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

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 AUGUST 2019

retail exposure reduced and balance sheet LEVERAGE IMPROVED

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 year ended 31 August 2019.

Includes certain non-IFRS performance measures which are explained and reconciled to IFRS in the Alternative Performance Measures table.

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

(2) LTV adjusted to reflect transactions between 31 August 2019 and the date of the announcement.

Robust operational and asset management performance

·; 131 leasing events completed during the year, 4.7 per cent (£0.7 million) above ERV

·; EPRA occupancy remained high at 95.9 per cent (31 August 2018: 97.1 per cent)

·; Positive letting progress post year end with occupancy increasing to 97.2 per cent

·; On a like-for-like basis, net rental income remained flat over the year

·; Stable income returns from the London Serviced Office portfolio with average occupancy at 93.6 per cent (31 August 2018: 92.2 per cent)

·; Managed hotel portfolio RevPAR increased 2.9 per cent to £84.9 (31 August 2018: £82.5)

·; Planning permission granted for additional 16,576 sq ft at Charing Cross Road, London

Investment activity repositioning the portfolio to growth areas

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

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

·; £121.5 million of disposals at an average premium of 2.5 per cent to market value (including transactions post year end)

·; Retail exposure reduced to 35.3 per cent (31 August 2018: 45.6 per cent) with a further reduction to 31.0 per cent based on disposals agreed post year end

·; UK Retail reduced to 17.9 per cent (31 August 2018: 29.0 per cent), including a reduction in UK Shopping Centre exposure to 5.7 per cent

Balance sheet and leverage

·; EPRA NAV per share declined 13.2 per cent to 185.5 pence per share; largely due to the derecognition of the Aviva portfolio and a reduction in the like-for-like portfolio value of 2.9 per cent

·; Pro forma LTV at today's date reduced to 42.0 per cent (31 August 2018: 46.2 per cent)

·; £350 million of financing facilities extended during the year

·; Average debt maturity increased to 3.7 years (31 August 2018: 2.9 years, excluding the Aviva Portfolio)

·; Cost of debt reduced to 2.9 per cent (31 August 2018: 3.0 per cent, excluding the Aviva Portfolio)

Gavin Tipper, Chairman, commented:

"A significant amount of work has been undertaken over the past twelve months, and particularly since we set out our intentions at the half year to further reduce leverage and accelerate the reweighting of the portfolio through the disposal of certain retail assets. I am pleased to report that important steps have been taken towards reaching these goals, with our retail holdings as the date of this report having been reduced by approximately 15 per cent, and that, despite the difficult market backdrop, operational results across the business remain robust, reflecting the portfolio's increasing exposure towards growth subsectors and stronger economic locations."

Mike Watters, Chief Executive, commented:

"While it has been a challenging year, we are proactively taking every step available to quicken the delivery of our strategic objectives so that the business is well positioned as we move towards 2020. Operationally, our asset management team continues to produce a good performance, with over 130 leases completed in the period at 4.7 per cent above ERV, and the disposal programme is well underway, including the sale of the Bahnhof Altona Centre in Hamburg at an almost ten per cent premium. Once that is concluded we will have a more streamlined, structurally resilient portfolio that is well positioned for the long term."

Results presentation, webcast and conference call

A meeting for analysts and investors will take place on Thursday 24 October 2019 at 9.00 a.m. (UK time) at FTI Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD. There will be a presentation and a live webcast at 9.00 a.m. (UK time), 10.00 a.m. (SA time) on Thursday 24 October 2019, which 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 640 6441

UK Local: 020 3936 2999

South Africa Local: 087 550 8441

South Africa Toll Free: 080 017 2952

All other locations: +44 20 3936 2999

Participant Access Code: 679460

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

At the interim results we set out specific initiatives to accelerate our strategic objectives including a lower leverage capital structure, reduction in retail exposure and more focused allocation of capital. A number of strategic disposals were identified including the disposal of our European portfolio consisting of German retail properties and certain ex-growth UK assets comprising largely regional offices and smaller retail assets. We expect these disposals, once complete, to materially reduce our exposure to an underperforming retail sector and further strengthen our balance sheet.

It has been a challenging year for the business, not least due to the uncertainty around the Aviva shopping centre portfolio. As previously announced, in light of the material valuation declines of this specific portfolio, material break costs associated with repayment of the facility and continued uncertainty in the retail sector, the Board took the decision not to commit further capital to this portfolio or the financing facility. As a result, and following extensive discussion with Aviva, a Standstill Agreement was entered into on 23 April 2019 which included an agreement to a consensual sales process. This has resulted in the net assets of this portfolio being derecognised from our accounts. Non-IFRS operational and financial comparisons have therefore been disclosed excluding the performance of the Aviva Portfolio. The facility remains non recourse to the Group. Further details are contained within the Financial Review.

Earnings and dividend

Underlying earnings decreased by 7.7 per cent to £49.4 million (31 August 2018: £53.5 million). Underlying earnings per share decreased by 8.5 per cent to 13.0 pence per share (31 August 2018: 14.2 pence per share).

During the year, net operating cash flows from the Aviva Portfolio were retained within the facility, following the Standstill Agreement on 23 April 2019. Underlying earnings for the year, excluding those from the Aviva facility, were 11.8 pence per share (31 August 2018: 11.9 pence per share) which provides a comparative measure of performance.

The Board has declared a second interim dividend of 6.0 pence per share, taking dividends for the full year to 10.0 pence per share. The dividend reflects a pay-out ratio of 76.9 per cent of underlying earnings for the full year. The lower pay-out ratio reflects the operational cash flows restricted within the Aviva facility to the point of derecognition on 23 April 2019 and therefore unavailable for distribution to shareholders. Notwithstanding the lower pay-out ratio, the full year dividend meets the UK REIT rules in respect of distributions, as it represents over 90.0 per cent of the Group's UK property rental income. 

