REI's year end figures show a 20 per cent rise in contracted rental income from £3.34 million in 2009 to £4.01 million, net assets up 18.3 per cent from £27.3 million to £32.3 million, and excellent loan to value of 48 per cent, net of cash.

And while REI's 2010 figures show a loss before tax of £5.6 million against a 2009 profit of £4.3 million, some £4.1 million is accounted for by a 7.5 per cent downwards valuation of REI's investment properties.

The rest is accounted for by a paper loss on the valuation of interest rate swaps of £1.2 million, leaving a loss before tax excluding net property valuation and financial instrument provisions of £292,000, against a 2009 profit of £21,000.

The downward revaluation is the principal reason REI has shown a loss, and it is this that is giving the board real confidence for 2011-12. Paul Bassi said: "We anticipate that the commercial property industry's current view on valuations will provide us with excellent opportunities to buy in 2011/12.

"Revaluations are a two edged sword.

"On the one hand, they make up the majority of the reason for the loss we are reporting, but on the other hand they give us reasons for hoping we can buy quality stock at what the market currently considers to be lower values."

He said that despite varying degrees of optimism seen in early 2010, the economic environment remained fragile, and the last quarter of 2010 and the early part of 2011 had raised further concerns of a renewed recession. 

REI chairman John Crabtree said: "While London investment property values are buoyant, driven largely by institutional and overseas capital, the UK property sector as a whole is not exempt from the economic backdrop. 

"Valuations in UK regions remain depressed, largely due to the lack of bank finance, leading to very limited transactions and comparable evidence being predominantly gathered from distressed sales.

"Our purchases plus other opportunities that we anticipate securing, together with rising rental values, will provide the potential for significant capital gains and surplus cash flow in the short to medium term, establishing REI as a highly respected regional property investment company, that will benefit substantially once market conditions normalise.

"We raised £9.8 million in February 2010 and invested approximately £6.7 million during the year and a further £3.1 million since the year end."

He pointed out that the lack of transactions in the Midlands had meant limited comparable evidence being available to valuers and had contributed to REI's portfolio being revalued down by 7.5 per cent despite active asset management and improving rental income. 

"Our 2010 loss is dominated by the revaluation and hedge cost. The £1.2 million loss on the market value of our hedge is an accounting provision and not a cash loss, and had already improved by £450,000 by the end of February 2011," he said.

Commenting on trading since the December 2010 year end, he added: "Inquiries and new lettings have improved significantly and as the year progresses we anticipate more opportunities that fit our criteria to come predominantly from motivated sellers, financial institutions and insolvency practitioners. 

"Evidence of this has already been seen since the year end. We are mindful that in the short to medium term, we maybe creating comparable evidence that may impact on the valuations of our own portfolio. 

"We believe we are well placed to capitalise on opportunities with Real Estate Investors established as a respected regional investor. We have excellent banking support from Lloyds, Handlesbanken ,Yorkshire, Nationwide and Aviva, and we are confident that we will see capital growth returned to our portfolio once market conditions normalise."

Paul Bassi reported: "Despite all the challenges of 2010 and the continual deferral by tenants to make decisions we were able to increase our contracted rental income from £3.34 million net per annum in 2009 to £4.01 million net in 2010. 

"We raised £9.8 million net from shareholders in February 2010 and we invested approx £6.7 million in opportunities that met our criteria." 

These included a prime office investment, 75-77 Colmore Row in Birmingham,  in August 2010 for £4.5 million at a net initial yield of 8.5 per cent let to PricewaterhouseCoopers, and Rugeley town centre in December 2010  for £900,000 at a net initial yield of 8.35 per cent with tenants including WH Smith and Claire's Accessories), plus a vacant property. 

Additionally, REI has acquired a number of small development sites and public houses for planning gain and has secured planning and banked capital growth.   

"Since the year end we have acquired Kingston House in West Bromwich for £3.1 million at a net initial yield of 11 per cent, the principal tenant being the Primary Care Trust on a lease expiring in 2019. 

"With the benefit of this purchase and other lettings contracted in early 2011, our current contracted income has risen to £4.475 million net per annum.  Fully let, our estimated rental value from the existing portfolio is £5.79 million per annum," said Mr Bassi.

He noted that letting demand had been erratic, but was gradually improving.

"Existing tenants generally are renewing rather than expending capital on relocating.  There is also evidence of tenants taking additional space, as market and economic conditions support the growth of their business, as seen at York House in Birmingham city centre where the Consumer Credit Council have doubled their occupancy with us. 

"We also anticipate renewed demand from employment training organisations who are securing government contracts to retrain the unemployed. We have also seen a renewed level of interest from corporates in Birmingham city centre, and again have lettings agreed, in legals, or in advanced discussions."

He said that the board of REI was very aware of short term fluctuations in property values, and their impact on results. 

"REI views the downturn as an opportunity and we have already demonstrated our ability to secure assets favourably. We remain committed to building a significant property investment business of substance and depth, with positive revenues and capital growth," he said.