Interim Results
Real Estate Investors PLC
21 September 2007
REAL ESTATE INVESTORS PLC
("REI" or "the Company")
Interim results for the six months ended 30 June 2007
Real Estate Investors PLC (AIM: RLE), the AIM listed property group, announces
its results for the six months ended 30 June 2007.
Highlights:
* Portfolio valuation plus inventories £43 million
* Six months profit before tax £2.9 million (including revaluation surplus)
* Six months profit before tax, excluding revaluation surplus, £530,000 (2006:
loss of £267,000)
* Net assets at 30 June 2007 up 6% to £36 million
* Balance sheet cash at 30 June 2007 of £10.9 million
* £4.5 million acquisition of Guardian House, West Bromwich
* Purchase for £5.2 million of Bromsgrove office investment and terms agreed for
major letting
* New acquisitions purchased from cash resources
* Refurbishment and new lettings at £6.35 million acquisition in Colmore Row/
Bennett's Hill Birmingham
Commenting on the interim results, Peter Lewin, Chairman of REI, stated:
"In April, I reported on a year of great progress in REI's activities and I am
happy to say that the Company has since accelerated its activities with several
strategic acquisitions and disposals. The changing property market that is now
emerging suits REI's strategy. The Company's cash balances, plus its debt free
properties which are benefiting from rising rental income and capital values,
will enable it to take advantage of market opportunities."
For further information please contact:
Paul Bassi - Chief Executive 0121 524 1174
Real Estate Investors PLC
www.reiplc.com
Azhic Basirov
Siobhan Sergeant
Smith & Williamson Corporate Finance Limited 020 7131 4000
CHAIRMAN'S STATEMENT
Overview
In April I reported on a year of great progress in REI's activities and I am
happy to say that the Company has since accelerated its activities with several
strategic acquisitions and disposals. Confidence in the Company's management,
following the £25 million institutional placing in December 2006, has been
further enhanced by substantial market purchases of ordinary shares by our chief
executive, Paul Bassi, resulting in his shareholding increasing to 17.46%. These
16.6 million ordinary shares have been acquired at 11.5p and 12p - a significant
premium to the current market price.
We believe that the Company is on course to achieving its objective of building
a £150 million portfolio and the recent off market purchases have established
REI as a well respected investor in the West Midlands commercial property
markets.
Through the close relationship with Bond Wolfe Auctioneers and Bigwood Chartered
Surveyors, REI enjoys excellent market intelligence enabling it to act quickly
and complete transactions that it would otherwise have to compete for in the
wider market.
The strategy of adding value to the portfolio is exemplified by refurbishments
and subsequent lettings which, together with rent reviews, improve yields and
capital values, contributing to profitability.
The financial statements for the six months to 30 June 2007 do not fully reflect
the full benefit of the uplift in potential capital values and rental income,
which will not be seen for between 6 to 12 months from acquisition. We
anticipate that the results for the year to 31 December 2007 will better
illustrate the Company's performance. The acquisitions at Colmore Row and
Bennetts Hill, Birmingham and Avon House, Bromsgrove, for a total consideration
of £11.5 million, have achieved new lettings and renewals to Investbx, Bigwoods
Chartered Surveyors, Select PLC and Weststaff UK. In addition, terms for a major
letting have been agreed at Avon House and further details will follow shortly.
The Company has over £10.9 million of cash available to it to fund acquisitions.
Since the fundraising in December 2006, all acquisitions have been made from the
Company's cash resources and, at present, there is no intention to refinance.
This balance sheet strength places REI in a dominant position to take advantage
of opportunities in what is becoming an in increasingly opportunistic market.
The Company's gross property assets, excluding inventories, increased in the six
months to 30 June 2007 by 135% from £14 million to £33 million, with rental
income increasing to £1.8 million per annum from £1.4 million per annum. The
Company's net assets increased 6% to £36 million.
Net asset value per share is currently estimated to be 10.6p.
International Financial Reporting Standards ("IFRS")
In compliance with AIM requirements, REI has adopted IFRS for the first time in
these interim financial statements. The IFRS accounting policies adopted are
consistent with those to be used for the Company's financial statements as at 31
December 2007.
Please refer to Notes 1 and 2, as well as the note entitled "Transition to
IFRS", of the interim consolidated financial statements to understand the key
adjustments implemented to ensure compliance with and transition to IFRS for the
Company's reporting purposes.
