REG - Local Shopping REIT - Final Results <Origin Href="QuoteRef">LSR.L</Origin> - Part 4
12/12/2017 07:08
- Part 4: For the preceding part double click ID:nRSL0214Zc
using the investment method which involves applying a yield to rental income
streams.
Inputs include yield, current rent, void rates and ERV. Void rates was 12.9% (2016:10.9%) and ERV 9.47% (2016: 9.5%).
Valuation reports are based on both information provided by the Company e.g. current rents and lease terms 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 or decrease in rental values will increase or decrease valuations, and a decrease/increase in yields will
increase/decrease the valuation. 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.
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
2017 the Group had over 740 letting units in 182 properties. There is no significant concentration of credit risk due to
the large number of small balances owed by a wide range of tenants who operate across all retail sectors. Geographically
there is no concentration of credit risk in any one area of the UK. An analysis of the business by region, user type and
tenant grade is given in the Operating Review. The level of arrears is monitored monthly by the Group and more frequently
on a tenant by tenant basis by the asset managers.
Cash, Cash Equivalents and Derivative Financial Instruments
Two major UK banks provide the majority of the banking services used by the Group. Financial derivatives were only entered
into with one of these core banks.
The Group's financial assets which are exposed to credit risk are classified as follows and are shown with their fair
value:
30 September 2017
Available At Amortised Total Carrying At
For Sale Cost Amount Fair Value
£000 £000 £000 £000
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
30 September 2016
Available At Amortised Total Carrying At
For Sale Cost Amount Fair Value
£000 £000 £000 £000
Cash and cash equivalents 11,000 -- 11,000 11,000
Trade receivables -- 1,086 1,086 1,086
Other receivables 255 255 255
11,000 1,341 12,341 12,341
For all classes of financial assets, the carrying amount is a reasonable approximation of fair value.
The ageing of trade receivables is as follows 2017 2016
Total Impairment After Impairment Total Impairment After Impairment
£000 £000 £000 £000 £000 £000
Not yet due 123 123 236 236
Past due by one to 30 days 294 294 375 375
Past due by 30-60 days 87 87 235 235
Past due by 60-90 days 28 28 38 38
Past due by 90 days 630 (542) 88 654 (452) 202
1,162 (542) 620 1,538 (452) 1,086
Impairment as percentage of total debt 46.64% 29.39%
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:
2017 2016
£000 £000
Balance at beginning of year 452 300
Impairment loss recognised 353 270
Trade receivables written off (263) (118)
Balance at end of year 542 452
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 2017
At Amortised Total Carrying At
Cost Amount Fair Value
£000 £000 £000
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 10,023 1,023 1,023
33,462 33,462 33,462
30 September 2016
At Total At
Amortised Carrying Fair Value
Cost Amount -
£000 £000 £000
Interest bearing loans and liabilities 50,542 50,542 50,542
Finance lease liabilities 567 567 567
Trade payables 110 110 110
Other payables 684 684 684
Accruals 1,337 1,337 1,337
53,240 53,240 53,240
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 2017
Contractual Within One Two Three Four Over
Carrying Cash One to Two to Three to Four to Five Five
Value Flows Year Years Years Years Years Years
£000 £000 £000 £000 £000 £000 £000 £000
Interest bearing loans and borrowings 30,671 39,340 2,402 1,641 35,297
Finance lease liabilities 431 -
Trade payables 346 346 346
Other payables 991 991 991
Accruals 1,023 1,023 1,023
33,462 41,700 4,762 1,641 35,297 - - -
30 September 2016
Contractual Within One Two Three Four Over
Carrying Cash One to Two to Three to Four to Five Five
Value Flows Year Years Years Years Years Years
£000 £000 £000 £000 £000 £000 £000 £000
Interest bearing loans and borrowings 50,542 52,884 2,134 50,750 - -
Finance lease liabilities 567 4,108 34 34 34 34 34 3,938
Trade payables 110 110 110 - - - - -
Other payables 684 684 684 - - - - -
Accruals 1,337 1,337 1,337 - - - - -
53,240 59,123 4,299 50,784 34 34 34 3,938
As set out in note 10, the bank loans were restructured in November 2016. If these changes were reflected in the above
table, the first row would be restated as follows:
Contractual Within One Two Three Four Over
Carrying Cash One to Two to Three to Four to Five Five
Value Flows Year Years Years Years Years Years
£000 £000 £000 £000 £000 £000 £000 £000
Interest bearing loans and borrowings 50,542 54,582 10,254 2,007 2,083 40,238
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.
