Wrap Text
Results for the year ended 31 August 2014
REDEFINE INTERNATIONAL P.L.C.
(Incorporated in the Isle of Man)
(Registered number 010534V)
LSE share code: RDI
JSE share code: RPL
ISIN: IM00B8V8G91
(“Redefine International” or “the Company” or “the Group”)
RESULTS FOR THE YEAR ENDED 31 AUGUST 2014
REDEFINE INTERNATIONAL REPORTS RECORD RESULTS FOR ITS FIRST YEAR AS A UK-REIT
Redefine International, a UK-REIT, which has a primary listing on the London Stock Exchange and a secondary listing on the
Johannesburg Stock Exchange, today announces its results for the year ended 31 August 2014.
Financial Highlights
- Earnings available for distribution of £39.1m (31 August 2013: £30.1m), an increase of 29.9%
- Second interim dividend of 1.70p per share, resulting in a dividend of 3.20p per share for the full year (31 August 2013: 3.11p per
share), an increase of 2.9%
- Weighted average earnings available for distribution of 3.28p per share (31 August 2013: 3.26p per share)
- Basic earnings per share of 7.98p (31 August 2013: 6.66p), an increase of 19.8%
- Adjusted NAV per share of 40.54p (31 August 2013: 38.66p), an increase of 4.9%
- Balance sheet strengthened with pro-forma Group LTV reduced to 48.1% (31 August 2013: 56.8%)
- £162.5m of banking facilities extended or refinanced, extending average debt maturity to 9.3 years (31 August 2013: 4.7 years)
- Unrestricted cash balances of £83.8m (31 August 2013: £29.6m)
Corporate Highlights
- Conversion to a UK-REIT, corporate structure simplified and management internalised
- Successful placing of 191.7m ordinary shares to raise £86.8m
- Board and management team strengthened
- Inclusion in the FTSE 250 and EPRA indices, providing increased liquidity
Operational Highlights
- Portfolio values (excluding non-core assets) up 4.7% for the year
- UK assets up 8.8%
- European assets up 2.4% on a constant currency basis
- Portfolio occupancy increased to 97.6% (31 August 2013: 97.3%)
- Successful capital recycling across business segments including:
- 62.7m Cromwell securities sold delivering net proceeds of £35.6m
- Sale of two residential development sites for £22.2m, an aggregate 24.9% premium to carrying value
- Acquisition of Weston Favell Shopping Centre for £84.0m (excluding acquisition costs)
- £28.2m of equity invested into new and existing hotels
- Edinburgh Doubletree by Hilton hotel acquired post year end for £25.3m
Mike Watters, Chief Executive, commented:
“The past year has again been a demanding and busy period for the Company. It is pleasing to report an increase in earnings to
record levels, while also successfully delivering on the challenging objectives that we set ourselves at the start of the las t financial
year.
“We are now well underway with our wider ambition of becoming a leading income focused UK-REIT and our attention is firmly
re-focused on ensuring our property portfolio is well positioned to produce consistent and growing income returns for our
shareholders. We now have critical mass in the retail, commercial and hotel sectors in the UK and have taken a big step forward in
building our German portfolio, supported by an overall business environment which is now positive across all our sectors.
“Against this backdrop, with our strengthened financial position and the flexibility to allocate capital to those areas of our portfolio
which are expected to provide the best risk-adjusted returns, we look forward to the future with confidence.”
Meeting, webcast and conference call
A meeting for analysts and investors will take place today at 09.00 (UK local time) at FTI Consulting, 200 Aldersgate, Aldersgate
Street, London, EC1A 4HD. The meeting can also be accessed via a conference call dial in facility and webcast link, starting at
09.00am (UK time) 11.00am (SA time), using the details below. The presentation will be made available on the Company’s website
http://www.redefineinternational.com/investor-relations/financial-reports.
Conference call
Dial in numbers: United Kingdom Local +44(0)20 3427 1909 and South Africa Local +2711 019 7015
Confirmation Code: 1752552
Webcast link: http://www.brrmedia.co.uk/event/127724
For further information, please contact:
Redefine International P.L.C.
Michael Watters, Stephen Oakenfull Tel: +44 (0) 20 7811 0100
FTI Consulting
UK Public Relations Adviser
Stephanie Highett, Dido Laurimore, Claire Turvey Tel: +44 (0) 20 3727 1000
FTI Consulting
SA Public Relations Adviser
Max Gebhardt Tel: + 27 (0) 11 214 2402
JSE Sponsor
Tel: + 27 (0) 11 283 0042
Java Capital
Chairman’s message
This time last year, we set ourselves a challenging list of objectives which the Company has worked hard on achieving over the past
12 months. These expansive targets included: improving the quality of the property portfolio; simplifying the corporate structure of the
business; conversion to a UK-REIT; the internalisation of management; and securing the inclusion of the Company in the EPRA and
FTSE 250 indices. Alongside all of this, we have added a number of highly qualified and well-respected individuals to the senior
management team to ensure that we have the best team in place to support the growth of our business and to deliver our strategy.
I am pleased to report that all of these objectives have now been met and our strategic target of becoming a leading income focused
UK-REIT is well underway.
Chief Executive’s Statement
I am pleased to report that financial and operational results for the period were ahead of expectations. Distributable earnings
increased 29.9% to £39.1m with distributable earnings per share increasing by 0.6% to 3.28p. Adjusted NAV per share rose 4.9% to
40.54p with the Group loan to value ratio reducing to 48.1%. Overall, the achievement of these key metrics represents a strong set of
financial results, reflected in the total shareholder return for the period of 28.5%.
We remain committed to our business model of being a diversified income focused UK-REIT, with a high level of expertise in our
chosen business segments. We now have critical mass in the retail, commercial and hotel sectors in the UK and have taken a
significant step forward in building our German portfolio, both of which have been supported by a corresponding expansion of the
associated management teams.
The overall business environment in which we operate has turned positive, notwithstanding ongoing concerns relating to weak
economic fundamentals in the Eurozone, deflationary expectations and the interest rate cycle. Activity in the retail and commercial
sectors in which we operate has improved on the back of these improving economic conditions.
The hotel properties and the Group’s interest in the hotel management business have benefited from a stronger UK economy. Our
strategy of investing into cash generative assets with strong property fundamentals and our market leading management platform has
proved successful. We invested a further £28.2m of equity during the period, and acquired the Edinburgh Doubletree by Hilton hotel
for £25.3m post year end.
Investment markets remain competitive and assets with sound fundamentals have typically transacted at prices well above asking
levels. Despite a substantial cash holding at year end, we will continue to be disciplined in our investment approach. As an increased
number of sellers enter the market to take advantage of recent yield compression, opportunities to acquire good quality assets may
improve in 2015.
Capital recycling
The quality of the portfolio and its ability to generate sustainable income returns is being delivered through effective capital recycling
and the sale of non-core assets.
Legacy non-core assets were reduced significantly post year end with the sale of the majority of the Delta portfolio. Non-core assets
now represent just 3.3% of the Group’s direct property portfolio.
New investment in the second half of the year focused only on the hotel property portfolio, where we continued to find better risk-
adjusted returns through new investments and investment into the existing portfolio.
A growing business
Our objective to become a significant mid-tier UK-REIT remains on track. Being promoted to the FTSE 250 index in May 2014 was
pleasing given the effort that has been put into expanding the business.
The growth of our business has been supported by the strengthening of our management team. Adrian Horsburgh joined as Property
Director in April 2014 bringing over 30 years of investment and property experience as an international partner of King Sturge and
more recently Jones Lang LaSalle.
Outlook
Occupational trends across all the sectors in which we operate are showing positive fundamentals, albeit to varying degrees. We will
continue to allocate capital to those areas of our portfolio which are expected to provide the best risk-adjusted returns going forward.
Although investment activity and asset pricing appear to have run slightly ahead of fundamentals, expectations are that in the
continued low interest rate environment, high quality income streams, backed by real assets, will remain attractive to investors.
Our Business
Business Strategy
The Group’s strategy is focused on delivering sustainable and growing income to shareholders through investment in income yielding
assets let to high quality occupiers on long leases. Capital values are enhanced and protected by asset management and the other
development activities. As a UK-REIT, the Group targets distributing the majority of its earnings available for distribution on a semi-
annual basis, providing investors with attractive income returns as well as exposure to capital growth opportunities.
Investment Markets
The Group is focused on real estate investment in large, well developed economies with established and transparent real estate
markets. The investment portfolio is geographically diversified across the UK, Europe and Australia and provides exposure to the
commercial, industrial, retail and hotel sectors.
Business Segments
UK Commercial The Group’s portfolio of offices, motor trade and roadside service stations.
UK Retail The Group’s portfolio of seven wholly owned shopping centres.
UK Hotels The Group’s hotel properties comprising eight hotels in Greater London and the South East. These
are branded as Holiday Inn, Holiday Inn Express, Crowne Plaza and Travelodge. A further hotel,
the Doubletree by Hilton, Edinburgh, was acquired post year end.
RedefineBDL The Group’s 25.3% shareholding in Redefine BDL Hotel Group Limited, the UK’s largest
independent hotel management company. RedefineBDL leases and manages all of the Group’s
hotel properties except for the Enfield Travelodge.
Europe The Group’s properties in Continental Europe, located primarily in Germany but also in Switzerland
and the Netherlands. The portfolio comprises shopping centres, discount supermarkets and
Government-let offices.
Cromwell The Group’s investment in the Cromwell Property Group, a prominent commercial real estate
company listed in Australia with major lettings to listed companies and Government tenants. As at
31 August 2014 Cromwell’s market capitalisation was AUD1.74bn (£1.00bn) and the Group’s
shareholding was 9.99%.
Property portfolio by business segment at 31 August 2014
Occupancy by Annualised gross
Business segments Market values lettable area Lettable area rental income
31 August 2014 (£’m) (%) (m2) (£’m)
UK Commercial 143.8 98.3% 104,345 11.7
UK Retail 338.2 95.4% 175,701 27.4
UK Hotels 194.0 98.1% 30,887 12.0
Europe 258.4 99.4% 96,733 17.0
Total (excl non-core assets) 934.4 97.3% 407,666 68.1
Non-core assets 68.8 99.2% 81,371 9.7
Total 1,003.2 97.6% 489,037 77.8
Notes:
1. Figures reflect the Group’s share of joint ventures (share of market value: UK Commercial £15.8m; Europe £59.6m).
2. Property portfolio metrics exclude the Group’s interest in Cromwell, which had a market value of £97.8m at 31 August 2014.
3. Non-core assets comprise the Delta portfolio (£35.06m of which was disposed of after year end), the Justice Centre in the Hague and the Ciref
Berlin/German portfolio. They are operated within the UK Commercial and Europe business segments respectively.
Top 10 properties by value as at 31 August 2014
Weighted
Annual- average
Owner- Lett- ised Let unexpired
Market ship able gross by lease
Portfolio analysis value interest area rental area term
Top 10 investments Anchor tenants (£'m) (%) Sector (m2) (£'m) (%) (years)
Grand Arcade, Wigan Debenhams, BHS 88.9 100.0% Retail 43,097 7.7 98.5% 10.8
Weston Favell, Northampton Tesco, Wilkinsons 88.8 100.0% Retail 28,486 6.6 96.5% 8.7
Schloss Centre, Berlin Primark 70.5 100.0% Retail 18,140 4.1 100.0% 6.1
St George’s, Harrow Vue, Wilkinsons 64.8 100.0% Retail 20,312 4.3 97.9% 6.0
Bahnhoff Altona, Hamburg Media Markt 58.7 100.0% Retail 15,074 3.6 99.5% 5.5
Holiday Inn Express, Southwark RHM 37.7 71.1% Hotels 3,936 2.1 100.0% 11.3
West Orchards, Coventry Debenhams 34.4 100.0% Retail 19,686 3.7 94.7% 6.9
Holiday Inn Express, Earls RHM 33.9 71.1% Hotels 2,781 2.1 100.0% 11.3
Court
Birchwood, Warrington ASDA 32.8 100.0% Retail 36,477 2.7 93.2% 16.8
Holiday Inn Express, Limehouse RHM 28.9 71.1% Hotels 5,747 1.9 100.0% 11.3
Notes: Figures reflect 100% of the asset values; ownership percentages are provided in the table above.
UK Commercial
Market
The investment market experienced a significant increase in investor demand for secondary assets in strong locations, largely led by
UK institutions. This marked change in investor sentiment, combined with a lack of available Grade A stock, has resulted in a sharp
recovery in values. More recently, the volume of available stock has increased with a number of parties seeking to take advantage of
pricing levels, particularly on shorter leased and older properties.
Rents have started to show growth in key cities, with clear signs of reduced incentives in the majority of regional centres. Overall
supply of Grade A space is decreasing and headline rents of over £30 per sqft are reflecting a year-on-year increase of approximately
6.6%. This is however generally confined to established office markets.
The conversion of office space to residential has accelerated the reduction in the overall supply of secondary space, more so in areas
that have witnessed a strong recovery in house prices.
Performance
Property values have benefited from a stronger regional investment market. The portfolio has been independently valued at £143.8m
as at 31 August 2014, reflecting an increase of 8.1% for the year on a like-for-like basis.
Occupancy increased to 98.3% (31 August 2013: 97.8%) following lettings at The Observatory, Chatham and the Crescent Centre,
Bristol.
Leasing activity for the period was limited, with 13 lease events completing. Seven rent reviews (including four fixed uplifts) were
agreed providing a total rent of £2.8m, 7.2% above the previous passing rent. Six new lettings or renewals were completed totalling
25,800 sqft and providing a total rent of £0.34m, 9.0% above ERV. The portfolio has 45.8% of leases subject to fixed or inflation-
linked leases.
The Observatory, Chatham reached full occupancy following two lettings totalling approximately 6,600 sqft. Both lettings were for 10
year terms at rents of £15.75 per sqft.
A new ten year lease has been agreed after the year end with the Highways Agency for their existing space of 76,000 sqft at Bedford.
The rent of £0.6m was marginally ahead of ERV and removes a significant amount of re-letting risk from the portfolio.
The 2014 rent review for the Kwik-Fit portfolio is under review. The current passing rent of £1.03m is subject to the higher of a fixed
6.6% increase or open market rent.
Investment and asset management
Activity during the year focused on further rationalising the portfolio and capitalising on the strong investment market to sell non-core
assets.
The sale of both the Harrow and Croydon residential schemes was completed in the first half of the year for an aggregate
consideration of £22.2m, reflecting an average premium of 24.9% over book value. Further opportunities to convert existing
secondary offices into residential, for either private sale or private rental, are under review.
