Final Results

Real Estate Investors PLC

26 March 2024

 

Real Estate Investors Plc

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

Final Results

For the year ended 31 December 2023

Orderly sales programme underway, debt reduced and continued covered dividend

Real Estate Investors Plc (AIM: RLE), the UK's only Midlands-focused Real Estate Investment Trust (REIT) with a portfolio of 1.24 million sq ft of investment property, is pleased to report its final results for the year ended 31 December 2023:

Successful sales, debt reduction and underlying profitability

·      Completed sales totalling £17.97 million (an aggregate uplift, pre-costs, of 2.93% above December 2022 valuations)

·      Disposal proceeds used to pay down £17.1 million of debt, reducing drawn debt to £54.4 million (FY 2022: £71.5 million)

·      LTV (net of cash) reduced to 32.4% (FY 2022: 36.8%)

·      Revenue of £11.5 million (FY 2022: £13.3 million) - decrease mainly due to sales

·      Underlying profit before tax* of £4.5 million (FY 2022: £4.6 million)

·      EPRA** EPS of 2.6p (FY 2022: 2.7p)

·      Basic (loss)/earnings per share of (5.4p) (FY 2022: 6.3p)

·      Loss before tax of £9.4 million (FY 2022: £10.9 million profit), primarily as a result of a revaluation deficit of £13.2 million on investment properties (FY 2022: gain of £3.2 million) (non-cash item)

·      EPRA** Net Tangible Assets ("NTA") per share of 54.9p (FY 2022: 62.2p)

·      £8 million cash at bank as at 31 December 2023

·      Deficit in market value of hedging instrument of £499,000 (FY 2022: gain of £2.2m) (non-cash item)

Uninterrupted Fully-Covered Dividend

·      Final dividend of 0.625p per share, payable in April 2024 as an ordinary dividend

·      Total fully covered dividend for 2023 of 2.5p per share (FY 2022: 2.5p) (the level of dividend for 2024 will be subject to the pace of further disposals) reflecting a yield of 7.4% based on a mid-market opening price of 33.75p on 25 March 2024

·      £50.6 million total declared/paid to shareholders since commencement of dividend policy in 2012

Robust Portfolio Performance

·      Gross property assets of £145.5 million (FY 2022: £175.4 million) with 41 assets and 183 occupiers

·      Like-for-like portfolio valuation down by 8.44% to £143.1 million (FY 2022: £156.3 million)

·      Continued robust rent collection levels with overall rent collection for 2023 of 99.82%

·      Completed 90 lease events during the year

·      WAULT*** of 5.24 years to break and 6.01 years to expiry (FY 2022: 4.98 years & 6.29 years)

·      Contracted rental income of £10.9 million p.a. (FY 2022: £12.6 million p.a.) net of disposals

·      Portfolio occupancy of 83.03% (FY 2022: 84.54%)

·      Major letting contracted to complete in April 2024.  This will improve existing occupancy to 85.91% and boost contracted rental income to £11.2 million p.a. (subject to sales and other lease activity)

Post Year-End Activity

·      Additional £1 million of disposals completed since period-end

·      Further £2.7 million of debt repaid since period-end, resulting in debt reducing to £51.7 million

·      Additional pipeline sales in legals

·      Healthy pipeline lettings of £803,107 p.a. (gross) (£529,471 p.a. net)

·      Revised remuneration policy and Shorter Term Incentive Plan announced in January 2024, improving alignment with the Disposal Strategy

·      In March 2024, the Group extended the £20 million facility with Lloyds Banking Group Plc for a further 12 months to 31 May 2025, the £28 million facility with National Westminster Bank Plc for a further 12 months to June 2025 and the £7 million facility with Barclays Bank PLC for a further 6 months to 30 June 2025.  As a result, following the multiple increases in interest rates by the Bank of England, the new average cost of debt is now 6.5%.  It is the Group's intention to prioritise the repayment of debt from property sales proceeds, as reflected by the short-term nature of the facilities

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

"Despite a backdrop of negative market sentiment, higher interest rates and political instability, coupled with very low levels of property transactions, we have secured underlying profits of £4.5 million, whilst paying a continued fully-covered dividend.

Having finalised and announced our strategic plan in January 2024, our priority is to continue disposing of assets and maximising returns to shareholders, within the stated timeframe. 

We have a healthy pipeline of sales in legal proceedings with completions anticipated in H1 2024 and we will continue to capitalise on ongoing demand for smaller lot sizes from private investors and special purchasers.  We will be holding our larger assets for income until corporate and institutional buyers return to the market. In the meantime, the business is operationally robust and we will continue intensively managing assets to maximise income and reduce vacancy levels.

We are committed to maximising shareholder returns, whilst remaining open to a corporate transaction that is in the best interest of shareholders.  In the meantime, we are focused on further sales and a full repayment of our debt, with the Board's intention to continue paying a fully covered quarterly dividend."

