Real Estate Investors Plc

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

Final Results

For the year ended 31 December 2022

Robust Portfolio Performance, Disposals & Debt Reduction

Real Estate Investors Plc (AIM: RLE), the UK's only Midlands-focused Real Estate Investment Trust (REIT) with a portfolio of 1.37 million sq ft of investment property, is pleased to report its final results for the year ended 31 December 2022:

Growing NTA in a challenging market

·      Revenue* of £13.3 million (FY 2021: £14.7 million) (decrease in the main due to loss of income associated with sales)

·      Profit before tax of £10.9 million (FY 2021: £13.9 million), including a revaluation gain of £3.2 million on investment properties (FY 2021: gain of £4.9 million), a gain of £948,000 on the sale of investment property (FY 2021: gain of £1.2 million) and a gain in the market value of our interest rate hedging instruments of £2.2 million (FY 2021: gain of £1.4 million)

·      Underlying profit before tax** of £4.6 million (FY 2021: £6.4 million)

·      EPRA*** Net Tangible Assets ("NTA") per share of 62.2p (FY 2021: 58.8p) up 5.7%

·      Completed disposals totalling £20.9 million (an aggregate uplift, before costs, of 8.5% above December 2021 valuation)

·      Disposal proceeds used to pay down £18 million of debt in 2022

·      LTV (net of cash) reduced to 36.8% (FY 2021: 42.2%)

·      £7.8 million cash at bank as at 31 December 2022

·      Average cost of debt of 3.7%

·      100% of debt fixed with a weighted average debt maturity of 2 years

·      EPRA*** EPS of 2.7p (FY 2021: 3.7p)

·      Successful £2 million share buyback programme launched and completed in Q4 2022, in line with Company strategy announced on 6 July 2022

Uninterrupted Fully Covered Dividend

·      Final dividend of 0.4375p per share, payable in April 2023 as a Property Income Distribution (PID)

·    Total fully covered dividend per share for 2022 of 2.5p (FY 2021: 3.0625p) (which would be the basis for the dividend for FY2023, subject to the pace of further disposals) reflecting a yield of 8.8% based on a mid-market opening price of 28.25p on 27 March 2023

·      £46.3 million total declared/paid to shareholders since commencement of dividend policy in 2012

Positive valuations and strong lettings activity

·      Like-for-like portfolio valuation up by 1.9% to £173.0 million (FY 2021: £169.8 million)

·      Gross property assets of £175.4 million (FY 2021: £190.8 million) with 42 assets and 201 occupiers

·      Rent collection levels for 2022 of 99.54% (2021 overall collection: 97.81%) and Q1 2023 rent collection to date of 99.80% (adjusted for monthly/deferred agreements)

·      Completed 127 lease events during the year

·      WAULT**** of 4.98 years to break and 6.29 years to expiry (FY 2021: 5.03 years /6.76 years)

·      Contracted rental income of £12.6 million (FY 2021: £14.3 million) net of disposals

·      Portfolio occupancy of 84.54% (FY 2021: 85.75%) with potential to rise further as key pipeline lettings are completed (subject to ongoing sales and ongoing portfolio lease activity)

Post year end activity - continued demand from private investor market

·      Additional significant pipeline sales in legals

·      Healthy pipeline of new lettings in legals of £828,486 p.a.

·      In March 2023, the Group extended the £20 million facility with Lloyds for 6 months to 31 May 2024 and the £31 million facility with NatWest for 3 months to June 2024

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

"Despite the worst property year for transactions since the financial crisis, REI has successfully disposed of £20.9 million of property and reduced debt by £18 million, which has contributed to pre-tax profits of £10.9 million and the continuation of an attractive covered dividend.  Our like-for-like portfolio valuation has seen a 1.9% recovery during the year.  Given that the UK investment property market suffered average valuation declines of 14.2% over the year, this outperformance by the REI portfolio is a clear indication of the portfolio's stability and diversity. 

Despite a sluggish and inactive corporate and institutional marketplace, we anticipate continued sales to a strong private investor market, which will allow us to execute our stated strategy and reduce our debt further.  If the significant share price discount to NTA persists, we will consider a further share buyback, special dividend or other method of capital return.  In the event of a change in market conditions, we will also consider opportunistic acquisitions that will provide significant value via income and capital enhancement to our portfolio."

