REG - Local Shopping REIT - Half-year Report <Origin Href="QuoteRef">LSR.L</Origin> - Part 1

Alina HoldingsAnnouncement

11/05/2017 07:07

RNS Number : 7953E
Local Shopping REIT (The) PLC
11 May 2017
THE LOCAL SHOPPING REIT PLC
REPORT FOR THE SIX MONTHS TO 31 MARCH 2017 
Highlights 
 Property disposals programme in line to achieve targets set out in December 2016 statement, with 63 properties sold during the period, at an aggregate price of 9.5m.
 Recurring operating profit* for the period of 0.92m or 1.11 pence per share ("pps") (H1 2016: 0.54m or 0.66 pps). 
 IFRS loss for the financial period of 0.02m or 0.03 pps (H1 2016: profit 0.42m or 0.52 pps). 
 Net Asset Value (NAV): 35.6m or 43 pps (30 September 2016: 35.6m or 43 pps). 
 Total net debt (taking account of cash reserves) reduced to 34.6m, reflecting a Group LTV of 48.8% (30 September 2016 39.5m, Group LTV 52.5%).
 Debt repayment during the period of 8.5m.
*Recurring profit is explained in the Operating Results section below.
For further information:
The Local Shopping REIT plc +44 20 7355 8800
Bill Heaney, Company Secretary
Rupert Wallman, Fund Manager
www.localshoppingreit.co.uk
Chairman's Statement
Financial Results and Portfolio Performance
The Group made an IFRS loss before tax for the period of 0.02 million (or 0.03 pps). This compares with a profit of 0.42 million (0.52 pps) for the equivalent period of 2015-16 and a profit of 0.63 million (0.76 pps) for the full year to 30 September 2016. The recurring operating profit for the period was 0.92 million (or 1.11 pps), compared with 0.54 million (0.66 pps) for the six months to 31 March 2016 and 1.53 million (1.9 pps) for the year to 30 September 2016.
At 31 March 2017, our investment property portfolio was valued at 65.7 million, reflecting an equivalent yield (excluding the residential element) of 9.48% (30 September 2016: 75.3 million, equivalent yield 9.49%). During the period NAV remained broadly unaltered at 35.6 million or 0.43 per share.
Update on Property Disposal Programme
In December 2016, the Board announced that it had initiated an accelerated property disposal programme focussing initially on smaller, weaker, and geographically non-core assets. This programme committed to sell 125 properties (generating 20 million in sales proceeds) between October 2016 and December 2017, equating to 25 property sales generating 4.0 million per quarter.
During the six months to 31 March 2017 the Company sold 63 properties, at an aggregate price of 9.5m, 0.8% below carrying value. Since the period end a further 16 properties have been sold with gross proceeds of 2.0 million. This brings the aggregate property sales since the Company's revised investment policy was adopted in July 2013 to 106.1 million.
As at the date of this statement our outstanding bank loans total 36.9 million, a reduction of 13.9 million on the outstanding balance as at 30 September 2016. The debt repayments have been financed through the property disposals described above together with the cash repayment when we agreed the extension of our loan facilities in November 2016. 
Outlook 
The Board has been encouraged by the progress with the sales programme it announced in December 2016, which will be continued for the remainder of the current calendar year. At the end of the year the Board will consider the prospects for portfolio, including the sale of the remaining property assets as a single portfolio and, failing which, an accelerated portfolio liquidation programme. 
S J East
Chairman
Directors' Review
During the period the Company continued to focus on its strategy of liquidating its property investments and eliminating its indebtedness with a view to returning surplus cash to shareholders. 
Revaluation 
At 31 March 2017 the investment property portfolio, excluding those assets held for sale, was revalued at 65.5 million, reflecting an equivalent yield (excluding the residential element) of 9.48% (30 September 2016: 73.7 million, equivalent yield 9.49%). The movement during the period primarily reflected the reduction in the size of the property portfolio, whilst the market values remained relatively stable. On a like-with-like basis, the portfolio value decreased by 0.03 million (0.04%) from the 30 September 2016 equivalent of 65.5m. 
As at 31 March 2017, the revalued portfolio (excluding those assets held for sale) comprised 256 properties with an annual headline rent, net of head rents payable, of 6.17 million, compared with 327 properties (6.99 million) at 30 September 2016. The portfolio included 920 letting units (30 September 2016: 1,014 letting units). 
