RDI.L Regulatory News (RDI)

RDI REIT P.L.C.

("RDI" or the "Company" or the "Group")

 (Registration number 010534V)

LSE share code: RDI

JSE share code: RPL

ISIN: IM00BH3JLY32

LEI: 2138006NHZUMMRYQ1745

INTERIM RESULTS FOR THE SIX MONTHS ENDED 28 FEBRUARY 2019

STRONG OPERATIONAL METRICS DESPITE HEADWINDS

RDI, the 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 six months ended 28 February 2019.

The table above includes non-IFRS performance measures which are explained and reconciled in the Alternative Performance Measures table

(1) Prior period has been re-presented as a result of the 1 for 5 share consolidation

(2) 1.8 per cent like-for-like valuation decline on a constant currency basis

Strong operational performance and asset management

· Net rental income increased 0.2 per cent on a like-for-like basis or 1.9 per cent when excluding £0.7 million of hotel refurbishment charges

· EPRA occupancy remains high at 96.9 per cent (31 August 2018: 97.1 per cent)

· Long WAULT of 6.5 years to first break and 8.1 years to lease expiry (excluding hotels managed by RBH and the London serviced office portfolio)

· 100 lease events completed in the period, 3.4 per cent ahead of ERV

· UK retail occupancy and net income remained broadly stable with strong leasing activity across the retail parks portfolio

· Footfall across UK Shopping Centre portfolio increased 1.1 per cent, outperforming national average (down 3.3 per cent)

Financial highlights

· Underlying earnings per share of 6.94 pence (5.2 per cent down on H1 2018: 7.32 pence; 1.2 per cent up on H2 2018: 6.86 pence)

· EPRA diluted NAV per share ("EPRA NAV") declined by 4.4 per cent to 204.4 pence per share (31 August 2018: 213.8 pence per share)

· Like-for-like portfolio value declined by 2.5 per cent (1.8 per cent on a constant currency basis) impacted by lower values for UK Shopping Centres and strengthening of Sterling against the Euro

· Excluding UK Retail, valuations broadly stable

· First half dividend of 4.0 pence per share. Full year dividends to be weighted towards second half with expectation to revert to regular pay-out ratio alongside full year results

Robust demand from operational platforms

· RBH managed hotels continue to trade in line with expectations; occupancy increased marginally to 83.9 per cent and average room rates and revenue per available room increased by 1.4 per cent and 2.3 per cent respectively

· London serviced offices continue to trade ahead of expectations; occupancy improved to 94.5 per cent, EBITDA per sqft increased by 0.9 per cent over the period and EBITDA conversion remains high at 63.4 per cent

Focusing capital allocation to sectors backed by occupational demand

· £26.3 million acquisition of Southwood Business Park Industrial Estate, Farnborough reflecting a net initial yield of 6.2 per cent

· £26.0 million forward funding of two distribution units at Link 9 in Bicester; targeting a yield on cost of 6.5 per cent

· Material reduction to retail exposure targeted through the proposed disposal of four UK shopping centres financed by Aviva (£177.2 million, 11.0 per cent by market value) and the planned German retail portfolio disposal (£244.2 million, 15.1 per cent by market value)

Stronger capital structure to be prioritised

· LTV increased to 48.5 per cent (31 August 2018: 46.2 per cent)

· Pro-forma LTV of 45.4 per cent excluding the Aviva financed UK Shopping Centre portfolio - consensual sales process agreed

· Further reductions in LTV to be delivered through the disposal of the German portfolio, whilst enabling a single geographic focus

· Revised medium-term LTV target of 30 - 40 per cent in line with stronger capital structure

· £275.0 million UK debt facility extended for five years on favourable terms

Gavin Tipper, Chairman, commented:

"While this has been a challenging period on a number of fronts, operational performance has remained robust. Excluding the impact of the Aviva financed UK Shopping Centre portfolio, the core business delivered strong results and is well positioned for the future. I am confident that the current initiatives to further reduce retail exposure and facilitate a stronger capital structure will deliver sustained long term shareholder value."

Mike Watters, Chief Executive, commented:

"We have faced some challenging market conditions during the period which have emphasised the defensive nature of our income, following the progress made against our strategic objectives over the last three years. Strong operational results continue to be achieved across the majority of our portfolio which highlights the strength of the underlying business and the success of our asset management efforts.

"Following unprecedented weak sentiment towards the UK retail sector and the resulting negative impact on asset valuations, RDI has reached an inflexion point that will see us taking decisive action to accelerate delivery against our strategic priorities. These include a lower leverage capital structure, more focused capital allocation and continued reduction to retail exposure. These priorities will support a simplified, single geography investment proposition with an enhanced portfolio weighted towards our preferred sectors of beds, sheds and desks.

"Notwithstanding the near term impact on earnings, we remain confident that delivery against our strategic objectives will best position RDI for the future whilst enabling us to maximise shareholder returns from a more robust business that offers attractive income growth opportunities."

Results presentation, webcast and conference call

A meeting for analysts and investors will take place on Thursday, 25 April 2019 at 9.00 a.m. BST (10.00 a.m. SA time) at FTI Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD. This will be accompanied by a live webcast, which can be accessed via the homepage of the Company's website: www.rdireit.com.

Conference call dial-in numbers and access code

Participant Access Code: 851879 

United Kingdom Toll Free: 0800 640 6441

United Kingdom (Local): 020 3936 2999

South Africa Toll Free: 080 017 2952

South Africa (Local): 087 550 8441

All other locations: +44 20 3936 2999

For further information, please contact:

CHIEF EXECUTIVE'S REPORT

We have made significant progress against our strategic objectives over the last three and a half years which has resulted in a far higher quality portfolio. At the same time we have been subject to very challenging market conditions including heightened political and economic risks and significant uncertainty around the future of retail at many levels, including consumer behaviour, changing requirements for retailers' delivery channels and their future relationship with physical real estate.

These risks and uncertainties have resulted in difficulties during the last six months; principally in relation to the valuation of the UK Shopping Centre portfolio and more specifically in addressing the Aviva financing facility. However, outside of these largely retail issues, strong operational results continue to be achieved which highlights the strength of the underlying business when viewed in isolation to the negative impact and sentiment associated with a limited number of retail assets.

In order to address long-term shareholder value, we believe many of our existing strategic initiatives including reducing leverage and retail exposure, need to be delivered more aggressively. Further detail in this regard is set out below.

Earnings and dividend

Operational performance across the portfolio remained strong, including a resilient income performance from the UK Retail portfolio. EPRA occupancy remains high at 96.9 per cent (31 August 2018: 97.1 per cent) and occupational demand remains positive across the majority of the portfolio.

Proportionate net rental income totalling £50.5 million grew by 0.2 per cent on a like-for-like basis. Underlying earnings decreased by 3.7 per cent to £26.4 million (28 February 2018: £27.4 million), in part a reflection of the stronger first half results in 2018 which were supported by the phased acquisition of the IHL Hotel portfolio. Underlying earnings per share decreased by 5.2 per cent to 6.94 pence per share (28 February 2018: 7.32 pence per share) but were marginally higher when compared to the second half of the last financial year.

