Wrap Text
Results for the year ended 31 August 2017
REDEFINE INTERNATIONAL P.L.C.
("Redefine International" or the "Company" or the "Group")
(Registration number 010534V)
LSE share code: RDI
JSE share code: RPL
ISIN: IM00B8BV8G91
RESULTS FOR THE YEAR ENDED 31 AUGUST 2017
DISCIPLINED APPROACH DELIVERS SECTOR-LEADING DIVIDEND YIELD
Redefine International, the FTSE 250 income focused 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 full year ended 31 August 2017.
Financial highlights Year ended Year ended
31 August 2017 31 August 2016
Income statement
EPRA earnings (GBPm) 50.9 44.1
Underlying earnings (re-based)(1)(GBPm) 49.8 46.3
Dividend per share(p) 2.6 3.2
Balance sheet
Portfolio valuation (incl. JV share)(GBPm) 1,538.7 1,529.0
Loan-to-value(%) 50.0 53.4
EPRA NAV per share(p) 41.4 40.0
(1) Refer to Glossary for explanation
- Underlying earnings per share of 2.75 pence in line with guidance
- Gross rental income increased 3.7% on a like-for-like basis (2016: 1.0%)
- Dividend fully covered with pay-out ratio of 94.5%
- Portfolio valuation increased 3.0% on a like-for-like basis (2016: 3.4%)
- Cost of debt reduced to 3.1% (2016: 3.4%)
- LTV reduced to 50.0% including post year end transactions (2016: 53.4%)
- EPRA NAV per share increased 3.5% to 41.4 pence (2016: 40.0 pence)
Operational progress
- EPRA occupancy remains high at 97.7% (2016: 97.7%)
- Disposals of GBP148.2 million at a 12.2% premium to book value
- Leases subject to indexation increased to 38.9% (2016: 34.7%)
- WAULT of 7.4 years to first break (8.5 years to lease expiry)
- 235 lease events completed during the year totalling GBP17.3 million (up 3.9% on passing rent; up 0.7% on ERV)
- Agreement for lease with TK Maxx at Derby for new 22,000 sqft unit
- Office vacancy reduced to 4.2% following a number of successful lettings (2016: 6.9%)
- Post year end, scheme of arrangement approved to increase the Group's interest in IHL
Greg Clarke, Chairman, commented:
"Redefine International has delivered another solid performance for its investors. Following the Capital Markets Day earlier this year,
the Company outlined clear and measurable medium-term targets and has demonstrated clear conviction in executing these
throughout the year. The continued focus on improving the portfolio's quality is well on track, following the completion of a number of
successful strategic disposals and income enhancing investments, whilst progress in strengthening the capital structure leaves the
business well positioned to offer investors security in an uncertain economic climate."
Mike Watters, Chief Executive, commented:
"At our Capital Markets Day earlier this year, we outlined our strategic priorities to put the Company on track to becoming the UK's
leading income focused REIT. I'm pleased to report tangible progress across all areas which enables us to present a higher quality
portfolio and stronger balance sheet. In line with guidance, 2017 has seen the dividend re-based to align more closely to operational
cash flow. We firmly believe this was the right thing to do and continue to deliver one of the highest yields on NAV in the industry.
With a growing global appetite for predictable income returns, we believe our income-led business model, designed to deliver market
leading shareholder distributions, remains extremely attractive and we look to the future with confidence."
Results presentation, webcast and conference call
A meeting for analysts and investors will take place on Thursday 26 October 2017 at 9.00a.m. (UK time) at FTI Consulting, 200
Aldersgate, Aldersgate Street, London, EC1A 4HD. The presentation and a live webcast will be available at 9.00a.m. (UK time),
10.00a.m. (SA time) which can be accessed via the homepage of the Company's website: www.redefineinternational.com.
Conference call dial-in numbers
United Kingdom Local: 020 3059 8125
South Africa Local: 0318 197 008 or 0800 999 282
All other locations: +44 20 3059 8125
Conference code: Redefine
For further information, please contact:
Redefine International P.L.C.
Mike Watters, Stephen Oakenfull, Janine Ackermann Tel: +44 (0) 20 7811 0100
FTI Consulting
UK Public Relations Adviser
Dido Laurimore, Claire Turvey, Ellie Sweeney Tel: +44 (0) 20 3727 1000
Instinctif Partners
SA Public Relations Adviser
Frederic Cornet, Lizelle du Toit Tel: +27 (0) 11 447 3030
JSE Sponsor
Java Capital Tel: + 27 (0) 11 722 3050
Disclaimer
This release includes statements that are forward looking in nature. Forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or achievements of Redefine International P.L.C. to be materially different
from any future results, performance or achievements expressed or implied by such forward-looking statements. Any information contained in this
release on the price at which shares or other securities in Redefine International P.L.C. have been bought or sold in the past, or on the yield on
such shares or other securities, should not be relied upon as a guide to future performance.
STRATEGIC REPORT
Chief Executive's Report
2017 has been a year of heightened global and political uncertainty and prospects of continued volatility across markets. In a world
where change is happening at an ever-increasing pace, our strategy to be the UK's leading income focused REIT is well placed. I
am therefore pleased to report another solid set of results, with underlying earnings per share at 2.75 pence, in line with recent
guidance and EPRA NAV per share up 3.5 per cent to 41.4 pence.
Results and dividend
Underlying earnings increased by 7.6 per cent to GBP49.8 million (2016: GBP46.3 million). Underlying earnings per share are in line with
guidance at 2.75 pence and form the base from which we will grow income in line with our medium-term growth target of 3.0 to 5.0 per cent
per annum.
EPRA NAV increased by 3.5 per cent to 41.4 pence per share (2016: 40.0 pence per share) supported by a 3.0 per cent like-for-like
increase in the value of the Group's portfolio.
The Board has declared a second interim dividend of 1.3 pence per share taking dividends declared for the full year to 2.6 pence per
share. The full year dividend reflects a pay-out ratio of 94.5 per cent of underlying earnings, delivering on our strategic priority of
distributing superior income returns which are fully covered by underlying earnings and aligned with operating cash flow. The total
dividend for the year of 2.6 pence per share reflects a 6.3 per cent yield on EPRA NAV, over 50 per cent higher than the UK-REIT
average of 4.1 per cent.
Strategic priorities
In February 2017 we held an inaugural Capital Markets Day and set out the Company's strategic priorities which have the goal of
delivering superior, sustainable and growing income returns. Following a period of significant growth and transactional activity these
priorities underline our ongoing ambition to become the UK's leading income focused REIT.
Our initial earnings target of 2.7 to 2.8 pence per share has been achieved and in only six months we have made material progress
in improving the quality of the portfolio so as to deliver long-term sustainable income returns and enhanced growth prospects.
Scalable business
There are a number of long-term benefits associated with greater scale, including greater access to capital markets and liquidity, a
lower cost of capital, overhead efficiencies and operational flexibility. However, these benefits will remain secondary to securing the
right income focused investment opportunities for our shareholders.
The acquisition of a further 32.8 per cent stake in International Hotel Properties Limited ("IHL") by way of a scheme of arrangement,
as announced in August 2017, will result in the issuance of approximately 45.9 million new Redefine International shares. In addition,
the Company will reach agreement later today to acquire a further 5.0 million shares (representing an 8.9 per cent stake) in IHL from
Redefine Properties on the same terms as the scheme of arrangement. 12.5 million new Redefine International shares will be issued
in consideration (representing 0.7 per cent of the current issued share capital). The completion of these two transactions will result
in the Group's overall interest in IHL increasing to 58.9 per cent. IHL will be delisted and the portfolio will be managed as part of the
Group's existing hotel portfolio. Last valued at GBP104.4 million, the assets include the Hampton By Hilton at Gatwick Airport, the Holiday
Inn Express, Edinburgh and four Travelodge hotels providing long-dated uncapped CPI-linked income. The acquisition is expected
to provide a yield on equity of over 10 per cent which will be earnings enhancing and provide exposure to assets demonstrating
strong trading performance. This acquisition clearly demonstrates our ambition to increase scale through investing in the right
earnings enhancing opportunities.
Income focused portfolio
Our strategic priority to improve our portfolio's exposure to more resilient property fundamentals supports our target to deliver secure,
sustainable and growing income. Our investment philosophy is simple; we look to invest in and extract value from assets which can
deliver consistent and growing income returns. Equally, we look to recycle capital from assets providing limited further rental and/or
capital growth expectations, where business plans have been successfully executed and value creation maximised.
It has been a productive year in terms of both investment and disposal activity. Over GBP148 million was generated from asset sales at
a premium of 12.2 per cent to book value with a further GBP11.0 million sold post year end. The disposals completed during the year
are testament to our strategy as set out above. These actions, combined with disciplined reinvestment, are continuously improving
the quality of the portfolio and its ability to deliver long-term sustainable and growing income returns.
The Company is at advanced stages of negotiation on the sale of a portfolio of German retail assets for approximately EUR200 million.
The sale would include the repayment of associated debt facilities. This opportunistic disposal capitalises on an exceptionally strong
investment market and an approximate 17 per cent increase in the value of the Euro relative to Sterling over the investment period.
The Company intends to recycle the disposal proceeds into new investments which are in line with the Company's strategy of
enhancing the quality of the portfolio and its growth prospects. A number of investment opportunities have been identified which are
at various stages of due diligence. In particular, the Company is currently in exclusive negotiations to acquire a portfolio of high quality
assets in the UK which, if acquired, would utilise the majority of the disposal proceeds. The income yield is expected to be
commensurate with the yield achieved on the disposal and likely to be accretive to investors over the medium-term. However, there
can be no guarantee that such acquisition will proceed to completion, and a further announcement will be made by the Company, as
appropriate, in due course.
Our relentless focus on maximising income delivered from the portfolio is evidenced by the continued high level of occupancy
achieved at 97.7 per cent (2016: 97.7 per cent). 235 leasing events were completed during the year reflecting a 3.9 per cent
(GBP0.6 million) increase on passing rent and a 0.7 per cent increase on ERV. Excluding temporary leases, gross annualised rental income
increased by 5.0 per cent and 4.9 per cent on passing rent and ERV respectively.
The redevelopment and expansion of existing assets remains an important part of our strategy to enhance the quality of the portfolio
and deliver attractive income returns on marginal investment. Capital expenditure during the year totalled GBP19.6 million with current
capital projects anticipated to provide a 7.6 per cent yield on cost.
Efficient capital structure
We are focused on further strengthening the balance sheet by mitigating refinancing risk and efficiently reducing leverage, whilst also
limiting the impact on income.
The Group's loan-to-value ratio of 50.0 per cent, reflecting transactions post year end, is at the top end of our medium-term target of
45 to 50 per cent. The acquisition of a further 44.0 per cent interest in the Leopard portfolio during the second half of the year raised
leverage temporarily above 50 per cent but this has been largely addressed through successful disposals and the acquisition of the
controlling interest in the IHL hotel portfolio post year end.
The Group's weighted average cost of debt stands at 3.1 per cent (2016: 3.4 per cent), below our medium-term target of 3.2 to 3.4 per cent.
The reduction in our interest costs has provided enhanced interest cover at a Group level of 3.2 times (2016: 2.7 times).
The long-term debt secured against four of our UK Shopping Centres was successfully restructured in the second half of the year to
reduce leverage and interest costs. The aggregate facility of GBP167.8 million was reduced to GBP146.1 million, extended to April 2042
and included the termination of the historic profit share arrangement on Grand Arcade, Wigan. The aggregate prepayment and
restructuring costs of GBP27.6 million provided a marginal return of approximately 10 per cent, resulting in an efficient reduction in
leverage.
Financial discipline
In February 2017, we aligned underlying earnings to the EPRA measure, adjusted for limited Company specific non-cash
adjustments. Utilising this industry standard metric will provide a closer alignment of earnings to operating cash flow. Our dividend
for the year was fully covered, with the pay-out ratio of 94.5 per cent within our target of 90 to 95 per cent. Progress against our
medium-term financial targets has been positive with key metrics largely on target or moving in the right direction.
Key metrics Medium-term target HY1 HY2 31 August 2017
Underlying EPS (guidance: 2.7 - 2.8) (p) n/a n/a 2.75
Pay-out ratio (%) 90.0 - 95.0 96.3 92.9 94.5
Rental income growth (like-for-like) (%) 2.0 - 5.0 3.3 4.3 3.7
LTV (%) 45.0 - 50.0 49.9 50.0 50.0
Interest cover (times) >3.0 3.1 3.4 3.2
Cost of debt (%) 3.2 - 3.4 3.3 3.1 3.1
EPRA cost ratio (excl. direct vacancy costs) (%) <15.0 20.7 19.0 19.8 (1)
(1) 17.2 per cent when adjusted for non-recurring items.
Growing our business sustainably
On the Corporate & Social Responsibility front, the Group has been proactive in ensuring compliance with forthcoming Energy
Performance Certificate ("EPC") regulations. Over 500 EPCs have been reviewed or renewed eliminating compliance risk in advance
of the 2018 deadline. On Green initiatives, we have improved our GRESB rating for the second year running, and we have conducted
tenant surveys at our UK Shopping Centres to help us develop better experiences for occupiers and customers alike. For certain
centres this has resulted in the implementation of electric vehicle charging bays, provided free of charge to customers. 2016 marked
ten years since the Group's listing and to celebrate we have been paying it back with community projects called 'Ten 4 Ten'. Each
centre has invested ten days during the year towards initiatives designed to support the communities in which we operate.
Outlook
The income return from direct real estate in the UK has contributed approximately 75 per cent of total direct real estate returns over
the long-term, and our income focused portfolio is well placed to capitalise on this trend in the future. With growing global appetite
for predictable income returns, we believe our income-led strategy to deliver market leading shareholder distributions remains
extremely attractive.
The expectation of rising interest rates in the UK in the near term appears increasingly likely. Despite this, interest rates remain
exceptionally low by historic standards and the outlook for longer-term rates remains benign, suggesting that the search for yield is
likely to endure as a key investment theme.
Our income focused and diversified portfolio provides limited exposure to any single sector or occupier with the opportunity to allocate
capital to assets and sectors where we identify the best opportunities. We are increasingly looking to invest in locations and sectors
with long-term structural support driven by occupier demand, infrastructure investment and strong demographics.
Significant progress has been made in strengthening our balance sheet and we will continue to target a lower leverage structure over
time. Notwithstanding this objective, the Group's average debt maturity is already in excess of seven years and with material covenant
headroom and interest cover over three times, this has resulted in limited refinancing risk and strong cash flow cover.
All our medium-term targets remain in place. Our growth target of 3.0 to 5.0 per cent per annum in underlying earnings per share
reflects the confidence we have that our business will continue to deliver superior, sustainable and growing income. Earnings growth
is driven with focus on all aspects of our income statement. The continuous improvement in the quality of our portfolio is supporting
rental growth expectations. We are seeing strong occupier demand for our logistics, hotels and retail park assets (47 per cent of the
UK portfolio) supported by 38.9 per cent of the overall portfolio being subject to inflation-linked and fixed rental increases. In addition,
we have a number of income-led asset management initiatives planned and underway to support our growth targets. Weighted
average cost of debt has reduced to 3.1 per cent which, combined with improvements in our EPRA cost ratio is providing positive
operating leverage.
We remain committed to becoming the UK's leading income focused REIT and to delivering upper quartile income returns relative to
other UK-REITs.
Mike Watters
Chief Executive Officer
26 October 2017
Operating Review
Portfolio overview
2017 has been an active year in terms of capital recycling and asset management activity. Since the start of the year, we have
invested GBP41.9 million and sold GBP132.1 million of assets, resulting in a material improvement to the quality of the portfolio and the
sustainability of its income.
Our portfolio provides strong income characteristics with clear visibility of the medium-term income profile and growth opportunities.
Key portfolio characteristics include:
- a weighted average lease length of 7.4 years to the first potential lease break and 8.5 years to expiry;
- 38.9 per cent of gross rental income is subject to inflation-linked or fixed increases;
- rental growth potential with a reversionary yield of 6.6 per cent, 90 bps higher than the current portfolio net initial yield;
- high and stable occupancy demonstrating robust occupier demand; and
- over 600 tenants with no single tenant accounting for more than 7.0 per cent of gross rental income.
Annualised EPRA EPRA
Market gross rental EPRA topped Reversionary occupancy
Portfolio summary value income ERV NIY up yield yield WAULT by ERV Indexed
31 August 2017 (GBPm) (GBPm) (GBPm) (%) (%) (%) (yrs) (%) (%)
UK Retail 514.6 39.9 40.2 6.3 6.6 7.3 8.4 96.8 19.4
UK Commercial 364.2 22.2 23.4 5.1 5.6 6.0 5.3 96.4 26.6
UK Hotels 239.6 15.2 16.2 5.9 5.9 6.3 9.3 100.0 5.2
Total UK 1,118.4 77.3 79.8 5.8 6.1 6.7 7.7 97.3 18.7
Europe 420.3 27.0 27.7 5.4 5.4 6.2 6.4 98.8 96.7
Total 1,538.7 104.3 107.5 5.7 5.9 6.6 7.4 97.7 38.9
Wholly owned 1,513.1 102.6 105.8 5.7 5.9 6.5 7.4 97.6 38.7
Held in joint ventures 25.6 1.7 1.7 6.4 6.4 6.6 6.4 100.0 52.2
(proportionate)
Portfolio positioning by business plan
Each asset is viewed in terms of its ability to deliver sustainable income returns and/or growth. Approximately 76 per cent of the
current portfolio is classified as either "Core Income" or "Growth Income". Core Income assets typically exhibit long lease lengths,
high cash on cash returns and are predominantly multi-let, often with some form of indexation. Growth Income assets constitute
approximately 30 per cent of the current portfolio. These assets are typically lower yielding but with higher intrinsic growth prospects.
20 per cent of the portfolio comprises properties which have shorter term, more intensive asset management plans underway. These
opportunities are typically income-led with a significant percentage of pre-let income being secured before development commences.
Our ability to create marginal revenue and enhance the quality of assets is fundamental to our overall strategy.
Where we believe we have maximised the potential of individual assets or where the market is prepared to pay a higher price than
our view of the assets' intrinsic value, we will look to recycle that capital into new opportunities. At 31 August 2017, approximately
4 per cent of the portfolio was considered mature with a number of those assets being actively considered for sale.
Annualised EPRA EPRA
Market gross rental EPRA topped Reversionary occupancy
Portfolio by business plan value income ERV NIY up yield yield WAULT by ERV Indexed
31 August 2017 (GBPm) (GBPm) (GBPm) (%) (%) (%) (yrs) (%) (%)
Core Income 713.5 52.3 51.6 6.1 6.3 6.8 7.6 97.7 61.3
Growth Income 455.5 27.2 29.2 5.4 5.5 6.0 8.2 99.4 3.0
Asset Management 314.7 19.5 21.7 4.7 5.2 6.4 6.1 96.8 33.0
Mature 55.0 5.3 5.0 8.0 8.7 8.6 6.3 90.4 23.5
Total 1,538.7 104.3 107.5 5.7 5.9 6.6 7.4 97.7 38.9
Valuation overview
The portfolio increased in value by GBP40.7 million or 3.0 per cent on a like-for-like basis. This increase in value was driven by a 2.7 per
cent increase in like-for-like annualised net rental income and an inward yield shift of 7 basis points. A more detailed review of the
valuation movement is presented in the Financial Review.
Leasing activity
In the last 12 months, 235 lease events were agreed providing a total rent of GBP17.3 million, a 3.9 per cent (GBP0.6 million) increase
above the passing rent and a 0.7 per cent (GBP0.1 million) increase on ERV. Portfolio occupancy remained high and stable at 97.7 per
cent (2016: 97.7 per cent).
As previously reported, we have experienced little evidence to suggest a material change in occupational demand in the markets in
which we operate. Post year end, over 53,702 sqft (4,989 sqm) of vacant space in the UK Shopping Centre portfolio is in solicitor's
hands, including the former BHS unit at Grand Arcade, Wigan which has exchanged with Poundland, resulting in the highest
occupancy achieved since acquiring the shopping centres.
Rateable values
In January 2016, the UK Valuation Office Agency published an updated rating list for England and Wales which has been adopted
from 1 April 2017. The change in rateable values for commercial real estate will have a direct impact on business rates and therefore
the total cost of occupation for tenants and the cost of vacant space for landlords. In general, rates are to increase materially in
London while many regional centres will see a reduction in rateable values. Across our UK portfolio (excluding UK Hotels) rates will
reduce by approximately 6.9 per cent. Our hotels, which are largely London focused, will see a 51 per cent increase in rates. While
the impact of the change in rates is to be phased in over a three year period, the change is already reflected in hotel property values.
Acquisitions
Leopard portfolio
The acquisition of the controlling interest in the Leopard portfolio was completed on 26 April 2017. The portfolio consists of 66 German
retail properties which were independently valued at the time of acquisition at EUR175.5 million reflecting a net initial yield of 7.4 per
cent. The portfolio generates gross annualised rental income of EUR13.9 million, of which 99.2 per cent is indexed between 60 and 70
per cent of German CPI, subject to indexation reaching a cumulative hurdle of 10 per cent. Tenants including Edeka, Netto, Real and
Rossman account for over 85 per cent of the gross rental income. The portfolio has a WAULT of 7.9 years and is nearly fully occupied
at 99.0 per cent by ERV.
The joint venture interest was acquired for an aggregate consideration of EUR49.0 million (EUR49.4 million including transaction costs).
Following the transaction, the Company holds an effective 94 per cent controlling interest in the portfolio, whilst providing 100 per
cent of its non-bank financing requirement by way of shareholder loans.
IHL
In August, the Company made an offer to increase its shareholding in IHL by 32.8 per cent (from 17.2 to 50.0 per cent). Following
subsequent shareholder and court approval, the Company will acquire 16,429,687 IHL shares from the minority shareholders by way
of a scheme of arrangement and a further 1,913,479 IHL shares from Redefine Properties. The transactions are expected to complete
simultaneously in early November 2017. Consideration for the IHL shares will be settled via a share-for-share exchange with 2.5 Redefine
International shares to be issued for every 1 IHL share held. A total of 45.9 million new Redefine International shares are expected to
be allotted. On implementation of the scheme, the listing of IHL's shares on both the JSE and LuxSE will be terminated.
The Company will also later today reach agreement to acquire a further 8.9 per cent interest in IHL from Redefine Properties on the
same terms as the scheme of arrangement, by the issue of an additional 12.5 million new Redefine Intentional shares. This transaction
constitutes a smaller related party transaction and falls within LR 11.1.10 R of the UK Listing Rules. The Group's interest will initially
increase to 26.2 per cent and then to 58.9 per cent once the scheme of arrangement completes.
The IHL portfolio comprises nine high quality UK hotels which were last valued at GBP104.4 million and will complement the Company's
existing hotel portfolio. The four Travelodge hotels, comprising 27.7 per cent of the portfolio, are let on long-term leases with average
unexpired lease term of over 20 years. These assets reflect a net initial yield of 5.3 per cent and benefit from five yearly upward only
CPI escalations that provide attractive rental growth prospects in a higher inflationary environment.
The remaining five hotels, valued at GBP75.4 million, will be leased to the Company's associate, RedefineBDL Hotel Group. Four of the
hotels are franchised to Holiday Inn Express and one to Hampton by Hilton. The five hotels to be leased by RedefineBDL have a
strong trading record. The Hampton by Hilton at Gatwick Airport is integrally linked to the airport terminal building and the Holiday Inn
Express, Edinburgh has shown strong growth since acquisition by IHL. The five franchised hotels are expected to deliver a net initial
yield of over 7.5 per cent. The portfolio is currently financed at 41.7 per cent loan-to-value, at an all-in cost of debt of 3.3 per cent.
Following the transactions, UK Hotels are expected to comprise approximately 21 per cent of the Company's gross assets, up from
16 per cent at 31 August 2017. It is anticipated that there will be material savings on the integration of the hotel assets into the
Company's existing hotel portfolio and REIT status.
Disposals
The success of the disposal programme in the first half of the year continued into the second half with a further GBP53.2 million of
disposals achieved at a premium of 12.0 per cent to the 28 February 2017 book values. Disposals for the full year totalled GBP148.2
million, reflecting a premium of 12.2 per cent to book value.
Net rental Reversionary
Carrying value Sales price income EPRA NIY on yield on sales
Disposals since 31 August 2016 Completion GBPm GBPm GBPm sales price price
Brandenburg, Germany September 2016 0.1 0.2 - 15.4 12.1
Exchange House, Watford October 2016 11.8 13.3 1.0 6.9 5.8
VBG office portfolio, Germany January 2017 40.6 44.4 3.3 7.2 4.9
201 Deansgate, Manchester January 2017 25.5 29.2 1.1 3.6 7.0
Parliament Square, Edinburgh February 2017 3.5 4.0 0.4 9.3 4.1
Delta 900, Swindon February 2017 2.8 3.6 0.3 7.3 8.0
Recklinghausen, Germany February 2017 0.3 0.3 - 6.1 7.6
The Observatory, Chatham March 2017 3.6 4.0 0.3 7.9 8.3
Bedford, Woodlands June 2017 11.5 11.0 1.1 9.1 7.8
Carphone Warehouse, Merton June 2017 2.1 5.5 0.1 1.8 2.0
Sytner, High Wycombe August 2017 24.7 26.1 1.4 5.0 3.9
Brückmuhl, Germany August 2017 5.6 6.6 0.4 5.8 6.2
Total 132.1 148.2 9.4 6.2 5.6
Strategic disposals
As part of our strategy to enhance the quality of the portfolio, mature assets and assets in weaker locations will be
considered for sale.
VBG office portfolio, Germany
On 18 January 2017, the Company completed on the sale of four German office assets for a gross consideration of EUR106.0 million.
The assets, which were disposed of via a share sale and included related debt facilities, were held in a joint venture with the Menora
Mivtachim Group. The disposal of the Company's 49 per cent share reflected an 8.6 per cent premium to the August 2016 market
value in Euro terms. The Company's net proceeds of EUR25.6 million, which included a net Performance Fee of EUR1.8 million, delivered
an IRR of 24 per cent over the investment period.
The properties, situated in Berlin, Dresden, Cologne and Stuttgart, total 485,900 sqft (45,100 sqm), and are let to a German
government-backed social insurance body, VBG, on a combined WAULT of just under seven years. The portfolio generated a total
annual gross rental income of EUR8.1 million, of which EUR4.0 million was attributable to the Company. Significant capital would have been
required on expiry of the leases to make market rents achievable.
Other
Other strategic sales included certain regional office assets and a number of smaller retail assets in Germany which had limited rental
growth expectations.
Realising value
The ability to enhance income and value through asset management initiatives is a key part of our investment strategy. Where asset
values have been maximised through reconfiguration, refurbishment or leasing activity, these assets will be considered for sale.
