TIDMLSR
RNS Number : 8915J
Local Shopping REIT (The) PLC
10 December 2018
The Local Shopping REIT plc
("LSR" or the "Company" or the "Group")
AUDITED FULL YEAR RESULTS FOR THE YEARED 30 SEPTEMBER 2018
The Local Shopping REIT plc (LSE: LSR) today announces its
audited results for the year ended 30 September 2018.
The information set out below is extracted from the Company's
Annual Report and Accounts for the year ended 30 September 2018,
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. Cross-references in the extracted
information below refer to pages and sections in the Annual Report
and Accounts for the year ended 30 September 2018.
The Local Shopping REIT plc ("LSR") is a Real Estate Investment
Trust ("REIT") invested in a portfolio principally comprising local
shopping assets in urban and suburban centres throughout the
UK.
The Company's investment policy is to undertake a progressive
disposal of its assets, to enable the repayment of bank facilities
and the return of surplus value to its shareholders, whilst
maximising the returns from the residual property portfolio through
sound asset management.
Chairman's Statement
Financial Performance
The Company made a loss for the year of GBP7.15 million (2017
loss GBP0.86 million) on an IFRS basis.
Our portfolio was valued at 30 September 2018 at GBP22.3 million
(2017: GBP55.46m).
A major achievement during the year was the elimination of the
Company's bank debt as a result of the cash generated by the
Company's programme of property sales. The Company's bank loans
were repaid in full in July 2018 and at the year-end the Company
had GBP3.29 million of cash. This sum had increased to GBP18.95
million as at the date of this report.
Property Disposal Programme
During the year the Company continued the accelerated programme
of property disposals, completing or exchanging contracts for the
sale of 107 properties which generated GBP28.2 million in gross
sales proceeds. This represented a 2.1% discount to valuation prior
to sale. From the shareholders' decision to initiate the disposal
programme to the date of this report, we have completed or
exchanged for sale on 622 properties (97% by number of the
properties held in July 2013), for an aggregate gross consideration
of GBP159.8 million.
During the financial year we have seen a decline in the sale
values of properties of the type held in our portfolio, as a result
of the prevailing uncertain economic conditions. This impacted the
sales prices achieved during and after the financial year, as well
as the revaluation of the remaining portfolio.
At the date of this report, the Company holds 34 property
assets, valued at GBP9.3 million. Of these:
-- 16 are under contract for sale, at an aggregate price of GBP4.4 million;
-- 7 are under offer for sale, at an aggregate price of GBP1.0 million;
-- 11 are currently being marketed, the aggregate book value of
which (at 30 September 2018) is GBP3.9 million.
The properties under contract for sale include 8 assets sold at
auction earlier in December. The aggregate gross price achieved for
these properties was GBP2.6 million, representing a combined
discount to 30 September 2018 valuation of 6.2%.
Net Realisable Value
In the announcement published on 11 October 2018, we provided a
range for the Company's net realisable value of between 33.0 and
34.5 pence per share. As a result of auction sales performance and
market trends since then we anticipate that the distribution is
likely to be at the lower end of that range. The final amount will
be determined by the sales of the residual property assets and the
outcome of the general meeting referred to below.
Members' Voluntary Liquidation
On 16 November 2018 the Board issued a circular to shareholders
and notice of a general meeting of the Company to take place on 12
December 2018, for the purpose of approving a resolution for a
solvent winding-up the Company (the "Members' Voluntary
Liquidation"). The Board believes that this is the most effective
means of returning cash to shareholders in line with the Company's
investment policy. The circular and details of the meeting are
available on the Company's website www.localshoppingreit.com. For
the reasons set out in the circular, the Board encourages all
shareholders to attend the meeting and to vote in favour of the
Members' Voluntary Liquidation.
Stephen East, Chairman
9 December 2018
Operating Review
Business Model
During the year our operating model continued to focus on
maximising returns from our property portfolio whilst disposing of
assets and repaying bank debt. Following the full repayment of our
bank debt in July 2018, the net proceeds of property sales have
been retained in the Company's cash reserve. 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 2017-18
Market Context
In common with other property investment entities, our
activities were affected by a number of negative factors affecting
the property market during the year, including the uncertainty over
the outcome of the Brexit process. Although the activities of many
of our occupiers are based on non-discretionary spending, the
business could not fully escape the economic uncertainty within the
retail sector, which inevitably had some impact in terms of
occupational levels, rent arrears, lease renewals and terms for new
lettings.
However, the principal effect of this period of political and
market uncertainty related to our investment property values and
the prices achieved for property assets we brought to market during
the year. Thus, on a like-with-like basis, the value of our
portfolio fell by 6.2% during the six months period to 31 March
2018, and a further 13.9% for the six months to 30 September
2018.
Operating Results & Portfolio Performance
The Group made an IFRS loss before tax for the year to 30
September 2018 of GBP7.15 million (or -8.7 EPS), compared with a
loss of GBP0.86 million (-1.0 EPS) for the year to 30 September
2017. The loss for the Group primarily reflects the revaluation of
the remaining portfolio and, to a lesser extent, the loss on
disposal of properties after incorporating transaction costs. A
further factor has been the change in the basis of preparation of
the Group's accounts for 30 September 2018 from a Going Concern
basis to a liquidation basis. This change has required a number of
additional provisions, including anticipated expenditure and
estimated sales costs for the remaining property portfolio and the
write down of non-cash assets such as the capitalised value of
rent-free periods, together with the costs of the proposed Members'
Voluntary Liquidation.
The portfolio achieved gross rental income for the year of
GBP3.38 million (2017: GBP6.02 million). This reduction principally
reflected the sale of property assets during the year.
At 30 September 2018 the portfolio comprised 75 properties,
producing an annual gross rental income, after deducting head rent
payments, of GBP2.31 million (30 September 2017: 182 properties;
annual rental income GBP5.00 million). The portfolio included 290
letting units (30 September 2017: 742 letting units).
Further details of operating performance are given in the
Finance Review.
Property Sales
During the year sales were completed on a further 107 properties
at a combined gross sale price of GBP28.2 million, which was 2.1%
under the aggregate of the valuations at the time the properties
went under offer. Transaction costs for the sales were 2.9% of the
prices achieved. As a result, the net loss on sales after
transaction costs was 4.9%.
Since the year end, a further 30 transactions have exchanged or
completed at an aggregate sale price of GBP17.7m.
At the date of this report we have sold 97% by number of the
property portfolio as it stood when shareholders approved the
revised investment strategy in July 2013. This has involved the
sale of 622 properties representing GBP159.8m million in aggregate
gross consideration, via over 330 separate transactions.
Revaluation
The loss before tax reflected the movement in fair value of all
the properties held at 30 September 2018, which was GBP22.3 million
(30 September 2017: GBP55.46m). For properties held at the year-end
for which sale contracts had already been exchanged or transactions
completed after the year-end, the value was determined as the sale
price achieved less sales costs. The remainder of the property
portfolio was revalued as at 30 September 2018 by Allsop LLP, a
firm of independent chartered surveyors, at GBP7.8 million.
On a like-for-like basis (excluding the value of properties
disposed of during the year), the properties valued by Allsop LLP
reduced in value by 20.4%, from GBP9.8 million to GBP7.8
million.
The investment property portfolio valuation as at 30 September
2018 reflected an equivalent yield (excluding the residential
element) of 12.5% (30 September 2017, like-for-like: 9.47%).
Investment Property Portfolio as at 30 September 2018
Value GBP7.8m
Initial Yield ("IY") 10.4%
--------
Reversionary Yield ("RY") 13.3%
--------
Equivalent Yield ("EY") 12.5%
--------
Rent per annum* GBP0.8m
--------
Market Rent per annum* GBP1.1m
--------
*Net of head rents payable.
All yields quoted exclude the residential element which is
valued at a discount to vacant possession value.
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.
Following the year end the directors considered whether, in view of
the progress with the Company's property sales programme, it
remained appropriate for the Company's financial statements to
continue to be prepared on a Going Concern basis. Having noted the
likelihood that the property sales programme would be completed
during the first half of the 2018-19 financial year, the Company's
investment policy of returning cash to shareholders and the advice
of the Company's auditors, the Board concluded that the financial
statements for 30 September 2018 should not be prepared on the
Going Concern basis.
Result
The Group recorded an IFRS loss for the financial year of
GBP7.15 million, or 8.7 pps (2017: loss GBP0.86 million, or 1.0
pps).
Key Performance Indicators
In addition to the property specific indicators described in the
Operating Review, the following financial key performance
indicators were monitored by the directors during the year:
30 September 30 September
2018 2017
Group interest cover* N/A 505%
------------- -------------
Group Loan to value (LTV) ratio* N/A 36.5%
------------- -------------
NAV per share 33.6p 42.2p
------------- -------------
Gearing (net of cash held)* N/A 58%
------------- -------------
*The Group's bank debt was fully repaid on 28 July 2018.
Property Operating Expenses
Property operating expenses were GBP2.45 million (2017: GBP1.97
million). This included the costs incurred in preparing properties
for sale.
Further details of property operating expenses are contained in
Note 2 to the financial statements.
Administrative Expenses
Administrative expenses were GBP1.52 million during the period
(2017: GBP1.74 million). Further detail of administration expenses
is contained in Note 4 to the financial statements.
Net Asset Value ("NAV")
During the period NAV fell to GBP27.73 million or 33.6p per
share, based on 82.5 million shares in issue, excluding those held
in Treasury (30 September 2017: GBP34.79 million, 42.2p per
share).
As at 30 September 2018 the Group held GBP3.29 million of cash
(30 September 2017: GBP10.5 million). The Group's bank debt was
paid down during July 2018, so that at 30 September 2018 the Group
had no banking debt (30 September 2017: debt of GBP30.9
million).
