Interim Results for 28 February 2018

RDI REIT P.L.C.

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

(Registration number 010534V)

LSE share code: RDI

JSE share code: RPL

ISIN: IM00B8BV8G91

LEI: 2138006NHZUMMRYQ1745

INTERIM RESULTS FOR THE SIX MONTHS ENDED 28 FEBRUARY 2018

STRONG FIRST HALF DELIVERING SUPERIOR, SUSTAINABLE AND GROWING INCOME

RDI, the FTSE 250 income focused UK-REIT, which has a primary listing on the London Stock Exchange and a secondary listing on the Johannesburg Stock Exchange, today announces its results for the six months ended 28 February 2018.

(1) Pro forma adjusted from 51.3% to reflect transactions completed between 31 August 2017 and 26 October 2017

Strong growth in underlying earnings per share

· Underlying earnings per share of 1.46 pence, an increase of 8.2%, well ahead of medium term growth targets

· Gross rental income increased 2.1% on a like-for-like basis (HY2017: increased by 3.3% like-for-like) with strong performance across the majority of the portfolio

· EPRA cost ratio (excluding direct vacancy costs) improved to 15.7% (HY2017: 20.7%)

· Cost of debt increased 20bps to 3.3% following transactional activity, however remains within target range

· Interim dividend of 1.35 pence per share, an increase of 3.9%, fully covered by a pay-out ratio of 92.5%

Further progress in strengthening the balance sheet

· EPRA NAV per share increased 2.2% to 42.3 pence

· Portfolio valuation up 0.3% like-for-like in local currency terms

· LTV continues to trend downwards, now reduced to 48.0%

· Total annualised accounting return (growth in NAV plus dividend paid) of 10.7% for the period

Portfolio quality enhanced

· Disposal proceeds totalling £211.8 million at an average premium of 8.7% to August 2017 market values

· Increased stake in £104.4 million IHL hotel portfolio to 74.1% (31 August 2017: 17.2%) at an implied net initial yield of 6.9% and yield on equity of over 10%

· Acquisition of an 80% interest in the £161.7 million London serviced office portfolio at an implied net initial yield in excess of 6% and yield on equity of over 9%

· Continued reduction in overall retail exposure to 45.3% (31 August 2017: 60.0%) with UK Shopping Centres now down to 18.8% by market value

Income-led active asset management reflected in solid operational metrics

· EPRA occupancy remains high at 97.3% (31 August 2017: 97.7%)

· Long WAULT of 6.8 years to first break (8.2 years to lease expiry); this metric excludes hotels managed by RBH and the newly acquired London serviced office portfolio

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

· RBH managed hotel portfolio trading in-line with expectations; occupancy averaging over 80% in the period and revenue per available room 2.6% above the same period last year

Greg Clarke, Chairman, commented:

"RDI has once again demonstrated its commitment to becoming the UK's leading income focused REIT with another strong set of results. 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."

Mike Watters, Chief Executive, commented:

"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. 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. We are 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."

Results presentation, webcast and conference call

A meeting for analysts and investors will take place on Wednesday 25 April 2018 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 for analysts at 9.00 a.m. (UK time), 10.00 a.m. (SA time) on Wednesday 25 April 2018, which can be accessed via the homepage of the Company's website: www.rdireit.com.

Conference call dial-in numbers and access code

Participant Access Code: 436667

United Kingdom: 0800 640 6441

United Kingdom (Local): 020 3936 2999

South Africa (Local): 087 550 8441

South Africa Toll Free: 080 017 2952

All other locations: +44 20 3936 2999

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.

STRATEGIC REPORT

Chief Executive's Report

I am pleased to report a solid set of interim results which demonstrate clear progress against our strategic objectives. Our portfolio has been enhanced through the sale of mature assets and efficient reinvestment into assets and sectors with stronger growth prospects. Leverage has been reduced, liquidity and operating efficiencies have improved and underlying earnings per share has been delivered ahead of guidance.

We are focused on delivering superior, sustainable and growing dividends to our shareholders. Dividends per share for the period delivered an annualised yield of 6.3 per cent on EPRA NAV compared to 4.2 per cent across the UK-REIT sector. This has been achieved through an income-led investment and active asset management approach together with financial discipline and operating efficiencies.

Results and dividend

Underlying earnings increased by 12.8 per cent to £27.4 million (28 February 2017: £24.3 million). Underlying earnings per share increased by 8.2 per cent to 1.46 pence per share (28 February 2017: 1.35 pence per share), well ahead of our medium term growth target of 3.0 to 5.0 per cent per annum.

EPRA NAV increased by 2.2 per cent to 42.3 pence per share (31 August 2017: 41.4 pence per share) supported by disposal proceeds of £211.8 million at an aggregate 8.7 per cent premium to the 31 August 2017 book value. The Group's portfolio increased 0.3 per cent on a like-for-like basis in local currency terms. This excludes a £14.4 million or 5.4 per cent increase in market value of the recently acquired International Hotel Properties Limited ("IHL") and London serviced office ("LSO") portfolios relative to agreed acquisition pricing.

The Board has declared an interim dividend of 1.35 pence per share, a 3.9 per cent increase on the same period last year. The dividend reflects a pay-out ratio of 92.5 per cent of underlying earnings, in line with our strategic priority of distributing superior income returns which are fully covered by underlying earnings and aligned with operating cash flow.

The total accounting return for the period was 10.7 per cent on an annualised basis.

Strategic priorities

In February 2017 we set out our medium term strategic priorities. These are aligned to our investment proposition of delivering superior, sustainable and growing income for our shareholders and our commitment to be the UK's leading income focused REIT.

Enhancing our income focused portfolio

The quality of our portfolio has improved significantly over the last three years. The portfolio has been further enhanced over the last six months through a significant level of capital recycling. £195.0 million of mature and ex-growth assets have been sold at 8.7 per cent above last reported market value, with proceeds reinvested in assets and sectors aligned with our strategy of delivering long term, sustainable and growing income. Our overall retail exposure has been reduced to 45.3 per cent (31 August 2017: 60.0 per cent) with UK Shopping Centres now representing just 18.8 per cent of our portfolio by market value. Our portfolio continues to demonstrate strong income characteristics with clear visibility of the medium term income profile and growth opportunities.

