REG - Local Shopping REIT - Final Results <Origin Href="QuoteRef">LSR.L</Origin> - Part 2

Alina HoldingsAnnouncement

12/12/2017 07:06

- Part 2: For the preceding part double click  ID:nRSL0214Za 

principal risks facing the business and their associated mitigating factors, taking account of the
findings and recommendations of the Auditors.  Following its review of the Auditors' findings during 2016-17, including the
control framework established by INTERNOS, the Board considers that the Company's approach is acceptable. 
 
Investor Relations 
 
The directors place considerable emphasis on effective communications with the Company's investors.  Directors are happy to
comply with shareholder requests for meetings as soon as practicable, subject to regulatory constraints.  The Board is
provided with feedback on these meetings, as well as regular commentary from investors and the Company's bankers and
advisers.  The Board provides reports and other announcements via the regulatory news service in accordance with regulatory
requirements.  Regulatory announcements and key publications can also be accessed via the Company's website.  The Company's
Annual General Meeting provides a further forum for investors to discuss the Company's progress and the Board encourages
shareholders to attend.  The Company complies with relevant regulatory requirements, and also the UK Corporate Governance
Code, in relation to convening the meeting, its conduct and the announcement of voting on resolutions.  The Annual Report
and Notice of the Annual General Meeting are sent to shareholders at least 20 working days prior to the meeting and are
available on the Company's website.  The results of resolutions considered at the Annual General Meeting are announced to
the Stock Exchange and are also published on the website and lodged with the National Storage Mechanism.  Investors may
elect to receive communications from the Company in electronic form and be advised by email that communications may be
accessed via the Company's website. 
 
Acquisitions and Disposals 
 
The Group made no material acquisitions during the year. 
 
During the year, the Company continued to sell properties in accordance with its investment policy, details of which are
given on page 1. 
 
Group Companies 
 
The subsidiary undertakings of the Company are set out in note 21 to the financial statements. 
 
Group Result and Dividend 
 
The loss for the Group attributable to shareholders for the year was £0.86 million (2016: profit £0.63). The Adjusted
Operating Profit for the year was 1.5p per share (2016: 1.9p).  The definition of Adjusted Operating Profit is set out in
the glossary of terms at the end of the Report.  In accordance with the revised investment policy, no interim dividend has
been or will be distributed in respect of the financial year. The directors will keep the dividend distribution policy
under review. 
 
Use of financial instruments 
 
The Company 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 Company's previous authority to purchase its own shares was extended at the Annual General Meeting in March 2017, which
authorised purchases of up to 14.99% of the Company's issued Ordinary Share capital (excluding shares held in treasury).
This authority will expire at the 2018 Annual General Meeting, at which a resolution will be proposed for its renewal.  The
directors exercise their authority to purchase the Company's shares only when they consider it in the Company's best
interests to do so.  No share purchases were made during the year. 
 
The directors are also authorised to offer shareholders the alternative of receiving fully paid Ordinary Shares in lieu of
dividends.  This authority was not used during the year. 
 
Substantial Interests 
 
As at 30 November 2017, 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  
 Damille Investments II Limited        18,300,000       22.18  
 Hargreaves Lansdown Asset Management  5,248,007        6.36   
 EFG Harris Allday                     5,235,753        6.35   
 N J Vetch                             2,873,563        3.48   
 Value Investments Limited             2,793,500        3.39   
 Thames River Capital LLP              2,704,324        3.28   
 Alliance Trust Savings Limited        2,620,405        3.18   
 
 
Effect of change of control on significant contracts 
 
Funding agreements entered into by certain Group companies require the written approval of the relevant bank before any
change can be made to the nature, constitution, management or ownership of the business.  The employment contracts of
directors do not contain any provisions specifically relating to a change of control.  The Company's employee share schemes
contain change of control provisions that are considered to be standard for such schemes. 
 
