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 29 FEBRUARY 2020

RECENT STRATEGIC ACTIONS ENHANCE RESILIeNCE

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 29 February 2020.

Tables include certain non-IFRS performance measures which are explained and referenced to IFRS reconciliations in the Alternative Performance

Measures tables.

(1) Net rental income from continuing operations, excluding the European segment which is classified as a discontinued operation.

(2) LTV adjusted to reflect transactions between balance sheet date and the date of the results announcement.

Robust H1 2020 operational and asset management performance leaves business well placed to face current challenges

· EPRA occupancy remains high at 96.5 per cent (31 August 2019: 95.9 per cent)

· 69 leasing events completed during the period, 6.1 per cent (£0.7 million) above ERV

· Like-for-like net rental income declined 1.3 per cent reflecting a reduction in income from operational assets and continued CVA activity in the retail sector

· Resilient income returns from the London Serviced Office portfolio with average desk rates maintained despite lower occupancy of 89.6 per cent (31 August 2019: 93.6 per cent)

· Managed hotel portfolio RevPAR declined 10 per cent to £71.4 (31 August 2019: £79.3) following lower occupancy and rates

COVID-19 trading update and financial position 

· Approximately £85.0 million of cash providing good levels of liquidity

· Rent collection of 59 per cent for the March 2020 quarter (83.1 per cent excluding RBH managed Hotels and London Serviced Offices)

· Disciplined measures to reduce asset related operating costs

· Committed capital expenditure limited to £1.8 million

Strong progress on strategic disposal programme

· £156.0 million of disposals completed or exchanged during the period at an average premium of 1.7 per cent to market value (including transactions post period end)

· Group Retail exposure reduced to 33.6 per cent (31 August 2019: 35.3 per cent) with a further reduction to 28.1 per cent following the sale of the German DIY portfolio and subject to completion of the Bahnhof Altona shopping centre disposal in Hamburg

· UK Retail exposure limited to 17.7 per cent

Balance sheet and leverage

· EPRA NAV per share declined 7.3 per cent to 172.0 pence per share, largely due to the reduction in the like-for-like portfolio value of 4.1 per cent

· Pro forma LTV stable at 41.8 per cent (31 August 2019 pro forma: 42.0 per cent)

· Cost of debt remains low 2.9 per cent (31 August 2019: 2.9 per cent)

Gavin Tipper, Chairman, commented:

"We are releasing interim results in unprecedented times, but are pleased to report that the strategic actions taken over the last 12 months, including our disposal programme and proactive balance sheet management, have put the Company in a position to weather the extraordinary conditions we face. Our focus during this time has been on the welfare, safety and security of our stakeholders, and on ensuring that asset values are protected, revenues are carefully managed and costs are minimised. In order to preserve liquidity, we have not declared an interim dividend, and will revisit distributions based on the results for the full financial year."

 Mike Watters, Chief Executive, commented:

"Over the last few weeks, we have been focused on actively engaging with our tenants and taking necessary pragmatic actions across the business to ensure that we are best equipped to withstand this challenging period. The ongoing implementation of our consistent strategy means that the underlying portfolio is well positioned to resume activity as government restrictions begin to be lifted and, we hope, the onset of strengthening economic conditions. Our assets are focused on sectors and locations with long term positive structural demand characteristics, further reinforced by high portfolio occupancy, a diversified tenant base and a balance sheet that provides access to significant cash reserves."

Results presentation, webcast and conference call

A live webcast for analysts and investors will take place on Monday 11 May 2020 at 9.00 a.m. (UK time) / 10.00 a.m. (SA time). The webcast can be accessed via the homepage of the Company's website: www.rdireit.com.

Conference call dial-in numbers and access code

UK Freephone: 0800 358 6377

UK Local: 0330 336 9125

South Africa Local: (0)11 844 6054

South Africa Toll Free: 0800 998 654

All other locations: +44 (0)330 336 9125

Participant Access Code: 3113323

For further information, please contact:

Disclaimer

This release includes statements that are forward looking in nature. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of RDI REIT P.L.C. to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Any information contained in this release on the price at which shares or other securities in RDI REIT P.L.C. have been bought or sold in the past, or on the yield on such shares or other securities, should not be relied upon as a guide to future performance.

CHIEF EXECUTIVE'S REPORT

This interim results announcement comes at an unprecedented time for the UK and global economies.

The Board and the executive management team thank RDI's stakeholders, including our staff, advisers, occupiers, clients, funders and shareholders for their continued commitment, support and co-operation during what is a challenging period for a huge number of businesses. We endeavour to protect shareholder value in a manner which is responsible and cognisant of the current environment. While the immediate impact of the COVID-19 related shutdown has been exceptionally sharp, we are confident that a return to better economic conditions will see renewed demand for good quality real estate.

We have provided a separate section in this report in relation to the COVID-19 pandemic given that the impact has been most severe after the balance sheet date. While the immediate focus is on current trading conditions, the performance of the business for the reporting period was to a large extent unaffected by the current market conditions. The commentary below relates predominantly to the six month period to 29 February 2020.

Operating performance

The Company delivered a sound set of operating results for the first half of the financial year in the context of the weaker macroeconomic environment and political uncertainty surrounding Brexit and the UK General Election. Occupancy across the portfolio remained high, increasing to 96.5 per cent (31 August 2019: 95.9 per cent) supported by key lettings at Link 9, Bicester and Canbury Park, Kingston. 69 leasing events were concluded totalling £11.4 million of gross rental income, 6.1 per cent ahead of ERV. Overall, the portfolio's annualised like-for-like topped-up triple net rental income increased by 1.2 per cent on a constant currency basis against the position at 31 August 2019. 

The underlying operational performance from the London Serviced Office portfolio remained resilient despite Brexit uncertainty, however as previously highlighted, certain regional hotels experienced weaker trading conditions.

Earnings and dividend

RDI was a net seller of assets during the period as part of the Company's strategy of reducing retail exposure and lowering leverage. As has been well flagged to shareholders, the longer term benefits of a higher quality, more streamlined portfolio together with lower levels of leverage will result in lower earnings in the short term.

Underlying earnings decreased by 8.4 per cent to £20.8 million (28 February 2019 (excl. Aviva): £22.7 million). Underlying earnings per share decreased by 8.3 per cent to 5.5 pence per share (28 February 2019 (excl. Aviva): 6.0 pence per share).

The Board has not declared an interim dividend as it feels that it is not appropriate to do so given the current disruption and lack of visibility on future cashflows. The Board is of the opinion that conserving liquidity is critical and in the long-term interest of all stakeholders.

The Board is mindful of the Company's REIT obligation in respect of distributing its UK property rental profits. Such profits represent approximately 85 per cent of this period's underlying earnings, however the Board has until 31 August 2021 to meet its distribution requirements for the current financial year. The Board will re-evaluate the Company's cash and liquidity position with respect to its dividend policy alongside its full year results due in late October 2020.