Capital recycling

It has been a busy period with three major transactions having concluded. We increased our exposure to the limited service hotel sector by increasing our investment in IHL from 17.2 per cent to 74.1 per cent. The subsequent de-listing of IHL will deliver a number of cost savings and efficiencies. The Leopard Portfolio of German supermarkets was sold in December 2017 for €205 million, €20 million above the 31 August 2017 market values. Finally, we entered the London serviced office sector through the acquisition of an 80.0 per cent interest in a £161.7 million portfolio of four high quality London serviced offices managed by Office Space in Town ("OSIT"), one of the UK's leading serviced office operators.

The efficient and timely reinvestment of the Leopard proceeds into London serviced offices, with only two weeks between transactions, again demonstrates our relentless focus on delivering income and our ability to effectively execute large transactions.

All these transactions are in line with our strategy of reducing exposure to mature assets and reinvesting in locations and sectors benefiting from structural change, infrastructure investment and changes in the way real estate is being used with a strong emphasis on customer service.

Efficient capital structure

Our LTV continues to trend downwards and has been reduced to 48.0 per cent, within our medium term target range of 45 per cent - 50 per cent. We are committed to making further progress on strengthening our balance sheet. Our weighted average cost of debt edged up to 3.3 per cent as a result of a net increase in the average debt funding costs between disposals and acquisitions. The transactions, however, remained yield accretive given the higher income yields at a property level. Interest cover at Group level improved to 3.5 times (31 August 2017: 3.2 times) which, combined with an average debt maturity of 7.0 years and material covenant headroom, ensures strong operating cash flow cover and limited refinancing risk.

Financial discipline

In February 2017 we improved the transparency of our earnings metric and its alignment to operational cash flow. We set a range of medium term targets which directly link to management incentives to drive accountability and ensure commitment to growing income across all aspects of the business. Strong progress has been made against key metrics. We are particularly pleased with the 8.2 per cent growth in underlying earnings per share and the continued downward trend in leverage. In respect to the forthcoming interim dividend, given the Company's share price relative to net asset value, we intend to match the scrip alternative through a share buy-back programme so as to minimise the dilutive effect that would otherwise occur through the issuance of new ordinary shares.

Board changes

In November 2017 Liz Peace was appointed to the Board as an independent Non-executive Director. Her wealth of relevant experience has brought additional strength, diversity, and expertise to the RDI Board. Liz joined the CSR Committee in January 2018 and will take over as chair in due course to drive our CSR initiatives forward.

Following seven years serving as Chairman, Greg Clarke announced his intention to step down in 2018. The Nominations Committee, now chaired by Michael Farrow, and supported by the addition of Robert Orr as an independent Non-executive Director, has commenced the search for a new Chairman and further updates will be provided in due course.

Growing our business sustainably

We are committed to measuring and benchmarking our environmental, social and governance performance through participation on the Global Real Estate Sustainability Benchmark ("GRESB") Real Estate Assessment. We are also voluntarily collecting data to satisfy the latest EPRA Sustainability Best Practices Recommendations ("SBPR") and have established a green building certification strategy including independent ratings for assets. This process started with the Southwark Holiday Inn Express extension and refurbishment which is undergoing a BREEAM In-Use certification. Once complete, this will be one of only a few hotels certified under the In-Use scheme in the UK. We were proud to receive an SKA bronze rating for fit-out sustainability in respect of our recently refurbished food court at West Orchards, Coventry. Other initiatives include electric vehicle charging points established at three of our shopping centres which have been a resounding success with 750 reported charging cycles completed by customers and over two tonnes of CO2 saved in the process. 

Outlook

Occupational and investment demand across the majority of the sectors we are invested in has remained robust, despite the heightened economic and political risks. We expect to see continued divergence in asset performance, with those assets benefiting from positive structural change, sustainable occupier demand and strong demographics likely to outperform. We are also seeing a requirement for real estate and real estate owners to be providers of high quality services. We are well positioned to take advantage of this trend, given our scalable operational platforms and with nearly a third of our portfolio invested in hotels and London serviced offices. Through proactive asset management and weighting towards non-discretionary retailers, we have maintained high occupancy levels across our retail portfolio. We do however expect continued rationalisation of certain retailers' physical store requirements and are therefore actively managing our overall exposure.

With the UK-REIT sector evolving to place greater importance on income and investors increasingly conscious of the quality and longevity of income returns, we believe our income focused investment strategy remains well placed. At an operational level, our portfolio has been significantly enhanced, our balance sheet has been strengthened and the efficiency with which we convert gross rental income to underlying earnings is strong and improving. Our dividend policy is clearly aligned to underlying earnings and operational cash flow with dividend cover. In a world characterised by ageing populations and low interest rates, sustainable asset backed income is increasingly important. 

We will continue to recycle capital out of mature assets and into assets demonstrating support from structural factors and deep occupational demand. A further reduction in leverage will be targeted through reinvestment and refinancing at lower levels of debt, whilst operating costs will continue to be closely managed. Looking to the next six months our medium term targets remain unchanged.

Mike Watters

Chief Executive Officer

25 April 2018

STRATEGIC REPORT

Operating Review

Portfolio overview

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

Key portfolio characteristics include:

· Income from RBH managed hotels and London serviced offices accounts for almost 30 per cent of the portfolio by market value, with robust income supported by experienced operational partners with aligned interests and strong occupier demand;

· a weighted average lease length of 6.8 years to the first potential lease break and 8.2 years to expiry;

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

· rental growth potential with a reversionary yield of 6.3 per cent, 60 bps higher than the current portfolio net initial yield (excluding growth potential on RBH managed hotels and London serviced offices);

· high and stable occupancy demonstrating robust occupier demand; and

· over 500 tenants with no single tenant accounting for more than 3.8 per cent of gross rental income.

(1) Gross annualised rent 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.

