LSR.L Regulatory News (LSR)

The Local Shopping REIT plc

("LSR" or the "Company" or the "Group")

AUDITED FULL YEAR RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2014

The Local Shopping REIT plc (LSE: LSR), the real estate investment trust ("REIT") that provides investors with access to a diversified portfolio of local shopping assets across the UK, today announces its audited results for the year ended 30 September 2014.

The information set out below is extracted from the Company's Annual Report and Accounts for the year ended 30 September 2014, which will be published today on the Company's website www.localshoppingreit.co.uk. A copy will also be submitted to the National Storage Mechanism and will be available for inspection at: http://www.Hemscott.com. Printed copies will shortly be dispatched to shareholders. Cross-references in the extracted information below refer to pages and sections in the Annual Report and Accounts for the year ended 30 September 2014.

Highlights

· Recurring profit £0.685m or 0.8 pence per share (2013: £2.070m or 2.5 pence per share) with a profit for the financial year of £1.206m or 1.5 pence per share (2013: loss of £6.07m or 7.5p per share).

· Sale of 235 properties held within two subsidiary companies ("Project Minard"), in furtherance of the investment strategy, at an implied property sale price of £79.3m, including the removal of third party fixed rate debt.

· Net Asset Value (NAV) of £34.8m or 42 pence per share (2013: £33.6m or 41p per share).

· Significant reduction in LTV, with total net debt of £49.1m, reflecting an LTV of 56.1% (2013: £127.7m, LTV 75.2%).

· Debt free properties valued at £5.8m.

· Portfolio revalued at 30 September 2014 at £87.6m (2013: £168.9m; like-for-like value £87.8m), reflecting an equivalent yield (excluding the residential element) of 9.25%.

· At 30 September 2014 the portfolio comprised 387 properties, with 1,190 letting units, producing an annual rental income (after deducting head rent payments) of £7.92m.

· In addition to Project Minard, 23 property sales during the year, of which five were sales of flats on long leases, producing an aggregate premium of 17.02% to their preceding valuation of £3.66m.

· Annual rent roll for the residual portfolio of £7.92m, broadly unchanged on like-for-like basis from 2013.

· Market Rent (net of head rents) at 30 September 2014, of £8.56m (2013: £16.90m). On a like-for-like basis, Market Rent reduced by 2.97% from £8.82m.

· Overall void rate 11.94%, equivalent to Market Rent of £1.03m (2013 like-for-like: 12.27%).

· 115 vacant commercial units let during the year at an annual rental income of £1,164,283 per annum (2013: 126 units let at £1,003,840 per annum).

· 83 rent reviews with an aggregate rental uplift of £88,684 (6.5%) above previous passing rent.

· 36 lease renewals secured at a net rental increase of £664 (0.2%), £16,202 (4.8%) above Market Rent.

· Rental deposits held of £467,783 or 23.7% of the quarterly rent roll (2013: £862,000, 22.3%).

· 11 planning consents secured, including 3 for conversions to flats. One flat conversion completed adding £5,400 to rent roll.

· Net cost savings during the year of £0.9m resulting from the 2013 Strategy Review

About The Local Shopping REIT plc

As at 30 September 2014 the Company's portfolio comprised 387 properties, with 1,190 letting units. In July 2013 the Company adopted a new investment policy to maximise shareholder value through (inter alia):

· realising its assets progressively in accordance with prevailing market conditions with a view to repaying the Company's existing debt facilities (where consistent with the protection of value) and ultimately returning value to Shareholders;

· exploiting the potential of the portfolio through active asset management.

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.

Introduction

During the year to 30 September 2014 the directors and management team worked hard in the execution of the investment policy, adopted by shareholders in July 2013, to sell down the Company's property portfolio whilst maintaining shareholder value. A significant step was achieved during the year with the sale in August 2014 of two of the Company's property holding subsidiaries at an implied property sale price of £79.3m, including the removal of third party fixed rate debt. As a result of this and our individual property sales programme, we significantly reduced our indebtedness, improving our loan-to-value ratio from 75% in 2013 to 56% at the year end. We continue to seek opportunities to further the execution of the investment policy and a number of initiatives are in hand.