As previously announced, underlying earnings for the period have not been matched by cashflow as a result of the net operating cashflows from the Aviva financed UK Shopping Centre portfolio being retained within the facility. At period end, £11.6 million of cash, including cash previously injected into the facility, was restricted and retained within the facility. In this context, the Board has declared a first half dividend of 4.0 pence per share.

It is the Company's intention to continue to meet the UK REIT rules in respect of distributions, therefore, total dividends for the year can be expected to be weighted towards the second half and reflect a regular full year pay-out ratio of at least 90 per cent of underlying earnings, excluding earnings attributable to the Aviva financed UK Shopping Centre portfolio.

Balance sheet and financing

EPRA NAV decreased by 4.4 per cent to 204.4 pence per share (31 August 2018: 213.8 pence per share) largely as a result of a £22.3 million (7.7 per cent) valuation decline in the UK Shopping Centre portfolio. We have actively improved the quality of the overall portfolio by reducing exposure to UK shopping centres to 16.6 per cent (2015: 33.0 per cent) and increasing exposure to sectors and assets supported by structural change and occupier demand. Outside of UK Retail, representing 28.2 per cent of the portfolio, valuations were broadly stable on a constant currency basis.

Leverage increased slightly to 48.5 per cent (31 August 2018: 46.2 per cent) as a result of the lower portfolio valuation, but remains below 50 per cent following the ongoing focus on leverage and liquidity. Leverage excluding the Aviva financed UK Shopping Centre portfolio and financing facility was 45.4 per cent.

Early refinancing of AUK facility

As previously announced, the early extension of our principal UK loan facility was completed in January. The total facility commitments of £275.0 million includes a £137.5 million term loan and a £137.5 million revolving credit facility. The facility is currently drawn to £250.0 million with the revolving credit facility providing flexibility in managing the Company's capital and liquidity. The term of the facility has been extended to January 2024, extending the Group's average debt maturity profile and securing a key financing facility at attractive rates.

The early refinancing resulted in a non-recurring charge of £0.9 million which will be reflected as an increase in finance costs for the current financial year. The ongoing interest cost of the refinanced facility has increased by approximately 25 basis points.

Aviva shopping centre facility

Four of the Company's UK shopping centres namely Grand Arcade (Wigan), Weston Favell (Northampton), Birchwood (Warrington) and Byron Place (Seaham), are financed by a long-term fixed rate debt facility with Aviva. The facility is non-recourse to the Company and had an outstanding principal balance of £144.7 million at period end with a fixed rate of 5.5 per cent per annum and a maturity date in April 2042.

As announced on 8 April 2019, the lender instructed a valuation of the assets post period end which resulted in the loan to value covenant of 85 per cent being exceeded. A standstill period has subsequently been agreed to 11 October 2019 during which time Aviva has confirmed that it will not take any action to accelerate its security under the facility agreement (the "Standstill Agreement"). RDI and Aviva have agreed to progress a consensual sales process or restructuring of the facility during this standstill period. Notwithstanding the Standstill Agreement, Aviva will retain all of its rights under the facility agreement. 

As is customary with long-dated fixed rate debt, material break costs are associated with early repayment and a disposal of one or all of the assets is not expected to result in any equity being realised from the net disposal proceeds. As previously disclosed, the Aviva financed UK Shopping Centre portfolio currently contributes approximately £6.5 million in net operating cashflows on an annualised basis and £54.1 million in EPRA net assets, or 14.2 pence per share. Until late April when the Standstill Agreement was finalised, these net operating cashflows continued to be retained in the facility.

A disposal would result in an improvement in the Group's LTV ratio which would reduce from 48.5 per cent to 45.4 per cent and reduce exposure to UK Retail from 28.2 per cent to 19.3 per cent, by value.

The Board has agreed not to commit further capital to the facility to reduce the loan to value ratio to below the covenant of 85 per cent. In arriving at the current position, the Board has carefully considered the options available including injecting additional capital into the facility and potential restructuring options. However, given the ongoing and potentially long-term structural challenges facing the retail sector, combined with concerns over certain department stores and mid-market fashion brands, a comprehensive restructuring of the facility including a material reduction in leverage would be necessary to ensure sufficient covenant headroom going forward. Given the strategic objectives of reducing leverage and retail exposure, utilising capital for new opportunities in our preferred sectors and maintaining lower leverage is expected to be of greater benefit to long term shareholder value.

Discussions with Aviva have been cooperative with the lender recognising RDI's constructive approach and strong asset management credentials.

Further details are contained in the Financial Review.

Strategic priorities

Despite near term challenges in the UK Shopping Centre portfolio, our strategic priorities remain unchanged with a focus on delivering sustainable and growing income returns to our shareholders.

Over the last three and a half years we have made material progress against a set of challenging strategic objectives. Acquisitions totalling £809.0 million have been successfully completed over that period delivering a significantly enhanced portfolio and crystallising disposal proceeds of £452.6 million at an average premium of 10.0 per cent to the prevailing book values. Recent acquisitions, accounting for over 45 per cent of the current portfolio by value, have delivered strong results improving the long-term growth prospects of the portfolio. Leverage has been reduced over this period and remains below 50 per cent LTV despite the recent valuation declines within the UK Shopping Centre portfolio.

Notwithstanding the progress that has been made, the Board is actively progressing options to accelerate the delivery of a lower leverage capital structure, a more focused allocation of capital and a reduction in exposure to retail assets.

Capital allocation

Our capital allocation strategy will continue to focus on increasing exposure to assets in stronger demographics and sectors benefiting from structural change. Over the last three and a half years we have successfully reduced overall exposure to retail assets from 59 per cent in 2015 to 43.2 per cent, in favour of stronger demographics and sectors benefiting from sustained occupier demand. These include the distribution and industrial sectors, London serviced offices and limited serviced hotels.

Reducing retail exposure

In order to deliver on our strategic priorities, a disposal of the German portfolio is being actively progressed. The assets make up 15.1 per cent of our portfolio and consist of 13 principally retail assets valued at €284.8 million (£244.2 million) at a relatively low net initial yield of 4.9 per cent; in part a reflection of the current strength of the German investment market. The portfolio is financed with debt totalling €162.3 million (£139.2 million) at a weighted average cost of 2.0 per cent and a gross LTV of 56.6 per cent. A disposal of the portfolio would support a material reduction in retail exposure and leverage, with the additional benefit of streamlining the portfolio and corporate structure.

The potential disposal of the German retail portfolio and the Aviva financed UK Shopping Centre portfolio are aimed at accelerating a reduction in retail exposure and leverage. The combined effect of these potential disposals, and certain mature assets, would reduce retail exposure by approximately 20 per cent on a pro-forma basis resulting in retail assets comprising circa 22 per cent of the remaining portfolio prior to any reinvestment assumptions. The remaining retail assets are largely well-located retail parks with a proven track record of strong occupational demand and are currently operating at an occupancy rate of 96.5 per cent.

