter as identified above. We
then undertook substantive testing on significant transactions and material account balances.
In order to address the audit risks described above as identified during our planning procedures, we performed a full-scope audit of the financial
statements of the parent company, Real estate Investors PlC and of two of its subsidiaries in the united Kingdom. The operations that were subject of
full-scope audit procedures made up 100% of consolidated revenues and 99.4% of total Group assets.
The remaining operations of the Group were subjected to analytical procedures over the statements of comprehensive income and statements of
financial position of the respective entities with a focus on applicable risks identified and the significance to the Group’s balances.
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
43
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF REAL ESTATE INVESTORS PLC continued
Other information
The directors are responsible for the other information. The other information comprises the information included in the Annual Report and Accounts,
other than the financial statements and our auditor’s report thereon. our opinion on the financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is
consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have
not identified material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches
not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 40, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend
to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with IsAs (uK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. our audit
work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and
for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the
company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Rebecca Eagle
Senior Statutory Auditor
for and on behalf of Grant Thornton uK llP
statutory Auditor, Chartered Accountants
BIRMINGHAM
16 March 2020
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REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
Revenue
Cost of sales
Gross profit
Administrative expenses
surplus/(loss) on sale of investment properties
Change in fair value of investment properties
Profit from operations
Finance income
Finance costs
(deficit)/surplus on financial liabilities at fair value through profit and loss
Profit on ordinary activities before taxation
Income tax charge
net profit after taxation and total comprehensive income
Total and continuing earnings per ordinary share
Basic
diluted
The results of the Group for the period related entirely to continuing operations.
The accompanying notes form an integral part of these financial statements.
note
9
5
5
16
3
6
2019
£000
16,596
(1,485)
15,111
(3,553)
8
(4,349)
7,217
41
(3,554)
(41)
3,663
–
3,663
2018
£000
15,642
(1,478)
14,164
(3,322)
(42)
578
11,378
31
(3,713)
706
8,402
(113)
8,289
7
7
1.96p
1.93p
4.45p
4.37p
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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
At 1 January 2018
share-based payment
dividends
Transactions with owners
Profit for the year and total comprehensive income
At 31 december 2018
share-based payment
dividends
Transactions with owners
Profit for the year and total comprehensive income
share
capital
£000
18,642
–
–
–
–
share
premium
account
£000
51,721
–
–
–
–
Capital
redemption
reserve
£000
45
–
–
–
–
other
reserve
£000
1,150
(148)
–
Retained
earnings
£000
Total
£000
55,496
–
(6,524)
127,054
(148)
(6,524)
(148)
(6,524)
(6,672)
–
8,289
8,289
18,642
51,721
45
1,002
57,261
128,671
–
–
–
–
–
–
–
–
–
–
–
–
100
–
100
–
(6,991)
100
(6,991)
(6,991)
(6,891)
–
3,663
3,663
At 31 December 2019
18,642
51,721
45
1,102
53,933 125,443
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
At 1 January 2018
share-based payment
dividends
Transactions with owners
Profit for the year and total comprehensive income
At 31 december 2018
share-based payment
dividends
Transactions with owners
Profit for the year and total comprehensive income
share
capital
£000
18,642
–
–
–
–
share
premium
account
£000
51,721
–
–
–
–
Capital
redemption
reserve
£000
45
–
–
–
–
other
reserve
£000
1,150
(148)
–
Retained
earnings
£000
Total
£000
52,219
–
(6,524)
123,777
(148)
(6,524)
(148)
(6,524)
(6,672)
–
8,424
8,424
18,642
51,721
45
1,002
54,119
125,529
–
–
–
–
–
–
–
–
–
–
–
–
100
–
100
–
(6,991)
100
(6,991)
(6,991)
(6,891)
–
3,954
3,954
At 31 December 2019
18,642
51,721
45
1,102
51,082 122,592
The accompanying notes form an integral part of these financial statements.
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 2019
Assets
Non current
Intangible assets
Investment properties
Property, plant and equipment
deferred tax
Current
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Current
Bank loans
Provision for current taxation
Trade and other payables
Non current
Bank loans
Financial liabilities
Total liabilities
Net assets
Equity
share capital
share premium account
Capital redemption reserve
other reserve
Retained earnings
Total equity
net assets per share
note
2019
£000
2018
£000
–
8
9 225,075
8
405
10
17
–
221,040
11
405
225,488
221,456
12
13
3,780
2,423
10,092
3,764
2,277
10,843
16,295
16,884
241,783
238,340
15
14
(7,368)
(1)
(8,113)
(364)
(1)
(7,883)
(15,482)
(8,248)
15
15
(97,807)
(3,051)
(98,411)
(3,010)
(100,858)
(101,421)
(116,340)
(109,669)
125,443
128,671
18
18,642
51,721
45
1,102
53,933
18,642
51,721
45
1,002
57,261
125,443
128,671
67.3p
69.0p
These financial statements were approved and authorised for issue by the Board of directors on 16 March 2020.
signed on behalf of the Board of directors
J R A Crabtree
Chairman
M H P Daly
Finance Director
Company no: 5045715
The accompanying notes form an integral part of these financial statements.
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
47
note
2019
£000
2018
£000
9 220,370
8
1,670
405
10
11
17
213,870
11
1,670
405
222,453
215,956
12
13
2,380
3,300
10,022
2,380
4,634
10,782
15,702
17,796
238,155
233,752
15
14
(7,323)
(11,076)
(319)
(10,225)
(18,399)
(10,544)
15
15
(94,113)
(3,051)
(94,669)
(3,010)
(97,164)
(97,679)
(115,563)
(108,223)
122,592
125,529
18
18,642
51,721
45
1,102
51,082
18,642
51,721
45
1,002
54,119
122,592
125,529
COMPANY STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 31 DECEMBER 2019
Assets
Non current
Investment properties
Property, plant and equipment
Investments
deferred tax
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Current
Bank loans
Trade and other payables
Net current liabilities
Non current
Bank loans
Financial liabilities
Total liabilities
Net assets
Equity
ordinary share capital
share premium account
Capital redemption reserve
other reserve
Profit and loss account
Total equity
The Company profit for the year was £3,954,000 (2018: £8,424,000).
These financial statements were approved by the Board of directors on 16 March 2020.
signed on behalf of the Board of directors
J R A Crabtree
Chairman
M H P Daly
Finance Director
Company no: 5045715
The accompanying notes form an integral part of these financial statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2019
Cash flows from operating activities
Profit after taxation
Adjustments for:
depreciation
net deficit/(surplus) on valuation of investment property
(surplus)/loss on sale of investment property
share-based payment
Finance income
Finance costs
loss/(surplus) on financial liabilities at fair value through profit and loss
Income tax charge
Increase in inventories
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Cash flows from investing activities
Purchase of investment properties
Purchase of property, plant and equipment
Proceeds from sale of investment properties
Interest received
Cash flows from financing activities
Interest paid
Hedge payment
equity dividends paid
Proceeds from new bank loans
Payment of bank loans
net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
noTes:
Cash and cash equivalents consist of cash in hand and balances with banks only.
The accompanying notes form an integral part of these financial statements.
