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Local Shopping REIT (The) PLC
04 December 2013
 



The Local Shopping REIT plc

("LSR" or the "Company" or the "Group")

 

UNAUDITED FULL YEAR RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2013

 

The Local Shopping REIT plc (LSE: LSR), a real estate investment trust that provides investors with access to a diversified portfolio of local shopping assets across the UK, today announces unaudited results for the year ended 30 September 2013.

 

Financial Highlights

 

·     Recurring profit £2.07m or 2.5 pence per share (2012: £3.40m or 4.2 pence per share) with a loss before tax of £6.07m or 7.5 pence per share (2012: loss of £9.17m or 11.3 pence per share).

 

·     Net Asset Value (NAV) of £33.6m or 41 pence per share (2012: £41.3m or 50 pence per share).

 

·     Adjusted NAV of £40.0m, or 48 pence per share, excluding liabilities arising from derivative financial instruments (2012: £50.4m, or 61 pence per share).

 

·     Total net debt of £127.7m, reflecting an LTV of 75.2%.  New finance arrangements agreed extending HSBC facility to April 2018.

 

·     Debt free properties valued at £7.9m.

 

Portfolio

 

·     Directly owned portfolio re-valued at 30 September 2013 at £168.9m (2012: £177.2m), reflecting an equivalent yield (excluding the residential element) of 9.48%.  The portfolio comprised 640 properties, with 2,037 letting units, producing an annual rental income of £15.45m.

 

·     During the year three commercial units and nine flats sold at a 16.02% premium to their preceeding valuation of £1,169,600.

 

·     On a like for like basis, excluding the sold properties, portfolio valuation decreased by 4.06% from £176.0m to £168.9m.

 

·     Annual rent roll of £15.45m (2012: £15.9m) with like-for-like rent down 2.3% (2012: down 1.7%).

 

·     Over the year, portfolio Market Rent reduced by 1.94% (2012: -0.45%).  On a like with like basis, Market Rent reduced by 1.44%.

Operational Highlights

 

·     Overall void rate 12.38%, equivalent to Market Rent of £2.11m (2012: 10.9% and £1.89m).

 

·     Void rate improved from 12.43% (end-July) to 11.97% (end-October) since management changes in July.

 

·     116 vacant commercial units let at an annual rental income of £1,003,840 per annum (2012: 107 units let at £986,309 per annum).

 

·     154 rent reviews with an average rental uplift of 5.4% (£114,833) above previous passing rent.

 

·     42 lease renewals secured at a net rental decrease of £29,469 (-5.4%), but at £3,456 (0.7%) above Market Rent. 

 

·     Rental deposits held of £862,000 or 22.3% of the quarterly rent roll (2012: £927,000).

 

·     Seven flat conversions completed and leased, adding £55,440 per annum to rent roll

 

·     Planning consent secured for nine flats and two changes of use, including the division of one unit into two.

 

·     Strategy Review completed, culminating in the adoption of a new investment policy and appointment of external investment manager with effect from 22 July 2013.

 

·     As a consequence of the Strategy Review, estimated future cost savings of £0.9m per annum resulting from lower administrative costs and the recently negotiated surrender of the Company's West End office.

 

 

 

For further information:

The Local Shopping REIT plc                                             +44 20 7355 8800

 

Steve Faber, Director

Bill Heaney, Company Secretary

 

 

About The Local Shopping REIT plc

 

The Local Shopping REIT plc (LSE: LSR), a real estate investment trust ("REIT") that provides investors with access to a diversified portfolio of local shopping assets across the UK.  As at 30 September 2013 the Company's directly owned portfolio comprised 640 properties, with over 2,000 letting units.  In July 2013 the Company's adopted a new investment policy to maximise shareholder value through (inter alia):

 

·     realising its assets progressively in accordance with prevailing market conditions with a view to repaying the Company's existing debt facilities (where consistent with the protection of value) and ultimately returning value to Shareholders;

 

·     exploiting the potential of the portfolio through active asset management. 

 

For further information on LSR, please visit www.localshoppingreit.co.uk.

 



Business Review

 

The Directors of The Local Shopping REIT plc are pleased to announce the Company's full year results for the 12 month period to 30 September 2013 and report on its activities and progress during the year.

 

Strategy

 

Of greatest significance was the conclusion of the Strategy Review carried out by the Non-executive Directors during the year, and the subsequent adoption by shareholders of the Company's new investment policy.  The principal objective of the new policy is (in summary) for the Company to sell its assets progressively in accordance with prevailing market conditions, with a view to repaying debt and ultimately returning value to Shareholders. 

 

As a result of the Strategy Review the Joint Chief Executives, Mike Riley and Nick Gregory, and the Finance Director, Vickie Whitehouse, left the business during July 2013 and INTERNOS Global Investors Limited ("INTERNOS") was appointed by the Board to execute the new strategy and manage the Company's investment property portfolio.  Members of the operational team transferred to INTERNOS and Steve Faber, Head of UK Investment Management at INTERNOS, joined the Board. 

 

As a result of the change in investment policy, the Company withdrew from fee based asset management activities for joint ventures and third parties and disposed of its interests in its joint venture with Pramerica Real Estate Investors and its investment with Schroders.  The Company retains its interest in the small joint venture with an established UK institution.

 

On an operational level we seek to execute the revised investment policy through:

 

·     identifying priority properties for sale - for example, those producing low cash returns as a result of high actual or potential void rates and/or high maintenance or capital expenditure;

 

·     targeting likely purchasers - for example, potential owner-occupiers and (particularly with residential flats) local investors;

 

·     carrying out the sales programme in a manner that does not incur unnecessary debt finance breakage costs;

 

·     continuing to optimise the portfolio value and recurring profits through active management of the assets, minimising rental voids, arrears and costs (both operational and corporate);

 

·     as appropriate, exploiting opportunities for adding value through re-gearing leases, planning consents and developments.

 

In executing the sales strategy, we recognise that:

 

·     the residual portfolio needs to be of sufficient quality to facilitate potential re-financing;

 

·     the level of cash held by the business must be sufficient to fund continuing operations;

 

·     the need to continue to comply with the REIT and other applicable regulatory regimes.

 



 

Results and Net Asset Value

 

On an IFRS basis, the Group recorded a loss before tax for the year of £6.07m (2012: IFRS loss of £9.18m).  The recurring profit for the year was £2.07m (2.5p per share), compared with £3.40m (4.2p per share) in 2012.  A reconciliation of the recurring profit to the loss before tax in the Income Statement is given in the Financial Review section, below.

 

In addition the Group earned a non-recurring profit of £53,308 from now discontinued asset management activities for joint ventures and third parties (2012: loss of £207,385). 

 

The net asset value of the Group declined over the year by £7.7m to £33.6m, primarily as a result of the fall in the valuation of the property portfolio.  This equates to an NAV per share of 41 pence (30 September 2012: 50 pence).  The NAV per share adjusted for the fair value of interest rate swap contracts fell to 48 pence (2012: 61 pence). 

 

Portfolio Performance & Asset Management

 

Our investment property portfolio was re-valued at 30 September 2013 at £168,860,000.  This reflected an equivalent yield (excluding the residential element) of 9.48%.  The portfolio comprised 640 properties, with 2,037 letting units, producing an annual rental income of £15.45m.

 

On a like for like basis the portfolio valuation decreased by 4.07% from £176.0m to £168.9m.

 

The aggregate Market Rent for the portfolio at 30 September 2013 was £16,896,962, a fall of 1.94% (2012: -0.45%).  On a like with like basis, the portfolio Market Rent fell by 1.44%.

 

Rental income and the portfolio vacancy rate continued to be affected by the challenging conditions in the retail market and the economy generally.  Market Rent of vacant properties at the year-end was £2,106,193m or 12.38% of aggregate portfolio Market Rent (2012: 10.94%).  Of this, commercial properties accounted for £2,097,243 and residential units were £159,028.  The portfolio void rate reflects our balanced policy of taking possession early where tenants are in financial difficulty, which has contributed to the reduction in bad debts in comparison with 2011-12. 

