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Investing in opportunity
Annual Report 2017 Redefine International P.L.C. Annual Report 2017 01 Welcome to the Redefine International P.L.C.
Annual Report 2017 On 1 December 2017, Redefine Strategic report 02 At a glance International P.L.C. changed its 03 Where we operate name to RDI REIT P.L.C. 04 Chief Executive’s report Redefine International is a diversified 07 Investment proposition 08 The year in review FTSE 250 UK-REIT committed to becoming Although you may see some changes in 10 Market context the UK’s leading income focused REIT. branding, this Annual Report is dated 12 Income-led business model 14 Strategic priorities 26 October 2017, before our change in 16 Principal risks Our income-led business model and strategic name became effective. The Company’s 18 Operating review 24 Business segments priorities are designed to offer shareholders name referenced throughout therefore 26 UK Retail 30 UK Commercial superior, sustainable and growing income returns. remains Redefine International P.L.C. 34 UK Hotels 38 Europe Our new brand, short for Real Estate 40 Financial review Redefine International holds a primary listing on the 45 EPRA disclosures London Stock Exchange and a secondary listing on Diversified Income REIT, provides a solid 46 Corporate social responsibility the Johannesburg Stock Exchange and is included platform for the delivery of superior, sustainable and growing income for our within the FTSE 250, EPRA and GPR indices. Directors’ report shareholders. The move is synonymous Governance 60 Chairman’s statement with our intention to become the UK’s 62 Board of Directors leading income focused REIT. 66 Leadership structure 67 Board composition 68 Board operations More than just a change of name, the 70 Nominations Committee RDI REIT brand is a demonstration of Accountability 73 Investor relations our unique approach to real estate 74 Audit and Risk Committee investment. Through our relentlessly Remuneration 78 Directors’ remuneration inquisitive nature, tenacity and creativity 79 Remuneration at a glance we realise and add value that others miss. 83 Policy report on remuneration 86 Annual report on remuneration 92 Additional disclosures Real estate, redefined.
Financial statements 95 Statement of Directors’ responsibilities 96 Independent auditor’s report 99 Income statements 100 Statements of comprehensive income 101 Balance sheets 102 Statements of changes in equity 105 Statements of cash flows 106 Notes to the financial statements
Other information 148 EPRA property analysis 151 Five‑year record 152 Glossary A FTSE 250 Company Front cover: City Point, Leeds Schloss-Strassen Center, Berlin Redefine International P.L.C. Annual Report 2017 01 Welcome to the Redefine International P.L.C.
Annual Report 2017 Committed to becoming Strategic report What’s the UK’s leading income 02 At a glance focused REIT 03 Where we operate 04 Chief Executive’s report Redefine International is a diversified 07 Investment proposition inside 08 The year in review FTSE 250 UK-REIT committed to becoming 10 Market context the UK’s leading income focused REIT. 12 Income-led business model 14 Strategic priorities 16 Principal risks Our income-led business model and strategic 18 Operating review 24 Business segments priorities are designed to offer shareholders 26 UK Retail 30 UK Commercial superior, sustainable and growing income returns. 34 UK Hotels 38 Europe Chief Executive’s report 40 Financial review Redefine International holds a primary listing on the page 04 45 EPRA disclosures London Stock Exchange and a secondary listing on 46 Corporate social responsibility the Johannesburg Stock Exchange and is included Directors’ report within the FTSE 250, EPRA and GPR indices. Governance 60 Chairman’s statement 62 Board of Directors 66 Leadership structure 67 Board composition 68 Board operations 70 Nominations Committee The year in review Accountability page 08 73 Investor relations 74 Audit and Risk Committee Remuneration 78 Directors’ remuneration 79 Remuneration at a glance 83 Policy report on remuneration 86 Annual report on remuneration 92 Additional disclosures
Financial statements 95 Statement of Directors’ responsibilities 96 Independent auditor’s report Corporate social responsibility 99 Income statements page 46 100 Statements of comprehensive income 101 Balance sheets Our corporate social responsibility (“CSR”) 102 Statements of changes in equity strategy is to deliver lasting value to 105 Statements of cash flows our stakeholders. CSR is integral to our 106 Notes to the financial statements business, strategy and governance. For more information visit www.rdireit.com/csr Other information 148 EPRA property analysis 151 Five‑year record 152 Glossary A FTSE 250 Company Front cover: City Point, Leeds Schloss-Strassen Center, Berlin Redefine International P.L.C. Redefine International P.L.C. 02 Annual Report 2017 Annual Report 2017 03 Strategic report
At a glance Where we operate
Disciplined approach delivers Our diversified portfolio is located in n n sector-leading dividend yield. Europe’s twoEdinburgh strongest economies, namely the United Kingdom and Germany. Leeds Manchester Hamburg Underlying earnings Dividend per share Portfolio valuation Our top 20 assets Berlin (by value) £49.8m 3.2p £1,529m £1,539m £46.3m Bristol 2.6p e man
2016 2017 2016 2017 2016 2017
£49.8m Dividend 6.3% +3.0% +7.6% yield on EPRA NAV Like‑for‑like
n n Germany EPRA NAV per share Weighted average cost of debt LTV Edinburgh 27% 41.4p 3.4% 53.4% £0.4bn 40.0p 3.1% 50.0% Leeds Manchester Hamburg
Berlin
2016 2017 2016 2017 2016 2017
Bristol e man 41.4p 3.1% 50.0% a et al e
+3.5% -30bps Improved gearing e etail 2 United Kingdom £1.1bn 73% £1.5bn
tels 16 mme cial
St George's Shopping Centre, Harrow Redefine International P.L.C. Redefine International P.L.C. 04 Annual Report 2017 Annual Report 2017 05 Strategic report
Highlights Our investment Chief Executive’s philosophy is simple; Superior income 6.3% 6.3% dividend yield on NAV we look to invest in (UK-REIT average 4.1%) report and extract value Sustainable income 7.4yrs Diverse portfolio with WAULT from assets which of 7.4 years to first break and 7.3 years weighted can deliver consistent We remain committed to becoming the debt maturity and growing Growing income % UK’s leading income focused REIT and to 39 Improved portfolio quality income returns. delivering upper quartile income returns with 39% indexed income and high yielding income-led relative to other UK-REITs. development initiatives
2017 has been a year of heightened global Strategic priorities issued in consideration (representing 0.7 per The disposals completed during the year are Our relentless focus on maximising income and political uncertainty and prospects of In February 2017 we held an inaugural Capital cent of the current issued share capital). testament to our strategy as set out above. delivered from the portfolio is evidenced continued volatility across markets. In a Markets Day and set out the Company’s The completion of these two transactions will These actions, combined with disciplined by the continued high level of occupancy world where change is happening at an strategic priorities which have the goal of result in the Group’s overall interest in IHL reinvestment, are continuously improving achieved at 97.7 per cent (2016: 97.7 per cent). ever‑increasing pace, our strategy to be the delivering superior, sustainable and growing increasing to 58.9 per cent. IHL will be delisted the quality of the portfolio and its ability to 235 leasing events were completed during UK’s leading income focused REIT is well income returns. Following a period of and the portfolio will be managed as part deliver long-term sustainable and growing the year reflecting a 3.9 per cent (£0.6 million) placed. I am therefore pleased to report significant growth and transactional activity of the Group’s existing hotel portfolio. Last income returns. increase on passing rent and a 0.7 per cent increase on ERV. Excluding temporary leases, another solid set of results, with underlying these priorities underline our ongoing valued at £104.4 million, the assets include The Company is at advanced stages of gross annualised rental income increased by earnings per share at 2.75 pence, in line with ambition to become the UK’s leading the Hampton By Hilton at Gatwick Airport, negotiation on the sale of a portfolio of 5.0 per cent and 4.9 per cent on passing rent recent guidance and EPRA NAV per share up income focused REIT. the Holiday Inn Express, Edinburgh and German retail assets for approximately and ERV respectively. 3.5 per cent to 41.4 pence. four Travelodge hotels providing long-dated €200 million. The sale would include the Our initial earnings target of 2.7 to 2.8 pence uncapped CPI-linked income. The acquisition Results and dividend per share has been achieved and in only six repayment of associated debt facilities. The redevelopment and expansion of existing is expected to provide a yield on equity of over This opportunistic disposal capitalises on an assets remains an important part of our Underlying earnings increased by 7.6 per months we have made material progress in 10 per cent which will be earnings enhancing exceptionally strong investment market and strategy to enhance the quality of the portfolio cent to £49.8 million (2016: £46.3 million). improving the quality of the portfolio so as to and provide exposure to assets demonstrating an approximate 17 per cent increase in the and deliver attractive income returns on Underlying earnings per share are in line with deliver long-term sustainable income returns strong trading performance. This acquisition value of the Euro relative to Sterling over the marginal investment. Capital expenditure guidance at 2.75 pence and form the base and enhanced growth prospects. clearly demonstrates our ambition to increase investment period. during the year totalled £19.6 million with from which we will grow income in line with Scalable business scale through investing in the right earnings current capital projects anticipated to provide our medium‑term growth target of 3.0 to The Company intends to recycle the disposal enhancing opportunities. a 7.6 per cent yield on cost. 5.0 per cent per annum. There are a number of long-term benefits proceeds into new investments which Mike Watters associated with greater scale, including greater Income focused portfolio are in line with the Company’s strategy of EPRA NAV increased by 3.5 per cent to Efficient capital structure Chief Executive Officer access to capital markets and liquidity, a lower Our strategic priority to improve our enhancing the quality of the portfolio and its 41.4 pence per share (2016: 40.0 pence per We are focused on further strengthening the cost of capital, overhead efficiencies and portfolio’s exposure to more resilient property growth prospects. A number of investment share) supported by a 3.0 per cent like-for-like balance sheet by mitigating refinancing risk operational flexibility. However, these benefits fundamentals supports our target to deliver opportunities have been identified which increase in the value of the Group’s portfolio. and efficiently reducing leverage, whilst also will remain secondary to securing the right secure, sustainable and growing income. are at various stages of due diligence. In limiting the impact on income. The Board has declared a second interim income focused investment opportunities for Our investment philosophy is simple; we look particular, the Company is currently in dividend of 1.3 pence per share taking our shareholders. to invest in and extract value from assets exclusive negotiations to acquire a portfolio of The Group’s loan-to-value ratio of 50.0 per dividends declared for the full year to The acquisition of a further 32.8 per cent which can deliver consistent and growing high quality assets in the UK which, if acquired, cent, reflecting transactions post year end, 2.6 pence per share. The full year dividend stake in International Hotel Properties Limited income returns. Equally, we look to recycle would utilise the majority of the disposal is at the top end of our medium-term target reflects a pay-out ratio of 94.5 per cent (“IHL”) by way of a scheme of arrangement, capital from assets providing limited further proceeds. The income yield is expected to be of 45 to 50 per cent. The acquisition of a of underlying earnings, delivering on our as announced in August 2017, will result in the rental and/or capital growth expectations, commensurate with the yield achieved on the further 44.0 per cent interest in the Leopard strategic priority of distributing superior issuance of approximately 45.9 million new where business plans have been successfully disposal and likely to be accretive to investors portfolio during the second half of the year income returns which are fully covered Redefine International shares. In addition, executed and value creation maximised. over the medium term. However, there raised leverage temporarily above 50 per cent by underlying earnings and aligned with can be no guarantee that such acquisition but this has been largely addressed through the Company will reach agreement later It has been a productive year in terms of operating cash flow. The total dividend for will proceed to completion, and a further successful disposals and the acquisition of the today to acquire a further 5.0 million shares both investment and disposal activity. Over the year of 2.6 pence per share reflects a announcement will be made by the Company, controlling interest in the IHL hotel portfolio (representing an 8.9 per cent stake) in IHL £148 million was generated from asset sales at 6.3 per cent yield on EPRA NAV, over 50 per from Redefine Properties on the same terms as appropriate, in due course. post year end. cent higher than the UK-REIT average of a premium of 12.2 per cent to book value with as the scheme of arrangement. 12.5 million a further £11.0 million sold post year end. 4.1 per cent. new Redefine International shares will be Redefine International P.L.C. Redefine International P.L.C. 06 Annual Report 2017 Annual Report 2017 07 Strategic report
All our medium-term Committed to Chief Executive’s targets remain in place. Investment becoming the UK’s leading income report proposition focused REIT. continued
The Group’s weighted average cost of debt Growing our business sustainably Our income focused and diversified portfolio Our income-led business model and stands at 3.1 per cent (2016: 3.4 per cent), On the Corporate & Social Responsibility provides limited exposure to any single sector below our medium‑term target of 3.2 to front, the Group has been proactive in or occupier with the opportunity to allocate strategic priorities are designed 3.4 per cent. The reduction in our interest ensuring compliance with forthcoming Energy capital to assets and sectors where we identify costs has provided enhanced interest cover Performance Certificate (“EPC”) regulations. the best opportunities. We are increasingly to deliver superior, sustainable and at a Group level of 3.2 times (2016: 2.7 times). Over 500 EPCs have been reviewed or looking to invest in locations and sectors with long‑term structural support driven by The long-term debt secured against four of renewed eliminating compliance risk in growing shareholder distributions. occupier demand, infrastructure investment our UK Shopping Centres was successfully advance of the 2018 deadline. On Green and strong demographics. restructured in the second half of the year initiatives, we have improved our GRESB An attractive business model focused on income driven total returns in to reduce leverage and interest costs. rating for the second year running, and we Significant progress has been made in an environment where sustainable income is increasingly important. The aggregate facility of £167.8 million was have conducted tenant surveys at our UK strengthening our balance sheet and we will reduced to £146.1 million, extended to Shopping centres to help us develop better continue to target a lower leverage structure April 2042 and included the termination of the experiences for occupiers and customers over time. Notwithstanding this objective, historic profit share arrangement on Grand alike. For certain centres this has resulted in the Group’s average debt maturity is already Arcade, Wigan. The aggregate prepayment the implementation of electric vehicle charging in excess of seven years and with material and restructuring costs of £27.6 million bays, provided free of charge to customers. covenant headroom and interest cover provided a marginal return of approximately 2016 marked ten years since the Group’s over three times, this has resulted in limited 10 per cent, resulting in an efficient reduction listing and to celebrate we have been paying refinancing risk and strong cash flow cover. it back with community projects called ‘Ten in leverage. All our medium‑term targets remain in place. 4 Ten’. Each centre has invested ten days Our growth target of 3.0 to 5.0 per cent per Superior income Financial discipline during the year towards initiatives designed to annum in underlying earnings per share In February 2017, we aligned underlying support the communities in which we operate. reflects the confidence we have that our Committed to deliver upper quartile dividend yield earnings to the EPRA measure, adjusted business will continue to deliver superior, for limited Company specific non-cash Outlook on NAV when compared to other UK-REITs sustainable and growing income. Earnings adjustments. Utilising this industry standard The income return from direct real estate growth is driven with focus on all aspects metric will provide a closer alignment of in the UK has contributed approximately of our income statement. The continuous earnings to operating cash flow. Our dividend 75 per cent of total direct real estate returns improvement in the quality of our portfolio for the year was fully covered, with the over the long‑term, and our income focused is supporting rental growth expectations. pay-out ratio of 94.5 per cent within our portfolio is well placed to capitalise on this We are seeing strong occupier demand for target of 90 to 95 per cent. Progress against trend in the future. With growing global our logistics, hotels and retail park assets our medium-term financial targets has been appetite for predictable income returns, (47 per cent of the UK portfolio) supported positive with key metrics largely on target or we believe our income‑led strategy to deliver Sustainable income by 38.9 per cent of the overall portfolio being moving in the right direction. market leading shareholder distributions remains extremely attractive. subject to inflation‑linked and fixed rental increases. In addition, we have a number Strong visibility on income supported by a diversified The expectation of rising interest rates in of income‑led asset management initiatives portfolio and tenant base, with WAULT of 7.4 years the UK in the near term appears increasingly planned and underway to support our growth likely. Despite this, interest rates remain targets. Weighted average cost of debt has to first break and average debt maturity of 7.3 years exceptionally low by historic standards and reduced to 3.1 per cent which, combined the outlook for longer‑term rates remains with improvements in our EPRA cost ratio is benign, suggesting that the search for yield providing positive operating leverage. is likely to endure as a key investment theme. We remain committed to becoming the UK’s leading income focused REIT and to delivering 31 August upper quartile income returns relative to other Key metrics Medium‑term target HY1 HY2 2017 UK‑REITs. Underlying EPS (guidance: 2.7 – 2.8) (p) n/a n/a 2.75 Growing income Pay‑out ratio (%) 90.0 – 95.0 96.3 92.9 94.5 Mike Watters Rental income growth (like‑for‑like) (%) 2.0 – 5.0 3.3 4.3 3.7 Chief Executive Officer Medium-term target to grow underlying LTV (%) 45.0 – 50.0 49.9 50.0 50.0 26 October 2017 EPS between 3% and 5% per annum Interest cover (times) >3.0 3.1 3.4 3.2 Cost of debt (%) 3.2 – 3.4 3.3 3.1 3.1 EPRA cost ratio (excluding direct vacancy costs) (%) <15.0 20.7 19.0 19.8(1)
(1) 17.2 per cent when adjusted for non‑recurring items. Redefine International P.L.C. Redefine International P.L.C. 08 Annual Report 2017 Annual Report 2017 09 Strategic report
The year in review
Recycling capital to improve the portfolio’s resilience and longer-term income security.
February Disposal of Parliament April Square, Edinburgh Company acquires controlling interest in German Retail June October October Disposal of Delta 900, portfolio previously held in Disposal of Woodlands, Agreement reached to acquire Former 40,000 sqft BHS unit at Grand Swindon joint venture Bedford controlling interest in International Arcade, Wigan let to Poundland Hotel Properties Limited
2017
January February March April May June July August October November
January March May October is sal is sal Development begins at is sal office portfolio, Germany The Observatory, Albion Street Derby to create Exchange House, Chatham new 22,000 sqft unit for August Watford Disposal of office building at TK Maxx Disposal of Sytner BMW Deansgate Manchester Showroom, High Wycombe
July November Company enters into scheme Contracts exchanged for the February of arrangement with minority disposal of German Retail Company hosts Capital shareholders to acquire 50% portfolio for £205m Markets Day in both UK and interest in International Hotel representing a 10.8% South Africa Properties Limited premium to book value Redefine International P.L.C. Redefine International P.L.C. 10 Annual Report 2017 Annual Report 2017 11 Strategic report
Income and income quality is as important We see clear evidence of greater levels of Market as ever. As investors seek out acceptable occupational and investment activity in yields, our ability to deliver sustainable asset major cities and key economic areas. context backed income returns is compelling.
Investment and We anticipate Economy Occupational market Technology income returns to capital markets remain the focus Economic and political uncertainty have The UK occupational market has been resilient Investment market activity was strong across Real estate continues to be defined by become commonplace. In many respects, the and performed better in a post Brexit climate most sectors, both in the UK and Germany. technological and social disruption, and for UK-REITs which UK has faired well post the EU referendum. than generally expected. Performance has Capital and liquidity for real investment businesses continue to respond with new-tech aligns well to our Unemployment remains at very low levels and however been varied, with distribution remains strong but is selective with depth initiatives to match customer behaviour. GDP growth forecasts remain positive, albeit and industrial benefiting strongly from the of demand significantly stronger for good The ‘on-demand’ culture created by the below 2.0 per cent. Germany has benefited structural change in retailing while certain quality assets. One area of significant growth strategy. Our focus on entertainment sector has filtered through to all from low unemployment, solid economic parts of the retail market have come under has been the alternative sectors including aspects of daily life. Consumers demand to be Europe’s two largest growth and a broad based European pressure from changing consumer habits and student accommodation, self-storage and ‘where it’s happening’ whether that be at work, economic recovery. the corresponding change in retailers’ sales the private rented sector. As occupier and at leisure or at home. real estate markets and delivery network. customer needs evolve, flexibility and service The UK will likely experience its first rise levels are becoming an increasingly important in interest rates in ten years with the base Retailers embracing these changes remain The retail sector is responding to consumer provides liquidity consideration. rate expected to increase over the coming successful, however the traditional sales demands by focusing on space-as-a-service, bringing together physical space and location and transparency. months. Despite this likely increase in channels and store networks have and will Capital values in most markets have performed with technology to create ultimate engagement short-term rates, the outlook for longer-term continue to change. Our largely food, discount well driven by both lower investment yields and experience. Augmented reality, beacons rates remains low with UK ten year gilts below and convenience shopping centres reflect a and rental growth. With investment yields and voice recognition technology are 1.5 per cent immediately after the increase more resilient part of the market evidenced by now broadly at levels previously seen in 2007, just some of the tools being employed in in the base rate. Likewise, interest rates in the portfolio’s continued high occupancy rate investment demand has become increasingly physical shopping locations to challenge Germany remain exceptionally low by historic of 96.7 per cent. Engagement with retailers, focused on sectors with rental growth online shopping. standards. While interest rates remain at such customers and local communities all form expectations. Shopping centres, particularly depressed levels, the premium between real an integral part of our asset management in the UK, have been the exception and have Smartphones and social media remain the estate yields and interest rates remains well process. We are actively investing in our assets seen a sharp reduction in investment demand enabler for shopping centres, utilising apps to above historic averages. to ensure they remain relevant and attractive and transactional volume. Market concerns deliver greater convenience. An example of to both retailers and customers. Economic uncertainty generally results reflect a lack of real growth in retail sales this is app-driven ticketless, cashless parking in businesses and consumers delaying The London hotel market has benefited from volumes and the impact of online retailing solutions which are becoming commonplace investment decisions. Despite these a stronger than anticipated economy and and changing consumer habits on physical as retail destinations strive to become near-term challenges, our strategy of investing weaker Sterling with London centric, limited retail outlets. At 20 per cent by market value, customer driven and outcome-focused. in Europe’s two largest and most liquid real service hotels demonstrating positive trading. UK Shopping centres reflect a decreasing part of our portfolio. The growing use of data analytics is also estate markets is expected to provide Regional office markets have seen limited new impacting the retail environment. Knowing long-term sustainable income returns. development and robust occupier demand. Investment and disposal activity continues to the customer is certainly not a new concept However we have taken the opportunity to sell focus on allocating capital to assets in locations but with technology advances retailers and regional office assets where we believe values and sectors with long-term structural support retail environments are able to gain an
have been maximised. Occupier demand from and occupier demand. Our experience of in-depth knowledge of their shoppers and London offices has been resilient and future managing a diversified portfolio of assets target audiences like never before. It goes speculative supply has reduced. Our exposure provides clear evidence of greater levels of beyond age and demographic profiling, to areas of London benefiting from large scale occupational and investment activity in major enabling brands to create personal, tailor transport and infrastructure investment is cities and key economic areas. The increased made marketing activity resulting in brand well placed. weighting of the Group’s portfolio to London, immersion and engagement. the “Big six” UK cities and the South East as well as key German cities including Berlin In addition to a robust traditional research and Hamburg provides greater confidence in programme, our Retail Portfolio utilises our future growth and sustainability. consumer websites, apps and social media functionality to understand and respond to customer needs and wants. Redefine International P.L.C. Redefine International P.L.C. 12 Annual Report 2017 Annual Report 2017 13 Strategic report
Designed to deliver superior, Income-led sustainable and growing income. business model
In February 2017 we held an inaugural Capital Markets Day and set out our strategic priorities Strategic priorities in support of our commitment to become the UK’s leading income focused REIT. Income Income focused portfolio focused portfolio Continuously improving our diversified portfolio’s exposure to more resilient property fundamentals supporting security of income, with clearly identified opportunities to drive income growth.
Efficient capital structure
Focused on further strengthening the balance sheet by mitigating refinancing risk and efficiently reducing leverage. Support of operational flexibility with a competitive
cost of capital. S tai a e i co e
Financial discipline
S perior i co e Improved accountability with clear and measurable medium-term targets, across all items of the income statement. Efficient conversion of rental income into profits with headroom on dividend.
Scalable business Scalable Efficient business capital Greater scale will result in longer-term benefits, including greater access to capital markets ro i g i co e and liquidity, whilst limiting volatility. Capital recycling to ensure we secure the right earning structure enhancing opportunities for our shareholders.
Demonstrating our commitment to deliver on strategic priorities
Transformational 2016 acquisition Clear and measurable medium delivering significant value and term targets – see page 14 income returns – see page 33
A stronger balance sheet with Earnings and NAV accretive IHL improvement in all key metrics acquisition completed post year end – see page 15 – see page 37
Financial discipline Redefine International P.L.C. Redefine International P.L.C. 14 Annual Report 2017 Annual Report 2017 15 Strategic report
Strategic priorities
Targets Risks(1) Key performance indicators Link to remuneration(2) Outcomes Income focused • High quality portfolio • Competition for investments WAULT Occupancy by ERV LTIP – Earnings, total • Greater than 39 per cent of portfolio subject to • Limited volatility through cycle • Decline in market conditions (yrs) (%) property return index-linked rents portfolio Occupancy steady at 97.7 per cent • Invest in opportunities across sectors • Failure to anticipate changes in 2017 8.5 2017 97.7 STIP – Earnings, NAV • property cycle • Sufficient scale 2016 7.8 2016 97.7 • Office vacancy reduced ELTI – Earnings, total Cost efficient portfolio • Development and construction risk 235 lease events concluded at 3.9 per cent above • property return • • Weaker occupier demand previous passing rent • Low inflation environment
Efficient capital • Strong balance sheet • Reduced availability of financing and Weighted average LTV STIP – Cash flow, • Weighted average cost of debt reduced to refinancing at acceptable cost structure • Operational flexibility cost of debt (%) personal objectives 3.1 per cent • Competitive cost of capital • Increased cost of finance (yrs) • Weighted average debt maturity improved to • Adverse movements in share price 2017 3.1 2017 50.0 7.3 years • Changes in regulatory requirement 2016 3.4 2016 53.4 • LTV reduced to 50.0 per cent General market dislocation • Weighted average debt maturity (yrs) 2017 7.3 2016 6.9
Financial • Rental income growth of 2-5 per cent • Adverse interest rate movements Dividend EPRA cost LTIP – Earnings, total • Fully covered dividend with 94.5 per cent like-for-like p.a. discipline • Tenant default per share ratio property return, pay out ratio • Efficient conversion of rental income • Deterioration in LTV (p) (%) total shareholder • Cost of debt reduced to 3.1 per cent to profit return • Declining valuations leading to 2017 2.6 2017 17.2 • Interest cover 3.2 times • EPRA cost ratio <15 per cent covenant breaches 2016 3.2 2016 14.9 ELTI – Earnings, total • One of the lowest EPRA cost ratios in the sector • Covered dividend with 90-95 per cent • Adverse foreign property return, • LTV at 50.0 per cent payout ratio currency movements Underlying earnings total shareholder • Interest cover ratio >3 times per share return (p) • Underlying EPS growth of STIP – E arnings, cash flow, 2017 2.75 3-5 per cent p.a. NAV • LTV of 45-50 per cent 2016 2.80 Scalable • >£1 billion market capitalisation • Changes in regulatory requirements Rental income EPRA NAV LTIP – Earnings, total • Portfolio WAULT of 8.5 years (7.4 years to business • Improved liquidity • Competition for investments growth (LfL) per share property return first break) (%) (p) Mature asset disposals generating £148.2 million • Recycling capital • Significant external, political or STIP – Earnings, cash flow • • Limit volatility financial event 2017 3.7 2017 41.4 • 3.5 per cent growth in EPRA NAV ELTI – Earnings, total Multiple sources of capital 2016 1.0 2016 40.0 Expansion of Hotels exposure through increased • property return • investment in IHL
(1) Principal risks, their potential impact and mitigating factors are set out on pages 16 and 17. LTIP – Part of Executive Directors’ long-term incentive plan arrangements. (2) Executive Performance is linked to strategy as outlined on page 81. STIP – Part of Executive Directors’ short-term incentive plan (annual bonus). ELTI – Part of Employees’ long term incentive arrangements. Redefine International P.L.C. Redefine International P.L.C. 16 Annual Report 2017 Annual Report 2017 17 Strategic report
The Group seeks to minimise, control Financial risks continued Change Principal and monitor the impact of risks to Risk Impact potential Link to strategy Mitigation factors Adverse interest rate • Increased cost of borrowing and hedging • Interest rate hedging policy providing interest rate protection
profitability whilst maximising the movements and reducing financial and operational • Target staggered debt maturities inflationary pressures flexibility • Geographic diversification risks opportunities they present. • Adverse impact on property valuations Adverse foreign currency • Decreased asset values • Debt facilities arranged in the currency of the related
movements • Reduced operating income investment act as a partial hedge • Exchange rates continuously monitored Redefine International acknowledges that it The Board has delegated the oversight of risk Risks are considered in terms of their impact • Amounts converted to Sterling at earliest opportunity faces a number of risks which could impact to the Audit and Risk Committee. Risks are and likelihood from both a financial and • Euro income hedging where appropriate the achievement of its strategy. assessed ‘bottom up’ throughout the business reputational perspective. both gross and net of mitigating controls. While it is not possible to identify or anticipate Although not exhaustive, the principal Operational risks Change The Audit and Risk Committee reviews the risk every risk due to the changing business risks facing the Group are categorised into Risk Impact potential Link to strategy Mitigation factors management plan bi-annually with the design, environment, the Group has an established four broad risk types: Strategic, Financial, implementation and monitoring being the Failure to anticipate • Reduced investment demand and • Bi-annual external valuation of properties risk management process to manage and Operational and Legal and regulatory. responsibility of management on a changes in the declining property values • Diversified portfolio mitigate risk. The Group’s process for The potential impact of these risks and the property cycle day-to-day basis. • Potential pressure on banking covenants Active asset management identifying and managing risk is set by mitigating controls in place to manage their • the Board. impact are as follows: • Regular monitoring of covenants Reduced occupier • Reduced rental income and cash flow • Diverse tenant base Strategic risks Change demand for space, • Increased void costs • Long leases and strong tenant covenants increased supply, Risk Impact potential Link to strategy Mitigation factors Declining property values Open dialogue with tenants and property managers or occupier defaults • • Failure to execute • Declining net asset value, total • Annual review of investment strategy • Review consumer trends
appropriate property property return (income and capital) • Defined asset appraisal process • Regular monitoring of tenants at risk investment strategies or shareholder returns (dividend Investment Committee reviews all opportunities against and take advantage and share price growth) • pre-determined criteria Inappropriate cladding • Increased devastation in case of fire • Annual fire risk assessment of opportunities or construction materials Comprehensive review of cladding and insulation in place • Monitoring of macroeconomic and property market trends • in the current across portfolio and close liaison with national Health and economic climate • Flexible and agile decision making Safety Executive Uncertain political or • General market dislocation leading to • Good relationships with key shareholders and lenders Development and • Reduced development returns resulting • Strong supply chain and professional relationships facilitate economic climate, for increased volatility with potential impact Monitoring loan covenants and required cash cures in event • construction risk from cost overruns, programme delays assessment and monitoring example, negotiations on property valuations and/or share price of severe but plausible scenarios including contractor or failure to secure planning permission on the UK exit from the Constrained access to debt or capital • Appropriate due diligence, procurement and consultation prior • • Monitoring proposals and emerging policy and legislation solvency and availability, European Union results markets impacting ability to address • Existing tenant disruption to placing contracts, including review of financial covenants Balance sheet structure provides flexibility planning risk and in increased uncertainty liquidity or covenant concerns • • Delayed or failed tenant installation • Fixed priced contracts over future policy and implementation • Failure to obtain planning permission • Post project assessment legislation challenges faced
Significant business • Inability to access or operate properties • Adequate insurance cover Legal and regulatory risks Change interruption or • Operational interruption and disruption • Geographic diversity of portfolio terrorist event • Significant reduction in footfall • Disaster recovery planning including frequent replication Risk Impact potential Link to strategy Mitigation factors • Injury or loss of life of occupier, of data and offsite storage Health, safety and • Loss or injury to employees, tenants • Policies in place with audit and risk assessments undertaken
customer, employee or contractor • Robust security including CCTV and access controls environmental risk or contractors • Environmental programme in place • Loss of key employee or supplier • Major incident planning and monitoring of NaCTSO • Impact on reputation, adverse publicity • All properties actively managed security advice or financial impact • Appointed dedicated Health and Safety Manager • Succession planning, performance evaluation and long-term incentive rewards Changes in or breach of • Financial or reputational impact • Appointment of appropriately qualified employees, regulatory or legislative corporate advisers and administrators in all jurisdictions Change in investment • Adverse movement in share price • Close relationships maintained with key shareholders • Reduced financial returns as a result requirements of increased taxes across with active engagement strategy of significant • Perceived loss of confidence • Dedicated investor relations resource shareholder non-REIT business • Regular review of compliance e.g. with REIT legislation • Income focused total return strategy maintaining upper quartile performance • Adverse tenant behaviour • Sound governance and internal policies
Financial risks Change environment together with the results of take-up. In performing these tests, the Risk Impact potential Link to strategy Mitigation factors Viability statement In the context of the above principal risks, the plausible but conservative scenarios. In light Directors considered the limit at which Decline in market • Reduced availability of financing and • Mix of lenders and maturities of facilities of recent events, the Directors paid particular a threat to viability may crystallise. Directors have considered a three-year time conditions and structural refinancing at acceptable cost • Detailed capital planning and forecasting. attention to the risk of a deterioration changes in retail horizon in assessing longer term viability. This Having considered these factors both • Inability to fund property investments Sufficient liquidity maintained to meet commitments in economic outlook impacting property consumer behaviour • aligns with the Group’s internal strategic plan individually and collectively the impact on the • Increased cost of finance • Early refinancing of debt and is underpinned by an average unexpired fundamentals, including the impact on Group’s forecast cash flows and covenant Declining valuations leading to covenant • • Regular assessment of market conditions including bi-annual lease term and weighted average debt property valuations of a weakening investor compliance, the Directors confirm that they breaches external valuations and monitoring of covenants maturity comfortably exceeding three years. and occupational market, coupled with have a reasonable expectation that the Group • Portfolio diversified across sectors and geography restricted availability of finance. Key inputs will be able to continue in operation and meet In reaching their opinion, the Directors included extended vacancy periods, increased considered the Group’s internal control its debts as they fall due during the Income focused portfolio Efficient capital structure Financial discipline Scalable business finance costs and lower levels of scrip dividend next three years. Redefine International P.L.C. Redefine International P.L.C. 18 Annual Report 2017 Annual Report 2017 19 Strategic report
2017 has been an active year in terms of capital Operating recycling and asset management activity. Since the start of the year, we have invested review £41.9m and sold £132.1m of assets, resulting in a material improvement to the quality of the portfolio and the sustainability of its income.
Our portfolio provides strong income Key statistics characteristics with clear visibility of the medium-term income profile and growth opportunities. Key portfolio characteristics include: • a weighted average lease length of 7.4 years to the first potential lease break and 8.5 years to expiry; £1.5bn 7.4yrs • 38.9 per cent of gross rental income Total market value WAULT to first break is subject to inflation-linked or of portfolio fixed increases; • rental growth potential with a reversionary yield of 6.6 per cent, 90 bps higher than the current portfolio net initial yield; • high and stable occupancy demonstrating robust occupier demand; and • over 600 tenants with no single tenant 97.7% 5.7% accounting for more than 7.0 per cent EPRA occupancy EPRA NIY of gross rental income.
38.9% 235 Leases subject Lease events completed to indexation totalling £17.3m
Camino Park, Crawley Redefine International P.L.C. Redefine International P.L.C. 20 Annual Report 2017 Annual Report 2017 21 Strategic report
Each asset is viewed Operating in terms of its ability to deliver sustainable review income returns. continued
Acquisitions IHL The IHL portfolio comprises nine high Annualised EPRA EPRA Market gross rental EPRA topped Reversionary occupancy Leopard portfolio In August, the Company made an offer to quality UK hotels which were last valued at £104.4 million and will complement the Portfolio summary value income ERV NIY up yield yield WAULT by ERV Indexed The acquisition of the controlling interest increase its shareholding in IHL by 32.8 per 31 August 2017 £m £m £m % % % yrs % % Company’s existing hotel portfolio. The four in the Leopard portfolio was completed cent (from 17.2 to 50.0 per cent). Following UK Retail 514.6 39.9 40.2 6.3 6.6 7.3 8.4 96.8 19.4 Travelodge hotels, comprising 27.7 per cent on 26 April 2017. The portfolio consists subsequent shareholder and court approval, UK Commercial 364.2 22.2 23.4 5.1 5.6 6.0 5.3 96.4 26.6 of the portfolio, are let on long-term leases of 66 German retail properties which the Company will acquire 16,429,687 IHL with average unexpired lease term of over UK Hotels 239.6 15.2 16.2 5.9 5.9 6.3 9.3 100.0 5.2 were independently valued at the time of shares from the minority shareholders by 20 years. These assets reflect a net initial yield Total UK 1,118.4 77.3 79.8 5.8 6.1 6.7 7.7 97.3 18.7 acquisition at €175.5 million reflecting a way of a scheme of arrangement and a of 5.3 per cent and benefit from five yearly Europe 420.3 27.0 27.7 5.4 5.4 6.2 6.4 98.8 96.7 net initial yield of 7.4 per cent. The portfolio further 1,913,479 IHL shares from Redefine upward only CPI escalations that provide Total 1,538.7 104.3 107.5 5.7 5.9 6.6 7.4 97.7 38.9 generates gross annualised rental income of Properties. The transactions are expected to attractive rental growth prospects in a higher Wholly owned 1,513.1 102.6 105.8 5.7 5.9 6.5 7.4 97.6 38.7 €13.9 million, of which 99.2 per cent is indexed complete simultaneously in early November inflationary environment. Held in joint ventures (proportionate) 25.6 1.7 1.7 6.4 6.4 6.6 6.4 100.0 52.2 between 60 and 70 per cent of German CPI, 2017. Consideration for the IHL shares will subject to indexation reaching a cumulative be settled via a share-for-share exchange The remaining five hotels, valued at hurdle of 10 per cent. Tenants including with 2.5 Redefine International shares to £75.4 million, will be leased to the Company’s Portfolio positioning by business plan Edeka, Netto, Real and Rossman account for be issued for every 1 IHL share held. A total associate, RedefineBDL Hotel Group. Four Each asset is viewed in terms of its ability to deliver sustainable income returns and/or growth. Approximately 76 per cent of the current portfolio over 85 per cent of the gross rental income. of 45.9 million new Redefine International of the hotels are franchised to Holiday Inn is classified as either “Core income” or “Growth income”. Core income assets typically exhibit long lease lengths, high cash on cash returns and are The portfolio has a WAULT of 7.9 years and is shares are expected to be allotted. On Express and one to Hampton by Hilton. The predominantly multi-let, often with some form of indexation. Growth Income assets constitute approximately 30 per cent of the current portfolio. nearly fully occupied at 99.0 per cent by ERV. implementation of the scheme, the listing of five hotels to be leased by RedefineBDL have a These assets are typically lower yielding but with higher intrinsic growth prospects. IHL’s shares on both the JSE and LuxSE will strong trading record. The Hampton by Hilton The joint venture interest was acquired for be terminated. The Company will also later at Gatwick Airport is integrally linked to the 20 per cent of the portfolio comprises properties which have shorter term, more intensive asset management plans underway. These opportunities an aggregate consideration of €49.0 million today reach agreement to acquire a further airport terminal building and the Holiday Inn are typically income-led with a significant percentage of pre-let income being secured before development commences. Our ability to create (€49.4 million including transaction costs). 8.9 per cent interest in IHL from Redefine Express, Edinburgh has shown strong growth marginal revenue and enhance the quality of assets is fundamental to our overall strategy. Following the transaction, the Company holds Properties on the same terms as the scheme since acquisition by IHL. The five franchised Where we believe we have maximised the potential of individual assets or where the market is prepared to pay a higher price than our view of the an effective 94 per cent controlling interest in of arrangement, by the issue of an additional hotels are expected to deliver a net initial yield assets’ intrinsic value, we will look to recycle that capital into new opportunities. At 31 August 2017, approximately 4 per cent of the portfolio was the portfolio, whilst providing 100 per cent of 12.5 million new Redefine Intentional shares. of over 7.5 per cent. The portfolio is currently considered mature with a number of those assets being actively considered for sale. its non-bank financing requirement by way of This transaction constitutes a smaller related financed at 41.7 per cent loan-to-value, at an shareholder loans. Annualised EPRA EPRA party transaction and falls within LR 11.1.10 R all-in cost of debt of 3.3 per cent. of the UK Listing Rules. The Group’s interest Market gross rental EPRA topped Reversionary occupancy Following the transactions, UK Hotels are Portfolio by business plan value income ERV NIY up yield yield WAULT by ERV Indexed will initially increase to 26.2 per cent and expected to comprise approximately 21 per 31 August 2017 £m £m £m % % % yrs % % then to 58.9 per cent once the scheme of cent of the Company’s gross assets, up Core income 713.5 52.3 51.6 6.1 6.3 6.8 7.6 97.7 61.3 arrangement completes. Growth income 455.5 27.2 29.2 5.4 5.5 6.0 8.2 99.4 3.0 from 16 per cent at 31 August 2017. It is Asset management 314.7 19.5 21.7 4.7 5.2 6.4 6.1 96.8 33.0 anticipated that there will be material savings on the integration of the hotel assets into Mature 55.0 5.3 5.0 8.0 8.7 8.6 6.3 90.4 23.5 the Company’s existing hotel portfolio and Total 1,538.7 104.3 107.5 5.7 5.9 6.6 7.4 97.7 38.9 REIT status.
Valuation overview As previously reported, we have experienced a direct impact on business rates and The portfolio increased in value by little evidence to suggest a material change therefore the total cost of occupation for £40.7 million or 3.0 per cent on a like-for-like in occupational demand in the markets tenants and the cost of vacant space for basis. This increase in value was driven by a in which we operate. Post year end, over landlords. In general, rates are to increase 2.7 per cent increase in like-for-like annualised 53,702 sqft (4,989 sqm) of vacant space in the materially in London while many regional net rental income and an inward yield shift UK Shopping Centre portfolio is in solicitor’s centres will see a reduction in rateable values. of 7 basis points. A more detailed review of hands, including the former BHS unit at Grand Across our UK portfolio (excluding UK Hotels) the valuation movement is presented in the Arcade, Wigan which has exchanged with rates will reduce by approximately 6.9 per Financial review. Poundland, resulting in the highest occupancy cent. Our hotels, which are largely London achieved since acquiring the shopping centres. focused, will see a 51 per cent increase in Leasing activity rates. While the impact of the change in rates In the last 12 months, 235 lease events were Rateable values is to be phased in over a three year period, agreed providing a total rent of £17.3 million, In January 2016, the UK Valuation Office the change is already reflected in hotel a 3.9 per cent (£0.6 million) increase above the Agency published an updated rating list for property values. passing rent and a 0.7 per cent (£0.1 million) England and Wales which has been adopted increase on ERV. Portfolio occupancy remained high from 1 April 2017. The change in rateable and stable at 97.7 per cent (2016: 97.7 per cent). values for commercial real estate will have Redefine International P.L.C. Redefine International P.L.C. 22 Annual Report 2017 Annual Report 2017 23 Strategic report
£148m generated from Operating disposals reflecting a premium of 12.2% to review book value. continued
Disposals 201 Deansgate, Manchester price represents a net initial yield of 3.6 per August 2017. The sale price reflected a net The success of the disposal programme in the first half of the year continued into the second half with a further £53.2 million of disposals achieved On 31 January 2017, the Company completed cent and a 14.3 per cent premium to book initial yield of 5.0 per cent and a premium at a premium of 12.0 per cent to the 28 February 2017 book values. Disposals for the full year totalled £148.2 million, reflecting a premium of on the disposal of 201 Deansgate, Manchester value. The IRR over the investment period was of 5.8 per cent to the 28 February 2017 12.2 per cent to book value. for £29.2 million. The property provides 22 per cent. book value. The property was acquired in 83,700 sqft (7,800 sqm) of office space and March 2016 as part of the AUK transaction. Sytner BMW car showroom, The disposal provided an opportunity to EPRA NIY Reversionary delivered an annual net rental income of High Wycombe Carrying Sales Net rental on sales yield on £1.1 million, with a WAULT of 4.1 years. The recycle capital out of an asset with limited value price income price sales price The Sytner BMW showroom was sold near-term rental growth prospects at a low Disposals since 31 August 2016 Completion £m £m £m % % office was originally acquired as part of the for £26.1 million to a UK pension fund in initial yield. Brandenburg, Germany September 2016 0.1 0.2 — 15.4 12.1 AUK Portfolio in March 2016 and the sales Exchange House, Watford October 2016 11.8 13.3 1.0 6.9 5.8 Development and capital expenditure VBG office portfolio, Germany January 2017 40.6 44.4 3.3 7.2 4.9 201 Deansgate, Manchester January 2017 25.5 29.2 1.1 3.6 7.0 Development activity is largely income-led and focused on refurbishing existing assets and adding incremental space to meet occupier demand. Parliament Square, Edinburgh February 2017 3.5 4.0 0.4 9.3 4.1 Approved capital Delta 900, Swindon February 2017 2.8 3.6 0.3 7.3 8.0 expenditure Estimated Yield on cost Recklinghausen, Germany February 2017 0.3 0.3 — 6.1 7.6 Scheme Description £m completion % The Observatory, Chatham March 2017 3.6 4.0 0.3 7.9 8.3 City Arcaden, Ingolstadt Primark development 20.0 Q4 2017 5.2 Bedford, Woodlands June 2017 11.5 11.0 1.1 9.1 7.8 Holiday Inn Express, Southwark 12 room extension and façade upgrade 3.6 Q4 2017 6.0 Carphone Warehouse, Merton June 2017 2.1 5.5 0.1 1.8 2.0 Banbury Cross Retail Park PureGym – new unit 1.1 Q4 2017 15.0 Sytner, High Wycombe August 2017 24.7 26.1 1.4 5.0 3.9 UK Retail Park expansions Drive-through pods 4.4 Various 12.6 Brückmuhl, Germany August 2017 5.6 6.6 0.4 5.8 6.2 Albion Street, Derby TK Maxx 2.2 Q4 2017 10.0 Total 132.1 148.2 9.4 6.2 5.6 West Orchards, Coventry Food court refurbishments 2.6 Q4 2017 16.9 Schloss-Strassen Center, Berlin Food court refurbishments 2.0 Q2 2018 6.2 German supermarket extensions Extensions and reconfigurations 2.8 Various 6.6 Strategic disposals Other Carphone Warehouse unit, Total 38.7 7.6 As part of our strategy to enhance the quality Other strategic sales included certain regional Priory Retail Park, London of the portfolio, mature assets and assets in office assets and a number of smaller retail The standalone Carphone Warehouse unit weaker locations will be considered for sale. assets in Germany which had limited rental at Priory Retail Park, Merton was sold for City Arcaden, Ingolstadt UK Retail Park expansions The redevelopment of 9-11 Albion Street growth expectations. £5.5 million relative to an apportioned The redevelopment of this prime retail The new PureGym unit at Banbury Cross Retail has commenced to combine the basement, VBG office portfolio, Germany value of £2.1 million reflecting a 161.9 per asset is anticipated to be completed in late Park was completed post year end. This unit ground, first and second floors of the three On 18 January 2017, the Company completed Realising value cent premium. 2017 and will transform the existing retail will provide an additional £0.2 million of rental existing units into a single, modern space on the sale of four German office assets for The ability to enhance income and value pitch. The completed scheme will total income reflecting a yield on cost of 15.0 per cent. to accommodate TK Maxx. The new store Opportunistic disposals a gross consideration of €106.0 million. The through asset management initiatives is a approximately 129,000 sqft (12,000 sqm) is scheduled to open by late 2017, once A further seven units are in various stages assets, which were disposed of via a share sale key part of our investment strategy. Where We are consistently looking to generate including two retail units pre-let to Primark internal fittings have been installed, creating of development, with pre-let agreements and included related debt facilities, were held asset values have been maximised through value through alternative use, income-led and H&M of approximately 100,000 sqft 35 new jobs and improving the retail pitch for all the units either already completed or in a joint venture with the Menora Mivtachim reconfiguration, refurbishment or leasing asset management or opportunistic sales. (9,500 sqm). The scheme is anticipated for the city. The agreed rent of £0.2 million is in solicitor’s hands to strong A3 covenants. Group. The disposal of the Company’s activity, these assets will be considered Opportunities to recycle capital through the to generate €2.2 million in rental income 50 per cent ahead of the February 2017 ERV. We are particularly pleased with The Arches 49 per cent share reflected an 8.6 per cent for sale. disposal of assets at attractive prices are resulting in a yield on cost of 5.2 per cent. Capital expenditure to reconfigure the space premium to the August 2016 market value considered on a risk-adjusted basis taking into Retail Park, Watford where competitive is anticipated to be £2.2 million. Delta 900, Swindon Holiday Inn Express, Southwark bidding resulted in indicative rental values of in Euro terms. The Company’s net proceeds consideration future capital commitments, The ten adjoining retail units under our Swindon was successfully sold for £3.6 million, over £90 per sqft. The new units will provide of €25.6 million, which included a net planning and letting risks. The 12-room extension and upgrade to the ownership, inclusive of the three being following the completion of a new 15-year an additional £0.5 million of rental income Performance Fee of €1.8 million, delivered an front and rear façade completed in September combined for TK Maxx provide a key artery in lease with Oxford Brookes University for Exchange House, Watford reflecting a yield on cost of over 10 per cent. IRR of 24 per cent over the investment period. 2017 and included an upgrade to the Derby’s main retail centre, linking the city’s Intu 28,412 sqft (2,640 sqm) on an agreed rent The Exchange House completed in The properties, situated in Berlin, Dresden, bedrooms to align with the latest Holiday Inn Albion Street, Derby Shopping Centre to Primark and the historic of £0.3 million, 20.8 per cent above ERV. October 2016 for £13.3 million, a 12.7 per cent Cologne and Stuttgart, total 485,900 sqft Express format. The hotel’s operating business Old Town. The area is the subject of major The disposal represents a 28.6 per cent premium to carrying value reflecting a net In May 2017 an agreement for lease was (45,100 sqm), and are let to a German delivered consistent underlying revenues redesign and refurbishment plans by Derby premium on book value. initial yield of 6.9 per cent and a reversionary signed with TK Maxx for a new 22,000 sqft government-backed social insurance body, despite the disruptions from the extension City Council, which will transform the area into yield of 5.8 per cent. The 63,000 sqft (2,044 sqm) store at Albion Street in Derby. VBG, on a combined WAULT of just under and refurbishment works. a family-focused shopping destination. (5,900 sqm) office building is occupied by seven years. The portfolio generated a total the Department of Work and Pensions annual gross rental income of €8.1 million, until March 2023 with a break option in of which €4.0 million was attributable to the March 2018. Company. Significant capital would have been required on expiry of the leases to make market rents achievable. Redefine International P.L.C. Redefine International P.L.C. 24 Annual Report 2017 Annual Report 2017 25 Strategic report
Our diversified portfolio has Business strong income characteristics with clear visibility of the segments medium-term income profile and growth opportunities.
UK Retail • Six wholly owned regionally dominant shopping centres, UK Hotels • Eight limited service hotels in Greater London and one hotel tenanted by leading retailers including Tesco, Wilko, Boots, in Edinburgh H&M and TK Maxx • Branded Holiday Inn, Holiday Inn Express, Crowne Plaza, • Well located retail parks, of which four assets are in London, Travelodge and DoubleTree by Hilton UK South and “Big six” UK cities • 30.4% holding in RedefineBDL, the UK’s largest independent • Other assets include a high street retail asset, currently hotel manager under development, and a retail warehouse • 17.2% holding in IHL, a hotel and leisure focused listed entity Occupancy (%) 96.8 Occupancy (%) 100 Lettable area (m2) 239,350 Lettable area (m2) 41,323 Annualised gross rental income (£m) 39.9 Annualised gross rental income (£m) 15.2 Properties 14 Properties 9
Market value Market value £514.6m £239.6m 33% 16%
Read more on Read more on Grand Arcade, Wigan pages 26 to 29 Holiday Inn Express, Earls Court pages 34 to 37
UK Commercial • Three Greater London offices and 15 regional offices Europe • 80 properties in Germany • Four well located multi‑let distribution centres • Three well located shopping centres in Berlin, Hamburg • Service station and motor trade properties which provide and Ingolstadt defensive income on long leases, with leading brands including • Other assets include retail parks and small discount supermarkets BP and Kwik Fit • Tenants are weighted to non-discretionary food stores and discounters
Occupancy (%) 96.4 Occupancy (%) 98.8 Lettable area (m2) 184,422 Lettable area (m2) 236,598 Annualised gross rental income (£m) 22.2 Annualised gross rental income (£m) 27 Properties 58 Properties 80
Market value Market value £364.2m £420.3m 24% 27%
Read more on Read more on 127 Charing Cross Road, London pages 30 to 33 Bahnhof Centre, Altona, Hamburg pages 38 and 39 Redefine International P.L.C. Redefine International P.L.C. 26 Annual Report 2017 Annual Report 2017 27 Strategic report Operating review
We have seen significant variation in the UK performance of retail assets in different Retail sub-sectors and locations. UK Retail Shopping centres The retail landscape continues to evolve Despite a tough retail environment, 76 lease rapidly resulting in a significant variation in the events were completed during the year which performance of retail assets in different were marginally down on previous passing sub-sectors and locations. Unemployment rents. Occupancy decreased to 96.7 per levels are at an historic low, however, cent (2016: 98.1 per cent) as a result of five consumer confidence has been impacted small units becoming vacant, three of which by political uncertainty and negative real have successfully exchanged post year end. wage growth. Annualised gross rental income decreased marginally, however, values declined 6.9 per Unsurprisingly, the investment demand for cent on a like-for-like basis reflecting a weak retail, shopping centres in particular, has investment market with very few transactions been weak which has been reflected in our in the year. valuations in the second half of the year. On the positive side, our shopping centre The former 41,315 sqft (3,838 sqm) BHS exposure is heavily weighted toward food, unit at Grand Arcade, Wigan has been let to discount and convenience shopping which has Poundland post year end. This is a good result, proved more resilient when compared to retail with the majority of old BHS units in the UK of a more discretionary nature. still vacant. Commercialisation income of £1.1 million Shopping Centre occupancy will increase to was collected during the year, a 9 per cent 99.2 per cent following the inclusion of the increase relative to last year. Our in-house lettings achieved post year end and will result commercialisation team, CentreStage has in a saving of £0.6 million on vacancy costs. enhanced the quality and profitability of the Overall footfall increased by 2.1 per cent over speciality retailing and advertising activity the year. The majority of our shopping centres within our shopping centres and retail parks, have benefited from this increase, other than collaborating with international and national Grand Arcade, Wigan where the former BHS brands as well as supporting smaller local vacancy impacted footfall. The re-letting of the businesses and communities. Income from BHS unit to Poundland is anticipated to have a commercialisation activities is targeted to grow positive impact on footfall in 2018. by 7 per cent in 2018. Further opportunities to drive ancillary revenues from the Group’s wider portfolio have been identified. Key statistics
£39.9m 96.8% 8.4yrs Annualised gross Occupancy by ERV WAULT to first break rental income Opportunity for modest rental Shopping centres nearly Good quality tenants weighted growth, reconfiguration of fully occupied at 96.7% towards non-discretionary food existing space and further retailers, discounters and leisure development activity
239,350sqm 14 6.3% Number of assets EPRA NIY
St George's Shopping Centre, Harrow Redefine International P.L.C. Redefine International P.L.C. 28 Annual Report 2017 Annual Report 2017 29 Strategic report Operating review UK Retail continued
Retail parks and other retail Occupier demand remains healthy, A modest 1.0 per cent decline in particularly for our larger schemes in London like-for-like valuations was impacted by a and the South East. Discussions with a reduction in the valuation of the House of number of discount food retailers and Fraser department store in Hull. Contracts drive-through food and beverage operators have been exchanged on the sale of this are providing potential opportunities to asset post year end. Excluding this property, realise higher rental values on the parks, as valuations increased 1.0 per cent. Annualised well as to deliver income and value enhancing gross rental income was down by 2.1 per cent asset management initiatives. The new ten over the last 12 months largely as a result of year lease with PureGym at Banbury Cross the development started in Derby and two Retail Park will deliver £0.2 million of rental vacant units totalling 17,238 sqft (1,601 sqm) income and a yield on cost of 15.0 per cent at Banbury Cross Retail Park. There are for the recently completed 7,500 sqft various discussions underway to re-let this (697 sqm) extension. space including the potential to enhance the tenant mix.