18. 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:
2017 2016
£000 £000
Less than one year 1,407 1,976
Between one and five years 1,654 2,371
More than five years 1,996 2,709
5,057 7,056
19. Capital Commitments
At 30 September 2017 the Group had contracted capital expenditure for which no provision has been made in these financial
statements of £93,400 (2016: £52,500).
20. 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 22: Significant Contracts.
21. Group Entities
All the below companies are incorporated in the United Kingdom and 100% owned at 30 September 2016 and 2017
NOS 4 Limited
NOS 5 Limited
NOS 6 Limited
NOS 7 Limited
Gilfin Property Holding Limited
22. Significant contracts
With effect from 22 July 2013 the Company entered into a management agreement with Internos Global Investors Limited
("Internos"). Under this agreement the Company pays to Internos:
• An annual management fee of 0.70% of the gross asset value of the portfolio, subject to a minimum fee of £1m in each of
the first two years, £0.95m for the third year and £0.9m for the fourth year.
• An annual performance fee of 20% of the recurring operating profits above a pre-agreed target recurring profit.
• Fees for property sales as follows:
Up to £50m nil
£50m-£150m 0.5% of sales
Over £150m 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 Internos received fees of £0.918m (2016: £0.963m) during the year.
Company Balance Sheet as at 30 September 2017
2017 2016
Note £000 £000 £000 £000
Fixed assets
Investments C5 26,435 27,268
26,435 27,268
Current assets
Debtors C6 8,775 1,234
Cash 591 8,094
9,366 9,328
Creditors: Amounts falling due within one year C7 (2,758) (2,508)
Net current assets 6,608 6,820
Total assets less current liabilities 33,043 34,088
Creditors: Amounts falling due after one year - -
Net assets 33,043 34,088
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 9,203 10,248
Shareholders' funds 33,043 34,088
These financial statements were approved by the Board of directors on 11 December 2017 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 £1,000.
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 £1.143m (2016: profit £2.774m).
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
£000 £000
Cost
At 30 September 2016 108,605 108,605
Disposals - -
At 30 September 2017 108,605 108,605
Provisions
At 30 September 2016 81,337 81,337
Impairment charge for year 833 833
Disposals - -
At 30 September 2017 82,170 82,170
Net book value
At 30 September 2017 26,435 26,435
At 30 September 2016 27,268 27,268
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 business Ownership interest*
NOS 4 Limited** Property investment 100%
NOS 5 Limited** Property investment 100%
NOS 6 Limited** Property investment 100%
NOS 7 Limited ** Property investment 100%
Gilfin Property Holding Limited*** Property investment 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
2017 2016
£000 £000
Amounts owed by Group undertakings 8,747 1,163
Other debtors 2 36
Prepayments 26 35
8,775 1,234
Amounts owed by group undertakings are interest free and repayable on demand
C7. Creditors
2017 2016
£000 £000
Trade creditors 188 6
Amounts owed to Group undertakings 2,288 2,275
Other taxation and social security 50 9
Other creditors 4 4
Accruals 228 214
2,758 2,508
Amounts owed to group undertakings are interest free and repayable on demand
C8. Reconciliation of Shareholders' Funds
Share Capital
2017 2016
Ordinary 20p Shares Ordinary 20p Shares
Number Amount Number Amount
000 £000 000 £000
Allotted, called up and fully paid 91,670 18,334 91,670 18,334
Investment in Own Shares
At 30 September 2017, 9,164,017 shares were held in treasury (2016: 9,164,017).
Reserves
Capital Profit and
Redemption Loss Account
Reserves Reserve - Total
£000 £000 £000 £000
At 1 October 2015 3,742 1,764 12,956 18,462
Dividend - - - -
Share-based payments - - 66 66
Loss for the financial year - - (2,774) (2,774)
At 30 September 2016 3,742 1,764 10,248 15,754
Share-based payments - - 98 98
Loss for the financial year - - (1,143) (1,143)
At 30 September 2017 3,742 1,764 9,203 14,709
The value of shares issued to purchase Gilfin Property Holdings Limited in excess of their nominal value has been shown as
a separate reserve in accordance with the Companies Act 2006.
