Birmingham-based Real Estate Investors plc turned in a good full year in 2011 with rental income up 50 per cent and its properties 85 per cent let – despite the economic uncertainty and a generally flat commercial property market.
The AIM-listed company will pay its first dividend in 2012 and the board is proposing to introduce a progressive dividend policy for the coming years.
The business showed a profit before tax of £115,000 against a 2010 loss of £292,000.
Contracted rental income hit £6 million in 2011, up 50 per cent from 2010’s figure of £4 million.
REI spent £17.3 million during the year on investment property, but suffered a loss on revaluation of investment properties of 6.2 per cent, or £4.2 million.
But ironically it was some of REI’s purchases that influenced the revaluation process, as chairman John Crabtree points out in his report.
He said:“Depressed property valuations, of course, provide excellent opportunities for REI and we have acquired high quality assets, our purchases in many cases providing the comparable evidence which has informed the revaluation.”
Chief executive Paul Bassi said: “The results to December 31, 2011, show a year which saw significant developments on many fronts and the establishment of REI as a leading regional property investment business with strong foundations.
“The economic environment has remained fragile, of course, with markets in turmoil throughout 2011 and continuing concerns over renewed recession. Valuations in UK regions have continued to be depressed, reflected in the 6.2% loss on revaluation of our investment proprieties.”
During 2011 REI funded new purchases from existing cash, £11.7 million of new equity and the refinancing of unencumbered and income producing assets. A £20 million loan facility with Lloyds Banking Group was renewed for three years on similar terms.
And on Friday (March 23), REI announced a further £10.4 million refinancing with Aviva.
Paul Bassi said: “The decision to borrow from Aviva is a deliberate strategy to balance our lending away from the banking sector to the insurance lenders.
“This will avoid regular uncertainty over facilities and avoid incurring renewal fees which the banks are seeking to charge on a more frequent basis.”
During 2011, REI made a number of acquisitions, including Gateway House, Birmingham, Southgate Retail Park, Derby, and in Leicester acquired Peat House from Aviva.
Paul Bassi said: “We are now firmly established as a respected West Midlands quoted property company that has achieved ‘favoured buyer’ status and a reputation which I believe will attract further opportunities.
“We continue to see greater levels of stock, predominantly from institutions and receivers. The expected level of sales from banks has been limited, but we believe that we will see greater activity in 2012, particularly from the Irish banks, Royal Bank of Scotland and secondary lenders.
“Our criteria dictate that property must have the potential for asset management initiatives that will provide capital growth potential and attractive yields.
“The properties acquired during the last few years provide excellent yields and I believe that once market valuations settle and recover, we will be the beneficiaries of some very healthy capital growth.
“In the short to medium term we will be the recipients of a strong positive cash flow from a growing and secure rental stream.”
He pointed out that the fragile property market place continued to provide further opportunities.
“We currently have a number of properties in our pipeline that meet our criteria and we are in advanced discussions with the view to adding these to our portfolio,” he said.
In addition, the management’s association with CPBigwood Chartered Surveyors, Bond Wolfe and Paul Dubberley & Co reveals record auction results of £46 million in 2011, improved lending for housing, strong residential sales across all price ranges and rising residential rents.
In conclusion, Paul Bassi said: “The economic climate, property and asset valuations remain subdued, yet the irony is that this is an ideal environment in which to grow and establish within the Midlands.
“We have maintained excellent occupancy levels, acquired some good quality prime and secondary assets with attractive yields, while capitalising on first rate banking relationships and refinancing unencumbered, but income producing assets, against historically low interest rates.
“In simple terms, REI has a diverse, regional portfolio with strong yields and capital growth potential.
“I remain optimistic about 2012 for us as a business, and I believe that the capital values will improve gradually during 2012 to 2014, benefitting from our asset management and lettings success, together with general improvement in market conditions.”
