TIDMLSR
RNS Number : 4264X
Local Shopping REIT (The) PLC
08 February 2013
The Local Shopping REIT plc
Interim Management Statement
CONTINUED LETTING AND DISPOSAL SUCCESSES
London: 08 February 2013 - The Local Shopping REIT plc. ("LSR"
or the "Company"), a UK real estate investment trust focused on
investments in local shopping assets, is pleased to provide the
following update on trading for the four months to 31 January
2013.
Highlights
-- Annualised rent roll from the core portfolio maintained at GBP16 million:
o 38 units let since 30 September 2012, at a total rent of
GBP342,386 per annum
o Robust lettings pipeline with 16 units under offer as at 31
January 2013, for a combined rental income of GBP169,700 per
annum
o Rent reviews completed on 69 units, increasing rental income
by GBP88,421 per annum, representing an average uplift of 9% and a
9.5% premium to Market Rent
o Nine leases renewed at a combined rent of GBP94,190, an
average uplift of 3% and 1.6% above Market Rent
-- Reduction in the Company's core commercial void rate to 7.3%
by rental value (30 September 2012: 7.7%) with an overall void rate
of 10.5% (30 September 2012: 10.9%), the lowest rate since November
2008, of which 2.4% is deliberate (30 September 2012: 2.5%)
-- Disposals totalling GBP1.13 million of ex-growth properties,
achieved at an average of 17.4% above September 2012 valuation,
completed or in solicitors' hands during the period
-- GBP6.9 million of acquisitions completed or under contract
during the period for the Company's joint venture with Pramerica
Real Estate Investors, bringing the total purchases to date to
GBP42.55 million, concluding the acquisition phase of the joint
venture.
Nick Gregory, LSR's Joint Chief Executive Officer, said:
"The portfolio continues to perform well and we have leveraged
the expertise of our specialist management skills in order to bring
down the void rate to its lowest level over the last four years. We
have also continued to make good progress in growing rents through
rent reviews and lease renewals, achieving these at significant
premiums to Market Rent."
Mike Riley, LSR's Joint Chief Executive Officer, added:
"In contrast to the wider retail market, and as demonstrated by
the significant progress in reducing the void rate over the period,
the occupier market for local and convenience shopping remains
strong. A number of factors are supporting this market: higher
petrol prices, "just in time" shopping, and a pressure to shop
locally, driven by convenience. Our portfolio of properties which
provides occupiers with affordable rents is well positioned to
capitalise upon this sustained demand."
For further information:
The Local Shopping REIT plc
Mike Riley +44 20 7292 0333
Nick Gregory
FTI Consulting
Richard Sunderland +44 20 7831 3113
Daniel O'Donnell
Asset Management
Market context
While the economic backdrop remains challenging and consumer
confidence is fragile, we are pleased to report that, since 30
September 2012, tenant demand for smaller local retail units from
both national operators and independent traders has held up well.
This is particularly the case for units with rents below GBP15,000
per annum - a typically affordable level for local convenience
retailers. The relative strength of this specific sub-sector
compares favourably to the wider occupier market, in which subdued
consumer expenditure is putting further pressure on retailers,
especially those depending on discretionary spend. As structural
changes to the way we buy goods continue to play out, we would not
be surprised to see more high profile retail failures over the
coming months and a further contraction of the traditional High
Street.
Portfolio update
Steady demand for our affordable units has resulted in the
successful letting of 38 vacant units since 30 September 2012 at a
total rent of GBP342,386 per annum. Of these lettings, ten
incorporate stepped rent increases, with the initial rents rising
from GBP108,200 per annum to GBP134,500 per annum over the first
three years of their leases, compared with a Market Rent of
GBP133,900 per annum. The remaining 28 units were let at a small
(1.7%) discount to Market Rent. The letting pipeline also remains
healthy, with 16 units under offer as at 31 January 2013, at a
combined rental income of GBP169,700 per annum.