Delta 900, Swindon
Swindon was successfully sold for GBP3.6 million, following the completion of a new 15-year lease with Oxford Brookes University for
28,412 sqft (2,640 sqm) on an agreed rent of GBP0.3 million, 20.8 per cent above ERV. The disposal represents a 28.6 per cent premium
on book value.
Carphone Warehouse unit, Priory Retail Park, London
The standalone Carphone Warehouse unit at Priory Retail Park, Merton was sold for GBP5.5 million relative to an apportioned value of
GBP2.1 million reflecting a 161.9 per cent premium.
Opportunistic disposals
We are consistently looking to generate value through alternative use, income-led asset management or opportunistic sales.
Opportunities to recycle capital through the disposal of assets at attractive prices are considered on a risk-adjusted basis taking into
consideration future capital commitments, planning and letting risks.
Exchange House, Watford
The Exchange House completed in October 2016 for GBP13.3 million, a 12.7 per cent premium to carrying value reflecting a net initial
yield of 6.9 per cent and a reversionary yield of 5.8 per cent. The 63,000 sqft (5,900 sqm) office building is occupied by the Department
of Work and Pensions until March 2023 with a break option in March 2018.
201 Deansgate, Manchester
On 31 January 2017, the Company completed on the disposal of 201 Deansgate, Manchester for GBP29.2 million. The property provides
83,700 sqft (7,800 sqm) of office space and delivered an annual net rental income of GBP1.1 million, with a WAULT of 4.1 years. The
office was originally acquired as part of the AUK Portfolio in March 2016 and the sales price represents a net initial yield of 3.6 per
cent and a 14.3 per cent premium to book value. The IRR over the investment period was 22 per cent.
Sytner BMW Car Showroom, High Wycombe
The Sytner BMW showroom was sold for GBP26.1 million to a UK pension fund in August 2017. The sale price reflected a net initial yield
of 5.0 per cent and a premium of 5.8 per cent to the 28 February 2017 book value. The property was acquired in March 2016 as part
of the AUK transaction. The disposal provided an opportunity to recycle capital out of an asset with limited near-term rental growth
prospects at a low initial yield.
Development and capital expenditure
Development activity is largely income-led and focused on refurbishing existing assets and adding incremental space to meet occupier
demand.
Approved capital Yield on
expenditure Estimated cost
Scheme Description GBPm completion (%)
City Arcaden, Ingolstadt Primark development 20.0 Q4 2017 5.2
Holiday Inn Express, Southwark 12 room extension and façade upgrade 3.6 Q4 2017 6.0
Banbury Cross Retail Park PureGym - new unit 1.1 Q4 2017 15.0
UK Retail Park expansions Drive-through pods 4.4 Various 12.6
Albion Street, Derby TK Maxx 2.2 Q4 2017 10.0
West Orchards, Coventry Food court refurbishments 2.6 Q4 2017 16.9
Schloss-Strassen Center, Berlin Food court refurbishments 2.0 Q2 2018 6.2
German supermarket extensions Extensions and reconfigurations 2.8 Various 6.6
Total 38.7 7.6
City Arcaden, Ingolstadt
The redevelopment of this prime retail asset is anticipated to be completed in late 2017 and will transform the existing retail pitch.
The completed scheme will total approximately 129,000 sqft (12,000 sqm) including two retail units pre-let to Primark and H&M of
approximately 100,000 sqft (9,500 sqm). The scheme is anticipated to generate EUR2.2 million in rental income resulting in a yield on
cost of 5.2 per cent.
Holiday Inn Express, Southwark
The 12-room extension and upgrade to the front and rear façade completed in September 2017 and included an upgrade to the
bedrooms to align with the latest Holiday Inn Express format. The hotel's operating business delivered consistent underlying revenues
despite the disruptions from the extension and refurbishment works.
UK Retail Park expansions
The new PureGym unit at Banbury Cross Retail Park was completed post year end. This unit will provide an additional GBP0.2 million of
rental income reflecting a yield on cost of 15.0 per cent.
A further seven units are in various stages of development, with pre-let agreements for all the units either already completed or in
solicitor's hands to strong A3 covenants. We are particularly pleased with The Arches Retail Park, Watford where competitive bidding
resulted in indicative rental values of over GBP90 per sqft. The new units will provide an additional GBP0.5 million of rental income reflecting
a yield on cost of over 10 per cent.
Albion Street, Derby
In May 2017 an agreement for lease was signed with TK Maxx for a new 22,000 sqft (2,044 sqm) store at Albion Street in Derby.
The redevelopment of 9-11 Albion Street has commenced to combine the basement, ground, first and second floors of the three
existing units into a single, modern space to accommodate TK Maxx. The new store is scheduled to open by late 2017, once internal
fittings have been installed, creating 35 new jobs and improving the retail pitch for the city. The agreed rent of GBP0.2 million is 50 per
cent ahead of the February 2017 ERV. Capital expenditure to reconfigure the space is anticipated to be GBP2.2 million.
The ten adjoining retail units under our ownership, inclusive of the three being combined for TK Maxx provide a key artery in Derby's
main retail centre, linking the city's Intu Shopping Centre to Primark and the historic Old Town. The area is the subject of major
redesign and refurbishment plans by Derby City Council, which will transform the area into a family-focused shopping destination.
UK Retail
The retail landscape continues to evolve rapidly resulting in a significant variation in the performance of retail assets in different sub-
sectors and locations. Unemployment levels are at an historic low, however, consumer confidence has been impacted by political
uncertainty and negative real wage growth.
Unsurprisingly, the investment demand for retail, shopping centres in particular, has been weak which has been reflected in our
valuations in the second half of the year. On the positive side, our shopping centre exposure is heavily weighted toward food, discount
and convenience shopping which has proved more resilient when compared to retail of a more discretionary nature.
Commercialisation income of GBP1.1 million was collected during the year, a 9 per cent increase relative to last year. Our in-house
commercialisation team, Centre Stage has enhanced the quality and profitability of the speciality retailing and advertising activity
within our shopping centres and retail parks, collaborating with international and national brands as well as supporting smaller local
businesses and communities. Income from commercialisation activities is targeted to grow by 7 per cent in 2018. Further opportunities
to drive ancillary revenues from the Group's wider portfolio have been identified.
Annualised EPRA EPRA
Market gross rental EPRA topped Reversionary occupancy
UK Retail value income ERV NIY up yield yield WAULT by ERV Indexed
31 August 2017 (GBPm) (GBPm) (GBPm) (%) (%) (%) (yrs) (%) (%)
UK Shopping Centres 316.5 26.2 27.1 6.4 6.8 8.0 8.0 96.7 27.5
UK Retail Parks 169.9 11.4 10.8 5.8 6.2 6.0 7.7 96.2 4.7
UK Other Retail 28.2 2.3 2.3 7.5 7.5 7.8 16.6 100.0 -
UK Retail 514.6 39.9 40.2 6.3 6.6 7.3 8.4 96.8 19.4
Shopping Centres
Despite a tough retail environment, 76 lease events were completed during the year which were marginally down on previous passing
rents. Occupancy decreased to 96.7 per cent (2016: 98.1 per cent) as a result of five small units becoming vacant, three of which
have successfully exchanged post year end. Annualised gross rental income decreased marginally, however, values declined 6.9 per
cent on a like-for-like basis reflecting a weak investment market with very few transactions in the year.
The former 41,315 sqft (3,838 sqm) BHS unit at Grand Arcade, Wigan has been let to Poundland post year end. This is a good result,
with the majority of old BHS units in the UK still vacant.
Shopping Centre occupancy will increase to 99.2 per cent following the inclusion of the lettings achieved post year end and will result
in a saving of GBP0.6 million on vacancy costs.
Overall footfall increased by 2.1 per cent over the year. The majority of our shopping centres have benefited from this increase, other
than Grand Arcade, Wigan where the former BHS vacancy impacted footfall. The re-letting of the BHS unit to Poundland is anticipated
to have a positive impact on footfall in 2018.
Retail Parks and Other Retail
A modest 1.0 per cent decline in like-for-like valuations was impacted by a reduction in the valuation of the House of Fraser department
store in Hull. Contracts have been exchanged on the sale of this asset post year end. Excluding this property, valuations increased
1.0 per cent. Annualised gross rental income was down by 2.1 per cent over the last 12 months largely as a result of the development
started in Derby and two vacant units totalling 17,238 sqft (1,601 sqm) at Banbury Cross Retail Park. There are various discussions
underway to re-let this space including the potential to enhance the tenant mix.
Occupier demand remains healthy, particularly for our larger schemes in London and the South East. Discussions with a number of
discount food retailers and drive-through food and beverage operators are providing potential opportunities to realise higher rental
values on the parks, as well as to deliver income and value enhancing asset management initiatives. The new 10 year lease with
PureGym at Banbury Cross Retail Park will deliver GBP0.2 million of rental income and a yield on cost of 15.0 per cent for the recently
completed 7,500 sqft (697 sqm) extension.
UK Commercial
The regional office market has been resilient, both in terms of occupational demand and investment volumes. With rental growth
expected to remain relatively static in a number of key regional cities and some aggressive pricing of core assets, we have taken the
opportunity to sell assets where we believe pricing was ahead of their growth prospects.
The London Southbank market has benefited from large scale redevelopment and investment from London Bridge through to
Waterloo. Our exposure to 104,622 sqft (9,720 sqm) of London office space in areas undergoing material redevelopment has provided
strong rental growth as well as longer-term redevelopment options. According to UK government projections, the expected growth in
London's population from 8.9 million people to 9.9 million by 2027, providing opportunities to acquire assets in improving locations
with rising rental values. Our London portfolio is well positioned to benefit from areas of structural change and has no exposure to
financial services occupiers.
Distribution and industrial development activity remains restrained and general levels of supply are low suggesting the supply/demand
dynamics will remain positive in the near term. The continued growth in online retailing from 14.9 per cent of total retail sales in 2016
to an anticipated 18.5 per cent by 2022 (source: GlobalData) should provide ongoing structural support as retailers adapt to an omni-
channel sales strategy.
Our focus remains on multi-let industrial estates that benefit from a broad range of occupier demand and suitable to catering for
growth in last mile distribution. Our largest exposure at Camino Park, Crawley benefits from the Crawley/Gatwick market which has
both strong occupier demand and almost negligible available supply.
Annualised EPRA EPRA
Market gross rental EPRA topped Reversionary occupancy
UK Commercial value income ERV NIY up yield yield WAULT by ERV Indexed
31 August 2017 (GBPm) (GBPm) (GBPm) (%) (%) (%) (yrs) (%) (%)
UK Offices - Greater London 90.2 3.4 4.4 2.8 3.3 4.6 5.1 95.9 23.7
UK Offices - Regions 113.6 9.6 9.2 6.9 7.7 7.6 3.5 95.8 23.0
UK Offices 203.8 13.0 13.6 5.1 5.8 6.3 3.9 95.8 23.2
UK Distribution & Industrial 117.6 6.3 7.5 4.8 5.0 6.0 5.0 96.3 -
UK Automotive 42.8 2.9 2.3 6.3 6.3 5.0 12.3 100.0 100.0
UK Commercial 364.2 22.2 23.4 5.1 5.6 6.0 5.3 96.4 26.6
Offices
Offices delivered a strong result both in terms of income and valuation growth supported by a combination of factors including letting
of vacant space and exposure to areas of structural change and rental growth. Valuations increased 5.9 per cent on a like-for-like
basis, supported by London offices (12.8 per cent) and positive letting progress at City Point, Leeds and Omnibus, Reigate.
Annualised gross rental income increased 5.1 per cent supported by three positive lease events at Charing Cross generating GBP0.2
million and reflecting a 19.0 per cent increase on passing rent and the letting of 18,195 sqft (1,690 sqm) of vacant space across the
regional office portfolio. During the year one tenant in Newington Causeway, London went into administration. Given demand in the
Southbank area we are confident this space will be re-let at attractive rents. Continued progress was also made in reducing vacancies
in our regional office portfolio, where vacancies have now decreased to 4.2 per cent (2016: 9.5 per cent).
Distribution and Industrial
The distribution portfolio produced exceptional growth largely as a result of rental uplifts and lower investment yields at Camino Park,
Crawley. The portfolio increased in value by 16.3 per cent on a like-for-like basis supported by ERV growth of 7.2 per cent. A rent
review was settled at Express Park, Bridgwater resulting in a GBP0.1 million or 5.5 per cent increase in annual rental income. Looking
forward, 64.6 per cent of rental income at Camino Park, Crawley is subject to rent review in late 2017. The current average passing
rent of GBP7.1 per sqft is expected to show strong growth against both passing rent and ERV.
UK Hotels
Despite the squeeze on real incomes in the UK, the weak pound has helped to boost the UK hotel industry, by attracting overseas
visitors. The performance of the sector in 2017 has exceeded expectations with PwC expecting occupancy, average daily room rates
and RevPars to finish 2017 higher than 2016 and forecast in London to increase 2.4 per cent in 2018.
The investment market was strong in the first half of 2017 with investment in London hotels of approximately GBP1.1 billion; 55 per cent
of the overall UK hotel investment volume. London hotels have seen strong demand from Asian investors originating from Hong Kong,
Malaysia and Singapore with interest from India also now appearing, highlighting the strength of London as a world tourist and an
investment destination.
The Group's hotel portfolio remains heavily weighted to London which has consistently proven to be a stable and growing market.
The hotel portfolio will increase to approximately 21 per cent of the overall portfolio (31 August 2017: 16 per cent) post year end
following the increase in the IHL shareholding. The acquisition will provide further exposure to Edinburgh and to Gatwick Airport, the
UK's second busiest airport. In addition, the acquisition of a further four Travelodge hotels provides exposure to long-dated inflation
linked income.
Annualised EPRA EPRA
Market gross rental EPRA topped Reversionary occupancy
UK Hotels value income ERV NIY up yield yield WAULT by ERV Indexed
31 August 2017 (GBPm) (GBPm) (GBPm) (%) (%) (%) (yrs) (%) (%)
Greater London & UK South 184.4 11.9 12.5 6.0 6.0 6.4 8.3 100.0 -
Edinburgh 39.1 2.6 3.0 6.1 6.1 7.1 8.5 100.0 3.4
RBDL Leased Hotels 223.5 14.5 15.5 6.0 6.0 6.5 8.3 100.0 0.6
London, Enfield Travelodge 16.1 0.7 0.7 4.2 4.2 4.2 29.9 100.0 100.0
UK Hotels 239.6 15.2 16.2 5.9 5.9 6.3 9.3 100.0 5.2
The portfolio increased in value by 2.9 per cent on a like-for-like basis supported by underlying EBITDAs for the RedefineBDL leased
hotels ending the financial year 4.7 per cent higher than last year. The Travelodge, Enfield also increased in value by 13.0 per cent
reflecting the improved Travelodge covenant and the general investment demand for long-dated index-linked income.
The rent for the RedefineBDL leased portfolio for the 2018 financial year has been set at GBP15.4 million, a 7.5 per cent like-for-like
increase.
RedefineBDL
The Company's 30.4 per cent stake in RedefineBDL, the largest independent hotel management company in the UK, contributed
GBP1.1 million to underlying earnings during the year. Post year end, RedefineBDL was awarded the management contract for a further
26 four-star luxury hotels located throughout the UK. Following the transaction, RedefineBDL manage more than 11,000 rooms across
75 hotels in the UK, testament to the in-house specialism in this sector.
IHL
The Company's 17.2 per cent investment in IHL had a market value of GBP8.5 million at 31 August 2017 resulting in a fair value loss of
GBP0.3 million for the year. Due to the scheme of arrangement currently in progress no dividend has been declared in respect of the
second half of the financial year which has impacted the anticipated earnings. IHL contributed GBP0.5 million in the previous
financial year.
Europe
The investment market in Germany continues to attract significant domestic and foreign capital which, combined with a lack of
available investment product, has supported competitive market activity. Of note is the entry of Asian investors into the direct market,
accounting for close to 9 per cent of the transaction volume in the first half of the year. Berlin continues to see strong investment
demand which bodes well for our portfolio, where 20 per cent is located. Logistics and industrial assets have witnessed a material
increase in activity and the trend of increasing investment into alternative assets is rising given the competitive pricing of the traditional
sectors.
Annualised EPRA EPRA
Market gross rental EPRA topped Reversionary occupancy
Europe value income ERV NIY up yield yield WAULT by ERV Indexed
31 August 2017 (GBPm) (GBPm) (GBPm) (%) (%) (%) (yrs) (%) (%)
German Shopping Centres 181.3 9.4 10.6 4.2 4.3 5.5 4.8 99.4 94.5
German Supermarkets and
Retail Parks 239.0 17.6 17.1 6.3 6.3 6.7 7.2 98.4 97.9
Europe 420.3 27.0 27.7 5.4 5.4 6.2 6.4 98.8 96.7
The European portfolio delivered strong growth supported by a stronger Euro relative to Sterling. The portfolio increased in value by
2.5 per cent in local currency terms and on a like-for-like basis.
Asset management activity at our Berlin Shopping Centre is progressing well. Terms have been agreed to extend the REWE
supermarket by 1,840 sqft (171 sqm). The lease will also be extended on a new 10 year term with the additional rent reflecting an 8.3 per
cent yield on cost. Similarly, the dm pharmacy has agreed to extend its store by 1,076 sqft (100 sqm). The lease will also be
extended on a 10 year term with the additional rent reflecting a 9.4 per cent yield on cost. Both of these initiatives increase the centre's
weighting to food and convenience shopping and reduces the number of units on the lower ground floor, improving the supply demand
position of the centre. The refurbishment of the foodcourt began during the year and will provide a more modern concept with improved
services to customers.
Redevelopment options at Altona, Hamburg are currently being progressed in consultation with the local authority. The wider master
plan for this historic and commercially important area will be driven by the planned relocation of the high-speed railway terminal. This
relocation is anticipated to take place in 2023 but in the interim, the development of a further 5,000 new homes has already
commenced.
Financial Review
Overview
As set out at our Capital Markets Day in February, the year has seen considerable capital recycling and reinvestment, targeting our
core objective of delivering market leading income returns for our shareholders. We have re-based our key earnings metric and
dividend structure to ensure we retain sufficient operating cash flow within the business to fund asset management initiatives which
are designed to grow income-led total returns. Capital profits from disposals have been partly applied towards debt restructuring and
prepayments to drive down finance costs and leverage.
Guidance on the Group's re-based earnings measure, set out at the Capital Markets Day, has been delivered on and these full year
results demonstrate solid progress against all commitments made.
Underlying earnings, the Group's earnings measure, were GBP49.8 million or 2.75 pence per share. Aligning the comparative period,
which removes the impact of discontinued Company adjustments, would have resulted in underlying earnings of GBP46.3 million or 2.8 pence
per share. The marginal reduction per share is largely attributable to both non-recurring administrative costs and the timing of
reinvestment following a period of extensive capital recycling.
EPRA NAV per share rose by 3.5 per cent to 41.4 pence, driven primarily by both realised and unrealised gains on the Group's
property portfolio, and the impact of our European investments which benefited from the relative strength of the Euro.
An aggregate premium to book value of GBP16.1 million (12.2 per cent) was generated through the disposal of mature assets and the
strategic sale of certain high yielding assets, with reinvestment into lower yielding but higher growth assets during the year. The most
significant were the disposal of the VBG portfolio and Deansgate, Manchester which achieved a 24 and 22 per cent IRR respectively
over the investment periods.
Proceeds from the VBG disposal were used to acquire the joint venture's interest in the German supermarket portfolio for EUR49.0
million, an investment providing a 10 per cent cash on cash yield. As well as being an efficient reinvestment of capital, the acquisition
provides flexibility over the portfolio's asset management initiatives and longer-term investment decisions.
Post year end, a scheme of arrangement was approved by the minority shareholders in IHL which will see the Group's interest
increase from 17.2 to 50.0 per cent via a share-for-share exchange. IHL owns nine UK hotels last valued at GBP104.4 million. The
transaction is anticipated to complete in early November 2017 with IHL to be delisted shortly after.
In April an opportunity arose to restructure and refinance the GBP167.8 million Aviva facility secured over four UK Shopping Centres. In
return for a prepayment of GBP21.7 million, the interest rate on the refinanced principal of GBP146.1 million reduced by 31 basis points and
has resulted in an annual finance cost saving of GBP1.7 million. The restructuring also removed an historic arrangement whereby Aviva
shared in both the annual profits and (subject to certain hurdles) the capital appreciation of the Grand Arcade, Wigan. An aggregate
annual saving of GBP1.5 million is expected to result from the removal of the profit share arrangement.
The Board today declares a second interim dividend of 1.3 pence per share, bringing the total paid and payable in respect of 2017 to
2.6 pence per share, which represents a 94.5 per cent pay-out ratio on underlying earnings, which is in line with guidance.
Presentation of financial information
The Board reviews information and reports presented on a proportionately consolidated basis, which includes the Group's share of
interests in joint ventures. To align with how the Group is managed, this Financial Review has been presented on the same basis.
Income statement Year ended Year ended
31 August 2017 31 August 2016
Joint Group Joint Group
IFRS Ventures Total IFRS Ventures Total
GBPm GBPm GBPm GBPm GBPm GBPm
Rental income 97.2 5.9 103.1 86.6 10.0 96.6
Rental expense (9.0) (0.6) (9.6) (6.2) (1.1) (7.3)
Net rental income 88.2 5.3 93.5 80.4 8.9 89.3
Other income (1) 4.7 (2.0) 2.7 2.5 0.6 3.1
Administrative costs and other fees (15.3) (0.3) (15.6) (10.9) (0.5) (11.4)
Net operating income 77.6 3.0 80.6 72.0 9.0 81.0
Net finance costs (27.7) (1.3) (29.0) (31.4) (1.7) (33.1)
Joint venture EPRA earnings (2) 1.7 (1.7) - 7.3 (7.3) -
Tax, NCI and other (0.7) - (0.7) (3.8) (3.8)
EPRA earnings 50.9 - 50.9 44.1 - 44.1
Company Adjustments:
Debt fair value accretion 0.9 - 0.9 3.1 - 3.1
Foreign exchange movements (2.0) - (2.0) (0.9) - (0.9)
Underlying earnings (re-based) 49.8 - 49.8 46.3 - 46.3
(1) Other income on an IFRS basis includes 100% of the VBG Performance Fee generated on disposal in January 2017. The Group's share of
the resulting charge is reflected within joint venture adjustments.
(2) Joint Venture EPRA earnings for the year were GBP1.7 million (31 August 2016: GBP7.3 million). This is presented as a single line item under IFRS
and line-by-line under proportionate consolidation.
Year ended Year ended
31 August 2017 31 August 2016
Joint Group Joint Group
IFRS Ventures Total IFRS Ventures Total
GBPm GBPm GBPm GBPm GBPm GBPm
Underlying earnings (re-based) 49.8 - 49.8 46.3 - 46.3
Net gain on sale of joint venture interests 4.9 - 4.9 - - -
Fair value gain/(loss) on investment property, assets
held for sale and listed shares 6.6 (0.9) 5.7 (43.3) 1.3 (42.0)
Other finance (expense)/income (5.9) 0.3 (5.6) (0.4) (0.1) (0.5)
Gain on disposal of investment property and assets
held for sale 10.7 - 10.7 3.4 - 3.4
Gain on disposal of subsidiary - - - 12.2 - 12.2
Fair value movement on derivatives 4.5 1.1 5.6 (11.1) (1.7) (12.8)
Share of non-EPRA joint venture profits/(losses) (0.8) 0.8 - 1.7 (1.7) -
Deferred tax on investment property (3.5) (0.6) (4.1) (1.2) (0.3) (1.5)
Tax, NCI and other (0.2) (0.7) (0.9) 0.3 2.5 2.8
IFRS profit attributable to shareholders 66.1 - 66.1 7.9 - 7.9
Diluted weighted average ordinary shares (millions) 1,811.9 1,637.9
EPRA earnings per share (pence) 2.80 2.70
Underlying earnings per share (re-based) (pence) 2.75 2.80
Gross revenue exceeded GBP100 million for the first time in 2017 following a full year of rental income from the 2016 AUK Portfolio
acquisition.
On a like-for-like basis gross rental income increased by 3.7 per cent, or 0.7 per cent on a local currency basis. The strengthening of
the Euro contributed an additional GBP2.1 million.
Asset management initiatives across the Group's retail schemes grew rents by 1.7 per cent. UK Shopping Centres recorded like-for-
like income growth of 0.7 per cent in spite of the underlying challenges facing this asset class which demonstrates the resilience of
our largely discount and convenience focused portfolio. Strong performers were St. George's Harrow and Banbury Cross, the only
Retail Park currently included in like-for-like income, which has delivered well against expectations since acquisition.
Successful rent reviews within the Kwik Fit portfolio and the Government Office portfolio contributed to an overall 2.1 per cent like-
for-like increase in the UK Commercial portfolio.
The income from the UK Hotel portfolio fell 1.3 per cent like-for-like, the result of lease incentive payments extended for general
improvements to the portfolio, which masked a modest headline rental increase.
European rents were relatively flat in local currency terms, although a stronger Euro relative to Sterling during the year resulted in a
12.3 per cent increase in Sterling terms.
Year ended Year ended Local currency
31 August 2017 31 August 2016 Change Change Change
Gross rental income GBPm GBPm GBPm % %
UK Retail 29.5 29.0 0.5 1.7 1.7
UK Commercial 9.6 9.4 0.2 2.1 2.1
UK Hotels 14.8 15.0 (0.2) (1.3) (1.3)
UK Total 53.9 53.4 0.5 0.9 0.9
Europe 19.2 17.1 2.1 12.3 (0.2)
Like-for-like gross rental income 73.1 70.5 2.6 3.7 0.7
Acquisitions 25.0 16.2 8.8
Disposals 4.7 9.6 (4.9)
Development 0.3 0.3 -
Total gross rental income 103.1 96.6 6.5
Property operating expenses have increased primarily due to the enlarged portfolio and a repairs and maintenance programme carried
out on a number of German schemes, the most significant being the Berlin Shopping Centre.
Other income of GBP2.7 million includes a Performance Fee earned on the VBG portfolio disposal of GBP1.6 million. This arose from the
asset management services provided to the joint venture and the IRR achieved on exit.
The Group's administrative cost base increased by GBP4.2 million to GBP15.6 million, in part due to significant non-recurring charges
incurred during the year. As guided, GBP1.6 million was paid to terminate the historic AUK asset management contract following the
Group's 2016 acquisition and integration of the portfolio, with a further GBP0.4 million in professional fees incurred through the year
which are non-recurring. The residual increase in cost base can be attributed to the enlarged portfolio. The EPRA cost ratio, although
above our medium-term target, has been managed downwards during the second half of the year to 17.2 per cent, after adjusting for
non-recurring items.