Stephen East, Chairman

Business Review 2013-14

Market Context

The UK economy continued to recover during the year, with gross domestic product growing by 2.9% during the 12 months to 30 September 2014, according to figures from the Office for National Statistics. Comparing favourably with European competitors, this incorporated improved output and increasing employment in both manufacturing and construction, as well as the dominant services sector. However, the rate of expansion slowed during the September quarter, with uncertainty over the Scottish independence vote adding to the usual summer holiday season lull. Some commentators have recently expressed concerns that stagnation in key economies within the Eurozone may soon dampen growth in the UK. With overall wage growth remaining low and the central government deficit remaining to be meaningfully addressed, there appears to be little room for cuts in personal taxation. A significant increase in High Street spending would therefore appear unlikely for the immediate future, although Christmas trading may be assisted by the recent fall in petrol prices. House prices, supported in part by the Government's 'Help to Buy' scheme, increased apace during the year. This has been particularly apparent in the South East, where a buy-to-let boom and overseas investment activity in the London market have also played a part.

The Government has held back on taking measures to mitigate the dangers of house price inflation and mortgage debt, possibly wishing to avoid damaging construction activity outside the South East. It appears likely that the Bank of England's Monetary Policy Committee will maintain interest rates at their current low level until at least mid-2015. Within the retail sector, headline-grabbing failures of high profile chains were avoided during the year and the sector recovered well from the adverse weather conditions, including severe flooding in some localities, which marked the winter of 2013-14. Figures from the Local Data Company showed a small but consistent decline in retail vacancy rates over the first half of 2014, with voids in June at their lowest level since 2010.

Demand for space continued unabated in central London, with a number of overseas retailers moving into the market for the first time. The Colliers International Autumn Report indicated improvements in rental levels for primary retail locations in Outer London, the North West and East Midlands over 2013, and a stabilisation of recent slides in other regions. In contrast, the number of profit warnings issued by Stock Exchange-listed retailers increased significantly during the September quarter, perhaps indicative of pressures felt generally within the sector during prior months. Whilst UK retail sales volume at end-September 2014 was up on the previous year by 2.7%, there was a marked slowdown during the month of September. The recent troubles within Tesco have reverberated amongst supermarket retailers, many of whom are also struggling to adapt to changes in shopping habits and the emergence of discount supermarkets. Whilst supermarket operators acknowledge concerns over the profitability of superstores, they continue to seek viable sites for convenience outlets.

Whilst by no means immune to these pressures, independent local retailers in our market sector have shown remarkable resilience and we have seen small but steady signs of improving health during the spring and summer, particularly amongst convenience, services, health & beauty and leisure outlets. For investors in the sector, demand continued to be most marked for assets located in the South East. Other than in major provincial sectors, investor activity did not pick up materially in regional markets prior to the summer months. Major auction houses are reporting success rates in the order of 75-90%. Purchasers continue to be selective and it appears that the market remains reluctant to adjust to higher purchase yields. The availability of debt finance continues to influence the market. However, stabilising rental levels and the continuing search for yield, together with an increased appetite for risk, may improve provincial investor activity during the coming months.

Operations

At the beginning of the 2013-14 financial year the business had started to engage with the new investment policy adopted by shareholders in July 2013. As well as a change in strategy, this involved the transfer of our asset managers and accounting staff to INTERNOS on its appointment as fund manager. It is to the credit of the INTERNOS management team and the transferring employees that this transition was achieved with no appreciable disruption to business operations.

A major step forward in furtherance of the investment strategy was the disposal of a portfolio of 235 properties by way of the sale of two of our property-holding subsidiaries in August 2014 ("Project Minard"). The implied property sale price, taking account of the removal of third party fixed rate debt, was £79.3m. In addition to Project Minard, we completed 23 individual property sales during the year. Of these, five were sales of flats on long leases. These individual sales produced an aggregate sales receipts of £4,284,006, a premium of 17.02% to the preceding valuation of £3,661,000. The effect of these sales was to reduce our gearing at the year end to 56%, from 75% in 2013.