Annualised gross EPRA EPRA Market rental EPRA topped Reversionary occupancy UK Retail value income ERV NIY up yield yield WAULT by ERV Indexed 31 August 2017 £m £m % % % % yrs % % UK Shopping centres 316.5 26.2 27.1 6.4 6.8 8.0 8.0 96.7 27.5 UK Retail parks 169.9 11.4 10.8 5.8 6.2 6.0 7.7 96.2 4.7 UK Other retail 28.2 2.3 2.3 7.5 7.5 7.8 16.6 100.0 — UK Retail 514.6 39.9 40.2 6.3 6.6 7.3 8.4 96.8 19.4
Priory Retail Park, Merton Redefine International P.L.C. Redefine International P.L.C. 30 Annual Report 2017 Annual Report 2017 31 Strategic report Operating review
With aggressive pricing of core assets, we have UK taken the opportunity to sell assets where we Commercial believe pricing was ahead of growth prospects. UK Commercial Distribution and industrial development The regional office market has been resilient, activity remains restrained and general levels both in terms of occupational demand and of supply are low suggesting the supply/ investment volumes. With rental growth demand dynamics will remain positive in the expected to remain relatively static in a near term. The continued growth in online number of key regional cities and some retailing from 14.9 per cent of total retail sales aggressive pricing of core assets, we have in 2016 to an anticipated 18.5 per cent by 2022 taken the opportunity to sell assets where (source: GlobalData) should provide ongoing we believe pricing was ahead of their structural support as retailers adapt to an growth prospects. omni-channel sales strategy. The London Southbank market has benefited Our focus remains on multi-let industrial from large scale redevelopment and estates that benefit from a broad range of investment from London Bridge through occupier demand and suitable to catering for to Waterloo. Our exposure to 104,622 sqft growth in last mile distribution. Our largest (9,720 sqm) of London office space in exposure at Camino Park, Crawley benefits areas undergoing material redevelopment from the Crawley/Gatwick market which has has provided strong rental growth as well both strong occupier demand and almost as longer-term redevelopment options. negligible available supply. According to UK government projections, the expected growth in London’s population from 8.9 million people to 9.9 million by 2027, providing opportunities to acquire assets in improving locations with rising rental values. Our London portfolio is well positioned to benefit from areas of structural change and has no exposure to financial services occupiers.
Key statistics
£22.2m 96.4% 5.3yrs Annualised gross Occupancy by ERV WAULT to first break rental income Increased by 2.3% on Progress in filling voids in Since acquisition, the UK previous passing rents regional offices to 96.4% Distribution and Industrial occupancy (+500bps) WAULT increased by 30%
184,422sqm 58 5.1% Number of properties EPRA NIY
City Point, Leeds Redefine International P.L.C. Redefine International P.L.C. 32 Annual Report 2017 Annual Report 2017 33 Strategic report Case study Operating review Income focused portfolio
Transformational 2016 acquisition UK delivers significant value and Commercial income growth. continued Within two years, the disciplined and opportunistic AUK acquisition has delivered: • £93.7 million of disposals at 14.6 per cent premium on Offices Continued progress was also made in reducing acquisition value; Offices delivered a strong result both in terms vacancies in our regional office portfolio, • 6.7 per cent valuation growth on the remaining portfolio; where vacancies have now decreased to of income and valuation growth supported opportunities to reduce over-rentals in retail parks with 4.2 per cent (2016: 9.5 per cent). • by a combination of factors including letting ten lease events at 10.0 per cent above ERV and 19.4 per cent of vacant space and exposure to areas Distribution and industrial above passing rent; of structural change and rental growth. logistics: signed DFS (+15.5 per cent on passing rent and Valuations increased 5.9 per cent on a The distribution portfolio produced • +14.6 per cent on ERV); WAULT increased by >30 per cent to like-for-like basis, supported by London offices exceptional growth largely as a result of rental 5.0 years (9.2 years to expiry); (12.8 per cent) and positive letting progress uplifts and lower investment yields at Camino at City Point, Leeds and Omnibus, Reigate. Park, Crawley. The portfolio increased in • significant increase in passing rent at Charing Cross Road Annualised gross rental income increased value by 16.3 per cent on a like-for-like basis with six lease events improving passing rent by 22.4 per cent; 5.1 per cent supported by three positive supported by ERV growth of 7.2 per cent. • regional offices: voids reduced by area from 19.9 per cent lease events at Charing Cross generating A rent review was settled at Express Park, to 4.1 per cent; and Bridgwater resulting in a £0.1 million or 5.5 per £0.2 million and reflecting a 19.0 per cent • assets identified for sale: Hull and Colchester. increase on passing rent and the letting of cent increase in annual rental income. Looking forward, 64.6 per cent of rental income at 18,195 sqft (1,690 sqm) of vacant space across Annualised triple net income (£m) the regional office portfolio. During the year Camino Park, Crawley is subject to rent review in late 2017. The current average passing rent one tenant in Newington Causeway, London 28.2 +7.2% growth went into administration. Given demand in the of £7.1 per sqft is expected to show strong Southbank area we are confident this space growth against both passing rent and ERV. 0.1 26.1 will be re-let at attractive rents. 1.5 24.4 0.3 (3.6) (0.2) (0.2) Annualised gross EPRA EPRA Market rental EPRA topped Reversionary occupancy UK Commercial value income ERV NIY up yield yield WAULT by ERV Indexed 31 August 2017 £m £m % % % % yrs % % UK Offices – Greater London 90.2 3.4 4.4 2.8 3.3 4.6 5.1 95.9 23.7 UK Offices – Triple net Disposals/ Under Triple net Retail London Regional Logistics Triple net income at identified development income parks and office offices income regions 113.6 9.6 9.2 6.9 7.7 7.6 3.5 95.8 23.0 acquisition for sale like-for-like other retail 31 Aug 17 UK Offices 203.8 13.0 13.6 5.1 5.8 6.3 3.9 95.8 23.2 UK Distribution & industrial 117.6 6.3 7.5 4.8 5.0 6.0 5.0 96.3 — UK Automotive 42.8 2.9 2.3 6.3 6.3 5.0 12.3 100.0 100.0 Within two years valuation growth and premiums achieved from disposals have delivered a 7.5% increase in acquisition UK Commercial 364.2 22.2 23.4 5.1 5.6 6.0 5.3 96.4 26.6 capital values.
AUK delivered significant value (£m)
+7.5% 526.8 Market value 489.9 Disposal gross proceeds
At acquisition 31 Aug 2017
Camino Park, Crawley Redefine International P.L.C. Redefine International P.L.C. 34 Annual Report 2017 Annual Report 2017 35 Strategic report Operating review
The Group’s hotel portfolio remains heavily UK weighted to London which has consistently Hotels proven to be a stable and growing market. UK Hotels The hotel portfolio will increase to Despite the squeeze on real incomes in the approximately 21 per cent of the overall UK, the weak pound has helped to boost portfolio (31 August 2017: 16 per cent) post the UK hotel industry, by attracting overseas year end following the increase in the IHL visitors. The performance of the sector in shareholding. The acquisition will provide 2017 has exceeded expectations with PwC further exposure to Edinburgh and to Gatwick expecting occupancy, average daily room Airport, the UK’s second busiest airport. In rates and RevPars to finish 2017 higher than addition, the acquisition of a further four 2016 and forecast in London to increase Travelodge hotels provides exposure to 2.4 per cent in 2018. long-dated inflation linked income. The investment market was strong in the first The portfolio increased in value by 2.9 per cent half of 2017 with investment in London hotels on a like-for-like basis supported by underlying of approximately £1.1 billion; 55 per cent EBITDAs for the RedefineBDL leased hotels of the overall UK hotel investment volume. ending the financial year 4.7 per cent higher London hotels have seen strong demand from than last year. The Travelodge, Enfield also Asian investors originating from Hong Kong, increased in value by 13.0 per cent reflecting Malaysia and Singapore with interest from the improved Travelodge covenant and the India also now appearing, highlighting the general investment demand for long-dated strength of London as a world tourist and an index-linked income. investment destination. The rent for the RedefineBDL leased portfolio The Group’s hotel portfolio remains heavily for the 2018 financial year has been set weighted to London which has consistently at £15.4 million, a 7.5 per cent proven to be a stable and growing market. like-for-like increase.
Key statistics
£15.2m 9 9.3yrs Annualised gross Total number WAULT to first break rental income of assets Over 1,000 rooms with further Eight in Greater London development opportunities and one in Edinburgh
41,323sqm 100% 5.9% Occupancy EPRA NIY
Holiday Inn Express, Southwark Redefine International P.L.C. Redefine International P.L.C. 36 Annual Report 2017 Annual Report 2017 37 Strategic report Case study Operating review Scalable business
Earnings and NAV accretive UK IHL acquisition Hotels continued Post year end we concluded on the Continuously improving our income opportunistic acquisition of an additional focused portfolio quality: 56.9 per cent holding in International Hotel • our diversified portfolio provides us the RedefineBDL IHL Properties Limited (“IHL”) which supports ability to invest across sectors where we our strategic priority of achieving greater The Company’s 30.4 per cent stake in The Company’s 17.2 per cent investment see the best growth prospects; scale through investing in the right earnings RedefineBDL, the largest independent in IHL had a market value of £8.5 million at • we will add nine well performing UK hotel and value enhancing opportunities. hotel management company in the UK, 31 August 2017 resulting in a fair value loss of assets to our portfolio; The IHL portfolio comprises nine good contributed £1.1 million to underlying £0.3 million for the year. Due to the scheme of quality UK hotels which were last valued in • four of the hotels, valued at earnings during the year. Post year end, arrangement currently in progress no dividend February 2017 at £104.4 million. Supported £29.0 million, are let on long term RedefineBDL was awarded the management has been declared in respect of the second by our strategic partnerships, we expect to leases to Travelodge with an effective contract for a further 26 four-star luxury half of the financial year which has impacted capitalise on the strong trading record and average unexpired lease term of over hotels located throughout the UK. Following the anticipated earnings. IHL contributed positive economic outlook. 20 years. The Travelodge portfolio the transaction, RedefineBDL manage more £0.5 million in the previous financial year. reflects a net initial yield of 5.3 per cent than 11,000 rooms across 75 hotels in the Controlling our assets and simplifying and benefits from five yearly RPI UK, testament to the in-house specialism in our corporate structure: escalations providing attractive this sector. • following the transaction we will hold a rental growth prospects in a higher controlling interest of 74.1 per cent in IHL, inflationary environment; with the remaining 25.9 per cent being • the remaining five hotels, valued at held by Tsogo Sun, South Africa’s largest £75.4 million, will be managed by the Annualised hotel chain; gross EPRA EPRA Company’s associate RedefineBDL Market rental EPRA topped Reversionary occupancy • the acquisition eliminates Redefine Hotel Group. Four of the hotels are UK Hotels value income ERV NIY up yield yield WAULT by ERV Indexed Properties Limited, the Company’s major franchised to Holiday Inn Express 31 August 2017 £m £m £m % % % yrs % % shareholder, as a shareholder in IHL and and one to Hampton by Hilton. The Greater London further simplifies our structure; and hotels have a strong trading record & UK South 184.4 11.9 12.5 6.0 6.0 6.4 8.3 100.0 — and provide exposure to the Hampton • we have no further related investments Edinburgh 39.1 2.6 3.0 6.1 6.1 7.1 8.5 100.0 3.4 by Hilton at Gatwick Airport which is with Redefine Properties Limited. RBDL integrally linked to the airport terminal Leased hotels 223.5 14.5 15.5 6.0 6.0 6.5 8.3 100.0 0.6 Scalable business model supported by building and the Holiday Inn Express, London, Enfield strategic partnerships: Edinburgh which has shown strong Travelodge 16.1 0.7 0.7 4.2 4.2 4.2 29.9 100.0 100.0 we continue to build strong operational growth since acquisition. The five UK Hotels 239.6 15.2 16.2 5.9 5.9 6.3 9.3 100.0 5.2 • partnerships to ensure we maximise franchised hotels are anticipated to shareholder returns through the effective deliver an effective net initial yield of management of the underlying assets; over 7.5 per cent; and • straightforward integration and synergistic • following the transaction, UK Hotels will cost savings on hotel acquisitions; comprise approximately 21% of our portfolio by market value. • we hold a 30.4 per cent holding in RedefineBDL Hotel Group, the UK’s largest Focus on reinvesting at lower leverage: independent hotel operator; and • the portfolio is currently financed at • following this acquisition RedefineBDL 41.5 per cent LTV, comfortably below operates 13 of the Company’s hotel the Company’s medium-term target of assets, with the remaining five hotels between 45 and 50 per cent. leased to Travelodge on long dated index linked leases.
Holiday Inn Express, Southampton Redefine International P.L.C. Redefine International P.L.C. 38 Annual Report 2017 Annual Report 2017 39 Strategic report Operating review
The European portfolio delivered strong growth Europe supported by a stronger Euro relative to Sterling.
Europe supermarket by 1,840 sqft (171 sqm). The The investment market in Germany continues lease will also be extended on a new ten-year to attract significant domestic and foreign term with the additional rent reflecting an capital which, combined with a lack of available 8.3 per cent yield on cost. Similarly, the dm investment product, has supported competitive pharmacy has agreed to extend its store by market activity. Of note is the entry of Asian 1,076 sqft (100 sqm). The lease will also be investors into the direct market, accounting for extended on a ten-year term with the additional close to nine per cent of the transaction volume rent reflecting a 9.4 per cent yield on cost. in the first half of the year. Berlin continues to Both of these initiatives increase the centre’s see strong investment demand which bodes weighting to food and convenience shopping well for our portfolio, where 20 per cent is and reduces the number of units on the lower located. Logistics and industrial assets have ground floor, improving the supply demand witnessed a material increase in activity and the position of the centre. The refurbishment of trend of increasing investment into alternative the food court began during the year and will assets is rising given the competitive pricing of provide a more modern concept with improved the traditional sectors. services to customers. The European portfolio delivered strong Redevelopment options at Altona, Hamburg growth supported by a stronger Euro relative are currently being progressed in consultation to Sterling. The portfolio increased in value by with the local authority. The wider master plan 2.5 per cent in local currency terms and on a for this historic and commercially important like-for-like basis. area will be driven by the planned relocation of the high-speed railway terminal. This Asset management activity at our Berlin relocation is anticipated to take place in 2023 shopping centre is progressing well. Terms but in the interim, the development of a further have been agreed to extend the REWE 5,000 new homes has already commenced.
Annualised gross EPRA EPRA Market rental EPRA topped Reversionary occupancy Europe value income ERV NIY up yield yield WAULT by ERV Indexed 31 August 2017 £m £m % % % % yrs % % German shopping centres 181.3 9.4 10.6 4.2 4.3 5.5 4.8 99.4 94.5 German supermarkets and retail parks 239.0 17.6 17.1 6.3 6.3 6.7 7.2 98.4 97.9 Europe 420.3 27.0 27.7 5.4 5.4 6.2 6.4 98.8 96.7
Key statistics
£27.0m 98.8% 6.4yrs Annualised gross Occupancy by ERV WAULT to first break rental income German shopping centres Significant development nearly fully occupied at 98.8% opportunity in Hamburg over the medium-term
236,598sqm 80 5.4% Total number of assets EPRA NIY Including three shopping centres in Schloss-Strassen Center, Berlin Berlin, Hamburg and Ingolstadt Redefine International P.L.C. Redefine International P.L.C. 40 Annual Report 2017 Annual Report 2017 41 Strategic report
In April an opportunity arose to restructure Income statement Highlights and refinance the £167.8 million Aviva facility secured over four UK Shopping centres. In Year ended Year ended Financial 31 August 2017 31 August 2016 Gross rental income return for a prepayment of £21.7 million, the interest rate on the refinanced principal of Joint Group Joint Group IFRS Ventures Total IFRS Ventures Total +3.7% like-for-like £146.1 million reduced by 31 basis points and £m £m £m £m £m £m review has resulted in an annual finance cost saving Rental income 97.2 5.9 103.1 86.6 10.0 96.6 2016: £86.6m of £1.7 million. The restructuring also removed Rental expense (9.0) (0.6) (9.6) (6.2) (1.1) (7.3) an historic arrangement whereby Aviva Net rental income 88.2 5.3 93.5 80.4 8.9 89.3 Portfolio valuation increase shared in both the annual profits and (subject Other income(1) 4.7 (2.0) 2.7 2.5 0.6 3.1 to certain hurdles) the capital appreciation of the Grand Arcade, Wigan. An aggregate Administrative costs and like-for-like other fees (15.3) (0.3) (15.6) (10.9) (0.5) (11.4) With a sector leading dividend yield of 3.0% annual saving of £1.5 million is expected 2016: 1.0% Net operating income 77.6 3.0 80.6 72.0 9.0 81.0 6.3% and growth in EPRA NAV of 3.5%, to result from the removal of the profit share arrangement. Net finance costs (27.7) (1.3) (29.0) (31.4) (1.7) (33.1) we have delivered a total accounting EPRA cost ratio Joint venture EPRA earnings(2) 1.7 (1.7) — 7.3 (7.3) — The Board today declares a second interim Tax, NCI and other (0.7) — (0.7) (3.8) (3.8) excluding direct dividend of 1.3 pence per share, bringing EPRA earnings 50.9 — 50.9 44.1 — 44.1 return of almost 10% for our shareholders. vacancy costs the total paid and payable in respect of 2017 17.2% Company adjustments: to 2.6 pence per share, which represents a 2016: 14.9% Debt fair value accretion 0.9 — 0.9 3.1 — 3.1 94.5 per cent pay-out ratio on underlying earnings, which is in line with guidance. Foreign exchange movements (2.0) — (2.0) (0.9) — (0.9) Underlying earnings (re-based) 49.8 — 49.8 46.3 — 46.3 Presentation of financial information Net gain on sale of joint The Board reviews information and reports venture interests 4.9 — 4.9 — — — presented on a proportionately consolidated Fair value gain/(loss) on basis, which includes the Group’s share of investment property, assets held for sale and Overview EPRA NAV per share rose by 3.5 per cent to interests in joint ventures. To align with how listed shares 6.6 (0.9) 5.7 (43.3) 1.3 (42.0) As set out at our Capital Markets Day in 41.4 pence, driven primarily by both realised the Group is managed, this financial review February, the year has seen considerable and unrealised gains on the Group’s property Other finance has been presented on the same basis. (expense)/income (5.9) 0.3 (5.6) (0.4) (0.1) (0.5) capital recycling and reinvestment, targeting portfolio, and the impact of our European Gain on disposal of our core objective of delivering market leading investments which benefited from the relative strength of the Euro. investment property and income returns for our shareholders. We have assets held for sale 10.7 — 10.7 3.4 — 3.4 re-based our key earnings metric and dividend An aggregate premium to book value of Gain on disposal of subsidiary — — — 12.2 — 12.2 structure to ensure we retain sufficient £16.1 million (12.2 per cent) was generated Fair value movement operating cash flow within the business to through the disposal of mature assets and the on derivatives 4.5 1.1 5.6 (11.1) (1.7) (12.8) fund asset management initiatives which are strategic sale of certain high yielding assets, Share of non-EPRA joint designed to grow income-led total returns. with reinvestment into lower yielding but venture profits/(losses) (0.8) 0.8 — 1.7 (1.7) — Capital profits from disposals have been higher growth assets during the year. The Deferred tax on partly applied towards debt restructuring and most significant were the disposal of the VBG investment property (3.5) (0.6) (4.1) (1.2) (0.3) (1.5) prepayments to drive down finance costs portfolio and Deansgate, Manchester which Tax, NCI and other (0.2) (0.7) (0.9) 0.3 2.5 2.8 and leverage. achieved a 24 and 22 per cent IRR respectively IFRS profit attributable Guidance on the Group’s re-based earnings over the investment periods. to shareholders 66.1 — 66.1 7.9 — 7.9 measure, set out at the Capital Markets Day, Proceeds from the VBG disposal were Diluted weighted average has been delivered on and these full year used to acquire the joint venture’s interest ordinary shares (millions) 1,811.9 1,637.9 results demonstrate solid progress against in the German supermarket portfolio for EPRA earnings per share (pence) 2.80 2.70 Donald Grant all commitments made. €49.0 million, an investment providing a Underlying earnings per share Chief Financial Officer 10 per cent cash on cash yield. As well as Underlying earnings, the Group’s earnings (re-based) (pence) 2.75 2.80 measure, were £49.8 million or 2.75 pence being an efficient reinvestment of capital, per share. Aligning the comparative period, the acquisition provides flexibility over the (1) Other income on an IFRS basis includes 100 per cent of the VBG Performance Fee generated on disposal in January 2017. The Group’s share of the resulting charge is reflected within joint venture adjustments. which removes the impact of discontinued portfolio’s asset management initiatives and longer-term investment decisions. (2) Joint venture EPRA earnings for the year were £1.7 million (31 August 2016: £7.3 million). This is presented as Company adjustments, would have resulted a single line item under IFRS and line-by-line under proportionate consolidation. in underlying earnings of £46.3 million or Post year end, a scheme of arrangement 2.8 pence per share. The marginal reduction was approved by the minority shareholders Gross revenue exceeded £100 million for the first time in 2017 following a full year of rental per share is largely attributable to both in IHL which will see the Group’s interest income from the 2016 AUK Portfolio acquisition. On a like-for-like basis gross rental income non-recurring administrative costs and the increase from 17.2 to 50.0 per cent via a increased by 3.7 per cent, or 0.7 per cent on a local currency basis. The strengthening of the timing of reinvestment following a period of share-for-share exchange. IHL owns nine Euro contributed an additional £2.1 million. extensive capital recycling. UK hotels last valued at £104.4 million. Asset management initiatives across the Group’s retail schemes grew rents by 1.7 per cent. The transaction is anticipated to complete in UK Shopping centres recorded like-for-like income growth of 0.7 per cent in spite of the early November 2017 with IHL to be delisted underlying challenges facing this asset class which demonstrates the resilience of our largely shortly after. discount and convenience focused portfolio. Strong performers were St George’s Harrow and Banbury Cross, the only Retail Park currently included in like-for-like income, which has delivered well against expectations since acquisition. Successful rent reviews within the Kwik Fit portfolio and the Government Office portfolio contributed to an overall 2.1 per cent like-for-like increase in the UK Commercial portfolio. Redefine International P.L.C. Redefine International P.L.C. 42 Annual Report 2017 Annual Report 2017 43 Strategic report
Balance sheet
31 August 2017 31 August 2016 Financial Joint Group Joint Group IFRS Ventures Total IFRS Ventures Total £m £m £m £m £m £m review Property portfolio carrying value(1) 1,520.7 25.6 1,546.3 1,396.4 140.9 1,537.3 Net borrowings (769.0) (15.7) (784.7) (733.6) (74.5) (808.1) continued Other assets, liabilities and NCI (11.3) (9.9) (21.2) 37.0 (66.4) (29.4) IFRS NAV 740.4 — 740.4 699.8 — 699.8 Fair value of derivatives 7.4 12.4 Like-for-like rental income Deferred tax 10.5 5.2 EPRA NAV 758.3 717.4 Year ended Year ended Local 31 August 31 August currency Diluted number of shares (millions) 1,830.1 1,795.4 2017 2016 Change Change change EPRA NAV per share (pence) 41.4 40.0 Gross rental income £m £m £m % % UK Retail 29.5 29.0 0.5 1.7 1.7 (1) Market value of property, including property assets held for sale, adjusted to reflect head leases and tenant lease incentives. UK Commercial 9.6 9.4 0.2 2.1 2.1 EPRA NAV per share increased by 1.4 pence, or 3.5 per cent to 41.4 pence per share. This was primarily the result of realised and unrealised gains UK Hotels 14.8 15.0 (0.2) (1.3) (1.3) on the property portfolio, a strengthening of the Euro and earnings for the year, offset by dividends paid. UK Total 53.9 53.4 0.5 0.9 0.9 Europe 19.2 17.1 2.1 12.3 (0.2) Property portfolio
Like-for-like gross rental income 73.1 70.5 2.6 3.7 0.7 Local (1) Acquisitions 25.0 16.2 8.8 31 August 31 August Valuation currency 2016 Gain/(loss) Gain/(loss) Gain/(loss) Disposals 4.7 9.6 (4.9) 2017 Market value of the property portfolio £m £m £m % % Development 0.3 0.3 — UK Retail 514.6 535.0 (25.1) (4.7) (4.7) Total gross rental income 103.1 96.6 6.5 UK Commercial 364.2 334.1 27.8 8.3 8.3 UK Hotels 239.6 229.2 6.6 2.9 2.9 The income from the UK Hotel portfolio fell Other income of £2.7 million includes a A saving in net finance costs of £4.1 million UK Total 1,118.4 1,098.3 9.3 0.8 0.3 1.3 per cent like-for-like, the result of lease Performance Fee earned on the VBG portfolio has been achieved as a result of several Europe 311.7 279.9 31.4 11.2 2.5 incentive payments extended for general disposal of £1.6 million. This arose from the refinancing initiatives carried out during the Like-for-like property portfolio 1,430.1 1,378.2 40.7 3.0 improvements to the portfolio, which masked asset management services provided to the year. The Aviva refinancing in April reduced Acquisitions 85.2 — a modest headline rental increase. joint venture and the IRR achieved on exit. finance costs by £3.2 million relative to 2016, Disposals — 132.3 benefiting from both a lower cost of debt European rents were relatively flat in local The Group’s administrative cost base Development 23.4 18.5 and the extinguishment of the historic profit currency terms, although a stronger Euro increased by £4.2 million to £15.6 million, Total market value of the property portfolio 1,538.7 1,529.0 share arrangement with the lender to Grand relative to Sterling during the year resulted in in part due to significant non-recurring Arcade, Wigan. (1) Valuation movements include the effect of capital expenditure, amortisation of head leases, tenant lease incentives and foreign currency translation where applicable. a 12.3 per cent increase in Sterling terms. charges incurred during the year. As guided, £1.6 million was paid to terminate the historic Other finance expense includes a £4.3 million Property operating expenses have increased Following a number of asset management The UK Commercial portfolio continued its The UK Hotels portfolio increased by 2.9 per AUK asset management contract following non-cash charge in relation to the net fair primarily due to the enlarged portfolio and initiatives, the portfolio increased in value by strong performance, with an 8.3 per cent cent following a strong trading performance, the Group’s 2016 acquisition and integration value adjustment on refinancing of the fixed a repairs and maintenance programme 3.0 per cent like-for-like. The overall increase like-for-like increase in values. Underpinning despite the increase in business rates of the portfolio, with a further £0.4 million in rate Aviva facility. The fair value adjustment on carried out on a number of German schemes, was supported by the Group’s European this performance were particularly strong during the year. The DoubleTree by Hilton professional fees incurred through the year the new facility was lower than that released the most significant being the Berlin investments which benefited from the uplifts in offices and distribution warehouses in Edinburgh performed particularly well, which are non-recurring. The residual increase on the old, due in part to the £21.7 million Shopping Centre. relative strength of the Euro, increasing by caused by a reduction in vacancies, rising drawing from Edinburgh’s RevPar growth in in cost base can be attributed to the enlarged prepayment made. 11.2 per cent compared to 2.5 per cent in local rents and the weight of both overseas and 2016 of 17 per cent. The London portfolio also portfolio. The EPRA cost ratio, although above The year also saw £10.7 million in realised currency terms. domestic capital fuelling a competitive continues to benefit from one of the highest our medium-term target, has been managed profits following disposal of 11 properties, investment market. occupancy rates in the UK at 82 per cent, with downwards during the second half of the year The UK Retail portfolio decreased by with significant premiums received on growth in occupancy, average daily rate and to 17.2 per cent, after adjusting for £25.1 million or 4.7 per cent, driven by Deansgate Manchester, Exchange House RevPar forecast for both 2017 and 2018. the UK Shopping centre portfolio which non-recurring items. Watford and a Carphone Warehouse unit at suffered rising yields and a general lack of Priory Retail Park in Merton. In addition, the transactional evidence. VBG portfolio was disposed of via a share sale at a £3.8 million premium to the Group’s proportionate share of its carrying value at 31 August 2016. Redefine International P.L.C. Redefine International P.L.C. 44 Annual Report 2017 Annual Report 2017 45 Strategic report
Financial EPRA review disclosures continued
Debt and gearing Financing activities included net repayment EPRA performance measures and prepayment of debt and dividends paid, 31 August 31 August including withholding tax. Scrip take-up on Measure Definition of measure 2017 2016 2017 2016 Earnings Earnings from operational activity £50.9m £44.1m £m £m the two dividend payments made during the year were 27.3 per cent and 28.8 per cent Net asset value NAV adjusted for investments held at fair value and excluding items not expected to be realised £758.3m £717.4m Nominal value of drawn debt (842.2) (850.6) respectively which resulted in a cash saving Triple net asset value EPRA NAV adjusted to include fair value of financial instruments, debt and deferred taxes £735.4m £657.4m Cash and short-term deposits 53.4 34.3 of £12.3 million. Net initial yield Annualised income based on passing rent less non recoverable operating expenses Net debt (788.8) (816.3) expressed as a percentage of the market value of property 5.7% 5.8% Market value of the property portfolio 1,538.7 1,529.0 Cash balances, including the Group’s proportionate share of cash held in joint Topped up initial yield Net initial yield adjusted for the expiration of rent free periods or other incentives 5.9% 6.1% LTV (%) 51.3 53.4 ventures, was £53.4 million at 31 August 2017, Occupancy rate Estimated rental value of occupied space divided by that of the portfolio as a whole 97.7% 97.7% Pro forma LTV(1) (%) 50.0 n/a with an additional £10.0 million available from Cost ratio (incl. direct vacancy costs) Administrative and operating costs expressed as a percentage of gross rental income 24.6% 17.4% Weighted average debt maturity (years) 7.3 6.9 committed undrawn facilities. Cost ratio (excl. direct vacancy costs) Administrative and operating costs expressed as a percentage of gross rental income 19.8%(1) 14.9% Weighted average interest rate (%) 3.1 3.4 Interest cover (times) 3.2 2.7 Dividends (1) 17.2% when adjusted for non-recurring items. Debt with interest rate protection (%) 93.0 95.4 The dividends paid and payable during the year represent an annualised yield of 6.3 per Other EPRA investment property reporting (1) Pro forma LTV adjusted for transactions completed post year end as outlined in Note 38 to the financial statements. cent on EPRA NAV, and 6.6 per cent based on Accounting basis The Group’s capital structure continued to improve during the year with an overall reduction in the Group’s share price at 31 August 2017. Refer to page 109 for accounting policies adopted in relation to the Group’s property portfolio. net debt, increased weighted average debt maturity to 7.3 years, a 30 basis point reduction in The Board intend to offer shareholders a scrip borrowing costs and enhanced coverage of finance costs by operating income. dividend alternative. Full details including Valuation information Refer to Note 12 of the financial statements on pages 119 to 121 for valuation information. Cash flow the tax components of the dividend and the timetable will be released separately on Like-for-like rental and capital growth Year ended Year ended Friday 27 October 2017. The dividend payment 31 August 2017 31 August 2016 Refer to the financial review for disclosures on like-for-like income (page 42) and like-for-like capital (page 43). date has been set for Monday 18 December Joint Group Joint Group 2017, to shareholders on the register on Investment and development assets IFRS Ventures Total IFRS Ventures Total Friday 1 December 2017. £m £m £m £m £m £m Refer to pages 148 to 150 for detailed disclosure on the Group’s sub-portfolio metrics. Refer to page 23 for information on the Group’s Operating cash flows 49.4 2.2 51.6 39.6 3.2 42.8 Going concern significant development projects during the year ended 31 August 2017. Purchase and At 31 August 2017, the Group’s cash and Capital expenditure analysis development of property (18.9) — (18.9) (489.9) — (489.9) undrawn facilities were £63.4 million and Refer to page 149 for detailed disclosure on the Group’s capital expenditure during the year ended 31 August 2017. Joint venture disposal its capital commitments were £16.8 million. and acquisition (21.1) (2.2) (23.3) — — — Having considered severe but plausible Disposal of property 95.8 0.4 96.2 38.8 — 38.8 scenarios, the Directors are satisfied that the Disposal of shares (Cromwell) — — — 80.2 — 80.2 security of the Group’s income taken together Other 0.5 (0.7) (0.2) 1.2 (2.2) (1.0) with an average debt maturity profile in excess Investing cash flows 56.3 (2.5) 53.8 (369.7) (2.2) (371.9) of seven years, headroom against financial Issue of shares — — — 109.1 — 109.1 covenants and strong interest cover, continues Net debt (repaid)/drawn (37.3) (1.4) (38.7) 197.8 (1.4) 196.4 to provide a reasonable expectation that Dividends paid (39.5) — (39.5) (29.4) — (29.4) the Group will have the resources it requires to meet ongoing and future commitments. Other (6.5) — (6.5) (6.7) — (6.7) Accordingly, the 2017 financial statements Financing cash flows (83.3) (1.4) (84.7) 270.8 (1.4) 269.4 have been prepared on a going concern basis. Net cash flow 22.4 (1.7) 20.7 (59.3) (0.4) (59.7)
Operating cash flows increased by £8.8 million on the prior year to £51.6 million a result of the Donald Grant increased net rental income from the AUK acquisition and the German supermarket portfolio Chief Financial Officer joint venture buy-out. 26 October 2017 Investing cash inflows were generated from disposal proceeds, the most significant being the VBG portfolio and Deansgate, Manchester. Cash outflows applied to investment activities included the acquisition of our joint venture partner’s interest in the German supermarket portfolio, £18.9 million applied primarily towards development activity at Ingolstadt in Germany and a 12-bedroom extension to our Southwark Hotel on London’s Southbank. Redefine International P.L.C. Redefine International P.L.C. 46 Annual Report 2017 Annual Report 2017 47 Strategic report
We value our relationships with all our stakeholders, including customers Corporate social and the communities in which we invest. We have delivered on our EPC risk strategy, devoted considerable time to support communities and responsibility charitable initiatives while striving to minimise our environmental impact through effective stakeholder collaboration. We work hard to make decisions today which pave the way for future sustainability. Mike Watters Chief Executive Officer and Chairman of the CSR Committee
Key achievements in the year
Over A tenant satisfaction survey in May 2017 500 achieved a EPCs either reviewed or renewed to ensure We donated 1,207 hours GRESB 100% risk free to local community 90.2% Redefine International completed its EPC strategy achieved initiatives and charities response rate second full disclosure to the Global Real Estate Sustainability Benchmark (“GRESB”) Assessment during 2017. GRESB is the global benchmark for assessing the sustainability performance of property companies against a wide range of environmental, social and governance (“ESG”) issues. Our portfolio waste The Company achieved a 12 per cent diversion from landfill 4% 8% improvement in its GRESB score this year and maintained at 100 % was awarded Green Star status for the first time. This recognises the significant effort Green Energy switch Scope 2 CO2e reduction made during 2017 100 % Like-for-Like (LfL) made to improve sustainability performance both in the area of policy and management, as well as implementation and measurement. This year, the Company has also participated in the new GRESB Public Disclosure Assessment, which specifically rates the accessibility of ESG information for listed +12 % Sustainability training property companies and REITs. Redefine Water consumption delivered to head International achieved a ‘B’ rating for its level Like-for-Like (LfL) Year-on-Year GRESB office and operational of public disclosure, above the GRESB global reduction of score increase of 12% locations and made average of ‘C’. surpassing the peer average available to all Key objectives and initiatives have been set increase of 8% our employees 6% for 2018 aimed at continued improvement in sustainable initiatives and are in line with the Company’s Corporate Social Responsibility (“CSR”) strategic framework.
