Final Results
Real Estate Investors PLC
09 June 2005
REAL ESTATE INVESTORS PLC
Preliminary results for the period ended 31 December 2004
Real Estate Investors PLC ("REI" or "the Company"), the commercial property
investment company, today announces the preliminary results for the period ended
31 December 2004.
Highlights:
* Portfolio now valued at £19.8m, following active acquisition programme
* Rental income, increased to £1.4m pa, from £0.35m at float
* Net assets, increased since flotation to £3.6m at 31 December 2004
* Portfolio typified by quality investment properties, let on long leases to
strong tenant covenants
* Targets set at time of flotation achieved
* 25 year, fixed interest, institutional long term debt in place
* 15 million new REI shares issued at premium to market price (and asset value)
since float
* 4.2 million new shares placed at 12p, in August 2004 (to satisfy demand, post
successful float)
* Recent completion of acquisition of KBR portfolio for £3.5m
For further information please contact:
Peter Lewin - Chief Executive 01923 776633
Malcolm Lewin - Finance Director
CHAIRMAN'S STATEMENT
I am delighted to be able to report to you on REI's considerable progress, since
flotation, in June 2004.
The results to 31 December 2004 reflect the start up phase for REI and include
part year rental income for three property acquisitions.
We have achieved the targets set by the directors, despite low borrowing costs
in the UK which we believe has fuelled the most competitive and active property
market in recent memory.
Our investment portfolio is currently valued at £19.8m, an increase of £15.6m
since flotation. Gross rental income has increased from £0.35m to £1.4m and 15
million new shares have been issued, at a premium to underlying net asset value,
and as a result our shareholder base has widened considerably.
We have concentrated our efforts on the purchase of medium sized commercial
property investments, let to strong tenant covenants on secure leases. The
portfolio is further diversified, by property type, geographic location and
tenant.
Fixed interest, long term financing is the backbone of our business and I am
pleased to say that several such new mortgage facilities have been put in place
with institutional lenders; the largest being a £7.6m, 25 year, fixed
coupon facility with Norwich Union.
Our portfolio is growing as a result of significant acquisitions, several of
which I should like to mention.
In October 2004, we purchased a newly refurbished industrial complex, in
Coventry, which is let to PHS Group PLC.
At the end of the year, we completed the acquisition of the share capital of
3147398 Limited (formerly Bacchus Estates Limited), for a total consideration of
£9m in respect of the underlying properties. The company owns a diverse
portfolio of 13 commercial investments, throughout Southern England and
generates income of £0.65m, with good prospects of rental growth and capital
appreciation.
We have recently completed the acquisition of the five property KBR portfolio,
let to tenants including Barclays Bank, Whitbread, JJB Sports, St Austell
Brewery and JJ Coral, for a total consideration of £3.5m.The locations are in
Newport, Portsmouth, Wakefield, Ilfracombe and Manchester.
Other activity includes the purchase of a retail investment in Hemel Hempstead
Town Centre, let to Centrica PLC and the disposal of an A3 leisure property, in
London SW11, let to Cafe Rouge. The latter was sold at a surplus over
acquisition and book cost and will release £0.35m of cash, for our active
acquisition programme.
All of these acquisitions involved the issue, to the vendors, of new ordinary
shares in REI, at a premium to underlying asset value and we welcome those
vendors to the shareholder list. At the time of flotation, in June last year, we
set out the financing strategy for our acquisition programme and, despite the
strength of the commercial property investment market and competition for
quality investments, we have been able to find attractive opportunities, where
vendors are prepared to invest in REI.
Your directors have the experience and depth of knowledge to generate the level
and quality of business that will form the platform for our further expansion.
We believe that the property investment sector is exhibiting classic signs of
overheating and, with our low overhead structure, there will be increasing
opportunities for us to improve profitability.
At this stage, your directors are not recommending the payment of a dividend.