 

Since the changes arising from the Strategic Review were implemented, the void rate has improved from 12.43% (end-July) to 11.97% (end-October).  We also no longer distinguish between assets deliberately held vacant and other vacant properties.

 

We continued our localised and pragmatic approach to leasing during the year, enabling us to let 116 vacant commercial units at a total rent of £1,003,840 per annum (2011-12: 107 lettings at £986,309).  These units were let, on average, at 17.2% below Market Rent.  However, of these new leases 21 are subject to stepped rents, rather than extended rent-free periods (an approach which is both conducive to the independent trader sector and helpful to our cash flow).  Our average rent free period on lettings completed during the year was 67 days (2012: 69 days).  At 30 September 2013 the letting pipeline comprised 34 units under offer, at rents totalling £396,610 per annum.

 

Rent reviews were carried out on 154 units during the year, increasing rental income by a total of £114,833 per annum, reflecting an average uplift of 5.4% over the previous passing rent and 7.6% above Market Rent.

 

Leases were renewed on 42 units, resulting in a net rental decrease of £29,469 (-5.4%), but at a slight increase (0.7%) over Market Rent.  In addition, we undertook eleven surrender and re-grants, resulting in average increases at 9.7% above the previous passing rent, and exceeding Market Rent by 14.7%. 

 

We continue to seek rent deposits of between three to six months on the letting of units.  The value of deposits held at 30 September 2013 totalled approximately £862,000 (30 September 2012: approximately £927,000) or 22.3% of our quarterly rent roll, providing a measure of protection against tenant default.  

 

During the year we completed a number of conversion projects, resulting in the addition of seven flats to the portfolio.  These were all let within a short time of project completion, adding £55,440 per annum to the portfolio rent roll.  Two further conversions of redundant upper parts were underway at the year-end, one of which will provide a new stand-alone flat, whilst the other will extend an existing flat.  In addition, during the year we secured planning consents for nine flats and two further changes of use, including the division of one unit into two.

 

Whilst the removal of empty property rates and the increasing imposition of council tax on vacant residential flats did not have a material impact during the year, in common with other landlords we anticipate that this will become an increasing factor in future years.

 

Acquisitions and Sales

 

The new investment policy, adopted in July 2013, focuses on the orderly selling down of our property portfolio.  Accordingly, we do not plan to acquire properties unless to do so contributes to the achievement of the overall sales strategy.  We did not in any case acquire any new properties during 2012-13. 

 

During the year we sold three commercial units and nine flats for a total of £1.36m, representing a 16.02% premium to valuation.  Following the year-end we completed the sale of one further commercial unit.  Further sales of 22 properties (16 commercial and 6 flats) were in solicitors' hands at the date of this report.

 

Joint Ventures and Third Party Asset Management

 

In accordance with the new investment policy, during July 2013 we disposed of our investment in the joint venture with Pramerica Real Estate Investors ("LPI") and with Schroders ("LRF").  At the same time we relinquished our asset management contracts for those ventures and for our continuing small JV with a UK bank.  Prior to their cessation our external asset management activities, including those associated with co-investment projects, produced income of £845,000 during the year (2012: £295,000).

 

Property Investment Market

 

Investor demand for retail property remains highly selective over asset quality and income security, with institutional investors focused on medium to larger investments in top tier retail locations.  Private investors remain active in the market for smaller lot sizes.  Some agents have reported a limited uptick in activity from opportunistic investors who are starting to move further up the risk curve, acquiring selective assets in good secondary locations where there is a clear asset management opportunity.  Auction houses are reporting an increase in investment volumes and higher success rate provides evidence of an improvement in demand for high street retail.

 

Pricing levels in the market remain polarised and reflect the trends evident in the occupier market, with yields remaining stable for assets in top trading locations that benefit from long leases and tenants of national covenant strength. In contrast, there has been further outwards pressure for the secondary and tertiary assets with investors factoring in significant costs associated with voids and refurbishment.

 

Occupier Market

 

The traditional high street occupier market remains a challenging environment for landlords, particularly for assets located in small and medium sized towns outside of the London and South East, with some markets suffering from vacancy rates as high as 30%, compared to the national rate of 14.1% reported in June 2013 (Local Data Company).

 

High occupancy costs (in particular business rates), declines in real wages and continued pressure on the traditional retail model continues to impact on the viability of retailers.  A number of high profile administrations over the past twelve months released significant numbers of retail units on to the market.  Many retailers with strong covenants are focussing primarily on the rationalisation of existing store portfolios to the top trading locations. 

 

These trends are particularly apparent in traditional high streets in second tier towns, where the shift in shopping patterns means that national chains find it difficult to operate at target profitability levels.  The velocity of this structural shift has been exacerbated by well publicised difficulties in the retail sector (for example, Blockbuster, Woolworths, Clintons. Peacocks, Bon Marché, Game, JJB, Jessops), so that poor located shops are experiencing prolonged void periods, with the many such assets now obsolete. 

 

This negative commentary relates primarily to comparison retailing, often in moribund locations and based on declining product lines (for example, video).  Against this, certain retail segments are performing robustly; some as a product of the downturn (for example, cheque cashing and charity), but mostly because the optimal delivery model is a conveniently located shop.  Examples include coffee shop, hair-dresser, tattooist, restaurant and the convenience store formats of national food retailers. These uses are often well suited to premises that are located in local or neighbourhood shopping locations.

 

Business Outlook

 

An improvement in institutional investor sentiment seems likely to translate to increasing interest in assets outside of central London, placing some downwards pressure on yields for assets in good locations within affluent markets - predominantly in the South East.

 

Assets in poor secondary and tertiary locations are likely to remain out of favour with larger investors, as they continue to price in shorter contracted income streams and uncertainty over leasing vacant space.  These markets will remain largely driven by local investors, who tend to be highly selective and often reliant on the availability of financing.

 

Across the sectors it has become apparent that a number of investors are willing to engage in activities associated with higher levels of risk - for example, office development.  It remains to be seen if this pressure of money will engage with the more granular and geographically diffuse opportunity presented by the local shopping sector.   

 

The outlook for the retail sector continues to be mixed.  Despite the economy starting to show signs of a meaningful recovery it will take time before this filters through to real wage growth for consumers, meaning that comparison retailers will remain under pressure.

 

A shortage of prime high street pitches and competition between retailers to secure operational space in established retail locations may start to provide some stability for rental values.  This appears to be supported in part by a number of on-line retailers, often in the fashion sector, who are looking to establish a physical presence to underpin brand identity with consumers.  By so doing, they can take advantage of the economic benefits (lower delivery costs outweighing bricks, mortar and staff costs) of click-and-collect.

 

However, these positive trends seem likely to remain focused on the prime high street locations.  The outlook for second tier towns appears set to remain weak, with rental values under pressure as landlords compete to secure income and avoid paying rates for vacant premises. 

 

The environment for local shopping appears more benign; insofar as it never really experienced the temporary prosperity of the last boom, but equally the segment has not suffered at an occupational level to the extent that second tier towns have. 

 

Finance Review

 

The financial statements contained in this report have been prepared in accordance with International Reporting Standards ("IFRS").  No new accounting policies were adopted during the year.

 

Results

 

The Group has recorded a loss before tax for the year of £6.07m.  This arose, in the main, from the following factors:

 

·      the write-down of the fair value of the property portfolio, which is recorded in the Income Statement in accordance with IFRS;

·      the fall in rental income during the year as a result of the sale of a number of properties, an increase in the void rate and the granting of rent concessions to tenants;

·      professional advisers' fees, staff termination costs and other expenses incurred in relation to the change in investment policy;

·      charges incurred and accelerated amortisation of bank finance fees as a result of the renegotiation and extension of banking facilities. 

 

Key Performance Indicators

 

The following financial key performance indicators are monitored by the directors to review the performance of the business, in addition to the specific measures described in the Business Review which are used to monitor the performance of the property portfolio.

