TIDMREO
RNS Number : 8321Q
Real Estate Opportunities PLC
26 October 2011
26 October 2011
REAL ESTATE OPPORTUNITIES PLC
("REO" or the "Group")
Interim results for the period ended 31 August 2011
Planning permission granted for Battersea Power Station:
- Section 106 agreement completed and planning permission was
issued on 23 August 2011, with backing from the Mayor of London and
the Secretary of State for Communities and Local Government
subsequent to the previous resolution to grant planning permission
by the London Borough of Wandsworth
- Negotiations continue with a number of potential global
investors expressing strong interest in committing to the
project
- Battersea Power Station Shareholder Vehicle Limited ("BPSSV")
continues to work closely with its lenders: Lloyds Banking Group,
the National Asset Management Agency ("NAMA") and the holder of the
Series A and Series B loan notes (the "OLNs")
Successful completion of balance sheet restructuring:
- Formal agreement effected on 12 May 2011 with holders of the
7.5% Convertible Unsecured Loan Stock ("CULS") and the Zero
Dividend Preference Shares ("ZDPs") whereby liabilities of
approximately GBP246 million were converted into equity and
warrants in BPSSV and equity in REO
- Draft NAMA term sheet received in respect of the Group's
wholly owned Irish property assets on which NAMA is the sole
lender, with both parties working towards its finalisation and in
turn completion of binding facility agreements
Market conditions remain challenging:
- Total portfolio valuation at GBP991 million, down marginally
by 1.3% since February 2011. Irish property values continue to be
impacted by uncertainty surrounding the potential abolition of
upward only rent reviews, with the Irish property portfolio
declining by 6.6% in the period, excluding foreign exchange
gains
- Battersea Power Station valuation increased from GBP498
million at 28 February 2011 to GBP500 million, due to the purchase
of an adjoining site
- Property income of GBP17 million in the six months to 31
August 2011, consistent with the prior year comparative period
- Loss from operating activities of GBP72 million in the period
compared to a loss of GBP2 million in the six months to 31 August
2010, due principally to increased valuation losses in the current
period and because the prior year comparative period included a one
time gain arising from the disposal of REO's interest in China Real
Estate Opportunities plc
- Profit after tax of GBP121 million in the period, compared to
loss after tax of GBP45 million for the prior year comparative
period, due principally to an accounting profit of GBP227 million
on equitisation of liabilities due to CULS and ZDPs as part of the
balance sheet restructuring.
- Profit per share of 36.3 pence, compared to loss per share of
13.6 pence for the prior year comparative period
- Cash balances at GBP18 million (includes cash equivalents and
restricted cash), from GBP31 million at 28 February 2011, reduction
due principally to a loan repayment from restricted cash and
professional fees associated with the balance sheet
restructuring
Operational performance remains strong:
- Prime properties generating stable rental income secured by
high-quality occupiers on long leases supports strong operational
performance in challenging market:
-- Stable annualised rent roll of EUR40 million on Irish
investment portfolio (28 February 2011: EUR40.1 million)
-- Occupancy levels unchanged from 28 February 2011 at 95%,
arrears at only 3% (reduced from 4% at 28 February 2011)
-- Rent weighted average lease length of 12 years
- Continued market uncertainty surrounds potential Irish
Government amendments to legislation in respect of upward only rent
reviews
Ray Horney, Chairman, said: "The receipt of planning permission
for Battersea Power Station and the successful completion of the
balance sheet restructuring represent progressive steps towards
securing the Group's future. The Group's primary focus is now on
introducing a long-term investor into the Battersea Power Station
project, with negotiations continuing with a shortlist of potential
global investors. While the finalisation of binding legal terms
with NAMA will secure the Group's short term funding requirements,
the current trading environment remains challenging and the Group
will need to realise and/or refinance assets in order to discharge
liabilities owed to various creditors. The Group remains committed
to achieving these outcomes over the coming years."
Contacts:
Real Estate Opportunities Tel: +44(0) 20 7501 0688
Rob Tincknell, Director
Treasury Holdings (Investment Adviser) Tel: +353 1 618 9300
John Bruder, Managing Director (Ireland)
Niall O'Buachalla, Group Finance Director
Finsbury Group Tel: +44 (0) 20 7251 3801
Gordon Simpson
Arif Shah
Matrix Corporate Capital Tel +44 (0)20 3206 7000
Paul Fincham
Jonathan Becher
Murray Consultants Tel: + 353 1 498 0300
Ed Micheau
CHAIRMAN'S STATEMENT
In the period from 1st March 2011, the Group has secured
planning permission for Battersea Power Station and successfully
implemented the balance sheet restructuring. In addition,
negotiations are ongoing with a number of global investors
regarding a potential investment in the Battersea Power Station
project.
Battersea Power Station
Following previous announcements on the various stages of
planning permission approval, final grant of planning permission as
represented by the completion of the Section 106 agreement between
the Group, London Borough of Wandsworth and Transport for London
was secured on 23 August 2011.
The process of identifying and introducing a long-term investor
is progressing with a number of potential global investors. It is
anticipated that the subsequent capital injection resulting from
the successful completion of this process will facilitate the
repayment and/or refinancing of certain liabilities associated with
the project, together with the procurement of development
finance.
Phase 1 of the development's construction is targeted to
commence in 2012 with completion in 2016. The remaining phases and
Central London's first ever privately funded extension to the tube
network are scheduled for completion thereafter.
Restructuring
As signalled in June's annual report, the Group's balance sheet
restructuring, whereby liabilities of approximately GBP246 million
due to the holders of both the Group's 7.5% Convertible Unsecured
Loan Stock ("CULS") and the Zero Dividend Preference Shares
("ZDPs") would be converted into equity and warrants in Battersea
Power Station Shareholder Vehicle Limited ("BPSSV") and equity in
Real Estate Opportunities plc ("REO"), became effective on 12 May
2011.
As a result of the above, the listings of the CULS and ZDPs on
the Official List (standard category in London) were cancelled on
the above date and approximately 111 million additional Ordinary
Shares in REO were admitted to the Official List (standard category
in London).
NAMA
As previously indicated, the initial evaluation of the Group's
business plan by the National Asset Management Agency ("NAMA")
resulted in the signing of a non-binding Memorandum of
Understanding ("MOU") in December 2010. The Group has recently
received a draft term sheet from NAMA, which contains conditions,
including the consolidation and renewal of loan facilities and the
provision of working capital, which are consistent with the MOU.
Both parties are now working towards the finalisation of the term
sheet and in turn of binding facility agreements in the near
future.
Property Portfolio & Business Activity
The Group's property portfolio was valued at GBP991 million as
at 31 August 2011, a reported decrease of 1.3% from the valuation
of GBP1,004 million at 28 February 2011. This reported decrease in
the portfolio valuation is due to a revaluation adjustment of GBP83
million across the portfolio since 28 February 2011, after
capitalised costs and acquisitions of GBP50 million, which has been
somewhat offset by the fact that the Euro strengthened against
Sterling in the period.
The Group's Irish portfolio declined on average by 6.6% in the
period, primarily due to a negative revaluation adjustment, whilst
the UK portfolio, which is primarily comprised of Battersea Power
Station, increased by 0.3%.
Despite a challenging occupational market, the strong
operational performance of the Group's investment portfolio
continues to be underpinned by high occupancy rates (95%) and long
leases (weighted average lease length of 12 years), with no
material defaults to date.
REO continues to focus its attention on attracting high quality
occupiers committed to long-term leases by ensuring that our
investment portfolio comprises modern, flexible buildings that meet
evolving occupier needs in locations and formats with strong
appeal. This combination of prime office/retail locations and
pro-active portfolio management has resulted in high quality,
diversified tenants including Vodafone, Merrill Lynch, KPMG, Marks
& Spencer, Bank of Ireland and Tullow Oil plc.
The Group continues to adopt a prudent approach towards its
development pipeline timetable, with construction completed on only
one development project during the period, being the partial
fit-out of Number One Central Park as a result of letting space in
the building to Tullow Oil plc. As previously reported, the Group
completed the sale of Montevetro, Dublin's tallest commercial
office building, to Google on 8 April 2011 for GBP85.2 million.
However, where appropriate, the Group continues to seek planning
permissions within the current development portfolio as part of its
long-term development strategy, as evidenced by the recent
successful planning decision for a private hospital and
rehabilitation facility in Sligo.
Listings
As previously announced, the Company cancelled its listings of
Ordinary Shares and CULS on the Official Lists of both the Irish
Stock Exchange and the Channel Islands Stock Exchange on 16 March
2011. Following the successful completion of the balance sheet
restructuring on 12 May 2011, the listings of the CULS and ZDPs on
the Official List (standard category in London) were cancelled on
that date and approximately 111 million additional Ordinary Shares
in REO were admitted to the Official List (standard category in
London).