Portfolio positioning by business plan

The portfolio's ability to deliver sustainable income returns and growth has improved significantly over the last three years. This has been achieved through active recycling of capital into new income-led opportunities. RDI's ability to create marginal revenue and enhance the quality of assets is fundamental to its overall strategy. The Company's medium term target to deliver rental income growth of between 2.0 per cent and 5.0 per cent is supported by 47.0 per cent of the portfolio, split between "Growth Income" and assets subject to more intensive asset management plans.

Core income assets typically exhibit long lease lengths, high cash-on-cash returns and are predominantly multi-let, often with some form of indexation. Growth income assets are typically lower yielding but with higher intrinsic growth prospects. Asset management plans underway are typically income-led with a significant percentage of pre-let income being secured before development commences.

(1) Gross annualised rent 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 marginally by £4.7 million or 0.4 per cent on a like-for-like basis, however this included the impact of a weaker Euro relative to Sterling at the end of the period. On a local currency basis, like-for-like valuations increased 0.3 per cent. The change in value was driven by a 4.4 per cent increase in net rental income and a 20bps outward shift in net initial yields on a like-for-like basis. The overall portfolio currently reflects a 5.7 per cent EPRA net initial yield and a 6.3 per cent reversionary yield. 

The UK Commercial portfolio delivered the strongest value growth increasing £10.2 million or 2.9 per cent, largely as a result of the strength of the industrial and distribution portfolio and London offices. UK Hotels and Europe increased 1.1 and 1.5 per cent respectively in local currency demonstrating steady performance. UK Retail declined £12.1 million or 2.4 per cent, weighted heavily to UK shopping centres which continue to experience challenging trading conditions and a weak investment market.

Leasing activity

In the last 6 months, 103 lease events were agreed providing a total rent of £8.3 million, an 8.8 per cent (£0.6 million) increase above the previous passing rent and a 1.5 per cent (£0.1 million) increase on ERV. Pro-active asset management ensured that the portfolio occupancy remained high and stable at 97.3 per cent (31 August 2017: 97.7 per cent).

Acquisitions

Investment activity over the period totalled £284.9 million including the strategic acquisitions of the IHL and London serviced office portfolios. Capital recycling activity has focussed on allocating our capital to assets, sectors and locations experiencing strong occupier demand supported by infrastructure investment and structural changes in the way real estate is being utilised.

(1) Gross annualised rent for the London serviced office portfolio included as EBITDA net of management fees.

(2) Canbury Business Park, Kingston has no debt funding.

(3) Value of IHL reflects agreed acquisition pricing. Valuation details relevant to the date the group acquired control of IHL, are set out in Note 9.

International Hotel Properties Limited ("IHL")

Our investment in IHL increased significantly from 17.2 per cent to 74.1 per cent, with IHL subsequently being de-listed from the JSE and LuxSE following a successful scheme of arrangement. The majority of the acquisition was settled by way of a share-for-share exchange with IHL shareholders. Further information is contained within Note 9 to the financial statements.

The IHL portfolio comprises nine high quality UK hotels. Four Travelodge hotels, comprising 27.7 per cent of the portfolio, are let on long term leases with an average unexpired lease term of over 20 years. These assets reflect an implied net initial yield of 5.3 per cent and benefit from five yearly upward only CPI escalations that provide attractive rental growth prospects, particularly in a higher inflationary environment. The remaining five hotels are leased to the Company's associate, RBH Hotel Group. Four of the hotels are franchised to Holiday Inn Express and one to Hampton by Hilton. The five franchised hotels are expected to deliver a net initial yield of over 7.5 per cent.

The portfolio is currently financed at 45.9 per cent loan-to-value, at an all-in cost of debt of 3.3 per cent. Following the transaction, UK Hotels now make up 21.9 per cent of the Group's portfolio. The integration of the IHL business is progressing to plan with associated cost savings being achieved through the de-listing and integration of the hotel assets into the Company's existing hotel portfolio and REIT status.

As at 28 February 2018, the IHL portfolio was valued at £117.8 million, an impressive 12.8 per cent increase in the portfolio value on acquisition pricing.

Canbury Business Park, Kingston

On 22 December 2017, Canbury Business Park was acquired for £18.8 million excluding transaction costs and reflects a net initial yield of 5.8 per cent. The property is within a short walking distance of the Kingston-upon-Thames mainline railway station and forms part of a wider strategic site with medium to long term development potential. The business park includes 3,480 sqm (37,457 sqft) of offices and a number of smaller light industrial and business units. The acquisition provides a combination of an attractive near-term yield and medium term redevelopment opportunities. The acquisition is in line with our strategy of increasing exposure to assets with strong fundamentals, including positive demographics with proximity to good transport links. 

London Serviced Office Portfolio ("LSO")

On 15 January 2018, RDI announced it had acquired an 80.0 per cent interest in a portfolio of four London serviced offices valued at £161.7 million. OSIT, the Company's strategic partner, will continue as the operator of these assets. As one of the sector's most experienced managers with a track record of over 25 years developing and managing serviced offices in the UK. OSIT is led by founders Giles Fuchs and Niki Fuchs, who have extensive industry experience and will have a strong alignment of interests through OSIT's 20.0 per cent co-investment and an EBITDA based management fee. 

London is the global leader in the serviced office market, where structural and behavioural changes are driving strong demand for quality, flexible, cost efficient space. In a global workplace with technology supporting employee mobility and flexibility, businesses are demanding the ability to adapt and save costs. This trend is not only visible in small and start-up companies, but also large corporates which are increasingly embracing flexible space.

The acquisition is in line with the Company's strategy of recycling capital into assets and locations benefiting from sustainable long term growth opportunities, structural change in occupational demand and strategic infrastructure investment. Two of the assets are located within close proximity to the new Elizabeth Line Crossrail stations, with Boundary Row, Waterloo adding to the Company's existing exposure to the rapidly developing Southbank area.

LSO provides a premium flexible office service at mid-market rates which has consistently delivered high levels of occupancy and client satisfaction. The newly acquired assets offer a high ratio of good quality shared and amenity space, while design and services are focused on key client requirements including sound attenuation and market leading IT services. All four properties have been extensively refurbished and redeveloped by OSIT in the last four years and each presents a unique offering with flexibility in design to accommodate customers' bespoke requirements.

