REG - Real Estate Investrs - Trading & Strategic Update

Real Estate InvestorsAnnouncement

29/01/2024 07:00

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RNS Number : 1280B  Real Estate Investors PLC  29 January 2024

Real Estate Investors Plc

("REI", the "Company" or the "Group")

 

TRADING & STRATEGIC UPDATE

 

Real Estate Investors Plc (AIM: RLE), the UK's only Midlands-focused Real
Estate Investment Trust (REIT) with a portfolio of commercial property across
all sectors, is pleased to provide the following update as at 31 December
2023:

 

DISPOSALS - ACCELERATED SALES PROGRAMME

·    Sales in 2023 of £17.97 million at an aggregate uplift of 2.93%
(pre-costs) to 31 December 2022 book value

·    Further pipeline sales in legals, with focus on reducing portfolio
debt further

 

DEBT REDUCTION & REFINANCING

·    Receipts from sales during 2023 have been used to repay £17.1
million of debt

·    Total drawn debt reduced to £54.3 million (FY 2022: £71.4 million /
FY 2021: £89.4 million)

·    Aviva facility fully paid - lenders are now National Westminster Bank
Plc, Barclays plc and Lloyds Bank plc

·    Average cost of debt maintained at 3.7% (H1 2023: 3.7%)

·    Discussions well advanced with lenders to renew facilities due to
expire in May, June, and December 2024

 

PORTFOLIO SUMMARY

·    Occupancy levels at 83.03% (FY 2022: 84.54%)

·    Contracted rental income of £10.9 million p.a. (FY 2022: £12.6
million p.a.)

·    Major letting contracted to complete in April 2024.  This will
improve existing occupancy to 85.91% and boost contracted rental income to
£11.2 million p.a. (subject to sales and other lease activity)

·    Portfolio WAULT improved to 5.24 years to break and 6.01 years to
expiry (FY 2022: 4.98 years & 6.29 years)

·    Continued robust rent collection levels with overall rent collection
for 2023 of 99.82%

 

STRATEGIC UPDATE

 

The Board has previously stated an intention to accelerate its sales
programme, through the sale of assets either on an individual or collective
basis, on terms that represent value for shareholders. Given the ongoing
substantial discount between the share price and NAV, combined with a lack of
liquidity in its shares, the Board has concluded that it will conduct an
orderly strategic sale of the Company's portfolio over the next 3 years with
the objective of maximising the return of capital to shareholders (the
"Disposal Strategy").  To achieve this outcome, assets will be sold
individually, as smaller portfolios or as a whole portfolio sale, with the
initial priority to repay the Company's debt.

 

Over the last 3 years, the Company has sold £56.4 million of assets, on an
aggregate basis, at or above book value, and significantly reduced drawn debt
from £101 million to £54.3 million (as at 31 December 2023).

 

The ongoing pace of the disposals will depend on market conditions however, it
is the Company's intention to secure disposals at book value or higher,
maximising returns to shareholders.

 

To support the Disposal Strategy and the return of capital to shareholders,
the Company is implementing a new Shorter Term Incentive Plan ("STIP"). The
STIP will replace the existing Long Term Incentive Plan ("LTIP"), help to
retain Paul Bassi, Chief Executive Officer and Marcus Daly, Finance Director
(the "Executives"), and the wider management team and incentivise them to
achieve an orderly and timely disposal of the Company's assets to maximise the
capital return to shareholders.

 

In addition, the Company's Remuneration Committee has approved changes to the
Executives' remuneration to align the policy with the wider Company strategy.

 

REVISED REMUNERATION POLICY (EFFECTIVE 1 JANUARY 2024)

 

1.         Basic salary: Executive salaries to be reduced by one
third. New salaries - Paul Bassi, CEO reduced to £367k (previously £550k)
and Marcus Daly, CFO reduced to £229k (previously £344k) amounting to a cost
saving of approximately £330k (including National Insurance contributions).
In addition, Non-Executive Directors' fees also to be reduced by one third

2.         Annual discretionary bonus: The Executives' bonus is
reduced from up to a maximum of 100% of basic salary to a maximum of 50% of
the new reduced basic salary

3.         Executives' service contracts: If contracts are to be paid
up following a corporate transaction or equivalent, then compensation under
the Executives' service contracts reverts to old salary levels

4.         LTIP Awards: The Executives' entitlement to awards under
the Company's existing LTIP scheme have been amended as follows:

·    Unvested awards granted re: FY2020 - to be reduced by one third

·    Unvested awards granted re: FY2021 - to be reduced by two thirds

·    Unvested awards granted re: FY2022 - to be cancelled

·    No further awards under the LTIP going forward

·    The approximate value in the reduction in the awards equates to
approximately 4 million Ordinary Shares, which at a share price of 30p equates
to £1.2 million

5.         Shorter Term Incentive Plan ("STIP"): To compensate the
Executives (albeit not to the same extent) for the retrospective reduction in
LTIPs in relation to FY2020 and FY2021, the cancelling of awards relating to
FY2022 and no further issuing of awards under the LTIP in relation to FY2023
or going forward, the Executives will be entitled to participate in the STIP.