Financial and Operational Results

	31 Dec 2023	31 Dec 2022
Revenue	£11.5 million	£13.3 million
Pre-tax (loss)/profit	(£9.4 million)	£10.9 million
Underlying profit before tax*	£4.5 million	£4.6 million
Contracted rental income	£10.9 million	£12.6 million
EPRA EPS**	2.6p	2.7p
Basic (loss)/earnings per share	(5.4)p	6.3p
Dividend per share	2.5p	2.5p
Average cost of debt	3.7%	3.7%
Like-for-like rental income	£10.9 million	£11.1 million
	31 Dec 2023	31 Dec 2022
Gross property assets	£145.5 million	£175.4 million
EPRA NTA per share	54.9p	62.2p
Like-for-like capital value psf	£115.46 psf	£126.10 psf
Like-for-like valuation	£143.1 million	£156.3 million
Tenants	183	201
WAULT to break***	5.24 years	4.98 years
Total ownership (sq ft)	1.24 million sq ft	1.37 million sq ft
Net assets	£95.6 million	£109 million
Loan to value	38.0%	42.2%
Loan to value net of cash	32.4%	36.8%

Definitions

*      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

Enquiries:

Real Estate Investors Plc Paul Bassi/Marcus Daly	[phone]
Cavendish Capital Markets Limited (Nominated Adviser) Katy Birkin/Ben Jeynes	[phone]
Liberum (Broker) Jamie Richards/William King	[phone]

About Real Estate Investors Plc

Real Estate Investors Plc is a publicly quoted, internally managed property investment company and REIT with a portfolio 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 dividend policy. Further information on the Company can be found at www.reiplc.com.

CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT

During 2023, the UK property market has seen very low levels of investment transactions, a consequence of widespread political uncertainty, combined with high interest rates and elevated inflation levels.  Despite this, REI's portfolio remains resilient and stable, shielded from wider economic pressures due to its diversified nature and limited exposure to high-risk sectors, achieving 99.82% overall rent collection for 2023.

Against this challenging backdrop, REI successfully disposed of £17.97 million of assets during the period, achieving an aggregate uplift (pre-costs) of 2.93% above December 2022 book values.  This is due to the nature of our portfolio and our ability to 'break up' selected assets, unlocking the underlying portfolio value and feeding the appetite from private investors and owner occupiers for smaller, well-positioned assets. 

Demand from larger corporate and institutional buyers is yet to materialise and we will therefore continue to intensively manage our larger assets, maximising rental income and occupancy levels to support our dividend payments, until such demand returns, which we anticipate to be in the latter part of 2024 and 2025.

Using proceeds from sales and in line with our recently announced Disposal Strategy, we repaid £17.1 million of debt during 2023, reducing our total drawn debt to £54.4 million (FY 2022: £71.5 million).  Over the last three years, REI has sold over £56.4 million of assets, on an aggregate basis, at or above book value, and repaid over £46 million of debt, in line with our stated strategy. 

We currently have numerous disposals in solicitors' hands and are progressing our disposal programme, with a number of completions anticipated before the end of H1 2024.  With the benefit of our unique market insight, we anticipate 2024 to be a year of continued sales to our unique buyer pool, consisting of special purchasers, owner occupiers and private investors.

Whilst REI's portfolio is diverse and attractive to these buyers, general market sentiment remains weak due to an increased cost of capital, persistent inflationary pressures and global uncertainty.  Against this backdrop, market-wide valuation reductions were expected.  The REI portfolio has suffered a relatively mild 8.44% reduction (£13.2 million) in like-for-like portfolio valuations to £143.1 million (FY 2022: £156.3 million).  This is predominantly due to the nature of our stock, combined with the intensive management carried out across the portfolio by our asset management team.

Despite the £1.5 million p.a. loss of income associated with disposals during the period, asset management initiatives generated 90 lease events, stabilising occupancy at 83.03% (FY 2022: 84.54%), contracted rental income at £10.9 million p.a. (FY 2022: £12.6 million p.a.), and improving portfolio WAULT to 5.24 years to break and 6.01 years to expiry (FY 2022: 4.98 years & 6.29 years).  This has resulted in revenue of £11.5 million (FY 2022: £13.3 million), underlying profits of £4.5 million (FY 2022: £4.6 million) and a loss before tax of £9.4 million (FY 2022: £10.9 million profit) (valuation decline is a non-cash item).

The notable letting of 2023 was to DHU Healthcare CIC at Birch House, Oldbury for £625,000 p.a., which was previously unoccupied.  The Agreement for Lease was signed in October 2023 on a 10-year lease with a 5-year break and 6-months' rent free.  NHS England have awarded the Midlands NHS111 contract to DHU Healthcare CIC, commencing in early April 2024 and making DHU the largest provider of NHS111 services in England, with responsibility for 11 million patients.  Once the DHU lease commences, occupancy will rise to 85.91% and contracted rental income to £11.2 million p.a. 

We have continued to manage the portfolio actively, resulting in 90 lease events.  New tenants to the portfolio include; SpaMedica Limited, Luxury Leisure, and Swarco Smart Charging Limited.  There are currently other lettings in pipeline legals which will improve occupancy and rental income further, subject to further portfolio disposals.

Following a healthy year of disposals and debt repayment, the total drawn debt now sits at £54.4 million, with debt spread across 3 lenders.  Group LTV (net of cash) improved to 32.4% (FY 2022: 36.8%) and cost of debt was 3.7%.  However, the fixed rate hedges on our debt expired on 30 November 2023 on £10 million for Lloyds Banking Group, 29 December 2023 for Barclays Bank and 1 March 2024 for National Westminster Bank. As a result, following the multiple increases in interest rates by the Bank of England, the new average cost of bank interest is 6.5%.  It is the Group's intention to prioritise the repayment of debt from future property sales proceeds. 