Investment Property Portfolio as at 31 March 2017 
Value
65.45m
Initial Yield ("IY")
8.74%
Reversionary Yield ("RY")
9.84%
Equivalent Yield ("EY")
9.48%
Rent passing per annum*
5.78m
Market Rent per annum* 
6.53m
*Net of head rents payable
Value Range
No. of Properties
Value m
EY
0 - 100k
101
6.94
9.9%
101k - 200k
68
9.95
8.3%
201k - 500k
64
20.62
7.8%
501k - 1m
14
10.39
8.0%
1m - 3m
7
11.36
7.5%
3m +
2
6.20
6.4%
Total
256
65.45
9.5%
All yields quoted exclude the residential element which is valued at a discount to vacant possession value. 
The table above illustrates the range of property values throughout the portfolio. The average property value was 256,000 and the median was 135,000. The portfolio includes 355 residential units, of which 189 were marketed for rent on Assured Shorthold Tenancies (the reminder being subject to long leases). The residential element of the portfolio has been valued at 10.7 million and the average value of the AST units was 57,000.
During the period like-for-like rental income decreased by 3.1%, and Market Rent decreased by 0.6%.
Net Asset Value ("NAV")
During the period NAV remained broadly unaltered at 35.6 million or 0.43 per share, based on 82.5 million shares in issue, excluding those held in Treasury (30 September 2016: 35.6 million, 0.43 per share). 
The Group held 7.4 million of cash at the end of the period. 
Operating Results 
The Group made an IFRS loss before tax for the period of 0.02 million (or 0.03 pps), compared with a profit of 0.42 million (0.52 pps) for the six months to 31 March 2016 and a profit of 0.63 million (0.76 pps) for the full year to 30 September 2016. 
The portfolio achieved gross rental income for the six months to 31 March 2017 of 3.31million, compared with 3.60million for the half year to 31 March 2016. This reduction primarily reflected the sale of property assets during the intervening twelve months. 
Property operating expenses during the period were 0.91 million (six months to 31 March 2016: 0.90 million). These included bad debts, property repairs and maintenance, void costs, property management and letting fees, as well as non-recoverable VAT on residential and non-VAT opted properties. Some cost areas have reduced in line with the disposal programme. However, asset management activity has resulted in an increase in leasing costs and, in common with other property investment businesses, we have incurred higher local authority charges in respect of void properties. Further detail of property operating expenses are contained in Note 3 to the financial statements. 
Administrative expenses were 0.97 million during the period (six months to 31 March 2016: 0.83 million). This increase was primarily due to costs incurred in relation to the General Meeting held in December 2016, which is allocated as non-recurring expenditure in the table below. Further detail of administration expenses is contained in Note 5 to the financial statements.
The IFRS result reflected the realised gains and losses on the sales of properties after execution costs (as shown in Note 4 to the financial statements), together with the movement in fair value of the property portfolio. 
In monitoring operational performance, the Board considers recurring operating profit. This measure excludes realised and unrealised gains and losses on investment properties and financial derivatives and expenditure items considered to be of a non-recurring nature. The recurring operating profit for the period was 0.92 million (or 1.11 pps), compared with 0.54 million (0.66 pps) for the six months to 31 March 2016 and 1.53 million (1.9 pps) for the year to 30 September 2016.
The table below summarises the adjustments made between Profit before tax and recurring operating profit. 
31 March 2017
000
31 March 2016 
000
30 Sept 2016 
000
Profit/(loss) before tax (IFRS)
(23)
423
631
Movement in the fair value of the portfolio
265
439
1,073
Movement in the fair value of the interest rate swaps held
-
(2,294)
(2,294)
Loss/(profit) on disposal of 
investment properties
552
216
199
Non-recurring expenditure
125
-
162
Buy-out of Swap contracts
-
1,758
1,758
Recurring profit on continuing operations
919
542
1,529
The calculation remains consistent with previous periods. 
Asset Management 
Whilst the timely sell down of the property portfolio continues to be our principle focus, it is critical that this is supported by effective asset management of the portfolio, to maintain rental income and maximise sale values. To this end during the period we carried out: 
 27 new lettings of vacant properties at a combined rent of 210,000 (2.6% above Market Rent);
 10 lease renewals at a combined rent of 101,000 (3% above Market Rent); 
 6 rent reviews at an aggregate rent broadly equal to previous passing rent (4% below Market Rent).