Balance sheet and financing

EPRA NAV decreased by 7.3 per cent to 172.0 pence per share (31 August 2019: 185.5 pence per share), largely as a result of a like-for-like portfolio value decline of 4.1 per cent for the six months. Valuation movements varied significantly between sub-sectors with the UK Distribution and Industrial portfolio decreasing 1.0 per cent or £1.7 million, while UK Retail declined 7.5 per cent or £18.9 million. The European portfolio declined 3.2 per cent or €6.9 million in local currency and was subject to a 5.7 per cent decline in the Euro relative to Sterling.

The Group's share of net debt reduced by over £40 million to £622.8 million (31 August 2019: £666.6 million). Adjusting for transactions exchanged or completed post period end, pro-forma LTV remained broadly unchanged at 41.8 per cent (31 August 2019 pro forma: 42.0 per cent) supported by the strategic disposal programme and higher cash balances of £49.1 million (31 August 2019: £33.9 million). Since the balance sheet date, the Group's cash position has improved, following further disposals and the draw down of available headroom from the Group's revolving credit facility, and now stands at approximately £85.0 million.

Disposal programme

Further progress on the strategic disposals programme was made with £49.3 million of disposals completed during the period at an average premium of 2.5 per cent to the last reported values. A further £106.7 million of disposals were exchanged or completed after the balance sheet date.

An additional £141.2 million of assets, not already sold or exchanged for sale, form part of the Company's strategic disposal plan, of which approximately £101.7 million are under offer and at various stages of negotiation. However, given the current unprecedented market conditions, anticipated that the transactions will be delayed and may take longer than initially expected.

2020 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 three resolutions which received substantial votes against at its AGM on 23 January 2020.

Resolutions 13, 14 and 15, relating to the Directors' authority to issue shares, received in excess of 20% of votes against with Resolution 15 marginally failing to be passed. 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 authority to issue shares. The Company will continue to liaise with shareholders in advance of the next AGM, to agree authority levels that may be more acceptable to our South African shareholder base.

Pursuant to Provision 4 of the UK Corporate Governance 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.

Board Changes

Following the conclusion of the AGM on 23 January 2020, Marc Wainer retired as a Director of RDI and the executives Stephen Oakenfull and Adrian Horsburgh stepped down as members of the Board, but have continued in their roles as Deputy CEO and Property Director, respectively, on the executive committee.

The RDI board now comprises seven directors, which better reflects the current size of the Company. The changes have improved the balance between independent and non-independent directors, aligning the composition of the Board with the requirements of the 2018 UK Corporate Governance Code, whilst also improving Board diversity.

Tribute to Marc Wainer

As stated above, Marc Wainer retired at the AGM in January 2020 after serving on the board for over 8 years. Marc was instrumental in the creation and growth of the company and the board notes with regret the news of his passing on 20 April 2020. We offer our sincere condolences to Marc's family following this tragic news.

Progressive sustainability performance

During these challenging and unprecedented times, our focus on resilient assets, lower leverage and governance continues to be of the utmost importance and we are pleased to have achieved sound progress implementing the Group's annual CSR objectives. Health, safety and welfare of our staff, contractors and communities has always been at the forefront of the Group's CSR strategy, and we are ensuring that this continues notwithstanding the disruption and challenges related to COVID-19. We will continue to address sustainability risks and opportunities across our assets, whilst prioritising delivery and management of initiatives remotely where feasible in the near term. 

Outlook

At the time of writing there is insufficient clarity on the potential duration and impact of COVID-19 to provide any meaningful outlook for the remainder of the 2020 financial year. Notwithstanding this uncertainty, the welfare, safety and security of our staff, our occupiers and the communities which interact with our business and our portfolio is our priority together with ensuring that our short term cash position and liquidity remain as strong as possible.

Our strategic objectives remain as relevant as ever. Progress on improving the quality of the portfolio and the strength of the balance sheet has put the Company on a stronger footing. We are closely monitoring investment and occupational markets and expect that current conditions may accelerate some of the longer term trends that were already in place. Weaker operating models and structurally challenged sectors are likely to be exposed, while better quality assets in stronger economic locations are likely to be the least impacted and experience the fastest recovery.

Despite the challenging near term outlook, we remain confident that the Company can absorb the short term disruption in trading and cashflow. We will continue to work with our occupiers and partners with a view to generating shared long term success.

Mike Watters

Chief Executive Officer

11 May 2020

COVID-19

The following section provides specific commentary with respect to trading and operations for the period post 29 February 2020, which coincides with the uncertainty and disruption due to the COVID-19 outbreak. 

Cash, liquidity and financing

At the date of this announcement, the Group's cash balance is approximately £85.0 million, which includes the post period end proceeds from the disposal of the German DIY portfolio and Leipzig properties and the drawdown of £25.0 million from the Group's revolving credit facility. In addition, the Company has £46.4 million of ungeared assets.

The pro-forma LTV for the Group, including disposals exchanged by or completed after period end, is 41.8 per cent against a weighted average LTV covenant across the Group's facilities of 66.7 per cent.

We have ongoing and close engagement with all of the Group's lenders and have received supportive responses in dealing with the impact of cashflow disruptions on facility agreements. Of those facilities subject to financial covenants, formal covenant waivers have been signed or are being negotiated on 96 per cent of the Group's facilities by value. In many instances, financial covenant waivers have not been required but have been requested and agreed in any event.

Pro-active refinancing activity over the last two years has resulted in limited near term debt maturities. As at 29 February 2020, two facilities totalling £16.1 million (Group share: £12.8 million) were due for maturity in the second half of the financial year. £3.0 million has subsequently been repaid and terms to extend the remaining £13.1 million (Group share: £9.8 million) facility have been agreed with the existing lender, though remain subject to credit approval.

All of the Group's financing facilities are secured against portfolios or individual assets with no recourse to the wider Group.

Capital expenditure

All non-essential capital expenditure has been postponed until there is more clarity on the operating environment and visibility on future cashflows. Previously committed or essential capital expenditure over the next 12 months is limited to approximately £1.8 million. Ongoing essential maintenance, and in particular expenditure related to security, health and safety requirements, will continue as usual.

Rent collection

The rental collection statistics in the table below reflect the percentage of rents collected against rents or income due and demanded. Across the Group's portfolio, approximately 59.0 per cent of gross rental income was collected for either the March quarter or the month of March, where rents are billed monthly. The figures below have been updated from those previously disclosed on 6 April 2020.

Rent collected across the UK portfolio (excluding RBH managed Hotels and London Serviced Offices) totalled 78.7 per cent of rents demanded, adjusted for tenants paying monthly.

Rents collected across the European portfolio, which are typically due monthly in advance, were 97.9 per cent of rents due for the month of March. Rents collected for the month of April were 53.2 per cent with a significant proportion of the reduced collection rate, when compared to March, attributable to a limited number of large, well capitalised international retail tenants which have unilaterally withheld payment which remains due and payable.

