TIDMLSR
RNS Number : 2641P
Local Shopping REIT (The) PLC
25 May 2018
THE LOCAL SHOPPING REIT PLC
REPORT FOR THE SIX MONTHS TO 31 MARCH 2018
Highlights
-- IFRS loss for the financial period of GBP2.87m or 3.48 pence
per share ("pps") (H1 2017: GBP0.86m or 1.04 pps).
-- Adjusted Operating Profit for the period of GBP0.14m or 0.16
pps (H1 2017 GBP0.92m or 1.11 pps).
-- Portfolio valued at 31 March 2018 at GBP24.81m, reflecting an
equivalent yield (excluding the residential element) of 10.67% (30
September 2017: GBP54.16m, equivalent yield 9.47%). In addition,
properties categorised as held for sale valued at GBP10.8m after
sale costs (30 September 2017: GBP1.3m).
-- Net Asset Value ("NAV") GBP31.97m or 39 pps (September 2017: GBP34.79m or 42 pps).
-- Overall Group Loan to Value ("LTV") at 31 March 2018 of 20% (30 September 2017: 36.5%).
-- Bank indebtedness reduced to GBP9.9m at 31 March 2018 (30 September 2017: GBP30.9m).
-- 46 properties sold during the period, at an aggregate price
of GBP17.28 million, 3.1% below carrying value at the time of
sale.
For further information:
The Local Shopping REIT plc +44 20 7355 8800
Bill Heaney, Company Secretary
Rupert Wallman, Fund Manager
Chairman's Statement
Financial Results and Portfolio Performance
The Group made a loss before tax on an IFRS basis for the period
of GBP2.87 million (or 3.48 pps). This compares with an IFRS loss
of GBP0.02 million (0.03 pps) for the equivalent period of 2016-17
and a loss of GBP0.86 million (1.04 pps) for the full year to 30
September 2017. The Adjusted Operating Profit for the period was
GBP0.14 million (or 0.16 pps), compared with GBP0.92 million (1.11
pps) for the six months to 31 March 2017 and GBP1.26 million (1.52
pps) for the year to 30 September 2017.
At 31 March 2018, our investment property portfolio was valued
at GBP24.81 million, reflecting an equivalent yield (excluding the
residential element) of 10.67% (30 September 2017: GBP54.16
million, equivalent yield 9.47%). These figures are net of
capitalised head rents payable and are in addition to the 29
properties categorised as held for sale, valued at GBP10.8 million
after sale costs (30 September 2017: 9 properties, GBP1.3
million).
The Net Asset Value was GBP31.97million or 39 pps (September
2017: GBP34.79 million or 42 pps).
Property Disposal Programme
During the period the Group focussed on the accelerated property
disposal programme announced by the Board in December 2017, selling
a further 46 properties, at an aggregate price of GBP17.28 million,
3.1% below carrying value at the time of sale.
The property disposals described above enabled the Group to
further reduce its bank indebtedness, which at 31 March 2018 was
GBP9.9 million (30 September 2017: GBP30.9 million) and at the date
of this statement has been further reduced to GBP8.2 million.
We also expect to complete the sales of 7 properties, at a value
of GBP0.80 million, on which contracts were exchanged during the
period. These sales are at a 2.7% discount to carrying value.
In addition, since the period end, the Group has sold or
exchanged contracts for sale on a further 25 properties with gross
proceeds of GBP6.52 million. We have also agreed terms for the sale
of 8 properties subject to pre-emption rights for residential
tenants under section 5 of the Landlord and Tenant Act 1987. It is
expected that the total sale price for these 8 properties will be
GBP5.31m.
Outlook
The property sales described above, both completed and in
progress, total 85 assets with aggregate gross proceeds of GBP29.9
million. This puts the Group in a good position to achieve the
target we set in December 2017 to dispose of 75% of the then
remaining assets by the end of the current financial year. To
achieve the remainder of this target, we plan to sell a further 40
assets by 30 September 2018. Whilst these sales will be principally
through the auction market, we will also look to make further
progress with individual and small portfolio sales by private
treaty.
The sales currently in hand will enable us to make further
progress with repaying the banking facility, the balance of which
is expected to be eliminated by 30 June 2018. As soon as we achieve
the sales targets set out above, we will turn our attention to the
best means of returning cash to shareholders.
S J East
Chairman
Directors' Review
During the period the Group continued to focus on its strategy
of liquidating its property investments and eliminating its
indebtedness with a view to returning surplus cash to
shareholders.
Revaluation
At 31 March 2018 the investment property portfolio, excluding
those assets held for sale, was revalued at GBP24.81 million,
reflecting an equivalent yield (excluding the residential element)
of 10.67% (30 September 2017: GBP54.16 million, equivalent yield
9.47%). This figure is net of capitalised head rents payable and in
addition to properties categorised as held for sale, valued at
GBP10.8 million after sale costs (30 September 2017: 9 properties,
GBP1.3 million). The movement during the period primarily reflected
the reduction in the size of the property portfolio, and a general
reduction in market values for properties of the type held by the
Group. On a like-with-like basis, the portfolio value decreased by
GBP1.65 million (6.23%) from the 30 September 2017 equivalent of
GBP26.46 million.