The overall void rate within the portfolio at 31 March 2017 was 12.4% of portfolio Market Rent (30 September 2016: 10.9%). This increase in part reflects the sale of let properties. 
We continue our policy of taking back units for re-letting as early as practicable where we consider that they are likely to be subject to rent defaults. We also seek rent deposits from new tenants and, at 31 March 2017, deposits were held in respect of commercial tenants equating to 30% of our quarterly rent roll (30 September 2016: 26%). Further deposits, typically equating to one month's rent, are held by our managing agents and regulated tenant deposit schemes in respect of residential tenancies. 
Financing 
During the period, the Group operated using loan facilities provided by HSBC Bank plc ("HSBC"). As at 31 March 2017, the facilities were as set out below. 
Margin
2% above 3-month LIBOR
Borrower
NOS 4 Limited
NOS 6 limited
Total
Amount Outstanding m
42.0
0.3
42.3
Default ICR Covenant
120%
Default LTV Covenant
70%
Amortisation
1.0% pq for 2 years from November 2016
0.25% pq thereafter (until the balance falls below 36m)
Expiry Date
31 December 2019
The two facilities provided by HSBC Bank plc ("HSBC") were subject to cross-collateralisation of the corresponding property portfolios. On each quarterly interest payment date the loan facilities are subject to actual and forecast interest cover (ICR) tests, and a loan-to value (LTV) test. At each testing date during the period the loans were determined to be compliant.
These facilities were due to expire on 30 April 2018. However, during the period the Company renegotiated its borrowing arrangements to extend the term of the facilities to 31 December 2019, at the previous margin of 2% above 3-month LIBOR. 
At 31 March 2017 the debt outstanding was 42.3 million (30 September 2016: 50.8 million). Following repayments made at the April 2017 interest payment date, the outstanding loan balance had fallen to 36.9m by the time of publication of this report.
At 31 March 2017 the Group held 7.4 million of cash (30 September 2016: 11.0 million) and property valued at 1.9 million with no debt secured against it. The cash held relates to sales proceeds to be applied to loan repayment and required for working capital. The Group's overall LTV was 48.8%.
Dividend 
In line with the Company's current dividend distribution policy no interim dividend will be paid. The Board will continue to review the dividend policy in line with progress with the investment strategy.
Principal Risks and Uncertainties for the Remaining Six Months of the Financial Year 
The directors consider it appropriate to prepare the Half Year Statement on a Going Concern basis given the Group's diverse tenant base, the improving outlook for capital values, the bank facilities available, the uncharged properties owned by the Group, the cash held at the period end and the potential proceeds arising from property sales. 
The risks facing the Group for the remaining six months of the financial year remain consistent with those described in detail in the Annual Report for the year ended 30 September 2015 (available on the Company's website: www.localshoppingreit. co.uk). These centre on: 
 Changes in the macroeconomic environment 
 Higher than anticipated property maintenance costs 
 Changes to legal environment, planning law or local planning policy 
 Regulatory requirements in connection with property portfolio
 Information technology systems and data security 
 Financial market conditions 
The Group does not consider financing to be a risk given the long-term nature of the outstanding debt, the Group's cash reserves and the level of debt-free properties in the portfolio. 
The Group does not speculate in derivative financial instruments and has used them in the past only to hedge its exposure to fluctuations in interest rates. 
The Group is exposed to the risk of non-payment of trade receivables by its tenants. However, the Directors consider that this does not comprise an undue concentration of credit risk, given that the risk is spread across in excess of 900 tenants operating across all retail occupations spread throughout the UK. The level of arrears is monitored continually by the Group's asset managers and subject to monthly review at executive level. 
Responsibility Statement
We confirm that to the best of our knowledge: 
(a) the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU: and 
(b) the Interim Management Report includes a fair review of the information required by: 
DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and 
DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. 
Signed on behalf of the Board who approved the interim management report on 10 May 2017.
S J East
Director
Independent Review Report to The Local Shopping REIT plc
Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2017 which comprises the Condensed Consolidated Income Statement, Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Cash Flow Statement, and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2017 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.