We raised
90% Our Utilities and Waste £13,070 data within the 2017 for our charity of the HSE Q Compliance site CSR Report is now year, The Children's scores consistently aligned to EPRA *sBPR Hospital Trust, and two above 90% core requirements other community causes Redefine International P.L.C. Redefine International P.L.C. 48 Annual Report 2017 Annual Report 2017 49 Strategic report
Resilient • recognise our social and moral duty The award of the first Green Star governance to offer opportunities to people with for GRESB 2017 and the 12 per cent Corporate social disabilities and doing all that is practicable year-on-year improvement in score has Approach to meet their needs; meant another successful year of reporting has been achieved. Notwithstanding Redefine International seeks to operate • uphold our commitments under our Code the ongoing aspirations to continually efficient processes and procedures that of Ethics which promotes honesty and responsibility integrity in business dealings and conduct improve and the associated tasks that demonstrate social and environmental risk accompany this objective, this is a good continued management, and foster open stakeholder commensurate with an organisation of our result and demonstrates our commitment to engagement. The Group will also continue size. Any breaches will lead to disciplinary sustainability and positions the Company well to uphold the highest standards of ethical proceedings and, if appropriate, for the future. Resilient governance behaviour and actively support our workforce. disciplinary action; and all employees are provided with a The Company believes that achieving We will uphold the highest standards in ethical behaviour and support our workforce. We seek to operate The Group’s approach to maintaining these • handbook outlining the Company’s key compliance with environmental legislation in a manner that fosters open stakeholder engagement and demonstrates best practice in social and commitments include: environmental risk management. Resilient governance policies, which are designed to encourage is key to protecting value and enabling the • complying with all applicable regulation a pleasant working environment, free from improvement of our assets. In order to Resilient investment and preparing for anticipated future discrimination, undue stress or bullying. manage and reduce risk, we have either We undertake to realise the full potential of our investments for both our shareholders and the regulation, and its implications; The Company recognises, respects and reviewed or renewed over 500 portfolio-wide communities in which we operate. EPCs in relation to the ongoing management Resilient assets • providing confidence to stakeholders upholds all UK employment rights and
Resilient investment Resilient assets of our sound management of CSR risks human rights and outlaws any forms of and commitment required as part of our We are mindful of our wider role as placemakers and we aim to contribute to the long-term prosperity of through our ongoing participation in the modern slavery. 100 per cent EPC risk free compliance strategy. In particular, our portfolio exposure across the communities in which we invest. In doing so, we will undertake asset management which minimises risk most prominent industry benchmark Performance and maximises asset value whilst providing the best experience possible for occupiers and visitors alike. survey, GRESB; England & Wales to the Minimum Energy Good progress was made during 2017 ensuring employees receive appropriate Efficiency Standards (“MEES”) regulation in • in relation to CSR governance. training on ESG issues, and providing tandem with our CSR Roadmap target of 100 per cent compliance has meant that EPCs Gender split across the Group CSR strategy The CSR Committee implements the CSR bespoke training on sustainability topics Over the last twelve months, the focus has rated ‘F’ or ‘G’ now have ongoing action plans strategy using targets and carefully selected to those that require it; been on ensuring a year-on-year continual At Redefine International, CSR means in place. EPCs identified as “missing”, either on KPIs to measure progress, tasking key maintaining best practice in health improvement to the GRESB Real Estate understanding and pro-actively managing • a whole building basis or per area of tenant 226 stakeholders within the business responsible and safety management to the benefit Assessment score. ESG risks and opportunities that can impact occupied demise under lease, now have EPCs. Employees for the day-to-day management of those of tenants, contractors, customers In order to support this objective, the available on income growth and net asset value, For clarity, where required under MEES, these targets. The CSR Committee meets regularly and employees; utilities data set has been expanded from whilst also taking account of the Company’s EPCs have been prepared on a lease by lease to review progress against the CSR roadmap, 24 properties to 39, representing over a responsibilities towards stakeholders, in • ensuring that suppliers adhere to a code of basis covering each area of tenant occupied review environmental performance data and 60 per cent improvement in data collection particular investors and shareholders, ethics, covering inter alia, anti-bribery and demise. The assessments included FRIs and ‘E’ WOMEN receive updates on UK and German and reporting across the two geographic employees, the businesses with which modern slavery; or ‘D’ rated EPCs (if completed prior to 2011). CSR-related legislation. we work and the communities in which continued relationship with first class locations where Redefine International hold • Focused sustainability training was delivered we operate. During 2017, the Company has made several sustainability advisers to provide assets under management. This has enabled discussion around setting corporate targets to all employees based at the Group’s head The CSR Committee, which comprises three achievements, the most notable being: leadership and guidance on sustainability given the solid foundation formed during the office and across its operational locations. MEN of the four Executive Directors and is attended across the business; • the Company’s participation in the GRESB last twelve months on provision of a vastly Ensuring our employees are made aware of Men 65% by our CSR advisers, asset managers and the Real Estate Assessment benefited from a • operating a robust data management improved data set aligned to the EPRA *sBPR and educated in sustainability issues helps Women 35% Company Secretary, was formed in 2014 to continued increase in score, up 12 per cent system to ensure our disclosure and (2nd edition) core requirements. The utilities bring sustainability to life and allows for establish and implement a formal CSR strategy on the prior year’s result; reporting is accurate; and reduction target is now subject to Board integration of initiatives into everyday activities for the Group. • a four per cent like-for-like (“LfL”) reduction • fostering a culture of openness. approval for integration within the 2018 set of throughout the workplace. in carbon (CO e) emissions based on 39 of The strategy seeks to ensure that our 2 With respect to our employees, the Group will: CSR Roadmap objectives. Redefine International has its own dedicated governance and risk management framework, our properties; 9 During the year, the CSR Committee has Health and Safety Manager whose role it is together with our investment and asset • ensure that no applicant or employee Senior management • a six per cent LfL reduction in water reviewed the implementation of green to provide guidance and support to tenants, strategy, continue to be resilient to the is discriminated against either directly consumption across 24 of our properties; building certification across the portfolio. contractors, customers and employees alike. ever-changing economic, social and or indirectly; • utilities and waste data within our 2017 The Omnibus Building in Reigate was certified environmental landscape and sets out a • treat all employees, prospective The Group manages an environmental data CSR Report is now aligned to EPRA *sBPR to Environmental Management Systems series of actions in the form of a CSR roadmap employees, agents, contractors, tenants, reporting system which is able to collect and WOMEN core requirements; International Standard ISO14001:2015, a targeting both short and medium term and suppliers fairly and equally, regardless analyse quarterly performance data from a great achievement. The CSR Committee strategic objectives. • over 500 Energy Performance Certificates of their gender, age, race, sexuality growing portfolio. The Company has met its has considered the implementation of SKA (“EPCs”) have been either reviewed or or disability; obligations under the CRC Energy Efficiency CSR Committee meetings renewed to ensure our 100 per cent ‘risk assessments for planned refurbishments Scheme with allowances purchased to cover • promote staff training and development free EPC strategy’ is achieved; and investigation into whether an asset 2017 emissions of 7,076 tonnes of CO at a MEN with a focus on fostering innovation; 2 Men 56% Appointed Resigned Meetings achieved outstanding Q compliance level BREEAM-In-Use certification would be cost of £121,707.20. • seek to diversify our workforce to Women 44% Mike Watters 23/8/2014 3/3 Health and Safety scores across our • suitable for certain properties within the support the nature of the Company’s Adrian Horsburgh 23/8/2014 3/3 UK Shopping centres; and portfolio. A number of developments have operations or the communities in been reviewed for SKA suitability, with the Donald Grant 1/12/2016 2/2 inaugural GRESB Public Disclosure rating • which we operate, taking into account current redevelopment of the food court at Stephen Oakenfull 23/8/2014 1/12/2016 1/1 of ‘B’ for Redefine International against an relevant skills, experience, knowledge, West Orchards, Coventry in process of being industry average ‘C’ rating. personality, ethnicity and gender whilst SKA assessed. maintaining our responsibility to select the best candidate; Redefine International P.L.C. Redefine International P.L.C. 50 Annual Report 2017 Annual Report 2017 51 Strategic report
Our Tenant Energy Data (“TED”) initiative Performance • considered SKA assessments for all commenced during the year. The initiative is The Company has continued to refine its suitable development projects to ensure Corporate social aimed at understanding how the Company procedures to manage environmental risks, development activities consider the can support and influence tenants to reduce reduce cost and future-proof its assets across materials used and their associated their energy consumption. TED proved to the portfolio. Specifically: impact on the environment. This has be a complex task due to factors such as led to developments at Southwark, responsibility tenant non-disclosure, time factors to which • the continuation of an asset management Derby, Banbury and the West Orchards working group; to ensure lessons continued tenants did not wish to commit and general in Coventry undergoing scoping review. data unavailability. Significant progress was learnt are discussed and best practice Due to a combination of timing and the however made on the eight hotels under third disseminated amongst the growing team; type of fit-out planned for Southwark, party management, which given their relative • ensuring Health, Safety and Environmental Derby and Banbury, the fit-out itself Redefine International is committed to employees, agents, contractors, tenants, and Resilient size should make a material difference. (“HSE”) compliance audit scores across was unable to benefit from the SKA maintaining its culture of openness and suppliers fairly and equally, regardless of their UK retail and shopping centre locations certification process yet West Orchards in investment Energy efficiency audits have been undertaken transparency. There is a strong work ethic gender, sexual orientation, family status, race, are over ninety per cent, driven by the Coventry is expected to gain certification across a third of our existing shopping centre amongst staff and team spirit is fostered colour, nationality, religious or political belief, Approach relationship between managing agent, post year end. through regular meetings and team building age or disability. locations, in order to identify areas where The Company seeks to implement an effective Centre Management teams and the days which encourage better working energy conservation measures can be realised Energy Performance The Company is committed to having an investment strategy that realises the full Group’s Health and Safety Manager; relationships and provide the forum for at either no cost or via low cost projects. Certification (“EPC”) risk appropriate level of diversity that reflects the potential of our investments for both our • the HSE audit scores are generated from sharing ideas with the executives in a less Over the next financial year the BBP (Better The Company’s exposure to EPC risk from nature of the Group’s operations and which shareholders and the communities in which software which is provided by a third formal environment. As the Company Buildings Partnership) 2017 will launch their the forthcoming MEES and present Section best supports the achievement of strategic we operate throughout the investment party HSE compliance auditing company expands, and the number of employees Acquisitions Sustainability Toolkit. This will be 63 legislation has been thoroughly reviewed objectives. Over the last year diversity across life cycle. (Q Compliance). The software captures, for the UK portfolio with a view to identifying and responsibilities increases, the Board the Group and the Board has remained investigated to ensure the Group is equipped tracks and analyses HSE compliance The Group will achieve this by: and integrating applicable EPC improvement committees have ensured that the necessary unchanged. The Nominations Committee with practical guidance on how to ensure activity related to a set of predefined measures into asset business plans ahead of internal controls have been implemented, regularly considers skills, experience, • identifying investment risks during sustainability risks and opportunities are indicators. The current scope will be legislative deadlines. Addressing the MEES and that executives and employees remain knowledge, personality, ethnicity and gender acquisition due diligence and identifying captured as part of the acquisition process. broadened to include the remainder of the risk has been viewed as a necessary well rewarded. The Board recognises the of the Board and has set a target to extend opportunities to add value; UK assets and German investments over importance of culture and providing a good pro-active step, and balances sustainability the female representation at Board level to considering the social and environmental Resilient the forthcoming year; working environment to attract and retain • with regulation and stakeholders’ interests at least one third by 2020. performance of our assets; and assets the Group has undertaken Fire Risk high calibre staff. To this end, an employee • alike. A minimum EPC rating level of D will Assessments and Water Hygiene survey was undertaken to provide a forum for During the year a wide pool of candidates • monitoring and measuring our resource be sought for planned refurbishments and Approach Audits with external auditors across confidential feedback. The Board was pleased were selected for consideration as a new consumption to identify efficiencies, upgrade works to our portfolio assets. Redefine International will undertake asset the UK Shopping centre portfolio to that there was a generally positive response non-executive. The Company hopes to particularly relating to energy and reduce management which maximises net asset value ensure compliance; to the survey, whilst providing for areas of make an announcement regarding a new our carbon emissions footprint and the Performance data whilst providing the best experience possible focus for further improvements to employees’ appointment by the end of the year. operational costs for our tenants. • continued commitment to The Company is committed to monitoring for occupiers and visitors alike. participation in the GRESB Real Estate and measuring the environmental impact of satisfaction and health and wellbeing. Employee turnover has been modest during Performance Assessment process; energy, water usage and waste management 2017. All employees are based in the UK Redefine International will uphold this It is the aim of Redefine International to We have continued to take important which falls under its operational control. Since or Germany, where there are few human commitment by: • completed an EPC risk review of the extend diversity within the Group and steps in the deployment of our resilient November 2014, Redefine International has rights issues. No human rights concerns or UK portfolio; acknowledge, accept and accommodate the investment strategy. • engaging with and contributing to maintained a data management system to whistle-blowing reports were received from charitable and community initiatives on an • ensured all funding raised from charitable differences between individuals. The Group The Company has invested time with its capture this information at a property level. strives to treat all employees, prospective employees during the year. ongoing basis; activities undertaken at each UK Shopping CSR advisers to prepare utilities and waste centre are channelled to the nominated In order to enhance our level of utilities, waste • engaging with local authorities and data sets aligned to EPRA *sBPR (2nd edition) local charity which has fostered a great and emissions disclosure this year, we have Employees and diversity supporting their community campaigns; core requirements. Data capture has community spirit; adopted guidance provided within the EPRA been significantly improved and a new • collaborating with tenants to conceive and *sBPR (2nd edition) in accordance with the Total(1) Men %(1) Women %(1) conducted a tenant satisfaction survey reporting format is now presented in line promote joint community projects; • core requirements. Board non-executives 7 (7) 6 86 (86) 1 14 (14) with the objective of seeking feedback with industry accepted environmental understanding, enhancing and promoting Board executives 4 (4) 4 100 (100) — — (—) • for improvement; and performance indicators. the Group’s role as a placemaker, with Senior management 9 (9) 5 56 (56) 4 44 (44) In 2017, Redefine International celebrated a focus on creating and maintaining Other employees 206 (207) 132 64 (65) 74 36 (35) its tenth anniversary since listing and to prosperous communities in the local areas Total 147 65 (67) 79 35 (34) 226 (227) commemorate this milestone, the Company where we invest; (2) All employees working part time 49 (43) 16 33 33 67 undertook a community project called • ensuring key environmental and social (2) All employee leavers (total) 21 (33) “Ten for 10”. This entailed investing ten risks are well managed when the Group (1) Figures for 2016 are shown in brackets. days into initiatives designed to support the is undertaking development activities (2) All employees excludes Board non-executives. communities in which we operate. See our and throughout the management of our case study for more information on page 55. portfolio; and • engaging with tenants to better respond to their needs and position ourselves to anticipate future requirements. Redefine International P.L.C. Redefine International P.L.C. 52 Annual Report 2017 Annual Report 2017 53 Strategic report
Corporate social responsibility continued
EPRA Sustainability Performance Measures for our managed portfolio
Absolute (“Abs”) Like-for-Like (“LfL”) Impact area EPRA code Indicator Index Units of measurement 2017 2016 Change % 2017 2016 Change %
Energy Elec-Abs, Electricity Landlord procured and sub-metered to tenants (MWh) MWh 12,994 12,154 7 8,518 8,412 1 Elec-LFL DH&C-Abs, District heating and Landlord procured and sub-metered to tenants (MWh) 1,569 1,832 (14) 1,111 1,346 (17) DH&C-LFL cooling Fuels-Abs, Fuels Landlord procured and sub-metered to tenants (MWh) 9,622 8,530 13 4,736 4,150 14 Fuels-LFL Proportion of energy data estimated(1) 1% 0%
Greenhouse gas emissions GHG-Dir-Abs, Direct Scope 1 tonnes CO2e 1,792 1,570 14 872 764 14 GHG-Dir-LfL GHG-Indir-Abs, Indirect Scope 2 (location based) 5,187 5,406 (4) 3,480 3,762 (8) GHG-Indir-LfL Scope 2 (market based) 4,135 5,406 (24) 2,434 3,762 (35) Scope 3 446 470 (5) 294 325 (10) Proportion of GHG data estimated(1) 1% 0%
Water Water-Abs, Water Landlord procured cubic metres (m3) 99,480 96,966 3 86,568 92,046 (6) Water-LfL Proportion of water data estimated(1) 0% 0%
Waste Waste-Abs, Waste Recycled Metric tonnes 20% — — — (landlord-managed) Waste-LfL Off-site Materials Recovery Facility % weight by disposal route 15% — — — Incineration with energy recovery 64% — — — Proportion of waste data estimated 2% — — —
Normalisation Energy kWh/£million net rental income 259 252 3 154 156 (1)
GHG tCO2e/£million net rental income 124 144 (14) 76 96 (22) Water m3/£million net rental income 1,064 1,086 (2) 926 1,031 (10)
Disclosure coverage Energy, GHG, Water No. of assets 39 19 Waste 15 0 Total number In Organisational Boundary (Managed Assets) 41
(1) Estimation methodology used: • Energy, GHG, Water – pro-rata estimation based on nearest available period of recorded consumption using primary evidence. • Waste – estimation based on industry standard conversions (volume to weight). Redefine International P.L.C. Redefine International P.L.C. 54 Annual Report 2017 Annual Report 2017 55 Strategic report Case study Ten for 10
At the Grand Arcade Shopping Centre In January 2017, in Wigan, the Centre Management team Corporate social Redefine International supported ten local groups including the British Heart Foundation, New launched ‘Ten for 10’ Lodge Preschool and the Green Slate responsibility – a community Community Farm. West Orchards, Coventry and Byron Place, continued Seaham had large teams supporting local litter engagement picking and community clean-up projects. programme enabling Staff at Weston Favell Shopping Centre, Building certification and labelling Our LfL portfolio for the purpose of the Northampton supported the Salvation Army’s EPRA disclosure is mostly composed of us to contribute and homelessness project by volunteering with % of managed portfolio with BREEAM or LEED Rating our UK Shopping centres, and to a lesser their ‘street team’, and the team at St George’s, (New Construction, Refurbishment, In-Use) 0% extent our German shopping centres. These connect with the local Harrow assisted at a Mother and Toddler SKA Ratings (Project In Progress, Bronze Targeted) 5% properties have the largest environmental communities in which group and marshalled the ‘Run Wembley’ impact of all assets under management. community event. Birchwood Shopping Actual LfL increase in electricity consumption Centre, Warrington helped to remodel a EPRA commentary As our data management programme is we operate. was less pronounced (one per cent). Water sensory garden for their ‘Charity of the continually evolving, we are not yet able to The Company has enhanced its environmental consumption saw a six per cent decrease due Year’, Brainwave. report the specific end use of procured energy performance data disclosure to align with the to decreased demand. In celebration of Redefine International’s tenth Head office staff supported the Grenfell and water. We have also considered the EPRA EPRA *sBPR (2nd edition) and our reporting to anniversary, staff across our property portfolio Tower relief effort by collecting, donating guidance in relation to segmental analysis. In relation to intensity of environmental the GRESB Real Estate Assessment. and our head office pledged to donate ten and delivering much needed essentials for We believe that reporting “managed” assets performance, we have chosen to use working days per location to local community the victims of the disaster, which occurred We now present consolidated property provides a fair overview of performance, net rental income as the denominator to groups and charities through the Ten for 10 in June 2017, as well as volunteering at one energy, greenhouse gas (GHG), water and given that the majority of environmental be consistent with our GHG disclosure volunteering programme. of the many donation centres set up in waste data on both an absolute (“Abs”) and impact is associated with our shopping methodology. However, we recognise The scope of the project enabled the Redefine West London. like-for-like (“LfL”) basis, covering assets centre assets and to a lesser extent a small that other normalisation factors may be International team to work with a wide range in both our UK and German portfolios. number of multi-let offices. We will continue more appropriate for use in the future, In total, 26 community groups and of people within the local community, from We believe that adopting this approach to consider the need for further segmental with a particular focus to ensure that organisations benefited from the initiative, school children to the elderly, providing much provides greater transparency and analysis in the future development of our like-for-like performance changes can be which ran until August 2017, with 127 days’ needed support and making a difference to comparability for our stakeholders in data management programme. properly understood. volunteering completed across Redefine respect to the environmental performance the lives of so many. International’s six UK Shopping centres and A small proportion of our data may be Our absolute scope 1 and 2L GHG emissions of assets under management. the head office team. subject to estimation; this is completed to remained broadly the same as conveyed by As per mandatory greenhouse gas ensure that our reporting per asset covers the mandatory GHG emissions reporting table disclosure, our organisational boundary for the correct reporting period and is complete. – see page 58. environmental disclosure is based on the Estimation is only made where actual billed We expect to continue to enhance our data principle of operational control, and therefore or metered data, and where the date of includes all property assets where we are reporting programme during the course of the data recording falls within six months the next year to provide better insight into responsible for the procurement of energy, or less from the period to be estimated. water and waste services. A total of 41 assets where energy and water data is sub-metered Our methodologies use pro‑rated calculation exclusively to tenants, as well as improve the fall within the boundary in both the 2016 and or like-for-like replacement. 2017 reporting periods. We have provided coverage of our data management system. data to cover 95 per cent of these assets for In terms of absolute energy consumption the current reporting period. Only two assets change, electricity and gas consumption (in Germany) under our operational control increased by seven per cent and 13 per cent are excluded from the disclosure, due to lack respectively in the past year due to property of reliable and accurate data. acquisitions and increased occupancy (and heating demand) across our multi-let properties. District heating consumption fell significantly due to reduced demand for heating within our German shopping centre assets. Redefine International P.L.C. Redefine International P.L.C. 56 Annual Report 2017 Annual Report 2017 57 Strategic report
We are now 100% compliant with energy Corporate social performance certifications with action responsibility plans in place for all ‘F’ and ‘G’ rated units. continued
Legislative value enhancement The ‘action plan’ identified targets for Our German assets have been reviewed as ENEV/Energy Saving Ordinance KrWG/Circular Economy Act Case study – improvement of the carbon and energy part of the legislative gap analysis with respect Display a building energy performance Disposal of waste in line with Strong data A Group Health performance of the building and how these to the three pieces of German legislation, certificate; provide a certificate to regional requirements management and Safety legislative value targets would be met through physical being EDL-G/Energy Services Act, ENEV/Energy platform Manager potential tenants/buyers The disposal of waste is undertaken in line improvements to the property, all produced Saving Ordinance and KrWG/Circular Economy enhancement Redefine International’s portfolio has been with requirements through the hire of a and registered by a ‘Section 63 Advisor’. Act. From information provided by Redefine checked in the respect of building energy competent waste disposal company where the Redefine International continues to consider Categories of EPC risk were assigned based on International to third party consultants, the performance certificates required for display. Company is responsible for waste generation. ways to deliver compliance strategies that analysis of data provided. The categories were: following conclusions were drawn: This comprises all buildings with a floor are aligned to investors’ interests. This is On the basis our UK and German based risks that were yet to be fully space of 500m2 or greater which the public underpinned by our commitment to resilience • EDL-G/Energy Services Act assets are compliant, data has to be investigated (“Risk”); access frequently such as supermarkets. in governance, investments and assets. Reporting of total energy managed, maintained and updated. The There are also a number of buildings in • risks under control with planned consumption; energy audits relationship between Redefine International Spanning two geographic locations, the Redefine’s portfolio which have been leased actions accounted for where required of properties and operations and that of their CSR Advisers is one of Group continually seeks to better understand since July 2009 at which point building energy (“Managed Risk”); and assurance and provides a data repository legislation that affects the portfolio from an Whilst the balance sheet of Redefine performance certificates have been provided A legislative A 100% • risk is managed and declared safe in International exceeds the threshold as set which can be used during regular review, portfolio environmental perspective. 2015 marked an to the interested party. Third party consultants EPC risk respective of relative jurisdiction specific out by the EDL-G, neither the number of reporting and in leading high level through gap analysis free strategy early step in ensuring the EPC strategy was understand this applies to five units in a mixed EPC legislation and known portfolio to asset level discussions on where developed in the most cost effective manner employees nor the turnover exceed the use building in Leipzig and three units in a impacts have been assessed (“Safe Zone”). compliance activity should be focused. whilst targeting a risk free status. appropriate thresholds. Therefore Redefine mixed use building in Munich. It has been A snapshot into this world here shows some EPCs which may soon to expire, rated either does not qualify under the EDL-G and does noted that any buildings leased or sold in the During the last two years, any EPCs which legislative risks and Redefine’s interpretation ‘F’ or ‘G’ or lease or break dates forthcoming not have to meet the requirements. EDL-G future by Redefine must continue to have were found to be missing were instructed and of responsible compliance activity. were assigned category 2. With respect to German legislation spans from the EU Energy any EPCs reviewed and seen to be within the building energy performance certificates MEES, this will mean that any areas of demise Efficiency Directive Article 8. In the UK, this With each part of the Legislative Value risk zone were revisited. Risk zone EPCs were which are provided to interested parties planned for lease from April 2018 may be was translated into UK law in June 2014 as the Enhancement (“LVE”) process working actively classed as either any existing ‘F’ and ‘G’ rated at this point. at risk of impacting on asset/unit expected Energy Savings Opportunity Scheme (“ESOS”). with one another in equilibrium, Redefine areas of demise across our properties, soon rentable value (“ERV”). Thereby any EPC The same third party consultants deemed the International is sure to maintain its LVE to expire EPCs prior to the MEES regulations recommendations such as improvements to UK companies to stand outside of qualification process and broaden key areas of focus as and coming into play on 1 April 2018, affecting all improve building fabric, heating efficiencies of ESOS phase one in this respect and when required to maximise the opportunity new leases. Across Scotland, risk in relation and lighting can be planned in earlier compliance activity surrounding ESOS Phase presented by legislative compliance. to Section 63 meant that from September stages and either accrued centrally where 2 will be revisited ahead of the compliance 2016 upon a new sale or lease of a building required or foster tenant engagement into notification date of 5 December 2019. greater than 1,000m2, an approved Section a planned programme of building upgrades 63 action plan must be in place and made to ensure their occupation remains risk available in the same way as an EPC and free as each lease nears expiry and EPC reviewed annually. Safe zone vs at Risk vs Managed Risk related to EPCs recommendations are implemented, ensuring minimum disruption and maximum value. 2015 2016 2017 The total ‘F’ or ‘G’ figure is relatively low across the portfolio and the Group will target planned refurbishments to achieve a minimum a e ne a e ne a e ne rating of ‘D’. 35% 48% 93%
is 5% ana e is ana e is ana e is 60% 52% 7% Redefine International P.L.C. Redefine International P.L.C. 58 Annual Report 2017 Annual Report 2017 59 Strategic report
CSR target roadmap Corporate social Progress achieved against CSR targets set for 2017 Resilient governance Resilient investment Resilient assets responsibility Further improve GRESB score Pro -actively invest in sustainability Maintain compliance and improve targeting three Green Stars for 2017. measures within our portfolio and Health, Safety and Environmental continued We will do this by a) broadening the abide by EPRA guidelines. Conduct audit scores. available dataset to obtain greater energy audits where appropriate for coverage; b) setting corporate targets new investments. Mandatory GHG emissions reporting table for example emissions and energy consumption; and c) implement 2016 2016 green building certifications. 2017 (revised) % change (reported) Direct greenhouse gas emissions in tonnes of CO e 2 We target 100 per cent compliance Ensure full data picture is available Improve tenant awareness and (combustion of fuel and operation of facilities) Scope 1 1,792 1,570 14 2,089 with Energy Performance for all operational sites. seek feedback for improvements Indirect greenhouse gas emissions in tonnes of CO e Scope 2L – location based 5,187 5,406 -4 7,422 2 Certifications (“EPCs”) ensuring all through engagement in a (purchased electricity, heat, steam and cooling) Scope 2M – market based 4,135 5,406 ‑24 7,422 ‘F’ and ‘G’ ratings have ongoing action satisfaction survey which will Total carbon footprint in tonnes of CO e Total scope 1 & 2L 6,979 6,975 0 9,511 2 plans in place. The assessment will include sustainability and health Scope 1 & 2L intensity (tCO e/£m net rental income) 75 78 107 2 include FRIs and ‘E’ or ‘D’ rated EPCs and wellbeing aspects. if completed prior to 2011. Methodology Data qualifying notes provides a strong basis on which to focus Redefine International’s carbon emissions The boundary of Redefine International’s environmental efficiency improvements Complete staff training for all staff Paying it back: 2016 was Redefine Undertake fit-out projects disclosure has been produced in accordance carbon emissions disclosure is based and strengthen reporting against best on CSR and sustainability issues. International’s tenth anniversary to SKA Assessment Bronze with guidance issued in the ISO 14064- on the principle of operational control. practice standards and industry benchmarks. so to celebrate we implemented a level as a minimum across all 1:2006 international standard and the GHG Therefore emission sources within real Special comment should be noted for the community project called ‘Ten for suitable properties. Protocol Corporate Accounting and Reporting estate assets owned and managed by significant action taken in respect of Redefine 10’. Across our portfolio of shopping Standard (Revised Edition). Location based Redefine International are included in the International’s preparation for the upcoming centres and at the Company’s head emissions factors are sourced from the UK reported emission figures. We do not have MEES legislation across England and Wales office, we invested ten days into Government (2016 & 2017) and International responsibility for any emissions sources and Section 63 in Scotland, leaving the initiatives designed to support the Energy Association (to cover German assets). that are not included in our consolidated Company 100 per cent risk free. In addition, communities in which we operate. Guidance on the reporting of Scope 2 GHG statement. We are not responsible for the the commitment given by their CSR Steering emissions under the GHG Protocol was purchase of the energy supplied to our group has been invaluable to reaching their Good progress year’s CSR Targets. Redefine International is updated in 2015 and we are now required head office in London. Emission sources Sound progress to report two different values to reflect the relating to occupier activities that do not fall a proactive Company that considers their CSR Some progress ‘location-based’ and ‘market-based’ emissions under the operational control of Redefine responsibility to be embedded within their core operations and integrated within their resulting from purchased electricity. The International are excluded, except where we CSR targets for 2018 location-based method uses an average are responsible for procurement and supply investment strategy for short, medium and long term growth. Our engagement with the emission factor for the national grid on of energy to occupiers. Due to adjustment of Resilient governance Resilient investment Resilient assets which electricity consumption occurs. The our emission scope compared to the previous Company has shown that employees have market-based method reflects emissions year (2016), we have chosen to recalculate the high levels of interest with respect to the Develop a stakeholder engagement Independently verify the performance of our Set a property wide relative reduction from the electricity that companies have previous year’s emission figures as the hotels, Company CSR initiatives and are well equipped programme to provide a strategy, policy assets through certification of our portfolio target for total energy consumption on a chosen to purchase in the market. Where a although owned are not under the operational to proceed with their implementation and, by and action plan for mobilisation across during operation, refurbishment, or new like-for-like (“LFL”) basis in terms of energy market-based emissions factor is unavailable control of Redefine and had previously been ensuring that sufficient time and resources the managed estate to cover; tenants, construction using appropriate green building per unit floor area (kWh/m2). the residual mix or location-based factor included in prior year’s reporting. We have are made available, Redefine International communities and employees. certification schemes. has been applied. Markets differ as to what also adjusted our normalisation metric, from will effectively tackle both the straightforward contractual instruments are commonly Net Operating Income to Net Rental Income, and the more challenging targets which have Review the Company induction format to Continue to maintain high levels of tenant Facilitate the transition to greener forms available or used by companies to purchase to ensure that the measure of carbon intensity been approved within the CSR Roadmap include a section specifically on sustainability satisfaction through an engagement of transportation via the installation of energy or claim its specific attributes. Redefine is better reflective of our business type. For for the 2018 financial year. We confirm for the benefit of all new employees programme in order to act on the findings electric vehicle (EV) charging points across International has chosen to use a supplier 2016 and 2017, there have been no reported that environmental data published in this and to maintain awareness amongst from the most recent survey. appropriate shopping centre locations. specific emissions rate. This method has been fugitive emissions from air-conditioning report provides a true representation of the current employees. used in alignment with the GHG Protocol’s refrigerant leaks, and there has been no Company’s current performance. Savills will quality criteria. In alignment with UK DEFRA top-up of refrigerant volume. continue to support Redefine International Harmonise Company Health, Safety Ensure employees are made aware of Improve data across our German Assets Environmental Reporting Guidelines, we over the coming year to achieve their 2018 and Environmental (“HS&E”) policies Company initiatives which support their health to ensure the ability to measure key have used the conversion factor for the year CSR adviser’s statement CSR targets and will provide progress updates across Redefine International’s two and wellbeing and gain an insight into their performance indicators (“KPIs”) can the emissions took place. Data is disclosed As Redefine International’s strategic adviser within the CSR Committee held quarterly prior geographical locations. perceptions and aspirations. be realised. in accordance with the requirements of the on corporate social responsibility, Savills to preparing next year’s CSR Annual Report Companies Act 2006 (Strategic Report and would like to acknowledge the continual and corresponding updates to their website. Directors’ Reports) Regulations 2013. improvement demonstrated by Redefine International in terms of their focus on how Jonathan Hale they have chosen to implement, maintain Associate Director and improve Redefine’s CSR strategy. Savills The continuation of robust data collection 26 October 2017 supported by core reporting systems Redefine International P.L.C. Redefine International P.L.C. 60 Annual Report 2017 Annual Report 2017 61 Directors’ report Governance
I thank shareholders for their support of the Corporate governance statement (iii) resigns or does not offer himself Company’s new Remuneration Policy, which Compliance with the UK Corporate for re-election, or (iv) terminates his Chairman’s was approved at the AGM in January 2017. Governance Code 2016 (the “Code”) appointment on three months’ notice. During 2016 the CEO received 62 per cent Redefine International is a UK-REIT with a It should be noted, that, as a FTSE 250 of his target income, considerably below premium listing on the Main Market of the LSE company, all Directors are subject to annual comparable peers. The policy was amended and a secondary listing on the “Real Estate – re-election and therefore it is considered statement following a strategic review to ensure closer Real Estate Holding and Development” sector that the Company’s terms are appropriate. alignment between remuneration, strategy of the Main Board of the JSE. The Company c. Code E2.4: Notice of general meetings. and shareholder returns. The new policy was incorporated in the Isle of Man with Explanation: The EGM held on 25 April provides the executives with a fair and registered number 111198C in 2004 and was 2017, regarding the acquisition of the balanced package that motivates performance re-registered under the Isle of Man Companies Through communication with its wider German supermarket Portfolio, was held and rewards results. Act 2006 in December 2013, with registered With a sharper focus on risk management stakeholder base, the Company strives on 14 clear days notice in accordance with number 010534V. The Company’s home state to improve both our buildings and the For the first time this year, the Company will the Company’s Articles of Association, is the United Kingdom. and mitigation, the Redefine International environments they provide whilst contributing be reporting under the 2016 UK Corporate rather than the 14 business days Board remains confident that it has the right where possible to communities in which Governance Code (“the Code”) and the Audit Further to the secondary listing of the required by the Code. This was due to the we operate. We endeavour to ensure that and Risk Committee adopted new model Company in South Africa on 28 October 2013, transaction being time sensitive and the strategy to sustain the Company through our suppliers adhere to a strict code of terms of reference to comply with the the JSE accepted that Redefine International Board was mindful that any delay would ethics and undertake to pay them fairly and provisions of the new Code, FRC guidance and will primarily comply with the Code as cause a transactional risk. revised ethical standards published earlier potential uncertainties ahead. within agreed timeframes. We build strong issued by the Financial Reporting Council Compliance with the Listing Rules this year. Focus areas for the committee this in April 2016 (www.frc.org.uk) as opposed relationships with our lenders and deal with During the reporting year, Redefine Properties year have been to oversee compliance and to the provisions of the King IV Report on them in an open and transparent manner. Limited was regarded as a controlling regulatory change, improvement in internal Governance for South Africa 2016. It should We encourage openness amongst our shareholder of the Company in accordance controls and risk reporting. be noted that during the reporting year ended employees and listen to their concerns, while with LR 6.1.2A. As a Chapter 6 Company with a 31 August 2017 and up to the date of this supporting them to develop their careers With robust corporate governance, a strong controlling shareholder, Redefine International document the Company has complied with all and work-life balance through training and Board and strategy, I am pleased to report has complied with LR 9.8.4 R (14): 2017 has been a year of political and economic transition through various stages in their lives. that the Company has delivered a solid set of of the Code principles, but has not complied uncertainty with a constantly changing results and is well positioned to look to the with the following Code provisions: 1. The Company entered into a relationship At the heart of our success is our culture. Agreement with Redefine Properties on macroeconomic backdrop. With a sharper future with confidence. a. Code B.1.2. Half of the Board should Both internally and externally, the Company 17 November 2014 (the “Agreement”) and focus on risk management and mitigation, comprise independent Non-executive is considered agile and experienced, Full details of the Company’s operations have the Board confirms that during the period the Redefine International Board remains Directors. hands on, proactive, efficient, personable been laid out in this Annual Report, which the under review: confident that it has the right strategy to and approachable. The personable and Board has reviewed and considers to be fair, Explanat ion: At year end, the Board sustain the Company through potential experienced nature of the Board and its balanced and understandable and provides comprised four executives, four a. the Company has complied with the uncertainties ahead, whilst continuing to executive has resulted in a strong leadership shareholders with the necessary information independent non-executives and two independence provisions included in provide our shareholders with market-leading team. A team that is relentlessly inquisitive, with which to assess the Company’s position non-executives who represent the major the Agreement; income returns. seeking out new opportunities with agility and performance, business model and shareholder, Redefine Properties Limited. b. as far as the Company is aware, During the year the Board has sought enabling opportunities to be harnessed. strategy. The Board recommends that Although the composition fails to meet Redefine Properties has complied with to strengthen the portfolio, through the Boardroom culture is good natured and shareholders vote to adopt the Annual Report the provisions of the Code, the Board the independence provisions included recycling of assets with lower rental or growth constructive and relationships between and support the re-election of the Board at structure does meet the Code principles, in the Agreement; and potential, in favour of assets with stronger executives and non-executives are good, the AGM to be held on 25 January 2018, where with no block of individuals dominating c. the election and re-election of property fundamentals and longer-term although with the uncertainty of the Directors will be available to answer any the decision making and includes an independent Directors at the AGM held growth prospects. Disposal proceeds have political and economic environment, the questions shareholders may have regarding appropriate combination of Executive on 23 January 2017 was conducted in largely been reinvested or used to reduce non‑executives have been increasingly the operation of their Company. and Non-executive Directors. With an accordance with the election provisions challenging management to ensure that gearing. Refinancing initiatives have broadly I have informed the Board that I intend to additional appointment expected by of LR 9.2.2.E and LR 9.2.2F R and the long-term success of the Company has been concluded at lower levels of gearing step down as Chairman during 2018. The the end of the year, the balance will approved by: been properly considered. An analysis was and resulted in a reduced cost of debt and a exact timing will be determined by the be improved, but in order to reach the i. the shareholders of the Company; Greg Clarke conducted in January to record how Redefine stronger capital structure. process to recruit a new Chair and execute required Board composition another and Chairman of the Board International should react to a range of Communication of the Company’s strategy an appropriate handover. independent Non-executive Director would different scenarios that could be faced by ii. the independent shareholders of was conveyed to shareholders at the Capital need to be appointed, taking the Board the Company in the next few years. The By this time I will have been Chairman of the Company. Markets Day in February, which was well size to 13, which is considered too large. Board evaluation conducted at year end Redefine International for seven years, during 2. No independent Director has declined to attended and received. The Board’s decision It should be noted that to ensure that showed that Directors wanted more time set which time we have domiciled to London, support the statements in (1) above. to rebase the dividend to better align earnings there is enough independent oversight aside to review strategy, to ensure that the become a REIT and entered the FTSE 250. with operating cash flow has been clearly set of related party transactions, a committee current model remains fit for purpose in the Compliance with the Disclosure out and communicated. The Company has I consider it time to move on and for a new comprising solely of independent and Transparency Rules constantly changing economic environment. Chair to oversee the next exciting phase of made significant progress in becoming the Directors has been established to review The disclosures required under DTR 7.2 As Chairman of the Board and Nominations Redefine International’s future. UK’s leading income focused REIT. such matters before deciding whether a of the Disclosure and Transparency Rules Committee, I have sought to expand the On 1 December 2017, the Company will be transaction can progress to the Board for are contained in the following pages of this experience and diversity of the Board and Greg Clarke rebranded to Real Estate Diversified Income final consideration. Directors’ report. I am confident that the appointment of a Chairman of the Board REIT, or RDI REIT. The purpose of rebranding b. Code B.2.3: Non-executive Directors new Non‑executive Director will be announced is to ensure the Company has a clear and 26 October 2017 should be appointed for a specified term. before the end of the calendar year which independent identity as well as supporting Explanation: Directors are appointed for will further enhance the strength of the better communication with stakeholders. a term which expires when either the Board. Succession planning for the executives Director (i) is not re-appointed following and committee chairs will be a focus area retirement, (ii) is removed or vacates office, during 2018. Redefine International P.L.C. Redefine International P.L.C. 62 Annual Report 2017 Annual Report 2017 63 Directors’ report Governance Board of Directors
GREG CLARKE MBA, BA (Hons) MIKE WATTERS MBA, BSc Eng. (Civil) STEPHEN OAKENFULL CFA, BSc (Hons) Construction ADRIAN HORSBURGH MRICS DONALD GRANT CA Chairman Chief Executive Officer Deputy Chief Executive Officer Property Director Chief Financial Officer Age: 60 Age: 58 Age: 38 Age: 55 Age: 43 Appointed: October 2011 Appointed: December 2013 Appointed: December 2013 Appointed: March 2014 Appointed: August 2015 Committee: N Committees: C I Committee: None Committee: C Committee: C Independence: Complied with independence Skills and experience: Skills and experience: Skills and experience: Skills and experience: criteria of the UK Corporate Governance Code • Over 28 years’ experience in the investment • Over 17 years’ experience working in • 30 years’ experience in the investment • Over ten years’ experience working in on appointment as Chairman. banking and real estate industries corporate finance and real estate property sector specialising in retail and various banking and broking institutions Significant experience as a director of Former COO of Redefine International shopping centres Over eight years’ experience working in Skills and experience: • • • property and investment companies in the Fund Managers • Former Retail Investment Director and the property sector • Significant Board experience, including UK and South Africa (“SA”) International Director at Jones Lang LaSalle CEO and Chair roles • Former analyst at DTZ Corporate • Former financial controller of Capital • Former director of Sycom Property Fund, Finance in London • Former Equity Partner and Trainee Surveyor & Counties Properties PLC, a FTSE 250 • Over 30 years’ experience working for Hyprop Investments Limited and Redefine in the investment department at King Sturge company and running large international public • Former management consultant for Properties Limited in SA and Sapphire Retail corporations across Europe, Australia and Turner & Townsend External appointments: None. External appointments: None. Fund in the UK South Africa External appointments: None. • Former CEO of Lend Lease Corporation, an External appointments: Chairman of ASX 50 international property corporation RedefineBDL Hotel Group, Director of • Former CEO of Cable and Wireless International Hotel Properties Limited. Communications Plc • Former Chairman of The Football League and former Chairman of the Meteorological Office External appointments: Chairman of the Key to committees: Football Association, Chairman of two private equity owned businesses. A Audit and Risk Committee C Corporate Social Responsibility Committee I Investment Committee N Nominations Committee R Remuneration Committee Denotes chair of a committee
All Directors served throughout the year. There were no appointments or resignations. Redefine International P.L.C. Redefine International P.L.C. 64 Annual Report 2017 Annual Report 2017 65 Directors’ report Governance Board of
Directors continued
MICHAEL FARROW FCIS, MSc (Corporate Governance) GAVIN TIPPER MBA, CA, BCom, BAcc SUE FORD ACA, BSc (Hons) ROBERT ORR MRICS, BSc (Estate Management) MARC WAINER BERNIE NACKAN BA (Econ), SEP Senior Independent Non‑executive Director Independent Non‑executive Director Independent Non‑executive Director Independent Non‑executive Director Non‑executive Director Non‑executive Director Age: 63 Age: 52 Age: 57 Age: 58 Age: 69 Age: 73 Appointed: August 2011 Appointed: August 2011 Appointed: December 2013 Appointed: April 2015 Appointed: August 2011 Appointed: April 2014 Committees: R A Committees: A N Committees: A R N Committees: I R Committee: I Committee: None Skills and experience: Skills and experience: Skills and experience: Skills and experience: Skills and experience: Skills and experience: • Over 20 years’ experience of UK listed and • Over 20 years’ financial experience of • Over 30 years’ experience working within • Over 30 years’ experience of the German • Over 35 years’ experience in the property • Over 50 years’ experience working in private property companies and funds companies listed in both the UK and various leading organisations overseeing and European real estate markets industry in South Africa finance, investment, property in South Africa working as a director and a company South Africa finance, strategy and governance matters • Former Country Manager for Germany • Founder of Investec Property Group, and Internationally secretary • Former technical partner at KPMG • Co‑founder and former finance director and former European CEO at JLL Investec Bank’s property division • Former financial editor of the Rand Daily • Former Group Company Secretary of • Previously COO of the Coronation Group for Metric Property Investment plc, now • Founded the International Capital Group • Founder of Redefine Properties Limited Mail, managing director of Sage Unit Trusts Cater Allen, Jersey LondonMetric Property plc, an income for JLL and Executive Director of Sage Group External appointments: Non‑executive External appointments: Executive Chairman Founding director of Consortia Partnership focused, diversified FTSE 250 REIT Former member of the Collective • Director of Hyprop Investments Limited, AVI External appointments: Non-executive of Redefine Properties Limited. Non‑executive • Limited, a Jersey licensed trust company Investment Scheme Advisory Committee Limited, York Timber Holdings Limited and External appointments: None. Director of Tishman Speyer Properties (UK) Director of Cromwell Property Group, and in South Africa External appointments: Chairman of various private companies and trusts. Limited and APCOA Parking Holdings GmbH. Echo Polska Properties N.V. Bellzone Mining Plc, Non‑executive Director Adviser to UK and European Investments External appointments: Non-executive of RedT Energy plc and Circle Property plc. and EQT Real Estate 1 Fund. Trustee of Director of Redefine Properties Limited, Dementia UK. Chairman of its Investment and Nominations Committee and member of the Remunerations Committee. Non-executive of Rezco Asset Management Limited.
Key to committees:
A Audit and Risk Committee C Corporate Social Responsibility Committee I Investment Committee N Nominations Committee R Remuneration Committee Denotes chair of a committee
All Directors served throughout the year. There were no appointments or resignations. Redefine International P.L.C. Redefine International P.L.C. 66 Annual Report 2017 Annual Report 2017 67 Directors’ report Governance
The Board is collectively Leadership responsible for the Board long term success structure of the Company. composition
The Board Chairman – Greg Clarke F P U E Chairman of the Board since 1 December 2011 Led by the Chairman, the Board is collectively responsible for the long term success of the Company and operates under a formal Responsible for leadership and governance of the Board quarterly schedule of matters reserved for the Board. This ensures that the Company’s strategy and objectives, risks, Group operations, internal controls, policies and debt providers are all reviewed throughout the year. To assist in the effectiveness of its operations, There is a clear division of responsibilities between the Chairman, certain matters are delegated to committees whose roles and duties are outlined in terms of reference set by the Board. The committee who runs the Board and the CEO, who runs the business chairs provide a summary of the committee activities at each Board meeting, advising of any issues or recommendations. Day-to-day management of the Company is overseen by the CEO and the executives, who carry out the strategy established by the Board, 40% Executive Directors within the confine of policies and delegated authorities set by the Board. Day‑to‑day management of Company Each year, four scheduled Board meetings are held, aligned to the financial calendar, and there are four scheduled update calls. Mike Watters Stephen Oakenfull Adrian Horsburgh Donald Grant Four meetings, (four update telephone calls) page 69 CEO Deputy CEO Property Director Chief Financial Officer F P U S E F P U E P E U U F Committee of the Board Independent Committee of the Board Approves ad hoc matters between Board meetings To review any related 40% Independent Non‑executive Directors Subject to authority levels party transactions or matters where a conflict may arise To constructively challenge the executives and represent the interests of the shareholders
Directors – any two Independent Non‑executive Directors – Any three Michael Farrow Gavin Tipper Robert Orr Sue Ford Independent Directors – at least one Senior Independent Director F S U P E U U F Eight meetings page 69 Two meetings page 69 F P U E
Audit and Risk Nominations Remuneration Corporate Social Committee Committee Committee Responsibility Committee 20% Non‑executive Directors Ensures that the Group’s Considers the composition, skills Determines the remuneration Safeguards the interests Representing the Company’s major shareholder – Redefine Properties financial reporting and risk and succession planning of the Executive Directors of stakeholders management is properly of the Board within the approved Marc Wainer Bernie Nackan monitored, controlled remuneration policy and F P U E S S and reported monitors employee pay
Independent Independent Independent Executive Directors Non‑executive Directors Non‑executive Directors Non‑executive Directors Mike Watters (chair) Key to skills: F Finance P Property E Europe U UK listed companies S SA listed companies Gavin Tipper (chair) Greg Clarke (chair) Michael Farrow (chair) Donald Grant Sue Ford Sue Ford Sue Ford Adrian Horsburgh Michael Farrow Gavin Tipper Robert Orr
Four meetings page 74 Three meetings page 70 Two meetings page 78 Three meetings page 48 Composition Gender diversity Average age Board tenure excluding Appointment – Executive Appointment – Non‑executive 9% women <40 – 9% Chairman 91% men 2 years – Donald Grant 2 years – Robert Orr Investment Committee Executive Committee 40‑50 – 9% 3 years – Adrian Horsburgh 3 years – Bernie Nackan 40% Executives 50‑60 – 46% Assesses investment proposals as to whether 20% Non- 4 years – Stephen Oakenfull, 4 years – Sue Ford Day‑to‑day management of the Company 60‑70 – 27% executives Mike Watters 6 years – Greg Clarke, they should progress to the Board >70 – 9% 40% Independent Michael Farrow, Gavin Tipper, Independent Executive Directors Non‑executives Marc Wainer Non‑executive Director Mike Watters (chair) – CEO Robert Orr (chair) Stephen Oakenfull – Deputy CEO Donald Grant – Chief Financial Officer Non-independent Adrian Horsburgh – Property Director Directors Marc Wainer Mike Watters The Investment Committee operates in an informal manner to discuss all The Executive Committee meets informally on a weekly basis to discuss major acquisitions, disposals and capital expenditure. Its recommendations acquisitions and disposals, finance, asset management activities and operational are forwarded to the Board for final consideration. matters, and to consider the status of any potential inside information. Redefine International P.L.C. Redefine International P.L.C. 68 Annual Report 2017 Annual Report 2017 69 Directors’ report Governance Board Scheduled Board meetings/update calls Ad hoc committee meetings Corporate calendar items Non-standard/ad hoc Matters approved operations matters discussed September Board update call
All Board meetings and Board calls during 2017 were attended Board meeting October October by all the Directors. Additional matters were approved by a Year end results and associated items Dividend rebase on EPRA earnings Financial results for year ended 31 August 2016 Committee of the Board which had the necessary delegated Review and approval of budget Foreign exchange rates authority or independence levels to oversee such matters. Confirmation of Directors’ independence Capital Markets Day Evaluation of Board November Compliance Issue of scrip dividend shares
December December Board update call Annual Report VBG sale Board meeting agendas 2017 meetings schedule Management formally report to the Board Meetings Attendance Board meeting January on the following standard agenda items, Review of all policies Strategy providing information seven days in advance Four scheduled quarterly Board meetings All Directors attended all the meetings of Board meetings: Stress test and gearing sensitivities • Management report: Four scheduled quarterly conference calls to All Directors participated in all the calls Capital Markets Day provide operational updates to Directors • report from the CEO; • acquisitions and investments; Eight ad hoc Board meetings responding to Attendance at ad hoc meetings is subject to • disposals; business needs authority levels requiring either a full Board or a March March committee of three Directors, one of which must Board update call Sale of the Observatory, Chatham • portfolio report; and be independent • special projects. Two meetings of independent Directors Attended only by independent Directors • Finance and tax: • financial results; Board meeting April April • banking facilities and derivatives; and For related party transactions, any • Scheme of Arrangement to acquire Interim results and associated items Effects of dividend rebase Shareholder Circular for the Director with a conflict of interest may the minority shareholdings in Leopard Portfolio acquisition(1) • treasury and foreign currency exposure. Review of matters reserved for the Board Maximising earnings be asked to leave the meeting whilst the International Hotel Properties Limited UK Shopping Centre facility agreement • Shareholder and investor relations: matter is discussed and opinion letters (“IHL”), and additional IHL shares from • shareholder information and trading from the Company’s sponsor, ascertaining Redefine Properties. Interim Results statistics; as to whether the transaction is ‘fair and Redefine International and Redefine • reports on shareholders’ views; and reasonable’, are circulated for the independent Properties are both shareholders of IHL June June Directors’ consideration. All related party • shareholder communications. and Mike Watters is a Director of IHL and Board update call Issue of scrip dividend shares transactions will be reviewed and approved by Redefine International. • Marketing: a committee comprising solely of independent • report from Head of Marketing. Non‑executive Directors to ensure that the A Fair and Reasonable letter was obtained Board meeting July matter is given a measure of independent from the Company’s UK sponsors and from • Administrative matters: Mazars, and the transaction was approved Review of Group strategy, objectives and Property cladding assessment oversight. corporate structure • committee reports; by an Independent Committee of the Board Manchester attacks Related Party transactions during the and by IHL shareholders at an EGM held Review of internal controls and risk • corporate governance updates; and Approval of Audit and Risk Committee’s year were: on 15 September 2017. management • corporate governance/administrative Terms of Reference matters. • Acquisition of the controlling interest in the Review of financial strategy Leopard Portfolio from Redefine Properties Limited. Review of marketing strategy Redefine Properties is a major shareholder August of the Company. A Fair and Reasonable (1) letter was obtained from the Company’s UK IHL Scheme of Arrangement sponsors and the transaction was approved by an Independent Committee of the Board (1) Independent committee of the Board. and by shareholders at an EGM held on 25 April 2017. Redefine International P.L.C. Redefine International P.L.C. 70 Annual Report 2017 Annual Report 2017 71 Directors’ report Governance
Board composition The two best candidates were interviewed by The Board has agreed that any Director may, The Nominations Committee started the year the CEO, and separately by the Nominations if necessary in the furtherance of their duties, Nominations by reviewing the size and mix of the Board. Committee. As well as assessing skills and take independent professional advice at the experience, it was important that the new Company’s expense, subject to having first Since 2015 the Board has comprised 11 Director fit into the Board chemistry, as notified the Company Secretary. Any such Directors: the Chairman, four executives, the current Board works well as a team. payment by the Company would, of course, be Committee four independent non‑executives and two The Boardroom culture is good natured subject to any restriction under company law. non‑executives. This composition is not and constructive and relationships between The Company has liability insurance which compliant with the UK Corporate Governance Executive and Non‑executive Directors are covers Directors and officers of the Company Code, and although the Board works well, the good, although Non‑executive Directors are and any subsidiary company of Redefine Nominations Committee was mindful that not afraid to challenge executives during International. The evaluation has identified a strong there was not enough independent oversight meetings. The Chairman and CEO set a on the Board, and was intent on improving the tone of openness and thoroughness which Conflict of interest policy level of independence. However, in 2016 due Board with the necessary cohesion to is upheld by the Board, and Directors hold Directors are not, without the consent of to the pending requirement for a prospectus themselves to a high standard of integrity. in February 2016 to support the capital raise, the Board, to accept any other appointment serve our shareholders. for which a new Director would have taken full Following an in-depth discussion between or enter into any arrangement which might responsibility, it was considered in everyone’s the Nominations Committee and all the reasonably be expected to lead to a conflict best interests that the matter be put on hold. independent Non‑executive Directors to of interest arising. The Nominations Committee was keen to consider the merits of each candidate, a Furthermore, Directors must not hold any address this matter again in 2017. final recommendation will be made to the directorships of any company (other than the Board in the near future. It is hoped that an Before commencing the search for a new Company or a subsidiary of the Company) of announcement will be made to shareholders which any Director of the Company or any independent Non-executive Director, the before the end of the year. Nominations Committee reviewed the mix of its subsidiaries or of the property adviser of the Board to identify any potential area of The appointment of an additional or property manager to the Company (or weakness, to ensure that the Board was fully independent Non-executive Director will any shareholder of such entities) is also a Nominations Committee events during the year equipped to deal with the current strategy improve the level of independent oversight, Director without the prior written approval and any potential challenges ahead. The and will provide an opportunity to review of the Board. Any possible appointments are Date Matters discussed Attendees Committee agreed with the conclusions of last and possibly refresh membership of the discussed with the Chairman to ensure that Committees. Diversity on the Board will also there are no conflicts of interest or that a January • CEO succession All members year’s external evaluation that the Board had be improved, and the Company is confident Director’s independence is not compromised. 2017 • Progress of internal candidates a good balance of skills with a strong industry it will be able to meet its target of one third • Board size and mix focus and deep financial expertise with Directors’ induction sufficient knowledge of the European markets, female membership by 2020. May • Job specification drawn up for new independent Non-executive Director All members An induction afternoon is provided by the and no major skill gaps. 2017 • Quote from recruitment agencies and Robert Orr Appointment terms executive team, which includes an overview July • ZRG Partners LLC present diverse pool of 50 candidates All members Diversity was considered. The Directors All new Non-executive Directors are provided of the historical activities of the Group, 2017 • Shortlist of four selected and Robert Orr number ten male and one female, aged from with a letter of appointment detailing the funding options and providers and property 38 to 74, with a range of different educational details. Further information is provided on the Candidates are interviewed Chairman terms of their appointment and their expected September • backgrounds from the UK, South Africa and 2017 commitment to the role. Non-executive Company’s key business and risks along with New Zealand. Although the Nominations Directors are not appointed for a specified the latest financial information for the Group. October • A shortlist of two candidates are selected All members, ZRG Committee considered there to be a diversity term, but until the Director is either (i) not re- The Company Secretary provides a list of 2017 and Robert Orr of thought, the Board is committed to having appointed following retirement, (ii) removed matters reserved for the Board, the corporate October • Further interviews of the candidates are undertaken and a CEO an appropriate level of diversity which or vacates office, (iii) resigns or does not offer calendar and an overview of the Directors’ 2017 recommendation is made to the Board All members and reflects the nature of the Group’s operations. himself for re-election, or (iv) terminates his obligations for an Isle of Man company with all independent The Committee acknowledged that gender appointment on three months’ notice. a dual listing. Further information is provided Directors diversity and ethnicity was poor. tailored to the needs of each Director. All Directors are expected to attend the Greg Clarke ZRG Partners LLC, which has no prior quarterly Board meetings, quarterly update Meetings with key advisers are set up, as Chair of the Nominations Committee Redefine International is an income focused for the Nominations Committee to be led by connection with the Company, was appointed calls, any committees of which they are required, and tours of the properties are diversified UK-REIT, listed in the UK and the Chairman, Greg Clarke. Two independent to assist with the search for an independent a member and shareholders meetings. undertaken to provide a full overview of the South Africa, with properties in the UK and Non-executive Directors, from the UK and SA, Non-executive Director and instructed to Non‑executive Directors are expected to make Company’s activities. Germany. For such a diversified company, complete the committee, and all members encourage a wide pool of candidates with Appointed Meetings themselves available for a minimum of eight Directors are also provided with details of the it is essential that the Board has the right have significant experience as Directors of experience of Board membership, evidence Greg Clarke MBA, BA (Hons) 25/10/2011 3/3 days per year in the discharge of their duties. Board evaluation undertaken at the end of balance, knowledge and skills appropriate for listed companies and are aware of the skills and understanding of business strategy and Gavin Tipper MBA, CA, Bcom, BAcc 30/07/2014 3/3 the financial year. overseeing the business and, as the Chairman necessary for the operation of a dual listed shareholder value creation with property or Sue Ford ACA, BSc (Hons) 30/01/2014 3/3 is responsible for the leadership and diversified company. property finance expertise. A long list of 50 The Nominations Committee operates within effectiveness of the Board, it is appropriate diverse candidates was drawn up, 14 were terms of reference, a copy of which is available interviewed and four were recommended at the website: www.rdireit.com to be shortlisted. Those shortlisted were discussed at length by the Nominations Committee assisted by Robert Orr, an independent Non-executive Director with a depth of property experience. Redefine International P.L.C. Redefine International P.L.C. 72 Annual Report 2017 Annual Report 2017 73 Directors’ report Governance Accountability Nominations Investor
Committee relations continued
