Final Results

30th April 2008

Real Estate Investors PLC 30 April 2008 REAL ESTATE INVESTORS PLC (“REI” or “the Company”) PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 Real Estate Investors PLC (AIM:RLE), the West Midlands based property company, today announces its preliminary results for the year ended 31 December 2007. Highlights: 1. Gross property assets £45.3 million up 90% (2006 £23.9 million) 2. Investment property assets up 158% to £36.7 million (2006 £14.2 million) 3. Rental income up 27% to £1.9 million (2006 £1.5 million) 4. Net assets up 3.6% to £35.3 million (2006 £34 million) after net property valuation gains of £807,000 5. Profit before tax £1.8 million (2006 loss £0.4 million) 6. Profit before tax excluding net property valuation gains £970,000 (2006 £282,000 loss) 7. Net asset value 10.4p per share (2006 10.0p) 8. £20 million facility raised with Bank of Scotland in January – total available funding for investment from cash and existing facilities is £100 million 9. Total acquisitions of property in the year £23.1 million 10.Strong funding and extensive network position REI well for 2008 and for further opportunistic but prudent expansion. For further information please contact: Enquiries: Real Estate Investors plc +44 (0)121 524 1174 Paul Bassi Smith & Williamson Corporate Finance Limited +44 (0)20 7131 4000 Azhic Basirov / Siobhan Sergeant Notes to Editors 1. REI is an AIM listed property investment and development company specialising in commercial property throughout the 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 property assets 3. REI’s Board is led by respected property investor Paul Bassi, who has over 23 years of property experience. Mr Bassi is also co-founder and chairman of Bond Wolfe Auctioneers and deputy chairman of Bigwood Chartered Surveyors – the combined businesses place them in the UK’s top 50 property auction houses and estate agents 4. REI was admitted to trading on AIM in June 2004. In December 2006, REI successfully raised £25 million to aggressively grow its property portfolio, at that time, estimated to be worth approximately £28 million. Paul Bassi is the largest shareholder in the Company 5. Further information on REI can be found at www. CHAIRMAN’S STATEMENT For the year ended 31 December 2007 I am pleased to report on a year of considerable progress and growth in Real Estate Investor’s activities, especially so when set against the background of the continuing turmoil in the credit markets and the adverse effects on the commercial property sector. The results for the year show a profit before tax of £1,777,000 (2006: loss of £424,000) including net property valuation gains of £807,000 (2006: deficits of £142,000), with basic earnings per share of 0.36p (2006: loss per share of 0.41p). As at 31 December 2007 the net assets per share was 10.4p (2006: 10.0p). The present financial market turbulence is having a significant impact on the property market yet, despite this, in January 2008 we arranged a £20 million facility with Bank of Scotland against some of our unencumbered property, notwithstanding the general reluctance of many banks and institutions to lend. Together with our existing cash and bank facilities, we have £100 million at our disposal to make strategic acquisitions, and greatly expand the size and profitability of the Company, by capitalizing on existing market opportunities. I can assure shareholders, however, that we will be prudent and patient in our approach to further investment purchases as demonstrated by the lack of deals done in the last quarter of 2007, to reflect the current challenging business climate. Whilst waiting for the appropriate opportunities, and as a result of the credit crunch, we are also able to secure premium interest rates on our deposits. Our decision to focus on the West Midlands region, where the management fully understands the economy and has an extensive network, has proved beneficial and employment and occupier demand remains positive in the West Midlands region, as evidenced by the lettings we have secured in the first quarter of 2008. This is the first year in which the financial statements have been prepared under International Financial Reporting Standards (IFRS). The main changes in the presentation of the accounts are: a) Goodwill is no longer amortised and is instead reviewed annually for impairment. b) Gains on revaluation of investment property are taken to the income statement and deferred tax is recognized in respect of valuations. c) Under UK GAAP negative goodwill is carried in the Balance Sheet. Under