Results and Net Asset Value

On an IFRS basis, the Group recorded a profit for the financial year of £1.21m (2013: IFRS loss of £6.07m). The recurring profit for the year was £0.69m (0.8p per share), compared with a restated recurring profit of £2.07m (2.5p per share) in 2013. A reconciliation of the recurring profit to the loss before tax in the Income Statement is given in the Financial Review section, below. The net asset value of the Group increased over the year by £1.21m to £34.83m. This equates to an NAV per share of 42 pence (30 September 2013: 41 pence). The NAV per share adjusted for the fair value of interest rate swap contracts was 47 pence at 30 September 2014 (2013: 48 pence). This figure does not take account of adjustments which may arise on disposal of the remainder of the Company's investment property assets, including accelerated amortisation of certain balance sheet items and professional fees.

Portfolio Performance and Asset Management

Our investment property portfolio was re-valued at 30 September 2014 at £87,563,250. This reflected an equivalent yield (excluding the residential element) of 9.25%. The portfolio comprised 387 properties, with 1,190 letting units, producing an annual rental income, net of head rent payments, of £7.92m. On a like-for-like basis the portfolio valuation decreased by 0.25% from £87.8m.

Portfolio Summary

* excluding residential element

Range of values within the portfolio

Like-for-like portfolio - adjusted for sales

* excluding residential element

Values by Region

The aggregate Market Rent for the portfolio at 30 September 2014, net of head rent payments, was £8,564,474 (2013: £16,896,962). The principal reason for the fall in Market Rent was the disposal of properties during the year. On a like-for-like basis, the portfolio Market Rent fell by 2.97% from £8,818,932 at 30 September 2013. Whilst the country's general economic activity began to pick up during the year, conditions for retailers continue to be challenging in many regions. This has influenced both portfolio rental income and the vacancy rate. The combined

Market Rent of vacant properties at the year-end was £1,030,636 or 11.94% of aggregate portfolio Market Rent, an improvement on the like-with-like 2013 void rate of 12.27%. Within this, commercial properties accounted for £908,580 and residential units were £122,056. The portfolio void rate reflects our balanced policy of taking possession early where tenants are in financial difficulty, enabling re-marketing of vacant properties and alleviating bad debts. We do not distinguish between assets deliberately held vacant and other vacant properties.

Our asset managers continued to exploit opportunities for improving portfolio returns during the year, from new lettings, rent reviews and lease renewals. The details of these given below include both the ongoing portfolio and the elements disposed of in August 2014 via Project Minard, the proceeds of which reflected previous asset management activities.

Our flexible approach to leasing, taking account of local factors, continued to serve us well during the year, enabling the letting of 115 vacant commercial units at a total rent of £1,164,283 per annum (2012-13: 116 lettings at £1,003,840). Overall, these units were let at 1.9% below Market Rent. Regarding tenant incentives, we maintained our policy of preferring stepped rents to offering lengthy rent-free periods. The average rent free period on new leases starting during the year within the continuing portfolio was 32 days (2013: 67 days). At the year-end the aggregate rent within the letting pipeline was £175,700 per annum.

We completed rent reviews on 83 units during the year, increasing rental income by a total of £88,684 per annum. These produced an average uplift of 6.5% over the previous passing rent and 9.7% above Market Rent.

Lease renewals were carried out on 36 units, resulting in a small net rental increase of £664 (0.2%), an average increase of 4.8% on Market Rent.

We continue to seek rent deposits of between three to six months on the letting of units. The total value of deposits held at 30 September 2014 was approximately £469,783 or 27.76% of our quarterly rent roll (2013: 23.74%), providing a measure of protection against tenant default. During the year we completed the conversion of one redundant upper parts unit to a residential flat. This was subsequently let, adding £5,400 to the annual rent roll. A further conversion of redundant upper parts, to form two flats, was underway at the year-end. During the year we secured planning consents for 3 flats and 8 further changes of use.