For previous full year and half year periods a full independent
valuation including site inspections has been performed on 25% of
the Group's properties, with a desktop valuation of the remainder.
Following on from the marketing of a substantial portfolio in late
2017, and the subsequent sale of many of the assets contained in
that portfolio, the decision was made to perform full valuations on
a higher proportion of the remaining assets.
As at 31 March 2018, the revalued portfolio (excluding those
assets held for sale) comprised 107 properties with an annual
headline rent, net of head rents payable, of GBP2.44 million,
compared with 182 properties (GBP5.00 million) at 30 September
2017. The portfolio included 404 letting units (30 September 2017:
742 letting units).
Investment Property Portfolio as at 31 March 2018
Value GBP24.81m
Initial Yield ("IY") 9.31%
Reversionary Yield ("RY") 11.35%
Equivalent Yield ("EY") 10.67%
Rent passing per annum* GBP2.44m
Market Rent per annum* GBP2.80m
*Net of head rents payable
Value Range No. of Properties Value GBPm EY
GBP0 - GBP100k 40 2.66 10.68
GBP101k - GBP200k 25 3.71 9.96
GBP201k - GBP500k 33 10.65 10.29
GBP501k - GBP1m 7 5.44 11.62
GBP1m + 2 2.35 11.34
Total 107 24.81 10.67
All yields quoted exclude the residential element which is
valued at a discount to vacant possession value.
The table above illustrates the range of property values
throughout the portfolio. At the period end the average property
value was GBP232,000 and the median was GBP150,000. The portfolio
included 160 residential units. Of these, 74 were marketed for rent
on Assured Shorthold Tenancies, with the reminder being subject to
long leases. The residential element of the portfolio has been
valued at GBP4.04 million and the average value of the AST units
was GBP55,000.
During the period like-for-like rental income decreased by 1.7%,
and Market Rent increased by 1.1%.
Net Asset Value ("NAV")
At the end of the period NAV was at GBP32.0 million or GBP0.39
per share, based on 82.5 million shares in issue, excluding those
held in Treasury (30 September 2017: GBP35.6 million, GBP0.42 per
share).
The Group held GBP2.0 million of cash at the end of the
period.
Operating Results
The Group made a loss before tax for the period on an IFRS basis
of GBP2.87 million (or 3.48 pps), compared with a loss of GBP0.02
million (0.03 pps) for the six months to 31 March 2017 and a loss
of GBP0.86 million (1.04 pps) for the full year to 30 September
2017.
The portfolio achieved gross rental income for the six months to
31 March 2018 of GBP2.25 million, compared with GBP3.31 million for
the half year to 31 March 2017. This reduction primarily reflected
the sale of property assets during the intervening twelve
months.
Property operating expenses during the period were GBP1.20
million (six months to 31 March 2017: GBP0.91 million). These
included bad debts, property repairs and maintenance,
non-recoverable VAT and, local authority charges in respect of void
properties. The increase in operating costs primarily reflects the
repairs and leasing costs required to prepare properties for sale.
Further detail of property operating expenses is contained in Note
3 to the financial statements.
Administrative expenses were GBP0.50 million during the period
(six months to 31 March 2017: GBP0.97 million). This primarily
reflects lower investment management fees following the expiry of
the minimum fee which was payable until July 2017. Further detail
of administration expenses can be found in Note 5 to the financial
statements.
The IFRS result reflected the realised gains and losses on the
sales of properties, after execution costs (see Note 4 to the
financial statements), together with the movement in fair value of
the property portfolio. Sales costs incurred during the period
reflected 2.2% of the sales recognised (six months to 31 March
2017: 5.0%). This fall was the result of selling larger properties
and portfolios, and a greater utilisation of the private treaty
market.
In monitoring operational performance, the Board considers
Adjusted Operating Profit. This measure excludes realised and
unrealised gains and losses on investment properties and
expenditure items considered to be of a non-recurring nature or not
in line with the trading activities of the Group, as set out in the
table below. The Adjusted Operating Profit for the period was
GBP0.14 million (or 0.16 pps), compared with GBP0.92 million (1.11
pps) for the six months to 31 March 2017 and GBP1.26 million (1.52
pps) for the year to 30 September 2017.
The table below summarises the adjustments made between Profit
before tax and Adjusted Operating Profit.
31 March 2018 31 March 2017 30 Sept 2017
GBP000 GBP000 GBP000
Loss before tax (IFRS) (2,870) (23) (858)
Movement in the fair value
of the portfolio 2,103 265 689
Loss on disposal of
Investment properties 200 552 1,298
Non-recurring expenditure - 125 128
Adjusted Operating Profit 135 919 1,257
The calculation remains consistent with previous periods.
