Real Est Opport Ld - Final Results

RNS Number:1117R
Real Estate Opportunities Limited
31 March 2008

31 March 2008

REAL ESTATE OPPORTUNITIES LIMITED

PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2007

31 December 31 December %
2007 2006 change
£'000 £'000
Fixed Assets 1,847,220 1,199,919 54

Net Assets 559,655 269,053 108

Ordinary shares:
Net asset value - Basic 167.7p 106.3p 58
Net asset value - Diluted 151.9p 104.5p 45

Zero Dividend Preference shares:
Net asset value 175.5p 161.0p 9
Mid-market price 154.8p 158.7p -2

7.5% Convertible Unsecured Loan Stock
2011
Mid market price 123p 151.5p -19

*Euro:£ exchange rate 1.3636 1.4842

Final Dividend proposed per ordinary share 1.5p 1.5p
-------- -------- --------

**excluding Zero Dividend Preference Shareholders' Entitlement, derivative
financial instruments and loan issue costs but including 7.5.% Convertible
Unsecured Loan Stock 2011, cash and liquid resources.

Ray Horney, Chairman, commented:

"We remain confident in the long term outlook for the Company's extensive
portfolio of investment and development properties in and around Dublin, and
welcome the geographic diversification that the Company has achieved through the
Battersea acquisition and with its exposure to the Chinese property market
through CREO."

"Given the uncertain outlook for the US and other western economies and the
significant rerating of property company shares, it would be unrealistic to hope
or expect that REO should have remained immune. Nonetheless, the Group has an
excellent portfolio of investment properties, which have continued to attract
blue chip tenants as well as a spread of development opportunities that are the
envy of our competitors. I, together with the Board, remain confident that the
Company is well positioned to continue to generate strong returns for its
shareholders."

REO Landsbanki Securities (UK) Limited
Ray Horney, Chairman Paul Fincham, Jonathan Becher,
Robert Naylor
Tel: + 44 (0)1273 775 225 Tel: + 44 (0)20 7426 9000

London: Bankside Consultants Dublin: Murray Consultants
Tel: + 44 (0)20 7367 8888 Simon Rothschild, Tel: + 353 1 498 0300
Oliver Winters Ed Micheau

Chairman's Statement

I am pleased to present the results for your Company for the calendar year 2007.
In the latter half of the year, and continuing into 2008, global stock markets
have undergone periods of weakness unseen since the bursting of the "dot.com"
bubble in 2001. Unsettled by the sub-prime crisis in the USA and increasing
pessimism about the US and other western economies, no sector has been worse
affected than the property sector. Inevitably, this has taken its toll on REO's
own share price, yet in truth it has been another very successful year for the
Company.

During the year under review the net asset value per ordinary share, fully
diluted, increased by 45 per cent. from 104.5p to 151.9p. As part of the
recently approved restructuring of the zero dividend preference shares, the
Board committed to cap annual dividends at 2.5 pence per ordinary share through
to May 2011. In keeping with that commitment, we are proposing a final dividend
for 2007 of 1.5 pence per ordinary share to be paid on 18th July 2008.

During the year, the euro increased in value against sterling by 9 per cent.
which has resulted in a £52m increase in the sterling value of the Group's net
assets; the Company achieved a favourable settlement of litigation arising from
its launch as a split capital investment company in 2001; completed the
appointment of the lead architect and core advisory team for the development of
the 38 acre site incorporating Battersea Power Station; purchased from Treasury
Holdings its interest in Havenview Investments Limited; acquired from Treasury
Holdings and others additional investment and development properties in and
around Dublin, strengthening the balance sheet in the process; and published
proposals to restructure the zero dividend preference shares and remove the
obligation to put forward a winding up resolution in 2011 (these proposals have
since been approved and become effective).

In addition to these developments China Real Estate Opportunities Limited
("CREO"), which was backed by the Company when it was first established as a
cash shell in December 2005, was successfully relaunched in the summer of 2007.
This has resulted in a substantial increase in net asset value for the Company.

Whilst Ireland remains its core market, REO has achieved significant geographic
diversification through its holding in CREO and the acquisition of the Battersea
Power Station site in December 2006.

BATTERSEA POWER STATION

As you will recall, in December 2006 REO acquired the 38.5 acre site at
Battersea Power Station in London for a total consideration of £400m, little
more than £10m per acre.

Since then we have been pleased to see other development sites in Central London
changing hands at substantially higher prices, albeit the unique attributes of
the Battersea site mean that no clear comparator exists.