A saving in net finance costs of GBP4.1 million has been achieved as a result of several refinancing initiatives carried out during the year.
The Aviva refinancing in April reduced finance costs by GBP3.2 million relative to 2016, benefiting from both a lower cost of debt and the
extinguishment of the historic profit share arrangement with the lender to Grand Arcade, Wigan.
Other finance expense includes a GBP4.3 million non-cash charge in relation to the net fair value adjustment on refinancing of the fixed
rate Aviva facility. The fair value adjustment on the new facility was lower than that released on the old, due in part to the GBP21.7 million
prepayment made.
The year also saw GBP10.7 million in realised profits following disposal of 11 properties, with significant premiums received on Deansgate
Manchester, Exchange House Watford and a Carphone Warehouse unit at Priory Retail Park in Merton. In addition, the VBG portfolio
was disposed of via a share sale at a GBP3.8 million premium to the Group's proportionate share of its carrying value at 31 August 2016.
Balance sheet 31 August 2017 31 August 2016
Joint Group Joint Group
IFRS Ventures Total IFRS Ventures Total
GBPm GBPm GBPm GBPm GBPm GBPm
Property portfolio carrying value (1) 1,520.7 25.6 1,546.3 1,396.4 140.9 1,537.3
Net borrowings (769.0) (15.7) (784.7) (733.6) (74.5) (808.1)
Other assets, liabilities and NCI (11.3) (9.9) (21.2) 37.0 (66.4) (29.4)
IFRS NAV 740.4 - 740.4 699.8 - 699.8
Fair value of derivatives 7.4 12.4
Deferred tax 10.5 5.2
EPRA NAV 758.3 717.4
Diluted number of shares (millions) 1,830.1 1,795.4
EPRA NAV per share (pence) 41.4 40.0
(1) Market value of property, including property assets held for sale, adjusted to reflect head leases and tenant lease incentives.
EPRA NAV per share increased by 1.4 pence, or 3.5 per cent to 41.4 pence per share. This was primarily the result of realised and
unrealised gains on the property portfolio, a strengthening of the Euro and earnings for the year, offset by dividends paid.
Property portfolio
Valuation (1) Local currency
31 August 2017 31 August 2016 Gain/(loss) Gain/(loss) Gain/(loss)
Market value of the property portfolio GBPm GBPm GBPm % %
UK Retail 514.6 535.0 (25.1) (4.7) (4.7)
UK Commercial 364.2 334.1 27.8 8.3 8.3
UK Hotels 239.6 229.2 6.6 2.9 2.9
UK Total 1,118.4 1,098.3 9.3 0.8 0.3
Europe 311.7 279.9 31.4 11.2 2.5
Like-for-like property portfolio 1,430.1 1,378.2 40.7 3.0
Acquisitions 85.2 -
Disposals - 132.3
Development 23.4 18.5
Total market value of the property portfolio 1,538.7 1,529.0
(1) Valuation movements include the effect of capital expenditure, amortisation of head leases, tenant lease incentives and foreign currency
translation where applicable.
Following a number of asset management initiatives, the portfolio increased in value by 3.0 per cent like-for-like. The overall increase
was supported by the Group's European investments which benefited from the relative strength of the Euro, increasing by 11.2 per
cent compared to 2.5 per cent in local currency terms.
The UK Retail portfolio decreased by GBP25.1 million or 4.7 per cent, driven by the UK Shopping Centre portfolio which suffered rising
yields and a general lack of transactional evidence.
The UK Commercial portfolio continued its strong performance, with an 8.3 per cent like-for-like increase in values. Underpinning this
performance were particularly strong uplifts in offices and distribution warehouses caused by a reduction in vacancies, rising rents
and the weight of both overseas and domestic capital fuelling a competitive investment market.
The UK Hotels portfolio increased by 2.9 per cent following a strong trading performance, despite the increase in business rates
during the year. The DoubleTree by Hilton hotel in Edinburgh performed particularly well, drawing from Edinburgh's RevPar growth
in 2016 of 17 per cent. The London portfolio also continues to benefit from one of the highest occupancy rates in the UK at 82 per
cent, with growth in occupancy, average daily rate and RevPar forecast for both 2017 and 2018.
Debt and gearing
31 August 2017 31 August 2016
GBPm GBPm
Nominal value of drawn debt (842.2) (850.6)
Cash and short-term deposits 53.4 34.3
Net debt (788.8) (816.3)
Market value of the property portfolio 1,538.7 1,529.0
LTV (%) 51.3 53.4
Pro forma LTV (1) (%) 50.0 n/a
Weighted average debt maturity (years) 7.3 6.9
Weighted average interest rate (%) 3.1 3.4
Interest cover (times) 3.2 2.7
Debt with interest rate protection (%) 93.0 95.4
(1) Pro forma LTV adjusted for transactions completed post year end as outlined in Note 35 to the consolidated financial statements.
The Group's capital structure continued to improve during the year with an overall reduction in net debt, increased weighted average
debt maturity to 7.3 years, a 30 basis point reduction in borrowing costs and enhanced coverage of finance costs by operating income.
Cash flow Year ended Year ended
31 August 2017 31 August 2016
Joint Group Joint Group
IFRS Ventures Total IFRS Ventures Total
GBPm GBPm GBPm GBPm GBPm GBPm
Operating cash flows 49.4 2.2 51.6 39.6 3.2 42.8
Purchase and development of property (18.9) - (18.9) (489.9) - (489.9)
Joint venture disposal and acquisition (21.1) (2.2) (23.3) - - -
Disposal of property 95.8 0.4 96.2 38.8 - 38.8
Disposal of shares (Cromwell) - - - 80.2 - 80.2
Other 0.5 (0.7) (0.2) 1.2 (2.2) (1.0)
Investing cash flows 56.3 (2.5) 53.8 (369.7) (2.2) (371.9)
Issue of shares - - - 109.1 - 109.1
Net debt (repaid)/drawn (37.3) (1.4) (38.7) 197.8 (1.4) 196.4
Dividends paid (39.5) - (39.5) (29.4) - (29.4)
Other (6.5) - (6.5) (6.7) - (6.7)
Financing cash flows (83.3) (1.4) (84.7) 270.8 (1.4) 269.4
Net cash flow 22.4 (1.7) 20.7 (59.3) (0.4) (59.7)
Operating cash flows increased by GBP8.8 million on the prior year to GBP51.6 million a result of the increased net rental income from the
AUK acquisition and the German supermarket portfolio joint venture buy-out.
Investing cash inflows were generated from disposal proceeds, the most significant being the VBG portfolio and Deansgate,
Manchester. Cash outflows applied to investment activities included the acquisition of our joint venture partner's interest in the German
supermarket portfolio, GBP18.9 million applied primarily towards development activity at Ingolstadt in Germany and a 12-bedroom
extension to our Southwark Hotel on London's Southbank.
Financing activities included net repayment and prepayment of debt and dividends paid, including withholding tax. Scrip take-up on
the two dividend payments made during the year were 27.3 per cent and 28.8 per cent respectively which resulted in a cash saving
of GBP12.3 million.
Cash balances, including the Group's proportionate share of cash held in joint ventures, was GBP53.4 million at 31 August 2017, with
an additional GBP10.0 million available from committed undrawn facilities.
Dividends
The dividends paid and payable during the year represent an annualised yield of 6.3 per cent on EPRA NAV, and 6.6 per cent based
on the Group's share price at 31 August 2017.
The Board intend to offer shareholders a scrip dividend alternative. Full details including the tax components of the dividend and the
timetable will be released separately on Friday 27 October 2017. The dividend payment date has been set for Monday 18 December
2017, to shareholders on the register on Friday 1 December 2017.
Going concern
At 31 August 2017, the Group's cash and undrawn facilities were GBP63.4 million and its capital commitments were GBP16.8 million. Having
considered severe but plausible scenarios, the Directors are satisfied that the security of the Group's income taken together with an
average debt maturity profile in excess of seven years, headroom against financial covenants and strong interest cover, continues to
provide a reasonable expectation that the Group will have the resources it requires to meet ongoing and future commitments.
Accordingly, the 2017 consolidated financial statements have been prepared on a going concern basis.
Donald Grant
Chief Financial Officer
26 October 2017
Statement of Directors' responsibilities
The statement of Directors' responsibilities has been prepared in relation to the Group's Annual Report 2017. Certain parts of the
Annual Report are not included in this announcement.
We confirm to the best of our knowledge:
- the Group financial statements, which have been prepared in accordance with IFRS, give a true and fair view of the assets,
liabilities, financial position and profit of the Group; and
- the Strategic Report includes a fair review of the development and performance of the business and the position
of the Group.
By order of the Board
Mike Watters Donald Grant
Chief Executive Officer Chief Financial Officer
26 October 2017
CONSOLIDATED INCOME STATEMENT
for the year ended 31 August 2017
Year ended Year ended
31 August 31 August
2017 2016
Continuing operations Note GBPm GBPm
Revenue 3 102.1 89.6
Rental income 4 97.2 86.6
Rental expense (9.0) (6.2)
Net rental income 88.2 80.4
Other income 5 4.7 2.5
Administrative costs and other fees 6 (15.3) (10.9)
Net operating income 77.6 72.0
Gain/(loss) on revaluation of investment property 12 10.8 (42.5)
Loss on revaluation of investment property held for sale 19 (3.9) -
Gain on disposal of investment property 12 9.2 3.2
Gain on disposal of investment property held for sale 19 1.5 -
Gain on disposal of subsidiary 7 - 12.2
Distributions from investment at fair value 0.2 0.5
Loss on revaluation of investment at fair value 13 (0.3) (0.8)
Amortisation of intangible assets 16 (0.2) (0.2)
Gain on disposal of other non-current assets held for sale - 0.2
Foreign exchange gain - 0.9
Profit from operations 94.9 45.5
Finance income 8 3.4 6.3
Finance expense 8 (28.4) (32.7)
Other finance expense 9 (6.5) (1.9)
Change in fair value of derivative financial instruments 4.5 (11.1)
67.9 6.1
Net gain on sale of joint venture interests (1) 10 4.9 -
Net impairment of joint ventures and associate interests 14,15 (0.1) (0.6)
Share of post-tax (loss)/profit from joint ventures 14 (2.3) 1.4
Share of post-tax profit from associate 15,19 1.1 1.7
Transfer of foreign currency translation on disposal of joint venture interest 14 2.0 -
Profit before tax 73.5 8.6
Taxation 11 (3.9) (1.1)
Profit for the year 69.6 7.5
Profit attributable to:
Equity holders of the Parent 66.1 7.9
Non-controlling interests 26 3.5 (0.4)
69.6 7.5
Earnings per share
Weighted average number of shares (millions) 32 1,809.9 1,637.2
Diluted weighted average number of shares (millions) 32 1,811.9 1,637.9
Basic earnings per share (pence) 32 3.7 0.5
Diluted earnings per share (pence) 32 3.6 0.5
(1) Net gain on sale of joint venture interests relates to the disposal of the property-owning subsidiaries of one of the Group's joint ventures,
Wichford VBG Holding S.à.r.l. While the holding structure has been retained, the business of the joint venture has been disposed of and Wichford
VBG Holding S.à.r.l. holds only residual cash to settle working capital. The net gain on sale includes GBP2.2 million of cumulative foreign
currency translation that has been transferred to the income statement as part of the disposal.
The accompanying notes form an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 August 2017
Year ended Year ended
31 August 31 August
2017 2016
Continuing operations Note GBPm GBPm
Profit for the year 69.6 7.5
Other comprehensive income/(expense)
Transfer of foreign currency translation on disposal of subsidiaries 7 - (3.6)
Transfer of foreign currency translation on disposal of joint venture interests 25 (4.2) -
Foreign currency translation on subsidiary foreign operations 15.9 8.9
Foreign currency translation on joint ventures held by subsidiary foreign operations 1.0 8.6
Total other comprehensive income 12.7 13.9
Total comprehensive income for the year 82.3 21.4
Total comprehensive income attributable to:
Equity holders of the Parent 78.7 21.1
Non-controlling interests 3.6 0.3
82.3 21.4
The accompanying notes form an integral part of these consolidated financial statements.
CONSOLIDATED BALANCE SHEET
as at 31 August 2017
Re-presented
31 August 31 August
2017 2016
Note GBPm GBPm
Non-current assets
Investment property 12 1,494.9 1,396.4
Investment at fair value through profit or loss 13 8.5 7.9
Investment in joint ventures 14 1.9 5.8
Loans to joint ventures 14 4.3 52.9
Investment in associate 15 9.4 10.2
Intangible assets 16 1.1 1.3
Property, plant and equipment 0.1 0.1
Derivative financial instruments 21 0.4 0.8
Trade and other receivables 17 8.4 4.7
Total non-current assets 1,529.0 1,480.1
Current assets
Trade and other receivables 17 15.5 26.7
Cash and cash equivalents 18 52.8 32.0
68.3 58.7
Non-current assets held for sale 19 27.3 -
Total current assets 95.6 58.7
Total assets 1,624.6 1,538.8
Non-current liabilities
Borrowings, including finance leases 20 (818.9) (752.8)
Derivative financial instruments 21 (7.8) (12.6)
Deferred tax 22 (10.4) (3.4)
Total non-current liabilities (837.1) (768.8)
Current liabilities
Borrowings, including finance leases 20 (2.9) (12.8)
Trade and other payables 23 (21.2) (21.4)
Tax liabilities (1.2) (2.4)
Total current liabilities (25.3) (36.6)
Total liabilities (862.4) (805.4)
Net assets 762.2 733.4
Equity
Share capital 24 146.2 143.6
Share premium 24 511.8 502.1
Other components of equity 82.4 54.1
Total attributable to equity holders of the Parent 740.4 699.8
Non-controlling interests 26 21.8 33.6
Total equity 762.2 733.4
The accompanying notes form an integral part of these consolidated financial statements.
The consolidated financial statements were approved by the Board of Directors on 26 October 2017 and were signed
on its behalf by:
Mike Watters Donald Grant
Chief Executive Officer Chief Financial Officer
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 August 2017
Total
Foreign attributable
Reverse Retained currency to equity Non-
Share Share acquisition profit/ Other translation holders of controlling Total
capital premium reserve (loss) reserves reserve the Parent interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 September 2016 143.6 502.1 134.3 (94.2) 3.2 10.8 699.8 33.6 733.4
Profit for the year - - - 66.1 - - 66.1 3.5 69.6
Transfer of foreign currency translation on
disposal of joint venture interests 25 - - - - - (4.2) (4.2) - (4.2)
Foreign currency translation on subsidiary foreign
operations - - - - - 15.8 15.8 0.1 15.9
Foreign currency translation on joint venture
interests held by subsidiary foreign operations 14 - - - - - 1.0 1.0 - 1.0
Total comprehensive income for the year - - - 66.1 - 12.6 78.7 3.6 82.3
Transactions with equity holders of the Parent
Dividends paid - - - (39.5) - - (39.5) - (39.5)
Scrip dividends 24 2.6 9.7 - (12.3) - - - - -
Merger reserve release 25 - - (134.3) 134.3 - - - - -
Fair value of share-based payments - - - - 1.0 - 1.0 - 1.0
2.6 9.7 (134.3) 82.5 1.0 - (38.5) - (38.5)
Changes in ownership interests in
subsidiaries
Reclassification of non-controlling interest
shareholder loans to liabilities 26 - - - - - - - (0.3) (0.3)
Dividends paid to non-controlling interests 26 - - - - - - - (1.7) (1.7)
Non-controlling interests on acquisition of control
of former joint venture - - - - - - - (0.7) (0.7)
Acquisition of non-controlling interests 27 - - - 0.4 - - 0.4 (12.7) (12.3)
- - - 0.4 - - 0.4 (15.4) (15.0)
Balance at 31 August 2017 146.2 511.8 - 54.8 4.2 23.4 740.4 21.8 762.2
The accompanying notes form an integral part of these consolidated financial statements.
Total
Foreign attributable
Reverse currency to equity Non-
Share Share acquisition Retained Other translation holders of controlling Total
capital premium reserve loss reserves reserve the Parent interests equity
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 September 2015 117.9 395.0 134.3 (48.8) 2.0 (2.4) 598.0 38.8 636.8
Profit for the year - - - 7.9 - - 7.9 (0.4) 7.5
Transfer of foreign currency translation on
disposal of subsidiary 7 - - - - - (3.6) (3.6) - (3.6)
Foreign currency translation on subsidiary foreign
operations - - - - - 8.2 8.2 0.7 8.9
Foreign currency translation on joint venture
interests held by subsidiary foreign operations 14 - - - - - 8.6 8.6 - 8.6
Total comprehensive income for the year - - - 7.9 - 13.2 21.1 0.3 21.4
Transactions with equity holders of the Parent
Shares issued for cash 24 21.7 87.4 - - - - 109.1 - 109.1
Dividends paid - - - (29.4) - - (29.4) - (29.4)
Scrip dividends 24 4.0 19.7 - (23.7) - - - - -
Fair value of share-based payments - - - - 1.2 - 1.2 - 1.2
25.7 107.1 - (53.1) 1.2 - 80.9 - 80.9
Changes in ownership interests in
subsidiaries
Decrease in non-controlling interests 26 - - - - - - - (1.2) (1.2)
Dividends paid to non-controlling interests 26 - - - - - - - (2.2) (2.2)
Acquisition of non-controlling interests 27 - - - (0.2) - - (0.2) (2.1) (2.3)
- - - (0.2) - - (0.2) (5.5) (5.7)
Balance at 31 August 2016 143.6 502.1 134.3 (94.2) 3.2 10.8 699.8 33.6 733.4
The accompanying notes form an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 August 2017
Year ended Year ended
31 August 31 August
2017 2016
Continuing operations Note GBPm GBPm
Cash generated from operations 28 75.6 69.2
Interest received 2.6 3.3
Interest paid (27.0) (27.8)
Net tax paid (1.8) (5.1)
Net cash inflow from operating activities 49.4 39.6
Cash flows from investing activities
Net cash disposed on sale of subsidiary 7 - (0.4)
Purchase and development of investment property (18.9) (489.9)
Net proceeds on sale of investment property 12 54.9 38.8
Net proceeds on sale of investment property held for sale 19 40.9 -
Distributions from investments at fair value 0.7 -
Disposal of investment at fair value - 80.2
Acquisition of investment at fair value - (8.4)
Net proceeds received on sale of joint venture interests (1) 18.7 -
Acquisition of control of joint venture (42.1) -
Cash transferred on acquisition of control of joint venture 2.3 -
Increase in loans to joint ventures 14 - (0.5)
Decrease in loans to joint ventures 14 0.7 2.6
Distributions from associate 15 1.2 2.0
Disposal of other non-current assets held for sale - 0.2
Increase in loan to external party (2.1) -
Increase in loans to related parties - (2.0)
Decrease in loans to related parties - 7.7
Net cash inflow/(outflow) from investing activities 56.3 (369.7)
Cash flows from financing activities
Issue of share capital - 115.0
Share issue costs paid - (5.9)
Proceeds from borrowings 199.5 332.5
Repayment of borrowings (236.8) (134.7)
Payment of Aviva share of profit (1.4) (0.3)
Settlement of Aviva profit share right on refinancing (5.5) -
Other finance expense (0.6) (4.0)
Derivative financial instruments purchased and settled (0.1) (2.4)
Dividends paid to equity holders (39.5) (29.4)
Dividends paid and loans re-paid to non-controlling interests (1.5) (2.3)
Acquisitions from non-controlling interests 27 - (2.3)
Movement in restricted cash and cash equivalents 2.6 4.6
Net cash (outflow)/inflow from financing activities (83.3) 270.8
Net increase/(decrease) in unrestricted cash and cash equivalents 22.4 (59.3)
Effect of exchange rate fluctuations on cash and cash equivalents 1.0 2.3
Unrestricted cash and cash equivalents at 1 September 28.7 85.7
Unrestricted cash and cash equivalents at 31 August 52.1 28.7
Restricted cash and cash equivalents at 31 August 18 0.7 3.3
Cash and cash equivalents at 31 August 18 52.8 32.0
(1) Net proceeds of GBP18.7 million received during the year to 31 August 2017 on disposal of joint ventures interest of Wichford VBG Holding S.à.r.l.
are comprised of the Group's 49 per cent share of the proceeds received of GBP38.2 million after the deduction of the Performance Fee of
GBP3.4 million (gross cash proceeds: GBP41.6 million) and includes the repayment of loans advanced by the Group to the joint venture of
GBP12.5 million. The Performance Fee received has been separately presented under operating activities.
The accompanying notes form an integral part of these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 August 2017
1. GENERAL INFORMATION
Redefine International P.L.C. was incorporated in the Isle of Man on 28 June 2004 (Registered Number: 111198C) and was re-
registered under the Isle of Man Companies Act 2006 on 3 December 2013 (Registered Number: 010534V).
On 4 December 2013, the Company converted to a UK-REIT and transferred its tax residence from the Isle of Man to the United
Kingdom ("UK").
The Company holds a primary listing on the Main Market of the London Stock Exchange ("LSE") and a secondary listing on the Main
Board of the Johannesburg Stock Exchange ("JSE").
The financial information presented here does not amount to statutory financial statements. The Annual Report 2017 for the year
ended 31 August 2017 will be available on the Company's website (www.redefineinternational.com) in early December 2017. The
auditors, KPMG, have reported on the audited financial statements and their report was unmodified. A copy is available upon request
from the Company's registered office at 24 North Street, Douglas, Isle of Man, IM1 4LE.
2. SIGNIFICANT ACCOUNTING POLICIES
2.1 STATEMENT OF COMPLIANCE
The consolidated financial statements for the year ended 31 August 2017 have been prepared in accordance with International
Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). The relevant new
standards, amendments and interpretations that have been adopted during the year are set out in the following table:
International Financial Reporting Standard
Annual improvements to IFRSs 2012-2014 cycle
IFRS 5 'Non-Current Assets Held for Sale and Discontinued Operations' (amendment) ("IFRS 5")
IFRS 7 'Financial Instruments: Disclosures' (amendment) ("IFRS 7")
Other amendments
IAS 1 'Presentation of Financial Statements' (amendment) ("IAS 1")
IAS 16 'Property, Plant and Equipment' (amendment) ("IAS 16")
IAS 27 'Consolidated and Separate Financial Statements' (amendment) ("IAS 27")
IAS 28 'Investments in Associates and Joint Ventures' (amendment) ("IAS 28")
IAS 38 'Intangible Assets' (amendment) ("IAS 38")
IFRS 10 'Consolidated Financial Statement' (amendment) ("IFRS 10")
IFRS 11 'Joint Arrangements' (amendment) ("IFRS 11")
IFRS 12 'Disclosure of Interests in Other Entities' (amendment) ("IFRS 12")
The adoption of these improvements and amendments has not had a material impact on the financial statements of the Group.
The accounting policies otherwise applied by the Group are the same as those applied in the audited consolidated financial statements
as at and for the year ended 31 August 2016.
Disclosed in the table below are the relevant new standards, amendments and interpretations that have been issued by the IASB but
are not yet effective or have not been early adopted. The impact of these improvements and amendments on the consolidated
financial statements of the Group is being assessed.
Effective annual periods
International Financial Reporting Standard beginning on or after:
Annual improvements to IFRSs 2014-2016 cycle
IFRS 12 'Disclosure of Interests in Other Entities' (amendment) 1 January 2017
IAS 28 'Investments in Associates and Joint Ventures' (amendment) 1 January 2018
Other amendments
IAS 7 'Statement of Cash Flows' (amendment) ("IAS 7") 1 January 2017
IAS 12 'Income Taxes' (amendment) ("IAS 12") 1 January 2017
IFRS 2 'Share-Based Payment' (amendment) ("IFRS 2") 1 January 2018
IFRS 9 'Financial Instruments' (amendment) ("IFRS 9") 1 January 2018
IFRS 15 'Revenue from Contracts with Customers' ("IFRS 15") 1 January 2018
IAS 40 'Investment Property' (amendment) ("IAS 40") 1 January 2018
IFRS 16 'Leases' ("IFRS 16") 1 January 2019
Interpretations
IFRIC 22 'Foreign Currency Transactions and Advance Consideration' 1 January 2018
IFRIC 23 'Uncertainty over Income Tax Treatments' 1 January 2019
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, and rounded to the nearest hundred thousand pounds. They are prepared using the
historical cost basis except for investment property, certain assets held for sale, derivative financial instruments and financial
instruments designated at fair value through profit and loss, all of which are carried at fair value.
GOING CONCERN
The Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future
and for this reason the financial statements have been prepared on a going concern basis.
RE-PRESENTATION OF PRIOR YEAR COMPARATIVES
Certain presentational changes have been made to the comparative balance sheet to ensure consistency with the current year. This
has resulted in the reclassification of tenant lease incentives of GBP3.8 million and other receivables of GBP0.9 million from current assets
to non-current assets. In line with the requirements of IAS 1, Paragraph 60, these amounts would not have been settled or recovered
within twelve months of the balance sheet date as at 31 August 2016. In addition, current tax liabilities of GBP2.4 million as at 31 August
2016 have been presented separately on the face of the consolidated balance sheet in accordance with IAS 1, Paragraph 54 (n).
Current tax liabilities were previously included in trade and other payables.
2.3 KEY JUDGEMENTS AND ESTIMATES
The preparation of the consolidated 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 year. Although these estimates are based on the Directors' best knowledge of the amount, event or actions, actual results may
differ materially from those estimates.
The principal areas where such judgements and estimates have been made are detailed below:
INVESTMENT PROPERTY VALUATION
The Group uses valuations determined by independent valuers in accordance with IFRS 13 'Fair Value Measurement' ("IFRS 13") as
the fair value of its investment property. The valuations are based upon assumptions including estimated rental values, future rental
income, anticipated maintenance costs, future development costs and appropriate market yields. The valuers also make reference to
market evidence of transaction prices for similar properties. Further details are provided in Note 12.
CORPORATE AND PROPERTY ACQUISITIONS
When control is obtained over an entity or group of entities, judgement is required in determining whether the transaction constitutes
a business combination with reference to the inputs, processes and outputs of the subsidiary or subsidiary group acquired. If it is
determined that the transaction is a business combination, the requirements of IFRS 3 'Business Combinations' ("IFRS 3") are applied.
In addition, when a property is acquired directly, the Directors have regard to the substance of the transaction and whether related
processes and activities have been assumed which would represent a business. When such an acquisition is considered to be the
acquisition of a business, the requirements of IFRS 3 apply as above, otherwise the transaction is treated as an acquisition of a
property asset in line with IAS 40.