Outlook
Significant milestones have been achieved during the period such
as the receipt of planning permission on the Battersea Power
Station development and the successful completion of the balance
sheet restructuring of the Group's debt. The Group's emphasis is
now focussed on the introduction of a long-term investor into the
Battersea Power Station project.
However, external factors such as continued concerns about the
global and domestic Irish economies and uncertainty surrounding the
Irish government's potential introduction of legislation in respect
of upward only rent provisions in existing leases continue to
adversely impact upon the Group's portfolio and performance.
Whilst acknowledging the significant progress made since 1 March
2011 in respect of the Battersea Power Station planning and the
completion of the balance sheet restructuring, the Group still
needs to repay and/or refinance significant financial liabilities
to various creditors in the next few years and remains committed to
achieving these outcomes.
INVESTMENT ADVISER'S REPORT
INVESTMENT PORTFOLIO
The Group continues to maintain high occupancy levels (95%)
across its investment portfolio, with a strong emphasis on rental
income flows secured by high-quality occupiers with long leases on
prime properties, resulting in an annualised rent roll of EUR40
million on the Irish investment portfolio and only 3% of rent roll
in arrears. Rent weighted average lease length is approximately 12
years, with no material defaults to date. Property income in the
six month period ended 31 August 2011 was approximately GBP17
million, which is consistent with the prior year comparative
period.
REO's portfolio is well located and has consistently managed to
attract and retain high quality occupiers such as Vodafone, Tullow
Oil plc, Merrill Lynch, KPMG, Bank of Ireland and Marks &
Spencer. Pro-active asset management, combined with a strong lease
structure, has contributed to stable levels of income during
continuing deflation in rental value.
DEVELOPMENT PORTFOLIO
Battersea Power Station
As outlined in the Chairman's Statement, Section 106 agreement
has now been completed between the Group, London Borough of
Wandsworth and Transport for London thereby facilitating the
commencement of construction of Phase 1 of the development in 2012,
with completion in 2016.
This transformational scheme, which will be the largest ever
undertaken in Central London, will act as a catalyst for the
regeneration of the Nine Elms Opportunity Area and is expected to
create approximately 15,000 new jobs and training opportunities for
the area, whilst also including a new underground station as part
of the proposed Northern Line extension from Kennington to Nine
Elms and Battersea.
Irish Development Portfolio
Progress within the Irish development portfolio in the period
includes:
Central Park
As noted in the annual report, Tullow Oil plc, the FTSE 100
index listed, international oil and gas exploration company, has
doubled its existing rental space in the above development to a
total of 48,000 sqft in Number One Central Park in Leopardstown,
Dublin, which is REO's prime suburban development, and home to a
range of other blue chip clients including Vodafone, Ulster Bank
(Royal Bank of Scotland), Volkswagen Bank, Lease Plan and Merrill
Lynch.
Interior fit-out works as a result of the letting to Tullow Oil
plc identified above commenced in March 2011 and completed in
August 2011.
Montevetro
As previously noted, REO completed the sale of Montevetro,
Dublin's tallest commercial office building, to Google, for a price
of GBP85.2 million, which was satisfied in cash, in April 2011.
Ongoing constraints on development finance and current market
demands have seen the Group continue to follow a prudent approach
towards its development pipeline timetable, only pursuing
appropriate planning permissions which correlate with its long-term
development strategy, as evidenced by the recent successful
planning decision for a private hospital and rehabilitation
facility in Sligo.
Sustainability
Through its role as investment adviser and portfolio manager for
REO, Treasury Holdings, which has been a carbon neutral company
since 2007, promotes environmental protection and sustainability
across all aspects of REO's property portfolio via the
implementation and use of environmentally friendly materials and
renewable energy initiatives.
Many REO developments, such as Montevetro and Central Park, have
set high environmental standards and the provision of sustainable
buildings, such as these, offer competitive advantages to corporate
tenants through lower operating costs and better indoor
environmental quality, thereby allowing tenants to demonstrate
progress towards corporate environmental objectives.
The Battersea Power Station development will lead the way in
delivering a highly sustainable development, through the creation
of a mixed use community, new public transport provided by the
Northern Line Extension and ground breaking environmental measures.
The project includes a CCHP energy centre generating 30MW of
electricity which, together with other efficiency measures, will
enable the Power Station to become zero carbon and the rest of the
development to be low carbon, saving approximately 65% of CO2
emissions across the entire site.
VALUATIONS
The value of the portfolio as at 31 August 2011 amounted to
GBP991 million, a reported decrease of 1.3% from the 28 February
2011 valuation of GBP1,004 million.
Valuation Methodology
Investment properties and investment properties under
development are stated at fair value in accordance with GAAP at 31
August 2011. As previously indicated in the Group's October 2010
Interim Management Report, the Group has commissioned Treasury
Holdings, in its capacity as Group Investment Adviser, to undertake
these valuations for the interim period only. The primary source of
evidence for property valuations should be recent, comparable
market transactions on arm's length terms. However, the valuation
of the Group's property portfolio is inherently subjective in the
present market environment due to the continuing low level of
comparable transactions.
Valuation Valuation
Feb '11 Aug '11 %
'000 '000 Change
------------------------------ ------- ----------- ----------- --------
Irish Investment Properties Euro 446,080 423,154 -5.1%
------------------------------ ------- ----------- ----------- --------
Irish Properties under
development Euro 139,587 123,557 -11.4%
------------------------------ ------- ----------- ----------- --------
Irish Properties Euro 585,667 546,711 -6.6%
------------------------------ ------- ----------- ----------- --------
UK Properties GBP 504,625 506,625 0.3%
------------------------------ ------- ----------- ----------- --------
Irish Investment Properties: The value of Irish investment
properties has declined on average by 5.1% in the six months to 31
August 2011, as capital values continue to be adversely impacted by
uncertainty surrounding the potential introduction of legislation
in respect of upward only rent reviews and the wider Irish
economy.
Irish Development Properties: The value of Irish properties
under development, which are classified as sites in the course of
development, has decreased on average by 11.4% in the six months to
31 August 2011. The ongoing financial crisis combined with the
absence of debt finance continues to weigh negatively on market
sentiment within the development sector.
UK Properties: The value of the UK property portfolio has
increased by 0.3% in the six months to 31 August 2011, due to the
purchase of the Esso site adjacent to Battersea Power Station.
Pending the introduction of a long-term investor, construction
of Phase 1 of the development is scheduled to commence in 2012,
with completion in 2016.
FINANCIAL REVIEW
Valuations & Net Asset Value ("NAV")
As noted above, the value of the portfolio as at 31 August 2011
amounted to GBP991 million, a reported decrease of 1.3% since 28
February 2011.
The deficit on the consolidated shareholders' funds at 31 August
2011 has reduced to GBP684 million (28 February 2011: GBP801
million deficit), primarily as a result of the successful
completion of the balance sheet restructuring in May 2011.
The consolidated net deficit of the Group under the EPRA
guidelines was GBP617 million at 31 August 2011 (28 February 2011
EPRA net deficit: GBP718 million).
Diluted EPRA deficit per share was -138.5p as at 31 August 2011,
representing a reduction in the deficit from -215.1p at 28 February
2011.
Profit & Loss
Property income for the six months to 31 August 2011 remained
stable at approximately GBP17 million, which is consistent with the
prior year comparative period. After valuation losses and operating
expenses, the reported operating loss was GBP72 million (six months
ended 31 August 2010: GBP2 million loss). The increased operating
loss in the period arose principally from an increase in valuation
losses in the period of GBP43 million, including approximately
GBP20 million of debt restructuring costs which were capitalised
and written off in the period, and a one time gain of GBP26 million
relating to the disposal of REO's investment in China Real Estate
Opportunities plc in the prior year comparative period.
Net financial expenses were GBP36 million in the period (six
months ended 31 August 2010: GBP46 million). REO also reported an
accounting profit of GBP227 million on the equitisation of
liabilities due to the CULS and ZDPs as part of the balance sheet
restructuring.
This has resulted in a REO profit after taxation for the period
of GBP121 million (six months ended 31 August 2011: GBP45 million
loss).
Cash
As at 31 August 2011, the Group had cash, cash equivalents and
restricted cash of GBP18 million (28 February 2011: GBP31 million),
the reduction due principally to a loan repayment from restricted
cash and professional fees associated with the balance sheet
restructuring.
Debt & Gearing
As a result of the successful completion of the balance sheet
restructuring in May 2011, overall debt level, which includes
amounts due to the holder of the Series A and Series B loan notes (
the "OLNs"), has reduced to GBP1,501 million at 31 August 2011
(GBP1,733 million at 28 February 2011). Bank loans amounting to
GBP1,017 million have matured or will mature during the next twelve
months.
The Group continues to work closely with other lenders, which
exist outside NAMA's remit, to renew debt facilities where
required.
Going Concern
The Group's future operating performance will be affected by
general economic, financial and business conditions, many of which
remain beyond the Group's control.
