TIDMLSR
RNS Number : 5117R
Local Shopping REIT (The) PLC
12 December 2016
The Local Shopping REIT plc
("LSR" or the "Company" or the "Group")
AUDITED FULL YEAR RESULTS FOR THE YEARED 30 SEPTEMBER 2016
The Local Shopping REIT plc (LSE: LSR) today announces its
audited results for the year ended 30 September 2016.
The information set out below is extracted from the Company's
Annual Report and Accounts for the year ended 30 September 2016,
which will be published today on the Company's website
www.localshoppingreit.co.uk. A copy will also be submitted to the
National Storage Mechanism and will be available for inspection at:
http://www.Hemscott.com. Printed copies will shortly be dispatched
to shareholders. Cross-references in the extracted information
below refer to pages and sections in the Annual Report and Accounts
for the year ended 30 September 2016.
Highlights
-- Profit for the financial period of GBP0.63m or 0.76 pence per
share ("pps") (2015: GBP0.02m or 0.02 pps).
-- Recurring operating profit* for the period of GBP1.53m or 1.9
pps (2015: GBP0.23m or 0.3 pps).
-- Portfolio valued at 30 September 2016 at GBP75.3m, reflecting
an equivalent yield (excluding the residential element) of 9.5% (30
September 2015: GBP81.2m, equivalent yield 9.3%).
-- Net Asset Value (NAV): GBP35.55m or 43 pps (30 September 2015: GBP34.85m, 42 pps).
-- Total net debt (taking account of cash reserves) of
GBP39.54m, reflecting a Group LTV on all investment properties of
52.5% (2015: GBP42.95m; 52.9%).
-- Following the year-end, HSBC borrowing facilities extended to
31 December 2019 at the current rate of 2% over LIBOR, at which
time LTV on borrowings fell from 71% to 61%.
*Recurring operating profit is explained in the Finance section
below.
For further information:
Bill Heaney, Company Secretary: +44 20 7355 8800
Or visit www.localshoppingreit.co.uk.
Strategic Report
Chairman's Statement
Financial Results and Portfolio Performance
The Company made a profit for the year of GBP0.63 million (2015:
GBP0.02 million) on an IFRS basis. The recurring operating profit
was GBP1.53 million (2015: GBP0.23 million).
Our portfolio was revalued at 30 September 2016 at GBP75.3
million, reflecting an equivalent yield (excluding the residential
element) of 9.5%.
A key achievement following the financial year end was the
extension of the term of our borrowing facilities with HSBC to 31
December 2019, at the existing margin of 2% above LIBOR. This has
strengthened our financial position and provides us with improved
latitude to dispose of our remaining property assets in a manner
which derives best value for shareholders.
During the year, we disposed of 27 properties for a combined
gross consideration of GBP5.0m, the proceeds of which, together
with operational income, enabled us to further reduce our overall
loan-to-value ratio to 52.5% at the year end. Property sales have
since accelerated, with a further 22 transactions having exchanged
or completed following the financial year end.
At the date of this report we had sold 55.9% by value of the
portfolio as it stood when shareholders approved the revised
investment strategy in July 2013. This has involved the sale of
over 360 properties representing GBP96.6 million in aggregate
value, via over one hundred individual transactions (including one
large portfolio sale of 253 assets reflecting a property purchase
price of GBP79.3 million).
Our capital gearing has reduced from a peak of 384% in 2013 to
111% at 30 September 2016, and, following the elimination of our
interest rate hedging contracts during the year, the Company
enjoyed a positive operating cash flow in the second half of the
financial year.
Road map for Property Disposals
As we have previously commented, our preferred approach was to
dispose of the remainder of the portfolio, or the bulk of it, by
way of a portfolio sale. Heads of terms were signed and significant
work undertaken on three occasions with interested parties.
However, for varying reasons none of these potential sales
crystallised. Whilst that process was underway it significantly
constrained our ability to dispose of individual assets.
Now that constraint has been removed, we have initiated the
disposal strategy set out below. The pace of that programme is
dictated by the number of properties we believe the market can
absorb at sensible prices, but also the ability to process sales
(particularly bearing in mind that a significant number of property
sales will be subject to the statutory pre-emption procedures
applying to residential leases).
Additionally, the road map below has been designed to maintain
income whilst the smaller and less robust properties are sold.
1) October 2016 to December 2017:
a. Dispose of approximately 90 smaller or management intensive
properties for an aggregate sale price of GBP10 million
representing an average lot size of GBP110,000. These properties
will be sold in regional and London auctions. There are auction
cycles every two months, so we will aim to sell approximately 15
properties per auction cycle;
b. Market for private treaty sale approximately 25 properties
with a combined value of GBP5 million, focussing on those that are
geographically difficult to manage;
c. Sell 10 low-yielding properties for an estimated GBP5 million, by auction or private treaty.
The three categories above total GBP20 million in 125 lots. This
equates to 25 property sales and GBP4 million in aggregate proceeds
per quarter.
Since implementing the above strategy, the Company has completed
or exchanged for sale on a total of 22 properties for an aggregate
sale price of GBP2.0 million representing a 1.75% premium to
valuation before transaction costs. Furthermore, 25 assets have
been scheduled for auctions in February, and agents have now been
appointed on the majority of the planned private treaty sales.
2) Early 2018:
The Company will be left with a 'core' portfolio of
approximately GBP55 million (based on current valuations),
comprising 200 of the larger and better-quality assets in a tighter
geographic concentration. Furthermore, time away from the market
will allow us to reposition the portfolio and undertake asset
management initiatives at the individual property level in order to
achieve maximum value.
In early 2018 the portfolio will be marketed as a whole for a
limited period, as the Board believes that this will be the optimum
disposal route (bearing in mind that the revised nature of the
portfolio should make it easier for a purchaser to raise finance
against it).
3) Remainder of 2018- 2019:
In the event the above portfolio sale is unsuccessful, the
remaining assets will be liquidated via a mixture of auction,
private treaty and possibly small portfolios and/or bespoke
auctions. We estimate that it would take a further 18 months to
dispose of the remaining assets.
At this stage of the liquidation process it is likely that the
Company's profitability will tighten, as the diminishing asset base
will provide less income to cover the fixed costs of running a
public company.
Whilst the Board believes this programme is achievable,
shareholders should be aware that the programme set out above is
reliant on market conditions and other external factors.
Timeline:
YEAR 2016 2017 2018 2019 2020
------------ ------------ ----------------- -------------------- -------------- ------------
PERIOD Q4 H1 H2 H1 H2 H1 H2 Q1
------------ ------------ -------- ------- ----------- ------- -------- ---- ------------
ACTION Sell 125 of the Market If successful:
smaller and more core Immediate
challenging properties portfolio liquidation
(GBP20 million) for & windup
sale
------------ ------------------------------- ----------- -----------------
If unsuccessful: Liquidation
Sell remaining & windup
200 properties
(GBP55 million)
------------ ------------ -------- ------- ----------- ----------------------- ------------
MILESTONES (1) (2) (3) (4)
--------------------------------------------- ----------- ------- -------- ---- ------------
(1) Portfolio repositioned and LTV on borrowings below 50%
(2) Sufficient aggregate sales to fully repay borrowings
(3) Expiry of borrowing facilities
(4) Time for liquidation and wind-up will depend on methodology
and other factors, including Court orders
Outlook
The extension of the terms of our borrowing facilities, as
described above, was a crucial achievement, which the Board
believes now gives us time to repay the bank debt through asset
sales at a measured pace. Recent sales undertaken by the Company
have, on an aggregated basis, been broadly in line with book
values. However, in some instances prices achieved have been as
much as 25% above or below book value, with better quality
properties sometimes exceeding expectations and some poorer assets
(particularly where they include vacant units) falling short.
Although achieving the objective of liquidating the Company's
assets and returning cash to shareholders is not strategically
complex, it is a significant endeavour given the large number and
granularity of the properties to be sold and a degree of patience
will be required if shareholders are to receive fair value.
It is too early to give guidance on the final liquidation value
of the Company, particularly as the gearing has a magnifying
effect. In due course, when we have more visibility on sales, a
clearer picture of the effect on cash flow as the portfolio runs
off and a more precise view on asset disposal and liquidation
costs, we will be in a position to provide better guidance on
expectations for a liquidation value per share. To that end, the
Board will provide shareholders with regular updates on sales. In
the meantime, it is gratifying to see the Company enjoying positive
operating cash flow, which can only assist in delivering value to
shareholders.
Stephen East, Chairman
9 December 2016
Operating Review
Business Model
Our operating model focuses on two principal, inter-related,
elements of the Company's investment policy:
-- Disposing of the Company's remaining property assets and paying down its debt facilities;
-- Sound asset management to maximise returns from the residual portfolio.
Core to the achievement of good returns on our properties, and
thus the maximisation of disposal values, is letting space to
reliable tenants at affordable rents and the minimisation of
tenancy voids and their associated costs.
Business Review 2015-16
Market Context
During the year, the overall UK economy continued its pattern of
steady growth. The quarterly figures from the Office for National
Statistics ("ONS") for 30 September 2016 indicate that this trend
has not as yet been unduly affected by the Brexit vote, with gross
domestic product ("GDP") growing throughout 2016, including the
September quarter. Unemployment continued its downward trend, to
1.6 million at the end of September, the lowest figure for eleven
years. Household disposable income continues to rise, albeit with
regional variations. In tandem with these trends, retail sales
appear to have held up, despite the uncertainty in the run-up to
the Brexit vote and thereafter. This appears to have fed through
into the local shopping market, with the Association of Convenience
Stores retailers reporting local retailers investing a total of
GBP600m in store improvements to improve footfall in the face of
competition from internet shopping and the expansion into
convenience retail of the major supermarket chains.
Operating Results & Portfolio Performance
At 30 September 2016 the portfolio comprised 327 properties,
producing an annual gross rental income, after deducting head rent
payments, of GBP6.99 million (30 September 2015: 353 properties;
annual rental income GBP7.49 million). The portfolio included 1,014
letting units (30 September 2015: 1,076 letting units). Over the
year like-for-like net rental income fell by 1.8% and the portfolio
Market Rent fell on a like-for-like basis by 1.1%.
Revaluation
The profit before tax reflected the movement in fair value of
the property portfolio, which was valued at GBP75.3 million at 30
September 2016 (30 September 2015: GBP81.2 m). The movement during
the period reflected both property disposals and value movements
within the ongoing portfolio. On a like-for-like basis, the
portfolio reduced in value by 1.1%.
The investment property portfolio valuation as at 30 September
2016 reflected an equivalent yield (excluding the residential
element) of 9.5% (30 September 2015, like-for-like: 9.4%).
Investment Property Portfolio as at 30 September 2016
Value GBP75.31m
--------------------------- ----------
Initial Yield ("IY") 9.13%
--------------------------- ----------
Reversionary Yield ("RY") 9.83%
--------------------------- ----------
Equivalent Yield ("EY") 9.49%
--------------------------- ----------
Rent per annum* GBP6.99m
--------------------------- ----------
Market Rent per annum* GBP7.55m
--------------------------- ----------
*Net of head rents payable.
Value Range No. of Properties Value Equivalent
GBPm Yield %
------------------- ------------------ ------ -----------
GBP0 - GBP100k 134 9.16 10.7
------------------- ------------------ ------ -----------
GBP101k - GBP200k 90 12.73 9.5
------------------- ------------------ ------ -----------
GBP201k - GBP500k 76 24.02 9.5
------------------- ------------------ ------ -----------
GBP501k - GBP1m 18 13.02 9.6
------------------- ------------------ ------ -----------
GBP1m - GBP3m 8 13.13 9.1
------------------- ------------------ ------ -----------
GBP3m + 1 3.25 6.5
------------------- ------------------ ------ -----------
Total 327 75.31 9.5
------------------- ------------------ ------ -----------
All yields quoted exclude the residential element which is
valued at a discount to vacant possession value.
Regional variations for market rents and yields across the
portfolio are illustrated by the table below:
Region 30 September 30 September Change
2016 2015 bps
Equivalent Equivalent
Yield Yield
(like-for-like)
-------------------- ------------- ----------------- -------
East Anglia 10.5 10.7 -22
-------------------- ------------- ----------------- -------
London 6.0 6.2 -18
-------------------- ------------- ----------------- -------
South East 8.3 8.2 +11
-------------------- ------------- ----------------- -------
South West 9.3 9.2 +10
-------------------- ------------- ----------------- -------
West Midlands 9.8 9.7 +12
-------------------- ------------- ----------------- -------
Wales 11.6 11.6 +6
-------------------- ------------- ----------------- -------
Yorks & Humberside 10.5 10.4 +6
-------------------- ------------- ----------------- -------
East Midlands 8.6 8.9 -26
-------------------- ------------- ----------------- -------
North 10.8 10.7 +9
-------------------- ------------- ----------------- -------
Scotland 10.3 9.9 +43
-------------------- ------------- ----------------- -------
North West 10.2 10.0 +15
-------------------- ------------- ----------------- -------
Property Sales
During the year sales were completed on a further 27 properties
at a combined gross sale price of GBP5.0 million, which was 0.49%
under the aggregate valuations at the time the properties went
under offer.
Since the year end, sales have been completed or contracts
exchanged on a further 22 properties at an aggregate price of
GBP2.0 million, a premium to their valuations of 1.75%.
As at the date of this report, total property sales since the
change in the Company's investment strategy in July 2013 have
reached GBP96.6 million (55.9% of value of the July 2013
portfolio).
Portfolio Performance and Asset Management
The table below summarises asset management activity during the
year:
Number Aggregate Premium/
Rent (discount)
to ERV
------------------------------------ ------- ----------- ------------
Commercial property lettings: 59 GBP496,000 (2.0%)
------------------------------------ ------- ----------- ------------
Lease renewals: 28 GBP270,000 (2.0%)
------------------------------------ ------- ----------- ------------
Rent reviews (open market and
fixed): 14 GBP160,000 4.1%
------------------------------------ ------- ----------- ------------
Market Rent of vacant properties
30 September 2016 / overall
void rate 30 September 2016 GBP825,000 10.9%
------------------------------------ -------------------- ------------
Void rate increase on 30 September
2015 +0.4%
------------------------------------ ----------------------------------
Deposits held for commercial
units, % of quarterly rent
roll 26.0%
------------------------------------ ----------------------------------
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.
Result
The Group has recorded an IFRS profit for the financial year of
GBP0.63 million, or 0.8 pps (2015: GBP0.02 million, or 0.02
pps).
Key Performance Indicators
In addition to the property specific indicators described in the
Operating Review, the following financial key performance
indicators are monitored by the directors:
30 September 30 September
2016 2015
---------------------------- ------------- -------------
Group interest cover 182% 188%
---------------------------- ------------- -------------
Group Loan to value (LTV)
ratio 52.5% 52.9%
---------------------------- ------------- -------------
NAV per share 43p 42p
---------------------------- ------------- -------------
Gearing (net of cash held) 111% 123%
---------------------------- ------------- -------------
Recurring operating profit GBP1.53m GBP0.23m
---------------------------- ------------- -------------
Recurring operating profit
per share 1.85p 0.28p
---------------------------- ------------- -------------
Recurring Operating Profit
In order to measure operational performance, the Board monitors
recurring operating profit. This measure excludes realised and
unrealised gains and losses on investment properties and financial
derivatives and a range of expenditure items that the Board
considers to be of a non-recurring nature. The recurring operating
profit was GBP1.53 million, or 1.9 pps (2015: GBP0.23 million, or
0.3 pps). This improvement primarily reflected the lower cost of
debt following the elimination of the Company's interest rate swap
contracts.
A reconciliation of the profit before tax to the recurring
operating profit is set out in the table below:
30 September 30 September
2016 2015
GBP000 GBP000
-------------------------------- ------------- -------------
Profit before tax (IFRS) 631 20
-------------------------------- ------------- -------------
Movement in the fair value
of the portfolio 1,073 1,638
-------------------------------- ------------- -------------
Movement in the fair value
of the interest rate swaps
held (2,294) (1,728)
-------------------------------- ------------- -------------
Swap termination charge 1,758 -
-------------------------------- ------------- -------------
Loss on disposal of properties 199 7
-------------------------------- ------------- -------------
Non-recurring expenditure 162 65
-------------------------------- ------------- -------------
Adjustment to portfolio sale
proceeds - 225
-------------------------------- ------------- -------------
Recurring operating profit 1,529 227
-------------------------------- ------------- -------------
Property Operating Expenses
Property operating expenses were GBP1.86 million (2015: GBP1.96
million). This reduction reflected the sale of properties in
accordance with the investment policy.
Net Asset Value ("NAV")
During the period NAV rose to GBP35.55 million or GBP0.43 per
share, based on 82.5 million shares in issue, excluding those held
in Treasury (30 September 2015: GBP34.85 million, GBP0.42 per
share).
As at 30 September 2016 the Group held GBP11.0 million of cash
(30 September 2015: GBP12.7 million).
