Final Results

RNS Number : 6256U

Real Estate Investors PLC

26 June 2009

 



Real Estate Investors plc

("REI" or "the Company" or "the Group")

Preliminary announcement

For the year ended 31 December 2008

Real Estate Investors PLC (AIM:RLE) the West Midlands based property group, today announces its preliminary results for the year ended 31 December 2008.

Highlights:

• Gross property assets £48.5 million up 7.1% (2007: £45.3 million)

• Investment property assets up 16% to £42.6 million (2007: £36.7 million)

• Rental income up 21% to £2.3 million (2007: £1.9 million) (revenue includes sale of property of £700,000 (2007: £1.3 million)

• Net property valuation write down of £10.9 million, equivalent to 20.4% (2007: net gain of £807,000)

• Loss on valuation of interest rate swaps of £2.1 million (2007: £nil)

• Net assets of £24.2 million (2007: £35.3 million), equating to 7.1p per share (2007: 10.4p)

• Loss before tax of £15.7 million (2007: profit of £1.8 million) after property valuation write down of £10.9 million and loss on valuation of interest rate swaps of £2.1 million

• Loss before tax before property valuation write down (including £2,024,000 write down of properties held for trading) and financial instrument provisions £673,000 (2007: profit of £970,000)

• Cash and cash equivalents of £11.4 million (2007: £4.9 million) equating to 3.3p per share (2007: 1.4p per share)

• Total acquisitions of property in the year of £16.9 million (2007: £23.1 million)

• REI's strong funding and extensive network position the Group well for 2009 and for further opportunistic but prudent expansion

For further information please contact:

Enquiries:

Real Estate Investors plc  Paul Bassi	[phone]
Smith & Williamson Corporate Finance Limited Azhic Basirov/Siobhan Sergeant	[phone]

Notes to Editors

1.  REI was admitted to trading on AIM in June 2004 and is a property investment and development company specialising in commercial property investment throughout the 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 property assets.

3.  REI's Board is led by respected property investor Paul Bassi, who has over 25 years of property experience. Mr Bassi is also co-founder and Chairman of Bond Wolfe Auctioneers and Chairman of Bigwood Chartered Surveyors.

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

  Chairman's statement

For the year ended 31 December 2008

The twelve months to December 2008 have seen unprecedented volatility and turmoil in the financial and property markets and at the centre of this have been a substantial reduction in capital values and a corresponding correction in property yields.  UK commercial property capital values fell 26.3% according to the IPD UK annual index with investment funds and property companies seeing reductions even greater than this.  REI has revalued its assets downwards by £10.9 million representing a reduction of approximately 20%, significantly below the UK average. In addition we experienced substantial reductions in interest earned on our cash deposits and these two factors combined have had a significant impact on REI's results. We are also required to account under IFRS for a £2 million fair value charge on our interest rate swap arrangements relating to our £20 million HBOS loan. This is a non-cash item that would only be payable if REI decided to exit these agreements. We confirm that we have no intention of such exit. Accordingly, we expect to be able to reverse the charge over time and, as at 31 May 2009, the value has already recovered by approximately £800,000.

Our strategy of acquiring asset management opportunities and property for refurbishment has shown itself to be robust and has enabled REI to outperform the market. We remain ideally positioned to capitalise on property opportunities with the benefit of our strong cash reserves which have  increased to £14.0 million since the year end and the confirmed continuing support and facilities of a number of lending banks.

During the completed financial year we held back from investing too aggressively, instead anticipating  'better value' opportunities to emerge which we expect will be seen during 2009. We focussed on our asset management and speeding up refurbishment programmes. Refurbishments were completed at Colmore Row and Bennetts Hill, as well as Cathedral Place which has been shortlisted for the 'Property Week' regeneration award. During the year, REI  secured new tenancies from Adroit Construction, United Business Centres, Claimar Care, Cafe Nero and Vantis PLC and we successfully finalised a number of rent reviews and lease renewals. 

In addition to new rental income streams, we will also benefit from receiving related service charges, insurance income and the elimination of non-domestic rates payments. These savings should add positively to our future net income.  

These initiatives in normal market conditions would add significant value, and in the present market they have provided REI with a very secure and defensive property portfolio.

During the year, REI acquired Bridge Street in Walsall; York House in Birmingham City Centre; and Kings Heath High Street and Metro Court in West Bromwich.  These further additions to our West Midlands portfolio offer attractive yields, capital growth and asset management opportunities.

We have no particular reliance on any one sector or tenant which, given the challenging economic background, helps protect REI from negative impacts on its business.  As a result of new letting and acquisitions, our rental income has increased by 21%.  

