26 March 2014
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, NEW ZEALAND, SOUTH AFRICA OR SWITZERLAND OR ANY OTHER JURISDICTION IN WHICH THE RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL
REAL ESTATE INVESTORS PLC
(“REI” or the “Company”)
Placing of new Ordinary Shares
Notice of General Meeting
Real Estate Investors plc (AIM:RLE), the West Midlands based property group, announces that it has conditionally placed 40,000,000 new Ordinary Shares at a price of 50 pence per Ordinary Share, raising gross proceeds of £20 million (£19.47 million, net), from institutional and other investors.
Summary of the Placing
* Placing of 40,000,000 new Ordinary Shares at a Placing Price of 50 pence per Ordinary Share, to raise gross proceeds of £20 million (£19.47 million, net)
* Net proceeds of the Placing to be used to provide additional resources to capitalise on acquisition opportunities in the West Midlands property market
* The Placing Price represents a premium of 1.01 per cent. to the closing middle market price of 49.50 pence per Ordinary Share on 25 March 2014, being the latest practicable date prior to the initial announcement of the Placing
* The Placing Shares will represent approximately 35.90 per cent. of the Company’s enlarged issued share capital
* Liberum acted as sole broker and bookrunner and Smith & Williamson as Nominated Adviser to the Placing
The Placing is conditional, inter alia, on the approval by Shareholders in a general meeting. A circular setting out the details of the Placing and other proposals (the “Circular“), incorporating a notice convening the General Meeting, will be posted to shareholders today. The Circular and Form of Proxy will also be available on the Company’s website later today.
Information extracted from the Circular is set out below.
Real Estate Investors Plc
T: +44 (0)121 265 6400
Smith & Williamson Corporate Finance Limited
Azhic Basirov / Siobhan Sergeant
T: +44 (0)20 7131 4000
Chris Bowman / Jamie Richards
T: +44 (0)20 3100 2000
Gable Communications Limited
John Bick / Justine James
T: +44 (0)20 7193 7463
M: +44 (0)7872 061007
The following information has been extracted without material adjustment from the Circular. Unless the context otherwise requires, defined terms used in this announcement shall have the meanings ascribed to them in the Circular.
Background to and reasons for the Placing
REI’s property portfolio is focussed in the West Midlands, a region that the market is starting to recognise as an attractive alternative to London and the South East. Like most regions in the UK and elsewhere, the West Midlands has faced economic challenges in recent years, however it has begun to strengthen and re-establish itself as a major economic centre in the UK.
Improving sentiment towards the region became more visible in the fourth quarter of 2013. The property sector in particular, has revealed the early signs of improving investor appetite and transactional activity. The Board believes that property values and occupancy will see further positive improvement in 2014 and 2015.
Despite the macro-economic challenges over the last few years, the West Midlands region is currently experiencing growth and development. Listed below are some of the factors that the Directors believe demonstrate the improving level of activity and confidence in the region:
· export growth in the automotive and engineering industry is expected to outstrip that of Germany, boosted by significant investment in the region by Jaguar Land Rover, which has, itself, enjoyed record levels of global sales and rising profits;
· unemployment levels in the West Midlands are reducing whilst the region is seeing increased local and foreign investment, as well as strong growth in international trade; and
· the regional property market is outperforming other UK regions (after London and the South East), with rising property prices and increasing demand for central Birmingham office space driving a contraction in prime yields. This is further boosted by investment in key infrastructure for the city, including the new railway station at New Street and the expansion of Birmingham Airport.
Investor appetite for property in the West Midlands, in particular from funds, insurance companies, public companies and specialist equity, has been strengthening, with a number of properties attracting multiple offers, and achieving prices significantly higher than the quoted price. This activity should provide more transactional evidence and support growing valuations for REI’s portfolio. The Company also anticipates other buyers, including private companies, pension funds, trusts, overseas buyers and high net worth individuals returning to the regional market, in order to benefit from superior yields and rising capital values. The Company has seen revaluation uplift in a number of its assets, through a combination of asset management, lettings and yield compression, and the Directors expect this to continue in 2014 and 2015.
The Directors believe that the West Midlands market is seeing the long anticipated availability of distressed property disposals, boosted by an improving property market on the back of increased bank lending. A number of these properties are unable to support traditional bank debt given their short lease profile, or the need for better asset management. These properties provide good investment opportunities for the Company, but the scale of opportunity is greater than the resources currently available to it.