Financial and Operational Results

Definitions

*        Excludes land sale

**       Underlying profit before tax excludes gain 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 1.37 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

Corporate and institutional buyers remained cautious throughout 2022, with limited demand for larger lot sizes.  However, despite negative market sentiment, rising interest rates and high inflation, private investor and overseas buyer activity has remained healthy, resulting in a strong year of sales and debt reduction for REI. 

To take advantage of private investor appetite for smaller lot sizes and, in line with the Company strategy (outlined in July 2022), REI identified a number of assets with break-up potential that met this investor demand, successfully disposing of 25 assets/units totalling £20.9 million during the year, at an aggregate uplift, before costs, of 8.5% on 2021 year end book values and a net initial yield of 6.84%, demonstrating a robust underlying portfolio value. 

Portfolio disposals contributed towards a pre-tax profit of £10.9 million (FY 2021: £13.9 million profit) and supported a fully-covered, uninterrupted dividend payment of 2.5p for the year, taking the total declared/paid to shareholders since the commencement of our dividend policy in 2012 to £46.3 million. 

During the year, £18 million of debt was repaid, reducing overall total drawn debt to £71.4 million (FY 2021: £89.4 million) and LTV (net of cash) to 36.8% (FY 2021: 42.2%).  Our average cost of debt increased marginally to 3.7% due to the repayment of low-cost debt, with 100% of our remaining debt fixed as at 31 December 2022.  Management's priority remains to repay further debt, via additional sales to a strong private investor market, with a view to maintaining portfolio gearing below 40%, and, supporting further improvement in the Group's Net Tangible Assets ("NTA"). 

In addition to substantial debt repayment, the accelerated sales rate in 2022 allowed the Company to fund a share buyback of £2 million, further supporting the Company's ongoing capital return strategy, aimed at reducing the unwarranted discount between the share price and NTA. 

As well as reducing debt, the Company is looking to target £300,000 plus of savings in FY 2023 by identifying services that are no longer required as the portfolio reduces in size.  More than 50% of this target saving has already been actioned.

REI's resilient regional portfolio, underpinned by a diversified tenant and sector spread and consisting of 201 occupiers across 42 assets, has gross property assets of £175.4 million (FY 2021: £190.8 million).  Our like-for-like portfolio valuation has seen a 1.9% recovery during the year.  Given that the UK investment property market suffered average valuation declines of 14.2% over the year, this outperformance by the REI portfolio is a clear indication of the portfolio's stability and diversity.  With limited exposure to sectors that are undergoing a sharp yield correction and value reduction, conservative portfolio gearing and the benefit of significant underlying break-up potential demonstrated by recent sales, the portfolio is well placed to weather ongoing economic instability.  However, should interest rates rise further than presently anticipated, this could have a negative impact on future valuations. 

Intensive asset management during the year resulted in 127 lease events, and a WAULT of 4.98 years to break and 6.29 years to expiry (FY 2021: 5.03 years to break and 6.76 years to expiry).  Occupancy across the portfolio is stable at 84.54% (FY 2021: 85.75%) despite disposals of fully occupied assets, however, market sentiment and cost pressures from rising interest rates have resulted in a slowing down in occupier decisions.  A shift in employee working habits, a legacy of the pandemic, has also contributed to the hesitation from office occupiers who have not yet seen a full return of their workforce and are now seeking smaller quality spaces 'a flight to quality' that will entice employees back to their desks, whilst also meeting relatively new sustainability objectives.  We anticipate, in light of market sentiment that occupancy will increase, particularly as we have witnessed an improvement in occupier demand (albeit decision making remains slow) in the first quarter of 2023.  We are buoyed by the interest levels in the type of space we have available, much of which is non-City centre and accessible for those who wish to avoid heavy commutes and public transport.

Contracted rental income is at £12.6 million p.a. (FY 2021: £14.3 million p.a.), with the majority of this reduction due to the loss of income associated with disposals during the year, combined with lease terminations and other known lease events which we would expect to see in any normal trading period. 