Following discussions with our bankers, in March 2024 the Group extended the £20 million facility with Lloyds Banking Group Plc for a further 12 months to 31 May 2025, the £28 million facility with National Westminster Bank Plc for a further 12 months to June 2025 and the £7 million facility with Barclays Bank PLC for a further 6 months to 30 June 2025.  The facilities have been extended on short term bases as it is the Board's intention to repay portfolio debt in full, from the proceeds of the sales programme.  Since the year-end, a further £2.7 million of debt has been repaid, reducing total drawn down debt to £51.7 million.

Against a challenging backdrop, the Board is pleased with the robust operational performance of the business which is reflected in the covered, uninterrupted dividend payment of 2.5p for 2023, taking the total declared/paid to shareholders since the commencement of our dividend policy in 2012 to £50.6 million.  It is the Board's intention to continue paying an uninterrupted, fully-covered quarterly dividend payment to shareholders, subject to the pace of portfolio disposals.

The Board is committed to its formalised Disposal Strategy and maximising shareholder returns and remains open to a corporate transaction that is in the best interest of shareholders. 

Disposal Strategy

As confirmed in our January 2024 'Trading and Strategic Update', the Board is committed to pursuing an orderly strategic sale of the Company's portfolio over the next three years, disposing of assets individually or collectively, at or above book value, to optimise returns to shareholders.  The pace of the disposal programme will be dictated by market conditions, with an initial focus on repaying the Company's debt. 

Whilst management are aligned with the business and remain major shareholders, a new Shorter Term Incentive Plan (STIP) has been introduced to replace the existing Long Term Incentive Plan (LTIP), which is aimed at retaining staff whilst providing an incentive to facilitate the orderly sale in the best interests of the shareholders.  The Remuneration Committee has approved the new STIP along with a 33% reduction in Board and Executive remuneration to support the Company's ongoing cost saving initiative.  In determining the revised remuneration policy and STIP, the Company's Remuneration Committee consulted with REI's largest institutional shareholders.

Dividend

The Company's dividend payments continued throughout 2023, despite market uncertainty and significant disposals.  The first three quarterly dividend payments in respect of 2023 were paid at a level of 0.625p per share, fully covered.  Due to the level of disposals, the final dividend in respect of 2023 is confirmed at the same level at 0.625p per share, reflecting a total fully-covered dividend payment for 2023 of 2.5p (FY 2022: 2.5p) (which would be the basis for the dividend for FY2024, subject to the pace of further disposals) and a yield of 7.4% based on a mid-market opening price of 33.75p on 25 March 2024.  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 an ordinary dividend, is as follows:

Ex-dividend date:	4 April 2024
Record date:	5 April 2024
Dividend payment date:	26 April 2024

Outlook for 2024

The Board is steadfast in its commitment to maximising shareholder returns via sales and full repayment of our debt, with the view to then returning capital to shareholders.  

REI will continue to strive to achieve maximum pricing on disposals and anticipate potential future valuation growth, via intensive asset management and a much needed improvement in market conditions.

We remain confident that our proven and diversified portfolio will withstand market headwinds and any uncertainty this election year will bring.  We expect that any interest rate reduction will lead to a market recovery that will allow us to accelerate our sales programme and dispose of our larger corporate and institutional grade assets.

In the meantime, we remain open to a corporate transaction including selling the whole of the portfolio on terms that are in the best interests of shareholders.

Our Stakeholders

We sincerely thank our shareholders, advisers, tenants and staff for their ongoing support and in particular, in assisting management with the finalised strategy, which is intended to maximise returns to shareholders.

William Wyatt                                                                           Paul Bassi CBE D. Univ

Chairman                                                                                  Chief Executive

25 March 2024                                                                          25 March 2024

PROPERTY REPORT

UK Property Market Overview

Commercial property investment was suppressed throughout 2023, with high and uncertain interest rates taking their toll on activity across the property market.

According to JLL Research, total UK property investment reached £31.3 billion in 2023, a 36% decrease on 2022 volumes of £49.0 billion and 40% below the 10-year average of £51.8 billion. This represents the lowest annual total since 2012 when volumes reached £30.7 billion. The lack of transactional activity contributed to weak market sentiment across the property market, which has directly impacted our year-end valuations which have declined by 8.44% on a like for like basis, mitigated by active asset management and the diversity of our portfolio which gives access to the relatively stronger private investor market.

Throughout the year, and in accordance with previous years' strategy, we continued to break up sales in order to achieve premiums, mainly to private investors, owner occupiers and special purchasers as they were willing to pay higher sums.  We expect private investors and companies less reliant on finance will continue to seek opportunities at levels below £1 million or less and we will continue to benefit from this position.  

Interest rate cuts and lower inflation would support real income growth and this would likely trigger a gradual improvement in market sentiment and economic activity.  We are already seeing signs of traditional institutional investors returning to the market, which will bring a wider audience for sales, greater activity, appetite for larger lot sizes and improved valuations.