Asset Management
We continue to focus on the effective management of our property
assets, to maintain rental income and maximise sale values. The
table below summarises our asset management activities during the
period:
Number Aggregate Premium/
Rent GBP (discount)
to Market
Rent
Commercial property lettings: 25 274,000 7.2%
------- ---------- ------------
Lease renewals: 17 150,000 4.8%
------- ---------- ------------
Rent reviews (open market and
fixed): 22 301,000 7.1%
------- ---------- ------------
Vacant properties Aggregate Market Void Rate
Rent
GBP
------------------- ------------
31 March 2018 593,000 13.7%
------------------- ------------
30 September 2017 727,000 12.9%
------------------- ------------
Change (134,000) +0.8%
------------------- ------------
Deposits held for commercial units, % of quarterly
rent roll 46%
Financing
During the period, the Group operated using loan facilities
provided by HSBC Bank plc ("HSBC"). The facilities as at 31 March
2018 are set out below.
Margin 2% above 3-month LIBOR
Borrower NOS 4 Limited NOS 6 Limited Total
---------------- --------------- --------
Amount Outstanding GBP9.9m GBP0.0m GBP9.9m
---------------- --------------- --------
Default ICR Covenant 120%
-------------------------------------------
Default LTV Covenant 70%
-------------------------------------------
Cash Sweep Covenant 65%
-------------------------------------------
Amortisation 1.0% pq for 2 years from November 2016
-------------------------------------------
Expiry Date 31 December 2019
-------------------------------------------
The two facilities provided by HSBC Bank plc ("HSBC") are
subject to cross-collateralisation of the corresponding property
portfolios. On each quarterly interest payment date the loan
facilities are subject to actual and forecast interest cover (ICR)
tests, and a loan to value (LTV) test. At each testing date during
the period the loans were determined to be compliant.
No changes were made to the terms of the loan agreements during
the period. However, during the period the Group utilised GBP7.4
million of cash in order to facilitate the release of GBP6.1
million of property from the HSBC loan security pool. All cash
utilised was from accounts under the control of HSBC, primarily the
result of asset sales. This enhanced the Group's liquidity whilst
reducing future financing costs.
The proceeds of sales (net of sale costs) of properties within
the security pools are applied to reducing the loan balance. At 31
March 2018 the debt outstanding was GBP9.9 million (30 September
2017: GBP30.9 million). As at the date of this report, the
outstanding loan balance had fallen further to GBP8.2 million.
At 31 March 2018 the Group held GBP2.0 million of cash (30
September 2017: GBP10.5 million) and property valued at GBP5.8
million with no debt secured against it (30 September 2017: GBP0.85
million). The cash held relates to sales proceeds to be applied to
loan repayment and that which is required for working capital.
The Group's overall LTV at 31 March 2018 was 20% (30 September
2017: 36.5%).
Dividend
In line with the Group's current dividend distribution policy no
interim dividend will be paid. The Board will continue to review
the dividend policy in line with progress with the investment
strategy.
Principal Risks and Uncertainties for the Remaining Six Months
of the Financial Year
The directors consider it appropriate to prepare the Half Year
Statement on a Going Concern basis given the Group's diverse tenant
base, the improving outlook for capital values, the bank facilities
available, the uncharged properties owned by the Group, the cash
held at the period end and the potential proceeds arising from
property sales. The Board will consider at the end of the current
financial year whether it is appropriate to continue to adopt the
Going Concern basis, in the light of progress with the property
sales programme.
The risks facing the Group for the remaining six months of the
financial year remain consistent with those described in detail in
the Annual Report for the year ended 30 September 2017 (available
on the Group's website: www.localshoppingreit.co.uk).
These centre on:
-- Changes in the macroeconomic environment
-- Higher than anticipated property maintenance costs
-- Changes to legal environment, planning law or local planning policy
-- Regulatory requirements in connection with the property portfolio
-- Information technology systems and data security
-- Financial and property market conditions
The directors and the Group's investment advisor continue to
operate a range of governance arrangements and internal controls to
mitigate risks to the business. These are set out in the 2017
Annual Report.
The Group does not consider financing to be a material risk
given the progressive reduction in the outstanding debt and the
end-date of the loan facility, the Group's cash reserves and the
level of debt-free properties in the portfolio.
The Group does not speculate in derivative financial instruments
and has used them in the past only to hedge its exposure to
fluctuations in interest rates. Whilst the Group is exposed to the
risk of non-payment of trade receivables by its tenants, the
Directors consider that this does not comprise an undue
concentration of credit risk, as the risk is spread across a large
number of tenants, retail occupations and geographical areas. The
level of arrears is monitored continually by the Group's asset
managers and are subject to monthly review at executive level.
Responsibility Statement
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU: and (b) the Interim Management Report includes a fair
review of the information required by:
DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
Signed on behalf of the Board who approved the interim
management report on 24 May 2018.