At 31 August 2011, the Group's borrowings totalled GBP1.5
billion and in addition there were interest and finance accruals of
GBP96.9 million. At that date, the Group had an investment and
development portfolio which it valued at GBP991 million, together
with cash and cash equivalents of GBP3.1 million, and restricted
cash of GBP14.9 million. The deficit on shareholders' funds was
GBP684 million. At 31 August 2011, the Group had aggregate bank
loans of GBP1,017 million classified as current liabilities.
On 12 May 2011, the Group successfully completed a financial
restructuring of liabilities due to the holders of its CULS, ZDPs
and the OLNs, which saw the equitisation of approximately GBP246
million of liabilities due to the CULS and ZDPs into equity and
warrants in BPSSV and equity in REO, together with the deferral of
all principal and interest payments due on the OLNs until 31 August
2011 or such later date as might be subsequently agreed with the
Battersea senior lenders (Lloyds Banking Group and NAMA) in respect
of the expiry of their loan facilities, and the novation of those
liabilities into BPSSV from REO.
The loan facilities relating to Battersea Power Station with
both Lloyds Banking Group and NAMA, which were extended to 31
August 2011, can currently be called on demand. Regular discussions
are ongoing with the senior lenders.
At 31 August 2011, the principal and interest due to the OLNs
was GBP174.2 million. Discussions are ongoing with the OLNs.
Following the signing of the MOU with NAMA in December 2010, the
Group recently received a draft term sheet from NAMA in respect of
its wholly owned Irish property assets on which NAMA is the sole
lender, the terms of which are consistent with those contained in
the MOU. Both parties are working towards the finalisation of the
term sheet in the near future.
The key assumptions made in preparing the Group's projected
cashflow for the twelve months from approval of the financial
statements include:
-- The completion of binding facility agreements with NAMA based
on the term sheet in the near future to address:
(a) the deferral of interest payments
(b) the renewal by NAMA of bank facilities on wholly owned Irish
property assets, on which NAMA is the sole lender, in the amount of
GBP475 million
(c) the provision by NAMA of working capital facilities
(d) the provision by NAMA of financial support to cover certain operating cash requirements.
-- The renewal by NAMA of facilities on partially owned Irish
property assets in the amount of GBP133 million, and of a facility,
on which NAMA is the junior lender, in the amount of GBP76 million,
on broadly similar terms to those contained in the MOU for these
facilities.
-- The renewal by non-NAMA banks of facilities on Irish property
assets in the amount of GBP54 million on broadly similar terms.
-- The continued support of the lenders on the Battersea Power
Station development for the current investor process aimed at
introducing a long-term investor on this project.
-- Agreeing terms with a long-term investor on the Battersea
Power Station development to provide project financing and to repay
certain liabilities.
Based on the Group's current projected cashflows and the key
assumptions noted above, the Board believes that the Group will
have sufficient cash and cash equivalents to meet its liquidity
requirements for at least twelve months from the date of approval
of this report.
The Directors of the Company have concluded that the above
factors represent material uncertainties. Failure to achieve the
above assumptions and objectives could cast significant doubt on
the Group's ability to continue as a going concern and it may
therefore be unable to realise its assets and discharge its
liabilities in the normal course of business.
However, having discussed the assumptions and basis of
preparation supporting the Group's cashflow projections, together
with the advanced status of negotiations with the Group's key
lenders, along with securing planning permission on Battersea Power
Station, the financial restructuring of the Group's balance sheet,
the receipt of a draft term sheet from NAMA and the progress made
towards introducing a long-term investor on the Battersea Power
Station development, the Directors of the Company have a reasonable
expectation that the Group will be able to meet its liabilities as
they fall due for the foreseeable future.
On this basis, the Directors consider it appropriate to prepare
the financial statements on a going concern basis. No adjustment
which would result from a change in the going concern basis of
preparation has been included in the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties that face the business
include the following:
Economy
Renewed turbulence in the global financial markets, together
with the austerity measures that require implementation by the
Irish government in order to comply with the assistance programme
contained within the December 2010 EU/IMF Agreement, continue to
have an adverse impact upon the Irish economy. Despite narrowing
yields on Irish sovereign debt, the spending cuts and tax increases
which require introduction as part of the above agreement may
impact upon future economic growth in Ireland, the outlook for
which remains subdued.
The Group's property portfolio is concentrated in Ireland
thereby exposing the Group to the ongoing weakness of the Irish
economy and its subsequent impact upon Ireland's property market.
Factors such as weakened occupier demand, oversupply, and potential
vacancies due to financial market rationalisation and uncertainty
continue to pose a material risk to the Group's business,
operational results and financial health.
Liquidity
The Group's reliance upon the ongoing support of NAMA and other
lenders will continue until one or more of the following key
initiatives have been concluded:
-- execution of legally binding documentation with NAMA;
-- further asset disposals from the Irish property portfolio,
the timing of which will be subject to conditions in the Irish
property market;
-- introduction of a long-term investor into the Battersea Power Station development; and
-- further financial restructuring initiatives.
The failure to successfully implement such initiatives and/or
renew bank facilities expiring in the next twelve months would have
material adverse consequences for the Group, thereby casting doubt
on its ability to continue as a going concern.
Financial sector - Lenders & NAMA
Development finance remains largely absent from the market due
to the ongoing economic and banking concerns outlined above.
Despite narrowing yields on sovereign debt, the ability of both the
Irish government and the Irish banking system to borrow funds in
the international money markets remains constrained.
Recent renewed turbulence in the global financial markets could
significantly increase the cost of available funding or lead to
serious difficulties in refinancing the Group's current debt
levels. The Group could also be forced to sell further assets,
which may not be under the best conditions, in order to meet
payment obligations.
Property Valuations & NAV
The severe recession in the Irish economy has been accompanied
by significant falls in the value of properties across the Irish
market. Continuing inactivity in the Irish property market, the
potential enactment of retrospective abolition of upward only rent
reviews on existing leases and the ongoing absence of new financing
facilities, has also led to difficulty in conducting realistic
property valuations.
Ongoing volatility in the global financial system has created a
significant degree of turbulence in commercial real estate markets
on a worldwide basis. Furthermore, the absence of liquidity in the
financial markets means that it may be very difficult for the Group
to achieve further property sales in the short-term.
Despite the successful completion of the balance sheet
restructuring, further potential declines in the value of the
Group's portfolio may result in a further reduction to
shareholders' funds, which currently show a deficit of GBP684
million (28 February 2011: deficit of GBP801 million).
The consolidated net deficit of the Group under the EPRA
guidelines is GBP617 million at 31 August 2011 (28 February 2011:
net deficit of GBP718 million).
Interest Rates
The Group uses interest rate swaps in order to manage its
exposure to fixed and floating rates. Financing remains scarce and
the renewed volatility in the global financial markets may result
in lenders seeking increased margins, thereby increasing interest
costs as an expense to the Group. Failure to meet margin calls
under such interest swaps may preclude the Group from using this
mechanism to manage its exposure to fluctuating interest rates.
Statement of the directors in respect of the half-yearly
financial report
Each of the directors confirms that, to the best of each
person's knowledge and belief:
(a) the condensed consolidated interim financial statements
comprising the condensed consolidated statement of comprehensive
income, the condensed consolidated statement of financial position,
the condensed consolidated statement of changes in equity, the
condensed consolidated statement of cash flows and related notes 1
to 17 have been prepared in accordance with IAS 34 Interim
Financial Reporting as adopted by the EU.
(b) the interim management report includes a fair review of the information required by:
(i) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(ii) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
By order of the Board
Ray Horney Chairman 25 October 2011
Independent Review Report to Real Estate Opportunities plc
INTRODUCTION
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 31 August 2011 which comprises the condensed
consolidated statement of financial position, condensed
consolidated statement of comprehensive income, condensed
consolidated statement of changes in equity, condensed consolidated
statement of cashflows and the related explanatory notes. We have
read the other information contained in the half-yearly financial
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the Transparency (Directive 2004/109/EC)
Regulations 2007 ("the TD Regulations") and the Disclosure and
Transparency Rules of the UK's Financial Services Authority ("the
FSA"). Our review has been undertaken so that we might state to the
company those matters we are required to state to it in this report
and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company for our review work, for this report, or for the
conclusions we have reached.
DIRECTORS' RESPONSIBILITIES
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the TD Regulations and the Disclosure and Transparency Rules of the
UK FSA. As disclosed in note 1, the annual financial statements of
the group are prepared in accordance with IFRSs as adopted by the
EU. The directors are responsible for ensuring that the condensed
set of financial statements included in this half yearly financial
report has been prepared in accordance with IAS 34 Interim
Financial Reporting as adopted by the EU.