We currently have a significant pipeline of lettings totalling £828,486 rent p.a. in solicitors hands, including large government-backed lettings that, once completed, have the potential to positively impact our occupancy levels, leading to improved income and WAULT and supporting future valuation recovery. 

In another sign of market normalisation and in line with the easing of Covid 19 related government restrictions in early 2022, overall rent collection levels for the year were a very healthy 99.54% translating into EPRA earnings per share of 2.7p.  For Q1 2023, rent collection levels are currently at 99.80%, signalling that occupiers are continuing to trade well, despite inflationary and interest rate pressure.

Ongoing Strategy

The Board renews its commitment set out in the July 2022 Trading Update and Capital Return Strategy, to deliver maximum value to our shareholders.  The Board believes that the share price discount to the net tangible assets ("NTA") continues to be unwarranted and that it is in the best interests of all shareholders to continue to take steps to reduce this discount. 

During 2022, the Company disposed of £20.9 million of portfolio assets at levels exceeding book value and a proportion of the subsequent disposal receipts, were used to repay £18 million of debt. 

In Q4 2022 the Company utilised further disposal receipts to fund a share buyback, acquiring a total of 7,142,857 shares at an average cost of 28p per share during November and December 2022.  All 7,142,857 buyback shares purchased under the programme were cancelled.  Therefore, the total number of Ordinary Shares in issue and carrying voting rights is 172,651,577 with no Ordinary Shares held in treasury.

Our strategy remains as previously stated and the Board looks to maintain maximum flexibility when considering how best to allocate surplus capital, including a return of capital to shareholders, whether in the form of a further share buyback, special dividend or other method of capital return.  The quantum of any return of capital will be set to ensure that we maintain a prudent loan-to-value ("LTV") ratio and will be subject to market conditions.  Alternatively, if the environment for acquisitions changes and opportunities offering significant value start to arise, then we may look to make opportunistic acquisitions where there is scope to capture material upside through asset management.  The Board evaluates the relative merits of these options on an ongoing basis.

Market commentators suggest that 2023 may see a more normalised investment market, with corporate and institutional investors returning to the market, having remained inactive for much of the last 24 months.  If this interest and activity materialises as predicted, we expect the quantum of REI sales in both volume and monetary terms to significantly increase, which would see an acceleration in REI's debt repayment objectives.  Likewise, should market conditions change dramatically and acquisition opportunities reveal themselves, management will consider acquisitions, should they offer our portfolio value and income enhancement for shareholders.

Dividend

The Company's dividend payments continued uninterrupted throughout 2022, despite unfavourable market conditions and an ongoing sales programme by REI.  The first two quarterly dividend payments in respect of 2022 were paid at a level of 0.8125p per share, fully covered.  The Q3 2022 dividend was reduced to 0.4375p per share due to the acceleration of disposals.  The final dividend in respect of 2022 is confirmed as 0.4375p per share, reflecting a total fully-covered dividend payment for 2022 of 2.5p (FY 2021: 3.0625p) (which would be the basis for the dividend for FY2023, subject to the pace of further disposals) and a yield of 8.8% based on a mid-market opening price of 28.25p on 27 March 2023.  The Board remains committed to paying a covered dividend, subject to business performance and the pace of further disposals.

The proposed timetable for the final dividend, which will be a Property Income Distribution ("PID") is as follows:

Outlook for 2023

We anticipate continued sales in 2023, with private investor appetite remaining strong in Q1 2023.  Until clarity is available around interest rates, larger buyers will likely remain inactive.  Sales to private investors are piecemeal and slow but nevertheless are value enhancing and worth pursuing. Receipts from these selective disposals will be used towards repaying further debt and reducing portfolio gearing, with a view to delivering on strategic objectives and narrowing the discount between share price and NAV. 

The Board intends to maintain 'maximum flexibility' with our strategy in the months ahead and will consider a further share buyback or capital return if appropriate, the structure and timing of which is yet to be decided.  The quantum of any return of capital will be set to ensure that we maintain a prudent LTV ratio, whilst also being mindful of the overall liquidity in the Company's shares.    

Renewed occupier appetite, combined with a proactive asset management approach to the existing portfolio over the months ahead should unlock income from void spaces and lead to improved occupancy levels.  A rise in occupancy, along with evidence from successful sales should go some way to offsetting any negative impact of economic instability on future valuations, although further and higher rate rises could adversely impact these.