S J East
Director
Independent Review Report to The Local Shopping REIT plc
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 31 March 2018 which comprises the Condensed
Consolidated Income Statement, Condensed Consolidated Balance
Sheet, Condensed Consolidated Statement of Comprehensive Income,
Condensed Consolidated Statement of Changes in Equity, Condensed
Consolidated Cash Flow Statement, and the related explanatory
notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half -yearly financial report for the six months ended 31
March 2018 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities.
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Mark Flanagan
for and on behalf of KPMG LLP
Chartered Accountants
31 Park Row
Nottingham
NG1 6FQ
24 May 2018
Condensed Consolidated Income
Statement
for the six months ended
31 March 2018
Note
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended
31 March 31 March 30 September
2018 2017 2017
GBP000 GBP000 GBP000
----- ----------- ----------- -------------
Gross rental income 2,250 3,308 6,023
----- ----------- ----------- -------------
Property operating expenses 3 (1,200) (914) (1,968)
----- ----------- ----------- -------------
Net rental income 1,050 2,394 4,055
----- ----------- ----------- -------------
Loss on disposal of investment
properties 4 (902) (552) (1,298)
----- ----------- ----------- -------------
Loss on change in fair value
of investment properties 9 (2,103) (265) (689)
----- ----------- ----------- -------------
Administrative expenses 5 (552) (966) (1,738)
----- ----------- ----------- -------------
Operating profit before
net financing costs (2,507) 611 330
----- ----------- ----------- -------------
Financing income 6 1 4 5
----- ----------- ----------- -------------
Financing expenses 6 (364) (638) (1,193)
----- ----------- ----------- -------------
Loss before taxation (2,870) (23) (858)
----- ----------- ----------- -------------
Tax 7 - - -
----- ----------- ----------- -------------
Loss for the financial period
from continuing operations (2,870) (23) (858)
----- ----------- ----------- -------------
Loss for the financial period
attributable to equity holder
of the Company (2,870) (23) (858)
----- ----------- ----------- -------------
Basic and diluted loss per
share on loss for the financial
period (3.48)p (0.03)p (1.04)p
----- ----------- ----------- -------------
Basic and diluted loss per
share on continuing operations
for the period 11 (3.48)p (0.03)p (1.04)p
----- ----------- ----------- -------------
Condensed Consolidated Statement
of Comprehensive Income
for the six months ended
31 March 2018
Unaudited Unaudited Audited
----------------------------------
Six months Six months Year ended
ended ended
----------------------------------
31 March 31 March 30 September
2018 2017 2017
GBP000 GBP000 GBP000
---------------------------------- ----- ----------- ----------- ---------------
Loss for the period (2,870) (23) (858)
---------------------------------- ----- ----------- ----------- ---------------
Total comprehensive loss
for the period (2,870) (23) (858)
---------------------------------- ----- ----------- ----------- ---------------
Attributable to:
---------------------------------- ----- ----------- ----------- ---------------
Equity holders of the parent
Company (2,870) (23) (858)
---------------------------------- ----- ----------- ----------- ---------------
Condensed Consolidated Balance
Sheet
as at 31 March 2018
Note Unaudited Unaudited Audited
---------------------------------- -----
31 March 31 March 30 September
2018 2017 2017
---------------------------------- -----
GBP000 GBP000 GBP000
---------------------------------- ----- ----------- ----------- -------------
Non-current assets
----- ----------- ----------- -------------
Investment properties 9 25,236 65,897 54,613
----- ----------- ----------- -------------
Total non-current assets 25,236 65,897 54,613
----- ----------- ----------- -------------
Current assets
----- ----------- ----------- -------------
Trade and other receivables 6,099 7,530 2,143
----- ----------- ----------- -------------
Investment properties held
for sale 10,825 277 1,280
----- ----------- ----------- -------------
Cash 1,968 7,361 10,455
----- ----------- ----------- -------------
Total current assets 18,892 15,168 13,878
----- ----------- ----------- -------------
Total assets 44,128 81,065 68,491
----- ----------- ----------- -------------
Non current liabilities
----- ----------- ----------- -------------
Interest bearing loans and
borrowings 10 (9,353) (40,292) (29,462)
----- ----------- ----------- -------------
Finance lease liabilities (429) (443) (431)
----- ----------- ----------- -------------
Total non-current liabilities (9,782) (40,735) (29,893)
----- ----------- ----------- -------------
Current liabilities
----- ----------- ----------- -------------
Interest bearing loans and
borrowings 10 (392) (1,668) (1,209)
----- ----------- ----------- -------------
Trade and other payables (1,986) (3,087) (2,600)
----- ----------- ----------- -------------
Total current liabilities (2,378) (4,755) (3,809)
----- ----------- ----------- -------------
Total liabilities (12,160) (45,490) (33,702)
----- ----------- ----------- -------------
Net assets 31,968 35,575 34,789
----- ----------- ----------- -------------
Equity
----- ----------- ----------- -------------
Issued capital 18,334 18,334 18,334
----- ----------- ----------- -------------
Reserves 3,773 3,773 3,773
----- ----------- ----------- -------------
Capital redemption reserve 1,764 1,764 1,764
----- ----------- ----------- -------------
Retained earnings 8,097 11,704 10,918
----- ----------- ----------- -------------
Total attributable to equity
holders of the Company 31,968 35,575 34,789
Condensed Consolidated Statement
of Cash Flows