Board evaluation Directors’ re-election The Board endeavours to regularly engage guidelines, but the Board is aware that such January 2018 AGM The 2017 evaluation was performed using an online questionnaire which allowed each Director All Directors will be standing for re-election and communicate clearly with shareholders guidelines differ to those in South Africa and This year’s AGM is due to be held at 11.00am to anonymously evaluate the performance of the Chairman, the individual Board members, the at the AGM on 25 January 2018. The Chairman throughout the year, promoting dialogue advised that it would continue to liaise with on 25 January 2018, at the Company’s new Board operations and its committees. considers that each of the Directors continue with both existing and potential investors South African shareholders on such matters. Head Office at 33 Regent Street, London, to be effective members of the Board, that on Company strategy, management, SW1Y 4NE. The AGM Notice will be sent to The main strengths of the Board identified were: February 2017 Capital Markets Day collectively they hold the requisite range remuneration and governance. The four shareholders on 15 December 2017, more • the diversity of expertise; of skills to enable the Board to operate Executive Directors, who act as the primary A Capital Markets Day was held in February than 20 business days in advance of the • the level of experience; successfully, and the Directors function well contact for institutional shareholders, are which was well attended by both buy side meeting, and will contain all the notes for the supported by the Head of Investor Relations and sell side analysts, reflecting efforts by the • the robust debate; and together as a team. proposed resolutions rather than referencing with Non-executive Directors attending and Company to engage with these audiences. sections in the Annual Report, for the the agility of the Board to respond to situations. It is noted that Michael Farrow and • meeting investors at results presentations and The general consensus on conclusion of all shareholders’ convenience and consideration. Gavin Tipper have both been on the Board All Directors enjoyed Board meetings, which is a key characteristic of a motivated and successful property tours. meetings was that the majority of holders and for six years. Michael Farrow and Gavin Tipper non-holders were supportive of the long-term It should be noted that, following significant team. However, with the uncertainty of Brexit and the UK economy, Directors highlighted Directors are kept informed of investor were evaluated by the rest of the Board as strategy to rebase the dividend in exchange for opposition to certain resolutions at the that, for the year ahead, more focus and time should be spent on the points listed below. relations through a quarterly report and being either good or outstanding Directors a higher growth outlook and stronger balance 2017 AGM, the executives have liaised with Disappointingly, these are broadly the same points as raised at last year’s external evaluation, timely updates. They are provided with and were considered to spend sufficient time, sheet whilst still maintaining a top quartile South African investors. The routine request although action has already been taken to address many of these points: analyst coverage of the Company and any and were committed to their roles as Directors dividend yield. There was some concern authorising Directors to allot up to one third feedback received from investors. In addition, Long term Long term decision making is to be addressed with strategy days planned for next year. of the Board and as chairs of committees. about how the Company would balance of the existing issued share capital and a shareholders are invited to directly contact further one third for pre-emptive rights issues, strategic The Chairman therefore recommends all the reduction of LTV, whilst maintaining a the executives to raise any matters, opinions has subsequently been reduced to a general decision Directors for re-election at the AGM on sufficiently strong dividend yield to ensure the making or issues of concern with the Company and authority to allot 20 per cent of the Company’s 25 January 2018. Company’s shares remain attractive. Caution are encouraged to attend the AGM to put any current issued share capital, of which half, it is Thorough Risk governance has been a strong focus for the Audit and Risk Committee meetings during and concern was also raised around Brexit, questions to the Board, in person. proposed, could be issued in cash. This level is risk analysis the year. Full details of their review and findings were presented at the October Board meeting Re-election of independent Directors and the Company will endeavour to provide and will continue to be presented to the Board on a six month basis going forward to ensure The interests of each of the independent January 2017 AGM information regarding how this issue is being more in line with South African guidelines, and that the Board, as well as the Audit and Risk Committee, have a full overview of risks. addressed. The event was seen as a success the Board hopes that shareholders will now be Directors are monitored to ensure that The AGM was held on 23 January 2017 their position is not compromised and are and there was appetite for the Company to supportive of all resolutions at the 2018 AGM. Shareholders The work of the CSR Committee is now finding momentum and, as it becomes embedded into at the Company’s head office in London. host similar events in the future. and everyday operations, will improve and increase importance in 2018, the road map for which checked each year against the requirements Approximately 70 per cent of all shareholders Website and app stakeholders can be found on page 59 of the Annual Report. of the Code, to ensure their independence is voted but it was noted that a significant April 2017 EGM To enable the effective distribution of still valid. amount of shareholders, particularly on the Board Board composition will be improved with the appointment of a new Independent An EGM was held on 25 April 2017, in information to investors, all communications The Chairman is satisfied that Michael Farrow, JSE register, voted against four resolutions, composition Non‑executive Director enhancing independence and diversity on the Board. Composition will connection with the proposed acquisition and related presentation materials are Gavin Tipper, Sue Ford and Robert Orr namely: the new Remuneration Policy (20.09 continue to be reviewed. of the controlling interest in the German published on a timely basis on the website, remain independent in both character and per cent), the general Directors’ authority to supermarket portfolio. The EGM was called which has been improved to promote ease Succession The Nominations Committee has been primarily focused on succession planning for the CEO. judgement and adhere to the independence allot shares (20.56 per cent); the disapplication Mike Watters was CEO of the management company from 2008 and, following internalisation on 14 days’ clear notice in accordance with of use: www.rdireit.com criteria of the Code. of pre‑emption rights limited to a five per cent of management, became the CEO of Redefine International in 2013. The possible retirement the Company’s Articles of Association due to issuance of shares for cash (19.54 per cent) An investor relations app is now or departure of such a long standing employee obviously is a large risk to the Company and Their biographical details can be found on the transaction being time sensitive and the available to deliver easily accessible the Chairman has been personally managing the development of the Deputy CEO, Stephen and a further five per cent issuance of shares pages 62 to 65 and are contained in the AGM Board was mindful that any delay could cause information on day‑to‑day operations Oakenfull, involving mentoring, arranging external residential management development for cash in connection with a specified Notice of Meeting. transactional risk. 59 per cent of independent programmes and increased external networking. investment (21.10 per cent). The proposed and business performance. shareholders voted, with shareholders voting A succession plan of internal candidates has been drawn up by management, and a authorities were in line with current UK overwhelmingly in favour of the proposal. presentation by the pipeline candidates will be given to the Non-executives next year so they Greg Clarke are able to meet and question the potential successors to the executives. Chair of the Nominations Committee 26 October 2017 Key investor events held: Directors’ training 7 – 8 September 2016 EPRA conference – received EPRA most improved 1 March 2017 Jeffries Property Panel to debate Income vs Growth As part of the evaluation, each Director was assessed by the rest of the Board. The Chairman financials award and presented on the mid-cap UK panel 26 April 2017 2017 Half Year Results Announcement discussed the results with each Director. Any training and development needs were identified 30 September 2016 Property day focused on Berlin and Hamburg assets 27 – 28 April 2017 2017 Half Year Results Roadshow – UK and Directors were encouraged to update their skills, knowledge and familiarity with the with South African investors 5 – 6 June 2017 JPM Amsterdam Roadshow Company to fulfil their roles on the Board. 27 October 2016 2016 Full Year Results Announcement 20 – 21 June 2017 Germany property site visit hosted by Instinctif for Advisers and managers may be asked to present at meetings to provide Directors with detailed 27 October – 2016 Full Year Results Roadshow – UK South African investors 4 November 2016 (including Scotland) information relating to the Company. Property tours are undertaken to enable Directors to view 6 – 7 September 2017 EPRA conference 11 January 2017 JPM European Real Estate CEO Conference the Company’s assets and discuss matters directly with the responsible asset manager. 12 September 2017 JP Morgan Mid Cap Conference 23 January 2017 AGM At each Board meeting, Directors are kept abreast of changes to regulatory rules and corporate 26 October 2017 2017 Full Year Results Announcement 6 February 2017 Capital Markets Day in UK and live webcast governance matters and any concerns or developments regarding, inter alia, insurance, health 26 October 2017 – 2017 Full Year Results Roadshow – SA and UK and safety, sustainability, bribery and whistleblowing, cyber security and the Modern Slavery Act. 7 – 20 February 2017 Strategy and Pre-close Roadshow – SA and UK 3 November 2017 Redefine International P.L.C. Redefine International P.L.C. 74 Annual Report 2017 Annual Report 2017 75 Directors’ report Accountability Audit and Risk Committee (the “Committee”)
The terms of reference under which the Audit and Risk The Committee comprises three independent an effective risk management process in place. Monitoring Non-executive Directors, who are considered Details of the principal risks facing the Group • REIT compliance; to have the necessary skills, knowledge and are set out on pages 16 and 17 and in note 34 the level of non‑audit services provided by Committee operates, were updated and approved by the professional qualifications to understand to the financial statements. • the external auditor; the financial complexities of the Company’s Board in July 2017. These take account of the changes The Committee held four meetings during • cyber risk and security; business, the applicable accounting standards the financial year, aligned to the Company’s reports from the JSE addressed to Audit incorporated in the 2016 UK Corporate Governance Code, and regulatory framework and who, as a financial reporting and risk management cycle. • Committee chairs; and whole, have experience of working in the Committee packs are sent out seven days the FRC guidance and the revised ethical standards. property sector in which the Group operates. in advance of meetings to allow members • compliance with statutory and listing • Gavin Tipper is a Chartered Accountant time to properly consider the matters to obligations. with over 25 years’ financial experience in be discussed. Independent external advice Assurances listed and unlisted companies, including may be taken by the Committee if required, property companies; although none was sought this year. Time is • met with independent property valuers to discuss the valuation processes • Sue Ford is also a Chartered Accountant provided during the year for the Committee to meet privately with both the external and applicable to selected property portfolios with over 30 years of financial experience and considered the appropriateness of Audit and Risk Committee events during the year and was a co-founder and, until 2013, internal auditors, without the executives or management being present, to discuss any the assumptions underlying the property Date Matters discussed Attendees the finance director of Metric Property valuations; and Investments, a UK-REIT focused on the potential issues or concerns. October Report from management The Committee • received and reviewed reports from • retail sector of commercial real estate; and All meetings were attended by the Committee 2016 Consideration and review of the Financial Results for year ended the Group’s Chief Financial Officer and • CEO members, the Chief Financial Officer and 31 August 2016 • Michael Farrow is a Chartered Secretary Financial Controller relating to the various Deputy CEO with 30 years’ experience who has worked representatives of the auditors. Valuers • Presentation from Strutt & Parker, valuers of the UK shopping centres assurances provided by the committee. CFO in a number of listed and private property attended two meetings to discuss the • Presentations from management, explaining the procedures undertaken to ensure applicability of annual attestations and to Financial Controller companies. processes undertaken in determining the Recommendations to the Board confirm that the results were fair, balanced and understandable market values of selected portfolios at each External Auditor The terms of reference under which the Audit • the dividend; Presentation by internal auditor on the results of the reviews reporting date. The valuers for the UK and • Internal Auditor and Risk Committee operates were updated the Annual Report as a fair, balanced and performed German shopping centre portfolio were • Valuers and approved by the Board in July 2017. These understandable assessment of the Group’s • Presentation by external auditor on the results of the audit for the year invited to attend this year. ended 31 August 2016 take account of the changes incorporated in financial position and results for the the 2016 UK Corporate Governance Code, During the year the Committee reported • Review of external auditor effectiveness and consideration for financial year; reappointment against which the Company is reporting this to the Board at each Board meeting on its • the interim and annual financial • Consideration of viability and going concern statements year, and the FRC guidance and revised ethical responsibilities: statements, the accounting policies used, Consideration of dividend standards published earlier this year. • Audit plans and the appropriateness of the related The terms of reference outline the role of judgements and estimates; January • Presentation of interim review plan by external auditor The Committee • the Committee met with the external 2017 Consideration and approval of external audit fee the Audit and Risk Committee relating to • CFO auditor at the audit planning and reporting • the Group’s viability statement, including the interests of shareholders regarding Gavin Tipper Financial Controller stages to consider and discuss the audit the appropriateness of the underlying financial reporting, internal controls and risk Chair of the Audit and External Auditor strategy and plan, the results of the audit methodology, assumptions and stress tests management. The Committee also seeks to work undertaken and areas of significant applied (refer to page 17); Risk Committee April • Report from management The Committee provide the Board with assurance regarding complexity, judgement or uncertainty; and • the appropriateness of the application 2017 • Consideration and review of the Interim Results for the six months CEO the efficacy and reliability of the financial ended 28 February 2017 • the Committee approved the internal of the going concern concept (refer to CFO information used by the Directors in the page 92); and Appointed Meetings • Presentation by Savills, valuers of the German Shopping centre discharge of their duties, and to comment on auditor’s risk based audit plan for the portfolio External Auditor the re-appointment of the external auditor. Gavin Tipper MBA, CA, Bcom, BAcc 28/06/2012 4/4 associated risks. financial year and the related audit fee. • • Presentations from management, internal and external auditors Internal Auditor Michael Farrow FCIS, MSc 23/08/2011 4/4 • Review of governance matters and applicable policies Valuers The Committee is responsible for monitoring Reviewing effectiveness Sue Ford ACA, BSc (Hons) 30/01/2014 4/4 • Update of finance information technology developments the effectiveness of internal controls, the • of the external and internal auditors; Consideration of dividend internal and external auditors, the provision • • of internal controls, particularly financial The Audit and Risk Committee operates within of non-audit services and the independence July • Report from management The Committee controls, and confirmed to the Board that terms of reference, a copy of which is available of the external auditor. It is also responsible 2017 • External auditor presentation of strategy and plan for the year-end audit CEO they remained appropriate; at the website: www.rdireit.com for reviewing and assessing the integrity of • Review of key areas of judgement and uncertainty CFO the risk control systems, for ensuring that risk • of the systems of risk management; and • Presentation of findings from risk review process Financial Controller policies and strategies exist and that there is • of the Group’s whistleblowing and • Internal controls review External Auditor anti‑bribery policies. • Consideration of the effectiveness of internal audit Internal Auditor • Approval of 2018 internal audit plan Redefine International P.L.C. Redefine International P.L.C. 76 Annual Report 2017 Annual Report 2017 77 Directors’ report Accountability Audit and
Risk Committee continued
Significant areas of judgement Fair value of restructured liabilities Risk management review Report on internal controls and In assessing the effectiveness and level In recommending the financial statements New borrowings or existing borrowings A Risk Register has been established which effectiveness of internal audit of service from the external auditor, the to the Board, the Committee assessed which have been substantially modified are aggregates the Group’s significant risks from The internal auditor reported to the Committee considered KPMG’s knowledge whether suitable accounting policies had been recognised at fair value. The determination its various divisions and corporate functions. Committee at each of its meetings, with the of the market and Group, the depth of adopted and whether management had made of fair value involves the application of The threshold for a risk to be determined as main areas of focus during the year being understanding of the key accounting and audit appropriate estimates and judgements. The judgement with the key judgement involving “significant” was established as being either liquidity forecasting, risk management, judgements, the extent to which the audit Committee considered areas of judgement an assessment of whether the transaction a risk carrying a potential impact of five per capital expenditure, human resources and plan was carried out, input from management when assessing classification, provisioning price equates to fair value, and if not, what the cent or greater of the Group’s distributable compliance. and the content of the auditor’s reports to the and the appropriateness of inputs used in market price should be. During the year the earnings; or a risk with the potential to expose Committee. The Committee was satisfied with With the appointment of a dedicated in-house arriving at fair value. The following matters are Group refinanced its Aviva UK shopping centre the Group to reputational damage. The risks the effectiveness of the external audit. resource and the appointment of Grant examples of the complex areas of estimation facility and it was determined that a significant as reflected in the risk register were reviewed, Thornton as internal auditor last year, the The Committee monitored the ratio of audit and judgement considered by the Committee modification had occurred. Judgement was challenged and analysed to highlight any internal audit framework within the Company to non‑audit services, and related fees and the during the year. applied to determine whether the contractual significant shifts in the Group’s risk profile. has improved. level of non‑audit services and fees incurred rate on the refinanced debt represented In comparison to last year key changes were: during the year was compliant with the Valuation of investment property a market rate and if not, what observable The internal auditor tracks the issues to be • political and economic uncertainty resulting Company’s policy in that regard. Investment property valuations are the most market rate should apply having regard to resolved, and ensures that they are suitably from Brexit, leading to potential volatility in The Committee is satisfied that KPMG significant judgement in the Group’s balance the term, duration and security arrangements addressed within an agreed timeframe. share prices and valuations; is independent, and recommends the sheet and changes to valuations can impact in place. The Committee concluded that re‑appointment of KPMG at the Company’s materially on financial performance. Property the approach taken by management was • higher expectations on inflation and a Effectiveness, independence and AGM on 25 January 2018. valuations require significant judgements reasonable and that the transaction price consequential impact on interest rates; appointment of the external auditor KPMG was appointed via a tender process and estimates and are based on assumptions was not a market price and that sufficient • changing consumer behaviour and the Audit fees including estimated rental values, future rental observable inputs were available. impact on rental income, tenant default, in 2010 and has expressed their willingness The following fees were paid to KPMG during income, anticipated maintenance costs and and valuation on the retail portfolio; to remain in office. The Committee intends the year, and are included in net operating future development costs and market yields. Taxation • development risk due to delays and the to put the audit out to tender during 2018, which aligns with the scheduled rotation of income in the Group income statement: The conclusion of the Committee was that: The Committee satisfies itself as to the resultant impact on returns; the audit partner. judgements applied in the calculation the type of cladding and insulation • the valuation processes, which included • Year ended Year ended of any provisions for taxation where materials in place, following the Grenfell The Committee has undertaken its annual 31 August 31 August the use of external valuers, appeared to be final determination of the amounts was disaster; review, with the auditor, of any threats to 2017 2016 thorough and meticulous; outstanding. £m £m tax risk arising from enquiries or changing its independence and has concluded that • the assets were valued on a highest • Audit fees 0.4 0.4 legislation (BEPS and new tax evasion the auditor may continue to be considered and best use basis, consistent with Total 0.4 0.4 legislation); as independent. prior periods; Non‑audit fees key person and key supplier risk; In this regard KPMG has informed the the assets were valued using reasonable • Reporting accountant • Committee of all significant facts and estimates and professional judgements; • potential terrorist action; and under Listing Rules(1) — 0.3 matters, including those related to the and an improvement in the outlook for Europe, Total 0.4 0.7 • provision of non-audit services, and the reducing the risk of adverse foreign • the assets were valued on a basis which safeguards it has in place to maintain its (1) Required for the AUK acquisition and related currency fluctuations. took account of comparable market independence, which it considers may capital raise. transactions. impact on its independence, and the objectivity of the main audit partner on the Gavin Tipper team. KPMG undergoes regular reviews Chair of the Audit and Risk Committee of the composition of the audit team, 26 October 2017 including rotation in accordance with relevant regulations. Redefine International P.L.C. Redefine International P.L.C. 78 Annual Report 2017 Annual Report 2017 79 Directors’ report Remuneration – unaudited Directors’ remuneration 2017 remuneration at a glance
A new remuneration policy for the Executive Directors was approved by shareholders at the 5% 121.9% of salary 0% 2017 AGM: No changes have been proposed to One special award of 15% (40% paid in deferred shares) Vesting the executive remuneration policy this year. Salary increase Bonus LTIP vesting
Awarded 1 September 2016 Awarded for the performance period Awarded for the three year performance 1 September 2016 – 31 August 2017 period ended 31 August 2017 Employee increase 6.3% Maximum award 150% of salary: Based on the policy approved at the 2015 AGM • 45% Underlying Distributable Earnings; Company’s TSR measured against: • 45% NAV growth; • a bespoke peer group TSR; and Remuneration Committee events during the year • 22.5% cash flow; and Effective • the FTSE EPRA/NAREIT Event Result 37.5% Personal objectives. date • Developed Europe Index. 31 August • Performance period ends for the first • 0% vesting (as explained on page 70 of the 2016 executive awards made under the 2016 Annual Report) 2013 long term incentive plan (“LTIP”) Executive single total figure of remuneration for 2017 and Remuneration Policy approved by shareholders at 2015 AGM Total remuneration received 1 September • Review of 2017 salaries for executives • Executives: salaries adjusted as discussed on for year ended 31 August 2017 2016 and senior management page 70 of the 2016 Annual Report Mike 1 September • Review of 2017 Non-executive Director • Non-executive Director fees adjusted as £948,059 2016 fees discussed on page 70 of the 2016 Annual Report Watters 17 October • Appointment of Deloitte as advisers to • Replacement of Willis Towers Watson, who 2016 Remuneration Committee had served as the Company’s remuneration Stephen consultants since 2013 £650,302 Oakenfull 20 December • Award of 2016 bonuses for executives • Executive 55% bonus paid in cash, as discussed 2016 and senior management on page 70 of the 2016 Annual Report
23 January • New Remuneration Policy recommended • Approved by 79.91% of shareholders Adrian 2017 to shareholders at the 2017 AGM £594,804 Michael Farrow Horsburgh 25 January • Grant of 2017 contingent awards under • Award made to executives equivalent to Chair of the Remuneration Committee 2017 the Remuneration Policy approved by 200% of salary, based on the performance shareholders at the 2017 AGM period 1 September 2016 – 31 August 2019. Donald £550,980 25 January • Board considers Non-executive Director • All committee chairs to be paid £50,500 from Grant Meetings 2017 fees for committee chairs 1 December 2016, to acknowledge their time Appointed attended commitment Michael Farrow FCIS, MSc 23/01/2013 2/2 £ 31 August • Performance period ends in respect of • 0% vesting, for the second year running 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 Sue Ford ACA, BSc (Hons) 10/09/2015 2/2 2017 the 2014 awards made under the 2013 Robert Orr MRICS, BSc 23/04/2015 2/2 LTIP and Remuneration Policy approved Actual salary paid Annual bonus payable in respect of the financial year Pension Taxable benefits by shareholders at 2015 AGM The Remuneration Committee operates within Review of 2018 salaries for executives Executives: 4% increase terms of reference, a copy of which is available 1 September • • Read more on Single figure 2017 and senior management at the website: www.rdireit.com remuneration on page 86 1 September • Review of 2018 Non-executive Director • 2% – 4.5% increase. Aggregate fees £389,000, 2017 fees within the £420,000 fees permitted in the Articles of Association 1 September • 2017 bonus award • Executives: 121.9% bonus (60% of which 2017 will be paid in cash in December 2017, 40% awarded in shares deferred for two years to be settled in September 2019) Redefine International P.L.C. Redefine International P.L.C. 80 Annual Report 2017 Annual Report 2017 81 Directors’ report Remuneration – unaudited Directors’ remuneration continued
Annual statement by the Remuneration for the 2017 LTIP Contingent award: awarded 2017 Executive performance 2017 financial year for the three year performance period from Chairman of the Remuneration 1 September 2016 to 31 August 2019. Weight 2017 Committee (“RemCo”) 2017 Performance: the table overleaf shows of award performance Link to how the executives have implemented the Contingent awards, equivalent to 200 per cent Bonus KPI (Maximum 150%) achieved Actions taken by executives during the year strategy(1) For the year ended 31 August 2017 strategic priorities as detailed on pages 14 and of salary, were made to each of the executives Higher earnings 45% 50% • Capital was recycled into assets with stronger potential growth or used to lower (not subject to audit) 15 of this Annual Report, and how their on 25 January 2017. These will be subject to the the level of gearing and associated finance costs, which has strengthened the actions reflect on the bonus targets. (budget met) Introduction performance criteria set out in the New Policy balance sheet and capital structure. 2017 Salary: awarded 1 September 2016. approved at the 2017 AGM and will, subject to • Newer assets have delivered significant value. The AUK assets have seen On behalf of the Board, I am pleased to performance, vest on 25 January 2020. 6.2% valuation growth and 7.2% growth in triple net income since their present the Directors’ remuneration report The average salary increase for employees acquisition in 2016. for the year ended 31 August 2017. It should for 2017 was 6.3 per cent. A 15 per cent salary 2017 Single figure remuneration: the • Asset management activities targeting our best performing assets. be noted that as an Isle of Man company, increase was awarded to the Deputy CEO to total remuneration package received for Demonstrated through the potential development of Charing Cross Road, Redefine International is voluntarily reporting bring his salary closer to that of the CEO and the 2017 resulted in the executives’ total London and extensions at Banbury Cross Retail Park and Holiday Inn under the UK regulations in order to provide to recognise his increased responsibilities salaries remaining in the lower quartile of the Express Southwark. transparency to our shareholders. within the executive team. All other executives FTSE 250. On average, the executives received Growth in NAV 45% 100% • Disposals totalled £148.2 million during the year, at an average 12.2% premium 56 per cent of target remuneration outlined in to book value. Properties sold tended to demonstrate weak longer term growth received a 5 per cent increase which, although (120% of budget potential, thus strengthening the underlying property fundamentals of the 2017 Policy: New Executive above inflation, still resulted in their salaries the implementation scenario within the 2014 achieved) portfolio. Remuneration Policy approved by being in the lower quartile of our peer group. Annual Report. shareholders on 23 January 2017 • Active recycling of capital into assets demonstrating stronger property 2017 Bonus: awarded for the performance fundamentals. At the start of the financial year, the RemCo 2017 Non-executive Director fees period 1 September 2016 – 31 August 2017. On 1 September 2016, Non-executive • Focusing on assets in geographical locations with the best growth potential. concluded that the executive remuneration Demonstrated with the IHL acquisition where properties are located in the Directors received a fee increase of £3,000 package, but particularly the outcome of the Due to redressing the balance between long South East of England or big six UK centres. LTIP, did not correctly reflect the executives’ and short term compensation, the maximum and the Chairman received an increase in Re-financing activity has seen the average cost of debt reduced to 3.1% (from executive bonus has increased from fee of £6,500. These awards were made in Stronger operating 22.5% 100% • performance nor did it align with shareholder cash flow 3.4% in 2016, resulting in a significant finance cost saving). 100 per cent to 150 per cent of base salary. recognition of increased responsibilities (120% of budget returns achieved over the same period. Internal cost of capital reduced with stronger dividend cover and headroom on following the completion of AUK transaction, achieved) • A strategic review of the remuneration policy Having exceeded the targets set for cash flow, operational cash flow. and the substantial augmentation of the was therefore undertaken. NAV and achieving the target for earnings, the • Maintained headroom over operational cash flow to invest in asset management executives have been awarded a cash bonus Company. This resulted in the standard A new remuneration policy for the Executive initiatives to grow value. of 121.9 per cent of base salary. Of the award, Non-executive Director fee being £43,000, Directors was recommended and approved by • More flexible capital structure has allowed the Group to apply available cash 60 per cent will be settled in cash immediately although the Audit and Risk Committee chair reserves against revolving credit facility to achieve lower ratcheted margin 79.91 per cent of shareholders at the AGM on with 40 per cent deferred for two years, was paid £50,500 and the Remuneration throughout the year. 23 January 2017 (the “New Policy”) and applied subject to continuous employment in the Committee chair was paid £48,000 to • Extended debt maturity profile following refinancing initiatives removing to all remuneration components awarded Group, and to be settled in shares. The bonus recognise their additional time commitments. refinancing risk with no significant maturities until 2020. after that date. The New Policy will remain award is in line with in the lower quartile of Following the review of the remuneration Personal objectives 37.5% 85% • Leadership: at the Capital Markets Day held in February 2017, the Company in place for the next three years unless any outlined clear and measurable medium term targets and the executives have the FTSE 250, where the Company is currently policy by the RemCo and the work undertaken (at RemCo’s material changes are proposed. No changes demonstrated conviction in executing and delivering on all targets throughout positioned. discretion) have been proposed to the executive by the Investment Committee for the AUK the year. transaction, the Board wished to acknowledge remuneration policy this year. 2017 LTIP vesting: for the three year • Communication with shareholders: the increase in responsibilities, significant performance period ended 31 August 2017. • extensive UK and South African road shows and to meet, explain and listen A summary of the New Policy can be found time commitment shared by all the committee The performance period for the award related to major shareholder views; on pages 84 to 85. chairs and resolved that the fees of all to the three years ending 31 August 2017 and • positive investor and analyst feedback following simplification of strategic committee chairs be brought in line. From objectives, clear communication, and no surprises in full results; and was subject to the historic TSR performance 1 December 2016, all committee chairs have • active engagement with investment market as demonstrated by the quantum conditions. The outcome of the LTIP award been paid £50,500. of capital recycling completed and premiums to book values achieved. has again resulted in nil vesting. • Communication with stakeholders: CSR initiatives undertaken to engage with Although these increases were above market communities and tenants, GRESB improvement and all suppliers required to norm, the fees for the Non-executive Directors abide by our code of ethics. and chairs remained in the lower quartile of • Loyalty of staff: a desirable working culture and environment has been the FTSE 250. developed, demonstrated by a low staff turnover and a positive employee survey outcome.
Income focused portfolio Efficient capital structure Financial discipline Scalable business (1) See page 14. Redefine International P.L.C. Redefine International P.L.C. 82 Annual Report 2017 Annual Report 2017 83 Directors’ report Remuneration – unaudited Directors’ Policy report remuneration on remuneration (Not subject to audit) continued
Statement of implementation 2018 LTIP vesting: relating to the three year Non-executive Director remuneration Remuneration Policy for the Chairman and Non‑executive Directors of remuneration for the performance period ending 31 August 2018. The table below shows the fee structure for Remuneration comprises an annual fee for the Chairman and for Non-executive Directors. Additional fees may be given at the discretion of the 2018 financial year The awards made on 28 October 2015, for Non-executive Directors for 2018. Board, for specific roles such as the chair of the Audit and Risk, Remuneration and Investment Committees. All fees are paid in Sterling. Set out below is a summary of the planned the performance period 1 September 2015 to implementation of the remuneration policy 31 August 2018, will vest on 28 October 2018. 2017 fees 2018 fees Component Purpose Operation Maximum potential value Termination for the financial year ending 31 August 2018. Chairman of the Board £94,500 £98,000 These awards are the last awards subject Annual fee A fixed market competitive fee to The Remuneration Committee Fees of the Non‑executive Directors Directors are not appointed for a 2018 Salary: awarded 1 September 2017. to the old policy performance conditions, Audit and Risk Committee attract and retain non‑executives of reviews the fees periodically (other than alternative Directors) specified term but are appointed approved by shareholders at the 2015 AGM. chair fee £50,500 £52,000 sufficient quality to constructively compared with a peer group, are determined by the Board, for a term which expires when 2017 2018 This required the attainment of certain targets, Remuneration Committee challenge the executives in taking into account the time spent, provided that such sums do not either the Director is (i) not chair fee £50,500 £52,000 delivering the Group’s strategy. company size, ownership, sector, exceed in the aggregate £420,000(1) re‑appointed following retirement Mike Watters £391,000 £406,600 each weighted at 50 per cent, relating to the performance of the Company’s TSR against Investment Committee risk and other company specific or as the Company may by ordinary in accordance with the Articles of Stephen Oakenfull £278,100 £289,200 factors. Its recommendations are resolution approve. Association; (ii) removed or vacates the TSR of two comparator groups namely, chair fee £50,500 £52,000 Adrian Horsburgh £253,100 £263,200 then presented to the Board for office; (iii) resigns or does not offer (i) a bespoke peer group TSR and (ii) the FTSE Basic non-executive fee £43,000 £45,000 final approval. themselves for re‑election; or Donald Grant £235,200 £244,600 EPRA/NAREIT Developed Europe Index. (iv) terminates their appointment It is acknowledged that Non-executive Director on three months’ notice. There to be awarded Average salary increases of 4.6 per cent 2018 Contingent LTIP Award: fees remain below market average. Increases is no provision for loss of office have been awarded to employees for for the three year performance period ending take effect from 1 September 2017. Aggregate payments. 2018, which was arrived at using a base 31 August 2020. fees for seven Non-executive Directors (1)It should be noted that a resolution will be proposed at the AGM on 25 January 2018 to increase the limit of fees to £500,000. inflationary adjustment of +2.5 per cent with Executive Directors will receive an LTIP amounts to £389,000. additional increases awarded to recognise award over shares worth 200 per cent of The Non-executive Directors do not receive remuneration other than fees but are entitled to be paid all reasonable travelling, hotel and other extra responsibilities, progress made in The Nominations Committee has reported expenses properly incurred in attending meetings of the Board, committees of the Board, general meetings or otherwise in connection with the salary, with the relevant performance targets on its search for a new independent professional exams and changes in roles. being based on underlying distributable business of the Company. Taking this into account, and a review Non-executive Director. It is hoped that an earnings per share (50 per cent), relative appointment will be made before the end of Letters of Appointment of relevant market data, the executives were TSR (25 per cent) and relative total property the year, which will result in aggregate fees for Each Non‑executive Director has a Letter of Appointment, the terms and conditions of which are available for inspection at the Company’s all awarded a 4 per cent increase. return (25 per cent) all measured over a the Non-executive Directors totalling £434,000 registered office. 2018 Pension and benefits: Company three year performance period. These p.a. This exceeds the current £420,000 pension contribution remains at 12.5 per cent measures are intended to align the awards aggregate limit set out in the Articles of Remuneration policy for the Executive Directors with the Company’s strategic objectives and of salary for the CEO and 9 per cent of salary Association and therefore a resolution will be The key principles of the executive remuneration policy are to attract, retain and motivate to ensure the long term success of the Company. with shareholder interests. In particular: (a) for other Executive Directors. Other benefits proposed at the AGM on 25 January 2018 to Performance measures and targets for incentive awards are selected so as to provide alignment with our key strategic goals. A summary of the EPS measure is designed to incentivise comprise life assurance, private medical amend the limit of fees to £500,000 p.a. the elements of the executive remuneration policy is shown overleaf. insurance, car allowance (CEO only), incapacity distribution growth to shareholders; (b) the benefit, season ticket allowance and Directors’ relative TSR measure (retained from the Annual General Meeting and officer’s insurance. previous policy but with a reduced weighting) The full remuneration report for the financial measures the total shareholder return of the 2018 Annual bonus: to be awarded for year ended 31 August 2017 can be found on Company against an appropriate index, and the performance period 1 September 2017 – pages 86 to 91. provides a direct link between shareholder 31 August 2018. returns and compensation; and (c) the relative The RemCo recommends the remuneration Executive Directors can be awarded a bonus total property return measure is designed report to shareholders and hopes that of up to 150 per cent of salary. This is based to incentivise the enhancement of portfolio shareholders will support the resolution on underlying distributable earnings (45 per quality and distribution growth. Targets for at the AGM on 25 January 2018. cent), adjusted NAV growth (45 per cent), these measures are set out on page 89. operating cash flow performance (22.5 per Michael Farrow cent) and personal objectives (37.5 per cent). Chair of the Remuneration Committee 40 per cent of any award made will be subject 26 October 2017 to a two year deferral period, to be settled in shares. The targets for financial measures are deemed to be commercially sensitive. However, retrospective disclosure of the targets and performance against them will be provided in future remuneration reports. Redefine International P.L.C. Redefine International P.L.C. 84 Annual Report 2017 Annual Report 2017 85 Directors’ report Remuneration – unaudited Policy report on remuneration continued
Summary of the Executive Remuneration Policy, approved by shareholders at the AGM held on 23 January 2017
Component Purpose Operation Maximum potential value Applicable performance measures Claw back Exit payments
Base salary A fixed market Normally reviewed annually with changes effective 1 September. No maximum salary is set. None None Termination of the service contract can be given by either party competitive However the Company is under no obligation to award an increase Increases are dependent on the results of the by way of notice in writing for a period not exceeding 12 months. remuneration following the review. annual review, and are normally in line with the Payment may be given in lieu of notice, subject to the Company’s base to attract and average increase for the wider work force, inflation sole and absolute discretion, up to a maximum of one year’s retain executives of and market data. However, increases may be made basic salary. There is no provision in the contracts for loss of sufficient quality to above this level at the RemCo’s discretion to take office payments, other than those required by employment law. deliver the Group’s account of individual circumstances such as an strategy. increase in scope and responsibility or to reflect the individual’s development and performance in a role or for alignment to a market level. Pension Part of the overall The Company contributes monthly to the Directors’ personal pension The Company contributes between 9% and 12.5% None None Payments would cease on the leaving date. package providing plans. At the Company’s discretion, a cash allowance of equivalent value of their base salary. comprehensive may be offered. Values vary by Directors and are remuneration and reviewed periodically. retirement benefits. Other benefits Part of the overall • Life assurance As the costs of providing benefits will depend on a None None All benefits would cease on the leaving date. package providing • Private medical insurance Director’s individual circumstances, the RemCo has comprehensive • Incapacity not set a monetary maximum. remuneration. • Season ticket allowance • Directors’ and officers’ insurance • Car allowance • Other benefits may be provided as appropriate Bonus – STIP A short term incentive Performance will be assessed in line with specific KPIs, 75% of the Designed to offer an annual bonus of between 0% to KPIs are based on: The deferred shares are If the employment of an executive is terminated for any reason to reward executives award will focus on financial measures and 25% on personal objectives. 150% of the executives’ base salary. Payable in cash • 15% operating cash flow; subject to a two year deferral or if he is under notice of termination (whether given by the on their personal The purpose of the personal objectives is to encourage leadership, and deferred shares. period conditional only upon executive or the Company) at or before the date when a bonus 30% underlying distributable earnings; performance and loyalty of staff and to communicate with stakeholders, particularly • continued employment might otherwise be payable, he will have no right to receive a 40% of award to be settled in shares, subject to a • 30% adjusted NAV growth; and the Company’s shareholders, in a transparent manner. two year deferral period. (subject to the RemCo’s bonus or time apportioned bonus, save that the RemCo will have performance in line • 25% personal objectives. discretion such as in the event discretion to award a time apportioned bonus to a Good Leaver An executive is entitled to dividends on shares under with shareholder The financial KPIs (1‑3) are calibrated according to the level of of long term illness or death). for the year of cessation. the STIP award which will accrue over the deferral returns. budget met: period and will be paid on vesting. • Less than 90% budget – nil; • Meeting budget – 75%; and • 120% of budget – 150%. LTIP award A long term incentive Structured as a rolling annual award of performance shares with a • The aggregate number of shares which may be Awards will vest at the end of a three year period dependent on the In circumstances where If the executive leaves employment of the Company other than to align the executives’ three year performance period. awarded may not exceed 23,000,000 over the following performance conditions: an error has been made as set out below, the award will lapse or cease to be exercisable interests with those of Awards are granted as: ten year life of the LTIP. • 50% of the award is to be linked to underlying distributable earnings in determining the extent on the leaving date. the shareholders and • Individual awards in any financial year shall not be per share. 25% of the award will vest upon attaining earnings per to which the performance • nil cost options to acquire shares; or If the executive leaves employment for reasons such as ill to promote the long greater than 200% of the executive’s base salary, share comparable with the immediate preceding financial year, with conditions were met, financial health, redundancy or retirement (or any other reason at the contingent rights to receive shares. term success of the • but in exceptional circumstances an award can be 100% vesting achieved for average annual outperformance of CPI results have been materially discretion of the RemCo) or in the event of a takeover, scheme Company. Such awards may carry award dividends entitling the executive to made up to 400% of the executive’s base salary, during the performance period of 1%; mis-stated or the executive of arrangement, demerger or winding up of the Company, the has contributed to serious dividends which would have been received on the vested shares providing that such an award does not exceed 25% of the award to be linked to FTSE EPRA/NAREIT Developed RemCo, acting fairly and reasonably, will determine whether and • reputational damage to the during the vesting period, payable either in cash or ordinary shares. 7,000,000 shares. Europe Index performance. 25% of the award will vest for median to what extent a performance target shall then be deemed to Company or engaged in performance with 100% vesting achieved for upper quartile be satisfied. Subject to that determination, the award will vest in serious fraud or misconduct, performance; and proportion to the extent of the vesting period which has expired the RemCo, in its absolute at the date of the relevant event. • 25% of the award to be linked to the relative total property return of discretion, may determine the Company’s UK assets in comparison to IPD UK All Property Index. that an award will cease In the event that an executive is not re-elected by shareholders • 25% of the award will vest once performance reaches that of the or lapse or impose further at an annual general meeting of the Company, the vesting of any benchmark with 100% vesting achieved for 2% outperformance. conditions on the award. awards will be subject to the discretion of the RemCo. Redefine International P.L.C. Redefine International P.L.C. 86 Annual Report 2017 Annual Report 2017 87 Directors’ report Remuneration Annual report on remuneration
Annual report on remuneration Executive bonus (Audited) The information provided in this part of the Directors’ Remuneration Report will detail how the remuneration policy has been implemented during The maximum bonus for the year ended 31 August 2017 was capped at 150 per cent of annual base salary, 40 per cent of any bonus is deferred the year ended 31 August 2017. This report, together with the Chairman’s annual statement, will be subject to an advisory shareholder vote at the in shares. Annual General Meeting to be held on 25 January 2018. Bonuses are based on the performance against three financial KPIs and each individual’s personal objectives, apportioned as follows: Non-executive fees • 25 per cent personal objectives; Single total figure of remuneration for Non-executive Directors (Audited) • 15 per cent operating cash flow; The table below shows the remuneration paid to all Non-executive Directors who served during the financial year ending 31 August 2017, with a • 30 per cent underlying earnings; and comparable annual fee figure for the financial year ending 31 August 2016. The Non-executive Directors do not receive any other remuneration 30 per cent adjusted NAV. other than fees but are entitled to be paid all reasonable travelling, hotel and other expenses properly incurred in attending meetings of the Board, • committees of the Board, general meetings or otherwise in connection with the business of the Company. The personal objectives award is at the RemCo’s discretion and is designed to encourage leadership, loyalty of staff and communication with stakeholders and shareholders in a transparent manner. In reaching their decision the RemCo considered the Capital Markets Day held in February, Annual fees Annual fees Actual fees at which the Company communicated to shareholders clear and measurable medium term strategic targets. The Executives have demonstrated 2016 2017 paid for 2017 strong leadership and clear conviction in executing the strategy throughout the year resulting in tangible progress across all areas. Key personnel Greg Clarke (Chairman) 88,000 94,500 94,500 have been retained and there has been a low staff turnover. An increased time commitment and prominence given to CSR matters, has resulted in Michael Farrow (chair of the Remuneration Committee) 45,000 48,000 (£50,500 from 1/12/2016) 49,875 the Company’s improved GRESB rating. A table illustrating the executives’ performance against the Bonus KPIs and strategy can be found on page 81. Gavin Tipper (chair of the Audit and Risk Committee) 47,500 50,500 50,500 The financial KPIs are compared to the Board approved budget as follows: Sue Ford 40,000 43,000 43,000 Robert Orr (chair of the Investment Committee) 40,000 43,000 (£50,500 from 1/12/2016) 48,625 Level of budget met Bonus awarded (% of respective weighting) Marc Wainer 40,000 43,000 43,000 Less than 90% budget Nil Bernie Nackan 40,000 43,000 43,000 Meeting budget 50% Total 340,500 365,000 (£375,000 from 1/12/16) 372,500 120% of budget 100%
Payments to past Directors and for loss of office (Audited) The actual target ranges for 2017 for the financial performance measures have not been disclosed. This is considered by the Board to be commercially sensitive as certain aspects could be considered to constitute a profits forecast. Retrospective disclosure of the target ranges will There were no Director resignations during the year. There were no payments to former Directors during the year. be made in next year’s annual report on remuneration once the information is no longer considered commercially sensitive. Executive salaries Single total figure of remuneration for Executive Directors (Audited) Personal KPI Cash flow Earnings NAV growth objectives Total The table below shows remuneration paid to the Executive Directors during the financial year ending 31 August 2016 and 2017: Weight of bonus award 22.5% 45% 45% 37.5% 150% 2017 Performance: % of maximum payout achieved 100% 50% 100% 85% Annual bonus payable in Total Award to all executives: % of salary 22.5% 22.5% 45% 31.9% 121.9% Annual bonus respect of the remuneration payable in financial year received for Year ending Actual Taxable respect of the – deferred Shares year ended Disclosure of 2016 annual bonus financial performance targets 31 August salary paid Pension benefits(1) financial year shares vesting 31 August The RemCo is committed to publishing the financial performance targets once they cease to be commercially sensitive. The financial performance Mike Watters 2017 391,000 48,875 31,653 285,919 190,612 0 948,059 targets that applied in respect of the year ended 31 August 2016 are no longer commercially sensitive; accordingly, the targets and the Company’s 2016 372,383 46,548 13,297 204,810 n/a 0 637,038 performance against these targets are now set out below. Stephen Oakenfull 2017 278,100 25,029 8,239 203,360 135,574 0 650,302 The 2016 annual bonus awards were based 75 per cent on financial performance and 25 per cent on the individual’s performance during the year. 2016 241,080 21,697 7,578 132,594 n/a 0 402,949 Adrian Horsburgh 2017 253,100 22,779 10,459 185,080 123,386 0 594,804 % of payout of 2016 241,080 21,697 11,750 132,594 n/a n/a 407,121 Actual this element Donald Grant 2017 235,200 21,168 7,962 171,990 114,660 n/a 550,980 Weighting Target range performance of the bonus 2016 224,000 20,160 8,351 123,200 n/a n/a 375,711 Cash flow 15% (£0.7m) – (£0.4m) £9.9m 100% Earnings 30% 2.9p – 3.8p 3.2p 50% (1) Taxable benefits include the provision of private medical insurance, season ticket allowances and £17,000 car allowance (CEO only). NAV growth 30% 2.8% – 3.7% (2.3%) 0% Mike Watters served as a Non-executive Director of Redefine Properties Limited until February 2017, for which he received a net amount of R134,500 (circa £7,000) for the period 1 September 2016 to 27 February 2017. Mike Watters served as a Non-executive Director of International Hotel Properties Limited during the year for which he received £1,299.96. Redefine International P.L.C. Redefine International P.L.C. 88 Annual Report 2017 Annual Report 2017 89 Directors’ report Remuneration Annual report on remuneration continued
Long Term Incentive Plans (Audited) Awards cannot be made during closed periods and therefore awards are not granted until a closed period has ended. On 25 January 2017, the Executive Directors received an LTIP award over shares worth 200 per cent of salary in relation to their 2017 remuneration The awards will vest three years from the date of grant subject to continued employment and the satisfaction of performance targets. package. These awards are subject to the performance targets of the New Policy approved by shareholders at the AGM on 23 January 2017 The figures above reflect the maximum number of shares that may vest. The actual number to vest will be dependent on performance against measured over a three year performance period from 1 September 2016 to 31 August 2019. The award price is based on the share price at close of comparator targets over the applicable performance period. trading on 1 September 2016. The following contingent awards were made to Directors for 2015, 2016 and 2017 financial years: 2015 and 2016 awards vesting schedule The 2015 and 2016 awards are subject to the LTIP policy approved by shareholders at the 2015 AGM and will be measured against two total PSP Basis on Performance conditions shareholder return related performance targets: contingent Award Value of which award Performance applicable (policy approved Vesting level 2017 awards price award(1) was made Date of grant period at 2017 AGM) achieved • 50 per cent of any such award will be subject to a performance target which measures the Company’s TSR relative to that of the members of a bespoke comparator group; and Mike 1,698,440 43.85p 774,766 200% of 25 January Measured over Vesting subject to the Awards 50 per cent of the award will be subject to a performance target which measures the Company’s TSR relative to that of each of the members Watters base salary 2017 the financial attainment of the performance will vest on • years ending: targets being based on: 25 January of EPRA/NAREIT Developed Europe Index. 1,099,567 43.85p 482,160 2020 Stephen • 31 August • 50% underlying earnings The 2015 and 2016 awards are subject to the following vesting schedule: Oakenfull 2017 per share; 31 August 25% relative TSR; and Relative TSR performance Percentage of one half Adrian 1,099,567 43.85p 482,160 • • 2018 FTSE EPRA/NAREIT of an award that vests Horsburgh • 25% relative total • 31 August property return. Upper quartile 100% Donald 1,021,665 43.85p 448,000 2019 Between median and upper quartile Between 25% and 100% Grant Median 25% Below median 0%
PSP Basis on Performance conditions 2017 awards vesting schedule contingent Award Value of which award Performance applicable (policy approved Vesting level The 2017 awards are subject to the LTIP policy approved by shareholders at the 2017 AGM with the relevant performance targets measured over a 2016 awards price award(1) was made Date of grant period at 2015 AGM) achieved three year period being based on: (1) Mike 1,698,515 52.2p 886,625 250% of 28 October Measured over Vesting subject to the Awards will • 50 per cent on underlying earnings per share; Watters base salary 2015 the financial attainment of certain targets vest on years ending: relating to the performance of 28 October • 25 per cent on relative TSR; and (1) the Company’s TSR against the 2018 Stephen 1,099,617 52.2p 574,000 31 August • 25 per cent on relative total property return. • TSR of two comparator groups, Oakenfull 2016 each weighted at 50%: The 2017 awards are subject to the following vesting schedule which forms part of our shareholder approved New Policy: 31 August Adrian 1,099,617 52.2p 574,000(1) • 2017 • bespoke peer group TSR; and Performance condition Applicable measure Vesting thresholds Horsburgh • 31 August • EPRA/NAREIT TSR. Growth in underlying earnings per share Immediately preceding financial year earnings per share 25% on attaining previous earnings per share Donald 1,072,797 52.2p 560,000(1) 2018 • • 100% on achieving average annual outperformance Grant of CPI plus 1% • Straight line vesting between 25% and 100%
PSP Basis on Performance conditions Relative TSR FTSE EPRA/NAREIT Developed Europe Index • 25% on achieving median performance contingent Award Value of which award Performance applicable (policy approved Vesting level • 100% on achieving upper quartile performance 2015 awards price award(1) was made Date of award period at 2015 AGM) achieved • Straight line vesting between 25% and 100% Mike 1,773,250 50p 886,625 250% of 3 February Measured over Vesting subject to the 0% Vesting Relative total property return of the UK portfolio IPD All Property Index • 25% for performance in line with IPD Watters base salary 2015 the financial attainment of certain targets years ending: relating to the performance of • 100% achieved for 2% outperformance the Company’s TSR against the • Straight line vesting between 25% and 100% Stephen 1,148,000 50p 574,000 250% of 31 August • TSR of two comparator groups, Oakenfull base salary 2015 each weighted at 50%: The RemCo may adjust (upward or downwards) the extent to which a LTIP award would otherwise vest if it considers that such level of vesting is not 31 August Adrian 478,333 50p 239,167 104% of • reflective of overall corporate performance or of the executives’ personal performance. 2016 • bespoke peer group TSR; and Horsburgh base salary • 31 August • EPRA/NAREIT TSR. 2017
(1) It should be noted that awards made prior to 2016 are based on 250 per cent of the current salary. Awards made in 2016 and subsequently are based on the previous years’ salary and were awarded at the share price on the first day of the performance period. Redefine International P.L.C. Redefine International P.L.C. 90 Annual Report 2017 Annual Report 2017 91 Directors’ report Remuneration Annual report on remuneration continued
Statement of Directors’ shareholdings and share interests (Audited) Percentage change in remuneration of CEO Relative importance of spend on pay Although there is no requirement for Directors to own shares in the Company, the table below shows the total number of Directors’ interests in Pursuant to the salary reviews on 1 September 2017 the following increase in base salary, £66.1m shares as at 31 August 2017. benefits and bonus (relative to prior year base salary, benefits and bonus) is compared for the 70 2016 +736.7% CEO and those employees of the Company’s head office who were determined to be the most 60 2017 2017 Bonus £51.8m appropriate benchmark, due to the nature and location of the Company’s residual workforce. % – percentage £53.1m deferred -2.5% 50 change LTIP share shares LTIP share (1) (2) (3) awards due awarded awards due 2017 Salary Benefits Bonus to vest on 28 due to vest on to vest on 25 Base salary 40 Number of October 2018 1 September January 2020 Mike Watters +4.0% +138.0% +132.7% ordinary shares subject to 2019 subject subject to 30 held as at % of issued performance to continued performance Average employee per capita figure +4.6% +1.0% +11.2% 31 August 2017 share capital conditions employment conditions Total 20 (1) (2) The base salary comparison is in relation to the 1 September 2017 salary review. £6.5m Mike Watters (CEO) 6,515,638 0.36 1,698,515 476,292 1,698,440 10,388,885 £8.5m (2) The benefits comparison is in relation to benefits for 2017 financial year compared to 2016. 10 -23% £7.9m Stephen Oakenfull (Deputy CEO) 623,536(3) 0.03 1,099,617 338,766 1,099,567 3,161,486 (3) The bonus comparison is in relation to bonus for 2017 performance compared to bonus for 2016 performance. Adrian Horsburgh 62,189 0.00(1) 1,099,617 308,311 1,099,567 2,569,684 0 £m Staff costs Profits after tax Dividends Donald Grant 50,000 0.00(1) 1,072,797 286,507 1,021,665 2,430,969 Consideration by the Directors of matters relating to Directors’ remuneration Gavin Tipper 508,630 0.03 508,630 The Directors who have served on the RemCo during the reporting year can be found on page 78. Marc Wainer 1,680,364(4) 0.09 1,680,364(4) No executives attend formal meetings of the RemCo. Bernard Nackan 20,911 0.00(1) 20,911 Robert Orr 23,529 0.00(1) 23,529 Deloitte replaced Willis Towers Watson as the Company’s remuneration advisers during the financial year. Deloitte is a member of the Remuneration Total 9,484,797 0.52 20,784,458 Consultants’ Group and have no connection with the Company. The RemCo is satisfied that the advice received has been objective and independent. Total fees paid to Deloitte during the financial year were £13,460 (Willis Tower Watson fees were £28,909 (2016: £45,530). All advice received was (1) Less than 0.001 per cent. duly considered by the RemCo, and their proposals presented to the Board for final approval. (2) Mike Watters’ shares are held through a pension fund structure. (3) 573,536 of Stephen Oakenfull’s shareholding is held in his wife’s name. Statement of voting at the Annual General Meeting (4) Marc Wainer’s beneficial interest is held through 127,593 shareholding in his wife’s name, 175,000 shareholding held through his Drawood Trust and 2,755,541 shareholding in Ellwain Investments (Pty) Limited of which he is a 50 per cent shareholder. At the Company’s AGM held on 23 January 2017, the Directors’ remuneration report for the year ended 31 August 2016 was approved by shareholders. The results were as follows: Changes to Directors’ shareholding since 1 September 2017 and up to the date of this document can be found on page 93 of this Annual Report. Votes Votes Votes CEO comparable performance Resolution for % against % withheld(1) Total remuneration figure for CEO since the internalisation of management in 2013 To approve the Directors’ remuneration report for the year ended 31 August 2016 1,246,629,118 99.57 5,375,309 0.43 9,225,003 The table below shows the total remuneration figure for the CEO for the years since the internalisation of management in December 2013. To approve and adopt the new Remuneration Policy 1,000,333,466 79.91 251,542,808 20.09 9,433,156
Annual bonus awarded For the as a percentage Approval year ending Total of the maximum LTIP 31 August remuneration possible award awards This report was approved by the Board of Directors on 26 October 2017 and signed on its behalf by: Mike Watters 2017 948,059 81% 0% Michael Farrow Mike Watters 2016 637,038 55% 0% Chairman of the Remuneration Committee Mike Watters 2015 606,647 55% n/a Mike Watters (appointed CEO 3 December 2013) 2014 490,600 55% n/a
Performance graph and CEO remuneration table The table below illustrates the performance of the Company, since the merger of Wichford P.L.C. and Redefine International plc in August 2011. This is measured against the performance of EPRA and the FTSE All Share index, both of which the Company is a constituent.
Redefine International FTSE All Share EPRA Index (Sterling) 250 200
150
pence 100
50 0 Aug 2011 Feb 2012 Aug 2012 Feb 2013 Aug 2013 Feb 2014 Aug 2014 Feb 2015 Aug 2015 Feb 2016 Aug 2016 Feb 2017 Aug 2017 Redefine International P.L.C. Redefine International P.L.C. 92 Annual Report 2017 Annual Report 2017 93 Directors’ report
Additional disclosures to the Directors’ report
The Directors’ report comprises pages 60 to 94 together with certain sections of the Annual Report incorporated by reference as outlined below: Purchase of own shares and shares in Treasury • future developments and the outlook for the Company are contained in the CEO report on pages 4 to 6; At the 2017 AGM, shareholders granted the Directors authority to make market purchases of ordinary shares in the Company in certain • important events that have taken place since the end of the financial year are described on page 147; circumstances and to hold those shares in Treasury. • details of financial instruments, and the financial risk management objectives and policies of the Company are detailed in pages 140 to 143; Shares were purchased by the Company in 2011, but Directors have no present intention of exercising this power. The authority to purchase shares would only be exercised after careful consideration by the Directors and as and when conditions were favourable, with a view to enhancing earnings per • principal risks and uncertainties pertaining to the Group and the way in which it manages and controls these risks are outlined in the Strategic Report on pages 16 and 17; share and/or net asset value per share, which would be of benefit shareholders. • the Company’s three year viability statement can be found on page 17; Legislation in the Isle of Man was enacted in 2014 which allows companies who buy their own shares to hold them in Treasury rather than cancel them, up to a maximum of 10 per cent. If the Company purchased its own shares it would therefore hold such shares as treasury shares which the • disclosures regarding the employment of disabled people and employee involvement are contained in the corporate social responsibility Company could sell for cash. All rights attaching to shares purchased under this authority, including voting rights and rights to dividends, would be report on page 49, although it should be noted that the Company employs less than 250 people; suspended whilst they were held in treasury. • diversity policy for the Group is on page 49. In addition, it should be noted that the Nominations Committee is seeking to expand the female membership of the Board to at least one third by 2020; and During the financial year and up until the date of this document, no shares were purchased and no shares were held in Treasury. • greenhouse gas reporting is included in the corporate social responsibility report on page 58. Notified shareholdings Results and proposed dividends As at the date of this report, the Company had been notified, or was otherwise aware, of the following persons who were directly or indirectly interested in three per cent or more of the issued share capital of the Company. The Group statement of comprehensive income is set out on page 100 and shows a profit attributable to equity holders of the Parent of £78.7 million. Percentage The Board has declared a second interim dividend of 1.3 pence per share, or a scrip alternative. Dispatch of share certificates or the cash dividend Shareholder Shareholding held will be paid on 18 December 2017 to those shareholders on the register as at 1 December 2017, and will result in a total dividend of 2.6 pence per Redefine Properties Limited 539,635,248 29.52 share for the financial year. Allan Gray Asset Management 135,171,096 7.39 Going concern At 31 August 2017 the Group’s cash and undrawn committed facilities were £63.4 million and its capital commitments were £16.8 million. Dealings of Directors and their Persons Closely Associated Weighted average debt maturity of 7.3 years and LTV adjusted for events occurring up until the day of signing this year’s Annual Report was The Company adheres to a strict Share Dealing Code in line with the Market Abuse Regulations, which prohibits persons discharging managerial of 50.0 per cent, which provides sufficient headroom against financial covenants. Attention is also drawn to the viability statement contained responsibility (“PDMR”) dealing in shares for a designated period preceding the announcement of its annual and interim financial results, or any within the Group’s principal risk disclosures on pages 16 and 17. other period considered price sensitive. PDMRs are advised of such periods, and acknowledge their obligations and potential sanctions if the obligations are breached. Dealings in shares by PDMRs are strictly monitored during the year with the necessary RNS announcements and FCA After considering severe but plausible scenarios, the Directors are satisfied that there continues to be a reasonable expectation that the notifications being made in respect of dealings performed by PDMRs or persons closely associated with them, as required. Group will have the resources it requires to meet on‑going and future commitments. Accordingly, the 2017 financial statements have been prepared on a going concern basis. During the year the following Directors’ dealings occurred and were reported to the market:
Issued share capital Number of Number of As at 31 August 2017 the Company’s total issued share capital was 1,828,060,146 ordinary shares of 8.0 pence each. Increases in the issued ordinary shares ordinary shares held as at Scrip shares Acquisition Scrip shares held as at share capital during the year have resulted from the following: 31 August 12 December 24 February 26 June 31 August 2016 2016 2017 2017 2017 Date Reason for issue Shares issued Total Greg Clarke — — — — — 1 September 2016 Start of the financial year — 1,794,598,650 Michael Watters (CEO)(1) 6,515,638 — — — 6,515,638 12 December 2016 Scrip dividend 17,141,172 1,811,739,822 Stephen Oakenfull (Deputy CEO)(2) 573,536 — 50,000 — 623,536 26 June 2017 Scrip dividend 16,320,324 1,828,060,146 Adrian Horsburgh 10,000 347 50,000 1,842 62,189 Donald Grant — — 50,000 — 50,000 Further details of the authorised and issued share capital are shown in Note 25 to the financial statements. Redefine International has one class of Michael Farrow — — — — — share; all shares rank equally and are fully paid. Gavin Tipper 508,630 — — 508,630 Voting rights and restrictions of transfers of shares Sue Ford — — — — — Robert Orr 23,529 — — — 23,529 Shareholders are entitled to receive notice of, to attend and to vote at, all general meetings of the Company. Further details on the voting rights Marc Wainer(3) 1,680,364 — — — 1,680,364 of shareholders can be found in the Company’s Articles, available on the website www.rdireit.com. Bernard Nackan 19,610 682 — 619 20,911 There are no specific restrictions on the size of shareholding nor on the transfer of ordinary shares imposed by the Articles of Association of Total 9,331,307 9,484,797 the Company. (1) Michael Watters’ shares are held through a pension fund structure. Other than in connection with the 150 million Euro secured exchangeable bonds issued by Redefine Properties Limited in September 2016, (2) 573,536 of Stephen Oakenfull’s shareholding is held in his wife’s name. exchangeable into shares of Redefine International P.L.C. (the “Exchange Property”) and connected stock lending agreements, that may result (3) Marc Wainer’s beneficial interest is held through 127,593 shareholding in his wife’s name, 175,000 shareholding held through his Drawood Trust and 2,755,541 shareholding in restrictions on the transfer of securities or on voting rights in connection with the Exchange Property, the Company is not aware of any in Ellwain Investments (Pty) Limited of which he is a 50 per cent shareholder. agreements between holders of securities that may result in restrictions on the transfer of securities or on voting rights. Directors’ interests in the ordinary shares, including their contingent awards and deferred bonus shares can be found in the Directors’ remuneration report on page 90 and are set out in Note 32 related party transactions. Redefine International P.L.C. Redefine International P.L.C. 94 Annual Report 2017 Annual Report 2017 95 Directors’ report Financial statements Statement of Directors’ responsibilities
The Directors are responsible for preparing the Directors’ report and the Group and Company financial statements in accordance with applicable law and regulations. The Directors have elected to prepare the Group and Company financial statements in accordance with International Financial Reporting Standards (“IFRS”) as Additional issued by the International Accounting Standards Board (“IASB”). The Group and Company financial statements are required by IFRS, as issued by the IASB, to present fairly the financial position and performance of the Group and Company respectively. disclosures In preparing each of the Group and Company financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; to the Directors’ report continued • make judgements and estimates that are reasonable and prudent; • state that the financial statements of the Group and Company comply with IFRS as issued by the IASB and, in the case of the Company, in accordance with those parts the Isle of Man Companies Acts 2006 applicable to companies reporting under IFRS; and Directors’ appointment and Directors’ powers • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business. Subject to the Isle of Man Companies Act 2006, the Articles of Association of the Company and any directions given by special resolution of the The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company’s transactions and disclose with Company, the business of the Company shall be managed by the Board, which shall exercise all the powers of the Company whether relating to reasonable accuracy at any time its financial position. They have general responsibility for taking such steps as are reasonably open to them to safeguard the the management of the business or not. assets of the Group and Company and to prevent and detect fraud and other irregularities. Subject to the provisions of the Isle of Man Companies Act 2006 and the Articles of Association of the Company, the Board shall have the power to Responsibility statement appoint a person who is willing to act as a Director, either to fill a vacancy or as an addition to the existing Board. Any Director so appointed must Each of the Directors confirms that to the best of each person’s knowledge and belief; retire at the next AGM and put themselves forward for re‑election by the shareholders. • the Group and Company financial statements, prepared in accordance with IFRS as issued by the IASB, give a true and fair view of the assets, liabilities and As a Chapter 6 Company, Redefine International confirms that whilst Redefine Properties Limited is a controlling shareholder of het Company, financial position of the Group and Company at 31 August 2017 and, in the case of the Group, of its profit for the year then ended and in the case of the the election or re-election of independent Directors will be conducted in accordance with the election provisions of LR 9.2.2.E and LR 9.2.2F R and Company, its loss for the year then ended; approved by: • the adoption of a going concern basis for the preparation of the Group and Company financial statements continues to be appropriate based on the year end position and having reviewed the forecast financial position of the Group; • the shareholders of the Company; and • the Directors’ report includes a fair review of the development and performance of the business and the position of the Company and the undertakings • the independent shareholders of the Company. included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and In addition to any power of removal conferred by the Isle of Man Companies Act 2006, the Company may by ordinary resolution remove any • the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Director before the expiration of his period in office, and by ordinary resolution appoint another person who is willing to act as a Director in his Company’s performance, business model and strategy. or her place. The Annual Report is published on the Group’s website. The maintenance and integrity of the Group’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. Significant agreements Signed on behalf of the Board on 26 October 2017. There are no agreements between the Company and its Directors or employees providing for compensation for loss of office or employment that occurs during a takeover bid. However, in the event of a takeover, scheme of arrangement, demerger or winding up of the Company, any awards made to the Executive Directors under the performance share plan may vest early, subject to the relevant performance targets being met and at the discretion of the Remuneration Committee. Mike Watters Donald Grant Chief Executive Officer Chief Financial Officer Amendment of Articles The Company’s Articles of Association may be amended by a special resolution of the Company’s shareholders. The Company’s Articles of Association were last amended on 26 January 2016. Political donations During the period Redefine International made no political donations.