Management intends to continue paying an uninterrupted, fully-covered quarterly dividend payment to shareholders, subject to portfolio disposals and any acceleration in the sales programme. 

As always, we are aware of market consolidation within the real estate and REIT market and we remain alert to options that align with the interests of REI's shareholders.

Our Stakeholders

Our thanks to our shareholders, advisers, tenants and staff for their continued support.

William Wyatt                                                                         Paul Bassi CBE D. Univ

Chairman                                                                                Chief Executive

27 March 2023                                                                       27 March 2023

PROPERTY REPORT

UK Property Market Overview

Sentiment around the investment market is shrouded in uncertainty following a tumultuous 2022. The year started off with investor optimism on the economic outlook, although economists' forecasts vary considerably. The impact of central banks raising interest rates to combat inflation has led to some of the highest borrowing costs since the 2008 global financial crisis.  Consequently, UK fund activity has so far been subdued during Q1 2023, with noticeable reduction in demand for larger lot sizes, except for some well let prime industrial investments, where interest is slowly recovering after a poor year of performance. 

However, as witnessed throughout the UK national auction markets, activity from smaller private investors remains resilient, albeit on-going sales are piecemeal and slow due to a lack of market confidence and availability of finance.  UK institutions have started the year very subdued with minimal volume activity for larger lot sizes.  Until the inflationary storm passes, monetary policy pivots to neutral and the economy proves resilient, we anticipate that the funds will likely remain inactive or at best highly selective. 

As would have been expected given base rate moves, capital value declines in 2022 were overwhelmingly driven by expanding yields (yield impact of -17.3% year-on-year), with rental values seeing marginal growth (+4.2%) as a result of a strong performance in the first half of the year. However, overall total returns are down. According to MCSI's IPD UK Property Index, UK investment property values declined by 14.2% for the year, making 2022 the worst year for UK property since the financial crisis. 

Higher borrowing costs fed through to the investment market with prospects of higher rate expectations which has dampened buyer sentiment towards commercial real estate. Consequently, open-ended real estate funds have been battling to meet a surge in demand for redemptions against a backdrop of high inflation and economic uncertainty. Some of the largest UK property asset managers, have imposed restrictions on property fund redemptions since September 2022, with many other funds and institutions also cutting their exposure to commercial property. 

Early 2023 valuations look slightly healthier, with sentiment improving, suggesting that some of the downside risk has been mitigated.  However, property prices are typically negatively correlated to interest rates, so returns will likely be determined by how high interest rates need to go to tame inflation. The length and breadth of a recession is also very important for commercial property pricing, as this will impact the occupational market.  Reductions in valuations in the investment market is mainly focussed on industrial and offices sectors.  Fortunately, the REI portfolio is heavily diversified and our valuations have proven to be more resilient.

With the region firmly on the map, thanks to a very successful 2022 Commonwealth Games and the highly anticipated HS2 project, Birmingham City centre and the wider Midlands region is witnessing a continued migration of large businesses from London to the region, with Goldman Sachs just one of many corporates taking space in 2022, signing up for 110,000 sq ft of Grade A space.

According to JLL Research, occupiers continue to seek quality, with Grade A accounting for 49% of office take up across the Birmingham City Centre office market in 2022.  Take up levels in the City centre totalled 692,700 sq ft for the year, a marginal increase on the 5-year average, with transaction levels 14% higher.  Recovery in rental values continued with an increase of 7% in Birmingham's headline rent on 2021 to £40.00 per sq ft, 16% above pre-Covid levels.  A lack of quality space is driving the growth, with only c. 80,000 sq ft of new build development in the pipeline for Birmingham City Centre, currently under construction and available.  We acknowledge that the market for secondary City centre offices is experiencing a decline, however our vacancy within this sector represents c. 1% of our entire portfolio and as such is not cause for concern.

The REI Portfolio

The REI portfolio, comprising of 42 assets with 201 tenants has a net initial yield of 6.84% and a reversionary yield of 8.23%. Valuations have seen a rise of 1.9% on a like-for-like basis to £173.0 million (FY 2021: £169.8 million).  Further valuation gains could be achieved during the course of 2023 as REI intends to continue to sell off assets at a premium to a strong investor market and generate income from void space within the portfolio.However, further interest rate rises could add downward valuation pressure. 