We also continue to make good progress in growing rents through
rent reviews and lease renewals. We completed reviews on 69 units,
increasing rental income by a total of GBP88,421 per annum,
representing an average rental uplift of 9.0% and a premium of 9.5%
above Market Rent. This included a GBP48,375 (40.0%) uplift on the
review of a 17,200 sq ft unit in St Helens let to Tesco,
demonstrating the strong potential for rental growth for
well-located convenience stores and smaller supermarkets. We also
renewed nine leases at a combined rent of GBP94,190 per annum, an
average uplift of 3.0% and 1.6% above Market Rent.
We continue to work hard to extract further value from our
properties, particularly those that are poorly configured or have
under-used upper floors where we can add value through
change-of-use planning consents. During the period, we secured
planning consent to convert a vacant office suite in Great Clacton
into two flats and consent to convert some unused ancillary retail
space in Braintree into a single residential unit. In line with our
ongoing policy, we will build these out if we can secure an
acceptable rental yield following conversion and during the period
we commenced the construction of six flats located across Cardiff,
Caversham and Sudbury.
Over the period we are pleased to report a reduction in the
overall portfolio void rate to 10.5% (30 September 2012: 10.9%).
This is the lowest level of overall void rate since November 2008.
Within this, strong letting progress in December 2012 and January
2013 has resulted in a reduction in the core commercial void rate
to 7.3% (30 September 2012: 7.7%). The residential and deliberate
void rates remained broadly unchanged at 0.8% (30 September 2012:
0.7%) and 2.4% (30 September 2012: 2.5%) respectively. Despite the
challenging economic backdrop, tenant defaults and associated bad
debts remained in line with our expectations over the period.
Acquisitions and Sales
Market context
Local shopping assets are typically purchased by private
investors or small property companies looking to satisfy their
income requirement. However, over recent months, it has become
clear that private investors have become increasingly selective and
are focussing their purchasing on what they perceive to be lower
risk properties - particularly those in the South-East or
properties let on long leases to secure covenants. The lack of bank
debt available to these investors continues to deter them from
moving up the risk curve despite the attractive yields on offer.
Low interest rates are encouraging occupiers to consider owning
rather than renting units and we are seeing increasing interest
from our existing tenants in buying their properties, as well as
interest in vacant units from owner occupiers. However, again, the
constrained supply of bank finance prevents many potential
purchasers from transacting.
Portfolio update
During the period we did not purchase any properties for our
directly owned portfolio whilst our acquisition efforts were
focussed on our Joint Ventures, an update on which is given in the
Joint Ventures section below.
In line with our ongoing policy to sell ex-growth properties, we
have sold one shop and four flats since 30 September 2012 for a
total of GBP0.57 million, at an average of 16.3% above their 30
September 2012 valuation. In addition, we have exchanged contracts
to sell a flat in Warwick for GBP0.12 million (11.7% above
valuation) and a further two shops and two flats are under offer
for sale for a combined GBP0.44 million, a 20.5% premium to their
30 September 2012 valuation.
As a result of these sales, the Company now has a wholly owned
portfolio of 643 properties with over 2,000 letting units,
generating an annualised rental income of GBP15.98 million.
Joint Ventures and External Management Mandates
As at 31 January 2013 the annual rent roll of distressed
properties under management on behalf of lenders was GBP2.9
million.
Pramerica Joint Venture
Since 30 September 2012 we have completed the purchase of two
properties in Frodsham and Birmingham for a combined GBP5.95
million and unconditionally exchanged contracts to acquire a
property in Nailsworth for GBP0.96 million. This brings the
purchase price of deals completed to date to GBP42.55 million.
These three purchases will conclude the acquisition phase of the
joint venuture and we are now focussing our efforts on implementing
the asset management initiatives we have identified to add value to
the portfolio.
