Wrap Text
Audited condensed consolidated results for the year ended 31 August 2012 and trading statement
Redefine Properties International Limited
(Incorporated in the Republic of South Africa)
(Registration number 2010/009284/06)
JSE share code: RIN ISIN code: ZAE000149282 and
JSE share code: RINC ISIN code: ZAE000170262
("RIN" or "the Company" and together with its subsidiaries, associates and jointly controlled entities "the Group"
Audited condensed consolidated results for the year ended 31 August 2012 and trading statement for the year ending
31 August 2013
Financial highlights
- Earnings available for distribution of £18.2 million (31 August 2011: £14.6 million), an increase of 24.7%
- Distribution of 2.29 pence per linked unit for the six-month period ended 31 August 2012, an increase of 9.6% over
the interim distribution
- Total distribution of 4.38 pence per linked unit for the year (31 August 2011: 4.11 pence), an increase of 6.6%
- Headline earnings per linked unit of 7.23 pence (31 August 2011: 6.35 pence), an increase of 13.9%
- Adjusted net asset value of 36.20 pence per linked unit (31 August 2011: 44.50 pence), a decrease of 18.7%
Operational highlights
- Successful restructuring or repayment of over £250 million of legacy financing facilities
- Full integration of Redefine International and Wichford businesses completed
- Strong operating performance from Cromwell and the Hotel portfolio
- Leases on the Malthurst portfolio (petrol filling stations) re-geared to 2025, extending the lease term for an
additional five years
- Full planning approval received for 287 residential units at Lyon and Equitable House, Harrow
- Sale of the Group's 94% shareholding in the Justice Centre in Halle, Germany
- Pro rata offer to raise £75.0 million completed post year end
Consolidated statement of comprehensive income
Audited Restated
Group Group
year ended year ended
31 August 31 August
2012 2011
£'000 £'000
Revenue
Gross rental income 76 150 26 823
Investment income - 3 875
Other income 2 028 1 592
Total revenue 78 178 32 290
Expenses
Administrative expenses (1 788) (899)
Investment management and professional fees (9 545) (4 688)
Property operating expenses (4 707) (2 368)
Net operating income 62 138 24 335
Gain from financial assets and liabilities (including debentures) 50 423 17 398
Redemption of loans and borrowings 6 080 8
Loss on disposal of subsidiaries (2 195) (334)
Equity accounted profit/(loss) 6 325 (1 749)
Net fair value loss on investment property (126 871) (10 627)
Amortisation and impairment of intangible assets - (591)
(Loss)/profit from operations (4 100) 28 440
Interest income 9 777 8 175
Interest expense (82 090) (25 312)
Foreign currency (loss)/gain (580) 9
(Loss)/profit before debenture interest (76 993) 11 312
Debenture interest (18 200) (14 580)
Loss before taxation (95 193) (3 268)
Taxation (3 370) (1 360)
Loss after taxation (98 563) (4 628)
Loss attributable to:
RIN shareholders (59 254) (3 612)
Non-controlling interest (39 309) (1 016)
(98 563) (4 628)
Other comprehensive income
Transfer of foreign currency translation reserve on disposal of foreign operation (381) -
Foreign currency translation on foreign operations - subsidiaries 618 1 865
Foreign currency translation on foreign operations - associates and joint ventures (1 546) 4 882
Total comprehensive income for the year (99 872) 2 119
Total comprehensive income attributable to:
RIN shareholders (59 979) 1 922
Non-controlling interest (39 893) 197
(99 872) 2 119
Reconciliation of (loss)/earnings and headline earnings
Loss for the year attributable to RIN shareholders (59 254) (3 612)
Debenture interest 18 200 14 580
Changes in fair value of investment property and intangible assets 116 869 15 848
Loss on sale of subsidiaries 1 574 -
Fair value adjustment on debentures (48 480) (4 881)
Headline earnings attributable to linked unitholders 28 909 21 953
Earnings available for distribution (unaudited)
Net operating income 62 138 24 335
Operating income from equity accounted entities 12 314 7 183
Straight-line rental income accrual 496 169
Non-distributable expenses (including reverse acquisition costs) 214 1 277
Gain on redemption of loans and borrowings - 840
Interest income 252 8 175
Interest expense (portion comprising reversal of an acquisition fair value adjustment) (44 118) (23 791)
Foreign exchange loss (278) (283)
Taxation (2 216) (291)
Non-distributable operating income from VBG (1 916) -
Effect of reverse acquisition - 565
Earnings available for distribution 26 886 18 179
Attributable to non-controlling interest (8 686) (3 599)
Earnings available for distribution to linked unitholders 18 200 14 580
Interim distribution (8 684) (6 799)
Earnings available for distribution to linked unitholders at year end 9 516 7 781
Actual number of linked units in issue ('000) 415 507 372 306
Weighted number of linked units in issue ('000) 399 690 345 686
Basic (loss)/earnings per linked unit (pence)* (10.27) 3.17
Headline earnings per linked unit (pence)* 7.23 6.35
Earnings available for distribution per linked unit (pence) 4.38 4.11
Distributions per linked unit (pence) 4.38 4.11
Interim distribution per linked unit (pence) 2.09 2.02
Year end distribution per linked unit (pence) 2.29 2.09
* The Company does not have any dilutionary instruments in issue.