RBH managed hotel rents are paid quarterly in arrears. The full rental payment was received for the second quarter to 29 February 2020, however no rental payments are anticipated for the third quarter ending 31 May 2020.

In respect to the London Serviced Office portfolio, approximately 97 per cent of licence fees and IT service fees, which typically comprise circa 90 per cent of net revenues, have been collected for the month of March. Net revenues derived from ancillary services such as meeting rooms and catering, which typically represent the remaining ten per cent, are assumed to be nominal for March resulting in an overall, estimated, 87.6 per cent collection rate for net revenue. Headline collection rates for April licence fees and IT service fees have remained high at approximately 94.5 per cent, however a temporary licence fee discount of 50 per cent has been agreed with a number of clients for April resulting in a net effective collection rate in April of approximately 50 per cent against the contracted licence fee position.

An operational update giving further details on the UK Retail, UK Hotels and London Serviced Office portfolios is provided below.

(1) Annualised gross rental income as at 29 February 2020

(2) Rent collection for March 2020 demands, adjusted for certain tenants which have indicated they are paying monthly and have paid one third of quarterly rent demanded

(3) Rent collections typically reflects payment monthly in advance for March. April 2020 collection rate was lower at 53 per cent for Europe and 50 per cent for LSO.

Operations and trading

Following government directives in both the UK and Germany, a number of assets or specific units within assets were closed in March - in particular, non-essential retail stores and hotels. The London Serviced Office portfolio has also been closed to observe guidelines on working from home. More recently, certain restrictions have been lifted in Germany to allow retail units of less than 800 sqm to be re-opened and certain retail tenants including some DIY outlets have reopened in the UK subject to government guidelines.

The necessary government restrictions have had the biggest impact on the hospitality, leisure and retail sectors; particularly those related to discretionary consumer spending. We are actively engaging with tenants and clients across the portfolio. Financial assistance in the form of rent free periods or rent deferrals are being prioritised for those occupiers most in need during this challenging period.

UK Retail

The UK Retail portfolio comprises eight assets representing less than 18 per cent of the overall portfolio by market value and weighted toward well located, largely discount and convenience, retail parks. The majority of stores across the retail portfolio have been closed, however all assets remain open to varying degrees to support those essential retailers that continue to trade. At our two UK shopping centres, operating costs will be reduced wherever practical to limit costs.

UK Hotels portfolio

The UK Hotels portfolio comprises 18 assets, including 13 assets managed by the Company's associate, RBH Hotel Group ("RBH"). The remaining five assets are let to Travelodge UK Holdings Limited.

Of the 13 assets managed by RBH, eight have been closed following UK Government guidelines. Five hotels were let to local authorities at discounted rates to be utilised for NHS key workers and the homeless, however this has subsequently been reduced to three due to spare capacity. A significant amount of work has been done to reduce operating and overhead costs while the hotels remain closed. A high proportion of the managed hotels operating costs are variable which, together with the various UK Government support packages, including the 12 month business rates holiday and the Coronavirus Job Retention Scheme, will facilitate a temporary but significantly reduced cost base.

RDI is actively engaging with RBH as the tenant and manager to provide support and, where appropriate, financial assistance to bridge any short term cashflow requirements.

The five assets let to Travelodge have a current passing rent of £2.5 million p.a. (Group share: £2.1 million p.a.). Travelodge has indicated it will not pay rent for the March 2020 quarter. Discussions with Travelodge are ongoing, however all terms under the leases remain in force.

London Serviced Office portfolio

The London Serviced Office portfolio comprises four assets managed by Office Space in Town ("OSIT"). All four assets are closed following UK Government guidelines.

The London Serviced Office portfolio typically has an EBITDA margin to total revenue of approximately 60 per cent. The anticipated net EBITDA (before head rents) for the current financial year was approximately £10.5 million (Group share: £8.4 million) prior to the onset of the COVID-19 pandemic. The most significant underlying operating costs are inter alia, business rates, staff costs, utilities, sales and marketing and management fees. As with the hotel portfolio, a high proportion of these costs are variable which, when combined with the UK Government support packages including the Coronavirus Job Retention Scheme, will allow a material reduction in the underlying operating costs while the offices remain closed.

Clients have been offered a 50 per cent reduction in licence fees for April and May, subject to certain conditions. These measures, which are temporary, are to support clients when many businesses are experiencing cashflow disruptions.

Longer term, we remain confident in the quality of our operational assets which have a strong track record of income resilience.

The Board believes the strategic actions over the last 12 months, including our disposal programme, decreased retail exposure and leverage reduction, have put the Company in a better position to withstand these extraordinary conditions.

OPERATING REVIEW

Portfolio overview

The portfolio continues to evolve as the strategic disposal programme reduces exposure to the retail sector and focuses capital on assets, sectors and locations with long term positive structural demand factors.

Key portfolio characteristics include:

· a weighted average lease length, excluding RBH managed hotels and London Serviced Offices, of 6.3 years to the first potential lease break and 8.1 years to expiry;

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

· a reversionary yield of 6.1 per cent, 30 basis points higher than the current portfolio EPRA topped-up net initial yield;

· Occupancy at period end increased to 96.5% (31 August 2019: 95.9%);

· RBH managed hotels and London Serviced Offices (excluding leases to gym operators) account for 35.9 per cent of the portfolio by annualised gross rental income; and

· over 300 tenants with no single tenant accounting for more than 4.0 per cent of gross rental income, excluding RBH managed hotels.

(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

Good progress was made during the period with further disposals and an improved weighting of capital to those sectors with stronger long-term growth prospects. The disposals were in line with the strategy of reducing exposure to retail and delivering a lower leverage capital structure.

Retail exposure across the portfolio has seen a further reduction to 33.6 per cent (31 August 2019: 35.3 per cent) following disposals completed in the period. Retail exposure is anticipated to reduce further to 28.1 per cent following the disposal of OBI Retail Warehouse portfolio in Germany post period end and the anticipated future completion of the Bahnhof, Altona shopping centre in Hamburg.

A further £141.2 million of assets, not already sold or exchanged for sale, form part of the Company's strategic disposal plan, of which approximately £101.7 million are under offer and at various stages of negotiation. The disposal programme targets a reduction in retail exposure to approximately 20.0 per cent based on current market values. The timeframe for the remaining disposals is likely to be extended as a result of current market conditions and an inevitable reduction in transaction volumes in the short term.

Notwithstanding the short term impact on operational assets from COVID-19, we continue to see the benefit of an increased exposure to Greater London and the South East, and high-quality operating platforms.

(1) Annualised gross rental income for the London Serviced Office portfolio included as EBITDA, net of management fees.

(2) WAULT, occupancy and indexation excluding the RBH managed hotels and London Serviced Office portfolios. Relevant operational metrics disclosed separately.

