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

Alina HoldingsAnnouncement

15/07/2015 18:43

RNS Number : 8458N
Local Shopping REIT (The) PLC
21 May 2015
REPORT FOR THE SIX MONTHS TO 31 MARCH 2015 
Highlights 
 Recurring profit* for the period of 0.44m or 0.53 pence per share ("pps") (H1 2014: 0.92m or 1.13 pps). 
 Profit for the financial period of 0.11m or 0.13 pps (H1 2014: 1.75m or 2.15 pps). 
 Portfolio valued at 31 March 2015 at 84.9m, reflecting an equivalent yield (excluding the residential element) of 9.28% (30 September 2014: 87.6m, with an equivalent yield of 9.25%). 
 Net Asset Value (NAV): 34.9m or 42 pps (30 September 2014: 34.8m or 42 pps). 
 Adjusted NAV: 38.4m or 47 pps, excluding liabilities arising from derivative financial instruments (30 September 2014: 38.8m, 47 pps).
 Cash holdings of 18.6m.
 Total net debt of 45.9m, reflecting an LTV (taking account of cash reserves) of 54.1%.
 Restructuring of the HSBC debt facility shortly after the period, including the removal of 'payment in kind' interest which would otherwise have accrued from January 2015 and debt repayment of 6.9m.
*Recurring profit is explained in the Results section below.
For further information:
The Local Shopping REIT plc  +44 20 7355 8800
Steve Faber, Director 
Bill Heaney, Company Secretary
Or visit www.localshoppingreit.co.uk. 


Directors' Review
The Company has continued to perform robustly in a challenging environment for the retail sector. 
Market Context 
Against a background of continuing modest improvement in the general economy during the period, growth in activity within the retail market continued to be sustained, with the Office of National Statistics reporting sales in March 2015 4.2% ahead of the March 2014 figure. This was the 24th consecutive month of growth, the longest sustained period of growth since May 2008. This was despite average store prices 3.1% lower than in March 2014, largely due to the 12.8% reduction in car fuel prices over the 12 months. The internet continued to increase its influence, with on-line sales increasing by 10.3% over the 12 months to end-March 2015.
Within this environment, local and independent retailers continue to show resilience, with shop owners as ever reacting to local opportunities to expand the range of their offering in areas such as convenience food and beverage, delivery services and ATM access. The Association of Convenience Stores reporting significantly increasing optimism amongst its members from July 2014 onwards. This has been helped by some Government intervention, such as the 2% rates cap and rates relief for small businesses, as well as the increased business rates discount. However, the sub-sector is likely to be impacted more than others by the recent increase in minimum wage levels. 
The UK Investment market has strengthened since mid-2012 with both improved pricing and an increasing number of transactions. This momentum has varied between the sectors, with the market for retail investments being the most subdued, and this has been particularly felt in local shopping assets in secondary, tertiary and non-core locations.
Whilst other sectors have experienced a surge in demand from overseas and domestic institutional capital, local shopping has been largely ignored. Good quality shopping assets continue to sell well at auction, particularly when located in attractive towns or larger cities, but there is little investor appetite for lesser quality stock. 
Operating Results 
Comparison of the performance of the portfolio with previous periods is inevitably affected by the sale of two of the Company's property-holding subsidiaries, NOS 2 Limited and NOS 3 Limited, in August 2014, in execution of the Company's policy of disposing of its investment property assets. This reduced the overall portfolio by 235 properties, which had provided a net rental income at August 2014 of 7.07 million. 
In addition, eight freehold properties were sold, together with a further two units sold on long leases, of which three contained residential flats. The aggregate gross sale price was 2.18 million, a premium of 14.99% to their preceding valuation. 
Profit before tax for the six month period was 0.11 million (or 0.13 pps), compared with a profit of 1.75 million (2.15 pps) for the six months to 31 March 2014 and a profit of 1.21 million (1.47 pps) for the full year to 30 September 2014. 
The recurring profit was 0.44 million (or 0.53 pps), compared with 0.92 million (1.13 pps) for the six months to 31 March 2014 and 0.69 million (0.8 pps) for the year to 30 September 2014.
The portfolio achieved gross rental income for the six months to 31 March 2015 of 3.96 million, compared with 7.65 million for the half year to 31 March 2014 (prior to the sale of NOS 2 Limited and NOS 3 Limited). Within this, rent reviews continued to be highly subject to local and regional factors. We also continued to re-gear leases, offering rent concessions where this was justified by resultant enhancement in value. 
Property operating expenses were 0.66 million, compared with 1.99 million in H1 2014. The principal reason for this was the removal of costs attributable to NOS 2 Limited and NOS 3 Limited following their sale in August 2013. However, a further significant factor was the reduction of 0.23 million in bad debt charges. The amount of non-recoverable service charges were also reduced. Other cost items remained broadly in line with the H1 in 2014. Profit before tax also incorporates a charge of 0.22 million representing an adjustment to the consideration for the disposal of NOS 2 Limited and NOS 3 Limited in relation to debtor balances. 
Profit before tax reflected the movement in fair value of the property portfolio, which was valued at 84.9 million at 31 March 2015, a decrease of 2.7 million on the 30 September 2014 figure of 87.6m. The movement during the period reflected a combination of lower values on a like-for-like basis and the reduction in portfolio value resulting from individual property sales. 
The table below summarises the adjustments made between Profit before tax and this recurring profit. 
31 March 2015
000
31 March 2014 
000
30 Sept 2014 
000
Profit/(loss) before tax (IFRS)
108
1,751
1,206
Profit on discontinued operations
-
-
-
Profit/(loss) before tax on continuing operations
108
1,751
1.206
Reduction in the fair value of the portfolio
699
318
496
Increase in the fair value of the interest 
rate swaps held
(611)
(1,255)
(2,267)
Loss (profit) on disposal of 
investment properties
26
(218)
(475)
Non-recurring (income)/ 
costs & net resolution of aged balances
-
323
413
Loss on sale of shares