Consolidated statement of financial position
Audited Restated
Group Group
as at as at
31 August 31 August
2012 2011
£'000 £'000
ASSETS
Non-current assets
Investment property 631 278 986 654
Long-term receivables 98 470 104 080
Investments designated at fair value 399 1 123
Investments in jointly controlled entities 2 159 2 607
Investment in associate 124 507 104 680
Total non-current assets 858 813 1 199 144
Current assets
Assets held for sale 136 009 -
Trade and other receivables 23 429 23 716
Cash and cash equivalents 18 150 51 815
Total current assets 177 588 75 531
Total assets 1 034 401 1 274 675
EQUITY AND LIABILITIES
Capital and reserves
Share capital 36 33
Retained loss (63 057) (4 650)
Non-distributable reserve (7 833) (7 833)
Currency translation reserve 4 959 5 684
Total equity attributable to equity shareholders (65 895) (6 766)
Non-controlling interest 53 551 106 543
Total equity (12 344) 99 777
Non-current liabilities
Debenture capital 142 098 173 199
Borrowings 353 115 810 958
Derivatives 4 244 6 824
Deferred taxation 2 489 1 334
Total non-current liabilities 501 946 992 315
Current liabilities
Borrowings 400 455 117 041
Liabilities held for sale 91 935 -
Provisions for liabilities and commitments 12 079 -
Trade and other payables 34 951 49 251
Derivatives 5 379 16 291
Total current liabilities 544 799 182 583
Total liabilities 1 046 745 1 174 898
Total equity and liabilities 1 034 401 1 274 675
Condensed consolidated statement of cash flows
Audited Audited
Group Group
year ended year ended
31 August 31 August
2012 2011
£'000 £'000
Cash flows from operating activities
Cash generated from operations 51 838 21 180
Interest paid (70 478) (29 709)
Taxation paid (1 412) (152)
Interest received 7 908 4 581
Distribution received - 3 875
Distribution received from associates and jointly controlled entities 11 263 5 986
Net cash (utilised in)/generated from operating activities (881) 5 761
Net cash utilised in investing activities (32 537) (181 002)
Net cash generated from financing activities (191) 198 218
Net movement in cash and cash equivalents (33 609) 22 977
Effect of exchange rate fluctuations on cash held (56) 438
Increase in restricted cash balance - 11 431
Cash and cash equivalents at the beginning of the year 51 815 16 969
Net cash and cash equivalents at the end of the year 18 150 51 815
Condensed consolidated statement of changes in equity
Audited Restated
Group Group
year ended year ended
31 August 31 August
2012 2011
£'000 £'000
Reported balance at the beginning of the year (7 511) (2 804)
Impact of change in accounting policy 745 -
Balance at the beginning of the year - restated (6 766) (2 804)
Shares issued 3 18
Comprehensive income attributable to RIN shareholders (59 979) 1 922
Increase/(dilution) of non-controlling interest 847 (6 647)
Total equity (65 895) (7 511)
Total equity attributable to non controlling interest is £53.5 million (2011: £106. 5 million).
The movement over the period relates to total comprehensive income attributable to non controlling
interests for the year is £39.9 million, the acquisition of non controlling interests of £6.6 million
(2011:£9.9 million), issuance of capital instruments at the RIHL level of £0.7 million (2011: £13.77 million
and dividends paid to non controlling shareholders of £7.2 million (2011: £3.3 million).
Segmental analysis
Stable UK
income Retail Europe Hotels Cromwell Total
£'000 £'000 £'000 £'000 £'000 £'000
Year ended
31 August 2012
Rental income 40 856 9 303 16 591 9 400 - 76 150
Property operating expenses (2 112) (1 696) (899) - - (4 707)
Net property income 38 744 7 607 15 692 9 400 - 71 443
Non-current assets
Investment property 309 489 110 669 87 395 123 725 - 631 278
Assets held for sale 61 450 - 74 559 - - 136 009
Investments designated at fair value 222 118 59 - - 399
Investment in associate - - - - 124 507 124 507
Year ended
31 August 2011
Rental income 3 965 10 656 5 816 6 386 - 26 823
Property operating expenses (102) (1 896) (303) (67) - (2 368)
Net property income 3 863 8 760 5 513 6 319 - 24 455
Non-current assets
Investment property 467 426 82 796 312 657 123 775 - 986 654
Investments designated at fair value 361 592 170 - - 1 123
Investment in associate - - - - 104 680 104 680
Net Operating Income of £62,138k (2011:£24,335k) per the Income Statement also includes Other income of £2,028k
(2011:£1,592k), Administrative expenses of £1,788k (2011: £899k) and Investment Management and professional fees of
£9,545k (2011: £4,688k) which are not allocated to individual segments.
Commentary
Introduction
RIN holds as its main asset a 65.7% shareholding in Redefine International P.L.C. ("RI PLC"). The shareholding of
71.7% at 31 August 2012 was diluted as a result of the RI PLC capital raising subsequent to the year end. Each linked unit
in RIN effectively equates to one share held in RI PLC.
Background to RI PLC
RI PLC is an income-focused property investment company with exposure to a broad range of properties and geographical
areas and is listed on the Main Market of the London Stock Exchange ("the LSE"). It is domiciled in the Isle of Man and
has investments in the UK, Germany, Switzerland, the Channel Islands, the Netherlands and Australia.
The Group's strategy is focused on delivering sustainable and growing income returns through investment into
income-yielding assets let to high-quality occupiers on long leases. Development exposure is generally limited to asset
management and ancillary development of existing assets in order to enhance and protect capital values. RI PLC distributes the
majority of its earnings available for distribution on a semi-annual basis, providing investors with attractive income
returns and exposure to capital growth opportunities. In terms of its trust deed, RIN makes semi-annual interest
distributions based on distributable earnings.