Valuation overview

Like-for-like valuations across the portfolio declined 3.3 per cent in constant currency terms. Continued weakness in the retail sector was the primary driver with UK Retail valuations 7.5 per cent lower, almost entirely driven by topped-up net initial yields increasing by 40 basis points, reflecting weak investor sentiment and general market concerns around rental sustainability. Overall, the portfolio topped-up net initial yield moved out 20 basis points to 5.8 per cent, with topped-up triple net rents up 1.2 per cent on a constant currency basis.

The UK Commercial portfolio declined 2.0 per cent on a like-for-like basis. The London Serviced Offices experienced slightly softer occupancy resulting in EBITDA reducing by 3.2 per cent. The 3.1 per cent decline in the London and regional office portfolio was largely attributable to Plymouth, one of the final regional offices which is part of the disposal programme. As expected, Distribution and Industrial was largely unchanged.

The 2.2 per cent decline in the UK Hotels portfolio reflected weaker underlying trading performance across certain regional assets. London and South East hotels, which form 76 per cent of the portfolio by value, were relatively more resilient.

Our UK Retail portfolio, now less than 20 per cent of the overall, is predominantly weighted to well located, discount and convenience retail parks, providing greater income resilience. Across the UK Retail portfolio, topped-up net rental income on an annualised basis was broadly unchanged, significantly outperforming the wider market.

The European portfolio declined 3.2 per cent in local currency terms. Topped-up net initial yields increased 20 basis points reflecting a weaker retail investment market, particularly for shopping centres.

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

(2) Includes the effect of capital expenditure, amortisation of head leases, tenant lease incentives and foreign currency translation where applicable.

(3) The letting of unit 1a at Link 9, Bicester is included in annualised topped-up net rental income movements as it was reflected as a vacancy as at 31 August 2019

Leasing activity

It has been an active period with 69 lease events totalling £11.4 million being concluded, a 27.5 per cent or £2.5 million increase in gross rental income, 6.1 per cent ahead of ERV.

Portfolio occupancy increased to 96.5 per cent (31 August 2019: 95.9 per cent), supported by the letting of 120,599 sq ft at Link 9, Bicester.

(1) The letting of unit 1a at Link 9, Bicester is included in like-for-like income as this unit was reflected as a vacant at 31 August 2019

(2) Includes by £0.8 million attributable to FX losses incurred in the period

· Six leases were renewed on break or expiry and 26 new leases and lease regears were signed in the period, accounting for total gross rental income of £5.6 million (previous gross rental income £3.7 million), 6.1 per cent (£0.3 million) above ERV;

· The new leases include lettings on previously vacant space totalling 158,684 sq ft across 11 units, generating an additional £1.9 million in gross rental income including the letting to Arrival at Link 9, Bicester;

· 37 rent reviews were completed including indexed or fixed uplifts on £54.8 million of gross rental income, 9.5 per cent above the previous passing rent and 6.1 per cent above ERV

· Five units were vacated in the period totalling 19,139 sq ft. including the 9,500 sq ft Next unit at Banbury. The remainder of this vacant space is within properties that were being actively marketed for sale at the period end. Previous gross rental income on units vacated was £0.3 million with landlord shortfalls increasing by £0.3 million.

Disposal activity

Disposals totalling £49.3 million were completed during the period. A further £106.7 million has been exchanged for sale, or completed post period end. Bahnhof Altona, Hamburg which was exchanged for sale in September 2019 and while the terms of the original sales contract remain binding, the timing of completion remains uncertain following the previously announced pre-emption right in favour of the City of Hamburg. Further details are provided below.

(1) Market value as at 31 August 2019. Joint Ventures at proportionate share.

(2) EPRA NIY based on the sales price.

Bahnhof Altona Center, Hamburg

As previously announced, contracts were exchanged for the sale of the Bahnhof Center for €91.0 million, reflecting a 2.5 per cent premium to the 31 August 2019 market value. While the position with regards to the City of Hamburg's statutory pre-emption right is ongoing, the terms of the original sales contract remain binding whether the asset is acquired by the original purchaser or the City of Hamburg, but the disposal has not been recognised during the period. RDI will continue to benefit from the income returns while the pre-emption position is resolved and until the disposal is completed.

Park Place, Leeds

Park Place was sold for £9.0 million, a 2.3 per cent premium to the last reported market value, reflecting a net initial yield of 6.0 per cent. The disposal follows a lease regear to the Department of Works and Pensions on a new ten year lease with limited further upside anticipated in either rental or capital values.

Albion Street, Derby

The sale of Albion Street completed for £2.5 million, in line with the last reported market value, reflecting a net initial yield of 10.5 per cent.

Kaiserslautern and Waldkraiburg, Germany

The portfolio of two retail warehouses held in a joint venture was sold for €20.4 million (Group share €10.6 million), a 9.1 per cent premium to the last reported market value.

Waterside Court, Leeds

Waterside, Leeds sold for £6.5 million reflecting a topped-up net initial yield of 5.8 per cent and a 37.2 per cent premium to the last reported market value. The 35,966 sq ft office is fully let to the Secretary of State until July 2029 following a lease regear completed in July 2019.

Omnibus, Reigate

The Omnibus office building in Reigate has been sold for £14.9 million reflecting a discount of 6.3 per cent to the last reported market value. The 62,756 sq ft regional office has an occupancy rate of 55.1 per cent and was one of the UK mature assets identified for disposal as part of the Group's strategic disposal programme.

Leipzig, Germany

Contracts were exchanged during the period for the sale of a food-anchored, mixed-use asset in Leipzig for a price of €7.9 million (£6.8 million), reflecting an 8.1% discount to the 31 August 2019 market value. Completion occurred post period end.

Disposals post period end

OBI Retail Warehouse portfolio, Germany

The sale of the portfolio, comprising three DIY retail warehouses, for €34.2 million (Group share: €22.8 million), reflects a 3.5 per cent discount to the last reported market value.

Two of the properties, Herzogenrath and Schwandorf, were 75 per cent held by RDI with a minority partner holding the residual 25 per cent. A third property, in Huckelhoven, was held in joint venture with Menora Mivtachim. The portfolio has been sold by way of a corporate sale of various special purpose vehicle interests and includes the transfer of existing debt facilities with outstanding balances of €19.5 million (Group share: €13.1 million).

The portfolio is let principally to OBI, one of Germany's leading DIY retailers, making up 89.5 per cent of the rental income. The average WAULT across the portfolio is 4.7 years with all leases subject to escalations of between 60 to 75 per cent of CPI.

Capital expenditure

Capital expenditure during the period totalled £2.2 million with future committed capital expenditure limited to £1.8 million, largely in relation to the completion of the Ingolstadt development, see below. Given current market conditions, all non-essential capex expenditure has been postponed, wherever practical.

Ingolstadt, City Arcaden

The second phase of development to finalise the remaining residential, office and retail units, totalling approximately 1,700 sqm (18,300 sq ft), is nearing completion. Completion was originally anticipated in March 2020, however minor delays are being experianced due to recent COVID-19 related restrictions on working practices. The remaining construction works are non-structural in nature and will be completed as soon as possible. 