Acquisitions and Sales

The new investment policy, adopted in July 2013, focuses on the orderly selling down of our property portfolio. Accordingly, we do not plan to acquire properties unless to do so contributes to the achievement of the overall sales strategy. We did not in any case acquire any new properties during 2013-14 and none have been acquired since the year end.

Under Project Minard, we disposed of 235 properties at an implied property sale price, taking account of the removal of third party debt, of £79.3m. In addition, we completed 23 individual property sales during the year, producing an aggregate sales income of £4.3m, a premium of 17.02% to the preceding valuation of £3.7m. Since the year end we completed the sale of six properties at an aggregate price of £1.5m.

Joint Ventures

During the year, the Company continued to hold an investment in a small joint venture with an established UK financial institution. The properties held by the joint venture were sold shortly before the year end and the joint venture has recently entered members' voluntary liquidation.

Finance Review

The financial statements contained in this report have been prepared in accordance with International Reporting Standards ("IFRS"). No new accounting policies were adopted during the year.

Results

The Group has recorded an IFRS profit for the financial year of £1.21m (2013: loss £6.07m). The principal reasons for the improved IFRS result were:

· the reduction in administrative expenses during the year, which moved from £4.5m to £2.2m; and

· a reduction in the diminution of the fair value of the property portfolio which was £0.5m over the year, compared with £8.8m in 2013.

Key Performance Indicators

The following financial key performance indicators are monitored by the directors to review the performance of the business, in addition to the specific measures described in the Business Review which are used to monitor the performance of the property portfolio.

* Based on rental income compared to interest payable

† Net of cash held

‡ Based on 82,505,853 shares in issue at 30 September 2014 (2013: 82,505,853)

§ Adjusted to exclude the fair value of financial derivatives

Recurring Profit

The recurring profit for the year was £0.69m (2013: £2.07m), the calculation of which remains consistent with previous years. A reconciliation of the loss before tax to the recurring profit, including the effect of discontinued operations, is as follows:

The recurring profit per share for the year was 0.8 pence (2013: 2.5 pence). In accordance with the dividend distribution policy adopted by the Board in 2013, no dividend will be paid for the year (2013: nil).

Significant factors in the reduction of recurring profit were:

· the sharp reduction in income during the last two months of the year, following the sale of 235 properties via Project Minard, together with other property sales during the year;

· an increase in property repair and maintenance costs arising from severe weather conditions in many parts of the country during the winter of 2013-14;

· as noted in the half-year report, the impact on operating expenses of the immediate imposition of Business Rates on vacant properties;

· the continuation, in the first half of the year, of the rigorous review of significantly aged bad debts instigated in 2012-13 (as reported at the half year).

As envisaged in the 2013 Annual Report, the level of administrative expenses fell during the year as a result of the cost savings achieved following the Strategic Review carried out in 2013. Reductions in staff costs and the disposal of the lease of the Company's former offices resulted in annualised cost savings of £2.05m, producing a saving net of fees paid to INTERNOS of £0.909m.

Net Assets

The net assets of the Group were £34.8m at the year end (2013: £33.6m). During the year, further investment was made in refurbishing properties to improve prospects for letting and retaining existing tenants, as well as to comply with regulatory requirements.

The Group's revaluation policy remains unchanged. At the half year and year end, 25% of the portfolio, plus all properties purchased in these two six-month periods (2014: none), are valued by Allsop LLP, a firm of Chartered Surveyors, acting as external valuers, who are experienced in property types held by the Group. The remainder of the portfolio is valued on the basis of Market Value by the directors who have relevant experience and professional qualifications with the benefit of outline advice provided by Allsop LLP.

Joint Ventures and Investments

Investments in joint ventures continue to be equity accounted for during the period of the Group's ownership. During the year the Group continued to hold an interest in the small property joint venture with a financial institution. At the year end the Group had invested £0.29m in this joint venture, following the repayment of the Group's shareholder loan of £0.21m. Following the year end, the joint venture's remaining properties were sold, following which it entered members' voluntary liquidation.