RI PLC acquires real estate investments in large, well-developed economies with established and transparent real
estate markets. The investment portfolio is geographically diversified across the UK, Europe and Australia, providing
exposure to the retail, office, industrial and hotel sectors.
Chairman's statement
I am pleased to report that the Group has made significant progress towards achieving its strategic objectives despite
a challenging year for RI PLC, the Company's LSE-listed subsidiary.
The reverse acquisition of Wichford exposed RI PLC to a high level of short-term debt in the context of a UK
banking industry that is largely closed to new real estate lending. In this constrained environment the Group was able to
restructure or repay more than £250 million of legacy financing facilities, significantly improving its financial position.
The capital raisings undertaken by both RIN and RI PLC post year end were extremely successful and further boosted the
Group's balance sheet enabling it to reduce levels of gearing. The RI PLC firm placing and open offer concluded on 9 October 2012
and raised £127.5 million before costs, well in excess of the initial target of £100 million. RIN raised just over R1 billion
(£75 million) through the issue of 218 141 257 new linked units at a price of R4.60 each in terms of the pro rata offer.
The pro rata offer was partially underwritten by Redefine Properties Limited ("Redefine") but given the demand for new
RIN linked units and in order to broaden the RIN linked unitholder base, Redefine made available a portion of the RIN
linked units taken up by it under the pro rata offer for placement with third party placees. This resulted in Redefine's
beneficial interest in RIN decreasing to 49.34% following the capital raise.
RIN can now look forward with confidence to meeting its objective of being a leading diversified mid-cap cash flow
focused property group, that provides hard currency income returns to unitholders.
Earnings available for distribution by RI PLC for the year were 4.38 pence per share. In a period in which there were
significant challenges for the UK retail and regional office environment and austerity measures throughout the Eurozone
and the UK, it is particularly pleasing to have achieved a strong operating and income performance.
The Group's adjusted net asset value ("NAV") comprises the IFRS net asset value adjusted for, inter alia, the negative
equity associated with certain non-recourse financing facilities, principally the Delta, Gamma and VBG portfolios. The
restructurings of both the Delta and VBG portfolios were concluded post year end. The adjusted NAV at 31 August 2012 was
36.20 pence per share, down 16.0% from 29 February 2012. NAV per share, excluding deferred tax and derivatives, decreased
to 21.21 pence (36.33 pence at 29 February 2012). The decrease was largely as a result of significant declines in the values
of regional offices across the UK, which impacted our former Wichford properties.
The performance of the portfolio varied substantially across our business segments. Overall, occupancy and income
returns were stable despite tough trading conditions, particularly for UK Retail. In a market with such divergent
performances, the benefit of having diversified sources of income with strong covenants has been demonstrated.
The Hotel portfolio performed strongly in a year that included both the Queen's Diamond Jubilee and the Olympics. The
underlying hotel properties benefited from near full occupancy over the Olympic and Paralympic period and demand has
remained robust post the Olympics, which is encouraging.
Our investment in Cromwell remains an important part of the business and we are confident that the quality of the
underlying portfolio and recent investments will continue to provide strong income returns for our shareholders. Further
details are contained in the RI PLC announcement referred to below.
Following the successful capital raisings, the Group can now shift its focus from restructuring the balance sheet to
enhancing and growing the property portfolio.The Group is in a strong position to take advantage of distressed property
offerings and banks being forced to dispose of assets to reduce leverage. The Group continues to engage with regulatory
authorities to agree a simplified ownership and listing structure in place of the current complicated and somewhat unwieldy
structure.
Significant changes to the UK REIT legislation were enacted in July 2012, paving the way for RI PLC to convert to a UK
REIT. We are also led to believe that the SA REIT legislation is imminent. The Group is, in consultation with its tax
advisers, reviewing the possibility of conversion to either a UK REIT or SA REIT and further announcements will be made
in due course.
Lastly, I would like to thank our unitholders for their support and my Board colleagues and the management team for
their commitment and dedication to the Group during this challenging and busy period.
Gavin Tipper
Chairman
RI PLC's results
The results for the year ended 31 August 2012 have been released simultaneously with these results and can be viewed
on the website www.redefineinternational.com or on the JSE's SENS or the LSE's Regulatory News Service ("RNS").
Unitholders will be able to obtain further financial information and commentary on the performance of RI PLC for the year ended
31 August 2012 by referring to these results. A summary of the portfolio review is set out below.
Trading statement for the year ending 31 August 2013
In terms of the Listings Requirements of the JSE Limited, property entities are required to publish a trading
statement as soon as they are satisfied that a reasonable degree of certainty exists that the distribution for the period to be
reported upon next will differ by at least 15% from the distribution for the previous corresponding period. Accordingly,
in light of the additional linked units being issued as part of the capital raise following the year end and
uncertainty regarding the timing of the investment of the additional proceeds, linked unitholders are advised that RIN anticipates
that the distribution per linked unit for the full year ending 31 August 2013 will be between approximately 25% and 30%
lower than for the year ended 31 August 2012. The financial results on which this trading statement is based have not
been reviewed or reported on by RIN's external auditors.
Operations review
UK Stable Income
The UK market remains polarised between the core Central London and West End markets and the rest of the UK. The
regional office market has seen significant increases in investment yields (lower valuations) as the general UK office market
suffers from the highest void rate recorded by IPD. The majority of investment capital has focused on prime London
assets. The relative pricing and performance of UK regional assets should move back into line with London at some point,
although fundamentals suggest this is unlikely to be in the short term.