2019
£000
2018
£000
3,663
8,289
5
4,349
(8)
100
(41)
3,554
41
–
(16)
(146)
113
6
(578)
42
(148)
(31)
3,713
(706)
113
(56)
1,386
1,504
11,614
13,534
(10,384)
(2)
2,008
41
(16,744)
(5)
5,661
31
(8,337)
(11,057)
(3,554)
–
(6,874)
8,500
(2,100)
(4,028)
(751)
10,843
(3,713)
(153)
(6,291)
14,570
(386)
4,027
6,504
4,339
10,092
10,843
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
49
2019
£000
2018
£000
3,954
8,424
5
3,884
–
100
(41)
3,327
41
–
–
1,334
734
6
(755)
42
(148)
(31)
3,483
(706)
113
–
1,354
1,483
13,338
13,265
(10,384)
(2)
–
41
(16,712)
(5)
5,661
31
(10,345)
(11,025)
(3,327)
–
(6,874)
8,500
(2,052)
(3,753)
(760)
10,782
(3,483)
(153)
(6,291)
14,570
(342)
4,301
6,541
4,241
10,022
10,782
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2019
Cash flows from operating activities
Profit after taxation
Adjustments for:
depreciation
net deficit/(surplus) on valuation of investment property
loss on sale of investment property
share-based payment
Finance income
Finance costs
deficit/(surplus) on financial liabilities at fair value through profit and loss
Income tax charge
Increase in inventories
decrease in trade and other receivables
Increase in trade and other payables
Cash flows from investing activities
Purchase of investment properties
Purchase of property, plant and equipment
Proceeds from sale of investment properties
Interest received
Cash flows from financing activities
Interest paid
Hedge payment
equity dividends paid
Proceeds from new bank loans
Payment of bank loans
net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
noTes
Cash and cash equivalents consist of cash in hand and balances with banks only.
The accompanying notes form an integral part of these financial statements.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
1. Accounting policies
The financial statements have been prepared under the historical cost convention, except for the revaluation of properties and financial instruments held
at fair value through profit and loss, and in accordance with International Financial Reporting standards (“IFRs”) adopted by the european union.
The principal accounting policies of the Group are set out below and are consistent with those applied in the 2018 financial statements, except where
new standards have been issued and applied retrospectively. Further details of these standards and their application by the Group are set out on
page 55.
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 cash outflows.
• 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 £20 million facility with lloyds Banking Group was
renewed for 5 years in december 2018 and a new 5 year facility of £10 million was agreed in August 2018 with Royal Bank of scotland and a
new 4 year facility of £8.5 million was agreed in december 2019 with Barclays Bank.
For these reasons, the directors continue to adopt the going concern basis in preparing the financial statements.
Business combinations
subsidiaries are all entities over which the Group has control. The Group obtains and exercises control through voting rights. The consolidated
financial statements of the Group incorporate the financial statements of the Parent Company as well as those entities controlled by the Group by
full consolidation.
Acquired subsidiaries are subject to application of the acquisition method. The consideration transferred by the Group to obtain control of a subsidiary
is calculated as the sum of the acquisition-date fair values of the assets transferred, liabilities incurred and the equity interests issued by the Group,
which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred.
The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously
recognised in the acquiree’s financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at their
acquisition-date fair values.
Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of the fair value of consideration
transferred, the recognised amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any existing equity interest in the
acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of the identifiable net assets exceed the sum calculated above,
the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately.
Intra-group balances and transactions, and any unrealised gains or losses arising from intra-group transactions, are eliminated in preparing the
consolidated financial statements.
no statement of comprehensive income is presented for the Company as permitted by section 408 of the Companies Act 2006. The Company’s
profit for the financial year was £3,954,000 (2018: £8,424,000).
Investments
Investments in subsidiary undertakings are recorded at cost less provision for impairment.
Income recognition
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured.
Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, VAT and other sales taxes or duties. The following
criteria must be met before income is recognised:
Rental income
The Group’s accounting policy under IFRs 16 has not changed from the comparative period. As a lessor the Group classifies its leases as either
operating or finance leases. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of the
underlying asset, and classified as an operating lease if it does not.
Rental income arising from operating leases on properties owned by the Group is accounted for on a straight-line basis over the period commencing
on the later of the start of the lease or acquisition of the property by the Group, and ending on the end of the lease, unless it is reasonably certain that
the break option will be exercised. Any incentive for lessees to enter into a lease agreement and any costs associated with entering into the lease are
spread over the same period.
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
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NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019
1. Accounting policies continued
Sale of properties
Income from the sale of properties held as inventory is recognised when the significant risks and rewards of ownership of the properties have passed to
the buyer, usually when legally binding contracts which are irrevocable and unconditional are exchanged, which is when legal title passes to the
purchaser, on completion.
Investment properties
Investment properties are properties held to earn rentals and/or for capital appreciation.
Investment properties are initially recognised at cost including direct transaction costs.
Investment properties are subsequently valued externally or by the directors on an open market basis at the balance sheet date and recorded at
valuation. Any surplus or deficit arising on revaluing investment properties is recognised in profit or loss in the period in which they arise. The valuations
exclude prepaid or accrued operating lease income, because it is recognised as a separate liability or asset.
dilapidation receipts are held in the balance sheet and offset against subsequent associated expenditure. Any ultimate gains or shortfalls are
recognised in profit or loss, offset against any directly corresponding movement in fair value of the investment property to which they relate.
Leasehold improvements and office equipment
leasehold improvements and office equipment are carried at acquisition cost less subsequent depreciation and impairment losses. depreciation is
charged on the cost of these assets less their residual value on a straight-line basis over the estimated useful economic life of each asset, by equal
annual instalments over the following periods:
leasehold improvements
office equipment
length of lease
5 years
–
–
Residual values and useful lives are reassessed annually.
Inventories
Inventories are held at the lower of cost and net realisable value. Cost includes all fees relating to the purchase of the property and improvement
expenses. net realisable value is based on estimated selling price less future costs expected to be incurred to sale. Any provisions to impair inventories
below cost are reversed in future periods if market conditions subsequently support a higher fair value but only up to a maximum of the original cost.
Operating leases
Group Company is the lessor
Properties leased out to tenants under operating leases are included in investment properties in the statement of financial position when all the risks and
rewards of ownership of the property are retained by the Group.
Taxation
Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting
period, that are unpaid at the year-end date. They are calculated according to the tax rates and tax laws enacted and substantively enacted at the
year-end date, based on the taxable profit for the year.
The Group elected for Real estate Investment Trust (“ReIT”) status with effect from 1 January 2015. As a result, providing certain conditions are met, the
Group’s profits from property investment are exempt from united Kingdom corporation tax. Therefore, for 2019 there is no income tax payable on the
Group’s property investment transactions and no provision for deferred tax arising on the revaluation of properties or on unused trading losses,
substantially all of which relate to property investment.
deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of
relevant assets and liabilities in the consolidated financial statements with their respective tax bases. However, in accordance with the rules set out in IAs
12, no deferred taxes are recognised on the initial recognition of goodwill, or on initial recognition of an asset or liability unless the related transaction
is a business combination or affects tax or accounting profit. This applies also to temporary differences associated with shares in subsidiaries if reversal
of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future.
deferred tax liabilities are provided for in full. deferred tax assets are recognised to the extent that it is probable that they will reverse. deferred tax
assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided that
they are enacted or substantively enacted at the balance sheet date.