For the Group as a whole, Allsop LLP, a firm of independent
chartered surveyors valued the Group's property portfolio at 30
September 2018, 31 March 2018, 30 September 2017 and 31 March
2017.
For the half-year and full-year valuations in 2017-18, a full
independent valuation involving site visits was performed on
approximately 25% of the Group's properties, with a desktop
valuation of the remainder.
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
Until 28 July 2018, the Group operated using the loan facilities
provided by HSBC Bank plc ("HSBC"). The interest margin for the
facilities was 2% above 3-month LIBOR. The loan facilities were set
to expire on 31 December 2019. However, during the year the
proceeds of the sales of properties were applied to reducing the
balance of the loans, which was eliminated in full on 28 July
2018.
For the period of the year during which the loan facilities were
utilised, the Group's average cost of debt, including margin and
amortisation of debt arrangement fees, was 4.09% (2017: 2.8%). The
increase in the cost of debt over figure for 2017 related to the
accelerated amortisation of loan costs as a result of the early
repayment of the loan.
Taxation
The Group continued to operate as a UK REIT throughout the year,
under which any profits and gains from the property investment
business are exempt from Corporation Tax provided certain
conditions continue to be met. The Group fulfilled the UK REIT
conditions during the year. The Members' Voluntary Liquidation to
be considered by the Company's shareholders at the General Meeting
to be held on 12 December 2018 would result in the Group exiting
the UK REIT regime. Discussions are in hand with HMRC to ensure
that this would take place in an orderly manner. Should the Group
depart the UK REIT regime, it would at that point become liable to
corporation tax. However, the Board believes that the Group's
activities would be unlikely to generate any material corporation
tax liability in view, in particular, of the variation between
historical property purchase prices and the likely sales prices of
assets that are likely to be sold after the Group exits the UK REIT
regime.
Dividend
In line with the Company's current dividend distribution policy
no dividend will be paid.
Corporate Responsibility Statement
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, Principal Real Estate Limited ("Principal"),
formerly known as Internos Global Investors Limited).
During the year, we have continued to work closely with national
and local agents and other partners both in the in the context of
our property sales programme, as well as the ongoing maintenance
and occupation of our properties. 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
Principal, 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 no employees during the year.
Health, Safety and Welfare
Subject to the overriding responsibilities held by the
directors, Principal is responsible for ensuring that the Company
discharges its obligations for health, safety and welfare,
including matters delegated to the Company's managing agents and
other contractors. We are pleased with the priority that Principal
accords to this area, particularly in respect of the welfare of
those engaged on the Company's activities. We 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 Principal, 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. Risk assessments are in place
covering fire safety and general health and safety matters for
relevant multi-occupancy sites, and during the year our managing
agents carried out an additional review of our compliance with fire
safety requirements.
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 prefer to use
local advisers, agents and contractors whenever appropriate to do
so.
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.
Corporate Governance Report
Board of Directors
Stephen East
Independent Non-Executive Chairman, aged 60
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 has
previously held non-executive appointments with Regus Group plc,
Star Energy Group plc, CQS Diversified Fund Limited, Genesis
Housing Association, Marwyn Management Partners plc and Snoozebox
Holdings plc. 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 and Nomination Committee.
Nicholas Vetch
Senior Independent Non-Executive Director, aged 57
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 and
Nomination Committees.
Brett Miller
Independent Non-Executive Director, aged 50
Brett Miller graduated from the University of the Witwatersrand
with a bachelor's degree majoring in Law and Economics,
subsequently relocating to the UK in 1989, where he gained a Law
degree from the London School of Economics. He qualified as a
solicitor and practised law until December 1997. He is currently an
executive director of Ranger Direct Lending Fund plc. He is also a
non-executive director M&L Capital Management Global Fund ICAV,
M&L Property & Assets plc, Manchester and London Investment
Trust plc, TR Asia Value Fund. He serves on the Audit Committee and
Remuneration Committees.
Company Secretary
William Heaney
Corporate Governance
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 2016 promulgated by the Financial
Reporting Council (the "Code"). 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 four 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 the Company's 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
investment adviser, Principal 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 the executive team and
the non-executive directors is clearly defined and recorded via the
Company's investment advisory agreement with Principal. The
Chairman is charged with responsibility for corporate governance
and effective leadership of the Board and Principal is responsible
to the Board for the executive management of the business. The
Board also benefits from the expertise of Principal in wider
property, investment market, regulatory compliance and banking.
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 on page 10. Stephen East, Brett Miller and Nicholas
Vetch each held office throughout the year to 30 September
2018.
At all times during the year the Board comprised an independent
non-executive Chairman and two further independent non-executive
directors (one of whom was also the senior independent
non-executive director). No executive directors held office and
non-executive directors were therefore in the majority throughout
the year.
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, Brett Miller 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,
the Board has adopted a best-practice policy whereby each director
resigns and may offer himself or herself 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 2018 Annual General Meeting, when all directors then
holding office resigned and 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. The Committee did not meet during the year.
Audit Committee
The Audit Committee comprises the Board's independent
non-executive directors, Stephen East, Brett Miller 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
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 met four times during the year. The report of the
Audit Committee can be found on page 26.
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.
The Committee continues to consider that the Company's size and
activities do not warrant the establishment of an internal audit
function.
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 23. The Committee did not meet
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 4 3 n/a n/a
------ ------ ------------- -----------
Brett Miller 3 2 n/a n/a
------ ------ ------------- -----------
Nick Vetch 4 3 n/a n/a
------ ------ ------------- -----------
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
No director had any material interest in any contract or
arrangement with any company within the Group during the year.
Jonathan Short and Rupert Wallman, who hold office as directors of
the Company's operating subsidiaries, are executives of Principal
Real Estate Limited (formerly known as Internos Global Investors
Limited), with which the Company had a contract during the
year.
No director had any beneficial interest in any subsidiaries of
the Company during the year.
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 2018 2017
---------- ----------
Stephen East 75,000 75,000
---------- ----------
Brett Miller 518.000 518,000
---------- ----------
Nicholas Vetch 2,873,563 2,873,563
---------- ----------
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 within the terms of the
investment advisory agreement with Principal.
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. A number of the risks to which the
business is exposed, such as the condition of the UK domestic
economy and sentiment in the UK property market, are beyond the
Company's 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 wherever
practicable 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 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 the directors (all of whom are non-executive)
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 -- Actual and prospective
of downturn in -- Reduced rental voids and rental arrears
macroeconomic environment income continually monitored.
-- Increased void -- Early identification
costs of / discussions with
-- Reduction in tenants in difficulties
Net Asset Value -- Regular review of all
and realisation properties for lease
value of assets terminations and tenant
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 -- Income insufficient -- All material expenditure
property to cover costs subject to authorisation
maintenance costs -- Decline in property regime
value -- Capital expenditure
subject to regular
review
-------------------------- ----------------------------------
Changes to legal -- Adverse impact -- Monitoring of UK property
environment, on portfolio environment and regulatory
planning law or -- Loss of development proposals
local planning policy opportunity -- Close liaison with agents
-- Reduction in and advisers
realisation value -- Membership of and dialogue
of with relevant industry
assets bodies
-------------------------- ----------------------------------
Failure to comply -- Tenant and third-party -- Guidance on regulatory
with regulatory claims resulting requirements provided by
requirements in in financial loss managing agents and professional
connection with -- Reputational advisers
property portfolio, damage -- Individual properties
including health, monitored by asset managers
safety and environmental and agents
-- 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 operations -- Provision by investment
of information and reporting ability adviser of effective security
technology systems -- Financial claims regime with automatic off-site
or failure arising from leak data and systems back-up
of data security of confidential
information
-------------------------- ----------------------------------
Financial and property -- Insufficient -- Debt facilities in place
market finance available until July 2018, following
conditions at acceptable rates which the Group has been
to fulfil business debt-free and debt finance
plans has not been required.
-- Inability to -- Reducing finance risks
execute investment resulting from property
property disposal disposal programme and
strategy owing increasing cash reserve
to fall in property -- Impact of interest rates
market values on property yields monitored
-- Financial impact and investment/disposal
of debt interest policy adjusted accordingly
-- Breach of banking
covenants
-------------------------- ----------------------------------
Failure to meet -- Potential corporation -- Continual monitoring
conditions for membership tax liability of REIT regime requirements
of UK REIT regime -- Disruption to -- Discussions in hand
and/or uncontrolled corporate management for controlled exit from
exit from regime activities REIT regime in the event
that shareholders approve
Members' Voluntary Liquidation
-------------------------- ----------------------------------
Internal Governance
During the year, the directors continued to 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 compliance with the requirements of the Market Abuse
Regulations, Anti-Money Laundering regulations, the Data Protection
Act and the Bribery Act, as well as customer care and external
complaint guidelines. The Company has adopted a Code, Policy and
procedures under the Market Abuse Regulations. The Company's
arrangements with Principal, which is regulated by the Financial
Conduct Authority, include the provision of all applicable
compliance procedures. The directors are satisfied that the
governance procedures adopted by Principal in relation to its
clients are appropriate and protect the Company's interests. 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 have not considered it 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 Principal 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 15. The principal foundations of the
Company's internal control framework during the year were:
-- statements of areas of responsibility reserved to the Board
and its committees, with prescribed limits to executive 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 Principal;
-- 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 activity and
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
-- 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. The Board's review takes account of
the findings and recommendations of the Auditors, who review the
Company's approach to risk management including the controls
implemented by Principal. Following its review of the Auditors'
findings during 2017-18, 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 such 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. Subsequent to the year-end, the Board issued a circular to
the Company's shareholders incorporating a notice of a General
Meeting called by the directors to approve a Member's Voluntary
Liquidation of the Company and setting out the Board's reasoning
for this.