We have now appointed a substantial team of professional advisors under the
leadership of world renowned architect,

Rafael Vinoly, who is drawing up a revised masterplan for the site with a view
to maximising its development potential whilst preserving the integrity of the
Giles Gilbert Scott power station. The intention is to produce a robust,
deliverable scheme that combines best practice in policy terms with a
sustainable, exemplary development for London. It is also envisaged that the
development will become a catalyst for the wider redevelopment of the Nine Elms
corridor.

To support the regeneration of the area, the Greater London Authority has begun
work on the production of a dedicated Opportunity Area Planning Framework
("OAPF") for the Nine Elms corridor. This will build on the recent alterations
to the London Plan announced in February 2008 and will consider transportation,
density, uses and height and is expected to be complete by the end of 2008.
These alterations specifically identify Battersea as an area for intensification
and higher density development with improved accessibility.

Our timetable for the development of the Battersea site is to complete the
masterplan design process by mid 2008 with a new planning application expected
to be submitted in early 2009.

IRISH PORTFOLIO

During the year, the main event in the Company's Irish portfolio was the
addition of a portfolio of investment and development properties in and around
Dublin, and the purchase of Treasury Holdings' interests in Havenview
Investments Limited, for an aggregate consideration of some £120m satisfied by
the issue of new ordinary shares at £1.50 per share. This transaction was
approved by the Company's independent shareholders and completed in November.

Other notable developments included the signing of the Bremore Port joint
venture with the Drogheda Port Company.

Throughout the period under review 9 rent reviews and 3 relettings were carried
out, all of which were settled above the figures estimated by the Company's
independent valuers. I am also pleased to report that this trend has continued
into the new year.

FINANCING

During the year we completed a £110m debt facility with Bank of Scotland to
finance acquisitions of land in the vicinity of Battersea Power Station. A
number of other smaller debt facilities were executed with Irish banks to
finance smaller acquisitions.

Debt facilities are also in place to fund the construction of Montevetro, the
Company's 19,500 square metre office development in Barrow Street, Dublin.

Overall, debt facilities are secure and long term. The Company has hedged the
large majority of its interest rate risk with 89 per cent. of total debt on
fixed rates with a weighted average duration of 4.2 years.

OUTLOOK FOR 2008

We remain confident in the long term outlook for the Company's extensive
portfolio of investment and development properties in and around Dublin, and
welcome the geographic diversification that the Company has achieved through the
Battersea acquisition and with its exposure to the Chinese property market
through CREO.

Given the uncertain outlook for the US and other western economies and the
significant rerating of property company shares, it would be unrealistic to hope
or expect that REO should have remained immune. Nonetheless, the Group has an
excellent portfolio of investment properties, which have continued to attract
blue chip tenants as well as a spread of development opportunities that are the
envy of our competitors. I, together with the Board, remain confident that the
Company is well positioned to continue to generate strong returns for its
shareholders.

Ray Horney
Chairman
30th March 2008

Investment adviser's report:
for the Irish and UK property markets

The Irish Economic Overview

Set against a background of uncertainty in the international economy primarily
caused by the credit crisis and the effects of the US sub-prime problems,
Ireland's economic performance remained impressive in 2007 with real GDP
estimated to have grown by approximately 5.5 per cent. and employment rising by
approximately 3.4 per cent. (Source: AIB Economic Research Unit)

The fundamentals in the Irish economy remain sound. The public finances are in
good order, the economy is close to full employment with a flexible labour
market and all sectors of the economy have enjoyed strong growth. There has been
an encouraging and marked pick up in manufacturing output and the services
sector generally has remained buoyant. Services exports are estimated to
comprise approximately 45 per cent. of total exports for 2007 (Sources: AIB
Economic Research Unit & Thomson Datastream).

The pace of economic growth will reduce in 2008 and the projected rate according
to the ESRI is currently in the order of 1.6 per cent. with a recovery in 2009
when growth in real GNP is expected to accelerate to 3 per cent. There has been
considerable comment in the media regarding the economy's dependence on housing
activity. While undoubtedly this is a very important element of the economy it
must be seen in context. While new housing completions declined by approximately
36 per cent. in 2007 the economy continued to grow by approximately 5.5 per
cent. New housing completions in 2008 are projected to be approximately 50,000
units (Sources: AIB ERU, DoE, ESRI).

IRISH PROPERTY MARKET

The Irish property market continued to perform solidly throughout 2007 even
though all indices increased by less than in earlier years. The Society of
Chartered Surveyors/Investment Property Databank (SCS/IPD) Property Index shows
an annualised total return of approximately 9.9 per cent. to December 2007.
Growth in the office sector has continued and this has been the leading sector
with growth of approximately 10.6 per cent. Property once again has outperformed
equities and bonds which for the same period gave returns of approximately minus
24.5 per cent. and plus 0.5 per cent. (Sources: SCS/IPD Index).