Balance sheet and financing

EPRA NAV decreased by 13.2 per cent to 185.5 pence per share (31 August 2018: 213.8 pence per share) largely as a result of the derecognition of the Aviva Portfolio and a like-for-like portfolio value decline of 2.9 per cent for the year. Unsurprisingly, valuation movements varied significantly between sectors with the UK Distribution and Industrial portfolio increasing 3.2 per cent or £5.7 million, while UK Retail declined 11.7 per cent or £33.6 million.

The Group's proportionate share of net debt reduced to £666.6 million (31 August 2018: £748.4 million), partly as a result of the derecognition of the Aviva Portfolio financing facility. £103.7 million of largely retail disposals have completed or exchanged post year end which will reduce the Group's LTV on a pro forma basis to approximately 42.0 per cent (31 August 2018: 46.2 per cent).

£350.0 million of financing facilities were extended during the year delivering a longer average debt maturity and securing attractive rates in the current low interest rate environment.

Operating performance

Despite tough trading conditions, a strong asset management performance delivered robust operational results across the majority of the portfolio. Occupancy remains high at 95.9 per cent and increased to 97.2 percent post period end with a number of lettings and re-gears being agreed. 131 leasing events were concluded during the year totalling £15.1 million of gross rental income, 4.7 per cent ahead of ERV. Overall, the portfolio's like-for-like gross rental income increased 1.8 per cent on an annualised basis including leasing activity shortly after year end. Underlying operational performances from both the Hotels and London Serviced Office portfolios remained resilient despite Brexit uncertainty, highlighting the strength of these assets and their operating platforms.

More focused allocation of capital and reduction in retail exposure

Investment activity during the year supported the continued repositioning of the portfolio to stronger growth sectors. The acquisition of Farnborough and forward funding of Bicester have increased exposure to the South East industrial and distribution market. The combined acquisitions totalled £52.3 million (excluding costs) and are anticipated to deliver a yield on cost of approximately 6.6 per cent.

Disposal activity was weighted towards the second half of the year with a number of larger disposals completing post year end. Disposals (including those exchanged or completed post year end) totalling £121.5 million were agreed at prices 2.5 per cent ahead of the last reported market values, supporting a pro forma reduction in retail exposure to 31.0 per cent.

Our remaining UK retail exposure is now heavily weighted to Greater London and the South East in locations with stronger demographics and retailer demand. UK Shopping Centres now make up less than 6.0 per cent of the overall portfolio with the balance of the UK Retail portfolio consisting largely of retail parks which have demonstrated solid occupier demand.

The remaining disposals programme is targeted at further reducing retail exposure to approximately 20 per cent and to a weighting of the overall portfolio to London and the South East of approximately 75 per cent. 

Progressive sustainability performance

We are committed to measuring and improving our environmental, social and governance performance. We participate annually in the Global Real Estate Sustainability Benchmark ("GRESB") Real Estate Assessment and following our fourth consecutive response have increased our GRESB score by 24.0 per cent since 2016. We are delighted to have been awarded EPRA Gold for our 2018 Annual Report (non-financial content) published in accordance with the EPRA Sustainability Best Practice Recommendations ("sBPR"), demonstrating our clear focus to improving our ESG credentials.

Share consolidation

On 11 February 2019 every five ordinary shares were consolidated into one ordinary share of 40.0 pence each. The consolidation resulted in 380,089,923 new consolidated ordinary shares being in issue which trade under the International Securities Identification Number code ("ISIN") of IM00BH3JLY32. Historic per share metrics throughout this statement have been adjusted to reflect the consolidation so that they are comparable with the per share metrics for the current year.

Board changes

Following the conclusion of the 2019 Annual General Meeting, Mr Bernard Nackan retired as a Director of RDI. Bernie, who had represented the Company's largest shareholder, Redefine Properties Limited, was replaced on the Board by Pieter Prinsloo in April 2019 whose depth of experience in property investments, development, management and finance has been a great asset to RDI during the year.

In October, Robert Orr tendered his resignation as Independent Non-executive Director due to the demands of other external commitments and the Board would like to extend its gratitude to Robert for his invaluable contribution to the Company and his dedication during his four years with RDI. The search for Robert's replacement will begin in the new year and will be announced in due course.

Outlook

The last twelve months have presented a number of challenges for the businesses. The current political and economic uncertainty, combined with material structural changes to the retail landscape, has resulted in a significant underperformance by UK REITs with higher than average retail exposure and balance sheet leverage. While the majority of our portfolio has continued to deliver robust operational results, the Board recognises the discount of the current share price to NAV.

In order to address this, our strategic priorities are being accelerated to deliver a cleaner, simpler investment proposition and a lower leverage capital structure. While we have made material progress in repositioning the portfolio to date; reducing our exposure to retail assets and lowering leverage, the Board will continue to review all opportunities to maximise shareholder value, including the rigorous evaluation of all assets within the portfolio.

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 RBH managed hotels and London Serviced Offices, of 6.1 years to the first potential lease break and 7.7 years to expiry;

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

·; rental growth potential with a reversionary yield of 6.0 per cent, 40 basis points higher than the current portfolio EPRA topped-up 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 36.2 per cent of the portfolio by annualised gross rental income; and

·; over 360 tenants with no single tenant accounting for more than 3.6 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

As set out at the half year, a number of assets have been identified for disposal to deliver a more focused allocation of capital to those sectors with stronger growth prospects. The targeted disposals are in line with the strategy of reducing exposure to retail and delivering a lower leverage capital structure.