REI’s management team has demonstrated its ability to deliver improved value through its active approach to asset management, whereby the Company acquires a property for which it then seeks to obtain alternative planning consents, and/or undertakes any necessary refurbishments and/or negotiates better lease arrangements, resulting in increasing capital values. For example, REI acquired Southgate Retail Park, a multi-let retail park in Derby, for £4.8 million in September 2011. This provided a yield of approximately 8.6 per cent. The Company subsequently obtained planning consent for a 45,000 sq ft food store and, in December 2013, sold three of the eight units to TE Beteiligungs GmbH (the parent company of Lidl) for £4.25 million. The remaining five units have been retained and are let or under offer with an ERV of £250,000 per annum.
With the benefit of additional cash reserves, existing bank facilities and access to equity, the Directors believe that the Company should be able to capitalise on these opportunities to acquire distressed stock that the financial institutions have mothballed in the recession. REI’s management team will utilise its unparalleled market knowledge and extensive relationships in order to access these opportunities. Successful acquisitions should result in capital growth and increased rental income which, in turn, will underpin the Board’s intention to pay a progressive dividend.
Over the next few years, as REI’s portfolio matures and its asset management programme completes, the Company intends to continue to actively recycle capital, disposing of assets when it makes sense to do so. The Directors believe that the market will see a return to normalised bank lending and significant demand from local and international buyers who recognise the benefits of investing in the region.
In order to maximise REI’s ability to act quickly when the right opportunities arise, the Directors are seeking to raise approximately £20 million (before expenses) by way of a Placing of new Ordinary Shares.
Use of Proceeds
The Board is proposing to raise approximately £20 million of additional equity (before expenses) by means of the Placing, in order to provide additional resources to capitalise on acquisition opportunities currently existing in the Midlands property market from motivated vendors. REI plans to invest in acquisition opportunities in line with its established investing policies, focussing on assets which have:
· high running yields or short to medium term asset management opportunities; and
· opportunities to generate rental value and/or capital growth from active asset management, refurbishment, redevelopment, change of use and planning gains.
Based on its current assessment of opportunities, the Board intends that REI will substantially deploy the proceeds of the Placing within 3-6 months of Admission. It remains the Board’s objective to grow the Company’s portfolio from the current level and for the Company to become a growing, high payout ratio property business. The Directors believe that rental value and capital growth can be achieved through active asset management of acquired properties and will not be reliant on yield compression. Notwithstanding this, the Directors believe that yield compression in the future will also benefit the portfolio.
Current Trading and Prospects
On 17 March 2014, the Company announced its preliminary results for the 12 months ended 31 December 2013, confirming a 400 per cent. uplift in profit before tax of £5.0 million, boosted by successful divestments of certain assets above book value, compared to £1.0 million for the year ended 31 December 2012. Revenue was up 8 per cent. to £6.6 million compared to £6.1 million for the year ended 31 December 2012, with contracted annual rental income of £5.8 million.
The Directors believe that there is still a significant differential between ERV and current contracted rental income, presenting prospects for organic growth with ERVs starting to be achieved on new lettings. The current ERV is estimated at £7 million. Leasing progress to date during 2014, including leases in legals, is estimated at £232,000 per annum.
The total property portfolio valuation, as at 31 December 2013, was £75.2 million, including inventory properties, with a net asset value per Ordinary Share of 58.6 pence and EPRA NAV of 59.1 pence per ordinary share.
REI remains conservatively financed with bank loans of approximately £44.0 million and available cash of approximately £8.5 million, as at 31 December 2013, equating to a net loan to value ratio of 47.3 per cent. It is the Board’s intention that the net loan to value ratio across the Company’s portfolio will not exceed a level of 50 per cent. at any time.
Portfolio and pipeline
The property portfolio, based principally in the West Midlands, comprises a diverse range of properties and is not reliant on, or over-exposed to, specific sub-sectors or tenants. The Directors believe that they can build on this portfolio through their network of agents and established relationships which provide introductions to prospective investments where the Company can act as an unlevered cash buyer to facilitate quick execution on competitive terms. Further, the Directors believe that REI’s well established banking relationships, with institutions including the Lloyds Banking Group, Aviva, Handelsbanken and Nationwide, will provide access to new credit facilities, allowing it to lever its equity investments, as well as participate in distressed asset work-outs in the region.