Mark Flanagan
for and on behalf of KPMG LLP 
Chartered Accountants 
31 Park Row
Nottingham 
NG1 6FQ
10 May 2017
Condensed Consolidated Income Statement
for the six months ended 31 March 2017
Note
Unaudited
Unaudited
Audited
Six months ended
Six months ended
Year ended
31 March 2017
31 March 2016
30 September 2016
000
000
000
Gross rental income
3,308 
3,601 
6,989 
Property operating expenses
3
(914)
(899)
(1,862)
Net rental income
2,394 
2,702 
5,127 
Loss on disposal of investment properties
4
(552)
(216)
(199)
Loss on change in fair value of investment properties
9
(265)
(439)
(1,073)
Administrative expenses
5
(966)
(831)
(1,710)
Operating profit before net financing costs
611 
1,216 
2,145 
Financing income*
6
4 
12 
25 
Financing expenses*
6
(638)
(1,341)
(3,833)
Movement in fair value of derivatives
6
- 
536 
2,294 
(Loss)/Profit before taxation
(23)
423 
631 
Tax
7
- 
- 
- 
(Loss)/Profit for the financial period from continuing operations
(23)
423 
631 
(Loss)/Profit for the financial period attributable to equity holder of the Company
(23)
423 
631 
Basic and diluted (loss)/profit per share on (loss)/profit for the financial period
-0.03p
0.51p
0.76p
Basic and diluted (loss)/profit per share on continuing operations for the period
11
-0.03p
0.51p
0.76p
* Excluding movements in the fair value of financial derivatives
Condensed Consolidated Statement of Comprehensive Income 
for the six months ended 31 March 2017
Unaudited
Unaudited
Audited
Six months ended
Six months ended
Year ended
31 March 2017
31 March 2016
30 September 2016
000
000
000
(Loss)/Profit for the period
(23)
423 
631 
Share based transactions
49 
- 
66 
Total comprehensive income for the period
26 
423 
697 
Attributable to:
Equity holders of the parent Company
26 
423 
697 
Condensed Consolidated Balance Sheet
as at 31 March 2017
Note
Unaudited
Unaudited
Audited
31 March 2017
31 March 2016
30 September 2016
000
000
000
Non-current assets
Investment properties
9
65,897 
76,406 
74,285 
Total non-current assets
65,897 
76,406 
74,285 
Current assets
Trade and other receivables
7,530 
2,208 
2,094 
Investment properties held for sale
277 
840 
1,590 
Cash
7,361 
12,289 
11,000 
Total current assets
15,168 
15,337 
14,684 
Total assets
81,065 
91,743 
88,969 
Non current liabilities
Interest bearing loans and borrowings
10
(40,292)
(52,283)
(49,635)
Finance lease liabilities
(443)
(572)
(567)
Total non-current liabilities
(40,735)
(52,855)
(50,202)
Current liabilities
Interest bearing loans and borrowings
10
(1,668)
(956)
(907)
Trade and other payables
(3,087)
(2,657)
(2,311)
Total current liabilities
(4,755)
(3,613)
(3,218)
Total liabilities
(45,490)
(56,468)
(53,420)
Net assets
35,575 
35,275 
35,549 
Equity
Issued capital
18,334 
18,334 
18,334 
Reserves
3,773 
3,773 
3,773 
Capital redemption reserve
1,764 
1,764 
1,764 
Retained earnings
11,704 
11,404 
11,678 
Total attributable to equity holders of the Company
35,575 
35,275 
35,549 
Condensed Consolidated Statement of Cash Flows 
for the six months ended 31 March 2017
Note
Unaudited
Unaudited
Audited
Six months ended
Six months ended
Year ended
31 March 2017
31 March 2016
30 September 2016
000
000
000
Operating activities
Profit for the financial period
(23)
423 
631 
Adjustments for:
Loss on change in fair value of investment properties
9
265 
439 
1,073 
Net financing costs
6
634 
793 
1,514 
Loss\(Profit) on disposal of investment properties
552 
216 
199 
Employee benefit trust shares vesting
49 
-
66 
1,477 
1,871 
3,483 
Increase in trade and other receivables
(5,436)
(268)
(66)
Increase /(decrease) in trade and other payables
833 
(74)
(423)
(3,126)
1,529 
2,994 
Interest paid
(616)
(1,739)
(2,353)
Bank facility fees paid
(12)
-
-
Loan arrangement fees paid
(257)
(4)
(5)
Interest received
4 
12 
25 
Net cash flows from operating activities
(4,007)
(202)
661 
Investing activities
Proceeds from sale of investment properties
9,142 
4,079 
4,919 
Acquisition of and improvements to
(257)
(124)
(210)
investment properties
Cash flows from investing activities
8,885 
3,955 
4,709 
Net cash flows from operating activities and investing activities
4,878 
3,753 
5,370 
Financing activities
Swap breakage costs (note 13)
- 
(1,758)
(1,758)
Repayment of borrowings
(8,517)
(2,446)
(5,352)
Cash flows from financing activities
(8,517)
(4,204)
(7,110)