The non-core assets were significantly reduced following the sale of the majority of the assets from the Delta portfolio. Four smaller
assets totalling £6.3m were sold during the year with a further 10 assets totalling £35.06m being sold after year end.
An asset swap within the petrol filling station portfolio was completed through which eight assets were sold and three were acquired.
The transaction had a number of benefits including extending the average lease term across the portfolio, enhancing the tenant
covenant, increasing the average lot size of the assets and reallocating capital to stronger South East locations.
The three new sites that were acquired are let on long term leases to BP Oil UK Limited with a weighted average lease term of 18.5
years and were acquired for £9.6m (excluding acquisition costs) reflecting a 5.2% net initial yield. Eight sites were sold for £8.6m
reflecting a 6.5% net initial yield with a weighted average lease term of 11.0 years.
Looking forward, leasing activity will be focused on the 12,000 sqft of space available within The Crescent Centre, Bristol.
Encouraging negotiations are progressing with a number of potential occupiers. Plans to enhance the appeal of the building by
improving the reception, external facade and occupier amenities, including a café, external summer seating and bike storage are
being progressed.
Strategy and outlook
We will continue to capitalise on the strength in the current investment market by selling smaller non-core assets at attractive prices
and recycling capital into assets with long term sustainable income characteristics. Extracting value from the existing portfolio through
planning gains and potential conversion to residential uses is ongoing.
Although competition for assets with sound fundamentals is high, increased stock availability and a potential tempering of risk
appetite, may result in improved acquisition opportunities in main markets outside of Central London.
UK Retail
Market
While there are a number of retailers, including John Lewis, Next, Primark and many discounters experiencing success and there are
noticeably fewer retailer administrations, overall trading conditions continue to be challenging outside of London.
Fit for purpose schemes in either discretionary or non-discretionary sectors are recovering. Within the Group’s portfolio this is
evidenced by the majority of the schemes at or close to full occupancy on conclusion of the deals under negotiation.
While it is too soon to anticipate meaningful rental appreciation, those landlords with schemes capable of achieving full occupancy
have the opportunity to negotiate from a stronger position. Within our portfolio there is some evidence emerging on new deals which
reflect net rental values ahead of previous expectations.
The investment market was particularly strong over the summer, with secondary shopping centres outside of London witnessing yield
compression of approximately 125 basis points without any discernible improvement in occupier fundamentals. The weight of money,
combined with the relative scarcity of stock, pushed yields to levels that anticipate strong rental growth; in some cases on secondary
assets in relatively weak retail locations. Since the summer the volume of available stock (principally in the secondary sector) has
increased, with owners looking to capitalise on market strength. While there is good cause for optimism, we believe investment
opportunities may be more favourable in 2015.
Performance
The portfolio has been independently valued at £338.2m as at 31 August 2014. The like-for-like portfolio value (excluding the
acquisition of Weston Favell) increased 7.4%. The valuation movement was driven by a 36 basis point reduction in net initial yields
with like-for-like net rents marginally up by 0.2%. ERVs across the portfolio increased 1.8%, on a like-for-like basis.
Occupancy by lettable area increased to 95.4% (31 August 2013: 95.0%).
Leasing activity for the period covered 46 lease events (excluding temporary lettings). 15 rent reviews totalling 123,600 sqft were
completed with the rent remaining unchanged at £2.3m. 31 new lettings or renewals were completed totalling 45,400 sqft and
providing a total rent roll of £1.1m, 4.7% above ERV.
Individual leasing transactions and resulting rents relative to estimated market rents varied considerably, highlighting the ongoing
change in the market and supply/demand dynamics for specific units. Retail rents have largely been rebased to levels which are
economic to retailers and provides the opportunity of driving rental values in well let schemes.
Footfall declined 2.4% compared to the same period last year. While the Experian benchmark recorded a decline of 1.2%, the
Group’s portfolio is heavily weighted in the North West and Midlands where Experian recorded footfall declines of 3.6% and 3.7%
respectively.
Investment and asset management
Weston Favell, Northampton
Following the acquisition in December 2013, a business plan including a £4.0m capital investment is progressing to significantly
upgrade and rebrand the centre. A planning application has been submitted for the refurbishment and extension of units in the lower
mall to harmonise it with the upper mall and improve the centre’s customer appeal. Works are expected to commence in early 2015.
The reconfiguration works will create seven new unit shops and eight kiosks. Heads of terms are in circulation for two of the unit
shops, with a further three in active negotiations, leaving two unit shops to let. Of the eight kiosks, heads of terms are in circulation on
seven.
Grand Arcade, Wigan
At year end there was 5,600 sqft of space available to let. We are in advanced negotiations with a national shoe operator and a
national multiple mobile phone shop on ten year leases, with a combined rental of £190,000 p.a. which compares favourably with an
ERV of £156,000 p.a. The cost of leasing is improving gradually across the scheme with evidence of incentive packages reducing. It
is therefore possible that the centre will be fully let before the end of 2014. A fully let scheme will provide the potential for asset
management driven deals, a number of which have already been identified.
St George’s, Harrow
Following a period of investment and successful lettings, there are a number of medium term opportunities to drive value, including
downsizing certain retailers to accommodate new brands that will drive footfall, creating additional areas to accommodate further
demand from restaurant operators as well as a leasing strategy to introduce valued brands that are currently trading from weak
locations outside of our centre.
Key lettings during the period include:
- Frankie & Benny’s entered into a new 25 year lease (15 years term certain) over 4,270 sqft at a rent of £102,480 p.a.
- Warren James entered into a new five year lease at a rent of £45,000 p.a. over a newly configured 575 sqft unit.
- Equivalenza agreed terms for a 10 year lease with a five year break option at a rent of £42,500 p.a.
All of the existing 2,700 sqft of vacant space is currently under offer at an estimated combined rent of £72,500 p.a. and a further
£75,000 is under offer in relation to kiosks and commercialisation units. The final phase of refurbishment to the entrance of the centre
is expected to start in January 2015.
Byron Place, Seaham
Planning approval has been received post year end for two new units totalling approximately 8,000 sqft as an extension to the
scheme. Terms are at an advanced stage of negotiation on both units. The smaller unit of approximately 1,000 sqft is planned to be
sold on a long leasehold basis to a branded coffee shop operator and a larger unit of approximately 7,000 sqft is to be developed and
let to a discount food operator. The larger unit is expected to reflect a yield on cost of circa 9.0% against a current scheme valuation
of 6.8%.
Birchwood, Warrington
The strength of successful discount operators is being reflected in the sales performance at convenience orientated centres such as
Birchwood and Seaham. Discount retailers such as Home Bargains and Poundworld achieved double digit turnover increases for
much of 2014. Although profit margins are lower in the discount sector, these levels of turnover translate to healthy profit margins and
sustainable rents reflected in rent to sales ratios of 1.5% to 5.0%.
To capitalise on this segment of the market, plans are being progressed to develop a further 10,000 sqft for a food operator and a
further 20,000 sqft for a discounter. As with Seaham, the yield on cost is expected to be well ahead of the scheme valuation and
therefore accretive to NAV. The extension is subject to planning approval and terms being agreed with the tenants.
Digital marketing
Marketing efforts are currently focused on realigning online consumer engagement through both traditional and new digital
channels. This includes trialling new technologies including mobile apps as well as improving functionality on existing platforms such
as websites and social media.
A consumer-facing app focused on customer relationship management was launched at St George’s shopping centre, following the
introduction of the new website, and allows shoppers to select their interests and preferences in order to personalise their feeds and
encourage further consumer engagement. This data will be used to personalise digital marketing via other channels. The St
George’s app features other functionality including a built-in QR code reader, which can be used to drive downloads and footfall.
As part of the refurbishment project at Weston Favell, a microsite will be launched that will act as an information hub for retailers,
stakeholders and the local community to remain informed throughout the development period. The site will link to the centre’s existing
consumer website.
Strategy
The strength of the investment market has led to a rapid re-pricing of secondary shopping centres and retail parks driven, to a large
extent, by the weight of money coming into the sector. A stronger UK economy, and the fact that many retail locations have now
undergone a re-basing of rents to levels which are once again sustainable for retailers, is cause for optimism.
However, given the significant increase in values and the expected volume of retail investments to be brought to the market, we
believe the return on investing into our own portfolio through the addition of retail space and lease driven asset management
opportunities is, on average, likely to provide a better marginal return on capital.
UK Retail at a glance
31 August 31 August
2014 2013
Market value (£’m) 338.2 232.1
Occupancy (by lettable area) 95.4% 95.0%
Annualised gross rental income (£’m) 27.4 19.6
ERV (£’m) 29.0 21.4
Footfall (YoY) (2.4%) (3.8%)
Net initial yield 6.6% 7.1%
Equivalent yield 7.8% 8.3%
2 2
Lettable area 175,701m 147,127m
Note: Prior period figures have been re-stated to reflect 100% ownership of Grand Arcade, Wigan and West Orchards, Coventry.
UK Hotels and RedefineBDL
Ownership structure
The Group’s hotel portfolio (except for the Enfield Travelodge) is held through its 71.0% shareholding in Redefine Hotel Holdings
Limited (“RHH”) which owns 100% of each hotel. The RHH portfolio is managed by RedefineBDL, in which the Company has a
25.3% shareholding. The Enfield Travelodge is leased to Travelodge directly.
Market
Sentiment in the UK hotel sector remains buoyant, with expectations of growth continuing for the remainder of 2014 and into 2015.
The market has been driven by better than expected UK GDP growth and a pick-up in both corporate travel and tourism. According to
the latest PwC hotel industry report, these factors have pushed rates in favour of owners.
London is expected to see average RevPars reach an all-time high by the end of 2014, driven largely by growth of over 3.0% in
average daily room rates. Regional hotels have also performed ahead of expectations, in strong locations including Aberdeen and
Edinburgh.
Supply of new rooms in London is expected to have risen approximately 5% by the end of 2014 and a further 5% is anticipated in
2015. In strong locations, new supply is being taken up by additional demand as experienced in the Company’s own portfolio.
Performance
Underlying operating performance at the property level reflected the strong London hotel market and, despite average occupancies
dropping slightly compared to last year, average room rates and RevPars grew 9.1% and 8.5% respectively.
The rental level for the 2015 financial year has been set at £13.79m p.a. for the RedefineBDL managed portfolio which includes all of
the Group’s hotels except the Enfield Travelodge. On a like-for-like basis, rents have been increased by 4.8%.
The total hotel portfolio (including the Enfield Travelodge) was valued at £194.0m at 31 August 2014, an uplift in value of 12.7% on a
like-for-like basis excluding acquisition costs.
RedefineBDL performed above expectations and delivered a profit after tax of £1.6m for the nine month period from the date of
internalisation. During the year, Tsogo Sun, South Africa’s largest hotel and casino operator acquired a 25% strategic shareholding in
RedefineBDL for £8.1m, which conferred a valuation of £32.4m. We welcome Tsogo Sun as a shareholder who we expect to add
significant value to RedefineBDL going forward.
Investment and asset management
There was significant investment activity during the year as set out below, including the acquisition of minority interests, the extension
of the Southwark Holiday Inn Express and the acquisition of the Travelodge in Enfield. A stronger UK economy and improved access
to opportunities through our strategic shareholding in RedefineBDL has supported a larger allocation of capital to the sector. The key
developments include:
- RHH acquired the remaining 40% interest in the 150 bedroom Earls Court Holiday Inn Express. The consideration of £6.3m
implied an asset value of £28.1m and a net initial yield of 7.0%. Earls Court was valued at £33.9m at year end.
- The extension to the Southwark Holiday Inn Express was acquired for £11.35m (excluding costs of £0.7m). The trading
performance of the extension has remained steady since the opening of the additional rooms in June 2014, with overall
occupancies and RevPars in line with figures for the existing 88 bedrooms.
- The Travelodge in Enfield was acquired in June 2014 for £10.5m (excluding costs of £0.5m), providing a net initial yield of 5.5%.
The recently constructed 132 bedroom hotel is let on a 33 year lease with uncapped RPI indexation. The property includes a
vacant unit of 6,300 sqft at ground level which is currently under negotiation. Once let, the yield is expected to rise to over 6.0%.
In addition, the Edinburgh Doubletree by Hilton was acquired after year end for £25.3m on a net initial yield of approximately 6.9%.
The hotel has 138 bedrooms which have recently been extensively refurbished to provide high quality flexible accommodation
appealing to both business travellers and tourists. The five storey Hotel has extensive food and beverage offerings, meeting rooms
and a small fitness centre. The hotel is managed by RedefineBDL.
Strategy and outlook
Our strategic shareholding in RedefineBDL, the largest independent hotel manager in the UK, has been instrumental in generating
off-market investment opportunities and ensuring visibility on the management and performance of our hotels. Growth in the portfolio
will be opportunistic and will remain focused on limited service, branded hotels located in Greater London and very selectively in other
proven major cities, as evidenced by the acquisition of the Edinburgh Doubletree by Hilton.
We will continue to support RedefineBDL and encourage the expansion of hotel management contracts. To this end, RedefineBDL is
in negotiations to increase its hotels under management with a significant new contract covering 22 hotels.
Europe
Market
Recent reports from German retail companies indicate year on year real sales growth of 1.2% and while unemployment remains low
and stable at around 6.5%, consumer sentiment is expected to remain positive.
Prime rents increased on average 2.5% for the 12 months to June 2014, slightly ahead of the rate of growth seen on the same period
last year. Rental growth in the 10 biggest retail locations increased 3.5% in the same period, with Berlin and Hamburg showing the
biggest absolute rises to levels of €300 and €275 per sqm per month respectively.
Consumer spending will remain a key driver of Germany’s economic and retail performance and a positive differentiator from the
balance of the Eurozone.
Prime yields in the key German markets have compressed by 20bps to 30bps in the 12 months to June 2014 (Colliers) and are now
back to historically low levels. The pricing of prime assets has resulted in a noticeable increase in risk appetite with institutional
investors moving into secondary assets and a general increase in the number of transactions focused on more asset management
intensive portfolios.
The availability of capital to invest in real estate from both German and international investors is expected to remain strong and
currently outweighs existing available supply. Likewise, liquidity in the banking market remains robust and given the current interest
rate environment, borrowing costs are likely to stay at exceptionally low levels.
Performance
Values were increased in local currency terms by 2.4% on a like-for-like basis over the course of the year. On a Sterling basis, asset
values declined 4.8% as a result of a 7.6% decline in the Euro against Sterling.
