Real Estate Investors : Interim 2023

Real Estate Investors Plc

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

Half Year Results

For the six months ended 30 June 2023

ROBUST OPERATIONAL PERFORMANCE, CONTINUED SALES & DEBT REDUCTION

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 report its unaudited half year results for the six-month period ended 30 June 2023 ("H1 2023").

FINANCIAL

• Disposals of £3.6 million, plus post-period disposals of £6.8 million - total disposals year to date of £10.4 million at an aggregate uplift of 8.7%, (pre-costs) to 31 December 2022 year end (FY 2022) book value (comprising of 18 retail units and a drive-thru pod development)
• Disposal proceeds used to pay down £8.4 million of debt year to date 2023
• Further pipeline of sales are in solicitors' hands to generate receipts in order to reduce portfolio debt and execute stated strategy
• Underlying profit before tax* of £2.2 million (H1 2022: £2.9 million) due to sales
• Loss before tax of £779,000 (H1 2022: £8.3 million profit) includes £4.1 million loss on property
  revaluations (non-cash item) representing a 2.4% portfolio valuation decline (H1 2022: £3.1
  million gain), £737,000 profit on sale of investment property (H1 2022: £1 million profit) and
  £388,000 surplus on hedge valuation (H1 2022: £1.2 million surplus)
• EPRA** Net Tangible Assets ("NTA") per share of 60.3p (FY 2022: 62.2p)
• Revenue of £6.1 million (H1 2022: £7.2 million) reduction due to H2 2022 and H1 2023 sales
• EPRA** EPS of 1.26p (H1 2022: 1.64p)
• The Company will make a fully covered quarterly dividend payment of 0.625p per share in respect of Q2 2023 (Q2 2022: 0.8125p per share)
• £48.5 million total declared/paid to shareholders since dividend policy commenced in 2012

OPERATIONAL

• Strong rent collection for H1 2023 of 99.93% (H1 2022: 99.36%)
• £169.2 million gross portfolio valuation (after asset disposals) (FY 2022: £175.4 million)
• On a like for like basis the portfolio valuation has reduced by 2.4% on 31 December 2022 valuation to £166.8 million
• Completed 46 lease events, with new lettings generating £385,438 p.a. of new income
• WAULT*** of 4.81 years to break/5.99 years to expiry (FY 2022: 4.98 years /6.29 years)
• Contracted rental income of £12.5 million p.a. as at 30 June 2023 (H1 2022: £14 million p.a. /
  FY 2022: £12.6 million p.a.) due to portfolio disposals
• Occupancy levels marginally higher at 85.04% (FY 2022: 84.54%)

BANKING & DEBT RELATED

• Disposal proceeds used to pay down £8.4 million of debt in 2023 year to date
• Total drawn debt of £67.9 million (H1 2022: £75.5 million), post period reduced to £63 million
• Company's debt is 100% fixed, with a blended debt profile term of 18 months
• Refinancing negotiations with our bankers commenced in early H2 2023
• Loan to Value (net of cash) of 35.9% (FY 2022: 36.8%) (management revised target LTV net of cash to 35% or below, previously 40% or below)
• £8 million cash at bank - the Company is maximising returns on cash reserves, with monies on deposit now earning 4.5% on instant access
• Average cost of debt maintained at 3.7% (FY 2022: 3.7%)
• Hedge facility has improved by £388,000 for half year to 30 June 2023

PAUL BASSI, CHIEF EXECUTIVE, COMMENTED:

"Throughout 2023 investment and sales activity has been at its lowest level since the 2008 financial crisis, with corporate and institutional investors remaining dormant. With a lack of available assets for purchase and against the backdrop of an inactive investment marketplace, the diverse nature of our portfolio has allowed us to break-up and sell individual units, taking advantage of the ongoing demand for smaller lot sizes from private investors and owner occupiers. We will continue with this approach until we see a normalised market. Since the start of 2021, we have operated a successful sales programme, with sales totalling £48.9 million and £38.3 million of debt repaid, with further pipeline sales in legals.

We are confident that normalised market conditions will return once the trajectory of interest rates settles, allowing us to sell further assets where asset management initiatives have been completed. It is our intention to accelerate our sales programme and we will consider the sale of assets either on an individual or collective basis, on terms that represent value for shareholders.