for the six months ended
31 March 2018
Note Unaudited Unaudited Audited
---------------------------------- -----
Six months Six months Year ended
ended ended
---------------------------------- -----
31 March 31 March 30 September
2018 2017 2017
GBP000 GBP000 GBP000
---------------------------------- ----- ----------- ----------- -------------
Operating activities
----- ----------- ----------- -------------
Loss for the financial period (2,870) (23) (858)
----- ----------- ----------- -------------
Adjustments for:
----- ----------- ----------- -------------
Loss on change in fair
value of investment properties 9 2,103 265 689
----- ----------- ----------- -------------
Net financing costs 6 363 634 1,188
----- ----------- ----------- -------------
Loss on disposal of investment
properties 902 552 1,298
----- ----------- ----------- -------------
Employee benefit trust
shares vesting 49 49 98
----- ----------- ----------- -------------
547 1,477 2,415
----- ----------- ----------- -------------
Increase in trade and other
receivables (3,965) (5,436) (49)
----- ----------- ----------- -------------
Increase /(decrease) in
trade and other payables (689) 833 388
----- ----------- ----------- -------------
(4,107) (3,126) 2,754
----- ----------- ----------- -------------
Interest paid (278) (616) (1,087)
----- ----------- ----------- -------------
Bank facility fees paid - (12)
----- ----------- ----------- -------------
Loan arrangement fees paid - (257) (280)
----- ----------- ----------- -------------
Interest received 1 4 5
----- ----------- ----------- -------------
Net cash flows from operating
activities (4,384) (4,007) 1,392
----- ----------- ----------- -------------
Investing activities
----- ----------- ----------- -------------
Proceeds from sale of investment
properties 16,903 9,142 18,373
----- ----------- ----------- -------------
Acquisition of and improvements
to (78) (257) (514)
----- ----------- ----------- -------------
investment properties
----- ----------- ----------- -------------
Cash flows from investing
activities 16,825 8,885 17,859
----- ----------- ----------- -------------
Net cash flows from operating
activities and investing
activities 12,441 4,878 19,251
----- ----------- ----------- -------------
Financing activities
----- ----------- ----------- -------------
Repayment of borrowings (20,928) (8,517) (19,796)
----- ----------- ----------- -------------
Cash flows from financing
activities (20,928) (8,517) (19,796)
----- ----------- ----------- -------------
Net decrease in cash (8,487) (3,639) (545)
----- ----------- ----------- -------------
Cash at beginning of period 10,455 11,000 11,000
----- ----------- ----------- -------------
Cash at end of period 1,968 7,361 10,455
----- ----------- ----------- -------------
Condensed Consolidated Statement
of Changes in Equity
for the six months ended
31 March 2018
Capital
---------------------------
Share redemption Retained
---------------------------
capital Reserves reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- -------- --------- ----------- --------- --------
At 30 September 2016 18,334 3,773 1,764 11,678 35,549
-------- --------- ----------- --------- --------
Total comprehensive loss
-------- --------- ----------- --------- --------
for the period
-------- --------- ----------- --------- --------
Loss for the period - - - (23) (23)
-------- --------- ----------- --------- --------
Transactions with owners,
-------- --------- ----------- --------- --------
recorded directly in
equity
-------- --------- ----------- --------- --------
Dividends - - - - -
-------- --------- ----------- --------- --------
Share based payments - - - 49 49
-------- --------- ----------- --------- --------
Total contributions by - - - - -
and
-------- --------- ----------- --------- --------
distributions to owners
-------- --------- ----------- --------- --------
At 31 March 2017 18,334 3,773 1,764 11,704 35,575
-------- --------- ----------- --------- --------
Total comprehensive loss
-------- --------- ----------- --------- --------
for the period
-------- --------- ----------- --------- --------
Loss for the period - - - (835) (835)
-------- --------- ----------- --------- --------
Transactions with owners,
-------- --------- ----------- --------- --------
recorded directly in
equity
-------- --------- ----------- --------- --------
Dividends - - - - -
-------- --------- ----------- --------- --------
Share based payments - - - 49 49
-------- --------- ----------- --------- --------
Total contributions by - - - - -
and
-------- --------- ----------- --------- --------
distributions to owners
-------- --------- ----------- --------- --------
At 30 September 2017 18,334 3,773 1,764 10,918 34,789
-------- --------- ----------- --------- --------
Total comprehensive loss
-------- --------- ----------- --------- --------
for the period
-------- --------- ----------- --------- --------
Loss for the period - - - (2,870) (2,870)
-------- --------- ----------- --------- --------
Transactions with owners,
-------- --------- ----------- --------- --------
recorded directly in
equity
-------- --------- ----------- --------- --------
Dividends - - - - -
-------- --------- ----------- --------- --------
Share based payments - - - 49 49
-------- --------- ----------- --------- --------
Total contributions by - - - - -
and
-------- --------- ----------- --------- --------
distributions to owners
-------- --------- ----------- --------- --------
At 31 March 2018 18,334 3,773 1,764 8,097 31,968
-------- --------- ----------- --------- --------
Notes to the Half
Year Report
for the six months
ended 31 March 2018
1 Accounting policies
Basis of preparation
The condensed set of financial statements has been prepared
in accordance with IAS 34 "Interim Financial Reporting" as
adopted by the EU.