OUR RESPONSIBILITY
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
SCOPE OF REVIEW
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and
Ireland) and consequently does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
CONCLUSION
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly report for the six months ended 31 August 2011
is not prepared, in all material respects, in accordance with IAS
34 as adopted by the EU, the TD Regulations and the Disclosure and
Transparency Rules of the UK FSA.
Emphasis Of Matter - Going Concern
In forming our opinion on these financial statements, which is
not qualified, we have considered the adequacy of the disclosures
made in Note 1(b) to the financial statements concerning the
Group's ability to continue as a going concern.
As set out in that note there are a number of material
uncertainties which could, were the underlying assumptions not to
be achieved, cast significant doubt on the ability of the Group to
continue as a going concern. These matters include the completion
of the binding facility agreements with NAMA, addressing interest
payments, renewal by NAMA of bank facilities, and the provision by
NAMA of working capital facilities and financial support to cover
certain operating cash requirements; renewal by non-NAMA banks of
existing borrowings; the continued forbearance of the lenders on
the Battersea Power Station development; and the introduction of an
equity partner for the Battersea development.
While the ultimate outcome of these matters cannot be assessed
with certainty at this time, the Directors are of the opinion that,
based on the current stage of discussions with the various involved
parties, it is appropriate to prepare the financial statements on
the going concern basis.
The financial statements do not include any adjustments that
would result if the Group was unable to continue as a going
concern.
The group's principal assets comprise investment properties and
investment properties under development, located in Ireland and the
UK, which are being carried in the financial statements at market
value. Given the materiality of these amounts and the inherent
subjectivity in such valuations, we draw your attention to note 2
to the condensed financial statements, which highlights that these
valuations have been carried out solely by the Directors using
assumptions, and exercising certain judgements, based on market
conditions as at 31 August 2011.
Sean O'Keefe
Senior Statutory Auditor
For and on behalf of KPMG
Chartered Accountants
Registered Auditor
Dublin, Ireland
25 October 2011
Condensed consolidated statement of financial position
As at 31 August 2011
In thousands of pounds sterling 31 August 28 February
Note 2011 2011
unaudited audited
Assets
Investment properties 2 395,863 401,469
Investment properties under development 2 594,929 602,613
Trade and other receivables 5,535 5,460
Deferred tax assets 4b 1,118 764
Restricted cash 5,728 4,925
Total non-current assets 1,003,173 1,015,231
========= ===================
Trade and other receivables 6 9,701 68,565
Cash and cash equivalents 3,133 5,690
Restricted cash 9,131 20,874
========= ===================
Total current assets 21,965 95,129
========= ===================
Total assets 1,025,138 1,110,360
========= ===================
Liabilities
Interest-bearing loans and borrowings 5 336,583 324,253
Trade and other payables 904 889
Derivative financial instruments 5b 65,181 65,214
Deferred tax liabilities 4b 12,186 12,923
========= ===================
Total non-current liabilities 414,854 403,279
========= ===================
Interest-bearing loans and borrowings 5 1,164,320 1,409,105
Trade and other payables 7 125,839 93,841
Derivative financial instruments 5b 1,899 4,834
========= ===================
Total current liabilities 1,292,058 1,507,780
========= ===================
Total liabilities 1,706,912 1,911,059
========= ===================
Net liabilities (681,774) (800,699)
========= ===================
Equity
Issued share capital 8a 4,453 3,340
Share premium 8b 1,441 216
Other reserves 1,480 1,480
Currency reserve 77,699 101,167
Retained losses (768,660) (906,902)
========= ===================
Total deficit attributable to owners of the Company (683,587) (800,699)
Non controlling interest 8c 1,813 -
===================
Total deficit (681,774) (800,699)
Net deficit per ordinary share
Basic (pence) 9 (153.5) (239.7)
Diluted (pence) 9 (153.5) (239.7)
Diluted EPRA (pence) 9 (138.5) (215.1)
========= ===================
Condensed consolidated statement of comprehensive income
For the six months ended 31 August 2011
Note 31 August 31 August
2011 2010
In thousands of pounds sterling unaudited unaudited
Continuing operations
Property income 10 16,912 17,359
Other income 396 620
Valuation losses on investment properties and
on investment properties under development 2 (82,535) (39,427)
Profit on disposal of investment property - 244
Profit on disposal of investment in CREO 3 - 26,233
Management fee (912) (1,102)
Administrative expenses 11 (5,690) (5,522)
---------
Results from operating activities (71,829) (1,595)
Gain on equitisation of CULS and ZDPs 14 226,958 -
Finance income 8,986 83
Finance expenses (45,178) (45,903)
--------- ============
Net finance costs 12 (36,192) (45,820)
Profit /(loss) before income tax 118,937 (47,415)
Income tax credit 4 1,752 2,083
--------- ============
Profit / (loss) for the period 120,689 (45,332)
========= ============
Other comprehensive income
Foreign currency translation differences (23,468) 37,769
Other comprehensive (loss) / income, net of income
tax (23,468) 37,769
--------- ============
Total comprehensive income / (loss) for the period 97,221 (7,563)
========= ============
Profit / (loss) attributable to:
Owners of the company 138,242 (45,332)
Non-controlling interest 8c (17,553) -
--------- ============
Profit / (loss) for the period 120,689 (45,332)
--------- ============
Total comprehensive profit / (loss) attributable
to:
Owners of the company 114,774 (7,563)
Non-controlling interest 8c (17,553) -
--------- ============
Total comprehensive profit / (loss) for the period 97,221 (7,563)
========= ============
Earnings/ (loss) per ordinary share
Basic (pence) 13 36.3 (13.6)
Diluted (pence) 13 36.3 (13.6)
Condensed consolidated statement of changes in equity
For the six months period ended 31 August 2011; unaudited (in
thousand of pounds sterling)
Group Share Share Other Currency Retained Total equity Non-controlling Total
capital premium reserves reserve (losses) / (deficit) interest
/ earnings reserves
attributable
to owners
of the
company
--------------- --------- --------- ---------- --------- ----------- ------------- ---------------- ----------
Balance at 1
March
2011 3,340 216 1,480 101,167 (906,902) (800,699) - (800,699)
--------------- --------- --------- ---------- --------- ----------- ------------- ---------------- ----------
Total
comprehensive
income
--------------- --------- --------- ---------- --------- ----------- ------------- ---------------- ----------
Non
controlling
interest
arising in
period (note
8(c)) 19,366 19,366
--------------- --------- --------- ---------- --------- ----------- ------------- ---------------- ----------
Profit /
(loss) for
the period - - - - 138,242 138,242 (17,553) 120,689
--------------- --------- --------- ---------- --------- ----------- ------------- ---------------- ----------
Other
comprehensive
income
--------------- --------- --------- ---------- --------- ----------- ------------- ---------------- ----------
Foreign
currency
translation
differences - - - (23,468) - (23,468) - (23,468)
--------------- --------- --------- ---------- --------- ----------- ------------- ---------------- ----------
Total other
comprehensive
income - - - (23,468) - (23,468) - (23,468)
--------------- --------- --------- ---------- --------- ----------- ------------- ---------------- ----------
Total
comprehensive
income - - - (23,468) 138,242 114,774 (17,553) 97,221
--------------- --------- --------- ---------- --------- ----------- ------------- ---------------- ----------
Transactions
with owners
recorded
directly in
equity
--------------- --------- --------- ---------- --------- ----------- ------------- ---------------- ----------
Contribution
by and
distribution
to owners
--------------- --------- --------- ---------- --------- ----------- ------------- ---------------- ----------
Issue of
ordinary
shares
(note 8) 1,113 1,225 - - - 2,338 - 2,338
--------------- --------- --------- ---------- --------- ----------- ------------- ---------------- ----------
Total
transactions
with owners 1,113 1,225 - - - 2,338 - 2,338
--------------- --------- --------- ---------- --------- ----------- ------------- ---------------- ----------
Balance at 31
August
2011 4,453 1,441 1,480 77,699 (768,660) (683,587) 1,813 (681,774)
--------------- --------- --------- ---------- --------- ----------- ------------- ---------------- ----------
For the year ended 28 February 2011; audited (in thousand of
pounds sterling)
Group Share Share Other Currency Retained Total equity Non-controlling Total
capital premium reserves reserve (losses) / (deficit) interest
/ reserves
earnings attributable
to owners
of the
company
------------------ -------- --------- --------- --------- ---------- ------------- ---------------- ----------
Balance at 1
March
2010 3,338 12 1,480 77,075 (803,528) (721,623) - (721,623)
------------------ -------- --------- --------- --------- ---------- ------------- ---------------- ----------
Reclassification - - 14,157 26,233 (40,390) - - -
------------------ -------- --------- --------- --------- ---------- ------------- ---------------- ----------
Restated Balance 3,338 12 15,637 103,308 (843,918) (721,623) - (721,623)
------------------ -------- --------- --------- --------- ---------- ------------- ---------------- ----------
Total
comprehensive
income
------------------ -------- --------- --------- --------- ---------- ------------- ---------------- ----------
Profit or loss - - - - (45,332) (45,332) - (45,332)
