RDI earnings rise as gross rental income continues to improve

The FTSE 250 real estate investment trust said its gross rental income was up 2.1% on a like-for-like basis, slowing from 3.3% like-for-like growth a year ago, with performance described as “strong” across the majority of the portfolio.

Its EPRA cost ratio, excluding direct vacancy costs, improved to 15.7% from 20.7%.

The company’s cost of debt increased 20 basis points to 3.3%, following transactional activity, although it remained within the target range.

RDI’s board declared an Interim dividend of 1.35p per share, an increase of 3.9%, fully covered by a payout ratio of 92.5%.

“RDI has once again demonstrated its commitment to becoming the UK's leading income focused REIT with another strong set of results,” said chairman Greg Clarke.

“The strategy of improving the quality of the portfolio is well on track, following the completion of a number of successful disposals and well-timed income enhancing acquisitions.”

The directors said they made further progress in strengthening the balance sheet during the pald-year, with the EPRA net asset value per share up 2.2% to 42.3p, and the portfolio valuation ahead 0.3% like-for-like in local currency terms.

Its loan-to-value ratio continued to trend downwards, and was now reduced to 48.0%.

The company’s total annualised accounting return - growth in net asset value plus dividend paid - stood at 10.7% for the period.

RDI also described its portfolio quality as “enhanced”, with disposal proceeds totalling £211.8m at an average premium of 8.7% to August 2017 market values.

It increased its stake in the £104.4m IHL hotel portfolio to 74.1% from 17.2% during the period, at an implied net initial yield of 6.9% and yield on equity of over 10%.

The firm also acquired an 80% interest in the £161.7m London serviced office portfolio at an implied net initial yield in excess of 6% and yield on equity of over 9%.

A reduction in overall retail exposure was made, reaching 45.3% from 60.0%, with UK shopping centres now down to 18.8% by market value.

The board said its income-led active asset management was reflected in its “solid” operational metrics, with EPRA occupancy remaining high at 97.3%, down slightly from 97.7% at the start of the period.

Its long weighted average unexpired lease term stood at 6.8 years to first break, and 8.2 years to lease expiry, although that metric excluded hotels managed by RBH and the newly-acquired London serviced office portfolio.

London serviced offices was trading ahead of expectation, with occupancy stable at 92.9% with average desk rates increasing marginally since acquisition.

The RBH managed hotel portfolio was trading in-line with expectations, with occupancy averaging more than 80% in the period and revenue per available room 2.6% above the same period last year.

“We continue to make good progress against our strategic priorities, with underlying earnings per share growth of 8.2%, which is well ahead of target,” commented chief executive Mike Watters.

“The income producing qualities of our portfolio have improved through further recycling of capital out of low growth assets into assets and sectors aligned with our strategy of delivering long term sustainable and growing income.”

Watters said the company was also seeing an increasing opportunity for real estate owners to become high quality service providers.

“We are well positioned to take advantage of this trend, given our operational platforms and experience with our hotel portfolio and the more recent expansion into London serviced offices.

“We are confident that our income-led business model, designed to deliver market leading shareholder distributions, remains attractive in a world starved of predictable and recurring income.”