REI has been in discussions in relation to a pipeline of opportunities with an aggregate value of approximately £20 million which is expected to include the following vendors:
· motivated sellers, sourced through the Company’s network of agents and the agency relationships with The Bond Wolfe Partnership and CP Bigwood Chartered Surveyors (a leading property agent, manager and auctioneer in the West Midlands); and
· lender stakeholders, sourced through direct dialogue between REI management and regional lenders.
These pipeline assets provide opportunities for re-financing and active asset management by the Company. Overall, it is the Directors’ intention to achieve capital growth through active asset management coupled with revenue growth through the capture of reversionary income from the current portfolio and immediate revenue enhancement from pipeline acquisitions.
Details of the Placing
The Company is proposing to issue 40,000,000 New Shares at a price of 50 pence per New Share pursuant to the Placing, raising £20 million (before expenses). The Issue Price represents a premium of 0.5 pence (1.01 per cent.) to the closing middle market price of an Ordinary Share on 25 March 2014, the latest practicable date prior to the announcement of the Placing.
Whilst the Placing is being undertaken at a discount to the net asset value per share, the Directors believe that the scale of the opportunity that currently exists in the Midlands property market to acquire assets requiring the asset management skills the Company possesses justifies the issue at a discount. In addition, the Placing will provide additional capital for the Company to invest without the need for additional management resource and therefore, the Directors believe that the additional capital will have a substantial positive effect on the Company’s profitability and ability to pay out higher dividends to shareholders in future years.
The Placing, which is not being underwritten, has been undertaken pursuant to the Placing Agreement. Under the terms of the Placing Agreement Liberum, as agent for the Company, has agreed to use its reasonable endeavours to procure subscribers for the Placing Shares and Smith & Williamson as agent for the Company, has agreed to act as nominated adviser in connection with the application for Admission.
The Placing Agreement is conditional on, amongst other things:
1. the passing of the Resolutions (without material amendment) at the GM;
2. the delivery by the Company to Liberum and Smith & Williamson of certain documents and letters;
3. the Company not having breached in any material respect any of its obligations under the Placing Agreement; and
4. Admission becoming effective by not later than 8.00 a.m. on 14 April 2014 (or such later time and/or date as the Company, Liberum and Smith & Williamson may agree (being not later than 8.00 a.m. on 30 April 2014)).
The Placing Agreement contains certain warranties given by the Company in favour of Liberum and Smith & Williamson as to, amongst other things, certain matters relating to the Company and its business. In addition, the Company has given certain undertakings to Liberum and Smith & Williamson relating to, amongst other things, the despatch of public communications concerning the Company following Admission and the issue and allotment of Ordinary Shares following Admission. The Placing Agreement also contains indemnities given by the Company in favour of Liberum and Smith & Williamson in relation to certain liabilities they may respectively incur in respect of the Placing and/or Admission. Liberum and Smith & Williamson have the right to terminate the Placing Agreement prior to Admission in certain circumstances, including: (i) in the event that the Company has failed to comply in any material respect with any of its obligations under the Placing Agreement; (ii) in the event that Liberum and Smith & Williamson become aware that any of the warranties from the Company in the Placing Agreement is not, or has ceased to be, true and accurate in any material respect; and (iii) in the event of certain events of force majeure, including any adverse change in national or international financial, economic, market or political conditions which in the opinion of Liberum and Smith & Williamson (arrived at in good faith and, as far as practicable, in consultation with the Company) would be materially adverse to the Placing or would render proceeding with the Placing impracticable or inadvisable.
In consideration for the services to be provided to the Company by Liberum and Smith & Williamson in connection with Admission and the Placing, the Company has agreed to pay Liberum and Smith & Williamson certain fees and commissions and certain other costs and expenses incidental to Admission and/or the Placing.
The expenses of and incidental to the Placing, including the fees and commissions payable to Liberum and Smith & Williamson, are estimated to amount to approximately £530,000 (including VAT), and will be payable by the Company.
Application will be made to the London Stock Exchange for the New Shares to be admitted to trading on AIM. Subject to, amongst other things, the Resolutions being duly passed by the requisite majority at the GM, it is expected that Admission will become effective and dealings in the New Shares on AIM will commence on 14 April 2014.
If Admission does not take place on or before 8.00 a.m. on 14 April 2014 (or such later time and/or date as the Company, Liberum and Smith & Williamson may agree (being not later than 8.00 a.m. on 30 April 2014)), the Placing will not proceed.