Against these exceptionally challenging market conditions, the portfolio was relatively resilient with occupancy at
93.3% (29 February 2012: 95.0%). Of the eight leases (59 657 sqft) which expired or were subject to break options during
the year, five (38 228 sqft) were either renewed or re-let.
The UK Stable Income portfolio was valued at £404.7 million at 31 August 2012, a decline of 10.7% since 29 February
2012. This significant decline in value is reflective of the current lack of investment demand for offices outside London
and the supply/demand imbalances in many regional towns. The Company benefits from secure cash flows and strong tenant
covenants, however a strategy to focus on fewer and better quality assets is expected to provide better long-term income
security and more stable capital values.
Lyon House and Equitable House, Harrow
Full planning permission was granted in May 2012 for a residential-led mixed redevelopment scheme. The scheme
represents one of the most significant town centre developments to be granted planning permission in Harrow in the last five
years.
The development will provide a total of 287 residential units, 49 of which will be affordable. In addition,
approximately 33 000 sqft of modern flexible commercial space will be provided. The Company has concluded a development agreement
with Metropolitan Housing Trust for the affordable element of the scheme and is in advanced negotiations with potential
joint venture development partners.
Malthurst, petrol filling station portfolio
Leases across the portfolio were re-geared to 2025, extending the previous unexpired term by five years. Three
properties were sold post year end to Malthurst (the tenant) for £3.49 million (book value £3.83 million) as part of the
re-gearing transaction.
UK Retail
It has been an exceptionally challenging year for the retail sector in the current economic climate. Continuous
pressure is being applied on landlords to reduce rentals and service charges. In addition, there were a number of retailer
administrations in the past twelve months, although this appears to have stabilised.
Demand from retailers continues to move towards larger shopping centres and out of town retail parks, placing
increasing pressure on smaller towns and high streets. Stronger retailers are responding to the changes in the retail
environment by addressing their floor space requirements, focusing on fewer trading locations and offering a multichannel approach
in combination with traditional stores.
The Company's exposure to regionally dominant shopping centres proved relatively defensive in a tough market. Footfall
across the portfolio was broadly flat on the same period last year which should be seen as a positive result in the
context of shopping centres generally which saw national footfall declines of approximately 1.9%.
The UK Retail portfolio (including two properties held in jointly controlled entities) was valued at £224.1 million as
at 31 August 2012, a decline of 9.4% since 29 February 2012. The decline in value reflects general market concerns
surrounding retailers and future demand for retail space as well as lower rental income across the portfolio.
Occupancy in the second half of the year increased to 95.2% (29 February 2012: 94.8%) reflecting a number of successful lettings
and tenant retentions. A total of 31 leases totalling 125 396 sqft were completed during the period which reflects positively
against the 28 leases totalling 90 648 sqft that expired or were subject to tenant break options. The Company has succeeded in
limiting the effects of retailer administrations by re-letting vacant stores and working with retailers to ensure the overall
shopping experience is unaffected. Overall new lettings were done at lower rental levels, particularly where deals were
struck with the new owners of those retailers that went into administration.
UK Retail at a glance
31 August 31 August
2012 2011
Market value £224.1 million £257.9 million
Occupancy (by lettable area) 95.2% 97.4%
Annualised gross rental income £20.5 million £21.4 million
Estimated rental value ("ERV") £20.4 million £21.5 million
Footfall % change over previous 12 months1 (0.8%) (0.9%)
Net initial yield 7.5% 7.3%
Lettable area ('000) 1 578 sqft 1 578 sqft
Figures assume 100% ownership of property assets in subsidiaries and jointly controlled entities.
1 Excludes Crewe.
Asset management initiatives have focused heavily on protecting occupancy and income. Longer-term value is being
created by investing in a number of centres, particularly Birchwood, Warrington and St Georges, Harrow.
On 31 August 2012, the Group disposed of a 31.25% shareholding in Ciref Coventry Limited, the holding company of West
Orchards Coventry Limited. The disposal was for a nominal amount and resulted in West Orchards Shopping Centre now being
held through a jointly controlled entity.
Europe
The majority of the Group's investments are in German discount retail assets let to predominantly multi-national
discount retailers, and office assets let to government-backed organisations. The market for secure income-generating assets
remains strong as investors look for income returns in an exceptionally low interest rate environment.
The European portfolio was valued at 240.6 million or £190.6 million at 31 August 2012, a decline of 1.7% since 29
February 2012 in local currency terms. Occupancy remained high at 99.3% (29 February 2012: 100.0%) and rental income
continues to benefit from indexation, albeit inflation remains below historic averages.
Asset management activity during the period focused on extending short-term leases and enhancing income security. A
total of seven leases totalling 65,956 sqft were extended for an average of 9.8 years.
The Company completed the acquisition of a property in Waldkraiburg and exchanged contracts for the purchase of a
retail property in Kaiserslautern during the period. Both investments are held in jointly controlled entities with Menora
Mivtachim ("Menora"), a leading Israeli insurance company. The aggregate purchase price of 16.0 million (£12.6 million)
reflects a yield on equity in excess of 10%. Both assets are newly constructed and fully let to predominantly
multi-national discount retailers on leases of between 10 and 15 years linked to 75% of German CPI.