Capital Redemption Reserve
The capital redemption reserve arose in prior years on the cancellation of 8,822,920 Ordinary 20p Shares.
Dividends
No dividends were paid during the current and previous year:
Glossary
Actual and Forecast Interest Cover Test (ICR)
The ICRs given in the Finance Review are calculated as defined in the loan facility agreements. Each bank loan has a
charge on a specific pool of property and the ICRs are calculated based on the gross rental income, less an adjustment for
unrecoverable costs compared to the interest charged on that loan for that particular pool of assets.
Adjusted Net Asset Value ("Adjusted NAV") per share
Adjusted NAV is calculated as shareholders' funds, adjusted by the fair value of the derivative financial instruments held
on the Balance Sheet, divided by the number of shares in issue at the year end, excluding treasury shares.
Adjusted Operating Profit
Adjusted operating profit is calculated by adjusting the statutory IFRS reported result for: the movement in the fair value
of the property portfolio; the movement in the fair value of financial derivatives held; any profit or loss realised on the
sale of properties or other fixed assets; and other one-off, non-recurring income or costs incurred which are not
considered to be sustainable or of a recurring nature.
Capital Gearing
Capital Gearing is the ratio of the Group's Net Debt to its Net Asset Value.
Earnings Per Share ("EPS")
EPS is calculated as profit attributable to shareholders divided by the weighted average number of shares in issue in the
year.
Equivalent Yield
Equivalent yield is a weighted average of the initial yield and reversionary yield and represents the return a property
will produce based upon the timing of the income received. In accordance with usual practice, the equivalent yields (as
determined by the Group's external valuers) assume rent received annually in arrears and on gross values including
prospective purchasers' costs (including stamp duty, and agents' and legal fees).
Funds From Operations ("FFO")
FFO is a term adopted by the National Association of Real Estate Investment Trusts. It is calculated as net income adjusted
for depreciation of investment properties and gains/losses on sales of investment properties.
Group Loan-to-value ("Group LTV")
Group Loan-to-value is the ratio of the aggregate notional principal of debt held by the Group net of cash reserves, to the
total property valuation.
Head Lease
A head lease is a lease under which the Group holds an investment property.
Initial Yield
Initial yield is the annualised net rent generated by a property expressed as a percentage of the property valuation. In
accordance with usual practice the property value is grossed up to include prospective purchasers' costs.
Interest Cover
Interest cover can be calculated in a number of ways. The Group interest cover given in the Finance Review is based on the
percentage of times gross rental income covers financing
expenses.
Interest Rate Swap
An interest rate swap is a financial instrument where two parties agree to exchange an interest rate obligation for a
predetermined amount of time. These are used by the Group to convert floating rate debt to fixed rates.
Investment Property Databank Ltd ("IPD")
IPD produces an independent benchmark of property returns.
Initial Public Offering ("IPO")
An IPO is the first sale of shares by a privately-owned company on a Stock Exchange. LSR issued its shares for sale on 2
May 2007.
Like-for-like Market Rent
This is the Market Rent for the Group's investment properties at the end of the financial year compared with the Market
Rent for the same properties at the end of the prior year, i.e. excluding the Market Rent of those properties disposed of
during the interim period.
Like-for-like rental income
This is the rental income for the Group's investment properties at the end of the financial year compared with the rental
income for the same properties at the end of the prior year, i.e. excluding rental income of those properties disposed of
during the interim period.
London Interbank Offered Rate ("LIBOR")
LIBOR is the interest rate charged by one bank to another bank for lending money.
Loan-to-value ("LTV")
Loan-to-value is the ratio of the notional principal of debt to the valuation of properties subject to that debt.
Market Value
Market value is the estimated amount for which a property should exchange on the date of valuation between a willing buyer
and willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably,
prudently and
without compulsion.
Market Rent
Market rent is the estimated amount for which a property should lease on the date of valuation between a willing lessor and
a willing lessee on appropriate lease terms, in an arm's length transaction, after proper marketing wherein the parties had
each acted knowledgeably, prudently and without compulsion.
Net Asset Value ("NAV") per share
NAV per share is calculated as shareholders' funds divided by the number of shares in issue at the year end excluding
treasury shares.
Net Debt
The aggregate of the Group's indebtedness under its banking facilities, less unamortised loan costs and cash reserves held
by the Group.
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.
This information is provided by RNS
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