Donald Grant Chief Financial Officer 26 October 2017 Redefine International P.L.C. Redefine International P.L.C. 96 Annual Report 2017 Annual Report 2017 97 Financial statements Independent auditor’s report to the members of Redefine International P.L.C.
1 Our opinion is unmodified In our opinion: 2 Key audit matters: our assessment Tax We have audited the financial statements of the financial statements give a true and fair view of risks of material misstatement • Refer to page 76 (Audit Committee Report), pages 108 and 109 (accounting policy) and pages 118 and 131 (financial disclosures) Redefine International P.L.C. (“the Group” or “the of the state of the Group’s and of the Company’s Key audit matters are those matters that, in our Company”) for the year ended 31 August 2017 professional judgement, were of most significance affairs as at 31 August 2017 and of the Group’s The key audit matter How the matter was addressed in our audit which comprise the Group and Company Income profit and of the Company’s loss for the year in the audit of the financial statements and include Statements, the Group and Company Statements of then ended; the most significant assessed risks of material The Group has a significant and diversified In this area our audit procedures included, among others: Comprehensive Income, the Group and Company misstatement (whether or not due to fraud) portfolio across the UK and Europe and is • the Group financial statements have been • including KPMG international and domestic taxation specialists in the Group audit team. These Balance Sheets, the Group and Company Statements identified by us, including those which had the therefore subject to the relevant tax legislation properly prepared in accordance with IFRS as specialists evaluate the assumptions and methodologies used by the Group and its taxation advisers of Changes in Equity, the Group and Company greatest effect on: the overall audit strategy; the in a number of jurisdictions. issued by the International Accounting Standards in calculating the taxation provisions for the period. Particular focus is placed on assumptions relating Statements of Cash Flows and the related notes, allocation of resources in the audit; and directing Board (“IASB”); and The Group encounters challenges by tax to provisions for uncertain tax positions; including the accounting policies in note 2. The the efforts of the engagement team. We summarise authorities on a range of tax matters during specifically considering the taxation risks arising from the Group’s operations when assessing financial reporting framework that has been applied • the Company financial statements have been below the key audit matters, in decreasing order of • the normal course of business and recognises the accounting for taxation related balances and applying sensitivity analysis to determine the in their preparation is the Isle of Man Companies properly prepared in accordance with IFRS as audit significance, in arriving at our audit opinion issued by the IASB. provisions for anticipated tax audit issues appropriateness of key judgements; and Act 2006 and International Financial Reporting above, together with our key audit procedures to based on estimates of whether additional taxes assessing the presentation and disclosure in respect of taxation related balances and considering Standards (“IFRS”). Basis for opinion address those matters and, as required for public will be due. The calculation of these provisions • interest entities, our results from those procedures. whether the Group’s disclosures reflect the risks inherent in the accounting for the taxation balances. We conducted our audit in accordance with is underpinned by judgemental assumptions as These matters were addressed, and our results are International Standards on Auditing (UK) (“ISAs the ultimate tax determination is uncertain. Our Results based on procedures undertaken, in the context (UK)”) and applicable law. Our responsibilities are based on the results of our testing, we consider the Group’s treatment of uncertain tax positions to of, and solely for the purpose of, our audit of the • described below. We believe that the audit evidence be acceptable. financial statements as a whole, and in forming our we have obtained is a sufficient and appropriate opinion thereon, and consequently are incidental basis for our opinion. Company financial statements to that opinion, and we do not provide a separate opinion on these matters. Investment in subsidiary undertakings Refer to page 109 (accounting policy) and page 121 (financial disclosures)
Group financial statements The key audit matter How the matter was addressed in our audit Valuation of investment property Investments in subsidiary undertakings In this area our audit procedures included, among others: are carried in the Company’s separate Refer to page 76 (Audit Committee Report), page 106 (key judgement in accounting policies) and pages 119 to 121 (financial disclosures) assessing the carrying value of subsidiaries for any objective indicators of impairment; and financial statements at cost less impairment. • • assessing the accuracy of management’s fair value calculations. The key audit matter How the matter was addressed in our audit Impairments of these investments are determined by reference to the EPRA The valuation of the Group’s investment In this area our audit procedures included, among others: Our Results adjusted net assets of the Group. properties involves significant judgements based on the results of our testing, we consider the carrying value of investments in subsidiary assessing management’s process for reviewing and addressing the work of the external valuers; • made by management using the advice of • Investment in subsidiary undertakings is undertakings to be acceptable. external valuers, particularly those around the • assessing the competence, objectivity and integrity of the external valuers. This assessment included significant as the subsidiary’s performance selection of valuation models and the inputs to but was not limited to assessing their professional qualifications, experience and independence from can directly impact that of the Company. those models, current market conditions and the Group; rental levels. • discussing and where appropriate, challenging, the external valuers in respect of: The Group consists of a number of components, • the valuation process adopted; 3 Our application of materiality and 4 We have nothing to report The valuation exercise also relies on the an overview of the scope of our audit all of which, with the exception of the Group’s on going concern completeness and accuracy of the underlying • the significant assumptions used and critical judgement areas in the valuation process including The materiality for the Group financial 30.4 per cent (2016: 25.3 per cent) investment We are required to report to you if: lease and financial information provided to the break clauses, future lease income and yields; and statements as a whole was set at £16.3 million in RedefineBDL Hotel Group Limited, are valuers by management. we have anything material to add or draw • the performance of the relevant portfolio. (2016: £16.7 million). This has been calculated accounted for at the Group’s head office in • attention to in relation to the Directors’ for certain portfolios, using our internal valuation specialists to assist us in critically assessing the with reference to a benchmark of total assets London. The Group audit team performed the • statement in Note 2 to the financial valuation methodology applied, considering whether the methodology is in line with accounting (of which it represents circa 1 per cent audit of all other components, including the statements on the use of the going concern principles and also to challenge key inputs in light of market indicators; (2016: 1 per cent)), which we consider to audit of the Company, within the Group as basis of accounting with no material be one of the principal considerations for if it were a single aggregated set of financial • testing on a sample basis the integrity of the information provided to the independent valuers used in uncertainties that may cast significant doubt members of the Company in assessing the information. These components represent valuing the properties, by agreeing that information to underlying agreements; and over the Group and the Company’s use of financial performance of the Group. Redefine 99.3 per cent (2016: 99.3 per cent) of total assets • considering the completeness and adequacy of the disclosures associated with investment property. that basis for a period of at least 12 months International P.L.C., as a property company, and 98.5 per cent (2016: 80.2 per cent) of Group from the date of approval of the financial Our Results generates a return which is largely dependent profit before tax. statements; or based on the results of our testing, we consider the investment property valuations to be acceptable. on the assets held. Materiality for the Company The audit was performed using the materiality • the related statement under the Listing Rules financial statements as a whole was set at level set out above. • Debt refinancing £6.4 million (2016: £6.0 million), determined set out on page 92 is materially inconsistent with reference to a benchmark of Company The remaining 0.7 per cent (2016: 0.7 per cent) with our audit knowledge. Refer to page 76 (Audit Committee Report), page 107 (key judgement in accounting policies) and pages 128 and 129 (financial disclosures). of total Group assets and 1.5 per cent (2016: total assets, of which it represents 1 per cent We have nothing to report in these respects. (2016: 1 per cent). 19.8 per cent) of Group profit before tax is The key audit matter How the matter was addressed in our audit represented by the Group’s investment in In determining the fair value of debt on initial In this area our audit procedures included, among others: We reported to the Audit Committee all RedefineBDL Hotel Group Limited, which is recognition, the Group must assess whether corrected and uncorrected misstatements we assessing whether the new debt arrangement was considered a substantial modification in considered immaterial to the Group’s fair value equals the transaction price or, • identified through our audit with a value in accordance with the provisions of IAS 39; financial position. specifically, whether the contractual interest excess of £0.8 million (2016: £0.8 million), in rate agreed with the counterparty reflects • assessing whether the contractual refinanced rate was considered representative of an “off‑market” addition to other audit misstatements below a market interest rate. If an alternative transaction having regard to corroboratory market evidence; that threshold that we believe warranted interest rate is applied in the measurement • assessing the reasonableness of the market interest rate applied to the refinanced debt to calculate reporting on qualitative grounds. of fair value, the Group must corroborate fair value on initial recognition; and why the contractual rate is not considered • assessing the completeness and accuracy of the calculations and journal entries associated with the representative of a market rate. refinancing. In reflecting the difference between the Our Results estimated fair value of the debt and the Based on the results of our testing, we consider the accounting treatment of the debt refinancing to be transaction price, the difference is taken to acceptable. profit and loss, only if the interest rate derived is based on observable inputs. Redefine International P.L.C. Redefine International P.L.C. 98 Annual Report 2017 Annual Report 2017 99 Financial statements Independent auditor’s report continued Income statements to the members of Redefine International P.L.C. for the year ended 31 August 2017
Group Company 5 We have nothing to report on the Corporate governance disclosures Auditor’s responsibilities other information in the Annual Report We are required to report to you if: Our objectives are to obtain reasonable Year ended Year ended Year ended Year ended The Directors are responsible for the other assurance about whether the financial 31 August 31 August 31 August 31 August we have identified material inconsistencies information presented in the Annual Report • statements as a whole are free from material 2017 2016 2017 2016 between the knowledge we acquired together with the financial statements. Our misstatement, whether due to fraud, other Continuing operations Note £m £m £m £m during our financial statements audit opinion on the financial statements does not irregularities, or error, and to issue our opinion Revenue 3 102.1 89.6 0.4 2.2 and the Directors’ statement, where the cover the other information and, accordingly, in an auditor’s report. Reasonable assurance is a Directors consider that the Annual Report Rental income 4 97.2 86.6 — — we do not express an audit opinion or, except high level of assurance, but does not guarantee and financial statements taken as a whole Rental expense (9.0) (6.2) — — as explicitly stated below, any form of assurance that an audit conducted in accordance with ISAs is fair, balanced and understandable and Net rental income 88.2 80.4 — — conclusion thereon. (UK) will always detect a material misstatement provides the information necessary for when it exists. Misstatements can arise Other income 5 4.7 2.5 0.4 0.9 Our responsibility is to read the other shareholders to assess the Group’s position from fraud, other irregularities or error and information and, in doing so, consider whether, and performance, business model and Administrative costs and other fees 6 (15.3) (10.9) (7.5) (6.8) are considered material if, individually or in based on our financial statements audit work, strategy; or Net operating income/(expense) 77.6 72.0 (7.1) (5.9) aggregate, they could reasonably be expected to the information therein is materially misstated Gain/(loss) on revaluation of investment property 12 10.8 (42.5) — — • the section of the Annual Report describing influence the economic decisions of users taken or inconsistent with the financial statements or the work of the Audit Committee does on the basis of the financial statements. The Loss on revaluation of investment property held for sale 20 (3.9) — — — our audit knowledge. Based solely on that work not appropriately address matters risk of not detecting a material misstatement we have not identified material misstatements in Gain on disposal of investment property 12 9.2 3.2 — — communicated by us to the Audit Committee. resulting from fraud or other irregularities is the other information. Gain on disposal of investment property held for sale 20 1.5 — — — We are required to report to you if the Corporate higher than for one resulting from error, as Gain on disposal of subsidiary undertaking 7 — 12.2 — — Strategic report and Directors’ report Governance Statement does not properly it may involve collusion, forgery, intentional omissions, misrepresentations, or the override Distributions from investment at fair value 0.2 0.5 — 0.2 Based solely on our work on the other disclose a departure from the provisions of the of internal control and may involve any area Loss on revaluation of investment at fair value 14 (0.8) — information: UK Corporate Governance Code specified by the (0.3) — Listing Rules for our review. We have nothing to of law and regulation, not just those directly Amortisation of intangible assets 17 (0.2) (0.2) — — • we have not identified material report in these respects. affecting the financial statements. misstatements in the strategic report and the Gain on disposal of other non‑current assets held for sale — 0.2 — 0.2 A fuller description of our responsibilities Directors’ report; and 6 Respective responsibilities Foreign exchange gain — 0.9 0.2 0.6 is provided on the FRC’s website at 45.5 (4.9) • in our opinion the information given in those Directors’ responsibilities www.frc.org.uk/auditorsresponsibilities. 94.9 (6.9) reports for the financial year is consistent As explained more fully in their statement set Intra‑group transactions with the financial statements. out on page 95, the Directors are responsible 7 The purpose of our audit work and to Settlement of loans 32 — — 0.8 (105.4) whom we owe our responsibilities Disclosures of principal risks for: the preparation of the financial statements Reversal of impairment of loan 32 — — — 22.7 and longer‑term viability including being satisfied that they give a true This report is made solely to the Company’s and fair view and otherwise comply with the members, as a body. Our audit work has Distributions 32 — — — 1.1 Based on the knowledge we acquired during Isle of Man Companies Act 2006; such internal been undertaken so that we might state to Loss on disposal of investment at fair value 32 — — — (0.2) our financial statements audit, we have nothing control as they determine is necessary to enable the Company’s members those matters we Gain on disposal of subsidiary 32 — — — 0.5 material to add or draw attention to in relation to: the preparation of financial statements that are required to state to them in an auditor’s Foreign exchange gain on loans advanced 32 — — — 4.6 the Directors’ confirmation within the viability are free from material misstatement, whether report and for no other purpose. To the fullest • Profit/(loss) from operations 94.9 45.5 (6.1) (81.6) statement on page 17 that they have carried due to fraud or error; assessing the Group extent permitted by law, we do not accept or out a robust assessment of the principal and Company’s ability to continue as a going assume responsibility to anyone other than the Finance income 8 3.4 6.3 0.9 1.2 risks facing the Group, including those that concern, disclosing, as applicable, matters Company and the Company’s members, as a Finance expense 8 (28.4) (32.7) — — would threaten its business model, future related to going concern; and using the going body, for our audit work, for this report, or for Other finance expense 9 (6.5) (1.9) (0.2) — performance, solvency and liquidity; concern basis of accounting unless they either the opinions we have formed. intend to liquidate the Group or the Company Change in fair value of derivative financial instruments 4.5 (11.1) — — • the Directors’ statement of principal risks or to cease operations, or have no realistic 67.9 6.1 (5.4) (80.4) describing these risks and explaining how N. Marshall alternative but to do so. (1) they are being managed and mitigated; and for and on behalf of Net gain on sale of joint venture interests 10 4.9 — — — • the Directors’ explanation in the viability Net impairment of joint venture and associate interests 15,16 (0.1) (0.6) — — statement of how they have assessed Share of post‑tax (loss)/profit from joint ventures 15 (2.3) 1.4 — — the prospects of the Group, over what Share of post‑tax profit from associate 16,20 1.1 1.7 — — period they have done so and why they Transfer of foreign currency translation on disposal of joint venture interest 15 2.0 — — — considered that period to be appropriate, and their statement as to whether they have Chartered Accountants, Statutory Audit Firm, Profit/(loss) before tax 73.5 8.6 (5.4) (80.4) a reasonable expectation that the Group 1 Harbourmaster Place Taxation 11 (3.9) (1.1) 0.1 (0.9) IFSC will be able to continue in operation and Profit/(loss) for the year 69.6 7.5 (5.3) (81.3) meet its liabilities as they fall due over the Dublin 1 Profit/(loss) attributable to: period of their assessment, including any Ireland related disclosures drawing attention to any Equity holders of the Parent 66.1 7.9 (5.3) (81.3) 26 October 2017 necessary qualifications or assumptions. Non‑controlling interests 27 3.5 (0.4) — — Under the Listing Rules we are required to 69.6 7.5 (5.3) (81.3) review the viability statement. We have nothing Earnings per share to report in this respect. Weighted average number of shares (millions) 1,809.9 1,637.2 1,809.9 1,637.2 Diluted weighted average number of shares (millions) 1,811.9 1,637.9 1,811.9 1,637.9 Basic earnings per share (pence) 3.7 0.5 (0.3) (5.0) Diluted earnings per share (pence) 3.6 0.5 (0.3) (5.0) (1) Net gain on sale of joint venture interests relates to the disposal of the property‑owning subsidiaries of one of the Group’s joint ventures, Wichford VBG Holding S.à.r.l. While the holding structure has been retained, the business of the joint venture has been disposed of and Wichford VBG Holding S.à.r.l. holds only residual cash to settle working capital. The net gain on sale includes £2.2 million of cumulative foreign currency translation that has been transferred to the income statement as part of the disposal. The accompanying notes form an integral part of these financial statements. Redefine International P.L.C. Redefine International P.L.C. 100 Annual Report 2017 Annual Report 2017 101 Financial statements Statements of comprehensive income Balance sheets for the year ended 31 August 2017 as at 31 August 2017
Group Company Group Company
Year ended Year ended Year ended Year ended Re‑presented Re‑presented 31 August 31 August 31 August 31 August 31 August 31 August 31 August 31 August 2017 2016 2017 2016 2017 2016 2017 2016 Continuing operations Note £m £m £m £m Note £m £m £m £m Profit/(loss) for the year 69.6 7.5 (5.3) (80.4) Non‑current assets Other comprehensive income/(expense) Investment property 12 1,494.9 1,396.4 — — Transfer of foreign currency translation on disposal of subsidiaries 7 — (3.6) — — Investment in subsidiary undertakings 13 — — 539.9 539.0 Transfer of foreign currency translation on disposal of joint venture interests 26 (4.2) — — — Investment at fair value through profit or loss 14 8.5 7.9 — — Foreign currency translation on subsidiary foreign operations 15.9 8.9 — — Investment in joint ventures 15 1.9 5.8 — — Foreign currency translation on joint ventures held by subsidiary foreign operations 15 1.0 8.6 — — Loans to joint ventures 15 4.3 52.9 — — Total other comprehensive income 12.7 13.9 — — Investment in associate 16 9.4 10.2 — — Total comprehensive income/(expense) for the year 82.3 21.4 (5.3) (80.4) Intangible assets 17 1.1 1.3 — — Total comprehensive income/(expense) attributable to: Property, plant and equipment 0.1 0.1 — — Equity holders of the Parent 78.7 21.1 (5.3) (80.4) Derivative financial instruments 22 0.4 0.8 — — Non‑controlling interests 3.6 0.3 — — Trade and other receivables 18 8.4 4.7 — — 82.3 21.4 (5.3) (80.4) Total non‑current assets 1,529.0 1,480.1 539.9 539.0 The accompanying notes form an integral part of these financial statements. Current assets Trade and other receivables 18 15.5 26.7 88.1 44.8 Cash and cash equivalents 19 52.8 32.0 7.6 11.6 68.3 58.7 95.7 56.4 Non‑current assets held for sale 20 27.3 — — — Total current assets 95.6 58.7 95.7 56.4 Total assets 1,624.6 1,538.8 635.6 595.4 Non‑current liabilities Borrowings, including finance leases 21 (818.9) (752.8) — — Derivative financial instruments 22 (7.8) (12.6) — — Deferred tax 23 (10.4) (3.4) — — Total non‑current liabilities (837.1) (768.8) — — Current liabilities Borrowings, including finance leases 21 (2.9) (12.8) — — Trade and other payables 24 (21.2) (21.4) (89.1) (3.8) Tax liabilities (1.2) (2.4) — (1.3) Total current liabilities (25.3) (36.6) (89.1) (5.1) Total liabilities (862.4) (805.4) (89.1) (5.1) Net assets 762.2 733.4 546.5 590.3 Equity Share capital 25 146.2 143.6 146.2 143.6 Share premium 25 511.8 502.1 511.8 502.1 Other components of equity 82.4 54.1 (111.5) (55.4) Total attributable to equity holders of the Parent 740.4 699.8 546.5 590.3 Non‑controlling interests 27 21.8 33.6 — — Total equity 762.2 733.4 546.5 590.3 The accompanying notes form an integral part of these financial statements. The financial statements were approved by the Board of Directors on 26 October 2017 and were signed on its behalf by:
Mike Watters Donald Grant Chief Executive Officer Chief Financial Officer Redefine International P.L.C. Redefine International P.L.C. 102 Annual Report 2017 Annual Report 2017 103 Financial statements Statement of changes in equity Statement of changes in equity for the year ended 31 August 2017 for the year ended 31 August 2016
Total Total Foreign attributable Foreign attributable Reverse Retained currency to equity Non‑ Reverse currency to equity Non‑ Share Share acquisition profit/ Other translation holders of controlling Total Share Share acquisition Retained Other translation holders of controlling Total capital premium reserve (loss) reserves reserve the Parent interests equity capital premium reserve loss reserves reserve the Parent interests equity Group Note £m £m £m £m £m £m £m £m £m Group Note £m £m £m £m £m £m £m £m £m Balance at 1 September 2016 143.6 502.1 134.3 (94.2) 3.2 10.8 699.8 33.6 733.4 Balance at 1 September 2015 117.9 395.0 134.3 (48.8) 2.0 (2.4) 598.0 38.8 636.8 Profit for the year — — — 66.1 — — 66.1 3.5 69.6 Profit for the year — — — 7.9 — — 7.9 (0.4) 7.5 Transfer of foreign currency Transfer of foreign currency translation on disposal of translation on disposal joint venture interests 26 — — — — — (4.2) (4.2) — (4.2) of subsidiary 7 — — — — — (3.6) (3.6) — (3.6) Foreign currency translation Foreign currency translation on on subsidiary foreign operations — — — — — 15.8 15.8 0.1 15.9 subsidiary foreign operations — — — — — 8.2 8.2 0.7 8.9 Foreign currency translation on Foreign currency translation on joint venture interests held by joint venture interests held by subsidiary foreign operations 15 — — — — — 1.0 1.0 — 1.0 subsidiary foreign operations 15 — — — — — 8.6 8.6 — 8.6 Total comprehensive income Total comprehensive income for the year — — — 66.1 — 12.6 78.7 3.6 82.3 for the year — — — 7.9 — 13.2 21.1 0.3 21.4
Transactions with equity Transactions with equity holders of the Parent holders of the Parent Dividends paid — — — (39.5) — — (39.5) — (39.5) Shares issued for cash 25 21.7 87.4 — — — — 109.1 — 109.1 Scrip dividends 25 2.6 9.7 — (12.3) — — — — — Dividends paid — — — (29.4) — — (29.4) — (29.4) Release of reverse acquisition reserve 26 — — (134.3) 134.3 — — — — — Scrip dividends 25 4.0 19.7 — (23.7) — — — — — Fair value of share‑based payments 33 — — — — 1.0 — 1.0 — 1.0 Fair value of share‑based 2.6 9.7 (134.3) 82.5 1.0 — (38.5) — (38.5) payments 33 — — — — 1.2 — 1.2 — 1.2 Changes in ownership 25.7 107.1 — (53.1) 1.2 — 80.9 — 80.9 interests in subsidiaries Changes in ownership Reclassification of non‑controlling interests in subsidiaries interest shareholder loans Decrease in non‑controlling to liabilities 27 — — — — — — — (0.3) (0.3) interests 27 — — — — — — — (1.2) (1.2) Dividends paid to Dividends paid to non‑controlling non‑controlling interests 27 — — — — — — — (1.7) (1.7) interests 27 — — — — — — — (2.2) (2.2) Non‑controlling interests on Acquisition of non‑controlling acquisition of control of former interests 28 — — — (0.2) — — (0.2) (2.1) (2.3) joint venture — — — — — — — (0.7) (0.7) — — — (0.2) — — (0.2) (5.5) (5.7) Acquisition of non‑controlling Balance at 31 August 2016 143.6 502.1 134.3 (94.2) 3.2 10.8 699.8 33.6 733.4 interests 28 — — — 0.4 — — 0.4 (12.7) (12.3) The accompanying notes form an integral part of these financial statements. — — — 0.4 — — 0.4 (15.4) (15.0) Balance at 31 August 2017 146.2 511.8 — 54.8 4.2 23.4 740.4 21.8 762.2 The accompanying notes form an integral part of these financial statements. Redefine International P.L.C. Redefine International P.L.C. 104 Annual Report 2017 Annual Report 2017 105 Financial statements Statement of changes in equity Statements of cash flows for the year ended 31 August 2017 for the year ended 31 August 2017
Total Group Company
Foreign attributable Year ended Year ended Year ended Year ended Reverse Retained currency to equity Non‑ 31 August 31 August 31 August 31 August Share Share acquisition profit/ Other translation holders of controlling Total 2017 2016 2017 2016 capital premium reserve (loss) reserves reserve the Parent interests equity Continuing operations Note £m £m £m £m Company Note £m £m £m £m £m £m £m £m £m 29 69.2 94.3 Balance at 1 September 2015 117.9 395.0 — 76.8 1.0 — 590.7 — 590.7 Cash generated from operations 75.6 36.1 Interest received 3.3 0.3 Loss and total comprehensive 2.6 0.2 expense for the year — — — (81.3) — — (81.3) — (81.3) Interest paid (27.0) (27.8) — — Net tax paid (1.8) (5.1) (1.2) (1.3) Transactions with equity Net cash inflow from operating activities 49.4 39.6 35.1 93.3 holders of the Parent Cash flows from investing activities Shares issued for cash 25 21.7 87.4 — — — — 109.1 — 109.1 Net cash disposed on sale of subsidiary 7 — (0.4) — — Dividends paid — — — (29.4) — — (29.4) — (29.4) Purchase and development of investment property (18.9) (489.9) — — Scrip dividends 25 4.0 19.7 — (23.7) — — — — — Net proceeds on sale of investment property 12 54.9 38.8 — — Fair value of share‑based payments 33 — — — — 1.2 — 1.2 — 1.2 Net proceeds on sale of investment property held for sale 20 40.9 — — — 25.7 107.1 — (53.1) 1.2 — 80.9 — 80.9 Distributions from investments at fair value 0.7 — 0.2 — Balance at 1 September 2016 143.6 502.1 — (57.6) 2.2 — 590.3 — 590.3 Disposal of investment at fair value — 80.2 — — Loss and total comprehensive Acquisition of investment at fair value — (8.4) — (8.4) expense for the year — — — (5.3) — — (5.3) — (5.3) Net proceeds received on sale of joint venture interests(1) 18.7 — — — Acquisition of control of joint venture (42.1) — — — Transactions with equity holders of the Parent Cash transferred on acquisition of control of joint venture 2.3 — — — Dividends paid — — — (39.5) — — (39.5) — (39.5) Increase in loans to joint ventures 15 — (0.5) — — Scrip dividends 25 2.6 9.7 — (12.3) — — — — — Decrease in loans to joint ventures 15 0.7 2.6 — — Fair value of share‑based Distributions from associate 16 1.2 2.0 — — payments 33 — — — — 1.0 — 1.0 — 1.0 Disposal of other non‑current assets held for sale — 0.2 — — 2.6 9.7 — (51.8) 1.0 — (38.5) — (38.5) Increase in loan to external party (2.1) — — — Balance at 31 August 2017 146.2 511.8 — (114.7) 3.2 — 546.5 — 546.5 Increase in loans to related parties — (2.0) — — The accompanying notes form an integral part of these financial statements. Decrease in loans to related parties — 7.7 — 5.7 56.3 (369.7) 0.2 (2.7) Cash flows from intra‑group investing activities Investment in subsidiary undertakings — — — (226.9) Deferred consideration on acquisition of subsidiary undertakings — — — (0.4) Distributions from subsidiary undertakings — — — 0.9 Net cash inflow/(outflow) from investing activities 56.3 (369.7) 0.2 (229.1) Cash flows from financing activities Issue of share capital — 115.0 — 115.0 Share issue costs paid — (5.9) — (5.9) Dividends paid to equity holders (39.5) (29.4) (39.5) (29.4) Proceeds from borrowings 199.5 332.5 — — Repayment of borrowings (236.8) (134.7) — — Payment of Aviva share of profit (1.4) (0.3) — — Settlement of Aviva profit share right on refinancing (5.5) — — — Other finance expense (0.6) (4.0) — — Derivative financial instruments purchased and settled (0.1) (2.4) — — Dividends paid and loans re‑paid to non‑controlling interests (1.5) (2.3) — — Acquisitions from non‑controlling interests 28 — (2.3) — — Movement in restricted cash and cash equivalents 2.6 4.6 — — Net cash (outflow)/inflow from financing activities (83.3) 270.8 (39.5) 79.7 Net increase/(decrease) in unrestricted cash and cash equivalents 22.4 (59.3) (4.2) (56.1) Effect of exchange rate fluctuations on cash and cash equivalents 1.0 2.3 0.2 1.3 Unrestricted cash and cash equivalents at 1 September 28.7 85.7 11.6 67.1 Unrestricted cash and cash equivalents at 31 August 52.1 28.7 7.6 11.6 Restricted cash and cash equivalents at 31 August 19 0.7 3.3 — — Cash and cash equivalents at 31 August 19 52.8 32.0 7.6 11.6 (1) Net proceeds of £18.7 million received during the year to 31 August 2017 on disposal of joint ventures interest of Wichford VBG Holding S.à.r.l. are comprised of the Group’s 49 per cent share of the proceeds received of £38.2 million after the deduction of the Performance Fee of £3.4 million (gross cash proceeds: £41.6 million) and includes the repayment of loans advanced by the Group to the joint venture of £12.5 million. The Performance Fee received has been separately presented under operating activities. The accompanying notes form an integral part of these financial statements.
Redefine International P.L.C. Redefine International P.L.C. 106 Annual Report 2017 Annual Report 2017 107 Financial statements Notes to the financial statements for the year ended 31 August 2017
1. General information Effective for annual periods 2.3 Key judgements and estimates The Group is not involved with the operation of the Aviva profit share and capital If the Group loses control of a subsidiary, the Group: beginning on or after: hotel management business and there are limited Redefine International P.L.C. was incorporated in The preparation of the financial statements in appreciation rights derecognises the assets (including any goodwill) Annual improvements to IFRSs 2014‑2016 cycle transactions between the two entities. As a result, • the Isle of Man on 28 June 2004 (Registered Number: conformity with IFRS requires the use of judgements As part of the Aviva debt restructure in 2013, Aviva, and liabilities of the former subsidiary at their the hotels are classified as investment property in 111198C) and was re‑registered under the Isle of IFRS 12 ‘Disclosure of Interests and estimates that affect the reported amounts of the lender with security over the Group’s shopping carrying amounts at the date control is lost; Man Companies Act 2006 on 3 December 2013 in Other Entities’ (amendment) 1 January 2017 assets and liabilities at the reporting date and the accordance with IAS 40. centre asset, Grand Arcade, Wigan, had a right under derecognises the carrying amount of any (Registered Number: 010534V). reported amounts of revenues and expenses during the facility agreement to participate in 50 per cent of • IAS 28 ‘Investments in Classification of the Group’s investment in non‑controlling interests in the former subsidiary the year. Although these estimates are based on the valuation uplifts of the property in excess of the On 4 December 2013, the Company converted to a Associates and Joint Ventures’ International Hotel Properties Limited (“IHL”) at the date control is lost (including amounts the Directors’ best knowledge of the amount, event value of the drawn debt (“capital appreciation right”). UK‑REIT and transferred its tax residence from the (amendment) 1 January 2018 at fair value through profit or loss of other comprehensive income attributed to or actions, actual results may differ materially from Once the value of the property exceeded £90 million, Isle of Man to the United Kingdom (“UK”). Other amendments non‑controlling interests); those estimates. On 14 October 2015, the Group acquired, by way of Aviva had the additional right to realise tranches of The Company holds a primary listing on the Main IAS 7 ‘Statement of Cash Flows’ private placement, 3.8 million shares in the newly the excess valuation at any time, with corresponding • recognises the fair value of any The principal areas where such judgements and Market of the London Stock Exchange (“LSE”) (amendment) (“IAS 7”) 1 January 2017 listed group, International Hotel Properties Limited reductions to their right to profit share participation. consideration received; estimates have been made are detailed below: and a secondary listing on the Main Board of IAS 12 ‘Income Taxes’ (amendment) (formerly International Hotel Group Limited), for reclassifies to profit or loss, or transfers directly Up to and including the year ended 31 August 2016, • the Johannesburg Stock Exchange (“JSE”). (“IAS 12”) 1 January 2017 £3.8 million. On the date of listing, this investment to retained earnings, amounts recognised in Investment property valuation the Group recognised a financial liability in respect represented 25.4 per cent of the entity’s issued other comprehensive income in relation to IFRS 2 ‘Share‑Based Payment’ The Group uses valuations determined by of Aviva’s right to participate in the profits of the share capital and the investment was recognised the subsidiary on the same basis as would be (amendment) (“IFRS 2”) 1 January 2018 independent valuers in accordance with IFRS 13 shopping centre. However, no provision was 2. Significant accounting policies as an associate of the Group under the equity required if the Parent had directly disposed of IFRS 9 ‘Financial Instruments’ ‘Fair Value Measurement’ (“IFRS 13”) as the fair value recognised in respect of Aviva’s capital appreciation 2.1 Statement of compliance method. On 20 October 2015, the Group ceased to the related assets or liabilities; (amendment) (“IFRS 9”) 1 January 2018 of its investment property. The valuations are based recognise IHL as an associate when its shareholding right as a reliable estimate of the provision could not • recognises any investment retained in the former The Group financial statements for the year ended IFRS 15 ‘Revenue from Contracts upon assumptions including estimated rental values, was diluted to 13.2 per cent and the investment was be made and it was not considered probable that a subsidiary at its fair value at the date when 31 August 2017 have been prepared in accordance with Customers’ (“IFRS 15”) 1 January 2018 future rental income, anticipated maintenance costs, reclassified as a financial instrument at fair value payment to Aviva would be required. The contractual with International Financial Reporting Standards future development costs and appropriate market obligation was disclosed as a contingent liability. control is lost; and IAS 40 ‘Investment Property’ through profit or loss. At 31 August 2016, the Group (“IFRS”) as issued by the International Accounting yields. The valuers also make reference to market During the year ended 31 August 2017, the debt was • recognises any resulting difference of the above (amendment) (“IAS 40”) 1 January 2018 held a 15.5 per cent interest in IHL. During the year Standards Board (“IASB”). The Company financial evidence of transaction prices for similar properties. ended 31 August 2017, the Group’s shareholding again restructured and both Aviva’s existing capital items as a gain or loss in the income statement. statements, have been prepared in accordance with IFRS 16 ‘Leases’ (“IFRS 16”) 1 January 2019 Further details are provided in Note 12. appreciation and profit participation rights were increased by 1.7 per cent to 17.2 per cent. Refer to The Group subsequently accounts for any IFRS as issued by the IASB and with those parts of formally extinguished. Interpretations Note 14 for further details on changes in the Group’s investment retained in the former subsidiary in the Isle of Man Companies Act 2006 applicable to Corporate and property acquisitions IFRIC 22 ‘Foreign Currency ownership interests in IHL. accordance with IAS 39 ‘Financial Instruments’ companies reporting under IFRS. The relevant new When control is obtained over an entity or group 2.4 Accounting policies Transactions and Advance (“IAS 39”), or when appropriate, in accordance with standards, amendments and interpretations that of entities, judgement is required in determining The degree of judgement relating to the Basis of consolidation Consideration’ 1 January 2018 IAS 28. For a change in the Group’s interest in a have been adopted, as applicable by the Group and whether the transaction constitutes a business classification as a financial instrument at fair value Investment in subsidiary undertakings (Group) IFRIC 23 ‘Uncertainty over through profit or loss has increased given that the subsidiary that does not result in a loss of control, the Company, during the year are set out below. combination with reference to the inputs, processes A subsidiary undertaking is an investee controlled Income Tax Treatments’ 1 January 2019 Group currently has representation on IHL’s board of the Group adjusts the carrying amounts of the and outputs of the subsidiary or subsidiary group by the Group. The Group controls an investee when Annual improvements to IFRSs 2012‑2014 cycle directors. In drawing their conclusion, the Directors controlling and non‑controlling interest to reflect the acquired. If it is determined that the transaction is it has power over the investee, is exposed, or has 2.2 Basis of preparation have considered the criteria for significant influence changes in their relative interests. Any difference • IFRS 5 ‘Non‑Current Assets Held for Sale and a business combination, the requirements of IFRS 3 rights, to variable returns from its involvement in paragraphs 5‑9 of IAS 28, the relative size of the between the value of the non‑controlling interest Discontinued Operations’ (amendment) (“IFRS 5”) The financial statements are presented in Great ‘Business Combinations’ (“IFRS 3”) are applied. with the investee and has the ability to affect Group’s shareholding and the fact the Group does acquired or disposed of and the fair value of the IFRS 7 ‘Financial Instruments: Disclosures’ British Pounds, which is the functional currency of those returns through its power over the investee. • In addition, when a property is acquired directly, not have the right to appoint a director. Having consideration is recognised directly in equity and (amendment) (“IFRS 7”) the Company and the presentational currency of Subsidiaries are consolidated in the Group’s the Directors have regard to the substance of the considered all the facts and circumstances, the attributed to the equity holders of the Parent. the Group, and rounded to the nearest hundred financial statements from the date on which control Other amendments thousand pounds. They are prepared using the transaction and whether related processes and Directors believe that the designation of the Group’s activities have been assumed which would represent commences until the date that control ceases. The Transactions eliminated on consolidation IAS 1 ‘Presentation of Financial Statements’ historical cost basis except for investment property, investment as a financial asset at fair value through • a business. When such an acquisition is considered Group reassesses whether it controls a subsidiary Intra‑group balances, transactions, any unrealised (amendment) (“IAS 1”) certain assets held for sale, derivative financial profit or loss continues to be appropriate as at when facts and circumstances indicate that there are gains and losses or income and expenses arising instruments and financial instruments designated to be the acquisition of a business, the requirements 31 August 2017. • IAS 16 ‘Property, Plant and Equipment’ of IFRS 3 apply as above, otherwise the transaction changes to one or more elements of control. from intra‑group transactions are eliminated (amendment) (“IAS 16”) at fair value through profit and loss, all of which are Refer to Note 38 for changes to the Group’s interests is treated as an acquisition of a property asset in line The Group accounts for business combinations in preparing the Group financial statements. carried at fair value. in IHL subsequent to the balance sheet date. • IAS 27 ‘Consolidated and Separate Financial with IAS 40. using the acquisition method, under which the Unrealised losses are eliminated in the same way as Statements’ (amendment) (“IAS 27”) Going concern unrealised gains, but only to the extent that there is Classification of UK Hotels as Fair value of restructured liabilities consideration transferred is measured at fair value, IAS 28 ‘Investments in Associates and Joint and acquisition related costs are recognised in no evidence of impairment. • The Directors are satisfied that both the Group and investment property New borrowings or existing borrowings which have Ventures’ (amendment) (“IAS 28”) the income statement as incurred. Any excess in the Company have adequate resources to continue been substantially modified are recognised at fair Investment in associates and joint ventures The UK Hotels are held for capital appreciation the purchase price of business combinations over • IAS 38 ‘Intangible Assets’ (amendment) (“IAS 38”) in operational existence for the foreseeable future value. The determination of fair value involves the and to earn rental income. Apart from one of the the Group’s share of the fair value of the assets, Associates are entities over whose financial and IFRS 10 ‘Consolidated Financial Statement’ and for this reason the financial statements have application of judgement. The Group determines • properties, the hotels have been let to Redefine liabilities and contingent liabilities acquired is operating policies the Group has the ability to (amendment) (“IFRS 10”) been prepared on a going concern basis. fair value by discounting the cash flows associated Hotel Management Limited (“RHML”) and Redefine recognised as goodwill while any discount received is exercise significant influence but not control with the liability at a market discount rate. The • IFRS 11 ‘Joint Arrangements’ (amendment) Re‑presentation of prior year comparatives Earls Court Management Limited (“RECML”), on lease credited immediately to the income statement. If it is and which are neither subsidiaries nor joint (“IFRS 11”) terms which are subject to annual review. At each key judgement surrounds the determination of arrangements. The Group classifies its interests in Certain presentational changes have been made determined that an acquisition does not constitute a review, the revised rent is set with reference to the an appropriate market benchmark. Management joint arrangements as either joint operations or • IFRS 12 ‘Disclosure of Interests in Other Entities’ to the comparative balance sheet to ensure business combination, the transaction is accounted forecast EBITDA of the hotels. RHML and RECML run determine the discount rate on a loan by loan basis joint ventures depending on the Group’s contractual (amendment) (“IFRS 12”) consistency with the current year. This has resulted for as an asset acquisition and the relevant IFRSs are the hotels’ operating business and are therefore having regard to the term, duration and security rights to the assets and obligations for the liabilities. in the reclassification of tenant lease incentives applied in the recognition of a group of assets and The adoption of these improvements and exposed to fluctuations in the underlying trading arrangements of the new liability and an estimation When making this assessment, the Group considers of £3.8 million (Group) and other receivables liabilities. No goodwill arises on initial recognition but amendments has not had a material impact on the performance of each hotel under management. of the current rates charged in the market for similar the structure of the arrangements, the legal form of £0.9 million (Group) from current assets to any premium paid or discount received is allocated financial statements of the Group or Company. The They are responsible for the key decision making of instruments issued to companies of similar sizes. of any separate vehicles, the contractual terms accounting policies otherwise applied are the same non‑current assets. In line with the requirements of to the individual identifiable assets and liabilities the business operations and the day‑to‑day upkeep This judgement is made more difficult given the and other facts and circumstances specific to as those applied in the audited financial statements IAS 1, Paragraph 60, these amounts would not have based on their relative fair values. of the properties. bespoke nature of certain loans obtained by the each transaction. as at and for the year ended 31 August 2016. been settled or recovered within 12 months of the The Group recognises non‑controlling interests Group. Any difference between the nominal value balance sheet date as at 31 August 2016. In addition, The Group cumulatively holds a 30.4 per cent on the basis of their proportionate share in the Investments in associates and joint ventures are Disclosed in the following table are the relevant of the loan and its fair value equivalent will be current tax liabilities of £2.4 million (Group) and £1.3 shareholding in RedefineBDL Hotel Group Limited subsidiary’s identifiable net assets. Non‑controlling initially recorded at cost and subsequently increased new standards, amendments and interpretations recognised immediately in the income statement million (Company) as at 31 August 2016 have been (“RedefineBDL”), which in turn controls RHML and interests are presented separately from the equity or decreased each year by the Group’s share of that have been issued by the IASB but are not yet insofar as the fair value measurement is based presented separately on the face of the balance RECML. Having considered the guidance in IFRS 10, of the owners of the Parent on the balance sheet. the post‑acquisition net profit or loss and other effective or have not been early adopted. The impact on observable inputs. The deemed fair value will sheet in accordance with IAS 1, Paragraph 54 (n). the respective rights of each of the shareholders Profit or loss and total comprehensive income for movements recognised in other comprehensive of these improvements and amendments on the subsequently be accreted through profit or loss Current tax liabilities were previously included in in RedefineBDL and the relative size of the Group’s the year attributable to non‑controlling interests are income or directly in equity. The Group’s share of financial statements is being assessed. over the term of the loan using the effective interest trade and other payables. shareholding, the Directors have determined that presented separately in the income statement and the post‑tax results of the associate or joint venture rate method. the Group has the ability to exercise significant the statement of comprehensive income. reflects the Group’s proportionate interest in the influence over RedefineBDL. The Group does not relevant undertaking. control RedefineBDL and hence does not control RHML or RECML. The investment in RedefineBDL is therefore classified as an associate. Redefine International P.L.C. Redefine International P.L.C. 108 Annual Report 2017 Annual Report 2017 109 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
2. Significant accounting policies continued Currency translation Service charges A deferred tax asset is recognised only to the extent Subsequent expenditure is capitalised to investment Financial instruments 2.4 Accounting policies continued Foreign currency transactions Where the Group invoices budgeted service charges that it is probable that future taxable profits will be property when the expenditure incurred enhances Recognition and de-recognition available against which the asset can be utilised and the future economic benefits associated with the Basis of consolidation continued Transactions in foreign currencies are translated to tenants, amounts received are not recognised as A financial instrument is recognised when the Group is reduced to the extent that it is no longer probable property, such as enhanced future rental income, at the foreign exchange rate ruling at the date of income as the risks in relation to the subsequent or Company becomes a party to the contractual Investment in associates and joint ventures continued that the related tax benefit will be realised. Deferred capital appreciation or both. Contributions to tenant the transaction. Monetary assets and liabilities provision of actual goods and services are primarily provisions of the instrument. Financial assets are Goodwill arising on the acquisition of an associate tax liabilities are provided only to the extent refurbishments under lease arrangements are denominated in foreign currencies at the borne by the tenants during the service charge derecognised when the contractual rights to the or joint venture is included in the carrying amount that there are not sufficient tax losses to shield treated as tenant lease incentives and amortised reporting date are translated to the functional period. Consequently, amounts received are cash flows from those assets expire or when the of the investment. When the Group’s share of the charge. against rental income over the term of the lease. currency at the foreign exchange rate ruling at recognised as a liability on the balance sheet and assets are transferred to another party without losses in an associate or joint venture has reduced that date. Foreign exchange differences arising on reduced by the actual service charge expenditure As the fair value model is applied, property under retaining control or substantially all risks and the carrying amount to zero, including any other Investment property translation are recognised in the income statement. incurred. Any non‑recoverable service charge construction or redevelopment for future use as rewards of ownership. Regular way purchases and unsecured receivables, the Group does not In accordance with IAS 40, Paragraph 14, judgement Non‑monetary assets and liabilities denominated in expenses suffered by the Group, as a result of void investment property continues to be measured at sales of financial assets are accounted for at trade recognise further losses, unless it has incurred may be required to determine whether a property foreign currencies that are stated at fair value are or capped units, are included within rental expense fair value unless the fair value cannot be measured date. Financial liabilities are derecognised when the obligations to make payments on behalf of the qualifies as investment property. The Group has translated to the functional currency at the foreign in the income statement. reliably and the property is measured at cost. All obligations specified in the contract expire. associate or joint venture. developed criteria so that it can exercise judgement exchange rates ruling at the date that the values are finance costs directly associated with the acquisition consistently in recognising investment property, As goodwill forms part of the carrying amount of determined. Employee benefits and and construction of a qualifying development Non‑derivative financial instruments namely: property held for long‑term capital the net investment, it is not recognised separately share‑based payments property are capitalised during the period of Non‑derivative financial instruments are recognised appreciation; property owned (or held under finance and it is not tested for impairment separately. Foreign operations Employee benefits, such as salaries and other active development until practical completion. The initially at fair value plus, for those instruments not leases) and leased out under one or more operating Instead, the entire amount of the investment in an Exchange differences arising from the translation benefits, are accounted for on an accruals basis over rate applied is the actual rate payable on specific designated at fair value through profit or loss, any leases; and property that is being developed for associate or joint venture is tested for impairment of the net investment in foreign operations are the period during which employees have provided borrowings or the weighted average cost of debt of directly attributable transaction costs. Non‑derivative future use as investment property. The recognition as a single asset where there is objective evidence taken to the foreign currency translation reserve. services. Bonuses are recognised to the extent that a the Group for development spend that is financed financial instruments comprise investments in equity and classification of property as investment property that the investment may be impaired. Reversals Cumulative exchange differences are subsequently legal or constructive obligation to employees can be out of general funds. securities, trade and other receivables, cash and principally assumes that the Group: of impairment are recorded as an adjustment released to the income statement upon disposal. measured reliably. cash equivalents, loans and borrowings and trade Acquisition and disposals of investment property to the investment balance to the extent that the On consolidation, the balance sheets of foreign does not retain significant exposure to the and other payables. Loan receivables and payables Share‑based incentives are provided to certain • are recognised when significant risks and rewards recoverable amount of the associate or joint subsidiaries are translated at the closing rate and the variation in cash flows arising from the are subsequently measured at amortised cost using employees and Executive Directors for services attached to the property have transferred to, venture increases. income statement and statement of comprehensive underlying operations of tenants; and the effective interest rate method. rendered. The share‑based payments are all or from, the Group. This will ordinarily occur on income are translated at the transaction date rates Capital contributions result from the non‑reciprocal equity‑settled. The fair value of each award granted • will recover the carrying value through continuing exchange of contracts unless there are significant or at an average rate for the year where this is a Investments at fair value through profit or loss transfer of resources to an associate or joint is calculated at the grant date, using the Monte rental income streams and longer‑term capital conditions pending completion. Such transactions reasonable approximation. An instrument is classified at fair value through profit venture without a corresponding increase in the Carlo and Black‑Scholes valuation methodologies. appreciation. are recognised when these conditions are satisfied. Group’s equity interest. Capital contributions are The fair value is not subsequently re‑measured and or loss if it is held for trading or is designated as Revenue recognition Investment properties are initially recognised at The profit or loss on disposal of investment property also accounted for as an increase in the Group’s net is recognised in the share-based payment reserve such upon initial recognition. Financial instruments cost, including directly attributable transaction is recognised separately in the income statement investment and are subject to impairment. Rental income, including fixed stepped rent, in equity on a straight‑line basis over the vesting are designated as fair value through profit or loss if costs, and subsequently measured at fair value. and is the difference between the net sales proceeds is recognised in the income statement on a period as adjusted for the estimate of the awards the Group or Company manages such investments Unrealised gains and losses arising from The portfolios are valued on a bi‑annual basis by and the opening fair value asset plus any capital straight‑line basis over the lease term. Tenant lease that will eventually vest at each reporting date. The and makes purchase and sale decisions based on transactions with associates and joint ventures are external, independent and professionally qualified expenditure during the period to disposal. incentives, including rent‑free periods granted and corresponding compensation cost is recognised as their fair value. Upon initial recognition, attributable eliminated to the extent of the Group’s interest in valuers, having recent experience in the location cash contributions paid, which are an integral part an administrative expense over the vesting period. A property ceases to be recognised as investment transaction costs are recognised in profit or loss as those entities. of securing leases, are amortised as a reduction and category of the property being valued. The property and is transferred at its fair value to incurred. Financial instruments at fair value through Where the Group obtains significant influence or of rental income over the lease term. Surrender At the end of the performance period, a reserves fair values are based on market values, being the property held for sale when it meets the criteria profit or loss comprise equity securities and are joint control over an investment that was previously premiums that are paid by the Group to tenants to transfer occurs with no further charge reflected in estimated amount for which the property could of IFRS 5. measured at fair value with changes therein at each vacate a property are also treated as lease incentives the income statement. be exchanged on a highest and best use basis reporting date recognised in the income statement. accounted for as a financial instrument under IAS 39, Property held by the Group under long‑term leases if the surrender results in an enhanced future rental between a willing buyer and seller in an arm’s Fair values are determined by reference to their the Group’s previously held interest is re‑measured Income taxes are also treated as investment property in line to fair value through profit or loss. The deemed cost income stream. length transaction. quoted bid price at the reporting date. Income tax on the profit or loss for the year with IAS 40. The Group’s leasehold interests are all of the associate or joint venture is the fair value of The valuations are determined by considering Contingent rents are recognised as they arise. Rent comprises current and deferred tax. Income tax is classified as finance leases as substantially all the Derivative financial instruments the existing investment plus the fair value of any reviews are recognised as income or as a reduction comparable and timely market transactions for risks and rewards of ownership of the property recognised in the income statement except to the Derivative financial instruments are held to consideration given to achieve significant influence thereof from the date it is probable that the revised sales and lettings and having regard for the current have transferred to the Group. Finance leases are extent that it relates to items recognised in other manage interest rate risk exposures. Derivatives or joint control. terms will be agreed. Surrender premiums paid by leases in place. In the case of lettings, this includes recognised as both an asset and a liability and are comprehensive income or directly in equity, in which are recognised initially at fair value on the date the the tenant to terminate a lease early are recognised consideration of the aggregate net annual market measured at the lower of fair value and the present When the Group ceases to have significant influence case it is recognised in other comprehensive income. Group or Company becomes party to the contract; immediately in the income statement. rents achievable for the property and associated value of any future minimum lease payments. The or joint control, it is accounted for as a disposal of any attributable transaction costs are recognised Current tax is based on taxable profit or loss for costs. A yield which reflects the risks inherent in the finance lease obligation to the superior leaseholder the entire interest under the equity method, with a Management fees receivable from joint ventures are in the income statement as incurred. Derivatives the year and is calculated using tax rates that have future cash flows is applied to the net annual rents is recognised within borrowings on the balance resulting gain or loss being recognised in the income recognised in other income during the year in which are subsequently re‑measured to fair value at each been enacted or substantively enacted by the to arrive at the property valuation. sheet. Lease payments are apportioned between statement. Any retained interest in the investment at the services are rendered. Performance fees are reporting date, and changes therein are accounted reporting date. Taxable profit differs from net profit the finance charges and the capital reduction of the the date when significant influence or joint control is recognised when the conditions are satisfied. The bi‑annual valuations of investment property are for in the income statement and presented as reported in the income statement because it lease obligation so as to achieve a constant rate of lost is recognised at fair value on initial recognition based upon estimates and subjective judgements under change in fair value of derivative financial Dividends from listed property investments are excludes items of income that are not taxable or interest on the remaining balance of the liability over of a financial asset or, when appropriate, treated that may vary materially from the actual values and instruments. The Group does not apply hedge recognised on the date the Group’s right to receive expenses that are not tax deductible. the lease term. Finance charges are charged through as the deemed cost on initial recognition of an sales prices that may be realised by the Group upon accounting. investment in an associate. payment is established. Deferred tax is recognised using the balance ultimate disposal. The critical assumptions made in profit or loss as they arise. Any gain or loss on the dilution of an interest Dividends from subsidiary undertakings are also sheet liability method, providing for temporary determining the valuations have been included in Investment in subsidiary Impairment of financial assets in an equity accounted investee is calculated as recognised on the date the Company’s right to differences between the carrying amounts of assets Note 12 to the financial statements. undertakings (Company) Financial assets not carried at fair value through receive payment is established. and liabilities for financial reporting purposes and profit or loss are assessed at each reporting date the difference between the carrying amounts of In determining fair value, the market value of the Investments in subsidiary undertakings are carried in their relative tax base. The amount of deferred to determine whether there is objective evidence the investment in the equity accounted investee, Interest earned on loans receivable and on cash property as determined by the independent valuers the Company’s separate financial statements at cost tax provided is based on the expected manner of of impairment. A financial asset is impaired if immediately before and after the transaction that invested is recognised on an accruals basis using is reduced by the carrying amount of tenant lease less impairment losses, if any. Impairment losses are realisation or settlement, using tax rates enacted or objective evidence indicates that a loss event has resulted in the dilution and is recognised in the the effective interest rate method. incentives and increased by the carrying amount of determined with reference to the undertakings’ fair substantively enacted at the reporting date. occurred and factors include: adverse changes in income statement. fixed head leases. value. Fair value is derived from a review of the EPRA the payment status of a debtor or issuer; default or The following temporary differences are not adjusted net assets of Redefine International P.L.C. Intangible assets Gains or losses arising from changes in the fair value delinquency by a debtor; restructuring of an amount provided for: those arising from goodwill not Group. Impairment reversals are recognised on a of investment property are included in the income due on terms that the Group or Company would not Intangible assets arising on business combinations deductible for tax purposes; those arising from the consistent basis as the original charge and do not statement in the year in which they arise. consider otherwise; potential bankruptcy of a debtor are carried at cost less impairment. Amortisation of initial recognition of assets or liabilities that affect exceed cost. On disposal of subsidiary undertakings, or issuer; and economic conditions that correlate intangible assets is recognised in profit or loss on neither accounting or taxable profit; and those the difference between the net disposal proceeds with defaults or the disappearance of an active a straight‑line basis over their estimated useful life relating to investments in subsidiaries and joint and its carrying amount is recognised in the market for a security. from the date that they are available for use. ventures where the timing of the reversal can be statement of comprehensive income. controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Redefine International P.L.C. Redefine International P.L.C. 110 Annual Report 2017 Annual Report 2017 111 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