The portfolio value of £161.7 million at acquisition reflected an implied net initial yield of over 6.0 per cent. The acquisition included existing debt facilities of £73.5 million reflecting an LTV of 45 per cent, in line with the strategic priority of reducing Group leverage. The net cash yield on equity is anticipated to be in excess of 9.0 per cent.

Disposals

Our active programme of recycling capital out of mature and ex-growth assets has continued with successful disposals generating £211.8 million, representing an average premium of 8.7 per cent to the 31 August 2017 market values.

The sale of the German supermarket portfolio completed on 29 December 2017. The consideration reflected a purchase price for the portfolio of €205 million, a 10.8 per cent (€20 million) premium to the 31 August 2017 market value. The disposal capitalised on a very strong German investment market, enabling capital to be recycled out of mature assets. The portfolio consisted of 66 individual retail assets with a small average individual lot size of €3.1 million. The disposal provides a reduction in overall retail exposure and an effective increase in the average lot size of the remaining portfolio.

Other strategic disposals included regional offices in Bristol, Plymouth and Edgbaston reducing our exposure to a maturing regional office investment market. The House of Fraser department store in Hull was also sold in the period for £11.0 million, despite a discount to book value, we decided to proactively remove exposure to a potential covenant risk. 

(1) Market value at 31 August 2017 retranslated at the date of disposal, 29 December 2017.

Development and capital expenditure

Development activity is largely income-led and focused on refurbishing existing assets and adding incremental space to meet occupier demand. Total committed and outstanding capital expenditure at period end was £8.5 million.

(1) Albion Street, Derby and City Arcaden, Ingolstadt yields reflect overall scheme yields.

Albion Street, Derby

The redevelopment of 9-11 Albion Street to accommodate a new 2,005 sqm (21,581 sqft) store for TK Maxx completed in February 2018 which will improve the retail pitch materially. The location links Derby's Intu Shopping Centre to Primark and the historic old town. The seven adjoining retail units totalling 3,014 sqm (32,446 sqft) have all been let, leaving only two small basement units vacant.

City Arcaden, Ingolstadt

The scheme totals 12,000 sqm (129,000 sqft) including two retail units let to Primark and H&M of approximately 9,700 sqm (104,000 sqft). The 7,000 sqm (75,000 sqft) unit developed for Primark was handed over in March 2018. The works to complete the remaining 3,000 sqm (32,000 sqft) of offices and residential units are anticipated to complete in 2019. Of the total anticipated rent roll of €2.5 million, 83 per cent has been secured.

UK Retail Park expansions

Two drive through pods are to be developed for Costa at Watford and Edinburgh, with work scheduled to begin shortly subject to planning consent.

UK Commercial

The UK Commercial portfolio has undergone significant capital recycling activity in response to our view on the future performance of certain assets as well as reinvestment in assets with structural support, notably well-located London serviced offices. We have continued to dispose of regional offices into a strong, but maturing, investment market, particularly where we have completed asset management initiatives and where rental growth opportunities appear limited. The industrial and distribution sector continues to see strong structural support as retailers adjust their business models to fewer stores and enhanced distribution networks, however the weight of capital targeting the sector has made additional investment challenging.

(1) Gross annualised rent 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

The London serviced office market has seen remarkable growth in 2017. Serviced office operators are reported to have accounted for 18 per cent of leasing transactions in the City and the West End last year (source: Savills), highlighting the rapid growth of the sector. It is estimated that serviced offices now account for approximately 7.0 per cent of total Central London office stock with the potential to reach 30.0 per cent by 2030 (source: JLL).

The growth of the sector has been driven by changes in the way in which offices are being utilised by occupiers. The provision of space for smaller and growing companies is being formalised and delivered professionally with a focus on flexibility and service quality. Service sectors are witnessing disproportionate employment growth and technology is supporting the creation of new firms and their ability to compete. However, there is also a marked shift in the strategies of large corporates who are recognising the benefits of a more flexible model as well as the need to provide spaces and services required to attract talent. We believe the London serviced office portfolio provides a high-quality product at mid-market rates which, combined with the strategic benefit of owning the underlying assets, creates an attractive offer to clients and a defensive investment.

The acquisition completed on 12 January 2018. Although our ownership during the reporting period was under two months, income performance is currently ahead of expectations. Occupancy and desk rates were stable and new client enquiries continue to prove robust. The portfolio was valued at £162.7 million, a 0.6 per cent increase on the purchase price of £161.7 million.

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

Distribution and Industrial

The distribution portfolio produced exceptional growth largely as a result of rental uplifts and lower investment yields at Camino Park, Crawley. The portfolio increased in value by 11.5 per cent on a like-for-like basis supported by ERV growth of 3.5 per cent. Over 60 per cent of rental income at Camino Park, Crawley is subject to rent review in the next six months. The current average topped up passing rent of £7.60 per sqft is expected to show strong growth against both passing rent and ERV.

UK Retail

General investor sentiment towards the sector remains weak with the ongoing themes of structural change, the impact of online retailing combined with slowing retail sales and weaker consumer confidence. As a result, certain retailers are having to rationalise their physical store portfolios to be fit for purpose in the new retail landscape. We retain a more positive outlook on our well-located retail parks. Vacancy rates across the UK retail park sector of c.6 per cent remain at their lowest level for ten years.

We have been pro-active in the management of our portfolio to address many of these challenges. Overall UK Retail exposure has reduced to 30.0 per cent of the portfolio and occupancy across the UK Retail portfolio remained high at 97.5 per cent (31 August 2017: 96.8 per cent).

Occupancy and income have been supported by active engagement with retailers and local communities. Our in-house commercialisation activities, many of which have a strong community and CSR foundation, delivered £0.7 million in the period, a modest decrease on the same period last year.

The start of 2018 has seen a number of retail failures although many of these were largely anticipated. Our exposure to retailers such as Toys R Us, New Look and Maplin was relatively modest.