Key Contracts 
 
The Company has in place an agreement with INTERNOS Global Investors Limited ("INTERNOS") to execute the Group's new
investment policy and to take responsibility for the management and performance of the Company's investment property
portfolio. Details of the investment advisory agreement with INTERNOS, including remuneration arrangements, are contained
in note 22 to the financial statements.  Details of the Group's continuing loan and banking facility agreements with HSBC
Bank plc are set out in the Banking Facilities section of the Finance Review. 
 
Carbon Reporting 
 
Scope 
 
The directors believe that the Company's outsourced business model, which focusses on the employment of agents, advisers
and contractors who are local to our property assets, is inherently environmentally friendly. However, the collection of
consumption data from such businesses is not practicable. It is also not possible for our national agents and advisers to
separately identify such data in relation to the proportion of their work devoted to the Company's activities and it is not
possible to measure the energy consumed by the Company's tenants (nor is this consumption within the Company's control). 
The consumption of water, waste output and greenhouse gases other than CO2 within the Company's control is negligible. 
 
Accordingly, the scope of the Company's environmental reporting focuses on energy consumed by the Company and its wholly
owned subsidiaries through: 
 
·      the activities of INTERNOS in relation to the Company's business; 
 
·      shared facilities provided by the Company within its property portfolio; 
 
·      activities within vacant properties 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 INTERNOS office and the only meaningful data that can be supplied relates entirely to
fuel consumed on journeys between our property sites.  As we do not have a company car fleet, all such journeys are made in
employees' private vehicles or on public transport.  We have assessed vehicles used against the categories given on the
DEFRA website. 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 INTERNOS, together with consumption in our vacant properties for which we are responsible. This
includes any electricity used in relation to development work in the conversion or remodelling of premises, as well as
standing charges for electricity connections. Given the granularity of the Company's property portfolio it is not been
practicable to separate this element from the amount of electricity actually consumed. 
 
Our direct usage and emissions of water is minimal, being largely confined to hygiene and refreshment purposes within the
INTERNOS office.  Again, it is not practicable to apportion this for the Company's activities.  A small element of utility
supply within vacant premises will relate to water and to gas.  However, this largely relates to standing charges and
consumption is negligible. 
 
                         2017Kg Co2e  Kg Co2e per £1m t/o  2016Kg Co2e  Kg Co2e per £1m t/o  
 Scope 1 (gas and fuel)  1,230        204                  1,508        197                  
 Scope 2 (electricity)   10,992       1,826                9,450        1,233                
 Total gross emissions   12,223                            10,958                            
 
 
Employee Share Schemes 
 
During the year the Company operated The Local Shopping REIT plc Employee & Former Employee Incentive Scheme 2015 and 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 Employee Benefit
Trust are identical to the remainder of the Company's issued share capital.  During the year the Trust supplied 99,846
shares in relation to the exercise of share options (2016: 205,602). 
 
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 (2016: 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 
 
During the year, on the advice of the Audit Committee in accordance with current professional standards, the Company
tendered its audit engagement.  Following this exercise, the Board decided to retain KPMG LLP as the Company's auditors. 
However, KPMG LLP resigned its appointment as the Company's tax advisor, in compliance with the regulatory changes for
auditors in relation to audit independence.  On 24 March 2017 the Company appointed BDO UK LLP to provide tax advisory
services. 
 
Viability Statement 
 
In accordance with the UK Corporate Governance Code 2016, the directors have assessed the Company's viability over the
coming financial years to 30 September 2019, taking account of: 
 
·      likely progress with the execution of the Company's investment strategy; 
 
·      the continuation of the Company's current loan finance facilities to 31 December 2019; 
 
·      the potential impact of the principal risks and mitigation factors described in the Principal Risks section above. 
 
The directors consider that the period to 30 September 2019 is appropriate for assessing the Company's viability, bearing
in mind the Company's investment policy of liquidating the property portfolio, paying down debt and returning surplus funds
to shareholders, together with the expiry of the Company's current banking facilities in December 2019.  The directors are
pursuing a number of approaches for selling down the property portfolio and note that the exact timetable for achieving
this is dependant on market conditions.  The directors review progress with the investment strategy on a regular basis. 
The directors note that a number of alternative strategies remain available to the Company, such as selling the Company as
a going concern or continuing to trade as a going concern.  They will continue to evaluate these, and will make
recommendations to shareholders on alternative strategies if appropriate. 
 