Trading Operations
In June, the Company announced the off market purchase from Warner Estates of
Guardian House, West Bromwich for £4.5 million in cash. Providing 42,000 sq ft
of high quality office accommodation, the property is let in its entirety to the
Secretary of State and Challinors solicitors. This town centre investment offers
rental and capital growth opportunities.
On 10 September 2007, the Company announced the disposal of a property in
Southend, from its trading portfolio, together with the sale of an investment
property in Portsmouth. The total sale consideration represents a surplus of
£260,000 over the December 2006 valuation. Following debt repayment, the Company
has received net cash proceeds of over £1 million, which will be utilised in its
property acquisition programme.
Prospects
The changing property market that is now emerging suits REI's strategy. The
Company's cash balances, plus its debt free properties which are benefiting from
rising rental income and capital values, will enable it to take advantage of
market opportunities.
The transfer of the head office to West Bromwich has gone smoothly. The
Company's website (www.reiplc.com) provides updated information on its
activities and the share price.
It is a pleasure for me to write to you in such positive terms and I look
forward to communicating with you again shortly.
Peter Lewin
Chairman
21 September 2007
CONSOLIDATED INTERIM INCOME STATEMENT
for the six months ended 30 June 2007
Six months to Six months to Year ended
Note 30 June 2007 30 June 2006 31 December 2006
(Unaudited) (Unaudited) (Unaudited)
£'000 £'000 £'000
Revenue 833 646 1,425
Administrative expenses (337) (245) (588)
Director's bonus and
compensation payments (160) (160)
Transfer re share warrants - (121) (121)
Surplus on disposal of
investment property - 45 45
Share of profit of joint venture 37 18 57
Net valuation gains/(deficits) 2,356 - (142)
Finance costs (553) (470) (1,030)
Interest income 550 20 90
---------- ---------- ------------
Profit/(loss) before tax 2,886 (267) (424)
Income tax expense (846) - 90
---------- ---------- ------------
Net profit/(loss) for
the period 2,040 (267) (334)
========== ========== ============
Basic earnings/(loss)
per share 4 0.60p (0.50p) (0.40p)
---------- ---------- ------------
Diluted earnings/(loss)
per share 4 0.57p (0.50p) (0.40p)
---------- ---------- ------------
CONSOLIDATED INTERIM BALANCE SHEET
as at 30 June 2007
30 June 2007 30 June 2006 31 December 2006
(Unaudited) (Unaudited) (Unaudited)
£'000 £'000 £'000
Assets
Non current assets
Investment property 33,443 10,877 14,187
Property, plant and equipment 50 73 61
Goodwill 172 117 171
Investment in joint venture 330 207 324
----------- ---------- -------------
33,995 11,274 14,743
----------- ---------- -------------
Current assets
Inventories 9,703 9,703 9,703
Trade and other receivables 396 701 488
Cash and cash equivalents 10,924 2,998 27,324
----------- ---------- -------------
21,023 13,402 37,515
----------- ---------- -------------
Total assets 55,018 24,676 52,258
=========== ========== =============
Liabilities
Current liabilities
Short term borrowings 370 370 370
Trade and other payables 996 809 792
----------- ---------- -------------
1,366 1,179 1,162
----------- ---------- -------------
Non-current liabilities
Long term borrowings 16,354 14,326 16,545
Convertible debt 325 325 325
Deferred tax liabilities 876 212 169
----------- ---------- -------------
17,555 14,863 17,039
----------- ---------- -------------
Total liabilities 18,921 16,042 18,201
=========== ========== =============
Net assets 36,097 8,634 34,057
=========== ========== =============
Equity
Issued capital 3,407 765 3,407
Share premium account 29,472 6,624 29,472
Capital redemption reserve 45 45 45
Other reserves 121 121 121
Profit and loss account 3,052 1,079 1,012
----------- ---------- -------------
Total equity 36,097 8,634 34,057
=========== ========== =============
STATEMENT OF CHANGES IN EQUITY
30 June 2007 30 June 2006 31 December
2006
(Unaudited) (Unaudited) (Unaudited)
£'000 £'000 £'000
Opening equity 34,057 6,500 6,500
Profit/(loss) for the period 2,040 (267) (334)
Share issue - 2,280 27,770
Transfer re share warrants - 121 121
----------- ---------- --------------
Closing equity 36,097 8,634 34,057
=========== ========== ==============
CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 30 June 2007
Six months to Six months to Year ended
30 June 2007 30 June 2006 31 December 2006
(Unaudited) (Unaudited) (Unaudited)
£'000 £'000 £'000
Cash flows from operating activities
Profit after taxation 2,040 (267) (334)
Adjustments for:
Depreciation 11 13 25
