FOR IMMEDIATE RELEASE

20 June 2019

The Local Shopping REIT plc ("the Company")

Results for the six months ended 31 March 2019

The directors of The Local Shopping REIT plc are pleased to announce the Company's unaudited consolidated interim results for the six months ended 31 March 2019.

Enquiries:

Bill Heaney, Company Secretary                                                       +44 20 7355 8800

Rupert Wallman, Fund Manager                                                        +44 20 7355 8800

Chairman's Statement

During the period under review the asset management team continued to progress the Company's property disposal programme, comprising both the sale of investment properties and the preparation of properties for marketing, as noted in the report below.  At a corporate level, the Company's activity during the period focussed on, in the first instance, the Board's initiation of plans to fulfil the Company's investment policy by returning capital to shareholders via a members' voluntary liquidation and, thereafter, the takeover bid by the Company's largest shareholder, Thalassa Holdings Ltd ("Thalassa"), which had opposed the Board's proposals. 

The Board considered that the takeover proposal was not in the best interests of shareholders as a whole, and the bid received insufficient support from the Company's members to take effect.  However, dealing with the bid was an expensive exercise, the cost of which is reflected in the interim financial statements. 

As was announced by the Board following the lapse of Thalassa's offer, the directors opened a dialogue with Thalassa to explore whether a capital return to shareholders could be achieved on terms acceptable to shareholders without resorting to an application to the Court for a winding-up on Just and Equitable grounds (which shareholders had approved at the general meeting held on 5 April 2019). 

The outcome of these discussions, involving proposals to return capital to shareholders by way of a capital reduction and share buy-back tender offer, was set out in the announcement issued by the Board on 18 June 2019.  As indicated in that announcement, the strike price per share for the share buy-back tender offer will be equal to the net asset value per share set out in the Company's interim accounts for 31 March 2019 contained in this report, which is 31.33 pence per share. 

The directors will shortly send a circular to shareholders containing full details of the buy-back tender offer together with a notice of general meeting to approve the necessary resolutions. 

Directors' Review

Basis of Preparation

The 30 September 2018 financial statements were prepared on a break up basis, the directors having noted the likelihood that the property sales programme would be completed during the coming financial year, the Company's investment policy of returning cash to shareholders and the advice of the Company's auditors.  Accordingly, the directors concluded that the financial statements for 30 September 2018 should not be prepared on the Going Concern basis.  In view of the continuing progress with the property sales programme and the continued prosecution of the Company's investment policy of returning cash to shareholders, the directors consider it appropriate to prepare these financial statements on a break-up basis.

Financial Results and Portfolio Performance

The Company made a loss before tax on an IFRS basis for the period of £1.90 million (or 2.30 pps).  This compares with an IFRS loss of £2.87 million (or 3.48 pps) for the equivalent period of 2017-18 and a loss of £7.15 million (or 8.7 pps) for the full year to 30 September 2018. 

Portfolio Revaluation

As the Company's accounts are prepared on a break-up basis, the individual properties are held on the balance sheet at their net realisable value, being their valuation (or contracted sales price where applicable), less estimated sales costs.  At 31 March 2019, the Company held 10 properties.  Of these, 9 investment properties were revalued by Allsop LLP, a firm of independent chartered surveyors, at £3.625 million, reflecting an equivalent yield (excluding the residential element) of 13.98% before estimated transaction costs.   The remaining property not valued by Allsop LLP became subject to a sale contract shortly after the period end, so its carrying value equates to its contracted sale price less estimated sale costs.  The resultant carrying value of the 10 properties held at 31 March 2019 was £3.656 million (September 2018: £22.317 million). 

Cash and Net Asset Value

At 31 March 2019 the Company held £22.76 million in cash.

The Net Asset Value was £25.85 million or 31.33 pps (September 2018: £27.73 million or 33.6 pps). 