------------------ -------- --------- --------- --------- ---------- ------------- ---------------- ----------
Other
comprehensive
income
------------------ -------- --------- --------- --------- ---------- ------------- ---------------- ----------
Foreign currency
translation
differences - - - 37,769 - 37,769 - 37,769
------------------ -------- --------- --------- --------- ---------- ------------- ---------------- ----------
Share of reserve - - - - - - - -
movement
- associate
------------------ -------- --------- --------- --------- ---------- ------------- ---------------- ----------
Total other
comprehensive
income - 37,769 - 37,769 - 37,769
------------------ -------- --------- --------- --------- ---------- ------------- ---------------- ----------
Total
comprehensive
income for the
period - - - 37,769 (45,332) (7,563) - (7,563)
------------------ -------- --------- --------- --------- ---------- ------------- ---------------- ----------
Reclassified to
profit (14,157) (26,233) 14,157 (26,233) - (26,233)
------------------ -------- --------- --------- --------- ---------- ------------- ---------------- ----------
Transactions with
owners
recorded directly
in
equity
------------------ -------- --------- --------- --------- ---------- ------------- ---------------- ----------
Contribution by
and
distribution to
owners
------------------ -------- --------- --------- --------- ---------- ------------- ---------------- ----------
Conversion of
loan
stock 2 204 - - - 206 - 206
------------------ -------- --------- --------- --------- ---------- ------------- ---------------- ----------
Total
transactions
with owners 2 204 - - - 206 - 206
------------------ -------- --------- --------- --------- ---------- ------------- ---------------- ----------
Balance at 31
August
2010 3,340 216 1,480 114,844 (875,093) (755,213) - (755,213)
------------------ -------- --------- --------- --------- ---------- ------------- ---------------- ----------
Balance at 1 September
2010 3,340 216 1,480 114,844 (875,093) (755,213) - (755,213)
------------------------------ ------ ---- ------ --------- ---------- ---------- --- ----------
Total comprehensive
income
------------------------------ ------ ---- ------ --------- ---------- ---------- --- ----------
Profit or loss - - - - (31,809) (31,809) - (31,809)
------------------------------ ------ ---- ------ --------- ---------- ---------- --- ----------
Other comprehensive
income
------------------------------ ------ ---- ------ --------- ---------- ---------- --- ----------
Foreign currency translation
differences - - - (13,677) - (13,677) - (13,677)
------------------------------ ------ ---- ------ --------- ---------- ---------- --- ----------
Realisation on transfer
of associate to assets - - - - - - - -
available for sale
------------------------------ ------ ---- ------ --------- ---------- ---------- --- ----------
Total other comprehensive
income - (13,677) - (13,677) - (13,677)
------------------------------ ------ ---- ------ --------- ---------- ---------- --- ----------
Total comprehensive
income - - - (13,677) (31,809) (45,486) - (45,486)
------------------------------ ------ ---- ------ --------- ---------- ---------- --- ----------
Transactions with owners
recorded directly in
equity
------------------------------ ------ ---- ------ --------- ---------- ---------- --- ----------
Contribution by and
distribution to owners
------------------------------ ------ ---- ------ --------- ---------- ---------- --- ----------
Total transactions - - - - - - - -
with owners
------------------------------ ------ ---- ------ --------- ---------- ---------- --- ----------
Balance at 28 February
2011 3,340 216 1,480 101,167 (906,902) (800,699) - (800,699)
------------------------------ ------ ---- ------ --------- ---------- ---------- --- ----------
Condensed consolidated statement of cash flows
For the six months ended 31 August 2011
In thousands of pounds sterling 31 August 31 August
2011 2010
unaudited unaudited
Operating activities
Profit / (loss) for the period 120,689 (45,332)
Net financial expense 36,192 45,820
Profit on disposal of investment of CREO - (26,233)
Profit on disposal of investment properties under
development - (244)
Change in fair value of investment properties and
investment properties
under development 82,535 39,427
Gain on equitisation of CULS and ZDPs (226,958) -
Income tax credit (1,752) (2,083)
--------- -----------------
Operating profit before changes in working capital 10,706 11,355
(Increase) / decrease in trade and other receivables (3,207) 1,165
Decrease in trade and other payables (1,239) (2,225)
---------
Changes in working capital (4,446) (1,060)
Income tax (payment) /refund (120) 145
Net cash from operating activities 6,140 10,440
Investing activities
Addition to investment properties and investment properties
under development (6,708) (28,531)
Proceeds from sale of listed investment - 27,680
Proceeds from sale of investment properties under
development (note 6) 64,878 3,113
Interest received 54 110
Movement in restricted cash 10,940 (2,391)
---------
Cash flows from investing activities 69,164 (19)
--------- -----------------
Financing activities
Repayment of bank borrowings (note 6) (68,959) (4,565)
Proceeds from bank borrowings 14,134 15,294
Payments on derivative financial instruments (14,666) (16,396)
Interest paid (9,581) (3,840)
--------- -----------------
Cash flows from financing activities (79,072) (9,507)
--------- -----------------
Net (decrease) / increase in cash and cash equivalents (3,768) 914
Cash and cash equivalents at beginning of period 5,690 21,100
Effect of exchange rate fluctuations on cash held 1,211 (1,371)
--------- -----------------
Cash and cash equivalents 3,133 20,643
--------- -----------------
Notes to the condensed consolidated interim financial
statements
1a. Basis of preparation
Real Estate Opportunities plc (the "Company") is a property
company incorporated in Jersey.
The unaudited condensed consolidated interim financial
statements of the Company as at and for the 6 months ended 31
August 2011 comprise the Company and its subsidiaries (together
referred to as the "Group"). The consolidated statement of
comprehensive income, the consolidated statement of cashflows and
the consolidated statement of changes in equity have been prepared
for the 6 months ended 31 August 2011 and the comparative period is
the 6 months ending 31 August 2010. The statement of financial
position has been prepared as at 31 August 2011 and the comparative
is the audited statement of financial position as at 28 February
2011.
The Group's consolidated financial statements are presented in
pounds sterling and rounded to the nearest thousand. They are
prepared on the historical cost basis except for the following
assets and liabilities which are stated at fair value: derivative
financial instruments, investment properties and investment
properties under development.
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of policies and reported amounts of assets
and liabilities, income and expenses. Actual results may differ
materially from these estimates. In preparing these interim
financial statements, the significant judgements made by management
in applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
Consolidated Financial Statements as at and for the year ended 28
February 2011.
The financial information included in the interim financial
statements is unaudited and does not constitute statutory accounts
as defined in Companies (Jersey) Law 1991, (as amended).
Statement of Compliance
These condensed consolidated interim financial statements have
been prepared in accordance with IAS 34 Interim Financial
Reporting, as adopted by the EU. 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 as at and for the year ended 28 February
2011.
The condensed consolidated interim financial statements were
approved by the Board of Directors on 25 October 2011.
Significant accounting policies
The accounting policies applied by the Group in these condensed
interim financial statements are the same as those applied by the
Group in its audited financial statements as at and for the year
ended 28 February 2011. There are no new accounting policies that
are applicable in the period.
Notes to the condensed consolidated interim financial statements
(continued)
1b. Going concern
The Group's future operating performance will be affected by
general economic, financial and business conditions, many of which
remain beyond the Group's control.
At 31 August 2011, the Group's borrowings totalled GBP1.5
billion and in addition there were interest and finance accruals of
GBP96.9 million. At that date, the Group had an investment and
development portfolio which it valued at GBP991 million, together
with cash and cash equivalents of GBP3.1 million, and restricted
cash of GBP14.9 million. The deficit on shareholders' funds was
GBP684 million. At 31 August 2011, the Group had aggregate bank
loans of GBP1,017 million classified as current liabilities.
On 12 May 2011, the Group successfully completed a financial
restructuring of liabilities due to the holders of its CULS, ZDPs
and the OLNs, which saw the equitisation of approximately GBP246
million of liabilities due to the CULS and ZDPs into equity and
warrants in BPSSV and equity in REO, together with the deferral of
all principal and interest payments due on the OLNs until 31 August
2011 or such later date as might be subsequently agreed with the
Battersea senior lenders (Lloyds Banking Group and NAMA) in respect
of the expiry of their loan facilities, and the novation of those
liabilities into BPSSV from REO.
The loan facilities relating to Battersea Power Station with
both Lloyds Banking Group and NAMA, which were extended to 31
August 2011, can currently be called on demand. Regular discussions
are ongoing with the senior lenders.
At 31 August 2011, the principal and interest due to the OLNs
was GBP174.2 million. Discussions are ongoing with the OLNs.