Net valuation (gains)/deficits (2,356) - 142
Surplus on sale of investment
property - (45) (45)
Share of profit of joint venture (37) (18) (57)
Interest income (550) (20) (90)
Finance costs 553 470 1,030
Taxation expense recognised
in profit and loss 846 - (90)
Transfer re share warrants - 121 121
Decrease/(increase) in trade
and other receivables 92 12 (69)
Increase/(decrease) in trade
and other payables 77 96 (105)
---------- ---------- ----------
Cash generated from operations 676 362 528
Interest paid (553) (470) (1,030)
Income taxes paid (13) - -
---------- ---------- -----------
Net cash from operating activities 110 (108) (502)
---------- ---------- -----------
Cash flows from investing activities
Acquisition of subsidiaries
net of cash acquired - - (566)
Purchase of investment properties (16,900) (1,053) (2,011)
Proceeds from sale of investment
property - - 456
Investment in joint venture 31 (199) (224)
Interest received 550 20 90
---------- ---------- ----------
Net cash used in investing
activities (16,319) (1,232) (2,255)
---------- ---------- ----------
Cash flows from financing activities
Proceeds from issue of share capital - 2,112 26,769
Proceeds from long term borrowing - 825 1,752
Payment of long term borrowing (191) (944) (784)
Payment of finance lease liability (2) (3)
---------- ---------- ----------
Net cash used in financing
activities (191) 1,991 27,734
---------- ---------- ----------
Net (decrease)/increase in
cash and cash equivalents (16,400) 651 24,977
Cash and cash equivalents at
beginning of period 27,324 2,347 2,347
---------- ---------- ----------
Cash and cash equivalents at
end of period 10,924 2,998 27,324
========== ========== ==========
NOTES TO THE CONSOLIDATED STATEMENTS
1. Basis of preparation
These interim consolidated financial statements are for the six months ended 30
June 2007. They have been prepared in accordance International Financial
Reporting Standards (IFRS), as adopted by the European Union, and the
requirements of IFRS 1 First-time Adoption of International Financial Reporting
Standards relevant to interim reports, because they are part of the period
covered by the group's first IFRS financial statements for the year ending 31
December 2007.
They do not include all of the information required for full annual financial
statements, and should be read in conjunction with the consolidated financial
statements of the group for the year ended 31 December 2006.
These financial statements have been prepared under the historical cost
convention, except for revaluation of investment properties.
2. Principal differences between IFRS and UK GAAP:
The principal differences between IFRS and UK GAAP applicable to the Group's
financial statements are:
i) under UK GAAP gains on revaluation of investment properties are included as a
revaluation reserve. Under IFRS these gains are taken to the Income Statement.
ii) under UK GAAP deferred tax on the revaluation gains of investment properties
are disclosed as a note to the accounts. Under IFRS the tax on these revaluation
gains are included in the Income Statement.
iii) under UK GAAP negative goodwill is carried in the Balance Sheet. Under IFRS
the excess of assets acquired over the fair value of consideration paid is
recognised in the Income Statement.
iv) under UK GAAP goodwill is amortised but under IFRS it is tested annually for
impairment.
3. Summary of significant accounting policies
The principal accounting policies intended to be adopted for the financial
statements for the year ending 31 December 2007 are set out below.
i) Basis of preparation
The consolidated financial information has been prepared under the historical
cost convention, as modified by the revaluation of investment properties.
ii) Basis of consolidation
The consolidated financial statements include the financial statements of the
Company and its subsidiaries. The results of the subsidiaries are included from
the effective date of acquisition. Business combinations are accounted under the
purchase method. Any excess of the purchase price of business combinations over
the fair value of the assets and liabilities acquired and the resulting deferred
tax thereon is recognised as goodwill. Any discount received is credited to the
Income Statement in the period of acquisition.
Joint ventures are accounted for under the equity method of accounting.
iii) Goodwill
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the fair value of the assets and liabilities acquired. Goodwill
is recognised as an asset and reviewed for impairment annually.
iv) Revenue
Rental income is recognised on a straight line basis over the term of the lease.