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 1.
Group Companies
The subsidiary undertakings of the Company are set out in note
20 to the financial statements.
Group Result and Dividend
The loss for the Group attributable to shareholders for the year
was GBP7.15 million (2017: loss GBP0.86 million). In accordance
with the revised investment policy, no interim dividend has been or
will be distributed in respect of the financial year. The directors
continue to keep the dividend distribution policy under review.
Use of financial instruments
The Company did not utilise financial instruments during the
year.
Share Capital
Details of the Company's issued share capital are set out in
note 13 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. A
description of arrangements for The Local Shopping REIT plc
Employee Benefit Trust to supply shares to meet obligations arising
from the Company's employee share schemes is set out in the
Employee Share Schemes section, below. 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 authority for the Company to purchase its own shares expired
at the Annual General Meeting in March 2018 and was not renewed. 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 30 November 2018, 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 21,021,195 25.48
---------------- ------
Hargreaves Lansdown Asset Management 5,609,703 6.80
---------------- ------
EFG Harris Allday 5,600,045 6.79
---------------- ------
Baring Asset Management Limited 3,777,154 4.58
---------------- ------
N J Vetch 2,873,563 3.48
---------------- ------
Mark Begg Asset Management
Limited 2,800,481 3.39
---------------- ------
Value Investments Limited 2,768,500 3.36
---------------- ------
Thames River Capital LLP 2,704,324 3.28
---------------- ------
Alliance Trust Savings Limited 2,515,750 3.05
---------------- ------
Effect of change of control on significant contracts
Prior to their expiry in July 2018, the funding agreements
entered into by certain Group companies required the written
approval of the lender for any change 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 Principal Real Estate
Limited ("Principal"), formerly known as Internos Global Investors
Limited, to execute the Group's 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 Principal, including remuneration arrangements, are
contained in note 21 to the financial statements. Details of the
loan and banking facility agreements with HSBC Bank plc that
applied to the Group whilst the facilities were utilised 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 Principal in relation to the Company's business;
-- shared facilities provided by the Company within its property portfolio;
-- activities within vacant properties within the Company's control.
Carbon Emissions Data
In relation to Scope 1 figures (consumption of gas and fuel), it
is not possible to separately identify the gas consumed on the
Company's activities within the Principal 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. As in
previous years, 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 Principal, together with an estimate of
consumption in our vacant properties for which we are responsible.
This includes any electricity used in relation to repairs and
refurbishments and the conversion and remodelling of premises, as
well as standing charges for electricity connections. The increase
in the carbon emissions per GBP1m of turnover is largely
attributable to the activity involved in preparing and marketing
properties for sale against the background of falling turnover as a
consequence of property sales.
It has not been practicable to measure Scope 3 emissions.
Our direct usage and emissions of water is minimal, being
largely confined to hygiene and refreshment purposes within
Principal's 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.
2018 Kg Co2e per 2017 Kg Co2e per GBP1m
Kg Co2e GBP1m t/o Kg Co2e t/o
Scope 1 (gas and
fuel) 1,706 505 1,230 204
--------- ------------ --------- ------------------
Scope 2 (electricity) 7,438 2,199 10,992 1,826
--------- ------------ --------- ------------------
Total gross emissions 9,144 2,704 12,223 2,030
--------- ------------ --------- ------------------
Employee Share Schemes
During the year the Company operated The Local Shopping REIT plc
Employee & Former Employee Incentive Scheme 2016, details of
which are set out in the Remuneration Report
The Local Shopping REIT plc Employee Benefit Trust (the "Trust")
operates to supply shares as appropriate to meet obligations
arising from the Company's employee share schemes. The voting
rights of shares held by the Trust are identical to the remainder
of the Company's issued share capital. During the year the Trust
was not called on to supply shares in relation to the exercise of
share options (2017: 130,001).
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 (2017: 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
Subject to the result of the forthcoming General Meeting, the
Company's Auditors, KPMG LLP, will resign at the conclusion of the
next Annual General Meeting, at which a resolution for their
re-appointment would be proposed. The ongoing appointment of the
auditors will not be necessary in the event that the General
Meeting adopts the resolution for a Members' Voluntary Liquidation
of the Company.
Viability Statement
In accordance with the UK Corporate Governance Code 2016, the
directors have assessed the Company's continuing viability, taking
account of:
-- likely conclusion of the execution of the Company's investment strategy;
-- the level of the Company's cash holdings;
-- the potential impact of the principal risks and mitigation
factors described in the Principal Risks section above.
In concluding that the Company continues to be viable, the
directors note that the Company is debt-free and has significant
cash reserves.
However, in view of the likelihood that the property portfolio
will be fully liquidated during the early part of 2019, the
directors have recommended to shareholders that the Company enters
into a solvent members' voluntary liquidation. Accordingly, the
directors consider it appropriate that the Company's financial
statements should no longer be prepared on the going concern
basis.
Diversity
The Company qualifies as a medium company under in relation to
the diversity statements otherwise required under Disclosure and
Transparency Rule 7.2 of the Financial Conduct Authority.
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 Remuneration 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, Brett Miller and Nick Vetch. The Committee
is chaired by Stephen East. Biographical details of the members of
the Committee are set out on page 10. There was no requirement for
the Committee to meet during the year.
Other directors or executives attend meetings of the Committee
only by invitation. The Company Secretary serves as secretary to
the Committee. 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 Committee is responsible for the operation of the Company's
share-related performance plans. Whilst these include the Long Term
Incentive Plan and the Share Option Plan, neither of these plans
were operated during the year.
The independent non-executive directors engage with Principal
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 operated a
share-based retention and incentive plan, The Local Shopping REIT
plc Employee & Former Employee Incentive Scheme 2016 ("the 2016
Scheme"), applying to members of the asset management team eligible
to participate in such arrangements under the terms of the
Company's Employee Benefit Trust. This is a short-term arrangement
by which options over the Company's shares are granted subject to
vesting criteria linked to the achievement of the Company's
investment strategy. The 2016 Scheme replaced a similar scheme, The
Local Shopping REIT plc Employee & Former Employee Incentive
Scheme 2015 ("the 2015 Scheme") that operated during the previous
year. No option awards vested in either of the schemes during the
year.
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. Each
of the Company's directors was re-appointed pursuant to this policy
at the Company's Annual General Meeting in March 2018.
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 to be capable of termination by the Company at not more
than one year's notice.
See Table 2 on page 26.
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, 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. See Table 1 on page 25.
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 to
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
Subject to the result of the forthcoming General Meeting, 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 next
Annual General Meeting.
Remuneration Implementation Report
This section sets out the ways in which the Company applied its
remuneration policy during the year.
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 in 2007, 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 2018 Annual General Meeting shareholders passed
resolutions approving the Remuneration Implementation Report for
2016-17. Proxy votes for the resolutions showed a majority of 100%
of votes cast in favour of the Remuneration Implementation
Report.
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.
Brett Miller has an appointment document effective from 12 December
2016, subject to annual extensions. In considering annual
extensions of the appointments of individual directors, the Board
has regard to whether directors may be considered to be independent
within the spirit of the Code, that no individual or group can
dominate decision-making and that all directors are required to
offer their resignations at each Annual General Meeting.
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
Only the tables in this report (with the exception of Table 2:
Directors' Service Contracts) are considered to comprise audited
information.
Table 1: Directors' Total Remuneration 2017-18
Director Salary Short term Long term Pension Benefits Total
incentives incentives contributions in kind
Non-executive
directors
------- ------------ ------------ --------------- --------- -------
Stephen East 30,000 - - - - 30,000
------- ------------ ------------ --------------- --------- -------
Brett Miller 30,000 - - - - 30,000
------- ------------ ------------ --------------- --------- -------
Nick Vetch 30,000 - - - - 30,000
------- ------------ ------------ --------------- --------- -------
Total 90,000 - - - - 90,000
------- ------------ ------------ --------------- --------- -------
Other than for Mr Miller, who joined the Board part-way through
2016-17, the figures in the above table were unchanged from the
previous year.
The Company did not employ any executive directors during the
year.
Table 2: Directors' Service Contracts
Non-executive Date of initial Date of current Expiry of term
directors appointment appointment letter
Stephen East 10 September 10 September 9 September 2019
2009 2018
----------------- -------------------- -----------------
Brett Miller 12 December 2016 12 December 2017 12 December 2018
----------------- -------------------- -----------------
Nick Vetch 30 March 2007 30 March 2018 29 March 2019
----------------- -------------------- -----------------
Directors' Interests in the Company's Shares
The interests of the Directors in Ordinary Shares of 20 pence
each in the capital of the Company as at 30 September 2018 are set
out in the table below:
Total interest as at 30 September
2018
----------------
Director
----------------------------------
Stephen East 75,000
----------------------------------
Brett Miller 518,000
----------------------------------
Nicholas Vetch 2,873,563
----------------------------------
Stephen East
Remuneration Committee Chairman
9 December 2018
Audit Committee Report
The Committee met three times during the year and each member's
attendance record is set out in the table on page 13. 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 2017 and 31
March 2018. Following the year-end, the Committee reviewed the
valuations for 30 September 2018.
Going Concern Assumption
The Committee gave particular consideration to whether, in view
of the progress with the Company's property sales programme, the
Company's financial statements should continue to be prepared on a
Going Concern basis. Having reviewed progress with the sales
programme and noting the likelihood that it would be completed
during the early part of the 2018-19 financial year, together with
the Company's investment policy of returning cash to shareholders,
the Committee concluded that it should recommend to the Board that
the financial statements for 30 September 2018 should not be
prepared on a Going Concern basis, which was approved by the
Board.