With an eye to avoiding unnecessary costs, we are not preparing an illustrated
annual report to accompany the financial statements. Instead we hope that you
will visit our website, www.reiplc.com, where financial information, property
details, photographs and continuously updated news on REI can be viewed, with
announcements by the Company e-mailed directly to you.
The progress made over the past 16 months has been achieved through the hard
work and dedication of our small but loyal staff; I should like to express my
thanks to them, for their very considerable effort and support.
I shall look forward to the announcement of further significant progress,
shortly.
John J Jack, Chairman.
GROUP PROFIT AND LOSS ACCOUNT
For the period from 16 February to 31 December 2004
£000 £000
Turnover
Continuing operations 16
Acquisitions 198
-----
214
Administration expenses (218)
------
Operating profit
Continuing operations (192)
Acquisitions 188
------
(4)
Net interest payable and similar charges (93)
------
Loss on ordinary activities before taxation (97)
Tax on loss on ordinary activities 30
------
Loss on ordinary activities after taxation (67)
Dividends -
------
Loss retained (67)
======
Basic and diluted loss per share (0.36p)
GROUP BALANCE SHEET AT 31 DECEMBER 2004
Note
£000
Fixed assets
Intangible assets - goodwill 4 148
- negative goodwill 4 (906)
------
(758)
Tangible assets 5,574
------
4,816
Current assets
Stock 9,655
Debtors 334
Cash at bank 2,028
-------
12,017
Creditors: amounts falling due within one year (9,279)
-------
Net current assets 2,738
-------
Total assets less current liabilities 7,554
Creditors: amounts falling due after more than one year
Convertible debt (325)
Other (3,628)
-------
(3,953)
-------
Net assets 3,601
=======
Capital and reserves
Called up share capital 7 320
Share premium account 2,703
Capital redemption reserve 45
Shares to be issued 600
Profit and loss account (67)
------
Shareholders' funds 3,601
======
GROUP CASH FLOW STATEMENT
For the period from 16 February 2004 to 31 December 2004
£000
Net cash inflow from operating activities 84
-----
Returns on investments and servicing of finance
Interest received 21
Interest paid (95)
-----
Net cash outflow from returns on investments and servicing of finance (74)
Taxation (20)
Capital expenditure and financial investment
Purchase of tangible fixed assets (1,205)
-------
Net cash outflow from capital expenditure and financial investment (1,205)
Acquisitions and disposals
Purchase of subsidiary undertakings (218)
Payment of exchange deposit for 3147398 Limited acquisition (300)
Payment of amounts owed by subsidiaries to vendors (837)
Net cash from purchase of subsidiaries 763
-----
Net cash outflow from acquisitions and disposals (592)
Financing
Net proceeds from issue of shares 2,563
Receipts from borrowing 3,000
Repayments of borrowing (1,728)
-------
Net cash inflow from financing 3,835
-------
Increase in cash 2,028
=======
NOTES TO THE PRELIMINARY ANNOUNCEMENT
For the period from 16 February 2004 to 31 December 2004
1. Basis of preparation
The preliminary results of the group set out in this preliminary announcement do
not constitute statutory accounts as defined in Section 240 of the Companies Act
1985.
The financial information for the period ended 31 December 2004 has been
extracted from the group's statutory financial statements to that date, upon
which the auditor's opinion is unqualified and does not include any statement
under Section 237 of the Companies Act 1985. The statutory financial statements
have not yet been filed with the Registrar of Companies.
2. Principal accounting policies
The group's statutory financial statements for the period ended 31 December 2004
are the first it has prepared, and
The principal accounting policies applied are set out below.
Accounting policies
The financial statements are prepared in accordance with applicable United
Kingdom accounting standards.
Accounting convention
The financial statements are prepared under the historical cost convention as
modified by the revaluation of investment properties.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
Real Estate Investors Plc and its subsidiaries for the period ended 31 December
2004. Subsidiaries have been consolidated under the acquisition method of
accounting and the results of companies acquired are included from the date of
acquisition.