The restructuring of the VBG portfolio was completed following the year end, again in joint venture with Menora. The
investment reflected an initial yield on equity in excess of 19.0%. The VBG assets comprise four individual office
properties situated in Berlin, Dresden, Cologne and Stuttgart in Germany, all of which are currently let to a German
government-backed social insurance body. The leases have unexpired terms of between 7.6 years and 12.4 years and are indexed to
100% of German CPI. The VBG portfolio, following completion of the restructuring, has a current rent roll of 7.6 million
p.a.
Hotel properties
As expected the London hotel market has benefited from a year which included both the Queen's Diamond Jubilee and the
Olympics. August was an exceptional month with RevPar growth at 41.0% higher than 2011.
Although there are some concerns in the market that there may be a slowdown in the post Olympic period as a result of
increased supply and generally weak economic conditions, there has been no evidence of this in the Group's portfolio
with the underlying tenant business continuing to trade well. The Group's focus on the branded limited service hotel
property sector is anticipated to provide more stable and consistent performance over the longer term.
Cromwell
Cromwell is an internally managed Australian Real Estate Investment Trust (A-REIT) with a property investment
portfolio in excess of AUD1.7 billion (£1.1 billion) together with a fund management business that promotes and manages unlisted
property investments. Cromwell has an enviable track record of developing and owning high-quality investment products
while delivering consistent returns to investors.
Cromwell trades on the Australian stock exchange as a stapled security comprising Cromwell Corporation Limited (which
manages the fund's management brand and the property operations) and Cromwell Diversified Property Trust (which owns the
AUD1.7 billion property portfolio).
Cromwell produced a strong set of operating and financial results for their financial year ended 30 June 2012.
Highlights included:
- Operating profit increased by 23% to AUD80.0 million (7.5 cps)
- Increase in like for like property income of 6.8%
- Growth in operating EPS of 6.0%
- Distributions maintained at 7.0 cps with guidance of 7.25 cps for FY2013, providing a forward yield of 9.7% on the
share price as at 31 August 2012
- Net tangible assets per security (excluding interest rate swaps) of 71 cps
During the year RI PLC increased its shareholding in the Company from 21.7% to 23.08%. This subsequently reduced to
22.14% when Cromwell issued securities after year end to acquire the unlisted Cromwell Property Fund.
Portfolio overview by business segment
Business segments - market values
Properties Area Market Segmental Net initial
(No) lettable value split by yield
(sqft '000) (£'million) value (%)
(%)
UK Stable Income 133 3 632 404.7 33.7 9.1
UK Retail 6 1 578 224.1 18.6 7.5
Europe 37 1 594 190.6 15.9 7.7
Hotels 6 268 123.3 10.3 7.2
Cromwell1 22 1 255 259.1 21.5 8.3
Total investment portfolio 204 8 327 1 201.8 100.0 8.5
Notes:
1. Figures reflect Redefine International's effective 23.08% share of Cromwell's property assets and net rental income at 31 August 2012.
The value of the investment in Cromwell at 31 August 2012 is £132.1 million based on the year end share price of 75 cents per stapled security.
The Cromwell property portfolio consists of 22 assets with a market value of AUD1.72 billion (£1.12 billion) as at 30 June 2012.
Figures (excluding Cromwell) assume 100% ownership of property assets held in subsidiaries and jointly controlled entities.
Business segments - gross rental income
Annualised Average Weighted Occupancy Indexation
gross rent average by lettable and fixed
rental (£/sqft p.a.) unexpired area increases
income lease term (%) (%)
(£'million) (years)
UK Stable Income 39.0 10.8 7.9 93.3 56.9
UK Retail 20.5 13.0 11.0 95.2 5.3
Europe 15.7 9.9 7.8 99.3 100.0
Hotels 9.4 35.1 13.3 100.0 -
Cromwell1 22.8 18.1 6.2 96.4 74.0
Total investment portfolio 107.4 12.9 8.6 95.5 52.0
Notes:
1. The Cromwell rental income reflects Redefine International's effective 23.08% share of Cromwell's property assets and net rental income at
31 August 2012.
Figures (excluding Cromwell) assume 100% ownership of property assets held in subsidiaries and jointly controlled entities.
Business segments - valuation movement since 29 February 2012
Proportion Market Valuation
of portfolio value movement
by value 31 August six months
(%) 2012 ended
(£'million) 31 August
2012
(%)
UK Stable Income 37.7 404.7 (10.7)
UK Retail 20.8 224.1 (9.4)
Europe1 17.0 182.9 (7.1)
Hotels 11.5 123.3 (0.0)
Cromwell2 12.3 132.1 (0.4)
Total like-for-like portfolio 99.3 1 067.1 (7.5)
Acquisitions3 0.7 7.7 0.8
Total investment portfolio 100.0 1 074.8 (7.4)
Notes:
1. Includes the effects of foreign exchange movements during the period. Values in local currency declined 1.7%.
2. Cromwell reflects investment value at a closing share price of 75.0 Australian cents per stapled security.
3. Acquisition of Waldkraiburg. The valuation movement reflects the effect of the foreign exchange rate movement only.
Figures (excluding Cromwell) assume 100% ownership of property assets held in subsidiaries and jointly controlled entities.
Portfolio overview by sector
Property sectors at 31 August 2012
Market Occupancy Lettable Annualised
value by lettable area gross
(£'million) area (sqft'000) rental
(%) income
(£'million)
Retail 313.6 96.3 2 392 26.5
Office 460.3 93.2 3 530 44.2
Industrial 40.7 100.0 809 3.0
Hotels 123.3 100.0 268 9.4
Other 4.8 100.0 73 1.5
Total 942.7 95.4 7 072 84.6
Note:
Excludes Cromwell and assumes 100% ownership of property assets held in subsidiaries and jointly controlled entities.