During the year, the Group utilised GBP1.76 million of its cash
reserves to cancel its interest rate hedging facilities.
For the Group as a whole Allsop LLP, a firm of independent
chartered surveyors valued the Group's property portfolio at 30
September 2016, 31 March 2016, 30 September 2015 and 31 March 2015.
On each of these dates Allsop LLP performed a full valuation of 25%
of the Group's properties (including site inspections) and a
desktop valuation of the remainder, such that all properties owned
by the Group have been inspected and valued over the two-year
period. 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 knowledgeably, prudently and without
compulsion.
Financing
During the year, the Group operated using the loan facilities
provided by HSBC Bank plc ("HSBC"). The facilities in place as at
30 September 2016 were as set out below:
Loan Facility Amount Default Default Amortisation Expiry
GBPm Outstanding ICR LTV Date
GBPm Covenant Covenant
--------- --------- ------------- ---------- ---------- --------------- ---------
HSBC
NOS 4 30 April
Loan 45.7 42.7 130% 82.5% 2018
--------- --------- ------------- ---------- ---------- --------------- ---------
0.45% pq for
LTV 65%+
0.25% pq for
LTV 60-65%
HSBC
NOS 6 Nil below 60%
Loan 19.4 8.1 LTV
--------- --------- ------------- ---------- ---------- --------------- ---------
Total 65.1 50.8m
--------- --------- ------------- ---------- ---------- --------------- ---------
On 21 November 2016, following the year-end, the Group agreed
with HSBC to extend the term of the two cross-collateralised loan
facilities described above by an additional 20 months so that they
expire on 31 December 2019. As part of the revised terms the
balance of the loans was reduced by GBP7 million on 30 November
2016 through the release of cash held by the Company (derived from
the sale of properties and operational income). As a result of
this, and other repayments from asset sales, the balance of the
loans outstanding on 30 November 2016 was GBP42.9 million.
Under the terms of the extension, the interest margin remained
at 2% above 3 month LIBOR and an arrangement fee of 0.5% was paid
on the outstanding balance of the loans extended. Further property
assets valued at GBP1 million are to be added to the existing
security pool. The loan to value ratio default covenant is 70%, the
cash sweep covenant is 65% and the income cover ratio covenant is
120%. The proceeds of sales of properties within the security pool
(net of sales costs) will be applied to reducing the balance of the
loans.
The facilities as they now apply are set out below:
Loan Facility Amount Default Default Amortisation Expiry
GBPm Outstanding ICR LTV Date
GBPm Covenant Covenant
--------- --------- ------------- ---------- ---------- -------------- ------------
HSBC
NOS 4 31 December
Loan 45.7 42.5 120% 70.0% 2019
--------- --------- ------------- ---------- ---------- -------------- ------------
1.0% pq
for 2 years
0.25% pq
thereafter
(until the
HSBC loan balance
NOS 6 falls below
Loan 19.4 0.4 GBP36m)
--------- --------- ------------- ---------- ---------- -------------- ------------
Total 65.1 42.9m
--------- --------- ------------- ---------- ---------- -------------- ------------
No other material changes have been made to the pre-existing
loan agreements.
On each quarterly interest payment date, the loan facilities are
subject to actual and forecast interest cover tests. At each
testing date during the period the loans were determined to be
compliant. The ICR covenant required for the combined loan facility
is listed below (each reporting period includes an actual and
forecast ratio).
Loan Actual & Forecast Actual ICR Forecast ICR
ICR Covenant quarter ended quarter ended
30 September 2016 30 September 2016
------ ------------------ ------------------- -------------------
HSBC 130% 380.5% 354.5%
------ ------------------ ------------------- -------------------
For the financial year ending 30 September 2016, the Group's
average cost of debt, including margin was 3.8%, having reduced
from 5.3% at 30 September 2015. Immediately following the extension
of the loan facility, the average cost of debt was 2.7%.
Improvements in the cost of debt have been driven primarily by
the expiry and early termination of the Group's interest rate
hedging liabilities during the year. In October 2015 and in January
2016, the Group terminated the remaining two interest rate swaps
otherwise due to expire in January 2017 and July 2016.
At 30 September 2016, the Group held property assets valued at
GBP4.2 million with no debt secured against them (30 September
2015: GBP5.3 million), together with cash of GBP11.0 million (30
September 2015: GBP12.7 million). Following the extension of the
HSBC loan facility, the Group continues to hold a cash reserve
which could be deployed to repay debt in the unlikely event that a
loan covenant is at risk of being breached.
Taxation
The Group continued to operate as a UK 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.
Dividend
In line with the Company's current dividend distribution policy
no dividend will be paid. The Board will continue to review the
dividend policy in line with progress with the investment
strategy.
Corporate Responsibility
During the year we continued to focus on the three principal
contributors to the success of our business:
-- the talent and commitment of our management team;
-- our relationships with national and local advisers, partners and clients; and
-- the well-being of the businesses that occupy our properties
and the communities in which they operate.
The Company's asset management and accounts team are employed by
our fund manager, INTERNOS, having transferred to INTERNOS from the
Company following the change of the Company's investment strategy
in 2013.
During the year, we developed our relationships with national
and local agents and other partners in the context of our property
sales programme. We are conscious that our ability to operate
effectively rests on our reputation for fairness and a
straightforward and honest approach conducting business.
We therefore strive to transact business in accordance with the
highest professional standards and all those who act on our behalf
are expected to do the same. Besides complying with all relevant
legislation and professional guidelines, this includes customer
care and external complaint procedures. Our arrangements with
INTERNOS, which is regulated by the Financial Conduct Authority,
include the provision of all applicable compliance procedures.
We have considered whether it is appropriate to report on
relevant human rights issues. In the context of our business, we do
not believe that the provision of detailed information in this area
would provide any meaningful enhancement to the understanding of
the performance of our business. However, we are confident that our
approach to doing business does not contravene human rights
principles or applicable legislation.
Our approach to corporate responsibility matters is underpinned
by a whistle-blowing procedure, enabling perceived irregularities
to be notified to members of the Board, principally the senior
independent non-executive director.
Employees
The Company had one employee during the year, engaged on a
contract which terminated after the year end.
Health, Safety and Welfare
Subject to the overriding responsibilities held by the
directors, INTERNOS is responsible for ensuring that the Company's
discharges its obligations for health, safety and welfare,
including that of those engaged on the Company's activities. We are
pleased with the priority that INTERNOS accords to this area and
note also that our property managers and contractors continue to be
required to ensure that property management, maintenance and
construction activities conform to all relevant regulations and
that due consideration is given to the welfare of occupants and
neighbours. Our managing agents, instructed by INTERNOS, undertake
regular checks of gas and electrical installations within the
residential elements of our portfolio in conformance with
regulatory requirements, and address reported items for
improvement, together with a continuing programme of risk
assessments covering relevant multi-occupancy sites.
Community and Partnerships
We continue to take seriously our involvement in local
communities as an owner of local property assets and we seek to
deal constructively with all stakeholders in relation to any
community issues that arise. On a day-to-day basis we use local
advisers, agents and contractors whenever appropriate.
Environment
We believe that our local asset investment model is by its
nature supportive of reducing the carbon impact of retail shopping.
To the extent that we undertake development activity, this is to
return to profitable use redundant space that would otherwise
remain vacant, potentially relieving development pressure
elsewhere, including on greenfield sites. Construction is carried
out in accordance with applicable energy and resource saving
standards, noise impact reduction requirements, and, where
relevant, the need to preserve the character of buildings,
including listed properties. We continue to use local agents and
contractors wherever possible. Our contractors are required to
dispose of waste in accordance with best practice.
Board of Directors
Stephen East
Independent Non-Executive Chairman, aged 58
Stephen East joined the Board in September 2009, become Chairman
of the Company in 2014. He previously served as Finance Director of
MEPC plc and as Finance Director of Woolworth Group plc. He holds
non-executive directorships of Marwyn Management Partners plc and
Snoozebox Holdings plc. He also serves on the board of Genesis
Housing Association. He has previously held non-executive
appointments with Regus Group plc, Star Energy Group plc and CQS
Diversified Fund Limited. Stephen is a Chartered Accountant and a
Fellow of the Association of Corporate Treasurers. Stephen also
chaired the Remuneration Committee during the year and he serves on
the Audit Committee.
Nicholas Vetch
Senior Independent Non-Executive Director, aged 55
Nick Vetch trained as a Chartered Surveyor before becoming Chief
Executive of Edge Properties which he founded in 1989. In 1998 he
founded Big Yellow Group PLC, of which he is Executive Chairman. He
has previously been a non-executive director of Blue Self Storage
SL, which operates in Spain. Nick chaired the Audit Committee
during the year and also serves on the Remuneration Committee.
Steven Faber
Executive Director
Resigned 11 April 2016.
William Heaney
Non-Executive Director
Appointed 10 November 2016, resigned 8 December 2016.
Company Secretary
William Heaney
Corporate Governance Report
The Company is subject to, and complies with, the Listing Rules
and the Disclosure & Transparency Rules of the Financial
Conduct Authority. During the year the Company was also subject to
the UK Corporate Governance Code 2014 ("the Code") promulgated by
the Financial Reporting Council. This Report sets out the ways in
which the Company applies the Main Principles of the Code. Subject
to matters set out below, the directors consider that the Company
complies with all provisions of the Code to the extent to which
they apply to companies outside the FTSE 350.
Board Responsibilities and Operation
The Company is led by the Board, which is responsible for
determining the strategy of the business and its effective
stewardship. All major strategic and investment decisions are taken
by the Board as a whole. There is a formal schedule of items
reserved for consideration by the Board. The Board meets regularly
to review the Company's operations and progress with its strategy.
The Board held six meetings during the year. Each scheduled Board
meeting has a formal agenda. All material aspects of the business
are reviewed on a regular basis, with key items highlighted, to
enable the Board to monitor well-being and progress. These include
progress with the investment strategy, portfolio performance and
asset management, together with finance, business development and
health, safety and welfare and environmental matters. Risk
management and controls are reviewed in the light of advice from
the Audit Committee and the external auditors. In consultation with
the Board and committee Chairmen, the Company Secretary ensures
that all directors receive relevant reports and papers prior to
each meeting. Additional meetings and discussions are arranged
outside the Board's regular schedule as necessary and the directors
are in regular liaison outside formal meetings.
During the year the relevant executives of the Company's fund
manager, INTERNOS to whom the Board delegated day-to-day
operational management, consulted the directors on a regular basis.
The directors also make themselves available to provide advice to
the management team.
The division of responsibilities between executive team and the
non-executive directors is clearly defined and recorded via the
Company's investment advisory agreement with INTERNOS. The Chairman
is charged with responsibility for corporate governance and
effective leadership of the Board and INTERNOS is responsible to
the Board for the executive management of the business. The Board
also benefits from the expertise of INTERNOS in wider property,
investment market and banking matters.
The Chairman is responsible for ensuring that due consideration
is given to key items of business. The senior independent director
provides a separate communication channel for shareholders and
other interested parties, and has a remit under the Company's
"whistle-blowing" arrangements.
The responsibilities of each non-executive director are set out
clearly in his letter of appointment, which is available for
inspection by members at the Company's registered office during
normal office hours. All directors ensure that they provide
sufficient time to fulfil their obligations. All directors have
access to the advice and services of the Company Secretary, and
there is an agreed procedure whereby directors can take independent
professional advice at the Company's expense.
Board Composition
Biographical details for each of the directors as at the date of
this report, including their membership of the Board's committees,
are set out the preceding page. Stephen East and Nicholas Vetch
held office throughout the year to 30 September 2016. Steve Faber
resigned from the Board in April 2016, Following Mr Faber's
departure, the Board comprised an independent non-executive
Chairman and one further independent non-executive director (who
was also the senior independent non-executive director).
Non-executive directors were in the majority throughout the year.
Following the year end, William Heaney joined the Board as a
non-executive director on 10 November 2016 and resigned on 8
December 2016.
Having considered the criteria set out in the Code and the
character and attributes of each individual, the Board considers
each of its non-executive directors (Stephen East and Nicholas
Vetch) to be independent within the spirit of the Code and that no
individual or group can dominate decision-making.
The Company's Articles of Association require any director
appointed to the Board during the year to be reappointed at the
next Annual General Meeting. Under the Articles, all directors are,
as a minimum, subject to retirement and re-election at every third
Annual General Meeting following their initial election. However,
in 2012 the Board adopted a best-practice policy whereby each
director resigns and offers himself for re-election at each Annual
General Meeting, even though this is not a strict requirement for
companies outside the FTSE 350. This policy was applied at the 2016
Annual General Meeting, when all directors then holding office were
reappointed.
Board Committees
The Board has established Audit, Remuneration and Nomination
Committees. The minutes of each committee meeting are circulated to
the Board as a whole. Each committee operates within terms of
reference determined by the Board having regard to independent
external guidance. Terms of reference for each committee are
available on the Company's website www.localshoppingreit.co.uk. The
work of the committees is described below.
Nomination Committee
The composition of the Nomination Committee is determined by the
Board as the need for it to meet arises. The Committee comprises a
minimum of two directors, the majority of whom must be independent
non-executive directors. The Committee is responsible for approving
all director appointments and is responsible for ensuring that the
required standards of skills, experience and stewardship ability
are met. In appointing new directors, the Committee and the Board
consider advice from external professional consultants. The
Committee has formal terms of reference approved by the Board and
is chaired by the Company's senior independent non-executive
director. As the Committee did not meet during the year and bearing
in mind the programme for liquidating the Company's investments,
the directors consider that to provide a detailed report on the
Committee's activities and policies would not enhance an
understanding of the Company's corporate governance regime.
Audit Committee
The Audit Committee comprises the Board's two independent
non-executive directors, Stephen East and Nick Vetch and is chaired
by Mr Vetch. The Board considers Mr Vetch to have the requisite
skills and experience to chair the Committee. The Company Secretary
acts as secretary to the Committee. The report of the Audit
Committee can be found on page 29. The Committee's responsibilities
include:
-- monitoring the integrity of the Company's financial
statements and formal announcements relating to its financial
performance and reviewing significant financial reporting
judgements contained in them (subject to the Board's overall
responsibility for reviewing and approving the annual directors'
report and financial statements);
-- reviewing the adequacy and effectiveness of the Company's
internal financial controls, internal control and risk management
systems, fraud detection, regulatory compliance and whistle-blowing
arrangements;
-- making recommendations to the Board for the approval of
shareholders on the appointment, re-engagement or removal of the
external Auditors and approving the Auditors' terms of engagement
and remuneration;
-- overseeing the Company's relationship with the external
Auditors, reviewing and monitoring the Auditors' independence and
objectivity and the effectiveness of the audit process, taking into
consideration UK professional and regulatory requirements;
-- approving the annual audit plan and reviewing the Auditors'
findings and the effectiveness of the audit programme;
-- developing and implementing policy on the engagement of the
external Auditors to supply non-audit services, taking account of
relevant ethical guidance, and making recommendations to the Board
in respect of any action or improvement that maybe needed;
-- reporting to the Board on how the Committee has discharged its activities.
The Committee continues to consider that the Company's size and
activities do not warrant the establishment of an internal audit
function.
Other members of the Board may attend the Committee's meetings
by invitation. Representatives of the Company's Auditors, KPMG LLP
("KPMG"), also attend the Committee's meetings and the Committee's
Chairman also holds discussions with the Auditors in the absence of
the management team. KPMG LLP have provided the directors with
written confirmation of their independence.
Remuneration Committee
Full details of the membership of the Remuneration Committee and
the Company's remuneration policy are set out in the Remuneration
Report, which can be found on page 25. The Committee met twice
during the year.
Attendance
Each member's attendance record at Board and Committee meetings
is set out in the table below:
Director Board Audit Remuneration Nomination
-------------- ------ ------ ------------- -----------
Stephen East 6 3 2 -
-------------- ------ ------ ------------- -----------
Steve Faber* 3 n/a n/a -
-------------- ------ ------ ------------- -----------
Nick Vetch 6 3 2 -
-------------- ------ ------ ------------- -----------
*Resigned 16 April 2016.
Performance Evaluation of the Board and its Committees
The membership, remits and operations of the Board and its
Committees are subject to annual evaluation, a process led by the
senior independent director supported by the Company Secretary.
Directors' interests in contracts
During the year:
1. The Company had a contract with INTERNOS Global Investors
Limited, which, until 16 April 2016, employed Steve Faber as a
senior executive, for the provision of investment advisory and fund
management services. Subject to this no director had any material
interest in any contract or arrangement with any company within the
Group; and
2. No director had any beneficial interest in any subsidiaries of the Company.
The interests of the directors who held office during the year
in the issued share capital of the Company as at the date of this
report, all of which were beneficial, are set out below:
Ordinary 20p Shares
Director 2016 2015
---------------- ---------- ----------
Stephen East 75,000 75,000
---------------- ---------- ----------
Steve Faber* 3,574 3,574
---------------- ---------- ----------
Nicholas Vetch 2,873,563 2,873,563
---------------- ---------- ----------
*Resigned 16 April 2016.
