Real Estate Opportunities (REO), the quoted split capital investment trust formed by Treasury Holdings and Aberdeen Asset Management, will reorganise itself as a property investment company.

REO, backed by Treasury's Mr John Ronan and Mr Richard Barrett who own around a third of the company, was set up in June 2001 with a diverse portfolio of properties in Britain and the Republic.

It also invested in a portfolio of high-yield bonds and high-yielding shares issued by investment companies, held in its income portfolio.

But the slump in global stock markets has hit the value of these assets. The income portfolio, valued at £333 million sterling (€526.5 million) at the end of July 2001, was worth just £49 million on October 11th.

As a result, REO is proposing to shareholders that it realises the remainder of the income portfolio and uses the proceeds to further repay the bank facility which funded it. REO has already repaid €138 million of that facility, leaving a balance of €50 million.

"This repayment, together with the fall in value of the income portfolio as a whole, means it is now apparent that the original commercial purpose of having an income portfolio is no longer applicable," REO said.

It is also proposing to refinance its British property portfolio, which consists of 59 properties valued at £126 million sterling at the end of June. REO believes it can improve on the terms currently in place as the market has improved for this type of property finance.

Finally, the company is seeking authority to purchase up to 15 per cent of its ordinary shares and the remainder of its zero dividend preference shares.

Because the company has insufficient distributable reserves to fund in full the share buyback, it is proposing to cancel up to £328 million of the share premium account, creating a special reserve which can be used to buy the shares.

To reduce the share premium account, however, it requires confirmation from the Royal Court of Jersey, where the company is registered.

REO, which announced in July that it was suspending dividend payments, said it intended to re-establish them as soon as possible. However, such payments are expected to be much lower than the 8.8 per cent annualised dividend yield originally envisaged while investors are unlikely to get any dividend "for the foreseeable future". REO's board has also appointed a committee made up of its independent directors to review the management of the company in light of its proposed repositioning as a property company.

It has also arranged for an independent review of the management of the income portfolio given the level of losses sustained.Until the outcome of this review is clear, the fees payable to the investment manager are to be reduced.

The portfolio was managed by Aberdeen Asset Management, the British investment house which initially took a 21 per cent stake in REO.

Aberdeen had three directors on REO's board. One of them, Mr Chris Fishwick, has tendered his resignation from the board, with immediate effect.