Most changes in deferred tax assets or liabilities are recognised as a component of tax expense in the statement of comprehensive income. only
changes in deferred tax assets or liabilities that relate to a change in the value of assets or liabilities that is charged directly to other comprehensive
income are charged or credited directly to other comprehensive income.
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1. Accounting policies continued
Financial assets
The Group’s financial assets include cash and cash equivalents and trade and other receivables.
All financial assets are initially recognised at fair value plus transaction costs, when the Group becomes party to the contractual provisions of the
instrument.
The Group’s financial assets are all classified as financial assets held at amortised cost. This classification is determined by both the entity’s business
model for managing the financial asset and the contractual cash flow characteristics of the financial asset.
The Group’s financial assets were all classified as loans and receivables under IAs 39.
Financial assets held at amortised cost are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision
for impairment.
All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs or finance income, except
for impairment of trade receivables which is presented within administrative expenses.
A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the financial asset is transferred and that
transfer qualifies for derecognition.
A financial asset is transferred if the contractual rights to receive the cash flows of the asset have been transferred or the Group retains the contractual
rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash flows to one or more recipients. A financial asset that
is transferred qualifies for derecognition if the Group transfers substantially all the risks and rewards of ownership of the asset.
Impairment of financial assets
IFRs 9’s impairment requirements use more forward-looking information to recognise expected credit losses – the ‘expected credit loss (“eCl”) model’.
This replaces IAs 39’s ‘incurred loss model’.
Instruments within the scope of the requirements include trade and other receivables as well as amounts due from subsidiary undertakings.
Recognition of credit losses is no longer dependent on the Group first identifying a credit loss event. Instead the Group considers a broader range of
information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable
forecasts that affect the expected collectability of the future cash flows of the instrument.
In applying this forward-looking approach, a distinction is made between:
• financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk (“stage 1”) and;
• financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low (“stage 2”).
‘stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date.
‘12-month expected credit losses’ are recognised for the first category while ‘lifetime expected credit losses’ are recognised for the second category.
Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial
instrument.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand.
Equity
• share capital represents the nominal value of equity shares that have been issued.
• share premium represents the excess over nominal value of the fair value of the consideration received for equity shares, net of expenses of the
share issue.
• The capital redemption reserve represents the nominal value of shares cancelled on the purchase of own shares in order to maintain the capital
base of the Group.
• other reserves represent the cumulative amount of the share-based payment expense.
• Retained earnings include all current and prior period results as disclosed in the statement of comprehensive income.
• dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved in a general meeting
prior to the reporting date.
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
53
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019
1. Accounting policies continued
Financial liabilities
The Group’s financial liabilities include bank loans and overdrafts, trade and other payables and liabilities at fair value through profit and loss.
Additionally, the Parent Company’s financial liabilities include amounts owed to subsidiary undertakings.
Financial liabilities are recognised when the Group becomes a party to the contractual agreement of the instrument. All interest related charges are
recognised as an expense in ‘finance costs’ in the statement of comprehensive income using the effective interest method.
Bank overdrafts are raised for support of the short-term funding of the Group’s operations.
Bank loans are raised for support of the long-term funding of the Group’s operations. They are recognised initially at fair value, net of direct issue costs
and subsequently measured at amortised cost using the effective interest method, with interest-related charges recognised as an expense in finance
costs in the statement of comprehensive income. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are
recognised in profit or loss on an accruals’ basis using the effective interest method and are added to the carrying amount of the instrument to the
extent that they are not settled in the period in which they arise.
Trade and other payables are recognised initially at their fair value and subsequently measured at amortised cost less settlement payments.
All derivative financial instruments are valued at fair value through profit and loss. no derivative financial instruments have been designated as hedging
instruments. All interest related charges are included within finance costs or finance income. Changes in an instrument’s fair value are disclosed
separately in the statement of comprehensive income. Fair value is determined by reference to active market transactions or using a valuation technique
where no active market exists.
A financial liability is derecognised only when the obligation is extinguished, that is when the obligation is discharged or cancelled or expires.
A substantial modification of the terms of an existing financial liability or a part of it is accounted for as an extinguishment of the original financial
liability and the recognition of a new financial liability.
Classification as equity or financial liability
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
A financial liability exists where there is a contractual obligation to deliver cash or another financial asset to another entity or to exchange financial
assets or financial liabilities under potentially unfavourable conditions. In addition contracts which result in the entity delivering a variable number of its
own equity instruments are financial liabilities. shares containing such obligations are classed as financial liabilities.
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. dividends and
distributions relating to equity instruments are debited directly to equity.
Share warrants and share options
All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are
rewarded using share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the instrument
granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example,
profitability and sales growth targets).
All equity-settled share-based payments are ultimately recognised as an expense in the statement of comprehensive income with a corresponding credit
to other reserves.
upon exercise of share warrants or share options the proceeds received net of attributable transaction costs are credited to share capital, and where
appropriate share premium.
When the share warrants or share options have vested and then lapsed, the amount previously recognised in other reserves is transferred to
retained earnings.
Share-based payments
The Company has a long-Term Incentive Plan for certain of its employees. employee services received, and the corresponding increase in equity, are
measured by reference to the fair value of the equity instruments at the date of grant, excluding the impact of any non-market vesting conditions. The fair
value of share options is estimated on the date of grant using a binomial valuation model, according to the characteristics of the option, and is based
on certain assumptions. Those assumptions include, among others, the dividend growth rate, expected volatility, and the expected life of the options.
Management then apply the fair value to the number of options expected to vest. The resulting fair value is amortised through the statement of
comprehensive income on a straight-line basis over the vesting period with a corresponding credit to other reserves. The charge is reversed if it is likely
that any non-market based criteria will not be met. If a category of share options is cancelled, this is accounted for as an acceleration of vesting and
any remaining fair value is recognised in full at the date of cancellation.
54
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
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1. Accounting policies continued
Segmental reporting
An operating segment is a distinguishable component of the Group that engages in business activities from which it may earn revenues and incur
expenses, whose operating results are regularly reviewed by the Group’s chief operating decision maker to make decisions about the allocation of
resources and assessment of performance and about which discrete financial information is available.
As the chief operating decision maker reviews financial information for and makes decisions about the Group’s investment properties and properties
held for trading as a portfolio, the directors have identified a single operating segment, that of investment in and trading of commercial properties.
New standards adopted for the year ended 31 December 2019
The Group has adopted IFRs 16 ‘leases’ which has become effective this year. IFRs 16 ‘leases’ replaces IAs 17 ‘leases’ along with 3 interpretations
(IFRIC 4 ‘determining whether an arrangement contains a lease’, sIC ‘operating-leases-Incentives’ and sIC27 ‘evaluating the substance of transactions
Involving the legal Form of a lease’). The impact of applying this new standard is not material to the Group.
Standards, amendments and Interpretations to existing Standards that are not yet effective and have not been adopted early by
the Group
At the date of authorisation of these financial statements, several new, but not yet effective, standards, amendments to existing standards, and
Interpretations have been published by the IAsB. none of these standards, amendments or Interpretations have been adopted early by the Group.