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.
The Company's auditors, KPMG LLP, did not supply any non-audit
services to the Company during the year.
Nicholas Vetch
Audit Committee Chairman
9 December 2018
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 2018.
The Directors' Report also includes the information set out on
pages 3 to 27, together with the description of the Company's
investment policy and business model described on page 1.
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 the Annual Report
and the Group and parent Company financial statements in accordance
with applicable law and regulations.
Company law requires the directors to 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 International Financial Reporting Standards as
adopted by the European Union (IFRSs as adopted by the EU) and
applicable law and have elected to prepare the parent Company
financial statements in accordance with UK accounting standards,
including FRS 102 The Financial Reporting Standard applicable in
the UK and Republic of Ireland.
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 parent Company and of
their profit or loss for that period. In preparing each of the
Group and parent Company financial statements, the directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable, relevant, reliable 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;
-- assess the Group and parent Company's ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern; and
-- use the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to cease
operations or have no realistic alternative but to do so (as
explained in note 1, the directors do not believe that it is
appropriate to prepare these financial statements on a going
concern basis).
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 are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and 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 Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Responsibility
Statement that complies with that law and those 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.
Responsibility statement of the directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
-- 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; and
-- the strategic report/directors' report 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.
We consider the annual report and accounts, 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.
The foregoing reports were approved by the directors on 9
December 2018
William A Heaney
Company Secretary
9 December 2018
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF THE LOCAL SHOPPING
REIT PLC
1 Our opinion is unmodified
We have audited the financial statements of The Local Shopping
REIT plc ("the Company") for the year ended 30 September 2018 which
comprise the Consolidated Income Statement, Consolidated Statement
of Comprehensive Income, Consolidated Balance Sheet, Consolidated
Statement of Cash Flows,, Consolidated Statement of Changes in
Equity, Company Balance Sheet, Company Statement of Changes in
Equity and the related notes, including the accounting policies in
note 1.
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 2018 and of the Group's loss 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.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our
responsibilities are described below. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for
our opinion. Our audit opinion is consistent with our report to the
audit committee.
We were first appointed as auditor by the directors for the year
ended 30 September 2005. The period of total uninterrupted
engagement is for the fourteen financial years ended 30 September
2018. We have fulfilled our ethical responsibilities under, and we
remain independent of the Group in accordance with, UK ethical
requirements including the FRC Ethical Standard as applied to
listed public interest entities. No non-audit services prohibited
by that standard were provided.
2 Key audit matters: our assessment of risks of material
misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. We summarise below
the key audit matters, in decreasing order of audit significance,
in arriving at our audit opinion above, together with our key audit
procedures to address those matters and, as required for public
interest entities, our results from those procedures. These matters
were addressed, and our results are based on procedures undertaken,
in the context of, and solely for the purpose of, our audit of the
financial statements as a whole, and in forming our opinion
thereon, and consequently are incidental to that opinion, and we do
not provide a separate opinion on these matters.
Investment property held for sale GBP22.3m (2017: GBP55.9m),
Risk vs 2017:
Refer to Audit Committee Report (page 26), accounting policy
(page 39), and financial disclosures (page 44).
The risk: Subjective valuation
Investment property held for sale is the Group's largest asset
category. The valuation requires significant judgements and
estimates, from both directors and external valuers, with respect
to the key assumptions, including yield rates and ERVs (Estimated
Rental Values). Where properties are sold post year end and prior
to approval of the financial statements the level of judgement is
reduced as the achieved sales prices are a strong indication of
fair values at the year end. Of the total portfolio held at 30
September 2018 of GBP22.3m, GBP7.6m is unsold at the date of
approval of the financial statements (2017: GBP54.6m) and hence the
risk has reduced year on year.
Our response
Our procedures, assisted by our own property valuation
specialist (for procedures 1, 2 and 3), included:
1. Understanding of valuation approach: We met the Group's
external valuer to understand the assumptions used in valuing the
investment properties not sold at the date of approval of the
financial statements and the market evidence used by the external
valuer to support these assumptions.
2. Assessing valuer's credentials: We assessed the independence,
professional qualifications, competence and experience of the
external valuer used by the Group.
3. Our sector experience: We challenged the key assumptions used
in the valuations, in particular yield rates, for a sample of
properties. Our sample was determined with reference to: properties
with significant movement in rental yields and properties
experiencing the most significant valuation movements. We evaluated
assumptions used as part of the valuation, in particular those
relating to growth rates, yields and ERVs using our own valuation
specialist.
4. Retrospective testing of disposals: We tested the disposals
in the period and the level of profit or loss achieved on each
disposal to ascertain whether managements judgement was sound and
therefore if there was any potential indication of management bias
in the year end valuations.
5. Assessing transparency: We assessed the adequacy of the
Group's disclosures about the degree of estimation and sensitivity
to key assumptions made when valuing properties.
Our results
We found the valuation of investment properties held for sale to
be acceptable.
Recoverability of parent Company's investments in subsidiaries
GBP21.0m (2017: GBP26.5m), Risk vs 2017:
Refer to Audit Committee Report (page 26), accounting policy
(page 39) and financial disclosures (page 44).
The risk: Forecast-based valuation
The carrying amount of the parent Company's investments in
subsidiaries is the most significant item on the parent Company
balance sheet and at risk of irrecoverability as certain
subsidiaries have historically been loss-making and the
subsidiaries are now going through a phase of disposing of their
final properties. The estimated recoverable amount of investments
is subjective due to the inherent uncertainty in judgements and
estimates used in the impairment test i.e. the value of the
investment properties held for sale (as described in the risk
above). The risk has increased this year due to the fact that the
value of the investment represents predominantly the investment
properties held for sale in the subsidiaries. Due to the volatility
in this balance (as the majority of these have been disposed of
during the year) there is an increased risk that the investment is
no longer supported by the net assets of the subsidiaries.
Our response
Our procedures included:
1. Test of details: Comparing the carrying amount of 100% of
investments with the relevant subsidiaries' draft balance sheets as
at 30 September 2018 to identify whether their net assets, being an
approximation of their minimum recoverable amount, were in excess
of their carrying amount.
2. Test of details: assessing subsidiary audits: Assessing the
work performed by the group audit team on all of those subsidiaries
and considering the results of that work in relation to the
valuation of investment properties held for sale (the key input
used in the relevant subsidiaries' net assets).
Our results
We found the Group's assessment of the recoverability of the
investments in subsidiaries and the resulting impairment charge to
be acceptable.
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 GBP300,000 (2017: GBP685,000) determined with reference
to a benchmark of Group total assets, of which it represents 0.9%
(2017: 1%).
Materiality for the parent Company financial statements as a
whole was set at GBP285,000 (2017: GBP279,000), determined with
reference to a benchmark of Company total assets, of which it
represents 0.9% (2017: 0.5%).In addition, we applied materiality of
GBP21,300 (2017: GBP59,000) to certain Group income statement
items, for which we believe misstatements of lesser amounts than
materiality for the financial statements as a whole could be
reasonably expected to influence the company's members' assessment
of the financial performance of the group. These items are gross
rental income and management fees.
We agreed to report to the Audit Committee any corrected and
uncorrected identified misstatements exceeding GBP15,000 (2017:
GBP34,000) in addition to other identified misstatements that
warranted reporting on qualitative grounds.
The Group audit team performed the audit of the Group as if it
was a single aggregated set of financial information. The Group
audit was performed using the materiality levels specified above
and covered 100% (2017: 100%) of total Group revenue, Group profit
before tax, and Group total assets.
4 Emphasis of matter - non-going concern basis of
preparation
We draw attention to the disclosure made in note 1 to the
financial statements which explains that the financial statements
are now not prepared on the going concern basis for the reasons set
out in that note. Our opinion is not modified in respect of this
matter.
5 We have nothing to report on the other information in the
Annual Report
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does not cover
the other information and, accordingly, we do not express an audit
opinion or, except as explicitly stated below, any form of
assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or
inconsistent with the financial statements or our audit knowledge.
Based solely on that work we have not identified material
misstatements in the other information.
Strategic report and directors' report
Based solely on our work on the other information:
-- we have not identified material misstatements in the
strategic report and the directors' report;
-- in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
-- in our opinion those reports have been prepared in accordance with the Companies Act 2006.
Directors' remuneration report
In our opinion the part of the Directors' Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, other than the emphasis of matter over the
non-going concern basis of preparation referred to above, we have
nothing material to add or draw attention to in relation to:
-- the directors' confirmation within the viability statement
page 21 that they have carried out a robust assessment of the
principal risks facing the Group, including those that would
threaten its business model, future performance, solvency and
liquidity;
-- the Principal Risks disclosures describing these risks and
explaining how they are being managed and mitigated; and
-- the directors' explanation in the viability statement of how
they have assessed the prospects of the Group, over what period
they have done so and why they considered that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Under the Listing Rules we are required to review the viability
statement. We have nothing to report in this respect.
Corporate governance disclosures
We are required to report to you if:
-- we have identified material inconsistencies between the
knowledge we acquired during our financial statements 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 section of the annual report describing the work of the
Audit Committee does not appropriately address matters communicated
by us to the Audit Committee; or
We are required to report to you if the Corporate Responsibility
Statement does not properly disclose a departure from the eleven
provisions of the UK Corporate Governance Code specified by the
Listing Rules for our review.
We have nothing to report in these respects.
6 We have nothing to report on the other matters on which we are
required to report by exception
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.
We have nothing to report in these respects.
7 Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out on page 29,
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing the
Group and parent Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
using the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or other irregularities (see
below), or error, and to issue our opinion in an auditor's report.