Goodwill
Goodwill on consolidation represents the excess of the purchase consideration
over the fair value of net assets acquired, and is amortised to the profit and
loss account over 20 years or its useful economic life, whichever is the
shorter.
Negative goodwill
Negative goodwill represents the excess of the fair value of net assets acquired
over the purchase consideration, and is credited to the profit and loss account
in the periods in which the acquired non-monetary assets are recovered through
depreciation or sale.
Turnover
Turnover, which excludes value added tax, comprises rental income which is
recognised evenly over the term of the lease to which it relates and the
proceeds from the sale of trading properties.
Investment properties
The groups properties are held for long term investment and are included in the
balance sheet on the basis of market value in accordance with SSAP 19. The
surpluses or deficits on annual revaluations of such properties are transferred
to the revaluation reserve. Depreciation is not provided in respect of freehold
investment properties. Leasehold investment properties are not amortised where
the unexpired term is over 20 years.
This policy represents a departure from statutory accounting principles, which
require depreciation to be provided on all fixed assets. The directors consider
this policy is necessary in order that the financial statements give a true and
fair view, because current values and changes in current values are of prime
importance rather than the calculation of systematic annual depreciation.
Depreciation is only one of many factors reflected in the annual valuation and
the amount, which might otherwise be shown, cannot be separately identified or
quantified.
Depreciation
Depreciation is calculated to write down the cost to residual value of all
tangible fixed assets, excluding investment properties, by equal annual
instalments over their expected useful economic lives over the following
periods:
Leasehold improvements - length of lease
Office equipment - four years
Investments
Investments in subsidiary undertakings are recorded at cost less provision for
impairment.
Properties held for trading
Properties held for trading are included in the balance sheet at the lower of
cost and net realisable value or, in the case of subsidiaries acquired, the fair
value of the properties at the date of acquisition.
Financing costs
The costs of arranging finance for the group are written off to profit and loss
account over the terms of the associated finance.
Operating leases
Annual rentals under operating leases are charged to the profit and loss account
as incurred.
Deferred tax
Deferred tax is recognised on all timing differences where the transactions or
events give the group an obligation to pay more tax in the future, or a right to
pay less tax in the future, have occurred by the balance sheet date. Deferred
tax assets are recognised when it is more likely than not that they will be
recovered. Deferred tax is measured using the rates of tax that have been
enacted or substantially enacted by the balance sheet date.
Deferred tax is measured on a undiscounted basis at the tax rates that are
expected to apply in the periods in which timing differences reverse, based on
tax rates and laws enacted or substantially enacted at the balance sheet date.
Unprovided deferred taxation will crystallise on the sale of assets at their
balance sheet value.
3. Loss per share
The calculation of loss per share is based on the loss retained for the
period of £67,000 and on 18,927,814 ordinary shares of 1p each which is the
weighted average number of shares in issue during the period ended 31 December
2004
4. Intangible fixed assets
Goodwill on consolidation Negative goodwill Total
£000 £000 £000
Group
Cost
Additions 152 (906) (754)
At 31 December 2004 152 (906) (754)
---- ----- -----
Amortisation
Provided during the
year 4 - 4
---- ----- -----
At 31 December 2004 4 - 4
---- ----- -----
Net book amount at
31 December 2004 148 (906) (758)
==== ====== =====
5. Acquisitions
a) On 10 June 2004, on flotation, the company acquired the whole issued share
capital of Eurocity (Crawley) Limited.
The results of Eurocity (Crawley) Limited prior to the acquisition were as
follows:
Period from 1 January
to 10 June 2004
£000
Turnover 134
Administration expenses (3)
-----
Operating profit 131
Net interest payable (57)
-----
Profit on ordinary activities before
taxation 74
Taxation (24)
-----
Profit for the financial period after
taxation 50
=====
The acquisition of Eurocity (Crawley) Limited has been accounted for by the
acquisition method of accounting. The following table sets out the
adjustments made to the book value of assets and liabilities acquired to
arrive at fair values included in the consolidated financial statements at
the date of acquisition.