Management anticipate that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the
pronouncement. new standards, amendments and interpretations not adopted in the current year have not been disclosed as they are not expected to
have a material impact on the Group’s financial statements.
Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal actual results.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the
next accounting year are as follows:
Investment property valuation
The Group uses the valuations performed by its independent valuers or the directors as the fair value of its investment properties. The valuation is based
upon assumptions including future rental income, anticipated maintenance costs and on the appropriate discount rate. The valuer and directors also
make reference to market evidence of transaction prices for similar properties. The impact of changes in property yields used to ascertain the valuation
of investment properties are considered (see notes 15 and 16).
Critical judgements in applying the Group’s accounting policies
The Group makes judgements in applying the accounting policies. The critical judgements that have been made are as follows:
Deferred taxation
The Group and Company have a deferred tax asset of £405,000 at 31 december 2019 (2018: £405,000) which relates to financial instruments as
detailed in note 17. The directors monitor the interest rate swap to assess the reversal of the deferred tax asset.
Surrender premiums
The Group is required to judge whether amounts due under lease surrenders are sufficiently irrevocable that income can be accrued. Judgement is also
required in establishing whether income relates to an exit fee for terminating the leased asset (recognised immediately), or whether it represents
accelerated rental income (recognised over the remaining lease term). surrender premiums received during the year are shown in note 2.
REIT status
The Group and Company elected for Real estate Investment Trust (ReIT) status with effect from 1 January 2015. As a result, providing certain conditions
are met, the Group and Company’s profit from property investment and gains are exempt from uK corporation tax. In the directors’ opinion the Group
and Company have met these conditions.
Investment entity status
Following the conversion of the Group to ReIT status during 2015, the directors have considered the criteria of the International Accounting standards
Board’s publication ‘Investment entities – Amendments to IFRs 10, IFRs 12 and IAs 27’ and are satisfied that the Group does not meet the definitions of
an investment entity and as such it remains appropriate to consolidate all of the subsidiaries.
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
55
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019
2. Segmental information
The segmental information is provided to the Chief executive, who is the chief operating decision maker.
segment revenues – Rental income
– surrender premiums
Cost of sales
– direct costs
Administrative expenses
surplus/(loss) on disposal of investment property
(deficit)/surplus on valuation of investment properties
segment operating profit
segment assets
The segmental information provided to the Chief executive also includes the following:
Finance income
Finance costs
depreciation
Income tax charge
Investment in and trading of
properties
2019
£000
16,401
195
16,596
(1,485)
15,111
(3,553)
8
(4,349)
2018
£000
15,166
476
15,642
(1,478)
14,164
(3,322)
(42)
578
7,217
11,378
241,783
238,340
2019
£000
41
(3,554)
(5)
–
2018
£000
31
(3,713)
(6)
(113)
Revenue from external customers and non current assets arises wholly in the united Kingdom. All revenue for the year is attributable to the principal
activities of the Group. Revenue from the largest customer represented 3% (2018: 3%) of the total rental income revenue for the period.
3. Profit on ordinary activities before taxation
Profit on ordinary activities before taxation is stated after:
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor for other services
Audit of the accounts of the subsidiaries
depreciation of owned property and equipment
lease payments
4. Directors and employees
staff costs during the period were as follows:
Wages and salaries
social security costs
share-based payment charge
2019
£000
29
18
5
183
2018
£000
27
18
6
183
2019
£000
2,144
279
100
2,523
2018
£000
2,070
289
–
2,359
The average number of employees (including executive directors) of the Group and the Company during the period was 8 (2018: 8), all of whom
were engaged in administration. The executive and non-executive directors are also the key management personnel of the Group and the Company
and details of their remuneration are included within the directors’ remuneration report on pages 38 and 39.
56
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
5. Finance income/finance costs
Finance income:
Interest receivable
Finance costs:
Interest payable on bank loans
6. Income tax charge
Result for the year before tax
Tax rate
expected tax charge
ReIT exempt income and gains
Actual tax charge
Tax charge comprises:
Current tax
deferred tax charge (note 17)
2019
£000
2018
£000
41
31
(3,554)
(3,713)
2019
£000
3,663
19%
696
(696)
–
–
–
–
2018
£000
8,402
19%
1,596
(1,483)
113
(22)
135
113
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7. 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.
Basic earnings per share
diluted earnings per share
3,663 186,420,598
190,176,814
3,663
1.96p
1.93p
8,289 186,420,598
189,552,547
8,289
Earnings
£000
2019
Average
number of
share
Earnings per
share
earnings
£000
2018
Average
number of
shares
earnings
per share
4.45p
4.37p
The european Public Real estate Association (“ePRA”) indices below have been included in the financial statements to allow more effective comparisons
to be drawn between the Group and other businesses in the real estate sector.
EPRA EPS per share
Basic earnings per share
net deficit/(surplus) on valuation of investment
properties
(Profit)/loss on disposal of investment properties
Change in fair value of derivatives
deferred tax
2019
2018
Earnings
£000
Shares
No
Earnings per
Share
p
earnings
£000
shares
no
3,663 186,420,598
1.96
8,289 186,420,598
earnings
per share
P
4.45
4,349
(8)
41
–
(578)
42
(706)
135
EPRA earnings per share
8,045 186,420,598
4.32
7,182 186,420,598
3.85
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
57
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019
7. Earnings per share continued
EPRA NAV per share
2019
2018
Net assets
£000
Shares
No
Basic
dilutive impact of share options and warrants
125,443 186,420,598
3,756,216
–
Diluted
Adjustment to fair value of derivatives
deferred tax
EPRA NAV
Adjustment to fair value of derivatives
deferred tax
125,443
3,051
(405)
190,176,814
–
–
128,089
(3,051)
405
190,176,814
–
–
Net asset
value per
share
P
67.3
66.0
67.4
net assets
£000
shares
no
128,671 186,420,598
3,131,949
–
128,671
3,010
(405)
189,552,547
–
–
131,276
(3,010)
405
189,552,547
–
–
net asset
value per
share
P
69.0
67.9
69.3
EPRA NNNAV
125,443
190,176,814
66.0
128,671
189,552,547
67.9
8. Intangible assets
Gross carrying amount
Cost
At 1 January 2019 and 31 december 2019
Accumulated impairment losses
At 1 January 2019
Charge for the year
31 december 2019
Net book amount at 31 December 2019
net book amount at 31 december 2018
9. Investment properties
Group
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:
Carrying amount at 1 January 2018
Additions – acquisition of new properties
Additions – subsequent expenditure
disposals
Change in fair value
Carrying amount at 31 december 2018
Additions – acquisition of new properties
Additions – subsequent expenditure
disposals
Change in fair value
Carrying amount at 31 December 2019
58
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
Goodwill
£000
171
171
–
171
–
–
£000
209,421
16,176
568
(5,703)
578
221,040
9,723
661
(2,000)
(4,349)
225,075
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9. Investment properties continued
The figures stated above for the gross carrying amount include valuations as follows:
At professional valuation
At directors’ valuation
2019
£000
2018
£000
209,350
15,725
219,040
2,000
225,075
221,040
If investment properties had not been revalued they would have been included on the historical cost basis at the following amounts:
Cost and net book amount at 31 december
Company
Carrying amount at 1 January 2018
Additions
disposals
Change in fair value
Carrying amount at 31 december 2018
Additions
disposals
Change in fair value
Carrying amount at 31 December 2019
The figures stated above for cost or valuation include valuations as follows:
At professional valuation
At directors’ valuation
2019
£000
2018
£000
225,647
219,363
£000
202,106
16,712
(5,703)
755
213,870
10,384
–
(3,884)
220,370
Investment properties
2019
£000
2018
£000
204,645
15,725
213,870
–
220,370
213,870
If investment properties had not been revalued they would have been included on the historical cost basis at the following amounts:
Cost and net book amount at 31 december
Investment properties
2019
£000
2018
£000
221,456
211,072
Investment properties are either leased to third parties on operating leases or are vacant. Rental income from investment properties in the year ended
31 december 2019 was £16,596,000 (2018: £15,642,000) and direct operating expenses in relation to those properties were £1,409,000
(2018: £1,404,000). direct operating expenses in relation to those properties which did not generate rental income in the period were £76,000
(2018: £74,000).