IFRS the excess of assets over the fair value of consideration is recognized in the income statement at the date of acquisition. During the year we disposed of two properties, Portsmouth and Southend, both at prices in excess of the book value recorded in the 2006 financial statements. Whilst we have taken a prudent and realistic view of our portfolio valuations, to reflect the current market turbulence, I believe that our other assets could readily find purchasers at or above their book values, as evidenced by the current results being achieved in the London auction houses. Following a valuation by DTZ, only a nominal allowance for capital growth has been made for properties acquired in 2007, due to the infancy of the asset management opportunities. However, we believe that these purchases will provide a very positive contribution to the 2008 results. Our gross property assets increased over the twelve month period by 90% from £23.9 million to £45.3 million. Rental income for 2007 was £1.9 million compared to £1.4 million for 2006 and net assets increased from £34 million to £35.3 million again after allowing for the value of our assets as outlined above. As stated earlier, our cash resources provide us with substantial firepower to acquire new assets. We anticipate that the current disorder in the property market could continue through the year, which could present acquisition opportunities – however, we will only be prepared to use our cash resources to make further acquisitions where valuations better reflect prevailing market conditions and vendors sell at revised and more realistic values. We will only make acquisitions that will provide considerable capital growth potential and attractive yields. We further believe that asset management opportunities will become more attractive to buy and more readily available to cash buyers like ourselves, as they will find bank funding difficult to secure. Via our association with Bond Wolfe, Bigwood and our extensive network, we continue to access investment and asset management opportunities. The Board’s strategic decision not to acquire yield driven investment property, in anticipation of further yield compression, has proved to be a sensible one. Our policy of concentrating on assets where we can add value, create an investment opportunity and benefit from capital growth is serving us well and creates some protection against falls in commercial property values. A progressive dividend policy is a major element in our stated strategy and demonstrates the Company’s progress and financial strength. If the Company achieves its financial targets for the current year and with a view to the prevailing market conditions, then the board intends to consider payment of an inaugural dividend. Review of 2007 Whilst our press announcements and interactive website have covered our acquisitions in 2007, I provide below an update of activity since our year end. Colmore Row The comprehensive refurbishment programme is almost complete and new lettings have been achieved at target rents, or better. There is a strong demand for the remaining space, at similarly strong rental levels, and a further letting to Vantis PLC at a rental of £45,000 per annum is in solicitors’ hands. We are negotiating with an adjoining owner for a substantial capital payment to be made to REI, in respect of ‘loss of light’, and I will be reporting to you shortly on the successful conclusion of these negotiations. Avon House Only 2,400 sq ft from 24,000 sq ft remains unlet, following the letting of one floor to United Business Centres, one floor to Androit Contruction Plc and the remainder to West Mercia Housing (presently in legals). We anticipate a very positive capital enhancement as a result of these lettings. All rents achieved are at our target levels. Guardian House We acquired this investment property, as it was significantly under rented. Negotiations with the present occupier have reached an advanced stage and we are confident of finalising these shortly, leading to an increase in capital value. Waterloo Street Caffe Nero has now agreed a 15 year lease of the entire ground floor of this important city centre property at a commencing rent of £68,000 per annum, for a term of 15 years with 5 year reviews (presently in solicitors’ hands). There is good tenant demand for the upper floor offices and a comprehensive refurbishment has begun which is aimed at private banking, corporate finance houses and similar professionals. Again we expect a very positive investment value during 2008. Hagley Court This is a prime