Final Results

RNS Number : 1906E

Real Estate Investors PLC

04 April 2011

 



Real Estate Investors plc

Preliminary announcement

For the year ended 31 December 2010

Real Estate Investors PLC (AIM: RLE) the West Midlands based property group, today announces its prelimianry results for the year ended 31 December 2010. 

HIGHLIGHTS:

·      Contracted rental income £4.0 million (2009: £3.3 million) - up 20%

·      Rental income £3.3 million (2009: £3.2 million) - up 1.8%

·      Gross property assets valued at £56.5 million (2009: £54.8 million) - up 3%

·      Investment property assets £50.5 million (2009: £48.0 million) - up 5%

·      Cash at bank of £11.8 million (2009: £10.8 million) - up 9.2%

·      Net assets of £32.3 million (2009: £27.3 million) - up 18.3%

·      Loss on valuation of interest rate swaps of £1.2 million (2009: gain £0.8 million)

·      Loss before tax of £5.6 million (2009: profit of £4.3 million)

·      Loss before tax excluding net property valuation and financial instrument provisions of £292,000 (2009: profit of £854,000)

·      Loss on revaluation of investment properties of 7.5% or £4.1 million (2009: gain £2.7 million)

·      Total acquisitions of property in the year £6.7 million

·      Gearing 84%

·      Loan to value 48% - net of cash

·      £9.7 million fundraising in February 2010: £6.7 million invested during the year and £3.1 million post-year end

Enquiries:

Real Estate Investors PLC Paul Bassi	[phone]
Smith & Williamson Corporate Finance Limited Azhic Basirov / Siobhan Sergeant	[phone]
Liberum Capital Limited Chris Bowman / Richard Bootle	[phone]

Notes to Editors

1.    REI is an AIM listed property investment company specialising in commercial and residential property principally in the West Midlands and central England.

2.    REI is focused on delivering shareholder value through returns generated from strong yields and capital enhancements. This is achieved by targeting investments in orphaned, distressed, part-let and underperforming commercial and residential property assets.

3.    REI is led by respected property investor Paul Bassi CBE, who has over 25 years of property experience in the West Midlands. Mr Bassi is also founder and chairman of Bond Wolfe and chairman of Bigwood Chartered Surveyors.

4.    REI was admitted to trading on AIM in June 2004 and has subsequently raised a total of £35 million in further equity issues as well as debt financing to grow its property portfolio. 

5.    Further information on REI can be found at www.reiplc.com.

Chairman's statement

Introduction

Firstly, I am very pleased to be reporting Real Estate Investors Plc's ("REI") results for the year ended 31 December 2010, a year which saw increases in our contracted rental income and significant investments in opportunities which met our criteria.

Despite varying degrees of optimism seen in early 2010, the economic environment remains fragile, and the last quarter of 2010 and the early part of 2011 have raised further concerns of a renewed recession.  While London investment property values are buoyant, driven largely by institutional and overseas capital, the UK property sector as a whole is not exempt from the economic backdrop.  Valuations in UK regions remain depressed, largely due to the lack of bank finance, leading to very limited transactions and comparable evidence being predominantly gathered from distressed sales.

Our purchases plus other opportunities that we anticipate securing, together with rising rental values, will provide the potential for significant capital gains and surplus cash flow in the short to medium term, establishing REI as a highly respected regional property investment company, that will benefit substantially once market conditions normalise.

The year in review

The results for the year ended 31 December 2010 reflect an increase in our contracted rental income from £3.3m net (2009) to £4.0m net.  We raised £9.7m in February 2010 and invested approximately £6.7m during the year and a further £3.1m since the year end.

The lack of transactions in the Midlands has limited comparable evidence available to valuers and has contributed to our portfolio being revalued downwards by 7.5% despite our own active asset management and improving rental income.  Our 2010 loss is dominated by the revaluation and interest rate swap cost.  The £1.2m loss on the market value of our swap is an accounting provision and not a cash loss, and has already improved by £450,000 by the end of February 2011.

Dividend

We remain committed to paying a dividend, and will do so as soon as our capital is invested and our contracted rental income converts to providing REI with a cash surplus.

Current trading and prospects

Enquiries and new lettings have improved significantly and as the year progresses we anticipate more opportunities that fit our criteria, to come predominantly from motivated sellers, financial institutions and insolvency practitioners.  Evidence of this has already been seen since the year end.  We are mindful that in the short to medium term, we may be creating comparable evidence that may impact on the valuations of our own portfolio.  We believe we are well placed to capitalise on opportunities with Real Estate Investors established as a respected regional investor.  We are confident that we will see capital growth returned to our portfolio once market conditions normalise.