Banking Facilities

During the year the Group operated using the following facilities:

* The facility provided by Indus (Eclipse 2007-1) was attached to the two subsidiary companies sold in August 2014 and did not form part of the Group's banking facilities at the year end.

At 30 September 2014 the total debt outstanding was £65.1m (2013: £134.9m).

The facility provided by Indus (Eclipse 2007-1) plc was attached to the subsidiary companies disposed of under Project Minard on 7 August 2014 and has not formed part of the Group's facilities since then. Up to that date the Group had been making amortisation payments of £300,000 per quarter into an account over which the lender's agent had sole signing rights.

The two HSBC Term Loans were both fully drawn at the year-end. These facilities are subject to the following conditions:

Cross-collateralisation, with each facility providing security for the other. Whilst providing the bank with a more diversified security pool, this allows the Group to sell assets held by either subsidiary without triggering hedge break costs.

The financial covenants on both facilities are tested on a consolidated basis, with total loan to value ratios not to exceed 91.5%, and total projected and current interest cover ratios not to fall below 120%. As at the 31 July 2014 interest payment date the total loan to value ratio was 76.8% and the interest cover was 158.3%.

The repayment date for both facilities is 30 April 2018.

A fixed margin of 2% applies to both facilities. An additional margin will accrue from 1 January 2015 and become payable on repayment of the loans (this accrues at the rate of 1%. per annum from 1 January 2015, 1.5 %. From 1 January 2016 and then 2%. Thereafter from 1 January 2017).

Amortisation instalments are paid on each interest payment date, calculated as being 0.45% of the loan balances on each interest payment date.

All of the loans have actual and forecast interest cover tests which must be complied with under the terms of the facilities. The interest cover is tested at various times throughout the year and, at each testing date each loan was determined to be compliant. The level of the interest cover ratio ("ICR") required by each loan is listed below (each loan reporting period includes an actual and forecast ratio).

At the year end the Group held properties with a total value of approximately £5.8m, with no debt drawn against them. These assets, together with the cash balances held by the Group, provide the Group with considerable flexibility.

Taxation

The Group continued to operate as a REIT throughout the year. Accordingly, any profits and gains from the property investment business should be exempt from Corporation Tax provided certain conditions continue to be met.

Dividend

As announced during 2013 the Board is not recommending the payment of dividends for the time being. Accordingly, no dividend will be paid in respect of the year. The Board's current dividend policy takes account of the cash flow requirements of the business alongside the decision not to extend future borrowings. The Company has received advice that, for the time being, this will not affect the Company's REIT status. The Board will continue to keep the dividend policy under review.

Consolidated Income Statement for the year ended 30 September 2014

* Excluding movement in the fair value of financial derivatives.

Consolidated Statement of Comprehensive Income for the year ended 30 September 2014

Consolidated Balance Sheet as at 30 September 2014

Consolidated Statement of Cash Flows for the year ended 30 September 2014

Consolidated Statement of Changes in Equity for the year ended 30 September 2014

Notes to the Financial Statements for the year ended 30 September 2014

1. Accounting Policies

Basis of Preparation

The Local Shopping REIT plc ("the Company") is a company incorporated and domiciled in the UK. The Group's financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (adopted "IFRS") and in accordance with the provisions of the Companies Act 2006.

The financial statements are prepared in pounds sterling, rounded to the nearest thousand. They have been prepared under the historical cost convention except for the following assets which are measured on the basis of fair value: investment properties, derivative financial instruments, other investments and investment properties held for sale.