 

 


30 September 2013

30 September 2012

Interest cover*

184%

209%

Loan to value (LTV) ratio†

75.2%

73.5%

Adjusted NAV per share‡

48p§

61p§

Gearing (net of cash held)

380%

317%

Recurring profit per share¶

2.4p

4.2p

 

*Based on rental income compared to interest payable

† Net of cash held

‡ Based on 82,505,853 shares in issue at 30 September 2013 (2012: 82,505,853)

¶ Based on 81,409,308 shares on which dividends were previously paid (2012: 81,409,308)

 

Recurring Profit

 

The recurring profit for the year was £2.07m (2012: £3.40m), the calculation of which remains consistent with previous years.  A reconciliation of the loss before tax to the recurring profit, including the effect of discontinued operations, is as follows:


30 September 2013

£000

30 September
2012

£000

Loss before tax

(6,071)

(9,178)

Profit on discontinued operations

(345)


Profit (loss) before tax on continuing operations

(6,416)

(9,178)

Movement in fair value of the portfolio

8,778

12,165

Movement in the fair value of the interest rate swaps held

(2,753)

(216)

Profit on sale of investment properties

(114)

(84)

Non-recurring income

(75)

(130)

Non-recurring expenditure

2,249

506

Net resolution of aged balances

270


Non-recurring income and expenditure incurred by joint ventures

131

341

Recurring profit on continuing operations

2,070

3,404

 

The recurring profit per share for the year was 2.5 pence (2012: 4.2 pence).  Until the year under review the Group's dividend policy was to distribute 100% of recurring profits by way of dividend.  Following the change in dividend distribution policy described in the Business Review, no dividend will be paid for the year (2012: 4.0p per share). 

 

The major factor in the reduction of the recurring profit was the diminution in gross rental income of £1.16m, from £15.81m to £14.65m, resulting from an increase in the void rate during the year and the decrease in Market Rent.  Property operating costs remained broadly consistent during the period, at £2.6m.  The loss of asset management income from joint ventures and third parties from July onwards also impacted on the recurring profit.

 

A further contributing factor was the sale of a number of properties during the year, and the full effect of sales that occurred during 2011-12. 

 

Non-recurring expenditure includes:

 

·     charges incurred and accelerated amortisation of bank finance fees as a result of the renegotiation and extension of banking facilities;

·     professional advisers' fees, staff termination costs and other expenses incurred in relation to the Strategy Review and the change in investment policy. 

 

Excluding the impact of significant non-recurring items from both years, administrative expenses for the year were broadly in line with 2011-12.  The level of administrative expenses is expected to reduce in future years, as the revised management arrangements and the exit of the Company's office lease commitments take full effect.

 

Net resolution of aged balances arises from the introduction of improved systems for calculating accruals and pre-payments following the management changes arising from the Strategic Review.

 

Our continuing focus throughout the year on credit control has led to bad debt write-offs reducing to £656,314 (2012: £684,352).

 

Bank interest payable remained broadly in line with 2011-12.  The Group continues to hold the same total cover of interest rate swaps as in 2012 subject to the £200,000 per quarter amortisation of one of the contracts.  The liability arising from these swaps has reduced compared with 2012, with a credit of £2.75m reflected in the Income Statement for the year (2012: £0.2m).

 



 

Net Assets

 

The net assets of the Group fell to £33.6m at the year end (2012: £41.3m), largely as a result of the decline in the fair value of the portfolio.

 

During the year, further investment was made in reconfiguring properties to improve prospects for sale and letting, including the conversion of redundant upper parts to residential flats.  In addition, investment was made in maintaining the condition of properties to ensure the units remain attractive to new tenants and retain existing tenants, as well as to comply with regulatory requirements.

 

The Group's revaluation policy remains unchanged.  At the half year and year end, 25% of the portfolio, plus all properties purchased in these two six-month periods (2013: none), were valued by Allsop LLP, a firm of Chartered Surveyors, acting as external valuers, who are experienced in property types held by the Group.  The remainder of the portfolio was been valued on the basis of Market Value by the directors who have relevant experience and professional qualifications.

 

Joint Ventures and Investments

 

Investments in joint ventures continue to be equity accounted for during the period of the Group's ownership.  The Group continues to hold an interest in the small property joint venture with a financial institution.  At the year end the Group had invested £0.71m in this joint venture.  The Group's interest in the joint venture with Pramerica Real Estate Investors and its co-investment with Schroders were divested in July 2013.  A loss was incurred on the disposal of the joint venture interests of £0.50m, which is included in the Discontinued Operations result in the Consolidated Income Statement.

 

Banking Facilities

 

For much of the year the Group operated using the following facilities:

 

Group debt facilities in place at 30 September 2012

 

Loan

Facility £m

Loan outstanding £m

Undrawn Facility £m

LTV Covenant

Termination Date

Barclays Fixed Rate Loan

69.2

69.2

-

No

October 2016

HSBC Term Loan 1

47.7

47.7

-

No

April 2016

HSBC Term Loan 2

10.5

10.5

-

Yes

October 2016

HSBC Revolving Credit Facility

35.0

9.5

25.5

Yes

October 2016


£162.4m

£136.9m

£25.5m



 

Following the Strategy Review, the Group's debt facilities were restructured and extended as shown in the table below.

 



Group debt facilities in place at 30 September 2013

 

Loan

Facility £m

Net Amount Outstanding £m

LTV Covenant

Amortisation

Termination Date

Indus (Eclipse 2007-1) plc

69.2m

68.6m (Note: Net of £600k held on amortisation escrow a/c)

None

£300k per quarter held in amortisation escrow account

16th January 2017

HSBC - Term Loan 1

46.5m

46.5m

91.5% - NOS 4/6 combined

1.8% pa of outstanding loan

30th April 2018

HSBC - Term Loan 2

19.8m

19.8m

91.5% - NOS 4/6 combined

1.8% pa of outstanding loan

30th April 2018

Total

£135.5m

£134.9m




 

At 30 September 2013 the total debt outstanding was £134.9m (2012: £136.9m), net of the Indus escrow deposit balance of £600,000.

 

The change in LSR's strategy to focus on a realisation programme was approved by the Group's lenders, HSBC Bank plc ("HSBC") and Indus (Eclipse 2007-1) plc ("Indus") (an affiliate of Barclays Bank plc), resulting in a number of changes to the facilities.

 

In the case of Indus, consent was granted on the condition that an amortisation payment of £300,000 is paid each quarter into an account over which the Lender's agent has sole signing rights.  As at 30th September 2013, £600,000 has been transferred to this account relating to the April and July 2013 interest payment dates.  Although these amounts have not yet been used to repay the facilities, the Net Amount Outstanding figure in the table assumes that they netted off against the loan in order to provide a fair reflection of the amount outstanding.

 

In the case of HSBC, the lender required that the existing facilities for two subsidiaries be amended and re-stated, with the following principal amendments:

 

•     Cross-collateralisation of the two facilities, with security being granted over each of the property owning companies and their respective portfolios to secure the debt outstanding on the other facility.  Although this provides the bank with a more diversified security pool, it also allows the Group to sell assets held by either subsidiary without triggering hedge break costs.  Previously only assets held by one subsidiary, whose loan was partly un-hedged, could be sold without incurring swap break costs.

 

•     The commitments have been reduced - one subsidiary now has a term loan of £46.5 million and the other has a term loan of £19.8 million, both of which are fully drawn.

 

•     The revolving facility previously available to one of the subsidiaries has been cancelled and the undrawn facility commitment of £25.6m cancelled.  Whilst the loss of the revolving facility reduces the financial flexibility available to the Group, the corresponding saving in undrawn commitment fees is £154k per annum.

 

•     The financial covenants on both facilities are now tested on a consolidated basis, with total loan to value ratios not to exceed 91.5 per cent., and total projected and current interest cover ratios not to exceed 120 per cent.  As at the 31 July 2013 interest payment date the total loan to value ratio was 82.12% and the interest cover was 175.3%.

