Final Results

Real Estate Investors plc

Preliminary announcement

For the year ended 31 December 2011

 

Real Estate Investors PLC (AIM: RLE) the West Midlands based property group, today announces its preliminary results for the year ended 31 December 2011. 

 

Financial Highlights

·      Contracted rental income £6.0 million (2010: £4.0 million) – up 50%

·      Rental income £3.9 million (2010: £3.3 million) – up 19%

·      NAV per share 54.6p(2010: 65.0p)

·      Net assets of £39.0 million (2010: £32.3 million)

·      Triple NAV per share 54.7p (2010: 63.3p)

·      Gross property assets valued at £71.2 million (2010: £56.5 million) – up 26%

·      Investment property assets £63.4 million (2010: £50.5 million) – up 26%

·      Cash at bank of £4.5 million (2010: £11.8 million)

·      Profit before tax excluding net property valuation and financial instrument fair value movements of £115,000 (2010: loss of £292,000)

·      Loss on valuation of interest rate swap £2.6 million (2010: £1.2 million)

·      Loss before tax of £6.7 million (2010: £5.6 million)

·      Loss on revaluation of investment properties of 6.2% or £4.2 million (2010: £4.1 million)

·      Total additions to investment property in the year of £17.3 million

·      Loan to value 46% – net of cash

·      £11.7 million fundraising  in July 2011 – all invested during the year

·      Intention to begin progressive dividend payments in H2 2012

·      Refinancing with Aviva for £10.4 million

 

Operational Highlights

·      Overall occupancy level increased to 85%

·      £20m renewal of facilities with Lloyds completed

·      Selective disposals above book value such as the Tesco property at Chingford

 

For further information:

 

Real Estate Investors  Paul Bassi	+44 (0)121 265 6400
Smith & Williamson Corporate Finance Limited Azhic Basirov / Siobhan Sergeant	+44 (0)20 7131 4000
Liberum Capital  Chris Bowman / Richard Bootle	+44 (0)20 3100 2000

 

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 CP Bigwood Chartered Surveyors.

 

4.       REI was admitted to trading on AIM in June 2004. As at 31 December 2011 its portfolio and inventories were valued at £71 million.

 

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

 

 

Chairman’s statement

Introduction

 

I am very pleased to be reporting Real Estate Investors plc’s (“REI”) results for the year ended 31 December 2011, a year which saw significant development on many fronts and the establishment of the Group as a leading regional property investment business with strong foundations.

 

The economic environment has remained fragile, of course, with markets in turmoil throughout 2011 and continuing concerns over renewed recession.  Valuations in UK regions have continued to be depressed, reflected in the 6.2% loss on revaluation of our investment proprieties noted above.

 

The year in review

 

Depressed property valuations provide excellent opportunities for REI and we have acquired high quality assets, our purchases in many cases providing the comparable evidence which has been used as a basis for the revaluation. REI recorded a profit in 2011 before that revaluation and the loss on revaluation of our swap, which is an accounting provision, not a cash item.

 

The year also saw a successful £11.7m fundraising bringing with it new investors whose support we were delighted to receive, together with a renewal of our £20m facility with Lloyds banking group.

 

At the extraordinary general meeting in July, the Group received approval to consolidate the shares from 1p ordinary shares to 10p ordinary shares and to reduce the share premium account by way of a transfer to reserves in the sum of £47,154,000.

 

Dividend

 

Our contractual rental income rose 50% during the year.  In the second half of 2012, your Board intends to introduce a dividend in respect of the current year and to propose a progressive dividend policy for future years.

 

Current year and prospects

 

We see further scope to improve our contracted rental income with year-end occupancy at 85% and the benefits of £13m of new purchases in the last quarter of 2011.  The depressed economic conditions will continue to provide opportunities for acquisitions which meet our criteria. The success that management has achieved in renting void space is evidenced by contracted lettings; these will see capital growth returning to our portfolio.  The Board is actively monitoring the eligibility of REI to convert to REIT status and will consider the new legislation in due course when it is finalised in 2012.

 

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

Finally, on 25 November 2011, Peter Lewin, our former Chairman and Chief Executive passed away.  Peter made a very significant contribution to REI over the years.  On behalf of the Board and staff of REI, we would like to extend our sincere condolences to Peter’s wife and family and also record our thanks for all that Peter has done for REI and its shareholders.