OFFICE SECTOR

Letting activity remained buoyant in the office sector with a total take up for
2007 of approximately 250,000 square metres, a level not previously achieved.
The activity is being led by the requirements of large single let occupiers from
the professional and financial sectors including the main commercial banks and
the leading legal and accountancy practices. Despite the large take up in space,
there remains substantial demand for further accommodation, possibly up to
300,000 square metres. Prime office rents are in the region of €650 - €700 per
square metre. The city centre Central Business District and dockland areas
remain the favourite locations. Preferred out of town areas are very much led by
developments with close proximity to rail and LUAS transport facilities and good
access to national roadways. Out of town rents are in the order of €270 - €325
per square metre. The overall vacancy rate remains in the order of approximately
10 per cent, with a vacancy rate of approximately 5.5 per cent. in the Dublin 2
and 4 postcode areas. Prime office yields are in the order of 4 per cent. / 4.5
per cent. (Sources: CB Richard Ellis Research).

RETAIL MARKET

Conditions in the Irish retail market continue to become more competitive,
however, consumer spending remains buoyant despite the negative economic news in
the recent months.

There has been a significant increase in new shopping centre developments
opening in the past 24 months with approximately 10 new schemes, mainly
provincial and outside the Greater Dublin Area, opening in 2007. Increasing
competition in the market place has resulted in rents growing at a slower pace.
Future retail opportunities lie in the redevelopment of older properties and
centres and this will provide further challenges to the rebranding of
redevelopment opportunities and the canvassing of new occupiers yet to be seen
in the market place.

In the next 24 to 36 months there are fewer new schemes planned to be opened
compared to 2007.

INDUSTRIAL MARKET

As ever, the industrial market has moved along in its own particular fashion and
activity was strong during 2007 with estimates showing letting and sales
activity up by approximately 10 per cent. on the previous year. The two
constants in the industrial market are the preference for occupiers to own their
own buildings and the skill of developers to build primarily to order with very
little over supply of space.

Proximity to motorways and Dublin Port remain of paramount importance. The
growth of distribution centres continues at pace particularly for the multiple
retailers. Generally rents for prime industrial units are in the order of €130
per square metre per annum, capital values approach €2,500 per square metre and
prime yields in the order of 4.75 per cent. to 5 per cent. (Source: CB Richard
Ellis Research).

RESIDENTIAL

The year 2007 was a particularly challenging one for the Irish residential
market. After over a decade of boom markets, a combination of rising interest
rates, uncertainty over stamp duty levels, a tightening of fiscal policies by
the lending institutions and the all important lack of consumer confidence has
had a detrimental effect on the market.

New house construction has eased with developers allowing the market to take up
the existing stock prior to new starts. Some developers have reduced quoting
prices while others have maintained prices but offered additional incentives.
The uncertainty in the market pre the 2007 Budget particularly in relation to
proposed stamp duty changes is easing, thus allowing potential for normal
activity levels to return.

With the reduction in market activity, the marginal purchaser has now returned
to the letting market which has had the effect of increasing rents and also
investors are returning to this market. Overall the fundamentals underpinning
the market remain sound. A combination of a sound economic base and a young,
dynamic population operating within a robust economy are all factors which
underwrite the performance of the residential market and a return to more solid
times is anticipated.

SUMMARY

The outlook for 2008 is positive with the core economic fundamentals being
strong and at acceptable levels in comparison with Ireland's international
trading neighbours. The Portfolio has performed well and has benefited from
careful husbandry and asset management on both the investment and development
sides. There are considerable opportunities in the Portfolio which will be
exploited in the medium term and there are a number of large and important rent
reviews, particularly within the office element of the Portfolio, which will
fall due in 2008. The new year will provide an environment where a premium will
be placed upon investment and development skills and we are well positioned both
in terms of product and personnel to maximise available opportunities.

IRISH PROPERTY PORTFOLIO

The significant volume of activity experienced in recent years has continued in
both the development and investment elements of the Portfolio with positive
results to report on our projects.

Planning permission has been received on the North Wall Quay Site (Tedcastles)
for an office development of approximately 27,700 square metres. This is one of
the few remaining waterfront sites on the River Liffey. By virtue of its size
and situation, we believe that a larger scheme may be possible and we are
currently preparing plans for a revised planning application for a larger iconic
building. To the rear of the site we are developing proposals for a mixed use
scheme to include approximately 11,150 square metres of retail space and 175
apartments.