Following the signing of the Memorandum of Understanding ("MOU")
with NAMA in December 2010, the Group recently received a draft
term sheet from NAMA in respect of its wholly owned Irish property
assets on which NAMA is the sole lender, the terms of which are
consistent with those contained in the MOU. Both parties are
working towards the finalisation of the term sheet in the near
future.
The key assumptions made in preparing the Group's projected cash
flow for the twelve months from approval of the financial
statements include:
-- The completion of binding facility agreements with NAMA based
on the term sheet in the near future to address:
(e) the deferral of interest payments
(f) the renewal by NAMA of bank facilities on wholly owned Irish
property assets, on which NAMA is the sole lender, in the amount of
GBP475 million
(g) the provision by NAMA of working capital facilities.
(h) the provision by NAMA of financial support to cover certain operating cash requirements
-- The renewal by NAMA of facilities on partially owned Irish
property assets in the amount of GBP133 million, and of a facility,
on which NAMA is the junior lender, in the amount of GBP76 million,
on broadly similar terms to those contained in the MOU for these
facilities.
-- The renewal by non-NAMA banks of facilities on Irish property
assets in the amount of GBP54 million on broadly similar terms.
-- The continued support of the lenders on the Battersea Power
Station development for the current investor process aimed at
introducing a long term investor on this project.
-- Agreeing terms with a long-term investor on the Battersea
Power Station development to provide project financing and to repay
certain liabilities.
Based on the Group's current projected cashflows and the key
assumptions noted above, the Board believes that the Group will
have sufficient cash and cash equivalents to meet its liquidity
requirements for at least twelve months from the date of approval
of this report.
Notes to the condensed consolidated interim financial statements
(continued)
1b. Going concern (continued)
The Directors of the Company have concluded that the above
factors represent material uncertainties. Failure to achieve the
above assumptions and objectives could cast significant doubt on
the Group's ability to continue as a going concern and it may
therefore be unable to realise its assets and discharge its
liabilities in the normal course of business.
However, having discussed the assumptions and basis of
preparation supporting the Group's cash flow projections, together
with the advanced status of negotiations with the Group's key
lenders, along with securing planning permission on Battersea Power
Station, the financial restructuring of the Group's balance sheet,
the receipt of a term sheet from NAMA and the progress made towards
introducing a long-term investor on the Battersea Power Station
development, the Directors of the Company have a reasonable
expectation that the Group will be able to meet its liabilities as
they fall due for the foreseeable future.
On this basis, the Directors consider it appropriate to prepare
the financial statements on a going concern basis. No adjustment
which would result from a change in the going concern basis of
preparation has been included in the financial statements.
1c. Financial Risk Management
The Group's financial risk management objectives and policies
are consistent with those disclosed in the consolidated financial
statements as at and for the year ended 28 February 2011.
Notes to the condensed consolidated interim financial statements
(continued)
2. Investment properties and investment properties under
development
In thousands of pounds sterling
Unaudited
Investment
Investment properties
Properties under development Total
Valuation at 1 March 2011 401,469 602,613 1,004,082
Additions 1,836 48,500 50,336
Deficit on revaluation (21,922) (60,613) (82,535)
Currency translation adjustment 14,480 4,429 18,909
=========== ================== =========
Valuation at 31 August 2011 395,863 594,929 990,792
=========== ================== =========
Properties held in
UK 21,125 485,500 506,625
Ireland 374,738 109,429 484,167
=========== ================== =========
395,863 594,929 990,792
=========== ================== =========
Audited
Investment
Investment properties
Properties under development Total
Valuation at 1 March 2010 514,995 582,440 1,097,435
Additions 2,137 100,746 102,883
Disposals (3,432) (40,583) (44,015)
Deficit on revaluation (91,236) (31,304) (122,540)
Currency translation adjustment (20,995) (8,686) (29,681)
----------- ------------------ ---------
Valuation at 28 February 2011 401,469 602,613 1,004,082
----------- ------------------ ---------
Properties held in
UK 21,125 483,500 504,625
Ireland 380,344 119,113 499,457
----------- ------------------ ---------
401,469 602,613 1,004,082
----------- ------------------ ---------
The Group's principal assets comprise investment properties and
investment properties under development, located in Ireland and the
UK, which are being carried in the financial statements at fair
value.
These valuations have been carried out by the Directors, with
input from the Investment Adviser, using assumptions, and
exercising certain judgements, based on market conditions as at 31
August 2011.
Further details of the assumptions used in the valuations are
set out in the Investment Adviser's report, under the heading
valuation methodology.
Notes to the condensed consolidated interim financial statements
(continued)
3. Profit on disposal of investment in CREO
In thousands of pounds Sterling
Assets classified as held for sale
Group 31 August 28 February
2011 2011
unaudited audited
Carrying amount at start of the period - 27,680
Disposal - (27,680)
---------- -----------
Carrying amount at end of the period - -
---------- -----------
During the prior period, the Group disposed of its investment in
China Real Estate Opportunities ("CREO") realising cash of GBP27.7
million, and resulted in a gain on sale of:
Carrying amount of investment sold 27,680
Proceeds on disposal (27,680)
Foreign currency translation reserve
reclassified 26,233
========
Gain on disposal 26,233
========
Notes to the condensed consolidated interim financial statements
(continued)
4. Taxation
In thousands of pounds sterling
(a) Recognised in the income statement
For the six months ended
31 August 31 August
2011 2010
unaudited unaudited
Current tax credit / (expense)
Credit / (charge) for the period 116 (37)
---------- ----------
Deferred tax credit
Fair value movement of financial derivatives 322 300
Valuation losses on investment properties and
on investment properties under development 1,314 1,820
---------- ----------
1,636 2,120
Total Income tax credit 1,752 2,083
---------- ----------
(b) Recognised in the statement of financial position
Deferred tax assets and liabilities are attributable to the
following:
At 31 August 2011 and 28 February 2011
Assets Liabilities Net
31 Aug 28 Feb 31 Aug 28 Feb 31 Aug 28 Feb
2011 2011 2011 2011 2011 2011
unaudited audited unaudited audited unaudited audited
Derivative financial
instruments (1,118) (764) - - (1,118) (764)
Investment properties
and investment properties
under development - - 12,186 12,923 12,186 12,923
========= ======= ========= ======= ========= =======
(1,118) (764) 12,186 12,923 11,068 12,159
========= ======= ========= ======= ========= =======
Movement in temporary differences during the period:
31 August 2011 - unaudited Derivative Investment Total
financial and development
instruments property
At 1 March 2011 (764) 12,923 12,159
Recognised in the statement of comprehensive
income (322) (1,314) (1,636)
Foreign currency movements (32) 577 545
============ ================ =======
At 31 August 2011 (1,118) 12,186 11,068
============ ================ =======
Notes to the condensed consolidated interim
financial statements (continued)
4.Taxation (continued)
In thousands of pounds sterling
(b) Recognised in the statement of financial
position (continued)
Derivative Investment Total
financial and development
instruments property
28 February 2011 - audited
At 1 March 2010 (1,451) 26,385 24,934
Recognised in the statement of comprehensive
income 622 (12,283) (11,661)
Foreign currency movements 65 (1,179) (1,114)
============ ================ ========
At 28 February 2011 (764) 12,923 12,159
============ ================ ========
(i) Profits of the company are subject to taxation in Jersey at a rate of 0%.
(ii) A 5% Goods and Services Tax ("GST") exists in Jersey under
the Goods and Services Tax (Jersey) Law 2007. The Company may apply
for an exemption under the Goods and Services Tax (International
Service Entities) (Jersey) Regulations 2008 on payment of an annual
fee of GBP200. The Company has been granted international service
entity status for the year ended 28 February 2011 and for the
period ended 31 August 2011.
Notes to the condensed consolidated interim financial statements
(continued)
5. Financing
(a) Interest Bearing Loans and borrowings
In thousands of pounds sterling
31 August 28 February
2011 2011
Non - current liabilities unaudited audited
Senior loan secured on Irish property
assets 332,100 319,800
Bank loans secured on Irish property
assets 4,483 4,453
=========== ============
336,583 324,253
=========== ============
31 August 28 February
2011 2011
Current liabilities unaudited audited
Bank loans secured on UK property
assets 277,823 260,003
Series A and B Secured Loan notes
fixed at 6.324% 147,786 146,255
Bank loans secured on Irish property
assets 738,711 768,852
7.5% Convertible Unsecured loan
Stock 2011 (note 14) - 100,895
Zero Dividend Preference Shares
(note 14) - 133,100
=========== ============
1,164,320 1,409,105
=========== ============
(b) Maturity Analysis
In thousands of pounds sterling
The following tables set out the maturity profile of the Group's
financial liabilities.