All of the Group and Company’s investment properties are held as either freehold or long leasehold and are held for use in operating leases. The
Group and Company uses the fair value model for all of their investment properties.
The valuation at 31 december 2019 has in the main been carried out by Cushman & Wakefield debenham Tie leung limited and Jones lang lasalle
limited, independent professional valuers, on certain properties and the directors on the remaining properties. All professional valuers have recent
experience in the location and type of properties held. directors’ valuations are reflected at values as per sales agreements or recent purchases. An
insignificant level of the portfolio is unencumbered.
Although the risks associated with rights that the Group retains in underlying assets are not considered to be significant, the Group employs strategies to
further minimise these risks, for example, it ensures lease contracts include clauses requiring the lessee to compensate the Group when a property has
been subjected to excess wear and tear during the lease term.
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
59
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019
10. Property, plant & equipment
Group and Company
Gross carrying amount
At 31 december 2018
Additions
At 31 december 2019
Depreciation and impairment
At 31 december 2018
Charge for the year
At 31 December 2019
Net book carrying amount
At 31 December 2019
At 31 december 2018
11. Interests in subsidiaries
Cost
At 1 January
Provision for impairment
At 31 december
leasehold
improvements
£000
office
equipment
£000
112
–
112
111
1
112
–
1
80
2
82
70
4
74
8
10
Total
£000
192
2
194
181
5
186
8
11
2019
£000
2018
£000
1,670
–
1,670
1,670
–
1,670
At 31 december 2019 the Company wholly owned the following subsidiaries:
Name
3147398 limited
Metro Court (WB) limited
southgate derby Retail limited
Real Homes one limited
Principal activity
Property investment
Property investment
Property investment
Property trading
Country of incorporation
england and Wales
england and Wales
england and Wales
england and Wales
The Group has control over each of these subsidiaries by virtue of its 100% shareholding in each.
The provision for impairment is a result of the underlying property asset in the subsidiary being disposed of and therefore the carrying value of the
investment is reduced to reflect the underlying net assets.
12. Inventories
land held for trading
Group
Company
2019
£000
2018
£000
2019
£000
2018
£000
3,780
3,764
2,380
2,380
All land held for trading is included at the lower of cost and net realisable value, being their fair value less costs to sell. no inventory (2018: £nil), is
pledged as security for bank loans.
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13. Trade and other receivables
Trade receivables
Amounts owed by subsidiary undertakings
other receivables
Prepayments and accrued income
Group
Company
2019
£000
190
–
139
2,094
2,423
2018
£000
182
–
104
1,991
2019
£000
157
1,014
139
1,990
2018
£000
215
2,619
48
1,752
2,277
3,300
4,634
All of the Group’s trade and other receivables have been reviewed for indicators of impairment. Certain trade receivables were found to be impaired
and a provision of £118,000 (2018: £93,000) has been recorded accordingly. The movement in the provision for impairment during the year is
as follows:
At 1 January
Increase in provision
debts written off
At 31 december
Group and Company
2019
£000
93
25
–
118
2018
£000
93
42
(42)
93
In addition, some of the trade receivables not impaired are past due as at the reporting date. The age of financial assets past due but not impaired is
as follows:
not more than three months past due
More than three months but no more than six months past due
Financial assets by category
The categories of financial asset included in the balance sheet and the headings in which they are included are as follows:
Group and Company
2019
£000
2
9
11
2018
£000
3
8
11
Group
Trade receivables
other receivables
Prepayments and
accrued income
Cash and cash equivalents
Financial
assets at
amortised
cost
£000
190
139
2019
Non
financial
assets
£000
Balance
sheet total
£000
–
–
190
139
–
10,092
2,094
–
2,094
10,092
10,421
2,094
12,515
Financial
assets at
amortised
cost
£000
182
104
–
10,843
11,129
2018
non
financial
assets
£000
–
–
1,991
–
1,991
Balance
sheet total
£000
182
104
1,991
10,843
13,120
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
61
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019
13. Trade and other receivables continued
Company
Trade receivables
Amounts owed by subsidiary undertakings
other receivables
Prepayments and
accrued income
Cash and cash equivalents
14. Trade and other payables
Trade payables
Amounts owed to subsidiary undertakings
other payables
social security and taxation
Accrual and deferred income
dividend payable
Financial
assets at
amortised
cost
£000
157
1,014
139
2019
Non
financial
assets
£000
–
–
–
Balance
sheet total
£000
157
1,014
139
–
10,022
1,990
–
1,990
10,022
11,332
1,990
13,322
Financial
assets at
amortised
cost
£000
215
2,619
48
–
10,782
13,664
2018
non
financial
assets
£000
–
–
–
1,752
–
1,752
Balance
sheet total
£000
215
2,619
48
1,752
10,782
15,416
Group
Company
2019
£000
436
–
470
656
4,803
1,748
8,113
2018
£000
399
–
155
742
4,956
1,631
2019
£000
402
3,172
460
640
4,654
1,748
2018
£000
386
2,521
125
746
4,816
1,631
7,883
11,076
10,225
Financial liabilities by category
The categories of financial liabilities included in the balance sheet and the headings in which they are included are as follows:
Group
2019
2018
Current
Bank loans
Provision for current taxation
Trade payables
other payables
social security and taxation
Accruals and deferred income
dividend payable
Non-current
Bank loans
Financial instruments
Financial
liabilities at
fair value
through
profit and
loss
£000
Other
financial
liabilities at
amortised
cost
£000
Non-
financial
liabilities
£000
Balance
sheet total
£000
Financial
liabilities at fair
value through
profit and loss
£000
other financial
liabilities at
amortised cost
£000
non-financial
liabilities
£000
Balance sheet
total
£000
–
–
–
–
–
–
–
–
7,368
–
436
470
–
2,121
1,748
–
1
–
–
656
2,682
–
7,368
1
436
470
656
4,803
1,748
12,143
3,339
15,482
–
–
–
–
–
–
–
–
364
–
399
155
–
2,083
1,631
4,632
–
1
–
–
742
2,873
–
3,616
364
1
399
155
742
4,956
1,631
8,248
–
3,051
97,807
–
3,051
97,807
–
–
97,807
3,051
– 100,858
–
3,010
3,010
98,411
–
98,411
–
–
–
98,411
3,010
101,421
3,051 109,950
3,339 116,340
3,010
103,043
3,616
109,669
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14. Trade and other payables continued
Company
2019
2018
Current
Bank loans
Provision for current taxation
Trade payables
Amounts owed to subsidiary undertakings
other payables
social security and taxation
Accruals and
deferred income
dividend payable
Non-current
Bank loans
Financial instruments
Financial
liabilities at
fair value
through
profit and
loss
£000
Other
financial
liabilities at
amortised
cost
£000
Non-
financial
liabilities
£000
Balance
sheet total
£000
Financial
liabilities at fair
value through
profit and loss
£000
other financial
liabilities at
amortised cost
£000
non-financial
liabilities
£000
Balance sheet
total
£000
–
–
–
–
–
–
–
–
7,323
–
402
3,172
460
–
–
–
–
–
640
7,323
–
402
3,172
460
640
2,062
1,748
2,592
–
4,654
1,748
15,167
3,232
18,399
–
–
–
–
–
–
–
–
–
319
–
386
2,521
125
–
2,024
1,631
7,006
–
–
–
–
–
746
2,792
–
319
–
386
2,521
125
746
4,816
1,631
3,538
10,544
–
3,051
94,113
–
3,051
94,113
–
–
–
94,113
3,051
97,164
–
3,010
94,669
–
3,010
94,669
–
–
–
94,669
3,010
97,679
3,051 109,280
3,232 115,563
3,010
101,675
3,538
108,223
15. Financial risk management objectives and policies
The Group and Company’s financial instruments are bank borrowings, cash, bank deposits, interest rate swap agreements and various items such as
short-term receivables and payables that arise from its operations. The main purpose of these financial instruments is to fund the Group and Company’s
investment strategy and the short-term working capital requirements of the business.