Property Disposals

During the period we continued to focus on property disposals, contracting to sell or completing sales on a further 65 properties at an aggregate price of £18.7 million, 1.77% above carrying value at the time of sale. 

Of the 10 properties remaining in the portfolio at 31 March 2019, one is under contract for sale, completion on which is expected shortly, and terms have been agreed for the sale of three other properties.  The remaining six properties are either being actively marketed or prepared for marketing. 

Asset Management

Asset management activities during the period focussed on preparing properties for sale, primarily by maximising occupancy and opportunities for rental growth, as well as a small number of repair and maintenance projects.

Financing

The Company did not utilise any external funding facilities during the period.

Taxation

The Group continued to operate as a UK REIT during the period, under which any profits and gains from the property investment business are exempt from Corporation Tax provided certain conditions continue to be met.  The Group fulfilled the UK REIT conditions during the period.  The investment objective of the Company remains for its remaining property assets to be sold and the Company's cash reserves to be distributed to its members.  On the disposal of the property assets, the Company will exit the UK REIT regime.  Discussions have taken place with HMRC to ensure that this will take place in an orderly manner.  Should the Group depart the UK REIT regime, it would at that point become liable to Corporation Tax.  However, the Board believes that the Group's activities would be unlikely to generate any material Corporation Tax liability.

Dividend

In line with the Group's current dividend distribution policy no interim dividend will be paid.  The Board will continue to review the dividend policy in line with progress with the investment strategy. 

Principal Risks and Uncertainties for the Remaining Six Months of the Financial Year

The risks facing the Group for the remaining six months of the financial year remain consistent with those described in detail in the Annual Report for the year ended 30 September 2018 (available on the Group's website:  www.localshoppingreit.co.uk).

These centre on:

·    Changes in the macroeconomic environment

·    Higher than anticipated property maintenance costs

·    Changes to legal environment, planning law or local planning policy

·    Regulatory requirements in connection with the property portfolio

·    Information technology systems and data security

·    Financial and property market conditions

However, the potential impact of these risk areas on the Company has been mitigated by the considerable reduction in the size of the Company's property portfolio, meaning that the dominant portion of the Company's assets is now held as cash.

The Group does not speculate in derivative financial instruments.  Whilst the Group is exposed to the risk of non-payment of trade receivables by its tenants, the Directors consider that this does not comprise an undue concentration of credit risk, given the reduced amounts involved.  The level of arrears is monitored continually by the Group's asset managers and are subject to monthly review at executive level. 

Responsibility Statement

We confirm that to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU: and (b) the Interim Management Report includes a fair review of the information required by:

DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

Signed on behalf of the Board who approved the interim management report on 20 June 2019.

S J East

Director

Independent Review Report to The Local Shopping REIT plc

Conclusion

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2019 which comprises the Condensed Consolidated Income Statement, Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Cash Flows, Condensed Consolidated Statement of Changes in Equity and the related explanatory notes. 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2019 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

The impact of uncertainties due to the UK exiting the European Union on our audit

Uncertainties related to the effects of Brexit are relevant to understanding our audit of the financial statements. All audits assess and challenge the reasonableness of estimates made by the directors, such as the value of investment properties held for sale and related disclosures. All of these depend on assessments of the future economic environment and the company's future prospects and performance.

Brexit is one of the most significant economic events for the UK, and at the date of this report its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown. We applied a standardised firm-wide approach in response to that uncertainty when assessing the Company's future prospects and performance. However, no audit should be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit.

Emphasis of matter - non-going concern basis of preparation

We draw attention to the disclosure made in note 1 to the financial statements which explains that the financial statements are now not prepared on the going concern basis for reasons set out in that note.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU.  The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. 

The purpose of our review work and to whom we owe our responsibilities. 