Sustainability

In October 2019, we reviewed the Group's sustainability performance and set nine CSR objectives for 2020, including both new and continuous goals. Since then, we have demonstrated solid progress implementing our annual objectives across the resilient assets, investment and governance pillars and will continue to deliver on the Group's CSR commitments in the second half of the year. Last year we set a target of achieving a 25 percent reduction in our portfolio energy intensity by 2030 and had a strong focus on improving measurement and reporting of the Group's environmental data. Good quality data and robust reporting processes are key for driving our journey towards a low carbon portfolio and to achieving the Group's energy target, and we continue to make enhancements to our environmental data management system and reporting of the asset level ESG data. We aim to ensure that our asset management teams have the right information, in the right format and at the right time to enable them to actively manage asset sustainability performance and identify opportunities for improvement. This also supports the Group's objectives to independently verify the performance of our assets through building certification and implementation of the ISO14001 Environmental Management System. We completed the BREEAM In-Use certification at our serviced office, 20 St. Dunstan's, achieving the 'Very Good' rating, and have now commenced the BREEAM In-Use certification at Little Britain. Following the completion of an internal audit at Coburg House, Southwark, we expect our ISO14001 certified portfolio to include an additional office in the coming months. Our CSR strategy and governance has been further strengthened by the development of the Group's biodiversity policy, outlying our commitment to protecting ecosystems and working towards a "net positive" approach. Our teams across all divisions have established their annual sustainability objectives, which supports the Group's corporate CSR goals and now forms part of the annual employee performance review.

UK Commercial (40.0 per cent of portfolio by market value)

Further progress has been made in repositioning the portfolio through the disposal of mature regional office assets thereby increasing the effective exposure to Greater London and the South East as well the Distribution and Industrial sector. The UK Office portfolio is now 93.6 per cent weighted to Greater London with exposure to new Crossrail stations and London's developing Southbank market. Exposure to the Distribution and Industrial sector has increased to 18.3 per cent of the overall portfolio following the completion of the second and final phase of Link 9, Bicester.

(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 (11.9 per cent of portfolio by value)

Notwithstanding the impact of additional supply across the London market, the portfolio delivered a resilient income return for the six month period, clearly outperforming the broader London flexible office market. Desk rates increased by 1.3 per cent despite reduced occupancy and market reports of weaker desk rates across London.

Given the growth in flexible and serviced office supply in London, competition amongst operators has put pressure on desk rates in the short term. However, we expect an increasing divergence in performance between established operators delivering a high quality service-led offering from an owned rather than leased portfolio.

The growth of small and medium sized firms, flexible and mobile working arrangements, the demand for high quality space and services and the ability to attract talent, remain strong drivers for long-term growth in the sector despite the short term impact.

RDI's strategic operating partner, Office Space in Town ('OSIT'), has recently initiated a number of direct marketing strategies to reduce frictional leasing costs and establish a more direct engagement with clients at the point of sale.

Greater London and regional offices (9.8 per cent of portfolio by value)

The office portfolio is well positioned to capture growth from locations benefiting from major regeneration and capital investment into infrastructure and transport. The London office market continues to be characterised by low levels of vacancy, limited speculative development and relatively high levels of pre-letting activity. Vacancy across the London office market stood at 4.1 per cent at the end of 2019, significantly below the 10 year average of 5.5 per cent and the lowest level since the middle of 2016. This provides a relatively strong market position in the event of a short term demand shock. While the impact of COVID-19 is yet to be determined, the London market has to date proved relatively resilient following the EU referendum.

Disposals of regional offices have resulted in the office portfolio's exposure to Greater London increasing to 85.7 per cent. Medium and longer term development opportunities at Charing Cross Road, Southwark and Canbury Park, Kingston provide a strong underpin to values and potential future upside.

Occupancy increased to 95.9 per cent (31 August 2019: 89.8 per cent) with topped-up net rental income 14.6 per cent higher on a like-for-like basis, largely as a result of higher occupancies.

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

· Following the receipt of planning permission at Charing Cross Road for a 41.4 per cent increase in the overall area of the property to 56,576 sq ft, activity is now focused on cost engineering and programming around potential vacant possession dates, the earliest of which is expected to be late 2021. Subject to market conditions, marketing of the scheme for pre-letting is targeted for later this year.

· A consortium of landowners has been established to support a master planning exercise at Newington House, Southwark. The consortium includes three key landowners neighbouring Newington House with the potential to deliver a material mixed-use regeneration scheme. Feasibility studies remain at an early stage. 

· A short-term letting of the previously vacant basement space was completed at Charing Cross Road for £0.3 million p.a., 70.6 per cent ahead of ERV

· The remaining 12,545 sq ft of vacant office space at Canbury Park, Kingston was let to Interval International for £0.4 million p.a., marginally below ERV

UK Distribution and Industrial (18.3 per cent of portfolio by value)

The portfolio is well positioned to capture future rental growth with 35.2 per cent of the portfolio located in London and the South East, providing exposure to locations with higher growth prospects. The portfolio is typically focused on 'standard warehousing' which captures a broad base of occupier demand including third party logistics, retail distribution and manufacturing.

Exposure to the sector increased to 18.3 per cent of the overall portfolio by market value (31 August 2019: 16.3 per cent). Occupancy decreased to 92.2 per cent (31 August 2019: 93.7 per cent) reflecting the completion of Unit 1b at Link 9, Bicester which is now available to let.Topped-up net rental income showed strong growth increasing by £1.2 million or 10.0 per cent in the year following the letting of unit 1a at Link 9 Bicester, as detailed below.

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

· Unit 1a totalling 120,599 sq ft was let to Arrival at Link 9 Bicester. The contracted gross rent of £1.0 million p.a. was 16.1 per cent ahead of ERV

· A rent review was agreed at Camino Park, Crawley for £0.6 million, 60.0 per cent ahead of the previous passing rent

UK Hotels (26.5 per cent of portfolio by market value)

The outlook for UK hotels prior to the onset of the COVID-19 pandemic was mixed. A weaker macro-economic environment, including Brexit related uncertainty, was expected to impact business confidence and activity. PWC's outlook for 2020 was for tougher trading conditions in the regions as additional supply was absorbed. London was expected to be more resilient despite relatively high levels of new supply in 2019 and a further 6,400 rooms expected in 2020.

Our own experience is largely in line with market expectations. While RDI's hotel portfolio is heavily weighted towards Greater London and the South East (76.0 per cent by value), certain regional hotels continued a trend of weaker underlying trading performance.

Underlying occupational metrics for the period declined in the second quarter, in part reflecting the early signs of reduced international travel from the far east. Like-for-like triple net rental decreased by £0.7 million, or 3.1 per cent, during the period.

(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.

UK Retail (17.7 per cent of portfolio by market value)

The Group's remaining UK Retail portfolio is now heavily weighted to retail parks and Greater London and South East locations. The combination of stronger demographics and largely discount and convenience offerings, is anticipated to prove more resilient as demonstrated by the steady operational performance for the period.