REI Portfolio Disposals

Our unique regional network of agent contacts and close proximity to owner occupiers allows access to more non-traditional purchasers and during the year, we disposed of 30 units/assets with an average lot size of £600,000, for a combined consideration of £17.97 million at an aggregate 2.93% uplift to December 2022 book valuations (pre-costs). 

The sales comprised break-ups of retail/leisure units at Alcester Road South, Acocks Green, Leamington Spa, Redditch, Newcastle Under Lyme and Walsall. However, they also included the sale of Land at Market Shopping Centre in Crewe (McDonalds), York House in Birmingham (to a college), and Castlegate House in Dudley (West Midlands Police).  It is therefore worth noting that around 53% of sales (by value) can be accredited to smaller units sales, and around 47% of sales (by value) were from the individual asset sales, all of which were bought by owner occupiers for their own purposes.

Post Period End Disposals

Since 31 December 2023, we have completed a further £1 million of disposals at Barracks Road, Newcastle-under-Lyme to an owner occupier. 

At present, we have disposal transactions that are in solicitors' hands, with several completions expected before the conclusion of H1 2024. We have additional sales being actively marketed and we have earmarked further assets for sale, where management initiatives have been concluded and are now ready for marketing.  Staying agile and responsive to evolving market conditions will be key to successfully executing this strategy throughout the coming year. However, we intend to make further opportunistic sales, should investor demand prevail.

The REI Portfolio

The REI portfolio, comprising of 41 assets with 183 tenants has a net initial yield of 7.18% and a reversionary yield of 8.81%. Valuations have seen a decline of 8.44% on a like-for-like basis to £143.1 million (FY 2022: £156.3 million).  It is management's intention to continue with asset management initiatives to maximise income, occupancy and capital value.  The current portfolio sector weightings are:

Sector	Income by Sector (£)	Income by Sector (%)
Office	4,968,850	45.42%
Traditional Retail	1,480,039	13.53%
Discount Retail - Poundland/B&M etc	1,274,000	11.65%
Medical and Pharmaceutical - Boots/Holland & Barrett etc	652,649	5.97%
Restaurant/Bar/Coffee - Costa Coffee etc	423,751	3.87%
Financial/Licences/Agency - Bank of Scotland etc	216,500	1.97%
Food Stores -  Co-op, Iceland etc	406,545	3.72%
Other - Hotels (Travelodge & Vine Hotels), Leisure (The Gym Group & Luxury Leisure), Car parks, AST	1,517,306	13.87%
Total	10,939,640	100%

Asset Management

During 2023, the asset management team completed 90 lease events.  New lettings during the year totalled just over £500,000 p.a. with lettings at Titan House (Telford) and Venture Court (Wolverhampton), being prominent. 

As a result of the asset management activity in 2023 our WAULT was 5.24 years to break and 6.01 years to expiry (FY 2022: 4.98 years & 6.29 years) and occupancy is stable at 83.03% (FY 2022: 84.54%).

Of the 16.97% vacancy as at 31 December 2023 within the portfolio, almost two thirds (10.72%) can be attributed to spaces at 4 properties (Barracks Road, Newcastle-under-Lyme; Crewe Shopping Centre; Kingston House and Birch House).  We have already reduced this void in the period since 31 December 2023, with the sale of Units 1&2 at Barracks Road, increasing occupancy to 84.98% (as 25 March 2024).  The scheduled letting at Oldbury and further sales will improve occupancy in H1 2024.

Key asset management initiatives undertaken during the year and subsequently to the date of this report include:

Titan House

Following the refurbishment of the office space to a Grade A specification and the letting to BohoMoon Limited at £111,145 p.a., SpaMedica Limited completed the lease for the third floor at £112,779 p.a. on a 10-year lease with a tenant break in year 5. 

Oldbury

DHU Health Care CIC signed the Agreement for Lease at £625,608 p.a. to facilitate the move into all the 35,749 sq ft at Birch House.  The refurbishment commenced and is due to complete in April 2024.  

Avon House

AFH Financial Group Limited took out a new lease for 11.5 years at the passing rent of £396,077 p.a. (at ERV) with no break, now occupying all 25,000 sq ft at Avon House, Bromsgrove.

Acocks Green

Following a number of sales, the previous Argos unit was refurbished and let to Poundstretcher on a 10-year lease at £62,500 p.a. with a tenant break at year 5.

Walsall

Following a lengthy planning process, Luxury Leisure signed a lease and undertook a tenant fit-out of 9-11 Park Street on a 10-year lease at £60,000 p.a. with a break at year 5.

Topaz Business Park

Costa have signed an Agreement for Lease at £89,000 p.a.  The forward sale of the Lease is proceeding, despite the challenges in the investment market.  The contract to build the Costa unit has been secured with completion due in September 2024.

Boundary House

The 2023 rent review has been settled, achieving an increase from £260,000 p.a. to £316,500 p.a., representing a very strong result in a challenging office market.

New tenants to the portfolio in 2023

SpaMedica Limited, Luxury Leisure and Swarco Smart Charging Limited.

Post Period End Activity and Sentiment

There is a strong level of pipeline lettings of £803,107 p.a. (gross) (£529,471 p.a. net) that will have a positive impact on our void space and contracted rental income.  