-
1,312
Adjustment to portfolio sale proceeds
216
-
-
Recurring profit on continuing operations
438
919
685
The calculation remains consistent with previous periods. 
Revaluation 
The investment property portfolio was revalued at 84.91 million as at 31 March 2015, reflecting an equivalent yield (excluding the residential element) of 9.28% (30 September 2014: 87.6m, equivalent yield 9.25%). As at 31 March 2015, the portfolio comprised 382 properties with an annual rental income, net of head rents payable, of 7.64 million, compared to 387 properties and 7.92 million at 30 September 2014. The portfolio included 1,116 letting units (30 September 2014: 1,190 letting units). 
Investment Property Portfolio as at 31 March 2015 
Value
84.91m
Initial Yield ("IY")
8.73%
Reversionary Yield ("RY")
9.67%
Equivalent Yield ("EY")
9.28%
Rent per annum*
7.64m
Market Rent per annum* 
8.38m
*Net of head rents payable
Value Range
No. of Properties
Value m
EY
0 - 100k
151
10.28
10.47%
101k - 200k
119
16.41
9.65%
201k - 500k
83
25.71
9.53%
501k - 1m
20
15.39
9.30%
1m - 3m
7
10.57
8.07%
3m +
2
6.55
7.31%
Total
382
84.91
9.28%
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 is 222,272 and the median is 120,000. The residential element of the portfolio has been valued at 11.590 million, typically based on 85% of vacant possession value. The average value of the residential units in our portfolio is 51,000.
Portfolio - Like-for-like Comparison

