Interim Results

21st September 2007

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. This information is provided by RNS The company news service from the London Stock Exchange