The directors' review noted the diversity of the Company's tenant base across retail sectors and its geographical spread
around the country, reducing reliance on a few significant tenants or a single region. The directors also note that the
Company has conformed to all covenants throughout the year and that the Company's overall loan to value ratio has
progressively diminished since the revised investment strategy was adopted in July 2013.  The directors have prepared
profit and cashflow forecasts for the period to 30 September 2019 which include assumptions on the timing and manner of the
disposal of the property portfolio (whilst recognising the inherent uncertainty regarding these assumptions).  These
forecasts project the Company's funding needs will be comfortably met by its existing banking facilities agreements without
any breach of related covenants over the remaining life of the facilities to 31 December 2019.  Based on this assessment,
the directors have a reasonable expectation that the Company will be able to remain in operation and meet its liabilities
as they fall due over the financial years to 30 September 2019. In providing this opinion the directors recognise the
possibility that selling down the property portfolio and returning cash to shareholders may be achieved prior to that date.
Accordingly, the directors consider it appropriate that the financial statements have been prepared on the going concern
basis. 
 
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 12.  The
Committee met twice during the year and each member's attendance record is set out in the table on page 15. 
 
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 INTERNOS with the aim of ensuring that those working on the Company's
portfolio, including the Company's former employees, are appropriately incentivised.  During the year the Company put in
place 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.  Stephen East and Nick Vetch were re-appointed
pursuant to this policy at the Company's Annual General Meeting in March 2017. 
 
Additionally, the Articles require that director appointments made by the Board directors are ratified at the subsequent
General Meeting of the Company.  Brett Miller was re-appointed under this provision at the Company's Annual General Meeting
in March 2017. 
 
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, given the Company's changed
circumstances, the Board has not considered it appropriate to review non-executive pay and the level of non-executive pay
has not changed since the Company's flotation in May 2007. 
 
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 
 
A resolution concerning shareholder approval of the implementation of the Company's remuneration policy, as described in
the Remuneration Implementation Report, below, will be put to the Company's Annual General Meeting in March 2018. 
 
Remuneration Implementation Report 
 
This section sets out the ways in which the Company applied its remuneration policy during 2016-17. 
 
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 2017 Annual General Meeting shareholders passed resolutions approving the Remuneration Policy and the
Remuneration Implementation Report for 2015-16.  Proxy votes for the resolutions showed a majority of 99.85% of votes cast
in favour of the Remuneration Policy and 100% 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.  William Heaney did not have a separate appointment document
during the period of his appointment as a director of the Company.  Brett Miller has an appointment document effective from
12 December 2016, subject to annual extensions. 
 
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 are considered to comprise audited information. 
 
Table 1: Directors' Total Remuneration 2016-17 
 
 Director                 Salary  Short termincentives  Long termincentives  Pensioncontributions  Benefitsin kind  Total   
 Non-executive directors                                                                                                    
 Stephen East             30,000  -                     -                    -                     -                30,000  
 William Heaney*          6,318   -                     -                    -                     -                6,318   
 Brett Miller**           24,113  -                     -                    -                     -                24,113  
 Nick Vetch               30,000  -                     -                    -                     -                30,000  
 Total                    90,431  -                     -                    -                     -                90,431  
 
 
*Appointed as a director 11 November 2016, resigned as a director 8 December 2016 
 
**Appointed as a director 12 December 2016 
 
William Heaney was appointed as a Director of the Company on 10 November 2016 and resigned as such a Director on 8 December
2016.  Mr Heaney received no remuneration in relation to his appointment as a Director and the figure disclosed for Mr
Heaney relates solely to his remuneration in respect of other qualifying services (within the meaning of paragraph 44 of
Schedule 8 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008) performed by Mr
Heaney during the period of his appointment as a Director, including his services as Company Secretary.  Mr Heaney was
granted an award pursuant to The Local Shopping REIT Plc Employee & Former Employee Incentive Scheme 2008 prior to his
appointment as a Director of the Company. Further details of this award are set out under the heading, "Scheme interests
awarded during the financial year"." 
 