31 March 2015
30 Sept 2014
Change
Value
84.91m
85.82m
-1.07%
IY
8.73%
8.86%
-14 bps
RY
9.67%
9.61%
+6 bps
EY
9.28%
9.27%
+1 bps
Rent pa*
7.64m
7.82m
-2.37%
Market Rent pa*
8.38m
8.41m
-0.37%
All yields quoted exclude the residential element which is valued at a discount to vacant possession value.
*Net of head rents payable
The portfolio recorded a 1.07% fall in value on a like-for-like basis during the period, with the equivalent yield (excluding the residential element) remaining stable at 9.28% (30 September 2014: 9.27%). 
Market rents and yields across the portfolio remain highly subject to regional influence, as illustrated by the table below. 
Region
31/03/2015
EY
30/09/2014
EY
Change
bbs
East Anglia
10.60%
9.82%
+78
London
8.44%
8.46%
-1
South East
8.84%
8.89%
-5
South West
9.60%
9.53%
+7
West Midlands
9.42%
9.60%
-18
Wales
9.41%
9.27%
+14
Yorks & Humberside
9.64%
9.62%
+2
East Midlands
10.12%
10.32%
-20
North
11.17%
10.87%
+30
Scotland
10.11%
10.04%
+8
North West
9.54%
9.69%
-15
All yields quoted exclude the residential element which is valued at a discount to vacant possession value. 
During the six month period like-for-like rental income decreased by 2.37%, and Market Rent decreased by 0.37%.
Net Asset Value ("NAV")
During the period NAV rose by 0.3% to 34.9 million or 0.42 per share, based on 82.5 million shares in issue, excluding those held in Treasury (30 September 2014: 34.8 million, 0.42 per share). 
The adjusted NAV of the Company as at 31 March 2015, excluding liabilities arising from derivative financial instruments, was 38.4 million or 0.47 per share (30 September 2014: 38.8 million, 0.47 per share). 
The Group held 18.56 million of cash at the end of the period. 
Asset Management 
We continue with our flexible approach to leasing, which is suited to the local occupier market, generally preferring agreed stepped rents to offering rent-free periods. During the period we let twenty-one units at a combined rent of 174,870 per annum against aggregate Market Rent of 176,700. Of these, three incorporated stepped rent increases whereby the aggregate initial rent will rise to exceed the current Market Rent over the first two years of the leases. The other eighteen units were let at a 0.93% premium to Market Rent. Our average rent free period on lettings completed during the period was 118 days. At 31 March 2015 three units under offer for letting at a combined rent of 32,000.
Rent reviews, which were completed on twenty-four units resulting in aggregate rental income of 508,407 per annum against combined Market Rents of 451,070 (a premium of 12.71% to Market Rent). In addition, leases were renewed with twenty-four existing tenants, resulting in a net rental increase of 1,370 (0.59%), which was 17,460 (8.04%) ahead of Market Rent. On a like-for-like basis total rental income decreased by 1.92% since 30 September 2014, together with a 1.87% decrease in like-for-like Market Rent. 
During the period consent was obtained for one change of use.
The overall void rate within the portfolio at 31 March 2015 was 13.18% of portfolio Market Rent, equivalent to Market Rent of 1.11 million (30 September 2014: 11.94% and 1.03 million). The Market Rent for void commercial properties was 0.97 million, whilst 0.14 million was attributable to residential units (30 September 2014: 0.91m and 0.12m). 
We continue our robust approach to rent defaults, which is suited to the local retail market, taking back units for re-letting as soon as practicable. The bad debt charge reduced significantly during the period compared with the six months to end-March 2014. 
Our policy to seek rent deposits for new lettings or assignments wherever appropriate. As at 31 March 2015, we held deposits in respect of commercial tenants totalling 0.43 million, or 25.84% of our quarterly rent roll (30 September 2014: 0.47 million and 27.76%). This provides us with a measure of protection against tenant default which is not generally available when letting units to national retailers. Further deposits, typically equating to one month's rent, are held by our managing agents and the Deposit Protection Service in respect of residential tenancies. 
Financing 
During the period, the Group operated using the loan facilities provided by HSBC Bank plc ("HSBC"). As at 31 March 2015, the facilities were as set out below. 
Loan 
Amount Outstanding 
m
LTV 
Covenant 
Amortisation 
Termination 
Date 
HSBC - Term Loan 1 
45.27m 
91.5% - NOS 4/6 combined 
1.8% pa of outstanding loan 
30 April 2018 
HSBC - Term Loan 2 
19.27m 
91.5% - NOS 4/6 combined 
1.8% pa of outstanding loan 
30 April 2018 