The directors have considered whether it is appropriate to prepare the financial statements on a going concern basis. During the year the Group disposed of a number of properties and subsequent to the year end began marketing its remaining property-owning subsidiary companies in a single transaction. The directors believe a sale, which will generate proceeds sufficient to repay all of the Group's financial obligations, is probable within the next six months. Should the sale proceed it is likely to be the directors' intention to liquidate the Company shortly following the sale of the remaining properties, repay all creditors and distribute all remaining monies to the shareholders. If the sale does not proceed then the directors will consider their options which include the sale of all the remaining properties in piecemeal over several years or continue to trade as a going concern. The directors have prepared profit and cash flow forecasts for the period to 30 September 2018 which include assumptions relating to the sale of properties under the current investment strategy which the directors consider to be reasonable. These forecasts project that the Group's and Company's funding needs will be comfortably met by the existing banking facility agreements without any breach of related covenants over the remaining life of the facilities which expire in 2018.

On the basis of these projections the directors consider that the Group will continue to be compliant with its banking covenants and sufficient resources will be available to enable it to continue as a going concern for at least the next 12 months. However the directors' intention to liquidate the company within the next 12 months in the event that the proposed disposal of the Group's remaining properties is successful represents a material uncertainty which may cast significant doubt on the Group's and Company's ability to continue as a going concern. The financial statements do not include the adjustments that would result from the going concern basis of preparation being inappropriate.

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements.

Basis of Consolidation

The consolidated financial statements include the financial statements of the Company and all its subsidiary undertakings up to 30 September 2014. Subsidiaries are consolidated from the date on which the Group obtains control, being the power to govern the financial and operating policies of the entity so as to obtain benefit from its activities. They continue to be consolidated until the date that such control ceases. The financial statements of subsidiaries are prepared using consistent accounting policies. Inter-company transactions and balances are eliminated.

Investment Property

Investment properties are those properties owned by the Group that are held to earn rental income or for capital appreciation or both and are not occupied by the Company or any of its subsidiaries.

The fair value of investment properties is based on market values being an estimated amount for which a property could be exchanged on the date of valuation under an arm's length transaction between a willing buyer and seller after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion. Professional external valuers have valued a sample selected by themselves of 25% of the existing portfolio at the half year and year end and all new purchases since the previous valuation to the half year and to the year end. The remainder of the portfolio has been valued on the basis of market value at the year end by the directors who have appropriate recognised professional qualifications and recent experience of the location and category of the property being valued.

Investment properties are treated as acquired at the point the Group assumes the significant risks and returns of ownership. Subsequent expenditure is charged to the asset's carrying value only when it is probable that future economic benefits associated with the expenditure will flow to the Group and the cost of each item can be reliably measured. All other repairs and maintenance costs are charged to the Income Statement during the period in which they are incurred.

Disposals of investment properties are recognised on completion; profits and losses arising are recognised through the Income Statement, the profit is determined as the difference between the sales proceeds and the carrying amount of the asset at the last valuation date plus any additional expenditure incurred since that date.

Interest on loans associated with acquiring investment properties is expensed on an effective interest rate basis.

Rental income from investment properties is accounted for as described below.

Investment Properties Held for Sale

Investment properties held for sale are included in the Balance Sheet at their fair value. In determining whether assets no longer meet the investment criteria of the Group, consideration has been given to the conditions required under IFRS 5.

An investment property shall classify a non-current asset as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use.

The asset must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets and its sale must be highly probable as at the year end.

Head Leases

Where a property is held under a head lease and is classified as an investment property, it is initially recognised as an asset based on the sum of the premium paid on acquisition and if the remaining life of the lease at the date of acquisition is considered to be material, the net present value of the minimum ground rent payments. The corresponding rent liability to the leaseholder is included in the Balance Sheet as a finance obligation in current and non-current liabilities.

The payment of head rent reduces the gross liability and the interest element of the finance lease is charged to the Income Statement. Head leases considered not to have a material life remaining at the date of acquisition are accounted for as operating leases with the head rent paid being expensed through the Income Statement.

Property, Plant and Equipment

During the year the Company has agreed a termination of its lease of its former offices with an effective date in June 2014. As anticipated in the 2013 report, no realisation of fixed assets was achieved.