 

 

John Crabtree

Chairman

Date: 23 March 2012

 

 

Chief Executive’s Statement 

Overview

 

I am pleased to report an operating profit before tax, excluding net property valuations and financial instrument fair value movements of £115,000 (2010: loss of £292,000).

Property devaluations during the year of £4.2 million are a reflection of the negative economic backdrop, the lack of transactions and comparative evidence being obtained from predominantly distressed sales. In some cases our own purchases, albeit very attractive purchases, provide the negative comparable evidence in the short term.

The fair value movement charge on our financial instrument of £2.6 million is a reflection of the market’s view of long term interest rates. It is a timing difference and not a cash item and we will continue to fix debt when it is appropriate.

We have experienced a series of unprecedented events during 2011 including the continuing political unrest in the Middle East, Eurozone crisis, UK riots, a negative UK economic backdrop and financial market turmoil.  All these factors have had a significant impact on market confidence and activity, yet we have still made excellent progress during 2011.  The key events for us during the year were:

 

·      New property acquisitions of £17 million

·      Contracted rental income rising by 50% to £6million

·      Renewal of our £20 million facility with Lloyds Banking Group

·      Cash generation sufficient to commence dividend payments in the second half of 2012

 

Our contracted rental income has further scope to improve to our estimated rental value of £7.0 million from the existing portfolio.  Year end occupancy is 85%.  This rising rental income is derived from the letting of existing property and new acquisitions of £17 million that met our criteria, including:

 

·      Kingston House in West Bromwich – acquired for £3.1m at a yield of 11% and let to The Secretary of State to 2019;

·      Southgate Retail Park in Derby – acquired for £4.8m at a yield of 8.6% and let to, inter alia, Lidl, Dreams and Gym4All, with additional space to let;

·      Peat House in Leicester – acquired for £4.4m at a yield of 11.6% and let to KPMG to 2015;

·      Gateway House in Birmingham – acquired for £3.85m at a yield of 16.2% and let to a range of retail / commercial tenants, with additional space to let.

Since the year end we have also let the remaining space in Avon House, Bromsgrove at the estimated rental value (‘ERV’).

The benefit of the rental income from these new lettings and acquisitions, will be reflected in 2012, as £13million of purchases took place in September and  December 2011, and will form the foundation for a dividend policy for 2012 and onwards.

 

The loss from our hedge is a non cash item which will recover once we see the inevitable rise in the unprecedented low interest rates; this has already improved by £400,000 as at 1 March 2012.  The revaluation deficit is indicative of a lack of transactions and the comparable evidence created by our own opportunistic acquisitions.  This figure includes £600,000 of Stamp Duty, legal and professional fees relating to our purchases throughout the year.   Our property acquisitions in 2011 are included at cost, (except for Kingston House), and again will provide potential capital upside in 2012.

 

Sales

 

We will always make opportunistic sales.  We sold a unit let to Tesco in Chingford for £960,000 together with a small development site, both above our book value.  Since the year end we have sold further development land, again at a price above our book value.

 

Banking

 

New purchases during 2011 have been funded from existing cash, £11.7 million of new equity and the refinancing of our unencumbered and income producing assets.  We also renewed our £20 million loan facility with Lloyds Banking Group for a term of 3 years on similar terms to the previous facility. We continue to operate our business prudently, with no reliance on any single asset, tenant or bank.

Since the year end, we have finalised a further £10.4 million refinance with Aviva, taking advantage of historically low fixed interest rates. The decision to borrow from Aviva is a deliberate strategy to balance our lending away from the banking sector to the insurance lenders.  This will avoid regular uncertainty over facilities and avoid incurring renewal fees which the banks are seeking to charge on a more frequent basis.

 

Regional Outlook

 

Our core investment area is the West Midlands and central England, which has re-invented itself on many occasions.  Following the demise of Rover, British Steel and other traditional manufacturers, the region has much to be positive about, despite the economic gloom:

 

·      £120 billion of exports

·      Best performing high streets in the UK (PWC)

·      Vibrant and active automotive sector

·      Expansion of Jaguar Land Rover, creating 1,000 supply chain jobs

·      Expansion of Birmingham International Airport

·      Commencement of £640 million New Street Station project

·      Growing medical research, development and pharmaceutical businesses

·      HS2 approved by government

 

The management’s association with CPBigwood Chartered Surveyors, Bond Wolfe and Paul Dubberley & Co, reveals record auction results of £46 million, improved lending for housing, strong residential sales across all price ranges and rising residential rents.