Where the group provides lease incentives to its tenants the cost of the
incentives are recognised over the lease term on a straight line basis as a
reduction in income.
Revenue for the sale of assets is recognised when the significant risks and
returns have been transferred to the buyer. In the case of the sale of
investment properties this is generally taken on completion.
v) Investment property
Investment property is held at fair value based on a professional valuation.
Changes in the fair value of investment property are recognised in the Income
Statement.
vi) Inventories
Properties held for trading are stated at the lower of cost and net realisable
value.
vii) Taxation
The tax expense represents the sum of the tax currently arising and deferred tax
for the period.
The tax currently payable is based on the taxable profit for the period.
Deferred tax is provided in full, using the liability method, on all temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. Deferred tax is
provided in full on the difference between the original cost of investment
properties and their carrying amount at the reporting date. A deferred tax asset
is regarded as recoverable and therefore recognised only when, on the basis of
all available evidence, it can be regarded as more likely than not that there
will be suitable taxable profits from which the future reversal of the
underlying temporary differences can be deducted.
4. Earnings per share
Earnings per share have been calculated on the profit for the period of
£2,040,000 (31 December 2006: loss £334,000 and 30 June 2006: loss £267,000) and
on 340,714,327 (31 December 2006: 82,085,371 and 30 June 2006: 53,204,277)
ordinary shares, being the weighted average number of shares in issue during the
period.
The diluted earnings per share has been calculated on a profit for the period of
£2,040,000 and on 359,056,372 ordinary shares (to include the effect of
2,954,545 ordinary shares on the conversion of the convertible loan notes and
15,387,500 ordinary shares on the exercise of the share warrants). The
conversion of the convertible loan notes and the exercise of the share warrants
would not be dilutive to the loss per share for 2006.
TRANSITION TO IFRS
Reconciliation of profit
CONSOLIDATED INTERIM INCOME STATEMENT
for the year ended 31 DECEMBER 2006
Year ended
31 December 2006
(Unaudited)
UK GAAP Effect of transition to IFRS IFRS
Goodwill Revaluation of
amortisation investment
property
(Note a) (Note b)
£'000 £'000 £'000 £'000
Revenue 1,425 - - 1,425
Administrative expenses (594) 6 - (588)
Director's bonus and
compensation payments (160) (160)
Transfer re share warrants (121) (121)
Surplus on disposal of
investment property 45 - - 45
Share of profit of joint
venture 57 - - 57
Net valuation gains/(deficits) (272) - 130 (142)
Finance costs (1,030) - - (1,030)
Interest income 90 - - 90
------- --------- ------------- -------
Profit before tax (560) 6 130 (424)
Income tax expense 47 - 43 90
------- --------- ------------- -------
Net profit for the period (513) 6 173 (334)
======= ========= ============= =======
Reconciliation of profit
CONSOLIDATED INTERIM INCOME STATEMENT
for the year ended 30 JUNE 2006
Six months to
30 June 2006
(Unaudited)
UK GAAP Effect of transition to IFRS IFRS
Goodwill Revaluation of
amortisation investment
property
(Note a) (Note b)
£'000 £'000 £'000 £'000
Revenue 646 - - 646
Administrative expenses (248) 3 - (245)
Director's bonus and
compensation payments (160) - - (160)
Transfer re share warrants (121) - - (121)
Surplus on disposal of
investment property 45 - - 45
Share of profit of joint
venture 18 - - 18
Finance costs (470) - - (470)
Interest income 20 - - 20
------- ---------- ------------- -------
Profit before tax (270) 3 - (267)
Income tax expense - - - -
------- ---------- ------------- -------
Net profit for the period (270) 3 - (267)
======= ========== ============= =======
CONSOLIDATED BALANCE SHEET
as at 1 JANUARY 2006
As at 1 JANUARY 2006
Note UK GAAP Effect of transition to IFRS IFRS
£'000 £'000 £'000
Assets
Non current assets
Investment property 10,130 - 10,130
Property, plant and
equipment 86 - 86
Goodwill a&c (786) 903 117
-------- -------------- --------
9,430 903 10,333
-------- -------------- --------
Current assets
Inventories 9,703 - 9,703
Trade and other
receivables 189 - 189
Cash and cash
equivalents 2,347 - 2,347