The New Shares will rank pari passu in all respects with the existing issued Ordinary Shares, including the right to receive all dividends and other distributions declared, paid or made after Admission.
The Directors are seeking authority from Shareholders to allot Ordinary Shares pursuant to the Placing and to disapply statutory pre-emption rights in respect of such Ordinary Shares.
The Directors have agreed to subscribe for new Ordinary Shares (also referred to as the Committed Shares) as part of the Placing:
% Enlarged Issued Share Capital
1. Paul Bassi’s investment is held personally, through a nominee and through Bond Wolfe Assets Limited of which he is the chairman and sole shareholder.
2. Marcus Daly’s investment is held personally, through a nominee and through Datalore Limited.
3. William Wyatt’s investment is held personally and he is chief executive of Caledonia Investments plc which will have an interest of 18.09 per cent. of the Enlarged Issued Share Capital in the Company.
At the time of their appointment as Directors, the Panel on Takeovers and Mergers deemed Paul Bassi, Marcus Daly and certain other individuals who invested in the Company at the same time to be members of a concert party. The concert party’s aggregate interest in the issued share capital of the Company following the Placing will be 9.57 per cent. in the Enlarged Issued Share Capital.
REI paid its first dividend to shareholders of 0.5 pence per share in October 2012 in respect to the financial year ended 31 December 2012. In October 2013, REI increased the dividend payment to shareholders by 100 per cent., with a dividend payment of 1.0 pence in respect of the financial year ended 31 December 2013. The Board remains committed to a progressive dividend policy for the future and expects to pay a dividend every 6 months going forward, subject to capital being invested, the Company’s contracted rental income providing the Company with a cash surplus, the Directors’ judgment of market conditions and the Company’s cash and financial position at the relevant time.
The Directors consider that the Company’s existing business model is suited to conversion into a REIT structure and the Board will continue to consider the appropriateness of a conversion into a REIT structure in the future with an anticipated target date of 2015.
As noted above, the Directors are seeking authority to allot Ordinary Shares to implement the Placing. Notice of the GM is set out at the end of this document. The GM will be held at the Company’s registered office, at Cathedral Place, Third Floor, 42-44 Waterloo Street, Birmingham B2 5QB on 11 April 2014 at 2.30 p.m.
In addition, a Form of Proxy for use at the GM is enclosed with this document (see Part 2 below headed “Action to be Taken”).
Shareholders have the right to attend, speak and vote at the GM (or, if they are not attending the meeting, to appoint someone else as their proxy to vote on their behalf) if they are on the Register at the Voting Record Time (namely 6.00 p.m. on 9 April 2014). Changes to entries in the Register after the Voting Record Time will be disregarded in determining the rights of any person to attend and/or vote at the GM. If the GM is adjourned, only those Shareholders on the Register at 6.00 p.m. on the day which is two days before the date of the adjourned GM will be entitled to attend, speak and vote or to appoint a proxy.
The number of Ordinary Shares a Shareholder holds as at the Voting Record Time will determine how many votes a Shareholder or his/her proxy will have in the event of a poll.
Explanation of the Resolutions to be proposed at the General Meeting
The notice convening the GM sets out the Resolutions to be proposed at the GM. An explanation of these Resolutions is set out below:
Authority to allot shares (Resolution 1)
The Directors need the authority of Shareholders to allot new Ordinary Shares and Resolution 1 provides such authority by granting the Directors the authority to allot shares in the capital of the Company for the purpose of the Placing up to a maximum nominal amount of £4,000,000 (representing, as at 25 March 2014 (being the latest practicable date prior to the publication of this document), 56.01 per cent. of the Company’s issued share capital). This authority, if granted, would last until 30 June 2014. If, however, the Company makes an offer or enters into an agreement requiring the issue of Ordinary Shares prior to that date, the allotment will be valid even if the allotment occurs after the expiry of this authority. The passing of Resolution 1 will require more than 50 per cent. of the votes cast voting in favour. This authority, if granted, will be in addition to any existing authorities to allot Ordinary Shares granted to the Directors prior to the date of this document which will continue in full force and effect whether or not the Placing is effected.