Online sales continue to grow approaching 20 per cent of all retail sales in the UK. The impact of these figures depends largely on each retailers' sales channels with the likes of Next reporting a 3.9 per cent decline in in-store sales, with close to 50 per cent of online sales being fulfilled through click and collect. In general mid-market fashion continues to struggle while certain value oriented DIY and homewares brands have shown good growth.

UK Shopping Centres (5.6 per cent of portfolio by value)

The Group's overall exposure to UK Shopping Centres remains limited to two assets representing 5.6 per cent of the overall portfolio. Occupancy declined marginally to 97.7 per cent (31 August 2019: 98.8 per cent) with topped-up net rental income largely unchanged.

Footfall across the two centres marginally decreased by 0.4 per cent, significantly outperforming the national average which was down by 6.0 per cent over the same period (source: Springboard).

St George's, Harrow represents 83 per cent of this exposure by value and continues to deliver robust income returns. Footfall increased by 2.6 per cent against the same period last year and Vue cinema, a key occupier at St George's, extended its lease to 20 years during the period.

The Group has exposure to one Debenhams store at West Orchards, Coventry. Debenhams entered into an administration process in April 2020 and has subsequently looked to restructure leases across the business. Revised terms have been agreed for a turnover lease inclusive of service charges with Debenhams continuing to pay rates and insurance. The previous annual net rent was £0.5 million.

Retail parks (12.1 per cent of portfolio by value)

At an operational level, the Retail parks portfolio performed well and ahead of general market trends. Approximately 81.8 per cent of the portfolio by value is located in London, Edinburgh and the Southern part of the UK, is underpinned by strong demographics and is typically let to discount and convenience operators.

Occupancy increased to 98.4 per cent (31 August 2019: 97.2 per cent) with topped-up net rental income increasing by 0.8 per cent on a like-for-like basis. Occupancy increased following a new lease with Wren Kitchens at a previously vacant unit of 9,761 sq ft. The rent of £0.2 million p.a. reflects a 2.0 per cent premium to the ERV

Europe (15.8 per cent of portfolio by market value)

The German portfolio continues to be held for sale with all the remaining assets at various stages of negotiation and due diligence. The DIY retail warehouse portfolio was sold post period end for €34.2 million (Group share: €22.8 million), and the Bahnhof, Altona shopping centre in Hamburg exchanged for a sales price of €91.0 million, leaving €128.6 million (£109.8 million) at current market values. As noted elsewhere, the timeframe to complete the remaining disposals is likely to be extended as a result of current market conditions and the need for greater clarity as to future trading conditions.

Occupancy across the European portfolio decreased very slightly to 98.1 per cent (31 August 2019: 99.1 per cent) with like-for-like topped-up net rental income unchanged in constant currency terms. Rental income from the portfolio benefits from high levels of indexation, with 94.8 per cent of gross rental income subject to various forms of inflation linked rent reviews.

(1) Includes Bahnhof, Altona, Hamburg which is subject to an exchange of contracts for sale

(2) The German OBI portfolio was sold post period end

FINANCIAL REVIEW

Overview

Whilst events of recent weeks will no doubt cast a cloud over 2020, the asset management performance for the first half of the financial year was solid. At a corporate level the focus has remained on the key strategic priorities of reducing leverage and exposure to the retail sector, in addition to a targeted sales programme of mature assets. Notwithstanding the robust operational metrics during the period, the Group recorded an IFRS loss of £17.5 million, driven by valuation declines (28 February 2019: IFRS loss £4.9 million).

The Group's key recurring earnings metric, underlying earnings, decreased by 21.2 per cent from £26.4 million for the six months to 28 February 2019 to £20.8 million. Removing the earnings contribution from the Aviva financed UK Shopping Centre Portfolio from the comparative, underlying earnings decreased by 8.3 per cent from 6.0 pence per share to 5.5 pence per share.

Revaluation losses of £40.7 million contributed to an EPRA NAV decline of 7.3 per cent from 185.5 pence per share at 31 August 2019, to 172.0 pence per share at 29 February 2020.

The Group's key debt metrics remained robust with the pro forma loan to value (reflecting transactions exchanged or completed post period end) decreasing to 41.8 per cent. Interest cover improved to 3.6 times and the Group's weighted average cost of debt remains at 2.9 per cent, in line with that of 31 August 2019.

Performance against strategic financial targets

(1) Pro forma LTV adjusted for transactions completed between the balance sheet date and the date of result announcement.

Underlying earnings per share declined 20.3 per cent as a result of the derecognition of the Aviva financed UK Shopping Centre Portfolio in April 2019, in addition to the impact on earnings of net divestment activity.

On a like-for-like basis, income fell by 1.3 per cent, the combined result of a continuation of CVA activity in the retail sector, a reduction in the annual rent received from the Group's RBH managed UK Hotels and reduced licence fee income from the London Serviced Office Portfolio.

Despite declining asset valuations, pro forma LTV improved marginally to 41.8 per cent due in the main due to the disposal activity during and just after the reporting period. Interest cover, which has been adjusted to remove the impact of adopting IFRS 16, remains comfortably above target. Cost of debt at 2.9 per cent remains within target at less than 3.2 per cent.

The EPRA cost ratio now stands at 17.8 per cent. Excluding non-recurring transaction costs during the period of £0.8 million, the ratio would have declined to 15.7 per cent. Progress towards target should continue as the costs of administering a declining European portfolio fall away.

In light of the current uncertainty caused by the outbreak of COVID-19, the Board has concluded that a more cautious approach to liquidity is required to ensure the Company is able to withstand the heightened financial stress that may continue for some time. As a result, the Board has not declared an interim dividend but will keep the situation under review with an intention to restart dividend payments as soon as it is prudent to do so.

Acquisitions

During the year ended 31 August 2019, the Group acquired a 13.5 acre land interest in Bicester, Oxfordshire and then entered into a forward funded development agreement for the construction of two distribution units. Construction of the second unit reached practical completion in December 2019, at which time the Group made its final payment of £10.3 million (excluding transaction costs).

Disposals

European portfolio

During the period to 29 February 2020, the Group continued to progress the disposal of the European portfolio, classified as a disposal group held for sale.

In September 2019, the Group exchanged on the disposal of the Altona Shopping Centre, Hamburg for total consideration of €91.0 million, €2.2 million above the market value at 31 August 2019. Following exchange, the City Council in Hamburg exercised its pre-emptive right over the property and negotiations between the prospective purchaser and the Council are ongoing. Although the contract remains legally binding, control is not deemed to have transferred from the Group at the reporting date and the property has not been derecognised.

In December 2019, the Group completed the disposal of two German retail warehouses at Waldkraiburg and Kaiserslautern for a total consideration of €20.4 million (Group share - €10.6 million, as held in a joint venture).

In January 2020, the Group exchanged contracts for the sale of a retail supermarket in Leipzig for €7.9 million. The transaction was recognised as a disposal on exchange as there were no significant conditions pending completion. The sale subsequently completed in early April 2020.