Other than the new entries for Mr Heaney and Mr Miller, the figures in the above table were unchanged from 2016. 
 
Table 2: Directors' Service Contracts 
 
 Non-executive directors  Date of initial appointment  Date of current appointment letter  Expiry of term    
 Stephen East             10 September 2009            10 September 2016                   9 September 2018  
 William Heaney*          N/A                          N/A                                 N/A               
 Brett Miller**           12 December 2016             12 December 2016                    12 December 2018  
 Nick Vetch               30 March 2007                30 March 2016                       29 March 2018     
 
 
*Appointed as a director 11 November 2016, resigned as a director 8 December 2016 
 
**Appointed as a director 12 December 2016 
 
Scheme interests awarded during the financial year 
 
The table below provides details of the scheme interest awarded during the year. The scheme interest was awarded pursuant
to The Local Shopping REIT Plc Employee & Former Employee Incentive Scheme 2016: 
 
 Director        Type of Interest Awarded                                                     Basis of Award                                                                                                     Face Value of Award (2)  Number of shares under award  Percentage vesting at threshold performance  End of Performance Period  
 William Heaney  Nil cost option to acquire ordinary shares in the capital of the Company(1)  The award was granted over a specific number of shares determined at the discretion of the Remuneration Committee  £70,848 (3)              239,151                       100%                                         30 September 2019          
 
 
  
 
(1)  The exercise price per share is set at nil. 
 
(2) The face value has been calculated using the closing price of an ordinary share in the capital of the Company on 12
October 2016 (the dealing day prior to the date of grant of the award) which was 29.625 pence per share. 
 
(3) The scheme interest summarised above also carries dividend enhancement rights pursuant to which whenever the award is
exercised (but not before), William Heaney shall be entitled to receive a payment in cash determined in accordance with the
formula, A x B, where "A" is the number of shares in respect of which the award is exercised on that occasion and "B" is
the amount of the aggregate dividends received or receivable in respect of a share held by the trustee of the Company's
employee benefit trust (net of any tax payable by the trustee in respect of such dividend) by reference to any record date
for such dividends which fall within the period commencing on the date of grant of the award and ending on the date of
exercise of the award. 
 
A summary of the performance measures and targets that apply in respect of the scheme interest awarded to William Heaney
are set out in the following table: 
 
                                                                             Targets                                                                                                                                                              
 Measure                                                                                                                                                                                                                                                                                                              
 Time based vesting target                                                   On 30 September 2018, 50% of the shares subject to the award vest                                                                                                    On 30 September 2019, 100% of the shares subject to the award vest  
 Performance based vesting target based on Gross Income from Property Sales  If at any time before 30 September 2019, Gross Income from Property Sales reaches or exceeds £156.519 million, 100% of the shares subject to the award will vest(1)  
 
 
(1) For the purpose of the performance based target: 
 
(a)     a Property Sale will be any sale of any interest in any property asset of the Company or its subsidiaries,
including but not limited to, sales of any beneficial or legal title to any such property asset or the sale of any
subsidiary of the Company holding the legal or beneficial title to such property asset to a third party that has occurred
or occurs at any time after 25 July 2013; 
 
(b)     Gross Income will be the aggregate gross consideration receivable (whether immediately or on deferred terms) by the
Company or any subsidiary of the Company in respect of all Property Sales. (In any case where a Property Sale is made by
way of a sale of a subsidiary of the Company to a third party, the gross consideration receivable shall be the gross value
attributed to the property asset(s) held by the subsidiary concerned as stated in the sale and purchase agreement relating
to the disposal of such subsidiary). 
 