Total64.54m 

At 31 March 2015 the debt outstanding was 64.54million (30 September 2014: 65.1m). 
The two facilities provided by HSBC Bank plc ("HSBC") were subject to cross-collateralisation of the corresponding property portfolios, with a fixed margin of 2% applying to both facilities. An additional payment in kind ("PIK") margin accrued from 1 January 2015 and was payable on repayment of the loans (accruing at the rate of 1%. per annum from 1 January 2015, 1.5 %. from 1 January 2016 and 2%. thereafter from 1 January 2017). Amortisation instalments are paid on each interest payment date, calculated as 0.45% of the aggregate loan balance outstanding. 
Both loan facilities have actual and forecast interest cover tests which must be complied with under the terms of the facilities. The interest cover is tested on each quarterly interest payment date. At each testing date during the period the loans were determined to be compliant. 
On 29 April 2015, following the period end, the facilities provided by HSBC were restructured as follows. The PIK margin applicable from January 2015 has been removed, which will reduce considerably the interest payable over the lifetime of the facility. In order to facilitate this change certain amendments were made to the loan to value ("LTV") and interest cover ratio ("ICR") covenants and a loan repayment of 6.9 million was made. Immediately following the loan repayment, the LTV ratio fell to 72.5%, compared with the revised default LTV level of 82.5%.
Other changes to the facilities included the introduction of an LTV ratchet which unlocks lower interest margins and reduced amortisation requirements at lower levels of gearing and the removal of the obligation to hedge interest rate exposure (subject to continuing to satisfy the ICR covenant). 
The small reduction in covenant headroom is compensated by the significant savings in interest payments (PIK and cash margins) which are estimated at 1.3 million over the remainder of the loan period. Additionally, after having made the loan repayment the Group still holds a considerable amount of cash which could be deployed to pay down debt in the unlikely event that a loan covenant is breached. Furthermore, the revised debt terms and the optionality provided by the LTV ratchet improves the attractiveness of the portfolio to potential purchasers.
Following the refinance, the average cost of debt, including margin was 6.7%. Were the restructuring of the HSBC facilities not undertaken, the cost of debt would have risen to 7.2%. At 31 March 2015 the Group held 5.7 million of property which does not have any debt secured against it together with cash of 18.6 million (30 September 2014: 15.7 million).

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 2014 (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 
 Capital management and liquidity 
The Group does not consider financing to be a risk given the long term nature of the outstanding debt, the hedging facilities in place and the level of debt-free properties in the portfolio. 
The Group does not speculate in derivative financial instruments and only uses them to hedge its exposure to fluctuations in interest rates. However, movements in the fair value of the derivative financial instruments do affect the income statement and consequently the Net Asset Value recorded on the Consolidated Balance Sheet. 
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 1,000 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. 
Outlook 
The continuing month-on-month increase retail sector sales volume appears to be related in large measure to sales discounting. However, there are positive signs for retailers, including the local shopping sub-sector, in the longer term. These include the reduced level of fuel and energy costs, rises in real wages, improvements in the jobs market and the likely continuation of relatively low interest rates. Local retailers, whose business is often based on the sale of consumer staples, appear to remain unfazed by potential problems in the Eurozone and uncertainties over the future make-up of the Government and policy application.
As noted in previous statements, the trading environment for independent shops and convenience retailers is highly subject to regional and local factors. During the coming months we expect these to include the local consequences of decisions by major supermarket chains over the future of their sites, as well as their continued expansion into convenience shopping. Internet shopping, home delivery and "click & collect", also provide increasing competition for our occupier market. However, flexibility is key to independent retailing and it appears that those retailers most likely to be affected by new challenges are quickest to respond to them. Overall, we expect our occupier market to continue to perform with continued resilience, which we expect to see reflected in the Group's income stream and asset value.
Sincethe change of investment strategy adopted by shareholders in July 2013 we have sold 84.2 million of property, representing 49% of the Group's portfolio at that time. The remaining assets have been marketed and ongoing discussions are taking place with an interested party. In the event that those discussions prove fruitless then we will continue with a sales programme of individual assets or small portfolio sales. The majority of the interest rate hedges attached to the Group's debt expire in June of next year. This should result in a significant reduction in the Group's financing costs, with a corresponding improvement in cash flow, enabling us to accelerate the pace of disposals unfettered. To that end we will seek, subject to market conditions and capacity, to complete the disposal process by the end of 2017 and return cash to shareholders as soon as possible thereafter.
S J East
Chairman
Responsibility Statement
We confirm to the best of our knowledge: 
(a) the condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the EU: and 
(b) the Half Year 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 half yearly financial report on 20 May 2015.
S R Faber
Director
KPMG LLP: 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 2015 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 2015 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA. 
John Leech, for and on behalf of KPMG LLP 
Chartered Accountants 
One Snowhill 
Snow Hill Queensway
Birmingham B4 6GH