Portfolio Summary

	Value (£)	Area (Sq ft)	Contracted Rent (£)	ERV (£)	NIY (%)	EQY (%)	RY (%)	Occupancy (%)
Portfolio	143,105,000	1,239,467	10,939,640	13,701,260	7.18%	8.89%	8.81%	83.03%
Land*	2,394,594	-	-	-	-	-	-	-
Total	145,499,594	1,239,467	10,939,640	13,701,260	7.18%	8.89%	8.81%	83.03%

*Our land holdings are excluded from the yield calculations

Environmental, Social and Governance ("ESG")

REI is now working alongside Systemslink, (a leading energy management software provider), to collect, track and report carbon emissions data across REI's landlord-controlled areas.  As at the date of this report, accurate and certified data for the Scope 1 and 2 emissions for 2021-2022 is unavailable, as this is being verified.  The reduction of the portfolio's carbon footprint is a priority for the business. 

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:

	% of portfolio (by sq ft)
EPC Rating	A	B	C	D	E	F	G	Total
31 Dec 2023	2.25	36.88	22.71	35.13	3.03	0	0	100
31 Dec 2022	1.36	22.99	31.18	37.49	6.98	0	0	100

FINANCIAL REVIEW

Overview

In a year in which we disposed of £17.97 million of assets, the underlying profit before tax decreased by 2% to £4.5 million (FY 2022: £4.6 million). Despite the reduction in turnover, mainly due to sales, the Group maintained underlying profit by a reduction in holding costs (£260,000), administrative expenses (£640,000) and interest costs (£610,000), resulting in an EPRA EPS of 2.6p (FY 2022: 2.7p).

The loss before tax was £9.4 million (FY 2022: £10.9 million profit), including a revaluation deficit of £13.2 million on investment properties (FY 2022: gain of £3.2 million), a deficit of £182,000 on the sale of investment property (FY 2022: gain of £948,000) and a loss in the market value of our interest rate hedging instruments of £499,000 (FY 2022: gain of £2.2 million).  As a result, the EPRA NTA per share reduced by 11.7% to 54.9p (2022: 62.2p).

Receipts from disposals during the period were used to repay £17.1 million of debt in line with our stated strategy, reducing total drawn debt to £54.4 million (FY 2022: £71.5 million) with LTV (net of cash) improved to 32.4% (FY 2022: 36.8%).  REI repaid its Aviva facility in full and remains banked with 3 lenders.  All banking covenants continue to be met and there is headroom available with cure facilities in place. 

As expected, contracted rental income reduced during the period to £10.9 million (FY 2022: £12.6 million) predominantly due to disposals, with some reduction due to lease events across the portfolio.  Occupancy levels remained robust at 83.03%.  The loss of contracted rental income, whilst predicted, has led to a reduction in revenue to £11.5 million (FY 2022: £13.3 million).  Our like-for-like rental income reduced to £10.9 million p.a (FY 2022: £11.1 million p.a.). 

Despite a reduction in our revenue due to disposals, dividend payments continued throughout the period, at a level of 0.625p per share for Q1, Q2 and Q3, all fully covered.  The final dividend in respect of 2023 is confirmed as 0.625p per share, reflecting a total fully-covered dividend payment for 2023 of 2.5p (FY 2022: 2.5p).

	31 December 2023	31 December 2022
Gross Property Assets	£145.5 million	£175.4 million
Underlying profit before tax	£4.5 million	£4.6 million
Pre-tax (loss)/profit	(£9.4 million)	£10.9 million
Revenue	£11.5million	£13.3 million
EPRA EPS	2.6p	2.7p
EPRA NTA per share	54.9p	62.2p
Net Assets	£95.6 million	£109 million
Loan to value	38.0%	42.2%
Loan to value net of cash	32.4%	36.8%
Average cost of debt	3.7%	3.7%
Dividend per share	2.5p	2.5p
Like-for-like rental income	£10.9 million	£11.1 million
Like-for-like capital value psf	£115.46 psf	£126.10 psf
Like-for-like valuation	£143.1 million	£156.3 million

Results For the Year

The loss before tax of £9.4 million (FY 2022: £10.9 million profit), includes a revaluation deficit of £13.2 million on investment properties (FY 2022: gain of £3.2 million), a deficit of £182,000 on the sale of investment property (FY 2022: gain of £948,000) and a deficit on the market value of our interest rate hedging instruments of £499,000 (FY 2022: gain of £2.2 million).  Underlying profits reduced to £4.5 million (FY 2022: £4.6 million). 

Due to a loss of income during the year of £1.8 million p.a. (in the main due to loss of income associated with sales combined with other expected lease events) revenues for the year decreased to £11.5 million (FY 2022: £13.3 million). However, this was partly offset by a reduction in holding costs of void space and direct costs to £2.2 million (FY 2022: £2.5 million).

During the year, administrative costs and overhead expenses reduced by £640,000 to £2.6 million (FY 2022: £3.3 million), mainly due to no bonuses for executive directors and staff (FY 2022: £280,000), no provision for costs of the LTIP (FY 2022: £150,000), following the Group strategic review and introduction of the STIP and targeting services no longer required as the size of the portfolio reduces. The Group expects further savings in 2024 of £500,000.    