The main risks arising from the Group and Company’s financial instruments are credit risk, liquidity risk, interest rate risk and property yield risk. The
Board reviews and agrees policies for managing each of these risks and they are summarised below. These policies have remained unchanged
throughout the period.
Credit risk
The Group and Company’s principal financial assets are bank balances and trade and other receivables. The Group and Company’s credit risk is
primarily attributable to its trade and other receivables. The amounts presented in the balance sheet are net of allowance for doubtful receivables. An
allowance for impairment is made where there is objective evidence that the Group or Company will not be able to collect all amounts due according
to the original terms of the receivables concerned. The credit risk for liquid funds is considered negligible, since the counterparties are reputable banks
with high-quality external credit ratings.
The Group and Company’s exposure to credit risk is limited to the carrying amount of financial assets recognised at the balance sheet date, as
summarised below:
Cash and cash equivalents
Trade and other receivables
2019
£000
10,092
190
2018
£000
10,843
286
10,282
11,129
The Group and Company continuously monitors defaults of tenants and other counterparties, identified either individually or by group, and incorporates
this information into its credit risk controls. external credit ratings and/or reports on tenants and other counterparties are obtained and used. The policy
is to deal only with credit-worthy counterparties.
The Group and Company’s management consider that all the above financial assets that are not impaired for each of the reporting dates under review
are of good credit quality, including those that are past due. In respect of trade and other receivables, the Group or Company are not exposed to any
significant risk exposure to any single counterparty or any group of counterparties having similar characteristics.
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
63
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019
15. Financial risk management objectives and policies continued
Liquidity risk
The Group and Company seek to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets
safely and profitably. The Group and Company do this by taking out loans with banks to build up cash resources to fund property purchases.
Bank loans
The Group and Company borrowings’ analysis (all of which are undiscounted) at 31 december 2019 is as follows:
In less than 1 year:
Bank borrowings
In more than 1 year but less than 2 years:
Bank borrowings
In more than 2 years but less than 5 years:
Bank borrowings
In more than 5 years
Bank borrowings
deferred arrangement costs
Financial instruments*
Group
Company
2019
£000
2018
£000
2019
£000
2018
£000
7,368
364
7,323
319
55,584
8,939
55,534
8,889
30,060
56,710
29,520
56,170
12,676
(513)
33,140
(378)
9,572
(513)
105,175
3,051
98,775 101,436
3,051
3,010
29,988
(378)
94,988
3,010
108,226
101,785 104,487
97,998
* disclosed as financial liabilities at fair value through profit or loss.
The changes in the Group’s and Company’s liabilities arising from financing activities can be classified as follows:
Group
2019
£000
Current
liabilities
364
9,104
–
(2,100)
2019
£000
Non-
current
liabilities
98,411
(9,104)
8,500
–
2018
£000
Current
liabilities
20,378
(19,628)
–
(386)
2018
£000
non-current
liabilities
64,213
19,628
14,570
–
7,368
97,807
364
98,411
Company
2019
£000
Current
liabilities
319
9,056
–
(2,052)
2019
£000
Non-
current
liabilities
94,669
(9,056)
8,500
–
2018
£000
Current
liabilities
20,303
(19,642)
–
(342)
2018
£000
non-current
liabilities
60,457
19,642
14,570
–
7,323
94,113
319
94,669
At 1 January
Reclassification
Proceeds from new bank loans
Repayment of bank loans
At 31 December
At 1 January
Reclassification
Proceeds from new bank loans
Repayment of bank loans
At 31 December
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15. Financial risk management objectives and policies continued
Maturity of financial liabilities
The gross contractual cash flows relating to non-derivative financial liabilities are as follows:
In less than one year:
Trade payables
Amount owed to subsidiary undertakings
other payables
Accruals
dividend
Bank borrowings
In more than 1 year but less than 2 years:
Bank borrowings
In more than 2 years but less than 5 years:
Bank borrowings
In more than 5 years
Bank borrowings
Group
Company
2019
£000
2018
£000
2019
£000
2018
£000
436
–
470
2,121
1,748
11,181
399
–
155
2,083
1,631
4,351
402
3,172
460
2,062
1,748
10,905
386
2,521
125
2,024
1,631
4,073
15,956
8,619
18,749
10,760
50,847
12,921
50,295
12,643
45,755
83,618
44,927
82,784
19,159
17,375
14,040
12,463
131,717
122,533 128,011
118,650
The Group and Company has entered into interest rate swap agreements to cover £20 million of its bank borrowings with lloyds Banking Group.
These contracts are considered by management to be part of economic hedge arrangements but have not been formally designated. The effect of the
remaining agreement is to fix the interest payable on a notional £10 million at a rate of 4.75%; unless the actual rate is between 3.65% and 4.75%
in which case the actual rate is paid or unless the rate is above 4.75% in which case 3.65% is paid plus a margin of 2.45%. The agreement expires
in February 2028. The remaining £10 million has been fixed at 0.679% plus the margin of 2.45% until 31 december 2023. At 31 december 2019,
the fair value of this arrangement based on a valuation provided by the Group’s bankers was a liability of £3,051,000 (2018: £3,010,000).