 

•     The repayment date for both facilities is extended to 30 April 2018.  The extension of the loans provides the Group with the opportunity to sell the majority of the assets in 2016-2018 without incurring hedge break costs.

 

•     A fixed margin of 2 per cent. now applies to both facilities.  An additional margin will accrue from 1 January 2015 and become payable on repayment of the loans (this accrues at the rate of 1 per cent. per annum from 1 January 2015, 1.5 per cent. from 1 January 2016 and then 2 per cent. thereafter from 1 January 2017).  The margin increases in part reflects the price paid for the loan extension.

 

•     Amortisation instalments are to be paid on each interest payment date, calculated as being 0.45 per cent. of the loan balances on each interest payment date.

 

•     The transfer of properties into the relevant subsidiaries (the aggregate value of which must be a minimum of £5 million) from other Group property owning vehicles.

 

In addition, INTERNOS also entered into duty of care agreements with both lenders pursuant to which the Lender are granted certain rights in relation to the termination of the Investment Management Agreement.

 

All of the loans have actual and forecast interest cover tests which must be complied with under the terms of the facilities.  The interest cover is tested at various times throughout the year and, at each testing date each loan was determined to be compliant.  The level of the interest cover ratio ("ICR") required by each loan is listed below (each loan reporting period includes an actual and forecast ratio).

 

Actual ICR Covenant

Actual ICR - Qtr ending 30/9/2013

Forecast ICR Covenant

Forecast ICR - Qtr ending 30/9/2013

Indus (Eclipse 2007-1) plc

110%

139.4%

110%

145.9%

HSBC - Term Loan 1

120%

175.3% *

120%

148.8%

HSBC - Term Loan 2

120%

175.3% *

120%

148.8%

 

* Ratio does not reflect the impact of a full quarter of the increased interest margin.  We estimated the ratio will reduce to 169.8% after allowing for a full quarter of interest and the increased rent from the additional £5m security.

 

The Group continues to hold properties with a total value of approximately £7.9m, which have no debt drawn against them.  These assets provide the Group with a measure of flexibility and will enable the Group to meet commitments that cannot be funded from cashflow, such as capital expenditure.  The Group will also benefit from the reduction in its administrative overhead costs as a result of the changes implemented following the Strategy Review.

 

Taxation

 

The Group continued to operate as a REIT throughout the year.  Accordingly, any profits and gains from the property investment business should be exempt from Corporation Tax provided certain conditions continue to be met.  The asset management income earned in the year will form part of the "residual" business, profits from which are not exempt from Corporation Tax.  The Group continues to have available losses to relieve any such profits arising. Therefore, no provision for Corporation Tax has been made.

 



 

Dividend

 

As announced during the year, the Board reviewed the Company's dividend distribution policy in the light of the adoption of the new investment policy and decided that it should not recommend the payment of dividends for the time being.  Accordingly, no dividend will be paid in respect of the year.  In making this decision the Board took into account the cash flow requirements of the business alongside the decision not to extend future borrowings.  The Company has received advice that, for the time being, this will not affect the Company's REIT status.  The Board will continue to keep the dividend policy under review. 

 

Consolidated Income Statement

for the year ended 30 September 2013

 

 

Note

Year ended

30 September

2013

Year ended

30 September

2012

 

 

 

£000

£000

 

 

 

 

 

 

Gross rental income


14,649

15,809

 

Property operating expenses


(2,579)

(2,545)

 



             

             

 

Net rental income


12,070

13,264

 


 

 

 

 

Profit on disposal of investment properties

 

114

84

 

Loss from change in fair value of investment properties

8

(8,778)

(12,165)

 

Administrative expenses including non-recurring items

21

(4,520)

(3,305)

 


 

 

 

 

Net other income

2

22

16

 

Share of results from jointly controlled entities

9

(134)

(11)

 


 

             

             

 

Operating loss before net financing costs

 

(1,226)

(2,117)

 


 

 

 

 

Financing income*

3

4

3

 

Financing expenses*

3

(7,947)

(7,574)

 

Movement in fair value of financial derivatives

3

2,753

216

 


 

             

             

 

Loss before tax

 

(6,416)

(9,472)

 


 

 

 

 

Taxation

5

-

-

 


 

             

             

 

Loss for the year from continuing operations

 

 

(6,416)

(9,472)

 

Discontinued operations

Profit for the year from discontinued operations

 

 

Loss for the financial year attributable to equity holders of the company

22

 

345

---________

 

(6,071)

 

294

________

 

(9,178)

 


 

             

             

 

             

 

 

 

 

 Basic and diluted loss per share on loss for the year

4

(7.5p)

(11.3p)

 


 

             

             

 

 Basic and diluted loss per share on continuing operations for the year

4

(7.7p)

(11.6p)

 


 

             

             

 

* Excluding movements in the fair value of financial derivatives

Comparative figures for 2012 have been restated to reclassify amounts relating to discontinued operations.

 

 

 

 

 

 

 

Consolidated Statement of Comprehensive Income

for the year ended 30 September 2013

 

Year ended

30 September

2013

Year ended

30 September

2012

 

 

£000

£000

 

 

 

Loss for the financial year

(6,071)

(9,178)

 

          

         

Total comprehensive income for the year

(6,071)

(9,178)

 

          

         

Attributable to:

 

 

Equity holders of the parent company

(6,071)

(9,178)

 

          

         

Consolidated Balance Sheet

as at 30 September 2013

 

 

Note

At 30

September

2013

At 30

September

2012

 

 

£000

£000

Non current assets

 

 

 

Property, plant and equipment

7

-

126

Investment properties

8

166,107

178,109

Investments in jointly controlled entities

9

507

4,070

Other investments

10

-

909


 

             

             

Total non-current assets

 

166,614

183,214


 

             

             

Current assets

 

 

 

Trade and other receivables

11

4,784

4,698

Investment properties held for sale

8

3,675

-

Cash

 

6,626

5,496


 

             

             

Total current assets

 

15,085

10,194


 

             

             

Total assets

 

181,699

193,408


 

             

             

Non current liabilities

 

 

 

Interest bearing loans and borrowings

12

(134,363)

(136,380)

Finance lease liabilities

17

(922)

(922)

Derivative financial instruments

15

(3,872)

(6,595)


 

             

             

Total non-current liabilities

 

(139,157)

(143,897)


 

             

             

Current liabilities

 

 

 

Interest bearing loans and borrowings

12

-

-

Trade and other payables

13

(6,499)

(5,739)

Derivative financial instruments

15

(2,417)

(2,447)


 

             

             

Total current liabilities

 

(8,916)

(8,186)


 

             

             

Total liabilities

 

(148,073)

(152,083)


 

             

             

Net assets

 

33,626

41,325


 

             

             

Equity

 

 

 

Issued capital

14

18,334

18,334

Reserves

14

3,773

3,773

Capital redemption reserve

14

1,764

1,764

Retained earnings

 

9,755

17,454


 

             

             

Total attributable to equity holders of the Company

 

33,626

41,325


 

             

             

 



Consolidated Statement of Cash Flows

for the year ended 30 September 2013

 

 

 

Year ended

30 September

2013

Year ended

30 September

2012

 

 

 

 

 

 

£000

£000

Operating activities

 

 

 

Loss for the year

 

(6,071)

(9,178)

Adjustments for:

 

 

 

Loss from change in fair value of investment properties

8

8,778

12,165

Net financing costs

3

5,190

7,355

Profit on disposal of investment properties

Loss on disposal of discontinued operations

 

(113)

500

(84)

-

Depreciation

 

123

40

Share of result in jointly controlled entities

9

134

207


 

             

             


 

8,541

10,505


 

 

 

(Increase)/decrease in trade and other receivables

 

(86)

(925)

(Decrease)/increase in trade and other payables

 

790

(80)


 

             

             


 

9,245

9,500


 

 

 

Interest paid

 

(7,525)

(7,265)