Occupancy improved to 99.4% (31 August 2013: 98.6%) following successful lettings at the Schloss Strassen Centre in Berlin.
Leasing events were relatively limited during the year, in part due to the high and stable occupancy across the portfolio. Leasing
activity for the period covered 16 lease events. Three rent reviews totalling 13,000 sqm were completed providing a total rent of
€2.2m, 8.7% above the previous passing rent. 13 new lettings or renewals were completed totalling 16,500 sqm and providing a total
rent roll of €1.9m, 3.5% above ERV.
Investment and asset management
The extension of two supermarkets by approximately 660 sqm in total are under negotiation at Eilenberg and Bremen. The trend in
the sector for convenience supermarkets to trade from larger format stores continues to create opportunities for extensions within the
portfolio, often providing opportunities to extend leases.
Following new leases to Vitalia, Vodafone and Equivalenza totalling 173 sqm and providing an additional rent of €90,500, the Schloss
Strassen Centre in Berlin reached full occupancy. This provides a strong position from which to drive asset management-led leasing
deals.
Leasing activity at the Bahnhoff Altona Centre in Hamburg maintained the centre at full occupancy. Both Rossmann and Sportspa
exercised their options to extend their leases for a further five years on existing terms.
The asset management opportunities identified as part of the acquisition of the CMC portfolio are making steady progress. The longer
term prospects for the area surrounding the Bahnhoff Centre in Altona, Hamburg are particularly encouraging with large scale
redevelopment anticipated as part of the relocation of the long distance high-speed rail network.
Strategy and outlook
Recent investment activity suggests increased risk appetite and demand for assets outside of Germany’s top 10 cities or assets that
are more management intensive. This is expected to have a positive impact on the value of good quality secondary assets. We
continue to find value in the German investment market, which combined with the historically low interest rate environment and
attractive borrowing costs, is providing an opportunity to generate attractive cash-on-cash returns.
European portfolio at a glance
31 August 31 August
2014 2013
Market value (£m) 258.4 284.4
Occupancy (by lettable area) 99.4% 98.6%
Annualised gross rental income (£m) 17.0 16.2
ERV (£m) 15.9 16.1
Net initial yield 5.7% 6.4%
2 2
Lettable area 96,733m 113,572m
Note: Figures reflect the Group’s share of joint ventures
Cromwell
Our investment in Cromwell produced another consistent and high yielding income return. Although the market value of the
investment fluctuated during the year, we capitalised on periods of strength and reduced our shareholding to 9.99% from 13.72% last
year. Net proceeds of AUD62.6m (£35.6m) were raised through sales.
31 August 31 August 31 August 31 August 31 August
2010 2011 2012 2013 2014
Number of securities 178.83m 216.20m 270.58m 235.53m 172.83m
Shareholding 19.66% 22.36% 23.08% 13.72% 9.99%
Closing price (cents per security) 72.09 72.00 75.00 102.5 100.50
Market value (AUDm) 128.92 155.67 202.90 241.42 173.70
Market value (£m) 74.78 102.48 132.10 138.91 97.80
% of total investment portfolio 26.8% 9.00% 13.5% 14.4% 8.9%
Valuation
The Group reports its investment in Cromwell at market value which is subject to fluctuations in Cromwell’s security price and any
movements in the GBP:AUD exchange rate. Cromwell’s share price at 31 August 2014 closed marginally down at AUD 100.5 cents
per security (31 August 2013: AUD 102.5 cents per security) while the AUD:GBP exchange rate declined 2.2% during the financial
year.
8.46m securities were sold in December 2013 for AUD 96.0 per security at an exchange rate of GBP1:00:AUD1.81. A further 54.24m
securities were sold in August 2014 for AUD 101.75 cents per security at an exchange rate of GBP1:AUD1.78.
Shareholding
Following the disposal of 62.7m securities, the Company’s shareholding in Cromwell reduced to 172.8m securities or 9.99% of
Cromwell’s issued share capital. Should a holding of below 10% be retained for a period of more than one year, potential capital gains
tax may be avoided. Notwithstanding this, decisions on capital allocation within the Group’s portfolio will be made taking into account
overall anticipated returns to shareholders.
Distributions for periods related to the first two quarters of the 2015 financial year have been hedged at rates of GBP1:AUD1.81 and
GBP1:AUD1.82 respectively.
For further information please visit www.cromwell.com.au.
Portfolio Summary
Portfolio overview by business segment
Business segments – market values
Segmental
Properties Lettable area Market value split by Net initial
(no.) (m2) (£'m) value (%) yield
UK Commercial 64 104,345 143.8 14.3% 7.4%
UK Retail 7 175,701 338.2 33.7% 6.6%
UK Hotels 8 30,887 194.0 19.3% 5.9%
Europe 23 96,733 258.4 25.8% 5.7%
Total (excl. non-core assets) 102 407,666 934.4 93.1% 6.3%
Non-core assets 25 81,371 68.8 6.9% 12.9%
Total (incl. non-core assets) 127 489,037 1,003.2 100.0% 6.8%
Notes:
1. Figures reflect the Group’s share of joint ventures.
2. Non-core assets includes the Delta portfolio (£35.06m of which was disposed after year end), the Justice Centre in the Hague and the Ciref
German/Berlin portfolio.
Business segments – gross rental income
Weighted
Annualised average Indexation
gross rental unexpired Occupancy and fixed
income Average rent lease term by lettable increases
(£'m) per m (years) area (%) (%)
UK Commercial 11.7 112.37 7.8 98.3% 45.8%
UK Retail 27.4 155.66 9.7 95.4% 22.6%
UK Hotels 12.0 388.87 12.4 98.1% 5.1%
Europe 17.0 175.40 6.8 99.4% 97.3%
Total (excl. non-core assets) 68.1 166.93 9.1 97.3% 43.5%
Non-core assets 9.7 118.90 3.9 99.2% 67.7%
Total (incl. non-core assets) 77.8 158.94 8.5 97.6% 46.0%
Business segments - valuation movement since 31 August 2013
Valuation movement
Proportion Market value 12 months ended
of portfolio 31 August 31 August
by value 2014 2014
(%) (£’m) (%)
UK Commercial 14.3 143.8 8.1
UK Retail 33.7 338.2 7.0
UK Hotels 19.3 194.0 12.7
Europe 25.8 258.4 (4.8)
Total (excl. non-core assets) 93.1 934.4 4.7
Non-core assets 6.9 68.8 (9.0)
Total 100.0 1,003. 3.6
Note: Includes the effect of foreign exchange movement during the period. The Euro declined 7.6% against Sterling.
Portfolio overview by sector
Property sectors at 31 August 2014
Annualised
Occupancy gross rental
Market value by lettable area Lettable area income
2
(£’m) (%) (m ) (£’m)
Retail 570.6 96.2 266,194 42.3
Office 197.8 99.1 142,726 20.9
Industrial 38.8 100.0 48,278 2.5
Hotels 194.0 98.1 30,887 12.0
Other 2.0 100.0 952 0.1
Total 1,003.2 97.6 489,037 77.8
Notes: Figures reflect the Group’s share of joint ventures.
Financial Review
Overview
The Group produced a profit attributable to equity holders for the year of £95.2m. Adjusted for the effects of the management
internalisation and the extinguishment of the residual Gamma debt, this represents a £13.8m increase on the prior year. Basic and
diluted EPS, excluding the effect of the management internalisation and Gamma debt write-off, were 6.30p compared to the 6.66p
basic and 6.23p diluted EPS in the prior year. Earnings available for distribution were £39.1m, an increase of £9.0m from the
comparable period.
Adjusted NAV per share increased to 40.54p compared to 38.66p at 31 August 2014, an increase of 4.9%. The costs of the
management internalisation, which were written-off in the period, had an impact of 1.92p per share. Adjusted NAV per share,
excluding the effect of the management internalisation, would therefore have been 42.46p.
The property valuation uplift of £49.8m was offset by a net fair value decline on Cromwell securities of £5.5m. £3.1m of gains on
disposals of Cromwell securities were, however, achieved during the year.
Earnings available for distribution and dividend
Earnings available for distribution increased 29.9% to £39.1m. Distributable rental income was up £19.1m largely due to the
acquisition of the CMC portfolio, Weston Favell and the restructuring of the Aviva shopping centre portfolio, which resulted in Grand
Arcade, Wigan and West Orchards, Coventry becoming 100% owned. The higher rental income was partly offset by the associated
higher interest costs.
The dividends declared for the year increased 2.9% to 3.20p (31 August 2013: 3.11p).
The Company’s policy is to distribute the majority of its earnings available for distribution in the form of dividends to shareholders.
Earnings available for distribution exclude capital items, earnings from the Gamma portfolio and only include the Group’s share of the
net income from the Delta portfolio.
The summarised statement of earnings available for distribution is as follows:
Reconciliation of EPRA Earnings and earnings available for distribution
Year ended Year ended
31 August 31 August
2014 2013
£’m £’m
Profit attributable to equity holders of the parent 95,200 61,521
Net (gains)/losses from financial assets and liabilities (751) 208
Joint ventures - fair value movements and deferred tax 410 2,342
Net fair value (gains)/losses on investment property and assets held for sale (49,814) 20,721
Gain on legal extinguishment of debt (44,924) -
Gain on disposal of subsidiaries and investments at fair value - (63,975)
Impairment of goodwill and impairment and amortisation of intangible assets 25,031 1,538
Tax on profit on disposal of Investments at fair value 1,724 2,047
Deferred tax (4,222) 2,554
Non-controlling interests in respect of the above 5,972 (1,069)
EPRA earnings 28,626 25,887
1
Delta non-distributable income (1,749) (1,846)
2
Gamma non-recourse costs/(income) 2,998 (1,314)
Fair value interest and debt issue costs 6,708 4,330
Capital costs included in professional fees 2,781 6,723
FX revaluation on Cromwell debt (331) (4,357)
Straight lining of rental income, share based payments and depreciation 1,575 1,423
RIMH acquired earnings/earnings on new investments 540 1,156
Earnings available for distribution 41,148 32,002
Non-controlling interests in respect of above (2,043) (1,889)
Earnings available for distribution to equity holders of the parent 39,105 30,113
Weighted average number of ordinary shares in issue ('000) 1,192,268 924,394
Weighted average distributable earnings per share 3.28 3.26
Summary
Distribution per share (pence) 3.20 3.11
First interim (pence) 1.50 1.475
Second interim (pence) 1.70 1.635
Notes:
1. Comprises 35% of Delta income which is not received, split as follows:
Gross rental income 6,684
Property operating and administrative costs (551)
Net operating income 6,133
Net interest expense (989)
Profit before taxation 5,144
Taxation (148)
Profit after taxation 4,996
35% 1,749
2. Comprises Gamma accrued interest which is non-recourse and included within the loan release
The Board declared a second interim dividend of 1.70 pence per share on 28 October 2014, for the six month period ended 31 August
2014. The 3.20p per share distribution for the year reflects a yield of 7.9% on the Adjusted NAV per share at 31 August 2014. The
Company proposes offering shareholders the option of receiving ordinary shares in lieu of the cash dividend under a Scrip Dividend
Scheme. An announcement containing details of the tax components of the dividend, the timetable and the Scrip Dividend Scheme
will be announced separately today. The record date for the dividend on the JSE and the LSE is 21 November 2014 and the dividend
payment date is 5 December 2014.
Net assets
EPRA NAV per share has increased by 25.5% to 37.66p (31 August 2013: 30.00p) largely as a result of the Gamma residual debt
extinguishment and a movement of the deferred tax on the Cromwell investment. EPRA NAV is used as a reporting measure to
better reflect underlying net asset value attributable to shareholders by removing the cumulative fair value movements of interest rate
derivatives and deferred tax.
The property valuation uplift of £49.8m (3.84p per share) was offset by a net Cromwell fair value decline of £5.5m (0.42p per share)
as well as a £4.5m (0.35p per share) foreign exchange translation movement. Share placements during the period added 2.71p per
share, owing to placements at a premium to net asset value.
The EPRA NAV as at 31 August 2014 includes items which, in the opinion of the Board, should be adjusted for in order to better
reflect the underlying value of the Group. An Adjusted NAV per share has therefore been calculated as follows:
31 August 31 August
2014 2013
Note Pence per share Pence per share
Fully diluted IFRS NAV per share 37.11 29.05
Adjusted for derivatives and deferred tax 0.55 0.95
EPRA NAV per share 1 37.66 30.00
Gamma residual debt - 4.21
Delta negative equity 2 1.64 2.36
Other negative equity/provision 3 1.24 1.66
Performance fee - 0.43
Adjusted NAV per share 40.54 38.66
The £44.9m positive impact of the Gamma residual debt was achieved following the final determination notice being issued to the
Gamma bondholders and the receipt of a legal extinguishment of the debt from the Security Trustee. The consideration of £22.8m
related to the cancellation of the investment advisory agreement as well as the £2.1m of goodwill on the acquisition of RIMH, were
written off in the period. This had the effect of reducing EPRA NAV per share and Adjusted NAV per share by 1.92p. There is no
adjustment for this as it has a permanent impact despite the expectation that the management internalisation will have a long-term
positive effect on earnings and the performance of the Group. Without the impact of the management internalisation, Adjusted NAV
per share would have been 42.46p per share.
Notes:
1. The EPRA publishes best practice recommendations for Europe’s Stock Exchange listed real estate sector. In order to enhance comparability and
transparency the Company has adopted the EPRA net asset value measure within its reporting. The EPRA net asset value (“NAV”) presented
removes the cumulative fair value movements of interest rate derivatives and deferred tax.
2. Following the successful completion of the Delta restructuring announced on 15 October 2012, the negative net asset value position of 1.64p per
share is expected to reverse at the end of the loan term.
3. A liability of £5.6m (0.43p per share) is currently held relating to the facility provided to the Grand Arcade, Wigan. As part of the Aviva restructure
completed in December 2013, Aviva retained the right to participate in 50% of the income and capital growth generated by Grand Arcade. This
right was recognised at fair value, although is not deemed to have an immediate impact on NAV and has therefore been adjusted for. In addition,
as a result of the non-recourse nature of the debt relating to the Justice Centre in the Hague, Netherlands and the Ciref Berlin/German portfolio,
the negative net asset value positions of 0.69p per share and 0.12p share respectively have been written back.
Net debt and capital management
The Company has delivered on its plans of improving its capital structure and extending its debt maturity. The Group’s pro-forma LTV
ratio reduced to 48.1% (31 August 2013: 56.8%) as a result of actively managing the balance sheet through the successful issuance
of new equity, the refinancing of existing facilities at lower LTVs and selective sales of, and repayment of debt associated with, non-
core assets.