The Group prioritised the repayment of debt from the proceeds of sale of investment property and as a result, interest costs for the year reduced by £600,000 to £2.4 million (FY 2022: £3 million) due to £17.1 million debt repayment during the year.

(Loss)/earnings per share were:

Basic:  (5.4)p (FY 2022: 6.3p)

Diluted: (5.4)p (FY 2022: 6.3p)                                                     

EPRA: 2.6p (FY 2022: 2.7p)

Shareholders' funds decreased to £95.6 million at 31 December 2023 (FY 2022: £109 million) primarily as a result of the loss on property portfolio revaluation.

Basic NAV: 55p (FY 2022: 63.1p)

EPRA NTA: 54.9p (FY 2022: 62.2p)

Strategy

The Board concluded that it will conduct an orderly strategic sale of the Company's portfolio over the next 3 years with the objective of maximising the return of capital to shareholders (the "Disposal Strategy").  To achieve this outcome, assets will be sold individually, as smaller portfolios or as a whole portfolio sale, with the initial priority to repay the Company's debt.  The pace of disposals will be dictated by market conditions and management will look to secure disposals at book value or higher, maximising returns to shareholders.

Shorter Term Incentive Plan ("STIP")

To support the Disposal Strategy and the return of capital to shareholders, the Company is implementing a new Shorter Term Incentive Plan ("STIP"). The STIP will replace the existing Long Term Incentive Plan ("LTIP"), help to retain Paul Bassi, Chief Executive Officer and Marcus Daly, Finance Director (the "Executives"), and the wider management team and incentivise them to achieve an orderly and timely disposal of the Company's assets to maximise the capital return to shareholders.  The STIP is being implemented to compensate the Executives for the retrospective reduction in awards and cancellation of future awards under the LTIP.

1.   Under the STIP, the participants will receive a proportion of a notional cash pool (the "Pool") which will be created from the excess ("Gain") of Total Shareholder Return ("TSR") over the market value of the Company as at 31 December 2023.

2.   TSR is cash per Ordinary Share returned to shareholders, excluding ordinary dividends.

3.   To ensure the timely disposal of assets, the Gain attributable to the Pool will be reduced over time.

4.   If the Company's sell down strategy is completed in 2024 then the Pool is calculated as 10% of the Gain. If the strategy is completed in 2025 the Pool reduces to 7.5% and if by 2026, the Pool reduces to 5%.

5.   Of the Pool, a minimum figure of £410k is ringfenced for the management team (excluding the Executives) equivalent to a bonus of 100% salary.

6.   The STIP will pay out as soon as reasonably practicable after the earliest of (1) the sale of all the assets, (2) a takeover of the Company or (3) when the Remuneration Committee determine that a sufficient proportion of the assets have been sold and that the STIP has achieved its original purpose.

Revised Remuneration Policy (Effective 1 January 2024)

In addition, the Company's Remuneration Committee has approved changes to the Executives' remuneration to align the policy with the wider Company strategy.

1.       Basic salary: Executive salaries to be reduced by one third. New salaries - Paul Bassi, CEO reduced to £367k (previously £550k) and Marcus Daly, CFO reduced to £229k (previously £344k) amounting to a cost saving of approximately £330k (including National Insurance contributions).  In addition, Non-Executive Directors' fees also to be reduced by one third

2.       Annual discretionary bonus: The Executives' bonus is reduced from up to a maximum of 100% of basic salary to a maximum of 50% of the new reduced basic salary

3.       Executives' service contracts: If contracts are to be paid up following a corporate transaction or equivalent, then compensation under the Executives' service contracts reverts to old salary levels

4.       LTIP Awards: The Executives' entitlement to awards under the Company's existing LTIP scheme have been amended as follows:

·      Unvested awards granted re: FY2020 - to be reduced by one third

·      Unvested awards granted re: FY2021 - to be reduced by two thirds

·      Unvested awards granted re: FY2022 - to be cancelled

·      No further awards under the LTIP going forward

·      The approximate value in the reduction in the awards equates to approximately 4 million Ordinary Shares, which at a share price of 30p equates to £1.2 million

5.       Shorter Term Incentive Plan ("STIP"): To compensate the Executives (albeit not to the same extent) for the retrospective reduction in LTIPs in relation to FY2020 and FY2021, the cancelling of awards relating to FY2022 and no further issuing of awards under the LTIP in relation to FY2023 or going forward, the Executives will be entitled to participate in the STIP.

Finance and Banking

Due to significant sales in 2023 of £17.97 million and debt repayment of £17.1 million, total drawn debt at 31 December 2023 was £54.4 million (FY 2022: £71.5 million) (now reduced further to £51.7 million post period end) with the Aviva facility repaid in full.  As at 31 December 2023, the Group had £8 million cash at bank and remains multi-banked across 3 lenders and continues to meet banking covenants.

Up until the end of November 2023,100% of the debt across the portfolio was fixed, preserving a low average cost of debt at 3.7%.  However, the fixed rate hedges on our debt expired on 30 November 2023 on £10 million for Lloyds Banking Group, 29 December 2023 for Barclays Bank and 1 March 2024 for National Westminster Bank. As a result, following the multiple increases in interest rates by the Bank of England, the new average rate of bank interest is 6.5%.  It is the Group's intention to prioritise the repayment of debt from property sales proceeds.   

