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 £246 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 £991 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 £498 million at 28 February 2011 to £500 million, due to the purchase of an adjoining site
- Property income of £17 million in the six months to 31 August 2011, consistent with the prior year comparative period
- Loss from operating activities of £72 million in the period compared to a loss of £2 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 £121 million in the period, compared to loss after tax of £45 million for the prior year comparative period, due principally to an accounting profit of £227 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 £18 million (includes cash equivalents and restricted cash), from £31 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 €40 million on Irish investment portfolio (28 February 2011: €40.1 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.”

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 £246 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 £991 million as at 31 August 2011, a reported decrease of 1.3% from the valuation of £1,004 million at 28 February 2011. This reported decrease in the portfolio valuation is due to a revaluation adjustment of £83 million across the portfolio since 28 February 2011, after capitalised costs and acquisitions of £50 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 £85.2 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.