As previously reported, the former 3,838 sqm (41,315 sqft) BHS unit at Grand Arcade, Wigan was let to Poundland.

At West Orchards, Coventry, the food court has been refurbished delivering a £0.5 million turnaround in net income and a 19 per cent return on the £2.6 million capital investment with a further two smaller units still to be let to further enhance the return.

The portfolio declined 2.4 per cent on a like-for-like basis with yields moving out 30 bps reflecting weaker investment sentiment. 

UK Hotels

2017 was a very strong year for hotels in London with RevPar growth anticipated to have reached 6 per cent. Trading performances have been supported by a stronger global and Eurozone economy. The weaker pound has supported London as a tourist destination, although business travel has been tempered reflecting current economic and business uncertainty.

Supply of new hotel rooms continues to grow. Following the additional 8,500 new rooms in London in 2017, a further 7,500 are anticipated to open in 2018; a factor expected to moderate RevPar growth this year. PwC has forecast RevPar growth for 2018 in London and the Regions at 2.4 per cent and 2.3 per cent respectively, driven in large part by expectations of rate growth. This more moderate growth when compared to 2017 reflects the recent supply response and general economic uncertainty. Notwithstanding these factors, positive growth expectations highlight London's resilience and the fact that London benefits from some of the highest global occupancy levels averaging above 80 per cent over the last 10 years.

The Group's hotel portfolio remains heavily weighted to Greater London. Following the IHL acquisition, UK Hotels has increased to 21.9 per cent of the overall portfolio (31 August 2017: 15.6 per cent). The acquisition will provide further exposure to Edinburgh and to Gatwick Airport, the UK's second busiest airport. In addition, the acquisition of a further four Travelodge hotels provides exposure to long-dated inflation linked income.

(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. 

The portfolio increased in value by 1.1 per cent on a like-for-like basis supported by occupancy and RevPar growth. This excludes a £13.4 million or 12.8 per cent increase on the recently acquired IHL portfolio.

RBH

Our 25.3 per cent stake in RBH (formerly RedefineBDL) contributed £0.3 million to underlying earnings during the period, a 6.2 per cent increase on the same period last year. RBH has established itself as the leading independent hotel operator in the UK after being awarded the management contract for a further 26 four-star luxury hotels located throughout the UK. RBH now manages more than 11,000 rooms across 75 hotels in the UK.

Europe

The German market remains buoyant supported by a stronger economy and low unemployment. Investor appetite has remained strong with over €57 billion in commercial property transactions last year, assisted by large portfolio transactions and international capital looking for safe-haven investments.

We are witnessing a number of trends which are not dissimilar to those experienced over the last few years in the UK, notably the strength of the industrial and distribution sector, the rise of alternative models including flexible and co-working office space and some early signs of slowing retailer demand, particularly in mid-market fashion. In the short-term, the weight of capital chasing good quality and value add investments remains significant and supportive of values.

Several asset management initiatives at the Schloss Strassen Centre, Berlin were delivered during the period. The 1,076 sqm (100 sqm) extension to the dm pharmacy has been completed with the lease being extended for a 10 year term. The marginal increase in rent reflects a 8.8 per cent yield on the cost of €0.1 million. The previously announced 171 sqm (1,840 sqft) REWE extension is anticipated to be completed in late 2018. A new ten-year lease has been agreed with the marginal increase in rent reflecting a 8.3 per cent yield on a cost of €0.1 million. These initiatives have reduced the number of in-line units and provide a greater weighting toward food, discount and convenience shopping.

The portfolio increased in value by 1.5 per cent in local currency terms and on a like-for-like basis.

STRATEGIC REPORT

Financial Review

Overview

The first half of the year has seen a continued theme of capital recycling, building on the solid foundation of 2017 with ongoing improvement to the portfolio's quality and positioning. Overall, the period has delivered an annualised accounting return of 10.7 per cent, comprising the dividend paid in December 2017 and the growth in EPRA NAV during the period.

Underlying earnings were £27.4 million or 1.46 pence per share, representing growth of 8.2 per cent when compared to the first six months of 2017. This is the combined result of growth in net rents following the IHL acquisition, reduced finance costs flowing through from debt restructuring activity in 2017 and lower gearing levels. Further contributing to this growth is an improved cost ratio, resulting from termination charges incurred in the prior year being non-recurring.

Acquisition and disposal activity during the six months has added £19.3 million or 1.0 pence per share to EPRA net asset value. This was driven from the disposal of a €185.0 million German supermarket portfolio in December which generated, after costs, an €18.2 million (£16.2 million) profit. The majority of the proceeds from this sale were recycled into a £161.7 million portfolio of four London serviced offices at an initial yield of over 6 per cent. The acquisition completed just two weeks later, in early January.

In November, control of the former listed hotel group, International Hotel Properties Limited ("IHL") was acquired. A gain of £5.5 million was recognised on acquisition.

Four further small disposals were completed during the period at a net loss of £1.4 million to the 31 August 2017 book value. The loss was driven by the disposal of the House of Fraser unit in Hull, where a discount to book value was accepted to remove what was considered a potential covenant risk.

The above, coupled with modest like-for-like valuation growth, has delivered a 2.2 per cent increase in the Group's EPRA net asset value per share, which has risen from 41.4 pence at 31 August 2017 to 42.3 pence at 28 February 2018, with the property portfolio valued at £1.65 billion.

These results continue to demonstrate solid progress against the Group's key financial targets. We continue to strike a balance between income growth and leverage reduction and we end the period with an LTV of 48.0 per cent, down from 50.0 per cent at 31 August 2017.

IHL

The IHL acquisition was completed in stages. The first, in late October, saw the Group acquire an 8.9 per cent interest from Redefine Properties Limited ("RPL") in consideration for the issue of 12.5 million new shares in RDI. In November, a scheme of arrangement completed whereby minority shareholders holding 29.3 per cent of IHL were issued 2.5 new shares in RDI for every 1 IHL share held, and a further 3.4 per cent interest in IHL was acquired from Redefine Properties Limited in return for the issue of 45.9 million new RDI shares collectively. Finally, the Group acquired Redefine Properties Limited's residual 15.2 per cent holding in IHL for £7.5 million in cash and a further 2.5 million new RDI shares.

