Investing in Opportunity
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Investing in opportunity Annual Report 2019 User guide Welcome to the RDI REIT P.L.C. Annual Report 2019. In this interactive pdf you can do many things to help you easily access the information that you want, whether that’s printing, searching for a specific item or going directly to another page, section or website. These are explained below. Document controls Navigating with tabs Use the document controls located Use the tabs to quickly go to at the top of the pages to help you the start of a different section. navigate through this report. Links within this document Throughout this report there are links to pages, other sections and web addresses for additional information. Welcome to the At a glance RDI REIT P.L.C. Annual Report 2019 LTV UK RETAIL EXPOSURE 46.2% 29.7% 42.0% RDI is an established UK REIT 17.9% focused on delivering long term 2019 2018 2019 2018 sustainable income returns backed by strong real estate fundamentals. 42% 17.9% Improved gearing Significantly reduced Our income focused philosophy is supported by a relentless focus on UNDERLYING EARNINGS EARNINGS PER SHARE £53.5m 14.2p maximising income returns across £49.4m 13.0p all aspects of our business. 2019 2018 2019 2018 -7.7% -8.5% EPRA NAV PER SHARE DIVIDEND PER SHARE 213.8p 13.5p 185.5p Where we invest 10.0p Our diversified portfolio is located in Europe’s two 2019 2018 2019 2018 strongest economies. -13.2% -25.9% United Kingdom £1.2bn MARKET VALUE focused on London and the South East 39% 26% Germany 18% 17% £0.2bn Commercial UK Hotels UK Retail Europe focused on Berlin and Hamburg (currently held for sale) £1.4bn RDI REIT P.L.C. Annual Report 2019 Introduction Investment proposition IFC At a glance 01 Investment proposition The year in review 02 2019 at a glance 04 Market context Our portfolio is increasingly focused 06 Strategic priorities on sectors and assets benefiting from 08 Strategy in action structural change and strong occupier Strategic report demand, including the distribution and 12 Chief Executive’s report 16 Income led business model industrial sector, as well as our market 18 Key performance indicators 19 Principal risks and viability leading Hotel and London Serviced Office 24 Operating review 32 Business segments operating platforms. 34 UK Commercial 38 UK Hotels 42 UK Retail 46 Europe 50 Financial review 58 EPRA and other alternative performance measures 60 Corporate & social responsibility 74 Stakeholder engagement Directors’ report Superior income Governance 82 Governance at a glance Committed to delivering an upper quartile 84 Chairman’s statement Leadership dividend yield on NAV when compared to 86 Board of Directors other UK REITs 88 Board composition and roles Effectiveness 90 Board operations 92 Attendance of meetings 93 Nominations Committee Accountability 98 Audit and Risk Committee Remuneration 104 Directorsʼ remuneration 113 Policy report on remuneration 118 Annual report on remuneration Sustainable income 124 Additional disclosures to the Directors’ report Strong visibility on income supported by Financial statements 127 Statement of Directors’ responsibilities a diversified portfolio and tenant base 128 Independent auditor’s report 132 Income statements 134 Statements of comprehensive income 135 Balance sheets 136 Statement of changes in equity 139 Statements of cash flows 140 Notes to the financial statements 197 Appendix A: Related undertakings of the Company Growing income Other information 201 EPRA property analysis Medium term target to grow underlying 206 Other alternative performance measures earnings per share between 3 per cent and 207 Five year record 208 Glossary 5 per cent per annum IBC Offices and advisers 01 RDI REIT P.L.C. Annual Report 2019 The year in review 2019 at a glance Retail exposure reduced and balance sheet leverage improved. Acquisition of industrial park – Farnborough September 2018 Acquired Southwood Business Acquisition of distribution site Park, Farnborough, an industrial estate in Hampshire, – Bicester for £26.3 million, reflecting a September 2018 net initial yield of 6.2 per cent. Forward funding of 13.5 acre land interest at Bicester, Oxfordshire, which was consented for the development of two distribution units totalling 285,000 sqft. Refinancing of £275m UK bank facility January 2019 The Group’s principal debt facility was refinanced at a competitive rate for a new five year term and provides a flexible credit facility Planning consent with potential for cost of debt efficiencies. granted – Charing Cross Road June 2019 Resolution to grant planning permission providing for a Share consolidation 47 per cent increase in the property’s overall area, February 2019 through the development of an additional three floors of RDI completed a share consolidation in the office space. ratio of five old ordinary shares of 8 pence for one new ordinary share of 40 pence. 