UK Portfolio

Four mature assets, previously targeted for sale, completed in the period. The Group's high street retail asset in Derby and three regional offices located in Reigate and Leeds were sold for gross consideration of £33.2 million.

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.

Discontinued operation

Effective 1 March 2019, the Group determined that the co-ordinated sale of the Europe portfolio met the criteria of a disposal group held for sale and constituted a discontinued operation. To comply with the presentation requirements of a discontinued operation under IFRS, the post-tax profit/loss of the Europe segment has been presented separately in the income statement, in addition to separating the cash flows of the segment under the relevant activities in the statement of cash flows. Comparative information for the six months ended 28 February 2019 has been re-presented in line with requirements and for comparability purposes. The financial review has been aligned in this regard.

Aviva financed UK Shopping Centre Portfolio ("Aviva Portfolio")

Given the significance of the derecognition in April 2019, to aid comparability this financial review presents the comparative income statement and cash flow for the six months ended 28 February 2019 both including and excluding the Aviva Portfolio. Commentary focuses, where relevant, on financial information excluding the Aviva Portfolio.

IFRS 16 'Leases'

On 1 September 2019 the Group adopted IFRS 16, the new leasing standard. Under the existing IFRS leasing standard, lease payments under leasehold interests in investment property classified as operating leases were charged to the income statement as a rental expense on a straight-line basis. On transitioning to IFRS 16, the Group has recognised lease liabilities in relation to its operating leases (measured at the present value of future remaining lease payments at the date of transition) and corresponding right-of-use ("ROU") assets. Lease liabilities and ROU assets of £42.9 million in relation to the Groups' leasehold interests in investment property were recognised on transition. There has been no impact to the Groups' net assets or earnings at 1 September 2019 and the standard has been adopted using the simplified method, meaning comparative reporting periods have not been restated. For the period ended 29 February 2020, the Group has subsequently measured the lease liabilities by increasing the carrying value to reflect the effective interest cost in each lease obligation (recognised as a finance cost in the income statement) and then reducing the carrying value to reflect head rent payments. Head rent payments are no longer recognised as a rental expense. While rental expense has decreased, underlying finance costs have increased by a corresponding amount and therefore there has been no overall change to underlying earnings. Differences in the total income statement charge as a result of recognising the effective interest costs on the lease liabilities, are presented as a Company specific adjustment in reconciling underlying earnings to IFRS. For the period ended 29 February 2020, this amounted to less than £0.1 million. Certain performance measures, such as interest cover ratio, have also been adjusted to align with the previous treatment and ensure consistency with comparative periods.

Alternative performance measures

The Board uses a number of financial measures to assess and monitor the Group's performance and position, most notable of which are underlying earnings, EPRA earnings and EPRA net asset value. Although a number of these are industry standard metrics, they are not defined under IFRS and are therefore considered alternative performance measures. This financial review discloses alternative performance measures alongside IFRS to align with the manner in which the business is managed and its performance is assessed. Detailed disclosures of alternative performance measures including, where applicable, reconciliation to IFRS follows this financial review.

Underlying earnings from discontinued operation (Europe segment)

The above income statement tables are not presented in line with the requirements of IFRS. The tables segment the IFRS income statement in order to illustrate underlying earnings and EPRA earnings, both key alternative performance measures. A full reconciliation from IFRS (loss)/profit attributable to equity holders of the parent is set out in Note 31 to these condensed consolidated interim financial statements.

Net rental income, excluding the Aviva Portfolio, decreased by £0.6 million or 1.7 per cent, primarily due to the disposal of UK mature assets, the continuation of CVA activity in the retail sector, a reduction in the annual rent received from the Group's RBH managed UK Hotels and reduced licence fee income from the London Serviced Office Portfolio. This reduction in net rental income was offset by successful letting activity at two recently acquired distribution warehouses in Farnborough and Bicester and £0.8 million positive variance on transitioning to IFRS 16, as discussed above.

Administrative costs reduced by £0.4 million, primarily due to lower staff costs relative to the comparative period. The average employee head count has reduced on winding-down of the Group's European operations. Also included in the current period administration costs is a non-recurring transaction cost of £0.8 million.

Net finance costs are in line with the comparative period, with the negative variance of transitioning to IFRS 16 being offset by a one-off charge on refinancing the Group's principal debt facility in the prior period.

Tax and other includes the performance of the Groups associate interest in RBH Hotels Group Limited, which recorded a loss of £0.2 million in the six months to 29 February 2020, compared to a profit of £0.5 million in the comparative period.

Non-controlling interests reflects the share of income attributable to minority shareholders, most notably within the UK Hotels and London Serviced Offices portfolios and is in line with prior period.

The decrease of £0.5 million in underlying earnings from the discontinued European portfolio has arisen due to the planned property disposals (notably Munich), in addition to increased non-recoverable maintenance costs at the shopping centre in Berlin.

Like-for-like net rental income analysis

(1) Head rents payable under operating leases, were previously treated as a rental expense. These payments are now reclassified as lease liability payments under IFRS 16. While comparatives are not required to be restated for IFRS reporting purposes, the prior period expense has been separated out in the like-for-like disclosure for comparability.

Like-for-like income in the UK Commercial portfolio decreased 1.8 per cent or £0.3 million, due primarily to a reduction in licence fee income from the London Serviced Office Portfolio.

The decrease of 2.1 per cent in UK Hotels is due to a reduction in the annual rent received from the Group's RBH managed UK Hotels. The like-for-like income from the Travelodge portfolio increased by 4.1 per cent due to fixed indexed-linked rental uplifts at the beginning of the current period.

UK Retail like-for-like income decreased 0.6 per cent, largely attributable to the Debenham's CVA at West Orchards, Coventry and the Monsoon CVA at St George's, Harrow.

In local currency terms, Europe like-for-like net rental income increased 0.7 per cent, primarily due to a number of lease events completing during the prior period and certain service charge recoveries. In Sterling terms, income fell 1.2 per cent, reflecting the stronger average GBP/EUR exchange rate during the period.

(1) Market value adjusted to reflect lease liabilities (incl. adoption of IFRS 16) and lease incentives. Includes both investment property and property held for sale.

EPRA net asset value decreased 7.3 per cent to 172.0 pence per share. This was primarily as a result of valuation declines of £40.7 million across the Group's portfolio and a weaker Euro, which decreased NAV by £6.5 million or 1.7 pence per share.

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

UK Commercial valuations decreased by 2.0 per cent during the period, mainly the result of a weaker performance from the London Serviced Offices, where valuations declined by 2.9 per cent.

The Hotel portfolio valuation decreased by 2.2 per cent. This arose from the Group's RBH managed hotels, with those let to Travelodge flat relative to 31 August 2019, as fixed rental uplifts had been factored into the comparative valuations.