Loan arrangement fees paid

 

(481)

(21)

Interest received

 

4

3

Corporation tax paid

 

-

-


 

             

             

Net cash flows from operating activities

 

1,243

2,217


 

 

 

Investing activities

 

 

 

Proceeds from sale of investment properties

 

1,316

2,174

Acquisition of and improvements to investment properties

Proceeds of sale from property, plant and equipment

Proceeds of sale from discontinued operations

Proceeds of sale from other investments

8

(1,693)

3

2,790

725

(2,251)

-

-

-

Acquisition of property, plant and equipment

7

-

(5)

Investment in jointly controlled entities

Repayment of investment in jointly controlled entities

9

(317)

681

(2,454)

-

Investment in other investments

10

-

(909)


 

             

             

Cash flows from investing activities

 

3,505

(3,445)


 

 

 

Net cash flows from operating activities and investing activities

 

4,748

(1,228)


 

 

 

Financing activities

 

 

 

Repayment of borrowings

 

(1,990)

(300)

New borrowings

 

-

5,900

Dividends paid

6

(1,628)

(3,337)


 

             

             

Cash flows from financing activities

 

(3,618)

2,263


 

 

 

Net increase/(decrease) in cash

 

1,130

1,035

Cash at the beginning of the year

 

5,496

4,461


 

             

             

Cash at the end of the year

 

6,626

5,496


 

             

             


 


 


 

 

 


 


 

 

Consolidated Statement of Changes in Equity

for the year ended 30 September 2013

 

 

Share capital

Reserves

Capital

redemption

reserve

Retained earnings

Total

 

£000

£000

£000

£000

£000

 

 

 

 

 

 

Balance at 1 October 2011

18,334

3,773

1,764

29,969

53,840

 

 

 

 

 

 

Total comprehensive income for the year

 

 

 

 

 

 

 

 

 

 

 

Loss for the year

-

-

-

(9,178)

(9,178)

 

 

 

 

 

 

Transactions with owners, recorded directly in equity

 

 

 

 

 

 

 

 

 

 

 

Dividends

-

-

-

(3,337)

(3,337)

Share based payments

-

-

-

-

-

 

             

             

             

             

             

Total contributions by and distributions to owners

-

-

-

(3,337)

(3,337)

 

 

 

 

 

 

 

             

             

             

             

             

Balance at 30 September 2012

18,334

3,773

1,764

17,454

41,325

 

 

 

 

 

 

Total comprehensive income for the year

 

 

 

 

 

 

 

 

 

 

 

Loss for the year

-

-

-

(6,071)

(6,071)

 

 

 

 

 

 

Transactions with owners, recorded directly in equity

 

 

 

 

 

 

 

 

 

 

 

Dividends

-

-

-

(1,628)

(1,628)

Share based payments

-

-

-

-

-

 

             

             

             

             

             

Total contributions by and distributions to owners

-

-

-

(1,628)

(1,628)

 

 

 

 

 

 

 

             

             

             

             

             

Balance at 30 September 2013

18,334

3,773

1,764

9,755

33,626

 

             

             

             

             

             

 

 

Notes to the Preliminary Financial Statements

for the year ended 30 September 2013

Accounting policies

1          Basis of preparation

The financial information set out below does not constitute the company's statutory accounts for the years ended 30 September 2013 and 30 September 2012.  The financial information for 2012 is derived from the statutory accounts for 2012 which have been delivered to the Registrar of Companies.  The auditors have reported on the 2012 accounts: their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for 2013 will be finalised on the basis of the financial information presented by the directors in this unaudited preliminary announcement and will be delivered to the Registrar of Companies in due course.

 

The directors have considered whether it is appropriate to prepare the financial statements on a going concern basis. The diversity of the tenant base across retail sectors and its geographical spread around the country demonstrates no reliance on one significant tenant. The loan facilities, together with the attached covenants, are detailed in this document. All covenants have been met throughout the year. The Directors have prepared profit and cashflow forecasts for the period to 30 September 2018 which include assumptions relating to the orderly sale of properties under the current investment strategy which the Directors consider to be reasonable.  These forecasts project the Company's funding needs will be comfortably met by its existing banking facility agreements without any breach of related covenants over the remaining life of the facilities which expire in 2017 and 2018.

 

On the basis of these projections the directors consider that the Group will continue to be compliant with its banking covenants and sufficient resources will be available to enable it to continue as a going concern for at least the next 12 months. The Directors note that a number of other viable alternative strategies remain available to the Company and they will continue to evaluate whether to continue with its current investment policy or to change to one of these viable alternative strategies.  Accordingly, the financial statements have been prepared on the going concern basis.

 

The financial information contained in these preliminary results has been prepared in accordance with the accounting policies set out in the 2012 Annual Report, which were prepared in accordance with IFRSs as adopted by the EU.  The accounting policies are set out on pages 39 to 42 of the 2012 Annual Report which is available on the company's website (www.localshoppingreit.co.uk). 

 

 

 

There have been no other new standards adopted in the year which have had a significant impact on the results of the Group.

 

2          Net other income

 

2013

2012

 

£000

£000

 

 

 

Other income

22

22

Other expenses

-

(6)

 

       

       

 

22

16

 

       

       

 

 

 

 

 

 

 

 

 

 

3          Net financing costs

 

2013

2012

 

£000

£000

Financing income

 

 

Interest receivable

4

3

 

             

             

Interest receivable excluding fair value movements

4

3

Fair value gains on derivative financial instruments (note 15)

2,753

216

 

             

             

Financing income

2,757

219

 

             

             

Financing expenses

 

 

Bank loan interest

(7,436)

(7,338)

Amortisation of loan arrangement fees

(143)

(181)

Write off of amortisation fees

(313)

-

Head rents treated as finance leases

(55)

(55)

 

             

             

Financing expenses excluding fair value movements

(7,947)

(7,574)

Fair value losses on derivative financial instruments (note 15)

-

-

 

             

             

Financing expenses

(7,947)

(7,574)

 

             

             

Net financing costs

(5,190)

(7,355)

 

             

             

 

 

 

4          Earnings per share

Basic earnings per share

The calculation of basic earnings per share was based on the loss attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding, calculated as follows:

Loss attributable to ordinary shares


2013

2012

 

£000

£000


 

 

Loss for the year

(6,071)

(9,178)


             

             

Loss on continuing operations for the year                                                                                   (6,416)                   (9,472)


             

             

                                                                                                                                                                                                    

 


2013

2012

 

Number

Number

Weighted average number of ordinary shares

 

000

000


 

 

Issued ordinary shares at the start of the year

91,670

91,670

Shares held by EBT

(1,096)

(1103)

Treasury shares

(9,164)

(9,164)


             

             

Weighted average number of ordinary shares at the end of the year

81,410

81,403

 

             

             

Diluted earnings per share

There was no difference between basic and diluted earnings per share in the current and prior year.

 

 

 

5              Taxation


2013

2012

 

£000

£000

 

 

 

Current tax

 

 

Corporation tax charged at 23.5% (2012:  25%)

-

-


             

             

Total current tax

-

-


 

 

Deferred tax charge

 

 

Origination and reversal of temporary differences

-

-


             

             

Total tax charge in the Income Statement

-

-


             

             


 

 

Reconciliation of Effective Tax Rate

2013

2012


£000

£000


 

 

Loss before tax

(6,071)

(9,178)


 

 

Corporation tax in the UK of 23.5% (2012:  25%)

(1,427)

(2,294)


 

 

Effects of:

 

 

Tax relief available from REIT status

(1,199)

(1,560)

Revaluation deficit and other non-deductible items

2,004

3,308

Deferred tax asset not recognised

622

546


             

             


-

-

 

             

             

Factors that may affect current and total tax charges

From 11 May 2007, the Group elected to join the UK REIT regime.  As a result, the Group is exempt from corporation tax on the profits and gains from its investment business from this date, provided it continues to meet certain conditions.  Non-qualifying profits and gains of the Group (the residual business) continue to be subject to corporation tax.  The directors consider that all the rental income post 11 May 2007 originates from the Group's tax exempt business. 