  OUTLOOK AND PROSPECTS

The unprecedented market conditions are revealing winners and losers in the property sector. We firmly believe that the combination of REI's experienced management team, its strategy of regional investment and pro-active asset management and a strong funding position provide REI with the very best potential and opportunity to emerge as a winner with a strong, secure, traditional property investment company. This belief has been demonstrated by further investment in the shares of the Company by the management team during  2008. 

We believe market conditions are beginning to stabilise, although we would not be surprised by further periods of volatility. However, overall, we expect a markedly improved performance during the current financial year.  

Since the year end, we have achieved additional lettings and renewed leases at higher rents and longer lease terms. We have also renegotiated certain of our existing banking facilities and raised nearly £5.0 million against some of our unencumbered properties to provide us with total cash resources of £14.0 million. This allows REI to take advantage of the opportunities that are expected to arise during the second half of 2009 and into 2010.

Finally, my thanks to all our staff and advisers for their continued support which, coupled with our association with Bigwood & Bond Wolfe, give me significant optimism for 2009 and beyond.

Peter Lewin

Chairman

26 June 2009 

Real Estate Investors Plc

  Consolidated Income Statement

For the year ended 31 December 2008

	Note	2008	2007
		£000	£000
Revenue		3,006	3,160
Cost of Sales		(3,079)	(1,113)
Gross (loss)/profit		(73)	2,047
Administrative expenses		(1,169)	(967)
Surplus on disposal of investment property		-	171
Share of (loss)/profit of joint venture		(335)	5
Net (loss)/gain on valuation of investment properties		(10,903)	807
(Loss)/profit from operations		(12,480)	2,063
Finance income		1,054	768
Finance costs		(2,174)	(1,054)
Loss on financial liabilities at fair value and through profit and loss		(2,071)	-
(Loss)/profit on ordinary activities before taxation		(15,671)	1,777
Income tax credit/(expense)		4,584	(548)
Net (loss)/profit for the year		(11,087)	1,229
Total and continuing earnings per ordinary share
Basic	2	(3.25)p	0.36p
Diluted	2	(3.25)p	0.34p

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

  Consolidated Statement of Changes in Equity

For the year ended 31 December 2008

	Share	Share	Capital	Other	Retained	Total
	capital	premium	redemption	reserves	earnings
		account	reserve
	£000	£000	£000	£000	£000	£000
At 1 January 2007	3,407	29,472	45	121	1,012	34,057
Net profit for the year and total recognised income and expense for the year	-	-	-	-	1,229	1,229
At 31 December 2007	3,407	29,472	45	121	2,241	35,286
Net loss for the year and total recognised income and expense for the year	-	-	-	-	(11,087)	(11,087)
At 31 December 2008	3,407	29,472	45	121	(8,846)	24,199

Consolidated Balance Sheet

As at 31 December 2008

	Note	2008	2007
		£000	£000
Assets -
Non current
Intangible assets		171	171
Investment properties	3	42,608	36,661
Property, plant and equipment		11	39
Deferred tax		3,733	-
		46,523	36,871
Investment in joint venture		25	328
		46,548	37,199
Current
Inventories		5,879	8,603
Trade and other receivables		1,346	1,666
Cash and cash equivalents		11,369	4,866
		18,594	15,135
Total assets		65,142	52,334
Liabilities
Current
Bank loans		(374)	(437)
Provision for current taxation		(149)	(319)
Trade and other payables		(2,326)	(1,295)
Convertible debt		(325)	-
		(3,174)	(2,051)
Non current
Bank loans		(35,698)	(14,327)
Liabilities at fair value through profit and loss		(2,071)	-
Convertible debt		-	(325)
Deferred tax liabilities		-	(345)
		(37,769)	(14,997)
Total liabilities		(40,943)	(17,048)
Net assets		24,199	35,286

	Note	2008	2007
		£000	£000
Equity
Share capital		3,407	3,407
Share premium account		29,472	29,472
Capital redemption reserve		45	45
Other reserves		121	121
Retained earnings		(8,846)	2,241
Total Equity		24,199	35,286
Net assets per share	2	7.1p	10.4p