Our latest office development on Barrow Street, Montevetro, has received
planning permission and construction has now commenced. This very exciting 15
storey building will extend to approximately 19,500 square metres. and will have
water frontage to Grand Canal Dock.

In Stillorgan, we have continued to acquire properties in the vicinity of the
Shopping Centre to add to and facilitate the development of the proposed scheme.
The Local Authority has now published the long awaited Local Area Action Plan
and we continue to engage with the Local Authority to achieve a comprehensive
Master Plan incorporating our three land holdings in the area to include
Stillorgan Shopping Centre, the Leisureplex and Blakes sites.

Initial construction work has commenced on the Arnold Palmer designed golf
course at our 437 acre Milverton Desmesne Estate at Skerries in North County
Dublin. We are continuing to progress design revisions to the hotel element of
the proposed development.

Also during the year, our previously agreed joint venture agreement for the
development of Bremore Port at Balbriggan was executed with the Drogheda Port
Company. The Bremore Port development will provide substantial opportunities for
the Company on both the development and operational fronts.

The development and investment properties acquired from Treasury Holdings in
November 2007 have now been fully integrated into the REO portfolio.

The Company also acquired a 21.4 per cent. interest in the Northside Shopping
Centre, Dublin, one of the city's earliest shopping centre developments.

The Group continues to acquire units in Ballymun Shopping Centre with the
objective of obtaining full vacant possession prior to commencement of
development works. Substantial progress has been made during the course of the
year on the design of the proposed development with the objective of a planning
application being made during 2008.

In Central Park, Leopardstown, South County Dublin, the Group disposed of its
interest in certain lands in the Vantage residential development to Lalco.

In relation to rent reviews generally, large reviews are due in Central Park
(Vodafone and First Active) and also at Russell Court, St. Stephen's Green
(KPMG).

Important reviews are due in 2008 at Mespil Road (Bank of Ireland Asset
Management) and at Central Park (Merrill Lynch). Strategies dealing with these
rent reviews are being prepared.

The overall value of the Irish portfolio as at 31 December 2007 was €1.73
billion, which after acquisitions and capital expenditure, reflects a
revaluation of €90 million or 5.2 per cent.

UK ECONOMIC OVERVIEW

Along with the USA and other major western economies, UK economic growth has
slowed quite sharply in the second half of 2007. The impact of the Northern Rock
crisis and the tightening of credit markets will continue to take its toll on
the economy, the housing market in particular, although the extent of its impact
is not yet clear. The main areas of concern centre around public finances with
the balance of payments current account in deficit to the tune of £20 billion,
£6.3 billion more than in the previous quarter, and public sector net borrowing
now at £43.6 billion.

Weakness in the high street continues and it remains to be seen how much scope
there is to cut interest rates and how effective this will be in reversing the
economic trend.

On a brighter note, the economy continues to grow, albeit at a slower rate. GDP
growth for 2008 is forecast at 1.8 per cent. against 3.1 per cent. for 2007,
followed by a return to trend in 2009. Anecdotal evidence is that the top end
housing market in London, where there is substantial support from overseas
purchasers, is not greatly affected by concerns in the wider economy and that
prices are proving to be tolerably robust.

UK PROPERTY MARKET

The UK property market recorded a total return of minus 3.4 per cent. for 2007
according to IPD. Scarcity of debt, lack of business and consumer confidence,
and a marked shift in investor sentiment towards property, have been the key
drivers of this negative growth, resulting in significantly increased yields.

UK OFFICE MARKET

At 5.8 per cent, up almost 90 basis points from the beginning of the year, UK
office yields are at their highest level in over two years, according to CBRE.
Rental growth reached 9.2 per cent. year on year in December 2007, whilst
capital values recorded a decrease of 4.8 per cent. over the same period,
according to IPD. Capital Economics further points out that with a 31 per cent.
rise in new space under construction over the past 6 months, the bulk of this in
the City, this can only be seen to put further pressure on rental growth as this
new supply pipeline is released into the market. Vacancy rates still remain
historically low at 3 per cent. in the City and just 2.3 per cent. in the West
End, according to CBRE.

UK RETAIL MARKET

The UK retail property market has been most affected by the economic downturn
with total IPD returns showing minus 6.1 per cent. for 2007. Prime yields have
increased by 45 basis points to 5.4 per cent. in December 2007, with shifts
recorded across all markets, although regional centres were affected more
dramatically. Central London retail recorded a modest shift of just 15 basis
points, demonstrating a continued, healthy demand for the capital's prime
pitches.

