Real Estate Investors Plc

("REI" or the "Company" or the "Group")

Final Results

For the year ended 31 December 2021

Sales in Strong Investor Market

Real Estate Investors Plc (AIM: RLE), the UK's only Midlands-focused Real Estate Investment Trust (REIT) with a portfolio of 1.5 million sq ft of investment property, is pleased to report its final results for the year ended 31 December 2021.

Active year taking advantage of buyer demand before next phase of investment

·      Delivered revenue of £16.0 million (FY 2020: £16.4 million) allowing for disposals

·      Profit before tax of £13.9 million (FY 2020: loss £20.2 million) including £4.9 million gain on property revaluations, £1.2 million profit on sale of investment property and £1.4 million surplus on hedge valuation

·      Completed 15 disposals totalling £17.55 million (an aggregate uplift of 7.3% before costs above December 2020 valuation) (£977,852 rental income associated with these disposals)

o  Disposal proceeds used to pay down £11.9 million of debt in 2021

o  LTV (net of cash) reduced to 42.2% (FY 2020: 49.2%)

o  £9.8 million cash at bank

o  Average cost of debt of 3.5% with 90% of debt fixed (as at 1 January 2022)

·      Renewed £51 million facility with NatWest for 3 years at 2.25% above LIBOR in March 2021

·      Underlying profit before tax* of £6.4 million (FY 2020: £8.1 million)

·      EPRA EPS of 3.7p (FY 2020: 4.5p)

·      EPRA Net Tangible Assets ("NTA") per share of 58.8p (FY 2020: 55.2p)

Increased Dividend

·      Final dividend of 0.8125p per share, payable in April 2022 as a Property Income Distribution (PID)

·    Total fully covered dividend per share for 2021 of 3.0625p (FY 2020: 3p) up 2.08% and reflecting a yield of 7.90% based on a mid-market opening price of 38.75p on 21 March 2022

·      Total declared/paid to shareholders since commencement of dividend policy of £41.9 million

Return to growth in Asset Values

·      Like-for-like valuation increased by 2.7% to £188.5 million (FY 2020: £183.5 million)

·      Gross property assets of £190.8 million (FY 2020: £201.3 million) with 256 occupiers/47 assets

·      Near normal rent collection levels for 2021 of 97.81% (2020 Overall collection: 96.35%) and Q1 2022 rent collection to date 99.42% (adjusted for monthly/deferred agreements)

·      Completed 54 lease events during the period

·      Improved WAULT to 5.03 years to break and 6.76 years to expiry (FY 2020: 4.84 years /6.54 years)

·      Contracted rental income of £14.3 million (FY 2020: £16.7 million) net of disposals

·      Occupancy levels at 85.75%, further lettings should provide additional valuation gains, as market place normalises post-COVID19

Post year end activity - Further opportunistic disposals combined with good lettings pipeline

·      £1.115 million disposals completed since year end at 12.6% above 2020 book value

·      £7.5 million of sales in legals (above 2020 valuation levels) driven by private investor demand

·      Healthy pipeline of new lettings in legals of £159,000 p.a.

·      Barclays £12 million facility extended by 12 months to 31 December 2024 in February 2022

Paul Bassi, CEO of Real Estate Investors Plc, commented:

"Despite the restrictions imposed by the pandemic, REI has had a respectable year during which we have taken advantage of the private investor demand to sell some of our properties, using the disposal proceeds to repay £11.9 million of debt, retain £9.8 million of cash and fix 90% of our debt at attractive rates. This has delivered pre-tax profits of £13.9 million and an increased fully covered dividend. We believe we are set to see further valuation gains and occupancy improvement during 2022 and that this already active regional market is likely to be further boosted by the upcoming 2022 Commonwealth Games."

Financial and Operational Results

Definitions

*        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

Certain of the information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the UK version of the EU Market Abuse Regulation (2014/596) which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended and supplemented from time to time.

Enquiries:

About Real Estate Investors Plc

Real Estate Investors Plc is a publicly quoted, internally managed property investment company and REIT with a portfolio of 1.5 million sq ft of mixed-use commercial property, managed by a highly-experienced property team with over 100 years of combined experience of operating in the Midlands property market across all sectors.  The Company's strategy is to invest in well located, real estate assets in the established and proven markets across the Midlands, with income and capital growth potential, realisable through active portfolio management, refurbishment, change of use and lettings.  The portfolio has no material reliance on a single asset or occupier.  On 1st January 2015, the Company converted to a REIT.  Real Estate Investment Trusts are listed property investment companies or groups not liable to corporation tax on their rental income or capital gains from their qualifying activities.  The Company aims to deliver capital growth and income enhancement from its assets, supporting its progressive dividend policy.  Further information on the Company can be found at www.reiplc.com.