SHORTER TERM INCENTIVE PLAN

 

The STIP is being implemented to compensate the Executives for the
retrospective reduction in awards and cancellation of future awards under the
LTIP.

 

1.     Under the STIP, the participants will receive a proportion of a
notional cash pool (the "Pool") which will be created from the excess ("Gain")
of Total Shareholder Return ("TSR") over the market value of the Company as at
31 December 2023.

2.     TSR is cash per Ordinary Share returned to shareholders, excluding
ordinary dividends.

3.     To ensure the timely disposal of assets, the Gain attributable to
the Pool will be reduced over time.

4.     If the Company's sell down strategy is completed in 2024 then the
Pool is calculated as 10% of the Gain. If the strategy is completed in 2025
the Pool reduces to 7.5% and if by 2026, the Pool reduces to 5%.

5.     Of the Pool, a minimum figure of £410k is ringfenced for the
management team (excluding the Executives) equivalent to a bonus of 100%
salary.

6.     The STIP will pay out as soon as reasonably practicable after the
earliest of (1) the sale of all the assets, (2) a takeover of the Company or
(3) when the Remuneration Committee determine that a sufficient proportion of
the assets have been sold and that the STIP has achieved its original purpose.

 

In determining the revised remuneration policy and STIP, the Company's
Remuneration Committee has consulted with REI's largest institutional
shareholders.

 

NOTICE OF FINAL RESULTS

 

The Company will release its results for the year ended 31 December 2023 on 26
March 2024.

 

PAUL BASSI, CHIEF EXECUTIVE, COMMENTED:

 

"Against a backdrop of high interest rates and stubborn inflation, political
instability and unrest in Ukraine and the Middle East, the REI portfolio
remains stable, with robust rent collection levels.  The portfolio is well
managed and remains sheltered from wider economic pressures due to its diverse
nature and lack of exposure to large office schemes and other challenging
sectors.

 

Having finalised our strategic plan, our priority is to continue disposing of
assets at or above book value, maximising returns to shareholders.  During
2023, despite an inactive property market, we made sales of £17.97 million
(predominantly to private investors) and receipts from these disposals were
utilised to reduce debt by £17.1 million.  We currently have a further
healthy pipeline of sales in legals, which we anticipate to complete in H1
2024.

 

With the benefit of our unique market insight, we will continue to capitalise
on ongoing buyer demand for our smaller lot sizes from private investors and
special purchasers.  We have identified other larger assets that are ready
for disposal, some of which we will hold for income until corporate and
institutional buyer demand returns.  In the meantime, the business is
operationally robust and we will continue intensively managing assets to
maximise income and reduce vacancy levels, supporting our fully covered
dividend.

 

Despite a strong year of sales to private investors and special purchasers,
market sentiment remains weak and we anticipate valuation decline across the
industry.  This is due to the lowest level of transactions since the
financial crisis of 2008, high interest rates and the political uncertainty in
an election year.  However, we are confident that our diversification will
outperform market benchmarks.

 

The Board is committed to maximising shareholder returns, whilst remaining
open to a corporate transaction that is in the best interest of the
shareholders.  In the meantime, it is the Board's intention to continue
paying a fully covered quarterly dividend payment, subject to the pace of
disposals."

 

Enquiries:

 

 Real Estate Investors Plc

 Paul Bassi/Marcus Daly                                  +44 (0)121 212 3446

 Cavendish Capital Markets Limited (Nominated Adviser)   +44 (0)20 7220 0500

 Katy Birkin/Ben Jeynes

 Liberum (Broker)                                        +44 (0)20 3100 2000

 Jamie Richards/William King

 

About Real Estate Investors Plc

 

Real Estate Investors Plc is a publicly quoted, internally managed property
investment company and REIT with a portfolio of mixed-use commercial property,
managed by a highly-experienced property team with over 100 years of combined
experience of operating in the Midlands property market across all
sectors. The Company's strategy is to invest in well located, real estate
assets in the established and proven markets across the Midlands, with income
and capital growth potential, realisable through active portfolio management,
refurbishment, change of use and lettings. The portfolio has no material
reliance on a single asset or occupier. On 1st January 2015, the Company
converted to a REIT. Real Estate Investment Trusts are listed property
investment companies or groups not liable to corporation tax on their rental
income or capital gains from their qualifying activities. The Company aims to
deliver capital growth and income enhancement from its assets, supporting its
dividend policy. Further information on the Company can be found
at www.reiplc.com (http://www.reiplc.com/) .

 

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