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
|
+44 (0)121 265 6400 |
|
Smith & Williamson Corporate Finance Limited Azhic Basirov / Siobhan Sergeant
|
+44 (0)20 7131 4000 |
|
Liberum Capital Limited 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 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.barques.dev.
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, 3rd Floor, 42-44 Waterloo Street, Birmingham, B2 5QB.
END
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