In aggregate, the transaction value of £31.8 million was settled by the issue of 60.9 million new ordinary shares and the payment of £7.5 million in cash. The transactions took the Group's interest in IHL from 17.2 per cent to 74.1 per cent. IHL is now accounted for as a subsidiary of the Group with its results and position reflected in the consolidated income statement, balance sheet and cash flow statement on a line by line basis. 

Following the IHL transactions, the Group has no further investments or joint ventures with its major shareholder, Redefine Properties Limited.

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.

Income Statement

(1) Reallocates joint venture EPRA earnings of £0.2 million (28 February 2017: loss of £1.2 million) from a single line item as required by IFRS to presentation on a line-by-line basis.

Gross rental income increased by £4.7 million which included £3.7 million related to the net impact of investment and disposal activity during the period. Gross rental income from the like-for-like portfolio increased 2.1 per cent driven by growth in the UK Commercial portfolio and the Group's like-for-like hotel portfolio.

UK Commercial experienced the strongest performance following positive rent review activity, particularly at the Group's Camino Park Distribution Centre in Crawley. The London office market continues to perform well with focused asset management efforts driving rental growth.

Despite the challenges in the retail portfolio, like-for-like income has held firm at £19.3 million, largely a result of occupancy levels remaining high at 97.5 per cent.

Underlying trading in the hotel portfolio remains strong. The UK achieved average occupancy of 82 per cent and 4.6 per cent RevPar growth in 2017 (source: PwC). This contributed to a 4.1 per cent increase in the hotel portfolio like-for-like income, relative to the first half of 2017.

In Sterling terms rental income from our investments in Europe was flat at £6.2 million like-for-like. In local currency terms a 2.0 per cent fall was recorded due to decreased footfall impacting turnover rents, in particular at our Berlin shopping centre.

Income from acquisitions including IHL and the serviced office portfolio added £4.5 million and £2.1 million in gross income respectively, with the residual arising from a smaller acquisition of a commercial property in Kingston, south west London.

Net rental income has risen in line with gross rental income, reflecting the efficient nature of the newly acquired IHL portfolio's operating cost structure.

Other income was £2.2 million lower due to the non-recurring performance fee generated on disposal of the VBG portfolio in the comparative period.

Administrative costs have reduced by £1.5 million, largely due to the termination fee charged in the previous financial year in respect of a legacy asset management contract. Notwithstanding non-recurring items, the Group's EPRA cost ratio has improved from 18.0 per cent in the first half of 2017 to 15.7 per cent for the first half of 2018, demonstrating good progress towards the Group's target EPRA cost ratio of 15 per cent or less.

Net finance costs have reduced £0.4 million or 2.7 per cent, reflecting both lower leverage and refinancing activity completed in early 2017. The reduction in finance charges combined with growth in rental income has enhanced interest cover from 3.2 times to 3.5 times.

Non-controlling interests reflects the share of income attributable to the minority shareholders, most notably in IHL (25.9 per cent), the London serviced office portfolio (20.0 per cent) and the legacy hotel portfolio (17.5 per cent).

Due to market expectations of rising interest rates, a significant credit has been recorded in respect of the fair value of the Group's interest rate derivative contracts. This credit is removed from both the Group's underlying earnings measure and EPRA earnings.

Balance sheet

EPRA NAV per share increased by 2.2 per cent or 0.9 pence to 42.3 pence per share. This was driven by the gain on disposal of the German supermarket portfolio and the gain recognised on acquisition of control of IHL.

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

Property portfolio

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

The above like-for-like capital comparison excludes gains realised from capital recycling, in particular the €20 million uplift on the German Supermarket portfolio generated since the last balance sheet date. 

The UK Commercial portfolio recorded a solid 2.9 per cent gain for the first half of the year led by distribution warehouses and London offices.

Challenges continue to be experienced across the UK Retail portfolio. The Group's retail parks have not been impacted in the same manner as secondary UK shopping centres, which continue to suffer from a weak investment market driven by falling retailer sales and increased online retailing.

The UK Hotel portfolio saw a 1.1 percent valuation uplift, which excludes the newly acquired IHL portfolio. This performance was somewhat subdued as pressure on UK household income and increased supply rein in expectations for RevPar and ADR growth.

The European portfolio increased in value by 1.5 per cent in local currency terms, following a good performance in the centrally located Hamburg shopping centre, accompanied by a general increase across the portfolio reflecting the strong German investment market. The Euro to Sterling rate has weakened by 3.7 per cent since the last balance sheet date, offsetting local currency growth, albeit from a relatively strong position at 31 August 2017.

Debt and gearing

Since 31 August 2017, progress has been made in reducing leverage. The Group LTV has been reduced to 48.0 per cent, within our medium term target of 45 to 50 per cent. Drawn debt remained broadly unchanged at £844.7 million despite the level of recycling and net investment activity during the period which has resulted in a seven per cent increase in the portfolio to £1.65 billion.

(1) Pro forma LTV adjusted from 51.3 per cent to reflect transactions completed between 31 August 2017 and 26 October 2017.

The proceeds from the disposal of the German supermarket portfolio, which at 31 August 2017 was geared at 58.9 per cent, were reinvested into four Central London serviced offices at a gearing level of 45.0 per cent. Successful leverage reduction was achieved by prepayment of the Group's revolving credit facility, following smaller disposals.

The weighted average cost of debt has increased to 3.3 per cent from 3.1 per cent as a result of the increase in average debt funding costs between disposals and acquisitions, however, interest cover has continued to improve demonstrating the higher yields being achieved at the property level.

Debt with interest rate protection remains comfortably in line with Group targets.

Cash flow

Operating cash flows during the period of £26.0 million provides cover for the dividend paid. Asset disposals, net of reinvestment activities generated £42.7 million, which has been primarily applied towards leverage reduction.

Cash and undrawn committed facilities at 28 February 2018 were £99.9 million, with capital commitments of £8.5 million.