Finally, on behalf of my colleagues I extend our thanks to our staff and advisers for their continued hard work and support.

John Crabtree OBE
Chairman
Date: 4 April 2011

Chief Executive's Report

Results for the year ended 31 December 2010

The economic environment remains fragile, yet despite all the challenges of 2010 and the continual deferral of decision-making by tenants, we were able to increase our contracted rental income from £3.3 million net per annum (2009) to £4.0 million net (2010).  We raised £9.7 million net from shareholders in February 2010 and we invested approximately £6.7 million in opportunities that met our criteria.  These included prime office investment at 75-77 Colmore Row in August 2010 (£4.5 million at a net initial yield of 8.5%, let to PricewaterhouseCoopers) and Rugeley town centre in December 2010 (£900,000 at a net initial yield of 8.35% with tenants including WH Smith and Claire's Accessories), plus a vacant property.  Additionally, we acquired a number of small development sites and public houses for planning gain and we have secured planning and banked capital growth.   

Since the year end we have acquired Kingston House in West Bromwich for £3.1 million at a net initial yield of 11%, the principal tenant being the Primary Care Trust on a lease expiring in 2019.  With the benefit of this purchase and other lettings contracted in early 2011, our current contracted income has risen to £4.5 million net per annum.  Fully let, our estimated rental value from the existing portfolio is £5.8 million per annum.  

Whilst London investment property values are extremely buoyant and driven by institutional and overseas capital, valuations in UK regions remain depressed, largely due to the lack of bank finance and very limited transactions and comparable evidence.  In our focus area of Birmingham and the wider West Midlands, we have been one of very few active investors and believe we have acquired assets favourably.  However, these acquisitions are almost the only comparable evidence available to valuers, and have contributed to our portfolio falling in value by 7.5%, despite our active asset management and improving rental income. 

Occupancy and sales

We have experienced the loss of £557,750 of rental income during the year, largely from our historic non-Midlands portfolio.  Some of these properties are now under offer to new tenants and in legals, providing positive income replacement.  In the short term and until these lettings are contracted, we have seen valuation reductions, though we believe these will recover once new leases are completed.   It is our intention to continue to reduce our non-Midlands holdings, at a surplus to existing valuations.

Letting demand has been erratic, but is gradually improving.  Existing tenants generally are renewing rather than expending capital on relocating.  There is also evidence of tenants taking additional space, as market and economic conditions support the growth of their business, as seen at York House in Birmingham city centre where the Consumer Credit Council have doubled their occupancy with us.  We also anticipate renewed demand from employment training organisations who are securing government contracts to retrain the unemployed.  We have also seen a renewed level of interest from corporates in Birmingham city centre, and again have lettings agreed, in legals, or in advanced discussions. 

New tenants this year include Tesco's, Subway, Greenberg Maher, WH Smiths, PricewaterhouseCoopers and Claire's Accessories.

Sales of £1.1 million during the year included properties in Maidstone and Tipton and both transactions realised a surplus.  I anticipate further sales this year from sites that have achieved planning approval and properties that are fully let, and no longer provide us with further asset management potential.  The Directors expect that sales in the short to medium term will generate healthy uplifts against existing valuations.

Opportunities

We expect the lack of bank finance to continue to be a feature of the market place.  However, we anticipate a greater number of transactions, prompted by banks not renewing facilities and distressed sales, from private and quoted companies who are unable to refinance.  Furthermore, the Directors believe that banks will embark upon a de-leveraging process during 2011-2012 and beyond.  Another feature of the market place will be government departments and local authorities selling assets to raise capital.  Where opportunities match our investment criteria, we will act to add assets to our portfolio.  We are well placed to capitalise on these opportunities having established REI as a respected regional property investment company, recognised by agents, advisors and vendors as a proven counterparty.

With the benefit of our cash reserves and bank facilities, we will continue to acquire opportunistically, though we are mindful that in the short to medium term, we may be creating comparable evidence that may impact on our own portfolio.  During the next 12 to 24 months our focus will be income generation from our existing portfolio and further acquisitions.  The portfolio will continue to be risk averse, with no reliance on any single tenant or property.  We firmly believe that we will see positive capital growth from rising rental income, lettings, acquisitions, lease renewals, asset management and from market normalisation. 

Banking

We have existing bank facilities with Lloyds Banking Group, Handelsbanken, Nationwide and Aviva.  We confidently anticipate securing facility renewals as they become due in 2011. REI remains well capitalised with excellent banking support.