Borrowing facilities
The Group and Company has undrawn committed borrowing facilities at 31 december 2019 of £nil (2018: £nil).
Market risk
Interest rate risk
The Group and Company finance their operations through retained profit, cash balances and the use of medium-term borrowings. When medium-term
borrowings are used either fixed rates of interest apply or where variable rates apply, interest rate swap arrangements are entered into. When the
Group or Company places cash balances on deposit, rates used are fixed in the short term and for sufficiently short periods that there is no need to
hedge against implied risk.
The interest rate exposure of the financial liabilities of the Group and Company at 31 december 2019 was:
Bank loans
Fixed until February 2023
Fixed until February 2021
Fixed until January 2030
Fixed until March 2030
Fixed until May 2030
Fixed until March 2031
Fixed until March 2027
Cap and collar agreement until January 2028
Variable rate
loan arrangement fees
Interest % expiry date
3.20 december 2023
2.75 February 2021
6.04 January 2030
6.27 March 2030
5.78 May 2030
5.47 March 2031
5.16 March 2027
4.75 cap January 2028
Group
Company
2019
£000
10,000
41,000
3,739
658
1,365
657
8,580
10,000
29,689
2018
£000
–
41,000
3,787
672
1,389
676
8,859
10,000
32,770
2019
£000
10,000
41,000
–
658
1,365
657
8,580
10,000
29,689
2018
£00
–
41,000
–
672
1,389
676
8,859
10,000
32,770
105,688
(513)
99,153 101,949
(513)
(378)
95,366
(378)
105,175
98,775 101,436
94,988
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
65
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019
15. Financial risk management objectives and policies continued
The directors consider the fair value of the loans not to be significantly different from their carrying value.
The following table illustrates the sensitivity of the net result after tax and equity to a reasonably possible change in interest rates of + half a percentage
point (2018: + half a percentage point) with effect from the beginning of the year:
decrease in result after tax and equity
The interest rate change above will not have a material impact on the valuation of the interest rate swap.
2019
£000
143
2018
£000
164
Property yield risk
The valuation of investment properties is dependent on the assumed rental yields. However, the impact on the net result after tax and equity is difficult
to estimate as it inter-relates with other factors affecting investment property values.
Capital risk management
The Group and Company’s objectives when managing capital are:
• to safeguard the ability to continue as a going concern, so that they continue to provide returns and benefits for shareholders;
• to ensure that key bank covenants are not breached;
• to maintain sufficient facilities for operating cash flow needs and to fund future property purchases;
• to support the Group and Company’s stability and growth;
• to provide capital for the purpose of strengthening the risk management capability;
• to provide capital for the purpose of further investment property acquisitions; and
• to provide an adequate return to shareholders.
The Group actively and regularly reviews and manages its capital structure to ensure an optimal capital structure and equity holder returns, taking into
consideration the future capital requirements of the Group and capital efficiency, prevailing and projected profitability, projected operating cash flows,
projected capital expenditures and projected strategic investment opportunities. Management regards total equity as capital and reserves, for capital
management purposes.
16. Fair value disclosures
The methods and techniques used for the purpose of measuring fair value are unchanged compared to the previous reporting period.
Fair value measurement of financial instruments
Financial assets and financial liabilities measured at fair value in the consolidated and Company statements of financial position are grouped into 3
levels of a fair value hierarchy. The 3 levels are defined based on the observability of significant inputs to the measurement, as follows:
level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities.
level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly
(i.e. derived from prices).
level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement.
The financial liabilities measured at fair value on a recurring basis in the statement of financial position, which relate to interest rate swaps, are grouped
into the fair value hierarchy as follows:
Interest rate swap agreements:
At 1 January 2018
Hedge settlement payment
Income statement – surplus
At 3I december 2018
Income statement – loss
At 31 December 2019
level 1
£000
level 2
£000
level 3
£000
Total
£000
–
–
–
–
–
–
3,869
(153)
(706)
3,010
41
3,051
–
–
–
–
–
3,869
(153)
(706)
3,010
41
3,051
The fair value of the Group and Company’s interest rate swap agreements has been determined using observable interest rates corresponding to the
maturity of the instrument. The effects of non-observable inputs are not significant for these agreements.
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16. Fair value disclosures continued
Measurement of other financial instruments
The measurement methods for financial assets and liabilities accounted for at amortised cost are described below:
Trade and other receivables, cash and cash equivalents and trade and other payables
The carrying amount is considered a reasonable approximation of fair value due to the short duration of these instruments.
Bank loans and overdrafts
Fair values are considered to be equivalent to book value as loans and overdrafts were obtained at market rates.
Fair value measurement of non-financial assets
The following table shows the levels within the hierarchy of non-financial assets measured at fair value on a recurring basis at 31 december 2019.
Investment property:
Group – held to earn rentals and for capital appreciation
Company – held to earn rentals and for capital appreciation
The reconciliation of the carrying value of non-financial assets classified within level 3 are as follows:
At 1 January 2019
Acquired during the year
disposals during the year
Gains recognised in profit and loss – increase in fair value
At 31 December 2019
level 1
£000
level 2
£000
level 3
£000
Total
£000
–
–
–
–
225,075
220,370
225,075
220,370
Investment properties
Group
£000
Company
£000
221,040 213,870
10,384
–
(3,884)
10,384
(2,000)
(4,349)
225,075 220,370
Fair value of the Group and Company’s property assets is estimated based on appraisals performed by independent, professionally qualified property
valuers on certain properties and the directors on the remaining properties. The significant inputs and assumptions are developed in close consultation
with management. The valuation processes and fair value changes are reviewed by the directors and Audit Committee at each reporting date.
Measurement of fair value of investment property held to earn rentals and for capital appreciation
Properties valued by external valuers are valued on an open market basis based on active market prices adjusted for any differences in the nature,
location or condition of the specified asset such as plot size, encumbrances and current use. Properties valued by the directors use the same principles
as the external valuers. If this information is not available, alternative valuation methods are used such as recent prices on less active markets, or
discounted cash flow projections. The significant unobservable input is the adjustment for factors specific to the properties in question. The extent and
direction of this adjustment depends on the number and characteristics of the observable market transactions in similar properties that are used as the
starting point for the valuation. Although this input is a subjective judgement, management consider that the overall valuation would not be materially
altered by any reasonable alternative assumptions.
The market value of the investment properties has been supported by comparison to that produced under income capitalisation techniques applying a
key unobservable input, being yield. The range of yield applied is 7.5% to 11.0%.
The fair value of an investment property reflects, among other things, rental income from current leases and assumptions about future rental lease
income based on current market conditions and anticipated plans for the property.
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
67
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019
17. Deferred taxation
The movement in deferred taxation assets is as follows:
At 1 January
Income statement (note 6)
At 31 december
The deferred tax asset arising from temporary differences can be summarised as follows:
Financial instrument
Group and Company
2019
£000
405
–
405
2018
£000
540
(135)
405
Group and Company
2019
£000
405
2018
£000
405
no temporary differences resulting from investments in subsidiaries or interests in joint ventures qualified for recognition as deferred tax assets or
liabilities. under the current fiscal environment, these entities are exempt from capital gains taxes. see note 6 for information on the Group’s
tax expense.
deferred tax has been provided on all temporary differences as the interest rate swap liability will ultimately reverse regardless of movements in future
interest rates.