Retail exposure across the portfolio has been successfully reduced to 35.3 per cent (31 August 2018: 45.6 per cent) with a further reduction to 31.0 per cent based on disposals agreed post year end. Further details of the disposal programme are provided below, which targets a reduction in retail exposure to approximately 20.0 per cent based on current market values.

The targeted repositioning of the portfolio will provide a materially higher exposure to growth sectors from within the existing portfolio including the strong operational platforms across Hotels and London Serviced Offices, a higher exposure to the UK Distribution and Industrial portfolio and a significant re-weighting of the overall portfolio to Greater London and the South East, with approximately 75.0 per cent of the repositioned 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.

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

Valuation overview

The like-for-like portfolio value decreased by £40.6 million or 3.1 per cent in local currency terms, net of capital expenditure, largely driven by outward yield movements in the UK Retail portfolio. Topped-up net rental income at the year end was 0.2 per cent higher than the prior year on a like-for-like basis. The portfolio valuation reflects a 5.6 per cent EPRA topped-up net initial yield and a 6.0 per cent reversionary yield.

The UK Distribution and Industrial portfolio delivered the strongest growth with values increasing £5.7 million or 3.2 per cent. Although the tightening of investment yields in the distribution sector appears to have largely run its course, the valuation was supported by a £1.2 million or 12.7 per cent increase in topped-up net rental income. Regional office valuations declined £4.7 million or 8.4 per cent, largely as a result of additional vacancies at Plymouth and Reigate, resulting in topped-up net rental income declining 4.6 per cent. UK Retail valuations continued to suffer from a combination of factors including the ongoing rationalisation of store portfolios by many retailers, the continued impact of CVAs and administrations, and a lack of bank funding for new transactions. The resultant lack of investment demand for retail assets has seen yields continue to rise as demand is largely limited to opportunistic capital. Like-for-like UK Retail valuations declined £33.6 million or 11.7 per cent despite topped-up net rental income increasing 0.7 per cent. The valuation movement was driven by the topped-up net initial yield moving out 80bps. The UK Hotels portfolio valuation declined £6.8 million or 1.9 per cent partly due to additional refurbishment costs in the year and a weaker trading performance from a limited number of the regional assets.

(1) Yields reported for total segment.

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

Leasing activity

It has been an active period with 131 lease events totalling £15.1 million being concluded, a 21.4 per cent or £2.7 million increase on the previous gross rental income and 4.7 per cent ahead of ERV. The £2.7 million increase in gross rental income included the letting of 22 previously vacant units for £0.9 million.

Portfolio occupancy reduced to 95.9 per cent (31 August 2018: 97.1 per cent), which included the impact of Unit 1a completing at Link 9, Bicester and asset management activity at Charing Cross Road to secure medium term vacant possession. On a like-for-like basis, occupancy was broadly stable. A number of positive letting transactions, post year end, increased occupancy to 97.2 per cent, with a corresponding increase in topped-up net rental income of £1.2 million.

Note: Excludes Aviva Portfolio.

·; 58 rent reviews were completed in the year resulting in total gross rental income of £8.7 million, a 17.4 per cent (£1.3 million) increase over the previous gross rental income and 12.1 per cent (£0.9 million) ahead of ERV;

·; 34 leases amounting to 237,500 sq ft were renewed on break or expiry and 39 new leases and lease regears were signed in the year; accounting for a total gross rental income of £6.4 million (previous gross rental income £5.1 million), 3.7 per cent (£0.3 million) below ERV;

·; The new leases include lettings on previously vacant space totalling 49,750 sq ft across 22 units, generating an additional £0.9 million in gross rental income; and

·; Ten units were vacated in the year (11,764 sq ft). Nearly all of this vacant space is within properties that have exchanged for sale or are being actively marketed for sale at the year end. Previous gross rental income was £0.1 million with landlord shortfalls increasing by £0.1 million.

Acquisitions

As previously announced, £52.3 million of acquisitions (excluding transaction costs) were completed during the first half of the year in two transactions, including a forward commitment to acquire two newly developed distribution units in Bicester. The acquisitions increase the portfolio's exposure to the distribution and industrial sector in the South East. Once fully let, the acquisitions have the potential to deliver a yield on cost of 6.6 per cent on average, reflecting an attractive income return in a competitive investment market. 

Note: All metrics as at acquisition.

(1) Total forward funding commitment, of which £10.3 million remains committed and yet to be settled

Southwood Business Park, Farnborough

Southwood Business Park was acquired in September 2018 for £26.3 million (excluding costs) at a net initial yield of 6.2 per cent. The property is situated within an established commercial area in Farnborough, Hampshire and is conveniently located within the M3 corridor, approximately 41 miles from Central London. The nine-acre estate consists of 18 warehouse units totalling 154,849 sq ft (14,385 sqm) with a low site cover of 37 per cent.

Since acquisition, occupancy has increased to 100 per cent supporting a 18.8 per cent increase in topped-up net rental income. Recent letting deals have been completed at rents averaging £13.2 per sq ft compared to the average rent of £12.9 per sq ft on acquisition. The acquisition provides further 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 total £26.0 million forward funding opportunity with Albion Land to develop two high quality distribution units of 120,000 sq ft and 168,000 sq ft 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 sq ft was completed in April 2019. Unit 1b is anticipated to be completed in late 2019 and £10.3 million has been committed for this final stage of development. 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.

Disposals

A number of smaller disposals were completed during the year with more material disposals including Bahnhof Altona, Hamburg and Park Place, Leeds exchanging or completing post year end.