UK RESIDENTIAL

The UK residential market witnessed growth in capital values of c. 7 per cent.
in 2007, down from c. 8.5 per cent. in 2006 according to Savills, suggesting the
residential market got off relatively unscathed in comparison to other property
sectors. However the reduction in mortgage approvals, down to 73,000 for
December 2007 (81,000 in November 2007), suggests that further decreases in
capital growth for this sector are likely.

The London residential market still reported solid growth in capital values of
13 per cent. during 2007.

BATTERSEA POWER STATION

During 2007, the Group decided that the existing planning permission did not
optimise the development potential for the site nor meet the emerging planning
guidance for the area. In April 2007, world renowned architect Rafael Vinoly was
appointed to produce a new masterplan following a detailed selection process.

The new professional team has approached the development afresh with the aim of
producing a truly robust, deliverable scheme that combines best practice in
policy terms with a sustainable, exemplary development for London. It is also
the intention that the development becomes a catalyst project for the wider
redevelopment of the Nine Elms corridor.

To support this broader regeneration of the area, the Greater London Authority
has begun work on the production of a dedicated Opportunity Area Planning
Framework ("OAPF") which will consider transportation, density, uses and height.
This statutory document will specifically address the Nine Elms corridor. The
OAPF is expected to be complete by the end of 2008 and to implement the detailed
alterations to the London Plan for the area that were recently adopted. These
changes specifically identify Battersea as an area for intensification and
higher density where good accessibility and capacity exist.

The London Plan amendments also set much higher sustainability targets and
greater reductions in carbon dioxide emissions for all new developments. These
changes are fully supported by the Group and it is our intention that the
Battersea Power Station development sets new standards in this field. This
process will capitalise on the experience of our development manager Treasury
Holdings with its considerable understanding of renewable energy and waste
management and involvement in a number of such projects including the Dongtan
Eco City in Shanghai, China.

The timetable for the development is to complete our masterplan design process
by mid 2008 with a new planning application expected to be submitted at the
start of 2009.

Consolidated and Company Balance sheets
as at 31 December

2007 2006
Notes Group Company Group Company
£'000 £'000 £'000 £'000
Fixed assets
Tangible assets
Investment and
development properties 4 1,776,438 - 1,143,398 -
Investments
Investment in associate 5 70,196 30,711 - -
Share of gross assets in
joint venture - - 117,917 -
Share of gross liabilities - - (66,091) -
of joint venture
Interest in joint venture - - 51,826 -
Investment in joint venture - - - 6,738
Listed investments 586 586 4,695 4,695
Investment in subsidiary
undertakings - 301,262 - 171,401
----------------------- ----- -------- ------- -------- -------
1,847,220 332,559 1,199,919 182,834
----------------------- ----- -------- ------- -------- -------

Current Assets
Debtors due within one 21,387 283,633 34,345 245,176
year
Debtors due after one 4,968 - 5,615 -
year
Derivative financial instruments 14,529 - 2,024 -
Cash at bank 9,241 1,379 30,014 109
Liquid resources 67,878 - 70,793 -
----------------------- ----- -------- ------- -------- -------
118,003 285,012 142,791 245,285
Creditors: amounts falling (141,740) (87,564) (85,534) (46,966)
due within one year
----------------------- ----- -------- ------- -------- -------
Net current
(liabilities)/assets (23,737) 197,448 57,257 198,319
----------------------- ----- -------- ------- -------- -------
Total assets less current 1,823,483 530,007 1,257,176 381,153
liabilities

Creditors: amounts
falling due after one year
7.5% Convertible Unsecured (101,113) (101,113) (101,143) (101,143)
Loan Stock 2011
Bank loans (623,526) - (388,295) -
Senior loan (275,006) - (252,661) -
Zero Dividend Preference
Shareholders' entitlement (101,355) (101,355) (92,993) (92,993)
6.324% Series A and B
Secured Loan Notes 2011 (149,611) (149,611) (150,000) (150,000)
Accrued interest on Series
A and B Secured Loan (6,324) (6,324) - -
Notes 2011
Derivative financial instruments (1,294) - (181) -
----------------------- ----- -------- ------- -------- -------
(1,258,229) (358,403) (985,273) (344,136)
Provisions for liabilities (5,599) - (2,850) -
---------------------- ----- -------- ------- -------- -------
Net assets 559,655 171,604 269,053 37,017
---------------------- ----- -------- ------- -------- -------