None of the Directors had any interest in employee share
schemes.
The Company's Articles of Association provide a framework for
directors to report actual or potential situational conflicts,
enabling the Board to give such situational conflicts appropriate
and early consideration. All directors are aware of the importance
of consulting the Company Secretary regarding possible situational
conflicts.
Directors' Indemnities and Insurance Cover
To the extent permitted by law, the Company indemnifies its
directors and officers against claims arising from their acts and
omissions related to their office. In accordance with the Code, the
Company also maintains an insurance policy in respect of claims
against directors.
Directors' Performance Appraisal
During the year, the non-executive directors provide feedback on
the performance of the management team, including the executive
director (whilst in place), within the terms of the investment
advisory agreement with INTERNOS.
Director Induction
Arrangements are made to provide new directors with an induction
programme into the Company's activities. Non-executive directors
visit the Company's offices between formal meetings and discuss the
Company's activities with members of the management team on an
informal basis. The asset management team are pleased to arrange
for directors to inspect investment properties.
Principal Risks and Uncertainties
The directors recognise that commercial activities invariably
involve an element of risk. The directors recognise that a number
of the risks to which the business is exposed, such as the
condition of the UK domestic economy, are external and beyond the
Company's power to influence. However, such risk areas are
monitored and appropriate mitigating action, such as reviewing the
substance and timing of the Company's operational plans, is taken
in response to significant changes. The Audit Committee considers
the risk areas the Company is exposed to in the light of prevailing
economic conditions and the risk areas set out in this section are
subject to review. The approach to risk management takes account of
the revised investment strategy adopted by shareholders in July
2013. In relation to asset management it reflects the Company's
granular business model and position in the market and involves the
expertise of its fund management team and third party advisers. The
management team evaluates each investment, disinvestment and asset
management decision on its own merits within the Company's overall
investment policy. Operational progress and key investment and
disposal decisions are considered in regular management team
meetings as well as being subject to informal peer review.
Higher level risks and financial exposures are subject to
constant monitoring. Major investment and disposal decisions are
subject to review by non-executive directors in accordance with a
protocol set by the Board. This approach is adopted for large
portfolio sales, proposals for which are considered carefully by
the Board.
Potential Risk Impact Mitigation
-------------------------- ------------------------ -----------------------------------
Property Portfolio
Performance
-------------------------- ------------------------ -----------------------------------
Effect on tenants -- Tenant defaults -- Rental arrears continually
of downturn in -- Reduced rental monitored -
macroeconomic income early identification
environment -- Increased of / discussions with
void costs tenants in difficulties
-- Reduction -- Regular review of
in Net Asset all properties for lease
Value and realisation terminations and tenant
value of assets risk, with early action
to take control of units
when appropriate
-- Limited requirement
for tenant incentives
within sub-sector
-- Close liaison with
local agents enables
swift decisions on individual
properties
-- Tendency of small
traders to take early
action in response to
economic conditions
-- Diverse tenant base
-- Sustainable location
and property use
-------------------------- ------------------------ -----------------------------------
Higher than anticipated -- Costs not -- All material expenditure
property matched by income authorised by
maintenance costs streams and/or asset manager and director
improvement in -- Capital expenditure
property value subject to regular
review
-- Focus on sale of
assets with high
potential capital expenditure
-------------------------- ------------------------ -----------------------------------
Changes to legal -- Adverse impact -- Monitoring of UK
environment, on portfolio property environment
planning law -- Loss of development and regulatory proposals
or local planning opportunity -- Close liaison with
policy -- Reduction agents and advisers
in realisation -- Membership of and
value of dialogue with relevant
assets industry bodies
-------------------------- ------------------------ -----------------------------------
Failure to comply -- Tenant and -- Guidance on regulatory
with regulatory third party claims requirements provided
requirements resulting in by managing agents and
in connection financial loss professional advisers
with -- Reputational -- Individual properties
property portfolio, damage monitored by asset managers
including health, and agents
safety and environmental -- Managing agents operate
formal regulatory certification
process for residential
accommodation
-- Ongoing programme
of risk assessments
for key multi-tenanted
sites
-- Key risks covered
by insurance policies
-------------------------- ------------------------ -----------------------------------
Corporate Governance
& Management
-------------------------- ------------------------ -----------------------------------
Non-availability -- Impact on -- Provision by INTERNOS
of information operations and of effective security
technology systems reporting ability regime with off-site
or failure -- Financial data back-up
of data security claims arising
from leak of
confidential
information
-------------------------- ------------------------ -----------------------------------
Financial and -- Insufficient -- Debt facilities in
property market finance available place
conditions at -- Disposal programme
acceptable rates aimed at lowering loan
to fulfil business finance risks
plans -- Impact of interest
-- Inability rates on property yields
to execute investment monitored and investment/disposal
property disposal policy adjusted accordingly
strategy owing
to
fall in property
market values
-- Financial
impact of debt
interest
-- Breach of
banking covenants
-------------------------- ------------------------ -----------------------------------
Internal Governance
The directors recognise that the Company's ability to operate
successfully is largely dependent on the maintenance of its
straightforward approach to doing business and its reputation for
integrity. All those who act on the Company's behalf are therefore
required to behave and transact business in accordance with the
highest professional standards. This includes, as appropriate,
complying with the requirements of the Model Code, Anti-money
Laundering regulations, the Data Protection Act and the Bribery
Act, as well as customer care and external complaint guidelines.
During the year, the Company adopted a new Code, Policy and
procedures under the Market Abuse Regulations, in replacement of
the Model Code which is no longer in force. The Company's
arrangements with INTERNOS, which is regulated by the Financial
Conduct Authority, include the provision of all applicable
compliance procedures. The Company's corporate governance regime is
underpinned by a whistle-blowing procedure, enabling perceived
irregularities to be notified to members of the Board, principally
the senior independent non-executive director.
Internal Controls
The Board has overall responsibility for the Company's internal
control systems and for monitoring its effectiveness. The Board's
approach is designed to manage rather than eliminate the risk of
failure to achieve business objectives and can only provide
reasonable assurance against material misstatements or loss. The
directors do not believe that it is appropriate to establish a
separate internal audit function, having regard to the Company's
size. The Board has examined and is satisfied that the control
processes adopted by INTERNOS are appropriate to the Company's
business. The Board's approach to internal controls covers all
companies within the Group and there are no associate or joint
venture entities which it does not cover.
A summary of the principal risks to which the business is
exposed may be found on page 18. The principal foundations of the
Company's internal control framework are:
-- statements of areas of responsibility reserved to the Board
and its committees, with prescribed limits to executive directors'
authority to commit to expenditure and borrowing;
-- effective committee structure with terms of reference and
reporting arrangements to the Board;
-- clear remits for the delegation of executive direction and
internal operational management functions, set out in the
investment advisory agreement with INTERNOS;
-- framework for independent directors to provide advice and
support to executive directors on an individual basis;
-- top-level risk identification, evaluation and management
framework monitored by the Audit Committee;
-- effective systems for authorising capital expenditure and
significant revenue items and monitoring actual cost incurred;
-- regular reporting to the Board of operational results against
expectations with commentary on variances;
-- regular review of operational forecasts and consideration by
the Board on a quarterly basis;
-- regular review of the Company's funding requirements against
the status of the financial markets and the continuing
effectiveness of the Company's hedging arrangements; and
-- quarterly reporting to the Board of health, safety and environmental matters.
As part of its half-year and year-end activities, the Board
reviews the effectiveness of the Company's risk management systems
against the principal risks facing the business and their
associated mitigating factors, taking account of the findings and
recommendations of the Auditors. Following its review of the
Auditors' findings during 2015-16 and its examination of the
control framework established by INTERNOS the Board considers that
the Company's approach is acceptable.
Investor Relations
The directors place considerable emphasis on effective
communications with the Company's investors. Directors are happy to
comply with shareholder requests for meetings as soon as
practicable, subject to regulatory constraints. The Board is
provided with feedback on these meetings, as well as regular
commentary from investors and the Company's bankers and advisers.
The Board provides reports and other announcements via the
regulatory news service in accordance with regulatory requirements.
Regulatory announcements and key publications can also be accessed
via the Company's website. The Company's Annual General Meeting
provides a further forum for investors to discuss the Company's
progress and the Board encourages shareholders to attend. The
Company complies with relevant regulatory requirements, and also
the UK Corporate Governance Code, in relation to convening the
meeting, its conduct and the announcement of voting on resolutions.
The Annual Report and Notice of the Annual General Meeting are sent
to shareholders at least 20 working days prior to the meeting and
are available on the Company's website. The results of resolutions
considered at the Annual General Meeting are announced to the Stock
Exchange and are also published on the website and lodged with the
National Storage Mechanism. Investors may elect to receive
communications from the Company in electronic form and be advised
by email that communications may be accessed via the Company's
website.
Acquisitions and Disposals
The Group made no material acquisitions during the year.
During the year, the Company continued to sell properties in
accordance with its investment policy, details of which are given
on page 5.
Group Companies
The subsidiary undertakings of the Company are set out in note
19 to the financial statements.
Group Result and Dividend
The profit for the Group attributable to shareholders for the
year was GBP0.63 million (2015: profit GBP0.02m). The recurring
operating profit for the year was 1.9p per share (2015: 0.3p). The
definition of recurring operating profit is set out in the glossary
of terms at the end of the Report. In accordance with the revised
investment policy, no interim dividend has been or will be
distributed in respect of the financial year. The directors will
keep the dividend distribution policy under review.
Use of financial instruments
The Company's use of financial instruments to reduce its
exposure to risks arising from interest rate fluctuations is
described in notes 14 and 15 to the financial statements.
Share Capital
Details of the Company's issued share capital are set out in
note 11 to the financial statements. All of the Company's issued
shares are listed on the London Stock Exchange. The Company's share
capital comprises one class of Ordinary Shares of 20p each. All
issued shares are fully paid up and rank equally. Shares acquired
through the Company's employee share schemes rank pari passu with
shares in issue and no shares carry special rights regarding
control of the Company. The Company's Articles impose requirements
on shareholders in relation to distributions and the size of
individual holdings, in order to ensure that the Company continues
to conform to the UK REIT regime. Subject to this, there are no
restrictions on the transfer of shares or the size of holdings. The
directors are not aware of any agreements between shareholders in
relation to the Company's shares. The Company's issued share
capital did not alter during the year.
Transactions in the Company's shares
The Company's previous authority to purchase its own shares was
extended at the Annual General Meeting in March 2016, which
authorised purchases of up to 14.99% of the Company's issued
Ordinary Share capital (excluding shares held in treasury). This
authority will expire at the 2017 Annual General Meeting, at which
a resolution will be proposed for its renewal. The directors
exercise their authority to purchase the Company's shares only when
they consider it in the Company's best interests to do so. No share
purchases were made during the year.
The directors are also authorised to offer shareholders the
alternative of receiving fully paid Ordinary Shares in lieu of
dividends. This authority was not used during the year.
Substantial Interests
As at 1 December 2016, the last practicable reporting date
before the production of this document, the Company had been
notified of the following major interests (of 3% or more) in its
issued share capital:
Shareholder Ordinary Shares %
----------------------------- ---------------- ------
Thalassa Holdings Ltd 19,168,376 23.23
----------------------------- ---------------- ------
Damille Investments
II Limited 18,300,000 22.18
----------------------------- ---------------- ------
Hargreaves Lansdown
Asset Management 5,323,358 6.45
----------------------------- ---------------- ------
EFG Harris Allday 4,300,973 5.21
----------------------------- ---------------- ------
Thames River Capital
LLP 3,204,324 3.88
----------------------------- ---------------- ------
Equiniti Financial Services
Limited 2,907,594 3.52
----------------------------- ---------------- ------
N J Vetch 2,873,563 3.48
----------------------------- ---------------- ------
Value Investments Limited 2,793,500 3.39
----------------------------- ---------------- ------
Alliance Trust Savings
Limited 2,500,479 3.03
----------------------------- ---------------- ------
Effect of change of control on significant contracts
Funding agreements entered into by certain Group companies
require the written approval of the relevant bank before any change
can be made to the nature, constitution, management or ownership of
the business. The employment contracts of directors do not contain
any provisions specifically relating to a change of control. The
Company's employee share schemes contain change of control
provisions that are considered to be standard for such schemes.
Key Contracts
The Company has in place an agreement with INTERNOS Global
Investors Limited ("INTERNOS") to execute the Group's new
investment policy and to take responsibility for the management and
performance of the Company's investment property portfolio. Details
of the investment advisory agreement with INTERNOS, including
remuneration arrangements, are contained in note 20 to the
financial statements. Details of the Group's continuing loan and
banking facility agreements with HSBC Bank plc are set out in the
Banking Facilities section of the Finance Review.
Carbon Reporting
Scope
The directors believe that the Company's outsourced business
model, which focusses on the employment of agents, advisers and
contractors who are local to our property assets, is inherently
environmentally friendly. However, the collection of consumption
data from such businesses is not practicable. It is also not
possible for our national agents and advisers to separately
identify such data in relation to the proportion of their work
devoted to the Company's activities and it is not possible to
measure the energy consumed by the Company's tenants (nor is this
consumption within the Company's control). The consumption of
water, waste output and greenhouse gases other than CO(2) within
the Company's control is negligible.
Accordingly, the scope of the Company's environmental reporting
focuses on energy consumed by the Company and its wholly owned
subsidiaries through:
-- the activities of INTERNOS in relation to the Company's business;
-- shared facilities provided by the Company within its property portfolio;
-- activities within vacant properties.
Carbon Emissions Data
In relation to the Scope 1 figures it is not possible to
separately identify the gas consumed on our activities within the
INTERNOS office and the only meaningful data that can be supplied
relates entirely to fuel consumed on journeys between our property
sites. As we do not have a company car fleet, all such journeys are
made in employees' private vehicles or on public transport. We have
assessed vehicles used against the categories given on the DEFRA
website. The use of hire cars and air flights has been minimal.
The Scope 2 figures incorporate an estimate (on a per desk
basis) of the energy consumed in relation to our activities within
the London office of INTERNOS, together with consumption in our
vacant properties for which we are responsible. This includes any
electricity used in relation to development work in the conversion
or remodelling of premises, as well as standing charges for
electricity connections. Given the granularity of the Company's
property portfolio it is not been practicable to separate this
element from the amount of electricity actually consumed.
Comparisons of the Scope 1 and Scope 2 figures between 2014-15
and 2015-16 are likely to be affected by the disposal of properties
immediately prior to and during the year.
Our direct usage and emissions of water is minimal, being
largely confined to hygiene and refreshment purposes within the
INTERNOS office. Again, it is not practicable to apportion this for
the Company's activities. A small element of utility supply within
vacant premises will relate to water and to gas. However, this
largely relates to standing charges and consumption is
negligible.
The data has been compiled using the software tools available on
the DEFRA website.
2016 Kg Co2e per 2015 Kg Co2e per
Kg Co2e GBP1m t/o Kg Co2e GBP1m t/o
----------------------- --------- ------------ --------- ------------
Scope 1 (gas
and fuel) 1,508 197 2,183 285
----------------------- --------- ------------ --------- ------------
Scope 2 (electricity) 9,450 1,233 9.437 1,231
----------------------- --------- ------------ --------- ------------
Total gross
emissions 10,958 11,620
----------------------- --------- ------------ --------- ------------
Employee Share Schemes
During the year the Company operated The Local Shopping REIT plc
Employee & Former Employee Incentive Scheme 2015, details of
which are set out in the Remuneration Report
The Company's Employee Benefit Trust operates to supply shares
as appropriate to meet obligations arising from employee share
schemes. The voting rights of shares held by the Employee Benefit
Trust are identical to the remainder of the Company's issued share
capital.
REIT Regime
The Company is subject to the regulatory regime for UK Real
Estate Investment Trusts.
Political Donations
During the year the Company made no donations for political
purposes (2015: nil).
Amendment of Articles
The Company has no rules in place in relation to the amendment
of its Articles in addition to statutory provisions.
Auditors
The current KPMG audit engagement partner will rotate off the
Local Shopping REIT's audit account at the conclusion of the 2016
audit, having completed his permitted tenure of five years. It was
decided by the Committee that, mindful of the regulatory changes
and the longevity of the KPMG audit tenure, it would be appropriate
to put the external audit out to tender aligned to the partner
rotation.
During the year KPMG LLP supplied the Company with tax advice.
However, following the year-end and in compliance with the
regulatory changes for auditors, KPMG LLP has resigned its
appointment as the Company's tax advisor.
Viability Statement
In accordance with the UK Corporate Governance Code 2014, the
directors have assessed the Company's viability over the coming
three financial years to 30 September 2019, taking account of:
-- likely progress with the execution of the Company's investment strategy;
-- the continuation of the Company's current loan finance facilities to 31 December 2019;
-- the potential impact of the principal risks and mitigation
factors described in the Principal Risks section above.