Chairman's and Chief Executive's Statement

Despite COVID19 and the subsequent variants dominating the past 12 months for many businesses, we are pleased to report a positive performance, resulting in pre-tax profits of £13.9 million (FY 2020: loss of £20.2 million) which has supported an increased fully-covered dividend payment of 3.0625p for the period.  A total of £41.9 million has been declared/paid to shareholders since the commencement of our dividend payments in 2012.

This performance is underpinned by our high rent collection levels throughout 2021, with an overall collection level of 97.81%, against a backdrop of the unfavourable government moratorium restrictions which are soon to expire.  For Q1 2022, rent collection levels are currently at 99.42%.  These collection levels are a testament to the diversity of our portfolio and the asset management team who worked collaboratively with our portfolio tenants to navigate a uniquely challenging period. 

The first few months of 2022 have seen market recovery continue to gather pace which has been improved further by the step-by-step ceasing of UK restrictions and the return to normality that has been so eagerly awaited, led by the UK regions who are now at near normal activity and ahead of London and the South East. 

Our portfolio, valued at £190.8 million (with 256 occupiers across 47 assets) has weathered the COVID storm and we believe is well placed to benefit from the ongoing revaluation and occupancy recovery.  Private investors with high levels of cash reserves continue to lead the interest in our assets.  Many of our properties are acquired on the basis of their significant break-up potential to satisfy this demand, predominantly small retail units within local neighbourhood and convenience schemes.  With a healthy exposure to the community retail market (39.07% of our portfolio) we successfully disposed of a number of these sought-after assets, along with the remaining legacy non-core stock, ending the period with sales totalling £17.55 million, at 7.3% above the December 2020 book value, demonstrating the underlying portfolio value.  We continue to consider further sales of assets for a premium price.

As anticipated, disposals, along with the capital uplift gained from intensive asset management is leading to some reversal in the valuation declines experienced in December 2020, which were naturally cautious given we were in the midst of the UK's third national lockdown.  We are pleased to report a 2.7% recovery in our like-for-like portfolio valuations for the period, a trend we expect to continue as the market normalises further and activity returns to pre-pandemic levels and our occupancy improves.

Of the cash generated from portfolio disposals during 2021, £11.9 million was used to repay debt and we capitalised on the low interest rate environment to fix 90% of our borrowings, such that the average cost of debt is 3.5%.  The remaining cash from 2021 disposals is earmarked for opportunistic acquisitions during 2022 to support the Company's next phase of growth.  We did not complete any acquisitions in 2021 and focused on sales and debt reduction, as it remains very much a 'sellers' market.

Against the challenging backdrop of working from home initiatives and COVID19 variants, REI successfully completed 54 lease events in the year, resulting in an improvement in our WAULT to 5.03 years to break and 6.76 years to expiry (FY 2020: 4.84 years to break/6.54 years to expiry).  Our contracted rental income reduced to £14.3 million, reflecting disposals and the loss of income associated with known lease events and new voids particularly in our office portfolio.  We anticipate improved lettings, that will boost contracted rental levels in 2022 and support valuation gain.

Occupancy levels within the portfolio dipped in the final quarters of 2021 to 85.75% (FY 2020: 91.60%).  We believe that this reduction is temporary and reflective of the circumstances at the time, given that spaces which were due to become void during the period (due to known lease events) and which would let in a normalised marketplace, sat empty for longer whilst occupiers dwelled on decisions and COVID19-related government guidance encouraged office workers back to their homes, naturally leading to a pause in occupier decisions.  A significant volume of our void space within the portfolio is offices.  Our retail portfolio by comparison is 91.88% occupied.

We are optimistic that 2022 will see renewed interest in our available spaces particularly our office portfolio.  We are seeing the trend for non-City centre offices continue and, of our office stock, 81.03% is non-City centre.  We will be focussed on unlocking the income sitting in our voids and the multiple existing embedded opportunities across the portfolio (including change of use, planning gains and lease re-gears) which would translate into enhanced occupancy levels, increased contracted rental income and improved WAULT.  This activity, together with ongoing valuation recovery, should drive capital and income growth across the portfolio and a rise in our NAV, supporting our progressive dividend policy.

As our region gears itself up for this year's highly anticipated 2022 Commonwealth Games, we expect this 'once in a lifetime' event to further boost the recovery we have already witnessed and attract yet more investment to our thriving region.

Environmental, Social and Governance ("ESG")

Management recognises its responsibility to incorporate ESG into the daily working practices at REI. 

In March 2021, we outlined why and how we engage with our stakeholders and how we intended to build on this going forward.  We committed to expanding our ESG reporting and working with relevant consultants to accurately capture, measure and report ESG data.  We explained that it was the Company's intention to expand on our ESG reporting in our results for the year ending 31 December 2021.  In line with this commitment, we report our progress as follows:

ESG Committee

In 2021, a non-Board ESG Committee was formed, headed by Ian Stringer, a non-Executive Director.  The ESG Committee was formed with the purpose of creating, implementing and reviewing the ESG framework for the business.  The Company's ESG Policy along with details of the ESG Committee members and our ESG partners is available to view on our website at www.reiplc.com.  Our latest ESG Policy, dated February 2022 outlines the areas of focus for the business, within the scope of ESG.