Carrying Contractual
amount cash flows < 1 1-2 3-4 4-5 > 5
31 August 2011 (unaudited) yr yrs 2-3 yrs yrs yrs yrs
Series A&B Secured
Loan notes fixed
at 6.324% 147,786 174,214 174,214 - - - - -
Variable rate debt
fixed with interest
rate swaps 1,097,047 1,139,853 799,556 334,785 150 150 150 5,062
Variable rate debt 256,070 269,774 269,774 - - - - -
Provisions 904 904 38 38 38 38 38 714
Trade and other
payables 96,841 96,841 96,841 - - - - -
========== ============= ========== ======== ======== ===== ===== ======
1,598,648 1,681,586 1,340,423 334,823 188 188 188 5,776
========== ============= ========== ======== ======== ===== ===== ======
Notes to the condensed consolidated interim financial statements
(continued)
(b) Maturity analysis (Continued)
In thousands of pounds sterling
The following table indicates the periods in which the cash
flows associated with derivatives are expected to occur.
Carrying Contractual
amount cash flows < 1 1-2 3-4 4-5 > 5
31 August 2011 yr yrs 2-3 yrs yrs yrs yrs
Interest rate swap
liability 67,080 67,564 30,131 23,136 11,781 2,516 - -
========== ============= =========== ======= ======== ====== ===== =====
31 August
Disclosed as: 2011
Included in current
liabilities 1,899
Included in non-current
liabilities 65,181
===========
67,080
===========
28 February 2011 (audited)
Non-derivative Carrying Contractual
financial liabilities amount cash flows 2011 2012 2013 2014 2015 > 5 Years
Zero Dividend Preference
shares 133,100 136,021 136,021 - - - - -
Convertible Loan
Stock 100,895 102,787 102,787 - - - - -
Series A and B Secured
Loan notes (fixed
interest rate 6.324%) 146,255 171,808 171,808 - - - - -
Variable rate debt 219,895 231,384 231,384 - - - - -
Variable rate debt
fixed with interest
rate swaps 1,133,213 1,173,567 844,179 323,986 129 129 129 5,015
Provisions 889 891 37 37 37 37 37 706
Trade and other payables 91,408 91,408 91,408 - - - - -
1,825,655 1,907,866 1,577,624 324,023 166 166 166 5,721
========================== =========== ============ ========== ======== ===== ===== ===== ==========
Notes to the condensed consolidated interim financial statements
(continued)
(b) Maturity analysis (Continued)
In thousands of pounds sterling
The following table indicates the periods in which the cash
flows associated with derivatives are expected to occur.
Carrying Contractual
amount cash flows < 1 1-2 3-4 4-5 > 5
28 February 2011 yr yrs 2-3 yrs yrs yrs yrs
Interest rate swap
liability 70,048 98,974 35,591 33,355 20,300 8,655 1,073 -
---------- ------------- ------- ------- -------- ------ ------ -----
28 February
Disclosed as: 2011
Included in current liabilities 4,834
Included in non-current liabilities 65,214
=============
70,048
=============
Notes to the condensed consolidated interim financial statements
(continued)
6. Trade and other receivables - current
In thousands of pounds sterling
31 August 28 February
2011 2011
unaudited audited
Trade receivables 1,409 1,177
Other loans 2,822 2,719
Other debtors and prepayments 5,470 64,669
9,701 68,565
=========== ============
Included in other debtors and prepayments at 28 February 2011
was an amount of GBP63.2 million, which was due in respect of a
property disposal in the year ended 28 February 2011. This was
received in the current period and used to pay existing debt.
7. Trade and other payables - current
In thousands of pounds sterling
31 August 28 February
2011 2011
unaudited audited
Interest and finance accruals 96,916 67,665
Capital accruals 14,763 12,311
Other creditors and accruals 10,064 9,686
Rentals received in advance 2,571 2,433
Current tax payable 1,525 1,746
125,839 93,841
=========== ====================
Included in interest and finance accruals at 28 February 2011
was an amount of GBP7.6m in respect of interest due on CULS which
were converted to equity as detailed in note 14.
Notes to the condensed consolidated interim financial statements
(continued)
8. Share Capital and Reserves
In thousands of pounds sterling
(a) Share capital
31 August 28 February
2011 2011
unaudited audited
Balance at beginning of period
/ year 3,340 3,338
CULs converted into equity in
the year - 2
Ordinary shares issued as part
of restructuring (note 14) 1,113 -
Balance at the end of the period
/ year 4,453 3,340
=========== ============
(b) Share premium
31 August 28 February
2011 2011
unaudited audited
Balance at beginning of period 216 12
Share premium arising on CULS
converted in the period - 204
Share premium arising on restructuring
(note 14) 1,225 -
Balance at the end of the period
/ year 1,441 216
=========== ============
On 12 May 2011, 111,336,528 ordinary shares of GBP0.01 each in
REO plc., were issued to the CULS and ZDP holders as part of the
Group's restructuring at their market price at that date of
GBP0.021 each. This resulted in an increase in issued share capital
of GBP1,113k and in share premium of GBP1,225k.
During the prior year, 205,668 CULS were converted into ordinary
shares of GBP0.01 each. This resulted in an increase in share
capital and share premium of GBP206k.
(c) Non Controlling Interest
31 August 28 February
2011 2011
unaudited audited
Balance at beginning of period - -
Shares and warrants in BPSSV granted
to CULS and ZDP holders (note
14) 16,104 -
Shares in BPSSV granted to Treasury
Holdings (note16) 3,262 -
Non controlling interest; share
of loss in the period (17,553) -
Balance at the end of the period 1,813 -
=========== ============
At the period end, in total, 46% of BPSSV is held as a non
controlling interest outside of the Group and this note reflects
the movement in the period.
Notes to the condensed consolidated interim financial statements
(continued)
9. Net deficit value
In thousands of pounds sterling
(i) Basic net deficit
31 August 28 February
2011 2011
unaudited audited
Net deficit attributable to ordinary shareholders
of the company (683,587) (800,699)
Number of ordinary shares in issue ('000) 445,300 334,010
Basic net deficit per share (pence) (153.5) (239.7)
---------- -----------
At the 31 August 2011, due to the conversion of the CULs in the
period there were no instruments currently in issue that could
trigger any event which would dilute the number of ordinary shares
in issue.
For the year ended 28 February 2011, there was no difference
between the basic and diluted loss per share as the effect of any
potentially dilutive securities was anti-dilutive.
(ii) EPRA net deficit
31 August 28 February
2011 2011
unaudited audited
Net deficit (683,587) (800,699)
Fair value of derivative financial instruments 67,080 70,048
Less non controlling share of movement in fair
value of derivatives (11,161) -
Net deferred tax assets and liabilities 11,068 12,159
---------- -----------
EPRA net deficit (616,600) (718,492)
Diluted number of ordinary shares in issue ('000) 445,300 334,010
---------- -----------
Diluted EPRA net deficit per share (pence) (138.5) (215.1)
---------- -----------
The EPRA net deficit per share excludes the fair value of
derivative financial instruments and deferred taxation assets and
liabilities on revaluations and is calculated on a fully diluted
basis.
Notes to the condensed consolidated interim financial statements
(continued)
10. Segment reporting
As required by IFRS 8 Operating Segments, the segment analysis
below follows the information provided to the Board of Directors,
which is the chief operating decision maker ("CODM"). The Group's
identified reportable segments are the geographical locations in
which it operates, analysed between investment properties and
investment properties under development, which are generally
managed by separate teams.
The relevant revenue, assets and capital expenditure are set out
below. This segmental information is set out on the same basis and
using the same comparatives as the statement of financial position
and the statement of comprehensive income.
(a) Information about reportable segments
In thousands of pounds sterling
Investment Investment Investment Investment
properties properties properties properties
under development under development
-
Ireland UK Total
At 31 August 2011
Revenue* 16,200 - 712 - 16,912
Valuation losses on properties* (21,149) (21,590) (773) (39,023) (82,535)
At 31 August 2011
Property assets 374,738 109,429 21,125 485,500 990,792
Capital expenditure* 1,063 11,806 773 36,694 50,336
Investment Investment Investment Investment Total
properties properties properties properties
under development under development
Ireland UK Total
At 31 August 2010
Revenue* 16,585 - 774 - 17,359
Valuation (losses) / gains
on properties* (12,904) (15,404) 688 (11,807) (39,427)
At 28 February 2011
Property assets 380,344 119,113 21,125 483,500 1,004,082
Capital expenditure** 1,920 48,368 217 52,378 102,883
* For the 6 month period ended 31 August 2011
** For the year ended 28 February 2011
Capital expenditure includes capitalised interest, arrangement
fees and development fees of GBP46 million in the
6 months to 31 August 2011 (year to 28 February 2011 - GBP102.8 million).