2. Significant accounting policies continued On initial classification as held for sale, non‑current Provisions, capital commitments 3. Segmental reporting 2.4 Accounting policies continued assets and disposal groups are ordinarily and contingent liabilities As required by IFRS 8 ‘Operating Segments’ (“IFRS 8”), the information provided to the Board, which is the Chief Operating Decision Maker, has been classified into the measured at the lower of the previous carrying Financial instruments continued A provision is recognised if, as a result of a past following segments: amount and fair value less costs to sell, with any event, the Group or Company has a present legal Impairment of financial assetscontinued UK Retail: the Group’s portfolio of shopping centres, retail parks and other retail assets; adjustments recognised in the income statement or constructive obligation that can be estimated An impairment loss is calculated as the difference and subsequently re‑measured at each reporting reliably and it is probable that an outflow of UK Commercial: the Group’s portfolio of offices, roadside service stations and logistics distribution centres; between the carrying amount of the financial asset date. Certain assets such as financial assets within economic benefits will be required to settle the UK Hotels: the Group’s hotel portfolio which comprises eight hotels in Greater London and South‑East England and one hotel in Edinburgh, Scotland; and the present value of the estimated future cash the scope of IAS 39 and investment property in obligation. Provisions are determined by discounting flows discounted at the asset’s original effective the Group’s 30.4 per cent associate interest in RedefineBDL (5.1 per cent of which is classified as held for sale). RedefineBDL is an independent hotel the scope of IAS 40 continue to be measured in the expected cash flows to present value using an interest rate. When a subsequent event objectively management company engaged in developing and managing a diverse portfolio of hotels in partnership with reputable international hotel brands. accordance with those standards. appropriate discount rate that reflects the risks causes the amount of impairment loss to decrease, RedefineBDL also leases and manages all of the Group’s hotel properties except for the Enfield Travelodge; and Gains and losses on re‑measurement and specific to the liability. the decrease in impairment loss is calculated on a the Group’s 17.2 per cent interest in IHL, a hotel and leisure focused property investment company listed on the Euro MTF Market of the Luxembourg impairment losses subsequent to classification Where it is not probable that an outflow of economic basis consistent with the impairment charge but the Stock Exchange (“LuxSE”) and the AltX of the JSE; carrying value after any reversal must not exceed the as held for sale are presented within continuing benefits will be required, or the amount cannot original carrying value. operations in the income statement, unless they be estimated reliably, the obligation is disclosed Europe: the Group’s portfolio in Germany. The portfolio is comprised of shopping centres, discount supermarkets and, until 1 January 2017, Government‑let meet the definition of a discontinued operation. as a contingent liability, unless the probability of offices. In the comparative segmental income statement, the Group’s results from the last legacy asset, The Hague, which was disposed on Impairment losses and reversals are recognised Non‑current assets held for sale are presented outflow of economic benefits is remote. Capital 31 August 2016, are also included; and in the income statement and reflected in an separately under current assets on the balance commitments are disclosed when the Group or Other: the Group’s holding and management companies that carry out the head office and centralised asset management activities of theroup. G allowance account against loans and receivables. sheet. Comparatives are not reclassified. Company has a contractual future obligation to a Finance income on impaired interest‑bearing assets third party which has not been provided for at the Management information, as presented to the Chief Operating Decision Maker, is prepared on a proportionately consolidated basis. Segmental reporting is therefore continues to be recognised. Borrowings balance sheet date. reported in line with management information, with the Group’s share of joint ventures presented line‑by‑line. Joint venture adjustments are disclosed to reconcile Interest‑bearing borrowings are recognised initially segmental performance and position to the Group financial statements. Cash and cash equivalents at fair value less directly attributable transaction Share capital Joint Cash and cash equivalents comprise cash balances costs. Any difference between the transaction Ordinary share capital UK UK UK Venture IFRS on hand, cash deposited with financial institutions price and the deemed fair value of the borrowing Ordinary shares are classified as equity. External Segmental income statement Retail Commercial Hotels Europe Other Total adjustments Total and short‑term call deposits. Cash and cash for the year ended 31 August 2017 £m £m £m £m £m £m £m £m is treated as a gain or loss in the income statement costs directly attributable to the issue of new shares, equivalents are recognised at fair value and have when the determination of fair value is based on net of tax, are shown as a deduction from any Continuing operations maturities of less than three months. Restricted cash observable inputs. Subsequent to initial recognition, recognised share premium. Revenue comprises cash deposits that are restricted until the interest‑bearing borrowings are measured at Rental income 39.8 24.8 14.8 23.7 — 103.1 (5.9) 97.2 fulfilment of certain conditions. amortised cost. Any differences between cost and Dividends Other income(1) — — — 0.1 2.6 2.7 2.0 4.7 the redemption value as a result of transaction costs Dividends to shareholders are recognised when Non‑current assets and disposal incurred or fair value adjustments are recognised in groups held for sale they become legally payable. In the case of interim Distributions from investment at fair value — — 0.2 — — 0.2 — 0.2 the income statement over the contractual term of dividends, this is when the dividends are declared by Total revenue 39.8 24.8 15.0 23.8 2.6 106.0 (3.9) 102.1 A non‑current asset or a disposal group (comprising the borrowings on an effective interest rate basis. the Board. assets and liabilities) is classified as held for sale if it Rental income 39.8 24.8 14.8 23.7 — 103.1 (5.9) 97.2 is expected that the carrying value will be recovered A financial liability is derecognised when it is Earnings per share Rental expense (5.1) (1.0) — (3.5) — (9.6) 0.6 (9.0) principally through sale rather than through extinguished. This may happen when: The Group presents basic and diluted earnings per continuing use and the sale is highly probable. full repayment is made to the lender; Net rental income 34.7 23.8 14.8 20.2 — 93.5 (5.3) 88.2 • share (EPS) data for its ordinary shares. Basic EPS is The asset or disposal group must be available for Other income(1) — — — 0.1 2.6 2.7 2.0 4.7 • the borrower is legally released from primary calculated by dividing the profit or loss attributable immediate sale, be actively marketed at a reasonable responsibility for the financial liability; or to ordinary shareholders of the Company by the (Loss)/gain on revaluation of investment property (21.2) 27.8 6.6 (3.3) — 9.9 0.9 10.8 approximation to fair value and the sale must have weighted average number of ordinary shares Loss on revaluation of investment property held for sale (3.9) — — — — (3.9) — (3.9) the appropriate level of management commitment. • where there is an exchange of debt instruments outstanding during the year. Diluted EPS is The sale may complete beyond a period of one with substantially different terms or a substantial Gain on disposal of investment property 3.3 5.9 — — — 9.2 — 9.2 modification to the existing terms of a debt determined by dividing the profit or loss attributable year from classification so long as there is sufficient Gain on disposal of investment property held for sale — 0.9 — 0.6 — 1.5 — 1.5 to ordinary shareholders by the weighted average evidence of a firm commitment from both parties instrument. number of ordinary shares outstanding adjusted for Distributions from investment at fair value — — 0.2 — — 0.2 — 0.2 and the circumstances of the delay are beyond the In the event of a substantial modification of terms, the effects of all dilutive potential ordinary shares. Loss on revaluation of investment at fair value — — (0.3) — — (0.3) — (0.3) Group’s or Company’s control. any difference between the carrying amount In line with the JSE Listing Requirements, the Group Finance income on loans to joint ventures — — — — — — 2.7 2.7 Where there is commitment to a sale plan involving of the original liability and the consideration also presents headline earnings per share. Finance income — — — — 0.7 — the loss of control of a subsidiary, the loss of joint paid is recognised in the income statement. The 0.7 0.7 control of a joint venture or significant influence consideration paid includes non‑financial assets Finance expense (15.6) (6.3) (3.3) (4.5) — (29.7) 1.3 (28.4) transferred and the assumption of liabilities, Segmental reporting over a joint venture and the criteria set out above Other finance income and expense (6.3) (0.1) — 0.3 (0.1) (6.2) (0.3) (6.5) An operating segment is a component of the Group are met, the Group classifies all the assets and including the new modified financial liability. The that engages in business activities from which it may Change in fair value of derivative financial instruments 2.2 2.8 (0.7) 1.3 — 5.6 (1.1) 4.5 liabilities of that subsidiary or the equity accounted modified borrowing is recognised initially at fair earn revenues and in respect of which it may incur Group gain on sale of joint venture interests(2) — — — 5.6 — (0.7) investment in the joint venture or associate as held value and subsequently carried at amortised cost 5.6 4.9 expenses, including revenues and expenses that (2) for sale. This classification is appropriate regardless under the effective interest rate method. Any costs Joint venture loss on sale of subsidiaries — — — (0.7) — (0.7) 0.7 — or fees incurred are recognised as part of the gain or relate to transactions with any of the Group’s other of whether a non‑controlling interest will be retained Impairment of investment in associate — — (0.5) — — (0.5) — (0.5) components. An operating segment’s operating after the sale. Where significant influence over an loss on extinguishment. results are reviewed regularly by the Chief Operating Share of post‑tax profit from associate — — 1.1 — — 1.1 — 1.1 associate will not be lost, only that portion of the Where existing borrowings are exchanged for new Decision Maker to inform decisions about resources Transfer of foreign currency translation on disposal investment for which there is a commitment to sell or amended borrowings and the terms are not to be allocated to the segment and to assess its of joint venture interest — — — 2.0 — 2.0 — 2.0 shall be reclassified as held for sale. substantially different, the new borrowings are performance, and for which discrete financial recognised initially at the carrying amount of the Total per reportable segment (6.8) 54.8 17.9 21.6 3.2 90.7 0.2 90.9 information is available as disclosed in Note 3. existing borrowings. Any costs or fees incurred Unallocated income and expenses:(3) adjust the carrying amount of the borrowings and Administrative costs and other fees(1) (15.6) 0.3 (15.3) are amortised over the remaining term. Amortisation of intangible assets (0.2) — (0.2) Ongoing finance costs and debt servicing payments Profit before tax 74.9 0.5 75.4 are recognised in the income statement on Taxation (4.4) 0.5 (3.9) an accruals basis, using the effective interest rate method. 70.5 1.0 71.5 Joint venture adjustments: Movement of losses restricted in joint ventures(4) (0.9) 0.9 — Reversal of impairment of loans to joint ventures — 0.4 0.4 Share of post‑tax loss from joint ventures — (2.3) (2.3) IFRS profit for the year 69.6 — 69.6 Redefine International P.L.C. Redefine International P.L.C. 112 Annual Report 2017 Annual Report 2017 113 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
3. Segmental reporting continued Joint (1) UK UK UK Venture IFRS Other income includes management fee income from joint ventures of £3.8 million on an IFRS basis, of which £3.4 million relates to the net Performance Fee on disposal of Segmental income statement Retail Commercial Hotels Europe Other Total adjustments Total joint venture interests (refer to Note 5). On a proportionate basis, and for segmental reporting purposes, the net Performance Fee of £1.6 million has been recognised in other for the year ended 31 August 2016 £m £m £m £m £m £m £m £m income. The Group share of the total joint venture investment management expense of £2.0 million has been reclassified from administrative costs and other fees. Continuing operations (2) The £5.6 million gain recognised by the Group and the loss of £0.7 million recognised by the joint venture relate to the share sale of the property‑owning subsidiaries of Wichford VBG Holding S.à.r.l. on 1 January 2017. The net gain on sale of £4.9 million has been recognised as a single line item within the Group income statement under ‘Net gain on sale of Revenue joint venture interests’ (refer to Note 10). Rental income 37.0 22.2 15.0 22.3 0.1 96.6 (10.0) 86.6 (3) Unallocated income and expenses are items incurred centrally which are neither directly attributable nor can be reasonably allocated to individual segments. Other income(1) — 0.8 — 0.4 1.9 3.1 (0.6) 2.5 (4) As detailed in Note 15, the Group’s joint venture interest in 26 Esplanade No 1 Limited (the “Esplanade”) has been reduced to £Nil in the financial statements in line with IAS 28. Distributions from investment at fair value — — 0.5 — — 0.5 — 0.5 On a proportionate basis, the Group’s share in the net liabilities of the Esplanade are recognised line‑by‑line. Movements in the losses of the Esplanade that are not recognised on an equity accounted basis during each reporting period are presented to reconcile segmental information to the IFRS statements. Total revenue 37.0 23.0 15.5 22.7 2.0 100.2 (10.6) 89.6
Joint Rental income 37.0 22.2 15.0 22.3 0.1 96.6 (10.0) 86.6 UK UK UK Venture IFRS Segmental balance sheet Retail Commercial Hotels Europe Total adjustments Total Rental expense (4.1) (0.9) — (2.3) — (7.3) 1.1 (6.2) as at 31 August 2017 £m £m £m £m £m £m £m Net rental income 32.9 21.3 15.0 20.0 0.1 89.3 (8.9) 80.4 Investment property 507.5 355.7 239.3 418.0 1,520.5 (25.6) 1,494.9 Other income(1) — 0.8 — 0.4 1.9 3.1 (0.6) 2.5 Investment at fair value through profit or loss — — 8.5 — 8.5 — 8.5 (Loss)/gain on revaluation of investment property(2) (40.1) 5.0 (7.3) 1.2 — (41.2) (1.3) (42.5) Investment in associate — — 9.4 — 9.4 — 9.4 Gain on disposal of investment property — 3.2 — — — 3.2 — 3.2 Trade and other receivables 7.8 3.6 0.8 7.8 20.0 (0.4) 19.6 Gain on disposal of subsidiary — — — 12.2 — 12.2 12.2 Cash and cash equivalents 5.2 28.1 5.0 5.3 43.6 (0.6) 43.0 Distributions from investment at fair value — — 0.5 — — 0.5 — 0.5 Non‑current assets held for sale 12.9 9.3 1.5 3.6 27.3 — 27.3 Loss on revaluation of investment at fair value — — (0.8) — — (0.8) — (0.8) Borrowings, including finance leases (317.3) (188.9) (113.1) (218.8) (838.1) 16.3 (821.8) Gain on disposal of non‑current assets held for sale — 0.2 — — — 0.2 — 0.2 Trade and other payables (9.4) (2.9) (1.2) (4.3) (17.8) 0.8 (17.0) Foreign exchange gain — — — — 0.9 0.9 — 0.9 Segmental net assets 206.7 204.9 150.2 211.6 773.4 (9.5) 763.9 Finance income on loans to joint ventures — — — — — — 5.0 5.0 Unallocated assets and liabilities: Finance income — — — — 1.3 1.3 — 1.3 Other non‑current assets 1.2 — 1.2 Finance expense (16.1) (7.1) (3.8) (7.3) (0.1) (34.4) 1.7 (32.7) Trade and other receivables 4.3 — 4.3 Other finance expense (1.5) (0.3) (0.1) (0.1) — (2.0) 0.1 (1.9) Cash and cash equivalents 9.8 — 9.8 Gain on financial liabilities — — — 2.5 — 2.5 (2.5) — Net derivative financial instruments (10.9) 3.5 (7.4) Change in fair value of derivative financial instruments (5.0) (5.5) (0.7) (1.6) — (12.8) 1.7 (11.1) Deferred tax (10.8) 0.4 (10.4) Impairment of investment in associate — — (3.2) — — (3.2) — (3.2) Trade and other payables (4.2) — (4.2) Share of post‑tax profit from associate — — 1.7 — — 1.7 — 1.7 Current tax liabilities (1.2) — (1.2) Total per reportable segment (29.8) 17.6 1.3 27.3 4.1 20.5 (4.8) 15.7 761.6 (5.6) 756.0 Unallocated income and expenses:(3) Joint venture adjustments: Administrative costs and other fees (11.4) 0.5 (10.9) Joint venture non‑controlling interest (0.1) 0.1 — Amortisation of intangible assets (0.2) — (0.2) (1) Cumulative losses restricted in joint ventures 0.7 (0.7) — Profit before tax 8.9 (4.3) 4.6 Investment in joint ventures — 1.9 1.9 Taxation (1.6) 0.5 (1.1) Loans to joint ventures — 4.3 4.3 7.3 (3.8) 3.5 IFRS net assets 762.2 — 762.2 Joint venture adjustments: (1) As detailed in Note 15, the Group’s interest in the Esplanade has been reduced to £Nil in the financial statements in line with IAS 28. On a proportionate basis, the Group’s share Movement of losses restricted in joint ventures(4) 0.2 (0.2) — in the net liabilities of the Esplanade are recognised line‑by‑line. The cumulative losses of this joint venture that the Group has not recognised on an equity accounted basis at the reporting date are presented to reconcile segmental information to the IFRS statements. Reversal of impairment of loans to joint ventures — 2.6 2.6 Joint Share of post‑tax profit from joint ventures — 1.4 1.4 UK UK UK Venture IFRS IFRS profit for the year 7.5 — 7.5 Other segmental information Retail Commercial Hotels Europe Total adjustments Total (1) Other income in the ‘Other’ segment includes management fee income from joint ventures of £0.7 million. Refer to Note 32 for further details. as at 31 August 2017 £m £m £m £m £m £m £m (2) Included in (loss)/gain on revaluation of investment property is £22.6 million of costs incurred on the acquisition of the AUK Portfolio. Additions to investment property during the year per reportable segment: (3) Unallocated income and expenses are items incurred centrally which are neither directly attributable nor can be reasonably allocated to individual segments. Capitalised expenditure 3.5 1.0 2.9 12.2 19.6 — 19.6 (4) As detailed in Note 15, the Group’s interest in the Esplanade has been reduced to £Nil in the financial statements in line with IAS 28. On a proportionate basis, the Group’s share Capitalised finance costs — — 0.2 0.3 0.5 — 0.5 in the net liabilities of the Esplanade are recognised line‑by‑line. Movements in the losses of the Esplanade that are not recognised on an equity accounted basis during each Acquisition of control of former joint venture — — — 80.8 80.8 75.0 155.8 reporting period are presented to reconcile segmental information to the IFRS statements. 3.5 1.0 3.1 93.3 100.9 75.0 175.9
Joint UK UK UK Venture Other segmental information Retail Commercial Hotels Europe Other Total adjustments Total for the year ended 31 August 2017 £m £m £m £m £m £m £m £m Inter‑segmental revenue and expense: Management fee income — — — — 6.9 6.9 — 6.9 Management fee expense (2.3) (1.6) (0.1) (1.4) (1.5) (6.9) — (6.9) (2.3) (1.6) (0.1) (1.4) 5.4 — — — Inter‑segmental revenue and expense relate to intercompany investment management fees that eliminate on consolidation. Redefine International P.L.C. Redefine International P.L.C. 114 Annual Report 2017 Annual Report 2017 115 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
3. Segmental reporting continued 4. Rental income Joint Year ended Year ended UK UK Venture IFRS 31 August 31 August Segmental balance sheet Retail Commercial UK Hotels Europe Total adjustments Total 2017 2016 as at 31 August 2016 £m £m £m £m £m £m £m Group £m £m Investment property 541.9 419.0 229.6 346.8 1,537.3 (140.9) 1,396.4 Gross lease payments from third parties 83.2 71.9 Investment at fair value through profit or loss — — 7.9 — 7.9 — 7.9 Gross lease payments from related parties (Note 32) 14.0 14.7 Investment in associate — — 10.2 — 10.2 — 10.2 Rental income 97.2 86.6 Trade and other receivables 4.8 3.3 1.7 5.9 15.7 (1.0) 14.7 The future aggregate minimum rents receivable under non‑cancellable operating leases at the balance sheet date are as follows: Cash and cash equivalents 8.3 2.5 2.0 9.0 21.8 (2.3) 19.5 Not later than one year 98.0 91.1 Borrowings, including finance leases (324.9) (201.6) (109.9) (206.0) (842.4) 76.8 (765.6) Later than one year not later than five years 329.8 302.2 Trade and other payables (6.6) (6.4) (1.7) (7.7) (22.4) 3.9 (18.5) Later than five years 347.7 366.2 Segmental net assets 223.5 216.8 139.8 148.0 728.1 (63.5) 664.6 775.5 759.5 Unallocated assets and liabilities: Other non‑current assets 1.4 — 1.4 Trade and other receivables 16.7 — 16.7 5. Other income Cash and cash equivalents 12.5 — 12.5 Group Company
Net derivative financial instruments (16.5) 4.7 (11.8) Year ended Year ended Year ended Year ended Deferred tax (5.3) 1.9 (3.4) 31 August 31 August 31 August 31 August 2017 2016 2017 2016 Trade and other payables (2.9) — (2.9) £m £m £m £m Current tax liabilities — (2.4) (2.4) Performance Fee(1) 3.4 — — —
731.6 (56.9) 674.7 Investment management fees from joint ventures (Note 32) 0.4 0.7 — — Joint venture adjustments: Insurance rebates 0.4 0.5 0.4 0.5 Fair value on acquisition of joint venture interest (0.9) 0.9 — Salary recharges 0.3 0.3 — — Joint venture non‑controlling interest 0.7 (0.7) — Other income from related parties (Note 32) — 0.3 — 0.3 Cumulative losses restricted in joint ventures(1) (1.6) 1.6 — Other property related income 0.2 0.7 — 0.1 Investment in joint ventures 5.8 — 5.8 Other income 4.7 2.5 0.4 0.9 Loans to joint ventures — 52.9 52.9 (1) The Group was responsible for the investment management of the property portfolio of the Wichford VBG Holding S.à.r.l. joint venture. The Group was incentivised during the IFRS net assets 733.4 — 733.4 investment period by a Performance Fee dependent on the internal rate of return achieved on disposal. The return on disposal on 1 January 2017 resulted in a fee of £3.4 million (1) As detailed in Note 15, the Group’s interest in the Esplanade has been reduced to £Nil in the financial statements in line with IAS 28. On a proportionate basis, the Group’s share payable from the joint venture to the Group, after the deduction of certain costs. The income has been recognised within other income and the Group share of the related in the net liabilities of the Esplanade are recognised line‑by‑line. The cumulative losses of this joint venture that the Group has not recognised on an equity accounted basis at the expense incurred by the joint venture has been recognised within share of post‑tax (loss)/profit from joint ventures. On a proportionate basis, and for segmental reporting reporting date are presented to reconcile segmental information to the IFRS statements. purposes, the net Performance Fee of £1.6 million earned by the Group has been recognised in other income. Joint UK UK UK Venture IFRS 6. Administrative costs and other fees Other segmental information Retail Commercial Hotels Europe Total adjustments Total Group Company as at 31 August 2016 £m £m £m £m £m £m £m Additions to investment property during the year per reportable segment: Year ended Year ended Year ended Year ended 31 August 31 August 31 August 31 August Acquisition of investment property 213.1 276.6 — — 489.7 — 489.7 2017 2016 2017 2016 Acquisition costs 10.5 12.1 — — 22.6 — 22.6 £m £m £m £m Capitalised expenditure 3.0 0.3 1.8 2.8 7.9 (0.1) 7.8 Administrative and other operating expenses 4.5 2.3 1.4 1.6 226.6 289.0 1.8 2.8 520.2 (0.1) 520.1 Professional fees 2.7 2.5 2.0 1.2 Staff costs 5.5 4.9 2.3 2.2 Joint UK UK UK Venture IFRS Share‑based payments 1.0 1.2 1.0 1.2 Other segmental information Retail Commercial Hotels Europe Other Total adjustments Total Non‑recurring investment management fees (including termination fee) 1.6 — — — for the year ended 31 August 2016 £m £m £m £m £m £m £m £m Intra-group investment management fees (Note 32) — — 0.8 0.6 Inter‑segmental revenue and expense: Administrative costs and other fees 15.3 10.9 7.5 6.8 Management fee income — — — — 3.9 3.9 — 3.9 Management fee expense (1.4) (1.1) — (0.8) (0.6) (3.9) — (3.9) (1.4) (1.1) — (0.8) 3.3 — — — Inter‑segmental revenue and expense relate to intercompany investment management fees that eliminate on consolidation. Redefine International P.L.C. Redefine International P.L.C. 116 Annual Report 2017 Annual Report 2017 117 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
7. Disposal of subsidiaries 10. Net gain on sale of joint venture interests No subsidiaries of the Group were disposed of during the year ended 31 August 2017. On 1 January 2017, Wichford VBG Holding S.à.r.l. (“Wichford VBG”), exchanged contracts to dispose of all its property‑owning subsidiaries. The value attributed by the purchaser to the property portfolio, on which the sale was based, was €106.0 million (£90.6 million). The carrying value of the portfolio was €97.6 million (£83.2 million). On 31 August 2016, the Group disposed of its entire shareholding in Cooperative Redefine International Real Estate UA (Netherlands) for a nominal consideration of €1. Net consideration for the subsidiary interests was agreed at €49.7 million (£42.4 million). The transaction completed on 13 January 2017 subject to final completion The disposed subsidiary held the entire issued share capital of Redefine International Dan Haag B.V. (Netherlands). The latter company is the beneficial and legal owner adjustments which were negligible. The equity of the subsidiaries was acquired for nominal value and the consideration receivable was comprised of: of The Justice Center, The Hague, the Group’s last European non‑core legacy asset. €29.4 million (£25.1 million) in settlement of the shareholder loans outstanding to the joint venture partners (Group share: €14.4 million/£12.5 million); and The impact of the disposal on the Group and the net cash outflow is shown below: • €20.3 million (£17.3 million) in settlement of loans that had been advanced by the retained structure of Wichford VBG (“Finco Loans”) to the disposed subsidiaries 31 August • (Group share: €9.9 million/£8.5 million). The Finco Loans had previously eliminated on consolidation of the joint venture. 2016 Group £m Cash consideration of €47.9 million (£40.8 million) was initially received by the joint venture after the deduction of transaction costs of €0.8 million (£0.7 million) Carrying value of net (assets)/liabilities by the purchaser. In addition, €1.0 million (£0.8 million) was deferred pending the outcome of certain conditions. The conditions were satisfied and the deferred Investment property (5.5) consideration was received in advance of the balance sheet date. The net assets of the subsidiaries on disposal were €11.2 million (£9.4 million) and, after adjusting for the Shareholder Loans and additional transaction costs incurred of €1.8 million (£1.5 million), an initial gain on sale of €6.5 million (£5.7 million) was recognised by Trade and other receivables (0.7) the joint venture. The Group share of this gain was €3.2 million (£2.8 million). The Group recognised a total gain of £4.9 million after the recycling of cumulative foreign Cash and cash equivalents (0.4) currency translation gains of £2.2 million to the income statement and the deduction of £0.1 million of Group transaction costs. The Directors believe that the recycling Borrowings 15.0 of the translation reserve is appropriate as the retained Wichford VBG structure has only residual cash to settle final working capital balances at 31 August 2017. Trade and other payables 0.2 The Finco Loans originated during the Wichford VBG restructuring in September 2012, when a financing vehicle of the retained structure acquired the residual bank Net liabilities disposed 8.6 debt from the existing lender for nominal value. Loan notes of €1 (“Finco Loan Notes”) were issued to the joint venture partners by the vehicle to finance the acquisition Consideration received — of the Finco Loans. Under the terms of the Finco Loan Notes, any termination payments received under the Finco Loans would be payable to the Finco Loan Note holders after settlement of the Performance Fee (refer to Note 5) and any interest outstanding so that surplus cash could be repatriated efficiently to the joint venture Transfer of foreign currency translation to the income statement on disposal of foreign operation 3.6 partners. Following the disposal of the Finco Loans, a loss was therefore recognised in the financial statements of the joint venture on settlement of the Finco Loan Gain on disposal of subsidiary 12.2 Notes (Group share: €3.9 million/£3.5 million) and a corresponding gain was recognised by the joint venture partners. The net impact of the Finco Loan Note settlement is £Nil in the Group financial statements. For presentation purposes and to reflect the substance of the transaction, all gains and losses incurred by both the Group (£5.6 million gain) and the joint venture on an equity accounted basis (£0.7 million loss), as a result of the disposal, are included within one line in the income statement, 8. Finance income and finance expense ‘Net gain on sale of joint venture interests’. Group Company The table below illustrates the financial impact of the transaction on the joint venture and on the Group on a total basis, eliminating the effect of the Finco Loan Note Year ended Year ended Year ended Year ended settlement for simplicity. 31 August 31 August 31 August 31 August £m 2017 2016 2017 2016 £m £m £m £m Carrying value of net (assets)/liabilities Finance income Investment property (83.2) Finance income on bank deposits — 0.2 — 0.1 Trade and other receivables (0.4) Finance income on loans to external parties 0.2 — — — Cash and cash equivalents (0.5) Finance income on loans to subsidiary undertakings (Note 32) — — 0.4 — Borrowings 47.9 Finance income on loans to joint ventures (Note 32) 2.7 5.0 — — Loans from joint venture partners 25.1 Finance income on loans to other related parties (Note 32) 0.5 1.1 0.5 1.1 Derivative financial instruments 0.4 Finance income 3.4 6.3 0.9 1.2 Deferred tax 1.2 Trade and other payables 0.1 Finance expense Net assets disposed by joint venture (9.4) Finance expense on secured bank loans (25.8) (27.3) — — Settlement of loans from joint venture partners (25.1) Interest capitalised to qualifying investment property under development 0.4 — — — Adjusted net assets disposed by joint venture (34.5) Amortisation of debt issue costs (1.3) (1.5) — — Cash consideration received 41.6 Accretion of fair value adjustments (0.9) (1.7) — — Additional transaction costs incurred (1.5) Release of fair value adjustment — (1.4) — — Foreign currency adjustment on settlement 0.1 Finance lease interest (0.8) (0.8) — — Gain on sale of subsidiaries attributable to joint venture 5.7 Finance expense (28.4) (32.7) — — Elimination of joint venture partners’ interest (2.9) Gain on sale of joint venture interests attributable to Group 2.8 Net finance expense (25.0) (26.4) 0.9 1.2 Group cost of disposal (0.1) Transfer of foreign currency translation to the income statement on disposal of joint venture interests 2.2 9. Other finance expense Net gain on sale of joint venture interests 4.9 Group Company Attributable to:
Year ended Year ended Year ended Year ended Joint venture (Group share) (0.7) 31 August 31 August 31 August 31 August Group 5.6 2017 2016 2017 2016 £m £m £m £m Total cash proceeds received by the Group at the balance sheet date on disposal were £22.1 million, including the receipt of the Performance Fee of £3.4 million (refer to Note 5). In the statement of cash flows, the Performance Fee has been presented under operating activities and the balance of £18.7 million has been presented under investing activities. Aviva profit share: – share of earnings for the year 0.2 1.5 — — – re‑measurement of financial liability 1.3 — — — Net change in fair value adjustments on substantial modification of borrowings(1) 4.3 — — — Termination of derivative financial instruments — 0.2 — — Write‑off of unamortised debt issue costs 0.4 — — — Other non‑recurring finance expense 0.3 0.2 0.2 — Other finance expense 6.5 1.9 0.2 — (1) The net change in fair value adjustments relates to the release of the residual fair value adjustment on extinguishment of the existing Aviva facilities and recognition of a fair value adjustment on the refinanced amalgamated facility in line with IAS 39. See Note 21 for further information. Redefine International P.L.C. Redefine International P.L.C. 118 Annual Report 2017 Annual Report 2017 119 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
11. Taxation 12. Investment property Tax recognised in the income statement UK UK Retail Commercial UK Hotels Europe(1) Total Freehold Leasehold Group Company Group £m £m £m £m £m £m £m Year ended Year ended Year ended Year ended Opening carrying value at 1 September 2016 541.9 407.3 229.6 217.6 1,396.4 1,052.2 344.2 31 August 31 August 31 August 31 August 2017 2016 2017 2016 Capitalised expenditure 3.5 1.0 2.9 12.2 19.6 7.0 12.6 £m £m £m £m Capitalised finance costs — — 0.2 0.3 0.5 0.2 0.3 Current income tax Acquisition of control of former joint venture (Note 30) — — — 155.8 155.8 155.8 — Income tax in respect of current year 0.3 0.6 — — Disposals through the sale of property (2.1) (42.6) — — (44.7) (42.9) (1.8) Adjustments in respect of prior years 0.1 (0.7) (0.1) 0.9 Transfer to non‑current assets held for sale (Note 20) (16.8) (49.0) — (9.7) (75.5) (65.3) (10.2) Deferred tax Head lease movements 2.2 (0.5) — (0.1) 1.6 71.6 (70.0) On fair value of investment property 2.6 (0.2) — — (Loss)/gain on revaluation of investment property (21.2) 27.9 6.6 (2.5) 10.8 32.1 (21.3) On accelerated capital allowances 0.9 1.4 — — Foreign exchange movement in foreign operations — — — 30.4 30.4 29.0 1.4 Tax charge/(credit) for the year recognised in the income statement 3.9 1.1 (0.1) 0.9 IFRS carrying value at 31 August 2017 507.5 344.1 239.3 404.0 1,494.9 1,239.7 255.2 There was no tax recognised in equity or other comprehensive income during the year (31 August 2016: £Nil). Adjustments: Non‑current assets held for sale (Note 20) 12.9 9.2 — 3.7 25.8 19.3 6.5 Reconciliation Minimum payments under head leases (Note 21) (10.1) (2.6) (0.4) (1.7) (14.8) — (14.8) The tax rate for the year is lower than the average standard rate of corporation tax in the UK of 19.58 per cent (31 August 2016: 20 per cent). The differences are Tenant lease incentives (Note 18) 4.3 1.9 0.7 0.3 7.2 5.2 2.0 explained below: Market value of Group portfolio at 31 August 2017 514.6 352.6 239.6 406.3 1,513.1 1,264.2 248.9 Group Company Joint ventures 31 August 31 August 31 August 31 August Share of joint venture investment property (Note 15) — 11.6 — 14.0 25.6 — 2017 2016 2017 2016 25.6 £m £m £m £m Market value of total portfolio at 31 August 2017 Profit/(loss) before tax 73.5 8.6 (5.4) (80.4) (on a proportionately consolidated basis) 514.6 364.2 239.6 420.3 1,538.7 1,289.8 248.9
Profit/(loss) before tax multiplied by standard rate of corporation tax 14.4 1.7 (1.1) (16.1) UK Effect of: UK Retail Commercial UK Hotels Europe(1) Total Freehold Leasehold Group £m £m £m £m £m £m £m – Revaluation of investment property 1.3 8.2 — — Opening carrying value at 1 September 2015 355.4 153.8 235.1 190.1 934.4 642.6 291.8 – Gain on disposal of investment property (2.1) (0.6) — — Additions from acquisition of property(2) 213.1 276.6 — — 489.7 407.9 81.8 – Gain on disposal of subsidiary — (2.4) — — Acquisition costs 10.5 12.1 — — 22.6 20.1 2.5 – Loss on revaluation of investment at fair value 0.1 — — — Capitalised expenditure 3.0 0.3 1.8 2.7 7.8 4.8 3.0 – Debt fair value adjustments 1.0 — — — Disposals through the sale of property(2) — (40.3) — — (40.3) (10.7) (29.6) – Change in fair value of derivative financial instruments (0.9) 2.2 — — Disposals through the sale of subsidiary (Note 7) — — — (5.5) (5.5) (5.5) — – Income not subject to UK income tax (11.3) (8.3) 0.1 (1.0) Disposal of head leases — (0.4) — — (0.4) — (0.4) – Non‑resident landlord tax attributable to non‑controlling interest — 0.4 — — (Loss)/gain on revaluation of investment property (40.1) 5.2 (7.3) (0.3) (42.5) (35.2) (7.3) – Group relief utilised — (0.1) 0.2 0.1 Foreign exchange movement in foreign operations — — — 30.6 30.6 28.2 2.4 – Losses utilised (0.1) — — — IFRS carrying value at 31 August 2016 541.9 407.3 229.6 217.6 1,396.4 1,052.2 344.2 – Unutilised losses carried forward 0.7 0.3 0.7 0.5 Adjustments: – Other taxable income — 0.1 — — Minimum payments under head leases (Note 21) (7.9) (3.1) (0.4) (1.6) (13.0) — (13.0) – Impact of foreign tax 0.3 — — — Tenant lease incentives (Note 18) 3.1 1.6 — — 4.7 1.9 2.8 – Expenses not deductible for tax 0.4 0.3 0.3 0.3 Market value of Group portfolio at 31 August 2016 537.1 405.8 229.2 216.0 1,388.1 1,054.1 334.0 – Adjustments in respect of prior years 0.1 (0.7) (0.1) 0.9 Joint ventures 3.9 1.1 0.1 (15.3) Share of joint venture investment property (Note 15) — 11.7 — 129.2 140.9 140.9 — Intra‑group transactions Market value of total portfolio at 31 August 2016 – Settlement of loans — — (0.2) 20.6 (on a proportionately consolidated basis) 537.1 417.5 229.2 345.2 1,529.0 1,195.0 334.0 – Reversal of impairment of loan — — — (4.1) (1) Included within the Europe segment at 31 August 2017 is property under development of £23.4 million (31 August 2016: £18.5 million). – REIT exempt distributions — — — (0.3) (2) Additions from acquisitions and disposals through the sale of property in UK Commercial have been grossed up to reflect the acquisition and subsequent sale of Tax charge/(credit) for the year recognised in the income statement 3.9 1.1 (0.1) 0.9 16 Grosvenor Street as part of the AUK transaction. In the reconciliation above for the year ended 31 August 2017, the effective tax rate of the Group was 5.3 per cent (31 August2016: 12.8 per cent). The tables above present both segmental and market value investment property information prepared on a proportionately consolidated basis. Properties that have been classified as held for sale in the current year are also included so that the market value of the total portfolio can be determined. This format is not a requirement of IFRS and is for The enactment of Finance (No. 2) Act 2015 and Finance Act 2016 has reduced the main rate of corporation tax from 20 per cent to 19 per cent with effect 1 April 2017, informational purposes as it is used in reports presented to the Group’s Chief Operating Decision Maker. with a further reduction to 17 per cent from April 2020. On 4 December 2013, the Group converted to a UK‑REIT. As a result, the Group does not pay UK Corporation Tax on the profits and gains from qualifying rental business in the UK provided certain conditions are met. Non‑qualifying profits and gains of the Group continue to be subject to corporation tax. The Directors intend the Group to continue as a REIT for the foreseeable future. As a result, deferred tax is no longer recognised on temporary differences relating to the UK property rental business which is within the REIT structure. Redefine International P.L.C. Redefine International P.L.C. 120 Annual Report 2017 Annual Report 2017 121 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
12. Investment property continued Committed expenditure Recognition The Group was contractually committed to expenditure of £16.5 million for the future development and enhancement of investment property at 31 August 2017 Judgement may be required to determine whether a property qualifies as an investment property. Investment property comprises a number of retail and commercial (31 August 2016: £15.8 million). properties in the UK and Europe that are leased to unconnected third parties. In addition, the hotel portfolio is held for capital appreciation and to earn rental income. Disposals The hotels have been let to RHML and RECML (with the exception of Travelodge, Enfield) to separately manage the operating business for a fixed rent which is subject The Group disposed of four assets from the UK Commercial portfolio and a single unit from the UK Retail portfolio during the year realising a net gain, after disposal to annual review. The review takes into account the forecast EBITDA when setting the revised rent for each hotel. As detailed in the key judgements and estimates in costs, of £9.2 million (31 August 2016: £3.2 million). As at 31 August 2017, net proceeds of £54.9 million had been received by the Group (31 August 2016: £38.8 million). Note 2, aside from the Group’s associate interest in RedefineBDL and the receipt of rental income, Redefine International is not involved in the hotel management business and there are limited transactions between Redefine International, RHML and RECML. As a result, the Directors consider it appropriate to classify the hotel Sales Disposal Tenant Net sales Carrying Gain on portfolio as investment property in line with IAS 40. proceeds costs incentives proceeds value disposal 31 August 2017 £m £m £m £m £m £m Valuation 201 Deansgate, Manchester 29.2 (0.3) — 28.9 (25.5) 3.4 The carrying amount of investment property is the market value of the property as determined by appropriately qualified independent valuers and adjusted for Exchange House, Watford 13.3 (0.2) — 13.1 (11.8) 1.3 minimum payments under head leases and tenant lease incentives. Valuations are based on what is determined to be the highest and best use. When considering the 1A Parliament Square, Edinburgh 4.0 — — 4.0 (3.5) 0.5 highest and best use a valuer will consider, on a property by property basis, and in limited circumstances in aggregation with other assets, its actual and potential uses Delta 900, Swindon 3.6 (0.1) (1.0) 2.5 (1.8) 0.7 which are physically, legally and financially viable. Where the highest and best use differs from the existing use, the valuer will consider the cost and the likelihood of achieving and implementing this change to determine an appropriate valuation. Fees paid to valuers are based on arms length fixed price contracts. Single unit – Priory Retail Park, Merton 5.5 (0.1) — 5.4 (2.1) 3.3 55.6 (0.7) (1.0) 53.9 (44.7) 9.2 The fair value of the Group’s property for the year ended 31 August 2017 was assessed by independent and appropriately qualified valuers in accordance with the Royal Institute of Chartered Surveyors (“RICS”) standards and IFRS 13. The valuations are performed by Strutt & Parker LLP for the UK Shopping Centres, BNP Paribas Real Estate for the Esplanade and Savills for rest of the portfolio. The valuations are reviewed internally by senior management and presented to the Audit and Risk Commercial property price risk Committee. The presentation includes discussion around the assumptions used by the external valuers, as well as a review of the resulting valuations. The Board draws attention to the risks associated with commercial property investments. Although over the long‑term property is considered a low risk asset, investors must be aware that significant short and medium‑term risk factors are inherent in the asset class. Investments in property are relatively illiquid and usually more Valuation inputs difficult to realise than listed equities or bonds and this restricts the Group’s ability to realise value in cash in the short‑term. The fair value of the property portfolio has been determined using either a discounted cash flow or a yield capitalisation technique, whereby contracted and market rental values are capitalised at a market rate. The resulting valuations are cross‑checked against the net initial yield and the fair market values per sqft of comparable recent market transactions. 13. Investment in subsidiary undertakings 31 August 31 August The valuation techniques described above are consistent with IFRS 13 and use significant unobservable inputs. Valuation techniques can change at each valuation 2017 2016 round depending on prevailing market conditions and the property’s highest and best use at the reporting date. The Group considers that all of its investment property Company £m £m falls within ‘Level 3’, as defined by IFRS 13 (refer to Note 31). There has been no transfer of property within the fair value hierarchy during the year. Opening balance at 1 September 539.0 122.6 The table below summarises the key unobservable inputs used in the valuation of the Group’s property portfolio, including the Group’s share of property held by joint Additions 103.8 2.0 ventures, at 31 August 2017 and 31 August 2016: Redemptions (102.9) — Weighted Weighted Deferred consideration — 0.4 Average average average Average Market Lettable rent lease net initial Net initial market rent Settlement of amounts owing from subsidiary undertakings in consideration for shares — 415.0 value area per sqm length yield yield per sqm Reclassification to trading amounts owing from subsidiary undertakings — (1.0) 31 August 2017 £m sqm £m yrs % % range £ Carrying value at 31 August 539.9 539.0 UK Retail 514.6 239,350 172.2 8.4 6.3 4.8 – 8.6 168.0 UK Commercial 352.6 181,670 123.2 5.2 5.1 3.2 – 30.6 124.4 An impairment assessment of the Company’s investment in subsidiary undertakings is performed annually with reference to the EPRA net assets of the Group. UK Hotels 239.6 41,323 367.8 9.3 5.9 4.2 – 7.6 392.0 An impairment charge of £Nil was recognised during the year (31 August 2016: £Nil). Europe 406.3 226,241 117.4 6.4 5.4 3.7 – 21.9 118.0 1,513.1 688,584 14. Investment at fair value through profit or loss Joint ventures The following table details the movement in the Group’s investment in International Hotel Properties Limited, designated at fair value through profit or loss: UK Commercial 11.6 2,752 327.0 4.7 6.9 6.9 290.7 31 August 31 August Europe 14.0 10,357 96.5 7.9 5.9 5.7 – 6.1 96.5 2017 2016 Group £m £m Total 1,538.7 701,693 Opening balance at 1 September 7.9 — Weighted Weighted Transfer from investment in associate (Note 16) — 3.8 Average average average Average Market Lettable rent lease net initial Net initial market rent Additions 0.9 4.9 value area per sqm length yield yield per sqm Loss on revaluation of investment at fair value (0.3) (0.8) 31 August 2016 £m sqm £m yrs % % range £ Closing balance 8.5 7.9 UK Retail 537.1 237,694 174.9 8.8 6.3 5.3 – 12.4 169.3 UK Commercial 405.8 214,077 130.5 6.1 5.4 (1.0) – 32.6 129.8 On 14 October 2015, the Group acquired, by way of private placement, 3.8 million shares in the newly listed International Hotel Properties Limited (formerly UK Hotels 229.2 41,323 362.4 10.3 6.1 4.8 – 7.0 367.4 International Hotel Group Limited) for £3.8 million. This acquisition represented 25.4 per cent of IHL’s issued share capital and the shareholding was recognised as an investment in associate under the equity method. Europe 216.0 82,804 156.8 5.1 4.9 0.9 – 16.9 168.9 1,388.1 575,898 On 20 October 2015, the Group acquired 3.1 million additional shares for £3.1 million as part of a £13.0 million private placement by IHL, diluting the Group’s interest to 13.2 per cent. Significant influence over the operations of IHL was deemed to have ceased from this date and the shareholding was re‑classified from investment in Joint ventures associate to investment at fair value through profit or loss (Refer to Note 16). UK Commercial 11.7 2,752 327.0 6.3 6.8 6.8 290.7 On 31 March 2016, the Group acquired an additional 1.5 million shares in IHL for £1.5 million, by way of a £7.0 million private placement and thereby increasing its Europe 129.2 103,257 100.7 8.2 6.7 (0.9) – 16.9 85.2 interest to 15.3 per cent. Total 1,529.0 681,907 On 20 April 2016, IHL acquired RBDL Capital Managers Limited from RedefineBDL for consideration of £1.0 million which was settled in the form of 1.0 million shares in There are interrelationships between the unobservable inputs as they are determined by market conditions; an increase in more than one input could impact on IHL. RedefineBDL distributed these shares in relative proportion to its shareholders. The Group received 254,084 shares. the valuation. On 7 February 2017, as part of the loan settlement with 4C UK Investments Limited (“4C Investments”), the Group obtained 1.0 million shares in IHL (Refer to Note 32). The contractual value attributed to these shares was £1.0 per share and the fair value of these shares on transfer was £0.95 per share. The shares were recognised at fair value and increased the Group’s investment in IHL by 1.7 to 17.2 per cent. There were no subsequent changes to the Group’s interests in IHL prior to year end. As at 31 August 2017, the Group held 9,656,834 shares of IHL’s 56 million issued shares (31 August 2016: 8,656,834) at a fair value of £8.5 million (31 August 2016: £7.9 million) and the Directors have determined that the classification of IHL as an investment at fair value through profit or loss continued to be appropriate. Refer to key judgements and estimates in Note 2.3 for further information on the classification of IHL at the balance sheet date. Refer to Note 38 for changes in the Group’s interests in IHL subsequent to the balance sheet date. Redefine International P.L.C. Redefine International P.L.C. 122 Annual Report 2017 Annual Report 2017 123 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
15. Investment in and loans to joint ventures Interest in joint ventures not recognised 31 August 31 August Under the equity method, the Esplanade was carried at £Nil in the Group’s financial statements at 1 September 2016 and remains at £Nil at 31 August 2017. 2017 2016 This investment is in a net liability position with the cumulative losses exceeding the cost of the Group’s investment. The Group has ceased to recognise further losses Group £m £m beyond the original cost of this joint venture and loans advanced have been fully impaired in line with IAS 28. The Group share of cumulative losses amounted to Investment in joint ventures £0.7 million at 31 August 2017 (31 August 2016: £1.6 million). On a proportionate basis and for segmental reporting purposes, the Group’s interest in the Esplanade Opening balance at 1 September 5.8 3.6 is recognised line‑by‑line. Refer to the segmental information presented in Note 3. Acquisition of control of former joint venture (1.1) — Summarised financial information Loss on disposal of joint venture interests (Note 10) (0.7) — The summarised financial information of the Group’s joint ventures, in addition to reconciliations to the amounts presented in the financial statements, are set out below: Share of post‑tax (loss)/profit from joint ventures (2.3) 1.4 Wichford RI Menora Foreign currency translation 0.2 0.8 VBG German Joint venture Holding Holdings Leopard partners’ Proportionate Closing balance 1.9 5.8 S.à.r.l. S.à.r.l. Portfolio Esplanade Total interest Total 31 August 2017 £m £m £m £m £m £m £m 31 August 31 August 2017 2016 Percentage ownership interest 49% 50.5% 50% 50% Group £m £m Summarised income statement Loans to joint ventures Rental income 2.4 1.8 6.0 1.7 11.9 (6.0) 5.9 Opening balance at 1 September 52.9 44.6 Rental expense (0.3) (0.1) (0.8) — (1.2) 0.6 (0.6) Increase in loans to joint ventures — 0.5 Net rental income 2.1 1.7 5.2 1.7 10.7 (5.4) 5.3 Acquisition of control of former joint venture (36.6) — Administrative costs and other fees(1) (4.0) (0.2) (0.5) — (4.7) 2.4 (2.3) Disposal of loan to joint venture (12.5) — Net operating (expense)/income (1.9) 1.5 4.7 1.7 6.0 (3.0) 3.0 Repayment of loans by joint ventures (0.7) (2.6) Loss on revaluation of investment property — (0.9) (0.6) (0.2) (1.7) 0.8 (0.9) Reversal of impairment of loans to joint ventures 0.4 2.6 Loss on sale of subsidiaries (1.4) — — — (1.4) 0.7 (0.7) Foreign currency translation 0.8 7.8 Finance expense on loans from joint venture partners (1.6) (0.5) (3.0) — (5.1) 2.4 (2.7) Closing balance 4.3 52.9 Finance expense (0.5) (0.5) (0.6) (1.2) (2.8) 1.5 (1.3) Other finance income — 0.6 — — 0.6 (0.3) 0.3 Carrying value of interests in joint ventures 6.2 58.7 Change in fair value of derivative financial instruments 0.2 0.2 0.1 1.8 2.3 (1.2) 1.1 (Loss)/profit before tax (5.2) 0.4 0.6 2.1 (2.1) 0.9 (1.2) Joint venture interests Taxation (0.8) 0.2 (0.3) (0.3) (1.2) 0.7 (0.5) During the year ended 31 August 2017, the Group’s material interests in joint ventures which are presented in the tables of this note included the following: (Loss)/profit and total comprehensive (expense)/income (6.0) 0.6 0.3 1.8 (3.3) 1.6 (1.7) (i) 49 per cent interest in Wichford VBG Holding S.à.r.l., a joint venture with Menora Mivtachim, which owned Government‑let properties in Dresden, Berlin, Stuttgart Reconciliation to IFRS: and Cologne, Germany. The joint venture disposed of its property‑owning subsidiaries on 1 January 2017 as detailed below; Elimination of non‑controlling and joint venture partners’ interests 3.0 (0.3) (0.2) (0.9) 1.6 (1.6) — (ii) 50.5 per cent interest in RI Menora German Holdings S.à.r.l., a joint venture with Menora Mivtachim, which ultimately owns properties in Waldkraiburg, Huckelhoven Movement in losses restricted in joint ventures — — — (0.9) (0.9) — (0.9) and Kaiserslautern, Germany. Notwithstanding the economic shareholding, the contractual terms provide for joint control and so the Company does not control the entity; Group share of joint venture results (3.0) 0.3 0.1 — (2.6) — (2.6) Presented in Group income statement as: (iii) 50 per cent interest in Leopard Germany Holding 1 S.à.r.l., CEL Portfolio 2 Limited & Co. KG., Leopard Germany Property Ed1, Ed2, Ed3 and Ed4, Leopard Germany Property Me 1 and Me 2 S.à.r.l., Ciref Berlin 1 Limited and Leopard Germany Property Ed2 GmbH & Co. KG, a joint venture with Redefine Properties Limited Reversal of impairment of loans to joint ventures — 0.3 0.1 — 0.4 — 0.4 (“RPL”), the Company’s largest shareholder. These companies, collectively known as the Leopard Portfolio, hold 66 retail properties in Germany comprising a mix Loss on disposal of joint venture interests(2) (0.7) — — — (0.7) — (0.7) of stand‑alone supermarkets, food‑store anchored retail parks and cash & carry stores. The Group disposed of its joint venture interests in the Leopard Portfolio Share of post‑tax loss from joint ventures (2.3) — — — (2.3) — (2.3) on 26 April 2017 as detailed below; and Summarised balance sheet (iv) 50 per cent interest in the Esplanade, a joint venture with Rimstone Limited, which owns an office building in St. Helier, Jersey. Investment property — 27.8 — 23.2 51.0 (25.4) 25.6 The Group’s interests in joint venture entities are in the form of: Trade and other receivables 0.6 0.1 — 0.1 0.8 (0.4) 0.4 – an interest in the share capital of the joint venture companies; and Cash and cash equivalents 0.5 0.2 — 0.5 1.2 (0.6) 0.6 – loans advanced to the joint venture entities. Total assets 1.1 28.1 — 23.8 53.0 (26.4) 26.6 RI Menora German Holdings S.à.r.l. and Wichford VBG Holding S.à.r.l. both have accounting year ends of 31 December which differ from the Group so as to align with External borrowings — (14.8) — (17.6) (32.4) 16.1 (16.3) the year end of the joint venture partner, Menora Mivtachim. Loans from joint venture partners — (8.2) — (6.6) (14.8) 7.2 (7.6) Wichford VBG Holding S.à.r.l. Derivative financial instruments — — — (6.9) (6.9) 3.4 (3.5) On 1 January 2017, Wichford VBG Holding S.à.r.l. exchanged on the sale of its four German office assets. The disposal was structured as a share sale of the joint Deferred tax — (0.8) — — (0.8) 0.4 (0.4) venture’s property‑owning subsidiaries. The joint venture recognised a net loss on disposal of these subsidiaries of £1.4 million (Group share: £0.7 million) after Trade and other payables — (1.0) — (0.7) (1.7) 0.9 (0.8) settlement of the Finco Loans Notes. The Group, however, recognised a net gain on disposal of £4.9 million, including cumulative foreign currency translation of Total liabilities — (24.8) — (31.8) (56.6) 28.0 (28.6) £2.2 million. See Note 10 for further details. Non‑controlling interests — (0.3) — — (0.3) 0.2 (0.1) Leopard Portfolio Net assets/(liabilities) 1.1 3.0 — (8.0) (3.9) 1.8 (2.1) On 6 April 2017, the Group entered into a conditional acquisition agreement with RPL to acquire 88 per cent of RPL’s equity interest and all RPL’s shareholder loan Reconciliation to IFRS: interests in the Leopard Portfolio. Shareholder approval was subsequently obtained for this related party transaction at an Extraordinary General Meeting on Elimination of joint venture partners’ interests (0.6) (1.6) — 4.0 1.8 (1.8) — 25 April 2017 and the Leopard Portfolio became a controlled subsidiary group on completion on 26 April 2017 but with economic effect from 1 March 2017. Loan to joint ventures(3) — 4.3 — — 4.3 — 4.3 The Group’s joint venture equity and loan interests were derecognised on loss of joint control and the acquisition of control. The carrying value of the Group’s net joint Interest in joint ventures not recognised — — — 3.3 3.3 — 3.3 venture interests in the Leopard Portfolio at the date of disposal were €44.3 million (£37.7 million). See Note 30 for further details. Cumulative losses restricted(4) — — — 0.7 0.7 — 0.7 The cumulative foreign currency translation difference on the Group’s net investment in Leopard of £2.0 million has been recycled to the income statement on effective Carrying value of interests in joint ventures 0.5 5.7 — — 6.2 — 6.2 disposal of the joint venture in accordance with IAS 28.