Edgbaston office building with substantial car parking. This has now been refurbished and we have 5,919 sq ft already let to Jigsaw Insurance. Latitude This project, close to the Birmingham Hippodrome, was acquired from George Wimpey in September 2007 and comprises 198 residential flats being built by Wimpey and an open planning consent for the ground floor retail content, which we have acquired. Whilst the scheme is still some 15 months from completion, we are in discussions with several prospective tenants. Bridge Street Walsall In March this year we made our most recent acquisition, in Walsall town centre. The property, which comprises an unbroken retail parade with 12 units was purchased at an attractive yield as we were able to acquire this for cash within the vendor’s financial year end deadline. Outlook and prospects REI remains firmly on course to achieve our stated objective of creating a £150 million property portfolio. Nevertheless, in light of the current unsettled market conditions and our resolve to be careful and selective buyers in 2008, we expect to fulfil this objective over a slightly longer time frame. The management’s confidence in REI’s future is demonstrated by our Chief Executive increasing his shareholding through the purchase of shares in the market, many at a significant premium to the current share price. Paul Bassi’s stake is now 20.77%. We have experienced a very busy and exciting 2007, and 2008 has started well. Market conditions are turbulent, with the inevitable knock on effect to commercial property. Nevertheless, our strong funding position and extensive network position us well for 2008. Indeed, the property market is ‘tailored’ for our opportunistic ability and resources, when coupled with our association with Bond Wolfe and Bigwood Chartered Surveyors. Finally, I wish to mention our small but highly dedicated staff. Our move to the West Midlands, and the establishment of new management systems, has placed special demands upon them and they have responded energetically; my thanks to them all. Peter Lewin Chairman 30 April 2008 CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2007 Note 2007 2006 £000 £000 Revenue 3,160 1,425 Cost of Sales (1,113) – ——- —— Gross profit 2,047 1,425 Administrative expenses (967) (869) Surplus on disposal of investment property 171 45 Share of profit of joint venture 5 9 Net valuation gains/(deficits) 807 (142) ——- —— Profit from operations 2,063 468 Finance income 768 78 Finance costs (1,054) (970) ——- —— Profit/(loss) on ordinary activities before taxation 1,777 (424) Income tax (expense)/credit (548) 90 ——- —— Net profit/(loss) for the year 1,229 (334) ——- —— Total and continuing earnings/(loss) per ordinary share Basic 3 0.36p (0.41p) Diluted 3 0.34p (0.41p) ——- —— The results of the Group for the period related entirely to continuing operations. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2007 Share Share Capital Other Retained Total Capital premium redemption reserves earnings account reserve £000 £000 £000 £000 £000 £000 At 1 January 2006 523 4,586 45 – 1,346 6,500 Net loss for the year and total recognised income and expense for the year – – – – (334) (334) Share issue 2,884 25,957 – – – 28,841 Costs of share issue – (1,071) – – – (1,071) Cost of share warrants – – – 121 – 121 —— ——- ——– —— ——- —— At 31 December 2006 3,407 29,472 45 121 1,012 34,057 Net profit for the year and total recognised income and expense for the year – – – – 1,229 1,229 —— ——- ——– —— ——- —— At 31 December 2007 3,407 29,472 45 121 2,241 35,286 ====== ======= ======== ====== ======= ====== CONSOLIDATED BALANCE SHEET As at 31 December 2007 Note 2007 2006 £000 £000 Assets – Non current Intangible Assets 171 171 Investment properties 36,661 14,187 Property, plant and equipment 39 61 ————- ————- 36,871 14,419 Investment in joint venture 328 324 ————- ————- 37,199 14,743 ============= ============= Current Inventories 8,603 9,703 Trade and other receivables 1,177 488 Held to maturity investments 489 435 Cash and equivalents 4,866 26,889 ————- ————- 15,135 37,515 ————- ————- Total assets 52,334 52,258 ============= ============= Liabilities Current Bank loans (437) (370) Provision for current taxation (319) (22) Trade and other payables (1,295) (770) ————- ————- (2,051) (1,162) ————- ————- Non current liabilities Bank loans (14,327) (16,545) Convertible debt (325) (325) Deferred tax liabilities (345) (169) ————- ————- (14,997) (17,039) ————- ————- Total liabilities (17,048) (18,201) ============= ============= Net assets 35,286 34,057 ============= ============= Equity Share