Joint Ventures

The Group has contractual arrangements with other parties which represent jointly controlled entities. These take the form of agreements to share control over other entities. The consolidated financial statements include the Group's share of the total recognised gains and losses of jointly controlled entities on an equity accounted basis. Under the equity method, the interests in the jointly controlled entities are carried in the Balance Sheet at cost plus post-acquisition changes in the Group's share of their net assets, less distributions received and less any impairment in value of the individual investments. The Income Statement reflects the Group's share of the jointly controlled entities' results after interest and tax.

The financial statements of the jointly controlled entities are prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring the accounting policies used in line with those of the Group.

During the preceding year one of the joint ventures was disposed of. Its results have been included up to the date of disposal.

Other Investments

Other non-current investments are classified as available for sale financial assets and are recognised at fair value. Changes in the fair value in the year are recognised directly in the Statement of Comprehensive Income. Dividend income from investments is recognised in the Income Statement when the right to receive payment is established.

During the preceding year the one non-current investment was disposed of. Its results have been included up to the date of disposal.

Trade and Other Receivables

Trade and other receivables are initially recognised at fair value and subsequently held at amortised cost less impairment. Impairment is made where it is established that there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable. The impairment is recorded in the Income Statement.

Cash and Cash Equivalents

Cash and cash equivalents comprise cash balances and deposits held on call. Cash equivalents are short-term, highly liquid investments with original maturities of three months or less.

Derivative Financial Instruments and Hedging

The Group uses derivative financial instruments such as interest rate swaps to economically hedge risks associated with interest rate fluctuations. The Group does not hold or issue derivatives for trading purposes.

Such instruments are initially measured at fair value on the date on which a contract is entered into and are subsequently re-measured at fair value. Financial derivatives are recognised as current and non-current based on the maturity profile of the associated cash flows.

The Group has determined that the derivative financial instruments held did not qualify as effective for hedge accounting under the criteria set out in IAS 39 and consequently any gains or losses arising from changes in their fair value are taken to the Income Statement. In the future and on an ongoing basis as new derivative financial instruments are entered into, the directors will review the derivative contracts to consider whether they qualify for hedge accounting.

Financial Assets

Financial assets are impaired when there is objective evidence that the cash flows from the financial asset are reduced.

Trade and Other Payables

Trade and other payables are initially recognised at fair value and subsequently held at amortised cost less impairment.

Ordinary Share Capital

External costs directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds.

Shares which have been repurchased are classified as treasury shares and shown in retained earnings. They are recognised at the trade date for the amount of consideration paid, together with directly attributable costs. This is presented as a deduction from total equity. Shares held by the Employee Benefit Trust are treated as being those of the Group until such time as they are distributed to employees, when they will be expensed in the profit and loss account.

The nominal value of shares cancelled has been taken to a capital redemption reserve.

Rental Income

Rental income from investment properties leased out under operating leases is recognised in the Income Statement on a straight-line basis over the term of the lease. When the Group provides lease incentives to its tenants the cost of incentives are recognised over the lease term, on a straight-line basis, as a reduction to income.

Other Income

Other income comprises administration fees charged on lease renewals. In 2013 this also included asset management fees which were recognised in the Income Statement as earned under the terms of each agreement.

Taxation

Corporation tax on the profit or loss for the year comprises current and deferred tax. Corporation tax is recognised in the Income Statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

As a REIT, the Group will be exempt from corporation tax on the profits and gains from its property investment business, provided it continues to meet certain conditions. Non-qualifying profits and gains of the Group (the residual business) continue to be subject to corporation tax. Therefore, current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date and any adjustment to tax payable in respect of previous years. The REIT entry charge is expensed on the date of entry to the REIT regime.

Deferred tax is provided using the balance sheet liability method. Provision is made for temporary differences between the carrying amounts of assets and liabilities in the financial statements for financial reporting purposes and the amounts used for taxation purposes. Deferred income tax is calculated after taking into account any indexation allowances and capital losses on an undiscounted basis. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted or substantially enacted at the balance sheet date. Deferred tax assets are recognised only to the extent that it is probable that future profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax assets and liabilities are only offset if there is a legally enforceable right of set-off.