(1) JVs at proportionate share.

(2) EPRA NIY based on the sales price.

(3) The disposals of Lakeview, Warrington and Munich completed post year end.

Disposals exchanged or completed post year end

Bahnhof Altona Center, Hamburg

Contracts were exchanged post year end for the sale of the Bahnhof Altona Center for €91.0 million reflecting a 2.5 per cent premium on the 31 August 2019 valuation and 9.6 per cent above the 28 February 2019 market value. The disposal is anticipated to complete on 31 December 2019 subject to certain conditions being satisfied. The agreed sales price reflects a 25.5 per cent increase over the original purchase price of €72.5 million in August 2013, with the additional benefit of the Euro having strengthened by approximately 6.0 per cent over the holding period. The centre has delivered consistent income returns with net operating income having increased 0.6 per cent since acquisition. The disposal is in line with the Group's strategy to reduce its exposure to the retail sector.

Park Place, Leeds

Park Place was sold post year end 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

Contracts for the sale of Albion Street have been exchanged for a minimum consideration of £2.5 million. The sale has been agreed on the basis of a longstop completion date of 6 December 2019 allowing the property to be offered prior to this at auction. In the event that a sale is achieved in excess of £2.5 million, RDI is entitled to 50 per cent of the increase, less transaction costs.

Kaiserslautern and Waldkraiburg

The portfolio of two retail warehouses held in joint venture was exchanged for sale at €20.4 million (Group share €10.6 million), a 9.1 per cent premium to current market value. The disposal is anticipated to complete prior to 31 December 2019, subject to certain conditions being satisfied.

All properties exchanged or completed post year end were classified as held for sale at 31 August 2019.

Capital expenditure

Capital expenditure during the year totalled £8.2 million with a further £3.1 million committed towards the projects below. Capital expenditure included projects with incremental income returns and key projects during the year included:

(1) For the HIEX Edinburgh extension, incremental income has been calculated as the forecast annual revenue from the additional 25 bedrooms.

Holiday Inn Express, Edinburgh

A 25 bedroom extension was completed in September 2019 for a total cost of £3.6 million with an additional £2.0 million spent on general improvements. Incremental revenues of £0.7 million are anticipated which would deliver a marginal return on capital of 12.5 per cent.

Canbury Park, Kingston

A £1.3 million refurbishment to the office space is nearing completion. Sitel, an existing tenant, was downsized and took a new five year lease at £27.2 per sq ft. The remaining space has been let to Interval International at £29.5 per sq ft on a five year term. Total gross rental income for office space will increase to £1.4 million per annum, a 35.2 per cent increase above the previous gross rental income.

Retail Parks, Costa Pods

Two new Costa drive-thru pods were agreed with total capex commitments of £2.0 million delivering £0.3 million of additional gross rental income. One unit was completed at The Range, Edinburgh during the year with the second unit at The Arches Retail Park, Watford anticipated to compete in November 2019.

Ingolstadt, City Arkaden

The second phase of development commenced during the year to finalise the remaining residential, office and retail units totalling approximately 1,700 sqm (18,300 sq ft). The majority of the retail units have been pre-let with the residential units to be marketed closer to practical completion anticipated in March 2020.

Sustainability

Following the disclosure of our sustainability objectives and performance, we continue to demonstrate our active approach to addressing ESG improvement opportunities related to our people, process and the ownership of our properties. Amidst a national framework committed to net zero emissions by 2050, RDI has made a long term commitment to increase the number of our assets that hold green building certificates, to both verify building performance as well as aid in the identification of improvement opportunities. We added a further BREEAM In-Use assessment to our London Serviced Office portfolio at St Dunstans, Monument and are set to achieve a 'Very Good' rating for performance. We have made progress on our renewable energy target increasing our procurement of renewable electricity from 42 per cent to 71 per cent across UK and Europe. Our investment in electric vehicle charging points provide the public with the necessary infrastructure across our managed assets to service the increasing shift in consumer choice towards electric vehicles. We have demonstrated a commitment to our people in delivering an employee focussed session on understanding the impact associated with health and wellbeing within the workplace and promote a healthy approach to the way we do business.

UK Commercial (39.2 per cent of portfolio by market value)

The UK Commercial portfolio has been significantly repositioned increasing exposure to Greater London and the South East locations as well as to the Distribution and Industrial sector. The office portfolio, including the London Serviced Offices, is now 84.6 per cent weighted to Greater London with exposure to new Crossrail stations and London's expanding Southbank market. Exposure to the Distribution and Industrial sector has increased to 16.3 per cent of the overall portfolio following the forward funding of Link 9, Bicester and the acquisition of Southwood Business Park, Farnborough.

(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 (11.5 per cent of portfolio by value)

Take up by serviced office operators has become a key component of the Central London office market with flexible workspace operators accounting for 18 per cent of total take up in the first six months of the year; the largest proportion of any sector. However, flexible workspace still only accounts for approximately six per cent of total Central London office space (source: Instant Group), highlighting the relative infancy of the market.

The recent combination of an increased supply of flexible space, combined with business and investment decisions being delayed as a result of political and economic uncertainty, has resulted in a slowdown in activity in the second half of the financial year. Overall, EBITDA was ahead of management's expectations with much of the outperformance weighted toward the first half of the year. Average occupancy across the year remained high at 93.6 per cent with the average desk rates reducing marginally.

RDI's strategic operating partner, Office Space in Town ('OSIT'), prioritises client retention over short term profitability. The portfolio's design-led offices provide a high level of amenity space, natural light, good sound insulation and industry leading IT. During the year, a number of online and direct marketing initiatives were adopted to generate higher levels of direct sales, improving margins and customer contact.