ESG Partnership

REI is proud to announce its partnership with Measurabl, the world's most widely adopted ESG technology and services platform for commercial real estate. ESG data is now a leading performance indicator for commercial real estate. With Measurabl's assistance, we will collect consumption data across our portfolio in order to measure and comprehensively report carbon emissions. Partnering with Measurabl gives us the ability to capture and store data in one centralised digital platform, providing independent, accurate and auditable ESG data. REI is dedicated to acting responsibly and undertaking initiatives that lower carbon emissions across our portfolio and, as we progress with Measurabl, identify further opportunities to support and expand ESG reporting and improve outcomes across our portfolio. 

Portfolio Scope 1 and Scope 2 Emissions (landlord-controlled areas only/electricity and gas only)

Working with Measurabl, we have established the carbon emissions (Scope 1 and Scope 2 emissions) for landlord-controlled areas only across the portfolio (totalling 1.07 million sq ft) for the period 1^st January 2019 to 31^st December 2019 (electricity and gas only). 

In line with our ESG Policy, dated 18 February 2022, we will continue to capture and report our emissions on an annual basis.  We also commit to expanding our data capture over time to include tenant consumption data (where possible) for the purpose of analysing our Scope 3 (tenant controlled) emissions (electricity & gas only).

We have detailed below our emissions for Jan - Dec 2019, a benchmark pre-pandemic year:

*applies to 1.07 million sq ft of the portfolio (landlord controlled areas)

As stated in our 2020 year-end results, the reduction of the portfolio's carbon footprint is a priority for the business. 

Portfolio Energy Performance Certification

In accordance with government guidelines, REI PLC has a programme to ensure we meet the UK statutory time frame for EPCs.  It remains our intention to upgrade assets when required.

Financial Results

We have recorded pre-tax profits of £13.9 million (FY 2020: loss of £20.2 million), a result which is after a revaluation gain of £4.9 million (2.7%) on our investment properties (FY 2020: reduction of £27.9 million), a surplus of £1.2 million on sale of investment property (2020: £nil) and a rise in the market value of our interest rate hedging instruments of £1.4 million (FY 2020: loss of £483,000). 

Underlying profit for the year was £6.4 million (FY 2020: £8.1 million) impacted primarily by a reduction in contracted rental income due to void space within the portfolio and disposals during the period.

Our like-for-like rental income has reduced by 10.74% to £14.3 million, predominantly due to known lease events that provide asset management opportunities to improve rental income and lease terms and enhance capital value.

The pre-tax profits of £13.9 million support our fully covered dividend for 2021 of 3.0625p per share.

Finance and Banking

In March 2021, the Group entered into a new NatWest facility of £51 million for 3 years at 2.25% above LIBOR.  The remainder of our debt is secured across another 4 banks and we continue to enjoy longstanding banking relationships that gives us access to debt at competitive rates.

With a view to hedging against future interest rate rises, the Company took advantage of the low interest rate environment in 2021 and fixed £35 million of the NatWest facility, preserving our low average cost of debt.  This took effect from 1 January 2022 and our fixed debt ratio as at that date was 90% with an average cost of debt of 3.5%.  Our hedge facility has improved by £1.4 million for the year to 31 December 2021 and has improved by a further £497,000 since the period end.  This all provides us with some protection from the likelihood of further interest rate rises to manage very real inflation. 

Of the disposals during the period totalling £17.55 million, £11.9 million of the proceeds were used to repay debt with the balance earmarked for future acquisitions.  This strategy, combined with a 2.7% gain in our like-for-like portfolio valuations has led to a reduction in our LTV (net of cash) to 42.2% (FY 2020: 49.2%) and is in line with management's objective to reduce Company gearing levels to 40% LTV or below.

All banking covenants (which are a combination of both the measurement of LTV against asset value and interest cover against rental income) continue to be met with headroom available and various cure facilities in place.

Dividend

The Company's dividend payments continued throughout 2021 despite market uncertainty, with the first three quarters paid at a level of 0.75p per share, fully covered. 