Summary

The next 12 to 24 months will remain challenging, yet we remain well positioned to capitalise on improving occupancy, capital values, lease renewals and trading opportunities.  Additionally, the probability of rising interest rates in the future will provide us with a significant improvement on the market value of our hedge which has already recovered substantially since the year end by £450,000 at the end of February 2011.

We are very aware of short term fluctuations in property values, and their impact on our results.  REI views the downturn as an opportunity and we have already demonstrated our ability to secure assets favourably.  We remain committed to building a significant property investment business of substance and depth, with positive revenues and capital growth.

Paul Bassi CBE DL D.UNIV

Chief Executive

Date: 4 April 2011

Real Estate Investors plc

Consolidated statement of comprehensive income

For the year ended 31 December 2010

			Note	2010	2009
				£000	£000
Revenue				4,020	3,244
Cost of sales				(1,251)	544
Gross profit				2,769	3,788
Administrative expenses				(1,340)	(1,185)
Share of profit/(loss) of joint venture				9	(8)
Surplus on sale of investment property				186	-
Net (loss)/gain on valuation of investment properties				(4,119)	2,659
(Loss)/profit from operations				(2,495)	5,254
Finance income				502	570
Finance costs				(2,418)	(2,311)
(Loss)/gain on financial liabilities at fair value through profit and loss				(1,178)	832
(Loss)/profit on ordinary activities before taxation				(5,589)	4,345
Income tax credit/(expense)				801	(1,224)
Net (loss)/profit after taxation and total comprehensive income				(4,788)	3,121
Total and continuing (loss)/earnings per ordinary share
Basic			2	(1.01)p	0.91p
Diluted			2	(1.01)p	0.85p

The results of the Group for the period related entirely to continuing operations.

Real Estate Investors plc

Consolidated statement of changes in equity

For the year ended 31 December 2010

	Share	Share	Capital	Other	Retained	Total
	capital	premium	redemption	Reserves	earnings
		account	reserve
	£000	£000	£000	£000	£000	£000
At 1 January 2009	3,407	29,472	45	121	(8,846)	24,199
Profit for the year and total comprehensive income	-	-	-	-	3,121	3,121
At 31 December 2009	3,407	29,472	45	121	(5,725)	27,320
Issue of new shares	1,553	-	-	-	-	1,553
Premium on issue of shares	-	8,542	-	-	-	8,542
Expenses of share issue	-	(360)	-	-	-	(360)
Transactions with owners	1,553	8,182	-	-	-	9,735
Loss for the year and total comprehensive income	-	-	-	-	(4,788)	(4,788)
At 31 December 2010	4,960	37,654	45	121	(10,513)	32,267

Real Estate Investors plc

Consolidated statement of financial position

As at 31 December 2010

		Note	2010	2009
			£000	£000
Assets
Non current
Intangible assets			171	171
Investment properties		3	50,478	48,054
Property, plant and equipment			40	3
Deferred tax			3,310	2,509
			53,999	50,737
Investment in joint venture			103	55
			54,102	50,792
Current
Inventories			6,053	6,754
Trade and other receivables			3,707	2,671
Cash and cash equivalents			11,822	10,831
			21,582	20,256
Total assets			75,684	71,048
Liabilities
Current
Bank loans			(22,131)	(3,195)
Provision for current taxation			(118)	(149)
Trade and other payables			(1,941)	(1,942)
			(24,190)	(5,286)
Non current
Bank loans			(16,810)	(37,203)
Liabilities at fair value through profit and loss			(2,417)	(1,239)
			(19,227)	(38,442)
Total liabilities			(43,417)	(43,728)
Net assets			32,267	27,320
Equity
Share capital			4,960	3,407
Share premium account			37,654	29,472
Capital redemption reserve			45	45
Other reserves			121	121
Retained earnings			(10,513)	(5,725)
Total Equity			32,267	27,320
Net assets per share		2	6.5p	8.0p