Book value Revaluation Fair value
£000 £000 £000
Investment property 3,000 100 3,100
Creditors (716) - (716)
Corporation tax (43) - (43)
Borrowings (1,717) (1,717)
------- ------ -------
524 100 624
Goodwill ======= ====== 128
-------
752
=======
Satisfied by:
Cash 102
Issue of shares 325
Unsecured convertible loan notes 325
-------
752
=======
The fair value adjustment relates to the revaluation of the investment property
to open market value.
The subsidiary undertaking acquired during the period made the following
contribution to group cash flow:
2004
£000
Net cash inflow from operating activities 92
Tax (20)
Financing activities (72)
------
Increase in cash -
======
Analysis of net outflow of cash in respect of the purchase of the subsidiary
undertaking:
2004
£000
Cash consideration (102)
======
b) On 10 June 2004, on flotation, the company acquired the whole issued share
capital of Boothmanor Limited.
The results of Boothmanor Limited prior to the acquisition were as follows:
Period from 1 February to
10 June 2004
£000
Turnover 23
Administration expenses (9)
----
Operating profit 14
Net interest payable (21)
----
Profit on ordinary activities before
taxation (7)
Taxation -
----
Profit for the financial period after
taxation (7)
====
The acquisition of Boothmanor Limited has been accounted for by the acquisition
method of accounting. The following table sets out the book value of assets and
liabilities acquired, which are also the fair values included in the
consolidated financial statements at the date of acquisition.
Book value and fair
value
£000
Investment property 1,100
Debtors 2
Cash at bank and in hand 12
Creditors (215)
Borrowings (807)
------
92
Goodwill 24
------
116
======
Satisfied by:
Cash 116
======
The subsidiary undertaking acquired during the period made the following
contribution to group cash flow.
2004
£000
Net cash inflow from operating activities 28
Financing activities (7)
----
Increase in cash 21
====
Analysis of net outflow of cash in respect of the purchase of the subsidiary
undertaking:
2004
£000
Cash at bank and in hand acquired 12
Cash consideration (116)
-----
(104)
=====
c) The acquisition of 3147398 Limited was the subject of a conditional contract
scheduled to be completed on 23 December 2004, on which date funds were drawn
down for the completion and all conditions satisfied, save only that one item of
banking documentation relating to the discharge of security could not be made
available before Christmas. The directors consider that control of 3147398
Limited had effectively passed to Real Estate Investors Plc prior to 31 December
2004, and the consolidated financial statements have therefore been drawn up to
include the assets and liabilities of 3147398 Limited, as at 31 December 2004.
This has no effect on the consolidated profit and loss account.
On completion on 5 January 2005 the existing bank loans of 3147398 Limited,
amounting to £6,102,000, were repaid and replaced by a new facility of
£7,600,000 of which £7,200,000 was made immediately available to the group. The
facility is repayable by instalments over a period of 25 years at a fixed
interest rate of 6.04%. At the same time payments of approximately £2,150,000
were made to the vendor in connection with the completion of the transaction,
which have not been reflected in these accounts. The effect of these was to
reduce the group's cash balances from £2,028,000 to £967,000. The company has
included the assets and liabilities of 3147398 Limited as at the 31 December
2004 in its consolidated financial statements although legal completion of the
acquisition took place on 5 January 2005.
The results of 3147398 Limited prior to 31 December 2004 were as follows:
Period from 1 October to 31 December 2004
£'000
Turnover 1,667
Cost of sales (1,352)
-------
Gross profit 315
Administration expenses (52)
-------
Operating profit 263
Net interest payable (98)
-------
Profit on ordinary activities
before taxation 165
Taxation (58)
-------
Profit for the financial period
after taxation 107
=======
The acquisition of 3147398 Limited has been accounted for by the acquisition
method of accounting. The following table sets out the adjustments made to the
book value of assets and liabilities acquired, to arrive at fair values included
in the consolidated financial statements at the date of acquisition:
Book value Revaluation Fair value
£000 £000 £000
Properties held for trading 5,863 3,792 9,655
Debtors 170 - 170
Cash at bank 752 - 752
Creditors (110) - (110)
Corporation tax (163) - (163)
Borrowings (6,102) - (6,102)
------- ------ -------
410 3,792 4,202
======= ======
Negative goodwill (906)
-------
3,296
=======
Satisfied by:
Deferred consideration 2,696
Issue of shares 600
------
3,296
======
The fair value adjustments relate to the revaluation of the properties held for
trading to open market value.