In light of the strong operational performance and in line with managements' ongoing commitment to a progressive dividend policy, it has been deemed appropriate to increase the final dividend in respect of 2021 to 0.8125p per share, reflecting a total fully-covered dividend payment for 2021 of 3.0625p Total fully covered dividend per share for 2021 of 3.0625p (FY 2020: 3p) up 2.08% and a yield of 7.90% based on a mid-market opening price of 38.75p on 21 March 2022.  The Board remains committed to growing the dividend further, as market conditions continue to normalise.  The proposed timetable for the final dividend, which will be a Property Income Distribution (PID), is as follows:

Dividend Timetable 

Outlook for 2022

We will continue to take advantage of private investor demand.  Capital from disposals will be used for acquisitions that support portfolio growth and the balance will be used to repay debt and further reduce gearing to levels in line with management's parameters.  We expect further valuation recovery and intend to maximise gains  and unlock income potential by focusing on void letting opportunities and asset management initiatives across the portfolio. We recognise the need for market consolidation within the real estate and REIT market and remain alert to options that align with the interests of our shareholders.  Having successfully weathered the global pandemic and two years of Brexit fiasco, we recognise the Russian invasion of Ukraine may well have a negative impact on commercial activity generally in 2022 and beyond.

Investment Market Overview

National 2021 annual investment volumes (according to Colliers Research) reached £60 billion, up from £47 billion in 2020 and 15% above the five-year annual average. The £23 billion transacted during Q4 alone represents the strongest quarterly figure on record.

Across the Midlands, annual investment volumes reached £6.4 billion in 2021, up from £3.7bn in 2020 and almost 50% above the five-year average.  Retail investment volumes rose to £890 million in 2021 up from £710 million in 2020 but slightly below the five-year average. Office investment was subdued in 2021 with £330 million invested, down from £490 million in 2020.

In view of investors' access to relatively low-cost finance and high levels of investor equity, there is good reason for optimism as these transactions will provide the comparable evidence to support valuation recovery.  Across the region we are seeing limited availability of criteria-compliant investment stock, as investors are holding onto income from property assets due to outperformance as an asset class.

Industry experts believe that industrial values have peaked, with yields across the region at 4.5% now widely considered to be expensive and investors are shifting to alternative, higher yielding sectors such retail, retail warehousing and offices that offer superior returns.

Meanwhile, private investors' appetite for investments under £1m has continued to increase.  It comes at a time where there is a lack of available supply and we are capitalising on this by breaking up unbroken retail parades to secure premium prices.  Smaller investment sales are of more appeal to private investors and we will capture this wherever possible to achieve additional profits. More generally, we expect to see improved volume activity throughout the year which will bring about yield compression for secondary yields.

The REI Portfolio

-------The £190.8 million portfolio is comprised of 47 assets with 256 tenants with a net initial yield of 7.14% and a reversionary yield of 8.18%. The like-for-like portfolio valuation has risen to £190.86 million (FY 2020: £185.26 million) as a result of independent valuations and is in line with our expectations.  The rise was predominantly across our retail portfolio. We anticipate further valuation gains during the course of 2022 due to improved investment activity, as well as asset management initiatives and the letting of void space within the portfolio.

The portfolio has reduced occupancy levels of 85.75% (FY 2020: 91.60%) with unrealised capital value and rental income growth potential within our void space. We anticipate successfully reletting these areas during the course of 2022. The reletting of our void space, combined with the acquisition of new value-add opportunities is expected to drive occupancy and valuations back towards pre-pandemic levels. 

Disposals

Stock selection is a key element of effective property portfolio management in order to achieve investment objectives. This occasionally entails selling properties to balance the portfolio. During the year, we identified a number of investments for disposal that were significantly ahead of valuation or that no longer fit within the Company's investment strategy. In 2021 we successfully disposed of 15 assets totalling £17.55 million, achieving strong returns as we capitalised on private investor demand in the market.  The sales were achieved at an aggregate uplift of 7.3% (before costs) above December 2020 valuations.  The capital generated from sales completed in 2021 was partially used for debt repayment and the balance is set aside for new acquisitions in the coming months.  

The Company sold the following properties during the period:

·      54/56 High Street, Bromsgrove

·      Citygate House, Leicester

·      82 High Street, Gillingham

·      14-14 High Street, Ringwood

·      3 Hanover Buildings, Southampton

·      33 Bennetts Hill, Birmingham

·      4-16 Brook Square, Rugeley

·      315-317 & 319 High Street, West Bromwich

·      23 Market Street, Leigh

·      25-25a Institute Road, Swanage

·      St Austell House, Ilfracombe

·      Bearwood Road Shopping Centre

·      124-125 Osbourne Road, Pontypool

·      Land at Coseley

·      Land at Brandon Court

The associated rental reduction from the total disposal consideration of £17.55 million is £977,852 per annum, providing an overall market yield on combined sales of 4.75%, assuming usual purchasers costs.

Post Period End Disposals

Since 31 December 2021, a further £1.115 million of asset disposals have completed:

·      571 Bearwood High Street, Birmingham

·      31 High Street, Eastleigh

·      1-2 Hanover Buildings, Southampton

As we approach the end of Q1 2022, we currently have a further £7.5 million of sales in pipeline legals (above 2020 valuation levels) driven by demand from private investors.