Disapplication of pre-emption rights (Resolution 2)
Section 561 of the Act requires that on an allotment of “equity securities” for cash, such equity securities must first be offered to existing Shareholders in proportion to the number of Ordinary Shares they each hold at that time. This is known as a Shareholder’s pre-emption right. The Ordinary Shares are “equity securities” for the purposes of Section 561 of the Act. Accordingly, the Ordinary Shares cannot be allotted for cash on a non pre-emptive basis unless the Shareholders have first waived their pre-emption rights and Resolution 2 requests Shareholders to do so for the purposes of the Placing. If the authority is granted, the Directors will be able to allot Ordinary Shares for cash on a non pre-emptive basis, to the extent authorised, without further authority from the Shareholders. As with Resolution 1, the authority is sought for the purpose of the Placing and is intended to last until 30 June 2014. The passing of Resolution 2 will require not less than 75 per cent. of the votes cast voting in favour. This authority, if granted, will be in addition to any existing authorities to disapply pre-emption rights granted to the Directors prior to the date of this document which will continue in full force and effect whether or not the Placing is effected.
Issued share capital
If the Placing is approved by Shareholders, the Company’s approximate issued share capital will be £11,142,059.80 divided into 111,420,598 Ordinary Shares.
The Board believes the Placing to be in the best interests of the Company and the Shareholders taken as a whole. Accordingly, the Directors unanimously recommend Shareholders to vote in favour of the Resolutions to be proposed at the GM as they have irrevocably undertaken to do in respect of their beneficial holdings, amounting, in aggregate, to 9,921,500 Ordinary Shares, representing 13.9 per cent. of the existing issued share capital of the Company.
This announcement is for information purposes only and does not constitute an offer or invitation to acquire or dispose of any securities or investment advice in any jurisdiction.
Smith & Williamson Corporate Finance Limited, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as nominated adviser for the purposes of the AIM Rules exclusively for the Company in connection with Admission and the Placing. Smith & Williamson Corporate Finance Limited is not acting for any other person and will not be responsible to any other person for providing the protections afforded to clients of Smith & Williamson Corporate Finance Limited or for advising any other person in connection with Admission and the Placing.
Liberum Capital Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as lead manager and broker exclusively for the Company in connection with the Placing. Liberum Capital Limited is not acting for any other person and will not be responsible to any other person for providing the protections afforded to clients of Liberum Capital Limited, or for advising any other person in connection with the Placing.
No representation or warranty, express or implied, is made by Smith & Williamson Corporate Finance Limited or Liberum Capital Limited or any of their respective directors, officers, employees, advisers or agents as to any of the contents of this announcement and, without limiting the statutory rights (if any) of any person to whom this announcement is issued, no liability whatsoever is accepted by Smith & Williamson Corporate Finance Limited or Liberum Capital Limited or any of their respective directors, officers, employees, advisers or agents for the accuracy of any information or opinions contained in this announcement or for the omission of any material information.
The information contained in this announcement is not for release, publication or distribution, directly or indirectly, to persons in the United States, Australia, Canada, Japan, New Zealand, South Africa or Switzerland or any other jurisdiction in which such publication or distribution is unlawful and should not be distributed, forwarded to or transmitted in or into any jurisdiction where to do so might constitute a violation of local securities laws or regulations. The new Ordinary Shares to be issued in relation to the Placing have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act“), or under the laws of any state of the United States, and may not be offered, sold or transferred in the United States except pursuant to an exemption from, or in a transaction not subject to, the requirements of the Securities Act. The new Ordinary Shares to be issued in relation to the Placing may not be offered, sold or transferred, directly or indirectly, in or into Australia, Canada, Japan, New Zealand, South Africa or Switzerland, or any province or territory thereof, or any other jurisdiction in which it would be unlawful to do so. There will be no public offer of Ordinary Shares to be issued in relation to the Placing in the United Kingdom or elsewhere.
Notes to Editors
Real Estate Investors is an AIM listed property investment company with a £75.2m (as at 31 December 2013) commercial and residential portfolio principally in the West Midlands and central England.
Real Estate Investors is focussed 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.
Real Estate Investors is led by respected property investor Paul Bassi CBE, who has over 30 years of property experience in the West Midlands. Mr Bassi is also founder and non-executive chairman of Bond Wolfe and non-executive chairman of CP Bigwood Chartered Surveyors. Real Estate Investors was admitted to trading on AIM in June 2004. Further information on Real Estate Investors can be found at www.reiplc.barques.dev.