The Company refinanced the majority of its facilities with maturity dates in 2015 and 2016. This included the extension of the Zeta
facility with Lloyds Bank by two years (expiring May 2018) as well as the refinancing of the hotel portfolio, which now has a revised
maturity date of 30 November 2021. Historically low interest rates combined with a competitive lending market provided an
opportunity to extend the Group’s debt maturity profile at attractive rates. The Group’s weighted average cost of debt (excluding the
delta facility) was 4.30% at the year end (31 August 2013: 4.67 years).
The Group’s pro-forma weighted average debt maturity stands at 9.34 years. The Group disposed of 10 Delta assets on 6 October
2014, which resulted in a reduction in the Delta debt from £73.1m to £38.7m. The “pro-forma” ratios shown below exclude the debt
against the Delta portfolio, other legacy non-recourse loans and the Group’s share of debt in joint ventures.
The Group’s economic share of debt at 31 August 2014 (including its share of debt in subsidiaries and joint ventures), was £704.5m
(31 August 2013: £635.1m).
31 August 31 August
Pro-forma 2014 2013
Key financing statistics £’000 £’000 £’000
Investment portfolio – on balance sheet 956,728 1,025,525 831,165
Investment portfolio – economic share of joint ventures - 75,388 72,949
Total investment portfolio 956,728 1,100,913 904,114
Nominal value of debt – on balance sheet 550,810 651,846 577,351
Nominal value of debt – economic share of joint ventures - 52,641 57,728
Cash and short-term deposits (90,392) (90,392) (33,657)
Net debt 460,418 614,095 601,422
Weighted average debt maturity (years) 9.34 7.67 6.48
Weighted average interest rate (%) 4.50 4.18 4.15
% of debt at fixed/capped rates (%) 96.9 97.5 99.9
Loan-to-value (%) 48.1 49.7 66.5
£101.4m of Mezzanine Capital loans were repaid with effect from 1 December 2013 preceding the Group entering the UK-REIT
regime. This had a nil impact on the net asset value of the balance sheet as both the receivables and payables in relation to this debt
were settled.
Equity
The Group’s total equity attributable to equity holders increased by £181.2m during the year. The substantial increase in equity was
due to the issue of 79.0m shares to fund the acquisition of the investment advisor and settle the incentive fee, the placement of
155.1m new ordinary shares and the 36.6m shares issued to fund the repayment of the Aviva convertible loan instrument, and the
31.7m shares issued to the vendors of the Schloss Strassen and Bahnhoff Altona Centres in Germany.
Cashflow
The 54.2m increase in unrestricted cash balances from the prior year includes the £31.1m realised from the disposal of the 54.5m
Cromwell securities on 29 August 2014.
Proceeds from the loans and borrowings include the £50.0m financing received on the acquisition of Weston Favell, £18.25m with
respect to West Orchards and £11.1m with respect to additional debt in the hotel portfolio following the acquisition of the Southwark
Holiday Inn Express extension and the 40% of the Earls Court Holiday Inn Express.
The repayment of loans and borrowings include the £101.4m Mezzanine Capital loan repayments, £6.1m with respect to the Delta
facility following Delta asset disposals, £3.0m with respect to the Zeta refinancing and £5.5m on the facility secured against the
Cromwell investment following the disposal of shares during the year.
Dividends paid during the period, being the final 31 August 2013 dividend of £17.3m and the February 2014 interim cash dividend of
£5.3m, amounted to £22.6m. A cash saving of £13.8m was achieved following a 72.3% take up of scrip relating to the interim
dividend.
Hedging
The Group utilises derivative instruments, including interest rate swaps and interest rate caps to manage its interest-rate exposure. At
31 August 2014, the net fair value liability of the Group’s derivative financial instruments was £2.9m (31 August 2013: £4.7m).
The Group has a hedging policy which requires at least 75% of all interest rate exposures exceeding one year to be on a fixed or
capped rate basis. At 31 August 2014, Group debt (including its economic interest of subsidiaries and joint ventures) was 97.5% fixed.
For facilities with interest rate swaps or caps attached, the interest rates are fixed or capped for the duration of the facility. The Group
has not applied hedge accounting during the current period and changes in the fair value of the Group’s hedging instruments have
been recognised in profit or loss.
Taxation
The Company converted to a UK-REIT on 4 December 2013. The Group continues to pay tax on non-UK property earnings as well as
overseas investment earnings under the UK-REIT rules.
Income Statement
For the year ending 31 August 2014
Year ended Year ended
31 August 2014 31 August 2013
Note £’000 £’000
Revenue
Gross rental income 66,181 51,407
Investment income 10,159 2,511
Other income 1,000 2,129
Total revenue 77,340 56,047
Expenses
Administrative and other operating expenses (5,405) (1,601)
Investment adviser and professional fees (6,482) (14,067)
Property operating expenses (4,245) (3,445)
Net operating income 61,208 36,934
Net gains from financial assets and liabilities 4 751 44,944
Gain on legal extinguishment of debt 5 44,924 -
Equity accounted profit 3,926 11,106
Net fair value gain/(loss) on investment property and assets held for sale 49,814 (20,721)
Impairment of goodwill (2,069) -
Write down and amortisation of intangible assets (22,962) -
Gain on sale of subsidiaries - 17,285
Profit from operations 135,592 89,548
Interest income 8,056 12,106
Interest expense (42,308) (37,960)
Foreign exchange gain 576 4,352
Share based payment on the capital instrument - (803)
Profit before tax 101,916 67,243
Taxation 897 (6,179)
Profit for the financial year 102,813 61,064
Profit attributable to:
Equity holders of the parent 95,200 61,521
Non-controlling interest 7,613 (457)
102,813 61,064
Basic earnings per share (pence) 15 7.98 6.66
Diluted earnings per share (pence) 15 7.98 6.23
Basic headline earnings per share (pence) 15 1.94 2.64
Diluted headline earnings per share (pence) 15 1.94 2.44
Consolidated Statement of Comprehensive Income
For the year ended 31 August 2014
Year ended Year ended
31 August 2014 31 August 2013
Total Total
Note £’000 £’000
Profit for the year 102,813 61,064
Other comprehensive income
Items that are or may be reclassified to profit and loss
Transfer of FCTR to income statement on disposal of foreign operation - (10,334)
Foreign currency translation on foreign operations - subsidiaries (2,962) (316)
Foreign currency translation on foreign operations - associates & joint
ventures 8,9 (1,530) 6,846
Total comprehensive income for the year 98,321 57,260
Total comprehensive income attributable to:
Equity holders of the parent 90,717 57,775
Non-controlling interest 7,604 (515)
98,321 57,260
The accompanying notes form an integral part of these financial statements.
Consolidated Balance Sheet
As at 31 August 2014
Year ended Year ended
31 August 2014 31 August 2013
Note £’000 £’000
Assets
Non-current assets
Investment property 6 892,546 643,892
Long-term receivables 2,067 103,928
Investments at fair value 7 100,165 139,092
Investments in joint ventures 8 15,163 15,150
Investments in associates 9 7,967 -
Intangible assets 10 1,677 -
Plant and equipment 234 -
Total non-current assets 1,019,819 902,062
Current assets
Cash at bank 11 90,392 33,657
Trade and other receivables 21,174 69,705
Assets held for sale 51,850 57,250
Total current assets 163,416 160,612
Total assets 1,183,235 1,062,674
Equity and liabilities
Capital and reserves
Share capital 12 103,688 77,437
Share premium 314,504 188,690
Reverse acquisition reserve 12 134,295 134,295
Retained loss (74,178) (134,667)
Capital instrument - 15,339
Foreign currency translation reserve 1,282 5,765
Other reserves 12 1,451 12,940
Total equity attributable to equity shareholders 481,042 299,799
Non-controlling interest 28,580 10,649
Total equity 509,622 310,448
Non-current liabilities
Borrowings 13 545,125 504,218
Derivatives 2,176 776
Deferred tax 702 4,924
Total non-current liabilities 548,003 509,918
Current liabilities
Borrowings 13 99,682 173,294
Derivatives 3,088 4,038
Provision for liabilities and commitments - 12,079
Trade and other payables 22,840 52,897
Total current liabilities 125,610 242,308
Total liabilities 673,613 752,226
Total equity and liabilities 1,183,235 1,062,674
Consolidated Statement of Changes In Equity
For the year ended 31 August 2014
Total
Attri-
Foreign butable
Reverse currency to Non-
Share Acqui- Retain- trans- Capital equity Control-
Share Prem- sition ed Other lation Instru- share- ling Total
Capital ium reserve loss reserves reserve ment holders interest equity
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Balance at
1 September 2012 41,721 164,939 134,295 (232,991) 903 9,511 14,536 132,914 5,342 138,256
Total profit for the
period - - - 61,521 - - - 61,521 (457) 61,064
Foreign currency
translation effect - - - - - (3,746) - (3,746) (58) (3,804)
Total
comprehensive
income - - - 61,521 - (3,746) - 57,775 (515) 57,260
Transaction with
owners:
Shares issued for
cash 35,308 92,192 - - - - - 127,500 - 127,500
Shares issued to
acquire NCI shares 408 1,584 - - - - - 1,992 - 1,992
Shares issue costs - (5,025) - - - - - (5,025) - (5,025)
Reduction of share
premium - (65,000) - 65,000 - - - - - -
Dividend paid to
equity stakeholders - - - (27,530) - - - (27,530) - (27,530)
Dividends paid to
non-controlling
interest - - - - - - - - (96) (96)
Share based
payment – Capital
instrument - - - - - - 803 803 - 803
Share based
payment –
incentive fee - - - - 6,430 - - 6,430 - 6,430
Share based
payment – share
consideration - - - - 5,515 - - 5,515 - 5,515
Increase in non-
controlling interest - - - - - - - - 6,547 6,547
Acquisition of non-
controlling interests - - - (667) 92 - - (575) (873) (1,448)
Disposal of
subsidiaries/non-
controlling interests - - - - - - - - 244 244
Balance at
31 August 2013 77,437 188,690 134,295 (134,667) 12,940 5,765 15,339 299,799 10,649 310,448
Balance at
1 September 2013 77,437 188,690 134,295 (134,667) 12,940 5,765 15,339 299,799 10,649 310,448
Total profit for the
period - - - 95,200 - - - 95,200 7,613 102,813
Foreign currency
translation effect - - - - - (4,483) - (4,483) (9) (4,492)
Total
comprehensive
income - - - 95,200 - (4,483) - 90,717 7,604 98,321
Transaction with
owners:
Shares issued for
cash 15,334 69,672 - - - - - 85,006 - 85,006
Shares issued as
consideration for
acquisitions 6,808 35,317 - - - - - 42,125 - 42,125
Settlement of
incentive fee on
acquisition of RIMH 1,039 5,391 - - (6,430) - - - - -
Share based
payment - issuance
of deferred
consideration
shares 1,008 4,507 - - (5,515) - - - - -
Shares issue costs - (1,046) - - - - - (1,046) - (1,046)
Capital instrument
repaid - - - - - - (15,339) (15,339) - (15,339)
Dividend paid to
equity stakeholders - - - (21,100) - - - (21,100) - (21,100)
Scrip dividends 2,026 11,763 - (13,789) - - - - - -
Share based
payments (refer
Note 14) - - - - 456 - - 456 - 456
26,215 125,604 - (34,889) (11,489) - (15,339) 90,102 - 90,102
Changes in
ownership interest
in subsidiaries
Increase in non-
controlling interest - - - - - - - - 16,693 16,693
Acquisition of non-
controlling interest -
Earls Court - - - 340 - - - 340 (6,260) (5,920)
Increase in non-
controlling interest -
RIFME - - - - - - - - 84 84
Acquisition of non-
controlling interest -
RIFME 36 210 - (162) - - - 84 (84) -
Decrease in other
non-controlling
interest - - - - - - - - (106) (106)
36 210 - 178 - - - 424 10,327 10,751
Balance at
31 August 2014 103,688 314,504 134,295 (74,178) 1,451 1,282 - 481,042 28,580 509,622
Consolidated Cash Flow Statement
For the year ended 31 August 2014
Year ended Year ended
31 August 2014 31 August 2013
Notes £’000 £’000
Cash flows from operating activities
Profit before taxation 101,916 67,243
Adjustments for:
Straight lining of rental income 1,064 620
Share based payment – incentive fee - 6,430
Share based payment – capital instrument - 803
Share based payment - PSP 14 456 -
Net fair value (gain)/loss on investment property and assets held for sale (49,814) 20,721
Foreign exchange gain (576) (4,352)
Net gain from financial assets and liabilities 4 (751) (44,944)
Gain on legal extinguishment of debt 5 (44,924) -
Equity accounted profit (3,926) (11,106)
Write down and amortisation of intangible asset 10 22,962 -
Depreciation 56 -
Investment income (10,159) (2,511)
Interest income (8,056) (12,106)
Interest expense 42,308 37,960
Impairment of goodwill 2,069 -
Gain on sale of subsidiaries - (17,285)
Cash generated by operations 52,625 41,473
Changes in working capital (986) 6,381
Cash flow from operations 51,639 47,854
Interest income 17,041 5,953
Interest paid (49,752) (30,080)
Taxation paid (2,928) (1,923)
Investment income 10,159 2,511
Distributions from associates and joint ventures 8,9 1,677 12,554
Net cash generated from operating activities 27,836 36,869
Cash flows from investing activities
Purchase of investment properties (117,009) (34,187)
Disposal of investment properties 23,632 10,383
Purchase of property, plant and equipment (129) -
Investments in associates and joint ventures 8,9 - (43,709)
Disposal of shares in associate (net of costs) - 52,270
Net cash outflow on business combinations and acquisition of subsidiaries 17,18 (5,745) (16,792)
Net cash outflow on settlement of CMC deferred consideration (11,512) -
Disposal of subsidiaries – net cash disposed - (1,337)
Loss of control of Gamma - (6,042)
Net decrease / (increase) in loans to joint ventures 374 (38,728)
Net increase in loans to related parties (441) (1,465)
Net decrease/(increase) in loans to other parties 9,965 (5,147)
Decrease / (increase) in long term receivables 102,263 (5,458)
Disposal of investments at fair value 35,646 -
(Increase) / decrease in restricted cash balances (2,552) 8,063
Acquisition of non-controlling shareholders (6,440) -
-
Net cash generated / (utilised) in investing activities 28,052 (82,149)
Cash flows from financing activities
Proceeds from loans and borrowings 79,309 95,820
Repayment of loans and borrowings (131,076) (127,480)
Dividends paid to equity shareholders (22,558) (27,530)
Dividends paid to non-controlling interests - (96)
Repayment of capital instrument (15,339) -
Proceeds from issue of share capital 86,464 127,500
Share issue costs (1,046) (5,025)
Increase in contribution from non-controlling shareholders 1,974 6,547
Purchase of interest rate cap (2,495) -
Net cash generated from financing activities (4,767) 69,736
Net increase in cash 51,121 24,456
Effect of exchange rate fluctuations on cash held 3,062 (561)
Opening cash 29,598 5,703
Net cash at end of year 11 83,781 29,598
1. GENERAL INFORMATION
Redefine International P.L.C was incorporated on 28 June 2004 under the laws of the Isle of Man.
