Real Estate Opportunities, the property development company controlled by Treasury Holdings, faces crunch talks with holders of some of its loan notes. The company's business plan, which has been submitted to Nama, states that it hopes to reach an agreement with the holders of the notes whereby "the capital amounts due on maturity in May 2011 will not represent a cash outflow for REO". The business plan also includes an assumption that the holders of some of the notes will agree to a standstill on interest payments in the period to June 2011.
The situation is stark. "All of these instruments mature in May 2011 and based on the Group's current financial position, the Group does not have the ability to repay those instruments on their maturity in May 2011," state the accounts under the title "Going Concern". REO has called in Talbot Hughes McKillop, the same company that was hired by Quinn Group to provide financial restructuring services to the group, to assist in negotiations with "key holders" of the loan instruments. The plan is to agree a "restructuring of the group's balance prior to their repayment date" of 31 May 2011.
REO has aggregate obligations of just over £370m of its Convertible Unsecured Loan Notes (CULs), its Zero Dividend Preference shares (ZDPs) and the 6.324% Series A and B unsecured loan notes. "The liability at 28 February 2010 in respect of the CULs and the ZDPs is £101 and £122 million respectively. In the case of the CULs, interest is paid every six months in the amount of £3.8 million and the next interest payment is due in August 2010", the accounts state.
The Series A and Series B unsecured loan notes amount to £147.8m. Interest at the rate of 6.324% per annum is payable half yearly and the next interest payment due date is 31 August 2010 in the amount of £5m.
The total property portfolio value was £1.097bn at the end of February, down 43% from the 31 December 2008 valuation of £1.91bn. During the 14-month accounting period the company had property income of £44m but this was barely enough to cover a £40m impairment in the value of its listed investment in CREO. Underlying losses before tax came to an eye-watering £828m.
The Irish portfolio underperformed the British assets, as would be expected, with an average decline of 51% in values across the former over the 14 months. "This decline is broadly in line with market-wide declines in values in Ireland as the market continued to suffer from the biggest contraction of any developed economy as well as severe instability in its banking sector in the period," the company said.
Interestingly the company is also reliant on Nama agreeing to defer interest payments and "hopes for Nama to provide working capital facilities". This may be a reference to Montevetro, the office block under construction by REO in Dublin 4. The 19,500 square metre building is still being marketed and it is known to have drawn interest from US multinationals looking to expand in Ireland. Montevetro is the only REO development currently under construction.
The company's future though is largely concentrated on Battersea Power Station. If planning is granted in the coming weeks, as is expected, then the value of the site will increase substantially, and offloading a stake in the site (see panel) will reduce the shareholders' funds deficit which currently stands at £722m.
REO says the group has sufficient cash-and-carry equivalents to meet its liquidity requirements for at least 12 months but it will need continued funding from Nama and non-Nama lenders beyond June of next year.
However, if the "assumptions and objectives" in the group's business are not achieved "it could cast significant doubt on the ability of the group 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".