Reasonable assurance is a high level of assurance, but does not
guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements
can arise from fraud, other irregularities or error and are
considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the
FRC's website at www.frc.org.uk/auditors responsibilities.
Irregularities - ability to detect
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the financial
statements from our sector experience and through discussion with
the directors and other management (as required by auditing
standards).
We had regard to laws and regulations in areas that directly
affect the financial statements including financial reporting
(including related company legislation) and taxation legislation.
We considered the extent of compliance with those laws and
regulations as part of our procedures on the related financial
statement items.
In addition, we considered the impact of laws and regulations in
the specific areas of anti-bribery, employment law, and certain
aspects of company legislation recognising the nature of the
group's activities. With the exception of any known or possible
non-compliance, and as required by auditing standards, our work in
respect of these was limited to enquiry of the directors and other
management.
As with any audit, there remained a higher risk of non-detection
of non-compliance with relevant laws and regulations
(irregularities), as these may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls.
8 The purpose of our audit work and to whom we owe our
responsibilities
This report is made solely to the Company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in
an auditor's 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 and the Company's members, as a body,
for our audit work, for this report, or for the opinions we have
formed.
Mark Flanagan (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
31 Park Row
Nottingham
NG1 6FQ
9 December 2018
Consolidated Income Statement for the year ended 30 September
2018
2018 2017
------------------------------------------------- -----
Note GBP000s GBP000s
------------------------------------------------- ----- -------- --------
Gross rental income 3,381 6,023
----- -------- --------
Property operating expenses 2 (2,451) (1,968)
----- -------- --------
Net rental income 930 4,055
----- -------- --------
Loss on disposal of investment properties 3 (1,417) (1,298)
----- -------- --------
Loss from change in fair value of investment
properties 7 (4,536) (689)
----- -------- --------
Administrative expenses including non-recurring
items 4 (1,522) (1,738)
----- -------- --------
Operating profit before net financing
costs (6,545) 330
----- -------- --------
Financing income* 5 2 5
----- -------- --------
Financing expenses* 5 (611) (1,193)
----- -------- --------
Loss before tax (7,154) (858)
----- -------- --------
Taxation 6 - -
----- -------- --------
Loss for the year (7,154) (858)
----- -------- --------
Loss for the financial year attributable
to equity holders of the Company (7,154) (858)
----- -------- --------
Basic and diluted loss per share on loss
for the year 15 (8.67)p (1.04)p
----- -------- --------
Basic and diluted loss per share on operations
for the year 15 (8.67)p (1.04)p
----- -------- --------
Consolidated Statement of Comprehensive Income for the year
ended 30 September 2018
2018 2017
---------------------------------------------------
GBP000s GBP000s
--------------------------------------------------- -------- --------
Loss for the financial year - (858)
---------------------------------------------------- -------- --------
Loss for the financial year on discontinued
operations (below) (7,154) -
---------------------------------------------------- -------- --------
Total comprehensive loss for the
year (7,154) (858)
---------------------------------------------------- -------- --------
Attributable to:
--------------------------------------------------- -------- --------
Equity holders of the parent Company (7,154) (858)
---------------------------------------------------- -------- --------
2018
---------------------------------------------------
GBP000s
--------------------------------------------------- --------
Revenue less expenses for the financial
year on discontinued operations (2,618)
---------------------------------------------------- --------
Fair value adjustment of assets
held for sale from discontinued
operations (4,536)
---------------------------------------------------- --------
Total comprehensive loss for the
year (7,154)
---------------------------------------------------- --------
Taxation on discontinued operations -
--------------------------------------------------- --------
Total loss for the financial year on discontinued
operations (above) (7,154)
---------------------------------------------------- --------
Consolidated Balance Sheet as at 30 September 2018
Note 2018 2017
--------------------------------------- -----
GBP000s GBP000s
--------------------------------------- ----- -------- ---------
Non-current assets
----- -------- ---------
Investment properties 7 - 54,613
----- -------- ---------
- 54,613
----- -------- ---------
Current assets
----- -------- ---------
Trade and other receivables 8 4,341 2,143
----- -------- ---------
Investment properties held for
sale 7 22,317 1,280
----- -------- ---------
Cash 9 3,292 10,455
----- -------- ---------
29,950 13,878
----- -------- ---------
Total assets 29,950 68,491
----- -------- ---------
Non-current liabilities
----- -------- ---------
Interest bearing loans and borrowings 10 - (29,462)
----- -------- ---------
Finance lease liabilities 12 - (431)
----- -------- ---------
- (29,893)
----- -------- ---------
Current liabilities
----- -------- ---------
Interest bearing loans and borrowings 10 - (1,209)
----- -------- ---------
Trade and other payables 11 (2,217) (2,600)
----- -------- ---------
(2,217) (3,809)
----- -------- ---------
Total liabilities (2,217) (33,702)
----- -------- ---------
Net assets 27,733 34,789
----- -------- ---------
Equity
----- -------- ---------
Issued capital 13 18,334 18,334
----- -------- ---------
Reserves 13 3,773 3,773
----- -------- ---------
Capital redemption reserve 13 1,764 1,764
----- -------- ---------
Retained earnings 3,862 10,918
----- -------- ---------
Total attributable to equity holders
of the Company 27,733 34,789
----- -------- ---------
Consolidated Statement of Cash Flows for the year ended 30
September 2018
2018 2017
-----------------------------------------
Note GBP000s GBP000s
----------------------------------------- ----- --------- ---------
Operating activities
----- --------- ---------
(Loss)/Profit for the year (7,154) (858)
----- --------- ---------
Adjustments for:
----- --------- ---------
Loss from change in fair value
of investment properties 7 4,536 689
----- --------- ---------
Net financing costs 5 609 1,188
----- --------- ---------
Loss on disposal of investment
properties 1,417 1,298
----- --------- ---------
Equity secured share-based payment
expenses 98 98
----- --------- ---------
(494) 2,415
----- --------- ---------
Increase in trade and other receivables (2,198) (49)
----- --------- ---------
Increase(Decrease) in trade and
other payables (265) 388
----- --------- ---------
(2,957) 2,754
----- --------- ---------
Interest paid (445) (1,087)
----- --------- ---------
Loan arrangement fees paid (23) (280)
----- --------- ---------
Interest received 2 5
----- --------- ---------
Net cash (outflow)/inflow from
operating activities (3,423) 1,392
----- --------- ---------
Investing activities
----- --------- ---------
Net proceeds from sale of investment
properties 27,380 18,373
----- --------- ---------
Acquisition and improvements to
investment properties 7 (188) (514)
----- --------- ---------
Cash flows from investing activities 27,192 17,859
----- --------- ---------
Net cash flows from operating
activities and investing activities 23,769 19,251
----- --------- ---------
Financing activities
----- --------- ---------
Repayment of borrowings (30,932) (19,796)
----- --------- ---------
Payments to close swaps - -
----- --------- ---------
Cash flows from financing activities (30,932) (19,796)
----- --------- ---------
Net decrease in cash (7,163) (545)
----- --------- ---------
Cash at beginning of year 10,455 11,000
----- --------- ---------
Cash at end of year 9 3,292 10,455
----- --------- ---------
Consolidated Statement of Changes in Equity for the year ended
30 September 2018
Capital
-----------------------------
redemption Retained
Share
capital Reserves reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- --------- --------- ----------- --------- --------
Balance at 1 October 2016 18,334 3,773 1,764 11,678 35,549
--------- --------- ----------- --------- --------
Total comprehensive expense
for the year
--------- --------- ----------- --------- --------
Loss for the year - - - (858) (858)
--------- --------- ----------- --------- --------
Total contributions by and
distributions to owners - - - - -
--------- --------- ----------- --------- --------
Share based payments - - - 98 98
--------- --------- ----------- --------- --------
Balance at 30 September
2017 18,334 3,773 1,764 10,918 34,789
--------- --------- ----------- --------- --------
Total comprehensive expense
for the year
--------- --------- ----------- --------- --------
Loss for the year - - - (7,154) (7,154)
--------- --------- ----------- --------- --------
Total contributions by and
distributions to owners - - - - -
--------- --------- ----------- --------- --------
Share based payments 98 98
--------- --------- ----------- --------- --------
Balance at 30 September
2018 18,334 3,773 1,764 3,862 27,733
--------- --------- ----------- --------- --------
Notes to the Financial Statements for the year ended 30
September 2018
1. Accounting Policies
Basis of Preparation
The Local Shopping REIT plc (the "Company") is a public company
incorporated, domiciled and registered in England. The registered
number is 05304743 and the registered address is 65, Grosvenor
Street, London, W1K 3JH.
The group financial statements consolidate those of the Company
and its subsidiaries (together referred to as the "Group"). The
parent company financial statements present information about the
Company as a separate entity and not about its group.
The group financial statements have been prepared and approved
by the directors in accordance with International Financial
Reporting Standards as adopted by the EU ("Adopted IFRSs") and in
accordance with the provisions of the Companies Act 2006. The
Company has elected to prepare its parent company financial
statements in accordance with FRS 102; these are presented on pages
59 to 65.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in these
group financial statements.
Judgements made by the directors, in the application of these
accounting policies that have significant effect on the financial
statements and estimates with a significant risk of material
adjustment in the next year are discussed later in this note under
the heading "Use of Estimates and Judgements".
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 and
investment properties held for sale.
Going Concern
The Company has continued its policy, established in 2013, of
realising assets and returning capital to shareholders. Prior to
the year end the Board determined that progress with the sales of
properties had been such that it was no longer appropriate to
prepare financial statements on a going concern basis.