CLASSIFICATION OF UK HOTELS AS INVESTMENT PROPERTY
The UK Hotels are held for capital appreciation and to earn rental income. Apart from one of the properties, the hotels have been let
to Redefine Hotel Management Limited ("RHML") and Redefine Earls Court Management Limited ("RECML"), on lease terms which
are subject to annual review. At each review, the revised rent is set with reference to the forecast EBITDA of the hotels. RHML and
RECML run the hotels' operating business and are therefore exposed to fluctuations in the underlying trading performance of each
hotel under management. They are responsible for the key decision making of the business operations and the day-to-day upkeep of
the properties.
The Group cumulatively holds a 30.4 per cent shareholding in RedefineBDL Hotel Group Limited ("RedefineBDL"), which in turn
controls RHML and RECML. Having considered the guidance in IFRS 10, the respective rights of each of the shareholders in
RedefineBDL and the relative size of the Group's shareholding, the Directors have determined that the Group has the ability to
exercise significant influence over RedefineBDL. The Group does not control RedefineBDL and hence does not control RHML or
RECML. The investment in RedefineBDL is therefore classified as an associate.
The Group is not involved with the operation of the hotel management business and there are limited transactions between the two
entities. As a result, the hotels are classified as investment property in accordance with IAS 40.
CLASSIFICATION OF THE GROUP'S INVESTMENT IN INTERNATIONAL HOTEL PROPERTIES LIMITED ("IHL") AT FAIR VALUE THROUGH PROFIT OR LOSS
On 14 October 2015, the Company acquired, by way of private placement, 3.8 million shares in the newly listed group, International
Hotel Properties Limited (formerly International Hotel Group Limited), for GBP3.8 million. On the date of listing, this investment
represented 25.4 per cent of the entity's issued share capital and the investment was recognised as an associate of the Group under
the equity method. On 20 October 2015, the Group ceased to recognise IHL as an associate when its shareholding was diluted to
13.2 per cent and the investment was reclassified as a financial instrument at fair value through profit or loss. At 31 August 2016, the
Group held a 15.5 per cent interest in IHL. During the year ended 31 August 2017, the Group's shareholding increased by 1.7 per
cent to 17.2 per cent. Refer to Note 13 for further details on changes in the Group's ownership interests in IHL.
The degree of judgement relating to the classification as a financial instrument at fair value through profit or loss has increased given
that the Company currently has representation on IHL's board of directors. In drawing their conclusion, the Directors have considered
the criteria for significant influence in paragraphs 5-9 of IAS 28, the relative size of the Group's shareholding and the fact the Group
does not have the right to appoint a director. Having considered all the facts and circumstances, the Directors believe that the
designation of the Company's investment as a financial asset at fair value through profit or loss continues to be appropriate as at
31 August 2017.
Refer to Note 35 for changes to the Group's interests in IHL subsequent to the balance sheet date.
FAIR VALUE OF RESTRUCTURED LIABILITIES
New borrowings or existing 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 the cash flows associated with the liability
at a market discount rate. The key judgement surrounds the determination of an appropriate market benchmark. 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 judgement 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 its fair value equivalent will be recognised immediately in the income statement insofar as the fair value
measurement is based on observable inputs. The deemed fair value will subsequently be accreted through profit or loss over the term
of the loan using the effective interest rate method.
AVIVA PROFIT SHARE AND CAPITAL APPRECIATION RIGHTS
As part of the Aviva debt restructure in 2013, Aviva, the lender with security over the Group's shopping centre asset, Grand Arcade,
Wigan, had a right under the facility agreement to participate in 50 per cent of the valuation uplifts of the property in excess of the
value of the drawn debt ("capital appreciation right"). Once the value of the property exceeded GBP90 million, Aviva had the additional
right to realise tranches of the excess valuation at any time, with corresponding reductions to their right to profit share participation.
Up to and including the year ended 31 August 2016, the Group recognised a financial liability in respect of Aviva's right to participate
in the profits of the shopping centre. However, no provision was recognised in respect of Aviva's capital appreciation right as a reliable
estimate of the provision could not be made and it was not considered probable that a payment to Aviva would be required. The
contractual obligation was disclosed as a contingent liability. During the year ended 31 August 2017, the debt was again restructured
and both Aviva's existing capital appreciation and profit participation rights were formally extinguished.
2.4 ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
INVESTMENT IN SUBSIDIARIES
A subsidiary undertaking is an investee controlled by the Group. The Group controls an investee when it has power over the investee,
is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through
its power over the investee. Subsidiaries are consolidated in the Group's financial statements from the date on which control
commences until the date that control ceases. The Group reassesses whether it controls a subsidiary when facts and circumstances
indicate that there are changes to one or more elements of control.
The Group accounts for business combinations using the acquisition method, under which the consideration transferred is measured
at fair value, and acquisition related costs are recognised in the income statement as incurred. Any excess in the purchase price of
business combinations over the Group's share of the fair value of the assets, liabilities and contingent liabilities acquired is recognised
as goodwill while any discount received is credited immediately to the income statement. If it is determined that an acquisition does
not constitute a business combination, the transaction is accounted for as an asset acquisition and the relevant IFRSs are applied in
the recognition of a group of assets and liabilities. No goodwill arises on initial recognition but any premium paid or discount received
is allocated to the individual identifiable assets and liabilities based on their relative fair values.
The Group recognises non-controlling interests on the basis of their proportionate share in the subsidiary's identifiable net assets.
Non-controlling interests are presented separately from the equity of the owners of the Parent on the balance sheet. Profit or loss and
total comprehensive income for the year attributable to non-controlling interests are presented separately in the income statement
and the statement of comprehensive income.
If the Group loses control of a subsidiary, the Group:
- derecognises the assets (including any goodwill) and liabilities of the former subsidiary at their carrying amounts at the date
control is lost;
- derecognises the carrying amount of any non-controlling interests in the former subsidiary at the date control is lost (including
amounts of other comprehensive income attributed to non-controlling interests);
- recognises the fair value of any consideration received;
- reclassifies to profit or loss, or transfers directly to retained earnings, amounts recognised in other comprehensive income in
relation to the subsidiary on the same basis as would be required if the Parent had directly disposed of the related assets or
liabilities;
- recognises any investment retained in the former subsidiary at its fair value at the date when control is lost; and
- recognises any resulting difference of the above items as a gain or loss in the income statement.
The Group subsequently accounts for any investment retained in the former subsidiary in accordance with IAS 39 'Financial
Instruments' ("IAS 39"), or when appropriate, in accordance with IAS 28. For a change in the Group's interest in a subsidiary that
does not result in a loss of control, the Group adjusts the carrying amounts of the controlling and non-controlling interest to reflect the
changes in their relative interests. Any difference between the value of the non-controlling interest acquired or disposed of and the
fair value of the consideration is recognised directly in equity and attributed to the equity holders of the Parent.
TRANSACTIONS ELIMINATED ON CONSOLIDATION
Intra-group balances, transactions, any unrealised gains and losses or income and expenses arising from intra-group transactions
are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised
gains, but only to the extent that there is no evidence of impairment.
INVESTMENT IN ASSOCIATES AND JOINT VENTURES
Associates are entities over whose financial and operating policies the Group has the ability to exercise significant influence but not
control and which are neither subsidiaries nor joint arrangements. The Group classifies its interests in joint arrangements as either
joint operations or joint ventures depending on the Group's contractual rights to the assets and obligations for the liabilities. When
making this assessment, the Group considers the structure of the arrangements, the legal form of any separate vehicles, the
contractual terms and other facts and circumstances specific to each transaction.
Investments in associates and joint ventures are initially recorded at cost and subsequently increased or decreased each year by the
Group's share of the post-acquisition net profit or loss and other movements recognised in other comprehensive income or directly
in equity. The Group's share of the post-tax results of the associate or joint venture reflects the Group's proportionate interest in the
relevant undertaking.
Goodwill arising on the acquisition of an associate or joint venture is included in the carrying amount of the investment. When the
Group's share of losses in an associate or joint venture has reduced the carrying amount to zero, including any other unsecured
receivables, the Group does not recognise further losses, unless it has incurred obligations to make payments on behalf of the
associate or joint venture.
As goodwill forms part of the carrying amount of the net investment, it is not recognised separately and it is not tested for impairment
separately. Instead, the entire amount of the investment in an associate or joint venture is tested for impairment as a single asset
where there is objective evidence that the investment may be impaired. Reversals of impairment are recorded as an adjustment to
the investment balance to the extent that the recoverable amount of the associate or joint venture increases.
Capital contributions result from the non-reciprocal transfer of resources to an associate or joint venture without a corresponding
increase in the Group's equity interest. Capital contributions are also accounted for as an increase in the Group's net investment and
are subject to impairment.
Unrealised gains and losses arising from transactions with associates and joint ventures are eliminated to the extent of the Group's
interest in those entities.
Where the Group obtains significant influence or joint control over an investment that was previously accounted for as a financial
instrument under IAS 39, the Group's previously held interest is re-measured to fair value through profit or loss. The deemed cost of
the associate or joint venture is the fair value of the existing investment plus the fair value of any consideration given to achieve
significant influence or joint control.
When the Group ceases to have significant influence or joint control, it is accounted for as a disposal of the entire interest under the
equity method, with a resulting gain or loss being recognised in the income statement. Any retained interest in the investment at the
date when significant influence or joint control is lost is recognised at fair value on initial recognition of a financial asset or, when
appropriate, treated as the deemed cost on initial recognition of an investment in an associate.
Any gain or loss on the dilution of an interest in an equity accounted investee is calculated as the difference between the carrying
amounts of the investment in the equity accounted investee, immediately before and after the transaction that resulted in the dilution
and is recognised in the income statement.
INTANGIBLE ASSETS
Intangible assets arising on business combinations are carried at cost less impairment. Amortisation of intangible assets is recognised
in profit or loss on a straight-line basis over their estimated useful life from the date that they are available for use.
CURRENCY TRANSLATION
FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the foreign exchange
rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary
assets and liabilities denominated in foreign currencies that are stated at fair value are translated to the functional currency at the
foreign exchange rates ruling at the date that the values are determined.
FOREIGN OPERATIONS
Exchange differences arising from the translation of the net investment in foreign operations are taken to the foreign currency
translation reserve. Cumulative exchange differences are subsequently released to the income statement upon disposal. On
consolidation, the balance sheets of foreign subsidiaries are translated at the closing rate and the income statement and statement
of comprehensive income are translated at the transaction date rates or at an average rate for the year where this is a reasonable
approximation.
REVENUE RECOGNITION
Rental income, including fixed stepped rent, is recognised in the income statement on a straight-line basis over the lease term. Tenant
lease incentives, including rent-free periods granted and cash contributions paid, which are an integral part of securing leases, are
amortised as a reduction of rental income over the lease term. Surrender premiums that are paid by the Group to tenants to vacate
a property are also treated as lease incentives if the surrender results in an enhanced future rental income stream.
Contingent rents are recognised as they arise. Rent reviews are recognised as income or as a reduction thereof from the date it is
probable that the revised terms will be agreed. Surrender premiums paid by the tenant to terminate a lease early are recognised
immediately in the income statement.
Management fees receivable from joint ventures are recognised in other income during the year in which the services are rendered.
Performance fees are recognised when the conditions are satisfied.
Dividends from listed property investments are recognised on the date the Group's right to receive payment is established.
Interest earned on loans receivable and on cash invested is recognised on an accruals basis using the effective interest rate method.
SERVICE CHARGES
Where the Group invoices budgeted service charges to tenants, amounts received are not recognised as income as the risks in
relation to the subsequent provision of actual goods and services are primarily borne by the tenants during the service charge period.
Consequently, amounts received are recognised as a liability on the balance sheet and reduced by the actual service charge
expenditure incurred. Any non-recoverable service charge expenses suffered by the Group, as a result of void or capped units, are
included within rental expense in the income statement.
EMPLOYEE BENEFITS AND SHARE-BASED PAYMENTS
Employee benefits, such as salaries and other benefits, are accounted for on an accruals basis over the period during which
employees have provided services. Bonuses are recognised to the extent that the Group has a legal or constructive obligation to its
employees that can be measured reliably.
Share-based incentives are provided to certain employees and Executive Directors for services rendered. The Group's share-based
payments are all equity-settled. The fair value of each award granted is calculated at the grant date, using the Monte Carlo and Black-
Scholes valuation methodologies. The fair value is not subsequently re-measured and is recognised in the share based payment
reserve in equity on a straight-line basis over the vesting period as adjusted for the Group's estimate of the awards that will eventually
vest at each reporting date. The corresponding compensation cost is recognised as an administrative expense over the vesting period.
At the end of the performance period, a reserves transfer occurs with no further charge reflected in the income statement.
INCOME TAX
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the consolidated income
statement except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case it
is recognised in other comprehensive income.
Current tax is based on taxable profit or loss for the year and is calculated using tax rates that have been enacted or substantively
enacted by the reporting date. Taxable profit differs from net profit as reported in the income statement because it excludes items of
income that are not taxable or expenses that are not tax deductible.
Deferred tax is recognised using the balance sheet liability method, providing for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and their relative tax base. The amount of deferred tax provided is based on
the expected manner of realisation or settlement, using tax rates enacted or substantively enacted at the reporting date.
The following temporary differences are not provided for: those arising from goodwill not deductible for tax purposes; those arising
from the initial recognition of assets or liabilities that affect neither accounting or taxable profit; and those relating to investments in
subsidiaries and joint ventures where the timing of the reversal can be controlled and it is probable that the temporary difference will
not reverse in the foreseeable future.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the
asset can be utilised and is reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax
liabilities are provided only to the extent that there are not sufficient tax losses to shield the charge.
INVESTMENT PROPERTY
In accordance with IAS 40, Paragraph 14, judgement may be required to determine whether a property qualifies as investment
property. The Group has developed criteria so that it can exercise judgement consistently in recognising investment property, namely:
property held for long-term capital appreciation; property owned (or held under finance leases) and leased out under one or more
operating leases; and property that is being developed for future use as investment property. The recognition and classification of
property as investment property principally assumes that the Group:
- does not retain significant exposure to the variation in cash flows arising from the underlying operations of tenants; and
- will recover the carrying value through continuing rental income streams and longer-term capital appreciation.
Investment properties are initially recognised at cost, including directly attributable transaction costs, and subsequently measured at
fair value. The portfolios are valued on a bi-annual basis by external, independent and professionally qualified valuers, having recent
experience in the location and category of the property being valued. The fair values are based on market values, being the estimated
amount for which the property could be exchanged on a highest and best use basis between a willing buyer and seller in an arm's
length transaction.
The valuations are determined by considering comparable and timely market transactions for sales and lettings and having regard
for the current leases in place. In the case of lettings, this includes consideration of the aggregate net annual market rents achievable
for the property and associated costs. A yield which reflects the risks inherent in the future cash flows is applied to the net annual
rents to arrive at the property valuation.
The bi-annual valuations of investment property are based upon estimates and subjective judgements that may vary materially from
the actual values and sales prices that may be realised by the Group upon ultimate disposal. The critical assumptions made in
determining the valuations have been included in Note 12 to the financial statements.
In determining fair value, the market value of the property as determined by the independent valuers is reduced by the carrying
amount of tenant lease incentives and increased by the carrying amount of fixed head leases.
Gains or losses arising from changes in the fair value of investment property are included in the income statement in the year in which
they arise.
Subsequent expenditure is capitalised to investment property when the expenditure incurred enhances the future economic benefits
associated with the property, such as enhanced future rental income, capital appreciation or both. Contributions to tenant
refurbishments under lease arrangements are treated as tenant lease incentives and amortised against rental income over the term
of the lease.
As the fair value model is applied, property under construction or redevelopment for future use as investment property continues to
be measured at fair value unless the fair value cannot be measured reliably and the property is measured at cost. All finance costs
directly associated with the acquisition and construction of a qualifying development property are capitalised during the period of
active development until practical completion. The rate applied is the actual rate payable on specific borrowings or the weighted
average cost of debt of the Group for development spend that is financed out of general funds.
Acquisition and disposals of investment property are recognised when significant risks and rewards attached to the property have
transferred to, or from, the Group. This will ordinarily occur on exchange of contracts unless there are significant conditions pending
completion. Such transactions are recognised when these conditions are satisfied. The profit or loss on disposal of investment
property is recognised separately in the income statement and is the difference between the net sales proceeds and the opening fair
value asset plus any capital expenditure during the period to disposal.
A property ceases to be recognised as investment property and is transferred at its fair value to property held for sale when it meets
the criteria of IFRS 5.
Property held by the Group under long-term leases are also treated as investment property in line with IAS 40. The Group's leasehold
interests are all classified as finance leases as substantially all the risks and rewards of ownership of the property have transferred
to the Group. Finance leases are recognised as both an asset and a liability and are measured at the lower of fair value and the
present value of any future minimum lease payments. The finance lease obligation to the superior leaseholder is recognised within
borrowings on the balance sheet. Lease payments are apportioned between the finance charges and the capital reduction of the
lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability over the lease term. Finance
charges are charged through profit or loss as they arise.
FINANCIAL INSTRUMENTS - RECOGNITION, CLASSIFICATION AND MEASUREMENT
Non-Derivative Financial Instruments
A financial instrument is recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets
are derecognised when the Group's contractual rights to the cash flows from those assets expire or when the Group transfers the
assets to another party without retaining control or substantially all risks and rewards of ownership. Regular way purchases and sales
of financial assets are accounted for at trade date. Financial liabilities are derecognised when the Group's obligations specified in the
contract expire.
Non-derivative financial instruments are recognised initially at fair value plus, for those instruments not designated at fair value through
profit or loss, any directly attributable transaction costs. Non-derivative financial instruments comprise investments in equity securities,
trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other payables. Loan receivables and
payables are subsequently measured at amortised cost using the effective interest rate method.
Investments at Fair Value through Profit or Loss
An instrument is classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition.
Financial instruments are designated as fair value through profit or loss if the Group manages such investments and makes purchase
and sale decisions based on their fair value. Upon initial recognition, attributable transaction costs are recognised in profit or loss as
incurred. Financial instruments at fair value through profit or loss comprise equity securities and are measured at fair value with
changes therein at each reporting date recognised in the income statement. Fair values are determined by reference to their quoted
bid price at the reporting date.
Derivative Financial Instruments
The Group holds derivative financial instruments to manage its interest rate risk exposures. Derivatives are recognised initially at fair
value on the date the Group becomes party to the contract; any attributable transaction costs are recognised in the income statement
as incurred. Derivatives are subsequently re-measured to fair value at each reporting date, and changes therein are accounted for in
the income statement and presented under change in fair value of derivative financial instruments. The Group does not apply hedge
accounting.
IMPAIRMENT OF FINANCIAL ASSETS
Financial assets not carried at fair value through profit or loss are assessed at each reporting date to determine whether there is
objective evidence of impairment. A financial asset is impaired if objective evidence indicates that a loss event has occurred and
factors include: adverse changes in the payment status of a debtor or issuer; default or delinquency by a debtor; restructuring of an
amount due on terms that the Group would not consider otherwise; potential bankruptcy of a debtor or issuer; and economic conditions
that correlate with defaults or the disappearance of an active market for a security.
An impairment loss is calculated as the difference between the carrying amount of the financial asset and the present value of the
estimated future cash flows discounted at the asset's original effective interest rate. When a subsequent event objectively causes the
amount of impairment loss to decrease, the decrease in impairment loss is calculated on a basis consistent with the impairment
charge but the carrying value after any reversal must not exceed the original carrying value.
Impairment losses and reversals are recognised in the income statement and reflected in an allowance account against loans and
receivables. Finance income on impaired interest-bearing assets continues to be recognised.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash balances on hand, cash deposited with financial institutions and short-term call deposits.
Cash and cash equivalents are recognised at fair value and have maturities of less than three months. Restricted cash comprises
cash deposits that are restricted until the fulfilment of certain conditions.
NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE
A non-current asset or a disposal group (comprising assets and liabilities) is classified as held for sale if it is expected that the carrying
value will be recovered by the Group principally through sale rather than through continuing use and the sale is highly probable. The
asset or disposal group must be available for immediate sale, be actively marketed at a reasonable approximation to fair value and
the sale must have the appropriate level of management commitment. The sale may complete beyond a period of one year from
classification so long as there is sufficient evidence of a firm commitment from both parties and the circumstances of the delay are
beyond the Group's control.
Where there is commitment to a sale plan involving the loss of control of a subsidiary, the loss of joint control of a joint venture or
significant influence over a joint venture and the criteria set out above are met, the Group classifies all the assets and liabilities of that
subsidiary or the equity accounted investment in the joint venture or associate as held for sale. This classification is appropriate
regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale. Where significant influence
over an associate will not be lost, only that portion of the investment for which there is a commitment to sell shall be reclassified as
held for sale.
On initial classification as held for sale, non-current assets and disposal groups are ordinarily measured at the lower of the previous
carrying amount and fair value less costs to sell, with any adjustments recognised in the income statement and subsequently re-
measured at each reporting date. Certain assets such as financial assets within the scope of IAS 39 and investment property in the
scope of IAS 40 continue to be measured in accordance with those standards.
Gains and losses on re-measurement and impairment losses subsequent to classification as held for sale are presented within
continuing operations in the income statement, unless they meet the definition of a discontinued operation. Non-current assets held
for sale are presented separately under current assets on the balance sheet. Comparatives are not reclassified.
BORROWINGS
Interest-bearing borrowings are recognised initially at fair value less directly attributable transaction costs. Any difference between
the transaction price and the deemed fair value of the borrowing is treated as a gain or loss in the income statement when the
determination of fair value is based on observable inputs. Subsequent to initial recognition, interest-bearing borrowings are measured
at amortised cost. Any differences between cost and the redemption value as a result of transaction costs incurred or fair value
adjustments are recognised in the income statement over the contractual term of the borrowings on an effective interest rate basis.
A financial liability is derecognised when it is extinguished. This may happen when:
- full repayment is made to the lender;
- the borrower is legally released from primary responsibility for the financial liability; or
- where there is an exchange of debt instruments with substantially different terms or a substantial modification to the existing
terms of a debt instrument.
In the event of a substantial modification of terms, any difference between the carrying amount of the original liability and the
consideration paid is recognised in the income statement. The consideration paid includes non-financial assets transferred and the
assumption of liabilities, including the new modified financial liability. The modified borrowing is recognised initially at fair value and
subsequently carried at amortised cost under the effective interest rate method. Any costs or fees incurred are recognised as part of
the gain or loss on extinguishment.
Where existing borrowings are exchanged for new or amended borrowings and the terms are not substantially different, the new
borrowings are recognised initially at the carrying amount of the existing borrowings. Any costs or fees incurred adjust the carrying
amount of the borrowings and are amortised over the remaining term.
Ongoing finance costs and debt servicing payments are recognised in the income statement on an accruals basis, using the effective
interest rate method.
PROVISIONS
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated
reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by
discounting the expected cash flows to present value using an appropriate discount rate that reflects the risks specific to the liability.
Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation
is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Capital commitments are
disclosed when the Group has a contractual future obligation to a third party which has not been provided for at the balance sheet
date.
SHARE CAPITAL
Ordinary share capital
Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares, net of tax, are shown as a
deduction from any recognised share premium.
Dividends
Dividends to shareholders are recognised when they become legally payable. In the case of interim dividends, this is when the
dividends are declared by the Board.
EARNINGS PER SHARE
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the
profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding
during the year. Diluted EPS is determined by dividing the profit or loss attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding adjusted for the effects of all dilutive potential ordinary shares.
In line with the JSE Listing Requirements, the Group also presents headline earnings per share.
SEGMENTAL REPORTING
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and in respect
of which it may incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components.
An operating segment's operating results are reviewed regularly by the Chief Operating Decision Maker to inform decisions about
resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available as
disclosed in Note 3.
3. SEGMENTAL REPORTING
As required by IFRS 8 'Operating Segments' ("IFRS 8"), the information provided to the Board, which is the Chief Operating Decision
Maker, has been classified into the following segments:
UK Retail: the Group's portfolio of shopping centres, retail parks and other retail assets;
UK Commercial: the Group's portfolio of offices, roadside service stations and logistics distribution centres;
UK Hotels: the Group's hotel portfolio which comprises eight hotels in Greater London and South-East England and one
hotel in Edinburgh, Scotland;
the Group's 30.4 per cent associate interest in RedefineBDL (5.1 per cent of which is classified as held for sale).
RedefineBDL is an independent hotel management company engaged in developing and managing a diverse
portfolio of hotels in partnership with reputable international hotel brands. RedefineBDL also leases and
manages all of the Group's hotel properties except for the Enfield Travelodge; and
the Group's 17.2 per cent interest in IHL, a hotel and leisure focused property investment company listed on the
Euro MTF Market of the Luxembourg Stock Exchange ("LuxSE") and the AltX of the JSE;
Europe: the Group's portfolio in Germany. The portfolio is comprised of shopping centres, discount supermarkets and,
until 1 January 2017, Government-let offices. In the comparative segmental income statement, the Group's
results from the last legacy asset, The Hague, which was disposed on 31 August 2016, are also included; and
Other: the Group's holding and management companies that carry out the head office and centralised asset
management activities of the Group.
Management information, as presented to the Chief Operating Decision Maker, is prepared on a proportionately consolidated basis.
Segmental reporting is therefore reported in line with management information, with the Group's share of joint ventures presented
line-by-line. Joint venture adjustments are disclosed to reconcile segmental performance and position to the consolidated financial
statements.