 

Outlook and Opportunities for 2012

 

We are now firmly established as a respected West Midlands quoted property company that has achieved ‘favoured buyer’ status and a reputation which I believe will attract further opportunities.

We continue to see greater levels of stock, predominantly from institutions and receivers.  The expected level of sales from banks has been limited but we believe that we will see greater activity in 2012, in particular from the Irish banks, Royal Bank of Scotland and secondary lenders.

 

Our criteria dictate that property must have the potential for asset management initiatives that will provide capital growth potential and attractive yields.  The properties acquired during the last few years provide excellent yields and I believe that once market valuations settle and recover, we will benefit from some very healthy capital growth.  In the short to medium term, we will be the recipients of a strong positive cash flow from a growing and secure rental stream.

The fragile market place will continue to provide further opportunities.  We currently have a number of properties in our pipeline that meet our criteria and we are in advanced discussions with the view to adding these to our portfolio.

The occupier market is improving as evidenced from our letting success.  We continue to see evidence of a strong residential market for both sales and lettings and a healthy improvement in bank lending which has supported private treaty and auction sales in 2011.

 

Summary

 

The UK economy and property and asset valuations remain subdued, yet this is an ideal environment in which to grow and establish REI within the Midlands.  We have maintained excellent occupancy levels, acquired some good quality prime and secondary assets with attractive yields, whilst capitalising on first rate banking relationships and refinancing unencumbered, but income producing assets, against historically low interest rates. Simplistically, we have created a diverse regional portfolio, with strong yields and capital growth potential.

 

I remain optimistic about 2012 for REI as a business, and I believe that capital values will improve gradually during 2012 to 2014, benefitting from our asset management and lettings success, together with general improvement in market conditions.

 

 

Paul Bassi CBE DL D.UNIV DSc

Chief Executive

Date: 23 March 2012

 

 

Real Estate Investors plc

Consolidated statement of comprehensive income

For the year ended 31 December 2011

 

 

	Note	2011	2010
		£000	£000
Revenue		4,897	4,020
Cost of sales		(1,300)	(1,251)
Gross profit		3,597	2,769
Administrative expenses		(1,362)	(1,340)
Share of (loss)/profit of joint venture		(2)	9
Surplus on sale of investment property		22	186
Net loss on valuation of investment properties		(4,230)	(4,119)
Loss from operations		(1,975)	(2,495)
Finance income		197	502
Finance costs		(2,337)	(2,418)
Loss on financial liabilities at fair value through profit and loss		(2,577)	(1,178)
Loss on ordinary activities before taxation		(6,692)	(5,589)
Income tax credit		1,663	801
Net loss after taxation and total comprehensive income		(5,029)	(4,788)
Total and continuing loss per ordinary share
Basic (2010: adjusted for share consolidation)	2	(8.5)p	(10.1)p
Diluted (2010: adjusted for share consolidation)	2	(8.5)p	(10.1)p

 

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 2011

 

 

	Share capital	Share premium account	Capital redemption reserve	Other reserves	Retained earnings	Total
	£000	£000	£000	£000	£000	£000
At 1 January 2010	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
Issue of new shares	2,182	–	–	–	–	2,182
Premium on issue of shares	–	9,818	–	–	–	9,818
Expenses of share issue	–	(257)	–	–	–	(257)
Reduction of share premium account	–	(47,154)	–	–	47,154	–
Transactions with owners	2,182	(37,593)	–	–	47,154	11,743
Loss for the year and total comprehensive income	–	–	–	–	(5,029)	(5,029)
At 31 December 2011	7,142	61	45	121	31,612	38,981

 

 

Real Estate Investors plc

Consolidated statement of financial position

At 31 December 2011

 

 

	Note	2011	2010
		£000	£000
Assets
Non current
Intangible assets		171	171
Investment properties	3	63,434	50,478
Property, plant and equipment		28	40
Deferred tax		4,890	3,310
		68,523	53,999
Investment in joint venture		148	103
		68,671	54,102
Current
Inventories		7,795	6,053
Trade and other receivables		2,469	3,707
Cash and cash equivalents		4,461	11,822
		14,725	21,582
Total assets		83,396	75,684
Liabilities
Current
Bank loans and overdraft		(2,930)	(22,131)
Provision for current taxation		(18)	(118)
Trade and other payables		(2,052)	(1,941)
		(5,000)	(24,190)
Non current
Bank loans		(34,421)	(16,810)
Liabilities at fair value through profit and loss		(4,994)	(2,417)
		(39,415)	(19,227)
Total liabilities		(44,415)	(43,417)
Net assets		38,981	32,267