Condensed Consolidated Income Statement for the six months ended 31 March 2015

Note





Unaudited
Unaudited
Audited


Six months ended
Six months ended
Year ended


31 March 2015
31 March 2014
30 September 2014


000
000
000
Gross rental income

3,962 
7,646 
13,851 
Property operating expenses

(658)
(1,985)
(3,865)
Net rental income

3,304 
5,661 
9,986 
Profit\(loss) on disposal of investment properties

(26)
218 
475 
Loss on disposal of subsidiaries


- 
(1,312)
Loss on change in fair value of investment properties
6
(699)
(318)
(496)
Administrative expenses

(1,020)
(1,002)
(2,152)
Net other income

- 
4 
5 
Share of results from jointly controlled entities
7
(3)
19 
(4)
Operating profit before net financing costs

1,556 
4,582 
6,502 
Financing income*
3
8 
2 
3 
Financing expenses*
3
(2,067)
(4,088)
(7,566)
Movement in fair value of derivatives
3
611 
1,255 
2,267 
Profit before taxation

108 
1,751 
1,206 
Tax
4
- 
- 
- 
Profit for the financial period from continuing operations

108 
1,751 
1,206 
Profit for the financial period attributable to equity holder of the Company

108 
1,751 
1,206 
Basic and diluted profit per share on loss for the financial period

0.1p
2.1p
1.5p
Basic and diluted profit per share on continuing operations for the period
11
0.1p
2.1p
1.5p
Condensed Consolidated Statement of Comprehensive Income for the six months ended 31 March 2015


Unaudited
Unaudited
Audited

Six months ended
Six months ended
Year ended

31 March 2015
31 March 2014
30 September 2013

000
000
000
Profit for the period

108 
1,751 
1,206 
Total comprehensive income for the period

108 
1,751 
1,206 





Attributable to:




Equity holders of the parent Company

108 
1,751 
1,206 





Condensed Consolidated Balance Sheet as at 31 March 2015

Note
Unaudited
Unaudited
Audited
31 March 2015
31 March 2014
30 September 2014



000
000
000
Non-current assets




Property, plant and equipment

- 
- 
- 
Investment properties
6
82,935 
84,519 
86,201 
Investments in jointly controlled entities
7
40 
526 
292 
Other investments
8
- 
- 

Total non-current assets

82,975 
85,045 
86,493 
Current assets




Trade and other receivables

1,722 
2,156 
3,461 
Investment properties held for sale

2,645 
5,775 
2,035 
Assets of a disposal group held for sale
10
- 
83,354 
- 
Cash

18,556 
3,753 
15,662 
Total current assets

22,923 
95,038 
21,158 
Total assets

105,898 
180,083 
107,651 
Non current liabilities

- 
- 

Interest bearing loans and borrowings
9
(63,113)
(64,178)
(63,642)
Finance lease liabilities

(672)
(672)
(672)
Derivative financial instruments
13
(1,079)
(2,690)
(1,634)
Total non-current liabilities

(64,864)
(67,540)
(65,948)
Current liabilities




Interest bearing loans and borrowings
9
(1,153)
(1,173)
(1,164)
Trade and other payables