18. Share capital
Allotted, issued and fully paid:
ordinary shares of 10p
2019
Number of
shares
2019
£000
2018
number of
shares
2018
£000
186,420,598
18,642 186,420,598
18,642
At the Annual General Meeting held in June 2010 a resolution was passed approving the adoption of a new long-Term Incentive Plan (“lTIP”).
on 8 June 2015, the terms of the lTIP were revised and previous options cancelled. As the previous options were deemed unlikely to be exercised,
as in previous years there was no charge made to the profit and loss account on cancellation. The proposed lTIP is designed to promote retention and
incentivise the executive directors to grow the value of the Group and to maximise returns:
• The lTIP has a 10 year life from January 2010 to december 2019.
• Performance conditions:
• 50% of the award subject to absolute nAV growth plus dividends with threshold vesting – 30% of this part of the award, at 8.5% annual growth
including dividends and full vesting at 14.0% annual growth.
• 50% subject to absolute total shareholder return (share price growth plus dividends) with threshold vesting – 30% of this part of the award,
at 8.5% annual growth and full vesting at 14.0%.
• Amounts payable will be satisfied in full (save as below) by the issue of ordinary shares or the grant of zero/nominal cost options to any
participant. The price at which shares will be issued will be the weighted average mid-market closing price for the first 20 business days following
announcement of the latest full-year results. on issue, the ordinary shares will rank pari passu with the existing issued ordinary shares.
• The number of ordinary shares which can be issued under the lTIP is limited to 10% of the Company’s then issued share capital. Any excess
earned above this level will be paid in cash provided that the Remuneration Committee consider it prudent to do so at that stage, otherwise
payment will be deferred until the Remuneration Committee deem it prudent.
• The Remuneration Committee may from time to time make any alteration to the plan which it thinks fit, including for legal, regulatory or tax reasons,
in order to ensure the smooth workings of the plan in line with its objectives.
• Conditional awards of shares made each year.
• Awards vest after 3 years subject to continued employment and meeting objective performance conditions.
on 25 March 2019, 19 March 2018 and 17 March 2017 the Group granted certain employees options under the scheme which entitles them to
subscribe for or acquire ordinary shares in the Company at a price of 10p per share (in the case of new ordinary shares) or 0p per share (in the
case of a transfer of existing shares). The grant and exercise of the options is subject to the rules of the lTIP and cannot be exercised unless the relevant
performance criteria are met, as discussed above, and the total award is capped at a maximum value of shares at the time of exercise, not a specific
number of shares.
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18. Share capital continued
The weighted average fair value of the awards made is 59p per option, the binomial option pricing model with a volatility of 25% (based on the
weighted average share price movements over the last 3 years), a dividend yield of 5.5%, a risk free rate of 1.5%, an expected weighted average life
of 5 years, a weighted average exercise price of 0.5p option at the year end is estimated as 3,756,216 (2018: 3,131,949). As the award has a
maximum value the actual number of shares which will be issued when the option is exercised will depend on the market value of the shares at the time
of exercise.
In total, £100,000 (2018: £nil) of employee remuneration expense, all of which relates to equity-settled share-based payment transactions, has been
included in profit or loss and credited to retained earnings. Based on the results and the share price for 2019 42% of the options granted in 2017 are
likely to vest.
19. Leases
The Group as lessee
The Group has elected not to recognise a lease liability for short-term leases (leases with an expected term of 12 months or less) or for leases of low
value assets. Payments made under such leases are expensed on a straight-line basis. At 31 december 2019 the Group was committed to short-term
leases and the total commitment at that date was £71,000 (2018: £71,000).
At 31 december 2019 and 31 december 2018 the Group had lease commitments on 2 long leasehold properties within its portfolio. These are held
as investment properties and measured and disclosed within these financial statements in accordance with IAs 40 (see note 9). The Group pays
peppercorn rents on these properties and under IFRs 16, the associated lease liability is not material and as such the more extensive disclosures
required by that standard are not presented as they are not material.
The Group as lessor
non-cancellable operating lease commitments receivable:
Within 1 year
later than 1 year but not later than 5 years
later than 5 years
Rent receivable by the Group under current leases from tenants is from commercial and retail property held.
20. Contingent liabilities
There were no contingent liabilities at 31 december 2019 or at 31 december 2018.
21. Capital commitments
Capital commitments authorised at 31 december 2019 were £nil (2018: £nil).
22. Pension scheme
The Group has signed up to the government auto enrolment pension scheme.
2019
£000
1,550
18,568
63,179
2018
£000
1,098
24,664
46,946
83,297
72,708
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
69
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 31 DECEMBER 2019
23. Related party transactions
The Group’s related parties are its key management personnel and certain other companies which are related to certain directors of the Group. The
Company’s related parties are its key management personnel, certain other companies which are related to certain directors of the Group and its
subsidiary undertakings.
The executive and non-executive directors are also the key management personnel and details of their remuneration are included within the directors’
remuneration report on pages 38 and 39.
during the period the Company and Group paid agency fees of £47,000 (2018: £84,000) in respect of professional services and rent and service
charges of £197,000 (2018: £183,000) to Bond Wolfe, a partnership in which P P s Bassi is a partner. Amounts outstanding owed to Bond Wolfe at
the year end were £171 (2018: £7,569). It also received rent income of £75,000 (2018: £75,000) from Bond Wolfe during the year. Amounts
outstanding from Bond Wolfe at the year end were £22,500 (2018: £22,500).
during the period the Company’s transactions with subsidiary companies related to inter-company dividends and repayment of loans. details of
amounts outstanding at 31 december 2019 are shown on notes 13 and 14.
during the period the Company paid dividends to its directors in their capacity as shareholders, as follows:
J R Crabtree
W Wyatt
P london
P P s Bassi
M H P daly
2019
£000
10
6
4
385
70
2018
£000
8
6
4
359
62
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OUR ADVISERS
Company Registration number:
5045715
Registered office:
directors:
secretary:
Auditor:
solicitor:
nominated Adviser:
Broker:
75–77 Colmore Row,
Birmingham
B3 2AP
J R A Crabtree oBe: Chairman
W Wyatt: non-executive director
P london: non-executive director
P P s Bassi CBe: Chief executive
M H P daly: Finance director
M H P daly
Grant Thornton uK llP
Chartered Accountants
Registered Auditor
The Colmore Building
20 Colmore Circus
Birmingham
B4 6AT
Gateley Plc
one eleven
edmund street
Birmingham
B3 2HJ
Cenkos securities plc
6–8 Tokenhouse Yard
london
eC2R 7As
liberum Capital limited
Ropemaker Place, level 12
25 Ropemaker street
london
eC2Y 9lY
Banker:
125 Colmore Row
lloyds Banking Group
Registrar:
Birmingham
B3 3sF
link Asset services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4Tu
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
71
NOTES
72
REAL ESTATE INvESTORS PLC Annual Report and Accounts 2019
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9
2nd Floor
75–77 Colmore Row
Birmingham B3 2AP
Telephone: 0121 212 3446
Fax: 0121 212 1415
www.reiplc.com