Net (decrease)/increase in cash
(3,639)
(451)
(1,740)
Cash at beginning of period
11,000 
12,740 
12,740 
Cash at end of period
7,361 
12,289 
11,000 
Condensed Consolidated Statement of Changes in Equity 
for the six months ended 31 March 2017
Capital
Share
redemption
Retained
capital
Reserves
reserve
earnings
Total
000
000
000
000
000
At 30 September 2015
18,334 
3,773 
1,764 
10,981 
34,852 
Total comprehensive income 
for the period
Profit for the period
- 
- 
- 
423 
423 
Transactions with owners,
recorded directly in equity
Dividends
- 
- 
- 
- 
- 
Share based payments
- 
- 
- 
- 
- 
Total contributions by and
distributions to owners
At 31 March 2016
18,334 
3,773 
1,764 
11,404 
35,275 
Total comprehensive income
for the period
Profit for the period
- 
- 
- 
208 
208 
Transactions with owners,
recorded directly in equity
Dividends
- 
- 
- 
- 
- 
Share based payments
- 
- 
- 
66 
66 
Total contributions by and
distributions to owners
At 30 September 2016
18,334 
3,773 
1,764 
11,678 
35,549 
Total comprehensive income
for the period
Loss for the period
- 
- 
- 
(23)
(23)
Transactions with owners,
recorded directly in equity
Dividends
- 
- 
- 
- 
- 
Share based payments
- 
- 
- 
49 
49 
Total contributions by and
distributions to owners
At 31 March 2017
18,334 
3,773 
1,764 
11,704 
35,575 
Notes to the Half Year Report 
for the six months ended 31 March 2017
1 Accounting policies 
Basis of preparation
The condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the EU.
The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. As required by the Disclosure and Transparency Rules of the Financial Services Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended 30 September 2016 (with which they should be read in conjunction).
During the last six months an accelerated sales programme has commenced, primarily via auction, where the economic risk transfers on the auction date. It has been decided to recognise these sales at the auction date instead of the subsequent completion date in order to properly reflect the level of property sales activity. Provision is made for the relevant auction and legal fees arising on the sales in calculating the gain or loss on disposal. The effect of this change on the March 2016 and September 2016 financial statements is not material, and therefore no re-statement of comparative figures has been made. 
The comparative figures for the financial year ended 30 September 2016 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's Auditors and delivered to the Registrar of Companies. The report of the Auditors was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
2 Segmental reporting
IFRS 8 requires operating segments to be identified on the basis of internal reports that are regularly reported to the chief operating decision maker to allocate resources to the segments and to assess their performance.
Since the establishment of the jointly controlled entities and other investments the Group has identified two operating and reporting segments which are reported to the Board of directors on a quarterly basis, The Board of directors are considered to be the chief operating decision makers.
The financial information presented quarterly to the Board is the recurring profit achieved by each segment. The segments identified are: the properties directly owned by the Group and the asset management income earned, together with the share of results due to the Group from the joint ventures.
Following the strategic review, the Board consider there to be only one reportable segment.
3 Property operating expenses
Six months ended
Six months ended
Year ended
31 March 2017
31 March 2016
30 September 2016
000
000
000
Bad debt charge
(151)
(148)
(356)
Head rent payments
(8)
(16)
(31)
Repairs
(158)
(211)
(377)
Business rates and council tax
(155)
(133)
(246)
Irrecoverable service charge
(53)
(94)
(134)
Utilities
(36)
(39)
(70)
Insurance*
(26)
45 
2 
Managing agent fees
(133)
(137)
(279)
Leasing costs
(127)
(97)
(211)
Legal & professional
(27)
(22)
(72)
EPC amortisation, Abortives, and Miscellaneous
(40)
(47)
(88)
Total property operating expenses
(914)
(899)
(1,862)
The company's portfolio contains residential elements and commercial properties not opted for VAT. In the above table the applicable VAT which is not recoverable has been included directly in the cost.