On entering the UK REIT regime, a conversion charge equal to 2% of the gross market value of properties involved in the property rental business, at that date, became due which was paid in full.

Due to the availability of losses no provision for corporation tax has been made in these accounts.  The deferred tax asset not recognised relating to these losses can be carried forward indefinitely.  It is not anticipated that these losses will be utilised in the foreseeable future.

 

 

6              Dividends

The following dividend payments were paid during the current and previous years. 

 

Date paid

        Dividend

         per share

Total

payment

  Classification

     of dividend

 

 

£000

 

 

 

 

 

31 December 2012

30 June 2012

2.0 pence

2.0 pence

1,628

1,628

PID

PID

31 December 2011

2.1 pence

1,709

Non-PID

30 June 2011

1.9 pence

1,546

PID

31 December 2010

1.9 pence

1,546

PID

30 June 2010

1.7 pence

1,384

PID

31 December 2009

1.8 pence

1,465

PID


 

 

 

Under the REIT legislation the Company's dividends are divided into two components, known as Property Income Distributions ("PID") and non-Property Income Distributions ("Non-PID").

7          Property, Plant and Equipment

 

Leasehold Improvements

Fixtures and Fittings

Computer Equipment

Total

 

£000

£000

£000

£000

 

 

 

 

 

Cost

 

 

 

 

At 1 October 2011

166

38

71

275

Additions

1

3

1

5

 

             

             

             

             

At 30 September 2012

167

41

72

280

Additions

Disposals

-

-

-

-

-

(7)

-

(7)

 

             

             

             

             

At 30 September 2013

167

41

65

273

 

             

             

             

             

 

 

 

 

 

Depreciation

 

 

 

 

At 1 October 2011

59

19

36

114

Charge for the year

17

3

20

40

 

             

             

             

             

At 30 September 2012

76

22

56

154

Charge for the year

Written back on disposals

91

-

19

-

13

(4)

123

(4)

 

             

             

             

             

 

167

41

65

273

At 30 September 2013

             

             

             

             

 

 

 

 

 

Net book value

 

 

 

 

At 30 September 2013

-

-

-

-

 

             

             

             

             

At 30 September 2012

91

19

16

126

 

             

             

             

             

At 30 September 2011

107

19

35

161

 

             

             

             

             

 

Since the year end the company has agreed a termination of its lease of its former offices with an effective date in June 2014. None of the leasehold improvements will be realisable, and it is anticipated that the fixtures, fittings and computer equipment assets will generate negligible funds, if any. For this reason the assets have been fully depreciated in the year.

 

8      Investment properties

 

 

 

 

Total

 

 

 

£000

 

 

 

 

At 1 October 2011

 

 

190,111

Additions

 

 

2,251

Disposals

 

 

(2,088)

Fair value adjustments

 

 

(12,165)

 

 

 

             

At 30 September 2012

 

 

178,109

Leasehold improvements

 

 

1,693

Disposals

 

 

(1,242)

Fair value adjustments

 

 

(8,778)

Investment properties held for sale

 

 

(3,675)

 

 

 

             

At 30 September 2013

 

 

166,107

 

 

 

             

Investment properties held for sale at the balance sheet date are shown separately as current assets as required by IFRS 5.  These assets no longer meet the investment criteria of the Group.  In determining whether assets no longer meet the investment criteria of the Group, consideration has been given to the conditions required under IFRS 5.

 

The investment properties have all been revalued to their fair value at 30 September 2013.

 

At the half year and year end all properties acquired in those six months, together with a sample selected by the valuers of 25% of the portfolio, have been valued by Allsop LLP, a firm of independent Chartered Surveyors. The valuations were undertaken in accordance with the Royal Institute of Chartered Surveyors Appraisal and Valuation Standards on the basis of market value. Market value is defined as the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction, after proper marketing wherein the parties had each acted knowledgably, prudently and without compulsion.

 

The remainder of the portfolio has been valued by the directors who have an appropriate recognised professional qualification and recent experience in the location and category of property being valued.

 

All rental income recognised in the Income Statement is generated by the investment properties held and all direct operating expenses incurred resulted from investment properties that generate rental income.

 

A reconciliation of the portfolio valuation to the total value for investment properties given in the Balance Sheet is as follows:

 

 

2013

2012

 

£000

£000

 

 

 

Portfolio valuation

168,860

177,187

Investment properties held for sale

(3,675)

-

Head leases treated as investment properties held

   under finance leases per IAS 17

 

922

 

922

 

             

             

Total per Balance Sheet

166,107

178,109

 

             

             

 

 

 

9                    Investments in jointly controlled entities

The Group has the following investments in jointly controlled entities:

 

 

Country

Ownership

Country

Ownership

 

2013

2012

 

 

 

 

 

Local Parade Investments LLP

UK

nil

UK

20%

Gracechurch Commercial Investments Limited

UK

50%

UK

50%

 

 

 

 

 

 

 

On 26 November 2010 an agreement was entered into with Local Parade Investments LLP("LPI"), a newly incorporated entity.  The initial investment made was £20.  The principal activity of the entity is the acquisition and management of retail parades.  This investment was disposed of as part of the reconstruction following the strategic review, in July 2013.

 

On 28 September 2011 an agreement was entered into with Gracechurch Commercial Investments Limited("Gracechurch"), a newly incorporated entity.  The initial investment made was £500,000.  The principal activity of the entity is to acquire properties for investment purposes.

 

Gracechurch

LPI

Total

 

£000

£000

£000

Cost

 

 

 

 

 

 

 

At 1 October 2011

653

1,170

1,823

Equity investments

-

2,455

2,455

Loan advances

-

-

-

Share of results, net of tax

(12)

(195)

(207)

Distributions received

-

-

-

 

         

         

         

At 30 September 2012

641

3,430

4,071

Equity investments

-

-

-

Loan advances

-

317

317

Share of results, net of tax

 (134)

188

54

Distributions received

 

-

(681)

 

(681)

Investment disposed of

-

(3,254)

(3,254)

 

         

         

         

At 30 September 2013

507

-

507

 

         

         

         


 

 

 

 

 

  

9              Investments in jointly controlled entities (Continued)

 

The summarised financial information in respect of the Group's share of the jointly controlled entities is shown below, for information purposes only.

 

Year ended 30 September 2012

 

Gracechurch

LPI

Total

 

£000

£000

£000

 

 

 

 

Non-current assets

1,158

7,064

8,222

Current assets

731

408

1,139

Non-current liabilities

(1,147)

(3,659)

(4,806)

Current liabilities

(101)

(384)

(485)

 

         

         

         

 

641

3,429

4,070

 

         

         

         

 

 

 

 

Represented by:

 

 

 

Capital

500

-

500

Loans

210

3,622

3,832

Brought forward share of results

(57)

2

(55)

Share of results, net of tax

(12)

(195)

(207)

 

         

         

         

Group's share of net assets

641

3,429

4,070

 

         

         

         

 

 

 

 

 

Gracechurch

LPI

Total

 

£000

£000

£000

 

 

 

 

Net rental income

140

361

501

Property expenses

(46)

(71)

(117)

Administrative expenses

(3)

(52)

(55)

Change in fair value of investment properties

(75)

(271)

(346)

Net interest payable

(57)

(166)

(223)

Movement in fair value of financial derivatives

(17)

(35)

(52)

Profit\(Loss) on disposal of investment properties

72

40

112

Tax

(27)

-

(27)

 

        

        

        

 

 

(13)

(194)

 

(207)

 

        

        

        

 

 



 

Year ended 30 September 2013

 

 

Gracechurch

LPI

Total

 

 

£000

£000

 

 

 

 

Non-current assets

1,019

-

1,019

Current assets

44

-

44

Non-current liabilities

(491)

-

(491)

Current liabilities

(65)

-

(65)

 

         

         

         

 

507

-

507

 

         

         

         

 

 

 

 

Represented by:

 

 

 

Capital

500

-

500

Loans

210

-

210

Brought forward share of results

(68)

-

(68)

Share of results, net of tax

(135)

-

(135)

 

         

         

         

Group's share of net assets

507

-

507

 

         

         

         

 

 

 

 

 

Gracechurch

LPI

Total

 

£000

£000

£000

 

 

 

 

Net rental income

91

544

635

Property expenses

(26)

(101)

(127)

Administrative expenses

(14)

(24)

(38)

Change in fair value of investment properties

(139)

22

(117)

Net interest payable

(54)

(252)

(306)

Movement in fair value of financial derivatives

8

(7)

1

Profit on disposal of investment properties

-

5

5

Tax

-

-

-

 

        

        

        

 

 

(134)

187

 

53

 

        

        

        

10        Other investments

On 8 March 2012, the Group entered into a partnership and property advisory agreement with Local Retail Fund GP Limited, a newly incorporated entity.  The initial investment made was £45.  The principal activity of the entity is the acquisition and management of a diversified portfolio of local retail property in the UK. As part of the restructuring following strategic review, this investment was disposed of in July 2013.