The directors consider that the period to 30 September 2019 is
appropriate for assessing the Company's viability, bearing in mind
the Company's investment policy of liquidating the property
portfolio, paying down debt and returning surplus finds to
shareholders. The directors are pursuing a number of approaches for
selling down the property portfolio and note that this may take
several years to achieve, depending on market conditions. The
directors review progress with the investment strategy on a regular
basis. The directors note that a number of alternative strategies
remain available to the Company, such as selling the Company as a
going concern or continuing to trade as a going concern. They will
continue to evaluate these, and will make recommendations to
shareholders on alternative strategies if appropriate.
The directors' review noted the diversity of the Company's
tenant base across retail sectors and its geographical spread
around the country, reducing reliance on a few significant tenants
or a single region. The directors also note that the Company has
conformed to all covenants throughout the year and that the
Company's overall loan to value ratio has progressively diminished
since the revised investment strategy was adopted in July 2013. The
directors have prepared profit and cashflow forecasts for the
period to 30 September 2019 which include assumptions on the timing
and manner of the liquidation of the property portfolio (whilst
recognising the inherent uncertainty regarding these assumptions).
These forecasts project the Company's funding needs will be
comfortably met by its existing banking facilities agreements
without any breach of related covenants over the remaining life of
the facilities to 31 December 2019. Based on this assessment, the
directors have a reasonable expectation that the Company will be
able to remain in operation and meet its liabilities as they fall
due over the three financial years to 30 September 2019. In
providing this opinion the directors recognise the possibility that
selling down the property portfolio and returning cash to
shareholders may be achieved prior to that date. Accordingly, the
directors consider it appropriate that the financial statements
have been prepared on the going concern basis.
Responsibilities Statement
The directors confirm that to the best of their knowledge:
-- the report of the directors includes a fair review of the
development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face; and
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole.
Remuneration Report
Remuneration Committee Chairman's Statement
During the year the Committee operated in accordance with formal
terms of reference set by the Board, within which it has been
responsible for:
-- determining the broad policy for the remuneration and
benefits of the Company's executive directors and senior
managers;
-- approving the design and performance targets for
share-related performance plans for the Company; and
-- determining the individual remuneration packages of each
director, giving due regard to the provisions and recommendations
of the Code and the Listing Rules.
The Committee comprises the Company's independent non-executive
directors, Stephen East and Nick Vetch. The Committee was chaired
by Stephen East. Biographical details of the members of the
Committee are set out on page 13. The Committee met twice during
the year.
Other than the Company Secretary, who serves as secretary to the
Committee, other directors or executives attend meetings of the
Committee only by invitation. The Committee has access to
independent remuneration consultants.
Remuneration Policy
This report should be considered bearing in mind that the
Company had no employee directors during the year. However, should
the Company make relevant appointments in the future, the Company
will apply a remuneration policy based on the principles set out
below:
-- within a competitive market, enabling the recruitment and
retention of individuals whose talent matches the entrepreneurial
and leadership needs of the business, enabling the Company to
fulfil its investment objectives for its shareholders; and
-- placing emphasis on performance-related rewards and focusing
on incentive targets that are closely aligned with the interests of
shareholders.
The Remuneration Committee ("the Committee") is responsible for
the operation of the Company's long-term share-related performance
plans (the Long Term Incentive Plan and the Company Share Option
Plan) during the year. However, neither of these plans were
operated during the year, the participatory rights under each of
them having lapsed during prior years.
The independent non-executive directors engage with INTERNOS
with the aim of ensuring that those working on the Company's
portfolio, including the Company's former employees, are
appropriately incentivised. During the year the Company had in
place a share-based retention and incentive plan ("The Local
Shopping REIT plc Employee & Former Employee Incentive Scheme
2015"), related to the execution of the investment strategy, which
applied to members of the asset management team eligible to
participate in such arrangements under the terms of the Employee
Benefit Trust. This was a short-term arrangement linked to the
achievement of property disposals under the Company's investment
strategy, which expired on 30 September 2016. Option awards vested
over 305,447 shares during the year. The Company has put in place a
similar arrangement for 2016-17.
In the event that the directors consider it to be in
shareholders' interests for the Company to directly engage members
of staff, including executive directors, the remuneration policy
set out in this report will be applied. In applying the
remuneration policy, the Committee will use its discretion, within
the terms of schemes previously adopted by the Company, to provide
a tailored mix of benefits that encourages individuals to maximise
their efforts in the best interests of shareholders. In particular,
the remuneration policy would be subject to any special
considerations that may arise in relation to the execution of the
Company's revised investment policy.
Director Appointments
Under the Company's Articles one-third of the directors are
subject to retirement at each Annual General Meeting. However,
recognising the best practice provisions of the UK Corporate
Governance Code, the Board has implemented a policy for directors
to be subject to re-election at each Annual General Meeting.
Additionally, the Articles require that director appointments made
by the Board directors are ratified at the subsequent General
Meeting of the Company.
For non-executive directors, the Company's policy is for initial
appointments to be for a term of 12 months, subject to extension by
periods of 12 months thereafter and also subject at any time to
termination on notice by the Company or the director. This policy
is reflected in the terms of the formal appointment document which
is in place for each non-executive director, which also sets out
the expected time commitment of the non-executive directors to the
Company's affairs.
For executive directors, the Company's policy is for service
contracts not to be capable of termination by the Company at not
more than one year's notice.
See Table 2 on page 27.
Non-Executive Pay
The Company's policy is for reviews of non-executive
remuneration to be conducted by independent consultants
commissioned by the Company Secretary and for such reviews to take
place every three years. However, given the Company's changed
circumstances, the Board has not considered it appropriate to
review non-executive pay and the level of non-executive pay has not
changed since the Company's flotation in May 2007. Further
consideration will be given to carrying out a review during
2016-17.
Payments on Loss of Office
The Company's policy on payments to directors on loss of office,
in the absence of a breach of contract or other misconduct by the
director, is to seek agreement to a termination settlement based on
the value of base salary and contractual entitlements that would
have applied to the director during his or her contractual notice
period. The Remuneration Committee will determine the extent to
which it is in the Company's best interests for the director work
during his or her notice period, or (to the extent permissible
under his or her contract) to be required not to undertake duties
or attend at the Company's premises or receive a payment in lieu of
notice. The Committee may seek to require mitigation where it
appears to it that it is reasonable in all the circumstances to do
so.
Should it appear to the Company that the director may pursue a
claim against the Company in respect of a breach of employment
rights in addition to his or her contractual entitlement, the
Committee may authorise settlement terms with the director that it
considers to be reasonable in all the circumstances and in the best
interests of the Company.
Shareholder Approval
A resolution concerning shareholder approval of the
implementation of the Company's remuneration policy, as described
in the Remuneration Implementation Report, below, will be put to
the Company's Annual General Meeting in March 2017.
Remuneration Implementation Report
This section sets out the ways in which the Company applied its
remuneration policy during 2015-16.
As no director of the Company was engaged as an employee during
the year (Steve Faber being an employee of INTERNOS), this report
does not refer to executive pay and benefits.
The level of fees paid to non-executive directors was set at the
time of the Company's admission to the Official List of the London
Stock Exchange having regard to market levels at that time. The
level of remuneration for non-executive directors, which is set out
in the table below, did not change during the year.
At the Company's 2016 Annual General Meeting shareholders passed
a resolution approving the Remuneration Implementation Report for
2014-15, with no votes against at the meeting and proxy votes for
each resolution showing a majority of 99.99% of votes cast.
Directors' Contracts and Terms of Appointment
Nick Vetch has an appointment document dated 30 March 2007,
subject to annual extensions. Stephen East has an appointment
document dated 9 September 2009, subject to annual extensions.
During his appointment as a director of the Company, Steve Faber
was an employee of INTERNOS Global Investors Limited.
Copies of the directors' service agreements are kept at the
Company's registered office, where they are available for
inspection by shareholders during usual business hours on
weekdays.
Investor Commentary
During the year the Company did not receive any communications
from shareholders specifically regarding directors' pay.
Save as indicated below, the remainder of this report has been
audited.
Table 1: Directors' Total Remuneration 2015-16
Director Salary Short Long Pension Benefits Total
term term contributions in kind
incentives incentives
--------------- ------- ------------ ------------ --------------- --------- -------
Non-executive
directors
--------------- ------- ------------ ------------ --------------- --------- -------
Stephen East 30,000 - - - - 30,000
--------------- ------- ------------ ------------ --------------- --------- -------
Nick Vetch 30,000 - - - - 30,000
--------------- ------- ------------ ------------ --------------- --------- -------
Executive
directors
--------------- ------- ------------ ------------ --------------- --------- -------
Steve Faber* - - - - - -
--------------- ------- ------------ ------------ --------------- --------- -------
Total 60,000 - - - - 60,000
--------------- ------- ------------ ------------ --------------- --------- -------
The figures in the above table were unchanged from 2014-15.
Table 2: Directors' Service Contracts
Non-executive Date of initial Date of current Expiry of
directors appointment appointment term
letter
-------------- ---------------- ---------------- ---------------
Stephen East 10 September 10 September 9 September
2009 2016 2017
-------------- ---------------- ---------------- ---------------
Nick Vetch 30 March 2007 30 March 2016 29 March 2017
-------------- ---------------- ---------------- ---------------
Executive
directors
-------------- ---------------- ---------------- ---------------
Steve Faber* Not applicable Not applicable Not applicable
-------------- ---------------- ---------------- ---------------
Table 3: Directors' Interests in the Company's Shares
Ordinary 20p Shares
Director 2016 2015
Stephen East 75,000 75,000
---------------- ---------- ----------
Steve Faber* 3,574 3,574
---------------- ---------- ----------
Nicholas Vetch 2,873,563 2,873,563
---------------- ---------- ----------
*Resigned 11 April 2016
Stephen East
Remuneration Committee Chairman
Audit Committee Report
The Committee met four times during the year and each member's
attendance record is set out in the table on page 16. During the
year, the Committee paid particular attention to the significant
areas set out below, which were discussed in detail with the
Auditors.
Valuation of Investment Properties
Key areas of focus for the Committee were the methodology
adopted and valuations provided by Allsop LLP ("Allsop"). During
the year, we reviewed the valuations for 30 September 2015 and 31
March 2016.
Going Concern Assumption
Consideration was given to technical implications for the Going
Concern assumption in connection with the sales during the year in
furtherance of the investment policy, and ongoing initiatives for
its execution. In concluding that it was appropriate for the Going
Concern assumption to apply, the Committee noted the inherent
uncertainty regarding the timing and manner of the execution of the
investment policy, as well as alternative strategic options
available to the Company. The Committee also took note of
management forecasts that the Company should continue to operate
comfortably within its banking facilities during the lifetime of
the facilities.
The Committee also covered the following items:
-- ensuring that the format of the financial statements and the
information supplied meets the standards set by the International
Accounting Standards Board;
-- reviewing the accounting treatment of receivables and
ensuring effective co-ordination between the Company's records and
those of its managing agents;
-- ensuring that the audit scope properly reflected the risk profile of the business;
-- ensuring that the Committee's terms of reference continued to accord with the Code.
In accordance with the Code, as part of the Company's year-end
process we also assessed the effectiveness of the external audit
process during the year (including the full-year audit and the
Auditors' half-year review). In doing so, the Committee again noted
that KPMG have been the Company's Auditors since its stock market
listing in 2007. Having carefully considered the outcome of this
exercise and bearing in mind the Company's investment policy, the
Committee decided that it would tender the audit following the
publication of the annual report in order to comply with applicable
statutory and regulatory requirements in audit rotation and tender
process.
KPMG LLP and its related entities provide non-audit services to
the Company, in particular tax advice in connection with the
Company's REIT status. In order to safeguard the objectivity of the
Auditors, strict procedures are in place for the engagement of KPMG
entities in non-audit work. All work undertaken by KPMG is notified
to the Chairman of the Audit Committee and careful consideration is
given to whether such work might give rise to a conflict of
interest. The Chairman of the Audit Committee must separately
authorise any item of work that could result in fees being paid in
excess of 50% of the audit fee in any year. Following the year end
KPMG LLP resigned as the Company's tax adviser, in order to comply
with recently promulgated best practice standards.
Nicholas Vetch
Audit Committee Chairman
9 December 2016
Directors' Report
The directors of The Local Shopping REIT plc ("the Company")
present their report and the audited financial statements of the
Company together with its subsidiary and associated undertakings
("the Group") for the year ended 30 September 2016.
The Directors' Report also includes the information set out on
pages 13 to 28, together with the description of the Company's
investment policy and business model set out on page 5.
The Company is a public limited company incorporated in England
under registered number 05304743, with its registered office at 65
Grosvenor Street, London, W1K 3JH.
Statement of Directors' Responsibilities in Respect of the
Annual Report and the Financial Statements
The directors are responsible for preparing their annual report
and the Group and parent Company financial statements in accordance
with applicable law and regulations. Company law requires that the
directors prepare Group and parent Company financial statements for
each financial year. Under that law they are required to prepare
the Group financial statements in accordance with IFRSs as adopted
by the European Union and applicable law and have elected to
prepare the parent Company financial statements in accordance with
UK Accounting Standards (UK Generally Accepted Accounting
Practice). Under company law the directors must not approve the
financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and the
parent Company and of their profit or loss for the relevant
period.
In preparing each of the Group and parent Company financial
statements, the directors are required to:
-- select suitable accounting policies and apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- for the Group financial statements, state whether they have
been prepared in accordance with IFRSs as adopted by the EU;
-- for the parent Company financial statements, state whether
applicable UK Accounting Standards have been followed, subject to
any material departures disclosed and explained in the parent
Company financial statements; and
-- prepare the financial statements on the going concern basis,
unless it is inappropriate to presume that the Group and the parent
Company will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the parent Company and enable them
to ensure that its financial statements comply with the Companies
Act 2006. They have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of the Group
and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a directors' report, a directors'
remuneration report and a corporate governance statement, each of
which conforms to the relevant law and regulations. The directors
are responsible for the maintenance and integrity of the corporate
and financial information included on the Company's website.
Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions. The directors consider that the annual
report and accounts, taken as a whole, is fair, balanced and
understandable in accordance with the UK Corporate Governance Code
2014, and provides the information necessary for shareholders to
assess the Company's performance, business model and strategy.
The Independent Auditor's Report can be found on pages 32. So
far as the directors are aware, there is no information relevant to
the Auditors' preparation of their report that has not been
disclosed to the Company's Auditors. Each director has taken all
steps required of a director to ensure that he is aware of any
information relevant to the audit and to establish that all such
information has been disclosed to the Auditors. The directors
consider that the sections headed Performance Review, Finance
Review, Corporate Governance and the Remuneration Report together
fulfil the requirement for an enhanced Business Review under
section 417 of the Companies Act 2006. The Strategic Report and the
Directors' Report together comprise the management report as
required by the Disclosure and Transparency Rule 4.1.8R.
The Corporate Governance section is a statement for the purposes
of the Disclosure and Transparency Rule 7.2.1.
The foregoing reports were approved by the directors on 9
December 2016.
William A Heaney
Company Secretary
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF THE LOCAL SHOPPING
REIT PLC ONLY
Opinions and conclusions arising from our audit
1 Our opinion on the financial statements is unmodified
We have audited the financial statements of the Local Shopping
REIT plc for the year ended 30 September 2016 which comprise the
Group Income Statement, the Group and Parent Company Balance
Sheets, the Group Cash Flow Statement, the Group Statement of
Changes in Equity, and the related notes. In our opinion:
-- the financial statements give a true and fair view of the
state of the group's and of the parent company's affairs as at 30
September 2016 and of the group's profit for the year then
ended;
-- the group financial statements have been properly prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union;
-- the parent company financial statements have been properly
prepared in accordance with UK Accounting Standards, including FRS
102 The Financial Reporting Standard applicable in the UK and
Republic of Ireland; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006; and, as regards
the group financial statements, Article 4 of the IAS
Regulation.
2 Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial
statements the risks of material misstatement that had the greatest
effect on our audit, in decreasing order of audit significance,
were as follows:
-- Valuation of investment property portfolio GBP74.2m (2015:GBP79.4m) - Risk vs 2015:
Refer to Audit Committee Report, accounting policy and financial
disclosures.
The risk - Investment property is the group's single largest
asset category. Its valuation requires significant judgments and
estimates, from both Directors and external valuers, particularly
in relation to sensitivity of the valuation to assumptions
regarding yield rates, void levels and comparable market
transactions.
Our response - In this area our audit procedures included using
our own specialist real estate valuers to assist us in evaluating
the assumptions used by the group. We have also reviewed the
competence, capability and objectivity of the external valuers used
by the Group. We compared the group's assumptions to externally
derived data as well as our own assessments in relation to yield
rates on a geographic as well as a property type basis. Further, we
compared the sales price achieved on disposals during the year and
after the balance sheet date to the carrying amounts of the
disposed properties in the accounting records; and assessed the
portfolio valuation as a whole for 'outliers' such as yields in
excess of, and significantly below, the average for the portfolio
and those properties resulting in the most significant valuation
uplift or decrease, which we then investigated with the Directors
and the external valuers by assessing specific qualitative factors
relevant to each outlier. We also assessed the adequacy of the
group's disclosures concerning related estimates and judgments.