Capital and reserves
Called up share capital 3,338 3,338 2,530 2,530
Share premium account 405,747 405,747 285,448 285,448
Redemption reserve 1,480 1,480 1,480 1,480
Other reserve 11,681 - - -
Currency reserve 66,916 - 15,213 -
Property revaluation reserve 186,314 - 97,531 -
Investment revaluation reserve - - 1,718 1,718
Revenue deficit (123,977) (238,961) (136,438) (254,159)
Total Shareholders' 551,499 171,604 267,482 37,017
funds
Minority interests 8,156 - 1,571 -
---------------------- ----- -------- ------- -------- -------
Capital employed 559,655 171,604 269,053 37,017
---------------------- ----- -------- ------- -------- -------
Net asset value per
share:
Ordinary shares - basic 167.7p 106.3p
Ordinary shares - diluted 151.9p 104.5p
Zero Dividend Preference shares 175.5p 161.0p

Consolidated profit and loss account
for the year ended 31 December

Notes 2007 2006
£'000 £'000
Turnover: Group and share of joint venture 24,450 18,903
Less: share of joint ventures' turnover (5,281) (2,136)
------------------------------ ------ ------- -------
Group turnover - continuing operations 1 19,169 16,767

Management fee (13,236) (414)
Operating expenses (12,128) (9,158)
----------------------------- ------ -------- -------
Operating (loss)/profit - continuing operations (6,195) 7,195

Share of operating loss in associate (1,126) -
Share of operating profit in joint venture 4,103 1,630
Profit/(loss) on disposal of fixed assets 9,285 (2,158)
------------------------------ ------ -------- -------
Profit on ordinary activities before interest 6,067 6,667

Interest receivable and similar income 2 56,894 5,543
Interest payable and similar charges
- Group (23,527) (21,908)
- Zero Dividend Preference Shares (8,362) (7,672)
- Joint venture (3,009) (3,082)
- Associate (2,476) -
-------- --------
(37,374) (32,662)
------------------------------ ------ -------- --------
Profit/(loss) on ordinary activities before 25,587 (20,452)
taxation

Tax on profit/(loss) on ordinary activities (3,564) (3,348)
------------------------------ ------ ------- -------
Profit/(loss) on ordinary activities after 22,023 (23,800)
taxation
Minority interests - -
------------------------------ ------ ------- -------
Profit/(loss) for the year 22,023 (23,800)
------------------------------ ------ ------- -------

Profit/(loss) per share
Ordinary shares - basic 8.3p (9.4)p
Ordinary shares - diluted 8.1p (4.6)p
Zero Dividend Preference shares 14.5p 13.3p

Consolidated statement of total recognised gains and losses
for the year ended 31 December

2007 2006
£'000 £'000
Gains on investment and development properties
- Total 41,814 97,407
- Minority interest (316) (1,624)
------- -------
- Group 41,498 95,783
- Joint venture 14,282 15,574
- Associate 28,073 -
(Losses)/gains on listed investments (24) 35
Share of contribution for new equity shares in CREO (note 5) 10,786 -
Currency translation adjustments
- Group 48,200 (5,507)
- Joint venture (71) (987)
- Associate 3,574 -
Realisation of currency reserve on disposal of subsidiary
- Group - (121)
Termination of cash flow hedges (net of tax) - 7,805
Other reserves 895 -
------------------------------------ ------- -------
Other recognised gains and losses 147,213 112,582
Profit/(loss) for the financial year before dividends 22,023 (23,800)
----------------------------------- ------- -------
Total recognised gains and losses for the year
attributable 169,236 88,782
to the Group ------- -------
-------------------------------------

Consolidated reconciliation of movements in shareholders' funds
for the year ended 31 December
2007 2006
£'000 £'000 £'000 £'000
---------------------------- ------- ------- ------ -------
Total recognised gains and losses for
the year attributable to the Group 169,236 88,782
---------------------------- ------- ------- ------ -------
Transactions with shareholders
Issue of new shares 121,077 -
Conversion of loan stock 30 -
Dividends on ordinary shares (note 3) (6,326) 114,781 (6,326) (6,326)
------- ------

Other Movements
Reversal of costs previously recognised in share premium - 520
------- -------
Net increase in shareholders' funds 284,017 82,976

Opening shareholders' funds - equity 267,482 184,506
---------------------------- ------- -------
Closing shareholders' funds - equity 551,499 267,482
---------------------------- ------- -------

Consolidated note of historical cost profit and losses
for the year ended 31 December
2007 2006
£'000 £'000
Reported profit/ (loss) on ordinary activities before
taxation 25,587 (20,452)
Realisation of property revaluation profits of previous
periods - 125,065
---------------------------------- -------- -------
Historical cost profit before tax 25,587 104,613
---------------------------------- -------- -------
Historical cost profit after tax 22,023 101,265
---------------------------------- -------- -------