  Consolidated Cash Flow Statement

For the year ended 31 December 2008

		Year ended	Year ended
	Note	31 December 2008	31  December 2007
		£000	£000
Cash flows from operating activities
(Loss)/profit after taxation		(11,087)	1,229
Adjustments for:
Depreciation		25	26
Net loss/(gain) on valuation of investment property		10,903	(807)
Surplus on sale of investment property		-	(171)
Share of loss/(profit) of joint venture		335	(5)
Finance income		(1,054)	(768)
Finance costs		2,174	1,054
Loss on financial liabilities at fair value through profit and loss		2,071	-
Income tax (credit)/expense		(4,584)	548
Decrease in inventories		2,724	1,100
Decrease/(increase) in trade and other receivables		224	(810)
(Decrease)/increase in trade and other payables		(16)	526
		1,715	1,922
Interest paid		(2,174)	(1,054)
Income taxes paid		(1)	(11)
Net cash from operating activities		(460)	857
Cash flows from investing activities
Acquisition of subsidiaries net of cash acquired	4	(148)	-
Purchase of investment properties		(12,750)	(23,067)
Purchase of property, plant and equipment		(1)	(4)
Proceeds from sale of investment property		-	1,571
Proceeds from sale of property, plant and equipment		4	-
Investment in joint venture		(32)	1
Interest received		1,054	771
		(11,873)	(20,728)
Cash flows from financing activities
Proceeds from bank loans		20,028	-
Payment of bank loans		(1,192)	(2,151)
Payment of finance lease liability		-	(1)
		18,836	(2,152)
Net increase/(decrease) in cash and cash equivalents		6,503	(22,023)
Cash and cash equivalents at beginning of period		4,866	26,889
Cash and cash equivalents at end of period		11,369	4,866

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

  Notes to the preliminary announcement

For the year ended 31 December 2008

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.

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 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 convertible loan notes and the conversion of the warrants.

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

	2008			2007
		Average	(Loss)		Average	Earnings
	(Loss)	number	per	Earnings	number of	per
	£'000	of shares	share	£'000	Shares	share
Basic (loss)/earnings per share	(11,087)	340,714,327	(3.25)p	1,229	340,714,327	0.36p
Dilutive effect of conversion of
convertible debt and share warrants					28,979,545
Diluted earnings per share			(3.25)p	1,229	369,693,872	0.34p

The impact of convertible debt and share warrants on the loss per share for the year ended 31 December 2008 is antidilutive.

The net assets per share is based on the net assets at 31 December 2008 of £24,199,000 (2007 : £35,286,000) divided by the shares in issue at 31 December 2008 and 2007 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 2008 is reconciled as follows:

	£'000
Carrying amount at 1 January 2007	14,187
Additions	23,067
Disposals	(1,400)
Revaluation	807
Carrying amount at 31 December 2007	36,661
Additions	12,750
On acquisition of subsidiary undertaking	4,100
Revaluation	(10,903)
Carrying amount at 31 December 2008	42,608

4.  Acquisitions

On 21 November 2008 Real Estate Investors plc acquired the entire issued share capital of Metro Court (WB) Limited, a private company based in the UK for total consideration of £687,000. At 31 December 2008, £188,000 of this cash consideration remains payable and is included within other payables. In addition, Metro Court (WB) Limited committed to repaying £500,000 of balances due to its former directors which formed part of the net assets acquired. Of this amount £22,000 remained payable at 31 December 2008 and is included in other payables.

The principal activity of Metro Court (WB) Limited is the acquisition, development and management of property.

The book value under IFRS and the fair values of the assets and liabilities acquired as at the date of acquisition were as follows:

	Book value before acquisition under IFRS	Fair value adjustment	Fair value
	£'000	£'000	£'000
Non current assets
Property, plant and equipment	4,100	-	4,100
Trade and other receivables	92	-	92
Cash and cash equivalents	351	-	351
	4,543	-	4,543
Current liabilities:
Trade and other payables	1,048	-	1,048
Deferred tax liability	-	335	335
Non current liabilities:
Bank loans	2,473	-	2,473
Total liabilities	3,521	335	3,856
Net assets	1,022	(335)	687
Consideration			£,000
Cash			675
Costs associated with the acquisition settled in cash			12
Fair value of purchase consideration			687

The fair value adjustment represents the recognition of a deferred tax liability arising on the revaluation of the property in the business.

From the date of acquisition to 31 December 2008 the contribution of Metro Court (WB) Limited to the loss before tax of the Group was immaterial. Metro Court (WB) Limited did not make a material contribution to or utilisation of Group cashflow from the date of acquisition to 31 December 2008.

5.  Publication

The financial information set out in this preliminary announcement does not constitute statutory accounts. 

The consolidated balance sheet at 31 December 2008 and the consolidated income statement, consolidated statement of changes in equity, consolidated cash flow statement and associated notes for the year then ended have been extracted from the Group's 2008 statutory financial statements upon which the auditors opinion is unqualified.

6.  Copies of the announcement

Copies of this announcement are available for collection from the Company's offices at West Plaza, 8th Floor, 144 High Street, West Bromwich, B70 6JJ.

 

END

 

 

FR SEWFIMSUSEIM