Lower leverage capital structure

The benefit of a lower leverage capital structure has become increasingly important and, in the Board's opinion, more highly valued by investors. We expect the near-term impact of disposals and lower leverage on income returns to be outweighed in the longer term by greater financial flexibility, enhanced access to capital and more consistent shareholder returns across real estate and economic cycles.

Leverage of between 30 - 40 per cent LTV will be targeted over the medium-term with an immediate focus on the Aviva facility, which would reduce the existing Group LTV to 45.4 per cent. The disposal of the €284.8 million (£244.2 million) German portfolio and approximately £88.2 million of mature assets would support a further material reduction in leverage.

Maintaining operational efficiency

The existing EPRA cost ratio target of below 15 per cent will be retained. A disposal of the German portfolio would result in a reduction in overhead and administration costs of approximately £1.4 million (approximately ten per cent of the gross rental income from the German portfolio) representing a proportionately higher ratio than the current Group average of seven per cent. A disposal of the Aviva financed UK Shopping Centre portfolio would also provide scope for a further reduction in overheads and administration costs.

2019 Annual General Meeting ("AGM") update statement

As required by Provision 4 of the 2018 UK Corporate Governance Code, the Company wishes to provide its update statement relating to the four resolutions which received substantial votes against.

Resolutions 15 and 16, relating to the Directors authority to issue shares. Although the authority levels were below standard UK recommendations, they exceeded South African guidelines. This position is not uncommon, with most of our dual listed peers receiving similar votes against. The Company will liaise with shareholders before the next AGM, to agree an authority level that may be more acceptable to our South African shareholder base.

Resolutions 10 and 12, concerning the re-appointment of two directors. The Company has engaged with the shareholders to understand their concerns.

Pursuant to Provision 4 of the Code, the Company will include a final statement in its Annual Report and in the AGM notice, of the actions taken or changes to the resolutions proposed.

Share consolidation

On 11 February 2019 every five ordinary shares were consolidated into one ordinary share of 40 pence each. The consolidation resulted in 380,089,923 new consolidated ordinary shares being in issue which trade under the new International Securities Identification Number code (ISIN) of IM00BH3JLY32. Historic per share metrics throughout this statement have been adjusted to reflect the consolidation in order that the current per share metrics for this period are comparable to historic figures.

Board Appointment

Following Bernie Nackan's retirement from the Board in January 2019, Pieter Prinsloo was appointed as a non-executive director of the Company, with effect from 24 April 2019 and represents Redefine Properties Limited, RDI's largest shareholder, on the Board, alongside Marc Wainer.

Pieter has over 30 years of experience in property development, management and finance. In the last five years he has held the post of CEO of Hyprop Investments Limited, a South African property REIT and this year accepted the position of CEO of Redefine Europe B.V., a subsidiary of Redefine Properties Limited.

Growing our business sustainably

Embedded within our core business strategy and operations is our firm commitment to measuring and benchmarking our environmental, social and governance performance via our annual response to the Global Real Estate Sustainability Benchmark ("GRESB") Real Estate Assessment. We continue to voluntarily collect and report data in accordance with the latest EPRA Sustainability Best Practices Recommendations ("SBPR") and in September 2018 we were awarded a Bronze Level Certificate for compliance with EPRA Sustainability Best Practices Recommendations for our 2017 CSR Annual Report. Our established building certification strategy promotes independent green ratings for our assets. We were pleased to be awarded a BREEAM In-Use rating of Very Good for the Holiday Inn Express Southwark and we are planning for further certifications across other asset classes this year. We have committed to introducing an Environmental Management System certified to ISO 14001 standard at St George's Shopping Centre, Harrow, as we continue to adopt a responsible approach to managing our environmental risks. Good progress has been made following completion of asset level energy, water and waste management audits which have identified various opportunities for progression toward our 25 per cent energy reduction target set last year.

Outlook

Notwithstanding the challenges during this interim period, we are confident about the future of our business and our ability to deliver on our strategic priorities of a lower leverage capital structure, reduced retail exposure and a simplified investment proposition. Our strategy of superior, sustainable and growing income remains unchanged but with a clearer focus on our preferred sectors of beds, sheds and desks.

Mike Watters

Chief Executive Officer

25 April 2019

OPERATING REVIEW

Portfolio overview

The portfolio has strong income characteristics with clear visibility of the medium-term income profile and growth opportunities.

Key portfolio characteristics include:

· a weighted average lease length, excluding serviced space, of 6.5 years to the first potential lease break and 8.1 years to expiry;

· 26.7 per cent of gross rental income subject to inflation-linked or fixed increases;

· rental growth potential with a reversionary yield of 6.2 per cent, 50 basis points higher than the current portfolio net initial yield;

· high and stable occupancy demonstrating robust occupier demand;

· RBH managed hotels and London serviced offices (excluding leases to gym operators) account for 30.2 per cent of the portfolio by annualised gross rental income and deliver robust income growth supported by strong occupier demand; and

· over 500 tenants with no single tenant accounting for more than 3.2 per cent of gross rental income.

(1) Annualised gross rental income for the London serviced office portfolio included as EBITDA net of management fees.

(2) Excluding the RBH managed hotels and London serviced office portfolios. Relevant operational metrics disclosed separately.

Capital allocation and portfolio strategy

To support the strategic objectives of a lower leverage capital structure and a continued reduction in retail exposure, a number of disposals are being actively considered or progressed. The targeted disposals of the German Retail portfolio and the Aviva financed UK Shopping Centre portfolio are aimed at accelerating a reduction in retail and leverage. Marketing of the German portfolio is well progressed and an agreement has been reached with Aviva to commence a consensual sales process. In addition, a number of mature assets, principally secondary retail and regional office assets, are being considered for sale subject to various ongoing asset management initiatives. A successful disposal of these assets has the potential to reduce overall retail exposure from 43 per cent to approximately 22 per cent. The remaining retail exposure, consisting predominantly of well-located and performing retail parks, would have an approximate 62 per cent weighting by value to Greater London.

The potential repositioning of the portfolio would provide a materially higher residual exposure to growth areas from within the existing portfolio including strong operational platforms across hotels and serviced offices, increased exposure to the distribution and industrial portfolio and a significant re-weighting of the overall portfolio to Greater London and the South East with approximately 79 per cent of the pro-forma portfolio located in these stronger economic locations.

(1) Annualised gross rental income for the London serviced office portfolio included as EBITDA net of management fees and FF&E.

(2) Excluding the RBH managed hotels and London serviced office portfolios. Relevant operational metrics disclosed separately.

(3) Assuming no reinvestment.