The award granted to William Heaney as disclosed above was granted prior to him being appointed as a non-executive director
of the Company on 10 November 2016 and at the time the award was granted there was no intention that Mr Heaney would become
a director of the Company.  Although Mr Heaney resigned as a director of the Company on 8 December 2016, the fact that he
had served as a director of the Company, albeit after the award was granted to him, meant that the award might be
considered to be at variance with the Company's directors' remuneration policy.  Accordingly, at the Company's Annual
General Meeting on 2 March 2017, a resolution pursuant to section 226B(1)(b) of the Companies Act 2006 was put to
shareholders to specifically approve the payment to Mr Heaney of a remuneration payment equating to the benefits comprised
in the award. The resolution was duly passed by the Company's shareholders at such Annual General Meeting. 
 
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 2017
are set out in the table below: 
 
                  Number of shares owned outright (including connected persons)  Number of Shares subject to performance targets  Share Options which are vested but unexercised  Share Options exercised  Total interest as at 30 September 2017  
 Director                                                                                                                                                                                                                                          
 Stephen East     75,000                                                         Zero                                             Zero                                            Zero                     75,000                                  
 William Heaney*  58,182                                                         239,151(1)                                       Zero                                            Zero                     58,182(2)                               
 Brett Miller**   517,890(3)                                                     Zero                                             Zero                                            Zero                     517,890                                 
 Nicholas Vetch   2,873,563                                                      Zero                                             Zero                                            Zero                     2,873,563                               
 
 
 (1) The 239,151 shares stated represent the number of shares subject to the scheme interest granted as a nil cost option
under the Local Shopping REIT Plc Employee & Former Employee Incentive Scheme 2016 as described above under the heading
"Scheme interests awarded during the financial year". Further details of the scheme interest are set out under that
heading, including: when the award was made; the exercise price payable per share subject to the award; the provisions
governing the vesting of the award and the closing share price of an ordinary share in the capital of the Company on the
dealing day immediately prior to the date of grant of the award. 
 
(2) Excludes the 239,151 shares subject to the award under The Local Shopping REIT Plc Employee & Former Employee Incentive
Scheme 2016 which are unvested as at 30 September 2017. 
 
(3) Brett Miller is a director of Damille Investments II Limited and holds an indirect interest of 2.83% in that company.  
Damille Investments II Limited holds 18,300,000 shares in the Company. 
 
*Appointed as a director 11 November 2016, resigned as a director 8 December 2016 
 
**Appointed as a director 12 December 2016 
 
Stephen East 
 
Remuneration Committee Chairman 
 
Audit Committee Report 
 
The Committee met four times during the year and each member's attendance record is set out in the table on page 15. 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 2016 and 31 March 2017.  Following the year-end, the Committee
reviewed the valuations for 30 September 2017. 
 
Going Concern Assumption 
 
Consideration was given to technical implications for the Going Concern assumption in connection with the sales during the
year in furtherance of the investment policy, and ongoing initiatives for its execution. In concluding that it was
appropriate for the Going Concern assumption to apply, the Committee noted the inherent uncertainty regarding the timing
and manner of the execution of the investment policy, as well as alternative strategic options available to the Company.
The Committee took particular note of the extension of the Company's banking facilities to 31 December 2019 and management
forecasts that the Company should continue to operate comfortably within its banking facilities during the lifetime of the
facilities. 
 
The Committee also covered the following items: 
 
·      ensuring that the format of the financial statements and the information supplied meets the standards set by the
International Accounting Standards Board; 
 
·      reviewing the accounting treatment of receivables and ensuring effective co-ordination between the Company's records
and those of its managing agents; 
 
·      ensuring that the audit scope properly reflected the risk profile of the business; 
 
·      ensuring that the Committee's terms of reference continued to accord with the Code. 
 
Following the year-end review in 2016, the Committee decided that it would be appropriate to re-tender the Company's audit
and proposals from a number of suitably qualified auditors were carefully considered.  Following this exercise, and bearing
in mind the likely timetable for the execution of the Company's investment policy, it was decided that KPMG LLP should be
retained as auditors to the Company. 
 