(2,609)
(2,961)
(3,319)
Liabilities of a disposal group held for sale
10
- 
(70,688)
- 
Derivative financial instruments
13
(2,332)
(2,344)
(2,388)
Total current liabilities

(6,094)
(77,166)
(6,871)
Total liabilities

(70,958)
(144,706)
(72,819)
Net assets

34,940 
35,377 
34,832 





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

11,069 
11,506 
10,961 
Total attributable to equity holders of the Company

34,940 
35,377 
34,832 







Condensed Consolidated Statement of Cash Flows for the six months ended 31 March 2015

Note
Unaudited
Unaudited
Audited
Six months ended
Six months ended
Year ended
31 March 2015
31 March 2014
30 September 2014
000
000
000
Operating activities




Profit for the financial period

108 
1,751 
1,206 
Adjustments for:




Loss on change in fair value of investment properties
6
699 
318 
496 
Net financing costs
3
1,448 
2,831 
5,296 
Loss\(Profit) on disposal of investment properties

26 
(218)
(475)
Loss on disposal of subsidiaries


- 
1,312 
Share of results of jointly controlled entities

2 
(19)
4 


2,283 
4,663 
7,839 
Decrease/(increase) in trade and other receivables

1,739 
2,628 
1,220 
Increase in trade and other receivables held for disposal

(1,656)
(1,656)
- 
Decrease in trade and other payables

(710)
(3,646)
(1,108)
Increase in trade and other payables held for disposal

2,729 
2,729 
- 


4,385 
4,718 
7,951 
Interest paid

(2,023)
(3,881)
(8,026)
Loan arrangement fees paid

- 

(143)
Interest received

8 
2 
3 
Net cash flows from operating activities

2,370 
839 
(215)





Investing activities




Proceeds from sale of investment properties

2,127 
1,823 
4,255 
Cash transferred on disposal of properties

- 
- 
(1,350)
Net proceeds from sale of subsidiaries

- 
- 
10,283 
Acquisition of and improvements to

(196)
(613)
(1,045)
investment properties
Repayment of investment in jointly controlled entities
7
250 
- 
210 
Cash flows from investing activities

2,181 
1,210 
12,353 





Net cash flows from operating activities and investing activities

4,551 
2,049 
12,138 





Financing activities




Repayment of borrowings

(584)
(1,402)
(3,102)
Cash flows from financing activities

(584)
(1,402)
(3,102)





Net (decrease)/increase in cash

3,967 
647 
9,036 
Cash at beginning of period

15,662 
6,626 
6,626 
Cash included in assets held for disposal

(3,520)
(3,520)
- 
Cash at end of period

16,109 
3,753 
15,662 
Condensed Consolidated Statement of Changes in Equity for the six months ended 31 March 2015



Capital


Share

redemption
Retained

capital
Reserves
reserve
earnings
Total
000
000
000
000
000
At 30 September 2013
18,334 
3,773 
1,764 
9,755 
33,626 
Total comprehensive income for the period





Profit for the period
- 
- 
- 
1,751 
1,751 
Transactions with owners, recorded directly in equity





Dividends
- 
- 
- 

- 
Share based payments
- 
- 
- 
-
-
Total contributions by and distributions to owners





At 31 March 2014
18,334 
3,773 
1,764 
11,506 
35,377 
Total comprehensive income for the period





Loss for the period
- 
- 
- 
(545)
(545)
Transactions with owners, recorded directly in equity





Dividends
- 
- 
- 


Share based payments
- 
- 
- 
- 
- 
Total contributions by and distributions to owners





At 30 September 2014
18,334 
3,773 
1,764 
10,961 
34,832 
Total comprehensive income





for the period
Profit for the period



108 
108 
Transactions with owners, recorded directly in equity





Dividends





Share based payments





Total contributions by and





distributions to owners
At 31 March 2015
18,334 
3,773 
1,764 
11,069 
34,940 
Notes to the Half Year Report for the six months ended 31 March 2014 
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 2014 (with which they should be read in conjunction).
The comparative figures for the financial year ended 30 September 2014 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. Net financing costs