Performance against strategic financial targets

In February 2017 we set out a range of medium term strategic targets with clear linkage to our strategic priorities and long term incentives to drive accountability. These targets focus on income growth and strengthening the balance sheet across all aspects of the business. Progress since February 2017 is set out below, which for all metrics other than rent collection demonstrates performance in line with medium term targets, or progress in the right direction. Although rent collection for the March 2018 quarter day was not as strong as we would have liked, the target was comfortably exceeded by day 21, demonstrating subsequent collection.

(1) Pro forma adjusted from 51.3 per cent to reflect transactions between 31 August 2017 and 26 October 2017.

 (2) 17.2 per cent and 18.0 per cent respectively when adjusted for non-recurring items.

Principal risks and uncertainties

The Directors have concluded that there have been no significant changes to the principal risks and uncertainties faced by the Group, nor are there anticipated to be any significant changes during the remaining six months to 31 August 2018. Full disclosure of the risks and uncertainties faced by the Group are set out on pages 16 and 17 of the 2017 Annual Report.

Dividend

The Directors have declared an interim dividend of 1.35 pence per share for the first six months of 2018. When paid, this will represent an annualised yield of 6.4 per cent on EPRA NAV at 28 February 2018 or 7.8 per cent based on the Company's closing share price on 28 February 2018.

The dividend represents a 92.5 per cent pay-out ratio on underlying earnings and is covered by operational cash flows.

Subject to South African Reserve Bank approval, the Company intends to continue to offer a scrip alternative. Given the Company's share price currently trades at a significant discount to net asset value, the Directors intend to match the scrip allocation by a share buy-back programme to minimise the dilutive impact of issuing new ordinary shares.

An announcement will be made once the circular and timetable becomes available on the Company's website. A dividend payment date of 25 June 2018 has been proposed.

Donald Grant

Chief Financial Officer

25 April 2018

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 to the best of our knowledge:

· the condensed consolidated interim financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting';

· the condensed consolidated interim financial statements include a true and fair view of the information required by Sections DTR 4.2.7R and DTR 4.2.8R of the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

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

Related party transactions are set out in Note 31 to the condensed consolidated interim financial statements.

By order of the Board

Mike Watters Donald Grant

Chief Executive Chief Financial Officer

25 April 2018

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

Introduction

We have been engaged by RDI REIT P.L.C. ("the Group") to review the condensed set of consolidated financial statements ("the consolidated financial statements") in the half-yearly financial report for the six months ended 28 February 2018 which comprise the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows and the related explanatory notes. Our review was conducted having regard to the Financial Reporting Council's ("FRC") International Standard on Review Engagements ("ISRE") (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity'.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the consolidated financial statements in the half-yearly report for the six months ended 28 February 2018 is not prepared, in all material respects, in accordance with IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board ("IASB") and the Disclosure and Transparency Rules of the UK's Financial Conduct Authority ("FCA").

Basis of our report, responsibilities and restriction on use

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 Disclosure and Transparency Rules of the UK's FCA. As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ("IFRSs") as issued by the IASB. The Directors are responsible for ensuring that the consolidated financial statements included in this half-yearly financial report have been prepared in accordance with IAS 34 'Interim Financial Reporting' as issued by the IASB. Our responsibility is to express to the Group a conclusion on the consolidated financial statements in the half-yearly financial report based on our review.

We conducted our review having regard to the FRC's ISRE (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity'. 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. 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.

We read the other information contained in the half-yearly financial report to identify material inconsistencies with the information in the consolidated financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the review. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

This report is made solely to the Group in accordance with the terms of our engagement to assist the Group in meeting the requirements of the Disclosure and Transparency Rules of the UK's FCA. Our review has been undertaken so that we might state to the Group 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 Group for our review work, for this report, or for the conclusions we have reached.

N. Marshall 25 April 2018

For and on behalf of

KPMG

Chartered Accountants, Statutory Audit Firm,

1 Harbourmaster Place

International Financial Services Centre

Dublin 1

Ireland

CONDENSED Consolidated Income Statement

for the six months ended 28 February 2018

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

CONDENSED Consolidated Statement of Comprehensive Income

for the six months ended 28 February 2018

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

CONDENSED Consolidated BALANCE SHEET

as at 28 February 2018

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

The condensed consolidated interim financial statements were approved by the Board of Directors on 25 April 2018 and were signed on its behalf by:

Mike Watters Donald Grant

Chief Executive Officer Chief Financial Officer

CONDENSED Consolidated Statement of Changes In Equity

for the six months ended 28 February 2018

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

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

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

CONDENSED Consolidated Statement of CASH FLOWs

for the six months ended 28 February 2018

(1) Includes transaction costs paid of £1.3 million.

(2) Includes transaction costs paid of £0.6 million.

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

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the six months ended 28 February 2018

1. General Information

RDI REIT P.L.C. (formerly Redefine International P.L.C.) was incorporated in the Isle of Man on 28 June 2004 (Registered Number: 111198C) and was re-registered under the Isle of Man Companies Act 2006 on 3 December 2013 (Registered Number: 010534V).

On 4 December 2013, the Company converted to a UK-REIT and transferred its tax residence from the Isle of Man to the United Kingdom ("UK").

The Company holds a primary listing on the Main Market of the London Stock Exchange ("LSE") and a secondary listing on the Main Board of the Johannesburg Stock Exchange ("JSE").

The financial information contained in these interim financial statements does not constitute a complete set of financial statements and does not include all of the information required for full annual financial statements (including all comparative figures and all required notes) prepared in accordance with International Financial Reporting Standards ("IFRS"). The interim financial statements should therefore be read in conjunction with the consolidated financial statements as at and for the year ended 31 August 2017 which are available on the Company's website (www.rdireit.com).

