RDI.L Regulatory News (RDI)

RDI REIT P.L.C.

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

(Registered number 010534V)

LSE share code: RDI

JSE share code: RPL

ISIN: IM00B8BV8G91

Pre-close Update

RDI, the income-focused UK-REIT, today announces a trading update for the six months ended 28 February 2019.

Trading update for the six months ended 28 February 2019

Overall trading across the portfolio remains robust. EPRA occupancy remains high at 96.9% (31 August 2018: 97.1%) and occupational demand remains positive across the majority of the portfolio.

A total of 100 lease events were completed across the portfolio in the six month period. These included 59 new lettings and lease renewals totalling £2.8 million in gross annualised rental income; an increase of £1.3 million including new lettings of vacant space totalling 46,217 sqft across 19 separate units. New lettings and renewals were 0.6% above ERV and 27% above the previous passing rent excluding new lettings of vacant space. A further 41 rent reviews were completed on £4.1 million of gross annualised rental income at an average premium of 9.5% to the previous passing rent and 2.4% above ERV.

UK offices (21% of portfolio market value)

London serviced offices are trading ahead of expectations driven by consistently high average occupancies of over 90% across all four offices, as behavioural and structural changes continue to support demand for well located, flexible and professionally serviced space. Within the serviced office portfolio, two leases to gym operators have both been subject to lease events resulting in a £0.2 million or 48.4% increase on the previous passing rent. Supplementary service income from meeting rooms, conferencing and catering continues to grow.

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

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%. The property remains fully occupied.

UK distribution and industrial (11% of portfolio market value)

Rent reviews across the distribution and industrial portfolio are progressing in line with expectations. £2.0 million of rental income is subject to review at Camino Park, Crawley and is anticipated to achieve an average increase of over 45%. At 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% ahead of the previous passing rent and 8.0% above ERV.

The forward funding and development of two distribution units in Bicester totalling 288,000 sqft is progressing well, with unit 1a comprising 120,000 sqft, due for completion in April 2019, as expected. The supply of modern distribution units along this section of the M40 corridor remains very limited and pre-letting activity is generating healthy levels of interest. Unit 1b is anticipated to be completed in late 2019.

UK hotels (23% of portfolio market value)

Underlying trading performance remains in line with expectations. On average, both the London and regional markets have experienced modest year to date RevPar growth, with the exception of our Gatwick and Southwark hotels, which continue to deliver mid-single digit growth.

UK retail (29% of portfolio market value; 18% shopping centres and 11 % retail parks)

The retail sector continues to experience headwinds from changing consumer habits, the impacts of online retailing and retailers having to adapt their store portfolios to fit the new retail landscape.

Occupancy across the retail portfolio remains high at 95.5% (31 August 2018: 95.9%) and gross annualised rental income increased 0.9% since 31 August 2018. Footfall across the UK shopping centre portfolio increased by 1.1%, significantly outperforming the national average over the same period which was down by 3.3% (source: Springboard).

UK shopping centres account for 18% of the overall portfolio with approximately two thirds by value focused on food, discount and convenience retailing to local communities or leisure within Greater London. These segments of the retail market continue to prove most resilient in terms of consumer spend, footfall and withstanding the impact of online retailing, as is evidenced by the ongoing high occupancy of 95.5% (31 August 2018: 95.9%) and the stable income position, with gross annualised rent marginally down (0.2%) compared to the position at 31 August 2018.

We continue to see steady demand across our retail parks, with occupancy at 96.2% (+140bps) while gross annualised rent has increased by 2.9% since 31 August 2018. During the period three lettings to ALDI, The Gym and Bargain Buys were completed on units that were subject to CVA, well in advance of the previous tenants vacating and at rents marginally ahead of the pre-CVA gross annualised rent. The three new lettings comprise a total of 37,850 sqft of space and will generate £1.0 million of gross annualised rental income.

Germany (16% of portfolio market value)

Occupancy improved to 98.7% (31 August 2018: 98.0%), 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. 56 lease events were completed totalling £2.1 million of gross annualised rental income at an average premium of 13.7% to the previous passing rent and 1.7% above ERV.

Financing

As previously announced, the Company completed the early extension of its principle UK loan facility. The total facility commitments of £275.0 million include 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.