Financial review
These results reflect the first full year of trading for the enlarged RI PLC Group following the acquisition of
Wichford on 23 August 2011. Consequently, gross rental income was £76.2 million, up 184.3% on the comparable period. Earnings
available for distribution by RIN were £18.18 million, up 24.7% on the prior year.
Notwithstanding the increased earnings available for distribution, the Group delivered a statutory loss attributable
to RIN shareholders of £59.25 million for the twelve months ended 31 August 2012. The key driver of this loss was a net
decrease in the fair value of the Group's investment property and assets held for sale, of £126.9 million. £94.6 million
of the fair value loss relates to the historic "Wichford" UK portfolio, including assets in the Gamma and Delta
portfolios.
The debt facility secured against the Delta portfolio has been successfully restructured subsequent to the financial
year end and the Gamma facility is currently under negotiation with the loan servicer. As both of these facilities are
non-recourse to the Group, the negative equity associated with the portfolios of £44.4 million or 10.68 pence per linked
unit, has been excluded in the calculation of adjusted NAV per linked unit.
Additional items impacting the results of the Group for the year include:
- A £25.9 million increase in finance costs due to the amortisation of the fair value adjustment which arose on the
VBG, Gamma and Delta facilities at the date of the reverse acquisition of Wichford. This is a non-cash, IFRS adjustment,
which will reverse upon sale or re-structuring of the underlying assets on which the non-recourse loans are secured.
- A net increase in the fair value of the interest rate derivatives held by the Group, of £10.0 million. The gain was
principally due to the near-term expiry of the Delta and Gamma interest rate swaps.
- An unrealised profit of £6.0 million from equity accounted entities, mainly due to the continued strong performance
of Cromwell.
The items mentioned above have contributed to a decrease in NAV per linked unit, from 44.70 pence in the prior year to
18.34 pence per linked unit. The NAV as at 31 August 2012 includes items which, in the opinion of the Board, should be
adjusted in order to better reflect the underlying value of the Group. An "adjusted NAV" has therefore been calculated
as follows:
Note Pence per linked unit
IFRS NAV per linked unit as at 31 August 2012 18.34
Adjusted for derivatives and deferred tax 2.87
EPRA5 NAV per linked unit as at 31 August 2012 21.21
Write-back of VBG negative equity 1 3.00
Write-back of Delta negative equity 2 3.09
Write-back of Gamma negative equity 3 7.59
Cromwell fair value write-up 4 1.31
Adjusted EPRA5 NAV per linked unit 36.20
Notes:
1. The net VBG portfolio debt value as at 31 August 2012 was in excess of the current investment property value. Following
the restructuring which was completed subsequent to the year end, the negative net asset value position has been reversed,
leading to a positive effect on net asset value per linked unit of 3.00 pence per linked unit.
2. Following the successful completion of the Delta restructuring announced on 15 October 2012, the negative net asset value
position of 3.09 pence per linked unit is expected to reverse over the remaining term of the loan.
3. The Gamma portfolio debt values were in excess of the current investment property values at the year end. Following a proposed
restructuring and taking into account the non-recourse nature of the portfolio, the negative net asset value position is anticipated
to reverse in the foreseeable future, leading to a positive effect on net asset value per linked unit of 7.59 pence.
4. Cromwell has been equity accounted at a net asset value of AUD69.8 cents per security at 31 August 2012. The market price of
Cromwell at 31 August 2012 was 75.0 cents per stapled security and hence should the Cromwell investment have been accounted for at fair
value at this date it would have led to a write-up of 1.31 pence per linked unit.
5. The European Public Real Estate Association ("EPRA") publish best practice recommendations for Europe's Stock Exchange listed real
estate sector. In order to enhance comparability and transparency, RI PLC and RIN has adopted the EPRA performance measures within its
reporting. The EPRA adjusted rents include the write-back of derivative instruments and deferred tax liabilities.
Basis of preparation
The condensed financial statements are considered preliminary based on the JSE Limited (JSE) Listing Requirements and are summarised from
a complete set of the Group annual financial statements on which the independent auditors, KPMG Inc., has expressed an unmodified audit opinion,
which is available for inspection at the companys registered office. KPMG has also issued an unmodified audit opinion on these condensed
financial statements stating that these condensed results are consistent in all material respects with the complete financial statements. A copy
of the auditors report is available for inspection at the companys registered office.
These condensed consolidated financial statements have been prepared in accordance with the measurement and recognition requirements of International
Financial Reporting Standards (IFRS), and the presentation and disclosure requirements of IAS 34, Interim financial reporting, the AC 500 standards
as issued by the Accounting Standards Board, the Companies Act of 2008, as amended, and the JSE Listing Requirements.
The accounting policies applied by the Group in these condensed consolidated financial statements are the same as
those applied by the Group in its audited financial statements as at and for the year ended 31 August 2011, except for the
following:
IAS 12
The Group has early adopted IAS 12 in relation to deferred taxation. Deferred taxation is now recognised on the
revaluation of the building component of investment properties at the capital gains rate on the presumption that the
investment will be recovered through disposal and will therefore attract capital gains tax. The Group has applied the amendment
retrospectively as required by IAS 8. The early adoption had the effect of reducing the 2011 deferred taxation balance,
with a corresponding increase of opening 2012 reserves of £0.75 million, and an increase in non-controlling interest of
£0.15 million.