-- Going concern - Risk vs 2015:
Refer to Audit Committee Report, basis of preparation and
financial disclosures
The risk - During the current year the Group continued its
operational strategy which was announced in July 2013, and disposed
of a number of properties. The directors note that a number of
alternative strategies remain available to the Company, such as
selling the Company as a going concern or continuing to trade as a
going concern. As such, assessing whether the going concern basis
of preparation remains appropriate requires significant judgment
and it is important that the disclosure of the directors' judgments
in this regard are appropriate.
Our response - Our procedures in this area involved discussing
with the directors the availability of other strategies that remain
open to the Group such as continuing to trade as a going concern or
the disposal of the Group as a going concern and assessed the
viability of such strategies. With regards the group continuing to
trade as a going concern we assessed whether the group's property
portfolio was being actively marketed for sale as at the yearend
(which would question the viability of the group continuing to
trade). We also critically assessed the Group's cash flow
forecasts, prepared by the directors, and the forecast level of
cash and forecast headroom on debt covenants over the remaining
life of the facilities to December 2019. We challenged the
directors' assumptions included in the forecasts particularly
around property disposals valuations, yield and void rates and
tenant default rates using sensitivity analysis over these
assumptions and evaluated the accuracy of the Directors' previous
valuations by reference to property disposal values. We also
considered the adequacy of the group's disclosures in respect of
the going concern assumption.
3 Our application of materiality and an overview of the scope of our audit
The materiality for the Group financial statements as a whole
was set at GBP820,000 (2015: GBP900,000) determined with reference
to a benchmark of total group assets of which it represents 0.9%
(2015: 0.9%).
We report to the Audit Committee any corrected and uncorrected
identified misstatements exceeding GBP41,000, in addition to other
identified misstatements that warranted reporting on qualitative
grounds.
The Group team performed the audit of the Group as if it was a
single aggregated set of financial information. The audit was
performed using the materiality level specified above and covered
100% of total Group revenue, Group profit before tax and Group
total assets.
4 Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion:
-- the part of the Directors' Remuneration Report to be audited
has been properly prepared in accordance with the Companies Act
2006;
-- the information given in the Strategic Report and the
Directors' Report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
the information given in the Corporate Governance Statement set
out on Corporate Governance Report with respect to internal control
and risk management systems in relation to financial reporting
processes and about share capital structures is consistent with the
financial statements.
5 We have nothing to report on the disclosures of principal
risks
Based on the knowledge we acquired during our audit, we have
nothing material to add or draw attention to in relation to:
-- the directors' statement of Viability and Going Concern on
Principal Risks section, concerning the principal risks, their
management, and, based on that, the directors' assessment and
expectations of the group's continuing in operation over the next
three years to 2019; or
-- the disclosures in note 1 of the financial statements
concerning the use of the going concern basis of accounting.
6 We have nothing to report in respect of the matters on which
we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if,
based on the knowledge we acquired during our audit, we have
identified other information in the annual report that contains a
material inconsistency with either that knowledge or the financial
statements, a material misstatement of fact, or that is otherwise
misleading.
In particular, we are required to report to you if:
-- we have identified material inconsistencies between the
knowledge we acquired during our audit and the directors' statement
that they consider that the annual report and financial statements
taken as a whole is fair, balanced and understandable and provides
the information necessary for shareholders to assess the group's
position and performance, business model and strategy; or
-- the Audit Committee Report does not appropriately address
matters communicated by us to the audit committee.
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
-- adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the parent company financial statements and the part of the
Directors' Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit; or
-- a Corporate Governance Statement has not been prepared by the company.
Under the Listing Rules we are required to review:
-- the directors' statements in relation to going concern and longer-term viability; and
-- the part of the Corporate Governance Statement on Corporate
Governance Report relating to the company's compliance with the
eleven provisions of the 2014 UK Corporate Governance Code
specified for our review.
We have nothing to report in respect of the above
responsibilities.
Scope and responsibilities
As explained more fully in the Directors' Responsibilities
Statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view. A description of the scope of an audit of financial
statements is provided on the Financial Reporting Council's website
at www.frc.org.uk/auditscopeukprivate. This report is made solely
to the company's members as a body and is subject to important
explanations and disclaimers regarding our responsibilities,
published on our website at www.kpmg.com/uk/auditscopeukco2014a,
which are incorporated into this report as if set out in full and
should be read to provide an understanding of the purpose of this
report, the work we have undertaken and the basis of our
opinions.
John Leech (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
Date: 9 December 2016
Financial Statements
Consolidated Income Statement
for the year ended 30 September 2016
2016 2015
--------------------------------------- -----
Note GBP000s GBP000s
--------------------------------------- ----- -------- --------
Gross rental income 6,989 7,664
--------------------------------------- ----- -------- --------
Property operating expenses (1,862) (1,960)
--------------------------------------- ----- -------- --------
Net rental income 5,127 5,704
--------------------------------------- ----- -------- --------
Loss on disposal of investment
properties (199) (7)
--------------------------------------- ----- -------- --------
Loss from change in fair value
of investment properties 5 (1,073) (1,638)
--------------------------------------- ----- -------- --------
Administrative expenses including
non-recurring items 2 (1,710) (1,699)
--------------------------------------- ----- -------- --------
Operating profit before net financing
costs 2,145 2,360
--------------------------------------- ----- -------- --------
Financing income* 3 25 18
--------------------------------------- ----- -------- --------
Financing expenses* 3 (3,833) (4,086)
--------------------------------------- ----- -------- --------
Movement in fair value of financial
derivatives 3 2,294 1,728
--------------------------------------- ----- -------- --------
Profit before tax 631 20
--------------------------------------- ----- -------- --------
Taxation 4 - -
--------------------------------------- ----- -------- --------
Profit the year from continuing
operations 631 20
--------------------------------------- ----- -------- --------
Profit for the financial year
attributable to equity holders
of the Company 631 20
--------------------------------------- ----- -------- --------
Basic and diluted profit per
share on profit for the year 13 0.76p 0.02p
--------------------------------------- ----- -------- --------
Basic and diluted profit per
share on continuing operations
for the year 13 0.76p 0.02p
--------------------------------------- ----- -------- --------
* Excluding movement in the fair value of financial
derivatives.
Consolidated Statement of Comprehensive Income
for the year ended 30 September 2016
2016 2015
------------------------------
GBP000s GBP000s
------------------------------ -------- --------
Profit for the financial
year 631 20
------------------------------- -------- --------
Share based transactions 66 -
------------------------------ -------- --------
Total comprehensive income
for the year 697 20
------------------------------- -------- --------
Attributable to:
------------------------------ -------- --------
Equity holders of the parent
Company 697 20
------------------------------- -------- --------
Consolidated Balance Sheet
as at 30 September 2016
Note 2016 2015
---------------------------------- -----
GBP000s GBP000s
---------------------------------- ----- --------- ---------
Non-current assets
---------------------------------- ----- --------- ---------
Investment properties 5 74,285 79,468
---------------------------------- ----- --------- ---------
74,285 79,468
---------------------------------- ----- --------- ---------
Current assets
---------------------------------- ----- --------- ---------
Trade and other receivables 6 2,094 2,028
---------------------------------- ----- --------- ---------
Investment properties held
for sale 5 1,590 2,387
---------------------------------- ----- --------- ---------
Cash 7 11,000 12,740
---------------------------------- ----- --------- ---------
14,684 17,155
---------------------------------- ----- --------- ---------
Total assets 88,969 96,623
---------------------------------- ----- --------- ---------
Non-current liabilities
---------------------------------- ----- --------- ---------
Interest bearing loans and
borrowings 8 (49,635) (54,688)
---------------------------------- ----- --------- ---------
Finance lease liabilities 10 (567) (659)
---------------------------------- ----- --------- ---------
(50,202) (55,347)
---------------------------------- ----- --------- ---------
Current liabilities
---------------------------------- ----- --------- ---------
Interest bearing loans and
borrowings 8 (907) (1,001)
---------------------------------- ----- --------- ---------
Trade and other payables 9 (2,311) (3,129)
---------------------------------- ----- --------- ---------
Derivative financial instruments 14 - (2,294)
---------------------------------- ----- --------- ---------
(3,218) (6,424)
---------------------------------- ----- --------- ---------
Total liabilities (53,420) (61,771)
---------------------------------- ----- --------- ---------
Net assets 35,549 34,852
---------------------------------- ----- --------- ---------
Equity
---------------------------------- ----- --------- ---------
Issued capital 11 18,334 18,334
---------------------------------- ----- --------- ---------
Reserves 11 3,773 3,773
---------------------------------- ----- --------- ---------
Capital redemption reserve 11 1,764 1,764
---------------------------------- ----- --------- ---------
Retained earnings 11,678 10,981
---------------------------------- ----- --------- ---------
Total attributable to equity
holders of the Company 35,549 34,852
---------------------------------- ----- --------- ---------
Consolidated Statement of Cash Flows
for the year ended 30 September 2016
2016 2015
---------------------------------
Note GBP000s GBP000s
--------------------------------- ----- -------- --------
Operating activities
--------------------------------- ----- -------- --------
Profit for the year 631 20
--------------------------------- ----- -------- --------
Adjustments for:
--------------------------------- ----- -------- --------
Loss from change in fair
value of investment properties 5 1,073 1,638
--------------------------------- ----- -------- --------
Net financing costs 3 1,514 2,340
--------------------------------- ----- -------- --------
Loss on disposal of investment
properties 199 7
--------------------------------- ----- -------- --------
Employee benefit trust share
vesting 2 66 -
--------------------------------- ----- -------- --------
3,483 4,005
--------------------------------- ----- -------- --------
(Decrease)/increase in trade
and other receivables (66) 1,419
--------------------------------- ----- -------- --------
Decrease in trade and other
payables (423) (147)
--------------------------------- ----- -------- --------
2,994 5,277
--------------------------------- ----- -------- --------
Interest paid (2,353) (4,129)
--------------------------------- ----- -------- --------
Loan arrangement fees paid (5) (79)
--------------------------------- ----- -------- --------
Interest received 25 18
--------------------------------- ----- -------- --------
Net cash from operating
activities 661 1,087
--------------------------------- ----- -------- --------
Investing activities
--------------------------------- ----- -------- --------
Net proceeds from sale of
investment properties 4,919 5,143
--------------------------------- ----- -------- --------
Acquisition and improvements
to investment properties 5 (210) (407)
--------------------------------- ----- -------- --------
Repayment of investment
in jointly controlled entities - 292
--------------------------------- ----- -------- --------
Cash flows from investing
activities 4,709 5,028
--------------------------------- ----- -------- --------
Net cash flows from operating
activities and investing
activities 5,370 6,115
--------------------------------- ----- -------- --------
Financing activities
--------------------------------- ----- -------- --------
Repayment of borrowings (5,352) (9,037)
--------------------------------- ----- -------- --------
Payments to close swaps (1,758) -
--------------------------------- ----- -------- --------
Cash flows from financing
activities (7,110) (9,037)
--------------------------------- ----- -------- --------
Net decrease in cash (1,740) (2,922)
--------------------------------- ----- -------- --------
Cash at beginning of year 12,740 15,662
--------------------------------- ----- -------- --------
Cash at end of year 7 11,000 12,740
--------------------------------- ----- -------- --------
Consolidated Statement of Changes in Equity
for the year ended 30 September 2016
Capital
----------------------
redemption Retained
Share
capital Reserves reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000
---------------------- --------- --------- ----------- --------- -------
Balance at 1 October
2014 18,334 3,773 1,764 10,961 34,832
---------------------- --------- --------- ----------- --------- -------
Total comprehensive
income for the
year
---------------------- --------- --------- ----------- --------- -------
Profit for the
year - - - 20 20
---------------------- --------- --------- ----------- --------- -------
Share based payments - - - - -
---------------------- --------- --------- ----------- --------- -------
Balance at 30
September 2015 18,334 3,773 1,764 10,981 34,852
---------------------- --------- --------- ----------- --------- -------
Total comprehensive
income for the
year
---------------------- --------- --------- ----------- --------- -------
Profit for the
year - - - 631 631
---------------------- --------- --------- ----------- --------- -------
Share based payments 66 66
---------------------- --------- --------- ----------- --------- -------
Balance at 30
September 2016 18,334 3,773 1,764 11,678 35,549
---------------------- --------- --------- ----------- --------- -------
Notes to the Financial Statements
for the year ended 30 September 2016
1. Accounting Policies
Basis of Preparation
The Local Shopping REIT plc ("the Company") is a company
incorporated and domiciled in the UK. The Group's financial
statements have been prepared in accordance with International
Financial Reporting Standards as adopted by the EU (adopted "IFRS")
and in accordance with the provisions of the Companies Act
2006.
The financial statements are prepared in pounds sterling,
rounded to the nearest thousand. They have been prepared under the
historical cost convention except for the following assets which
are measured on the basis of fair value: investment properties,
derivative financial instruments, other investments and investment
properties held for sale.
The directors have considered whether it is appropriate to
prepare the financial statements on a going concern basis. The
directors are pursuing a number of approaches for selling down the
property portfolio and note that this may take several years to
achieve, depending on market conditions. The directors review
progress with the investment strategy on a regular basis. The
directors note that a number of alternative strategies remain
available to the Company, such as selling the Company as a going
concern or continuing to trade as a going concern. They will
continue to evaluate these, and will make recommendations to
shareholders on alternative strategies if appropriate.
The directors have prepared profit and cash flow forecasts for
the two year period to 30 September 2018 which include assumptions
relating to the sale of properties under the current investment
strategy which the directors consider to be reasonable. These
forecasts project that the Group's and Company's funding needs will
be comfortably met by the revised banking facility agreements
entered into in November 2016 (see note 8) without any breach of
related covenants .
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 financial
statements do not include the adjustments that would result from
the going concern basis of preparation being inappropriate.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in these
financial statements.
Basis of Consolidation
The consolidated financial statements include the financial
statements of the Company and all its subsidiary undertakings up to
30 September 2016. Subsidiaries are consolidated from the date on
which the Group obtains control, being the power to govern the
financial and operating policies of the entity so as to obtain
benefit from its activities. They continue to be consolidated until
the date that such control ceases. The financial statements of
subsidiaries are prepared using consistent accounting policies.
Inter-company transactions and balances are eliminated.
Investment Property
Investment properties are those properties owned by the Group
that are held to earn rental income or for capital appreciation or
both and are not occupied by the Company or any of its
subsidiaries.
For the Group as a whole Allsop LLP, a firm of independent
chartered surveyors valued the Group's property portfolio at 30
September 2016, 31 March 2016, 30 September 2015 and 31 March 2015.
On each of these dates Allsop LLP performed a full valuation of 25%
of the Group's properties (including site inspections) and a
desktop valuation of the remainder, such that all properties owned
by the Group have been inspected and valued over the two-year
period. 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 knowledgeably, prudently and without
compulsion.
Investment properties are treated as acquired at the point the
Group assumes the significant risks and returns of ownership.
Subsequent expenditure is charged to the asset's carrying value
only when it is probable that future economic benefits associated
with the expenditure will flow to the Group and the cost of each
item can be reliably measured. All other repairs and maintenance
costs are charged to the Income Statement during the period in
which they are incurred.
Disposals of investment properties are recognised on completion;
profits and losses arising are recognised through the Income
Statement, the profit is determined as the difference between the
sales proceeds and the carrying amount of the asset at the last
valuation date plus any additional expenditure incurred since that
date.
Interest on loans associated with acquiring investment
properties is expensed on an effective interest rate basis.
Rental income from investment properties is accounted for as
described below.
Investment Properties Held for Sale
Investment properties held for sale are included in the Balance
Sheet at their fair value. In determining whether assets no longer
meet the investment criteria of the Group, consideration has been
given to the conditions required under IFRS 5.
An investment property shall classify a non-current asset as
held for sale if its carrying amount will be recovered principally
through a sale transaction rather than through continuing use.
The asset must be available for immediate sale in its present
condition subject only to terms that are usual and customary for
sales of such assets and its sale must be highly probable as at the
year end.
Head Leases
Where a property is held under a head lease and is classified as
an investment property, it is initially recognised as an asset
based on the sum of the premium paid on acquisition and if the
remaining life of the lease at the date of acquisition is
considered to be material, the net present value of the minimum
ground rent payments. The corresponding rent liability to the
leaseholder is included in the Balance Sheet as a finance
obligation in current and non-current liabilities.
The payment of head rent reduces the gross liability and the
interest element of the finance lease is charged to the Income
Statement. Head leases considered not to have a material life
remaining at the date of acquisition are accounted for as operating
leases with the head rent paid being expensed through the Income
Statement.