Following approval from the South African Reserve Bank in July 2013, the Company concluded an inward listing on the JSE.
The Company now holds a primary listing on the Main Market of the LSE and a secondary listing on the Main Board of the
JSE.
On 4 December 2013 the Company converted to a UK Real Estate Investment Trust and moved its tax residence from the
Isle of Man to the UK.
New articles of association were adopted by the Company in the period and it converted to an Isle of Man Companies Act
2006 company with effect from 3 December 2013.
The financial information presented herein does not amount to statutory financial statements. The annual financial report for
the year ended 31 August 2014 will be available on the Redefine International website at the beginning of December 2014.
The Auditors KPMG have reported on the audited financial statements and their report was unqualified. A copy of their
unqualified audit opinion is available at Top Floor, 14 Athol Street, Douglas, Isle of Man, IM1 1JA.
2. SIGNIFICANT ACCOUNTING POLICIES
2.1 STATEMENT OF COMPLIANCE
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the IASB.
The accounting policies applied by the Group in these 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 2013, except for the new standards
adopted during the year and the additional policies adopted due to the changes in the business during the year.
New standards adopted during the period
The following new standards, amendments and interpretations became effective and have been adopted during the year:
- IAS 1 (amended) – Presentation of Items of Other Comprehensive Income;
- IFRS 10 Consolidated Financial Statements;
- IFRS 11 Joint Arrangements;
- IFRS 13 Fair Value Measurement.
- IFRS 12 Disclosure of Interests in Other Entities;
- IAS 28 Investments in Associates
- IAS 19 (revised) Employee Benefits; and
- IFRS 7 (amended) – Offsetting Financial Assets and Financial Liabilities.
2.2 BASIS OF PREPARATION
The consolidated financial statements are presented in Great British Pounds, which is the functional currency of the
Company and the presentational currency of the Group, rounded to the nearest thousand pounds. They are prepared using
the historical cost basis except for investment property, derivative financial instruments and financial instruments designated
at fair value through profit or loss.
2.3 KEY JUDGEMENTS AND ESTIMATES
The preparation of financial statements in conformity with IFRS requires the use of judgements and estimates that affect the
reported amounts of assets and liabilities at the reporting date and the reported amounts of revenues and expenses during
the period reported. Although these estimates are based on the Directors’ best knowledge of the amount, event or actions,
actual results may differ from those estimates.
The principal areas where such judgements and estimates have been made are:
2.3.1 INVESTMENT PROPERTY VALUATION
The Group uses the valuations prepared by its independent valuers in accordance with IFRS 13 as the fair value of its
investment properties. The valuations are based upon assumptions including estimated rental values, future rental income,
anticipated maintenance costs, future development costs and appropriate discount rates. The valuers also make reference to
market evidence of transaction prices for similar properties. Further details are provided in Note 6.
2.3.2 FAIR VALUE OF RESTRUCTURED OR ACQUIRED LIABILITIES
New borrowings or borrowings which have been substantially modified are recognised at fair value. The determination of fair
value involves the application of judgement.
The Group determines fair value by discounting cashflows associated with the liability at a market discount rate. The key
judgement surrounds the determination of an appropriate market discount rate. Management determine the discount rate on
a loan by loan basis having regard to the term, duration and security arrangements of the new liability and an estimation of
the current rates charged in the market for similar instruments issued to companies of similar sizes.
This judgment is made more difficult given the bespoke nature of certain loans obtained by the Group. Any difference
between the nominal value of the loan and the deemed fair value will be accreted through profit or loss over the term of the
loan through the effective interest rate.
2.3.3 CLASSIFICATION OF INVESTMENT PROPERTY FOR HOTELS
The hotel properties are held for capital appreciation and to earn rental income. The hotel properties included within the
Redefine Hotel Holdings portfolio have been let to Redefine Hotel Management Limited (“RHML”) and Redefine Earls Court
Management Limited (“RECML”) for a fixed rent which is subject to annual review. The annual review takes into account the
forecast EBITDA for the hotel portfolio when setting the revised rental level. RHML and RECML operate the hotel business
and are exposed to the fluctuations in the underlying trading performance of the hotels. They are responsible for the day to
day upkeep of the properties and retain the key decision making responsibility for the business.
As part of the acquisition of RIMH in December 2013, Redefine International acquired a 33.0% shareholding in RedefineBDL
which in turn owns RHML and RECML. The shareholding was subsequently diluted to 25.3% with effect from 1 May 2014
following the issue of additional shares by RedefineBDL to Tsogo Sun Holdings Limited. Having considered the guidance in
IFRS 10, the respective rights of each of the shareholders in RedefineBDL and the size of the Company’s shareholding
compared with other shareholders, management have determined that Redefine International does not control RedefineBDL
and hence does not control RHML or RECML.
Aside from the payment of rental income to Redefine International which resets annually and the Group’s shareholding in
RedefineBDL, Redefine International is not involved with the hotel business and there are limited transactions between the
two entities. As a result, Redefine International classifies the hotel properties as investment properties in line with IAS 40.
2.3.4 CLASSIFICATION OF THE GROUP’S INVESTMENT IN CROMWELL AT FAIR VALUE THROUGH PROFIT OR LOSS
The Group ceased to account for Cromwell as an associate in April 2013 from the date its shareholding fell below 20%.
While the Company does not have a right to appoint a director it does currently have board representation. Having
considered all the facts and circumstances the Directors believe that significant influence over Cromwell does not exist and
that the designation of the Company’s residual investment at Fair Value through Profit or Loss is appropriate.
2.3.5 PROPERTY ACQUISITIONS
Where properties are acquired through the acquisition of corporate interests, the Directors have regard to the substance of
the assets and activities of the acquired entity in determining whether the acquisition represents the acquisition of a business.
Where such acquisitions are not judged to be an acquisition of a business, the transactions are accounted for as if the Group
had acquired the underlying property directly. Accordingly, no goodwill arises, rather the cost of the corporate entity is
allocated between the identifiable assets and liabilities of the entity based on their relative fair values at the acquisition date.
Otherwise corporate acquisitions are accounted for as business combinations.
3. SEGMENTAL REPORTING
The Group's identified reportable segments are set out below. These segments are generally managed by separate
management teams. As required by IFRS 8, Operating Segments, the information provided to the Board, which is the Chief
Operating Decision Maker, can be classified into the following segments:
UK Commercial The Group’s portfolio of offices, motor trade and roadside service stations.
UK Retail The Group’s portfolio of seven wholly owned shopping centres.
UK Hotels The Group’s hotel properties comprising eight hotels in Greater London and the South
East. These are branded as Holiday Inn, Holiday Inn Express, Crowne Plaza and
Travelodge. A further hotel, the Doubletree by Hilton, Edinburgh, was acquired post year
end.
RedefineBDL The Group’s 25.3% shareholding in Redefine BDL Hotel Group Limited, the UK’s largest
independent hotel management company. RedefineBDL leases and manages all of the
Group’s hotel properties except for the Enfield Travelodge.
Europe The Group’s properties in Continental Europe, located primarily in Germany but also in
Switzerland and the Netherlands. The portfolio comprises shopping centres, discount
supermarkets and Government-let offices.
Cromwell The Group’s investment in the Cromwell Property Group, a prominent commercial real
estate company listed in Australia with major lettings to listed companies and Government
tenants. As at 31 August 2014 Cromwell’s market capitalisation was AUD1.74bn (£1.00bn)
and the Group’s shareholding was 9.99%.
Relevant revenue, asset and capital expenditure information is set out below:
i) Information about reportable segments
UK
Commer UK Redefine
cial Retail Hotels BDL Europe Cromwell Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000
For the year ended 31 August
2014
Rental income 17,279 21,807 11,350 - 15,745 - 66,181
Investment Income - - - - - 10,159 10,159
Net fair value gain/(loss) on
investment property and assets held
for sale 14,844 15,831 20,608 - (1,469) - 49,814
Net gain/(loss) from financial assets
and liabilities 221 7,671 514 - (2,123) (5,532) 751
Gain on legal extinguishment of debt 44,924 - - - - - 44,924
Equity accounted profit - - - 749 3,177 - 3,926
Interest income 157 1,802 3,346 - 312 - 5,617
Interest expense - senior debt (6,491) (11,113) (3,870) - (6,056) (2,369) (29,899)
Property operating expenses (111) (2,903) (19) - (1,212) - (4,245)
Total per reportable segments 70,823 33,095 31,929 749 8,374 2,258 147,228
Investment property 131,805 346,117 193,950 - 220,674 892,546
Assets held for sale 51,850 - - - - - 51,850
Investments designated at fair value 292 - 2,061 9 97,803 100,165
Investment in joint ventures - - - 15,163 - 15,163
Investment in associates - - - 7,967 - - 7,967
Long term receivables 2,067 - - - - - 2,067
Borrowings – senior debt (135,230) (206,115) (95,624) - (160,198) (28,218) (625,385)
For the year ended 31 August
2013
Rental income 24,748 8,540 10,622 - 7,497 - 51,407
Investment income - - - - - 2,511 2,511
Net fair value (loss)/gain on
investment property and assets held
for sale (15,217) 2,715 (622) - (7,597) - (20,721)
Gain/(loss) from financial assets and
liabilities 2,141 (279) 1,416 - 514 41,152 44,944
Gain on sale of subsidiaries 82 - - - 17,203 - 17,285
Equity accounted gain/(loss) 313 (1,930) - - (615) 13,338 11,106
Interest income 1,448 5,979 3,505 - 2 25 10,959
Interest expense – senior debt (8,557) (4,104) (3,938) - (3,251) (2,370) (22,220)
Property operating expenses (1,024) (1,850) (9) - (562) - (3,445)
Total per reportable segments 3,934 9,071 10,974 - 13,191 54,656 91,826
Investment property 137,327 117,010 150,725 - 238,830 - 643,892
Assets held for sale 57,250 - - - - - 57,250
Investments designated at fair value 72 66 - - 45 138,909 139,092
Investment in joint ventures - - - - 15,150 - 15,150
Long term receivables 17,577 49,790 36,561 - - - 103,928
Borrowings – senior debt (184,568) (72,792) (85,903) - (176,772) (34,522) (554,557)
ii) Reconciliation of reportable segment profit or loss
31 August 31 August
2014 2013
£’000 £’000
Rental income
Total rental income for reported segments 66,181 51,407
Profit or loss
Net fair value gain/(loss) on investment property and assets held for sale 49,814 (20,721)
Investment income 10,159 2,511
Net gain from financial assets and liabilities 751 44,944
Gain on legal extinguishment of debt 44,924
Gain on sale of subsidiaries - 17,285
Equity accounted profit 3,926 11,106
Interest income 5,617 10,959
Interest expense – senior debt (29,899) (22,220)
Property operating expenses (4,245) (3,445)
Total profit per reportable segments 147,228 91,826
Other profit or loss - unallocated amounts
Other income 1,000 2,129
Administrative expenses (5,405) (1,601)
Investment adviser and professional fees (6,482) (7,637)
Write down and amortisation of intangible assets (22,962) -
Impairment of goodwill (2,069) -
Interest income 2,439 1,147
Interest expense (12,409) (15,740)
Foreign exchange gain 576 4,352
Share based payment – incentive fee - (6,430)
Share based payment – Capital instrument - (803)
Consolidated profit before taxation 101,916 67,243
4. NET GAINS FROM FINANCIAL ASSETS AND LIABILITIES
The following table details the net losses and gains (incurred)/earned by the Group during the year:
31 August 31 August
2014 2013
£’000 £’000
Fair value through profit or loss
Equity investments – gain on loss of significant influence - 46,690
Equity investments - unrealised (8,625) (5,657)
Equity investments – realised (refer Note 7) 3,093 -
Derivative financial instruments (1,077) 5,449
Loss on remeasurement of deferred consideration related to the CMC
acquisition (Note 12) (613) -
Financial assets carried at amortised cost
Gain on debt restructure (refer Note 19) 6,182 -
Reversal of impairments 1,791 -
Impairment of loans and receivables - (1,538)
Net gain from financial assets and liabilities 751 44,944
In the prior year the Group recognised a gain on loss of significant influence in Cromwell of £46.69m comprising a £9.97m
net gain on sale of securities, a £26.09m gain calculated as the difference between the carrying value and fair value of the
remaining Cromwell securities held on the date significant influence was lost and £10.63m related to the recycle to the
income statement of the foreign currency translation reserve.
5. GAIN ON LEGAL EXTINGUISHMENT OF DEBT
31 August 31 August
2014 2013
£’000 £’000
Write-off of residual Gamma liabilities 44,924 -
A Fixed Charge Receiver (the “Receiver”) was appointed to the property subsidiaries which secured the Gamma facility, in
January 2013. At that point the Board had considered the impact of the appointment in light of the fact that Wichford Gamma
Limited, which the Group continued to control, was the primary obligor for the debt. The Directors determined that the
Receiver had been acting on behalf of the lender and that the appointment of the Receiver was in substance the transfer of
those assets to the lender and a part settlement of the debt.
As a result the Gamma loan facility recorded in the books of Wichford Gamma Limited and consolidated by the Group of
£199.68m was reduced by the fair value of the net assets of £157.82m of the relevant property subsidiaries at the date the
Receiver was appointed. Interest continued to accrue on the residual loan balance.
On 28 August 2014, following the sale by the Receiver of all of the properties securing the Gamma facility and the Final
Determination Notice being issued to the Gamma bondholders, the Group received legal extinguishment of the residual
Gamma debt from the Security Trustee. All residual outstanding amounts under the facility were written off by the lender.
This legal write off resulted in a credit of £44.9 million to the income statement being the write off of the residual Gamma
debt of £41.86 million and the associated accrued interest on the residual debt.