We will continue to make opportunistic sales, where appropriate, to achieve maximum gain where they have  reached their potential and where we have exhausted asset management initiatives.  

This will also include assets that we believe will present a challenge from a sustainability perspective, as we continue our commitment to owning assets that positively impact the environment and contribute to our goal of lowering our carbon emissions across the portfolio.

Occupational Market Overview

The Birmingham office market delivered a strong year in spite of continuing challenges. Occupation transactions were almost double that of 2020, and the total square footage was 26% higher. Central Birmingham offices saw eight transactions over 25,000 sq ft. We expect this to continue into 2022 and believe that the Midland's regional office markets remain undersupplied with Grade A offices as the market returns to normality.

The rise in working remotely is not restricted to working from home but has also resulted in an increase in working from regional satellite offices. We believe that there is rental growth potential in many regional office markets where supply has been diminished. Business Park Locations that offer an attractive environment to both live and work locally and that boast buildings with high environmental standards and accessibility to a skilled workforce, will be in much demand.

Hotels and Leisure had a strong year throughout 2021, with investor optimism underlined by an impressive £4 billion of UK hotel transactions. Increased hotel demand, continued progress on profitability and improved visibility have all contributed to the momentum.

Market pricing and valuations in the retail warehouse sector are recovering strongly, with occupiers in discounting, DIY, homewares and food trading well. We expect that well-located retail warehouse units let off recently rebased lower rents will continue to be in demand. The importance of convenience as well as the relatively low cost compared to the high street is likely to support occupational demand.

Investors are increasingly confident that rental levels have bottomed out and pricing for assets has moved noticeably. However, there is still potential value in assets that incorporate leisure experiences, or where consumers prefer to try before they buy such as furniture and homewares.  Meanwhile retail repurposing continues to gather pace, as the sector manages oversupply in the market, leaving a shortage of good quality retail, which we anticipate will lead to rental growth in the medium term.

Acquisitions

In a sellers' market we did not complete any acquisitions in 2021 and focused on sales and debt reduction and restructure.  We continue to seek new investments and have retained close contact with investment market activity through our well-established network of contacts. However, availability of stock throughout the year was restricted and vendor expectations were unrealistic.

We are seeking off-market medium sized acquisitions (above private investor market) that offer stronger returns with prospects for income/capital value improvement.

Portfolio Mix

The current sector weightings are:

Asset Management 

Our £190.8 million portfolio of regional property has proved resilient during economic crises, market downturns and global pandemics, not least due to its sector and tenant diversity. 

As the light at the end of the pandemic tunnel begins to brighten, we closed 2021 with robust overall rent collection levels of 97.81%. 

2021 was very much a year of two halves; with the start of the year seeing the legacy of 2020 continue with a subdued lettings market.  The second half of the year saw occupier demand slowly increase with a return towards the end of the year of pre-pandemic interest in our portfolio spaces dampened slightly by the 'work from home' guidance and the spread of Omicron in the final weeks of 2021.

A significant number of lease events took place in 2021 (54 in total) improving our WAULT to 5.03 years to break and 6.76 years to expiry (FY 2020: 4.84 years to break/6.54 years to expiry), as at 31 December 2021.

Whilst the high levels of asset management activity drove an increase in our WAULT, our occupancy levels reduced to 85.75% (FY 2020: 91.60%) due to sales and known lease expiries during the period.

Key asset management initiatives undertaken during the period include:

West Plaza, West Bromwich

Despite the overall downturn in the global hotel market, following a competitive bidding exercise at West Plaza (the former Premier Inn) Vine Hotels signed up to a 15-year lease over six floors, at a rental level above independent valuer ERV.  This represents almost two thirds of the building and the remainder is fully occupied.   

Titan House, Telford

2021 saw the refurbishment of two floors along with the associated common areas.  Titan House was formally let to HP Enterprise Services in its entirety and upon contractual lease expiry plans were subsequently drawn up to significantly improve the office accommodation along with the ESG credentials of the building.

In May 2021 the Department of Workplace and Pensions took a lease on the whole of the ground floor and upgraded the space to their own specification. Once completed, REI instigated refurbishments to the first and second floors, common areas (stair core and WC lobbies) to all floors, reception and the WCs (first and second floors only). The office accommodation was stripped out and taken back to a shell and core condition.  

This included the replacement of the M&E system with new energy efficient equipment, as well the replacement of the office lighting with new LED fittings, coupled with infrared sensors further reducing energy usage.

Pre-refurbishment, the EPC rating for the property was a D (76) and it is projected that upon completion of the works, a higher EPC rating will be achieved.  As well as improving the quality of space we have achieved an ERV increase from £10 per sq ft to £12 per sq ft, and once re-let the uplift in property valuation will comfortably exceed the capital expenditure for the refurbishment.