Joint venture with an established UK financial institution
Following the sale of a tyre service depot in September 2012,
the portfolio now comprises three properties let to Co-op with a
combined purchase price of GBP2.32 million.
Schroders Partnership
During the period the fund exchanged contracts to acquire a
property in Warwick which, on completion, will bring the combined
purchase price of completed acquisitions to GBP6.91 million. A
further nine properties with a combined purchase price of GBP16.79
million are under offer. See the Strategic Review paragraph below
for further details.
Financing
The Company's borrowing position remains broadly unchanged from
that reported as at 30 September 2012. It has two fully drawn loans
from Barclays and HSBC with debt outstanding of GBP115.7 million
(30 September 2012: GBP116.9 million). The term of both loans runs
until 2016 and there are no ongoing loan-to-value default
provisions. A small portion of the fully drawn HSBC loan is
unhedged and on 31 January 2013 we repaid GBP1,189,700 of the
outstanding balance.
LSR also has an additional, part-drawn long-term loan facility
from HSBC. This part-drawn loan comprises a GBP35 million revolving
credit facility, of which GBP9.4 million has been drawn (30
September 2012: GBP9.5 million), and a separate GBP10.5 million
term facility which is fully drawn. These loans have an 85%
loan-to-value covenant and 2016 expiry.
The average interest rate of the Company's borrowing is
5.4%.
Outlook
In contrast to the wider retail market and, as demonstrated by
the significant progress in reducing the void rate over the period,
the occupier market for local and convenience shopping remains
strong. A number of factors are supporting this market: higher
petrol prices, "just in time" shopping, and a pressure to shop
locally, driven by convenience. The local shopping market has
traditionally been the preserve of independent traders. However,
supportive demographics are prompting supermarket chains to
increase their representation in local communities. As a
by-product, these new stores often have a beneficial,
footfall-driven impact on adjacent smaller units. In addition to
the national supermarket chains and symbol groups growing their
networks of convenience stores, other retailers are also highly
active given the affordable rental levels. We have in the recent
past let units to Greggs, William Hill, Subway, Barnados, Sue
Ryder, and many other retailers have requirements which we feel
will provide future opportunities for good quality and well located
local shopping real estate portfolios.
Strategic Review
It was announced by the Board on the 12 November 2012 that it
was undertaking a strategic review of the business to consider how
value can be maximised for shareholders. This review is being
conducted by a committee comprising the Board's non-executive
directors. While this process is on-going, the LSR team remains
committed to optimising the value of and income from its existing
assets.
As stated in the unaudited full year results announcement, as a
result of suspending its commitment to further fund the joint
ventures during this process, the Company breached the terms of the
partnership agreement with Schroders. The consequences of the
breach are that the Company no longer has any rights in relation to
the fund other than repayment of its loan to the fund which will
only be made as part of any final distribution once Schroders has
been repaid all loans it has provided to the fund and all related
costs have been paid. For clarity, the Company has a total of
GBP909,090 invested (GBP909,045 by way of a loan) in the Schroders
joint venture and has suspended any further funding. The company
continues to manage the assets on behalf of the joint venture.
The strategic review process is progressing and the Board will
update shareholders in due course.
-Ends-
About The Local Shopping REIT
The Local Shopping REIT plc (LSR) is the first specialist
start-up Real Estate Investment Trust ("REIT") to launch in the
UK.
Already a major owner of local retail property, the Company is
building a portfolio of local shops in urban and suburban areas,
investing in neighbourhood and convenience properties throughout
the UK. Typical of the portfolio are shops in local shopping
parades and neighbourhood venues for convenience or 'top-up'
shopping. As at 31 January 2013 the Company's directly owned
portfolio comprised 643 properties, with over 2,000 letting units.
In addition, the Company deploys its unique set of specialist asset
management skills in the management of third party assets and joint
ventures, building upon its current mandates with a number of
leading institutions.
For further information on LSR, please visit
www.localshoppingreit.co.uk.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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