Accordingly these statements include the following adjustments
to bring the results to a break up basis:
1. The property portfolio has been revalued to reflect the
expected net realisable proceeds of the individual properties,
after taking into account realisation costs.
2. Provision has been made for anticipated expenditure on the property portfolio prior to sale.
3. The head lease value has been removed from the Balance Sheet,
along with its matching finance liability.
4. Provision has been made for expected legal and professional costs of the liquidation.
Basis of Consolidation
The consolidated financial statements include the financial
statements of the Company and all its subsidiary undertakings up to
30 September 2018. Subsidiaries are entities controlled by the
Group. The Group controls an entity when it is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over
the entity. In assessing control, the Group takes into
consideration potential voting rights. The acquisition date is the
date on which control is transferred to the acquirer. The financial
statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the
date that 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.
Since the Balance Sheet date a number of properties have
exchanged contracts for sale, been sold at auction or have
completed sale following an exchange of contracts during the year.
For these properties the sale proceeds less sales costs have formed
the basis of the valuation at the balance sheet date. The remaining
properties have been valued by Allsop LLP following the Company's
normal valuation policy as set out in the following paragraph.
For the Group as a whole Allsop LLP, a firm of independent
chartered surveyors valued the Group's property portfolio at 30
September 2018 (subject to the above paragraph), 31 March 2018, 30
September 2017 and 31 March 2017. 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,
using assumptions regarding yield rates, void levels and comparable
market transactions, 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.
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.
All the investment properties held at the balance sheet date
meet the above criteria. Accordingly, the whole portfolio has been
included as assets held for sale, and in the case of properties
valued by Allsop, these valuations have been further reduced to
reflect the anticipated legal and other costs on sale.
Head Leases
The previous policy has been that 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 was included in the Balance Sheet as a
finance obligation in current and non-current liabilities.
As the Company has no investment properties at the Balance Sheet
date, the head lease value and its corresponding liability have
been removed from the Balance Sheet.
The payment of head rents has been 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.
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.
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 costs of incentives
are recognised over the lease term, on a straight-line basis, as a
reduction to income.
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.
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.
The valuation basis of the Group's investment properties is set
out above.
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 IFRS 16, which is now
mandatorily effective. This 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 approval 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:
Effective for periods beginning on or after:
Amendments to IFRS 11 Joint Arrangements I January 2018
Amendments to IAS 40 Transfers of Investment Properties I January
2018
IFRS 15 Revenue Contracts with Customers I January 2018
IFRS 9 Financial Instruments I January 2018
None of the above standards are expected to have a material
impact on the future financial statements of the Group.
2. Property Operating Expenses
2018 2017
GBP000 GBP000
--------
Bad debt charge (221) (353)
-------- --------
Head rent payments (37) (31)
----------------------------------- --------
Repairs (993) (343)
----------------------------------- --------
Business rates and council tax (185) (245)
----------------------------------- --------
Irrecoverable service charge (122) (160)
----------------------------------- --------
Utilities (108) (66)
----------------------------------- --------
Insurance (53) (92)
----------------------------------- --------
Managing agent fees (158) (242)
----------------------------------- --------
Leasing costs (266) (231)
----------------------------------- --------
Legal & professional (173) (73)
----------------------------------- --------
EPC amortisation, Abortives, and
Misc (135) (132)
----------------------------------- --------
Total property operating expenses (2,451) (1,968)
----------------------------------- --------
3. Property Disposals
2018 2017
Number Number
000s 000s
-------------------------------------- ---------
Number of sales 107 142
-------------------------------------- ---------
GBP000 GBP000
-------------------------------------- --------- ---------
Average value 264 136
-------------------------------------- ========= =========
Sales
-------------------------------------- ---------
Total sales 28,198 19,287
-------------------------------------- ---------
Carrying value (28,797) (19,671)
-------------------------------------- ---------
Loss on disposals before transaction
costs (599) (384)
====================================== ========= =========
Transaction costs
-------------------------------------- ---------
Legal fees (339) (307)
-------------------------------------- ---------
Agent fees, marketing and brochure
costs (426) (499)
-------------------------------------- ---------
Disbursements (2) (23)
-------------------------------------- ---------
Non recoverable VAT (on non-opted
and residential elements) (51) (85)
-------------------------------------- ---------
Total transaction costs (818) (914)
====================================== ========= =========
Loss on disposals after transaction
costs (1,417) (1,298)
-------------------------------------- --------- ---------
Transaction costs as percentage
of sales value -2.9% -4.7%
-------------------------------------- --------- ---------
4. Administrative Expenses
2018 2017
--------------------------------------
GBP000 GBP000
-------------------------------------- --------
Investment manager fees (496) (918)
-------------------------------------- --------
Legal and professional (186) (145)
-------------------------------------- --------
Tax and audit (113) (116)
-------------------------------------- --------
Remuneration Costs (note 1) (194) (187)
-------------------------------------- --------
Other (41) (44)
-------------------------------------- --------
Irrecoverable VAT on Administration
expenses (note 2) (92) (200)
-------------------------------------- --------
Non recurring expenditure - (128)
-------------------------------------- --------
Provision for liquidators' fees (250) -
-------------------------------------- --------
Provision for legal costs of winding (150) -
up
-------------------------------------- --------
Total administrative expenses (1,522) (1,738)
-------------------------------------- --------
(1) Remuneration costs include GBP98,000 (30 September
2017: GBP 98,000) 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.
(2) The company's portfolio contains residential
elements and commercial properties not opted for
VAT. Accordingly, VAT on overheads is not fully recoverable.
Financials
* The following fees have been paid to the Group's
Auditors:
2018 2017
GBP000 GBP000
---------------------------------------------- --------- --------
Auditors' remuneration for audit services:
Audit of parent Company 34 34
Audit related assurance services 16 16
Statutory audit of subsidiaries 39 39
Auditors' remuneration for non-audit
services:
Tax services - -
Other services supplied - -
5. Net Financing Costs
2018 2017
-----------------------------------
GBP000 GBP000
----------------------------------- ------- --------
Interest receivable 2 5
------- --------
Interest receivable excluding
fair value movements 2 5
------- --------
Fair value gains on derivative - -
financial instruments (note 16)
------- --------
Financing income 2 5
------- --------
Bank loan interest (327) (961)
------- --------
Amortisation of loan arrangement
fees (261) (181)
------- --------
Head rents treated as finance
leases - (27)
------- --------
Bank facility fees (23) (24)
------- --------
Financing expenses excluding swap
closing costs (611) (1,193)
------- --------
Payments to close swaps - -
------- --------
Financing expenses (611) (1,193)
------- --------
Net financing costs (609) (1,188)
------- --------
6. Taxation
2018 2017
----------------------------------
GBP000 GBP000
---------------------------------- -------- -------
(Loss)/Profit before tax (7,154) (858)
-------- -------
Corporation tax in the UK of 20%
(2017: 20%) (1,431) (172)
-------- -------
Effects of:
-------- -------
Revaluation deficit and other
non-deductible items 907 137
-------- -------
Deferred tax asset/(liability)
not recognised (524) (35)
-------- -------
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 2016)
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 2016. 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 and therefore no deferred tax
asset has been recognised in these accounts. The unprovided
deferred tax asset at 30 September 2018 was GBP3.01m (2017:
GBP2.51m).
7. Investment Properties
Freehold Leasehold
-----------------------------------
Investment Investment
Properties Properties Total
GBP000 GBP000 GBP000
----------------------------------- ----------- ----------- ---------
At 30 September 2016 59,334 14,951 74,285
----------- ----------- ---------
Additions 449 65 514
----------- ----------- ---------
Disposals - property (16,472) (3,199) (19,671)
----------- ----------- ---------
Disposals - head leases - (136) (136)
----------- ----------- ---------
Fair value adjustments (863) 174 (689)
----------- ----------- ---------
Movement on Investment properties
held for sale 122 188 310
----------- ----------- ---------
At 30 September 2017 42,570 12,043 54,613
----------- ----------- ---------
Additions 116 72 188
----------- ----------- ---------
Disposals - property (23,134) (5,663) (28,797)
----------- ----------- ---------
Disposals - head leases - (431) (431)
----------- ----------- ---------
Fair value adjustments (2,735) (1,801) (4,536)
----------- ----------- ---------
Movement on Investment properties
held for sale (16,817) (4,220) (21,037)
----------- ----------- ---------
At 30 September 2018 - - -
----------- ----------- ---------
The investment properties have all been revalued to their fair
value at 30 September 2018.
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:
2018 2017
-----------------------------------
GBP000 GBP000
----------------------------------- --------- --------
Portfolio valuation 22,317 55,462
--------- --------
Investment properties held for
sale (22,317) (1,280)
--------- --------
Head leases treated as investment
properties held under finance
leases per IAS 17 - 431
--------- --------
Total per Balance Sheet - 54,613
--------- --------
8. Trade and Other Receivables
2018 2017
-------------------
GBP000 GBP000
------------------- ------- -------
Trade receivables 541 620
------- -------
Other receivables 3,609 840
------- -------
Prepayments 191 683
------- -------
4,341 2,143
------- -------
9. Cash
2018 2017
-------------------------------
GBP000 GBP000
------------------------------- ------- -------
Cash in the Statement of Cash
Flows 3,292 10,455
------- -------
At 30 September 2017 the bank balances included amounts held
pending the next interest payment due in October 2017. Until the
interest payment had been deducted from these balances the cash was
not available for use by the Group. At 30 September 2017 the amount
held on such account was GBP1.218m, with accruals for interest due
of GBP0.118m . At 30 September 2018 all borrowings have been repaid
and there no restrictions over the accounts nor is there any
accrual for interest.