Valuation overview

The like-for-like portfolio value decreased by £39.0 million or 2.5 per cent net of capital expenditure; impacted by further declines in UK Shopping Centre valuations and a 4.6 per cent decline in the Euro relative to Sterling. On a local currency basis, like-for-like valuations decreased by 1.8 per cent. The portfolio valuation reflects a 5.9 per cent EPRA topped up net initial yield and a 6.2 per cent reversionary yield.

UK valuation movements excluding shopping centres were broadly stable and resulted in a modest 0.6 per cent reduction in like-for-like values. The UK Commercial portfolio delivered modest growth increasing £1.2 million or 0.2 per cent, largely as a result of the strength of the Industrial and Distribution portfolio which increased 1.2 per cent or £2.2 million. Valuations for UK retail parks were down 2.5 per cent despite strong letting activity during the period. UK Hotels decreased by £2.8 million or 0.7 per cent.

UK Shopping Centres (16.6 per cent of the portfolio by market value) declined by £22.3 million or 7.7 per cent despite occupancy being maintained at 95.9 per cent (31 August 2018: 96.4 per cent) and triple net annualised rental income increasing 2.8 per cent since 31 August 2018. The valuation decline was driven by a 60 basis point outward shift in the topped up net initial yield reflecting an exceptionally weak investment market.

In Germany, the like-for-like portfolio value was largely unchanged in local currency terms but declined by £10.5 million or 4.7 per cent in Sterling terms.

Leasing activity

It has been an active period with 100 leasing events being concluded totalling £6.8 million, a 31.2 per cent (£1.6 million) increase in annualised gross rental income, (including 19 previously vacant units), and a 3.4 per cent (£0.2 million) increase above ERV. Proactive asset management ensured that the portfolio occupancy remained high and stable at 96.9 per cent (31 August 2018: 97.1 per cent).

· 41 rent reviews were completed in the period resulting in total rent of £4.0 million, a 9.6 per cent (£0.3 million) increase above the previous passing rent and 5.1 per cent (£0.2 million) ahead of ERV;

· 27 leases amounting to 50,727 sqft were renewed on break or expiry accounting for a total rent of £1.5 million, 15.7 per cent (£0.2 million) ahead of passing rent and 12.6 per cent (£0.2 million) ahead of ERV; and

· 32 new leases were signed, including new lettings of vacant space totalling 46,217 sqft across 19 units, generating an additional £1.3 million in gross annualised rent.

Acquisitions

The Company increased its exposure to the industrial and distribution sector through the £26.0 million forward funding of a development of two modern distribution units in Bicester and the acquisition of a multi-let industrial estate in Farnborough for £26.3 million (excluding costs). Both investments are in line with the strategy of increasing exposure to assets underpinned by strong demographics and occupier demand supported by structural change.

Southwood Business Park, Farnborough

Southwood Business Park is within an established commercial area in Farnborough, Hampshire and conveniently located within the M3 corridor, approximately 41 miles from Central London. The nine-acre estate consists of 18 warehouse units totalling 154,849 sqft (14,385 sqm) with a low site cover of 37 per cent. On acquisition in September 2018 the asset was 91.9 per cent occupied with a weighted average lease length of over five years to expiry. There is limited available space within competing industrial units in the surrounding area with demand being driven by research & development occupiers linked to the aerospace and technology sectors.

The asset currently produces annualised net income of £1.8 million with average rents of £13.0 per sqft (£12.9 per sqft on acquisition). The acquisition provides an attractive net initial yield of 6.2 per cent and opportunities to support medium to long term income growth through identified asset management initiatives.

Bicester forward funding

Approximately 13.5 acres of land was acquired in Bicester as part of a £26.0 million forward funding opportunity with Albion Land to develop two high quality distribution units of 120,000 sqft and 168,000 sqft respectively. The site is part of the successful Link 9 industrial and distribution development with good access to the M40.

Unit 1a of 120,000 sqft was completed in April 2019 and unit 1b is anticipated to be completed in late 2019. The supply of modern distribution units along this section of the M40 corridor remains limited and current enquiries demonstrate healthy levels of interest. The transaction provides an opportunity to increase exposure to well-located modern distribution units and is anticipated to deliver a 6.5 per cent yield on total cost once fully let.

Development and capital expenditure

A number of successful developments and capital projects have been completed or have reached key milestones. Development activity is typically income-led and focused on redeveloping existing assets to provide space that meets modern occupier requirements. Total committed and outstanding capital expenditure at the period end was £22.7 million, including outstanding commitments in respect of the Bicester forward funding agreement.

(1) Yield reflects overall scheme yield

City Arcaden, Ingolstadt

The completion of the 7,000 sqm (75,000 sqft) Primark unit in March 2018 has significantly de-risked the development. Of the total anticipated rent roll of €2.4 million, 87 per cent has been secured with the works to complete the remaining 3,000 sqm (22,000 sqft) of offices and residential units anticipated to complete in 2019.

UK retail park expansions

The construction of a new Costa 'drive-thru' unit at The Arches Retail Park, Watford is expected to complete in October 2019. The development will deliver additional rental income of £0.2 million reflecting a rental of over £85 per sqft and a highly accretive 15.0 per cent yield on cost. A further Costa 'drive-thru' unit at Milton Link, Edinburgh has received planning permission with construction expected to complete in May 2019 and is expected to yield approximately 8.5 per cent on cost.

Charing Cross Road, London

An application for planning permission has been submitted for an extension to the Charing Cross Road office in London in order to increase the existing lettable area of 40,000 sqft by approximately 50 per cent. The property remains fully occupied. Timing of any potential development will be subject to market conditions, but could commence in 2021 subject to planning.

Sustainability

Two significant awards have been received during the period as a result of initiatives commenced in 2017. The Holiday Inn Express, Southwark received a Very Good BREEAM In-Use ("BIU") rating, the first BIU operational green building certificate since RDI's long-term objective was set to improve portfolio certification in 2017, and the Company's CSR Annual Report for the 2017 financial year was awarded a Bronze Certificate for achieving compliance with EPRA Sustainability Best Practices Recommendations. The Company has improved disclosure of its environmental performance significantly; aligning to the EPRA Best Practice Reporting (3rd version) in the Company's 2018 and 2019 financial years, including social and governance measures in addition to environmental reporting.

Progress on the CSR objective to undertake third party verification of our EPRA environmental performance measures (utilities data for managed assets) is underway. Third party assurance of our sustainability data is of growing importance to the Company, its investors and the broader stakeholder community. To underpin this exercise, closer attention has been given to enabling the robust collation of energy, water and waste data. This has been combined with social and governance measures to align with EPRA and to support our annual response to the GRESB Real Estate assessment. The Group achieved an 11 per cent year on year improvement in its GRESB score.

Progress to date on the CSR objectives has been focused on meeting corporate energy targets including a commitment to reduce energy usage by 25 per cent by 2030. The Real Estate Environmental Benchmark (REEB) is a publicly available operational benchmark of environmental performance for commercial property in the UK. Good progress has been made following the completion of individual asset audits in order to ensure the asset managers and CSR Committee are aware of opportunities to reduce energy usage. REEB measures are one of the only benchmarks based on the performance of buildings 'in-use' are increasingly becoming the industry standard used by investors, fund managers and property owners to compare the performance of their assets with similar assets from portfolios across the UK.