 

 

 

Total

 

 

£000

Fair value

 

 

At 1 October 2011

 

-

Additions

 

909

 

 

          

At 30 September 2012

 

909

Disposals

 

(909)

 

 

          

At 30 September 2013

 

-

 

 

          

 

 

 



 

Impairment losses

 

 

At 1 October 2011

 

-

Charge for the year

 

-

 

 

         

At 30 September 2012

 

-

Charge for the year

Disposals

 

(184)

184

 

 

          

At 30 September 2013

 

-

 

 

          

 

 

 

Net book value

 

 

At 30 September 2013

 

-

 

 

          

At 30 September 2012

 

909

 

 

          

At 30 September 2011

 

-

 

 

          

11        Trade and other receivables

 

2013

2012

 

£000

£000

 

 

 

Trade receivables

2,822

2,915

Other receivables

711

662

Prepayments

1,251

1,121

 

          

         

 

4,784

4,698

 

          

          

12        Interest-bearing loans and borrowings

 


2013

2012

 

£000

£000

Non-current liabilities

 

 

Secured bank loans

134,939

136,929

Less: loan arrangement fees

(576)

(549)

 

             

             

 

134,363

136,380

 

             

             

Current liabilities

 

 

Current portion of secured bank loans

-

-


             

             


 

 

All bank borrowings are secured by fixed charges over certain of the Group's property assets and floating charges over the companies which own the assets charged.  Each loan is repayable in one instalment in 2016.

Cash flow forecasts in respect of the loans have been prepared. In respect of the Barclays loan they did not differ significantly from the projections prepared before the restructuring, and this loan was not deemed to be an extinguishment. Bank and legal fees of £52,014 incurred in relation to this loan were added to the loan arrangements fees to be amortised over the remaining period of the loan. The secured bank loans above are net of £600,000 which is held in an escrow account. This escrow account is an interest-bearing account, for which the lender has sole signing rights, where all funds deposited shall be applied towards repayment of the loan on 16 January 2017.

The HSBC forecasts did differ significantly and the loan was considered to be extinguished and replaced by a new loan. Loan arrangement fees brought forward of £312,384 were written off to the income statement as non recurring charges. New bank and legal fees of £429,153 in respect of this loan will be amortised over the period of this loan.

13        Trade and other payables


2013

2012

 

£000

£000


 

 

Trade payables

929

527

Other taxation and social security

444

522

Other payables

1,005

1,004

Accruals and deferred income

4,121

3,686


          

          


6,499

5,739


           

           

Other payables include rent deposits held in respect of commercial tenants of £862,000 (2012: £834,000).

14        Capital and reserves

Share capital

 

Ordinary shares

Ordinary shares

 

2013

2013

2012

2012

 

Number

Value

Number

Value

 

000

£000

000

£000

 

 

 

 

 

Allotted, called up and fully paid

91,670

18,334

91,670

18,334

 

             

             

             

             

 

 

 

 

 

Investment in own shares

At the year end, 9,164,017 shares were held in Treasury (2012: 9,164,017). 

The number of shares held by the Company's Employee Benefit Trust, LSR Trustee Limited at the year end was 1,096,545 (2012: 1,096,545).  During the year the EBT transferred no shares (2012: Nil) to employees on the vesting of awards under the Long Term Incentive Plan.  During the year the EBT transferred no shares (2012: 17,544) to employees on the exercise of awards under the Company's Share Option Scheme.

Reserves

The value of shares issued to purchase Gilfin Property Holdings Limited in excess of their nominal value has been shown as a separate reserve in accordance with the Companies Act 2006.

Capital redemption reserve

The capital redemption reserve arose in prior years on the cancellation of 8,822,920 Ordinary 20p shares.

15        Derivative financial instruments

Derivative financial instruments held by the Group are interest rate swaps used to manage the Group's interest rate exposure on its variable rate loans.  The group also has a fixed rate loan.  The interest rate swaps held are shown in the Balance Sheet as follows:

 

 

Fair value

2011

Movements in

Income

Statement

Fair value

2012

Movements in

Income

Statement

Fair value

2013

 

£000

£000

£000

£000

£000

 

 

 

 

 

 

Non-current liabilities

(7,264)

669

(6,595)

2,723

(3,872)

Current liabilities

(1,994)

(453)

(2,447)

30

(2,417)

 

             

 

             

 

             

Net value

(9,258)

 

(9,042)

 

(6,289)

 

             

             

             

             

             

Amount credited to Income Statement

 

216

 

2,753

 

 

 

             

 

             

 

At 30 September 2013 and 30 September 2012 these derivative financial instruments did not qualify as effective swaps for hedge accounting under the criteria set out in IAS 39.

A summary of the interest rate swaps and their maturity dates are as follows:

 

Notional value of swap

£000

Effective date

Maturity date

Rate payable on fixed leg

%

Fair value

2012

£000

Movement

 in Income Statement

£000

Fair value

2013

£000

 

 

 

 

 

 

 

21,778

16 July 2007

31 January 2017

4.34

(3,622)

1,104

(2,518)

3,000

22 November 2006

30 April 2013

5.15

(80)

80

-

12,000

06 September 2006

30 April 2013

5.06

(315)

315

-

6,000

08 December 2006

30 April 2013

5.13

(160)

160

-

1,500

09 August 2006

30 April 2013

5.20

(41)

41

-

22,500

30 April 2013

20 July 2016

5.05

(3,093)

522

(2,571)

6,000

25 October 2006

30 April 2013

5.29

(165)

165

-

1,500

30 April 2010

30 April 2013

5.20

(40)

40

-

3,000

11 October 2006

30 April 2013

5.21

(83)

83

-

10,500

30 April 2013

29 July 2016

5.05

(1,443)

243

 

(1,200)

 

 

 

 

          

         

           

 

 

 

 

(9,042)

2,753

(6,289)

 

 

 

 

           

         

           

The notional value of the £21,778,000 swap amortises at a rate of £200,000 per quarter.

The derivative financial instruments included in the above tables are stated at their fair value based on quotations from the Group's bank.

The Group does not speculate in financial instruments, it only uses them to limit its exposure to interest rate fluctuations.  The Group's policy is to hedge between 60% and 100% of its interest rate exposure.  At 30 September 2013 92% of the Group's debt was fixed (2012:  91%).

16           Fair value of financial liabilities

The fair value of the Group's financial liabilities is not considered to be materially different from their book value with the exception of the following fixed rate loan held with Barclays Bank plc.  The fixed rate element of the loan has been valued by Barclays Bank .