Whilst management focuses on debt repayment, it is prudent to keep cash reserves at a healthy level, should the business be required to provide bank security in the form of cash.  The Company continues to maximise its returns on cash reserves, with £8 million cash at bank at the year end with the majority on deposit earning 4.5% on an instant access basis.

The LTV as at 31 December 2023 was 38% (FY 2022: 42.2%) and the LTV (net of cash) was 32.4% (FY 2022: 36.8%).  The Group's hedge facility suffered a loss of £499,000 for the year to 31 December 2023.

Lender	Debt Facility (£m)	Debt Maturity
National Westminster Bank	28	June 2025
Lloyds Banking Group	20	May 2025
Barclays	7	June 2025

Refinancing

In March 2024, the Group extended the £20 million facility with Lloyds Banking Group Plc for a further 12 months to 31 May 2025, the £28 million facility with National Westminster Bank Plc for a further 12 months to June 2025 and the £7 million facility with Barclays Bank PLC for a further 6 months to 30 June 2025. The facilities have been extended on short term bases as it is the Group's intention to prioritise the repayment of debt from the sale of properties.

Going concern

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

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 a loss of income during the period associated with portfolio disposals, the Company's dividend payments continued uninterrupted with the first three quarterly dividend payments in respect of 2023 paid at a level of 0.625p per share, fully covered and a final dividend in respect of 2023 confirmed as 0.625p per share.  This reflects a total fully-covered uninterrupted dividend payment for 2023 of 2.5p (FY 2022: 2.5p) (the level of dividend for 2024 will be subject to the pace of further disposals), and a yield of 7.4% based on a mid-market opening price of 33.75p on 25 March 2024.  This takes the total declared/paid to shareholders since the commencement of our dividend policy in 2012 to £50.6 million.  

The dividend will be paid on 26 April 2024 as an ordinary dividend, to all shareholders on the register as at 5 April 2024 with an ex-dividend date of 4 April 2024.  The Board remains committed to paying a covered dividend, subject to the rate at which assets are disposed of.

Marcus Daly, Finance Director

25 March 2024

Real Estate Investors plc

Consolidated statement of comprehensive income

For the year ended 31 December 2023

	Note	2023	2022
		£000	£000
Revenue		11,513	13,293
Cost of sales		(2,232)	(2,489)
Gross profit		9,281	10,804
Administrative expenses		(2,616)	(3,252)
(Deficit)/gain on sale of investment property		(182)	948
(Deficit)/gain in fair value of investment properties		(13,197)	3,152
(Loss)/profit from operations		(6,714)	11,652
Finance income		177	49
Finance costs		(2,371)	(2,981)
(Deficit)/gain on financial liabilities at fair value through profit and loss		(499)	2,214
(Loss)/profit on ordinary activities before taxation		(9,407)	10,934
Income tax charge		-	-
Net (loss)/profit after taxation and total comprehensive income		(9,407)	10,934
Total and continuing (loss)/earnings per ordinary share
Basic	3	(5.44)p	6.33p
Diluted	3	(5.44)p	6.25p
EPRA	3	2.59p	2.68p

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 2023

	Share capital	Share premium account	Capital redemption reserve	Share-based payment reserve	Retained Earnings	Total
	£000	£000	£000	£000	£000	£000
At 1 January 2022	17,938	51,721	749	759	33,855	105,022
Share based payment	-	-	-	150	-	150
Share buyback	(714)	-	-	-	(1,296)	(2,010)
Transfer re capital	-	-	714	-	(714)	-
Share issue	42	108	-	(150)	-	-
Dividends	-	-	-	-	(5,131)	(5,131)
Transactions with owners	(672)	108	714	-	(7,141)	(6,991)
Profit for the year and total comprehensive income	-	-	-	-	10,934	10,934
At 31 December 2022	17,266	51,829	1,463	759	37,648	108,965
Share based payment	-	-	-	-	-	-
Share issue	119	215	-	(334)	-	-
Dividends	-	-	-	-	(4,000)	(4,000)
Transactions with owners	119	215	-	(334)	(4,000)	(4,000)
Profit for the year and total comprehensive income	-	-	-	-	(9,407)	(9,407)
At 31 December 2023	17,385	52,044	1,463	425	24,241	95,558

Real Estate Investors plc

Consolidated statement of financial position

At 31 December 2023

	Note	2023	2022
		£000	£000
Assets
Non-current
Intangible assets		-	-
Investment properties	4	143,105	173,030
Property, plant and equipment		2	3
		143,107	173,033
Current
Inventories		2,395	2,389
Trade and other receivables		2,550	3,110
Derivative financial asset		-	68
Cash and cash equivalents		7,981	7,818
		12,926	13,385
Total assets		156,033	186,418
Liabilities
Current
Bank loans		(54,407)	(20,325)
Trade and other payables		(5,637)	(5,982)
		(60,044)	(26,307)
Non-current
Bank loans		(-)	(51,146)
Derivative financial liabilities		(431)	-
		(431)	(51,146)
Total liabilities		(60,475)	(77,453)
Net assets		95,558	108,965