2. Significant Accounting Policies

2.1 Statement of Compliance

These condensed consolidated interim financial statements ("interim financial statements") for the six months ended 28 February 2018 have been prepared in accordance with IAS 34 'Interim Financial Reporting' ("IAS 34") as issued by the International Accounting Standards Board ("IASB"). The relevant new standards, amendments and interpretations that have been adopted during the period are set out in the following table:

The adoption of these improvements and amendments has not had a material impact on the interim financial statements of the Group. The accounting policies applied by the Group are the same as those applied in the audited consolidated financial statements as at and for the year ended 31 August 2017, as set out on pages 106-110 of the 2017 Annual Report, with the exception of the following addition to the Investment Property accounting policy. The change is required as a result of certain operating leasehold interests acquired through business combinations since 31 August 2017.

Investment Property Amendment

Property held by the Group under long term leases is also treated as investment property in line with IAS 40 'Investment Property' ("IAS 40"). The Group's leasehold interests are classified as either finance or operating leases dependent on whether the risks and rewards of ownership of the property have substantially transferred to the Group. Finance leases are recognised as both an asset and a liability and are measured at the lower of fair value and the present value of any future minimum lease payments. The finance lease obligation to the superior leaseholder is recognised within borrowings on the balance sheet. Lease payments are apportioned between the finance charges and the capital reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability over the lease term. Finance charges are charged through profit or loss as they arise. Operating lease payments are charged to the income statement as a rental expense on a straight-line basis over the lease term.

Disclosed in the table below are the relevant new standards, amendments and interpretations that have been issued by the IASB but are not yet effective or have not been early adopted. The impact of these improvements and amendments on the consolidated financial statements of the Group is being assessed.

2.2 Basis of Preparation

The interim financial statements are presented in Great British Pounds, which is the functional currency of the Company and the presentational currency of the Group and rounded to the nearest hundred thousand pounds. They are prepared using the historical cost basis except for investment property, certain assets held for sale, derivative financial instruments and financial instruments designated at fair value through profit and loss, all of which are carried at fair value.

Going Concern

The Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future and for this reason the interim financial statements have been prepared on a going concern basis.

2.3 Key Judgements and Estimates

The preparation of the interim financial statements in conformity with IFRS requires the use of judgements and estimates that affect the reported amounts of assets and liabilities at the reporting date and the reported amounts of revenues and expenses during the period. Although these estimates are based on the Directors' best knowledge of the amount, event or actions, actual results may differ materially from those estimates.

The principal areas where such judgements and estimates have been made are detailed below:

Investment Property Valuation

The Group uses valuations determined by independent valuers in accordance with IFRS 13 'Fair Value Measurement' ("IFRS 13") as the fair value of its investment property. The valuations are based upon assumptions including estimated rental values, future rental income, anticipated maintenance costs, future development costs and appropriate market yields. The valuers also make reference to market evidence of transaction prices for similar properties. Further details are provided in Note 13.

corporate and property acquisitions

When control is obtained over an entity or group of entities, judgement is required in determining whether the transaction constitutes a business combination with reference to the inputs, processes and outputs of the subsidiary or subsidiary group acquired. If it is determined that the transaction is a business combination, the requirements of IFRS 3 are applied.

In addition, when a property is acquired directly, the Directors have regard to the substance of the transaction and whether related processes and activities have been assumed which would represent a business. When such an acquisition is considered to be the acquisition of a business, the requirements of IFRS 3 apply as above, otherwise the transaction is treated as an acquisition of a property asset in line with IAS 40.

Classification of UK Hotels as Investment Property

The UK Hotels are held for capital appreciation and to earn rental income. Apart from five Travelodge branded hotels, the hotels have been let to wholly-owned subsidiaries of RBH Hotel Group Limited (collectively "RBH" - formerly named RedefineBDL Hotel Group Limited), on lease terms which are subject to annual review. At each review, the revised rent is set with reference to the forecast EBITDA of each hotel. RBH runs the hotels' operating business and is therefore exposed to fluctuations in the underlying trading performance of each hotel under management. RBH is responsible for the key decision making of the business operations and the day-to-day upkeep of the properties. The Group is not involved with the operation of the hotel management business and there are limited transactions between RDI and RBH. As a result, the hotels are classified as investment property in accordance with IAS 40.

The Group cumulatively holds a 25.3 per cent shareholding in RBH. Having considered the guidance in IFRS 10 'Consolidated Financial Statements' ("IFRS 10"), the respective rights of each of the shareholders in RBH and the relative size of the Group's shareholding, the Directors have determined that the Group has the ability to exercise significant influence over but does not control RBH. The investment in RBH has therefore been classified as an associate.

Fair Value of Restructured Liabilities

New borrowings or existing borrowings which have been substantially modified are recognised at fair value. The determination of fair value involves the application of judgement. The Group determines fair value by discounting the cash flows associated with the liability at a market discount rate. The key judgement surrounds the determination of an appropriate market benchmark. Management determine the discount rate on a loan by loan basis having regard to the term, duration and security arrangements of the new liability and an estimation of the current rates charged in the market for similar instruments issued to companies of similar sizes.

This judgement is made more difficult given the bespoke nature of certain loans obtained by the Group. Any difference between the nominal value of the loan and its fair value equivalent is recognised immediately in the income statement insofar as the fair value measurement is based on observable inputs. The deemed fair value adjustment will subsequently be accreted through the income statement over the term of the loan using the effective interest rate method.

Lease Classification

The Group considers the appropriateness of the classification of its leasehold interests in investment property as operating or finance leases on a property-by-property basis, based on the terms and conditions of each lease on inception. The assessment is based on a balanced evaluation of both the specific contractual terms and substance of each arrangement, such as: the lease term constituting a major part of the economic life of the property; the fair value of each asset relative to present value of minimum lease payments; a qualitative review of the transfer of the significant risks and rewards of ownership; and the allocation of the lease payments to the land and building elements of each property.

3. Segmental Reporting

As required by IFRS 8 'Operating Segments' ("IFRS 8"), the information provided to the Board, which is the Chief Operating Decision Maker, has been classified into the following segments:

Management information, as presented to the Chief Operating Decision Maker, is prepared on a proportionately consolidated basis. Segmental reporting is therefore reported in line with management information, with the Group's share of joint ventures presented line-by-line. Joint venture adjustments are disclosed to reconcile segmental performance and position to the condensed consolidated financial statements.