UK Commercial (34.2 per cent of portfolio by market value)

The UK Commercial portfolio has been significantly repositioned over the last three years. The office portfolio, including the recently acquired serviced office portfolio, is now 82.4 per cent weighted to Greater London. The portfolio has positive exposure to locations benefiting from Crossrail, the regeneration of London's Southbank and the positive structural change taking place as a result of occupiers' requirements for highly serviced and flexible office space. Exposure to the distribution and industrial sector has been increased at attractive prices and through the forward funding of well located, modern distribution units in areas of limited supply.

(1) Annualised gross rental income for the London serviced office portfolio included as EBITDA net of management fees.

(2) Excluding London serviced office portfolio. Relevant operational metrics disclosed separately.

London Serviced Offices ("LSO"; 10.1 per cent of portfolio by value)

Demand for serviced office space continues to show strong growth in London. Demand for flexible, highly serviced space is being driven by multiple factors including the adoption of technology and its impact on flexible working arrangements, the strategic importance of real estate to large corporates in attracting and retaining talent and a general trend towards flexible lease arrangements that offer both value and service to clients. This is expected to represent a permanent structural change in the way in which offices are occupied.

The London serviced office portfolio has performed strongly despite a marked increase in supply of flexible office space in London. This is a function of the assets proximity to transport supported by a high quality and professional service for customers at mid-market desk rates. Unlike many competitors operating leasehold models, ownership of the assets allows direct benefit from and control over asset management initiatives and the cost base resulting in higher and more sustainable profit margins. The portfolio is highly cash generative with EBITDA as a percentage of total revenue at 63.4 per cent.

RDI's strategic operating partner Office Space in Town ('OSIT') prioritises client retention over short term profitability. Density is on average 80 sqft per available desk compared to certain competitors at approximately 50 sqft per desk. The design led offices provide high levels of amenity space, natural light, good sound insulation and industry leading IT.

Since acquisition in January 2018, the portfolio has maintained a high occupancy rate. Occupancy currently stands at 94.5 per cent (31 August 2018: 92.2 per cent) and total revenue per available desk has increased to £826, 0.9 per cent higher than the position at 31 August 2018. The average length of stay has increased to 30 months demonstrating the resilience of the income stream. Net service income representing approximately 25 per cent of EBITDA has delivered good growth largely as a result of improved meeting room occupancy and margin improvements from catering and café facilities. A number of operational improvements and marketing initiatives have also started to deliver measurable improvements across sales and marketing channels. The quality of the OSIT service is reflected in consistent five star customer ratings on Google. 

The market value of the London serviced office portfolio held steady at £163.4 million.

(1) Excluding St. Dunstan's which opened in 2015.

Greater London and regional offices (10.7 per cent of portfolio by value)

Outside of London serviced offices, the portfolio is well positioned to capture growth from locations benefiting from major regeneration and capital investment into infrastructure and transport projects. Further progress has been made on planning and development options at Charing Cross Road and strong rent reviews have been captured at both Newington Causeway, Southwark and Canbury Business Park, Kingston.

The portfolio decreased in value by 0.6 per cent on a like-for-like basis with a 10 basis point adverse shift in the topped up net initial yield, which was partly offset by a 1.9 per cent increase in ERVs.

Key asset management initiatives and leasing activity completed during the period:

· A new lease was completed at Newington Causeway, Southwark on the 5,950 sqft third floor generating £0.2 million of annualised gross rental income from a previously vacant unit; and

· An application for planning permission has been submitted for an extension to the Charing Cross Road office in London in order to increase the existing lettable area of 40,000 sqft by approximately 50 per cent. The property remains fully occupied.

Distribution, industrial and automotive (13.4 per cent of portfolio by value)

The industrial and distribution sector continues to see strong structural support as retailers adjust their business models to fewer stores and enhanced distribution networks. Rental growth prospects in the sector are driving strong investment demand with the weight of capital targeting the sector pushing yields lower. Despite strong occupational demand, some caution is required around pricing of new investments given the competitive nature of the investment market. In light of this, RDI has sought to increase exposure to the sector through forward funding arrangements or acquisitions providing higher yields.

The distribution portfolio continued to produce capital growth through a combination of rental uplifts, reversionary potential and tightening investment yields. The portfolio increased in value by 1.2 per cent on a like-for-like basis.

Key asset management initiatives and leasing activity completed during the period:

· Express Park in Bridgwater - a rent review was completed on a 133,651 sqft unit delivering £0.9 million of gross annualised rent; 13.6 per cent ahead of previous passing and 8.0 per cent above ERV;

· BP petrol filling station, Egerton Park - a rent review was completed with an agreed rent of £0.2 million, a 13.1 per cent increase on passing rent and 2.1 per cent lower than ERV; and

· Further, rent reviews across the distribution and industrial portfolio are progressing in line with expectations. Post period end a rent review was concluded at Camino Park, Crawley generating £2.5 million gross annualised rent (+£0.9 million or +55.4 per cent on previous passing rent). A further £0.4 million of rental income is subject to review at Camino Park, Crawley and is anticipated to conclude in 2019 and achieve an average increase of over 60 per cent.

UK Retail (28.1 per cent of portfolio by market value)

General investor sentiment towards the sector remains weak, influenced by the ongoing themes of structural change, the impact of online retailing, slowing retail sales and weaker consumer confidence. As a result, there is continued pressure on certain retailers to rationalise their physical store portfolios to fit the new retail landscape.

Shopping centres (16.6 per cent of portfolio by value)

The majority of the UK Shopping Centre exposure outside Greater London is focused on food, discount and convenience retailing to local communities. This part of the market continues to be more resilient in terms of consumer spend, footfall and the impact of online retailing. This is evidenced by the ongoing high occupancy of 95.9 per cent (31 August 2018: 96.4 per cent) and a stable income position, with annualised gross rental income marginally down (0.2 per cent) compared to the position at 31 August 2018. Net rental income on an annualised basis improved by 2.8 per cent, supported by operating cost efficiencies across the portfolio and contracted rent free periods coming to an end. Footfall across the UK Shopping Centre portfolio increased by 1.1 per cent, significantly outperforming the national average over the same period which was down by 3.3 per cent (source: Springboard).

Despite maintaining net income and occupancy levels, the market value of the shopping centre portfolio declined 7.7 per cent on a like-for-like basis due to a 60 basis point outward yield shift in the topped up net initial yield, reflecting continued weak investor sentiment and concerns over certain retailers including department stores and certain mid-market fashion brands.