The annual financial statements of the Group are prepared
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the EU. As required by the Disclosure
and Transparency Rules of the Financial Services Authority,
the condensed set of financial statements has been prepared
applying the accounting policies and presentation that were
applied in the preparation of the Company's published consolidated
financial statements for the year ended 30 September 2017
(with which they should be read in conjunction).
The comparative figures for the financial year ended 30 September
2017 are not the Company's statutory accounts for that financial
year. Those accounts have been reported on by the Company's
Auditors and delivered to the Registrar of Companies. The
report of the Auditors was (i) unqualified, (ii) did not include
a reference to any matters to which the Auditors drew attention
by way of emphasis without qualifying their report, and (iii)
did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
2 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 on a quarterly basis. The Board of directors
is considered to be the chief operating decision maker.
3 Property operating expenses
Six months Six months Year ended
ended ended
--------------------------------------------------
31 March 31 March 30 September
2018 2017 2017
-------------------------------------------------
GBP000 GBP000 GBP000
------------------------------------------------- ----- --------------- ----------- -------------
Bad debt charge (106) (151) (353)
-------------------------------------------------- ----- --------------- ----------- -------------
Head rent payments (12) (8) (31)
-------------------------------------------------- ----- --------------- ----------- -------------
Repairs (437) (158) (343)
-------------------------------------------------- ----- --------------- ----------- -------------
Business rates and council
tax (130) (155) (245)
-------------------------------------------------- ----- --------------- ----------- -------------
Irrecoverable service charge (23) (53) (160)
-------------------------------------------------- ----- --------------- ----------- -------------
Utilities (60) (36) (66)
-------------------------------------------------- ----- --------------- ----------- -------------
Insurance (21) (26) (92)
-------------------------------------------------- ----- --------------- ----------- -------------
Managing agent fees (113) (133) (242)
-------------------------------------------------- ----- --------------- ----------- -------------
Leasing costs (159) (127) (231)
-------------------------------------------------- ----- --------------- ----------- -------------
Legal & professional (72) (27) (73)
-------------------------------------------------- ----- --------------- ----------- -------------
EPC amortisation, abortives,
and miscellaneous (67) (40) (132)
-------------------------------------------------- ----- --------------- ----------- -------------
Total property operating
expenses (1,200) (914) (1,968)
-------------------------------------------------- ----- --------------- ----------- -------------
In common with many property organisations, the company's portfolio
is a mix of residential, opted and non-opted properties for
VAT. In the above table the applicable VAT which is not recovered
has been included directly in the cost.
4. Property disposals
Six months Six months Year ended
ended ended
31 March 31 March 30 September
2018 2017 2017
--------------- ----------- -------------
Number Number Number
Number of sales 46 63 142
--------------------------------------------------- ---- --------------- ----------- -------------
GBP000 GBP000 GBP000
--------------------------------------------------- ---- --------------- ----------- -------------
Average value 376 151 136
--------------------------------------------------- ---- =============== =========== =============
Sales
--------------------------------------------------- ---- --------------- ----------- -------------
Total sales 17,277 9,496 19,287
--------------------------------------------------- ---- --------------- ----------- -------------
Carrying value (17,805) (9,570) (19,671)
--------------------------------------------------- ---- --------------- ----------- -------------
Loss on disposals before
transaction costs (528) (74) (384)
--------------------------------------------------- ---- =============== =========== =============
Transaction costs
--------------------------------------------------- ---- --------------- ----------- -------------
Legal fees (114) (139) (307)
--------------------------------------------------- ---- --------------- ----------- -------------
Agent fees, marketing and
brochure costs (236) (284) (499)
--------------------------------------------------- ---- --------------- ----------- -------------
Disbursements (2) (4) (23)
--------------------------------------------------- ---- --------------- ----------- -------------
Non-recoverable VAT (on
non-opted and residential
elements) (22) (51) (85)
--------------------------------------------------- ---- --------------- ----------- -------------
Total transaction costs (374) (478) (914)
--------------------------------------------------- ---- =============== =========== =============
Loss on disposals after
transaction costs (902) (552) (1,298)
--------------------------------------------------- ---- --------------- ----------- -------------
Transaction costs as perecentage
of sales value 2.2% 5.0% 4.7%
--------------------------------------------------- ---- --------------- ----------- -------------
5 Administrative expenses
Six months Six months Year ended
ended ended
---------------------------------------------------------------
31 March 31 March 30 September
2018 2017 2017
---------------------------------------------------------------
GBP000 GBP000 GBP000
--------------------------------------------------------------- ---- ----------- ----------- -------------
Investment manager fees* (304) (513) (918)
--------------------------------------------------------------------- ----------- ----------- -------------
Legal and professional (51) (98) (145)
--------------------------------------------------------------------- ----------- ----------- -------------
Tax and audit (57) (56) (116)
--------------------------------------------------------------------- ----------- ----------- -------------
Remuneration costs** (99) (93) (187)
--------------------------------------------------------------------- ----------- ----------- -------------
Other (19) (26) (44)
--------------------------------------------------------------------- ----------- ----------- -------------
Irrecoverable VAT on administration
expenses *** (22) (55) (200)
--------------------------------------------------------------------- ----------- ----------- -------------
December 2016 general meeting
costs - (125) (128)
--------------------------------------------------------------------- ----------- ----------- -------------
Total administrative expenses (552) (966) (1,738)
--------------------------------------------------------------------- ----------- ----------- -------------
* Investment management fees have reduced following the ending
of the minimum investment management fee which fell away
in July 2017, (see note 15).