*The insurance credits in March 2016 and September 2016 were the result of an over-provision in 2015.
4. Property disposals
Six months ended
Six months ended
Year ended
31 March 2017
31 March 2016
30 September 2016
Number
Number
Number
Number of sales
63 
16 
27 
000
000
000
Average value
151 
252 
185 
Sales
Total sales 
9,496 
4,032 
4,997 
Carrying value
(9,570)
(4,135)
(5,025)
Loss on disposals before transaction costs
(74)
(103)
(28)
Transaction costs
Legal fees
139 
42 
67 
Agent fees, marketing and brochure costs
284 
53 
74 
Disbursements
4 
8 
12 
Non-recoverable VAT (on non-opted and residential elements)
51 
10 
18 
Total transaction costs
478 
113 
171 
Loss on disposals after transaction costs
(552)
(216)
(199)
Transaction costs as percentage of sales value 
5.0%
2.8%
3.4%
5 Administrative expenses
Six months ended
Six months ended
Year ended
31 March 2017
31 March 2016
30 September 2016
000
000
000
Investment manager fees*
(513)
(494)
(963)
Legal and professional
(98)
(107)
(348)
Tax and audit
(56)
(66)
(99)
Remuneration Costs**
(93)
(33)
(133)
Other
(26)
(62)
(39)
Irrecoverable VAT on Administration expenses ***
(55)
(69)
(128)
December 2016 General Meeting costs
(125)
- 
- 
Total administrative expenses
(966)
(831)
(1,710)
*Investment management fees have increased primarily due to a higher amount of sales fees payable on the back of the accelerated sales programme. The minimum investment management fee falls away in July 2017, and this will be reflected in the September 2017 financial statements (see note 15).
**Remuneration costs include 49,000 (30 September 2016:  66,000) in respect of the expensing of employee share options which vest in 2018 onwards or if liquidation targets are met. This amount has a corresponding entry in equity and has no impact on the Company's net assets now or in the future. 
***The company's portfolio contains residential elements and commercial properties not opted for VAT. Accordingly, VAT on administrative expenses is not fully recoverable.
6 Net financing costs
Six months ended
Six months ended
Year ended
31 March 2017
31 March 2016
30 September 2016
000
000
000
Interest receivable
4 
12 
25 
Financing income excluding fair value movements
4 
12 
25 
Fair value gains on derivative financial instruments (see note 13)
- 
536 
2,294 
4 
548 
2,319 
Bank loan interest
(545)
(1,266)
(1,924)
Amortisation of loan arrangement fees
(67)
(58)
(117)
Head rents treated as finance leases
(14)
(17)
(34)
Bank facility fees
(12)
Financing expenses excluding fair value movements
(638)
(1,341)
(2,075)
Payments to close swaps (see note 13)
- 
- 
(1,758)
Financing expenses
(638)
(1,341)
(3,833)
Net financing costs
(634)
(793)
(1,514)
7. Taxation
From 11 May 2007, the Group elected to join the UK REIT regime. As a result, the Group is exempt from corporation tax on the profits and gains from its investment business from this date, provided it continues to meet certain conditions. Non-qualifying profits and gains of the Group (the residual business) continue to be subject to corporation tax. The directors consider that all the rental income post 11 May 2007 originates from the Group's tax exempt business.
On entering the UK REIT regime, a conversion charge equal to 2% of the gross market value of properties involved in the property rental business, at that date, became due which was paid in full.
Due to the availability of losses no provision for corporation tax has been made in these accounts. The deferred tax asset not recognised relating to these losses can be carried forward indefinitely. It is not anticipated that these losses will be utilised in the foreseeable future.
8. Dividends
No dividends have been paid since December 2012.
9. Investment properties
Total
000
At 1 October 2016
74,285
Additions
257 
Disposals
(9,570)
Reduction in head lease value
(124)
Fair value adjustments
(265)
Movement on investment properties held for sale
1,314 
At 31 March 2017
65,897 
The investment properties have all been revalued to their fair value at 31 March 2017.