Key asset management initiatives and leasing events completed during the period:

· 8 rent reviews were agreed providing total rent of £1.0 million, 2.1 per cent above the passing rent however 4.0 per cent lower than ERV;

· 26 new lettings or renewals were completed in the period providing total rent of £0.9 million, 13.4 per cent (£0.2 million) below ERV. The underperformance against ERV was largely a result of one lease agreed at Grand Arcade, Wigan which does not reflect potential income from an agreed top-up rent above certain levels of turnover;

· Of the 26 new lettings and renewals, 10 new leases were signed on 15,629 sqft of previously vacant space amounting to £0.4 million of gross annualised rental income, which more than offset the gross annualised rent on 9 units (59,251 sqft) vacated during the period (loss of £0.2 million); and

· In-house commercialisation activities, many of which have a strong community and CSR foundation, resulted in £0.6m of rent received for the six months ended 28 February 2019, an increase of 2.8 per cent compared to the prior year. Demand remains robust from both national and local operators with three new long-term leases, 23 lease renewals and 239 short-term licences signed across the portfolio during the period.

Retail parks and other retail (11.5 per cent of portfolio by value)

RDI remains confident in the longer term demand for its well located retail parks, with over 80 per cent of its portfolio by value in London, Edinburgh and the Southern part of the UK underpinned by strong demographics. Occupancy in retail parks increased to 96.2 per cent (31 August 2018: 94.7 per cent). These assets present further high yielding development opportunities to fulfil strong demand from 'drive-thru' occupiers.

Despite successful letting activity during the period, the market value of the retail park portfolio decreased 2.5 per cent on a like-for-like basis. This was largely due to a 40 basis point outward shift in the topped up net initial yield and a modest 0.6 per cent decline in ERVs.

Key asset management initiatives and leasing events completed during the period:

· At Priory Retail Park in Merton, South West London two units, that were previously subject to a Company Voluntary Arrangement ("CVA"), were signed to Aldi and The Gym Group on long leases of 20 years and 15 years respectively. These new lettings have been agreed on more attractive terms and higher rents compared to the pre-CVA terms, with no void period in the interim. Priory Retail Park remains fully occupied and the new tenants complement the current mix of bulky goods retailers and F&B operators, continuing to drive footfall at this well-located asset;

· Bargain Buys, a new concept from the team behind Poundstretcher, has increased its unit size at Banbury Cross Retail Park in Oxfordshire, signing a seven year term on the 7,477 sqft adjoining unit increasing its store to 17,533 sqft; and

· At Queens Drive Retail Park in Kilmarnock, the gross annualised rent on a 10,000 sqft unit, which was previously subject to a CVA, has been reinstated to the previous passing rent of £0.2 million, resulting in a 33 per cent increase on the previously reported figure.

UK Hotels (22.6 per cent of portfolio by market value)

The UK hotel market has experienced a sustained period of growth supported by a rise in both business and leisure travel. PwC has forecast growth in the average rate per available room ("RevPar") for 2019 in London and the Regions of 0.3 per cent and 1.2 per cent respectively, driven by expectations of modest reductions in occupancy but continued nominal room rate growth. This lower growth outlook for London hotels reflects a forecast 2.8 per cent net increase in the number of rooms in 2019 following the strong increases in supply in previous years. Despite pressure from rising labour and operating costs, continued growth in London RevPars highlights the City's resilience as a leading global hotel market.

Following the IHL acquisition in 2018, the UK Hotels portfolio is weighted close to 90 per cent by value to Greater London, Edinburgh and Gatwick airport with 10.9 per cent of the total net rental income subject to uncapped CPI escalations, principally from the Travelodge portfolio. The RBH managed hotel portfolio, including 13 limited service hotels, has seen positive movements on all key operational metrics. This was largely driven by the seven London limited service hotels and the Hampton by Hilton hotel at Gatwick Airport which continues to produce trading results ahead of management expectations. Following a very strong 2018, the Edinburgh hotel market has slowed slightly and occupancy in the three smaller regional hotels has been affected by weaker trading conditions.

Like-for-like net income during the period decreased by £0.7 million, or 6.2 per cent, following additional refurbishment costs allocated to maintaining the quality of these assets. Underlying gross rental income, excluding the increased investment, was consistent with the prior period. The Travelodge portfolio is expected to show continued income growth over the next few years through upward only inflation linked rent reviews.

The portfolio was valued at £364.9 million, a like-for-like decrease of 0.7 per cent.

(1) Excluding RBH managed hotels portfolio. Relevant operational metrics disclosed separately.

(2) Three of the five hotels let to Travelodge carry landlord lease extension options of eight years or more.

Strategic operational partner - RBH

Operating performance from the managed portfolio is supported by the Company's strategic partnership with RBH (formerly RedefineBDL). RBH has established itself as the leading independent hotel operator in the UK. Alignment of interests is ensured through RDI's ownership of a 25.3 per cent stake in RBH.

The holding in RBH contributed £0.5 million to underlying earnings during the six months.

Europe (15.1 per cent of portfolio by market value)

The momentum in the German investment market has remained strong driven largely by domestic investors. However, investors are becoming increasingly discerning with a focus on rental levels, particularly in the retail sector. The portfolio is heavily weighted to Berlin and Hamburg, two of Europe's strongest investment destinations. The centres in these cities are integrally linked into the public transport network providing high levels of footfall.

The portfolio decreased in value by 0.1 per cent in local currency and on a like-for-like basis due to a 10 basis point adverse shift in topped up net initial yields whilst local currency ERVs were marginally down.

Occupancy across the German portfolio remains high at 98.9 per cent (31 August 2018: 98.0 per cent) with annualised gross rental income 1.7 per cent higher on a like-for-like basis and in constant currency terms; largely due to a new retail letting to Action at Bremen on an 8,740 sqft unit delivering £0.1 million of gross annualised rent. Rental income from the portfolio benefits from high levels of indexation, with 94.9 per cent of annualised gross rental income subject to various forms of inflation linked rent reviews. Following a period of exceptionally low inflation, the benefit of index linked rents is expected to increase with consumer price inflation expected to reach 1.3 per cent in March 2019.

56 lease events were completed during the period, totalling £2.0 million of gross annualised rental income at an average premium of 13.7 per cent to the previous passing rent and 2.1 per cent above ERV. This included:

· 27 rent reviews providing total rent of £1.3 million, 6.4 per cent (£0.1 million) above the passing rent although 0.6 per cent below ERV. The largest rent review included a fixed rental uplift on the 40,273 sqft MediaMarkt lease at Hamburg, up 7.3 percent on the previous passing rent;

· 29 new lettings or renewals were completed in the period providing total rent of £0.8 million, 6.7 per cent above ERV; and

· Of the 29 new lettings and renewals, 7 new leases were signed on 13,235 sqft of previously vacant space amounting to £0.1 million, which more than offset gross annualised rent on 5 small units (3,499 sqft) vacated during the period (loss of less than £0.1 million).

FINANCIAL REVIEW

Overview

Despite a challenging first half, the Group's operational performance has remained robust across all segments in which we operate. Occupancy remains high at 96.9 per cent and was underpinned by strong leasing activity in the period which saw 100 lease events concluded at rental levels above both previous passing rent and ERV.