10. Interest Bearing Loans and Borrowings
2018 2017
---------------------------------
GBP000 GBP000
--------------------------------- -------- -------
Non-current liabilities
-------- -------
Secured bank loans - 29,723
-------- -------
Loan arrangement fees - (261)
-------- -------
- 29,462
------------------------------------------ -------
Current liabilities
-------- -------
Current portion of secured bank
loans - 1,209
-------- -------
During the year all bank borrowing was repaid. Prepaid loan
arrangement fees of GBP0.261m were expensed through the profit and
loss account.
For more information about the Group's exposure to interest rate
risk, see note 17.
11. Trade and Other Payables
2018 2017
------------------------------------
GBP000 GBP000
------------------------------------ ------- -------
Trade payables 98 346
------- -------
Other taxation and social security 40 240
------- -------
Other payables 1,425 991
------- -------
Accruals and deferred income 654 1,023
------- -------
2,217 2,600
------- -------
Other payables include rent deposits held in respect of
commercial tenants of GBP0.340m (2016: GBP0.455m).
12. 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 2016 4,095 (3,528) 567
--------------- --------- ----------
Disposals (993) 857 (136)
--------------- --------- ----------
(Payments)/charge (27) 27 -
--------------- --------- ----------
At 30 September 2017 3,075 (2,644) 431
--------------- --------- ----------
Disposals (3,075) 2,644 (431)
--------------- --------- ----------
(Payments)/charge -
--------------- --------- ----------
At 30 September 2018 - - -
--------------- --------- ----------
As explained in note 1 the finance leases are no longer
considered appropriate to show in the balance sheet
13. Capital and Reserves
Share Capital
2018 2017
---------------------- ----------------------
Ordinary 20p Shares Ordinary 20p 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 (2017:
9,164,017).
Employee Benefit Trust ("EBT")
The number of shares held by the Company's Employee Benefit
Trust, LSR Trustee Limited at the year end was 791,098 (2017:
921,098). During the year:
1 No shares (2017: 791,098 shares) were allocated to
beneficiaries under the Local Shopping REIT Plc Employee &
Former Employee Incentive Scheme 2016.
2. The EBT transferred no shares to employees on the exercise of
awards under either the Company's Long Term Incentive Plan or the
Company's Share Option Scheme.
3. During 2017 options over 130,000 shares which had vested in
2016 under the Local Shopping REIT plc Employee & Former
Employee Incentive Scheme 2015 were exercised, and this number of
shares was transferred from the EBT to beneficiaries of this
scheme.
Reserves
The value of shares issued to purchase Gilfin Property Holdings
Limited in excess of their nominal value has been shown as a
separate reserve in accordance with the Companies Act 2006.
Capital Redemption Reserve
The capital redemption reserve arose in prior years on the
cancellation of 8,822,920 Ordinary 20p Shares.
Calculation of Net Asset Value Per Share (NAV)
2018 2017
------------
GBP000 GBP000
------------ ------- -------
Net assets 27,733 34,789
------- -------
2018 2017
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 34p 42p
-------- --------
14. Dividends
No dividends were paid during the current and previous year.
15. 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
2018 2017
-------------------------------
GBP000 GBP000
------------------------------- -------- -------
Loss for the year (7,154) (858)
-------- -------
Loss on continuing operations
for the year (7,154) (858)
-------- -------
Weighted Average Number of Ordinary Shares
2018 2017
-------------------------------------
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
-------- --------
Basic and diluted loss per share
for the year (8.67)p (1.04)p
-------- --------
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.
16. 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 cash and equity attributable to
the shareholders. Following repayment of the bank borrowing, the
Board do not consider there is any material capital management risk
exposure.
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 was restricted to interest rate risk only.
Following repayment of the bank borrowing, the Board do not
consider there is any material market risk exposure.
The Group does not speculate in financial instruments. They have
only been used to limit exposure to interest rate fluctuations.
With the proposed liquidation ahead, it is not likely that any
borrowing and hence exposure to interest rate will occur.
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%. 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.
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.
2018 2017
Impact on Income Impact on Equity Impact on Income Impact on Equity
--------------------- -------------------- -------------------- --------------------
Increase Decrease Increase Decrease Increase Decrease Increase Decrease
by 1% to 0% by 1% to 0% by 1% to 0% by 1% to 0%
Impact
on Interest
income
and expense
in GBP000s nil nil nil nil (238) 79 (238) 79
The above table is for comparison purposes for 2017. As the bank
borrowing has been repaid it is not applicable to the current
year.
Fair value measurements recognised in the statement of financial
position
Investment properties and Investment properties held for sale
are measured subsequent to initial recognition at fair value and
have been group as Level 3 (2016: level 3) based on the degree to
which fair value is observable.
- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets and
liabilities;
- Level 2 fair value measurements are those derived from inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and
- Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable
inputs).
Investment properties have been valued using the investment
method which involves applying a yield to rental income
streams.
Inputs include equivalent yield, tenancy information, and
leasing assumptions. Valuation reports are based on both
information provided by the Company e.g. tenancy information
including current rents, which are derived from the Company's
financial and property management systems and are subject to the
Company's overall control environment, and assumptions applied by
the valuers e.g. ERVs, and yields. These assumptions are based on
market observation and the valuers professional judgement.
An increase/decrease in equivalent yields will decrease/increase
valuations, and an increase or decrease in rental values will
increase or decrease valuations. Other inputs include ERVs, and
likely void and rent-free periods. There are interrelationships
between these inputs as they are determined by market conditions.
The valuation movement in a period depends on the balance of those
inputs.
Below is a sensitivity analysis of the impact of a 1% increase
or decrease in equivalent yields on income and equity. Actual
results may differ materially from these assumptions and, as such,
these tables should not be considered as a projection of likely
future gains and losses.
2018 2017
Impact on Income Impact on Equity Impact on Income Impact on Equity
-------------------- -------------------- -------------------- --------------------
Increase Decrease Increase Decrease Increase Decrease Increase Decrease
by 1% by 1% by 1% by 1% by 1% by 1% by 1% by 1%
Impact
in GBP000s (561) 659 (561) 659 (5,297) 6,548 (5,297) 6,548
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. At 30 September 2018 the
Group had over 380 letting units in 75 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. In the past, 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 2018
Available At Amortised Total Carrying At
---------------------------
Fair
For Sale Cost Amount Value
GBP000 GBP000 GBP000 GBP000
--------------------------- ---------- ------------- --------------- --------
Cash and cash equivalents 3,292 -- 3,292 3,292
---------- ------------- --------------- --------
Trade receivables -- 541 541 541
---------- ------------- --------------- --------
Other receivables -- 3,609 3,609 3,609
---------- ------------- --------------- --------
3,292 4,150 7,442 7,442
---------- ------------- --------------- --------
30 September 2017
Available At Amortised Total Carrying At
---------------------------
Fair
For Sale Cost Amount Value
GBP000 GBP000 GBP000 GBP000
--------------------------- ---------- ------------- --------------- --------
Cash and cash equivalents 10,455 -- 10,455 10,455
---------- ------------- --------------- --------
Trade receivables -- 620 620 620
---------- ------------- --------------- --------
Other receivables -- 840 840 840
---------- ------------- --------------- --------
10,455 1,460 11,915 11,915
---------- ------------- --------------- --------
For all classes of financial assets, the carrying amount is a
reasonable approximation of fair value.
2018 2017
------------------------------------------ ------------------------------------------
After After
Total Impairment Impairment Total Impairment Impairment
-------------------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------- ------- ------------------- ------------ ------- ------------------- ------------
Not yet due 229 - 229 123 - 123
------- ------------------- ------------ ------- ------------------- ------------
Past due by one
to 30 days 191 - 191 294 - 294
------- ------------------- ------------ ------- ------------------- ------------
Past due by 30-60
days 42 - 42 87 - 87
------- ------------------- ------------ ------- ------------------- ------------
Past due by 60-90
days 19 - 19 28 - 28
------- ------------------- ------------ ------- ------------------- ------------
Past due by 90
days 707 (647) 60 630 (542) 88
------- ------------------- ------------ ------- ------------------- ------------
1,188 (647) 541 1,162 (542) 620
Impairment as percentage
of total debt 54.46% 46.64%
------------ -------
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:
2018 2017
-------------------------------
GBP000 GBP000
------------------------------- ------- -------
Balance at beginning of year 542 452
------- -------
Impairment loss recognised 221 353
------- -------
Trade receivables written off (116) (263)
------- -------
Balance at end of year 647 542
------- -------
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 2018
At Amortised Total Carrying At
----------------------------------------
Cost Amount Fair Value
GBP000 GBP000 GBP000
---------------------------------------- ------------- --------------- -----------
Interest bearing loans and liabilities - - -
------------- --------------- -----------
Finance lease liabilities - - -
------------- --------------- -----------
Trade payables 98 98 98
------------- --------------- -----------
Other payables 1,425 1,425 1,425
------------- --------------- -----------
Accruals 654 654 654
------------- --------------- -----------
2,177 2,177 2,177
------------- --------------- -----------
30 September 2017
At Total At
----------------------------------------
Amortised Carrying Fair Value
Cost Amount -
GBP000 GBP000 GBP000
---------------------------------------- ---------- --------- -----------
Interest bearing loans and liabilities 30,671 30,671 30,671
---------- --------- -----------
Finance lease liabilities 431 431 431
---------- --------- -----------
Trade payables 346 346 346
---------- --------- -----------
Other payables 991 991 991
---------- --------- -----------
Accruals 1,023 1,023 1,023
---------- --------- -----------
33,462 33,462 33,462
---------- --------- -----------
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 2018
Contractual Within One Two Three Four Over
--------------------
to
Carrying Cash One to Two to Three to Four Five Five
Value Flows Year Years Years Years Years Years
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- --------- ------------ ------- ------- --------- -------- ------- -------
Interest
bearing
loans and
borrowings - - -
--------- ------------ ------- ------- --------- -------- ------- -------
Finance
lease liabilities - - -
--------- ------------ ------- ------- --------- -------- ------- -------
Trade payables 98 98 98
--------- ------------ ------- ------- --------- -------- ------- -------
Other payables 1,425 1,425 1,425
--------- ------------ ------- ------- --------- -------- ------- -------
Accruals 654 654 654
--------- ------------ ------- ------- --------- -------- ------- -------
2,177 2,177 2,177 - - - - -
--------- ------------ ------- ------- --------- -------- ------- -------
30 September 2017
Contractual Within One Two Three Four Over
--------------------
to
Carrying Cash One to Two to Three to Four Five Five
Value Flows Year Years Years Years Years Years
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- --------- ------------ ------- ------- --------- -------- ------- -------
Interest
bearing
loans and
borrowings 30,671 39,340 2,402 1,641 35,297
--------- ------------ ------- ------- --------- -------- ------- -------
Finance
lease liabilities 431 3116 27 27 27 27 27 2,981
--------- ------------ ------- ------- --------- -------- ------- -------
Trade payables 346 346 346
--------- ------------ ------- ------- --------- -------- ------- -------
Other payables 991 991 991
--------- ------------ ------- ------- --------- -------- ------- -------
Accruals 1,023 1,023 1,023
--------- ------------ ------- ------- --------- -------- ------- -------
33,462 44,816 4,789 1,641 35,297 27 27 2,981
--------- ------------ ------- ------- --------- -------- ------- -------
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.