Equity
Share capital		17,385	17,266
Share premium account		52,044	51,829
Capital redemption reserve		1,463	1,463
Share-based payment reserve		425	759
Retained earnings		24,241	37,648
Total Equity		95,558	108,965
Net assets per share		55.0p	63.1p

Real Estate Investors plc

Consolidated statement of cash flows

For the year ended 31 December 2023

			2023		2022
			£000		£000
Cash flows from operating activities
(Loss)/profit after taxation				(9,407)	10,934
Adjustments for:
Depreciation				1	2
Net deficit/(gain) on valuation of investment property				13,197	(3,152)
Deficit/(gain) on sale of investment property				182	(948)
Share based payment				-	150
Finance income				(177)	(49)
Finance costs				2,371	2,981
Loss/(gain) on financial liabilities at fair value through profit and loss				499	(2,214)
Increase in inventories				(6)	(5)
Decrease in trade and other receivables				560	478
Decrease in trade and other payables				(624)	(1,051)
				6,596	7,126
Cash flows from investing activities
Expenditure on investment properties				(733)	(609)
Purchase of property, plant and equipment				(-)	(1)
Proceeds from sale of investment properties				17,279	20,164
Interest received				177	49
				16,723	19,603
Cash flows from financing activities
Interest paid				(2,371)	(2,981)
Share buyback				-	(2,010)
Equity dividends paid				(3,721)	(5,783)
Payment of bank loans				(17,064)	(17,973)
				(23,156)	(28,747)
Net increase/(decrease) in cash and cash equivalents				163	(2,018)
Cash and cash equivalents at beginning of period				7,818	9,836
Cash and cash equivalents at end of period				7,981	7,818

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 2023

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 2025. 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 2024 the Group extended the £20 million facility with Lloyds Banking Group Plc for 12 months to 31 May 2025.

·    In March 2024 the Group extended the facility of £28 million with National Westminster Bank PLC by a further 12 months to June 2025.

·    In March 2024 the Group extended the facility of £7 million with Barclays Bank PLC by a further 6 months to 30 June 2025.

·    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

	2023	2022
	£000	£000
Revenue            Rental income	10,919	12,725
Surrender premiums	594	568
	11,513	13,293
Cost of sales      Direct costs	(2,232)	(2,489)
Gross profit	9,281	10,804

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.

	2023			2022
	Earnings	Average number of shares	Earnings per Share	Earnings	Average number of shares	Earnings per share
	£000			£000
Basic (loss)/earnings per share	(9,407)	172,909,757	(5.44)p	10,934	172,651,577	6.33p
Dilutive effect of share options	-	-	-	-	2,312,675	-
Diluted earnings per share	(9,407)	172,909,757	(5.44)p	10,934	174,964,252	6.25p

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

	2023			2022
	Earnings	Shares	Earnings Per Share	Earnings	Shares	Earnings per share
	£000	No	p	£000	No	P
Basic (loss)/earnings per share	(9,407)	172,909,757	(5.44)	10,934	172,651,577	6.33
Net deficit/(gain) on valuation of investment properties	13,197			(3,152)
Deficit/(gain) on disposal of investment properties	182			(948)
Loss/(gain) in fair value of derivatives	499			(2,214)
EPRA earnings per share	4,471	172,909,757	2.59	4,620	172,651,577	2.68

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.

	31 December 2023
	EPRA NTA	EPRA NRV	EPRA NDV
	£'000	£'000	£'000
Net assets	95,558	95,558	95,558
Fair value of derivatives	431	431	-
Real estate transfer tax	-	8,586	-
EPRA NAV	95,989	104,575	95,558
Number of ordinary shares issued for diluted and EPRA net assets per share	174,702,476	174,702,476	174,702,476
EPRA NAV per share	54.9p	59.8p	54.7p

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.

	31 December 2022
	EPRA NTA	EPRA NRV	EPRA NDV
	£'000	£'000	£'000
Net assets	108,965	108,965	108,965
Fair value of derivatives	(68)	(68)	-
Real estate transfer tax	-	11,245	-
EPRA NAV	108,897	120,142	108,965
Number of ordinary shares issued for diluted and EPRA net assets per share	174,964,252	174,964,252	174,964,252
EPRA NAV per share	62.2p	68.7p	62.3p

3    Earnings per share (continued)

	31 December 2023 No of Shares	31 December 2022 No of Shares
Number of ordinary shares issued at end of period	173,844,434	172,651,577
Dilutive impact of options	858,042	2,312,675
Number of ordinary shares issued for diluted and EPRA net assets per share
	174,702,476	174,964,252
Net assets per ordinary share
EPRA NTA	54.9p	62.2p
EPRA NRV	59.8p	68.7p
EPRA NDV	54.7p	62.3p

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:

		£000
Carrying amount at 1 January 2022		188,485
Additions - subsequent expenditure		609
Disposals		(19,216)
Change in fair value		3,152
Carrying amount at 31 December 2022		173,030
Additions - subsequent expenditure		733
Disposals		(17,461)
Change in fair value		(13,197)
Carrying amount at 31 December 2023		143,105

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 2023 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 2023 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 2023 are available from the Company's website and will be posted to shareholders in April 2024.

 

END