Real Estate Investors predicts medium term capital growth

BIRMINGHAM-based Real Estate Investors saw rental income rise 50% and its properties 85% let during 2011, its annual results statement shows.

The company, headed by chief executive Paul Bassi, said it was pleased with the performance despite continuing economic uncertainty in the property sector.

The AIM-listed business will pay its first dividend in 2012 and the board is proposing to introduce a progressive dividend policy for the coming years.

The company showed a pre-tax profit of £115,000 against a 2010 loss of £292,000.
Contracted rental income hit £6m in 2011, up 50% from 2010’s £4m.

REI spent £17.3m during the year on investment property, but suffered a loss on revaluation of investment properties of 6.2%, or £4.2m.

Ironically it was some of REI’s purchases that influenced the revaluation process. Chairman John Crabtree said in his report: “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.”

Mr Bassi said it had been a year of significant developments on many fronts.

“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,” he said.

During 2011 REI funded new purchases from existing cash, £11.7m of new equity and the refinancing of unencumbered and income producing assets. A £20m loan facility with Lloyds Banking Group was renewed for three years on similar terms.

REI has also agreed a further £10.4m refinancing with Aviva.

“The decision to borrow from Aviva is a deliberate strategy to balance our lending away from the banking sector to the insurance lenders,” said Mr Bassi.

“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.

“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,” added Mr Bassi.

“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.”

He said the properties acquired during the last few years provide excellent yields and was confident that once market valuations settled and recovered, the firm would be the beneficiary of some 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 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, Mr 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.”