17. 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:
2018 2017
----------------------------
GBP000 GBP000
---------------------------- ------- -------
Less than one year 675 1,407
------- -------
Between one and five years 802 1,654
------- -------
More than five years 836 1,996
------- -------
The above information has been provided for comparison purposes
only. As the properties are all anticipated to be sold within six
months of the balance sheet date, only a small proportion of the
GBP2.313m will actually be received.
18. Capital Commitments
Provision has been made for further anticipated expenditure on
the properties as 30 September 2018. At 30 September 2017 the Group
had contracted capital expenditure for which no provision had been
made in the 2017 financial statements of GBP93,400.
19. 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 21: Significant Contracts.
20. Group Entities
All the below companies are incorporated in the United Kingdom
and 100% owned at 30 September 2017 and 2018
NOS 4 Limited
NOS 5 Limited
NOS 6 Limited
NOS 7 Limited
Gilfin Property Holding Limited
LSR Trustee Limited
21. Significant contracts
With effect from 22 July 2013 the Company entered into a
management agreement with Principal Real Estate Limited (or
"Principal", at that time known as Internos Global Investors
Limited or "Internos"). Under this agreement the Company pays to
Principal:
-- 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 profit.
-- Fees for cumulative 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 (22 July 2013) 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 Principal received fees of
GBP0.416m (2017: GBP0.918m) during the year.
Company Balance Sheet as at 30 September 2018
2018 2017
---------------------------- ----------------- -----------------
Note GBP000 GBP000 GBP000 GBP000
---------------------------- ------ -------- ------- -------- -------
Fixed assets
------ -------- ------- -------- -------
Investments C5 20,950 26,435
------ -------- ------- -------- -------
20,950 26,435
----------------------------------- -------- ------- -------- -------
Current assets
------ -------- ------- -------- -------
Debtors C6 8,144 8,775
------ -------- ------- -------- -------
Cash 2,568 591
-------- ------- -------- -------
10,712 9,366
----------------------------------- -------- ------- -------- -------
Creditors: Amounts falling
due within one year C7 (4,569) (2,758)
------ -------- ------- -------- -------
Net current assets 6,143 6,608
-------- ------- -------- -------
Total assets less current
liabilities 27,093 33,043
-------- ------- -------- -------
Creditors: Amounts falling - -
due after one year
------ -------- ------- -------- -------
Net assets 27,093 33,043
-------- ------- -------- -------
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 3,253 9,203
----- ------- -------
Shareholders' funds 27,093 33,043
------- -------
These financial statements were approved by the Board of
directors on 10 December 2018 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
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 2016 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.
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.
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, 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 amortised 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.
Judgements and Estimates
In testing for impairment, management assesses the recoverable
amount of investments and inter-company debtors by reference to the
subsidiaries' net assets and their ability to recover these
assets.
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
GBP6.048m (2017: profit GBP1.143m).
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 4 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 4 to the Group financial
statements.
C5. Fixed Asset Investments
Shares in
Group
----------------------------
Undertakings Total
GBP000 GBP000
---------------------------- ------------- --------
Cost
------------- --------
At 30 September 2017 108,605 108,605
------------- --------
Disposals - -
------------- --------
At 30 September 2018 108,605 108,605
------------- --------
Provisions
------------- --------
At 30 September 2017 82,170 82,170
------------- --------
Impairment charge for year 5,485 5,485
------------- --------
Disposals - -
------------- --------
At 30 September 2017 87,655 87,655
------------- --------
Net book value
------------- --------
At 30 September 2018 20,950 20,950
------------- --------
At 30 September 2017 26,435 26,435
------------- --------
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*
----------------------------------------------------- -------------- -----------
Property
NOS 4 Limited** investment 100%
Property
NOS 5 Limited** investment 100%
Property
NOS 6 Limited** investment 100%
Property
NOS 7 Limited ** investment 100%
Property
Gilfin Property Holding Limited*** investment 100%
LSR Trustee Limited** EBT Trustee 100%
* All interests are in Ordinary
Shares.
** Incorporated in England, registered
office: 65 Grosvenor Street London W1K
3JH
***Incorporated in Scotland, registered office: No
2 Lochrin Square, 96 Fountainbridge, Edinburgh,EH3
9QA
C6. Debtors
2018 2017
-------------------------------------
GBP000 GBP000
------------------------------------- ------- -------
Amounts owed by Group undertakings* 8,116 8,747
------- -------
Other debtors 2 2
------- -------
Prepayments 26 26
------- -------
8,144 8,775
------- -------
Amounts owed by group undertakings are interest free and
repayable on demand
C7. Creditors
2018 2017
------------------------------------
GBP000 GBP000
------------------------------------ ------- -------
Trade creditors 71 188
------- -------
Amounts owed to Group undertakings 3,757 2,288
------- -------
Other taxation and social security 13 50
------- -------
Other creditors - 4
------- -------
Accruals 728 228
------- -------
4,569 2,758
------- -------
Amounts owed to group undertakings are interest free and
repayable on demand
C8. Reconciliation of Shareholders' Funds
Share Capital
2018 2017
Ordinary 20p Shares Ordinary 20p Shares
Number Amount Number Amount
000 GBP000 000 GBP000
Allotted, called
up and fully paid 91,670 18,334 91,670 18,334
-------------------- -------- ----- ------- -------- ----- -------
Investment in Own Shares
At 30 September 2018, 9,164,017 shares were held in treasury
(2017: 9,164,017).
Statement of Changes in Equity for the year ended 30 September
2018
Profit
Capital and
------------------------
Loss
Share Redemption Account
Capital Reserves Reserve - Total
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------ -------- --------- ----------- --------- --------
At 1 October 2016 18,334 3,742 1,764 10,248 34,088
-------- --------- ----------- --------- --------
Dividend - - - -
-------- --------- ----------- --------- --------
Share-based payments - - 98 98
-------- --------- ----------- --------- --------
Loss for the financial
year - - (1,143) (1,143)
------------------------ -------- --------- ----------- --------- --------
At 30 September 2017 18,334 3,742 1,764 9,203 33,043
------------------------ -------- --------- ----------- --------- --------
Share-based payments - - 98 98
-------- --------- ----------- --------- --------
Loss for the financial
year - - (6,048) (6,048)
------------------------ -------- --------- ----------- --------- --------
At 30 September 2018 18,334 3,742 1,764 3,253 27,093
------------------------ -------- --------- ----------- --------- --------
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
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).
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.
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.
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.
Shareholder Information
Registered Office
The Local Shopping REIT plc
Principal Real Estate Limited
65 Grosvenor Street
London
W1K 3JH
Telephone: +44 (020) 7355 8800
Registration Number: 05304743
Website: www.localshoppingreit.co.uk
Directors
Stephen East
Brett Miller
Nicholas Vetch
Company Secretary
William Heaney
Finance Advisers
JP Morgan Cazenove
25 Bank Street
London
E14 5JP
Investment Adviser
Principal Real Estate Limited
65 Grosvenor Street
London W1K 3JH
Solicitors
Eversheds Sutherland
One Wood Street
London
EC2V 7WS
Olswang LLP
90 High Holborn
London
WC1V 6XX
DWF LLP
No. 2 Lochrin Square
96 Fountainbridge
Edinburgh
EH3 9QA
Auditors
KPMG LLP
One Snowhill
Birmingham
B4 6GH
Valuer
Allsop LLP
33 Wigmore Street
London
W1U 1BZ
Tax Adviser
BDO LLP
55 Baker Street
London
W1U 7EU
Registrar
Equiniti Limited
Aspect House
Spencer Street
Lancing
BN99 6QQ
Principal Bankers
HSBC Bank plc
8 Canada Square
London
E14 5HQ
The Royal Bank of Scotland plc
Level 9
280 Bishopsgate
London
EC2M 4RB
For further information visit our website:
www.localshoppingreit.co.uk
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
FR FKCDKCBDDQBK
(END) Dow Jones Newswires
December 10, 2018 02:00 ET (07:00 GMT)
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