As the sector matures, we expect that business models backed by ownership of the underlying real estate, combined with high quality services, to remain resilient and outperform leasehold models with high operational gearing.

Greater London and regional offices (11.5 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 projects. Disposals of regional offices have resulted in the office portfolio's exposure to Greater London increasing to 69.1 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 declined to 89.8 per cent (31 August 2018: 97.9 per cent) with topped-up net rental income at year end 6.7 per cent lower on a like-for-like basis, largely as a result of increased vacancy within the regional office portfolio. Post year end, leases totalling £0.6 million in annualised gross rental income have been agreed, increasing occupancy to 94.9 per cent and resulting in topped-up net rental income rising 10.9 per cent.

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

·; a number of new leases were agreed at Canbury Business Park, Kingston including a new lease to Sitel of over 24,688 sq ft of office space resulting in an increase of £0.1 million or 17.3 per cent above the previous gross rental income;

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

·; full planning permission was granted at Charing Cross Road, London following the completion of the section 106 agreement. The permission provides for a 41.4 per cent increase in the overall area of the property to 56,576 sq ft through the development of three additional floors of office space and an improved reception. The building is currently fully let and is anticipated to remain occupied until 2021.

UK Distribution and Industrial (16.3 per cent of portfolio by value)

The portfolio is well positioned to capture future rental growth with 37.1 per cent of the portfolio located in London and the South East, providing exposure to locations with higher growth prospects. The investment market continues to be supported by strong rental growth expectations which has maintained prime yields for industrial and distribution units at approximately 4.3 per cent.

In a competitive investment market, exposure to the sector has been increased through forward funding arrangements or acquisitions providing higher yields and asset management opportunities. Our exposure to the sector increased to 16.3 per cent of the overall portfolio by market value (31 August 2018: 11.0 per cent) following the Link 9, Bicester forward commitment and acquisition of Southwood Business Park, Farnborough.

Occupancy declined to 93.7 per cent (31 August 2018: 100 per cent) following the completion of Unit 1a at Bicester. Topped-up net rental income showed strong growth increasing by £1.2 million or 12.7 per cent in the year on a like-for-like basis.

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

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

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

·; Two rent reviews at Camino Park, Crawley were agreed for £2.8 million; a £1.0 million or 55.2 per cent increase on the previous gross rental income and 8.6 per cent above ERV.

UK Hotels (25.5 per cent of portfolio by market value)

As set out at the half year, new supply in both the London and the regional markets has dampened RevPar growth, however PwC continues to forecast RevPar growth in 2020 of 1.4 per cent and 0.8 per cent in London and the regions respectively. London's greater resilience is expected to be supported by leisure travel and the continued weak pound. Occupancy is expected to be broadly flat with some growth in average daily room rates anticipated.

The portfolio remains heavily weighted to Greater London and Gatwick Airport. London is a global city providing broad based demand and a deep and liquid investment market. Investor demand has remained strong in 2019, despite Brexit concerns, with increased investment activity from Asia, Middle Eastern and European investors attracted by strong long term fundamentals and the weaker pound.

Underlying occupational metrics were positive with growth in room rates and occupancy delivering a 2.9 per cent increase in RevPAR. Like-for-like net income during the year decreased by £1.4 million, or 6.7 per cent, following additional refurbishment costs allocated to maintaining the quality of these assets. 9.3 per cent of the portfolio's net rental income is subject to CPI escalations, principally from the Travelodge portfolio.

(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. RBH has established itself as one of the leading independent hotel operators 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 £0.9 million to underlying earnings during the year.

UK Retail (17.9 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. 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 in the operational performance for the year.

UK Shopping Centres (5.7 per cent of portfolio by value)

Following the derecognition of the Aviva Portfolio on 23 April 2019, the Group's overall exposure to UK Shopping Centres reduced materially to 5.7 per cent of the portfolio (31 August 2018: 18.0 per cent). The operating metrics below reflect the remaining two shopping centre assets being St George's, Harrow and West Orchards, Coventry.

Occupancy improved to 98.8 per cent (31 August 2018: 97.9 per cent) however topped-up net rental income declined £0.4 million or 5.5 per cent which was largely attributable to the Debenham's CVA at West Orchards, Coventry and the Monsoon CVA at St George's, Harrow which resulted in gross rental income reducing by £0.2 million. Footfall across the two centres increased by 3.2 per cent, significantly outperforming the national average over the same period which was down by 2.7 per cent (source: Springboard).

Retail parks (12.2 per cent of portfolio by value)

At an operational level, the Retail parks portfolio performed well and ahead of general market trends. Approximately 80 per cent of the portfolio by value is located in London, Edinburgh and the Southern part of the UK, and is underpinned by strong demographics and typically let to discount and convenience operators. Average contracted rents across the portfolio of £18.2 per sq ft are, on average, being supported by current leasing transactions. Since acquisition, the topped-up net rental income has increased 2.6 per cent over a four year period.

Occupancy increased to 97.2 per cent (31 August 2018: 94.7 per cent) and topped-up net rental income increased 4.2 per cent

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

·; At Priory Retail Park in Merton, South West London, The Gym Group signed a new 15 year lease for £0.3 million on the former Mothercare unit. The previous rent, prior to the Mothercare CVA, was £0.3 million.

·; Two new leases were signed at Banbury Cross on previously vacant units delivering £0.3 million of gross rental income at 24.2 per cent (£0.1 million) below ERV; and

·; A further two leases have been agreed at Banbury Cross post year end which will take the park to full occupancy.