6. INVESTMENT PROPERTY
The cost of the consolidated investment properties at 31 August 2014 was £1.3 billion (31 August 2013: £1.02 billion). The
carrying amount of investment property is the fair value of the property as determined by a registered independent appraiser
having an appropriate recognised professional qualification and recent experience in the location and category of the
property being valued (together referred to as “valuers”).
The fair value of each of the properties for the year ended 31 August 2014 was assessed by the valuers in accordance with
the RICS standards and IFRS 13.
The valuations performed by the independent valuers are reviewed internally by senior management. This includes
discussions of the assumptions used by the external valuers, as well as a review of the resulting valuations.
Discussions of the valuation process and results are held between senior management and the external valuers on a half-
yearly basis. The audit and risk committee reviews the valuation results.
Technique
The valuation techniques described below are consistent with IFRS 13 and use significant “unobservable” inputs. There
have been no changes in valuation techniques since the prior year.
Yield capitalisation - for commercial investment properties, market rental values are capitalised at a market capitalisation
rate. The resulting valuations are cross-checked against the net initial yields and the fair market values per square foot
derived from recent market transactions.
Sensitivity
An increase or decrease in ERV will increase or decrease the fair value of the Group’s investment properties.
An increase or decrease to the net initial yields and reversionary yields will decrease or increase the fair value of the Group’s
investment properties.
An increase or decrease in the estimated costs of the development will decrease or increase the fair value of the Group’s
investment properties under development.
There are interrelationships between the unobservable inputs as they are determined by market conditions; an increase in
more than one input could magnify or mitigate the impact on the valuation.
The Group considers that all of its investment properties and assets held for sale fall within ‘Level 3’, as defined by IFRS 13.
Accordingly, there has been no transfer of properties within the fair value hierarchy in the financial year.
The table below summarises the key unobservable inputs used in the valuation of the Group’s wholly owned investment
properties and assets held for sale (excluding finance leases) at 31 August 2014:
Weighted Net initial Average
Market average yield market
value Lettable Average lease (Weighted Net initial rent per
(£'million) area (m2) rent per m2 length Average) yield (Range) m2
UK Commercial 179.8 151,454 113.6 6.5 8.8% 5.7% - 12.3% 87.3
UK Retail 338.2 175,701 155.7 9.7 6.6% 5.5% - 7.1% 165.0
UK Hotels 194.0 30,887 388.9 12.4 5.9% 4.9% - 7.4% 410.6
Europe 215.7 103,178 145.6 5.6 6.6% 4.1% - 14.8% 126.8
927.7
In accordance with IAS 40 Investment property: Paragraph 14, judgement is needed to determine whether a property
qualifies as an investment property. The Group has developed criteria so that it can exercise its judgement consistently in
recognising investment properties. These include inter alia; property held for long-term capital appreciation, property owned
(or under finance leases) and leased out under one or more operating leases; and property that is being constructed or
developed for future use as an investment property. The recognition and classification of property as investment property
principally assures that the Group does not retain significant exposure to the variation in cash flows arising from the
underlying operations of properties. Investment property comprises a number of commercial and retail properties that are
leased to third parties. The hotel properties are held for capital appreciation and to earn rental income. The properties have
been let to RHML and RECML for a fixed rent which is subject to annual review. The annual rent review takes into account
the forecast EBITDA for the hotel portfolio when setting the revised rental level.
As detailed in the key judgements and estimates in Note 2.3.3, aside from the payment of rental income to Redefine
International which resets annually and the Group’s shareholding in RedefineBDL, Redefine International is not involved in
the hotel management business and there are limited transactions between it and RHML and RECML. As a result, Redefine
International classifies the hotel properties as investment properties in line with IAS 40.
Property operating expenses in the consolidated income statement relate solely to income generating properties.
31 August 31 August
2014 2013
£’000 £’000
Opening balance 643,892 631,278
Properties acquired during the period 113,125 27,000
Capitalised expenditure 3,834 7,187
Disposals during the period (24,057) (7,985)
Disposals through the sale of property (24,057) (7,250)
Disposals through sale of subsidiaries - (735)
Impact of the loss of control of subsidiary property companies securing the
Gamma facility - (158,040)
Impact of acquisition of subsidiaries (Note 18) 123,043 158,330
Foreign exchange movement in foreign operations (16,280) 5,854
Net fair value gain/(loss) on investment property 48,989 (13,406)
Reclassification to assets held-for sale - (6,326)
Closing balance 892,546 643,892
Acquisitions
Weston Favell Shopping Centre, Northampton 88,514 -
Extension to the Southwark Holiday Inn Express, London 12,042 -
Enfield Travelodge, London 11,032 -
31 August 31 August
2014 2013
£’000 £’000
Petrol stations* 1,537 -
Earls Court Holiday Inn Express, London - 27,000
113,125 27,000
*During the year, an asset swap was executed within the Malthurst portfolio. 8 petrol stations were provided as
consideration for 3 petrol stations. The above acquisition figure represents the difference in valuation between the two
portfolios plus acquisition costs and is the net cash paid by the Group as part of the transaction.
31 August 31 August
2014 2013
Disposals £’000 £’000
Lyon and Equitable House, Harrow* (13,770) -
St Anne House, Croydon (8,400) -
Aschaffenburg, Germany (949) -
Heilbronn, Germany (938) -
Trito Petersfield Limited - (735)
Inkstone Portfolio, Germany - (3,447)
Princes Street Investments (Petrol Stations) - (3,490)
Finance leases - (313)
(24,057) (7,985)
*£6.7m of the proceeds from this disposal were deferred and are payable within one year under the terms of the transaction.
A reconciliation of investment property valuations to the consolidated statement of financial position is shown below:
31 August 31 August
2014 2013
£’000 £’000
Investment property at market value as determined by external valuers 927,713 692,256
Freehold 677,727 525,377
Freehold and long leasehold - 12,530
Leasehold 249,986 154,349
Adjustments for items presented separately on the Balance sheet:
- Add minimum payment under head leases separately included under
Borrowings 16,683 8,886
- Investment properties classified as assets held for sale (51,850) (57,250)
Balance sheet carrying value of investment property 892,546 643,892
7. INVESTMENTS AT FAIR VALUE
The following table details Investments at fair value.
31 August 31 August
2014 2013
£’000 £’000
Derivative financial instruments 2,362 111
Investment in Cromwell 97,803 138,909
Other investments - designated at fair value - 72
Closing balance 100,165 139,092
The movement in investments designated at fair value may be reconciled as follows:
31 August 31 August
2014 2013
£’000 £’000
Opening balance 139,092 399
Recognition of Cromwell shares at fair value at the date significant
influence was lost - 144,417
Disposal of equity investments (35,646) -
Realised gains on sale of Cromwell shares 3,093 -
Premium paid on derivative Cap acquired 2,495 (66)
Movement in unrealised gains and losses on derivatives (244)
Movement in unrealised gains and losses on other investments - (149)
Movement in unrealised gains and losses on Cromwell (8,625) (5,508)
Closing balance 100,165 139,092
The Group ceased to account for Cromwell as an associate from April 2013 as it was deemed to have lost significant
influence over that entity following a disposal of shares.
The Group disposed of 8,460,067 securities in Cromwell on 3 December 2013 at a price of AUD 0.96 for a total
consideration of AUD 8.1m (£4.5m) and a further 54,242,549 securities on 29 August 2014 at a price of AUD 1.0175 for a
total consideration of AUD 55.19m (£31.1m).
The Group’s shareholding in Cromwell at 31 August 2014 was 9.99% (31 August 2013: 13.70%). The closing price of
Cromwell on 31 August 2014 was 100.0 Australian cents per security (31 August 2013: 102.5 cents).
8. INVESTMENT IN JOINT VENTURES
31 August 31 August
2014 2013
£’000 £’000
Opening balance 15,150 2,159
Increase in investment - 17,588
Equity accounted profit / (loss) 3,177 (2,232)
Loss due to foreign currency movements (1,530) (48)
Distribution received from joint ventures (1,634) (2,317)
Closing balance 15,163 15,150
The Group’s investments in joint ventures currently consist of the following:
(i) 50% in Pearl House Swansea Limited, a joint venture with Sandgate Properties Limited, which owns a long leasehold
retail interest in Swansea, Wales.
(ii) 50% in Swansea Estates Limited, a joint venture with Sandgate Properties Limited, which owns a long leasehold retail
interest in Swansea, Wales.
(iii) 50% in Ciref NEPI Holdings Limited, a joint venture with New Europe Property Investments, which ultimately owns
property in Germany, Western Europe.
(iv) 50% in 26 The Esplanade No 1 Limited, a joint venture with Rimstone Limited, which ultimately owns an office building
in St. Helier, Jersey.
(v) 50% in Ciref Crawley Limited, a joint venture with Graymont Limited, which owns 3 blocks of offices in Crawley, Surrey.
(vi) 50.5% interest in RI Menora German Holdings S.a.r.l, a joint venture with Menora Mivtachim, which ultimately owns
properties in Waldkraiburg, Hucklehoven and Kaiserslautern in Germany. Notwithstanding the economic shareholding
the contractual terms provide for joint control.
(vii) 49% interest in VBG Holdings S.a.r.l., a joint venture with Menora Mivtachim, which ultimately owns government let
properties in Dresden, Berlin, Stuttgart and Cologne, Germany.
The investment in joint ventures includes investments held at nil value in the balance carried forward on 1 September 2013.
Ciref Coventry Limited and Redefine Wigan Limited became subsidiaries with effect from December 2013, following the
purchase of 50% of the shares in the entities for £1. These joint ventures had been held at nil value prior to this acquisition.
9. INVESTMENT IN ASSOCIATES
31 August 31 August
2014 2013
£’000 £’000
Opening balance - 124,507
Acquisition of/increase in investment in associates 7,261 26,121
Impact of foreign currency translation - 6,894
Equity accounted profits 436 7,861
Gain on dilution of interest 313 -
Dilution of previous interest (1,735) -
Interest in cash subscribed 2,048 -
Distribution received from associates (43) (10,237)
Change in accounting treatment on loss of significant influence - (118,325)
Disposal of shares - (42,298)
Reversal of impairment previously recorded - 5,477
Closing balance 7,967 -
As detailed in Note 17, the acquisition of the investment in associate for the period year ended 31 August 2014 reflects the
33% shareholding acquired in RedefineBDL, acquired as part of the management internalisation on 2 December 2013. The
shareholding was subsequently diluted to 25.3% with effect from 1 May 2014 following the issue of additional shares by
RedefineBDL.
Significant influence over the operations of Cromwell was deemed to have ceased in April 2013 following the sale of 86
million Cromwell securities and from that date the Group ceased to equity account for its investment. The investment was
designated at fair value through profit or loss from that date and the group recognised a gain on loss of significant influence
of £46.69m.
10. INTANGIBLE ASSETS
31 August 31 August
2014 2013
£’000 £’000
Opening balance - -
Impact of acquisition of subsidiaries 24,639 -
Write down of intangible assets (22,789) -
Amortisation (173) -
Closing Balance 1,677 -
As detailed in Note 17, intangible assets were recognised on the acquisition of RIMH and represented the fair value of the
advisory agreements acquired by the Group. The value attributed to the Group’s agreement with RIPML of £22.79m has
been treated as a payment to avoid making future payments under the contract and has been fully written down in the year.
The value attributed to the contracts between RIMH and third parties including joint ventures of the Group and the non-
controlling element of properties held by the Group of £1.85m is being amortised on a straight line basis over the remaining
terms of the contracts, which have an average life of eight years.
11. CASH AT BANK
31 August 31 August
2014 2013
£’000 £’000
Cash at bank consists of the following:
Unrestricted cash balances 83,781 29,598
Bank balances 63,732 29,580
Call deposits 20,049 18
Restricted cash balances 6,611 4,059
90,392 33,657
As at 31 August 2014, there was £6.6m (31 August 2013: £4.1m) of cash at bank to which the Group did not have instant
access. The principal reason for this is that rents received are primarily held in locked bank accounts as interest and other
related expenses are paid from these monies. At 31 August 2014 trade and other payables include accrued interest on bank
debt facilities of £1.1m against which these cash balances will be applied.
Also included in the restricted cash balance at 31 August 2014 is £5.5m held with Aviva with regards to the development in
Birchwood Warrington Limited, and the proposed developments in Grand Arcade Wigan Limited and Weston Favell Limited
(31 August 2013: £0.7m).
Cash also includes £31m due from brokers in respect of the sale of Cromwell securities on 29 August 2014.
12. CAPITAL AND RESERVES
31 August 31 August
2014 2013
Authorised
Ordinary shares of 8 pence each
- number 1,800,000,000 1,800,000,000
- £’000 144,000 144,000
Issued, called and fully paid
Opening: Ordinary Shares of 8.0 pence each
- number 967,963,757 579,454,792
- £’000 77,437 41,721
Shares issued during the period of 8.0 pence each (31 August 2013: 8
pence each)
- number 328,133,592 495,492,906
- share placements/open offer 191,667,973 490,384,616
- Shares issued to acquire RIMH 66,010,101 -
- Shares issued to settle the incentive fee 12,989,899 -
- Shares issued to acquire non-controlling interests 444,754 5,108,290
- Shares issued to settle the CMC acquisition 31,696,924 -
- scrip dividend 25,323,941 -
- £’000 26,251 35,716
Consolidation from 7.2 pence to 8.0 pence each (9 shares allotted for every
10 previously owned)
- number - (106,983,941)
Closing: Ordinary Shares of 8.0 pence each
- number 1,296,097,349 967,963,757
- £’000 103,688 77,437
SHARE CAPITAL AND SHARE PREMIUM
Issue of shares associated with the CMC acquisition
The consideration for the CMC acquisition which completed in August 2013 was settled in part in cash and in part in shares.
The share consideration was deferred as well as the cash element of the Berlin acquisition, and settled in the current year.
Included in the Share Consideration Reserve at 31 August 2013 was an amount of £5.5m related to the shares to be issued
for the acquisition of Hamburg and Ingolstadt which the Company acquired as part of the CMC acquisition. On 3 September
2013 the Company issued 12,606,061 new Ordinary Shares of 8 pence each to settle this obligation.
As the exact number of shares to be issued for the acquisition of the Berlin asset was not known at 31 August 2013, the fair
value of the deferred consideration was reflected as a liability at 31 August 2013. The consideration was subsequently
settled on 6 December 2013 through payment of €12.1m (£11.51m) in cash and the issue of 19,090,863 new Ordinary
Shares of 8 pence each (the “Berlin Consideration Shares”) at an effective issue price of 40.0 pence per share. The fair
value of the shares issued was £7.64m. The Berlin Consideration Shares did not rank for the final dividend for the year
ended 31 August 2013. The difference between the fair value of the liability at 31 August 2013 and the fair value at the date
of issuing the shares of negative £0.61m has been reflected in Net gains from financial assets and liabilities in the Income
Statement (Refer Note 4).
