Trading Update

16 July 2018

Real Estate Investors Plc

(“REI” or the “Company” or the “Group”)

Trading Update

Acquisitions, Sales, Debt Facility and Untapped Residential Value

Real Estate Investors Plc (AIM: RLE), the London Stock Exchange listed Real Estate Investment Trust (REIT) with a portfolio of 1.5 million sq ft of investment property in the Midlands property market across all sectors, is pleased to announce a trading update and the completion of a new debt facility.

Summary

·        Property acquisitions totalling £7.58 million, with a combined net initial yield of 7.66% and a potential reversion of 8.31%.

·        Property sales totalling £5.04 million.

·        A new £10 million facility with RBS at 1.95% above LIBOR, for a term of 5 years. The Company is also in discussion to restructure its £20 million Lloyds Bank facility.

Portfolio Update

The portfolio remains robust and diverse, with no material reliance on any asset or occupier. REI remains focused on neighbourhood and convenience retail, plus city centre and town centre offices, coupled with change of use opportunities from within the existing portfolio. With the benefit of existing cash and banking facilities of £30 million, the Company anticipates achieving record contracted income by the year end and making opportunistic acquisitions in the event of any ‘Brexit’ unrest in the market.

Acquisitions

In Q2 2018, REI completed acquisitions totalling £7.58 million, with an average net initial yield of 7.66% and reversionary potential to 8.31%. The assets provide excellent initial returns and significant capital growth potential. These opportunities have been secured favourably due to the Company’s local knowledge, established market reputation and track record as a cash buyer.

Topaz Business Park, Topaz Way, Bromsgrove, Worcestershire – A prominent high-quality office business park incorporating 10 self-contained office buildings, located close to Junction 1 of the M42 and comprising a total of 45,071 square feet of high specification office accommodation, with a low-density site offering prospects for further development. Acquired for £4.00 million with a rental income of £293,994 per annum and a net initial yield of 6.90%.  It is multi-let with tenants including QS Finance, MV Kelly, Handelsbanken, Fuelsoft, Toshiba and Instinctive Technologies. The Company believes that office rents in the asset are below local market levels and therefore anticipate positive rental and capital growth.

Molineux, Wolverhampton – A city centre office which is let to the Secretary of State, Department for Communities and Local Government on a recently re-geared 10-year full repairing and insuring lease with a tenant break at the fifth year. The building is well located and comprises 31,935 square feet of office accommodation, arranged over four floors, together with 44 on site car parking spaces. The investment was acquired for £3.58 million with a current rental of £324,370 per annum and a net initial yield of 8.50%. The property provides an excellent yield together with a Government-backed covenant and has strong potential for residential conversion should the asset ever become vacant.

Sales

Capitalising on strong investor appetite for regional real estate, REI has completed the sale of 24 Bennett’s Hill in Birmingham City Centre and a parade of shops on High Street, West Bromwich for a total of £5.04 million. Additionally, contracts have been exchanged at £2.81 million on the sale of retail and offices at 158 Marlowes, Hemel Hempstead, and vacant offices at Metro Court, High Street, West Bromwich. Proceeds from these sales, at around book value, will be recycled to secure further criteria compliant assets.

New £10 million facility with RBS

The Company has secured a new £10 million loan facility with RBS at 1.95% above LIBOR. This capital, combined with existing cash and bank facilities provides up to £30 million to acquire additional assets in order to further enhance rental income, whilst retaining existing gearing levels.

Additionally, discussions with Lloyds Bank to restructure the Company’s £20 million facility are in advanced stages and should be completed over the summer period. The details will be confirmed in the Interim results and are likely to result in reducing the cost of the Company’s existing debt with Lloyds Bank.

Untapped Residential Value

REI’s acquisition criteria remain strict and non-negotiable and part of which is the ‘change of use’ potential. Based on the Company’s analysis to date, it is believed that approximately 250,000 sq ft of the portfolio has potential for ‘permitted development’ conversion to residential.

Management believe the implementation of this element of the Company’s strategy will provide significant capital uplift that is not presently recognised in the existing use of certain assets as office buildings.

REI has monitored for some time the rising value of Midlands residential property, which has outperformed most other UK regions on a number of key measures, with further growth expected:

·        The latest Halifax house price index has confirmed that the West Midlands recorded the fastest annual growth in the UK, with prices in Q2 2018 increasing by 7% year on year.

·        According to Knight Frank’s 2018-2022 UK Residential Market Forecast the West Midlands looks set to enjoy 14.8% overall house price growth over the period.

REI is well positioned to gradually target vacant possession of certain assets, with a view to converting them for residential use, for resale or retention for rental income. 

Paul Bassi, CEO of Real Estate Investors Plc, commented:

“We continue to manage and grow a Midlands property portfolio which is focused on maximising value through rental increases and through capital appreciation, with no material reliance on any particular occupier or sector. We continue to see excellent demand for our neighbourhood and convenience retail and we are also beginning to see rental growth within our office portfolio.  Our strategy of seeking residential conversions in a very strong residential market place, will positively enhance capital values and further diversify our portfolio on a low risk basis.

Our region continues to enjoy strong economic activity across all sectors, with the West Midlands in particular set to prosper further from the major relocations of HSBC, HMRC, PwC to name a few, with preparations already underway for Birmingham to host the Commonwealth Games in 2022, whilst Coventry looks forward to being the City of Culture in 2021.

We anticipate further acquisition opportunities being made available to us and have £30 million in cash and bank facilities to capture criteria compliant assets, particularly in the event of any ‘Brexit’ unrest in the market.

We are positive about our continued performance and remain committed and well positioned to continue growing the Company’s dividend payments which have now grown consecutively for the past five years.”

Enquiries:

About Real Estate Investors Plc

Real Estate Investors Plc is a publicly quoted, internally managed property investment company and REIT with a portfolio of 1.5 million sq ft of commercial property, managed by a highly-experienced property team with over 100 years of combined experience of operating in the Midlands property market across all sectors.

The Company’s strategy is to invest in well located, real estate assets in the established and proven markets of central Birmingham and the Midlands, with income and capital growth potential, realisable through active portfolio management, refurbishment, change of use and lettings. The portfolio has no material reliance on a single asset or occupier.

On 1st January 2015, the Company converted to a REIT. Real Estate Investment Trusts are listed property investment companies or groups not liable to corporation tax on their rental income or capital gains from their qualifying activities.

The Company aims to deliver capital growth and income enhancement from its assets, supporting a progressive dividend policy. Further information on the Company can be found at www.reiplc.barques.dev.