Joint
UK UK UK Venture IFRS
Segmental income statement Retail Commercial Hotels Europe Other Total Adj. Total
for the year ended 31 August 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
Revenue
Rental income 39.8 24.8 14.8 23.7 - 103.1 (5.9) 97.2
Other income (1) - - - 0.1 2.6 2.7 2.0 4.7
Distributions from investment at fair value - - 0.2 - - 0.2 - 0.2
Total revenue 39.8 24.8 15.0 23.8 2.6 106.0 (3.9) 102.1
Rental income 39.8 24.8 14.8 23.7 - 103.1 (5.9) 97.2
Rental expense (5.1) (1.0) - (3.5) - (9.6) 0.6 (9.0)
Net rental income 34.7 23.8 14.8 20.2 - 93.5 (5.3) 88.2
Other income (1) - - - 0.1 2.6 2.7 2.0 4.7
(Loss)/gain on revaluation of investment
property (21.2) 27.8 6.6 (3.3) - 9.9 0.9 10.8
Loss on revaluation of investment property
held for sale (3.9) - - - - (3.9) - (3.9)
Gain on disposal of investment property 3.3 5.9 - - - 9.2 - 9.2
Gain on disposal of investment property held
for sale - 0.9 - 0.6 - 1.5 - 1.5
Distributions from investment at fair value - - 0.2 - - 0.2 - 0.2
Loss on revaluation of investment at fair value - - (0.3) - - (0.3) - (0.3)
Finance income on loans to joint ventures - - - - - - 2.7 2.7
Finance income - - - - 0.7 0.7 - 0.7
Finance expense (15.6) (6.3) (3.3) (4.5) - (29.7) 1.3 (28.4)
Other finance income and expense (6.3) (0.1) - 0.3 (0.1) (6.2) (0.3) (6.5)
Change in fair value of derivative financial
instruments 2.2 2.8 (0.7) 1.3 - 5.6 (1.1) 4.5
Group gain on sale of joint venture interests (2) - - - 5.6 - 5.6 (0.7) 4.9
Joint venture loss on sale of subsidiaries (2) - - - (0.7) - (0.7) 0.7 -
Impairment of investment in associate - - (0.5) - - (0.5) - (0.5)
Share of post-tax profit from associate - - 1.1 - - 1.1 - 1.1
Transfer of foreign currency translation on
disposal of joint venture interest - - - 2.0 - 2.0 - 2.0
Total per reportable segments (6.8) 54.8 17.9 21.6 3.2 90.7 0.2 90.9
Unallocated income and expenses: (3)
Administrative costs and other fees (1) (15.6) 0.3 (15.3)
Amortisation of intangible assets (0.2) - (0.2)
Profit before tax 74.9 0.5 75.4
Taxation (4.4) 0.5 (3.9)
70.5 1.0 71.5
Joint venture adjustments:
Movement of losses restricted in joint ventures (4) (0.9) 0.9 -
Reversal of impairment of loans to joint ventures - 0.4 0.4
Share of post-tax loss from joint ventures - (2.3) (2.3)
IFRS profit for the year 69.6 - 69.6
(1) Other income includes management fee income from joint ventures of GBP3.8 million on an IFRS basis, of which GBP3.4 million relates to the net
Performance Fee on disposal of joint venture interests (refer to Note 5). On a proportionate basis, and for segmental reporting purposes, the net
Performance Fee of GBP1.6 million has been recognised in other income. The Group share of the total joint venture investment management expense
of GBP2.0 million has been reclassified from administrative costs and other fees.
(2) The GBP5.6 million gain recognised by the Group and the loss of GBP0.7 million recognised by the joint venture relate to the share sale of the
property-owning subsidiaries of Wichford VBG Holding S.à.r.l. on 1 January 2017. The net gain on sale of GBP4.9 million has been recognised as a
single line item within the consolidated income statement under 'Net gain on sale of joint venture interests' (refer to Note 10).
(3) Unallocated income and expenses are items incurred centrally which are neither directly attributable nor can be reasonably allocated to individual
segments.
(4) As detailed in Note 14, the Group's joint venture interest in 26 Esplanade No 1 Limited (the "Esplanade") has been reduced to GBPNil in the financial
statements in line with IAS 28. On a proportionate basis, the Group's share in the net liabilities of the Esplanade are recognised line-by-line.
Movements in the losses of the Esplanade that are not recognised on an equity accounted basis during each reporting period are presented to
reconcile segmental information to the IFRS statements.
Joint
UK UK UK Venture IFRS
Other segmental information Retail Commercial Hotels Europe Other Total Adj Total
for the year ended 31 August 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Inter-segmental revenue and expense:
Management fee income - - - - 6.9 6.9 - 6.9
Management fee expense (2.3) (1.6) (0.1) (1.4) (1.5) (6.9) - (6.9)
(2.3) (1.6) (0.1) (1.4) 5.4 - - -
Inter-segmental revenue and expense relate to intercompany investment management fees that eliminate on consolidation.
Joint
UK UK UK Venture IFRS
Segmental balance sheet Retail Commercial Hotels Europe Total Adj Total
as at 31 August 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Investment property 507.5 355.7 239.3 418.0 1,520.5 (25.6) 1,494.9
Investment at fair value through profit or loss - - 8.5 - 8.5 - 8.5
Investment in associate - - 9.4 - 9.4 - 9.4
Trade and other receivables 7.8 3.6 0.8 7.8 20.0 (0.4) 19.6
Cash and cash equivalents 5.2 28.1 5.0 5.3 43.6 (0.6) 43.0
Non-current assets held for sale 12.9 9.3 1.5 3.6 27.3 - 27.3
Borrowings, including finance leases (317.3) (188.9) (113.1) (218.8) (838.1) 16.3 (821.8)
Trade and other payables (9.4) (2.9) (1.2) (4.3) (17.8) 0.8 (17.0)
Segmental net assets 206.7 204.9 150.2 211.6 773.4 (9.5) 763.9
Unallocated assets and liabilities:
Other non-current assets 1.2 - 1.2
Trade and other receivables 4.3 - 4.3
Cash and cash equivalents 9.8 - 9.8
Net derivative financial instruments (10.9) 3.5 (7.4)
Deferred tax (10.8) 0.4 (10.4)
Trade and other payables (4.2) - (4.2)
Current tax liabilities (1.2) - (1.2)
761.6 (5.6) 756.0
Joint venture adjustments:
Joint venture non-controlling interest (0.1) 0.1 -
Cumulative losses restricted in joint ventures (1) 0.7 (0.7) -
Investment in joint ventures - 1.9 1.9
Loans to joint ventures - 4.3 4.3
IFRS net assets 762.2 - 762.2
(1) As detailed in Note 14, the Group's interest in the Esplanade has been reduced to GBPNil in the financial statements in line with IAS 28. On a
proportionate basis, the Group's share in the net liabilities of the Esplanade are recognised line-by-line. The cumulative losses of this joint
venture that the Group has not recognised on an equity accounted basis at the reporting date are presented to reconcile segmental information to
the IFRS statements.
Joint
UK UK UK Venture IFRS
Other segmental information Retail Commercial Hotels Europe Total Adj Total
as at 31 August 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Additions to investment property during the year per reportable segment:
Capitalised expenditure 3.5 1.0 2.9 12.2 19.6 - 19.6
Capitalised finance costs - - 0.2 0.3 0.5 - 0.5
Acquisition of control of former joint venture - - - 80.8 80.8 75.0 155.8
3.5 1.0 3.1 93.3 100.9 75.0 175.9
Joint
UK UK UK Venture IFRS
Segmental income statement Retail Commercial Hotels Europe Other Total Adj Total
for the year ended 31 August 2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
Revenue
Rental income 37.0 22.2 15.0 22.3 0.1 96.6 (10.0) 86.6
Other income (1) - 0.8 - 0.4 1.9 3.1 (0.6) 2.5
Distributions from investment at fair value - - 0.5 - - 0.5 - 0.5
Total revenue 37.0 23.0 15.5 22.7 2.0 100.2 (10.6) 89.6
Rental income 37.0 22.2 15.0 22.3 0.1 96.6 (10.0) 86.6
Rental expense (4.1) (0.9) - (2.3) - (7.3) 1.1 (6.2)
Net rental income 32.9 21.3 15.0 20.0 0.1 89.3 (8.9) 80.4
Other income (1) - 0.8 - 0.4 1.9 3.1 (0.6) 2.5
(Loss)/gain on revaluation of investment (40.1) 5.0 (7.3) 1.2 - (41.2) (1.3) (42.5)
property (2)
Gain on disposal of investment property - 3.2 - - - 3.2 - 3.2
Gain on disposal of subsidiary - - - 12.2 - 12.2 12.2
Distributions from investment at fair value - - 0.5 - - 0.5 - 0.5
Loss on revaluation of investment at fair value - - (0.8) - - (0.8) - (0.8)
Gain on disposal of non-current assets held
for sale - 0.2 - - - 0.2 - 0.2
Foreign exchange gain - - - - 0.9 0.9 - 0.9
Finance income on loans to joint ventures - - - - - - 5.0 5.0
Finance income - - - - 1.3 1.3 - 1.3
Finance expense (16.1) (7.1) (3.8) (7.3) (0.1) (34.4) 1.7 (32.7)
Other finance expense (1.5) (0.3) (0.1) (0.1) - (2.0) 0.1 (1.9)
Gain on financial liabilities - - - 2.5 - 2.5 (2.5) -
Change in fair value of derivative financial
instruments (5.0) (5.5) (0.7) (1.6) - (12.8) 1.7 (11.1)
Impairment of investment in associate - - (3.2) - - (3.2) - (3.2)
Share of post-tax profit from associate - - 1.7 - - 1.7 - 1.7
Total per reportable segments (29.8) 17.6 1.3 27.3 4.1 20.5 (4.8) 15.7
Unallocated income and expenses: (3)
Administrative costs and other fees (11.4) 0.5 (10.9)
Amortisation of intangible assets (0.2) - (0.2)
Profit before tax 8.9 (4.3) 4.6
Taxation (1.6) 0.5 (1.1)
7.3 (3.8) 3.5
Joint venture adjustments:
Movement of losses restricted in joint ventures (4) 0.2 (0.2) -
Reversal of impairment of loans to joint ventures - 2.6 2.6
Share of post-tax profit from joint ventures - 1.4 1.4
IFRS profit for the year 7.5 - 7.5
(1) Other income in the 'Other' segment includes management fee income from joint ventures of GBP0.7 million. Refer to Note 30 for further details.
(2) Included in (loss)/gain on revaluation of investment property is GBP22.6 million of costs incurred on the acquisition of the AUK Portfolio.
(3) Unallocated income and expenses are items incurred centrally which are neither directly attributable nor can be reasonably allocated to individual
segments.
(4) As detailed in Note 14, the Group's interest in the Esplanade has been reduced to GBPNil in the financial statements in line with IAS 28. On a
proportionate basis, the Group's share in the net liabilities of the Esplanade are recognised line-by-line. Movements in the losses of the Esplanade
that are not recognised on an equity accounted basis during each reporting period are presented to reconcile segmental information to the IFRS
statements.
Joint
UK UK UK Venture IFRS
Other segmental information Retail Commercial Hotels Europe Other Total Adj Total
for the year ended 31 August 2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Inter-segmental revenue and expense:
Management fee income - - - - 3.9 3.9 - 3.9
Management fee expense (1.4) (1.1) - (0.8) (0.6) (3.9) - (3.9)
(1.4) (1.1) - (0.8) 3.3 - - -
Inter-segmental revenue and expense relate to intercompany investment management fees that eliminate on consolidation.
Joint
UK UK UK Venture IFRS
Segmental balance sheet Retail Commercial Hotels Europe Total Adj Total
as at 31 August 2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Investment property 541.9 419.0 229.6 346.8 1,537.3 (140.9) 1,396.4
Investment at fair value through profit or loss - - 7.9 - 7.9 - 7.9
Investment in associate - - 10.2 - 10.2 - 10.2
Trade and other receivables 4.8 3.3 1.7 5.9 15.7 (1.0) 14.7
Cash and cash equivalents 8.3 2.5 2.0 9.0 21.8 (2.3) 19.5
Borrowings, including finance leases (324.9) (201.6) (109.9) (206.0) (842.4) 76.8 (765.6)
Trade and other payables (6.6) (6.4) (1.7) (7.7) (22.4) 3.9 (18.5)
Segmental net assets 223.5 216.8 139.8 148.0 728.1 (63.5) 664.6
Unallocated assets and liabilities:
Other non-current assets 1.4 - 1.4
Trade and other receivables 16.7 - 16.7
Cash and cash equivalents 12.5 - 12.5
Net derivative financial instruments (16.5) 4.7 (11.8)
Deferred tax (5.3) 1.9 (3.4)
Trade and other payables (2.9) - (2.9)
Current tax liabilities (2.4) - (2.4)
731.6 (56.9) 674.7
Joint venture adjustments:
Fair value on acquisition of joint venture interest 0.9 (0.9) -
Joint venture non-controlling interest (0.7) 0.7 -
Cumulative losses restricted in joint ventures (1) 1.6 (1.6) -
Investment in joint ventures - 5.8 5.8
Loans to joint ventures - 52.9 52.9
IFRS net assets 733.4 - 733.4
(1) As detailed in Note 14, the Group's interest in the Esplanade has been reduced to GBPNil in the financial statements in line with IAS 28. On a
proportionate basis, the Group's share in the net liabilities of the Esplanade are recognised line-by-line. The cumulative losses of this joint
venture that the Group has not recognised on an equity accounted basis at the reporting date are presented to reconcile segmental information
to the IFRS statements.
Joint
UK UK UK Venture IFRS
Other segmental information Retail Commercial Hotels Europe Total Adj Total
as at 31 August 2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Additions to investment property during the year per reportable segment:
Acquisition of investment property 213.1 276.6 - - 489.7 - 489.7
Acquisition costs 10.5 12.1 - - 22.6 - 22.6
Capitalised expenditure 3.0 0.3 1.8 2.8 7.9 (0.1) 7.8
226.6 289.0 1.8 2.8 520.2 (0.1) 520.1
4. RENTAL INCOME
31 August 31 August
2017 2016
GBPm GBPm
Gross lease payments from third parties 83.2 71.9
Gross lease payments from related parties (Note 30) 14.0 14.7
Rental income 97.2 86.6
The future aggregate minimum rent receivable under non-cancellable operating leases at the balance sheet date are as follows:
Not later than one year 98.0 91.1
Later than 1 year not later than 5 years 329.8 302.2
Later than 5 years 347.7 366.2
775.5 759.5
5. OTHER INCOME
31 August 31 August
2017 2016
GBPm GBPm
Performance Fee (1) 3.4 -
Investment management fees from joint ventures (Note 30) 0.4 0.7
Insurance rebates 0.4 0.5
Salary recharges 0.3 0.3
Other income from related parties (Note 30) - 0.3
Other property related income 0.2 0.7
Other income 4.7 2.5
(1) The Group was responsible for the investment management of the property portfolio of the Wichford VBG Holding S.à.r.l. joint venture. The Group
was incentivised during the investment period by a Performance Fee dependent on the internal rate of return achieved on disposal. The return on
disposal on 1 January 2017 resulted in a fee of GBP3.4 million payable from the joint venture to the Group, after the deduction of certain costs.
The income has been recognised within other income and the Group share of the related expense incurred by the joint venture has been recognised
within share of post-tax (loss)/profit from joint ventures. On a proportionate basis, and for segmental reporting purposes, the net Performance
Fee of GBP1.6 million earned by the Group has been recognised in other income.
6. ADMINISTRATIVE COSTS AND OTHER FEES
31 August 31 August
2017 2016
GBPm GBPm
Administrative and other operating expenses 4.5 2.3
Professional fees 2.7 2.5
Staff costs 5.5 4.9
Share-based payments 1.0 1.2
Non-recurring investment management fees (including termination fee) 1.6 -
Administrative costs and other fees 15.3 10.9
7. DISPOSAL OF SUBSIDIARIES
No subsidiaries of the Group were disposed of during the year ended 31 August 2017.
On 31 August 2016, the Group disposed of its entire shareholding in Cooperative Redefine International Real Estate UA (Netherlands)
for a nominal consideration of EUR1. The disposed subsidiary held the entire issued share capital of Redefine International Dan Haag
B.V. (Netherlands). The latter company is the beneficial and legal owner of The Justice Center, The Hague, the Group's last European
non-core legacy asset.
The impact of the disposal on the Group and the net cash outflow is shown below:
31 August
2016
GBPm
Carrying value of net liabilities/(assets)
Investment property (5.5)
Trade and other receivables (0.7)
Cash and cash equivalents (0.4)
Borrowings 15.0
Trade and other payables 0.2
Net liabilities disposed 8.6
Consideration received -
Transfer of foreign currency translation to the income statement on disposal of foreign
operation 3.6
Gain on disposal of subsidiary 12.2
8. FINANCE INCOME AND FINANCE EXPENSE
31 August 31 August
2017 2016
GBPm GBPm
Finance income on bank deposits - 0.2
Finance income on loans to external parties 0.2 -
Finance income on loans to joint ventures (Note 30) 2.7 5.0
Finance income on loans to other related parties (Note 30) 0.5 1.1
Finance income 3.4 6.3
Finance expense on secured bank loans (25.8) (27.3)
Interest capitalised to qualifying investment property under development 0.4 -
Amortisation of debt issue costs (1.3) (1.5)
Accretion of fair value adjustments (0.9) (1.7)
Release of fair value adjustment - (1.4)
Finance lease interest (0.8) (0.8)
Finance expense (28.4) (32.7)
Net finance expense (25.0) (26.4)
9. OTHER FINANCE EXPENSE
31 August 31 August
2017 2016
GBPm GBPm
Aviva profit share:
- share of earnings for the year 0.2 1.5
- re-measurement of financial liability 1.3 -
Net change in fair value adjustments on substantial modification of borrowings (1) 4.3 -
Termination of derivative financial instruments - 0.2
Write-off of unamortised debt issue costs 0.4 -
Other refinancing costs 0.3 0.2
Other finance expense 6.5 1.9
(1) The net change in fair value adjustments relates to the release of the residual fair value adjustment on extinguishment of the existing Aviva
facilities and recognition of a fair value adjustment on the refinanced amalgamated facility in line with IAS 39. See Note 20 for
further information.
10. NET GAIN ON SALE OF JOINT VENTURE INTERESTS
On 1 January 2017, Wichford VBG Holding S.à.r.l. ("Wichford VBG"), exchanged contracts to dispose of all its property-owning
subsidiaries. The value attributed by the purchaser to the property portfolio, on which the sale was based, was EUR106.0 million
(GBP90.6 million). The carrying value of the portfolio was EUR97.6 million (GBP83.2 million). Net consideration for the subsidiary interests
was agreed at EUR49.7 million (GBP42.4 million). The transaction completed on 13 January 2017 subject to final completion adjustments which were
negligible. The equity of the subsidiaries was acquired for nominal value and the consideration receivable was comprised of:
- EUR29.4 million (GBP25.1 million) in settlement of the shareholder loans outstanding to the joint venture partners
(Group share: EUR14.4 million/GBP12.5 million); and
- EUR20.3 million (GBP17.3 million) in settlement of loans that had been advanced by the retained structure of Wichford VBG ("Finco
Loans") to the disposed subsidiaries (Group share: EUR9.9 million/GBP8.5 million). The Finco Loans had previously eliminated on
consolidation of the joint venture.
Cash consideration of EUR47.9 million (GBP40.8 million) was initially received by the joint venture after the deduction of transaction costs
of EUR0.8 million (GBP0.7 million) by the purchaser. In addition, EUR1.0 million (GBP0.8 million) was deferred pending the outcome of certain
conditions. The conditions were satisfied and the deferred consideration was received in advance of the balance sheet date. The net
assets of the subsidiaries on disposal were EUR11.2 million (GBP9.4 million) and, after adjusting for the Shareholder Loans and additional
transaction costs incurred of EUR1.8 million (GBP1.5 million), an initial gain on sale of EUR6.5 million (GBP5.7 million) was recognised by the joint
venture. The Group share of this gain was EUR3.2 million (GBP2.8 million). The Group recognised a total gain of GBP4.9 million after the
recycling of cumulative foreign currency translation gains of GBP2.2 million to the income statement and the deduction of GBP0.1 million of
Group transaction costs. The Directors believe that the recycling of the translation reserve is appropriate as the retained Wichford
VBG structure has only residual cash to settle final working capital balances at 31 August 2017.
The Finco Loans originated during the Wichford VBG restructuring in September 2012, when a financing vehicle of the retained
structure acquired the residual bank debt from the existing lender for nominal value. Loan notes of EUR1 ("Finco Loan Notes") were
issued to the joint venture partners by the vehicle to finance the acquisition of the Finco Loans. Under the terms of the Finco Loan
Notes, any termination payments received under the Finco Loans would be payable to the Finco Loan Note holders after settlement
of the Performance Fee (refer to Note 5) and any interest outstanding so that surplus cash could be repatriated efficiently to the joint
venture partners. Following the disposal of the Finco Loans, a loss was therefore recognised in the financial statements of the joint
venture on settlement of the Finco Loan Notes (Group share: EUR3.9 million/GBP3.5 million) and a corresponding gain was recognised by
the joint venture partners. The net impact of the Finco Loan Note settlement is GBPNil in the Group consolidated financial statements.
For presentation purposes and to reflect the substance of the transaction, all gains and losses incurred by both the Group (GBP5.6 million
gain) and the joint venture on an equity accounted basis (GBP0.7 million loss), as a result of the disposal, are included within one line in
the consolidated income statement, 'Net gain on sale of joint venture interests'.
The table below illustrates the financial impact of the transaction on the joint venture and on the Group on a total basis, eliminating
the effect of the Finco Loan Note settlement for simplicity.
GBPm
Carrying value of net (assets)/liabilities
Investment property (83.2)
Trade and other receivables (0.4)
Cash and cash equivalents (0.5)
Borrowings 47.9
Loans from joint venture partners 25.1
Derivative financial instruments 0.4
Deferred tax 1.2
Trade and other payables 0.1
Net assets disposed by joint venture (9.4)
Settlement of loans from joint venture partners (25.1)
Adjusted net assets disposed by joint venture (34.5)
Cash consideration received 41.6
Additional transaction costs incurred (1.5)
Foreign currency adjustment on settlement 0.1
Gain on sale of subsidiaries attributable to joint venture 5.7
Elimination of joint venture partners' interest (2.9)
Gain on sale of joint venture interests attributable to Group 2.8
Group cost of disposal (0.1)
Transfer of foreign currency translation to the income statement on disposal of joint venture interests 2.2
Net gain on sale of joint venture interests 4.9
Attributable to:
Joint venture (Group share) (0.7)
Group 5.6
Total cash proceeds received by the Group at the balance sheet date on disposal were GBP22.1 million, including the receipt of the Performance Fee of
GBP3.4 million (refer to Note 5). In the consolidated statement of cash flows, the Performance Fee has been presented under operating activities and
the balance of GBP18.7 million has been presented under investing activities.
11. TAXATION
a) Tax recognised in the consolidated income statement:
31 August 31 August
2017 2016
GBPm GBPm
Current income tax
Income tax in respect of current year 0.3 0.6
Adjustments in respect of prior years 0.1 (0.7)
Deferred tax
On fair value of investment property 2.6 (0.2)
On accelerated capital allowances 0.9 1.4
Tax charge for the year recognised in the consolidated income statement 3.9 1.1
There was no tax recognised in equity or other comprehensive income during the year (31 August 2016: GBPNil).
b) Reconciliation
The tax rate for the year is lower than the average standard rate of corporation tax in the UK of 19.58 per cent (31 August 2016: 20 per
cent). The differences are explained below:
31 August 31 August
2017 2016
GBPm GBPm
Profit before tax 73.5 8.6
Profit before tax multiplied by standard rate of corporation tax 14.4 1.7
Effect of:
- Revaluation of investment property 1.3 8.2
- Gain on disposal of investment property (2.1) (0.6)
- Gain on disposal of subsidiary - (2.4)
- Loss on revaluation of investment at fair value 0.1 -
- Debt fair value adjustments 1.0 -
- Change in fair value of derivative financial instruments (0.9) 2.2
- Income not subject to UK income tax (11.3) (8.3)
- Non-resident landlord tax attributable to non-controlling interest - 0.4
- Group relief utilised - (0.1)
- Losses utilised (0.1) -
- Unutilised losses carried forward 0.7 0.3
- Other taxable income - 0.1
- Impact of foreign tax 0.3 -
- Expenses not deductible for tax 0.4 0.3
- Adjustments in respect of prior years 0.1 (0.7)
Tax charge for the year recognised in the consolidated income statement 3.9 1.1
In the reconciliation above for the year ended 31 August 2017, the effective tax rate of the Group was 5.3 per cent (31 August 2016:
12.8 per cent).
The enactment of Finance (No. 2) Act 2015 and Finance Act 2016 has reduced the main rate of corporation tax from 20 per cent to
19 per cent with effect 1 April 2017, with a further reduction to 17 per cent from April 2020.
On 4 December 2013, the Group converted to a UK-REIT. As a result, the Group does not pay UK Corporation Tax on the profits and
gains from qualifying rental business in the UK provided certain conditions are met. Non-qualifying profits and gains of the Group
continue to be subject to corporation tax. The Directors intend the Group to continue as a REIT for the foreseeable future. As a result,
deferred tax is no longer recognised on temporary differences relating to the UK property rental business which is within the REIT
structure.
12. INVESTMENT PROPERTY
UK UK UK
Retail Commercial Hotels Europe (1) Total Freehold Leasehold
31 August 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Opening carrying value at 1 September 2016 541.9 407.3 229.6 217.6 1,396.4 1,052.2 344.2
Capitalised expenditure 3.5 1.0 2.9 12.2 19.6 7.0 12.6
Capitalised finance costs - - 0.2 0.3 0.5 0.2 0.3
Acquisition of control of former joint venture
(Note 31) - - - 155.8 155.8 155.8 -
Disposals through the sale of property (2.1) (42.6) - - (44.7) (42.9) (1.8)
Transfer to non-current assets held for sale
(Note 19) (16.8) (49.0) - (9.7) (75.5) (65.3) (10.2)
Head lease movements 2.2 (0.5) - (0.1) 1.6 71.6 (70.0)
(Loss)/gain on revaluation of investment
property (21.2) 27.9 6.6 (2.5) 10.8 32.1 (21.3)
Foreign exchange movement in foreign
operations - - - 30.4 30.4 29.0 1.4
IFRS carrying value at 31 August 2017 507.5 344.1 239.3 404.0 1,494.9 1,239.7 255.2
Adjustments:
Non-current assets held for sale (Note 19) 12.9 9.2 - 3.7 25.8 19.3 6.5
Minimum payments under head leases
(Note 20) (10.1) (2.6) (0.4) (1.7) (14.8) - (14.8)
Tenant lease incentives (Note 17) 4.3 1.9 0.7 0.3 7.2 5.2 2.0
Market value of Group portfolio at 31 August
2017 514.6 352.6 239.6 406.3 1,513.1 1,264.2 248.9
Joint ventures
Share of joint venture investment property
(Note 14) - 11.6 - 14.0 25.6 25.6 -
Market value of total portfolio at 31 August
2017
(on a proportionately consolidated basis) 514.6 364.2 239.6 420.3 1,538.7 1,289.8 248.9
UK UK UK
Retail Commercial Hotels Europe (1) Total Freehold Leasehold
31 August 2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Opening carrying value at 1 September 2015 355.4 153.8 235.1 190.1 934.4 642.6 291.8
Additions from acquisition of property (2) 213.1 276.6 - - 489.7 407.9 81.8
Acquisition costs 10.5 12.1 - - 22.6 20.1 2.5
Capitalised expenditure 3.0 0.3 1.8 2.7 7.8 4.8 3.0
Disposals through the sale of property (2) - (40.3) - - (40.3) (10.7) (29.6)
Disposals through the sale of subsidiary
(Note 7) - - - (5.5) (5.5) (5.5) -
Disposal of head leases - (0.4) - - (0.4) - (0.4)
(Loss)/gain on revaluation of investment
property (40.1) 5.2 (7.3) (0.3) (42.5) (35.2) (7.3)
Foreign exchange movement in foreign
operations - - - 30.6 30.6 28.2 2.4
IFRS carrying value at 31 August 2016 541.9 407.3 229.6 217.6 1,396.4 1,052.2 344.2
Adjustments:
Minimum payments under head leases
(Note 20) (7.9) (3.1) (0.4) (1.6) (13.0) - (13.0)
Tenant lease incentives (Note 17) 3.1 1.6 - - 4.7 1.9 2.8
Market value of Group portfolio at 31 August
2016 537.1 405.8 229.2 216.0 1,388.1 1,054.1 334.0
Joint ventures
Share of joint venture investment property
(Note 14) - 11.7 - 129.2 140.9 140.9 -
Market value of total portfolio at 31 August
2016
(on a proportionately consolidated basis) 537.1 417.5 229.2 345.2 1,529.0 1,195.0 334.0
(1) Included within the Europe segment at 31 August 2017 is property under development of GBP23.4 million (31 August 2016: GBP18.5 million).