Issue of shares to acquire Redefine International Management Holdings Limited (“RIMH”) and to settle the incentive fee
On 2 December 2013 the Company completed the acquisition of the entire issued share capital of RIMH for an issue of new
ordinary shares in the Company. In total, 79,000,000 new ordinary shares were issued to acquire RIMH and to settle the
incentive fee payable by the Company to RIPML. The fair value of these shares on the date of issue was £39.11m. These
shares were issued and admitted to trading on the LSE on 6 December 2013.
Scrip dividend issue
On 30 April 2014 the Company declared an interim dividend of 1.50 pence per share in respect of six months ended 28
February 2014 and offered shareholders an election to receive either a scrip dividend by way of an issue of new Redefine
International shares credited as fully paid up or a cash dividend.
The Company received election forms for 919,239,020 ordinary shares of 8 pence each in the Company representing a 72%
take up by shareholders, for which 25,323,941 scrip dividend shares were issued.
Other share issues
The Company raised £16.8m through the issue of 40,000,000 new Ordinary Shares at 42 pence per share on 3 September
2013.
In September 2013 the Company repaid its £13m 6% convertible loan instrument issued to Aviva in September 2010. This
repayment was financed by the issue of 36,587,873 new Ordinary Shares of 8 pence each to Redefine Properties Limited at
an issue price of 41.925 pence per share.
115,080,100 new ordinary shares were issued and admitted to trading on the LSE on 28 February 2014 raising gross
proceeds of approximately £54.28m.
The 40,000,000 shares issued in September 2013 along with the 12,606,061 shares issued to settle the acquisition of
Hamburg and Ingolstadt and the 36,584,873 shares issued to fund the repayment of Aviva were issued cum dividend.
The Company acquired the remaining 10% of the issued share capital in Redefine International Fund Managers Europe
Limited ("RIFME"), which was settled by the issue of 444,754 new Ordinary Shares.
OTHER RESERVES
Other reserves comprise the Share consideration reserve, the share-based payment reserve and other reserves.
Share consideration reserve
The share consideration reserve was £5.5m at 31 August 2013, which related to the shares to be issued to settle the
consideration associated with the Hamburg and Ingolstadt asset acquisitions. These shares were issued in September 2013
reducing the share consideration reserve to Nil.
Share-based payment reserve
The share – based payment reserve at 31 August 2013 of £11.95m related to potential shares to be issued to settle the
incentive fee payable by the Company to RIPML. As detailed above shares were issued in December 2013 to settle this
obligation.
The share – based payment reserve at 31 August 2014 of £0.46m relates to shares to be issued arising from equity settled
share based payments to employees if certain conditions are met. Refer Note 14.
Other reserves
These are reserves arising from the acquisition of subsidiaries.
REVERSE ACQUISITION RESERVE
The reverse acquisition reserve of £134.3m arose on the reverse acquisition of Wichford PLC (subsequently renamed
Redefine International P.L.C.) by RIHL and comprises the difference between the capital structure of the Company and
RIHL.
DISTRIBUTIONS
In terms of the dividend policy, the Company will seek to distribute the majority of its recurring earnings available for
distribution in the form of dividends. However, there is no assurance that the Company will pay a dividend or, if a dividend is
paid, the amount of such dividend.
During the period ended 31 August 2014, the second interim dividend of 1.635 pence per share for the year ended 31
August 2013, was distributed, as well as the interim dividend of 1.5 pence per share for the period ended 28 February 2014.
The 2014 interim dividend was settled in part in cash and in part through the scrip dividend issue.
13. BORROWINGS
31 August 31 August
2014 2013
£’000 £’000
Non-current
Loan facilities 528,183 497,230
Less: deferred finance costs (1,940) (1,369)
Aviva profit share 3,203 -
Finance leases 15,679 8,357
Total non-current borrowings 545,125 504,218
Current
Loan facilities 97,821 174,097
Less: deferred finance costs (1,545) (1,333)
Aviva profit share 2,402 -
Finance leases 1,004 530
Total current borrowings 99,682 173,294
Total borrowings 644,807 677,512
As part of the terms of the Aviva debt restructure Aviva have retained the right to participate in 50% of the income and capital
growth generated by Grand Arcade Wigan (after all costs, expenses and interest). This profit share is deemed to be a
financial liability since it varies in relation to a non-financial variable specific to the contract. It has been recognised initially at
fair value and thereafter will be carried at amortised cost.
This note provides information about the contractual terms of the Group’s loans and borrowings, which are measured at
amortised cost.
SECURED BORROWINGS
The terms and conditions of outstanding loans are as follows:
31 August 31 August 31 August 31 August
2014 2013 2014 2013
£’000 £’000 £’000 £’000
Amort- Nominal Nominal Carrying Carrying
Facility ising Lender Loan interest rate Currency Maturity date Value Value Value Value
Winderme
re VIII
Gamma2 No CMBS LIBOR + 0.75% GBP October 2012 - 41,862 - 41,862
Winderme
re XI
Delta3 Partly CMBS LIBOR + 0.75% GBP April 2015 73,110 79,165 73,110 79,165
Schloss-
Strassen, HSH
Berlin Yes Nordbank EURIBOR + 2.0% EUR August 2017 55,608 61,433 53,545 57,249
Bahnhof
Altona, HSH
Hamburg Yes Nordbank EURIBOR + 2.2% EUR February 2020 43,056 47,304 40,291 44,299
City Arkaden
Ingolstadt Yes Eurohypo EURIBOR + 1.15% EUR June 2016 10,178 11,358 9,267 10,457
Weston Favell
Limited4 Yes Aviva 5.71% 1
GBP November 2038 50,000 - 47,091 -
Grand Arcade
Wigan
Limited4 No Aviva 5.68%1 GBP April 2032 73,000 - 60,461 -
Birchwood
Warrington
Limited4 Partly Aviva 6.10%1 GBP September 2035 28,972 29,150 25,649 17,112
Byron Place
Seaham
Limited4 Partly Aviva 6.44%1 GBP September 2031 16,663 16,750 15,367 15,142
Redefine
Hotel
Holdings
Limited5 Yes Aareal LIBOR + 2.275% GBP November 2021 95,624 85,903 95,624 85,903
Lloyds
Zeta6 Yes TSB LIBOR + 3.25% GBP May 2018 34,695 37,695 34,695 37,695
St Georges Landesba
Harrow Yes nk Berlin LIBOR + 2.5% GBP April 2016 - 40,538 - 40,538
Limited7
St Georges
Harrow Berlin Hyp
Limited7 Yes AG LIBOR + 1.85% GBP May 2019 39,388 - 39,388 -
Redefine
Australian
Investments
Limited No Investec BBSY + 4% AUD March 2016 28,218 34,522 28,218 34,522
West
Orchards
Coventry
Limited Yes Santander LIBOR + 2.75% GBP December 2018 18,159 - 18,159 -
SNS
Property
Hague Yes Finance EURIBOR + 2.3% EUR July 2016 16,451 18,206 15,796 17,148
Ciref Berlin 1
Limited and
Ciref German
Portfolio
Limited11 Partly RBS EURIBOR + 1.2% EUR September 2014 11,476 18,212 11,476 18,212
Kalihora
Holdings
Limited Yes UBS LIBOR + 1.25% CHF October 2018 10,818 11,927 10,818 11,927
Princes Street
Investments8 Yes HSBC LIBOR + 2.5% GBP January 2019 10,887 9,027 10,887 9,027
Gibson
Property
Holdings
Limited Partly Aviva 6.37%1 GBP June 2029 10,564 10,735 10,564 10,735
ITB 6,700
Herzogenrath
B.V. Yes Bayern LB EURIBOR + 1.3% EUR October 2017 7,369 6,700 7,369
ITB 5,542
Schwandorf
B.V. Yes Bayern LB EURIBOR + 1.3% EUR October 2017 6,096 5,542 6,096
Newington
House
Limited10 Yes AIB LIBOR + 2.50% GBP February 2014 5,974 6,084 5,974 6,084
CEL Portfolio
Limited & Co.
KG Yes Valovis 4.95%1 EUR November 2014 3,589 4,015 3,589 4,015
CEL Portfolio
2 Limited Yes Bayern LB EURIBOR + 1.7% EUR September 2018 3,174 - 3,174 -
Total Bank
651,846 577,351 625,385 554,557
loans
Mezzanine
Capital
Limited9 - - 7.10% - 10%1 GBP Various - 116,107 - 116,107
CEL Portfolio
Limited & Co.
KG - - 0%1 EUR 2029 619 663 619 663
Total
secured 652,465 694,121 626,004 671,327
loans - - - - -
All bank loans are secured over investment property, and bear interest at the specified interest rates.
1 Fixed rates.
2 The Gamma debt was legally extinguished during the current year. Refer Note 5.
3 The Delta facility will reduce in line with the Group’s annual disposal targets in respect of the remaining Delta portfolio
assets.
4 These facilities were subject to a fundamental debt restructure in December 2013 as detailed in Note 19 and are cross
collateralised against each other.
5 The RHHL portfolio was refinanced on 4 August 2014 with Aareal Bank, with the term extended from November 2015
to November 2021. An additional £16 million was drawn down under the facility to fund the acquisition of the Southwark
hotel extension. The interest rate was amended under the terms of the revised agreement from Libor plus a margin of
2.45% to Libor plus a margin of 2.275%. This was not deemed to be a substantial modification in the terms of the
original debt.
6 During the year ended 31 August 2014, the Zeta facility was extended by 2 years from a maturity date of May 2016 to
May 2018.
7 During the year ended 31 August 2014, the St Georges Harrow Limited facility with Landesbank Berlin was refinanced
with Berlin Hyp AG.
8 During the year ended 31 August 2014, the Group refinanced the Princes Street Investments loan with HSBC. There
was no change in the interest rate, however an additional £2.1 million was drawn down under the facility and the
maturity date was extended from September 2016 to January 2019.
9 The outstanding facilities were repaid in the financial year ended 31 August 2014.
10 The Group are in the process of refinancing this facility with agreement reached with the lender to extend the maturity
to March 2018.
11 The Group are in discussions with the bank to refinance this facility.
31 August 31 August
2014 2013
£’000 £’000
Non-current liabilities
Secured bank loans 528,183 497,230
Total non-current loans and borrowings 528,183 497,230
The maturity of non-current borrowings is as follows:
Between one year and five years 99,682 398,015
More than five years 428,501 99,215
528,103 497,230
Current liabilities
Secured loans 97,821 174,097
Total current loans and borrowings 97,821 174,097
Total loans and borrowings 626,004 671,327
Exposure to credit, interest rate and currency risks arises in the normal course of the Group's business. Derivative financial
instruments are used to reduce exposure to fluctuations in interest rates.
14. SHARE BASED PAYMENTS
The Group’s share-based payments are all equity-settled and comprise the Long-Term Performance Share Plan (“PSP”) for
Executive Directors and the Restricted Stock Plan for employees. In accordance with IFRS 2 ‘Share-based payments’ the
fair value of equity-settled share-based payments to employees is determined at grant date, and is expensed on a straight-
line basis over the vesting period, with a corresponding credit to the share-based payments reserve. The Company utilises
the Monte-Carlo simulation valuation model to determine the fair value at grant date.
31 August
2014
Number of Fair value on
Long-Term Performance Share Plan Shares grant date
‘000 £’000
Awards brought forward - -
Awards made during the current period 3,170 1,368
Awards carried forward 3,170 1,368
31 August 31 August
2014 2013
Share-based payment charge £’000 £’000
Opening balance - -
Share based payment expense in the period/year 456 -
Closing share-based payment balance 456 -
The PSP for Executive Directors authorises the Remuneration Committee to make grants of PSP shares with a face value of
up to 100% of salary to participants. Awards of PSP shares are subject to performance measures over three years. Half 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 members of the FTSE EPRA / REIT Developed Europe Index (“the Index”) and the other half of an
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. Vesting is on a sliding scale between 25% for median performance and 100% for upper quartile
performance, with 0% vesting below a median performance. For the market-based TSR awards, the effect of the
performance conditions is incorporated into the grant date fair value of the award. The fair value calculation assumes that
PSP shares will be awarded at 65% of the face value at grant for the portion of the award subject to relative TSR
performance against members of the Comparator Group and 73% of the face value at grant date for the portion of the award
subject to relative TSR performance against members of the Index. No subsequent adjustment to the charge can be made to
reflect the outcome of the performance test. Adjustments can, however, be made for participants who leave the scheme
before vesting.
The shares outstanding under the scheme are to be issued for nominal consideration provided performance conditions are
met.
3.17m shares were granted on 29 November 2013 for the performance period from 1 September 2013 to 31 August 2016.
The share price on 1 September 2013 was 42.75p.
To calculate the fair value of share-based long-term incentives, it was necessary to make a number of assumptions. For the
purpose of the valuation performed, use was made of the Company’s LSE listing in developing share price volatility, dividend
yield and index correlation assumptions. The table below sets out the assumptions made:
Elements Assumptions
Volatility 24.4%
Risk-free rate 0.89%
Correlation of the Comparator Group companies 27.6%
Correlation of the Index companies 41.9%
No shares were granted in respect of the Restricted Stock Plan during the financial year ended 31 August 2014.
A further 3.17m shares were granted post the financial year end for the performance period from 1 September 2014 to 31
August 2017.
15. EARNINGS PER SHARE AND HEADLINE EARNINGS PER SHARE
Earnings per share is calculated on the weighted average number of shares in issue and the profit/(loss) attributable to
shareholders.
31 August 31 August
2014 2013
£'000 £'000
Net profit attributable to equity holders (Basic and diluted) 95,200 61,521
Weighted average number of ordinary shares 1,192,268 924,394
Effect of potential share based payment transactions - capital instrument - 36,587
Effect of potential share-based payment transactions – incentive fee
arrangements - 14,697
Effect of potential share-based payment transactions – consideration
payable on CMC - 12,502
Diluted weighted average number of ordinary shares 1,192,268 988,180
Number of ordinary shares
- In issue 1,296,097 967,964
- Weighted average 1,192,268 924,394
- Diluted weighted average* 1,192,268 988,180
Earnings per share (pence)
- Basic 7.98 6.66
- Diluted* 7.98 6.23
Headline earnings per share (pence)
- Basic 1.94 2.64
- Diluted* 1.94 2.44
* The share incentive scheme in place is currently non-dilutive.