Disposal groups and non-current assets held for sale
A non-current asset or a disposal group comprising assets and liabilities is classified as held for sale if it is
expected that its carrying amount will be recovered principally through sale rather than through continuing use, it is
available for immediate sale and the sale is highly probable to occur within one year. For the sale to be highly probable,
the appropriate level of management must be committed to a plan to sell the asset or disposal group.
Where the Group is committed to a sale plan involving the loss of control of a subsidiary it classifies all the assets
and liabilities of that subsidiary as held for sale when the criteria set out above and detailed in IFRS 5,
Non-current Assets Held for Sale and Discontinued Operations are met, regardless of whether the Group will retain a
non-controlling interest in its former subsidiary after the sale. On initial classification as held for sale, generally,
non-current assets and disposal groups are measured at the lower of the previous carrying amount and fair value less
costs to sell, with any adjustments taken to the consolidated statement of comprehensive income. The same applies to gains
and losses on subsequent re-measurement. However, certain items such as financial assets within the scope of IAS 39 and
investment property in the scope of IAS 40 continue to be measured in accordance with those standards.
Impairment losses subsequent to classification of assets as held for sale are recognised in the consolidated statement of
comprehensive income.
Increases in fair value less costs to sell assets that have been classified as held for sale are recognised in the
consolidated statement of comprehensive income to the extent that the increase is not in excess of any cumulative impairment
loss previously recognised in respect of the asset. Assets classified as held for sale are not depreciated.
Gains and losses on re-measurement and impairment losses subsequent to classification as disposal groups and
non-current assets held for sale are shown within continuing operations in the consolidated statement of comprehensive income,
unless they qualify as discontinued operations. Disposal groups and non-current assets held for sale are presented separately
from other assets and liabilities on the statement of financial position. Prior periods are not reclassified.
Provisions
A provision is recognised if, as a result of a past event the Group has a present legal or constructive obligation
that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected cash flows at a pre tax rate that reflects current market
assessments of the time value of money and the risks specific to the liability.
Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated
reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is
remote.
Amendments to IFRS 7, Disclosures - Transfers of Financial Assets
In October 2010, the IASB issued amendments to IFRS 7 Financial Instruments: Disclosures - Transfers of Financial
Assets. These amendments, were adopted by the Group during the year and result in additional disclosures on transfer
transactions of financial assets (for example, securitisations), including the possible effects of any risks that may remain
with the transferor of the assets. The adoption of this amendment did not have a significant impact on the Group.The
Directors have considered the IFRS and interpretations that have been issued, but which are not yet effective and are
currently assessing whether they will have a significant impact on how the results of operations and financial position of the
Group are prepared and presented.
Significant accounting judgements, estimates and assumptions
The significant judgements and estimates made by management in applying the Company's accounting policies and the key
sources of estimation uncertainty are those as were disclosed in the audited financial statements as at and for the year
ended 31 August 2011 except as noted below:
Going concern
The condensed consolidated financial statements have been prepared on a going concern basis as after considering the
relevant factors, the Directors have a reasonable expectation that the Group has adequate resources to continue in
operation for the foreseeable future. The principal issues the Board considered in its enquiries included, inter alia, the
status of the refinancing discussions and the equity raising exercise post year end.
Significant progress has been made on the refinancing discussions over the year and post year end including the
finalisation of the agreed restructuring of the VBG and Delta facilities, the sale of Halle which saw property and debt with a
value of 36.3 million and 37.1 million respectively, being removed from the Group's consolidated statement of financial position
and the successful equity raising post year end which saw the Company raise gross proceeds of £75.0 million.
Taxation
The Group is exposed to the risk of changes to tax legislation in the various countries in which the Group operates.
It is also exposed to different interpretations of tax regulations between the tax authorities and the Group. As a
property loan stock company in South Africa, RIN distributes all of its earnings on the basis that the debenture interest is
tax deductible. The wording of current taxation legislation is such that there is an alternative view. The Board has
taken advice on the matter from its legal advisors and on the basis of the advice received believes that the deduction of
debenture interest is appropriate. The Board of Directors is satisfied that it has sufficient shareholder funds in the
unlikely event that the liability arises.
Fair value of debentures
The debentures have been designated on initial recognition as held at fair value through the profit or loss with the
determination of the valuation of the debentures both on initial recognition and at year end a key judgement. As the
debentures themselves are not quoted consideration is given to similar quoted instruments. The linked units issued by the
Company are deemed to be a similar instrument to the debenture because they are comprised of one share and one debenture
indivisibly linked.
Given the low trading volumes of the linked units, the unit price was not deemed to be reflective of an active market
price. As a result a fair value for the debentures was established using a valuation technique. The valuation has been
determined by reference to the underlying characteristics of the debentures and expected discounted cashflows.
The NAV of RI PLC as adjusted for the impact of the agreed and announced debt refinancing is considered to be a good
approximation of the future operating cashflows of the Group as:
- the investment property valuation is considered a fair approximation of the expected rental flows;
- the carrying amount of the associate is considered an appropriate approximate for further cashflows from the
associate; and
- the remaining financial assets and liabilities are considered close approximates of the other operating cashflows.
In determining the debenture valuation of 34.20 pence per debenture consideration was also given to the linked unit
price of the Company and the share price of Redefine International P.L.C. at the year end i.e. R5.30 or 39.57 pence
sterling and 29.88 pence respectively; and the recent equity raising by both the Company and RI PLC in terms of which linked
unitholders subscribed for linked units post year end at a value of R4.60 or 34.54 pence per linked unit. The debenture
valuation of 34.20 pence falls within the range of the share price of RI PLC and the linked unit price of the Company and
approximates the price at which linked units were issued to the market post year end.
