Interim Results for the six months ended 30 June 2009
REO Securities is a wholly owned subsidiary of Real Estate Opportunities plc. Shareholders attention is drawn to Real Estate Opportunities plc interim results which are also published today (27 August 2009).
CHAIRMAN’S STATEMENT
Company Background
On 14 February 2008 the Royal Court of Jersey granted approval for a Scheme of Arrangement (described in a circular to the shareholders of Real Estate Opportunities plc (‘REO’ or ‘the Group’) dated 18 December 2007). The Scheme involved the Zero Dividend Preference Shares (“ZDP Shares”), part of the share capital of REO being cancelled and, in exchange, New ZDP Shares were issued on a one for one basis by REO Securities Limited (‘the Company’), a newly incorporated subsidiary of REO. Implementation of the Scheme will allow the new ZDP Shares to be repaid by way of winding up of REO Securities Limited on 31 May 2011 rather than the winding up or reconstruction of REO itself.
Admission of the 57,755,782 New ZDP Shares of REO Securities Limited to the Official List of the UK Listing Authority took place on 18 February 2008, with dealings therein on the London Stock Exchange commencing on the same day.
Activities
The Company is a wholly owned subsidiary of REO, and forms part of the Real Estate Opportunities plc Group (the “Group”). REO is a property company investing mainly in the Irish and UK property markets but also overseas.
The Company was incorporated as part of a Scheme of Capital Restructuring of the REO Group so as to remove the requirement that REO be wound up in 2011. On the 18 January 2008 shareholders of REO passed all resolutions proposed at the Class Meeting of the zero dividend preference shareholders relating to the Scheme of Capital Restructuring.
On 14 February 2008 the Court approved a scheme for REO to cancel the share premium account and to cancel the existing zero dividend preference shares and to issue in exchange zero dividend preference shares (“ZDPs”) in the Company.
On the 18 February 2008, the entire issued zero dividend preference shares of REO were suspended from trading prior to cancellation. On the same day zero dividend preference shares in the Company issued to the former zero dividend preference shareholders of REO, commenced trading.
Status
The Company was incorporated on 27 April 2007 and as a wholly owned subsidiary of REO, forms part of a closed ended collective investment fund, as defined in the Collective Investment Funds (Jersey) Law 1988, as amended, and the subordinate legislation made thereunder.
The Company has applied for international service entity status under the Goods and Services Tax (International Service Entities) (Jersey) Regulations 2008 in respect of the year ended 31 December 2008 and 31 December 2009. Goods and Service Tax was introduced with effect from 6 May 2008.
The Company has been granted exempt status under Article 123A of the Income Tax (Jersey) Law 1961 in respect of the year ended 31 December 2008. With effect from 1 January 2009 the Company moved to a 0% rate of income tax following the abolition of exempt company status.
The Company is registered in Jersey under number 97292.
Capital Structure
The Company has a capital structure comprising Ordinary and Zero Dividend Preference Shares (“ZDP’s”). The ordinary shares are unlisted and are beneficially held by Real Estate Opportunities plc (“REO”). Accordingly, REO Securities Limited is a wholly owned subsidiary of REO. The ZDP’s are listed on the London Stock Exchange.
Going Concern
The Company’s major asset is a receivable from its parent, REO a company incorporated in Jersey. REO Securities’ ability to continue in business and satisfy its future obligations to the holders of the ZDP’s is dependent on REO. To that end, REO and REO Securities Limited have entered into an arrangement pursuant to an Undertaking Agreement whereby the net assets of REO will effectively be made available to meet the repayment entitlement of the ZDP Shares on the Repayment Date, 31 May 2011.
At 30 June 2009 REO had total borrowings of £1,621 million. At that date, REO had cash, cash equivalents and restricted cash of £61 million and a deficit on consolidated shareholders equity of £88 million. REO has an investment and development property portfolio valued by its Directors at £1,622 million.
REO’s future operating performance will be affected by general economic, financial and business conditions, many of which are beyond REO’s control. REO’s bank borrowings are mainly provided by financial institutions operating in Ireland and the United Kingdom. These financial institutions currently face financial difficulty and in many cases are being supported by Government. Significant deterioration in the economic environment in Ireland and the United Kingdom could have a material adverse impact on the value of REO’s property portfolio and shareholders equity and as a consequence on REO’s ability to obtain longer term debt or equity financing required to meet its longer term financing and liquidity requirements beyond 2010.
REO’s Board, together with REO’s Investment Adviser, have focused on cash conservation. A series of cost cutting measures have been implemented across REO and a full review of REO’s detailed financial plan for the next 15 months has been carried out. A number of key assumptions have been made in preparing this plan, including: bank facilities that are due in 2009 and 2010 amounting to £556 million and £201 million respectively will be rolled over and renewed on broadly similar terms; if there are further declines in values which may result in breaches of loan facility covenants, it is assumed that the existing facilities will remain in place and be renewed, as is consistent with REO’s recent experience; and REO will realise £35 million to £40 million in cash following the completion of one of a number of corporate transactions that are currently being explored. Based on these assumptions, REO’s Board believes that there is adequate cash and cash equivalents to meet its working capital requirements until November 2010.
The Directors of the Company have concluded that the above factors represent material uncertainties. Failure by REO to deliver on the forecast assumptions may cast significant doubt on the ability of the Company 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. Nevertheless, having discussed the basis of preparation and the assumptions underlying REO’s cashflow projections together with assessing the current status of negotiations with REO’s current lenders, and assuming the rollover and renewal of expiring facilities and required further waivers are put in place within the required timescales, the Directors of the Company have a reasonable expectation that the Company will be able to meet its liabilities as they fall due for the foreseeable future. It is on this basis that the Directors consider it appropriate to prepare the financial statements on a going concern basis. These unaudited interim financial statements do not include any adjustment that would result from the going concern basis of preparation being inappropriate.
Valuation of investment and development properties
REO’s principal assets comprise investment properties and investment properties under development properties, located in Ireland and the UK, which are being carried in the financial statements at market value.
The Directors of REO appointed the Investment Adviser to conduct the valuations using assumptions, and exercising certain judgements, based on market conditions as at 30 June 2009. Shareholder attention is drawn to the Investment Advisers Report in REO plc’s interim results for further details. These results are also published today, 27 August 2009.
Real Estate Opportunities plc
Shareholders’ attention is drawn to the publication of the preliminary results for Real Estate Opportunities plc issued on the 27 August 2009 for reference.
Interim Report and Accounts for six months to 30th June 2009
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