REI show how difficult commercial property investment outside the M25 is

REI show how difficult commercial property investment outside the M25 is

The final results for 2010 for AIM-listed West Midlands commercial property concern Real Estate Investors Plc, shows that life in commercial property circles outside of the M25 has not been made easier by foreign investment capital as it has inside. Here valuations remain depressed, largely by the absence of any transactional evidence to the contrary, as the market, starved of bank finance, has largely distressed sales for comparable eveidence.

The firm swung to a 5.6 million loss from a profit of 4.3 million in 2009, as it's portfolio lost 7.5% or 4.1 million of value, and it interest rate swaps lost a further 1.2 million ( having gained 0.8 million in 2009).

Despite raising 9.7 million in February 2010 in an equity issue, gearing is uncomfortably high at 84% and the portfolio LTV is at 48% net of cash.

REI report that letting demand has been erratic, but is gradually improving. Existing tenants generally are renewing rather than expending capital on relocating. Insolvencies are accounting for 17.5% of rental income or 700,000.

REI anticipate a greater number of transactions, prompted by banks not renewing facilities and distressed sales, from private and quoted companies who are unable to refinance. Furthermore, they believe that banks will embark upon a de-leveraging process during 2011-2012 and beyond. Another feature of the market place will be government departments and local authorities selling assets to raise capital.

In our view all of this will put pressure on values and will require new sources of debt capital which will almost certainly require a greater return than debt finance has in recent years.

The Odeon and UCI cinema chain could be up for sale, which will see a large number of commercial property opportunities available in the country.

Guy Hands, boss of private equity group Terra Firma, is considering selling the franchise in what is likely to be a lucrative investment property for the buyer.

Odeon and UCI account for around 200 cinemas across the country, which means that whichever company gets the contract will be accumulating a large portfolio of commercial properties.

BC Partners is one potential buyer for the chain and it is thought that Mr Hands wants to receive up to 1 billion for the collection.

His firm bought the Odeon and UCI cinemas in 2004 for 574 million and 308.7 million respectively.

Since the purchase, Terra Firma has invested 4 billion in its businesses over the last few years, including developing its Odeon portfolio, which is now the country's largest cinema chain.

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