The current portfolio sector weightings are:

Disposals

Whilst the more institutional markets were in a state of flux, during the year we recognised that there was a growing amount of activity from private investors seeking smaller lot sizes of up to £1 million.  We identified several assets that could be broken up into smaller sales to achieve premium values and disposed several assets via private treaty to private purchasers at levels above book value.  

During the year, we disposed of 25 assets/units with an average lot size of £836,000, for a combined consideration of £20.9 million at an aggregate 8.5% uplift to valuation, comprising the following:

·      Acocks Green Shopping Centre, comprising twelve separate units, with a combined sale value of £7.03m - sold at an aggregate uplift of 17% above book value

·      120-138 High Street, Kings Heath for £4.7m - sold at 8% above book value

·      Bearwood Shopping Centre, comprising eight separate units, with a combined sale of £3.7m - sold at an aggregate uplift of 4% above book value

·      37a Waterloo Street, Birmingham at £3.17m, to a China based private investor - sold at 9.41% below book value

·      McDonalds Unit Leamington for £1.55m - sold at 43% above book value

·      Eastleigh / Hanover retail units, non-core assets to a private property company for £735,000 - no uplift on combined sales

It is worth noting that, whilst some of our assets were sold on an opportunistic basis, others, where asset management initiatives had been completed, were identified as ready for disposal as our knowledge of the local market meant it was the correct time to be disposing of them.

Post Period End Disposals

Since the year end we are now under offer on a significant pipeline of disposals which are in solicitors hands, subject to contract.  REI intends to make further opportunistic sales, should investor demand prevail.

Acquisitions

No suitable acquisitions were identified during the year and focus was directed at sales.  Management will consider portfolio acquisitions should they offer portfolio value and income enhancement.

Asset Management

Notwithstanding the backdrop of economic uncertainty amid a cost-of-living crisis, there was still renewed occupier confidence experienced in 2022, with the asset management team completing 127 lease events.  New lettings during the year totalled just under £1 million p.a. with notable lettings at Birchfield House (Oldbury), Titan House (Telford) and Venture Court (Wolverhampton).

The occupier market remains active with a good number of pipeline lettings in our void space.  Portfolio occupancy is at 84.54% (FY 2021: 85.75%) with potential to rise further with the completion of key pipeline lettings which are in advanced discussions.  Of the 15.46% vacancy (as at 31 December 2022) within the portfolio, over half of this (8.01%) can be attributed to spaces at 4 properties (Barracks Road, Newcastle-under-Lyme; Crewe Shopping Centre; Kingston House and Birch House).

As a result of the asset management activity in 2022 our WAULT was 4.98 years to break and 6.29 years to expiry (FY 2021: 5.03 years to break and 6.76 years to expiry).

Key asset management initiatives undertaken during the year include:

Titan House

Following the refurbishment of the office space to a Grade A specification, there was strong interest during 2022.  BohooMoon Limited signed for the third floor on a 5-year lease and we are in legals with an occupier to take the first-floor office space.  This is on a ten-year lease with a tenant break in year 5.  The remaining floor has seen strong interest since the year end to date and we are confident that the building will be fully occupied by the end of 2023.

Oldbury

DHU Health Care CIC took occupation of all 16,584 sq ft at Birchfield House towards the end of 2022 at a market rent of £273,636 p.a.  This is on a short-term lease to facilitate a potential move into all of the 35,749 sq ft at Birch House during 2023.

Tunstall

Argos' 15-year lease expired in 2020 and following a period of time where they 'held over', this lease was renewed for a further 5 years in mid-2022.  Poundland, having taken a temporary lease in 2020 to assess trade post Covid, entered into a new 5-year lease at a market rent.  The proposed Drive Thru 'pod' has seen an increased demand from a number of operators.  All the above support the sentiment of the strength of this location.