Real Estate Investors plc

Consolidated statement of cash flows

For the year ended 31 December 2010

		2010	2009
	Note	£000	£000
Cash flows from operating activities
(Loss)/profit after taxation		(4,788)	3,121
Adjustments for:
Depreciation		7	8
Net loss/(gain) on valuation of investment property		4,119	(2,659)
Surplus on sale of investment property		(186)	-
Share of (profit)/loss of joint venture		(9)	8
Finance income		(502)	(570)
Finance costs		2,418	2,311
Loss/(gain) on financial liabilities at fair value through profit and loss		1,178	(832)
Income tax (credit)/expense		(801)	1,224
Decrease/(increase) in inventories		701	(875)
Increase in trade and other receivables		(1,036)	(1,325)
Decrease in trade and other payables		(1)	(384)
		1,100	27
Interest paid		(2,418)	(2,311)
Income taxes paid		(31)	-
Net cash from operating activities		(1,349)	(2,284)
Cash flows from investing activities
Purchase of investment properties		(6,730)	(2,787)
Purchase of property, plant and equipment		(44)	-
Proceeds from sale of investment property		373	-
Investment in joint venture		(39)	(38)
Interest received		502	570
		(5,938)	(2,255)
Cash flows from financing activities
Proceeds from issue of share capital		9,735	-
Proceeds from bank loans		-	4,980
Payment of bank loans		(1,457)	(654)
Payment of convertible debt		-	(325)
		8,278	4,001
Net increase/(decrease) in cash and cash equivalents		991	(538)
Cash and cash equivalents at beginning of period		10,831	11,369
Cash and cash equivalents at end of period		11,822	10,831

NOTES:

Cash and cash equivalents consist of cash in hand and balances with banks only.

Real Estate Investors plc

Notes to the preliminary announcement

For the year ended 31 December 2010

1.  Basis of preparation

The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of properties and financial instruments held at fair value through the profit and loss account, and in accordance with International Financial Reporting Standards (IFRS) adopted by the European Union.

It should be noted that accounting estimates and assumptions are used in preparation of the financial statements.  Although these estimates are based on management's best knowledge and judgement of current events and actions, actual results may differ from those estimates.  The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are set out in the Group's annual report and financial statements

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year.  Material intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated on consolidation.  Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

The principal accounting policies are detailed in the Group's annual report and financial statements.

Going concern

After making relevant enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. These enquiries considered the following:

·     the significant cash balances the Group holds and the low levels of historic and projected operating cashflows

·     any property purchases will only be completed if cash resources or loans are available to complete these purchases

·     the Group's bankers have indicated their continuing support for the Group

·     the Group's £20 million facility with Lloyds Banking Group is due for renewal in May 2011 and the bank has confirmed it is looking to continue its support beyond this date subject to the conclusion of appropriate independent diligence.

For this reason, the directors continue to adopt the going concern basis in preparing the financial statements.

2.  (Loss)/earnings per share and net assets per share

The calculation of (loss)/earnings per share is based on the result for the year after tax and on the weighted average number of shares in issue during the year. The calculation of diluted (loss)/earnings per share is based on the basic (loss)/earnings per share adjusted for the issue of shares on the assumed conversion of the warrants and share warrants.

Reconciliations of the (loss)/earnings and the weighted average numbers of shares used in the calculations are set out below.

	2010			2009
		Average	Loss		Average	Earnings
	Loss	Number	Per	Earnings	number of	Per
	£'000	of shares	Share	£'000	shares	Share
Basic (loss)/earnings per share	(4,788)	473,472,322	(1.01)p	3,121	340,714,327	0.91p
Dilutive effect of conversion of
convertible debt and share warrants	-	-	-	-	27,328,237	-
Diluted (loss)/earnings per share	(4,788)	473,472,322	(1.01)p	3,121	368,042,564	0.85p

The impact of share warrants and share options on the loss per share for the year ended 31 December 2010 is antidilutive.

The net assets per share is based on the net assets at 31 December 2010 of £32,267,000 (2009: £27,320,000) divided by the shares in issue at 31 December 2010 of 496,024,161 and at 31 December 2009 of 340,714,327.

3.  Investment properties

Investment properties are those held to earn rentals and for capital appreciation.

The carrying amount of investment properties for the periods presented in the consolidated financial statements as at 31 December 2010 is reconciled as follows:

				£'000
Carrying amount at 1 January 2009				42,608
Additions				2,787
Revaluation				2,659
Carrying amount at 31 December 2009				48,054
Additions				6,730
Disposals				(187)
Revaluation				(4,119)
Carrying amount at 31 December 2010				50,478

4.  Publication

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 434 of the Companies Act 2006.  The consolidated statement of financial position at 31 December 2010 and the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows and the associated notes for the year then ended have been extracted from the Group's financial statements upon which the auditor's opinion is unqualified and does not include any statement under section 498 of the Companies Act 2006.  The statutory accounts for the year ended 31 December 2010 will be delivered to the Registrar of Companies following the Group's Annual General Meeting.

5.  Copies of the announcement

Copies of this announcement are available for collection from the Company's offices at Cathedral Place, 3^rd Floor, 42-44 Waterloo Street, Birmingham, B2 5QB.

 

END

 

 

FR SSMFWFFFSEDL