Brandon Court, Coventry

When a neighbouring unit became vacant, REI worked closely with an existing tenant to explore opportunities to allow them to expand their operation.  This resulted in the tenant taking additional space and extending and combining two units into one longer term lease, allowing the tenant the ability to consolidate and grow its operation from the site, adding value to the asset with limited void period.

In addition, a surrender was agreed with a tenant that was withdrawing from the UK market.  The large unit was separated into two units and refurbished.  Both units were let at market rents on strong terms, post period end.

Jasper Square, Tunstall

Poundland renewed its lease for a further 5 years from February 2022. Poundland have been occupying the property by way of short term contracted lease from August 2020 and traded throughout the Covid 19 pandemic. The renewal demonstrates their ongoing confidence in the retail park and the agreed rent of £130,000 p.a. helps REI to enforce our ERV throughout the rest of the parade.

New tenants to the portfolio in 2021

New tenants include The Trustees of Association of School and College Leaders; Vine Hotels; Merkur Slots UK Limited; JD Sports Gyms Limited; Comex 2000; Bennetts Motorcycling Services Limited; Community Health and Eyecare Limited; YMCA; Secretary of State for Housing, Communities and Local Government.

Post Period End Activity and Sentiment

Lease activity across the portfolio has increased in the first quarter of 2022; with notable lease events at Tunstall, Southgate Retail Park and Brandon Court.  Strong interest in units previously empty in community retail parades such as Acocks Green reinforces the market sentiment for local and convenience retail.

We have negotiated terms on a space that has been void for some time in Redditch (£30,000 p.a., 15-year lease with breaks at years 5 and 10, with 6 months rent-free) at £6,400 p.a over ERV, supporting our prediction that the market is normalising and rent levels are increasing.  We currently have a healthy pipeline of new lettings in legals of £159,000 p.a.

Our priority in 2022 remains to operate a sustainable portfolio with an ESG policy embedded within our asset management strategy.  Additionally, we remain committed to ensuring that we explore initiatives that provide value to our shareholders.

Embedded Opportunities

As mentioned in our January 2022 trading update, demand for fast food/drive thru locations significantly rose during the pandemic and is expected to continue.  In response to this trend, we have identified suitable unoccupied sites/redundant land and are negotiating competitive terms to strong covenants in this space.

Portfolio Summary

*Our land holdings are excluded from the yield calculations

Our Stakeholders

Our ongoing thanks to our shareholders, advisors, tenants and staff for their invaluable support and assistance during the pandemic. 

Chairman's Succession

In May 2021 John Crabtree OBE retired as Non-Executive Chairman of the Company at the Annual General Meeting ('AGM').  William Wyatt, Non-Executive Director of the Company since 2010, was appointed as Chairman, with effect from the AGM in 2021.  This appointment is the result of our Board succession planning, an ongoing process which identifies necessary competencies and works to assess what would be required to ensure a continuation of leadership in all circumstances.

William Wyatt                                                                         Paul Bassi CBE D. Univ

Chairman                                                                                Chief Executive

21 March 2022                                                                       21 March 2022

FINANCIAL REVIEW

Overview

Our results for 2021 are in line with management's expectations.  Whilst the COVID-19 pandemic dominated much of 2021, our diversified and resilient portfolio, delivered high rent collection levels of 97.81%. 

During the period we recorded pre-tax profits of £13.9 million (FY 2020: loss of £20.2 million), including a gain of £4.9 million (2.7%) on our investment properties (FY 2020: reduction of £27.9 million), a surplus of £1.2 million on sale of investment property (2020: £nil) and a rise in the market value of our interest rate hedging instruments of £1.4 million (FY 2020: loss of £483,000). 

We disposed of £17.55 million of assets during the period and used £11.9 million of the disposal proceeds to repay debt.  This debt repayment, combined with the gain in portfolio valuations has led to a reduction in our LTV (net of cash) to 42.2% (2020: 49.2%).   As a result, our EPRA NTA per share has risen by 6.5% to 58.8p (2020: 55.2p).

In March 2021 we refinanced our £51 million facility with National Westminster Bank PLC for 3 years at 2.25% above LIBOR, taking our average cost of debt to 3.5%.  During the period we successfully fixed £35 million of this facility and as at 1 January 2022 90% of our debt was fixed. In addition, in February 2022 we extended the term of our £12 miilion facility with Barclays by 12 months to December 2024. AIB GB are withdrawing from the retail banking market and so we will repay the balance of £2.1 million on our facility in Q2 this year.  We continue to meet the requirements of our banking covenants (which are measured against LTV of the loans to property values and the interest cover against rental income) and have headroom available and cure facilities in place.

Despite a drop in our like-for-like rental income to £14.3 million (impacted by an increase in void space across the portfolio due to COVID19-related delays in occupier decisions, combined with disposals during the period) the Group delivered revenue of £16.0 million (2020: £16.4 million).  Our underlying profit for the year was £6.4 million (2020: £8.1 million).  