Redefine International P.L.C. Redefine International P.L.C. 124 Annual Report 2017 Annual Report 2017 125 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
15. Investment in and loans to joint ventures continued 16. Investment in associate Summarised financial informationcontinued 31 August 31 August 2017 2016 Wichford RI Menora Group £m £m VBG German Joint venture Holding Holdings Leopard partners’ Proportionate Opening balance at 1 September 10.2 8.0 S.à.r.l. S.à.r.l. Portfolio Esplanade Total interest Total Additions — 9.8 31 August 2016 £m £m £m £m £m £m £m Transfer to investment at fair value through profit or loss (Note 14) — (3.8) Percentage ownership interest 49% 50.5% 50% 50% Share of post‑tax profit from associate 0.9 1.7 Summarised income statement Distributions from associate (1.2) (2.3) Rental income 6.2 1.6 10.8 1.5 20.1 (10.1) 10.0 Net impairment of investment in associate (0.5) (3.2) Rental expense (0.4) (0.2) (1.7) — (2.3) 1.2 (1.1) Carrying value of the Group’s net investment in associate 9.4 10.2 Net rental income 5.8 1.4 9.1 1.5 17.8 (8.9) 8.9 Other income — — 0.1 1.0 1.1 (0.5) 0.6 On 14 October 2015, the Group acquired, by way of private placement, 3.8 million shares in the newly listed IHL for £3.8 million. On the date of listing this represented Administrative costs and other fees (0.5) (0.1) (0.3) (0.1) (1.0) 0.5 (0.5) 25.4 per cent of the entity’s issued share capital and the investment was classified as an associate on initial recognition. On 20 October 2015, the Group’s interest was diluted to 13.2 per cent and reclassified as an investment at fair value through profit or loss (refer to Note 14). Net operating income 5.3 1.3 8.9 2.4 17.9 (8.9) 9.0 Gain/(loss) on revaluation of investment property 2.7 0.5 (0.2) (0.4) 2.6 (1.3) 1.3 On 30 August 2016, the Group settled amounts previously advanced to RedefineBDL by way of an equity contribution of £6.0 million. The equity contribution did not result in a further issue of shares to the Group or increase the Group’s percentage interest in the associate. The equity contribution has been recognised in other Finance expense on loans from joint venture partners (4.5) (0.5) (4.9) — (9.9) 4.9 (5.0) reserves in the underlying financial statements of RedefineBDL. Finance expense (1.2) (0.3) (1.0) (0.9) (3.4) 1.7 (1.7) During the year ended 31 August 2017, the Group’s cumulative investment in RedefineBDL increased from 25.3 to 30.4 per cent. On 7 February 2017, the Group Other finance expense — (0.1) (0.1) — (0.2) 0.1 (0.1) acquired an additional 5.1 per cent interest in RedefineBDL for £1.3 million to partially settle a loan advanced to 4C Investments. (Refer to Note 32). This portion of Gain/(loss) on financial liabilities 7.3 (0.6) (1.4) — 5.3 (2.8) 2.5 the Group’s investment has been classified as held for sale on initial recognition as the shares were acquired exclusively with a view to subsequent re‑sale. (Refer to Change in fair value of derivative financial instruments — 0.1 (1.5) (2.1) (3.5) 1.8 (1.7) Note 20). The table above presents movements in the Group’s existing 25.3 per cent interest in RedefineBDL only. Profit/(loss) before tax 9.6 0.4 (0.2) (1.0) 8.8 (4.5) 4.3 Distributions from the associate for the year ended 31 August 2017 of £1.2 million (31 August 2016: £2.3 million) were comprised of cash distributions only Taxation (0.3) (0.2) (0.5) — (1.0) 0.5 (0.5) (31 August 2016: £0.3 million of the total distribution related to the distribution in specie of 254,084 shares in IHL). Profit/(loss) and total comprehensive income/(expense) 9.3 0.2 (0.7) (1.0) 7.8 (4.0) 3.8 Following an internal impairment assessment and on receipt of an independent valuation of RedefineBDL, the Directors considered that the recoverable amount Reconciliation to IFRS: of the Group’s net investment in RedefineBDL was £9.4 million at 31 August 2017 (31 August 2016: £10.2 million). The independent valuation was determined Elimination of non‑controlling and joint venture partners’ interests (4.7) (0.1) 0.3 0.5 (4.0) 4.0 — on a value‑in‑use basis but was also cross‑checked to market comparables. Using a discount rate range of 11.5 – 12.5 per cent, an enterprise value range of £33.5 – £40.5 million was attributed to the investment, with a mid‑point valuation of £37.0 million (Group share: £9.4 million). This has resulted in an impairment Movement in losses restricted in joint ventures — — — 0.2 0.2 — 0.2 charge of £0.5 million (31 August 2016: £3.2 million). Group share of joint venture results 4.6 0.1 (0.4) (0.3) 4.0 — 4.0 Presented in Group income statement as: Summarised financial information Impairment reversal/(impairment) of loans to joint ventures 3.6 (0.3) (0.4) (0.3) 2.6 — 2.6 The summarised financial information of RedefineBDL, in addition to the amounts presented in the financial statement, are set out below: Share of post‑tax profit from joint ventures 1.0 0.4 — — 1.4 — 1.4 31 August 31 August 2017 2016 Summarised balance sheet £m £m Investment property 82.9 26.5 150.4 23.4 283.2 (142.3) 140.9 Percentage ownership interest 25.3% 25.3% Derivative financial instruments — — 0.1 — 0.1 — 0.1 Summarised income statement Trade and other receivables — 1.0 1.0 0.1 2.1 (1.1) 1.0 Revenue 12.6 12.6 Cash and cash equivalents 1.5 0.3 2.4 0.4 4.6 (2.3) 2.3 Other income 2.5 6.3 Total assets 84.4 27.8 153.9 23.9 290.0 (145.7) 144.3 Expenses (9.6) (10.9) External borrowings (47.7) (15.0) (73.7) (18.0) (154.4) 77.6 (76.8) Profit from operations 5.5 8.0 Loans from joint venture partners (24.9) (7.7) (83.8) (6.6) (123.0) 61.7 (61.3) Taxation (1.3) (1.4) Derivative financial instruments (0.6) (0.2) (0.1) (8.7) (9.6) 4.8 (4.8) Profit for the year 4.2 6.6 Deferred tax — (1.0) (2.9) — (3.9) 2.0 (1.9) Elimination of third party interest (3.1) (4.9) Trade and other payables (4.2) (1.0) (2.9) (0.4) (8.5) 4.6 (3.9) Group share of results 1.1 1.7 Total liabilities (77.4) (24.9) (163.4) (33.7) (299.4) 150.7 (148.7) Presented as: Non‑controlling interests (0.1) (0.3) (0.3) — (0.7) — (0.7) Share of post‑tax profit 0.9 1.7 Net assets/(liabilities) 6.9 2.6 (9.8) (9.8) (10.1) 5.0 (5.1) Impairment adjustment 0.2 — Reconciliation to IFRS: Summarised balance sheet Elimination of joint venture partners’ interests (3.5) (1.4) 5.0 4.9 5.0 (5.0) — Non‑current assets 4.7 7.8 Fair value on acquisition of joint venture interest — — 0.9 — 0.9 — 0.9 Intangible asset 28.1 28.1 (3) Loan to joint ventures 12.2 3.9 41.9 — 58.0 — 58.0 Trade and other receivables 6.3 6.7 Interest in joint ventures not recognised — — — 3.3 3.3 — 3.3 Cash and cash equivalents 3.7 3.2 (4) Cumulative losses restricted — — — 1.6 1.6 — 1.6 Total assets 42.8 45.8 Carrying value of interests in joint ventures 15.6 5.1 38.0 — 58.7 — 58.7 Current liabilities (8.7) (10.6) (1) Included within administrative costs and other fees of Wichford VBG is the Performance Fee expense of £3.4 million, payable to the Group as investment manager, on disposal of Total liabilities (8.7) (10.6) the property portfolio. Net assets 34.1 35.2 (2) Presented within ‘Net gain on sale of joint venture interests’ in the income statement. Elimination of third party interests (25.5) (26.3) (3) Loans to joint ventures include the opening balance, any advances or repayments and foreign currency movements during the year. Share of net assets attributable to the Group 8.6 8.9 (4) Cumulative losses restricted represent the Group’s share of losses in the Esplanade which exceed the cost of the Group’s investment. As a result, the carrying value of the investment is £Nil in accordance with the requirements of IAS 28. Recoverable amount of excess net investment in associate 0.8 1.3 Carrying value of the Group’s net investment in associate 9.4 10.2 Redefine International P.L.C. Redefine International P.L.C. 126 Annual Report 2017 Annual Report 2017 127 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
17. Intangible assets 20. Non‑current assets held for sale 31 August 31 August UK UK UK 2017 2016 Retail Commercial Hotels Europe Total Group £m £m Group £m £m £m £m £m Opening balance at 1 September 1.3 1.5 Investment property Amortisation (0.2) (0.2) Opening balance at 1 September 2016 — — — — — Closing balance 1.1 1.3 Transfers from investment property (Note 12) 16.8 49.0 — 9.7 75.5 Loss on revaluation (3.9) — — — (3.9) Intangible assets were recognised on the acquisition of Redefine International Management Holdings Limited Group (“RIMH”) and represented the fair value of the advisory agreements acquired by the Group. The value attributed to the contracts between RIMH and third parties, including joint ventures of the Group and the Disposals — (39.8) — (6.0) (45.8) non‑controlling interests, was £1.9 million. The intangible asset is being amortised on a straight‑line basis over the remaining term of the contracts, which have an 12.9 9.2 — 3.7 25.8 average life of eight years. Investment in associate Opening balance at 1 September 2016 — — — — — 18. Trade and other receivables Additions — — 1.3 — 1.3 Group Company Share of post‑tax profit — — 0.2 — 0.2
Re‑presented(1) — — 1.5 — 1.5 31 August 31 August 31 August 31 August 2017 2016 2017 2016 £m £m £m £m Closing balance at 31 August 2017 12.9 9.2 1.5 3.7 27.3 Non‑current All non‑current assets held for sale fall within ‘Level 3’, as defined by IFRS 13 (refer to Note 31). Accordingly, there has been no transfer within the fair value hierarchy Tenant lease incentives(3) 5.8 3.8 — — over the year. Loans to external parties 1.6 0.7 — — Investment property held for sale Letting costs 1.0 0.2 — — During the year ended 31 August 2017, ten properties were reclassified as held for sale, six of which remained classified as such at the reporting date. Four of these Total non‑current trade and other receivables 8.4 4.7 — — assets are being actively marketed and management are committed to a plan for their sale. It is considered highly probable that the carrying value of these assets will Current be recovered through a sale transaction, rather than through continuing use, within the next twelve months. On 16 September 2016 the Group exchanged contracts Amounts receivable from subsidiary undertakings (Note 32) — — 87.1 29.6 for the future disposal of a UK Commercial office in 2 Duchess Place, Edgbaston, for £1.6 million. The purchaser has the right to call completion at any point up to 1 April 2018. As there is a firm commitment from the purchaser and the Group to complete the transaction and the delay in completion is outside of the Company’s Amounts receivable from related parties (Note 32) 0.5 20.0 — 14.2 control, the asset has also been classified as held for sale at 31 August 2017. Consideration outstanding on disposal of investment property held for sale 6.6 — — — The Group disposed of four held for sale assets from the UK Commercial portfolio and one German property during the year realising a net gain, after disposal costs, Loans to external parties(2) 2.2 — — — of £1.5 million. As at 31 August 2017, net proceeds of £40.9 million had been received by the Group, as the Brückmuhl property sale had only exchanged at the balance Rent receivable 1.1 1.5 — — sheet date and £0.2 million of disposal costs had been accrued. Prepayments and accrued income 2.1 1.2 0.4 0.5 Disposals Tenant lease incentives(3) 1.4 0.9 — — Sales Disposal Tenant Net sales Carrying Gain/(loss) Other receivables 1.6 3.1 0.6 0.5 proceeds costs incentives proceeds value on disposal Total current trade and other receivables 15.5 26.7 88.1 44.8 31 August 2017 £m £m £m £m £m £m The Observatory, Chatham 4.0 (0.1) — 3.9 (3.6) 0.3 Total trade and other receivables 23.9 31.4 88.1 44.8 Woodlands, Bedford 11.0 (0.3) — 10.7 (11.5) (0.8) (1) Prior year trade and other receivables have been re‑presented to correctly classify certain receivables as non‑current and ensure consistency with the current year presentation. London Road, High Wycombe 26.1 — — 26.1 (24.7) 1.4 Refer to Note 2.2. Brückmuhl, Germany 6.6 — — 6.6 (6.0) 0.6 (2) During the year ended 31 August 2017, £2.1 million has been advanced to an external party to part‑finance a development project in Kingston Upon Thames, Surrey. The loan 47.7 (0.4) — 47.3 45.8 1.5 is due to mature on 1 December 2017 but the borrower has the option to extend the loan to 29 December 2018. Unpaid interest is to be rolled to the principal loan balance periodically (31 August 2017: £0.1 million). The Group exchanged on the disposal of the House of Fraser department store in Hull post year end (refer to Note 38). (3) Total tenant lease incentives of £7.2 million (31 August 2016: £4.7 million) have been deducted from investment property in determining fair value at the balance sheet date. Investment in associate held for sale Refer to Note 12. On 7 February 2017, as part of the settlement of the loan outstanding from 4C Investments (refer to Note 32), the Group acquired 659 shares in RedefineBDL for an attributed value of £1,942 per share. This represented 5.1 per cent of the issued share capital of RedefineBDL. As part of the settlement agreement, 4C Investments 19. Cash and cash equivalents has the right to buy back the shares at the transfer price of £1.3 million at any time on or before 31 January 2018 subject to written notice. If this right is not exercised, the remaining shareholders of RedefineBDL will be offered the shares in proportion to their shareholding at the transfer price. It is considered highly probable that the Group Company value of the investment will be recovered through re‑sale on or before 31 January 2018. The investment has been classified as held for sale on initial recognition and at 31 August 31 August 31 August 31 August 31 August 2017. The Directors have determined that the value inherent in the right to reacquire the shares is not material. 2017 2016 2017 2016 £m £m £m £m Unrestricted cash and cash equivalents 52.1 28.7 7.6 11.6 Restricted cash and cash equivalents 0.7 3.3 — — Cash and cash equivalents 52.8 32.0 7.6 11.6
At 31 August 2017, cash and cash equivalents to which the Group did not have instant access amounted to £0.7 million (31 August 2016: £3.3 million). The restricted cash is held on deposit in Germany under an hereditable building right agreement for the property at Ingolstadt. The comparative restricted cash was held with Aviva in relation to the shopping centre developments at Byron Place Seaham, Birchwood Warrington, Weston Favell and proposed developments at Grand Arcade Wigan. This cash was used in part‑prepayment of the debt on restructuring (refer to Note 21). The Group’s share of total cash and cash equivalents, including its share of joint venture cash, at 31 August 2017 was £53.4 million (31 August 2016: £34.3 million), with a further £10.0 million of undrawn committed facilities available (31 August 2016: £23.0 million). Redefine International P.L.C. Redefine International P.L.C. 128 Annual Report 2017 Annual Report 2017 129 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
21. Borrowings, including finance leases The Group’s bank loans are secured over investment property of £1,484.1 million (31 August 2016: £1,383.0 million) and are carried at amortised cost. On a proportionately 31 August 31 August consolidated basis, bank loans are secured over investment property of £1,509.7 million (31 August 2016: £1,523.9 million). 2016 2017 The Group has reduced the nominal value of drawn debt (on a proportionately consolidated basis) during the year to £842.2 million (31 August 2016: £850.6 million) Group £m £m following a number of successful refinancings; Non‑current in November 2016 the facility held against West Orchards Coventry was restructured after the repayment of £5.2 million which reduced the balance outstanding to Bank loans 822.8 759.8 • £11.9 million and extended the maturity to 2021. The restructuring was not considered a significant modification and no extinguishment of the existing loan was Less: unamortised debt issue costs (3.9) (4.1) therefore required; Less: fair value adjustments (14.7) (19.4) • in December 2016 and January 2017, the Group drew down on funds from the revolving credit facility (“RCF”) secured against the AUK Portfolio and repaid loans 804.2 736.3 previously held with AIB Group (UK) p.l.c. (£5.4 million) and Commerzbank AG (£9.7 million). During the year ended 31 August 2017, the Group also sold eight Aviva profit share — 4.2 properties secured against the AUK facility and applied £40.0 million of sale proceeds against the RCF. Net movements on the drawn facility for the year are £10.5 million; Other external loans 0.8 — Wichford VBG disposed of its property‑owning subsidiaries including associated bank debt with DG Hyp (Group share: £23.5 million), effective 1 January 2017. Finance leases 13.9 12.3 • See Notes 10 and 15; Total non‑current borrowings, including finance leases 818.9 752.8 • in April 2017, the Group refinanced £167.8 million of existing debt facilities secured over four of its UK Shopping Centre assets with Aviva. Following a prepayment Current of £21.7 million, the four facilities were amalgamated into one carrying a fixed rate of interest of 5.52 per cent (previous range: 5.7 – 6.4 per cent). The restructure Bank loans 3.1 13.8 qualifies as a substantial modification – the existing facilities have been derecognised and the refinanced debt has been recognised at fair value; Less: unamortised debt issue costs (0.3) (1.2) • in April 2017, the Group acquired control of the previously held joint venture interest in the Leopard Portfolio and the Group assumed bank debt with Berlin Hyp AG Less: fair value adjustments (0.8) (1.1) and BayernLB of £73.6 million at rates of 1.3 – 2.9 per cent. See Note 30 for further information; 2.0 11.5 • the Group refinanced its HSH Nordbank facility, secured over the CMC Shopping Center Altona, Hamburg effective 28 April 2017 with the facility being extended to February 2024. Following a prepayment of £5.5 million, the nominal value of debt outstanding was reduced to £37.9 million. The refinancing was not considered a Other external loans — 0.6 significant modification and no extinguishment of the existing loan was therefore required; Finance leases 0.9 0.7 • in June 2017, the Group completed the refinancing of three facilities held with BayernLB in the RI Menora joint venture. This included a prepayment of £1.7 million Total current borrowings, including finance leases 2.9 12.8 (Group share: £0.9 million), of which £1.3 million (Group share: £0.7 million) was paid in June and the remainder was paid post year end in September 2017. The facilities have been extended to 2024 and carry fixed rates of interest from 1.69 – 1.72 per cent; and Total borrowings, including finance leases 821.8 765.6 • in August 2017, the Group agreed extensions for two BayernLB facilities secured against the German OBI properties due to mature in October 2017. Under the amended agreements, both loans will now run to December 2022 and carry fixed interest rates of 1.59 – 1.62 per cent. Fair value disclosures Bank loans The nominal value of floating rate borrowings is considered to be a reasonable approximation of fair value. The fair value of fixed rate borrowings at the reporting date 31 August 2017 31 August 2016 has been calculated by discounting cash flows under the relevant agreements at a market interest rate for similar debt instruments. The market interest rate has been Carrying Nominal Fair Carrying Nominal Fair determined having regard to the term, duration and security arrangements of the relevant loan and an estimation of the current rates charged in the market for similar Value Value Value Value Value Value instruments issued to companies of similar sizes. £m £m £m £m £m £m With the exception of the Aviva debt refinanced during the year, the Group considers that all bank loans, including the Group’s share of joint venture bank loans at Non‑current liabilities a total carrying value of £690.9 million, fall within ‘Level 3’ as defined by IFRS 13 at the reporting date (refer to Note 31). The Aviva debt was recognised at fair value Bank loans 822.8 822.8 822.8 759.8 759.8 759.8 on refinancing in April 2017. This resulted in a fair value adjustment of £14.3 million as the refinanced debt was considered to have been negotiated on off‑market Less: unamortised debt issue costs (3.9) — — (4.1) — — terms. The fair value was determined with reference to observable inputs and was classified as ‘Level 2’ on initial recognition. The carrying value of the Aviva debt at 31 August 2017, being £131.6 million, is still considered by the Group to be a reasonable approximation of fair value and therefore falls within ‘Level 2’. All bank loans Less: fair value adjustments (14.7) — (10.6) (19.4) — 21.8 at 31 August 2016 were considered ‘Level 3’. Total non‑current bank loans 804.2 822.8 812.2 736.3 759.8 781.6 The maturity of Group bank loans, gross of unamortised debt issue costs and fair value adjustments is as follows: Current liabilities 31 August 31 August Bank loans 3.1 3.1 3.1 13.8 13.8 13.8 2017 2016 Less: unamortised debt issue costs (0.3) — — (1.2) — — £m £m Less: fair value adjustments (0.8) — 0.1 (1.1) — 0.1 Less than one year 3.1 13.8 Total current bank loans 2.0 3.1 3.2 11.5 13.8 13.9 Between one year and five years 620.5 471.8 More than five years 202.3 288.0 Total IFRS bank loans 806.2 825.9 815.4 747.8 773.6 795.5 825.9 773.6 Joint ventures Certain borrowing agreements contain financial and other covenants that, if contravened, could alter the repayment profile. Share of joint ventures bank loans 16.3 16.3 16.3 77.0 77.0 77.0 Share of joint ventures unamortised debt issue costs — — — (0.2) — — Aviva profit share Total bank loans (on a proportionately consolidated basis) 822.5 842.2 831.7 824.6 850.6 872.5 As part of the Aviva debt restructure in 2013, Aviva retained the right to participate in 50 per cent of the income generated by Grand Arcade Shopping Centre, Wigan Cash and cash equivalents (52.8) (52.8) (52.8) (32.0) (32.0) (32.0) (after all costs, expenses and interest). The profit share participation right was recognised as a financial liability, initially at fair value and subsequently measured at amortised cost in prior years. During the year ended 31 August 2017 the debt was again restructured and, following a break cost payment of £5.5 million to terminate Share of joint venture cash and cash equivalents (0.6) (0.6) (0.6) (2.3) (2.3) (2.3) the existing facility, the Group was released from the historic profit arrangement with Aviva. Net debt (on a proportionately consolidated basis) 769.1 788.8 778.3 790.3 816.3 838.2 The table above presents bank loans, cash and cash equivalents and net debt information prepared on a proportionately consolidated basis. This format is not a requirement of IFRS and is presented for informational purposes only as it is used in reports presented to the Group’s Chief Operating Decision Maker. Redefine International P.L.C. Redefine International P.L.C. 130 Annual Report 2017 Annual Report 2017 131 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
21. Borrowings, including finance leases continued 23. Deferred tax Finance leases The table below presents the recognised deferred tax liability and movement during the year: Obligations under finance leases at the reporting date are as follows: Fair value of Accelerated investment capital 31 August 31 August property allowances Total 2017 2016 Group £m £m £m £m £m Opening balance 1 September 2015 0.6 1.6 2.2 Minimum lease payments under finance lease obligations: (Income)/expense for the year recognised in the income statement (0.2) 1.4 1.2 Not later than one year 0.9 0.7 Opening balance 1 September 2016 0.4 3.0 3.4 Later than one year not later than five years 3.3 3.0 Additions on acquisition of control of joint venture 2.8 — 2.8 Later than five years 113.9 88.6 Expense for the year recognised in the income statement 2.6 0.9 3.5 118.1 92.3 Foreign currency translation 0.4 0.3 0.7 Less: finance charges allocated to future periods (103.3) (79.3) Closing balance at 31 August 2017 6.2 4.2 10.4 Present value of minimum lease payments 14.8 13.0 Net deferred tax assets not recognised at 31 August 2017 amounted to £0.2 million (31 August 2016: £7.3 million). Present value of minimum finance lease obligations: Not later than one year 0.9 0.7 24. Trade and other payables Later than one year not later than five years 2.8 2.5 Group Company Later than five years 11.1 9.8 Restated(1) Restated(1) Present value of minimum lease payments 14.8 13.0 31 August 31 August 31 August 31 August 2017 2016 2017 2016 Finance lease obligations relate to the Group’s leasehold interests in investment property. Finance leases are effectively secured obligations, as the rights to the £m £m £m £m leased asset revert to the lessor in the event of default. The discount rates used in calculating the present value of the minimum lease payments range from 1.8 to Amounts payable to subsidiary undertakings (Note 32) — — 87.2 0.9 6.3 per cent. Amounts payable to related parties (Note 32) 0.6 — 0.3 — Rent received in advance 4.3 4.8 — — 22. Derivative financial instruments Trade payables 1.1 0.5 — 1.1 The Group enters into interest rate swap and interest rate cap agreements to manage the risks arising from the Group’s operations and its sources of finance. Accrued interest 2.4 2.9 — — Interest rate swaps and caps are employed by the Group to manage the interest rate profile of financial liabilities. In accordance with the terms of the majority of VAT payable 4.0 4.3 — — bank debt arrangements, the Group has entered into interest rate swaps to convert the rates from floating to fixed which has eliminated exposure to interest rate Accruals 6.1 3.8 1.6 1.6 fluctuations. Likewise, interest rate caps are used to limit the downside exposure to significant changes to the low interest rates currently prevailing in the market. Other payables 2.7 5.1 — 0.2 It is the Group’s policy that no economic trading in derivatives is undertaken. Trade and other payables 21.2 21.4 89.1 3.8 31 August 31 August (1) Current tax liabilities of £2.4 million (Group) and £1.3 million (Company) that were previously presented within trade and other payables at 31 August 2016 have been separately 2017 2016 presented on the face of the balance sheet. Refer to Note 2.2. Group £m £m Non-current derivative assets Interest rate cap 0.2 0.8 25. Share capital and share premium Group and Company Interest rate swaps 0.2 — Authorised 0.4 0.8 share Number of capital Non-current derivative liabilities Authorised shares £m Interest rate swaps (7.8) (12.6) – At 31 August 2016 (ordinary shares of 8 pence each) 3,000,000,000 240.0 (7.8) (12.6) – At 31 August 2017 (ordinary shares of 8 pence each) 3,000,000,000 240.0
Net derivative financial instruments (7.4) (11.8) Share Share Number of capital premium The Group holds interest rate cap assets at rates of 0.4 and 3.0 per cent, maturing in April 2020 and November 2021 respectively. The interest rate swap assets are held Issued, called up and fully paid shares £m £m at a rate of 0.4 per cent, maturing in September 2020. The interest rate swap liabilities have maturities from September 2018 to November 2021 and the rates range At 31 August 2015 1,474,331,331 117.9 395.0 from 0.4 to 2.0 per cent. Scrip dividend – issued December 2015 21,235,556 1.7 9.5 Share placement – issued February 2016 270,588,236 21.7 87.4 Scrip dividend – issued June 2016 28,443,527 2.3 10.2 At 31 August 2016 1,794,598,650 143.6 502.1 Scrip dividend – issued December 2016 17,141,172 1.3 5.3 Scrip dividend – issued June 2017 16,320,324 1.3 4.4 At 31 August 2017 1,828,060,146 146.2 511.8 Redefine International P.L.C. Redefine International P.L.C. 132 Annual Report 2017 Annual Report 2017 133 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
25. Share capital and share premium continued The following table summarises the financial information relating to the Group’s only subsidiary that has a material NCI, RHHL, before any intra‑group eliminations. In October 2015, the Company declared a second interim dividend of 1.65 pence per share for the six months ended August 2015 and offered shareholders an election Re‑presented 31 August 2017 31 August 2016 to receive either a cash dividend or a scrip dividend by way of an issue of new Redefine International shares credited as fully paid up. The Company received election forms from shareholders holding 699.1 million ordinary shares of 8 pence each representing a 47.4 per cent take up by shareholders, in respect of which 21.2 million Other Other scrip dividend shares were issued in December 2015. Redefine individually Total non‑ Redefine individually Total non‑ Hotel Holdings immaterial controlling Hotel Holdings immaterial controlling In February 2016, the Company completed a placing of 270.6 million new ordinary shares of 8 pence each for an aggregate nominal value of £21.7 million. The placing Limited subsidiaries interest Limited subsidiaries interest generated proceeds of £109.1 million (net of costs). £m £m £m £m £m £m In April 2016, the Company declared an interim dividend of 1.625 pence per share for the six months ended 29 February 2016 and offered shareholders an election Principal place of business United United to receive either a cash dividend or a scrip dividend by way of an issue of new Redefine International shares credited as fully paid up. The Company received election Kingdom Kingdom forms from shareholders holding 907.4 million ordinary shares of 8 pence each representing a 51.4 per cent take up by shareholders, in respect of which 28.4 million Country of incorporation BVI BVI scrip dividend shares were issued in June 2016. Percentage ownership interest 17.52% 28.95% In October 2016, the Company declared a second interim dividend of 1.575 pence per share for the six months ended 31 August 2016 and offered shareholders an Summarised balance sheet election to receive either a cash dividend or a scrip dividend by way of an issue of new Redefine International shares credited as fully paid up. The Company received Investment property and other non‑current assets 216.2 election forms from shareholders holding 489.1 million ordinary shares of 8 pence each representing a 27.3 per cent take up by shareholders, in respect of which 223.7 17.1 million scrip dividend shares were issued in December 2016. Current assets 8.0 7.0 In April 2017, the Company declared an interim dividend of 1.3 pence per share for the six months ended 28 February 2017 and offered shareholders an election to Non‑current liabilities (113.1) (109.9) receive either a cash dividend or a scrip dividend by way of an issue of new Redefine International shares credited as fully paid up. The Company received election Current liabilities (1.0) (1.7) forms from shareholders holding 522.2 million ordinary shares of 8 pence each representing a 28.8 per cent take up by shareholders, in respect of which 16.3 million Elimination of tax paid wholly attributable NCI — 0.4 scrip dividend shares were issued in June 2017. Adjusted net assets 117.6 112.0 NCI share of adjusted net assets 20.6 32.4 26. Reserves Tax attributable to NCI — (0.4) Reverse acquisition reserve Carrying amount of NCI 20.6 1.2 21.8 32.0 1.6 33.6
The reverse acquisition reserve of £134.3 million arose on the reverse acquisition of Wichford P.L.C. (subsequently renamed Redefine International) by Redefine Summarised statement of comprehensive income International Holdings Limited (“RIHL”) in August 2011 and reflected the difference between the capital structure of the Company, as the legal acquirer, and RIHL, as the accounting acquirer, at the date of the transaction. Revenue 14.0 14.7 Profit/(loss) for the year 14.2 (0.7) On 28 July 2017, the capital of RIHL was reduced by way of a capital reduction and transferred to retained earnings. On consolidation, this capital reduction has resulted in the release of £134.3 million from the reverse acquisition reserve which has also been transferred to the retained earnings of the Group. Profit/(loss) attributable to NCI(1) 3.0 0.5 3.5 (0.6) 0.2 (0.4) Other comprehensive income attributable to NCI — 0.1 0.1 — 0.7 0.7 Other reserves Dividends paid to NCI 1.6 0.1 1.7 1.8 0.4 2.2 Share‑based payment reserve The share‑based payment reserve at 31 August 2017 of £3.2 million (31 August 2016: £2.2 million) arises from conditional awards of shares in the Company made to Summarised cash flow statement certain employees and the Executive Directors. The awards will vest on the third anniversary of the grant, subject to certain performance conditions being achieved Cash inflow from operating activities 11.4 10.5 over the vesting period. Cash outflow from investing activities (3.0) (0.9) Other reserves Cash outflow from financing activities (5.4) (7.8) Other reserves of £1.0 million (31 August 2016: £1.0 million) arose from the acquisition of subsidiaries. Net increase in cash and cash equivalents 3.0 1.8 (1) Profit/(loss) attributable to NCI at 31 August 2016 included a non‑resident landlord tax charge of £0.4 million which was fully attributable to the minority shareholders of RHHL. Foreign currency translation reserve The foreign currency translation reserve at 31 August 2017 of £23.4 million (31 August 2016: £10.8 million) represents exchange differences arising from the translation of the Group’s net investment in foreign operations, including both subsidiary and joint venture interests. £4.2 million of cumulative translation gains were transferred 28. Transactions with non‑controlling interests to the income statement during the year on disposal of joint venture interests (31 August 2016: £3.6 million on disposal of subsidiary). £2.2 million related to the On 1 June 2016, Ciref Europe Limited, a subsidiary of the Group, acquired the non‑controlling interests in its subsidiaries CEL Portfolio 1 Ltd & Co. KG and Chelvey disposal of the property‑owning subsidiaries of Wichford VBG and £2.0 million related to the disposal of the Leopard joint venture. Holdings Limited, of 20.0 and 33.0 per cent respectively, from Ellis Ventures Limited. Consideration for this transaction was £2.3 million (€2.7 million) including the acquisition of shareholder loans for £1.9 million (€2.2 million). A loss of £0.2 million on acquisition of the non‑controlling interest was recognised directly in equity. 27. Non‑controlling interests At 31 August 2016, 4C Investments was a non‑controlling shareholder of RHHL, with an 11.43 per cent equity interest (1,938 shares) in the issued share capital. 31 August 31 August The Group had a loan balance outstanding from 4C Investments (refer to Note 32), for which a share charge was created in favour of the Group over 4C Investment’s 2017 2016 entire shareholding in RHHL. The total loan balance outstanding, of both principal and interest, was £14.2 million on maturity at 31 December 2016. In the absence of Group £m £m repayment, the Group exercised its security over the shares. On 7 February 2017, the 1,938 shares formally transferred to the Group for an agreed transfer price of Opening balance at 1 September 33.6 38.8 £6,295 per share, valuing the total shareholding at £12.1 million. The carrying value of the non‑controlling interest on transfer was £12.7 million and, as a result, a gain of £0.4 million has been recognised directly in equity after transaction costs. Comprehensive income/(expense) for the year: Share of profit/(loss) for the year 3.5 (0.4) 4C Investments has the right to reacquire the RHH shares on or before 31 January 2018 at the transfer price of £12.1 million. The exercise of this right is considered improbable and the Directors are satisfied that there is no material value attributable to the option. The remaining non‑controlling interest in RHHL (17.52 per cent) has Foreign currency translation on subsidiary foreign operations 0.1 0.7 formally waived the pre‑emptive right to acquire its relative proportion of the shares on 31 January 2018. Dividends from these shares have been payable to the Group Changes in ownership interest in subsidiaries: since the transfer and 4C Investments has no representation on the board of RHHL during the option period. Reclassification of non‑controlling interest shareholder loans to liabilities (1.1) (0.3) On acquisition of control of the Leopard Portfolio, the non‑controlling interest’s proportionate share (6 per cent) of the identifiable net assets of £0.7 million was Dividends paid to non‑controlling interests (1.7) (2.2) recognised (debit balance). Recognition of non‑controlling interests on acquisition of control of former joint venture (0.7) — 31 August 31 August Acquisition of non‑controlling interest (Note 28) (12.7) (2.1) 2017 2016 Group £m £m Repayment of non‑controlling interest shareholder loans — (0.1) Carrying amount of non‑controlling interest acquired: Total non‑controlling interests 21.8 33.6 Ellis Ventures Limited — 2.1 4C Investments 12.7 — Consideration paid to non‑controlling interest — (2.3) Transfer value attributed to non‑controlling interest (net of transaction costs) (12.3) — Increase/(decrease) in equity attributable to equity holders of the Parent 0.4 (0.2) Redefine International P.L.C. Redefine International P.L.C. 134 Annual Report 2017 Annual Report 2017 135 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
29. Cash generated from operations 31. Fair value of financial instruments Group Company Basis for determining fair values Year ended Year ended Year ended Year ended The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements. 31 August 31 August 31 August 31 August 2017 2016 2017 2016 Level 1: quoted market price (unadjusted) in an active market for an identical instrument. Continuing operations Note £m £m £m £m Level 2: valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued Cash flows from operating activities using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; Profit/(loss) before tax 73.5 8.6 (5.4) (80.4) or other valuation techniques where all significant inputs are directly or indirectly observable from market data. Adjustments for: Level 3: valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based Straight lining of rental income (1.1) (1.5) — — on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on Fair value of share‑based payments 1.0 1.2 1.0 1.2 quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments. (Gain)/loss on revaluation of investment property 12 (10.8) 42.5 — — The fair value of financial instruments that are traded in active markets is based on quoted market prices or dealer price quotations. For all other financial instruments, the Group uses valuation techniques to arrive at a fair value that reflects a price that would have been determined by willing market participants acting at arm’s Loss on revaluation of investment property held for sale 20 3.9 — — — length at the reporting date. For common and simple financial instruments, such as over‑the‑counter interest rate swaps and caps, the Group uses widely recognised Gain on disposal of investment property 12 (9.2) (3.2) — — valuation models for determining the fair value. The models use only observable market data and require little management judgement which reduces the uncertainty Gain on disposal of investment property held for sale 20 (1.5) — — — associated with determination of fair values. For other financial instruments, the Group determines fair value using net present value or discounted cash flow models Gain on disposal of subsidiary undertakings 7 — (12.2) — — and comparisons to similar instruments for which market observable prices exist. Varying degrees of judgement are required in the determination of an appropriate market benchmark. Assumptions and inputs used in valuation techniques include risk‑free and benchmark interest rates, credit spreads and other premia used in Distributions from investment at fair value (0.2) (0.5) — (0.2) estimating discount rates, foreign currency exchange rates and expected price volatilities and correlations. Availability of observable market prices and inputs vary Loss on revaluation of investment at fair value 14 0.3 0.8 — — depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets. Amortisation of intangible asset 17 0.2 0.2 — — The tables below present information about the Group’s financial instruments carried at fair value as of 31 August 2017 and 31 August 2016: Gain on disposal of other non‑current assets held for sale — (0.2) — (0.2) Total Foreign exchange gain — (0.9) (0.2) (0.6) fair Finance income 8 (3.4) (6.3) (0.9) (1.2) Level 1 Level 2 Level 3 value Group £m £m £m £m Finance expense 8 28.4 32.7 — — 31 August 2017 Other finance expense 9 6.5 1.9 0.2 — Financial assets Change in fair value of derivative financial instruments (4.5) 11.1 — — Investment at fair value (Note 14) 8.5 — — 8.5 Net gain on sale of joint venture interests 10 (4.9) — — — Derivative financial assets (Note 22) — 0.4 — 0.4 Net impairment of joint ventures and associate interests 15,16 0.1 0.6 — — 8.5 0.4 — 8.9 Share of post‑tax loss/(profit) from joint ventures 15 2.3 (1.4) — — Financial liabilities Share of post‑tax profit from associate 16,20 (1.1) (1.7) — — Derivative financial liabilities (Note 22) — (7.8) — (7.8) Transfer of foreign currency translation on disposal of joint venture interest 15 (2.0) — — — — (7.8) — (7.8) 77.5 71.7 (5.3) (81.4) Intra‑group transactions 31 August 2016 Settlement of loans 32 — — (0.8) 105.4 Financial assets Reversal of impairment of loan 32 — — — (22.7) Investment at fair value (Note 14) 7.9 — — 7.9 Distributions 32 — — — (1.1) Derivative financial assets (Note 22) — 0.8 — 0.8 Loss on disposal of investment at fair value 32 — — — 0.2 7.9 0.8 — 8.7 Gain on disposal on subsidiary 32 — — — (0.5) Financial liabilities Foreign exchange gain on loans advanced 32 — — — (4.6) Derivative financial liabilities (Note 22) — (12.6) — (12.6) 77.5 71.7 (6.1) (4.7) — (12.6) — (12.6) Changes in working capital (1.9) (2.5) (0.9) 0.6 The investment in IHL has been categorised as a Level 1 investment and priced using quoted prices in an active market; the AltX of the JSE. Derivative financial Changes in trading loans to and from subsidiary undertakings — — 43.1 98.4 instruments have been categorised as Level 2, as although they are priced using directly observable inputs, the instruments are not traded in an active market. Cash generated from operations 75.6 69.2 36.1 94.3 As stated in Note 12 and 20 respectively, the Group considers investment property and non‑current assets held for sale to be categorised as Level 3. As stated in Note 21, the Group considers all bank loans to be categorised as Level 3 with the exception of the Aviva debt which is categorised as Level 2. 30. Acquisition of subsidiaries The carrying values of loans to joint ventures, trade and other receivables, cash and cash equivalents, finance leases and trade and other payables are considered On 6 April 2017, the Group reached a conditional agreement to acquire the controlling interest in the Leopard Portfolio, previously held as a joint venture with RPL to be a reasonable approximation of fair value. (refer to Note 15). Shareholder approval was subsequently received on 25 April 2017 and the transaction completed on 26 April 2017 but with economic effect from 1 March 2017. Aggregate consideration paid to RPL was €49.0 million (£41.9 million) and allocated as follows: 32. Related party transactions • €0.3 million (£0.3 million) for the equity interests acquired; and Related parties of the Group include: associate undertakings; joint ventures; Directors and key management personnel; connected parties; the major shareholder • €48.7 million (£41.6 million) for the shareholder loans acquired. Redefine Properties Limited (“RPL”); as well as entities connected through common directorships. Related parties of the Company also include directly and indirectly Including transaction costs, the total cash outflow in respect of the acquisition was £42.1 million. held subsidiary undertakings. All intra-group Company transactions and balances eliminate on consolidation. Group Company On completion, the Group obtained control of the Leopard Portfolio. The Group has become exposed to the variable returns of the portfolio and now has the continuing ability to affect those returns by directing its activities. The Group has therefore consolidated the Leopard Portfolio on a line‑by‑line basis from 31 August 31 August 31 August 31 August 1 March 2017, with the resulting elimination of intra‑group shareholder loans. The transaction was not considered a business combination, having regard to associated 2017 2016 2017 2016 processes acquired, and has therefore been recognised as an asset acquisition. The net assets of Leopard on acquisition were €87.2 million (£74.5 million). The carrying £m £m £m £m value of the Group’s existing joint venture interest, which was derecognised on loss of joint control, was €44.3 million (£37.7 million). Revenue transactions (Group) The premium paid to RPL on acquisition of €6.8 million (£5.9 million) including transactions costs, has been solely allocated to investment property as it was not Rental income separately identifiable. The carrying value of the Leopard property portfolio on 1 March 2017 was €175.5 million (£149.9 million) and, as a result, the total amount RedefineBDL(1) 14.0 14.7 — — recognised as an addition on consolidation was €182.3 million (£155.8 million). Refer to Note 12. (1) Amounts received from RedefineBDL as a result of lease agreements in place between the Group, RHML and RECML (wholly owned subsidiaries of RedefineBDL). The non‑controlling interest, being 6 per cent of the equity of the Leopard Portfolio, has been recognised on the basis of its proportionate share in the identifiable net assets on completion and share of results to the reporting date. Redefine International P.L.C. Redefine International P.L.C. 136 Annual Report 2017 Annual Report 2017 137 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
Group Company 32. Related party transactions continued Group Company 31 August 31 August 31 August 31 August
2017 2016 2017 2016 31 August 31 August 31 August 31 August £m £m £m £m 2017 2016 2017 2016 £m £m £m £m Investment in associate Other income Transfer price of 4C UK Investments Limited’s interests in RedefineBDL 1.3 — — — International Hotel Properties Limited — 0.3 — 0.3 Capital contribution to RedefineBDL — 6.0 — —
Dividends received from RedefineBDL (1.2) (2.3) — — Joint ventures: Leopard Portfolio 0.3 0.5 — — Non-controlling interests Wichford VBG Holding S.à.r.l. (including Performance Fee of £3.4 million) 3.5 0.1 — — Transfer price of 4C UK Investments Limited’s interests in RHHL 12.1 — — — RI Menora German Holdings S.à.r.l. — 0.1 — — Total capital transactions (Group) 13.2 12.7 — 8.7
Distributions from investments at fair value Capital transactions (Company) International Hotel Properties Limited 0.2 0.5 — 0.2 Investment in subsidiary undertakings – settlement of balances outstanding in Finance income consideration for shares and redemption of shares International Hotel Properties Limited — 0.1 — 0.1 Redefine AUK Limited 4C UK Investments Limited 0.5 1.0 0.5 1.0 – Cash advanced to acquire AUK property portfolio — — — 226.9
– Capitalisation of Wichford Zeta Limited assigned loan on disposal — — — 60.0 Joint ventures: – Capitalisation of Wichford North Street Limited assigned loan — — — 9.8 Leopard Portfolio 1.5 2.6 — — Redefine International Holdings Limited — — 0.9 105.9 Wichford VBG Holding S.à.r.l. 0.8 2.2 — — Redefine Waterside Leeds Limited — — — 3.9 RI Menora German Holdings S.à.r.l. 0.4 0.2 — — Redefine Share Investments Limited — — — 8.5 Total revenue transactions (Group) 21.2 22.3 0.5 1.6 Everton Shopping Centres S.à.r.l. — — — 0.4 — — 0.9 415.4 Revenue transactions (Company) Total capital transactions (Company) — — 0.9 415.4 Administrative costs and other fees Redefine International Group Services Limited — — (0.8) (0.6) Related party transactions with Equity Holders of the Parent Finance income Redefine Properties Limited – capital raise — 34.6 — 34.6 Redefine Cyprus Limited — — 0.4 — Redefine Properties Limited – underwriting fee — 2.5 — 2.5
Redefine Properties Limited – cash dividends 8.0 8.0 Settlement of loans 13.8 13.8 Redefine Properties Limited – scrip dividends 8.0 8.0 Ciref Europe Limited — — 0.9 — 1.7 1.7 53.1 53.1 Cooperative Redefine International Real Estate UA — — — (2.1) Total related party transactions with Equity Holders of the Parent 15.5 15.3 Wichford Alpha Limited — — (0.1) (2.8) Wichford Beta Limited — — — (27.7) Related party balances (Group) Wichford Delta Limited — — — 2.7 Loans to joint ventures Wichford Gamma Limited — — — (4.8) Leopard Portfolio — 36.8 — — Wichford Zeta Limited — — — (70.7) Wichford VBG Holding S.à.r.l. — 12.2 — — — — 0.8 (105.4) RI Menora German Holdings S.à.r.l. 4.3 3.9 — — Reversal of impairment of loan 4.3 52.9 — — Redefine International Management Holdings Limited — — — 22.7 Trade and other receivables RI Menora German Holdings S.à.r.l. 0.5 — — — Distributions Leopard Portfolio — 1.9 — — Redefine Hotels Edinburgh Limited — — — 0.4 Wichford VBG Holding S.à.r.l. — 1.7 — — Everton Shopping Centres S.à.r.l. — — — 0.5 4C UK Investments Limited — 14.2 — 14.2 Redefine International Management Holdings Limited — — — 0.2 RedefineBDL — 1.7 — — — — — 1.1 International Hotel Properties Limited — 0.5 — — Loss on disposal of investment at fair value 0.5 20.0 — 14.2 Redefine Share Investments Limited — — — (0.2) Trade and other payables Gain on disposal of subsidiary undertaking Wichford VBG Holding S.à.r.l. (0.6) — (0.3) — Wichford Zeta Limited — — — 0.5 (0.6) — (0.3) — Total related party balances (Group) 4.2 72.9 (0.3) 14.2 Foreign exchange gain of loans advanced Ciref Europe Limited — — — 4.6 Related party balances (Company) Total revenue transactions (Company) — — 0.4 (77.3) Trade and other receivables Redefine International Holdings Limited — — 56.1 14.9 Capital transactions (Group) Everton Shopping Centres S.à.r.l. — — 27.6 11.2 Investment property (capitalised expenditure) Redefine Share Investments Limited — — 2.5 — Project monitoring fee to RedefineBDL – construction works 0.1 0.3 — — Leopard Holding UK Limited — — 0.8 1.0 Investment at fair value through profit or loss Wichford Property General Partner — — 0.1 0.1 International Hotel Properties Limited (shares acquired/transferred at cost) 1.0 8.7 — 8.7 Redefine International Management Holdings Limited — — — 2.4 — — 87.1 29.6 Redefine International P.L.C. Redefine International P.L.C. 138 Annual Report 2017 Annual Report 2017 139 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