Crewe

The former Argos unit became vacant after the store consolidated to the local Sainsburys and we are now under offer to a national occupier for the ground floor of this unit.  Additionally, we are in solicitors' hands for a new lease agreement to Bodycare to take the former Clinton Cards unit with anticipated opening during the summer.  We currently have two vacancies in the indoor mall which occurred after Christmas, but we are working hard to find occupiers, with ongoing interest.   We have agreed to sell the consented new drive thru land in the rear car park to a well-known fast-food operator and once completed we feel that this will have a very positive effect on the scheme.  Parking revenue has been resilient and we have recently renewed our parking contract with an operator which includes brand new parking machines and improved car park signage.

Brandon Court

Following the successful surrender and reconfiguration of the Yazaki space, the letting to Bennetts and Comex 2000 completed late 2021/early 2022.  The final suite at the scheme was let in June 2022 to City Fibre on a 5-year lease.  Once again, the scheme is fully let.

Redditch

The final vacant unit was let in March 2022 to a Euro Supermarket.  The operator took a 15-year lease and has traded exceptionally well since opening.  Car parking income at the scheme has seen a strong resurgence since the impact of the Pandemic.  A new operator was appointed and has invested in new equipment and pay facilities.

Topaz Business Park

Several operators expressed interest in surplus land at Topaz and, after negotiations, it was decided to proceed with Costa.  Costa is considered one of the best covenants of the Drive Thru market.  An Agreement for Lease was entered into in July 2022 and tenders are being prepared to obtain a fixed price build contract.  Heads have been agreed on a forward sale with REI committing to develop the scheme.  Once PC is achieved, the lease is entered into and this will trigger the completion of the sale.

Lease terms: 

·      Letting to Costa Limited

·      15-year lease

·      £85,000 per annum

·      9-months rent free

·      Five yearly rent reviews - open market reviews with cap and collar limits of 3% and 1% respectively

New tenants to the portfolio in 2022

Microsoft, Shoe Zone (AG), King & Moffat UK Ltd, Delta Simons Ltd, City Fibre Holdings, Team Support Healthcare & DHU.

Post Period End Activity and Sentiment

Whilst there have only been a handful of lettings post the year end, we are noticing a significant increase in enquiries for vacant space.  The vacant office space within key city/town centres is generating levels of enquiries not seen since the pandemic.  Ongoing lease events are progressing slowly, e.g. Birch House, Oldbury due to government funding approval and ever-increasing levels of scrutiny.

Portfolio Summary

*Our land holdings are excluded from the yield calculations

Environmental, Social and Governance ("ESG")

REI has continued to work alongside Measurabl, the leading ESG technology and services platform for real estate, to collect, track and report carbon emissions data across REI's landlord-controlled areas.  The reduction of the portfolio's carbon footprint is a priority for the business. 

We have detailed below our emissions for Jan-Dec 2019 and 2020 (carbon emissions data for 2021 and 2022 will be supplied in due course as we complete the historical data collection):

*The above calculations apply to landlord-controlled gas and electricity consumption only

Portfolio Energy Performance Certification

In accordance with government guidelines, REI has undertaken a programme to ensure our assets meet the UK statutory regulations and timeframes for EPCs.  We will continue to upgrade assets when required.  An overview of the asset EPC ratings across the portfolio is noted below, showing the progress since 31 December 2021:

FINANCIAL REVIEW

Overview

Our results for 2022 are in line with management's expectations following a successful year of disposals.  Profit before tax of £10.9 million (FY 2021: £13.9 million), to include  a revaluation gain of £3.2 million on investment properties (FY 2021: gain of £4.9 million), a gain of £948,000 on the sale of investment property (FY 2021: gain of £1.2 million) and a gain in the market value of our interest rate hedging instruments of £2.2 million (FY 2021: gain of £1.4 million).  

Property disposals during the year amounted to £20.9 million, of which £18 million was used to repay debt.  Significant debt repayment, combined with a gain in portfolio valuations has led to a reduction in our LTV (net of cash) to 36.8% (FY 2021: 42.2%). As a result, our EPRA NTA per share has risen by 5.8% to 62.2p (FY 2021: 58.8p).

As at 31 December 2022, total drawn down debt was £71.4 million (FY 2021: £89.4 million) with 100% of the Company's debt fixed at an average cost of debt of 3.7%.  REI continues to meet all banking covenants (which continue to be measured against LTV of the loans to property values and the interest cover against rental income) and have headroom available.  REI remains multi-banked across 4 lenders.