 

Equity
Share capital		7,142	4,960
Share premium account		61	37,654
Capital redemption reserve		45	45
Other reserves		121	121
Retained earnings		31,612	(10,513)
Total Equity		38,981	32,267
Net assets per share (2010: adjusted for share consolidation)	2	54.6p	65.0p

 

 

Real Estate Investors plc

Consolidated statement of cash flows

For the year ended 31 December 2011

 

		2011	2010
		£000	£000
Cash flows from operating activities
Loss after taxation		(5,029)	(4,788)
Adjustments for:
Depreciation		12	7
Net loss on valuation of investment property		4,230	4,119
Surplus on sale of investment property		(22)	(186)
Share of loss/(profit) of joint venture		2	(9)
Finance income		(197)	(502)
Finance costs		2,337	2,418
Loss on financial liabilities at fair value through profit and loss		2,577	1,178
Income tax credit		(1,663)	(801)
(Increase)/decrease in inventories		(1,742)	701
Decrease/(increase) in trade and other receivables		1,238	(1,036)
Increase/(decrease) in trade and other payables		111	(1)
		1,854	1,100
Interest paid		(2,337)	(2,418)
Income taxes paid		(17)	(31)
Net cash from operating activities		(500)	(1,349)
Cash flows from investing activities
Purchase of investment properties		(17,321)	(6,730)
Purchase of property, plant and equipment		–	(44)
Proceeds from sale of investment property		157	373
Investment in joint venture		(47)	(39)
Interest received		197	502
		(17,014)	(5,938)
Cash flows from financing activities
Proceeds from issue of share capital net of expenses		11,743	9,735
Payment of bank loans		(3,804)	(1,457)
		7,939	8,278
Net (decrease) /increase/in cash and cash equivalents		(9,575)	991
Cash, cash equivalents and bank overdrafts at beginning of period		11,822	10,831
Cash, cash equivalents and bank overdrafts at end of period		2,247	11,822

 

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 2011

 

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 historical and projected operating cashflows

·    rising rental income, together with properties actively being marketed, leading to improving profitability

·    the bank loan covenants, which are principally related to loan to property asset value ratios, are expected to be met going forward

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

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

·     the Group’s £20 million facility with Lloyds Banking Group was renewed in October 2011 on similar terms for a period of three years.

 

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

 

2.  Loss per share and net assets per share

 

The calculation of loss 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 per share is based on the basic loss per share adjusted for the issue of shares on the assumed conversion of the share warrants and share options.

 

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

 

	2011			2010
	Loss	Average number of shares	Loss per Share	Earnings	Average number of shares	Earnings per share
	£’000			£’000
Basic loss per share	(5,029)	595,252,057	(0.85)p	(4,788)	473,472,322	(1.01)p
Dilutive effect of conversion of
share warrants and options	–	–	–	–	–	–
Diluted loss per share	(5,029)	595,252,057	(0.85)p	(4,788)	473,472,322	(1.01)p

 

Following the consolidation of the shares from 1p shares to 10p shares the loss per share is restated as 8.5p per share (2010: 10.1p).

 

The impact of share warrants and share options on the loss per share for the years ended 31 December 2010 and 2011 is antidilutive.

 

Following the consolidation of the shares from 1p shares to 10p the net assets per share is based on the net assets at 31 December 2011 of £38,981,000 (2010: £32,267,000) divided by the shares in issue at 31 December 2011 of 71,420,598 and at 31 December 2010 of 49,602,416.

 

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 2011 is reconciled as follows:

 

		£’000
Carrying amount at 1 January 2010		48,054
Additions – acquisition of new properties		6,624
Additions – subsequent expenditure		106
Disposals		(187)
Revaluation		(4,119)
Carrying amount at 31 December 2010		50,478
Additions – acquisition of new properties		17,022
Additions – subsequent expenditure		299
Disposals		(135)
Revaluation		(4,230)
Carrying amount at 31 December 2011		63,434

 

 

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 2011 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 2011 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.