** Remuneration costs include GBP49,000 ( 30 September 2017
: GBP 98,000, 31 March 2017 ; GBP49,000) in respect of the
expensing of employee share options which vest in 2018 onwards
or if liquidation targets are met. This amount has a corresponding
entry in equity and has no impact on the Company's net assets
now or in the future.
*** The company's portfolio contains residential elements
and commercial properties not opted for VAT.
Accordingly, VAT on overheads is not fully recoverable.
6 Net financing costs
Six months Six months Year ended
ended ended
----------------------------------------------------------------
31 March 31 March 30 September
2018 2017 2017
---------------------------------------------------------------
GBP000 GBP000 GBP000
--------------------------------------------------------------- --- ----------- ----------- ---------------
Interest receivable 1 4 5
---------------------------------------------------------------- --- ----------- ----------- ---------------
Financing income 1 4 5
---------------------------------------------------------------- --- ----------- ----------- ---------------
Bank loan interest (278) (545) (961)
---------------------------------------------------------------- --- ----------- ----------- ---------------
Amortisation of loan arrangement
fees (58) (67) (181)
---------------------------------------------------------------- --- ----------- ----------- ---------------
Head rents treated as finance
leases (14) (14) (27)
---------------------------------------------------------------- --- ----------- ----------- ---------------
Bank facility fees (14) (12) (24)
---------------------------------------------------------------- --- ----------- ----------- ---------------
Financing expenses (364) (638) (1,193)
---------------------------------------------------------------- --- ----------- ----------- ---------------
Net financing costs (363) (634) (1,188)
---------------------------------------------------------------- --- ----------- ----------- ---------------
7. Taxation
From 11 May 2007, the Group elected to join the UK REIT regime.
As a result, the Group is exempt from corporation tax on the
profits and gains from its investment business from this date,
provided it continues to meet certain conditions. Non-qualifying
profits and gains of the Group (the residual business) continue
to be subject to corporation tax. The directors consider that
all the rental income post 11 May 2007 originates from the
Group's tax-exempt business.
On entering the UK REIT regime, a conversion charge equal to
2% of the gross market value of properties involved in the
property rental business, at that date, became due which was
paid in full.
Due to the availability of losses no provision for corporation
tax has been made in these accounts. The deferred tax asset
not recognised relating to these losses can be carried forward
indefinitely. It is not anticipated that these losses will
be utilised in the foreseeable future.
8. Dividends
No dividends have been paid since December 2012.
9. Investment properties
Total
----------------------------------
GBP000
--- ---------------------------- ---------
At 1 October 2017 54,613
---------
Additions 78
---------
Disposals (17,805)
---------
Reduction in head lease
value (2)
---------
Fair value adjustments (2,103)
---------
Movement on investment
properties held for sale (9,545)
---------
At 31 March 2018 25,236
---------
The investment properties have all
been revalued to their fair value at
31 March 2018.
For the Group as a whole Allsop LLP, a firm of independent
chartered surveyors valued the Group's property portfolio at
31 March 2018 and 30 September 2017, and at 31 March 2017 and
30 September 2016. 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. All properties acquired
to each of these dates were also valued by Allsop. 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.