Trade and Other Receivables
Trade and other receivables are initially recognised at fair
value and subsequently held at amortised cost less impairment.
Impairment is made where it is established that there is objective
evidence that the Group will not be able to collect all amounts due
according to the original terms of the receivable. The impairment
is recorded in the Income Statement.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances and deposits
held on call. Cash equivalents are short-term, highly liquid
investments with original maturities of three months or less.
Derivative Financial Instruments and Hedging
The Group has used derivative financial instruments such as
interest rate swaps to economically hedge risks associated with
interest rate fluctuations. The Group does not hold or issue
derivatives for trading purposes.
Such instruments are initially measured at fair value on the
date on which a contract is entered into and are subsequently
re-measured at fair value. Financial derivatives are recognised as
current and non-current based on the maturity profile of the
associated cash flows.
The Group has determined that the derivative financial
instruments held did not qualify as effective for hedge accounting
under the criteria set out in IAS 39 and consequently any gains or
losses arising from changes in their fair value are taken to the
Income Statement. In the future and on an ongoing basis if new
derivative financial instruments are entered into, the directors
will review the derivative contracts to consider whether they
qualify for hedge accounting.
During the year to 30 September 2016, all the outstanding
interest rate swaps were paid down.
Financial Assets
Financial assets are impaired when there is objective evidence
that the cash flows from the financial asset are reduced.
Trade and Other Payables
Trade and other payables are initially recognised at fair value
and subsequently held at amortised cost less impairment.
Ordinary Share Capital
External costs directly attributable to the issue of new shares
are shown in equity as a deduction from the proceeds.
Shares which have been repurchased are classified as treasury
shares and shown in retained earnings. They are recognised at the
trade date for the amount of consideration paid, together with
directly attributable costs. This is presented as a deduction from
total equity. Shares held by the Employee Benefit Trust are treated
as being those of the Group until such time as they are distributed
to employees, when they are expensed in the profit and loss
account.
The nominal value of shares cancelled has been taken to a
capital redemption reserve.
Rental Income
Rental income from investment properties leased out under
operating leases is recognised in the Income Statement on a
straight-line basis over the term of the lease. When the Group
provides lease incentives to its tenants the cost of incentives are
recognised over the lease term, on a straight-line basis, as a
reduction to income.
Other Income
Other income comprises administration fees charged on lease
renewals.
Taxation
Corporation tax on the profit or loss for the year comprises
current and deferred tax. Corporation tax is recognised in the
Income Statement except to the extent that it relates to items
recognised directly in equity, in which case it is recognised in
equity.
As a REIT, the Group will be exempt from corporation tax on the
profits and gains from its property investment business, 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. Therefore, current tax is the expected tax
payable on the taxable income for the year, using tax rates enacted
or substantively enacted at the balance sheet date and any
adjustment to tax payable in respect of previous years. The REIT
entry charge is expensed on the date of entry to the REIT regime.
Deferred tax is provided using the balance sheet liability method.
Provision is made for temporary differences between the carrying
amounts of assets and liabilities in the financial statements for
financial reporting purposes and the amounts used for taxation
purposes. Deferred income tax is calculated after taking into
account any indexation allowances and capital losses on an
undiscounted basis. The amount of deferred tax provided is based on
the expected manner of realisation or settlement of the carrying
amount of assets and liabilities using tax rates enacted or
substantially enacted at the balance sheet date. Deferred tax
assets are recognised only to the extent that it is probable that
future profits will be available against which the asset can be
utilised. Deferred tax assets are reduced to the extent that it is
no longer probable that the related tax benefit will be realised.
Deferred tax assets and liabilities are only offset if there is a
legally enforceable right of set-off.
Pensions
The Company has no pension arrangements in operation.
Share-based Payments
Share based payments are recognised as an employee expense, with
a corresponding increase in equity. The Group operated a short-term
incentive plan for employees and former employees who are currently
engaged on delivering the Company's strategy. Share awards issued
under this plan vest during the year of grant based on the
achievement of certain non-market performance criteria.
Employee Benefit Trust
In 2007 the Group established an Employee Benefit Trust in
connection with its various share based incentive schemes. The
Group either purchased its own shares directly or it funded the
trust to acquire shares in the Company. Transactions of the
Employee Benefit Trust are treated as being those of the Company
and are therefore reflected in the Group financial statements
Use of Estimates and Judgements
To be able to prepare accounts according to generally accepted
accounting principles, management must make estimates and
assumptions that affect the asset and liability items and revenue
and expense amounts recorded in the financial statements. These
estimates are based on historical experience and various other
assumptions that management and the Board of directors believe are
reasonable under the circumstances. The results of these
considerations form the basis for making judgements about the
carrying value of assets and liabilities that are not readily
available from other sources.
The areas requiring the use of estimates and judgements that may
significantly impact the Group's earnings and financial position
include the estimation of: the fair value of investment properties,
derivative financial instruments and trade receivables.
The valuation basis of the Group's investment properties is set
out above.
The valuation of derivative financial instruments are also areas
where judgement has been exercised by the Board. These assets and
liabilities have been valued by the Group's bankers. These
valuations have been relied upon by the Board.
The Group is required to assess whether there is sufficient
objective evidence to require the impairment of individual trade
receivables. It does this through a regular review of arrears with
consideration given to any specific circumstances relating to the
receivable.
Segmental reporting
IFRS 8 requires operating segments to be identified on the basis
of internal reports that are regularly reported to the chief
operating decision maker to allocate resources to the segments and
to assess their performance.
Since the strategy review in July 2013 the Group has identified
one operation and one reporting segment which is reported to the
Board of directors on a quarterly basis. The Board of directors is
considered to be the chief operating decision maker.
Adoption of new and revised standards
In the current year, the Group has applied a number of
amendments to IFRS that are mandatorily effective. Their adoption
has not had any material impact on the disclosures or on the
amounts reported in these financial statements.
Standards not affecting the reported results or the financial
position
At the date of authorisation of these financial statements, the
following standards and interpretations which have not been applied
in these financial statements were in issue but not yet effective
(and in some cases had not yet been adopted by the EU):
-- Annual improvements to IFRS 2012-2014 cycle
-- IFRS 9 'Financial Instruments'
-- IFRS 15 'Revenue from Contracts with Customers'
-- IFRS 16 'Leases'
None of the above standards is expecting to have a material
impact on the future financial statements of the Group.
2. Administrative Expenses
a) The following fees have been paid to the Group's
Auditors:
2016 2015
GBP000 GBP000
---------------------------------- ------- -------
Auditors' remuneration for
audit services:
Audit of parent Company 33 33
Audit related assurance services 16 16
Statutory audit of subsidiaries 38 37
Auditors' remuneration for
non-audit services:
Tax services 24 27
Other services supplied 9 7
The other services supplied related to a transaction which did
not proceed.
b) Included in administrative expenses is directors'
remuneration as disclosed in the Remuneration Report. The Company
had one employee during the year (engaged on a contract which
terminated after the year end).
Directors' emoluments are disclosed separately in the
Remuneration Report.
c) Share Awards
The total expense recognised in the income statement for
employee and former employee share-based payments was
GBP66,000.
d) 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. These amounts are considered to be GBPnil (2015:
GBPnil).
3. Net Financing Costs
2,016 2015
----------------------------------
GBP000 GBP000
---------------------------------- -------- --------
Interest receivable 25 18
---------------------------------- -------- --------
Interest receivable excluding
fair value movements 25 18
---------------------------------- -------- --------
Fair value gains on derivative
financial instruments (note 14) 2,294 1,728
---------------------------------- -------- --------
Financing income 2,319 1,746
---------------------------------- -------- --------
Bank loan interest (1,924) (3,937)
---------------------------------- -------- --------
Amortisation of loan arrangement
fees (117) (100)
---------------------------------- -------- --------
Head rents treated as finance
leases (34) (49)
---------------------------------- -------- --------
Financing expenses excluding
swap closing costs (2,075) (4,086)
---------------------------------- -------- --------
Payments to close swaps (1,758) -
---------------------------------- -------- --------
Financing expenses (3,833) (4,086)
---------------------------------- -------- --------
Net financing costs (1,514) (2,340)
---------------------------------- -------- --------
4. Taxation
2016 2015
--------------------------------
GBP000 GBP000
-------------------------------- ------- -------
Profit before tax 631 20
-------------------------------- ------- -------
Corporation tax in the UK of
20% (2015: 20.5%) 126 4
-------------------------------- ------- -------
Tax relief available from REIT
status (184) (464)
-------------------------------- ------- -------
Effects of:
-------------------------------- ------- -------
Revaluation deficit and other
non-deductible items 497 445
-------------------------------- ------- -------
Deferred tax asset/(liability)
not recognised (439) 15
-------------------------------- ------- -------
Total tax - -
-------------------------------- ------- -------
Factors that may affect future current and total tax charges
Reductions in the UK corporation tax rate from 23% to 21%
(effective from 1 April 2014) and 20% (effective from 1 April 2015)
were substantively enacted on 2 July 2013. Further reductions to
19% (effective 1 April 2017) and to 18% (effective 1 April 2020)
were substantively enacted on 26 October 2015. This will reduce the
company's future current tax charge accordingly and reduce the
deferred tax asset at 30 September (which has been calculated based
on the rate of 20% substantively enacted at the balance sheet date)
by GBP0.24m. From 11 May 2007, the Group elected to join the UK
REIT regime. As a result, the Group will be exempt from corporation
tax on the profits and gains from its property 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.
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 sufficient profits from
the residual business will be generated in the foreseeable future
to utilise the losses carried forward as the current year losses
will be adequate to cover foreseeable profits. The non-provided
deferred tax asset at 30 September 2016 was GBP2.31m (2015:
GBP2.35m).
5. Investment Properties
Freehold Leasehold
-----------------------------------
Investment Investment
Properties Properties Total
GBP000 GBP000 GBP000
----------------------------------- ----------- ----------- --------
At 30 September 2014 68,763 17,438 86,201
----------------------------------- ----------- ----------- --------
Additions 376 31 407
----------------------------------- ----------- ----------- --------
Disposals (4,267) (883) (5,150)
----------------------------------- ----------- ----------- --------
Fair value adjustments (819) (819) (1,638)
----------------------------------- ----------- ----------- --------
Movement on Investment properties
held for sale (428) 76 (352)
----------------------------------- ----------- ----------- --------
At 30 September 2015 63,625 15,843 79,468
----------------------------------- ----------- ----------- --------
Additions 188 22 210
----------------------------------- ----------- ----------- --------
Disposals (4,538) (580) (5,118)
----------------------------------- ----------- ----------- --------
Fair value adjustments (481) (592) (1,073)
----------------------------------- ----------- ----------- --------
Movement on Investment properties
held for sale 540 258 798
----------------------------------- ----------- ----------- --------
At 30 September 2016 59,334 14,951 74,285
----------------------------------- ----------- ----------- --------
The investment properties have all been revalued to their fair
value at 30 September 2016.
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 generated rental income.
A reconciliation of the portfolio valuation to the total value
given in the Balance Sheet for investment properties is as
follows:
2016 2015
-----------------------------------
GBP000 GBP000
----------------------------------- -------- --------
Portfolio valuation 75,308 81,196
----------------------------------- -------- --------
Investment properties held for
sale (1,590) (2,387)
----------------------------------- -------- --------
Head leases treated as investment
properties held under finance
leases per IAS 17 567 659
----------------------------------- -------- --------
Total per Balance Sheet 74,285 79,468
----------------------------------- -------- --------
6 Trade and Other Receivables
2016 2015
-------------------
GBP000 GBP000
------------------- ------- -------
Trade receivables 1,086 746
------------------- ------- -------
Other receivables 255 171
------------------- ------- -------
Prepayments 753 1,111
------------------- ------- -------
2,094 2,028
------------------- ------- -------
7. Cash
2016 2015
-------------------------------
GBP000 GBP000
------------------------------- ------- -------
Cash in the Statement of Cash
Flows 11,000 12,740
------------------------------- ------- -------
Included in bank balances are amounts held pending the next
interest payment due in October 2016. Until the interest payment
has been deducted from these balances the cash is not available for
use by the Group. At the year end the amount held on such account
was GBP2.513m (2015: GBP1.289m) with accruals for interest due of
GBP0.326m (2015: GBP0.633m)
8. Interest Bearing Loans and Borrowings
2016 2015
---------------------------------
GBP000 GBP000
--------------------------------- ------- -------
Non-current liabilities
--------------------------------- ------- -------
Secured bank loans 49,821 54,987
--------------------------------- ------- -------
Loan arrangement fees (186) (299)
--------------------------------- ------- -------
49,635 54,688
--------------------------------- ------- -------
Current liabilities
--------------------------------- ------- -------
Current portion of secured bank
loans 907 1,001
--------------------------------- ------- -------
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.
Subsequent to the year end, in November 2016 the bank borrowings
were extended. The main changes were a GBP7m cash payment of loan
balance, and an extension of the repayment date from April 2018 to
December 2019.
For more information about the Group's exposure to interest rate
risk, see note 18.
9. Trade and Other Payables
2016 2015
------------------------------------
GBP000 GBP000
------------------------------------ ------- -------
Trade payables 110 521
------------------------------------ ------- -------
Other taxation and social security 180 225
------------------------------------ ------- -------
Other payables 684 613
------------------------------------ ------- -------
Accruals and deferred income 1,337 1,770
------------------------------------ ------- -------
2,311 3,129
------------------------------------ ------- -------
Other payables include rent deposits held in respect of
commercial tenants of GBP0.459m (2015: GBP0.430m).
10. Leasing
Obligations Under Finance leases
Finance lease liabilities on head rents are payable as
follows:
Minimum
Lease
Payment Interest Principal
GBP000 GBP000 GBP000
---------------------- --------- --------- ----------
At 30 September 2014 4,727 (4,055) 672
---------------------- --------- --------- ----------
Disposals (80) 67 (13)
---------------------- --------- --------- ----------
(Payments)/charge (48) 48 -
---------------------- --------- --------- ----------
At 30 September 2015 4,599 (3,940) 659
---------------------- --------- --------- ----------
Disposals (470) 378 (92)
---------------------- --------- --------- ----------
(Payments)/charge (34) 34 -
---------------------- --------- --------- ----------
At 30 September 2016 4,095 (3,528) 567
---------------------- --------- --------- ----------
In the above table, interest represents the difference between
the carrying amount and the contractual liability/cash flow.
All leases expire in more than five years.
11. Capital and Reserves
Share Capital
2016 2015
----------------- -----------------
Ordinary 20p Ordinary 20p
Shares Shares
--------------------- ----------------- -----------------
Number Amount Number Amount
---------------------
000s GBP000s 000s GBP000s
--------------------- ------- -------- ------- --------
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 (2015:
9,164,017).
Employee Benefit Trust
The number of shares held by the trustee of the Company's
Employee Benefit Trust ("EBT"), LSR Trustee Limited at the year end
was 921,098 (2015: 1,096,545). During the year options over 305,447
shares (2015: Nil) vested to beneficiaries under the Local Shopping
REIT Plc Employee & Former Employee Incentive Scheme 2015.
Following the vesting of these awards, the EBT transferred 175,447
shares to beneficiaries.
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.
Calculation of Net Asset Value Per Share (NAV)
2016 2015
------------
GBP000 GBP000
------------ ------- -------
Net assets 35,549 34,852
------------ ------- -------
2016 2015
Number Number
000s 000s
------------------------------- -------- --------
Allotted, called up and fully
paid shares 91,670 91,670
------------------------------- -------- --------
Treasury shares (9,164) (9,164)
------------------------------- -------- --------
Number of shares 82,506 82,506
------------------------------- -------- --------
NAV per share 43p 42p
------------------------------- -------- --------
12. Dividends
No dividends were paid during the current and previous year.
13. Earnings Per Share
Basic Earnings Per Share
The calculation of basic earnings per share was based on the
profit attributable to Ordinary Shareholders and a weighted average
number of Ordinary Shares outstanding, calculated as follows:
Profit Attributable to Ordinary Shares
2016 2015
---------------------------------
GBP000 GBP000
--------------------------------- ------- -------
Profit for the year 631 20
--------------------------------- ------- -------
Profit on continuing operations
for the year 631 20
--------------------------------- ------- -------
Weighted Average Number of Ordinary Shares
2016 2015
----------------------------------
Number Number
Issued Ordinary Shares at
1 October 91,670 91,670
---------------------------------- -------- --------
Treasury shares (9,164) (9,164)
---------------------------------- -------- --------
Weighted average number of
Ordinary Shares at 30 September 82,506 82,506
---------------------------------- -------- --------
Diluted Earnings Per Share
As shares held in the Employee Benefit Trust are entitled to
dividends, these have been included in the weighted average number
of shares. There are no other potentially dilutive securities and
therefore no difference between basic and diluted earnings per
share.