32. Related party transactions continued 33. Share‑based payments Group Company Group and Company 31 August 31 August 31 August 31 August 31 August 31 August 2017 2016 2017 2016 2017 2016 £m £m £m £m Share‑based payment reserve £m £m Trade and other payables Opening balance at 1 September 2.2 1.0 Redefine International Management Holdings Limited — — (2.3) — Share‑based payment expense in the year 1.0 1.2 Redefine AUK Holdings Limited — — (76.2) — Closing balance at 31 August 3.2 2.2 Redefine Cyprus Limited — — (6.1) — The Company’s share‑based payments are all equity‑settled and comprise the Long‑Term Performance Share Plan (“PSP”) for Executive Directors and the Long‑Term Redefine North Street Limited — — (1.5) (0.5) Restricted Stock Plan (“RSP”) for employees. In accordance with IFRS 2, the fair value of equity‑settled share‑based payments to employees is determined at the grant Wichford Edgbaston Limited — — (0.8) (0.2) date. The expense is recognised on a straight‑line basis over the vesting period based on estimates of the number of shares that are expected to vest at each reporting Redefine Waterside Leeds Limited — — (0.3) (0.2) date, with a corresponding credit to the share‑based payments reserve. The Company engages external advisers to determine the fair value of each award at the grant date who use the Monte Carlo and Black‑Scholes models in their valuations. — — (87.2) (0.9) During the year ended 31 August 2017, the total IFRS 2 charge recognised in the income statement in relation to the PSP awards was £0.9 million Total related party balances (Company) — — (0.1) (28.7) (31 August 2016: £1.1 million). During the year ended 31 August 2017, the total IFRS 2 charge recognised in the income statement in relation to the RSP awards was £0.1 million (31 August 2016: £0.1 million). 4C UK Investments Limited Long‑Term Performance Long‑Term Restricted On 7 February 2017, the Company exercised its security against a loan advanced to 4C Investments that had matured. In settlement of the £14.2 million balance Share Plan Stock Plan outstanding, the following investments were transferred to the subsidiaries of the Group: Conditional share awards (000’s) 2017 2016 2017 2016 4C Investments non‑controlling interest in RHHL for a transfer price of £12.1 million (Note 28); • Awards brought forward 8,371 6,250 780 — 4C Investments shareholding in RedefineBDL for a transfer price of £1.3 million (Note 20); and • Awarded during the year 4,919 4,971 1,095 861 4C Investments shareholding in IHL for a transfer price of £1.0 million (Note 14). • Lapsed during the year (3,400) (2,850) — — As the total transfer price for the shares was £14.4 million, £0.2 million cash was paid back by the Group to 4C Investments. The treatment on initial recognition of the Forfeited during the year — — (468) (81) transferred shares is explained in the referenced notes. Awards carried forward 9,890 8,371 1,407 780 On the same date, the Group entered into a lock‑up agreement with 4C Investments whereby the latter has the right to buy back the transferred shares in RHHL and Exercisable at 31 August — — — — RedefineBDL on or before 31 January 2018 at the transfer price. Under the terms of the lock‑up agreement: Shares outstanding under each scheme are to be issued for nominal consideration provided performance conditions are met. • the Group cannot dispose of the transferred shares; As at 31 August 2017, 1.3 million PSP awards and 0.7 million RSP awards were considered to be dilutive (31 August 2016: 0.2 million and 0.5 million respectively). • 4C Investments must be notified of material transactions; and • any dividends declared by RHHL and RedefineBDL will be payable to the Group. Full disclosure of the PSP award scheme granted to the Executive Directors is given on pages 88 and 89 of the Annual Report. 4C Investments is controlled by Bashir Nathoo. Bashir Nathoo was a Director of RHHL and RedefineBDL but resigned from his directorships with immediate effect on Long‑Term Performance Share Plan transfer of the shares. Subsequent to shareholder approval on 23 January 2017 and with effect from 1 September 2016, PSP performance conditions were revised to include non‑market based objectives in addition to market based objective. This followed a review by the Remuneration Committee of the existing remuneration policy to better align Redefine Properties Limited the awards with the Company’s strategic objectives and shareholder interests. The revised PSP awards authorise the Remuneration Committee to make grants of During the year ended 31 August 2016, the Group paid Redefine Properties a fee of £2.5 million in consideration for the financial guarantee to support the AUK PSP shares with a face value of up to 200 per cent of the salary of Executive Directors. The awards are subject to a three‑year vesting period and to the following Portfolio acquisition by underwriting up to £70.0 million in the capital raise. On completion, Redefine Properties was allocated 81,373,179 shares, representing performance conditions: 30.07 per cent of the total placing and this equated to an aggregate amount of £34.6 million of the total funds raised. • 50 per cent of the award will vest dependent on underlying distributable earnings per share. 25 per cent of the award will vest upon attaining earnings per share At 31 August 2017, Redefine Properties held a 29.52 per cent interest in the issued share capital of the Company. comparable with the immediately preceding financial year, with 100 per cent vesting achieved for average annual outperformance of CPI during the performance period of 1 per cent; Directors 25 per cent of the award will vest dependent on the relative total property return of the Company’s UK assets in comparison to the IPD UK All Property Index. Non‑executive Directors and Executive Directors represent key management personnel. The remuneration paid to Non‑executive Directors for the year ended • 25 per cent of the award will vest once performance reaches that of the benchmark with 100 per cent vesting achieved for 2 per cent outperformance; and 31 August 2017 was £0.4 million (31 August 2016: £0.3 million) which represents Directors fees only. The remuneration payable to Executive Directors for the year ended 31 August 2017 was £2.7 million (31 August 2016: £1.8 million), representing salaries, benefits and bonuses. 4.9 million contingent share awards were issued to • 25 per cent of the award will vest dependent on the Company’s Total Shareholder Return (“TSR”) equalling, or exceeding, the TSR relative to that of each of the Executive Directors during the year (31 August 2016: 5.0 million). The IFRS 2 share‑based payment charge associated with the cumulative contingent share awards to members of the FTSE EPRA/REIT Developed Europe Index (the “Index”). 25 per cent of the award will vest for median performance with 100 per cent vesting the Executive Directors was £0.9 million (31 August 2016: £1.1 million) for the year. achieved for upper quartile performance. The table below shows Directors’ dealings in shares for the period 1 September 2015 to 31 August 2017: On 25 January 2017, 4.9 million shares were granted for the performance period from 1 September 2016 to 31 August 2019. The share price on 1 September 2016 was 39.0 pence and the fair value on the grant date was £1.2 million assuming maximum vesting over the performance period. Number of Price per ordinary ordinary The former PSP scheme authorised the Remuneration Committee to make grants of PSP shares with a face value of up to 250 per cent of the salary of Executive shares share Directors. These remaining outstanding awards are subject to a three‑year vesting period and to the following performance conditions: Name Date of Transaction Transaction acquired acquired • 50 per cent of the award will vest dependent on the TSR equalling, or exceeding, the TSR relative to that of each of the members of the Index; and Marc Wainer 4 December 2015 Scrip dividend 3,052 52.4p • 50 per cent of the award will vest dependent on the Company’s TSR relative to that of the members of a bespoke comparator group (the “Comparator Group”). Bernie Nackan 4 December 2015 Scrip dividend 559 52.4p Mike Watters 23 February 2016 Private placing 352,941 42.5p Vesting is on the same sliding scale for both of these conditions – 25 per cent for median performance and 100 per cent for upper quartile performance, with 0 per cent vesting below a median performance. The following outstanding awards were granted under the former PSP remuneration scheme: Adrian Horsburgh 23 February 2016 Private placing 10,000 42.5p On 3 February 2015, 3.4 million shares were granted for the performance period from 1 September 2014 to 31 August 2017. The share price on 1 September 2014 was Marc Wainer 23 February 2016 Private placing 195,000 42.5p 52.4 pence and the fair value on the grant date was £0.9 million. Performance during the period was determined to be below median and therefore all awards lapsed Gavin Tipper 23 February 2016 Private placing 100,000 42.5p on 31 August 2017. Robert Orr 23 February 2016 Private placing 23,529 42.5p On 28 October 2015, 5.0 million shares were granted for the performance period from 1 September 2015 to 31 August 2018. The share price on 1 September 2015 was Marc Wainer 6 June 2016 Scrip dividend 3,819 44.2p 52.2 pence and the fair value on the grant date was £1.5 million. Bernie Nackan 6 June 2016 Scrip dividend 587 44.2p Adrian Horsburgh 25 November 2016 Scrip dividend 347 38.9p Long‑Term Restricted Stock Plan Awards of RSPs to certain employees are subject to a three‑year vesting period and to performance measures evenly balanced between corporate performance Bernie Nackan 25 November 2016 Scrip dividend 682 38.9p objectives and personal performance objectives. The performance conditions of RSP awards were also revised effective 1 September 2016. Stephen Oakenfull 27 February 2017 Share acquisition 50,000 36.6p 50 per cent of the award will vest dependent on corporate targets, being the same as those conditions set out above for the PSP under both the revised and existing Adrian Horsburgh 27 February 2017 Share acquisition 50,000 36.4p • remuneration policies and with the same relative weighting. Donald Grant 27 February 2017 Share acquisition 50,000 36.3p • 50 per cent of the award will vest dependent on personal objectives, linked to average performance grades achieved over the three‑year vesting period. Adrian Horsburgh 26 June 2017 Scrip dividend 1,842 36.2p Bernie Nackan 26 June 2017 Scrip dividend 619 36.2p Redefine International P.L.C. Redefine International P.L.C. 140 Annual Report 2017 Annual Report 2017 141 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
33. Share-based payments continued Cash and cash equivalents and derivative financial instruments Long‑Term Restricted Stock Plan continued Credit risk arises on the Group’s undrawn commitments, its holding of assets such as cash and cash equivalents and deposits with banks or financial institutions and its On 3 December 2015, 0.9 million shares were granted to employees under the old RSP scheme for the performance period 1 September 2015 to 31 August 2018. derivative financial instruments. However, the Group limits such exposure by investing in liquid deposits with material counterparties that have a credit rating of A, A2 The share price on 1 September 2015 was 52.2 pence and the fair value on the date of grant was £0.3 million. or above from Standard & Poor’s or Moody’s, except where specific exemptions are granted by the Board. On 25 January 2017, 1.1 million shares were granted to employees under the revised RSP scheme for the performance period from 1 September 2016 to Group 31 August 2019. The share price on 1 September 2016 was 39.0 pence and the fair value on the grant date was £0.3 million assuming maximum vesting over the 2017 2016 31 August 31 August performance period. Credit Credit 2017 2016 Counterparties Rating Rating £m £m Fair value of share‑based payments HSBC A2 A1 40.8 10.4 For the market‑based performance conditions, the effect of the performance conditions is incorporated into the grant date fair value of the award. No subsequent NatWest A3 A3 6.5 6.8 adjustment to the charge can be made to reflect the outcome of the performance test. Adjustments can be made for estimated and actual leavers who forfeit their Berlin Hyp A1 A2 1.4 — awards during the vesting period. The probability of meeting market based performance conditions is required to be incorporated into the calculation of fair value. BayernLB A1 A2 1.0 1.0 The Monte Carlo model has therefore been used to value the element of the Awards with a TSR performance condition. Aviva A3 A3 — 3.3 The remaining non‑market based performance conditions have been valued using a Black‑Scholes model. RBS Baa3 Ba1 — 4.0 It was necessary to make a number of assumptions to calculate the fair value under both models. Reference was made to the Company’s LSE listing in developing share Other 3.5 7.3 price volatility, dividend yield, risk‑free rate and index correlation assumptions. The table below sets out the assumptions made: 53.2 32.8 Award year Award year The Group actively monitors its credit exposure to each counterparty and in dealing with high quality, reputable and long‑established institutions, management do not Assumptions 2017 (%) 2016 (%) expect any counterparty will fail to meet its obligations. Volatility 20.7 20.0 Risk‑free rate 0.4 0.85 Trade and other receivables Dividend yield 8.2 — The Group is also exposed to credit risk from lease contracts in relation to its property portfolio. This risk is actively managed by the asset and property managers who Correlation of the comparator group companies — 28.5 continuously monitor and work with tenants, anticipating and wherever possible, identifying and addressing risks prior to default. If there is objective evidence that the Group may not be able to collect all amounts due according to the original terms of the lease concerned a specific impairment is made. The Group also makes a Correlation of the Index companies 24.2 30.1 general provision of 25 per cent against all receivables 120 days or more past due that have not been specifically impaired. Rent receivables exposed to credit risk were The fair value calculation under the revised PSP award scheme assumes 28.2 per cent (2016: 53 per cent) of the face value will be awarded at the date of grant relative less than 0.1 per cent of total assets at 31 August 2017 (31 August 2016: less than 0.1 per cent). The credit risk associated with rent receivables is considered to be low, to the Index. owing to the long‑term nature and diversity of the Group’s tenancy agreements. The Group has set a medium‑term target of a 95 per cent collection rate within seven days. The Group’s rent collection rate at 31 August 2017 was 94.3 per cent. 34. Financial risk management Other receivables, including loans to external parties and consideration outstanding on disposal of investment property are secured and therefore they are also considered to be of low credit risk. The Group is exposed to the following financial risks through its operations: Included in trade and other receivables, subject to credit risk, are debtors with the following age profile: • Credit risk; 2017 2016 • Liquidity risk; and Gross Impairment Recoverable Gross Impairment Recoverable Market risk. • £m £m £m £m £m £m In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. The following quantitative and qualitative Not past due 10.9 — 10.9 25.5 — 25.5 disclosures describe the Group’s objectives, policies and processes for measuring and managing these risks, and the Group’s management of capital. Past due 0 – 120 days 2.0 — 2.0 — — — The Group’s risk management policies require the identification and analysis of the risks faced by the Group, the setting of appropriate risk limits and controls, and the Past due – over 120 days 2.0 (1.3) 0.7 0.9 (0.9) — monitoring of risks and adherence to limits. Risk management policies and systems are reviewed regularly and adjusted to reflect changes in market conditions and the 14.9 (1.3) 13.6 26.4 (0.9) 25.5 Group’s activities. The Group’s Board of Directors has responsibility for the establishment and oversight of the Group’s risk management framework. The overall objective of the Board is Loans to joint ventures to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s flexibility and ability to maximise returns. The credit risk associated with loans to joint ventures is the risk that the loans advanced may not be recoverable. The Group Audit Committee oversees management’s compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk As at 31 August 2017, the recognised loan to joint ventures relates to the loan advanced to RI Menora German Holdings S.à.r.l. This joint venture group is in a net asset management framework in relation to the risks faced by the Group. position and has serviced all of its payment obligations to date under the terms of the loan. The Group is also responsible for the investment management of the joint There are no significant concentrations of risk and there has been no significant change during the financial year, or since year end, to the types of financial risks faced venture and therefore has oversight of working capital and can manage cash flow requirements. The recoverability of the loan is considered low risk. by the Group or the Group’s approach to the management of such risks. The Group has also advanced a loan of £3.3 million to the Esplanade. This investment is in a net liability position with the cumulative losses exceeding the cost of the Credit risk Group’s investment due to the fair value losses that have arisen on derivative financial instruments. The Group has therefore fully impaired the loan advanced in line with the requirements of IAS 28. Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The carrying amount of financial assets represents the Group’s maximum credit risk exposure. The maximum exposure to credit risk at the reporting date was: Liquidity risk Group Liquidity risk arises from the Group’s working capital and debt servicing obligations. There is a risk that the Group will encounter difficulties in meeting its financial 31 August 31 August obligations as they fall due. 2017 2016 £m £m The Group’s approach to managing liquidity is to ensure, as far as possible, that there will always be sufficient resources to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Loans to joint ventures 4.3 52.9 Derivative financial instruments 0.4 0.8 Liquidity risk is actively managed by the Group’s finance department. Bi‑monthly, management receive and review rolling three‑month cash flow projections to ensure that there is sufficient headroom in the near‑term to meet ongoing operational requirements and upcoming capital commitments. In addition, management regularly Trade and other receivables 25.3 13.6 receive and review rolling three‑year cash flow and loan balance projections as part of the Group’s forecasting process. At the balance sheet date, these projections Cash and cash equivalents 52.8 32.0 indicated that the Group had sufficient liquid resources to meet its obligations under all reasonably expected circumstances. 71.1 111.0 The monitoring of liquidity is also assisted by the quarterly review of covenants imposed by financial institutions, such as loan‑to‑value and interest covenant ratios. The above tables exclude prepayments and accrued income, letting costs and tenant lease incentives which are not exposed to credit risk. Loans are renegotiated in advance of any potential covenant breaches insofar as the factors are within the control of the Group. The Board will ensure during periods of increased market uncertainty that sufficient cash resources are available for potential loan repayments or cash deposits as may be required by financial institutions. The Group’s loan facilities and other borrowings are also spread across a range of banks and financial institutions so as to minimise any potential concentration of risk. Redefine International P.L.C. Redefine International P.L.C. 142 Annual Report 2017 Annual Report 2017 143 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
34. Financial risk management continued Sensitivity analysis Liquidity risk continued A five percent strengthening in the GBP exchange rate against the EUR at year end would have decreased equity by £9.9 million (31 August 2016: £7.0 million) and profit The tables below set out the contractual maturities of financial liabilities based on the undiscounted obligations to make interest payments and to repay the principal: by £0.6 million (31 August 2016: 1.4 million). A five percent weakening in the GBP exchange rate against the EUR at year end would have had the equal but opposite effect. This analysis assumes that all other variables remain constant. More Carrying Contractual 6 Months 6 to 12 1 to 2 2 to 5 than 5 Interest rate risk Amount Cash Flows or Less Months Years Years Years Group £m £m £m £m £m £m £m The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long‑term debt obligations with floating interest rates. The Group uses interest rate derivatives to mitigate its exposure to interest rate fluctuations. At the year end, as a result of the use of interest rate swaps and caps, the majority of 31 August 2017 the Group’s borrowings were at fixed interest. Financial liabilities Fixed/capped Floating Fixed/capped Floating Bank and other loans 807.0 (1,060.5) (12.9) (12.7) (32.7) (656.4) (345.8) 31 August 31 August 31 August 31 August Finance leases 14.8 (118.1) (0.4) (0.5) (0.8) (2.5) (113.9) 2017 2017 2016 2016 Group (proportionately consolidated) £m £m £m £m Trade and other payables 21.2 (21.2) (21.2) — — — — Nominal value of Group bank loans 188.7 637.2 206.7 566.9 Tax liabilities 1.2 (1.2) (1.2) — — — — Nominal value of joint venture bank loans 7.5 8.8 — 77.0 Derivative financial liabilities 196.2 646.0 206.7 643.9 Interest rate swaps 7.8 (11.7) (1.5) (1.5) (3.0) (4.8) (0.9) Derivative impact 587.3 (587.3) 604.7 (604.7) 852.0 (1,212.7) (37.2) (14.7) (36.5) (663.7) (460.6) 783.5 58.7 811.4 39.2 31 August 2016 Interest rate protection (%) 93.0 95.4 Financial liabilities The table above is presented on a proportionately consolidated basis. The detail included is not a requirement of IFRS and is presented for informational purposes only as it is used Bank and other loans 748.4 (773.5) (13.9) (4.0) (8.0) (484.8) (262.8) in reports presented to the Group’s Chief Operating Decision Maker for monitoring interest rate risk. Aviva profit share 4.2 (4.2) (0.5) (0.4) (1.1) (2.2) — The Group targets interest rate protection against 75 per cent or more of external debt. The Group’s EPRA earnings has limited exposure to interest rate fluctuations Finance leases 13.0 (92.3) (0.3) (0.4) (0.7) (2.3) (88.6) until the repayment dates of the loans for which the interest rate swaps and caps have been arranged. Refer to Note 22 for further details on the Group’s interest rate swap and cap agreements. Trade and other payables 21.4 (21.4) (21.4) — — — — Tax liabilities 2.4 (2.4) (2.4) — — — — Capital structure and management Derivative financial liabilities The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of Interest rate swaps 12.6 (11.1) (1.4) (1.4) (2.9) (5.4) — the balance between its net debt and capital. The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Group manages the capital structure and takes reasonable steps in light of changes in the economic conditions and 802.0 (904.9) (39.9) (6.2) (12.7) (494.7) (351.4) the risk characteristics of its underlying business and assets. Market risk The key ratios used to monitor the capital structure of the Group, as presented in the following table, are the loan‑to‑value and the interest cover ratios: Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its 31 August 31 August investments in financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while 2017 2016 optimising the return on risk. Group (proportionately consolidated) Note £m £m Loan‑to‑value Since the UK referendum on European membership there has been a change in the potential scale and likelihood of volatility in all aspects of market risk, with softening yields, volatility in currency and equity markets and increased inflationary expectations experienced. Refer to the Group’s Principal Risk disclosures on pages 16 and 17 Net debt 21 (788.8) (816.3) for further information. Investment property 12 1,538.7 1,529.0 The Group enters into derivative financial instruments in the ordinary course of business, and incurs financial liabilities, in order to manage market risks. The Board of Loan‑to‑value (%) 51.3 53.4 Directors receives reports on a quarterly basis with regards to currency exposures as well as interest rate spreads and takes the necessary steps to hedge and limit the Interest cover risk the Group is exposed to. The Group does not apply hedge accounting. Net rental income 3 93.5 89.3 Currency risk Net finance expense 3 (29.0) (33.1) The Group operates internationally and is exposed to currency risk, primarily with respect to the Euro (“EUR”). Interest cover (times) 3.2 2.7 Foreign exchange risk arises from the Group’s exposure to monetary assets and liabilities and net investments in foreign operations recognised in EUR. The Group’s The tables above are presented on a proportionately consolidated basis. The ratios are not a requirement of IFRS and are presented for informational purposes only as they are income from income‑producing rental properties is denominated in the same currencies as the loans that are financing those properties. The Group’s investments in used in reports presented to the Group’s Chief Operating Decision Maker for monitoring the Group’s capital structure. foreign subsidiaries and joint ventures are not hedged as the currency positions are considered to be long‑term in nature. The Group’s medium‑term target is that the loan‑to‑value ratio is between 45‑50 per cent and the interest cover is above three times. Foreign exchange risk also arises on the payment of the Group’s dividend to its JSE shareholders in South African Rand (”ZAR”) bi‑annually. The Group enters into The Board also monitors both the demographic spread of shareholders, as well as the return on capital, which the Group defines as total shareholders’ equity, forward rate contracts in advance of settlement of the dividends to mitigate this risk. excluding non‑controlling interests, and the dividends paid to ordinary shareholders. In order to improve its capital structure, the Company may issue new shares, sell The carrying amount of the Group’s foreign denominated assets and liabilities are as follows: assets to reduce debt, refinance existing borrowings, and adjust the amount of any distribution of dividends. 31 August 31 August At the 2015 AGM the Company received the necessary authorisation from shareholders to purchase its own shares on the market, subject to such shares being 2017 2016 cancelled immediately upon acquisition. The timing of purchases will depend on market conditions and purchase and sale decisions will be made on a transaction by Group £m £m transaction basis by the Board of Directors. No share purchases took place during the year. The Group does not have a defined share buy‑back plan. Assets The level of the Company’s borrowings, in terms of its Articles of Association, shall not at any time, without the previous sanction of an ordinary resolution of the EUR 432.8 291.5 Company, exceed ten times the aggregate of: ZAR 0.3 2.2 (i) the amount paid up on the issued share capital of the Company; and
Liabilities (ii) the total of capital and revenue reserves. EUR (221.1) (143.8) The Company’s dividend policy is to distribute the majority of its earnings available for distribution in the form of dividends to shareholders. The following exchange rates were applied during the year: Average rate Year end rate
2017 2016 2017 2016 EUR 1.151 1.295 1.086 1.177 ZAR 17.031 21.127 16.820 19.333 Redefine International P.L.C. Redefine International P.L.C. 144 Annual Report 2017 Annual Report 2017 145 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
35. Earnings per share Headline earnings per share is calculated in accordance with Circular 2/2015 issued by the South African Institute of Chartered Accountants (“SAICA”), a requirement of Earnings per share is calculated on the weighted average number of shares in issue and the profit attributable to shareholders. the Group’s JSE listing. This measure is not a requirement of IFRS. 31 August 31 August 31 August 31 August 2017 2016 2017 2016 Group £m £m Group £m £m Profit attributable to equity holders of the Parent 66.1 7.9 Profit attributable to equity holders of the Parent 66.1 7.9 Group adjustments: Group adjustments: (Gain)/loss on revaluation of investment property (10.8) 42.5 (Gain)/loss on revaluation of investment property (10.8) 42.5 Loss on revaluation of investment property held for sale 3.9 — Loss on revaluation of investment property held for sale 3.9 — Gain on disposal of investment property (9.2) (3.2) Gain on disposal of investment property (9.2) (3.2) Gain on disposal of investment property held for sale (1.5) — Gain on disposal of investment property held for sale (1.5) — Gain on disposal of subsidiary — (12.2) Gain on disposal of subsidiary — (12.2) Loss on revaluation of investment at fair value 0.3 0.8 Gain on disposal of other non‑current assets held for sale — (0.2) Amortisation of intangible assets 0.2 0.2 Gain on sale of joint venture interests (5.6) — Gain on disposal of other non‑current asset held for sale — (0.2) Net impairment of joint venture and associate interests 0.2 — Re‑measurement of financial liability 1.3 — Transfer of foreign currency translation on disposal of joint venture interests (2.0) — Net change in fair value adjustments on substantial modification of borrowings 4.3 — Deferred tax 3.5 1.2 Other refinancing costs 0.3 0.2 Joint venture adjustments: Change in fair value of derivative financial instruments (4.5) 11.1 Loss/(gain) on revaluation of investment property 0.9 (1.3) Gain on sale of joint venture interests (5.6) — Loss on sale of subsidiaries 0.7 — Net impairment of joint ventures and associate interests 0.2 — Deferred tax 0.6 0.3 Capital gains tax refund on disposal of Swiss properties — (1.4) Elimination of joint venture unrecognised losses(1) (0.1) (0.2) Deferred tax 3.5 1.2 Non‑controlling interest adjustments: Joint venture adjustments: Gain/(loss) on revaluation of investment property 1.1 (2.2) Loss/(gain) on revaluation of investment property 0.9 (1.3) Impairment of investment in associate (0.1) — Loss on sale of subsidiaries 0.7 — Deferred tax (0.4) — Change in fair value of derivative financial instruments (1.1) 1.7 Headline earnings attributable to equity holders of the Parent 47.3 32.6 Deferred tax 0.6 0.3 Number of ordinary shares (millions) (1) Elimination of joint venture unrecognised profits/(losses) 0.8 (1.2) – Weighted average 1,809.9 1,637.2 Non‑controlling interest adjustments: – Diluted weighted average 1,811.9 1,637.9 Gain/(loss) on revaluation of investment property 1.1 (2.2) Headline earnings per share (pence) Change in fair value of derivative financial instruments (0.1) (0.1) – Basic 2.6 2.0 Impairment of investment in associate (0.1) — – Diluted 2.6 2.0 Deferred tax (0.4) — (1) The Group has ceased to recognise the Esplanade in the IFRS statements as the cumulative losses of the joint venture exceed the cost of the Group’s investment (refer to Note 15). EPRA earnings 50.9 44.1 This adjustment eliminates the restricted losses for the year attributable to the Esplanade. Company adjustments: Accretion of fair value adjustments 0.9 3.1 Foreign currency movements (2.0) (0.9) Underlying earnings (re‑based) 49.8 46.3 Discontinued Company adjustments — 5.9 Distributable earnings 49.8 52.2 Number of ordinary shares (millions) – Weighted average 1,809.9 1,637.2 Dilutive effect of contingently issuable share awards under the Long‑Term Performance Share Plan 1.3 0.2 Dilutive effect of contingently issuable share awards under the Long‑Term Restricted Stock Plan 0.7 0.5 – Diluted weighted average 1,811.9 1,637.9 Earnings per share (pence) – Basic 3.7 0.5 – Diluted 3.6 0.5
EPRA earnings per share (pence) 2.8 2.7 Diluted EPRA earnings per share (pence) 2.8 2.7
Underlying earnings per share (re‑based) (pence)(2) 2.75 2.80 Distributable earnings per share (pence) 2.75 3.20
Dividend per share (pence) 2.6 3.20 First interim dividend per share (pence) 1.3 1.625 Second interim dividend per share (pence) 1.3 1.575 (1) The Group has ceased to recognise the Esplanade in the IFRS statements as the cumulative losses of the joint venture exceed the cost of the Group’s investment (refer to Note 15). This adjustment eliminates the restricted losses for the year attributable to the Esplanade. (2) The calculation of underlying earnings was revised during the year ended 31 August 2017 to align to the EPRA earnings metric as adjusted for foreign exchange and debt fair value movements only. The Directors consider this to be a more appropriate measure of recurring earnings that provides better alignment to operational cash flow. Additional distributable and other non‑recurring adjustments made in prior years have now been discontinued and are presented on an aggregate basis within ‘Discontinued Company adjustments’ above. The calculation of prior year re‑based underlying earnings has been disclosed for informational and comparative purposes. Redefine International P.L.C. Redefine International P.L.C. 146 Annual Report 2017 Annual Report 2017 147 Financial statements Notes to the financial statements continued for the year ended 31 August 2017
36. Net asset value per share 37. Contingencies, guarantees and commitments 31 August 31 August A subsidiary of the Group, Redefine Australian Investments Limited, is undergoing a review by the Australian Tax Office in respect of its calculation of Capital Gains 2017 2016 Tax arising on the disposal of securities in Cromwell Property Group during 2013, 2014 and 2015. No tax assessment notice has been received and dialogue between Group £m £m the Company and the Australian Tax Office is ongoing. The Directors remain of the view, having sought advice from reputable tax agents and advisers, that their filing Net assets attributable to equity holders of the Parent 740.4 699.8 position remains correct. Group adjustments: At 31 August 2017, the Group was contractually committed to expenditure of £16.8 million (31 August 2016: £15.8 million), of which £16.5 million was committed to the Fair value of derivative financial instruments 7.4 11.8 future development and enhancement of investment property. Deferred tax 10.4 3.4 At 31 August 2017, the Company was contractually committed to expenditure of £0.3 million (31 August 2016: £Nil). The Company has also provided wholly owned or Joint venture adjustments: controlled subsidiary undertakings with a commitment to provide continued financial support should the need arise. Fair value of derivative financial instruments 3.5 4.7 (1) Elimination of unrecognised derivative financial instruments (3.5) (4.3) 38. Subsequent events Deferred tax 0.4 1.9 On 15 September 2017, the proposed scheme of arrangement to increase the Group’s interest in IHL to 50 per cent received IHL minority shareholder approval. Non‑controlling interest adjustments: The scheme was approved by the British Virgin Island Court on 12 October, at which time it became unconditional. The transaction is expected to complete in early Fair value of derivative financial instruments — 0.2 November 2017 with IHL delisting shortly afterwards. Deferred tax (0.3) (0.1) On 19 September 2017, the Group exchanged contracts to dispose of the House of Fraser department store in Hull for £11.0 million. The sale is due to complete on EPRA NAV 758.3 717.4 14 November 2017. Group adjustments: Fair value of derivative financial instruments (7.4) (11.8) 39. Dividends Excess of fair value of debt over carrying value (5.0) (42.4) During the year ended 31 August 2017, the second interim dividend of 1.575 pence per share for the half‑year ended 31 August 2016 was distributed, as well as the Deferred tax (10.4) (3.4) interim dividend of 1.3 pence per share for the six month period ended 28 February 2017. Both dividends were settled partly in cash and partly through the issue Joint venture adjustments: of scrip dividends. Fair value of derivative financial instruments (3.5) (4.7) The Board has declared a second interim dividend in respect of the year ended 31 August 2017 of 1.3 pence per share. Payment will be made on Monday Elimination of unrecognised derivative financial instruments(1) 3.5 4.3 18 December 2017 to shareholders on the register on Friday 1 December 2017. A scrip alternative will again be offered. Deferred tax (0.4) (1.9) Non‑controlling interest adjustments: 40. Approval of financial statements Fair value of derivative financial instruments — (0.2) The financial statements were approved by the Board on 26 October 2017. Deferred tax 0.3 0.1 EPRA NNNAV 735.4 657.4 Number of ordinary shares (millions) – In issue 1,828.1 1,794.7 Dilutive effect of contingently issuable share awards under the Long‑Term Performance Share Plan 1.3 0.2 Dilutive effect of contingently issuable share awards under the Long‑Term Restricted Stock Plan 0.7 0.5 – Diluted 1,830.1 1,795.4 Net asset value per share (pence): – Basic 40.5 39.0 – Diluted 40.5 39.0
EPRA diluted NAV per share (pence) 41.4 40.0 EPRA diluted NNNAV per share (pence) 40.2 36.6 (1) The Group has ceased to recognise the Esplanade in the IFRS statements as the cumulative losses of the joint venture exceed the cost of the Group’s investment (refer to Note 15). This adjustment eliminates the derivative financial instruments attributable to the Esplanade from the proportionate adjustments. Redefine International P.L.C. Redefine International P.L.C. 148 Annual Report 2017 Annual Report 2017 149 Other information EPRA property analysis
Portfolio summary EPRA NIY
Annualised EPRA EPRA UK UK UK Market gross rental EPRA topped Reversionary occupancy Retail Commercial Hotels Europe Total value income ERV NIY up yield yield WAULT by ERV Indexed £m £m £m £m £m 31 August 2017 £m £m £m % % % yrs % % Investment property – wholly owned 514.6 352.6 239.6 406.3 1,513.1 UK Retail 514.6 39.9 40.2 6.3 6.6 7.3 8.4 96.8 19.4 Investment property – held in joint ventures — 11.6 — 14.0 25.6 UK Commercial 364.2 22.2 23.4 5.1 5.6 6.0 5.3 96.4 26.6 Market value of total portfolio 514.6 364.2 239.6 420.3 1,538.7 UK Hotels 239.6 15.2 16.2 5.9 5.9 6.3 9.3 100.0 5.2 Allowance for estimated purchasers’ costs 35.0 24.8 16.3 30.0 106.1 Total UK 1,118.4 77.3 79.8 5.8 6.1 6.7 7.7 97.3 18.7 Grossed up property portfolio valuation 549.6 389.0 255.9 450.3 1,644.8 Europe 420.3 27.0 27.7 5.4 5.4 6.2 6.4 98.8 96.7 Total 1,538.7 104.3 107.5 5.7 5.9 6.6 7.4 97.7 38.9 Triple net rent 34.4 19.9 15.1 24.1 93.5 Wholly owned 1,513.1 102.6 105.8 5.7 5.9 6.5 7.4 97.6 38.7 Impact of expiration of rent-free periods 2.0 1.8 — 0.3 4.1 Held in joint ventures (proportionate) 25.6 1.7 1.7 6.4 6.4 6.6 6.4 100.0 52.2 Topped-up triple net rent 36.4 21.7 15.1 24.4 97.6 EPRA NIY (%) 6.3 5.1 5.9 5.4 5.7 UK Retail EPRA topped-up NIY (%) 6.6 5.6 5.9 5.4 5.9
Annualised EPRA EPRA Market gross rental EPRA topped Reversionary occupancy EPRA capital expenditure analysis value income ERV NIY up yield yield WAULT by ERV Indexed 31 August 2017 £m £m £m % % % yrs % % UK UK UK Total Joint Group UK Shopping Centres 316.5 26.2 27.1 6.4 6.8 8.0 8.0 96.7 27.5 Retail Commercial Hotels Europe IFRS ventures total 31 August 2017 £m £m £m £m £m £m £m UK Retail Parks 169.9 11.4 10.8 5.8 6.2 6.0 7.7 96.2 4.7 Capital expenditure on like-for-like portfolio(1) 3.5 1.0 2.9 12.2 19.6 — 19.6 UK Other Retail 28.2 2.3 2.3 7.5 7.5 7.8 16.6 100.0 — Capitalised finance costs — — 0.2 0.3 0.5 — 0.5 UK Retail 514.6 39.9 40.2 6.3 6.6 7.3 8.4 96.8 19.4 Capital expenditure 3.5 1.0 3.1 12.5 20.1 — 20.1
UK Commercial UK UK UK Total Joint Group Retail Commercial Hotels Europe IFRS ventures total Annualised EPRA EPRA 31 August 2016 £m £m £m £m £m £m £m Market gross rental EPRA topped Reversionary occupancy (2) value income ERV NIY up yield yield WAULT by ERV Indexed Capitalised acquisition costs 10.5 12.1 — — 22.6 — 22.6 31 August 2017 £m £m £m % % % yrs % % Capital expenditure on like-for-like portfolio(1) 3.0 0.3 1.8 2.7 7.8 0.1 7.9 UK Offices – Greater London 90.2 3.4 4.4 2.8 3.3 4.6 5.1 95.9 23.7 Capital expenditure 13.5 12.4 1.8 2.7 30.4 0.1 30.5 UK Offices – Regions 113.6 9.6 9.2 6.9 7.7 7.6 3.5 95.8 23.0 (1) Capital expenditure on the like-for-like portfolio includes: UK Offices 203.8 13.0 13.6 5.1 5.8 6.3 3.9 95.8 23.2 UK Retail UK Distribution & Industrial 117.6 6.3 7.5 4.8 5.0 6.0 5.0 96.3 — UK Shopping Centres UK Automotive 42.8 2.9 2.3 6.3 6.3 5.0 12.3 100.0 100.0 £0.9 million (31 August 2016: £2.0 million) expenditure on the phased redevelopment to modernise Weston Favell Shopping Centre, Northampton which completed during the UK Commercial 364.2 22.2 23.4 5.1 5.6 6.0 5.3 96.4 26.6 year and £0.6 million (31 August 2016: £0.6 million) on general improvement works across the rest of the shopping centres; UK Retail Parks and Other Retail £1.4 million on several expansion schemes across UK Retail Parks (31 August 2016: £0.4 million). £0.6 million on the redevelopment of Albion Street, Derby to combine the UK Hotels basement, ground, first and second floors of three existing units into a single, modern space to accommodate TK Maxx; UK Commercial Annualised EPRA EPRA Distribution and Industrial Market gross rental EPRA topped Reversionary occupancy £0.4 million on the refurbishment of vacant space at Severalls Industrial Estate, Colchester and £0.3 million on the refurbishment of a unit at Camino Park, Crawley in advance of value income ERV NIY up yield yield WAULT by ERV Indexed letting to DFS Trading Limited; 31 August 2017 £m £m £m % % % yrs % % Office Greater London & UK South 184.4 11.9 12.5 6.0 6.0 6.4 8.3 100.0 — £0.3 million on the refurbishment of several office spaces in advance of successful re-lettings (31 August 2016: £0.3 million); Edinburgh 39.1 2.6 3.0 6.1 6.1 7.1 8.5 100.0 3.4 UK Hotels RBDL Leased Hotels 223.5 14.5 15.5 6.0 6.0 6.5 8.3 100.0 0.6 £2.9 million (31 August 2016: £0.7 million) on the 12-room extension of the Holiday Inn Express, Southwark. During the year ended 31 August 2016, £1.1 million was also spent on London, Enfield Travelodge 16.1 0.7 0.7 4.2 4.2 4.2 29.9 100.0 100.0 the extension of the Travelodge Hotel, Enfield; and UK Hotels 239.6 15.2 16.2 5.9 5.9 6.3 9.3 100.0 5.2 Europe £11.9 million (31 August 2016: £2.5 million) on the redevelopment of the existing shopping centre in Ingolstadt, Germany. £0.3 million was also spent on the first phase of the food court refurbishment in the Berlin shopping centre. During the year ended 31 August 2016, £0.2 million was also incurred on general improvement works across the Premium Portfolio. Europe (2) Acquisition costs incurred on the acquisition of the AUK portfolio during the prior year amounted to £22.6 million (primarily SDLT). Annualised EPRA EPRA Market gross rental EPRA topped Reversionary occupancy value income ERV NIY up yield yield WAULT by ERV Indexed 31 August 2017 £m £m £m % % % yrs % % German Shopping Centres 181.3 9.4 10.6 4.2 4.3 5.5 4.8 99.4 94.5 German Supermarkets and Retail Parks 239.0 17.6 17.1 6.3 6.3 6.7 7.2 98.4 97.9 Europe 420.3 27.0 27.7 5.4 5.4 6.2 6.4 98.8 96.7 Redefine International P.L.C. Redefine International P.L.C. 150 Annual Report 2017 Annual Report 2017 151 Other information EPRA property analysis continued Five year record
Top 20 assets 2017 2016 2015 2014 2013 Summarised Group income statement £m £m £m £m £m Annualised EPRA EPRA Market % of gross rental EPRA topped occupancy Rental income 97.2 86.6 68.3 66.2 51.4 As at value portfolio by Area income ERV NIY up yield WAULT by ERV Indexed Rental expense (9.0) (6.2) (5.3) (4.2) (3.4) 31 August 2017 £m market value m2 £m £m % % yrs % % Net rental income 88.2 80.4 63.0 62.0 48.0 Wigan, Grand Arcade 90.8 5.9 40,807 7.6 6.9 6.5 6.7 8.6 93.7 36.8 Other income 4.7 2.5 3.9 1.0 2.1 Berlin, Schloss-Strassen Center 84.0 5.5 18,868 4.6 4.5 4.6 4.6 5.6 98.9 89.2 Administrative costs and other fees (15.3) (10.9) (11.1) (11.9) (15.7) Northampton, Net operating income 77.6 72.0 55.8 51.1 34.4 Weston Favell 82.4 5.4 30,311 6.5 7.1 7.1 7.2 7.1 97.6 49.1 Net fair value gains/(losses) on investment property and assets held for sale 6.9 (42.5) 29.6 49.8 (20.7) Hamburg, Net gains on disposal of investment property and assets held for sale 10.7 3.2 — — — Bahnhoff Altona 73.9 4.8 15,042 4.2 4.1 5.1 5.1 4.1 99.6 99.4 Gain/(loss) on disposal of subsidiaries — 12.2 (0.3) — 17.3 London, Harrow, Gain on extinguishment/acquisition of debt — — 29.8 44.9 — St George’s 70.1 4.6 20,117 4.8 5.0 5.0 5.3 4.7 98.5 20.3 Net (loss)/gain on disposal of investment — — (17.6) 3.1 46.7 London, Other items (0.3) 0.6 11.2 (13.3) 11.8 Charing Cross Road 58.5 3.8 3,716 2.0 2.4 3.2 3.2 4.8 100.0 40.5 Profit from operations 94.9 45.5 108.5 135.6 89.5 Crawley, Camino Park Distribution Centre 57.1 3.7 35,739 2.7 3.6 4.0 4.5 5.7 100.0 — Net finance costs (25.0) (26.4) (24.0) (34.3) (26.7) Banbury, Banbury Cross Other items 3.6 (10.5) (0.5) 0.6 4.4 Retail Park 51.0 3.3 16,609 3.5 3.6 4.8 6.2 7.0 88.6 15.5 Taxation (3.9) (1.1) (6.1) 0.9 (6.1) London, Watford, Profit after tax 69.6 7.5 77.9 102.8 61.1 The Arches Retail Park 45.7 3.0 11,579 3.0 2.6 6.3 6.3 9.4 100.0 — Re-presented Bridgwater, Express Park 2017 2016 2015 2014 2013 Distribution Centre 44.7 2.9 47,207 2.8 2.9 5.9 5.9 4.3 100.0 — Summarised Group balance sheet £m £m £m £m £m Top ten assets 658.2 42.8 Assets London, Southwark Investment property 1,494.9 1,396.4 934.4 892.5 643.9 Holiday Inn Express 40.6 2.6 3,936 2.5 2.7 5.7 5.7 8.3 100.0 — Other non‑current assets 34.1 83.7 59.6 128.1 258.2 Edinburgh, Current assets 95.6 58.7 232.8 162.7 160.6 DoubleTree by Hilton 39.1 2.5 7,250 2.6 3.0 6.1 6.1 8.5 100.0 3.4 Total assets 1,624.6 1,538.8 1,226.8 1,183.3 1,062.7 London, Merton, Liabilities Priory Retail Park 36.8 2.4 6,256 2.1 1.9 5.3 5.3 8.2 100.0 — Non-current liabilities (837.1) (768.8) (526.1) (548.0) (510.0) Warrington, Birchwood 31.5 2.0 34,614 2.7 3.0 6.6 7.0 14.6 94.6 2.8 Current liabilities (25.3) (36.6) (63.9) (125.6) (242.3) London, Earl’s Court Holiday Inn Express 31.4 2.0 2,781 2.0 2.2 5.9 5.9 8.3 100.0 — Total liabilities (862.4) (805.4) (590.0) (673.6) (752.3) London, Limehouse Net assets 762.2 733.4 636.8 509.7 310.4
Holiday Inn Express 30.9 2.0 5,747 1.9 2.0 5.7 5.7 8.3 100.0 — 2017 2016 2015 2014 2013 London, Royal Docks Summarised Group statement of cash flows £m £m £m £m £m Holiday Inn Express 24.8 1.6 4,561 1.6 1.7 6.0 6.0 8.3 100.0 — Cash flows from operating activities 49.4 39.6 35.6 27.8 36.9 Coventry, West Orchards 23.7 1.5 19,522 3.1 3.5 6.6 8.7 7.7 98.1 — Cash flows from investing activities 56.3 (369.7) (25.9) 28.1 (82.2) Ingolstadt, City Arkaden 23.4 1.5 12,217 0.6 1.9 (0.4) 0.8 3.7 100.0 100.0 Cash flows from financing activities (83.3) 270.8 (6.7) (4.8) 69.7 Kilmarnock, Net increase/(decrease) in cash and cash equivalents 22.4 (59.3) 3.0 51.1 24.4 Queens Drive Retail Park 23.0 1.5 10,596 1.8 1.7 7.2 7.2 5.7 100.0 — Top 20 assets 963.4 62.6 Other key metrics 2017 2016 2015 2014 2013 Shares in issue (millions) 1,828.1 1,794.7 1,474.3 1,296.1 968.0 Top ten tenants EPRA earnings per share (pence) 2.8 2.7 4.7 6.9 2.8 Basic NAV per share (pence) 40.5 39.0 40.6 37.1 31.0 Annualised % EPRA NAV per share (pence) 41.4 40.0 41.0 37.7 30.0 gross rental of total Number of income gross rental units held Weighted average cost of debt (%) 3.1 3.4 3.9 4.2 4.6 Ranking Tenant Portfolio Sector £m Income by tenant Weighted average debt maturity (years) 7.3 6.9 7.8 7.7 9.0 1 Edeka Europe Discount and value 6.1 5.3 34 Loan to value (%) 51.3 53.4 51.8 55.8 56.8 2 UK Government bodies UK Commercial Government associated 3.9 3.5 16 3 B&Q Plc UK Retail Home and DIY 3.5 3.1 5 4 Tesco Stores Ltd UK Retail Groceries 3.2 2.8 1 5 Netto Europe Groceries 2.3 2.0 23 6 REAL, SB – Warenhaus GmbH Europe Groceries 2.1 1.8 3 7 Royal Mail UK Commercial Services 2.0 1.8 2 8 Primark UK Retail Fashion 1.7 1.5 2 9 OBI Europe Home and DIY 1.6 1.4 3 10 Debenhams UK Retail Department store 1.6 1.4 2 28.0 24.6 91 Redefine International P.L.C. Redefine International P.L.C. 152 Annual Report 2017 Annual Report 2017 153 Other information Glossary Offices and advisers
Annualised gross rental income EUR or Euro NCI Registered office Legal adviser to Isle of Man law Property valuers Annualised gross rent generated by the asset at Euro, the lawful common currency of participating Non‑controlling interest Merchants House Simcocks Advocates Limited Savills Advisory Services Limited the balance sheet date, which is made up of the member states of the European Monetary Union 24 North Quay Ridgeway House 33 Margaret Street contracted rent, including units that are in rent‑free Net debt Douglas Ridgeway Street London W1G 0JD periods, and estimates of turnover rent GBP, Pound or Sterling Total nominal value of bank borrowings less cash Isle of Man IM1 4LE Douglas Great British Pound, the legal currency of the UK and cash equivalents Savills Advisory Services GmbH AUK Corporate head office Isle of Man IM99 1PY GPR RCF Taunusanlage 19 Aegon UK property portfolio 33 Regent Street Global Property Research Revolving Credit Facility Legal adviser to English law 60325 Frankfurt Aviva London SW1Y 4NE CMS Cameron McKenna Germany GRESB Redefine International, RDI, RI PLC, the Nabarro Olswang LLP Aviva Commercial Finance Limited Isle of Man administrator Strutt and Parker Global Real Estate Sustainability Benchmark Company or the Group (Registration number OC310335) IQE Limited 13 Hill Street Board Redefine International P.L.C. and, when taken 78 Cannon Street, IASB Merchants House London W1J 5LQ The Board of Directors of Redefine International together with all its subsidiaries and Group London EC4N 6AF International Accounting Standards Board 24 North Quay P.L.C. undertakings, collectively referred to as the “Group” BNP Paribas Real Estate (Jersey) Limited Douglas UK transfer secretaries Brexit IFRS RedefineBDL or RBDL BNP Paribas House Isle of Man IM1 4LE Link Asset Services Article 50 of the Lisbon Treaty gives any European International Financial Reporting Standards RedefineBDL Hotel Group Limited Anley Street UK joint financial advisers and The Registry Union member the right to withdraw from the IHL Jersey JE2 3QE EU and outlines the procedure for doing so. On Redefine Properties or RPL corporate brokers 34 Beckenham Road International Hotel Properties Limited 29 March 2017, Article 50 was triggered by the UK Redefine Properties Limited, a company listed on the Peel Hunt LLP Beckenham (formerly: International Hotel Group Limited) JSE, and a 29.52 per cent shareholder of the Company Kent BR3 4TU Government following the vote to leave in June 2016 Moor House (the “EU referendum”) which is colloquially referred Indexed leases RECML 120 London Wall South African transfer secretaries to as Brexit, and must be concluded by March 2019 A lease with rent review provisions which are Redefine Earls Court Management Limited London EC2Y 5ET Computershare Investor Services BVI dependent upon calculations with reference to an (Proprietary) Limited index such as the consumer price index or the retail Reversionary yield J.P. Morgan Cazenove British Virgin Islands price index The anticipated yield to which the initial yield will rise 25 Bank Street Rosebank Towers 15 Biermann Avenue CPI (or fall) once the rent reaches the ERV Canary Wharf IPD London E14 5JP Rosebank Consumer Price Index Investment Property Databank RevPar Johannesburg 2196 Revenue per available room South African corporate adviser South Africa Discontinued Company adjustments IRR Items previously added back to arrive at Java Capital (Proprietary) Limited (PO Box 61051, Marshaltown, 2107) Internal rate of return RICS distributable earnings, for example, debt issue 6A Sandown Valley Crescent Royal Institute of Chartered Surveyors Auditor Sandton 2196 costs and share‑based payment charges JSE KPMG JSE Limited, licensed as an exchange and a public RIHL Johannesburg EBITDA 1 Harbourmaster Place company incorporated under the laws of South Redefine International Holdings Limited South Africa Earnings Before Interest, Tax, Depreciation IFSC Africa and the operator of the Johannesburg (PO Box 2087, Parklands, 2121) and Amortisation Dublin 1 Stock Exchange RIMH JSE sponsor Ireland EPRA Redefine International Management KPI Holdings Limited Java Capital Trustees and Sponsors European Public Real Estate Association Key Performance Indicators (Proprietary) Limited RHHL EPRA earnings 6A Sandown Valley Crescent Lease incentives Redefine Hotel Holdings Limited Earnings from operational activities as defined by Sandton 2196 Any incentives offered to occupiers to enter into EPRA’s Best Practice guidelines Johannesburg a lease. Typically, the incentive will be an initial RHML South Africa rent‑free period, or a cash contribution to fit out or Redefine Hotel Management Limited EPRA NAV (PO Box 2087, Parklands, 2121) European Public Real Estate Association Net similar costs SA Asset Value LfL South Africa EPRA NIY Like-for-like SAICA European Public Real Estate Association Net Initial Like‑for‑like income South African Institute of Chartered Accountants Yield. The annualised rental income based on the Income generated by assets which were held by the cash rents passing at the balance sheet date, less UK Group throughout both the current and comparable non‑recoverable property operating expenses, United Kingdom periods for which there has been no significant divided by the gross market value of the property development which materially impacts upon UK‑REIT EPRA NNNAV income and used to illustrate change in comparable A UK Real Estate Investment Trust. A REIT must be a European Public Real Estate Association Triple Net income values publicly quoted company with at least three‑quarters Asset Value Like‑for‑like property of its profits and assets derived from a qualifying property rental business. Income and capital gains Property which has been held at both the current EPRA occupancy from the property rental business are exempt and comparative balance sheet dates for which Occupancy expressed as a percentage of ERV, from tax but the REIT is required to distribute at there has been no significant development and used representing a measure of let space least 90 per cent of those profits to shareholders. to illustrate change in comparable capital values EPRA topped‑up initial yield Tax is payable on non‑qualifying activities of the residual business Net initial yield adjusted for the expiration of LSE rent-free periods or other incentives The London Stock Exchange Underlying earnings (re‑based) EPS Loan‑to‑value or LTV The calculation of underlying earnings was revised during the year ended 31 August 2017 to align to Earnings per share The ratio of net debt divided by the market value of investment property. Calculated on a proportionate the EPRA earnings metric as adjusted for foreign ERV (share of value) basis exchange gains and debt fair value accretion The estimated market rental value of lettable space charges only LuxSE which could reasonably be expected to be obtained WAULT on a new letting or rent review The Luxembourg Stock Exchange Weighted average unexpired lease term Designed and produced by EU NAV European Union Net Asset Value www.lyonsbennett.com Visit us online
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