The downward valuation in UK Retail of £18.9 million was driven by valuation losses across the two remaining UK Shopping Centres, although primarily at West Orchards, Coventry and within the Retail Park portfolio. As was the case at 31 August 2019, the valuation declines are again yield led, reflecting ongoing weak investor sentiment and concerns over retailer viability.

In local currency terms, the European portfolio valuations declined 3.2 per cent. The most notable decline arose on the Group's shopping centre in Berlin offset by the valuation uplift on the Hamburg shopping centre to the contracted sales price, €2.2 million above the last reported valuation. In Sterling terms, a 8.9 per cent decrease in value was recorded due the weakness of the Euro at 29 February 2020.

Debt and gearing

(1) Pro forma LTV adjusted for transactions completed between the balance sheet date and date of result announcement.

(2) Pro forma calculated as net rental income over net finance expense, excluding IFRS 16 transitional adjustments.

Net debt decreased by £43.8 million during the period, due principally to proceeds from property disposals less the consideration paid for the second Bicester distribution in December.

Adjusting for properties exchanged for sale and contracts which exchanged since 29 February 2020, the Group's loan to value ratio has reduced to 41.8 per cent, a reasonable outcome in the context of the revaluation declines.

The Group's weighted average debt maturity reduced to 3.3 years due to no refinancing activity. Likewise, there has been no change to the weighted average cost of debt since 31 August 2019.

Cash and undrawn committed facilities at 29 February 2020 were £74.1 million (31 August 2019: £53.9 million), with capital commitments of £1.8 million (31 August 2019: £16.4 million).

Cash flow

Operating cash flows are aligned to the Group's underlying earnings and is a key metric for assessing dividend cover. The overall net cash inflow reflects both net disposals in excess of investment activity and debt repayments. Cash flows arising from the Aviva Portfolio have been excluded from the prior period for comparability purposes.

Dividend

On 11 March 2020, the World Health Organisation recognised the outbreak of COVID-19 as a global pandemic. The Board has considered the Company's liquidity requirements in light of the uncertainty and disruption caused and the impact that the measures taken by the UK and German Governments to mitigate the risk are expected to have on the Group's financial performance and working capital requirements for the second half of the year. 

The Group's immediate focus has been on the welfare, safety and security of its stakeholders, ensuring that capital is preserved and costs are minimised in the short term. In order to ensure that the Group has sufficient liquidity, in the event that the current market conditions persist for an extended period, the Board has not declared an interim dividend for the period but will keep the situation under review and restart dividend payments as soon as it is prudent to do so.

Going concern

At 29 February 2020, the Group's cash and undrawn facilities were £74.1 million and its capital commitments were £1.8 million. The Group's cash reserves increased to approximately £85.0 million after the reporting period, following the drawdown of committed facilities and the completion of planned disposals.

Notwithstanding the Group's sound liquidity position, in light of the current COVID-19 pandemic and the continued uncertainty around the United Kingdom's future trading relationship with the European Union, macro economic uncertainty currently exists which may in an adverse scenario, without applying all mitigants possible, cast doubt on the Group's ability to continue as a going concern.

Possible mitigants include the sale of or pledging as security certain ungeared properties; further overhead cost reduction; or approaching key relationship banks for a continuation of covenant waivers to cover extended periods of disruption.

Although these condensed consolidated financial statements have been prepared on a going concern basis, attention is drawn to Note 2.2 for further details.

Donald Grant

Chief Financial Officer

11 May 2020

ALTERNATIVE PERFORMANCE MEASURES

EPRA disclosures

The following is a summary of the EPRA performance measures included in the Group's results, which are a set of standard disclosures for the property industry as defined by the EPRA Best Practice Recommendations.

In October 2019, EPRA issued updated best practice guidelines which are effective for accounting periods starting on or before 1 January 2020, introducing three new net asset value metrics: EPRA Net Reinstatement Value, EPRA Net Tangible Assets and EPRA Net Disposal Value. The Group has elected to early adopt the revised best practice net asset value metrics, in addition to disclosing the existing November 2016 best practice metrics.

(1) EPRA earnings for the period ended 28 February 2019 were £25.8 million.

(2) Presented as EPRA occupancy rate (the inverse of vacancy rate) in the Operating review.

Other 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 additional non-EPRA APMs included in these results.

(1) Underlying earnings for the period ended 28 February 2019 were £26.4 million.

(2) Pro forma adjusted to 41.8 per cent to reflect transactions between 29 February and the date of the results announcement (31 August 2019: 42.0%).

(3) Pro forma calculated as net rental income over net finance expense, excluding IFRS 16 transitional adjustments.

PRINCIPAL RISKS

Below are the key risks to which the Group is currently exposed, along with their potential impact and mitigation factors. Changes to disclosures included in the 2019 Annual Report primarily relate to impact of the COVID-19 pandemic on the Group's operations, future financial performance, position and liquidity.

Strategic risks

Financial risks

Operational risks

Legal, regulatory and human resource 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;

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

Related party transactions are set out in Note 30 to the condensed consolidated interim financial statements.

By order of the Board

Mike Watters Donald Grant

Chief Executive Officer Chief Financial Officer

11 May 2020

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 29 February 2020 which comprises condensed consolidated statement of financial position, related condensed consolidated statements of profit or loss and other comprehensive income, changes in equity, 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 29 February 2020 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board ("IFRSs as issued by the IASB") and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

Material uncertainty relating to going concern

We draw attention to Note 2.2 to the condensed set of financial statements which indicates that the Directors have considered the impact of COVID-19 on the business including the forecast reduction in rent receipts and exchanged sales contracts failing to complete, both impacting the Groups ability to continue to meet or cure financial covenants. These events and conditions, along with the other matters explained in Note 2.2, constitute a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern.

Our conclusion is not modified in respect of this matter.

Scope of review 

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.

Directors' responsibilities 

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 and Company are prepared in accordance with IFRSs as issued by the IASB. 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 issued by the IASB.

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

This report is made solely to the Company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached. 

Richard Kelly

for and on behalf of KPMG LLP 

Chartered Accountants 

15 Canada Square

London

E14 5GL

11 May 2020

CONDENSED Consolidated Income Statement

for the six months ended 29 February 2020

(1) Refer to Note 2.2 Basis of Preparation regarding the re-presentation of comparatives on reclassification of the Europe Segment as a Discontinued operation.

(2) The Group transitioned to IFRS 16 'Leases' effective 1 September 2019 and have applied the modified retrospective approach. In accordance with the standard the Group's financial results for prior periods have therefore not been restated. Refer to Note 2.1 Statement of Compliance.

(3) Included in (loss)/profit from discontinued operation is the Group's share of post-tax profits from joint ventures of £0.1 million (28 February 2019: £Nil, 31 August 2019: £0.9 million). Refer to Note 14.

(4) For all periods presented, contingently issuable shares have an anti-dilutive effect on IFRS earnings per share due to the loss of the Group. Therefore, for IFRS purposes the weighted and dilutive weighted average number of shares are 380.2 million (31 August 2019 and 28 February 2019: 380.1 million).

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 29 February 2020