Sale of subsidiaries
During the year the Group disposed of a:
- 94% shareholding in the Wichford Halle II, III and IV shares in Justizzentrum Halle for a consideration of 1.0 million
(GBP: £816,000) resulting in a loss on disposal of £0.82 million;
- 61.36% shareholding in Ciref Reigate Limited for a nominal amount resulting in a loss on disposal of £0.1 million;
- 71.43% shareholding in Banstead Property Holdings Limited to Osiris Properties International Limited for £0.4 million
resulting in a gain on sale of £0.5 million; and
- 31.25% shareholding in Ciref Coventry Limited for a nominal amount, resulting in the investment being
re-classified from an 81.25% held subsidiary to a 50% jointly controlled entity resulting in a loss on sale of
£1.32 million.
External loan facilities to the jointly controlled entities Redefine Wigan Limited and Ciref Coventry Limited, which
have a nominal value of £197.97 million, are cross collateralised against properties held directly by the Group. These
external loan liabilities are in excess of the value of the properties held by the jointly controlled entities. A
provision has been created in the current year based on the estimated potential future cash outflows for the Group related to
this cross collateralisation. As the acquirer of Ciref Coventry Limited may benefit from the cross collateralisation of
the Ciref Coventry loan facilities, a provision of £12.1 million was created. This provision has been included in
calculating the loss on sale of Coventry of £1.32 million.
The disposal of subsidiaries saw assets with a carrying value of £81.25 million and liabilities with a carrying value
of £94.91 million removed from the Group's statement of financial position.
Acquisitions
The Company completed the acquisition of a property in Waldkraiburg and exchanged contracts for the purchase of a
retail property in Kaiserslautern during the period. Both investments are held in jointly controlled entities with Menora
Mivtachim ("Menora"), a leading Israeli insurance company. The carrying value of the joint venture is £1.4 million.
Assets and liabilities held for sale
Discussions are on-going regarding the sale of a number of assets with disposals expected to be finalised within the
next 12 months. As a result the assets have been reclassified to held for sale in the period. In addition the Group is
committed to a sale plan involving the loss of control of a number of subsidiaries and, as a result, all the assets and
liabilities of those subsidiaries are classified as held for sale.
At 31 August 2012 assets held for sale totalled £136 million and comprised the VGB and Delta properties. Halle which
was classified as held for sale at 29 February 2012 was sold in June 2012. As the Group is committed to the sale of the VGB1
and VGB2 subsidiaries, the related loan liabilities totalling £91.94 million have been classified as held for sale at
the year end.
Subsequent events
The Company announced on 15 October 2012 the agreement to extend and restructure the £114.6 million Delta facility.
The restructuring of all four VBG assets and the associated financing facilities was also completed on 8 October 2012.
Discussions are on-going on the Gamma facility with a Standstill agreement in place until 15 November 2012. The Company
also completed a successful equity raise of £75.0 million post year end.
Capital commitments
The Group has capital commitments of £2.4 million (31 August 2011: £3 million) in respect of capital expenditure contracted for
at the reporting date, but not yet incurred, for future transactions approved by the Board. The Group has entered into a
corporate guarantee agreement with IHG Hotels Limited, the contingent liability of which is not expected to exceed £0.3
million.
Terms have been agreed to acquire an effective 50% interest in a newly developed retail store in Germany. The gross
purchase price of the property located in Kaiserslautern is 6.4 million.
Issue of debenture
The Company issued a total of 43 201 517 linked units during the year for a total issue price, exclusive of costs of
£18.42 million.
Debenture interest distribution
The Board has declared an interest distribution of 2.29 pence per linked unit for the six-month period ended 31 August
2012. The distribution for the six-month period ended 31 August 2012 is only payable in respect of linked units with the
JSE code: RIN and not in respect of linked units with the JSE code: RINC. The Company has hedged the GBP:ZAR exchange rate
at a forward rate of £1.00:R14.000 in respect of the proceeds from the second interim dividend which RIN expects to receive
from RI PLC. Accordingly, the rand equivalent of the interest distribution will be 32.06 South African cents per linked unit.
The interest distribution will be payable to RIN linked unitholders in accordance with the abbreviated timetable set out below:
2012
Last day to trade "cum" interest distribution Friday, 23 November
Linked units trade "ex" interest distribution Monday, 26 November
Record date Friday, 30 November
Payment date Monday, 3 December
Conversion of new RINC linked units to RIN linked units Monday, 3 December
There may be no dematerialisation or rematerialisation of linked units between Monday, 26 November 2012 and
Friday, 30 November 2012, both days inclusive.
On behalf of the Board
GR Tipper MJ Watters
Chairman Chief Executive Officer
30 October 2012
Directors
Gavin Tipper* (Non-executive Chairman), Michael Watters (Chief Executive Officer), Andrew Rowell (Finance Director),
Bernard Nackan#, Greg Heron#, Peter Todd*, Marc Wainer#
# Non-executive * Independent non-executive
Registered office
Redefine Place, 2 Arnold Road, Rosebank, Johannesburg, 2196
Transfer secretaries
Computershare Investor Services (Proprietary) Limited
Company Secretary
Probity Business Services (Proprietary) Limited, 3rd Floor, JHI House, Cradock Avenue, Rosebank, Johannesburg, 2196
Sponsor
Java Capital
www.redefineint.com
Date: 30/10/2012 09:01:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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