(2) Additions from acquisitions and disposals through the sale of property in UK Commercial have been grossed up to reflect the acquisition and
subsequent sale of 16 Grosvenor Street as part of the AUK transaction.
The tables above present both segmental and market value investment property information prepared on a proportionately consolidated basis.
Properties that have been classified as held for sale in the current year are also included so that the market value of the total portfolio can be
determined. This format is not a requirement of IFRS and is for informational purposes as it is used in reports presented to the Group's
Chief Operating Decision Maker.
Recognition
Judgement may be required to determine whether a property qualifies as an investment property. Investment property comprises a
number of retail and commercial properties in the UK and Europe that are leased to unconnected third parties. In addition, the hotel
portfolio is held for capital appreciation and to earn rental income. The hotels have been let to RHML and RECML (with the exception
of Travelodge, Enfield) to separately manage the operating business for a fixed rent which is subject to annual review. The review
takes into account the forecast EBITDA when setting the revised rent for each hotel. As detailed in the key judgements and estimates
in Note 2, aside from the Group's associate interest in RedefineBDL and the receipt of rental income, Redefine International is not
involved in the hotel management business and there are limited transactions between Redefine International, RHML and RECML.
As a result, the Directors consider it appropriate to classify the hotel portfolio as investment property in line with IAS 40.
Valuation
The carrying amount of investment property is the market value of the property as determined by appropriately qualified independent
valuers and adjusted for minimum payments under head leases and tenant lease incentives. Valuations are based on what is
determined to be the highest and best use. When considering the highest and best use a valuer will consider, on a property by
property basis, and in limited circumstances in aggregation with other assets, its actual and potential uses which are physically, legally
and financially viable. Where the highest and best use differs from the existing use, the valuer will consider the cost and the likelihood
of achieving and implementing this change to determine an appropriate valuation.
The fair value of the Group's property for the year ended 31 August 2017 was assessed by independent and appropriately qualified
valuers in accordance with the Royal Institute of Chartered Surveyors ("RICS") standards and IFRS 13. The valuations are performed
by Strutt & Parker LLP for the UK Shopping Centres, BNP Paribas Real Estate for the Esplanade and Savills for rest of the portfolio.
The valuations are reviewed internally by senior management and presented to the Audit and Risk Committee. The presentation
includes discussion around the assumptions used by the external valuers, as well as a review of the resulting valuations.
Valuation inputs
The fair value of the property portfolio has been determined using either a discounted cash flow or a yield capitalisation technique,
whereby contracted and market rental values are capitalised at a market rate. The resulting valuations are cross-checked against the
net initial yield and the fair market values per square foot of comparable recent market transactions.
The valuation techniques described above are consistent with IFRS 13 and use significant unobservable inputs. Valuation techniques
can change at each valuation round depending on prevailing market conditions and the property's highest and best use at the reporting
date. The Group considers that all of its investment property falls within 'Level 3', as defined by IFRS 13 (refer to Note 29). There has
been no transfer of property within the fair value hierarchy during the year.
The table below summarises the key unobservable inputs used in the valuation of the Group's property portfolio, including the Group's
share of property held by joint ventures, at 31 August 2017 and 31 August 2016:
Weighted Weighted Average
Market Lettable Average Rent Average Average Net Initial Market Rent
31 August 2017 Value Area per sqm Lease Length Net Initial Yield per sqm
Group (GBPm) (sqm) (GBP) (years) Yield (%) (% Range) (GBP)
UK Retail 514.6 239,350 172.2 8.4 6.3 4.8 - 8.6 168.0
UK Commercial 352.6 181,670 123.2 5.2 5.1 3.2 - 30.6 124.4
UK Hotels 239.6 41,323 367.8 9.3 5.9 4.2 - 7.6 392.0
Europe 406.3 226,241 117.4 6.4 5.4 3.7 - 21.9 118.0
Joint ventures
UK Commercial 11.6 2,752 327.0 4.7 6.9 6.9 290.7
Europe 14.0 10,357 96.5 7.9 5.9 5.7 - 6.1 96.5
Total 1,538.7 701,693
Weighted Weighted Average
Market Lettable Average Rent Average Average Net Initial Market Rent
31 August 2016 Value Area per sqm Lease Length Net Initial Yield per sqm
Group (GBPm) (sqm) (GBP) (years) Yield (%) (% Range) (GBP)
UK Retail 537.1 237,694 174.9 8.8 6.3 5.3 - 12.4 169.3
UK Commercial 405.8 214,077 130.5 6.1 5.4 (1.0) - 32.6 129.8
UK Hotels 229.2 41,323 362.4 10.3 6.1 4.8 - 7.0 367.4
Europe 216.0 82,804 156.8 5.1 4.9 0.9 - 16.9 168.9
Joint ventures
UK Commercial 11.7 2,752 327.0 6.3 6.8 6.8 290.7
Europe 129.2 103,257 100.7 8.2 6.7 (0.9) - 16.9 85.2
Total 1,529.0 681,907
There are interrelationships between the unobservable inputs as they are determined by market conditions; an increase in more than
one input could impact on the valuation.
Commercial Property Price Risk
The Board draws attention to the risks associated with commercial property investments. Although over the long-term property is
considered a low risk asset, investors must be aware that significant short and medium-term risk factors are inherent in the asset
class. Investments in property are relatively illiquid and usually more difficult to realise than listed equities or bonds and this restricts
the Group's ability to realise value in cash in the short-term.
Committed expenditure
The Group was contractually committed to expenditure of GBP16.5 million for the future development and enhancement of investment
property at 31 August 2017 (31 August 2016: GBP15.8 million).
Disposals
The Group disposed of four assets from the UK Commercial portfolio and a single unit from the UK Retail portfolio during the year
realising a net gain, after disposal costs, of GBP9.2 million (31 August 2016: GBP3.2 million). As at 31 August 2017, net proceeds of
GBP54.9 million had been received by the Group (31 August 2016: GBP38.8 million).
Sales Disposal Tenant Net sales Carrying Gain on
proceeds costs incentives proceeds value disposal
31 August 2017 GBPm GBPm GBPm GBPm GBPm GBPm
201 Deansgate, Manchester 29.2 (0.3) - 28.9 25.5 3.4
Exchange House, Watford 13.3 (0.2) - 13.1 11.8 1.3
1A Parliament Square, Edinburgh 4.0 - - 4.0 3.5 0.5
Delta 900, Swindon 3.6 (0.1) (1.0) 2.5 1.8 0.7
Single unit - Priory Retail Park, Merton 5.5 (0.1) - 5.4 2.1 3.3
Disposals during the year 55.6 (0.7) (1.0) 53.9 44.7 9.2
13. INVESTMENT AT FAIR VALUE THROUGH PROFIT OR LOSS
The following table details the movement in the Group's investment in International Hotel Properties Limited, designated at fair
value through profit or loss:
31 August 31 August
2017 2016
GBPm GBPm
Opening balance at 1 September 7.9 -
Transfer from investment in associate (Note 15) - 3.8
Additions 0.9 4.9
Loss on revaluation of investment at fair value (0.3) (0.8)
Closing balance 8.5 7.9
On 14 October 2015, the Company acquired, by way of private placement, 3.8 million shares in the newly listed International Hotel
Properties Limited (formerly International Hotel Group Limited) for GBP3.8 million. This acquisition represented 25.4 per cent of IHL's
issued share capital and the shareholding was recognised as an investment in associate under the equity method.
On 20 October 2015, the Company acquired 3.1 million additional shares for GBP3.1 million as part of a GBP13.0 million private placement
by IHL, diluting the Group's interest to 13.2 per cent. Significant influence over the operations of IHL was deemed to have ceased
from this date and the shareholding was re-classified from investment in associate to investment at fair value through profit or loss
(Note 15).
On 31 March 2016, the Company acquired an additional 1.5 million shares in IHL for GBP1.5 million, by way of a GBP7.0 million private
placement and thereby increasing its interest to 15.3 per cent.
On 20 April 2016, IHL acquired RBDL Capital Managers Limited from RedefineBDL for consideration of GBP1.0 million which was settled
in the form of 1.0 million shares in IHL. RedefineBDL distributed these shares in relative proportion to its shareholders. The Group
received 254,084 shares.
On 7 February 2017, as part of the loan settlement with 4C UK Investments Limited ("4C Investments"), the Company obtained 1.0
million shares in IHL (Note 30). The contractual value attributed to these shares was GBP1.0 per share and the fair value of these shares
on transfer was GBP0.95 per share. The shares were recognised at fair value and increased the Group's investment in IHL by 1.7 to
17.2 per cent. There were no subsequent changes to the Group's interests in IHL prior to year end.
As at 31 August 2017, the Group held 9,656,834 shares of IHL's 56 million issued shares (31 August 2016: 8,656,834) at a fair value
of GBP8.5 million (31 August 2016: GBP7.9 million) and the Directors have determined that the classification of IHL as an investment at fair
value through profit or loss continued to be appropriate.
Refer to key judgements and estimates in Note 2.3 for further information on the classification of IHL at the balance sheet date.
Refer to Note 35 for changes in the Group's interests in IHL subsequent to the balance sheet date.
14. INVESTMENT IN AND LOANS TO JOINT VENTURES
31 August 31 August
2017 2016
Investment in joint ventures GBPm GBPm
Opening balance at 1 September 5.8 3.6
Acquisition of control of former joint venture (1.1) -
Loss on disposal of joint venture interests (Note 10) (0.7) -
Share of post-tax (loss)/profit from joint ventures (2.3) 1.4
Foreign currency translation 0.2 0.8
Closing balance 1.9 5.8
31 August 31 August
2017 2016
Loans to joint ventures GBPm GBPm
Opening balance at 1 September 52.9 44.6
Increase in loans to joint ventures - 0.5
Acquisition of control of former joint venture (36.6) -
Disposal of loan to joint venture (12.5) -
Repayment of loans by joint ventures (0.7) (2.6)
Reversal of impairment of loans to joint ventures 0.4 2.6
Foreign currency translation 0.8 7.8
Closing balance 4.3 52.9
Carrying value of interests in joint ventures 6.2 58.7
During the year ended 31 August 2017, the Group's material investments in joint ventures which are presented in the tables of this
note included the following interests:
(i) 50.5 per cent interest in RI Menora German Holdings S.à.r.l., a joint venture with Menora Mivtachim, which ultimately owns
properties in Waldkraiburg, Huckelhoven and Kaiserslautern, Germany. Notwithstanding the economic shareholding, the
contractual terms provide for joint control and so the Company does not control the entity;
(ii) 50 per cent interest in Leopard Germany Holding 1 S.à.r.l., CEL Portfolio 2 Limited & Co. KG., Leopard Germany Property Ed1,
Ed2, Ed3 and Ed4, Leopard Germany Property Me 1 and Me 2 S.à.r.l., Ciref Berlin 1 Limited and Leopard Germany Property
Ed2 GmbH & Co. KG, a joint venture with Redefine Properties Limited ("RPL"), the Company's largest shareholder. These
companies, collectively known as the Leopard Portfolio, hold 66 retail properties in Germany comprising a mix of stand-alone
supermarkets, food-store anchored retail parks and cash & carry stores. The Group disposed of its joint venture interests in the
Leopard Portfolio on 26 April 2017 as detailed below;
(iii) 49 per cent interest in Wichford VBG Holding S.à.r.l., a joint venture with Menora Mivtachim, which owned Government-let
properties in Dresden, Berlin, Stuttgart and Cologne, Germany. The joint venture disposed of its property-owning subsidiaries on
1 January 2017 as detailed below; and
(iv) 50 per cent interest in 26 Esplanade No 1 Limited, a joint venture with Rimstone Limited, which owns an office building in St.
Helier, Jersey.
The Group's interest in joint venture entities is in the form of:
1) an interest in the share capital of the joint venture companies; and
2) loans advanced to the joint venture entities.
RI Menora German Holdings S.à.r.l. and Wichford VBG Holding S.à.r.l. both have accounting year ends of 31 December which differ
from the Group so as to align with the year end of the joint venture partner, Menora Mivtachim.
Wichford VBG Holding S.à.r.l.
On 1 January 2017, Wichford VBG Holding S.à.r.l. exchanged on the sale of its four German office assets. The disposal was structured
as a share sale of the joint venture's property-owning subsidiaries. The joint venture recognised a net loss on disposal of these
subsidiaries of GBP1.4 million (Group share: GBP0.7 million) after settlement of the Finco Loans Notes. The Group, however, recognised a
net gain on disposal of GBP4.9 million, including cumulative foreign currency translation of GBP2.2 million. See Note 10 for further details.
Leopard Portfolio
On 6 April 2017, the Group entered into a conditional acquisition agreement with RPL to acquire 88 per cent of RPL's equity interest
and all RPL's shareholder loan interests in the Leopard Portfolio. Shareholder approval was subsequently obtained for this related
party transaction at an Extraordinary General Meeting on 25 April 2017 and the Leopard Portfolio became a controlled subsidiary
group on completion on 26 April 2017 but with economic effect from 1 March 2017.
The Group's joint venture equity and loan interests were derecognised on loss of joint control and the acquisition of control. The
carrying value of the Group's net joint venture interests in the Leopard Portfolio at the date of disposal were EUR44.3 million
(GBP37.7 million). See Note 31 for further details.
The cumulative foreign currency translation difference on the Group's net investment in Leopard of GBP2.0 million has been recycled to
the income statement on effective disposal of the joint venture in accordance with IAS 28.
Interest in joint ventures not recognised
Under the equity method, the Esplanade was carried at GBPNil in the Group's financial statements at 1 September 2016 and remains at
GBPNil at 31 August 2017. This investment is in a net liability position with the cumulative losses exceeding the cost of the Group's
investment. The Group has ceased to recognise further losses beyond the original cost of this joint venture and loans advanced have
been fully impaired in line with IAS 28. The Group share of cumulative losses amounted to GBP0.7 million at 31 August 2017
(31 August 2016: GBP1.6 million). On a proportionate basis and for segmental reporting purposes, the Group's interest in the Esplanade is
recognised line-by-line. Refer to Note 3.
Summarised Financial Information
The summarised financial information of the Group's joint ventures is set out separately below:
RI Elimination
Wichford Menora of joint
VBG German venture
Holding Holdings Leopard partners' Proportionate
S.à.r.l. S.à.r.l. Portfolio Esplanade Total interest Total
31 August 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Percentage ownership interest 49% 50.5% 50% 50%
Summarised Income Statement
Rental income 2.4 1.8 6.0 1.7 11.9 (6.0) 5.9
Rental expense (0.3) (0.1) (0.8) - (1.2) 0.6 (0.6)
Net rental income 2.1 1.7 5.2 1.7 10.7 (5.4) 5.3
Administrative costs and other fees (1) (4.0) (0.2) (0.5) - (4.7) 2.4 (2.3)
Net operating (expense)/income (1.9) 1.5 4.7 1.7 6.0 (3.0) 3.0
Loss on revaluation of investment property - (0.9) (0.6) (0.2) (1.7) 0.8 (0.9)
Loss on sale of subsidiaries (1.4) - - - (1.4) 0.7 (0.7)
Finance expense on loans from joint venture
partners (1.6) (0.5) (3.0) - (5.1) 2.4 (2.7)
Finance expense (0.5) (0.5) (0.6) (1.2) (2.8) 1.5 (1.3)
Other finance income - 0.6 - - 0.6 (0.3) 0.3
Change in fair value of derivative financial
instruments 0.2 0.2 0.1 1.8 2.3 (1.2) 1.1
(Loss)/profit before tax (5.2) 0.4 0.6 2.1 (2.1) 0.9 (1.2)
Taxation (0.8) 0.2 (0.3) (0.3) (1.2) 0.7 (0.5)
(Loss)/profit and total comprehensive
(expense)/income (6.0) 0.6 0.3 1.8 (3.3) 1.6 (1.7)
Reconciliation to IFRS:
Elimination of non-controlling and joint venture
partners' interests 3.0 (0.3) (0.2) (0.9) 1.6 (1.6) -
Movement in losses restricted in joint ventures - - - (0.9) (0.9) - (0.9)
Group share of joint venture results (3.0) 0.3 0.1 - (2.6) - (2.6)
Presented as:
Reversal of impairment of loans to joint
ventures - 0.3 0.1 - 0.4 - 0.4
Loss on disposal of joint venture interests (2) (0.7) - - - (0.7) - (0.7)
Share of post-tax loss from joint ventures (2.3) - - - (2.3) - (2.3)
Summarised Balance Sheet
Investment property - 27.8 - 23.2 51.0 (25.4) 25.6
Trade and other receivables 0.6 0.1 - 0.1 0.8 (0.4) 0.4
Cash and cash equivalents 0.5 0.2 - 0.5 1.2 (0.6) 0.6
Total assets 1.1 28.1 - 23.8 53.0 (26.4) 26.6
External borrowings - (14.8) - (17.6) (32.4) 16.1 (16.3)
Loans from joint venture partners - (8.2) - (6.6) (14.8) 7.2 (7.6)
Derivative financial instruments - - - (6.9) (6.9) 3.4 (3.5)
Deferred tax - (0.8) - - (0.8) 0.4 (0.4)
Trade and other payables - (1.0) - (0.7) (1.7) 0.9 (0.8)
Total liabilities - (24.8) - (31.8) (56.6) 28.0 (28.6)
Non-controlling interests - (0.3) - - (0.3) 0.2 (0.1)
Net assets/(liabilities) 1.1 3.0 - (8.0) (3.9) 1.8 (2.1)
Reconciliation to IFRS:
Elimination of joint venture partners' interests (0.6) (1.6) - 4.0 1.8 (1.8) -
Loan to joint ventures (3) - 4.3 - - 4.3 - 4.3
Interest in joint ventures not recognised - - - 3.3 3.3 - 3.3
Cumulative losses restricted (4) - - - 0.7 0.7 - 0.7
Carrying value of interests in joint ventures 0.5 5.7 - - 6.2 - 6.2
RI Elimination
Wichford Menora of joint
VBG German venture
Holding Holdings Leopard partners' Proportionate
S.à.r.l. S.à.r.l. Portfolio Esplanade Total interest Total
31 August 2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Percentage ownership interest 49% 50.5% 50% 50%
Summarised Income Statement
Rental income 6.2 1.6 10.8 1.5 20.1 (10.1) 10.0
Rental expense (0.4) (0.2) (1.7) - (2.3) 1.2 (1.1)
Net rental income 5.8 1.4 9.1 1.5 17.8 (8.9) 8.9
Other income - - 0.1 1.0 1.1 (0.5) 0.6
Administrative costs and other fees (0.5) (0.1) (0.3) (0.1) (1.0) 0.5 (0.5)
Net operating income 5.3 1.3 8.9 2.4 17.9 (8.9) 9.0
Gain/(loss) on revaluation of investment
property 2.7 0.5 (0.2) (0.4) 2.6 (1.3) 1.3
Finance expense on loans from joint venture
partners (4.5) (0.5) (4.9) - (9.9) 4.9 (5.0)
Finance expense (1.2) (0.3) (1.0) (0.9) (3.4) 1.7 (1.7)
Other finance expense - (0.1) (0.1) - (0.2) 0.1 (0.1)
Gain/(loss) on financial liabilities 7.3 (0.6) (1.4) - 5.3 (2.8) 2.5
Change in fair value of derivative financial
instruments - 0.1 (1.5) (2.1) (3.5) 1.8 (1.7)
Profit/(loss) before tax 9.6 0.4 (0.2) (1.0) 8.8 (4.5) 4.3
Taxation (0.3) (0.2) (0.5) - (1.0) 0.5 (0.5)
Profit/(loss) and total comprehensive
income/(expense) 9.3 0.2 (0.7) (1.0) 7.8 (4.0) 3.8
Reconciliation to IFRS:
Elimination of non-controlling and joint
venture partners' interests (4.7) (0.1) 0.3 0.5 (4.0) 4.0 -
Movement in losses restricted in joint
ventures - - - 0.2 0.2 - 0.2
Group share of joint venture results 4.6 0.1 (0.4) (0.3) 4.0 - 4.0
Presented as:
Impairment reversal/(impairment) of loans
to joint ventures 3.6 (0.3) (0.4) (0.3) 2.6 - 2.6
Share of post-tax profit from joint ventures 1.0 0.4 - - 1.4 - 1.4
Summarised Balance Sheet
Investment property 82.9 26.5 150.4 23.4 283.2 (142.3) 140.9
Derivative financial instruments - - 0.1 - 0.1 - 0.1
Trade and other receivables - 1.0 1.0 0.1 2.1 (1.1) 1.0
Cash and cash equivalents 1.5 0.3 2.4 0.4 4.6 (2.3) 2.3
Total assets 84.4 27.8 153.9 23.9 290.0 (145.7) 144.3
External borrowings (47.7) (15.0) (73.7) (18.0) (154.4) 77.6 (76.8)
Loans from joint venture partners (24.9) (7.7) (83.8) (6.6) (123.0) 61.7 (61.3)
Derivative financial instruments (0.6) (0.2) (0.1) (8.7) (9.6) 4.8 (4.8)
Deferred tax - (1.0) (2.9) - (3.9) 2.0 (1.9)
Trade and other payables (4.2) (1.0) (2.9) (0.4) (8.5) 4.6 (3.9)
Total liabilities (77.4) (24.9) (163.4) (33.7) (299.4) 150.7 (148.7)
Non-controlling interests (0.1) (0.3) (0.3) - (0.7) - (0.7)
Net assets/(liabilities) 6.9 2.6 (9.8) (9.8) (10.1) 5.0 (5.1)
Reconciliation to IFRS:
Elimination of joint venture partners' interests (3.5) (1.4) 5.0 4.9 5.0 (5.0) -
Fair value on acquisition of joint venture
interest - - 0.9 - 0.9 - 0.9
Loan to joint ventures (3) 12.2 3.9 41.9 - 58.0 - 58.0
Interest in joint ventures not recognised - - - 3.3 3.3 - 3.3
Cumulative losses restricted (4) - - - 1.6 1.6 - 1.6
Carrying value of interests in joint
ventures 15.6 5.1 38.0 - 58.7 - 58.7
(1) Included within administrative costs and other fees of Wichford VBG is the Performance Fee expense of GBP3.4 million, payable to the Group as
investment manager, on disposal of the property portfolio.
(2) Presented within 'Net gain on sale of joint venture interests' in the consolidated income statement.
(3) Loans to joint ventures include the opening balance, any advances or repayments and foreign currency movements during the year.
(4) Cumulative losses restricted represent the Group's share of losses in the Esplanade which exceed the cost of the Group's investment. As a
result, the carrying value of the investment is GBPNil in accordance with the requirements of IAS 28.
15. INVESTMENT IN ASSOCIATE
31 August 31 August
2017 2016
GBPm GBPm
Opening balance at 1 September 10.2 8.0
Additions - 9.8
Transfer to investment at fair value through profit or loss (Note 13) - (3.8)
Share of post-tax profit from associate 0.9 1.7
Distributions from associate (1.2) (2.3)
Net impairment of investment in associate (0.5) (3.2)
Carrying value of net investment in associate 9.4 10.2
On 14 October 2015, the Company acquired, by way of private placement, 3.8 million shares in the newly listed IHL for GBP3.8 million.
On the date of listing this represented 25.4 per cent of the entity's issued share capital and the investment was classified as an
associate on initial recognition. On 20 October 2015, the Group's interest was diluted to 13.2 per cent and reclassified as an
investment at fair value through profit or loss (refer to Note 13).
On 30 August 2016, the Group settled amounts previously advanced to RedefineBDL by way of an equity contribution of GBP6.0 million.
The equity contribution did not result in a further issue of shares to the Group or increase the Group's percentage interest in the
associate. The equity contribution has been recognised in other reserves in the underlying financial statements of RedefineBDL.
During the year ended 31 August 2017, the Group's cumulative investment in RedefineBDL increased from 25.3 to 30.4 per cent. On
7 February 2017, the Group acquired an additional 5.1 per cent interest in RedefineBDL for GBP1.3 million to partially settle a loan
advanced to 4C Investments. This portion of the Group's investment has been classified as held for sale on initial recognition as the
shares were acquired exclusively with a view to subsequent re-sale. Refer to Note 19 for further information. The table above presents
movements in the Group's existing 25.3 per cent interest in RedefineBDL only.
Distributions from the associate for the year ended 31 August 2017 of GBP1.2 million (31 August 2016: GBP2.3 million) were comprised of
cash distributions only (31 August 2016: GBP0.3 million of the total distribution related to the distribution in specie of 254,084 shares
in IHL).
Following an internal impairment assessment and on receipt of an independent valuation of RedefineBDL, the Directors considered
that the recoverable amount of the Group's net investment in RedefineBDL was GBP9.4 million at 31 August 2017 (31 August 2016:
GBP10.2 million). The independent valuation was determined on a value-in-use basis but was also cross-checked to market
comparables. Using a discount rate range of 11.5 - 12.5 per cent, an enterprise value range of GBP33.5 - GBP40.5 million was attributed to
the investment, with a mid-point valuation of GBP37.0 million (Group share: GBP9.4 million). This has resulted in an impairment charge of
GBP0.5 million (31 August 2016: GBP3.2 million).
Summarised Financial Information
The summarised financial information of RedefineBDL is set out below.