Consolidated cash flow statement
for the year ended 31 December
2007 2006
£'000 £'000
Net cash outflow from operating activities (18,735) (1,279)
Dividend from joint venture - 19,539
Returns on investment and servicing of finance 20,278 (27,076)
Taxation - (1,148)
Capital expenditure and financial investment (117,698) (45,878)
Acquisitions and disposals 28,206 (362,042)
Financing 70,587 501,354
Management of liquid resources 2,915 (70,793)
Equity dividends paid (6,326) (6,326)
-------------------------------- -------- ---------
(Decrease)/increase in cash (20,773) 6,351
-------------------------------- -------- ---------

2007 2006
£'000 £'000
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in the year (20,773) 6,351
(Decrease)/increase in liquid resources (2,915) 70,793
Cash inflow from movement in debt (70,587) (501,354)
--------------------------------- -------- --------
Change in net debt resulting from cash flows (94,275) (424,210)
Conversion of Convertible Unsecured Loan Stock
2011 to Ordinary shares 30 -
Debt acquired on acquisition of subsidiaries (185,764) -
Non cash movements (76,130) 6,306
Fair value movement on derivatives 10,443 13,660
Fair value of derivatives acquired on acquisition
of subsidiaries 2,472 -
Zero Dividend Preference Shares (8,362) (7,672)
Net debt at start of year (911,506) (499,590)
--------------------------------- -------- --------
Net debt at end of year (1,263,092) (911,506)

Notes to the financial statements
as at 31 December 2007

1. TURNOVER AND SEGMENTAL INFORMATION

Group

Year ended Year ended
31 December 31 December
2007 2006
£'000 £'000
Property income
Property Income - UK 720 159
Property income - Ireland 18,449 16,608
Share of joint venture property income - 5,281 2,136
Ireland ------------ ------------
------------------------
Property income: Group 24,450 18,903
Less share of joint venture property (5,281) (2,136)
income ---------------- --------
------------------------
Group property income 19,169 16,767
------------------------ ------------ --------

2. INTEREST RECEIVABLE AND SIMILAR INCOME
Year ended Year ended
31 December 31 December
2007 2006
£'000 £'000 £'000 £'000
Income from listed investments
Dividends from equity investments - 56
Interest income
Bank deposit interest 3,647 3,619
Interest receivable from joint venture - 666
------------------------ ------- -------- ------ ---------
3,647 4,285
Gains/(losses) on investments
Realised gains on sales 52 1,705
Unrealised write down on shares - (503)
------------------------ ------- -------- ------ ---------
52 1,202
Legal Settlement (i) 52,071 -
Other income 1,124 -
------------------------ ------- -------- ------ ---------
Total interest receivable and similar 56,894 5,543
income ------- -------- ------ ---------
------------------------

(i) On 15 March 2007 the Company reached a settlement with Aberdeen Asset
Management ("Aberdeen") in relation to all claims against Aberdeen arising from
the launch of the Company and subsequent management by Aberdeen of the Company's
income portfolio. On 16 May 2007 agreement was also reached with UBS in relation
to a similar claim. The amounts included in the financial statements represent
the total received net of costs.

3. DIVIDENDS

Dividend on ordinary shares

Year ended Year ended
31 December 31 December
2007 2006
£'000 £'000
Dividends paid 6,326 6,326
---------------- --------------- ---------------
6,326 6,326
---------------- --------------- ---------------

On 5 November 2007, the Company paid an interim dividend of 1p per ordinary
share to shareholders registered at 5 October 2007. A final dividend for the
year ended 31 December 2006 of 1.5p per share was paid on 6 July 2007.

The directors have proposed a final dividend for the year ended 31 December 2007
of 1.5p per ordinary share.

4. INVESTMENT AND DEVELOPMENT PROPERTIES
(a)
Investment Development Total
£'000 £'000 £'000
Group
Valuation at 1 January 2007 424,508 718,890 1,143,398
Additions 85,715 61,241 146,956
Disposals - (5,338) (5,338)
Transfer to development property (22,150) 22,150 -
Surplus on revaluation 14,441 27,373 41,814
Arising on acquisition of subsidiaries 193,670 159,142 352,812
Exchange differences 54,377 42,419 96,796
---------------------------- --------- --------- --------
Valuation at 31 December 2007 750,561 1,025,877 1,776,438
---------------------------- --------- --------- --------

Properties held in:
UK 60,583 456,000 516,583
Republic of Ireland 689,978 569,877 1,259,855
---------------------------- --------- --------- --------
750,561 1,025,877 1,776,438
---------------------------- --------- --------- --------

Historical Cost - Group
2007 2006
£'000 £'000
Investment 551,322 294,087
Development 919,821 682,626
---------------------------- --------- --------- --------
1,471,143 976,713
---------------------------- --------- --------- --------

Development properties include capitalised loan interest at 31 December 2007 of
£61,677,000 (2006: £21,822,000.