Following the Board's decision in 2020 to continue with dividend payments to shareholders despite the pandemic, the Board increased the quarterly dividend payments in respect of 2021 to 0.75p per share for Q1, Q2 and Q3. The final dividend for 2021 has been declared at 0.8125p and is fully covered, representing a total covered dividend for 2021 of 3.0625p (2020: 3p), this has been supported by our pre-tax profits of £13.9 million.

Our share price has yet to recover fully from the impact of COVID19 and continues to trade at a significant discount to NAV. 

Results for the year

Pre-tax profits during the period recorded of £13.9 million (2020: £20.2 million loss), following a revaluation gain of £4.9 million on investment properties (2020: £27.9 million reduction), a surplus of £1.2 million on sale of investment property (2020: £nil) and a rise in the market value of our interest rate hedging instruments of £1.4 million (2020: loss of £483,000).  Exluding these items, the underlying profits reduced to £6.4 million (FY 2020: £8.1 million). 

Revenues for the year were down to £16 million (2020: £16.4 million) as a result of a decrease in rental income of £1.8 million due to sales and leases coming to an end, particularly in Oldbury and Kingston House, but offset by the sale of land in Coseley.  

We did not make any investment property acquisitions during the period.  As at 31 December 2021, cash at bank of £9.8 million is earmarked for future capital and income growth supporting acquisitions.

We continue to closely monitor our overhead base and administrative expenses have reduced during the period by £200,000 to £3.1 million (2020: £3.3 million), mainly as a result of a reduction of the provision for bad debts to £50,000 (2020: £825,000), providing for  bonuses (plus employers' National Insurance) of £260,000 (2020: £55,000) and a provision for costs of the Long-Term Investment Plan of £150,000 (2020: credit £250,000).  The Remuneration Committee agreed that bonuses for the Executive Directors of £180,000, being 25% of salary for 2021 should be made, (2020: nil).  Direct costs during the period rose by £500,000 due to the increased holding costs of void space across the portfolio.

Interest costs for the year reduced by £400,000 to £3.2 million (2020: £3.6 million) due to £11.9 million debt repayment during the period. The weighted average cost of debt rose slightly to 3.5% (2020: 3.4%) as a result of the Group fixing £35 million of the facility with NatWest to hedge against future interest rate rises.

Earnings per share were:

Basic:  7.8p (2020: loss 11.5p)

Diluted:  7.6p (2020: loss 11.5p)                                               

EPRA: 3.7p (2020: 4.5p)

Shareholders' funds increased to £105 million at 31 December 2021 (2020: £97.7 million) as a result of the gain on property portfolio revaluation.

Basic NAV: 58.5p (2020: 54.5p)

EPRA NTA: 58.8p (2020: 55.2p)

Finance and banking

Total drawn debt at 31 December 2021 was £89 million (2020: £101 million).  In March 2021, the Group renewed the £51 million facility with National Westminster Bank PLC for 3 years at 2.25% above LIBOR. In February 2022 the Group extended the £12 million facility with Barclays Bank PLC by a further 12 months to December 2024.  The Group remains multi-banked across 5 lenders and continues to meet banking covenants with its lenders.  The Company took advantage of the low interest rate environment in 2021 and fixed £35 million of the NatWest facility, preserving low average costs of debt at 3.5% and leading to 90% of the debt across the portfolio being fixed as at 1 January 2022.

Of the asset disposals completed during the period totalling £17.55 million, £11.9 million of the proceeds were used for debt repayment, as at 31 December 2021 the weighted average debt maturity was 1.8 years (2020: 2.25 years).  The loan to value (LTV) as at 31 December 2021 was 47.4% (2020: 51.3%) and the LTV (net of cash) was 42.2% (2020: 49.2%).   The Group's hedge facility improved by £1.4 million for the year to 31 December 2021 and has improved by a further £497,000 since the period end.

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. Based on the results for the year, 15% of the options awarded for 2019 are likely to vest and so a charge to the provision of £150,000 (2020: £250,000 release) has been made in the accounts in respect of the LTIP.

Taxation

The Group converted to a Real Estate Investment Trust (REIT) on 1 January 2015. Under REIT status the Group does not pay tax on its rental income profits or on gains from the sale of investment properties. The tax charge for the year is in respect of bank interest received and the movement on the deferred tax asset is in respect of the financial instruments. The Group continues to meet all of the REIT requirements to maintain REIT status.   

Dividend

Under the REIT status the Group is required to distribute at least 90% of rental income taxable profits arising each financial year by way of a Property Income Distribution. REI commenced paying quarterly dividends in 2016. Following a reduction in dividend payments in 2020 as a direct result of the pandemic, the Board paid the first three quarters of 2021 at a level of 0.75p per share and these were paid in July 2021, October 2021 and January 2022.