31 August 31 August
2017 2016
GBPm GBPm
Summarised Income Statement
Revenue 12.6 12.6
Other income 2.5 6.3
Expenses (9.6) (10.9)
Profit from operations 5.5 8.0
Taxation (1.3) (1.4)
Profit for the year 4.2 6.6
Elimination of third party interest (3.1) (4.9)
Group share of results 1.1 1.7
Classified as:
Share of post-tax profit 0.9 1.7
Impairment adjustment 0.2 -
Summarised Balance Sheet
Non-current assets 4.7 7.8
Intangible asset 28.1 28.1
Trade and other receivables 6.3 6.7
Cash and cash equivalents 3.7 3.2
Total assets 42.8 45.8
Current liabilities (8.7) (10.6)
Total liabilities (8.7) (10.6)
Net assets 34.1 35.2
Elimination of third party interest (25.5) (26.3)
Share of net assets attributable to the Group 8.6 8.9
Recoverable amount of excess net investment in associate 0.8 1.3
Carrying value of the Group's net investment in associate 9.4 10.2
16. INTANGIBLE ASSETS
31 August 31 August
2017 2016
GBPm GBPm
Opening balance at 1 September 1.3 1.5
Amortisation (0.2) (0.2)
Closing balance 1.1 1.3
Intangible assets were recognised on the acquisition of Redefine International Management Holdings Limited Group ("RIMH") and
represented the fair value of the advisory agreements acquired by the Group. The value attributed to the contracts between RIMH
and third parties, including joint ventures of the Group and the non-controlling interests, was GBP1.9 million. The intangible asset is being
amortised on a straight-line basis over the remaining term of the contracts, which have an average life of eight years.
17. TRADE AND OTHER RECEIVABLES
Re-presented (1)
31 August 31 August
2017 2016
GBPm GBPm
Non-current
Tenant lease incentives (3) 5.8 3.8
Loans to external parties 1.6 0.7
Letting costs 1.0 0.2
Total non-current trade and other receivables 8.4 4.7
Current
Amounts receivable from related parties (Note 30) 0.5 20.0
Consideration outstanding on disposal of investment property held for sale 6.6 -
Loans to external parties (2) 2.2 -
Rent receivable 1.1 1.5
Prepayments and accrued income 2.1 1.2
Tenant lease incentives (3) 1.4 0.9
Other receivables 1.6 3.1
Total current trade and other receivables 15.5 26.7
Total trade and other receivables 23.9 31.4
(1) Prior year trade and other receivables have been re-presented to correctly classify certain receivables as non-current and ensure consistency with
the current year presentation. Refer to Note 2.2.
(2) During the year ended 31 August 2017, GBP2.1 million has been advanced to an external party to part-finance a development project in Kingston Upon
Thames, Surrey. The loan is due to mature on 1 December 2017 but the borrower has the option to extend the loan to 29 December 2018. Unpaid
interest is to be rolled to the principal loan balance periodically (31 August 2017: GBP0.1 million).
(3) Total tenant lease incentives of GBP7.2 million (31 August 2016: GBP4.7 million) have been deducted from investment property in determining fair
value at the balance sheet date. Refer to Note 12.
18. CASH AND CASH EQUIVALENTS
31 August 31 August
2017 2016
GBPm GBPm
Unrestricted cash and cash equivalents 52.1 28.7
Restricted cash and cash equivalents 0.7 3.3
Cash and cash equivalents 52.8 32.0
At 31 August 2017, cash and cash equivalents to which the Group did not have instant access amounted to GBP0.7 million (31 August
2016: GBP3.3 million). The restricted cash is held on deposit in Germany under an hereditable building right agreement for the property
at Ingolstadt. The comparative restricted cash was held with Aviva in relation to the shopping centre developments at Byron Place
Seaham, Birchwood Warrington, Weston Favell and proposed developments at Grand Arcade Wigan. This cash was used in part-
prepayment of the debt on restructuring (refer to Note 20).
The Group's share of total cash and cash equivalents, including its share of joint venture cash, at 31 August 2017 was GBP53.4 million
(31 August 2016: GBP34.3 million), with a further GBP10.0 million of undrawn committed facilities available (31 August 2016: GBP23.0 million).
19. NON-CURRENT ASSETS HELD FOR SALE
UK UK UK
Retail Commercial Hotels Europe Total
GBPm GBPm GBPm GBPm GBPm
Investment property
Opening balance at 1 September 2016 - - - - -
Transfers from investment property (Note 12) 16.8 49.0 - 9.7 75.5
Loss on revaluation (3.9) - - - (3.9)
Disposals - (39.8) - (6.0) (45.8)
12.9 9.2 - 3.7 25.8
Investment in associate
Opening balance at 1 September 2016 - - - - -
Additions - - 1.3 - 1.3
Share of post-tax profit - - 0.2 - 0.2
- - 1.5 - 1.5
Closing balance at 31 August 2017 12.9 9.2 1.5 3.7 27.3
Investment property held for sale
During the year ended 31 August 2017, ten properties were reclassified as held for sale, six of which remained classified as such at
the reporting date. Four of these assets are being actively marketed and management are committed to a plan for their sale. It is
considered highly probable that the carrying value of these assets will be recovered through a sale transaction, rather than through
continuing use, within the next twelve months. On 16 September 2016 the Company exchanged contracts for the future disposal of
a UK Commercial office in 2 Duchess Place, Edgbaston, for GBP1.6 million. The purchaser has the right to call completion at any point
up to 1 April 2018. As there is a firm commitment from the purchaser and the Company to complete the transaction and the delay in
completion is outside of the Company's control, the asset has also been classified as held for sale at 31 August 2017.
The Group disposed of four held for sale assets from the UK Commercial portfolio and one German property during the year realising
a net gain, after disposal costs, of GBP1.5 million. As at 31 August 2017, net proceeds of GBP40.9 million had been received by the Group,
as the Brückmuhl property sale had only exchanged at the balance sheet date and GBP0.2 million of disposal costs had been accrued.
Sales Disposal Tenant Net sales Carrying Gain/(loss) on
proceeds costs incentives proceeds value disposal
31 August 2017 GBPm GBPm GBPm GBPm GBPm GBPm
The Observatory, Chatham 4.0 (0.1) - 3.9 3.6 0.3
Woodlands, Bedford 11.0 (0.3) - 10.7 11.5 (0.8)
London Road, High Wycombe 26.1 - - 26.1 24.7 1.4
Brückmuhl, Germany 6.6 - - 6.6 6.0 0.6
Disposals during the year 47.7 (0.4) - 47.3 45.8 1.5
The Company exchanged on the disposal of the House of Fraser department store in Hull post year end (refer to Note 35).
Investment in associate held for sale
On 7 February 2017, as part of the settlement of the loan outstanding from 4C Investments (refer to Note 30), the Company acquired
659 shares in RedefineBDL for an attributed value of GBP1,942 per share. This represented 5.1 per cent of the issued share capital of
RedefineBDL. As part of the settlement agreement, 4C Investments has the right to buy back the shares at the transfer price of
GBP1.3 million at any time on or before 31 January 2018 subject to written notice. If this right is not exercised, the remaining shareholders
of RedefineBDL will be offered the shares in proportion to their shareholding at the transfer price. It is considered highly probable that
the value of the investment will be recovered through re-sale on or before 31 January 2018. The investment has been classified as
held for sale on initial recognition and at 31 August 2017. The Directors have determined that the value inherent in the right to
reacquire the shares is not material.
All non-current assets held for sale fall within 'Level 3', as defined by IFRS 13 (refer to Note 29). Accordingly, there has been no
transfer within the fair value hierarchy over the year.
20. BORROWINGS, INCLUDING FINANCE LEASES
31 August 31 August
2017 2016
GBPm GBPm
Non-current
Bank loans 822.8 759.8
Less: unamortised debt issue costs (3.9) (4.1)
Less: fair value adjustments (14.7) (19.4)
804.2 736.3
Aviva profit share - 4.2
Other external loans 0.8 -
Finance leases 13.9 12.3
Total non-current borrowings, including finance leases 818.9 752.8
Current
Bank loans 3.1 13.8
Less: unamortised debt issue costs (0.3) (1.2)
Less: fair value adjustments (0.8) (1.1)
2.0 11.5
Other external loans - 0.6
Finance leases 0.9 0.7
Total current borrowings, including finance leases 2.9 12.8
Total borrowings, including finance leases 821.8 765.6
Bank loans
31 August 2017 31 August 2016
Carrying Nominal Fair Carrying Nominal Fair
Value Value Value Value Value Value
GBPm GBPm GBPm GBPm GBPm GBPm
Non-current liabilities
Bank loans 822.8 822.8 822.8 759.8 759.8 759.8
Less: unamortised debt issue costs (3.9) - - (4.1) - -
Less: fair value adjustments (14.7) - (10.6) (19.4) - 21.8
Total non-current bank loans 804.2 822.8 812.2 736.3 759.8 781.6
Current liabilities
Bank loans 3.1 3.1 3.1 13.8 13.8 13.8
Less: unamortised debt issue costs (0.3) - - (1.2) - -
Less: fair value adjustments (0.8) - 0.1 (1.1) - 0.1
Total current bank loans 2.0 3.1 3.2 11.5 13.8 13.9
Total IFRS bank loans 806.2 825.9 815.4 747.8 773.6 795.5
Joint ventures
Share of joint ventures bank loans 16.3 16.3 16.3 77.0 77.0 77.0
Share of joint ventures unamortised debt
issue costs - - - (0.2) - -
Total bank loans (on a proportionately
consolidated basis) 822.5 842.2 831.7 824.6 850.6 872.5
Cash and cash equivalents (52.8) (52.8) (52.8) (32.0) (32.0) (32.0)
Share of joint ventures cash and cash
equivalents (0.6) (0.6) (0.6) (2.3) (2.3) (2.3)
Net debt (on a proportionately
consolidated basis) 769.1 788.8 778.3 790.3 816.3 838.2
The table above presents bank loans, cash and cash equivalents and net debt information prepared on a proportionately consolidated basis. This
format is not a requirement of IFRS and is presented for informational purposes only as it is used in reports presented to the Group's Chief
Operating Decision Maker.
The Group's bank loans are secured over investment property of GBP1,484.1 million (31 August 2016: GBP1,383.0 million) and are carried
at amortised cost. On a proportionately consolidated basis, bank loans are secured over investment property of GBP1,509.7 million
(31 August 2016: GBP1,523.9 million).
The Group has reduced the nominal value of drawn debt (on a proportionately consolidated basis) during the year to GBP842.2 million
(31 August 2016: GBP850.6 million) following a number of successful refinancings;
- in November 2016 the facility held against West Orchards Coventry was restructured after the repayment of GBP5.2 million which
reduced the balance outstanding to GBP11.9 million and extended the maturity to 2021. The restructuring was not considered a
significant modification and no extinguishment of the existing loan was therefore required;
- in December 2016 and January 2017, the Group drew down on funds from the revolving credit facility ("RCF") secured against
the AUK Portfolio and repaid loans previously held with AIB Group (UK) p.l.c. (GBP5.4 million) and Commerzbank AG (GBP9.7 million).
During the year ended 31 August 2017, the Group also sold eight properties secured against the AUK facility and applied GBP40.0
million of sale proceeds against the RCF. Net movements on the drawn facility for the year are GBP10.5 million;
- Wichford VBG disposed of its property-owning subsidiaries including associated bank debt with DG Hyp (Group share: GBP23.5
million), effective 1 January 2017. See Notes 10 and 14;
- in April 2017, the Group refinanced GBP167.8 million of existing debt facilities secured over four of its UK Shopping Centre assets
with Aviva. Following a prepayment of GBP21.7 million, the four facilities were amalgamated into one carrying a fixed rate of interest
of 5.52 per cent (previous range: 5.7 - 6.4 per cent). The restructure qualifies as a substantial modification - the existing facilities
have been derecognised and the refinanced debt has been recognised at fair value;
- in April 2017, the Group acquired control of the previously held joint venture interest in the Leopard Portfolio and the Group
assumed bank debt with Berlin Hyp AG and BayernLB of GBP73.6 million at rates of 1.3 - 2.9 per cent. See Note 31 for further
information;
- the Group refinanced its HSH Nordbank facility, secured over the CMC Shopping Center Altona, Hamburg effective 28 April 2017
with the facility being extended to February 2024. Following a prepayment of GBP5.5 million, the nominal value of debt outstanding
was reduced to GBP37.9 million. The refinancing was not considered a significant modification and no extinguishment of the existing
loan was therefore required;
- in June 2017, the Group completed the refinancing of three facilities held with BayernLB in the RI Menora joint venture. This
included a prepayment of GBP1.7 million (Group share: GBP0.9 million), of which GBP1.3 million (Group share: GBP0.7 million) was paid in
June and the remainder was paid post year end in September 2017. The facilities have been extended to 2024 and carry fixed
rates of interest from 1.69 - 1.72 per cent; and
- in August 2017, the Group agreed extensions for two BayernLB facilities secured against the German OBI properties due to
mature in October 2017. Under the amended agreements, both loans will now run to December 2022 and carry fixed interest
rates of 1.59 - 1.62 per cent.
Fair value disclosures
The nominal value of floating rate borrowings is considered to be a reasonable approximation of fair value. The fair value of fixed rate
borrowings at the reporting date has been calculated by discounting cash flows under the relevant agreements at a market interest
rate for similar debt instruments. The market interest rate has been determined having regard to the term, duration and security
arrangements of the relevant loan and an estimation of the current rates charged in the market for similar instruments issued to
companies of similar sizes.
With the exception of the Aviva debt refinanced during the year, the Group considers that all bank loans, including the Group's share
of joint venture bank loans at a total carrying value of GBP690.9 million, fall within 'Level 3' as defined by IFRS 13 at the reporting date
(refer to Note 29). The Aviva debt was recognised at fair value on refinancing in April 2017. This resulted in a fair value adjustment
of GBP14.3 million as the refinanced debt was considered to have been negotiated on off-market terms. The fair value was determined
with reference to observable inputs and was classified as 'Level 2' on initial recognition. The carrying value of the Aviva debt at 31
August 2017, being GBP131.6 million, is still considered by the Group to be a reasonable approximation of fair value and therefore falls
within 'Level 2'. All bank loans at 31 August 2016 were considered 'Level 3'.
The maturity of Group bank loans, gross of unamortised debt issue costs and fair value adjustments is as follows:
31 August 31 August
2017 2016
GBPm GBPm
Less than one year 3.1 13.8
Between one year and five years 620.5 471.8
More than five years 202.3 288.0
825.9 773.6
Certain borrowing agreements contain financial and other covenants that, if contravened, could alter the repayment profile.
Aviva profit share
As part of the Aviva debt restructure in 2013, Aviva retained the right to participate in 50 per cent of the income generated by Grand
Arcade Shopping Centre, Wigan (after all costs, expenses and interest). The profit share participation right was recognised as a
financial liability, initially at fair value and subsequently measured at amortised cost in prior years. During the year ended 31 August
2017 the debt was again restructured and, following a break cost payment of GBP5.5 million to terminate the existing facility, the Group
was released from the historic profit arrangement with Aviva.
Finance leases
Obligations under finance leases at the reporting date are as follows:
31 August 31 August
2017 2016
GBPm GBPm
Minimum lease payments under finance lease obligations:
Not later than one year 0.9 0.7
Later than one year not later than five years 3.3 3.0
Later than five years 113.9 88.6
118.1 92.3
Less: finance charges allocated to future periods (103.3) (79.3)
Present value of minimum lease payments 14.8 13.0
Present value of minimum finance lease obligations:
Not later than one year 0.9 0.7
Later than one year not later than five years 2.8 2.5
Later than five years 11.1 9.8
Present value of minimum lease payments 14.8 13.0
Finance lease obligations relate to the Group's leasehold interests in investment property. Finance leases are effectively secured
obligations, as the rights to the leased asset revert to the lessor in the event of default. The discount rates used in calculating the
present value of the minimum lease payments range from 1.8 to 6.3 per cent.
21. DERIVATIVE FINANCIAL INSTRUMENTS
The Group enters into interest rate swap and interest rate cap agreements to manage the risks arising from the Group's operations
and its sources of finance.
Interest rate swaps and caps are employed by the Group to manage the interest rate profile of financial liabilities. In accordance with
the terms of the majority of bank debt arrangements, the Group has entered into interest rate swaps to convert the rates from floating
to fixed which has eliminated exposure to interest rate fluctuations. Likewise, interest rate caps are used to limit the downside
exposure to significant changes to the low interest rates currently prevailing in the market.
It is the Group's policy that no economic trading in derivatives is undertaken.
31 August 31 August
2017 2016
GBPm GBPm
Derivative Assets
Non-current
Interest rate cap 0.2 0.8
Interest rate swaps 0.2 -
0.4 0.8
Derivative Liabilities
Non-current
Interest rate swaps (7.8) (12.6)
(7.8) (12.6)
Net derivative financial instruments (7.4) (11.8)
The Group holds interest rate cap assets at rates of 0.4 and 3.0 per cent, maturing in April 2020 and November 2021 respectively.
The interest rate swap assets are held at a rate of 0.4 per cent, maturing in September 2020. The interest rate swap liabilities have
maturities from September 2018 to November 2021 and the rates range from 0.4 to 2.0 per cent.
22. DEFERRED TAX
The table below presents the recognised deferred tax liability and movement during the year:
Fair value of Accelerated
investment capital
property allowances Total
GBPm GBPm GBPm
Opening balance 1 September 2015 0.6 1.6 2.2
(Income)/expense for the year recognised in the income statement (0.2) 1.4 1.2
Opening balance 1 September 2016 0.4 3.0 3.4
Additions on acquisition of control of joint venture 2.8 - 2.8
Expense for the year recognised in the income statement 2.6 0.9 3.5
Foreign currency translation 0.4 0.3 0.7
Closing balance at 31 August 2017 6.2 4.2 10.4
Net deferred tax assets not recognised at 31 August 2017 amounted to GBP0.2 million (31 August 2016: GBP7.3 million).
23. TRADE AND OTHER PAYABLES
Restated (1)
31 August 31 August
2017 2016
GBPm GBPm
Amounts payable to related parties (Note 30) 0.6 -
Rent received in advance 4.3 4.8
Trade payables 1.1 0.5
Accrued interest 2.4 2.9
VAT payable 4.0 4.3
Accruals 6.1 3.8
Other payables 2.7 5.1
Trade and other payables 21.2 21.4
(1) Current tax liabilities of GBP2.4 million that were previously presented within trade and other payables at 31 August 2016 have been separately
presented on the face of the consolidated balance sheet. Refer to Note 2.2.
24. SHARE CAPITAL AND SHARE PREMIUM
AUTHORISED Authorised
Number of Share Capital
Shares GBPm
- At 31 August 2016 (Ordinary shares of 8 pence each) 3,000,000,000 240.0
- At 31 August 2017 (Ordinary shares of 8 pence each) 3,000,000,000 240.0
ISSUED, CALLED UP AND FULLY PAID Share Share
capital premium
Number of Shares GBPm GBPm
At 31 August 2015 1,474,331,331 117.9 395.0
Scrip dividend - issued December 2015 21,235,556 1.7 9.5
Share placement - issued February 2016 270,588,236 21.7 87.4
Scrip dividend - issued June 2016 28,443,527 2.3 10.2
At 31 August 2016 1,794,598,650 143.6 502.1
Scrip dividend - issued December 2016 17,141,172 1.3 5.3
Scrip dividend - issued June 2017 16,320,324 1.3 4.4
At 31 August 2017 1,828,060,146 146.2 511.8
SHARE CAPITAL AND SHARE PREMIUM
In October 2015, the Company declared a second interim dividend of 1.65 pence per share for the six months ended August 2015
and offered shareholders an election to receive either a cash dividend or a scrip dividend by way of an issue of new Redefine
International shares credited as fully paid up. The Company received election forms from shareholders holding 699.1 million ordinary
shares of 8 pence each representing a 47.4 per cent take up by shareholders, in respect of which 21.2 million scrip dividend shares
were issued in December 2015.
In February 2016, the Company completed a placing of 270.6 million new ordinary shares of 8 pence each for an aggregate nominal
value of GBP21.7 million. The placing generated proceeds of GBP109.1 million (net of costs).
In April 2016, the Company declared an interim dividend of 1.625 pence per share for the six months ended 29 February 2016 and
offered shareholders an election to receive either a cash dividend or a scrip dividend by way of an issue of new Redefine International
shares credited as fully paid up. The Company received election forms from shareholders holding 907.4 million ordinary shares of 8
pence each representing a 51.4 per cent take up by shareholders, in respect of which 28.4 million scrip dividend shares were issued
in June 2016.
In October 2016, the Company declared a second interim dividend of 1.575 pence per share for the six months ended 31 August
2016 and offered shareholders an election to receive either a cash dividend or a scrip dividend by way of an issue of new Redefine
International shares credited as fully paid up. The Company received election forms from shareholders holding 489.1 million ordinary
shares of 8 pence each representing a 27.3 per cent take up by shareholders, in respect of which 17.1 million scrip dividend shares
were issued in December 2016.
In April 2017, the Company declared an interim dividend of 1.3 pence per share for the six months ended 28 February 2017 and
offered shareholders an election to receive either a cash dividend or a scrip dividend by way of an issue of new Redefine International
shares credited as fully paid up. The Company received election forms from shareholders holding 522.2 million ordinary shares of 8
pence each representing a 28.8 per cent take up by shareholders, in respect of which 16.3 million scrip dividend shares were issued
in June 2017.
25. RESERVES
REVERSE ACQUISITION RESERVE
The reverse acquisition reserve of GBP134.3 million arose on the reverse acquisition of Wichford P.L.C. (subsequently renamed Redefine
International) by Redefine International Holdings Limited ("RIHL") in August 2011 and reflected the difference between the capital
structure of the Company, as the legal acquirer, and RIHL, as the accounting acquirer, at the date of the transaction.
On 28 July 2017, the capital of RIHL was reduced by way of a capital reduction and transferred to retained earnings. On consolidation,
this capital reduction has resulted in the release of GBP134.3 million from the reverse acquisition reserve which has also been transferred
to the retained earnings of the Group.
OTHER RESERVES
Share-Based Payment Reserve
The share-based payment reserve at 31 August 2017 of GBP3.2 million (31 August 2016: GBP2.2 million) arises from conditional awards of
shares in the Company made to certain employees and the Executive Directors. The awards will vest on the third anniversary of the
grant, subject to certain performance conditions being achieved over the vesting period.
Other Reserves
Other reserves of GBP1.0 million (31 August 2016: GBP1.0 million) arose from the acquisition of subsidiaries.
FOREIGN CURRENCY TRANSLATION RESERVE
The foreign currency translation reserve at 31 August 2017 of GBP23.4 million (31 August 2016: GBP10.8 million) represents exchange
differences arising from the translation of the Group's net investment in foreign operations, including both subsidiary and joint venture
interests. GBP4.2 million of cumulative translation gains were transferred to the income statement during the year on disposal of joint
venture interests (31 August 2016: GBP3.6 million on disposal of subsidiary). GBP2.2 million related to the disposal of the property-owning
subsidiaries of Wichford VBG and GBP2.0 million related to the disposal of the Leopard joint venture.
26. NON - CONTROLLING INTERESTS
31 August 31 August
2017 2016
GBPm GBPm
Opening balance at 1 September 33.6 38.8
Comprehensive income/(expense) for the year:
Share of profit/(loss) for the year 3.5 (0.4)
Foreign currency translation on subsidiary foreign operations 0.1 0.7
Changes in ownership interest in subsidiaries:
Reclassification of non-controlling interest shareholder loans to liabilities (0.3) (1.1)
Dividends paid to non-controlling interests (1.7) (2.2)
Recognition of non-controlling interests on acquisition of control of former joint venture (0.7) -
Acquisition of non-controlling interest (Note 27) (12.7) (2.1)
Repayment of non-controlling interest shareholder loans - (0.1)
Total non-controlling interests 21.8 33.6
The following table summarises the financial information relating to the Group's only subsidiary that has a material NCI, RHHL,
before any intra-group eliminations.
Re-presented
31 August 2017 31 August 2016
Redefine Other Redefine Other
Hotel individually Total non- Hotel individually Total non-
Holdings immaterial controlling Holdings immaterial controlling
Limited subsidiaries interest Limited subsidiaries interest
GBPm GBPm GBPm GBPm GBPm GBPm
United United
Principal place of business Kingdom Kingdom
Country of incorporation BVI BVI
NCI % 17.52% 28.95%
Summarised balance sheet
Investment property and other non-current assets 223.7 216.2
Current assets 8.0 7.0
Non-current liabilities (113.1) (109.9)
Current liabilities (1.0) (1.7)
Elimination of tax paid wholly attributable NCI - 0.4
Adjusted net assets 117.6 112.0
NCI share of adjusted net assets 20.6 32.4
Tax attributable to NCI - (0.4)
Carrying amount of NCI 20.6 1.2 21.8 32.0 1.6 33.6
Summarised statement of comprehensive income
Revenue 14.0 14.7
Profit/(loss) for the year 14.2 (0.7)
Profit/(loss) attributable to NCI (1) 3.0 0.5 3.5 (0.6) 0.2 (0.4)
Other comprehensive income attributable to NCI - 0.1 0.1 - 0.7 0.7
Dividends paid to NCI 1.6 0.1 1.7 1.8 0.4 2.2
Summarised cash flow statement
Cash inflow from operating activities 11.4 10.5
Cash outflow from investing activities (3.0) (0.9)
Cash outflow from financing activities (5.4) (7.8)
(1) Profit/(loss) attributable to NCI at 31 August 2016 included a non-resident landlord tax charge of GBP0.4 million which was fully attributable
to the minority shareholders of RHHL.
27. TRANSACTIONS WITH NON-CONTROLLING INTERESTS
On 1 June 2016, Ciref Europe Limited, a subsidiary of the Group, acquired the non-controlling interests in its subsidiaries CEL Portfolio
1 Ltd & Co. KG and Chelvey Holdings Limited, of 20.0 and 33.0 per cent respectively, from Ellis Ventures Limited. Consideration for
this transaction was GBP2.3 million (EUR2.7 million) including the acquisition of shareholder loans for GBP1.9 million (EUR2.2 million). A loss of
GBP0.2 million on acquisition of the non-controlling interest was recognised directly in equity.
At 31 August 2016, 4C Investments was a non-controlling shareholder of RHHL, with an 11.43 per cent equity interest (1,938 shares)
in the issued share capital. The Company had a loan balance outstanding from 4C Investments (refer to Note 30), for which a share
charge was created in favour of the Company over 4C Investment's entire shareholding in RHHL. The total loan balance outstanding,
of both principal and interest, was GBP14.2 million on maturity at 31 December 2016. In the absence of repayment, the Company
exercised its security over the shares. On 7 February 2017, the 1,938 shares formally transferred to the Company for an agreed
transfer price of GBP6,295 per share, valuing the total shareholding at GBP12.1 million. The carrying value of the non-controlling interest on
transfer was GBP12.7 million and, as a result, a gain of GBP0.4 million has been recognised directly in equity after transaction costs.
4C Investments has the right to reacquire the RHH shares on or before 31 January 2018 at the transfer price of GBP12.1 million. The
exercise of this right is considered improbable and the Directors are satisfied that there is no material value attributable to the option.