Europe (17.4 per cent of portfolio by market value)

Liquidity and transaction volumes in Germany remain high, albeit below the levels seen in 2018. While the market as a whole remains buoyant, there is an increasing divergence in investment demand between sectors. Offices and distribution are experiencing the strongest demand while fashion-led shopping centres are seeing a significant reduction in transaction activity. However, other areas of the retail market, including foodstores and retail warehousing, continue to attract investors with yields near ten year lows.

The decision to exit Germany was driven by a number of factors, not least the outlook for certain parts of the retail market. While the German retail market has not seen the same level of online penetration as the UK, the impact of retailers changing their business models and addressing historic aggressive expansion initiatives is impacting demand for retail space across many Western European markets.

Occupancy across the European portfolio increased to 99.1 per cent (31 August 2018: 98.0 per cent) with topped-up net rental income 2.7 per cent higher in constant currency terms.

Rental income from the portfolio benefits from high levels of indexation, with 94.7 per cent of gross rental income subject to various forms of inflation linked rent reviews.

FINANCIAL REVIEW

Overview

Despite being an extremely challenging year, as demonstrated by the Group's IFRS loss for the year of £74.8 million (31 August 2018: IFRS profit £96.3 million), operational performance has remained robust whilst accelerating key strategic priorities of reducing leverage and exposure to the retail sector.

The Group's key recurring earnings metric, underlying earnings, decreased by 7.7 per cent from £53.5 million to £49.4 million, during the year, 8.5 per cent on a per share basis. Removing the earnings that arose, in both the current and comparable year, from the Aviva financed UK Shopping Centre portfolio (Aviva Portfolio), underlying earnings per share decreased marginally by 0.8 per cent from 11.9 pence to 11.8 pence.

IFRS NAV attributable to shareholders was £685.6 million at 31 August 2019 while EPRA NAV was £706.5 million or 185.5 pence per share. This represents a decrease of 13.2 per cent during the year. This reduction in NAV is principally the result of the derecognition of the Aviva Portfolio, being £55.6 million or 14.6 pence, and valuation losses of £57.9 million or 15.2 pence.

The Group's principal debt facility was refinanced in January 2019 at a reduced level of £275.0 million, at a competitive rate for a new five year term. The Group subsequently completed on the early refinancing of the London Serviced Offices facility with total commitments of £75.0 million drawn in two tranches: £25.0 million in May 2019 and £50.0 million in August 2019. The refinanced facility matures in July 2026 and is secured at a weighted average fixed rate of 2.6 per cent, over 50bps lower than the cost of the previous financing facilities. Both refinancing transactions improved the debt maturity profile and reduced refinancing risk. Taken together with the derecognition of the Aviva Portfolio, the Group's cost of debt has reduced to 2.9 per cent (31 August 2018: 3.4 per cent).

Derecognition of the Aviva financed UK Shopping Centre portfolio ("Aviva 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 long-term fixed rate debt facility with Aviva. The facility is non-recourse, carries a fixed rate of interest of 5.5 per cent per annum and matures in April 2042.

During the first half of the year, the Group paid £9.7 million to cure an event of default resulting from a lender valuation. In addition, it was agreed that all net operating cash flows would be restricted and held within the facility to be applied against the debt.

In April, a further valuation was called by Aviva given concerns over the ongoing structural challenges facing the retail sector and several retailer failures. Despite the operating cash flow that had been retained, this valuation resulted in a further event of default.

After careful consideration, the Board concluded that it was not in the best interests of the Company and its shareholders to commit further capital to the facility. After considerable discussion with Aviva, both parties concluded that it was in their best interests to enter a consensual sales process to dispose of the four centres. On 23 April 2019, a Standstill Agreement was signed which has allowed for such a process to commence. The agreement has been extended and currently runs until 31 December 2019.

Although Aviva hasn't exercised its security, its rights under the facility agreement remain in force with the Standstill Agreement capable of termination at any time.

As a result, the Group has determined that the transaction constitutes a loss of control. From an economic perspective, Aviva has the ability to enforce its rights and make material decisions regarding the portfolio at its absolute discretion. Whilst the Group continues to manage the assets on Aviva's behalf, the Group is no longer exposed to the variable returns from the portfolio's performance nor does the Group have the ability to influence that performance without consent from Aviva; and the sale of the assets and the value at which they are transacted, will also be determined by Aviva.

From the date of the Standstill Agreement, the Group has ceased to consolidate the Aviva Portfolio and its related subsidiaries and derecognised the net assets at their carrying amounts. The resulting difference of £55.6 million has been recognised as a charge to the income statement.

Disposals

During the year, the Board approved a marketing exercise for the prospective sale of the European portfolio, a separately identifiable line of business containing the Group's investment properties located in Germany. Offers for individual assets or sub-portfolios proved stronger than portfolio bids and at 31 August 2019, exclusivity agreements had been entered into or were at advanced stages with preferred parties. It is managements expectation that the majority of sales will be completed within the forthcoming year. As such, all assets within the Europe portfolio have been classified as held for sale. By 31 August 2019, the Group had exchanged contracts on a property in Munich for a consideration of €11.4 million and has recognised the disposal on exchange as there were no significant conditions pending completion. The transaction is due to complete on 31 October 2019 and the related bank debt will be repaid in full. Post year end, the Group has exchanged contracts for the disposal of certain other German properties, most notably the Bahnhof Altona shopping centre in Hamburg, details of which are set out within the Subsequent Events note to the financial statements.

A number of mature UK assets have also been identified for sale, subject to completing asset management initiatives. Two assets have been disposed of for a gross consideration of £4.1 million and contracts have been exchanged on a further two properties subsequent to 31 August 2019, for minimum consideration of £11.5 million.