Six months ended
Six months ended
Year ended

31 March 2015
31 March 2014
30 September 2014

000
000
000
Interest receivable

8 
2 
3 
Financing income excluding fair value movements

8 
2 
3 
Fair value gains on derivative financial instruments (see note 13)

611 
1,255 
2,267 


619 
1,257 
2,270 





Bank loan interest

(2,006)
(3,988)
(7,366)
Amortisation of loan arrangement fees

(44)
(72)
(146)
Write off of loan arrangement fees

- 
- 
- 
Head rents treated as finance leases

(17)
(28)
(54)
Financing expenses excluding fair value movements

(2,067)
(4,088)
(7,566)
Fair value losses on derivative financial instruments



- 
Financing expenses

(2,067)
(4,088)
(7,566)





Net financing costs

(1,448)
(2,831)
(5,296)





4. 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.
5. Dividends
No dividends have been paid since December 2012.
6. Investment properties

Total
000
At 1 October 2014
86,201
Additions
196 
Disposals
(2,153)
Fair value adjustments
(699)
Movement on investment properties held for sale
(610)
At 31 March 2015
82,935 


The investment properties have all been revalued to their fair value at 31 March 2015.
All properties acquired since 1 October 2013, together with a sample selected by the valuers of 25% of the portfolio have been valued by Allsop LLP, a firm of independent Chartered Surveyors. The valuations were undertaken in accordance with the Royal Institute of Chartered Surveyors Valuation Standards 2011 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 knowledgably, prudently and without compulsion.
The remainder of the portfolio has been valued on the basis of Market Value by the directors who have an appropriate recognised professional qualification and recent experience in the location and category of property being valued.
A reconciliation of the portfolio valuation at 31 March 2015 to the total value for investment properties given in the Consolidated Balance Sheet is as follows:






31 March 2015
31 March 2014
30 September 2014

000
000
000
Portfolio valuation

84,908 
83,597 
85,529 
Head leases treated as investment properties held under finance leases in accordance with IAS 17

672
922
672

Head leases treated as investment properties held




Total per Consolidated Balance Sheet

85,580 
84,519 
86,201 





7. Investments in jointly controlled entities
The Group has the following investments in jointly controlled entity:


Ownership



31 March
31 March
30 September

2015
2014
2014
Gracechurch Commercial Investments Limited

50%
50%
50%
On 28 September 2011 an agreement was entered into with Gracechurch Commercial Investments Limited, a newly incorporated entity. The initial investment made was 500,000. The principal activity of the entity was to acquire properties for investment purposes. During 2014 the company disposed of all its properties and is now in liquidation. The investment is carried in the balance sheet at its estimated net realisation after expenses of winding up.






31 March 2015
31 March 2014
30 September 2014

000
000
000
Cost




At beginning of period

293 
507 
507 
Equity investments




Loan advances




Loans repaid



(210)
Share of results, net of tax


19 
(4)
Distributions received

(250)

- 
Provision for liquidation costs

(3)


At end of period

40 
526 
293 





The summarised financial information in respect of the Group's share of the jointly controlled entities is shown below, for information only. As the company did not trade during the period, data for the six months to 31March 2015 is not available.







31 March 2014
30 September 2014


000
000
Non-current assets


1,019 

Current assets


39 
317 
Non-current liabilities


(488)

Current liabilities


(44)
(24)


- 
526 
293 












31 March 2014
30 September 2014


000
000
Represented by:




Capital


500 
500 
Loans


210 
- 
Share of results brought forward


(203)
(203)
Share of results, net of tax


19 
(4)
Group's share of net assets

- 
526 
293 












31 March 2014
30 September 2014


000
000
Net rental income


47 
84 
Property expenses


(6)
(11)
Administrative expenses


(7)
(13)
Change in fair value of properties


- 
- 
Net interest payable


(14)
(26)
Movement in fair value of financial derivatives


- 
9 
(Loss)/profit on disposal of investment properties


- 
(49)
Tax


(1)
2 


- 
19 
(4)
8. Other investments
The Company has no Other Investments.
9. Interest-bearing loans and borrowings