As indicated alongside our Full Year Results in October, the Group has prioritised leverage and liquidity in the short term. Although this resulted in a 3.7 per cent reduction in underlying earnings (versus the same period last year), we believe this was the right decision to have taken.

On a per share basis, underlying earnings fell 5.2 per cent to 6.94 pence, compared to 7.32 pence per share for the first half of 2018, albeit the first half of 2018 was particularly strong due to the phased acquisition of nine hotels comprising the International Hotel Properties Group, which concluded in November 2017. The second half of 2018 resulted in a more comparable 6.86 pence per share in underlying earnings.

EPRA Net Asset Value per share fell 4.4 per cent from 213.8 pence to 204.4 pence. This was the result of valuation decline, principally in the UK retail segment, and an adverse movement in the Euro relative to Sterling, recording a 4.6 per cent decline across the period.

The Group's principal debt facility, a £303.0 million term loan and revolving credit facility, was refinanced in January 2019 at a reduced level of £275.0 million. This resulted in a marginal increase to finance costs, but locked in a competitive rate for a new five-year term and removed the associated refinancing risk.

Share consolidation and subsequent re-presentation

Following Shareholder approval at the Company's Annual General Meeting, the Company completed a consolidation of its shares on a one for five basis, with the nominal value per share increasing from 8 pence to 40 pence per share. The Company's issued share capital on the record date for the consolidation, being Friday, 8 February 2019, was 1,900,449,536. On Monday, 11 February 2019, the first day of trading in the newly consolidated shares, the Company's issued share capital stood at 380,089,923. Where applicable throughout this review and the condensed consolidated financial statements which follow, the comparative 'per share' numbers have been re-presented accordingly.

Aviva financed UK Shopping Centre portfolio

Four of the Group's UK shopping centres, namely Grand Arcade, Wigan; Weston Favell, Northampton; Birchwood, Warrington and Byron Place, Seaham, are financed by a £144.7 million long-term fixed-rate debt facility with Aviva.

During the period, given the deterioration in values for UK Shopping Centres as well as concerns over certain key retailers, Aviva undertook a valuation of the four assets secured by the facility. The valuation resulted in a lender's LTV exceeding the 85 per cent loan to value covenant. The Group paid £9.7 million to cure the loan to value covenant and in addition all net operating cashflows from the portfolio were retained within the facility to reduce the outstanding facility balance.

Net operating cashflows from the four shopping centres, after interest costs, are approximately £6.5 million on an annualised basis. 

In April, post period end, a further valuation was called by Aviva, resulting in a further 5.7 per cent decline in value and a lenders LTV of 89.4 per cent. After careful consideration, the level of capital required to maintain compliance was not considered to be in the best interests of long-term shareholder value. The Group therefore agreed with Aviva that a consensual disposal of the properties, or the introduction of third-party capital, would be in the best interests of both parties.

Given the facilities term and fixed rate of interest, a significant break cost would ordinarily become payable on early termination. Although the facility remains non-recourse to the Group, given the termination charge that will be applied by the lender on sale, no equity is expected to be returned to the Group following disposal. As a result, we set out below the pro-forma impact of the disposal on underlying earnings and net asset value, both at 28 February 2019.

(1) Four Aviva financed UK Shopping Centre portfolio

The above illustrates a scenario where a disposal is concluded and no net disposal proceeds are received by the Group. This results in a decrease in net asset value of £54.1 million (14.2 pence per share) and a reduction in underlying earnings of approximately £6.5 million per year (1.7 pence per share). It should be noted that restricted cash, held by Aviva of £11.6 million at 28 February 2019, is included in the net asset value stated above.

Other planned disposals

As announced in the CEO's report, the Group has embarked on a marketing exercise for the sale of the Group's residual German portfolio. Although contemplated by the Board for some time, the decision to seek offers for this separately identifiable line of business was taken post period end and has therefore not been disclosed as held for sale within these condensed consolidated financial statements.

Acquisitions

In September 2018, the Group increased its exposure to the industrial and distribution sectors via the acquisition of two property interests located in the South East of England. The first, a £26.3 million (excluding costs) acquisition of an industrial estate in Farnborough, Hampshire; and the second, a £7.9 million (excluding costs), 13.5 acre land interest in Bicester, Oxfordshire. The land interest was consented for the development of two distribution units totalling 288,000 sqft in size. At the same time, the Group entered into a development agreement for the construction of the units and made a commitment to further payments on completion of the units of £7.8 million and £10.3 million. Completion of unit one took place in early April and unit two is due to complete in December 2019.

Performance against strategic financial targets

(1) Pro forma adjusted to reflect transactions post year end until the date of results announcements

Earnings decreased in the first half due to prioritising higher liquidity levels and maintaining a focus on leverage reduction.

The Group fell short of its like-for-like income growth target this period due the commitment of additional funds to the refurbishment of the UK Hotels portfolio, a sector that has performed well in recent years. Excluding the additional charge of £0.7 million, like-for-like growth of 1.9 per cent would have been achieved.

LTV increased during the period, driven by declining asset valuations, principally UK Retail portfolio valuations. Notwithstanding this, the Group's focus on leverage reduction has ensured LTV has remained within target range. The planned disposal of the European portfolio, and the consensual sale or restructure of the Aviva financed UK Shopping Centre portfolio, should materially reduce the Group's LTV. Once these disposals are concluded, the Group expects to adjust its LTV downwards and target gearing between 30 - 40 per cent.

Cost of debt has increased marginally above the target range at 3.5 per cent, but has reduced to 3.4 per cent post period end.

The EPRA cost ratio remains above target, notwithstanding the progress made in the past two years. The planned disposal of the European portfolio should result in a net improvement in the ratio due to the modest scale of the residual portfolio and the relatively high cost of maintaining the requisite operational platform in Germany.

The dividend pay-out ratio has fallen significantly below the Group's target of 90 - 95 per cent. This is discussed in more detail at the conclusion of this financial review. All other metrics remain within target.

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.

Net rental income was broadly in line with the prior period, marginally down in absolute terms but 0.2 per cent higher on a like-for-like basis. The increase in property operating expenses is attributable to the operational nature of the Group's recently acquired London Serviced Office portfolio. This also accounts for the increase in Other Income, the result of the various additional services provided to licensees at a margin.

Administrative costs have fallen marginally, however, not yet at a rate sufficient to achieve the Group's EPRA cost ratio target, which recorded a deterioration from 15.7 per cent to 16.2 per cent.

Net finance costs increased by £1.8 million, £0.9 million of which relates to a charge on refinancing the Group's principal debt facility in January 2019. Compared to the prior period, the residual increase arises from capital recycled from Germany to the UK in January 2018 and the related finance cost differential across the two geographies.

Non-controlling interests reflects the share of income attributable to the minority shareholders, most notably within our UK Hotels portfolio and London Serviced Offices portfolio. The increase arises due to the timing of acquisitions in the prior period, which did not reflect a full six month period.