Acquisitions

During the year, the Group increased its exposure to the distribution and industrial sector, by acquiring two property interests located in the South East of England, namely an industrial estate in Farnborough, Hampshire and a 13.5 acre land interest in Bicester, Oxfordshire. Consideration for both properties was £34.2 million, excluding transaction costs. The Group then entered into a development agreement on acquisition of the land interest at Bicester for the construction of two distribution units. The first unit was completed in April for which the Group paid £7.8 million. Completion of the second unit is scheduled for December 2019 for which the Group has committed a further £10.3 million, payable upon completion.

Performance against strategic financial targets

(1) Pro forma LTV adjusted for transactions completed between 31 August and date of result announcement.

Earnings per share decreased during the year following derecognition of the Aviva Portfolio in April. Excluding Aviva, underlying earnings declined 0.8 per cent as a result of prioritising leverage reduction over reinvestment.

The Group fell short of its like-for-like income growth target this year as a result of the Group's commitment of additional funds towards the refurbishment activity within the UK Hotel portfolio. Excluding the additional charge of £1.4 million, like-for-like growth of 1.9 per cent would have been achieved.

LTV decreased during the year, despite declining asset valuations, due to the derecognition of the Aviva Portfolio and disposals of other mature assets. Adjusting for exchanged contracts post the balance sheet date, pro forma LTV stands at 42.0 per cent. The Group has adjusted its LTV target downwards to between 30 - 40 per cent.

Cost of debt at 2.9 per cent has decreased significantly below the lower end of the previous target range, primarily the result of derecognition of the Aviva Portfolio which carried a relatively high fixed rate cost of debt. As a result, this target has now been reset to less than 3.2 per cent.

The EPRA cost ratio remains above target, notwithstanding the progress made over the past two years. The planned disposal of the European portfolio is expected to result in an improved cost 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 below. 

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

The Group has determined that the co-ordinated sale of the Europe portfolio meets the criteria of a disposal group held for sale and further constitutes a discontinued operation, being a separable cash-generating unit, line of business and geographical operation of the Group. To comply with the presentation requirements of a discontinued operation under IFRS, the post-tax profit 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 has been re-presented in line with requirements and for comparability purposes. The financial review has been aligned in this regard.

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 new for five old 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 financial statements which follow, the comparative 'per share' numbers have been re-presented accordingly.

Aviva Portfolio

Given the significance of derecognising the Aviva Portfolio, and to aid comparability, this financial review presents the income statement, balance sheet and cash flow both including and excluding the Aviva Portfolio. Commentary focuses, where relevant, on financials excluding the Aviva Portfolio.

Alternative performance measures

The Board uses a number of financial measures to assess and monitor its 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 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 32 to the financial statements.

Net rental income, excluding the Aviva Portfolio, increased by £3.3 million or 4.8 per cent, primarily due to successful rent reviews in the Distribution and Industrial sector and the acquisition of an industrial estate in Farnborough in September 2018. Net rental income from UK Hotels fell due to accelerated refurbishment expenditure. Excluding the impact of acquisitions and disposals, net rental income was stable on a like-for-like basis. 

Administrative costs have fallen by £0.4 million, however not yet at a rate sufficient to achieve the Group's EPRA cost ratio target of below 15 per cent. The Group expects to move closer to its target following the disposal of the Europe portfolio, given the relatively higher cost base of this segment.

Net finance costs increased by £2.5 million, £0.9 million of which relates to a charge on refinancing the Group's principal debt facility in January 2019 and £1.1 million of which is attributable to the full year impact of the London Serviced Office portfolio, acquired in January 2018. The residual increase relates to higher average interest rates applied to debt facilities which are either floating or subject to interest rate caps.

Non-controlling interests reflects the share of income attributable to minority shareholders, most notably within the UK Hotels and London Serviced Offices portfolios. The increase of £0.5 million reflects the full year impact of holding the London Serviced Offices.

The decrease of £2.8 million in underlying earnings from the discontinued European portfolio has arisen due to the German supermarket portfolio disposal in December 2017. On a like-for-like basis in local currency terms, net rental income increased 3.5 per cent as illustrated below.

Like-for-like net rental income analysis

Like-for-like income in the UK Commercial portfolio increased 5.1 per cent, largely due to successful rent reviews, principally at Camino Park, Crawley and Express Park, Bridgwater, both in the Distribution and Industrial sector. This sector continues to benefit from sustained occupier demand and positive structural change.

The decrease of 6.0 per cent in UK Hotels is due to an accelerated refurbishment programme to ensure that brand standards and occupancy levels are maintained. Refurbishment costs are charged to income as tenant incentives.

UK Retail like-for-like net rental income increased by 0.7 per cent due to successful letting activity at Priory Retail Park in Merton, where two units were re-let at higher rental values.

In local currency terms, Europe like-for-like net rental income was up 3.5 per cent, primarily due to a number of lease events completing during the year, notably at Hamburg and Bremen. The portfolio also benefits from index linked rent reviews. In Sterling terms, income was up 3.8 per cent, reflecting the marginally weaker average GBP/EUR exchange rate during the year.

(1) Market value adjusted to reflect finance lease liabilities and lease incentives. Includes both investment property and property held for sale.

Excluding the Aviva Portfolio, EPRA net asset value decreased 6.0 per cent to 185.5 pence per share, primarily as a result of a valuation decline within the Group's UK Retail 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 decreased marginally during the year, mainly the result of a weak performance within Regional Offices, where valuations declined 8.4 per cent. The Distribution and Industrial asset valuations continued to perform well, recording a 4.5 per cent like-for-like valuation gain.