UK shopping centre facility update

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. Given the deterioration in values for UK shopping centres and the resultant increase in the lender's loan to value ratio, all net operating cashflows from this portfolio are being retained within the facility and are anticipated to be used to reduce the outstanding facility balance. Net operating cashflows from the portfolio after interest costs are approximately £6.5 million on an annualised basis.

The facility is non-recourse to the Company and has a current outstanding principal balance of £144.7 million at a fixed rate of 5.5% per annum and matures in April 2042. Under the terms of the facility agreement, the Company has the right to cure any financial covenant breach through part prepayment of the facility or through providing additional collateral. The Board will carefully consider the merits of committing additional capital to the facility should there be a further deterioration in values.

Outlook

Notwithstanding the strong operational performance across the business, including a resilient income performance from the UK shopping centre portfolio, ongoing concerns around certain department stores and the wider retail sector continues to place material uncertainty over UK shopping centre valuations. In this context, and as advised alongside our full year results in October 2018, the Board has continued to place a greater emphasis on liquidity and maintaining lower levels of leverage. Net disposal proceeds generated in the prior financial year and limited reinvestment has resulted in approximately £40 million being retained and applied toward lower leverage.

Given the Company's focus on maintaining lower leverage, underlying earnings for the first half of this financial year will reflect the impact of net disposals and leverage reduction in the prior financial year and the increase in finance costs associated with the early extension of the Company's principal UK debt facility, as outlined above. As a result, underlying earnings for the first half of this financial year are expected to be broadly in line with the second half of the previous year, before taking into account the non-recurring finance charge of £0.9 million. Distributions will need to take account of the above and the cashflows being applied to the Aviva facility.

Given the current economic uncertainty and challenging retail environment, a number of options are being actively considered to accelerate progress in further reducing the Group's loan to value ratio. This may include a continued rationalisation of the portfolio to sectors benefitting from positive structural change and occupier demand, a more focused allocation of capital and a further reduction in overhead costs.

A further update will be provided alongside the interim results.

Commenting on the trading update, CEO Mike Watters said:

"We have continued to deliver solid operational results across the portfolio, maintaining occupancy at 97% and achieving rents above ERV. The strategic recycling of capital into higher quality assets and sectors supported by structural change over the last three years has improved the overall quality of our portfolio and the defensive nature of our income. However, our remaining exposure to UK shopping centres, representing 18% of the portfolio, continues to face headwinds from a challenged retail environment which is putting pressure on valuations. This is despite our retail portfolio continuing to deliver a robust lettings performance.

In recognition of this, we will continue to place greater emphasis on maintaining lower levels of leverage and we have proactively extended the majority of our UK bank funding at attractive, but marginally higher ongoing interest rates. Notwithstanding the near term impact on earnings, we remain confident that continued portfolio rationalisation will deliver a much stronger capital structure and portfolio for the benefit of shareholders over the long-term."

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About RDI

RDI is a UK Real Estate Investment Trust (UK-REIT) committed to becoming the UK's leading income focused REIT. The Company's income-led business model and strategic priorities are designed to offer shareholders superior, sustainable and growing income returns, with a target growth in underlying earnings per share of 3%-5% across the medium term.

Income sustainability is underpinned by a diversified portfolio and tenant base, with no overreliance on any one sector or tenant, together with an efficient capital structure. The secure and growing income stream is 27.0% indexed and has a WAULT of 7.0 years to first break (8.4 years to expiry). This is complemented by an average debt maturity of 6.7 years of which over 95% of interest costs are either fixed or capped. The Company is focused on all aspects impacting shareholder distributions and reports one of the lowest cost ratios in the industry whilst maintaining a low cost of debt.

The Company owns properties independently valued at £1.6bn in the United Kingdom and Germany, Europe's two largest, liquid and transparent property markets. RDI invests in assets with strong property fundamentals spread across UK offices (including London serviced offices), UK logistics, UK shopping centres, UK retail parks, UK hotels and German retail. RDI is well placed to take advantage of the increasing occupier requirement for real estate owners to become high quality service providers, given its scalable operational platforms and nearly a third of the portfolio invested in hotels and London serviced offices.

RDI holds a primary listing on the London Stock Exchange and a secondary listing on the JSE and is included within the EPRA, GPR, JSE All Property and JSE Tradeable Property indices.

For more information on RDI, please refer to the Company's website www.rdireit.com

All figures as at 31 August 2018.