Like-for-like net rental income analysis

Like-for-like income in the UK Commercial portfolio increased 8.2 per cent, largely due to successful rent reviews, principally at Camino Park, Crawley and Express Park, Bridgwater.

Despite headwinds, UK Retail net rents were stable. This was driven by focused asset management ensuring occupancy remained high and income was maximised through commercialisation of available space within the centres.

The decrease of 6.0 per cent in like-for-like income in UK Hotels is primarily due to additional funds being committed towards the refurbishment of the UK Hotels, a sector that has performed well in recent years. This ensures the portfolio is kept current and helps maintain occupancy levels. Refurbishment costs are recognised as tenant incentives and are charged to income.

Europe like-for-like net rent in local currency was up 2.5 per cent, primarily due to a number of lease events completed during the period. In Sterling terms, income was up 1.9 per cent, reflecting the weaker average EUR/GBP rate in the first six months of 2019.

(1) Market value adjusted to reflect finance lease liabilities and lease incentives

Property portfolio

(1) Valuation includes the effect of capital expenditure, amortisation of head leases, tenant lease incentives and foreign currency translation where applicable

UK Commercial valuations were broadly flat across the half year, with the strongest performance in distribution and industrial assets and the weakest in regional offices.

The downward valuation in UK Retail of £26.9 million, driven by the UK Shopping Centres, reflects the broad negative investor sentiment towards this sector. As occupancy and income within the portfolio were high and stable relative to 31 August 2018, the valuation decline was almost entirely attributable to yield shift.

The Hotel portfolio value decreased by £2.8 million, primarily due to capital expenditure and tenant incentives in the period.

In local currency terms, the German portfolio held steady, down by 0.3 per cent. An adverse 4.6 per cent movement in the exchange rate reduced the Sterling value by £10.5 million, or 4.7 per cent.

Debt and gearing

(1) Pro forma LTV adjusted for transactions completed between 31 August 2018 and 25 October 2018.

The increase in net debt of £36.1 million is principally due to the acquisition of two industrial and distribution property interests in Farnborough and Bicester in September 2018.

Loan to value increased to 48.5 per cent due to the reduction in valuation of the UK Retail portfolio but remains within the Group's previous target range of 45 - 50 per cent.

Debt maturity increased following refinancing activities completed in January, with interest cover falling due to costs associated with the refinancing which were incurred in the period.

Given the significance of the four Aviva financed UK Shopping Centres on the above debt and gearing metrics, these have been presented on a pro-forma basis to illustrate the position excluding these four shopping centres and their related net debt contribution.

Operating cash flows are aligned to the Group's underlying earnings and are a key metric for ensuring dividend cover. The overall net cash outflow reflects reinvestment activity since 31 August 2018 which followed significant capital recycling activity in the prior year. The final dividend for the year ended 31 August 2018 was paid entirely in cash in December 2018. Cash on the balance sheet at 28 February 2019 was £49.4 million, of which £12.3 million was held in restricted accounts, principally with Aviva.

Dividend

As set out above, during the period cash totalling £11.6 million was applied or retained in the Aviva UK Shopping Centre facility. Consequently, this cash is restricted and is unavailable to the Group to fund its operations or to allocate to shareholders in the form of dividend.

The Board has had to carefully consider its liquidity requirements in the context of the above restriction. Given these circumstances, the Board has declared a more modest first half dividend of 4.0 pence per share, which will be payable on 25 June 2019 to shareholders on the register on 7 June 2019.

It remains the Company's intention to continue to meet the UK REIT rules in respect of distributions. These rules require the Company to pay a minimum of 90 per cent of its UK Group property rental profits to shareholders within 12 months of its financial year end. As a guide, in respect to this six-month period ended 28 February 2019, the Group could reasonably be expected to pay an additional £5 million to shareholders alongside its required distribution for the second half of the year.

Donald Grant

Chief Financial Officer

25 April 2019

Alternative Performance Measures

An alternative performance measure (APM) is a financial measure of historical or future financial performance, position or cash flows of an entity which is not a financial measure defined or specified in IFRS. APMs are presented to provide a balanced view and useful information to the readers of the Group's results and are consistent with industry standards. The Group has considered the European Securities and Markets Authority (ESMA) 'Guidelines on Alternative Performance Measures' in disclosing additional information on its APMs.

All APMs are prepared on a proportionate basis to align with how the Group is managed. Further discussion of these measures can be found in the Financial review. The table below summarises the APMs included in these results, each of which has been reconciled to the appropriate IFRS measure as referenced in the table.

(1) Pro forma adjusted to 47.3% to reflect transactions between 31 August 2018 and 25 October 2018

PRINCIPAL RISKS

Below are the key risks to which the Group is exposed, along with their potential impact and mitigation factors.

Strategic risk

Financial Risks

Operational risks

Legal & regulatory risks

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the condensed consolidated interim financial statements, in accordance with applicable laws and regulations.

We confirm that to the best of our knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

· the interim management report includes a fair review of the information required by:

a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules , being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

The operating and financial review refers to important events which have taken place during the period.

Related party transactions are set out in Note 29 to the condensed consolidated interim financial statements.

By order of the Board

Mike Watters Donald Grant

Chief Executive Chief Financial Officer

25 April 2019

Independent Review Report to RDI REIT P.L.C.

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 28 February 2019 which comprises condensed consolidated balance sheet, condensed consolidated income statement, condensed consolidated statement of other comprehensive income, condensed consolidated statement of changes in equity, condensed consolidated statement of cash flows and the related explanatory notes. 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 28 February 2019 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

The impact of uncertainties due to the UK exiting the European Union on our review

Uncertainties related to the effects of Brexit are relevant to understanding our review of the condensed financial statements. Brexit is one of the most significant economic events for the UK, and at the date of this report its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown. An interim review cannot be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit.

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. 

The annual financial statements of the group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU. 

Our responsibility 

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. 

The purpose of our review work and to whom we owe our responsibilities

Richard Kelly

for and on behalf of KPMG LLP 

Chartered Accountants 

15 Canada Square

London

E14 5GL

25 April 2019

CONDENSED Consolidated Income Statement

for the six months ended 28 February 2019

(1) As a result of the share consolidation approved at the Annual General Meeting on 24 January 2019, the comparative weighted average number of shares and related earnings per share have been re-presented for comparability (refer to note 23).

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

CONDENSED Consolidated Statement of Comprehensive Income

for the six months ended 28 February 2019

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

CONDENSED Consolidated BALANCE SHEET

as at 28 February 2019

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

The condensed consolidated interim financial statements were approved by the Board of Directors on 25 April 2019 and were signed on its behalf by:

Mike Watters Donald Grant

Chief Executive Officer Chief Financial Officer

CONDENSED Consolidated Statement of Changes In Equity

for the six months ended 28 February 2019

The accompanying notes form an integral part of these condensed consolidated interim financial statements.

The accompanying notes form an integral part of these condensed consolidated interim financial statements.