31 August 31 August
2014 2013
£’000 £’000
Profit attributable to equity holders of the parent 95,200 61,521
Changes in fair value of investment property (net of deferred tax) (44,061) 23,299
Net fair value (gains)/losses on investment property (49,814) 20,721
Deferred taxation (71) 234
Effect of non-controlling interest on above 5,972 (1,069)
Net fair value losses in jointly controlled entities (148) 3,413
Gain on loss of significant influence in Cromwell (net of capital gains tax) - (44,643)
Gain on loss of significant influence in Cromwell - (46,690)
Capital gains tax on Cromwell disposal - 2,047
Impairment of receivables 1,538
Impairment of goodwill 2,069 -
Impairment and amortisation of intangible assets 22,789 -
Gain on legal extinguishment of debt (44,924) -
Gain on debt restructure (6,182) -
Reversal of impairments (1,791) -
Gain on disposal of subsidiaries - (17,285)
Headline earnings attributable to equity holders of the parent 23,100 24,430
Reconciliation to earnings available for distribution (unaudited)
31 August 31 August
2014 2013
£’000 £’000
Gain on financial assets and liabilities 7,222 208
Straight-lining of rental income 1,063 620
Fair value interest amortisation 2,631 983
Net interest on mezzanine financing 1,347 1,375
Amortisation of debt issue costs 2,730 1,972
Share based payment 456 803
Deferred tax (released)/ provided in relation to Cromwell (4,151) 2,320
Capital gains tax on Cromwell disposal 1,724 -
Unrealised foreign exchange gain (730) (4,357)
Non-distributable interest/(net income) from Gamma facility entities 2,998 (1,314)
Non-distributable income from Delta facility entities (1,749) (1,846)
Non-distributable income from VBG - (22)
Earnings on new investments - 1,156
Non-distributable equity accounted profits 558 (1,049)
Capital costs included in professional fees 2,781 293
Cum dividend component of Cromwell disposal 399 -
Investment advisors fees - performance fee - 6,430
Amortisation of intangible assets 173 -
Depreciation 56 -
RIMH acquired earnings 540 -
Impact of non-distributable items on non-controlling interest (2,043) (1,889)
Earnings available for distribution – unaudited 39,105 30,113
First interim dividend (19,062) (14,202)
Earnings available for distribution at period end - unaudited 20,043 15,911
Number of ordinary shares in issue at year end 1,296,097 967,964
Weighted average ordinary shares 1,192,268 924,394
Weighted average distributable earnings per share 3.28 3.26
Dividend per share (pence) 3.20 3.11
First interim dividend per share (pence) 1.50 1.48
Second interim dividend per share (pence) 1.70 1.64
16. NET ASSETS PER SHARE
31 August 31 August
2014 2013
£’000 £’000
Net assets attributable to equity shareholders (£’000) 481,042 299,799
Number of Ordinary Shares in issue at year end ('000's) 1,296,097 967,964
Effect of employee share based payment plan* - -
Effect of potential share based payment transactions - capital instrument - 36,587
Effect of potential share based payment transactions - incentive fee
arrangements - 14,697
Effect of potential share based payment transactions - consideration
payable on CMC - 12,606
Diluted number of shares ('000's) 1,296,097 1,031,854
Net asset value per share (pence):
- Basic 37.11 30.97
- Diluted 37.11* 29.05
* The share incentive scheme in place is currently non-dilutive.
17. BUSINESS COMBINATION – ACQUISITION OF RIMH
On 2 December 2013 the Company completed the acquisition of RIMH. The consideration was satisfied by the issue of
79,000,000 new ordinary shares in the Company.
a) Consideration transferred
The following table summarises the acquisition date fair value of the consideration transferred:
Fair value of consideration transferred Note £’000
Equity instruments (i) 32,675
b) Identifiable assets and liabilities assumed
Fair Value of identifiable assets and liabilities £’000
Intangible asset – investment adviser agreement (iii) 22,789
Intangible asset - third party management contracts (iii) 1,850
Investment in associates (ii) 7,261
Cash (ii) 219
Property, plant & equipment (ii) 161
Trade and other receivables (ii) 6,734
Loans and borrowings (ii) (5,400)
Trade and other payables (ii) (2,924)
30,690
c) Goodwill
£’000
Consideration 32,675
NCI, based on their proportionate interest in the recognised amounts of the assets and
liabilities of RIMH 84
FV of identifiable assets and liabilities (30,690)
Goodwill (iv) 2,069
Notes
(i) Equity instruments issued
The Company issued 79m shares on 2 December 2013. 12,989,899 were issued to settle the incentive fee payable under the
Investment Adviser Agreement with 66,010,101 issued as consideration to acquire RIMH. The fair value of the ordinary shares issued
was based on the listed share price of the Company at 2 December 2013 of 49.50 pence per share.
(ii) Fair value of identifiable assets and liabilities
The fair value of the investment in associates, which relates to a 33% interest in RedefineBDL (subsequently diluted to 25.3%) has
been calculated using a P/E approach having regard for recent market transactions. The investment in associates has been recognised
at its fair value of £7.26m and will be subsequently increased or decreased for the Group’s share of the profit or loss of the associates
and adjusted for any dividends received (refer to Note 9). The fair value falls into level 2 of the fair value hierarchy as it was determined
by reference to a recent market transaction.
Given the short term nature of the trade and other payables and receivables the fair value has been deemed to be the carrying value as
reflected in the RIMH accounts.
The fair value of loans and borrowings has been calculated based on discounting the cashflows under the agreement at a market
interest rate for similar debt instruments. The fair value falls into level 3 of the fair value hierarchy.
(iii) Intangible assets
The intangible asset created represented the fair value of the Advisory Agreements acquired by the Group. The fair value of the
intangible assets has been determined using a discounted cashflow model with the expected cashflows on the contracts discounted
using a weighted average market discount rate determined by reference to the terms of the contracts.
The intangible asset includes an amount of £1.85m related to the management contracts held by RIMH with third parties including joint
ventures of the Group and the non – controlling interest element of properties held by the Group. The value attributed to these third
party asset management fees of £1.85m will be amortised over the remaining period of the contracts/expected asset management
term, which is an average of 8 years (refer Note 10).
The intangible asset acquired also includes an amount of £22.789m associated with the Investment Adviser agreement between RIPML
and the Group. This has been treated as a payment to avoid making future payments under the contract and has been fully written
down in the year (refer Note 10).
(iv) Goodwill
Goodwill of £2.07m arose as a result of the acquisition of RIMH. This was a function of the movement in the share price between the
date agreement was reached and the date shares were issued. Subsequent to its recognition, it was reviewed for indications of
impairment at which point a decision was taken, given an assessment as to its recoverable amount to, impair the goodwill to zero.
In the period following the acquisition, RIMH had revenue of £3.5m and a profit of £0.19m. For the period from 1 September 2013 to the
date of internalisation, RIMH had revenue of £11.9m and a profit of £1.67m. The difference in revenue and profit is however not
comparable, due to the restructure of the management fee charges within the Group following the UK-REIT conversion and related
transfer pricing policies adopted.
18. ACQUISITION OF SUBSIDIARIES
The companies holding Grand Arcade, Wigan and West Orchards, Coventry were acquired on 3 December 2013 in
contemplation of the Aviva restructuring which is detailed further in Note 19.
The assets and liabilities arising from the acquisitions and the net cash position have been summarised in the table below:
Total Total
31 August 31 August
Coventry Wigan 2014 2013
£’000 £’000 £’000 £’000
Assets and liabilities acquired
Investment property 40,857 82,186 123,043 158,330
Trade and other receivables 526 183 709 1,147
Cash and cash equivalents 762 420 1,182 3,058
Trade and other payables (including derivatives) (38,688) (5,381) (44,069) (4,870)
Loans and borrowings (3,457) (70,262) (73,719) (113,765)
- 7,146 7,146 43,900
Settled as:
Cash consideration - (7,146) (7,146) 19,850
Fair value of shares to be issued as consideration - - - 5,515
Fair value of deferred consideration (Note 31) - - - 18,535
Fair value of existing shareholders - - - -
Total consideration - (7,146) (7,146) 43,900
Net cash acquired 762 420 1,182 3,058
2014
The fair value of the Coventry and Wigan investment property was determined by the Directors having regard to the 31
August 2013 independent valuation and movements in the market up to 3 December 2013.
The fair value of Wigan related loans and borrowings was determined based on the fair value of the terms of the restructured
Aviva debt and incorporates the fair value of the profit share granted to Aviva (refer Note 19 for further details).
The fair value of the existing shareholding was deemed to be nil at the date of acquisition.
2013
In August 2013, the Group acquired three subsidiaries which own three shopping centres in Germany, Schloss-Strassen
Shopping Centre, Berlin, Bahnhof Altona Shopping Centre, Hamburg, and City Arkaden Shopping Mall, Ingolstadt.
The consideration for the acquisitions comprised a fixed cash payment as well as an option by the seller to receive the
remaining consideration either entirely in cash or partly in cash and partly in new ordinary shares in the Company. This
resulted in the acquisition price being partly reflected partly as liabilities and partly as equity dependent on the known
circumstances at 31 August 2013.
19. AVIVA RESTRUCTURE
On 11 December 2013, the Company completed a fundamental restructuring of the loans advanced by Aviva with respect to
the Company’s UK shopping centre portfolio.
As part of the restructure:
1) The Company purchased Weston Favell Shopping Centre, Northampton for £84.0m. This acquisition was part funded
by a new £50m loan facility from Aviva which has a maturity date of November 2038.
2) Debt with a nominal value of £146.26m against the Grand Arcade property was reduced by approximately 50% to £73m
in consideration for a cash payment of £7m. This debt had been fair valued at £65.816m on the acquisition of Wigan
(refer Note 13).
3) Aviva retained the right to participate in 50% of the income and capital growth generated by Grand Arcade (after all
costs, expenses and interest) going forward. The Company has the right to “buy-back” the profit share for a maximum
cash payment of £18.5m in five instalments upon the valuation of Grand Arcade increasing by certain agreed
benchmarks.
4) Debt with a nominal value of £56m against the West Orchards Shopping Centre in Coventry (“West Orchards”) was
repaid in cash at the market value of the property (£37m). Aviva are entitled to a 25% of profit (above a base cost of
£37m plus any further capital spend and a notional return of 10% from new capital) should the property be sold within
the next 3 years.
5) The cross collateralisation provisions were also amended with West Orchards removed from the Aviva security pool
and replaced by Weston Favell. Amendments were also made related to the Grand Arcade Wigan property such that
the Aviva facilities which finance Birchwood (Warrington), Byron Place (Seaham), and Weston Favell are cross
collateralised with Aviva having recourse to those properties for only 50% of the Grand Arcade Wigan related facility.
6)
Fair value at Carrying value
Nominal date of at the date of Gain/loss on
value restructure restructure restructure
West Orchards Coventry - - - -
Grand Arcade Wigan 73,000 60,211 60,211 -
Grand Arcade Wigan – Profit share - 5,605 5,605 -
Weston Favell 50,000 47,053 N/a (47,053)
Byron Place Seaham 16,707 15,402 15,136 (266)
Birchwood Warrington 29,024 26,683 18,105 (8,578)
Loss on restructure (55,897)
Cash received from Aviva 50,000
Release of existing provision held 12,079
Net gain on restructuring 6,182
GLOSSARY
Aviva Aviva Commercial Finance Limited
Board The board of directors of Redefine International
AUD Australian Dollar made up of 100 cents.
Cromwell Cromwell Property Group is an Australian Securities Exchange listed stapled security
(ASX:CMW) comprising the Cromwell Corporation Limited and Cromwell Property
Securities Limited, which acts as the responsible entity of the Cromwell Diversified
Property Trust. www.cromwell.com.au.
EPRA European Public Real Estate Association.
ERV The estimated market rental value of lettable space which could reasonably be
expected to be obtained on a new letting or rent review.
Finance lease A lease that transfers substantially all the risks and rewards of ownership from the
lessor to the lessee.
FCTR Foreign Currency Translation Reserve.
GDP Gross domestic product
Grand Arcade Grand Arcade Shopping Centre in Wigan, UK
IFRS International Financial Reporting Standards.
Interest rate swap A financial instrument where two parties agree to exchange an interest rate obligation
for a predetermined amount of time. These are used by the Group to convert floating-
rate debt or investments to fixed rates.
JSE JSE Limited, licensed as an exchange and a public company incorporated in terms of
the laws of South Africa and the operator of the Johannesburg Stock Exchange.
LIBOR The London Interbank Offered Rate, the interest rate charged by one bank to another
for lending money.
LTV Loan to value. A ratio of debt divided by the market value of investment property
LSE The London Stock Exchange plc.
NAV Net Asset Value.
PSP Long-term Performance Share Plan awarded to the Executive Directors.
RedefineBDL Redefine BDL Hotel Group Limited, the holding company for the hotel management
group.
Redefine International, the Redefine International P.L.C., the enlarged company following the reverse acquisition
Company or the Group between Wichford and Redefine International plc.
RECML Redefine Earls Court Management Limited
RHH Redefine Hotel Holdings Limited
RHML Redefine Hotel Management Limited (previously named Redefine International Fund
Managers Limited)
RIHL Redefine International Holdings Limited. The previously AIM listed property
investment company party to the reverse acquisition (previously named Redefine
International plc).
RIMH Redefine International Management Holdings Limited (previously Redefine
International Fund Managers Limited). The parent entity of RIPML.
RIPML Redefine International Property Management Limited. The Investment Adviser to the
Company.
Redefine Properties Limited Listed on the JSE, 30.05% shareholder of the Company.
(Redefine Properties)
UK-REIT A UK Real Estate Investment Trust. A REIT must be a publicly quoted company with
at least three-quarters of its profits and assets derived from a qualifying property
rental business. Income and capital gains from the property rental business are
exempt from tax but the REIT is required to distribute at least 90% of those profits to
shareholders. Corporation tax is payable on non-qualifying activities in the normal
way.
Revpar Revenue per available room (calculated by multiplying the hotel’s average daily room
rate by its occupancy rate).
TSR Total Shareholder Return. The growth in value of the Company’s share over a
specified period, assuming that dividends are reinvested to purchase additional
shares.
WAULT Weighted average unexpired lease term.
Weston Favell Weston Favell Shopping Centre in Northampton, UK
West Orchards West Orchards Shopping Centre in Coventry, UK
29 October 2014
Date: 29/10/2014 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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