During the year, contracted rental income reduced to £12.6 million (FY 2021: £14.3 million) due to significant portfolio disposals, combined with a temporary drop in occupancy levels across the portfolio as the markets react to economic pressures.  The loss of income resulted in a drop in revenue to £13.3 million (FY 2021: £14.7 million).  Our like-for-like rental income has remained constant, due to intensive asset management during the year.  Underlying profit for the year was £4.6 million (FY 2021: £6.4 million).  

Our pre-tax profits of £10.9 million supported uninterrupted dividend payments throughout 2022, with Q1 and Q2 paid at a level of 0.8125p per share, fully covered.  The Q3 2022 dividend was reduced to 0.4375p per share due to the acceleration of disposals.  The final dividend in respect of 2022 is confirmed as 0.4375p per share, reflecting a total fully-covered dividend payment for 2022 of 2.5p (FY 2021: 3.0625p) and a yield of 8.8% based on a mid-market opening price of 28.25p on 27 March 2023. 

Capital Return Strategy & Buyback Programme

The Board is committed to delivering value to its shareholders and believes that the share price discount to the net tangible assets ("NTA") continues to be unwarranted.  Following successful sales and subsequent debt repayment in 2022, the Company undertook a share buyback, acquiring a total of 7,142,857 shares at an average cost of 28p per share during November and December 2022.  All 7,142,857 buyback shares purchased under the programme previously held in treasury were cancelled.  Therefore, the total number of Ordinary Shares in issue and carrying voting rights is 172,651,577 with no Ordinary Shares held in treasury. 

During 2023, the Board intends to maintain 'maximum flexibility' in our approach towards our capital return strategy and will consider a special dividend, further share buyback or other form of capital return to shareholders, the structure and timing of which is yet to be decided and subject to the ongoing sales programme.

Results for the year

The profit before tax of £10.9 million (FY 2021: £13.9 million), includes a revaluation gain of £3.2 million on investment properties (FY 2021: gain of £4.9 million), a gain of £948,000 on the sale of investment property (FY 2021: gain of £1.2 million) and a gain in the market value of our interest rate hedging instruments of £2.2 million (FY 2021: gain of £1.4 million).  Excluding these items, the underlying profits reduced to £4.6 million (FY 2021: £6.4 million). 

Due to a loss of income during the year of £1.7 million p.a. (in the main due to loss of income associated with sales of £1.654 million, combined with other expected lease events) revenues for the year were down to £13.3 million (FY 2021: £14.7 million) despite new lettings of just under £1 million p.a. and intensive asset management initiatives offsetting much of the rental loss. In addition, holding costs of void space and direct costs increased to £2.5 million (FY 2021: £1.9 million).

As at 31 December 2022, cash at bank was £7.8 million.  During the year, REI did not make any investment property acquisitions due to a lack of supply.  Attention was focussed on achieving value by disposing of assets at above book value to a strong private investor market.

As previously stated, the Company is looking to target up to £300,000 of savings in FY 2023 by identifying services that are no longer required as the portfolio reduces in size.  During the year, administrative costs and overhead expenses increased by £200,000 to £3.3 million (FY 2021: £3.1 million), mainly due to a salary rise and increased bonus for staff (excluding directors) of £100,000, maintaining bad debts provision of £50,000 (FY 2021: £50,000), and a provision for costs of the Long-Term Incentive Plan of £150,000 (FY 2021: £150,000).  The Remuneration Committee agreed that bonuses for the Executive Directors of £180,000, being 25% of salary for 2022 should be made (FY 2021: £180,000).

Interest costs for the year reduced by £250,000 to £3 million (FY 2021: £3.2 million) due to £18 million debt repayment during the year. The weighted average cost of debt rose marginally to 3.7% (FY 2021: 3.5%) as a result of the Group paying down cheaper debt.

Earnings per share were:

Basic:  6.3p (FY 2021: 7.8p)

Diluted: 6.3p (FY 2021: 7.6p)                                                   

EPRA: 2.7p (FY 2021: 3.7p)

Shareholders' funds increased to £109 million at 31 December 2022 (31 December 2021: £105 million) as a result of the gain on property portfolio revaluation.