2013

2012

 

£000

£000

Fixed rate loan

 

 

Carrying value of loan

69,070

69,070

Fair value

(78,063)

(81,129)

 

             

             

Difference

(8,993)

(12,059)

 

             

             

17           Obligations under finance leases

Finance lease liabilities on head rents are payable as follows:

 

Principal

Interest

Minimum

Lease

Payment

 

£000

£000

£000

 

 

 

 

At 1 October 2011

6,919

(5,997)

922

 

 

 

 

(Payments)/charge

(55)

55

-

 

         

           

         

At 30 September 2012

6,864

(5,942)

922

(Payments)/charge

(55)

55

-

 

         

           

         

At 30 September 2013

6,809

(5,887)

922

 

         

           

         

In the above table, interest represents the difference between the carrying amount (minimum lease payment) and the contractual liability / cash flow (principal).

All leases expire in more than five years.

18           Operating lease arrangements

a) As Lessee

Future minimum lease payments payable by the Group under non-cancellable operating leases were as follows:

 

 

Land and Buildings

Plant and Equipment

 

2013

2012

2013

2012

 

£000

£000

£000

£000

 

 

 

 

 

Operating leases which expire:

 

 

 

 

Within one year

72

96

-

-

Two to five years

-

384

-

-

Over five years

-

24

-

-

 

       

        

        

       

 

72

504

-

-

 

        

        

        

         

The lease on the company's previous office has been terminated with an effective termination date in June 2014.

 

 

18           Operating lease arrangements (Continued)

b) As Lessor

Future minimum lease payments receivable by the Group under non-cancellable operating leases were as follows:

 

 

 

 

2013

2012

 

 

 

£000

£000

Operating leases which expire:

 

 

 

 

Within one year

 

 

3,883

3,861

One to two years

 

 

1,499

1,296

Two to five years

 

 

4,006

4,306

Over five years

 

 

6,187

6,567

 

 

 

          

          

 

 

 

15,575

16,030

 

 

 

           

           

19           Capital Commitments

At 30 September 2013, the Group had contracted capital expenditure for which no provision has been made in these financial statements of £28,000 (2012:  £292,000).

At 30 September 2013, the jointly controlled entities had contracted capital expenditure for which no provision has been made in these financial statements of £ Nil (2012:  £64,000).



 

 

20           Group entities

 

 

Country of

Ownership interest

 

 

Incorporation

2013

2012

 

 

 

 

 

Subsidiaries

 

UK

100%

100%

NOS Limited

 

UK

100%

100%

NOS 2 Limited

 

UK

100%

100%

NOS 3 Limited

 

UK

100%

100%

NOS 4 Limited

 

UK

100%

100%

NOS 5 Limited

 

UK

100%

100%

NOS 6 Limited

 

UK

100%

100%

NOS 8 Limited

 

UK

100%

100%

NOS Residential Limited

 

UK

100%

100%

Gilfin Property Holdings Limited

 

UK

100%

100%

LSR Asset Management Limited

 

UK

100%

100%

LSR Asset Services Limited

 

UK

Nil

100%

LSR Investment Services Limited

 

UK

100%

100%

LSR Gresham Investments Limited

 

UK

100%

100%

LSR Gresham Asset Advisers Limited

 

UK

100%

100%

Palladium Investments Limited

 

UK

100%

100%

 

 

           

          

          

 

 

 

 

 

Jointly controlled entities

 

 

 

 

Local Parade Investments LLP

 

UK

Nil

20%

Gracechurch Commercial Investments Limited

 

UK

50%

50%

 

 

           

          

          

 

 

 

 

 

All interests are in Ordinary Share capital except for Local Parade Investments LLP where the investment is in Partnership Capital

 

 

 

 

 

21           Non-recurring items

IAS 1 (Revised) - "Presentation of financial statements" requires material items of income and expenditure to be disclosed separately.  The amounts are items which, in management's opinion, need to be disclosed by virtue of their size or incidence in order for the user to obtain a proper understanding of the financial information.

 

Included in the administration costs are charges arising from the reconstruction following the strategic review, and are non-recurring:

In administration costs:

 

 

 

 

2013

2012

 

 

 

£000

£000

 

 

 

 

 

Paid to directors under compromise agreements

 

 

772

-

Employer's NI  on the above payments

 

 

15

-

Paid to employees under compromise agreements

 

 

193

-

Employer's NI  on the above payments

Legal, professional and advisory fees

 

 

6

912

-

-

Dilapidations provision on termination of company's office lease

 

 

39

-

 

 

 

          

          

 

 

 

1,937

-

 

 

 

          

          

 



 

Included financial costs:

 

Accelerated amortisation of loan fees  

 

 

312

 

-

 

 

 

 

          

          

 

 

 

312

-

 

 

 

          

          

 

During the preceding year the Company incurred costs of £418,000 in connection with professional advice received regarding the exploration of a potential transaction which was considered by the Company.

22           Discontinued operations

In July 2013 as part of the reconstruction following the strategic review, the company disposed of its interests in Local Parade Investments LLP, and LSR Asset Services Limited and Gresham Asset Advisors Limited. In addition it ceased its asset management activities being carried on by LSR Asset Management Limited and Gresham Asset Advisors Limited.

 

The results of the discontinued operations, which have been included in the consolidated income statement, were as follows:

 

 

 

 

2013

2012

 

 

 

£000

£000

Joint venture in Local Parade Investments LLP

 

 

 

 

Share of revenue

 

 

544

360

Share of expenses

 

 

 

(357)

______

(555)

______

 

 

 

 

 

Share of profit

 

 

 

187

______

(195)

______

 

Asset management

 

 

 

 

Revenue

 

 

702

550

Expenses

 

 

(44)

(61)

 

 

 

______

______

Profit

 

 

 

658

______

489

______

 

Profit before tax

 

 

845

294

 

 

 

 

______

______

 

Taxation

 

 

 

-

 

-

 

 

 

______

 

______

 

 

 

Loss on disposal of discontinued operations

 

Net profit attributable to discontinued operations (attributable to equity holders of the company)

 

 

  845

(500)

_______

345

294

-

______

294

 

 

 

          

          

Basic and diluted earnings per share

 

 

0.2p

0.3p

 

 

 

          

          

 

 

 

2013

2012

 

 

 

£000

£000

Cash flows from (used in) discontinued operation

 

 

 

 

Net cash from operating activities

 

 

960

166

Net cash from (used in) investing activities

 

 

364

(2,454)

Net cash from (used in) financing activities

 

 

 

(1,239)

______

2,664

_______

Net cash flows for the year

 

 

85

          

376

          

 

 

 

 

 

2013

 

 

 

 

£000

Effect of disposals on the financial position of the group

 

 

 

 

Investment in joint venture

 

 

 

3,290

Cash

 

 

 

37

Trade payables

 

 

 

 

(37)

 

 

 

 

_____

Net assets and liabilities

 

 

 

3,290

          

Consideration received, satisfied in cash

 

 

 

2,790

Cash and cash equivalents disposed of

 

 

 

(37)

 

 

 

 

______

Net cash inflow

 

 

 

2,753

          

 

 

23 Significant contracts

 

With effect from 22 July 2013 the Company entered into a management agreement with Internos Global Investors Limited("Internos"). Under this agreement the Company pays to Internos:

1.     an annual management fee of 0.70% of the gross asset value of the portfolio, subject a minimum fee of £1m in each of the first two years, £0.95m for the third year and £0.9m for the fourth year.

2.     An annual performance fee of 20% of the recurring operating profits above a pre-agreed target recurring profit.

3.     Fees for property sales as follows:

           Up to £50m                      nil

          £50m - £150m                 0.5% of sales

           Over £150m                    1.5% of sales  

4.     A terminal fee of 5.7% of cash returned to the Company's shareholders in excess of 36.1 pence per share per annum from the Effective Date outside of dividend payments (the "Terminal Fee Hurdle").  The Terminal Fee Hurdle rises by 8% per annum after the first year but reduces on a pro-rata daily basis each time equity is returned to shareholders outside of dividend payments from recurring operating profits.

 

Under the terms of the agreement Internos received a fee of £291,967 during the year. In addition Internos received a one off fee of £50,000 for work carried out in renegotiating the HSBC loan facilities.

 


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