All properties have been revalued on an open market basis as at 31 December
2007.

The Irish investment and development properties were revalued on an open market
basis as at 31 December 2007 by DTZ Sherry Fitzgerald and CB Richard Ellis,
professional valuers, and were carried out in accordance with the RICS Appraisal
and Valuation standards.

The UK investment and development properties were revalued on an open market
basis as at 31 December 2007 by CB Richard Ellis, Allsops and GVA Grimley,
professional valuers, and were carried out in accordance with the RICS Appraisal
and Valuation Standards.

(b) Disposals in the year

During the year the Group disposed of a number of interests in properties and
realised a profit of £9.3m. This profit related principally to:

• A disposal of the Company's interest in Grand Eastern Limited ("GEL") to
CREO.
• A disposal of the Group's interest in certain lands at market value. The
aggregate profit on disposal was £3.1m.

5. INVESTMENT IN ASSOCIATE - CHINA REAL ESTATE OPPORTUNITIES LIMITED

2007
Group £'000
Shares acquired (i) 3,586
Shares acquired as consideration for trading asset (ii) 16,125
Shares acquired for cash (iii) 11,000
Share of loss for the year (3,843)
Share of gains on investment and development properties 28,073
Share of gains of other reserves 895
Share of gains of currency reserve 3,574
Share of contribution for new equity shares 10,786
------------------------------------ ------ -------
At end of year 70,196
------------------------------------ ------ -------

Share of assets 118,803
- share of fixed assets 100,832
- share of current assets 17,971
-------
Share of liabilities (48,607)
- share of liabilities due within one year (7,789)
- share of liabilities due after more than one year (40,818)
-------
------------------------------------ ------- -------
Share of net assets 70,196
------------------------------------ ------- -------

Company
Shares acquired (i) 3,586
Shares acquired as consideration for trading asset (ii) 16,125
Shares acquired for cash (iii) 11,000
------------------------------------ ------- -------
At end of year 30,711
------------------------------------ ------- -------

(i) The liquidator of CREO S.A. made a distribution to the Company of 4,800,000
shares in China Real Estate Opportunities Limited ("CREO") at a market value of
£3,586,000. CREO is a Jersey incorporated company focused on real estate
investment and development in China.

(ii) On 11 July 2007 the Company disposed of its interest in Grand Eastern
Limited ("GEL") to CREO.

(iii) On 27 July 2007 the Company subscribed for a further 1,455,000 ordinary
shares for cash at a price of £7.56 each in connection with CREO's admission to
the London AIM market. This acquisition raised the Company's shareholding in
CREO to 16.55 per cent. REO has accounted for its interest in CREO as an
associate as the Company can now exert significant influence over CREO's
operating and financial policies.

6. POST BALANCE SHEET EVENTS

(a) Scheme of arrangement to issue new ZDP shares, adopt new articles of
association and cancel the share premium account.

Scheme of arrangement

On 14 February 2008 a scheme of arrangement was approved ("the scheme") by the
court in order to cancel the ZDP shares and issue in exchange new ZDP shares in
REO Securities Limited, a subsidiary of the Company; to adopt new Articles of
Association and to cancel the Company's share premium account.

Issue of new ZDP Shares

The scheme provided for the cancellation of the ZDP shares and the issue of new
ZDP shares to ZDP shareholders on a one for one basis. The new ZDP shares were
issued by a wholly owned subsidiary of the Company incorporated for this
purpose. The rights of the new ZDP shares are substantially the same as the
rights of the previously existing ZDP shares except that the new ZDP's will now
rank ahead of ordinary shares with regard to revenue reserves of the Company.

Adoption of New Articles

The Scheme also made provision for the adoption of New Articles which do not
provide for a fixed winding up date for the Company. The new articles are also
updated to take account of the cancellation of the ZDP shares; to reflect the
recent changes of the Company's listing status from a property investment
company to a property company and to reflect the Company's position as a holding
company of a property group.

Cancellation of Share Premium account

The entire amount standing to the credit of the Company's share premium account
was cancelled and used to eliminate the deficit in the Company's revenue
reserves. The balance is available as a distributable reserve, to facilitate the
payment of dividends or the repurchase of the Company's own shares.

Following the scheme of arrangement the Company estimates that it has
distributable reserves of not less than £170m.

7. This preliminary announcement was approved by the board of Directors on 30
March 2008. The Report & Accounts for the year to 31 December 2007 will be
distributed in due course.

This information is provided by RNS
The company news service from the London Stock Exchange

END
FR URAURWNROOUR