Basic NAV: 63.1p (FY 2021: 58.5p)

EPRA NTA: 62.2p (FY 2021: 58.8p)

Finance and Banking

Due to a successful disposals programme in 2022 and subsequent debt repayment of £18 million, total drawn debt at 31 December 2022 was £71.4 million (FY 2021: £89.4 million) with the AIB facility repaid in full.  The Group has £7.8 million cash at bank and remains multi-banked across 4 lenders and continues to meet banking covenants with its lenders, with headroom available.  As at 31 December 2022, 100% of the debt across the portfolio is fixed, preserving low average costs of debt at 3.7%, with a weighted average debt maturity of 2 years (FY 2021: 1.8 years).  The business is well-insulated from interest rate rises in the coming months. 

The LTV as at 31 December 2022 was 42.2% (FY 2021: 47.4%) and the LTV (net of cash) was 36.8% (FY 2021: 42.2%).  It is management's intention to maintain a portfolio LTV of sub 40%.  The Group's hedge facility improved by £2.2 million for the year to 31 December 2022 and  as at 31 December 2022, the swap position was an asset of £68,000.

In March 2023, the Group extended the £20 million facility with Lloyds Banking Group Plc for 6 months to 31 May 2024 and the £31 million facility with National Westminster Bank Plc for 3 months to June 2024.  It was agreed to renew discussions later in the year in order to formalise new, longer-term facilities when long-term rates have stabilised.  However, management continues to take a proactive approach to the maturity of these loans, and have a close dialogue with the banks, with rates monitored on a continuous basis to renew the facilities earlier if appropriate.

Going concern

The consolidated financial statements for the Group have been prepared on a going concern basis.

Long Term Incentive Plan ("LTIP")

The Company's LTIP is designed to incentivise and reward employees in reaching specific goals that lead to increased shareholder value and maximised returns.  Based on the results for the year, 50% of the options awarded for 2020 are likely to vest and so a charge to the provision of £150,000 (FY 2021: £150,000) 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 Group continues to meet all REIT requirements for 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. Quarterly dividends commenced in 2016.

Despite uncertainty in the property markets throughout 2022 and significant disposals by REI, the Company's dividend payments continued uninterrupted with the first two quarterly dividend payments in respect of 2022 paid at a level of 0.8125p per share, fully covered.  The Q3 2022 dividend was reduced to 0.4375p per share due to the acceleration of disposals. 

The final dividend in respect of 2022 is confirmed as 0.4375p per share, reflecting a total fully-covered uninterrupted dividend payment for 2022 of 2.5p (FY 2021: 3.0625p) (which would be the basis for the dividend for FY2023, subject to the pace of further disposals) and a yield of 8.8% based on a mid-market opening price of 28.25p on 27 March 2023.  This takes the total declared/paid to shareholders since the commencement of our dividend policy in 2012 to £46.3 million.   

The dividend will be paid on 28 April 2023 as a Property Income Distribution (PID), to all shareholders on the register as at 11 April 2023 with an ex-dividend date of 6 April 2023.  The Board remains committed to paying a covered dividend, subject to business performance and the pace of further disposals.

Marcus Daly, Finance Director

27 March 2023

Real Estate Investors plc

Consolidated statement of comprehensive income

For the year ended 31 December 2022

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

Real Estate Investors plc

Consolidated statement of changes in equity

For the year ended 31 December 2022

Real Estate Investors plc

Consolidated statement of financial position

At 31 December 2022

Real Estate Investors plc

Consolidated statement of cash flows

For the year ended 31 December 2022

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 2022

1.  Basis of preparation

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 accounting standards in conformity with the requirements of the Companies Act 2006.

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 12 months from the date of approval of these financial statements to 31 March 2024. 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. In March 2023 the Group extended the £20 million facility with Lloyds Banking Group  Plc for 6 months to 31 May 2024, whilst continuing negotiations to extend the facility by a further 3 years.

·    In March 2023 the Group extended the facility of £31 million with National Westminster  Bank PLC by a further 3 months to June 2024.

·    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 2022 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 2022 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 2022 are available from the Company's website and will be posted to shareholders in May 2023.