31 March 2015
31 March 2014
30 September 2014

000
000
000
Non-current liabilities




Secured bank loans

63,388 
64,541 
63,961 
Loan arrangement fees

(275)
(363)
(319)


63,113 
64,178 
63,642 





Current liabilities




Current portion of secured bank loans

1,153 
1,173 
1,164 





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 0.45% of the balance outstanding on a quarterly basis, and the final balance is repayable in 2018.
10. Disposal group
As part of the ongoing policy of realisation of the group's assets, at 31 March 2014 the shares of two of the subsidiary companies, NOS 2 Limited and NOS 3 Limited were being marketed as a single unit sale which included their joint financing arrangements.
The following assets and liabilities were deemed to be held for sale as part of this process:
As at 31 March 2014
Total
000
Assets

Trade and other receivables
1,656 
Investment properties held for sale
78,178 
Cash
3,520 
Total Assets held for sale
83,354 


Liabilities

Interest bearing loans and borrowings
(67,709)
Trade and other payables
(2,729)
Finance lease liabilities
(250)
Total Liabilities held for sale
(70,688)


Total net assets held for sale
12,666 
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:
Profit attributable to ordinary shares:


Six months ended
Six months ended
Year ended


31 March 2015
31 March 2014
30 September 2014


000
000
000
Profit for the financial period

108 
1,750 
1,206 





Weighted average number of shares:






31 March 2015
31 March 2014
30 September 2014





Number
Number
Number

000
000
000
Issued ordinary shares

91,670 
91,670 
91,670 
Shares held by EBT

(1,096)
(1,096)
(1,096)
Treasury shares

(9,164)
(9,164)
(9,164)
Weighted average number of ordinary shares

81,410 
81,410 
81,410 





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 2015
31 March 2014
30 September 2014





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 2015
31 March 2014
30 September 2014

000
000
000
Net assets per Consolidated Balance Sheet

34,940 
35,377 
34,832 





Net asset value per share

0.42
0.43
0.42





Adjusted net asset value per share:






31 March 2015
31 March 2014
30 September 2014

000
000
000
Net assets per Consolidated Balance Sheet

34,940 
35,377 
34,832 
Fair value of derivative financial instruments

3,411
5,034
4,022


38,351
40,411
38,854





Adjusted net asset value per share

0.47
0.49
0.47





13. Derivative financial instruments
Derivative financial instruments held by the Group are interest rate swaps used to manage the Group's interest rate exposure. These are shown in the Consolidated Balance Sheet as follows:


Fair value
Movements in
Fair value

at 1 October
Income
at 31 March

2014
Statement
2015

000
000
000
Non current liabilities

(1,634)
(555)
(1,079)
Current liabilities

(2,388)
(56)
(2,332)
Net liabilities

(4,022)

(3,411)
Amount credited to Consolidated Income Statement


(611)






Notional
Effective date
Maturity date
Rate
Value at
Movements in Income Statement
Value at
value
payable on
30 September 2014
0
31 March 2015
of swap
fixed leg



000
%
000
000
000
20,577
16-Jul-07
31-Jan-17
4.85
(1,658)
(168)
(1,490)
22,500
30-Apr-13
29-Jul-16
5.05
(1,612)
(302)
(1,310)
10,500
30-Apr-13
29-Jul-16
5.05
(752)
(141)
(611)











(4,022)
(611)
(3,411)







The derivative financial instruments included in the above tables are stated at their fair value based on quotations from the Group's bank.
The Group does not speculate in financial instruments, it only uses them to limit its exposure to interest rate fluctuations. The Group's policy is to hedge between 60% and 100% of its interest rate exposure. At 31 March 2015: 83% (30 September 2014: 83% and 31 March 2014: 92%) of the Group's debt was fixed.
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;
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 1.5% 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 509,000 (September 2014 - 1,319,000 March 2014 - 589,000).

This information is provided by RNS
The company news service from the London Stock Exchange
  END
IR KMGZKVGDGKZM