For the Group as a whole, Allsop LLP, a firm of independent chartered surveyors valued the group's property portfolio at 31 March 2017 and 30 September 2016, and at 31 March 2016 and 30 September 2015. On each of these dates Allsop LLP performed a full valuation of 25% of the group's properties (including site inspections) and a desktop valuation of the remainder, such that all properties owned by the group have been inspected and valued over the two-year period. All properties acquired to each of these dates were also valued by Allsop. These valuations are reviewed by the Company's management team prior to finalisation. The valuations were undertaken in accordance with the Royal Institute of Chartered Surveyors Appraisal and Valuation Standards on the basis of market value. 
Market value is defined as the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction, after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
A reconciliation of the portfolio valuation at 31 March 2017 to the total value for investment properties given in the Consolidated Balance Sheet is as follows:
31 March 2017
31 March 2016
30 September 2016
000
000
000
Portfolio valuation
65,731 
76,674 
75,308 
Investment properties held for sale
(277)
(840)
(1,590)
Head leases treated as investment properties held under finance leases in accordance with IAS 17
443
572
567 
Total per Consolidated Balance Sheet
65,897 
76,406 
74,285 
10. Interest-bearing loans and borrowings
31 March 2017
31 March 2016
30 September 2016
000
000
000
Non-current liabilities
Secured bank loans
40,667 
52,527 
49,821 
Loan arrangement fees
(375)
(244)
(186)
40,292 
52,283 
49,635 
Current liabilities
Current portion of secured bank loans
1,668 
956 
907 
All bank borrowings are secured by fixed charges over certain of the Group's property assets and floating charges over the companies which own the assets charged.
The loans are amortised by 1% of the balance outstanding on a quarterly basis, and the final balance is repayable in 2019.
11. Earnings per share 
Basic earnings per share
The calculation of basic earnings per share was based on the profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding, calculated as follows:
(Loss)/Profit attributable to ordinary shares
Six months ended
Six months ended
Year ended
31 March 2017
31 March 2016
30 September 2016
000
000
000
(Loss)/Profit for the financial period
(23)
423 
631 
Weighted average number of shares
31 March 2017
31 March 2016
30 September 2016
Number
Number
Number
000
000
000
Issued ordinary shares
91,670 
91,670 
91,670 
Treasury shares
(9,164)
(9,164)
(9,164)
Weighted average number of ordinary shares
82,506 
82,506 
82,506 
Diluted earnings per share
There is no difference between the basic and diluted earnings per share.
12. Net asset value (NAV)
The number of shares used to calculate net asset value per share is as follows:
31 March 2017
31 March 2016
30 September 2016
Number
Number
Number
000
000
000
Number of shares in issue
91,670 
91,670 
91,670 
Less: shares held in Treasury
(9,164)
(9,164)
(9,164)
82,506 
82,506 
82,506 
31 March 2017
31 March 2015
30 September 2015
000
000
000
Net assets per Consolidated Balance Sheet
35,575 
35,275 
35,549 
Net asset value per share
0.43
0.43
0.43
13. Derivative financial instruments
Derivative financial instruments held by the Group were interest rate swaps used to manage the Group's interest rate exposure. These were fully paid down in the year to 30 September 2016. The Company continues to monitor the interest rate environment, and may enter into some hedging arrangements in the future. However, given the currently low and stable rates and the Company's sales programme, this would not be advantageous at present.
14. Related parties
There have been no transactions with related parties which have materially affected the financial position or performance of the Group during the current or previous period nor have there been any changes in related party transactions which could have a material effect on the financial position or performance of the Company during the first six months of the current financial year.
15. Significant contracts
With effect from 22 July 2013 the Company entered into a management agreement with Internos Global Investors Limited ("Internos"). Under this agreement, the Company pays to Internos:
1. 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. This minimum falls away in July 2017.
2. An annual performance fee of 20% of the recurring operating profits above a pre-agreed target recurring profit.
3. Fees for property sales as follows:
Up to 50m nil
50m - 150m 0.5% of sales
Over 150m 1% of sales
4. A terminal fee of 5.7% of cash returned to the Company's shareholders in excess of 36.1 pence per share per annum from the Effective Date outside of dividend payments (the "Terminal Fee Hurdle"). The Terminal Fee Hurdle rises by 8% per annum after the first year but reduces on a pro-rata daily basis each time equity is returned to shareholders outside of dividend payments from recurring operating profits.
Under the terms of the agreement Internos received a fee of 513,000 (September 2016 - 963,000,461 March 2016 - 510,000).

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