A reconciliation of the portfolio valuation at 31 March 2018
to the total value for investment properties given in the Consolidated
Balance Sheet is as follows:
31 March 31 March 30 September
2018 2017 2017
-----------------------------------------------------
GBP000 GBP000 GBP000
---------------------------------------------------- -------- ----------- ----------- -----------------
Portfolio valuation * 35,632 65,731 55,462
----------------------------------------------------- -------- ----------- ----------- -----------------
Investment properties
held for sale (10,825) (277) (1,280)
Head leases treated as
investment properties
held under 429 443 431
----------- ----------- -----------------
finance leases in accordance
with IAS 17
----------------------------------------------------- -------- ----------- ----------- -------------
Total per Consolidated
Balance Sheet 25,236 65,897 54,613
----------------------------------------------------- -------- ----------- ----------- -----------------
* Revalued assets and held for
sale at net realisable value
10. Interest-bearing loans
and borrowings
31 March 31 March 30 September
2018 2017 2017
----------------------------------------------------
GBP000 GBP000 GBP000
---------------------------------------------------- ----- --------------- ----------- -----------------
Non-current liabilities
---------------------------------------------------- ----- --------------- ----------- -----------------
Secured bank loans 9,556 40,667 29,723
----------------------------------------------------------- --------------- ----------- -----------------
Loan arrangement fees (203) (375) (261)
----------------------------------------------------------- --------------- ----------- -----------------
9,353 40,292 29,462
----- --------------- ----------- -----------------
Current liabilities
---------------------------------------------------- ----- --------------- ----------- -----------------
Current portion of secured
bank loans 392 1,668 1,209
----------------------------------------------------------- --------------- ----------- -----------------
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.
The loans are amortised by 1% of the balance outstanding on
a quarterly basis, and the final balance is repayable in 2019.
11. 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:
Loss attributable to ordinary
shares
Six months Six months Year ended
ended ended
31 March 31 March 30 September
2018 2017 2017
GBP000 GBP000 GBP000
----------- ----------- -----------------
Loss for the financial period (2,870) (23) (858)
------------------------------------------------------ ------- ----------- ----------- -----------------
Weighted average number
of shares
31 March 31 March 30 September
2018 2017 2017
--------------------------------------------
Number Number Number
000 000 000
-------- --------- --------- -------------
Issued ordinary shares 91,670 91,670 91,670
-------------------------------------------- -------- --------- --------- -------------
Treasury shares (9,164) (9,164) (9,164)
-------------------------------------------- -------- --------- --------- -------------
Weighted average number
of ordinary shares 82,506 82,506 82,506
-------------------------------------------- -------- --------- --------- -------------
Diluted earnings per share
There is no difference between the basic
and diluted earnings per share.
12. Net asset value (NAV)
The number of shares used to calculate
net asset value per share is as follows:
31 March 31 March 30 September
2018 2017 2017
--------------------------------------------
Number Number Number
000 000 000
---------------------------------------------------- --------- --------- ---------------
Number of shares in issue 91,670 91,670 91,670
-------------------------------------------- -------- --------- --------- ---------------
Less: shares held in Treasury (9,164) (9,164) (9,164)
-------------------------------------------- -------- --------- --------- ---------------
82,506 82,506 82,506
-------------------------------------------- -------- --------- --------- ---------------
31 March 31 March 30 September
2018 2017 2017
--------------------------------------------
GBP000 GBP000 GBP000
------------------------------------------- -------- --------- --------- ---------------
Net assets per Consolidated
Balance Sheet 31,968 35,575 34,789
-------------------------------------------- -------- --------- --------- ---------------
Net asset value per share GBP0.39 GBP0.43 GBP0.42
-------------------------------------------- -------- --------- --------- ---------------
13. Derivative financial
instruments
Derivative financial instruments were in the past held by the
Group in the form of interest rate swaps used to manage the
Group's interest rate exposure. These were fully paid down
in the year to 30 September 2016. 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.
14. Related parties
There have been no transactions with related parties which
have materially affected the financial position or performance
of the Group during the current or previous period nor have
there been any changes in related party transactions which
could have a material effect on the financial position or performance
of the Company during the first six months of the current financial
year.
15. Significant contracts
With effect from 22 July 2013 the Company entered into a
management agreement with Internos Global Investors Limited
("Internos"). In April 2018 Internos changed its name to
Principal Real Estate Europe Limited ("Principal"). Under
this agreement the Company pays to Principal:
1. 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. This minimum fell away in July 2017.
2. An annual performance fee of 20% of the recurring operating
profits above a pre-agreed target recurring profit.
3. Fees for property sales
as follows:
Up to GBP50m nil
GBP50m - GBP150m 0.5% of
sales
Over GBP150m 1% of sales
4. A terminal fee of 5.7% of cash returned to the Company's
shareholders in excess of 36.1 pence per share per annum
from the Effective Date outside of dividend payments (the
"Terminal Fee Hurdle"). The Terminal Fee Hurdle rises by
8% per annum after the first year but reduces on a pro-rata
daily basis each time equity is returned to shareholders
outside of dividend payments from recurring operating profits.
Under the terms of the agreement Principal received a fee
of GBP304,000 (September 2017 - GBP918,000, March 2017 -
GBP513,000).
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR VZLFLVEFBBBV
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