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA.  Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Mark Flanagan

for and on behalf of KPMG LLP

Chartered Accountants

31 Park Row

Nottingham

NG1 6FQ

20 June 2019

Condensed Consolidated Income Statement for the six months ended 31 March 2019

Condensed Consolidated Statement of Comprehensive Income for the six months ended 31 March 2019

Condensed Consolidated Balance Sheet as at 31 March 2019

Condensed Consolidated Statement of Cash Flows for the six months ended 31 March 2019

An acquisition reserve arose when the Company acquired Gilfin Property Holdings Limited ("Gilfin") in 2007, and the acquisition consideration was part cash and part shares in The Local Shopping REIT plc.

During the current period all the remaining Gilfin properties were disposed of, and Gilfin entered into a members' voluntary liquidation.  A distribution has been received from the liquidator for an amount in excess of the carrying value of Gilfin.  Accordingly, the gain on acquisition has now been realised, and the reserve has been transferred to distributable profits.

Condensed Consolidated Statement of Changes in Equity for the six months ended 31 March 2019

Following the liquidation of Gilfin Property Holdings Limited during the period, the acquisition reserve which arose when Gilfin Property Holdings Limited was acquired in 2007 has become available for distribution.

Notes to the Half Year Report for the six months ended 31 March 2019

In common with many property organisations, the company's portfolio is a mix of residential, opted and non-opted properties for VAT. In the above table the applicable VAT which is not recovered has been included directly in the cost.

The investment properties have all been revalued to their fair value at 31 March 2019.

For the Group as a whole Allsop LLP, a firm of independent chartered surveyors valued the Group's property portfolio at 31 March 2019, 30 September 2018, 31 March 2018 and 30 September 2017.  On 30 September 2017, 31 March 2018 and 30 September 2018 Allsop LLP performed a full valuation of approximately 25% of the Group's properties (including site inspections) and a desktop valuation of the remainder of the portfolio.  On 31 March 2019 Allsop LLP performed a desktop valuation of all the Group's remaining properties, other than one property for which a sale contract was entered into shortly after the period end, the carrying value of which equates to its contracted sale price less estimated sale costs. 

All properties owned by the Group at 31 March 2019 have been subject to a full valuation, including inspection over the two-year period.  These 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 knowledgeably, prudently and without compulsion.

A reconciliation of the portfolio valuation at 31 March 2019 to the total value for investment properties given in the Consolidated Balance Sheet is as follows:

* Revalued assets and held for sale at net realisable value

10. Interest-bearing loans and borrowings

All bank borrowings were secured by fixed charges over certain of the Group's property assets and floating charges over the companies which own the assets charged.

The Group's loans were fully repaid in July 2018.

11. Earnings per share and Basic earnings per share

ENDS

Important Notices

BDO LLP ("BDO"), which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting exclusively as financial adviser to the Company and no one else in connection with the prospective capital reduction and share buy-back tender offer announced by the Company on 18 June 2019 (the "Offer") and will not be responsible to anyone other than the Company for providing the protections afforded to clients of BDO or for providing advice in connection with the Offer or any other matter referred to in this announcement.

This announcement is not intended to, and does not, constitute or form part of any offer, invitation or solicitation of any offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any securities or the solicitation of any vote or approval in any jurisdiction. The Offer (if made) will be made solely by certain documentation which will contain the full terms and conditions of any offer (if made), including details of how such offer may be accepted. This announcement has been prepared in accordance with English law and the Code and information disclosed may not be the same as that which would have been prepared in accordance with laws outside the United Kingdom. The release, distribution or publication of this announcement in jurisdictions outside the United Kingdom may be restricted by the laws of the relevant jurisdictions and therefore persons into whose possession this announcement comes should inform themselves about, and observe, any such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities laws of any such jurisdiction.

Disclosure requirements of the Takeover Code (the "Code")

Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

Publication on website

A copy of this announcement will, subject to certain restrictions relating to persons resident in restricted jurisdictions, be available on the Company's website at www.localshoppingreit.co.uk by no later than 12 noon on the Business Day following the date of this announcement. For the avoidance of doubt, the content of the website referred to above is not incorporated into and does not form part of this announcement.