Until 24 March 2017, KPMG LLP and its related entities provided non-audit services to the Company, principally tax advice
in connection with the Company's REIT status.  This engagement was subject to strict procedures aimed at safeguarding the
objectivity of the auditors.  All non-audit work undertaken by KPMG being notified to the Chairman of the Audit Committee
and careful consideration was given to whether such work might give rise to a conflict of interest.  Any item of non-audit
work that could result in fees being paid in excess of 50% of the audit fee in any year was required to be separately
authorised by the Chairman of the Audit Committee. 
 
During the year, KPMG LLP notified the Company of their intention to resign as the Company's tax adviser, in compliance
with recently promulgated best practice standards.  On 24 March 2017, following consideration of a number of appropriately
qualified advisers, BDO UK LLP were appointed as tax advisers to the Company in place of KPMG. 
 
Nicholas Vetch 
 
Audit Committee Chairman 
 
11 December 2017 
 
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 2017. 
 
The Directors' Report also includes the information set out on pages 15 to 29, 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. 
 
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 Governance 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. 
 
Disclosure of information to auditor 
 
The directors who held office at the date of approval of this directors' report confirm that, so far as they are each
aware, there is no relevant audit information of which the Company's auditor is unaware; and each director has taken all
the steps that he ought to have taken as a director to make himself aware of any relevant audit information and to
establish that the company's auditors is aware of that information. 
 
The foregoing reports were approved by the directors on 11 December 2017. 
 
William A Heaney 
 
Company Secretary 
 
INDEPENDENT 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
2017 which comprise the Consolidated Income Statement and Statement of Comprehensive Income, the Consolidated Balance
Sheet, the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Equity, the Company Balance
Sheet, 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 2017 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 appointed as auditor by the directors on 3 May 2017.  The period of total uninterrupted engagement is for the ten
financial years ended 30 September 2017.  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 (unchanged from
2016), 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. 
 
■  Valuation of investment property portfolio £54.6m (2016: £74.2m), Risk vs 2016: ◄► 
 
Refer to Audit Committee Report (page 29), accounting policy (page 41), and financial disclosures (page 47). 
 
The risk: Subjective valuation 
 
Investment property is the Group's single largest asset category. Its valuation requires significant judgements and
estimates, from both directors and external valuers, particularly in relation to sensitivity of the valuation of
assumptions regarding yield rates, void levels and comparable market transactions. 
 
Our response 
 
Our procedures, assisted by our own property valuation specialist (for procedures 1, 2, 3 and 4), included: 
 
1.     Understanding of valuation approach: We met the Group's external valuer to understand the assumptions and
methodologies used in valuing the investment properties 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 valuers used by the Group. 
 
3.     Methodology choice: We assessed the results of the valuer's report by checking their valuations were in accordance
with the RICS Valuation Professional Standards 'the Red Book' and relevant accounting standards and that the methodology
adopted was appropriate by reference to acceptable valuation practice. 
 
4.     Assessing assumptions: We challenged the key assumptions used in the valuations, in particular yield rates, void
levels and comparable market transactions, for a sample of "outliers".  Our sample of "outliers" was determined as:
properties with significant movement in yields; properties experiencing the most significant valuation movements, and;
properties with movements in valuation that were unexpected given the movements in yield. 
 
5.     Input assessment: We agreed observable inputs used in the valuations, such as rental income, occupancy rates, lease
incentives, break clauses and lease lengths to source data. 
 
6.     Retrospective testing of disposals: We compared the sales price achieved on disposals during the year and after the
balance sheet date to the carrying amounts of the disposed properties in the accounting records. 
 
7.     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 to be acceptable. 
 
■  Going concern, Risk vs 2016: ◄► 
 
Refer to Audit Committee Report (page 29) and basis of preparation (page 40). 
 