-------- -------------- --------
12,239 - 12,239
-------- -------------- --------
Total assets 21,669 903 22,572
======== ============== ========
Liabilities
Current liabilities
Short term borrowings 1,127 - 1,127
Trade and other
payables 713 - 713
-------- -------------- --------
1,840 - 1,840
-------- -------------- --------
Non-current liabilities
Long term borrowings 13,695 - 13,695
Convertible debt 325 - 325
Deferred tax
liabilities b - 212 212
-------- -------------- --------
14,020 212 14,232
-------- -------------- --------
Total liabilities 15,860 212 16,072
======== ============== ========
Net assets 5,809 691 6,500
======== ============== ========
Equity
Issued capital 523 - 523
Share premium account 4,586 - 4,586
Capital redemption
reserve 45 - 45
Revaluation reserve b 708 (708) -
Profit and loss
account a&c (53) 1,399 1,346
-------- -------------- --------
Shareholders' funds 5,809 691 6,500
======== ============== ========
CONSOLIDATED BALANCE SHEET
as at 31 DECEMBER 2006
As at 31
December 2006
Note UK GAAP Effect of transition to IFRS IFRS
£'000 £'000 £'000
Assets
Non current assets
Investment property 14,187 - 14,187
Property, plant and
equipment 61 - 61
Goodwill a&c (738) 909 171
Investment in joint
venture 324 324
-------- -------------- --------
13,834 909 14,743
-------- -------------- --------
Current assets
Inventories 9,703 - 9,703
Trade and other
receivables 488 - 488
Cash and cash
equivalents 27,324 - 27,324
-------- -------------- --------
37,515 - 37,515
-------- -------------- --------
Total assets 51,349 909 52,258
======== ============== ========
Liabilities
Current liabilities
Short term borrowings 370 - 370
Trade and other
payables 792 - 792
------- -------------- -------
1,162 - 1,162
------- -------------- -------
Non-current liabilities
Long term borrowings 16,545 - 16,545
Convertible debt 325 - 325
Deferred tax
liabilities b 169 169
------- -------------- --------
16,870 169 17,039
-------- -------------- --------
Total liabilities 18,032 169 18,201
======== ============== ========
Net assets 33,317 740 34,057
======== ============== ========
Equity
Issued capital 3,407 - 3,407
Share premium account 29,472 - 29,472
Capital redemption
reserve 45 - 45
Revaluation reserve b 838 (838) -
Other reserves 121 - 121
Profit and loss account b&c (566) 1,578 1,012
-------- -------------- --------
Shareholders' funds 33,317 740 34,057
======== ============== ========
CONSOLIDATED BALANCE SHEETS
as at 30 JUNE 2006
As at 30 June 2006
Note UK GAAP Effect of transition to IFRS IFRS
£'000 £'000 £'000
Assets
Non current assets
Investment property 10,877 - 10,877
Property, plant and
equipment 73 - 73
Goodwill a&c (789) 906 117
Investment in joint
venture 207 207
-------- -------------- --------
10,368 906 11,274
-------- -------------- --------
Current assets
Inventories 9,703 - 9,703
Trade and other
receivables 701 - 701
Cash and cash
equivalents 2,998 - 2,998
-------- -------------- --------
13,402 - 13,402
-------- -------------- --------
Total assets 23,770 906 24,676
======== ============== ========
Liabilities
Current liabilities
Short term borrowings 370 - 370
Trade and other
payables 809 - 809
-------- -------------- --------
1,179 - 1,179
-------- -------------- --------
Non-current liabilities
Long term borrowings 14,326 - 14,326
Convertible debt 325 - 325
Deferred tax
liabilities b - 212 212
-------- -------------- --------
14,651 212 14,863
-------- -------------- --------
Total liabilities 15,830 212 16,042
======== ============== ========
Net assets 7,940 694 8,634
======== ============== ========
Equity
Issued capital 765 - 765
Share premium account 6,624 - 6,624
Capital redemption
reserve 45 - 45
Revaluation reserve b 708 (708) -
Other reserves 121 - 121
Profit and loss account b&c (323) 1,402 1,079
-------- -------------- --------
Shareholders' funds 7,940 694 8,634
======== ============== ========
NOTES TO TRANSITION TO IFRS
a) Goodwill is no longer amortised and is recognised as an asset and reviewed
for impairment.
b) Gains on revaluation of investment property, together with the associated
deferred tax, are taken to the income statement.
c) Under UK GAAP negative goodwill is carried in the Balance Sheet. Under IFRS
the excess of assets acquired over the fair value of consideration paid is
recognised in the Income Statement.
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