The remaining non-controlling interest in RHHL (17.52 per cent) has formally waived the pre-emptive right to acquire its relative
proportion of the shares on 31 January 2018. Dividends from these shares have been payable to the Company since the transfer and
4C Investments has no representation on the board of RHHL during the option period.
On acquisition of control of the Leopard Portfolio, the non-controlling interest's proportionate share (6 per cent) of the identifiable net
assets of GBP0.7 million was recognised (debit balance).
31 August 31 August
2017 2016
GBPm GBPm
Carrying amount of non-controlling interest acquired:
Ellis Ventures Limited - 2.1
4C Investments 12.7 -
Consideration paid to non-controlling interest - (2.3)
Transfer value attributed to non-controlling interest (net of transaction costs) (12.3) -
Increase/(decrease) in equity attributable to equity holders of the Parent 0.4 (0.2)
28. CASH GENERATED FROM OPERATIONS
31 August 31 August
2017 2016
Continuing operations Note GBPm GBPm
Cash flows from operating activities
Profit before tax 73.5 8.6
Adjustments for:
Straight lining of rental income (1.1) (1.5)
Fair value of share-based payments 1.0 1.2
(Gain)/loss on revaluation of investment property 12 (10.8) 42.5
Loss on revaluation of investment property held for sale 19 3.9 -
Gain on disposal of investment property 12 (9.2) (3.2)
Gain on disposal of investment property held for sale 19 (1.5) -
Gain on disposal of subsidiary 7 - (12.2)
Distributions from investment at fair value (0.2) (0.5)
Loss on revaluation of investment at fair value 13 0.3 0.8
Amortisation of intangible asset 16 0.2 0.2
Gain on disposal of other non-current assets held for sale - (0.2)
Foreign exchange gain - (0.9)
Finance income 8 (3.4) (6.3)
Finance expense 8 28.4 32.7
Other finance expense 9 6.5 1.9
Change in fair value of derivative financial instruments (4.5) 11.1
Net gain on sale of joint venture interests 10 (4.9) -
Net impairment of joint ventures and associate interests 14,15 0.1 0.6
Share of post-tax loss/(profit) from joint ventures 14 2.3 (1.4)
Share of post-tax profit from associate 15,19 (1.1) (1.7)
Transfer of foreign currency translation on disposal of joint venture interest 14 (2.0) -
77.5 71.7
Changes in working capital (1.9) (2.5)
Cash generated from operations 75.6 69.2
29. FAIR VALUE OF FINANCIAL INSTRUMENTS
BASIS FOR DETERMINING FAIR VALUES
The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the
measurements.
Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.
Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This
category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical
or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are
directly or indirectly observable from market data.
Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation
technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's
valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant
unobservable adjustments or assumptions are required to reflect differences between the instruments.
The fair value of financial instruments that are traded in active markets is based on quoted market prices or dealer price quotations.
For all other financial instruments, the Group uses valuation techniques to arrive at a fair value that reflects a price that would have
been determined by willing market participants acting at arm's length at the reporting date. For common and simple financial
instruments, such as over-the-counter interest rate swaps and caps, the Group uses widely recognised valuation models for
determining the fair value. The models use only observable market data and require little management judgement which reduces the
uncertainty associated with determination of fair values. For other financial instruments, the Group determines fair value using net
present value or discounted cash flow models and comparisons to similar instruments for which market observable prices exist.
Varying degrees of judgement are required in the determination of an appropriate market benchmark. Assumptions and inputs used
in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premia used in estimating discount
rates, foreign currency exchange rates and expected price volatilities and correlations. Availability of observable market prices and
inputs vary depending on the products and markets and is prone to changes based on specific events and general conditions in the
financial markets.
The tables below present information about the Group's financial instruments carried at fair value as of 31 August 2017 and
31 August 2016.
Total
Level 1 Level 2 Level 3 Fair Value
GBPm GBPm GBPm GBPm
31 August 2017
Financial assets
Investment at fair value (Note 13) 8.5 - - 8.5
Derivative financial assets (Note 21) - 0.4 - 0.4
8.5 0.4 - 8.9
Financial liabilities
Derivative financial liabilities (Note 21) - (7.8) - (7.8)
- (7.8) - (7.8)
31 August 2016
Financial assets
Investment at fair value (Note 13) 7.9 - - 7.9
Derivative financial assets (Note 21) - 0.8 - 0.8
7.9 0.8 - 8.7
Financial liabilities
Derivative financial liabilities (Note 21) - (12.6) - (12.6)
- (12.6) - (12.6)
The investment in IHL has been categorised as a Level 1 investment and priced using quoted prices in an active market; the AltX of
the JSE. Derivative financial instruments have been categorised as Level 2, as although they are priced using directly observable
inputs, the instruments are not traded in an active market.
As stated in Note 12 and 19 respectively, the Group considers investment property and non-current assets held for sale to be
categorised as Level 3. As stated in Note 20, the Group considers all bank loans to be categorised as Level 3 with the exception of
the Aviva debt which is categorised as Level 2.
The carrying values of loans to joint ventures, trade and other receivables, cash and cash equivalents, finance leases and trade and
other payables are considered to be a reasonable approximation of fair value.
30. RELATED PARTY TRANSACTIONS
Related parties of the Group include: associate undertakings; joint ventures; Directors and key management personnel; connected
parties; the major Shareholder Redefine Properties Limited ("RPL"); as well as entities connected through common directorships.
31 August 31 August
2017 2016
GBPm GBPm
Related Party Transactions
Revenue Transactions
Rental income
RedefineBDL(1) 14.0 14.7
(1) Amounts received from RedefineBDL as a result of lease agreements in place between the Group, RHML and RECML (wholly owned subsidiaries
of RedefineBDL).
Other income
International Hotel Properties Limited - 0.3
Joint Ventures
Leopard Portfolio 0.3 0.5
Wichford VBG Holding S.à.r.l. (including Performance Fee of GBP3.4 million) 3.5 0.1
RI Menora German Holdings S.à.r.l. - 0.1
Distributions from investments at fair value
International Hotel Properties Limited 0.2 0.5
Finance income
Joint Ventures
Leopard Portfolio 1.5 2.6
Wichford VBG Holding S.à.r.l. 0.8 2.2
RI Menora German Holdings S.à.r.l. 0.4 0.2
International Hotel Properties Limited - 0.1
4C UK Investments Limited 0.5 1.0
Capital Transactions
Investment property (capitalised expenditure)
Project monitoring fee to RedefineBDL - construction works 0.1 0.3
Investment at fair value through profit or loss
International Hotel Properties Limited (shares acquired/transferred at cost) 1.0 8.7
Investment in associate
Transfer price of 4C UK Investments Limited's interests in RedefineBDL 1.3 -
Capital contribution to RedefineBDL - 6.0
Dividends received from RedefineBDL (1.2) (2.3)
Non-controlling interests
Transfer price of 4C UK Investments Limited's interests in RHHL 12.1 -
Related Party Balances
Loans to joint ventures
Leopard Portfolio - 36.8
Wichford VBG Holding S.à.r.l. - 12.2
RI Menora German Holdings S.à.r.l. 4.3 3.9
4.3 52.9
Trade and other receivables
RI Menora German Holdings S.à.r.l. 0.5 -
Leopard Portfolio - 1.9
Wichford VBG Holding S.à.r.l. - 1.7
4C UK Investments Limited - 14.2
RedefineBDL - 1.7
International Hotel Properties Limited - 0.5
0.5 20.0
Trade and other payables
Wichford VBG Holding S.à.r.l. (0.6) -
31 August 31 August
2017 2016
GBPm GBPm
Related Party Transactions with equity holders of the Parent
Redefine Properties Limited - capital raise - 34.6
Redefine Properties Limited - underwriting fee - 2.5
Redefine Properties Limited - cash dividends 13.8 8.0
Redefine Properties Limited - scrip dividends 1.7 8.0
4C UK INVESTMENTS LIMITED
On 7 February 2017, the Company exercised its security against a loan advanced to 4C Investments that had matured. In settlement
of the GBP14.2 million balance outstanding, the following investments were transferred to the Group:
- 4C Investments non-controlling interest in RHHL for a transfer price of GBP12.1 million (Note 27);
- 4C Investments shareholding in RedefineBDL for a transfer price of GBP1.3 million (Note 19); and
- 4C Investments shareholding in IHL for a transfer price of GBP1.0 million (Note 13).
As the total transfer price for the shares was GBP14.4 million, GBP0.2 million cash was paid back by the Company to 4C Investments. The
treatment on initial recognition of the transferred shares is explained in the referenced notes.
On the same date, the Company entered into a lock-up agreement with 4C Investments whereby the latter has the right to buy back
the transferred shares in RHHL and RedefineBDL on or before 31 January 2018 at the transfer price. Under the terms of the lock-up
agreement:
- the Company cannot dispose of the transferred shares;
- 4C Investments must be notified of material transactions; and
- any dividends declared by RHHL and RedefineBDL will be payable to the Company.
4C Investments is controlled by Bashir Nathoo. Bashir Nathoo was a Director of RHHL and RedefineBDL but resigned from his
directorships with immediate effect on transfer of the shares.
REDEFINE PROPERTIES LIMITED
During the year ended 31 August 2016, the Group paid Redefine Properties a fee of GBP2.5 million in consideration for the financial
guarantee to support the AUK Portfolio acquisition by underwriting up to GBP70.0 million in the capital raise. On completion, Redefine
Properties was allocated 81,373,179 shares, representing 30.07 per cent of the total placing and this equated to an aggregate amount
of GBP34.6 million of the total funds raised.
At 31 August 2017, Redefine Properties held a 29.79 per cent interest in the issued share capital of the Company.
DIRECTORS
Non-executive Directors and Executive Directors represent key management personnel. The remuneration paid to Non-executive
Directors for the year ended 31 August 2017 was GBP0.4 million (31 August 2016: GBP0.3 million) which represents Directors fees only.
The remuneration payable to Executive Directors for the year ended 31 August 2017 was GBP2.7 million (31 August 2016: GBP1.8 million),
representing salaries, benefits and bonuses. 4.9 million contingent share awards were issued to Executive Directors during the year
(31 August 2016: 5.0 million). The IFRS 2 share-based payment charge associated with the cumulative contingent share awards to
the Executive Directors was GBP0.9 million (31 August 2016: GBP1.1 million) for the year.
The table below shows Directors dealings in shares for the period 1 September 2015 to 31 August 2017:
Number of Price per
ordinary shares ordinary share
Name Date of Transaction Transaction acquired acquired
Marc Wainer 4 December 2015 Scrip dividend 3,052 52.4p
Bernie Nackan 4 December 2015 Scrip dividend 559 52.4p
Mike Watters 23 February 2016 Private placing 352,941 42.5p
Adrian Horsburgh 23 February 2016 Private placing 10,000 42.5p
Marc Wainer 23 February 2016 Private placing 195,000 42.5p
Gavin Tipper 23 February 2016 Private placing 100,000 42.5p
Robert Orr 23 February 2016 Private placing 23,529 42.5p
Marc Wainer 6 June 2016 Scrip dividend 3,819 44.2p
Bernie Nackan 6 June 2016 Scrip dividend 587 44.2p
Adrian Horsburgh 25 November 2016 Scrip dividend 347 38.9p
Bernie Nackan 25 November 2016 Scrip dividend 682 38.9p
Stephen Oakenfull 27 February 2017 Share acquisition 50,000 36.6p
Adrian Horsburgh 27 February 2017 Share acquisition 50,000 36.4p
Donald Grant 27 February 2017 Share acquisition 50,000 36.3p
Adrian Horsburgh 26 June 2017 Scrip dividend 1,842 36.2p
Bernie Nackan 26 June 2017 Scrip dividend 619 36.2p
31. ACQUISITION OF SUBSIDIARIES
On 6 April 2017, the Group reached a conditional agreement to acquire the controlling interest in the Leopard Portfolio, previously
held as a joint venture with RPL (refer to Note 14). Shareholder approval was subsequently received on 25 April 2017 and the
transaction completed on 26 April 2017 but with economic effect from 1 March 2017. Aggregate consideration paid to RPL was
EUR49.0 million (GBP41.9 million) and allocated as follows:
- EUR0.3 million (GBP0.3 million) for the equity interests acquired; and
- EUR48.7 million (GBP41.6 million) for the shareholder loans acquired.
Including transaction costs, the total cash outflow in respect of the acquisition was GBP42.1 million.
On completion, the Group obtained control of the Leopard Portfolio. The Group has become exposed to the variable returns of the
portfolio and now has the continuing ability to affect those returns by directing its activities. The Group has therefore consolidated the
Leopard Portfolio on a line-by-line basis from 1 March 2017, with the resulting elimination of intra-group shareholder loans. The
transaction was not considered a business combination, having regard to associated processes acquired, and has therefore been
recognised as an asset acquisition. The net assets of Leopard on acquisition were EUR87.2 million (GBP74.5 million). The carrying value of
the Group's existing joint venture interest, which was derecognised on loss of joint control, was EUR44.3 million (GBP37.7 million).
The premium paid to RPL on acquisition of EUR6.8 million (GBP5.9 million) including transactions costs, has been solely allocated to
investment property as it was not separately identifiable. The carrying value of the Leopard property portfolio on 1 March 2017 was
EUR175.5 million (GBP149.9 million) and, as a result, the total amount recognised as an addition on consolidation was EUR182.3 million
(GBP155.8 million). Refer to Note 12.
The non-controlling interest, being 6 per cent of the equity of the Leopard Portfolio, has been recognised on the basis of its
proportionate share in the identifiable net assets on completion and share of results to the reporting date.
32. EARNINGS PER SHARE
Earnings per share is calculated on the weighted average number of shares in issue and the profit attributable to shareholders.
31 August 31 August
2017 2016
GBPm GBPm
Profit attributable to equity holders of the Parent 66.1 7.9
Group Adjustments:
(Gain)/loss on revaluation of investment property (10.8) 42.5
Loss on revaluation of investment property held for sale 3.9 -
Gain on disposal of investment property (9.2) (3.2)
Gain on disposal of investment property held for sale (1.5) -
Gain on disposal of subsidiary - (12.2)
Loss on revaluation of investment at fair value 0.3 0.8
Amortisation of intangible assets 0.2 0.2
Gain on disposal of other non-current asset held for sale - (0.2)
Re-measurement of financial liability 1.3 -
Net change in fair value adjustments on substantial modification of borrowings 4.3 -
Other refinancing costs 0.3 0.2
Change in fair value of derivative financial instruments (4.5) 11.1
Gain on sale of joint venture interests (5.6) -
Net impairment of joint ventures and associate interests 0.2 -
Capital gains tax refund on disposal of Swiss properties - (1.4)
Deferred tax 3.5 1.2
Joint Venture Adjustments:
Loss/(gain) on revaluation of investment property 0.9 (1.3)
Loss on sale of subsidiaries 0.7 -
Change in fair value of derivative financial instruments (1.1) 1.7
Deferred tax 0.6 0.3
Elimination of joint venture unrecognised profits/(losses) (1) 0.8 (1.2)
Non-Controlling Interest Adjustments:
Gain/(loss) on revaluation of investment property 1.1 (2.2)
Change in fair value of derivative financial instruments (0.1) (0.1)
Impairment of investment in associate (0.1) -
Deferred tax (0.4) -
EPRA earnings 50.9 44.1
Company adjustments:
Accretion of fair value adjustments 0.9 3.1
Foreign currency movements (2.0) (0.9)
Underlying earnings (re-based) 49.8 46.3
Discontinued Company adjustments - 5.9
Distributable earnings 49.8 52.2
Number of ordinary shares (millions)
- Weighted average 1,809.9 1,637.2
Dilutive effect of:
Contingently issuable share awards under the Long-Term Performance Share Plan 1.3 0.2
Contingently issuable share awards under the Long-Term Restricted Stock Plan 0.7 0.5
- Diluted weighted average 1,811.9 1,637.9
Earnings per share (pence)
- Basic 3.7 0.5
- Diluted 3.6 0.5
EPRA earnings per share (pence) 2.8 2.7
Diluted EPRA earnings per share (pence) 2.8 2.7
Underlying earnings per share - re-based (pence) (2) 2.75 2.80
Distributable earnings per share (pence) 2.75 3.20
Dividend per share (pence) 2.6 3.20
First interim dividend per share (pence) 1.3 1.625
Second interim dividend per share (pence) 1.3 1.575
(1) The Group has ceased to recognise the Esplanade in the IFRS statements as the cumulative losses of the joint venture exceed the cost of the
Group's investment (refer to Note 14). This adjustment eliminates the restricted losses for the year attributable to the Esplanade.
(2) The calculation of underlying earnings was revised during the year ended 31 August 2017 to align to the EPRA earnings metric as adjusted for
foreign exchange and debt fair value movements only. The Directors consider this to be a more appropriate measure of recurring earnings that
provides better alignment to operational cash flow. Additional distributable and other non-recurring adjustments made in prior years have now been
discontinued and are presented on an aggregate basis within 'Discontinued Company adjustments' above. The calculation of prior year re-based
underlying earnings has been disclosed for informational and comparative purposes.
Headline earnings per share is calculated in accordance with Circular 2/2015 issued by the South African Institute of Chartered
Accountants ("SAICA"), a requirement of the Group's JSE listing. This measure is not a requirement of IFRS.
31 August 31 August
2017 2016
GBPm GBPm
Profit attributable to equity holders of the Parent 66.1 7.9
Group Adjustments:
(Gain)/loss on revaluation of investment property (10.8) 42.5
Loss on revaluation of investment property held for sale 3.9 -
Gain on disposal of investment property (9.2) (3.2)
Gain on disposal of investment property held for sale (1.5) -
Gain on disposal of subsidiary - (12.2)
Gain on disposal of other non-current assets held for sale - (0.2)
Gain on sale of joint venture interests (5.6) -
Net impairment of joint venture and associate interests 0.2 -
Transfer of foreign currency translation on disposal of joint venture interests (2.0) -
Deferred tax 3.5 1.2
Joint Venture Adjustments:
Loss/(gain) on revaluation of investment property 0.9 (1.3)
Loss on sale of subsidiaries 0.7 -
Deferred tax 0.6 0.3
Elimination of joint venture unrecognised losses (1) (0.1) (0.2)
Non-Controlling Interest Adjustments:
Gain/(loss) on revaluation of investment property 1.1 (2.2)
Impairment of investment in associate (0.1) -
Deferred tax (0.4) -
Headline earnings attributable to equity holders of the Parent 47.3 32.6
Number of ordinary shares (millions)
- Weighted average 1,809.9 1,637.2
- Diluted weighted average 1,811.9 1,637.9
Headline earnings per share (pence)
- Basic 2.6 2.0
- Diluted 2.6 2.0
(1) The Group has ceased to recognise the Esplanade in the IFRS statements as the cumulative losses of the joint venture exceed the cost of the
Group's investment (refer to Note 14). This adjustment eliminates the restricted losses for the year attributable to the Esplanade.
33. NET ASSET VALUE PER SHARE
31 August 31 August
2017 2016
GBPm GBPm
Net assets attributable to equity holders of the Parent 740.4 699.8
Group Adjustments:
Fair value of derivative financial instruments 7.4 11.8
Deferred tax 10.4 3.4
Joint Venture Adjustments:
Fair value of derivative financial instruments 3.5 4.7
Elimination of unrecognised derivative financial instruments (1) (3.5) (4.3)
Deferred tax 0.4 1.9
Non-Controlling Interest Adjustments:
Fair value of derivative financial instruments - 0.2
Deferred tax (0.3) (0.1)
EPRA NAV 758.3 717.4
Group Adjustments:
Fair value of derivative financial instruments (7.4) (11.8)
Excess of fair value of debt over carrying value (5.0) (42.4)
Deferred tax (10.4) (3.4)
Joint Venture Adjustments:
Fair value of derivative financial instruments (3.5) (4.7)
Elimination of unrecognised derivative financial instruments (1) 3.5 4.3
Deferred tax (0.4) (1.9)
Non-Controlling Interest Adjustments:
Fair value of derivative financial instruments - (0.2)
Deferred tax 0.3 0.1
EPRA NNNAV 735.4 657.4
Number of ordinary shares (millions)
- In issue 1,828.1 1,794.7
Dilutive effect of:
Contingently issuable share awards under the Long-Term Performance Share Plan 1.3 0.2
Contingently issuable share awards under the Long-Term Restricted Stock Plan 0.7 0.5
- Diluted 1,830.1 1,795.4
Net asset value per share (pence):
- Basic 40.5 39.0
- Diluted 40.5 39.0
EPRA diluted NAV per share (pence) 41.4 40.0
EPRA diluted NNNAV per share (pence) 40.2 36.6
(1) The Group has ceased to recognise the Esplanade in the IFRS statements as the cumulative losses of the joint venture exceed the cost of the
Group's investment (refer to Note 14). This adjustment eliminates the derivative financial instruments attributable to the Esplanade from the
proportionate adjustments.
34. CONTINGENCIES, GUARANTEES AND COMMITMENTS
A subsidiary of the Group, Redefine Australian Investments Limited, is undergoing a review by the Australian Tax Office in respect of
its calculation of Capital Gains Tax arising on the disposal of securities in Cromwell Property Group during 2013, 2014 and 2015. No
tax assessment notice has been received and dialogue between the Company and the Australian Tax Office is ongoing. The Directors
remain of the view, having sought advice from reputable tax agents and advisers, that their filing position remains correct.
At 31 August 2017, the Group was contractually committed to expenditure of GBP16.8 million (31 August 2016: GBP15.8 million), of which
GBP16.5 million was committed to the future development and enhancement of investment property.
35. SUBSEQUENT EVENTS
On 15 September 2017, the proposed scheme of arrangement to increase the Group's interest in IHL to 50 per cent received IHL
minority shareholder approval. The scheme was approved by the British Virgin Island Court on 12 October, at which time it became
unconditional. The transaction is expected to complete in early November 2017 with IHL delisting shortly afterwards.
On 19 September 2017, the Group exchanged contracts to dispose of the House of Fraser department store in Hull for GBP11.0 million.
The sale is due to complete on 14 November 2017.
36. DIVIDENDS
During the year ended 31 August 2017, the second interim dividend of 1.575 pence per share for the half-year ended 31 August 2016
was distributed, as well as the interim dividend of 1.3 pence per share for the six month period ended 28 February 2017. Both
dividends were settled partly in cash and partly through the issue of scrip dividends.
The Board has declared a second interim dividend in respect of the year ended 31 August 2017 of 1.3 pence per share. Payment will
be made on Monday 18 December 2017 to shareholders on the register on Friday 1 December 2017. A scrip alternative will again be
offered.
37. APPROVAL OF FINANCIAL STATEMENTS
The financial statements were approved by the Board on 26 October 2017.
Annualised gross rental income Annualised gross rent generated by the asset at the balance sheet date, which is made up of
the contracted rent, including units that are in rent-free periods, and estimates of turnover rent.
AUK Aegon UK property portfolio
Aviva Aviva Commercial Finance Limited
Board The Board of Directors of Redefine International P.L.C.
BVI British Virgin Islands
CPI Consumer Price Index
Discontinued Company Items previously added back to arrive at distributable earnings, for example, debt issue costs
adjustments and share-based payment charges.
EBITDA Earnings Before Interest, Tax, Depreciation and Amortisation
EPRA European Public Real Estate Association
EPRA earnings Earnings from operational activities as defined by EPRA's Best Practice guidelines
EPRA NAV European Public Real Estate Association Net Asset Value
EPRA NIY European Public Real Estate Association Net Initial Yield. The annualised rental income based
on the cash rents passing at the balance sheet date, less non-recoverable property operating
expenses, divided by the gross market value of the property.
EPRA NNNAV European Public Real Estate Association Triple Net Asset Value
EPRA occupancy Occupancy expressed as a percentage of ERV, representing a measure of let space.
EPRA topped-up initial yield Net initial yield adjusted for the expiration of rent free periods or other incentives.
EPS Earnings per share
ERV The estimated market rental value of lettable space which could reasonably be expected to be
obtained on a new letting or rent review.
EU European Union
EUR or Euro Euro, the lawful common currency of participating member states of the European Monetary
Union.
GBP, Pound or Sterling Great British Pound, the legal currency of the UK
GRESB Global Real Estate Sustainability Benchmark
IASB International Accounting Standards Board
IFRS International Financial Reporting Standards
IHL International Hotel Properties Limited (formerly: International Hotel Group Limited)
Indexed leases A lease with rent review provisions which are dependent upon calculations with reference to an
index such as the consumer price index or the retail price index.
IPD Investment Property Databank
IRR Internal rate of return
JSE JSE Limited, licensed as an exchange and a public company incorporated under the laws of
South Africa and the operator of the Johannesburg Stock Exchange.
Lease incentives Any incentives offered to occupiers to enter into a lease. Typically, the incentive will be an initial
rent-free period, or a cash contribution to fit out or similar costs.
Like-for-like income Income generated by assets which were held by the Group throughout both the current and
comparable periods for which there has been no significant development which materially
impacts upon income and used to illustrate change in comparable income values.
Like-for-like property Property which has been held at both the current and comparative balance sheet dates for
which there has been no significant development and used to illustrate change in comparable
capital values.
LSE The London Stock Exchange
Loan-to-value or LTV The ratio of net debt divided by the market value of investment property. Calculated on a
proportionate (share of value) basis.
LuxSE The Luxembourg Stock Exchange
NAV Net Asset Value
NCI Non-controlling interest
Net debt Total nominal value of bank borrowings less cash and cash equivalents
RCF Revolving Credit Facility
Redefine International, RDI, RI Redefine International P.L.C. and, when taken together with all its subsidiaries and Group
PLC, the Company or the Group undertakings, collectively referred to as the "Group".
RedefineBDL or RBDL RedefineBDL Hotel Group Limited
Redefine Properties or RPL Redefine Properties Limited, a company listed on the JSE, and a 29.79% shareholder of the
Company.
RECML Redefine Earls Court Management Limited
Reversionary yield The anticipated yield to which the initial yield will rise (or fall) once the rent reaches the ERV.
RevPar Revenue per available room
RICS Royal Institute of Chartered Surveyors
RIHL Redefine International Holdings Limited
RIMH Redefine International Management Holdings Limited
RHHL Redefine Hotel Holdings Limited
RHML Redefine Hotel Management Limited
SAICA South African Institute of Chartered Accountants
UK United Kingdom
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 per cent of those profits to shareholders. Tax is payable on
non-qualifying activities of the residual business.
Underlying earnings (re-based) The calculation of underlying earnings was revised during the year ended 31 August 2017 to
align to the EPRA earnings metric as adjusted for foreign exchange gains and debt fair value
accretion charges only.
WAULT Weighted average unexpired lease term
www.redefine.co.za
Date: 26/10/2017 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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