The risk: Going concern 
 
During the current year the Group continued its operational strategy announced in July 2013 and disposed of a number of
properties. The directors note that alternative strategies remain available to the Company, which include continuing to
hold properties and trade as a going concern. As such, assessing whether the going concern basis of preparation remains
appropriate requires significant judgement and it is important that the disclosure of the directors' judgements in this
regard are transparent. 
 
Our response 
 
Our procedures included: 
 
1.     Strategy assessment:  We evaluated the viability of the Group's strategies by analysing the variety of the
properties held by the Group and overall market conditions. 
 
2.     Liquidity analysis: We assessed whether the Group has appropriate financing under any possible strategies above by
reviewing the contractual terms of the Group's existing loan facilities and assessing the Group's compliance with the debt
covenants under those facilities. We further assessed the Group's cash flow forecasts by considering the historical
accuracy of the previous budgets and evaluating key assumptions used in the forecasts, in particular, net rental income and
fair value of investment properties, as described in the investment property valuation risk above. 
 
3.     Assessing transparency: We assessed whether the group's disclosures in respect of the going concern assumption are
adequate. 
 
Our results 
 
We found the Group's assessment of its intention and ability to continue as a going concern as acceptable. 
 
■  Recoverability of parent company's investments in subsidiaries £26.4m (2016: £27.2m), Risk vs 2016: ◄► 
 
Refer to Audit Committee Report (page 29), accounting policy (page 41) and financial disclosures (page 62). 
 
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. The estimated
recoverable amount of investments is subjective due to the inherent uncertainty in judgements and estimates used in the
impairment test. 
 
Our response: 
 
Our procedures included: 
 
1.     Test of details: We compared the carrying value of the investments to their recoverable amount to assess the
accuracy of the recognized impairment loss. 
 
2.     Input assessment: We challenged the key input used in the valuation of the subsidiaries' net assets by assessing the
fair values of investment properties owned by the relevant subsidiaries, as described in the investment property valuation
risk above. 
 
3.     Assessing transparency: We assessed the adequacy of the parent company's disclosures in respect of the investments
in subsidiaries. 
 
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 £685,000 (2016:£820,000) determined with reference
to a benchmark of Group total assets of which it represents 1% (2016: 0.9%). 
 
Materiality for the parent company financial statements as a whole was set at £279,000 (2016: £285,000), determined with
reference to a benchmark of company total assets, of which it represents 0.5% (2016: 0.6%). 
 
We applied for the first time this year a lower materiality of £59,000 to certain Group income statement items, to address
better the accounts and disclosures that could reasonably be expected to influence the Company's members assessment of the
financial performance of the Group. These items are gross rental income, gain/ losses on disposal of investment properties
and management fees. 
 
We agreed to report to the Audit Committee any corrected and uncorrected identified misstatements exceeding £34,000 (2016:
£41,000) 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% (2016: 100%) of total Group
revenue, Group profit before tax, and Group total assets. 
 
4 We have nothing to report on going concern 
 
We are required to report to you if: 
 
·      we have anything material to add or draw attention to in relation to the directors' statement in note 1 to the
financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast
significant doubt over the Group and Company's use of that basis for a period of at least twelve months from the date of
approval of the financial statements; or 
 
·      If the related statement under the Listing Rules is materially inconsistent with our audit knowledge. 
 
We have nothing to report in these respects. 
 
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, we have nothing material to add or draw attention
to in relation to: 
 
·      the directors' confirmation within the viability statement 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 and Uncertainties 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 
 
·      a corporate governance statement has not been prepared by the company. 
 
We are required to report to you if the Corporate Governance 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. 
 
Based solely on our work on the other information described above: 
 
·      with respect to the Corporate Governance Statement disclosures about internal control and risk management systems in
relation to financial reporting processes and about share capital structures: 
 
·      we have not identified material misstatements therein; and 
 
·      the information therein is consistent with the financial statements; and 
 
·      in our opinion, the Corporate Governance Statement has been prepared in accordance with relevant rules of the
Disclosure Guidance and Transparency Rules of the Financial Conduct Authority. 
 
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 
 


- More to follow, for following part double click  ID:nRSL0214Zc