Subject to market conditions and our sales rate, the Company intends to repay bank debt and, in due course, consider a share buyback or other form of capital return. Management remains open to evaluating any corporate transaction that is in the best interests of shareholders and in the meantime, we will continue to pay a fully covered dividend."

FINANCIAL & OPERATIONAL RESULTS

	30 June 2023	30 June 2022
Revenue	£6.1 million	£7.2 million
Underlying profit before tax*	£2.2 million	£2.9 million
Contracted rental income	£12.5 million	£14.0 million
EPRA EPS**	1.26p	1.64p
Pre-tax (loss)/profit	(£0.8 million)	£8.3 million
Dividend per share	1.25p	1.625p
Average cost of debt	3.7%	3.5%
Like for like rental income	£12.5 million	£12.4 million

	30 June 2023	31 December 2022
Gross property assets	£169.2 million	£175.4 million
EPRA NTA per share**	60.3p	62.2p
Like for like capital value psf	£122.44 psf	£125.42 psf
Like for like valuation	£166.8 million	£170.9 million
Tenants	209	201
WAULT to break***	4.81 years	4.98 years
Total ownership (sq ft)	1.36 million sq ft	1.37 million sq ft
Net assets	£106.4 million	£109 million
Loan to value	40.7%	42.2%
Loan to value (net of cash)	35.9%	36.8%

Definitions

• Underlying profit before tax excludes profit/loss on revaluation and sale of properties and interest rate swaps ** EPRA = European Public Real Estate Association
  *** WAULT = Weighted Average Unexpired Lease Term

Enquiries:
Real Estate Investors Plc
Paul Bassi/Marcus Daly	[phone]
Cavendish Securities (Nominated Adviser)	[phone]
Katy Birkin/Ben Jeynes
Liberum (Broker)	[phone]
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.

CHAIRMAN'S & CHIEF EXECUTIVE'S STATEMENT

Despite the backdrop of market uncertainty and the lowest level of activity since the financial crisis of 2008, the diversity and flexibility of our portfolio has allowed us to attract interest from private investors and owner occupiers, enabling us to progress our sales programme and reduce debt in line with our stated strategy. At the half year, we had disposed of £3.6 million of assets and repaid £3.6 million of debt. Since the period end, we have disposed of a further £6.8 million of assets and repaid a further £4.8 million of debt, resulting in total sales year to date of £10.4 million and total debt repayment of £8.4 million. These sales are at an aggregate uplift of 8.7%, (pre-costs) to December 2022 year end book value (comprising of 18 retail units and a drive-thru pod development).

Operationally, the REI portfolio remains stable with robust rent collection levels of 99.93% for H1 2023. Revenue as at 30 June 2023 was £6.1 million (H1 2022: £7.2 million) with the reduction due to H2 2022 and H1 2023 disposals. Underlying profit at the half year was £2.2 million (H1 2022: £2.9 million) with

• loss before tax of £779,000, driven predominantly by a £4.1 million non-cash loss on property revaluations which is reflective of market sentiment towards the office sector and a lack of transactional evidence. Of the £4.1 million valuation reduction, 51.2% was across offices.

There remains a risk of downward pressure on future valuations due to rising interest rates and an inactive investment market, however, our active asset management approach and diversified portfolio offer some protection against this. Contracted rents at the half year were £12.5 million p.a. (H1 2022: £14 million p.a.) reflecting loss of rent from sales in H2 2022 and H1 2023. At the period end, WAULT was 4.81 years to break and 5.99 years to expiry, with occupancy sitting at 85.04%. Post period lettings that are expected to complete in H2 2023, will also add to our revenues and occupancy going forward, along with the potential to add further capital appreciation and further sales stock.

The business remains well insulated from rising rates with low gearing of 35.9% (net of cash) and 100% fixed debt at an average cost of 3.7%, with a blended debt maturity of 18 months at the half year. Management have engaged in refinancing discussions with lenders to ensure that sensible gearing levels are maintained in line with management's revised objective to operate gearing at sub 35%, as we are actively repaying debt from sales proceeds (previous gearing target 40%).

SALES STRATEGY

Presently, there is little or no demand from our normal buyer pool of property companies, REITs, UK funds, pension funds, overseas or private equity buyers and the only known investor demand is from private investors for smaller lot sizes, owner occupiers, government and public bodies, plus special purchasers.