14. Derivative Financial Instruments
Derivative financial instruments held by the Group are interest
rate swaps used to manage the Group's interest rate exposure. These
are shown in the Balance Sheet as follows:
At 30 September 2015 these derivative financial instruments did
not qualify as effective swaps for hedge accounting under the
criteria set out in IAS 39. They were fully paid down during the
year to 30 September 2016.
Movements Movements
---------------------
Fair Fair Fair
Value in Income Value in Income Value
2014 Statement 2015 Statement 2016
Non-current
liabilities (1,634) 1,634 - -
--------------------- -------- ---------- -------- ---------- -------
Current liabilities (2,388) 94 (2,294) 2,294 -
--------------------- -------- ---------- -------- ---------- -------
Fair value (4,022) 1,728 (2,294) 2,294 -
--------------------- -------- ---------- -------- ---------- -------
A summary of the swaps and their maturity dates are as
follows:
Notional Effective Maturity Rate
value date date payable Fair Fair
of swap Value Movements Value
----------- -----------
on fixed
leg 2015 in Income 2016
----------- -----------
GBP000 % GBP000 Statement GBP000
--------- ----------- ----------- --------- -------- ---------- -------
20,178 16/07/2007 31/01/2017 4.85 (1,087) 1,087 -
--------- ----------- ----------- --------- -------- ---------- -------
22,500 30/04/2013 20/07/2016 5.05 (823) 823 -
--------- ----------- ----------- --------- -------- ---------- -------
10,500 30/04/2013 29/07/2016 5.05 (384) 384 -
--------- ----------- ----------- --------- -------- ---------- -------
(2,294) 2,294 -
--------- ----------- ----------- --------- -------- ---------- -------
The swaps were fully paid down during the current year.
The derivative financial instruments included in the above
tables are stated at their fair value based on quotations from the
Group's bank.
More details of the Group's policy regarding the management of
interest rate risk are given in note 15.
15. Financial Instruments and Risk Management
The Board of directors has overall responsibility for the
establishment and oversight of the Group's risk management
framework.
As described in the Corporate Governance report, this
responsibility has been assigned to the executive directors with
support and feedback from the Audit Committee. The Audit Committee
oversees how management monitors compliance with the Group's risk
management policies and procedures and reviews the adequacy of the
risk management framework in relation to the risks faced by the
Group.
The Group has identified exposure to the following financial
risks from its use of financial instruments: capital management
risk, market risk, credit risk and liquidity risk.
Capital Management Risk
The Group's capital consists of long-term borrowings, cash and
equity attributable to the shareholders. The Board's policy is to
maintain a strong capital base so as to maintain investor, creditor
and market confidence and to sustain the future development of the
business. The Board regularly reviews the Group's capital
structure, cost of capital, gearing levels and other specific
measures. From time to time, the Company has purchased its own
shares when the Board considered that this course of action would
enhance the value of the Group for shareholders. Since the
restructuring in July 2013 dividend policy has been reviewed
half-yearly by the Board. No dividend has been paid during the
year. There were no other changes in the Group's approach to
capital management during the year.
Market Risk
Market risk is the risk that changes in market conditions, such
as interest rates, foreign exchange rates and equity prices, will
affect the Group's profit or loss and cash flows. The Group's
exposure to market risks is restricted to interest rate risk only.
The Group borrows at floating rates of interest and uses financial
instruments to fix the floating rates of interest in accordance
with its policy.
The Group does not speculate in financial instruments. They have
only been used to limit exposure to interest rate fluctuations. The
Company continues to monitor the interest rate environment, and may
enter into some hedging arrangements in the future. However, given
the currently low and stable rates and the Company's sales
programme, this would not be advantageous at present.
At 30 September At 30 September
2016 2015
------------ -------------------------------- --------------------------------
Loans Loans
Interest Notional not Interest Notional not
------------
value value
bearing of protected bearing of protected
loans swaps by swaps loans swaps by swaps
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------ --------- --------- ---------- --------- --------- ----------
Variable
rate loan 50,728 50,728 55,988 53,178 2,810
------------ --------- --------- ---------- --------- --------- ----------
50,728 - 50,728 55,988 53,178 2,810
------------ --------- --------- ---------- --------- --------- ----------
Sensitivity Analysis
IFRS 7 requires an illustration of the impact on the Group's
financial performance of changes in interest rates. The following
sensitivity analysis has been prepared in accordance with the
Group's existing accounting policies and considers the impact on
the Income Statement and on equity of an increase of 100 basis
points (1%) in interest rates. As interest rates were below 1% in
the current and previous year, it has not been possible to consider
the impact of a decrease of 100 basis points on interest income and
expense as it would result in a negative rate of interest.
Therefore, the impact of a fall in interest rates has been
restricted to a floor of 0%. It has been possible to consider the
impact of a 1% change in rates on the fair value of derivatives as
the contracted rates are greater than 1%. All other variables
remain the same and any consequential tax impact is excluded. The
analysis assumes that changes in market interest rates affect the
interest income and interest expense of derivative financial
instruments. Changes in the fair value of derivative financial
instruments have been estimated by discounting future cash flows at
appropriate market rates prevailing at each year end.
Actual results in the future may differ materially from these
assumptions and, as such, these tables should not be considered as
a projection of likely future gains and losses.
2016 2015
Impact on Impact on Impact on
Impact on Income Equity Income Equity
------------------ -------------------- -------------------- -------------------- --------------------
Increase Decrease Increase Decrease Increase Decrease Increase Decrease
by by to by to
by 1% to 0% 1% to 0% 1% 0% 1% 0%
Impact
on interest
income
and
expense
in GBP000s (398) 228 (398) 228 169 13 169 13
Increase Decrease Increase Decrease
by by by by
1% 1% 1% 1%
Impact
on fair
value
of derivatiives
in GBP000s - - - - 627 363 627 363
Credit Risk
Credit risk is the risk of financial loss to the Group if a
tenant, bank or counterparty to a financial instrument fails to
meet its contractual obligations and arises principally from the
Group's receivables from tenants, cash and cash equivalents held by
the Group's banks and derivative financial instruments entered into
with the Group's banks.
Trade and Other Receivables
The Group's exposure to credit risk is influenced mainly by the
individual characteristics of each tenant. The Group has over 1,000
tenants in over 300 properties. There is no significant
concentration of credit risk due to the large number of small
balances owed by a wide range of tenants who operate across all
retail sectors. Geographically there is no concentration of credit
risk in any one area of the UK. An analysis of the business by
region, user type and tenant grade is given in the Operating
Review. The level of arrears is monitored monthly by the Group and
more frequently on a tenant by tenant basis by the asset
managers.
Cash, Cash Equivalents and Derivative Financial Instruments
Two major UK banks provide the majority of the banking services
used by the Group. Financial derivatives were only entered into
with one of these core banks.
The Group's financial assets which are exposed to credit risk
are classified as follows and are shown with their fair value:
30 September 2016
Total
At Available At Amortised Carrying
-------------------
Fair Fair
Value For Sale Cost Amount Value
GBP000 GBP000 GBP000 GBP000 GBP000
------------------- -------- ---------- ------------- ---------- --------
Cash and cash
equivalents -- 11,000 -- 11,000 11,000
------------------- -------- ---------- ------------- ---------- --------
Trade receivables -- -- 1,086 1,086 1,086
------------------- -------- ---------- ------------- ---------- --------
Other receivables -- -- 255 255 255
------------------- -------- ---------- ------------- ---------- --------
-- 11,000 1,341 12,341 12,341
---------------------------- ---------- ------------- ---------- --------
30 September 2015
Total
At Available At Amortised Carrying
-------------------
Fair Fair
Value For Sale Cost Amount Value
GBP000 GBP000 GBP000 GBP000 GBP000
------------------- -------- ---------- ------------- ---------- --------
Cash and cash
equivalents -- 12,740 -- 12,740 12,740
------------------- -------- ---------- ------------- ---------- --------
Trade receivables -- -- 746 746 746
------------------- -------- ---------- ------------- ---------- --------
Other receivables -- -- 171 171 171
------------------- -------- ---------- ------------- ---------- --------
-- 12,740 917 13,657 13,657
---------------------------- ---------- ------------- ---------- --------
For all classes of financial assets, the carrying amount is a
reasonable approximation of fair value.
The ageing of trade receivables is as follows
2016 2015
------------- ---------------------------------- --------------------------------------------
After After
Total Impairment Impairment Total Impairment Impairment
-------------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------- ------- ----------- ------------ ------- --------------------- ------------
Not yet due 236 236 175 - 175
------------- ------- ----------- ------------ ------- --------------------- ------------
Past due
by one to
30 days 375 375 327 (3) 324
------------- ------- ----------- ------------ ------- --------------------- ------------
Past due
by 30-60
days 235 235 87 (6) 81
------------- ------- ----------- ------------ ------- --------------------- ------------
Past due
by 60-90
days 38 38 27 (12) 15
------------- ------- ----------- ------------ ------- --------------------- ------------
Past due
by 90 days 654 (452) 202 430 (279) 151
------------- ------- ----------- ------------ ------- --------------------- ------------
1,538 (452) 1,086 1,046 (300) 746
Impairment
as percentage
of total debt 29.39% 28.68%
---------------------- ----------- ------------ ------- --------------------- ------------
Trade receivables that are not impaired are expected to be
recovered.
The movement in the trade receivables' impairment allowance
during the year was as follows:
2016 2015
----------------------------
GBP000 GBP000
---------------------------- ------- -------
Balance at beginning
of year 300 189
---------------------------- ------- -------
Impairment loss recognised 270 134
---------------------------- ------- -------
Trade receivables
written off (118) (23)
---------------------------- ------- -------
Balance at end of
year 452 300
---------------------------- ------- -------
The impairment loss recognised relates to the movement in the
Group's assessment of the recoverability of outstanding trade
receivables.
Liquidity Risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. The Group's
approach to managing liquidity risk is to ensure, as far as
possible, that it will always have adequate resources to meet its
liabilities when they fall due for both the operational needs of
the business and to meet planned future investments. This position
is formally reviewed on a quarterly basis or more frequently should
events require it.
The Group's financial liabilities are classified and are shown
with their fair value as follows:
30 September 2016
Total
At At Amortised Carrying
---------------------------
Fair Fair
Value Cost Amount Value
GBP000 GBP000 GBP000 GBP000
--------------------------- -------- ------------- ---------- -------
Interest bearing
loans and liabilities - 50,542 50,542 50,542
--------------------------- -------- ------------- ---------- -------
Finance lease liabilities - 567 567 567
--------------------------- -------- ------------- ---------- -------
Derivative financial - - - -
instruments
--------------------------- -------- ------------- ---------- -------
Trade payables - 110 110 110
--------------------------- -------- ------------- ---------- -------
Other payables - 180 180 180
--------------------------- -------- ------------- ---------- -------
Accruals - 684 684 684
--------------------------- -------- ------------- ---------- -------
- 52,083 52,083 52,083
------------------------------------ ------------- ---------- -------
30 September 2015
At At Total
---------------------------
Fair Fair
Value Amortised Carrying Value
Cost Amount -
GBP000 GBP000 GBP000 GBP000
--------------------------- ------- ---------- --------- -------
Interest bearing
loans and liabilities - 55,689 55,689 55,689
--------------------------- ------- ---------- --------- -------
Finance lease liabilities - 659 659 659
--------------------------- ------- ---------- --------- -------
Derivative financial
instruments 2,294 - 2,294 2,294
--------------------------- ------- ---------- --------- -------
Trade payables - 521 521 521
--------------------------- ------- ---------- --------- -------
Other payables - 540 540 540
--------------------------- ------- ---------- --------- -------
Accruals - 918 918 918
--------------------------- ------- ---------- --------- -------
2,294 58,327 60,621 60,621
--------------------------- ------- ---------- --------- -------
For all classes of financial liabilities, the carrying amount is
a reasonable approximation of fair value.
The maturity profiles of the Group's financial liabilities are
as follows:
30 September 2016
Contractual Within One Two Three Four Over
-----------------
to to to to
Carrying Cash One Two Three Four Five Five
Value Flows Year Years Years Years Years Years
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------- --------- ------------ ------- ------- ------- ------- ------- -------
Interest
bearing
loans
and borrowings 50,542 52,884 2,134 50,750
----------------- --------- ------------ ------- ------- ------- ------- ------- -------
Finance
lease
liabilities 567 4,108 34 34 34 34 34 3,938
----------------- --------- ------------ ------- ------- ------- ------- ------- -------
Derivative
financial
instruments - -
----------------- --------- ------------ ------- ------- ------- ------- ------- -------
Trade
payables 110 110 110
----------------- --------- ------------ ------- ------- ------- ------- ------- -------
Other
payables 180 180 180
----------------- --------- ------------ ------- ------- ------- ------- ------- -------
Accruals 684 684 684
----------------- --------- ------------ ------- ------- ------- ------- ------- -------
52,083 57,966 3,142 50,784 34 34 34 3,938
----------------- --------- ------------ ------- ------- ------- ------- ------- -------
As set out in note 8, the bank loans were restructured in
November 2016. If these changes were reflected in the above table,
the first row would be restated as follows:
Contractual Within One Two Three Four Over
-----------------
to to to to
Carrying Cash One Two Three Four Five Five
Value Flows Year Years Years Years Years Years
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------- --------- ------------ ------- ------- ------- ------- ------- -------
Interest
bearing loans
and borrowings 50,542 54,582 10,254 2,007 2,083 40,238
----------------- --------- ------------ ------- ------- ------- ------- ------- -------
30 September 2015
Contractual Within One Two Three Four Over
------------------
to to to to
Carrying Cash One Two Three Four Five Five
Value Flows Year Years Years Years Years Years
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------ --------- ------------ ------- ------- ------- ------- ------- -------
Interest bearing
loans and
borrowings 55,689 59,444 2,429 2,542 54,473 - -
------------------ --------- ------------ ------- ------- ------- ------- ------- -------
Finance lease
liabilities 659 4,727 48 48 48 48 48 4,487
------------------ --------- ------------ ------- ------- ------- ------- ------- -------
Derivative
financial
instruments 2,294 2,718 2,718 - - - - -
------------------ --------- ------------ ------- ------- ------- ------- ------- -------
Trade payables 521 521 521 - - - - -
------------------ --------- ------------ ------- ------- ------- ------- ------- -------
Other payables 540 540 540 - - - - -
------------------ --------- ------------ ------- ------- ------- ------- ------- -------
Accruals 918 918 918 - - - - -
------------------ --------- ------------ ------- ------- ------- ------- ------- -------
60,621 68,868 7,174 2,590 54,521 48 48 4,487
------------------ --------- ------------ ------- ------- ------- ------- ------- -------
Contractual cash flows include the undiscounted committed
interest cash flows and, where the amount payable is not fixed, the
amount disclosed is determined by reference to the conditions
existing at the year end.
16. Operating Lease Arrangements
a) Leases as Lessee
The Company has no leases where it is a lessee
b) Leases as Lessor
The investment properties are let under operating leases. Future
minimum lease payments receivable by the Group under
non-cancellable operating leases are receivable as follows:
2016 2015
----------------------------
GBP000 GBP000
---------------------------- ------- -------
Less than one year 1,976 1,907
---------------------------- ------- -------
Between one and five years 2,371 2,519
---------------------------- ------- -------
More than five years 2,709 3,126
---------------------------- ------- -------
7,056 7,552
---------------------------- ------- -------
17. Capital Commitments
At 30 September 2016 the Group had contracted capital
expenditure for which no provision has been made in these financial
statements of GBP52,000 (2015: GBP24,000).
18. Related Parties
Transactions with Key Management Personnel
The only transactions with key management personnel relate to
remuneration which is set out in the Remuneration Report.
The key management personnel of the Group for the purposes of
related party disclosures under IAS 24 comprise all executive and
non-executive directors.
See also Note 20: Significant Contracts.
19. Group Entities
All the below companies are incorporated in the United Kingdom
and 100% owned at 30 September 2015 and 2016
NOS 4 Limited
NOS 5 Limited
NOS 6 Limited
NOS 7 Limited (formerly
Palladium Investments Limited)
Gilfin Property Holdings
Limited
20. 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:
-- An annual management fee of 0.70% of the gross asset value of
the portfolio, subject to a minimum fee of GBP1m in each of the
first two years, GBP0.95m for the third year and GBP0.9m for the
fourth year.
-- An annual performance fee of 20% of the recurring operating
profits above a pre-agreed target recurring operating profit.
-- Fees for property sales as follows:
Up to GBP50m nil
GBP50m-GBP150m 0.5% of sales
Over GBP150m 1.0% of sales
-- A terminal fee of 5.7% of cash returned to the Company's
shareholders in excess of 36.1 pence per share 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. As at the year end the hurdle stood at 45.5p per
share.
Under the terms of the agreement Internos received fees of
GBP0.963m (2015: GBP1.016m) during the year.