The Board proposes a final dividend of 0.8125p per share payable in April 2022 as a Property Income Distribution making a total of 3.0625p for the year (2020: 3p) Total fully covered dividend per share for 2021 of 3.0625p (FY 2020: 3p) up 2.08%, reflecting a yield of 7.90% based on a mid-market opening price of 38.75p on 21 March 2022.  The Board remains committed to growing the dividend further, as market conditions normalise.

Marcus Daly, Finance Director

21 March 2022

Real Estate Investors plc

Consolidated statement of comprehensive income

For the year ended 31 December 2021

The results of the Group for the period related entirely to continuing operations.

Real Estate Investors plc

Consolidated statement of changes in equity

For the year ended 31 December 2021

Real Estate Investors plc

Consolidated statement of financial position

At 31 December 2021

Real Estate Investors plc

Consolidated statement of cash flows

For the year ended 31 December 2021

NOTES:

Cash and cash equivalents consist of cash in hand and balances with banks only.

Real Estate Investors plc

Notes to the preliminary announcement

For the year ended 31 December 2021

1.  Basis of preparation

The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of properties and financial instruments held at fair value through the profit and loss account, and in accordance with International Financial Reporting Standards (IFRS) adopted by the European Union.

It should be noted that accounting estimates and assumptions are used in preparation of the financial statements.  Although these estimates are based on management's best knowledge and judgement of current events and actions, actual results may differ from those estimates.  The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are set out in the Group's annual report and financial statements.

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year.  Material intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated on consolidation.  Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

The principal accounting policies are detailed in the Group's annual report and financial statements.

Going concern

The Group has prepared and reviewed forecasts and made appropriate enquiries which indicate that the Group has adequate resources to continue in operational existence for the foreseeable future being a period of not less than 12 months from the date of approval of these financial statements.  These enquiries considered the following:

·      the significant cash balances the Group holds and the low levels of historic and projected operating cashflows

·      any property purchases will only be completed if cash resources or loans are available to complete those purchases

·      the Group's bankers have indicated their continuing support for the Group. The Group's £51 million facility with National Westminster Bank PLC was renewed for three years in March 2021 and the £12 million facility with Barclays Bank PLC was extended by a further 12 months to December 2024 in February 2022

·      management have performed various sensitivities which demonostrate that the Group has sufficient cash resources to continue in operational existence for the foreseeable future

·      the Directors have at the time of approving these financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future being a period of not less than 12 months from the date of approval of these financial statements.

For these reasons, the Directors continue to adopt the going concern basis in preparing the financial statements.

2.  Gross profit

3.  Earnings per share

The calculation of earnings per share is based on the result for the year after tax and on the weighted average number of shares in issue during the year.

Reconciliations of the earnings and the weighted average numbers of shares used in the calculations are set out below.

The European Public Real Estate Association indices below have been included in the financial statements to allow more effective comparisons to be drawn between the Group and other business in the real estate sector.

EPRA EPS per share

NET ASSET VALUE PER SHARE

The Group has adopted the new EPRA NAV measures which came into effect for accounting periods starting 1 January 2020. EPRA issued new best practice recommendations (BPR) for financial guidelines on its definitions of NAV measures. The new NAV measures as outlined in the BPR are EPRA net tangible assets (NTA), EPRA net reinvestment value (NRV) and EPRA net disposal value (NDV).

The Group considered EPRA Net Tangible Assets (NTA) to be the most relevant NAV measure for the Group and we are now reporting this as our primary NAV measure, replacing our previously reported EPRA NAV and EPRA NNNAV per share metrics. EPRA NTA excludes the intangible assets and the cumulative fair value adjustments for debt-related derivatives which are unlikely to be realised.

The adjustments made to get to the EPRA NAV measures above are as follows:

• Real estate transfer tax: Gross value of property portfolio as provided in the Valuation Certificate (i.e. the value prior to any deduction of purchasers' costs).

• Fair value of derivatives: Exclude fair value financial instruments that are used for hedging purposes where the company has the intention of keeping the hedge position until the end of the contractual duration.

4.  Investment properties

Investment properties are those held to earn rentals and for capital appreciation.

The carrying amount of investment properties for the periods presented in the consolidated financial statements is reconciled as follows:

5.  Publication

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 434 of the Companies Act 2006.  The consolidated statement of financial position at 31 December 2021 and the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows and the associated notes for the year then ended have been extracted from the Group's financial statements upon which the auditor's opinion is unqualified and does not include any statement under section 498 of the Companies Act 2006.  The statutory accounts for the year ended 31 December 2021 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

6.  Copies of the announcement

Copies of this announcement are available for collection from the Company's offices at 2^nd Floor, 75-77 Colmore Row, Birmingham, B3 2AP and from the Company's website at www.reiplc.com. The report and accounts for the year ended 31 December 2021 are available from the Company's website and will be posted to shareholders in May 2022.