The Hotel portfolio valuation decreased by 1.9 per cent, primarily due to refurbishment costs advanced as lease incentives to the RBH managed portfolio of IHG branded hotels. The Group's portfolio of five Travelodge branded hotels performed well, recording a 4.8 per cent increase in like-for-like values.

The downward valuation in UK Retail of £33.6 million was driven by valuation losses across both the remaining UK Shopping Centres, primarily West Orchards, Coventry and across the Retail Park portfolio. The valuation movement was almost entirely due to an outward yield shift and was in line with the UK All Retail IPD index for the comparable 12-month period. The valuation losses reflect continued weak investor sentiment and concerns over retailer viability.

In local currency terms, the European portfolio was marginally down. However, in Sterling terms, a 0.5 per cent increase in values has been recorded.

Debt and gearing

(1) Pro forma LTV adjusted for transactions completed between 31 August and date of result announcement.

(2) Pro forma calculated as net rental income over net finance expense.

(3) Interest cover, excluding the contribution from the Aviva Portfolio, for the year ended 31 August 2019 was 3.6 times.

Removing the Aviva Portfolio debt from the comparative, the increase in net debt of £58.2 million is principally due to the acquisition of the industrial estate in Farnborough in September 2018 and the phased acquisition of the Bicester distribution units.

Adjusting for sales contracts which have been exchanged since 31 August, the Group's loan to value has reduced by 4.8 per cent to 42.0 per cent from 46.8 per cent at the balance sheet date. Given that leverage reduction is a key strategic priority for the Group, the medium term loan to value target has now been reduced to 30-40 per cent.

Excluding the long dated facility held with Aviva, which has been derecognised, the portfolio's weighted average debt maturity has been extended to 3.7 years following the refinancing of the Group's principal £275.0 million debt facility in January 2019, and the £75.0 million refinancing of the London Serviced Offices portfolio which completed in August 2019.

The weighted average cost of debt has reduced slightly due to the competitive fixed rate achieved on the London Serviced Offices refinancing, 50 basis points below the average cost of the previous facilities.

Cash and undrawn committed facilities at 31 August 2019 was £53.9 million (31 August 2018: £134.8 million), with capital commitments of £16.4 million (31 August 2018: £9.5 million).

Cash flow

Operating cash flows are aligned to the Group's underlying earnings and are a key metric for ensuring dividend cover. Operating cashflows excluding cashflows generated from the Aviva finance UK Shopping Centre Portfolio remain comfortably above dividend payments. The overall net cash outflow reflects both borrowing and net reinvestment activity following capital recycling activity in the prior year. On derecognition of the Aviva Portfolio, the Group lost £17.5 million which had been retained in restricted accounts since the initial event of default.

Dividend

The Directors have declared a second interim dividend of 6.0 pence per share for 2019, which will be paid on 10 December 2019 to shareholders on the register on 22 November 2019.

The full year dividend of 10.0 pence per share represents a 76.9 per cent pay-out ratio on underlying earnings, below the Group's target of 90-95 per cent. The Board has had to carefully consider its liquidity requirements in light of the operational cash flows which were restricted within the Aviva facility up to the point of derecognition in April and were therefore unavailable for distribution to shareholders.

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. In respect of the current year, this requirement has been met.

Going concern

At 31 August 2019, the Group's cash and undrawn facilities were £53.9 million and its capital commitments were £16.4 million. The Directors have considered severe but plausible downside scenarios, particularly in light of the current political and economic uncertainty faced as a result of the UKs anticipated departure from the European Union. Full details of these, including key assumptions, are set out in the Group's Viability Statement.

The Directors continue to be satisfied that that the security of the Group's underlying income, headroom against financial covenants and strong interest cover taken together with the proceeds from sales contracts exchanged subsequent to the balance sheet date, provide a reasonable expectation that the Group will have the resources it requires to meet ongoing and future commitments. Accordingly, the 2019 consolidated financial statements have been prepared on a going concern basis.

Donald Grant

Chief Financial Officer

24 October 2019

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.

(1) Presented as EPRA occupancy rate (the inverse of vacancy rate) in the operating review.

Other EPRA investment property reporting

Accounting basis

Refer to accounting policies adopted in relation to the Group's property portfolio in Note 2 of the financial statements.

Valuation information

Refer to Note 15 of the financial statements for valuation information.

Investment and development assets

Refer to the Operating Review for detailed disclosure on the Group's sub-portfolio metrics and further information on the Group's significant development projects during the year ended 31 August 2019.

Capital expenditure analysis

Refer to other information for detailed disclosure on the Group's capital expenditure during the year ended 31 August 2019.

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) Pro forma adjusted to 42.0 per cent to reflect transactions between 31 August and the date of the results annoucement (31 August 2018: 47.3%).

Statement of Directors' responsibilities

The statement of Directors' responsibilities has been prepared in relation to the Group's Annual Report 2019. Certain parts of the Annual Report are not included in this announcement.

We confirm to the best of our knowledge:

·; the Group financial statements, which have been prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

·; the Strategic Report includes a fair review of the development and performance of the business and the position of the Group.

Signed on behalf of the Board on 24 October 2019

Consolidated Income Statement

for the year ended 31 August 2019

(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) Included in profit from discontinued operation is the Group's share of post-tax profits from joint ventures of £0.9 million (31 August 2018: £Nil). Refer to Note 16.

(3) As a result of the share consolidation approved at the Annual General Meeting on 24 January 2019, previously published comparative weighted average number of shares and related earnings per share have been re-presented. Refer to Note 26.

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

Consolidated Statement of Comprehensive Income

for the year ended 31 August 2019

(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.

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

Consolidated BALANCE SHEET

as at 31 August 2019