Company Balance Sheet
as at 30 September 2016
2016 2015
---------------------------- ------ ----------------- ----------------
Note GBP000 GBP000 GBP000 GBP000
---------------------------- ------ -------- ------- ------- -------
Fixed assets
---------------------------- ------ -------- ------- ------- -------
Investments C5 27,268 29,754
---------------------------- ------ -------- ------- ------- -------
27,268 29,754
----------------------------------- -------- ------- ------- -------
Current assets
---------------------------- ------ -------- ------- ------- -------
Debtors C6 1,234 149
---------------------------- ------ -------- ------- ------- -------
Cash 8,094 7,475
------------------------------------ -------- ------- ------- -------
9,328 7,624
----------------------------------- -------- ------- ------- -------
Creditors: Amounts falling
due within one year C7 (2,508) (582)
---------------------------- ------ -------- ------- ------- -------
Net current liabilities 6,820 7,042
------------------------------------ -------- ------- ------- -------
Total assets less current
liabilities 34,088 36,796
------------------------------------ -------- ------- ------- -------
Creditors: Amounts falling - -
due after one year
---------------------------- ------ -------- ------- ------- -------
Net assets 34,088 36,796
------------------------------------ -------- ------- ------- -------
Capital and reserves
---------------------------- ------ -------- ------- ------- -------
Share capital C8 18,334 18,334
---------------------------- ------ -------- ------- ------- -------
Reserves C8 3,742 3,742
---------------------------- ------ -------- ------- ------- -------
Capital redemption reserve C8 1,764 1,764
---------------------------- ------ -------- ------- ------- -------
Profit and loss account C8 10,248 12,956
---------------------------- ------ -------- ------- ------- -------
Shareholders' funds 34,088 36,796
------------------------------------ -------- ------- ------- -------
These financial statements were approved by the Board of
directors on 9 December 2016 and were signed on its behalf by:
Stephen East
Chairman
The registered number of the Company is 05304743.
Notes to the Financial Statements
C1. Accounting Policies
The Local Shopping REIT Plc (the "Company") is a company
incorporated and domiciled in the UK.
These financial statements were prepared in accordance with
Financial Reporting Standard 102 The Financial Reporting Standard
applicable in the UK and Republic of Ireland ("FRS 102") as issued
in August 2014. The amendments to FRS 102 issued in July 2015 and
effective immediately have been applied. The presentation currency
of these financial statements is sterling. All amounts in the
financial statements have been rounded to the nearest GBP1,000.
In the transition to FRS 102 from old UK GAAP, the Company has
made no measurement and recognition adjustments.
FRS 102 grants certain first-time adoption exemptions from the
full requirements of FRS 102. None of these exemptions have been
utilised in the preparation of these financial statements.
The consolidated financial statements of The Local Shopping Reit
Plc are prepared in accordance with International Financial
Reporting Standards as adopted by the EU and are available to the
public. In these financial statements, the company is considered to
be a qualifying entity (for the purposes of this FRS) and has
applied the exemptions available under FRS 102 in respect of the
following disclosures:
-- Reconciliation of the number of shares outstanding from the beginning to end of the period;
-- Cash Flow Statement and related notes; and
-- Key Management Personnel compensation.
-- Employee benefits
-- Own shares held by Employee Benefit Trust
As the consolidated financial statements include the equivalent
disclosures, the Company has also taken the exemptions under FRS
102 available in respect of the following disclosures:
-- Certain disclosures required by FRS 102.26 Share Based Payments; and,
-- The disclosures required by FRS 102.11 Basic Financial
Instruments and FRS 102.12 Other Financial Instrument Issues in
respect of financial instruments not falling within the fair value
accounting rules of Paragraph 36(4) of Schedule 1.
The Company proposes to continue to adopt the reduced disclosure
framework of FRS 102 in its next financial statements.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in these
financial statements.
There were no judgements made by the directors, in the
application of these accounting policies that have significant
effect on the financial statements, neither estimates with a
significant risk of material adjustment in the next year.
Measurement convention
The financial statements are prepared on the historical cost
basis.
Classification of financial instruments issued by the
Company
In accordance with FRS 102.22, financial instruments issued by
the Company are treated as equity only to the extent that they meet
the following two conditions:
(a) they include no contractual obligations upon the company to
deliver cash or other financial assets or to exchange financial
assets or financial liabilities with another party under conditions
that are potentially unfavourable to the company; and
(b) where the instrument will or may be settled in the company's
own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the company's own
equity instruments or is a derivative that will be settled by the
company's exchanging a fixed amount of cash or other financial
assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of
issue are classified as a financial liability. Where the instrument
so classified takes the legal form of the company's own shares, the
amounts presented in these financial statements for called up share
capital and share premium account exclude amounts in relation to
those shares.
Basic financial instruments
Trade and other debtors / creditors
Trade and other creditors are recognised initially at
transaction price plus attributable transaction costs. Subsequent
to initial recognition they are measured at historic cost, less any
impairment losses in the case of trade debtors. If the arrangement
constitutes a financing transaction, for example if payment is
deferred beyond normal business terms, then it is measured at the
present value of future payments discounted at a market rate of
instrument for a similar debt instrument.
Investments in subsidiaries
These are separate financial statements of the company.
Investments in subsidiaries are carried at cost less
impairment.
Tangible fixed assets
Following the termination of the Company's office lease in 2013,
all tangible assets were written off in that year.
Impairment
Financial assets (including trade and other debtors)
A financial asset not carried at fair value through profit or
loss is assessed at each reporting date to determine whether there
is objective evidence that it is impaired. A financial asset is
impaired if objective evidence indicates that a loss event has
occurred after the initial recognition of the asset, and that the
loss event had a negative effect on the estimated future cash flows
of that asset that can be estimated reliably.
An impairment loss in respect of a financial asset measured at
amortised cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows
discounted at the asset's original effective interest rate. For
financial instruments measured at cost less impairment an
impairment is calculated as the difference between its carrying
amount and the best estimate of the amount that the Company would
receive for the asset if it were to be sold at the reporting date.
Interest on the impaired asset continues to be recognised through
the unwinding of the discount. Impairment losses are recognised in
profit or loss. When a subsequent event causes the amount of
impairment loss to decrease, the decrease in impairment loss is
reversed through profit or loss.
Provisions
A provision is recognised in the balance sheet when the Company
has a present legal or constructive obligation as a result of a
past event, that can be reliably measured and it is probable that
an outflow of economic benefits will be required to settle the
obligation. Provisions are recognised at the best estimate of the
amount required to settle the obligation at the reporting date.
Where the Company enters into financial guarantee contracts to
guarantee the indebtedness of other companies within its group, the
company treats the guarantee contract as a contingent liability
until such time as it becomes probable that the company will be
required to make a payment under the guarantee.
1.19 Expenses
Interest receivable and Interest payable
Interest payable and similar charges include interest payable,
finance charges on shares classified as liabilities and finance
leases recognised in profit or loss using the effective interest
method, unwinding of the discount on provisions, and net foreign
exchange losses that are recognised in the profit and loss
account.
Taxation
Tax on the profit or loss for the year comprises current and
deferred tax. Tax is recognised in the profit and loss account
except to the extent that it relates to items recognised directly
in equity or other comprehensive income, in which case it is
recognised directly in equity or other comprehensive income.
Current tax is the expected tax payable or receivable on the
taxable income or loss for the year, using tax rates enacted or
substantively enacted at the balance sheet date, and any adjustment
to tax payable in respect of previous years.
Deferred tax is provided on timing differences which arise from
the inclusion of income and expenses in tax assessments in periods
different from those in which they are recognised in the financial
statements. The following timing differences are not provided for:
differences between accumulated depreciation and tax allowances for
the cost of a fixed asset if and when all conditions for retaining
the tax allowances have been met; and differences relating to
investments in subsidiaries to the extent that it is not probable
that they will reverse in the foreseeable future and the reporting
entity is able to control the reversal of the timing difference.
Deferred tax is not recognised on permanent differences arising
because certain types of income or expense are non-taxable or are
disallowable for tax or because certain tax charges or allowances
are greater or smaller than the corresponding income or
expense.
Deferred tax is measured at the tax rate that is expected to
apply to the reversal of the related difference, using tax rates
enacted or substantively enacted at the balance sheet date.
Deferred tax balances are not discounted.
Unrelieved tax losses and other deferred tax assets are
recognised only to the extent that is it probable that they will be
recovered against the reversal of deferred tax liabilities or other
future taxable profits.
Profit for the Financial Year
The Company has taken advantage of Section 408 of the Companies
Act 2006 and has not included its own profit and loss account in
these financial statements. The Company's loss for the year was
GBP2.774m (2015: profit GBP0.071m)
C2. Remuneration of Directors
The detailed information concerning directors' emoluments,
shareholdings and share options is shown in the Remuneration
Report.
All directors of the Company are directors of the Group.
C3. Remuneration of Auditors
The detailed information concerning Auditors' remuneration is
shown in note 2 to the Group financial statements.
C4. Staff Numbers, Costs and Share Option Schemes
The detailed information concerning staff numbers, costs and
share option schemes is shown in note 2 to the Group financial
statements.
C5. Fixed Asset Investments
Shares in
Group
-----------------------
Undertakings Total
GBP000 GBP000
----------------------- ------------- --------
Cost
----------------------- ------------- --------
At 30 September 2015 108,605 108,605
----------------------- ------------- --------
Disposals - -
----------------------- ------------- --------
At 30 September 2016 108,605 108,605
----------------------- ------------- --------
Provisions
----------------------- ------------- --------
At 30 September 2015 78,851 78,851
----------------------- ------------- --------
Impairment charge for
year 2,486 2,486
----------------------- ------------- --------
Disposals - -
----------------------- ------------- --------
At 30 September 2016 81,337 81,337
----------------------- ------------- --------
Net book value
----------------------- ------------- --------
At 30 September 2016 27,268 27,268
----------------------- ------------- --------
At 30 September 2015 29,754 29,754
----------------------- ------------- --------
An impairment review of the carrying value of the Company's
investments in its subsidiary undertakings has been performed. In
carrying out this review, the directors had due regard to the
nature of the property investments held, which is commensurate with
the funding arrangements in place. On the basis of this review
which included a review of the underlying assets of the individual
subsidiaries the directors have written down the value of
investments in subsidiary undertakings to their estimated
realisable value.
The companies in which the Company's interests at the year end
were more than 20% are as follows:
Nature of Ownership
business interest*
--------------------------------- --------------------- -----------
NOS 4 Limited Property investment 100%
NOS 5 Limited Property investment 100%
NOS 6 Limited Property investment 100%
NOS 7 Limited (formerly
Palladium Investments Limited) Dormant 100%
Gilfin Property Holdings
Limited Property investment 100%
* All interests are
in Ordinary Shares.
All of the above companies are incorporated in Great Britain
C6. Debtors
2016 2015
---------------------------
GBP000 GBP000
--------------------------- ------- -------
Amounts owed by Group 1,163 -
undertakings
--------------------------- ------- -------
Other debtors 36 105
--------------------------- ------- -------
Other taxation and social
security - 2
--------------------------- ------- -------
Prepayments 35 42
--------------------------- ------- -------
1,234 149
--------------------------- ------- -------
C7. Creditors
2016 2015
---------------------------
GBP000 GBP000
--------------------------- ------- -------
Trade creditors 6 305
--------------------------- ------- -------
Amounts owed to Group 2,275 -
undertakings
--------------------------- ------- -------
Other taxation and social
security 9 3
--------------------------- ------- -------
Other creditors 4 4
--------------------------- ------- -------
Accruals 214 270
--------------------------- ------- -------
2,508 582
--------------------------- ------- -------
C8. Reconciliation of Shareholders' Funds
Share Capital
2016 2015
Ordinary 20p
Ordinary 20p Shares Shares
Number Amount Number Amount
000 GBP000 000 GBP000
Allotted, called
up and fully
paid 91,670 18,334 91,670 18,334
------------------ -------- ----- ------- ------- ----- -------
Reserves
Capital Profit
Redemption and
Reserves Reserve Loss Account Total
------------------------
GBP000 GBP000 GBP000 GBP000
------------------------ ----------- ------------ -------------- --------
At 1 October 2014 3,742 1,764 12,885 18,391
------------------------ ----------- ------------ -------------- --------
Dividend - - - -
------------------------ ----------- ------------ -------------- --------
Share-based payments - - - -
------------------------ ----------- ------------ -------------- --------
Profit for the
financial year - - 71 71
------------------------ ----------- ------------ -------------- --------
At 30 September
2015 3,742 1,764 12,956 18,462
------------------------ ----------- ------------ -------------- --------
Share-based payments - - 66 66
------------------------ ----------- ------------ -------------- --------
Loss for the financial
year - - (2,774) (2,774)
------------------------ ----------- ------------ -------------- --------
At 30 September
2016 3,742 1,764 10,248 15,754
------------------------ ----------- ------------ -------------- --------
Investment in Own Shares
At 30 September 2015, 9,164,017 shares were held in treasury
(2014: 9,164,017).
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.
Dividends
No dividends were paid during the current and previous year:
Glossary
Actual and Forecast Interest Cover Test (ICR)
The ICRs given in the Finance Review are calculated as defined
in the loan facility agreements. Each bank loan has a charge on a
specific pool of property and the ICRs are calculated based on the
gross rental income, less an adjustment for unrecoverable costs
compared to the interest charged on that loan for that particular
pool of assets.
Adjusted Net Asset Value ("Adjusted NAV") per share
Adjusted NAV is calculated as shareholders' funds, adjusted by
the fair value of the derivative financial instruments held on the
Balance Sheet, divided by the number of shares in issue at the year
end, excluding treasury shares.
Earnings Per Share ("EPS")
EPS is calculated as profit attributable to shareholders divided
by the weighted average number of shares in issue in the year.
Equivalent Yield
Equivalent yield is a weighted average of the initial yield and
reversionary yield and represents the return a property will
produce based upon the timing of the income received. In accordance
with usual practice, the equivalent yields (as determined by the
Group's external valuers) assume rent received annually in arrears
and on gross values including prospective purchasers' costs
(including stamp duty, and agents' and legal fees).
Funds From Operations ("FFO")
FFO is a term adopted by the National Association of Real Estate
Investment Trusts. It is calculated as net income adjusted for
depreciation of investment properties and gains/losses on sales of
investment properties.
Group Loan-to-value ("Group LTV")
Group Loan-to-value is the ratio of the aggregate notional
principal of debt held by the Group net of cash reserves, to the
total property valuation.
Head Lease
A head lease is a lease under which the Group holds an
investment property.
Initial Yield
Initial yield is the annualised net rent generated by a property
expressed as a percentage of the property valuation. In accordance
with usual practice the property value is grossed up to include
prospective purchasers' costs.
Interest Cover
Interest cover can be calculated in a number of ways. The Group
interest cover given in the Finance Review is based on the
percentage of times gross rental income covers financing
expenses.
Interest Rate Swap
An interest rate swap is a financial instrument where two
parties agree to exchange an interest rate obligation for a
predetermined amount of time. These are used by the Group to
convert floating rate debt to fixed rates.
Investment Property Databank Ltd ("IPD")
IPD produces an independent benchmark of property returns.
Initial Public Offering ("IPO")
An IPO is the first sale of shares by a privately-owned company
on a Stock Exchange. LSR issued its shares for sale on 2 May
2007.
London Interbank Offered Rate ("LIBOR")
LIBOR is the interest rate charged by one bank to another bank
for lending money.
Loan-to-value ("LTV")
Loan-to-value is the ratio of the notional principal of debt to
the valuation of properties subject to that debt.
Market Value
Market value is the estimated amount for which a property should
exchange on the date of valuation between a willing buyer and
willing seller in an arm's length transaction after proper
marketing wherein the parties had each acted knowledgeably,
prudently and
without compulsion.
Market Rent
Market rent is the estimated amount for which a property should
lease on the date of valuation between a willing lessor and a
willing lessee on appropriate lease terms, in an arm's length
transaction, after proper marketing wherein the parties had each
acted knowledgeably, prudently and without compulsion.
Net Asset Value ("NAV") per share
NAV per share is calculated as shareholders' funds divided by
the number of shares in issue at the year end excluding treasury
shares.
Real Estate Investment Trust ("REIT")
A REIT is a listed property company which qualifies for and has
elected into a tax regime, which exempts qualifying UK property
rental income and gains on investment property disposals from
corporation tax. LSR converted to REIT status on 11 May 2007.
Recurring operating profit
Recurring operating profit is calculated by adjusting the
statutory IFRS reported result for: the movement in the fair value
of the property portfolio; the movement in the fair value of
financial derivatives held; any profit or loss realised on the sale
of properties or other fixed assets; and other one-off,
non-recurring income or costs incurred which are not considered to
be sustainable or of a recurring nature.
Rent Roll
Rent roll is the total contractual annualised rent receivable
from the portfolio net of any head rent payments.
Reversionary Yield
Reversionary yield is the annualised net rent that would be
generated by a property if it were fully let at market rent
expressed as a percentage of the property valuation. In accordance
with usual practice the property value is grossed up to include
prospective purchasers' costs.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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