The subsidiary undertaking acquired during the period made no contribution to
group cash flow.
Analysis of net inflow of cash in respect of the purchase of the subsidiary
undertaking:
2004
£000
Cash at bank 752
=====
On 5 January 2005, the cash consideration to be paid in relation to this
acquisition was made.
On 7 January 2005, 5,853,658 ordinary shares of 1p each were issued for £600,000
as part consideration for the acquisition of 3147398 Limited.
6. Financial instruments
Maturity of financial liabilities
The group financial liabilities analysis at 31 December 2004 was as follows:
Group Company
2004 2004
£000 £000
In less than one year
Bank borrowings 6,272 24
In more than one year but less than two years
Bank borrowings 176 26
In more than two years but less than five years
Bank borrowings 557 89
In more than five years
Bank borrowings 2,956 881
----- -----
9,961 1,020
Deferred arrangement costs (61) (18)
----- -----
9,900 1,002
===== =====
Borrowing facilities
The group has no undrawn committed borrowing facilities at 31 December 2004.
At 31 December 2004 the group had, subject to final release, secured refinancing
in relation to the acquisition of 3147398 Limited (note 5).
7. Share capital
Number of £000
shares
Authorised:
Ordinary shares of 1p each 1,000,000,000 10,000
============= ======
Allotted, called up and fully paid
Ordinary shares of 1p each 31,984,615 320
============= ======
On 16 February 2004, 2 ordinary shares of £1 each were issued for £2 in cash.
On 17 March 2004, 49,998 ordinary shares of £1 each were issued for £49,998 in
cash.
On 4 June 2004 each issued £1 ordinary shares was subdivided into 10 ordinary
shares of 1p each and one deferred share of 90p. The deferred shares were
redeemed for 1p in the aggregate.
On 10 June 2004, 22,650,000 ordinary shares of 1p each were issued for
£2,265,000 in cash and 3,250,000 ordinary shares of 1p each were issued for
£325,000 as part consideration for the acquisition of the share capital of
Eurocity (Crawley) Limited.
On 31 August 2004, 4,200,000 ordinary shares of 1p each were issued for £504,000
in cash.
On 28 October 2004, 1,384,615 ordinary shares of 1p each were issued for
£180,000 as part consideration for the acquisition of Unit 1, Coventry.
The excess of the total consideration of shares issued of £3,279,000 over the
nominal value of £320,000 has been credited to the share premium account.
8. Post balance sheet events
On 9 March 2005, the Company completed the acquisition of a freehold property in
Hemel Hempstead, Hertfordshire, for a consideration of £1,085,000, satisfied as
to £900,000 in cash and £185,000 by the issue of 1,450,980 ordinary shares of
1p.
On 27 April 2005, the Company's subsidiary Boothmanor Limited exchanged
conditional contracts to dispose of a leasehold property in London, SW11, for a
consideration of £1,190,000 payable in cash on completion.
On 27 May 2005, the Company completed the acquisition of five freehold
properties in Wakefield, Devon, Manchester, Portsmouth and Newport, South Wales,
for a consideration of £3,499,320, satisfied as to £3,284,388 in cash and
£214,932 by the issue of 1,999,367 ordinary shares of 1p.
9. Copies of announcement
Copies of this announcement are available from the Company's business premises
at REI House, Bury Lane, Rickmansworth, Hertfordshire WD3 1ED.
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