capital 3,407 3,407 Share premium account 29,472 29,472 Capital redemption reserve 45 45 Other reserves 121 121 Retained earnings 2,241 1,012 ————- ————- Total Equity 35,286 34,057 ============= ============= Net assets per share 3 10.4p 10.0p ============= ============= CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2007 Year ended Year ended 31 December 31 December 2007 2006 £000 £000 Cash flows from operating activities Profit/(loss) after taxation 1,229 (334) Adjustments for: Depreciation 26 25 Net valuation (gains)/deficits (807) 142 Surplus on sale of investment property (171) (45) Share of profit of joint venture (5) (9) Finance income (768) (78) Finance costs 1,054 970 Taxation expense/(credit) recognised in profit and loss 548 (90) Share warrants expense – 121 Decrease in inventories 1,100 – Increase in trade and other receivables (756) (69) Increase/(decrease) in trade and other payables 526 (105) (Increase)/decrease in held to maturity investments (54) 847 ———- ———- 1,922 1,375 Interest paid (1,054) (1,030) Income taxes paid (11) – ———- ———- Net cash from operating activities 857 345 ———- ———- Cash flows from investing activities Acquisition of subsidiaries net of cash acquired – (566) Purchase of investment properties (23,067) (2,011) Purchase of property, plant and equipment (4) – Proceeds from sale of investment property 1,571 456 Investment in joint venture 1 (224) Interest received 771 90 ———- ———- (20,728) (2,255) ———- ———- Cash flows from financing activities Proceeds from issue of share capital – 26,769 Proceeds from bank loans – 1,752 Payment of bank loans (2,151) (784) Payment of finance lease liability (1) (3) ———- ———- (2,152) 27,734 ———- ———- Net (decrease)/increase in cash and cash equivalents (22,023) 25,824 ———- ———- Cash and cash equivalents at beginning of period 26,889 1,065 ———- ———- Cash and cash equivalents at end of period 4,866 26,889 ========== ========== NOTES: Cash and cash equivalents consist of cash in hand and balances with banks only. NOTES TO THE PRELIMINARY ANNOUNCEMENT For the year ended 31 December 2007 1. Basis of preparation The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of properties, and in accordance with International Financial Reporting Standards 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. 2. Segmented information Primary reporting- business segment The only material business that the Group has is that of investment in and trading of commercial properties. Turnover relates entirely to rental income from investment properties and sale of trading properties within the UK. Secondary reporting format – geographical segment The only material segment that the Group operates in is the UK. 3. Earnings/(loss) per share and net assets per share The calculation of earnings/(loss) per share is based on the result for the year and on the weighted average number of shares in issue during the year. The calculation of diluted earnings/(loss) per share is based on the basic earnings/ (loss) per share adjusted for the issue of shares on the assumed conversion of the convertible loan notes and the conversion of the warrants. Reconciliations of the earnings / (loss) and the weighted average numbers of shares used in the calculations are set out below. 2007 2006 Average Earnings Average Loss per Earnings number per Loss number of share £’000 of shares share £’000 shares amount Basic earnings/(loss) per share 1,229 340,714,327 0.36p (334) 82,085,571 (0.41)p ======= =========== ======= ====== ========== ======= Dilutive effect of conversion of convertible loan notes and share warrants 28,979,545 ——— Diluted earnings per share 1,229 393,693,872 0.34p ======= ============ ======= The net assets per share is based on the net assets at 31 December 2007 of £35,286,000 (2006 : £34,057,000) divided by the shares in issue at 31 December 2007 and 2006 of 340,714,327. 4. Publication The financial information set out in this preliminary announcement does not constitute statutory accounts. The consolidated balance sheet at 31 December 2007 and the consolidated income statement, consolidated statement of changes in equity, consolidated cash flow statement and enclosed notes for the year then ended have been extracted from the Group’s 2007 statutory financial statements upon which the auditors opinion is unqualified. 5. Copies of this announcement Copies of this announcement are available for collection from the Company’s offices at West Plaza, 8th Floor, 144 High Street, West Bromwich, B70 6JJ. This information is provided by RNS The company news service from the London Stock Exchange