Our diverse portfolio has no material reliance on any one sector, asset or occupier, and has enabled us to withstand significant headwinds of the financial crisis, a global pandemic and inflation, whilst enabling us to continue paying a covered dividend. It has also allowed us to identify properties that can be sold to a private investor market whilst most other investors remain inactive. However, attracting a buyer for the whole or large parts of the portfolio is more difficult as most buyers have a specialised strategic approach and therefore are not seeking assets of a diverse, regional nature which require focused asset management and local expertise. Management have therefore focused efforts on capitalising on private investor demand and reducing the portfolio size by disposing of assets individually, with sales year to date of £10.4 million.

We have identified a further 20% of our portfolio that can satisfy this known demand, some of which is already under offer and in legals. This will provide us with a reduced portfolio, which assuming a more normalised marketplace, may attract a corporate or portfolio buyer. Ongoing sales will allow us to reduce our debt further and, subject to market conditions, consider a share buyback or other form of capital return, all whilst continuing to pay a covered dividend.

BANKING & FINANCING

In March 2023, the Group extended the £20 million facility with Lloyds Banking Group Plc for 6 months to 31 May 2024 and the £31 million facility with National Westminster Bank Plc for 3 months to June 2024, with a view to formalising new facilities when long-term rates have stabilised.

As at 30 June 2023, 100% of the Company's debt was fixed, with a blended debt profile term of 18 months and an average cost of debt of 3.7% (FY 2022: 3.7%).

Management are mindful of the ongoing inflationary pressures on interest rates and proactively entered refinancing negotiations with our bankers in early H2 2023 in relation to banking facilities that are due for renewal in 2024. These discussions are ongoing and management are confident of securing competitive banking facilities for the business but, notwithstanding the continuing repayment of debt from sales, interest costs will increase next year.

The business remains multi-banked with debt spread across 4 lenders and all banking covenants (a combination of interest cover against rental income and LTV against asset value measurements) continue to be met with headroom available and cure facilities if necessary:

As at 30 June 2023

Lender	Debt Facility	Debt Maturity	Hedging
Lloyds Bank	£20.0m	May 2024	100%
National Westminster Bank	£32.5m	June 2024	100%
Barclays	£7.6m	December 2024	100%
Aviva	£8.2m	2027 & 2030	100%

Following a successful period of sales in H1 2023 and with management firmly focused on reducing gearing levels via debt repayment, £3.6 million of debt was repaid using disposal proceeds during the first half of the year. Since the period end, a further sum of £4.8 million has been repaid, reducing total drawn debt to £63.4 million (H1 2022: £75.5 million).

	2021	2022	2023 to date	Total
Sales	£17.6m	£20.9m	£10.4m	£48.9m
Debt Repaid	£11.9m	£18m	£8.4m	£38.3m
Total Drawn Debt	£89.4m	£71.4m	£63m	£63m

Loan to value (net of cash) at the half year was 35.9% (FY 2022: 36.8%). Our hedge facility improved by £388,000 for the half year to 30 June 2023. Whilst management focuses on debt repayment, it is prudent to keep cash reserves at a healthy level, should the business be required to provide bank security in the form of cash. The Company continues to maximise its returns on cash reserves, with £8 million cash at bank at the half year with the majority on deposit earning 4.5% on an instant access basis.

COST SAVINGS & EMPLOYEE LTIPS

Identified savings of £300,000 per annum and cost cutting remain on track for the year end 2023 and further savings of up to £500,000 have been identified for 2024. The sales of some vacant and part-vacant assets will also reduce void holding costs going forward, such was the case with the sale of part-vacant York House in July 2023 which was sold to a college and provided us with significant savings in void costs.

Management and employee LTIPs are the subject of a comprehensive review and, upon a conclusion of the review, a further announcement will be made. Any changes will be directly aligned to the stated strategy and it is anticipated that a new LTIP scheme will be adopted for the new financial year.

DIVIDEND

Subject to the acceleration of our ongoing sales programme, along with the businesses' operational performance, the Board remains committed to paying a covered dividend. The Board is pleased to announce a Q2 2023 fully covered dividend of 0.625p reflecting a yield of 9.1% based on a mid-market opening price of 27.50p on 22 September 2023. A total of £48.5 million has been declared/paid to shareholders since the Company's dividend policy commenced in 2012. The proposed timetable for the dividend, which will be paid as an ordinary dividend, is as follows:

Ex-dividend date:	5 October 2023
Record date:	6 October 2023
Dividend payment date:	27 October 2023