02 RDI REIT P.L.C. Annual Report 2019 Introduction Aviva financed UK Shopping Centres April 2019 Following an event of default in respect of a reportStrategic facility secured over four UK Shopping Centres, the Group entered into an agreement with the lender, Aviva, to progress a consensual sale. Pieter Prinsloo appointment April 2019 Following the retirement of Bernie Nackan in January 2019, Pieter Prinsloo was appointed to the Board as a Non‑executive Director and representative of the Company’s major shareholder. Directors’ report London Serviced Offices £75m refinancing August 2019 London Serviced Office facility refinanced for a new seven year term at attractive rates, securing a 50bp reduction on the previous facilities’ cost of debt. Sale of Bahnhof Altona, Hamburg September 2019 Financial statements RDI exchanged contracts to sell the Bahnhof Altona Center, Hamburg for €91 million. The sale reflected a net initial yield of 4.6 per cent and a 9.6 per cent premium to the last reported market value. Recycling of mature assets 2019 Other information A number of smaller disposals were completed during the year, including Lakeview Business Park, Warrington and Centralofts, Newcastle. 03 RDI REIT P.L.C. Annual Report 2019 The year in review Market context The rise of urbanisation, technology, Environmental, Social and Governance and access to talent are all playing a major part in the real estate strategies of small businesses and large corporates. Occupational markets Economy Technology (1) By market value The strategic importance of real estate to occupiers Brexit continues to be seen as the greatest risk Technology is impacting all aspects of the real estate continues to be an increasingly important aspect to the economy with businesses prioritising cost market from consumer behaviour to occupier of our investment strategy. The rise of urbanisation, reduction over acquisitions and capital expenditure. requirements. As a sector that has traditionally been technology, ESG and access to talent are all playing UK GDP growth has slowed, impacted by domestic slow to adopt new technologies, the pace of change a major part in the real estate strategies of small political uncertainty and softer global growth. is now being forced through businesses having to businesses and large corporates. While the UK economy has proved relatively resilient, adapt to the changing demands of both customers The Deloitte Crane Survey highlights the change consensus forecasts for GDP growth in 2020 are and employees. and increasing importance of the technology, media well below trend at approximately 1.0 per cent. Cities with strong infrastructure and technology and telecoms (“TMT”) sector and the reduction Unemployment rates remain below 4.0 per cent, credentials are more likely to attract investment. in dependence on the financial services sector. however this has not resulted in any material Key issues for corporates include factors such as the The TMT sector accounted for 43 per cent of wage growth or inflation, with general uncertainty business environment, technology and transport pre‑letting activity in Central London in the third resulting in low levels of consumer confidence. infrastructure, amenities and, importantly, access quarter of 2019 and has been rising steadily since Interest rates have stayed at very low levels in to talent. In this regard, London continues to be 2017. FinTech has also become one of the fastest the UK and globally. Despite previous references seen as a global city due to its access to talent and growing sectors in London. to historically low rates, UK ten year swaps have proximity to customers, investors and regulators. With real estate broadly accepted to be relatively dropped below 1.0 per cent from approximately late cycle, asset selection is increasingly important 1.5 per cent last year. In this low growth, low as both occupiers and investors become more interest rate environment, investment demand for discerning. sustainable income returns and capital preservation remains high. Response Response Response In line with trends, we are repositioning the portfolio With interest rates remaining low in the UK, we have At RDI we consider changes in technology across the to London and the southern part of the UK. London refinanced £350 million during the year, locking in business, from improving day‑to‑day management delivers 23 per cent of the UK’s GDP and remains a attractive rates of interest for new five and seven of the portfolio and how we interface with occupiers global city with access to a highly skilled workforce year terms. and clients, to long term investment strategies. to support the growth of knowledge intensive As the UK economy faces an extended period of At our Serviced Offices, increased demand for sectors. uncertainty, and considerably greater volatility in the flexible space has been evident from the shift Our strategy of repositioning to sectors with positive value of Sterling, we have taken the opportunity to towards remote working, which is becoming occupational demand is expected to deliver resilient capitalise on the relatively strong and stable German commonplace.