Notes to the condensed consolidated interim financial statements
(continued)
10 Segment reporting (continued)
(b) Reconciliation of reportable segment profit or loss
For the six months ended 31 August
In thousands of pounds sterling 31 August 31 August
2011 2010
unaudited unaudited
Revenue
Total revenue for reported segments 16,912 17,359
Profit or loss
Valuation losses on properties (82,535) (39,427)
Total loss per reportable segments (65,623) (22,068)
=========== ==========
Other profit or loss - unallocated amounts
Other income 396 620
Profit on disposal of investment property - 244
Profit on disposal of investment in CREO - 26,233
Management fee (912) (1,102)
Administrative expenses (5,690) (5,522)
Financial income 8,986 83
Financial expenses (45,178) (45,903)
Gain on equitisation of CULS and ZDPs 226,958 -
Consolidated profit / (loss) before income tax 118,937 (47,415)
----------- ----------
11. Administration Expenses
In thousands of pounds Sterling
For the six months ended 31 August
31August 31August
2011 2010
unaudited unaudited
General expenses 5,690 5,522
=========== ==========
Included in general expenses in the period is an amount of
GBP0.8 million in respect of a share based payment to Treasury
Holdings, this has been detailed further in note 16. Restructuring
costs in the 6 months to 31 August 2011 amounted to GBP1.5
million.
Notes to the condensed consolidated interim financial statements
(continued)
12. Finance income and expense
In thousands of pounds sterling
a) Recognised in profit or loss
31 August 31 August
2011 2010
For the six months ended unaudited unaudited
Interest income on bank deposits 53 83
Fair value movement on derivatives 8,933 -
=========== ===========
Finance income 8,986 83
=========== ===========
Other interest and finance charges (22,965) (619)
Interest expense on bank loans repayable, other
than by installments within 5 years (27,612) (7,158)
Interest expense on Senior loan repayable, other
than by installment, within 5 years (7,115) (6,906)
Interest on 7.5% Convertible Unsecured Loan Stock
2011 (1,511) (3,791)
Interest on Zero Dividend Preference Shares (2,312) (5,527)
Interest on 6.324% Series A and B loan notes
2011 (7,116) (4,798)
Fair value movement on derivatives (3,575) (14,404)
Cash payment due on derivatives (8,350) (21,546)
Finance expense (80,556) (64,749)
Less: Interest and finance charge capitalised 35,378 18,846
=========== ===========
(45,178) (45,903)
Net finance costs (36,192) (45,820)
=========== ===========
Included under finance income is a gain of GBP8.7 million on the
fair value movement of a swap which was terminated in the period.
The associated swap break cost of GBP6.8 million is included in the
heading other interest and finance charges. This gives a total net
gain on the termination of this swap of GBP1.9 million, which is
recognised in the statement of comprehensive income in the period
to 31 August 2011.
Also included in other interest and finance charges are various
banking, loan and other finance related charges and fees on the
Groups' loan portfolio.
The Group uses derivative financial instruments to hedge its
exposure to interest rate risks arising from financing and
investment activities. The fair value of these interest rate swaps
is the estimated amount the group would receive or pay to terminate
the swaps at the end of the reporting period. The gain or loss on
remeasurement to fair value is recognised immediately in the
statement of comprehensive income.
Notes to the condensed consolidated interim financial statements
(continued)
13. Profit / (loss) per share
In thousands of pounds sterling
(i) Basic profit / (loss) per share for the six months ended
31 August 31 August
2011 2010
unaudited unaudited
Profit / (loss) attributable to ordinary shareholders 138,242 (45,332)
---------- ----------
Weighted average number of ordinary shares ('000)
Issued shares at beginning of period 334,010 333,804
Effect of shares issued during the period 46,390 34
------- -------
Weighted average number of ordinary shares 380,400 333,838
------- -------
Basic profit/ (loss) per share (pence) 36.3 (13.6)
======= =======
At the 31 August 2011, due to the conversion of the CULs in the
period' there were no instruments currently in issue that could
trigger any event which would dilute the number of ordinary shares
in issue.
For the period ended 31 August 2010, there was no difference
between the basic and diluted loss per share as the effect of any
potentially dilutive securities was anti-dilutive.
(ii) Diluted EPRA earnings/ (loss) per share for the six months
ended
31 31
August August
2011 2010
unaudited unaudited
Profit / (loss) attributable to ordinary shareholders
diluted 138,242 (45,332)
Valuation movement on investment properties and
on investment properties under development 82,535 39,427
Less non controlling interest in respect of property
valuation movement (18,306) -
Profit on disposal of property - (244)
Movement in fair value of financial instruments 5,356 14,404
Less non controlling interest in respect of fair
value of financial instruments (1,141) -
Deferred tax (1,636) (2,120)
205,050 (6,135)
---------- ----------
Weighted average number of ordinary shares (diluted)
at 31 August 2011 ('000) 380,297 333,838
------- -------
Diluted EPRA gain/ (loss) per share (pence) 53.9 (1.9)
------- -------
An EPRA measure has been included to assist comparison between
European property companies. The EPRA earnings excludes investment
property and investment property under development revaluations,
gains on disposals, movements on derivative financial instruments
and their related tax consequences.
Notes to the condensed consolidated interim financial statements
(continued)
14. Gain on equitisation of CULS and ZDPs
In thousands of pounds sterling
31 August 31 August
2011 2010
unaudited unaudited
Gain on equitisation of CULS and ZDPs 226,958 -
-------
On 11 April 2011, the Group announced the final terms of the
restructuring, whereby the liabilities due to the holders of both
the Group's 7.5% CULS and the ZDPs were to be converted into equity
of the newly formed Battersea Power Station subsidiary; Shareholder
Vehicle ("BPSSV") and in Real Estate Opportunities plc ("REO").
The restructuring became effective on 12 May 2011, the main
impact of which was:
-- The holders of the CULS and the ZDPs received Ordinary Shares
in REO plc and shares and warrants in BPSSV;
-- The listings of the CULS and ZDPs on the Official List (standard category) were cancelled;
-- 111 million additional Ordinary Shares in REO were admitted to the Official List;
-- The obligations under the Oriental Loan Note (OLNs) were novated to BPSSV and
-- Certain other liabilities of the BPSSV Group such as loans to
other REO Group entities were swapped for equity in BPSSV.
The table below sets out the net gain recognised by the Group in
the Statement of Comprehensive Income.
31 August 2011
unaudited
Interest and principal on CULs equitised 109,988
ZDP's equitised 135,412
Share capital and premium arising on REO plc
share issue (2,338)
Value of BPSSV shares issued to CULs and ZDP
holders (i) (16,104)
_______
226,958
Net gain on restructuring _______
The CULS and ZDP holders were provided with 300 million warrants
entitling the holders to convert into ordinary shares of BPSSV on a
one for one basis at any time up to 15 years from the date of the
restructuring, if the fair value of Battersea Power Station less
related debt exceeds a certain specified threshold target. At 12
May 2011, management estimated that the warrants had no material
value.
(i) As a result of the restructuring; 46% of BPSSV is now owned
outside of the REO Group and is recognised as a non controlling
interest. Of this total non controlling interest, 7.7% is held by
Treasury Holdings and is accounted for as a share based payment as
detailed in note 16.
Notes to the condensed consolidated interim financial statements
(continued)
15. Capital Commitments
Future capital expenditure, contracted for and approved by the
Directors, but not provided for in these interim financial
statements, is as follows:
In thousands of pounds sterling
31 28 February
August 2011
2011
unaudited audited
Contracted for 26 4,571
Authorised not contracted 70 23
========= ===========
96 4,594
========= ===========
16. Related parties
Pursuant to the Investment Adviser Agreements, Treasury Holdings
earned investment management fees of GBP0.9m for the 6 months
period ended 31 August 2011 (31 August 2010 GBP1.1m) and net
project development and management fees of GBP4.9m during the
period (31 August 2010 GBP6.4m) in respect of the Irish and Global
Property Portfolios. The project development and management fees
are capitalised in the period they are incurred. Unpaid fees
amounted to GBP7.5 million at 31 August 2011, (31 August 2010:
GBP2.5 million).
Fees of GBP360k for the 6 month period ended 31 August 2011 (31
August 2010: GBP332k) in respect of accounting and administrative
services, taxation advice, legal advice and investor relations were
payable to Treasury Holdings in respect of agreements with the
Company. Fees unpaid at 31 August 2011 amounted to GBP253k (31
August 2010: GBP110k).
There was no performance fee payable during the period ended 31
August 2011 (31 August 2010: GBPnil).
During the period, as part of the restructuring of the Group's
obligations and the establishment of a separate vehicle for its
interest in Battersea Power Station, Treasury Holdings was granted
ordinary shares in BPSSV with an estimated value of GBP3.2 million
at that date. This is a share based payment. One quarter of this
charge, GBP835k, has been recognised in the current period for
services rendered by Treasury Holdings as part of the restructuring
and the remaining balance will be recognised over 14 years based on
the expected development life of the Battersea asset.
17. Subsequent events
Post period end the Group completed the sale to a third party of
the UK investment property owned by REO (Stewarts Road) Limited.
The property was sold for GBP6.9 million which is slightly in
excess of its carrying value at 31 August 2011.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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