Pensions

The Company operated a defined contribution pension plan. During 2013 contributions payable by the Company in respect of defined contribution pension plans were charged to administrative expenses as incurred. These costs ceased in July 2013.

Share-based Payments

There were no material share-based payment arrangements during the period.

Employee Benefit Trust

The Group operates an Employee Benefit Trust in order to hedge its obligations under the CSOP and LTIP schemes. The Group either purchases its own shares directly or it funds the trust to acquire shares in the Company. Transactions of the Employee Benefit Trust are treated as being those of the Company and are therefore reflected in the Group financial statements.

Use of Estimates and Judgements

To be able to prepare accounts according to generally accepted accounting principles, management must make estimates and assumptions that affect the asset and liability items and revenue and expense amounts recorded in the financial statements. These estimates are based on historical experience and various other assumptions that management and the Board of directors believe are reasonable under the circumstances. The results of these considerations form the basis for making judgements about the carrying value of assets and liabilities that are not readily available from other sources.

The areas requiring the use of estimates and judgements that may significantly impact the Group's earnings and financial position include the estimation of: the fair value of investment properties, derivative financial instruments and trade receivables.

The valuation of the Group's investment properties is the main area of judgement exercised by the Board in respect of the Group's results. The Board has obtained an external valuation of the portfolio carried out by professionally qualified valuers in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors in respect of all properties purchased since 1 October 2013 and a further 25% of the portfolio at the half year and year end as selected by the valuers. The valuers were acting as independent valuers and have good information and experience of the current market prices for properties similar to those owned by the Group. Their opinion of Market Value was primarily derived using comparable recent market transactions on an arm's length basis. The tone of their valuation has been adopted by the directors to value the remainder of the portfolio. The assumptions underlying the valuation of the commercial properties within the portfolio include: future rental income, an appropriate discount rate, any planned capital expenditure and the strength of the local letting market in relation to the Market Rent of any letting voids. In addition to these assumptions, in respect of the residential element of the portfolio, a discount of 85% is typically applied to reflect vacant possession.

The valuation of derivative financial instruments and the fixed rate loan are also areas where judgement has been exercised by the Board. These assets and liabilities have been valued by the Group's bankers. These valuations have been relied upon by the Board.

The Group is required to assess whether there is sufficient objective evidence to require the impairment of individual trade receivables. It does this through a regular review of arrears with consideration given to any specific circumstances relating to the receivable.

Segmental reporting

IFRS 8 requires operating segments to be identified on the basis of internal reports that are regularly reported to the chief operating decision maker to allocate resources to the segments and to assess their performance.

Since the strategy review in July 2013 the Group has identified one operation and one reporting segment which is reported to the Board of directors on a quarterly basis. The Board of directors is considered to be the chief operating decision maker.

New Standards and Interpretations Not Yet Adopted

As at September 2014, the following standards and interpretations or amendment there to, which have not been applied in these financial statements, were in issue but not yet effective. The effect of their adoption on the financial statements in future periods has not yet been ascertained.

Applicable for the year commencing on or after:

IFRS 9 (Financial Instruments (revised)) - not yet endorsed 1 January 2014

Amendment to IAS 32 (Financial Instruments: Presentation) - endorsed 1 January 2014

Amendment to IAS 39 (Financial instruments:

Recognition and Measurement) - not yet endorsed 1 January 2014

IFRS 10 Consolidated Financial Statements and IAS 27 (2011) Separate Financial Statements 1 January 2014

IFRS 11 Joint Arrangements and Amendments

to IAS 28 (2008) Investments in Associates and Joint Ventures 1 January 2014

IFRS 12 Disclosure of Interest in Other Entities 1 January 2014

IFRS 15 Revenue from Customers' Contracts 1 January 2017

Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) 1 January 2014

IFRIC Interpretation 21 Levies 1 January 2014

2. Disposal of subsidiary companies

During the year the company disposed of two subsidiaries, NOS 2 Limited and NOS 3 Limited by the sale of their entire share capital.

The loss on sale was calculated as follows:

3. Administrative Expenses

a) The following fees have been paid to the Group's Auditors:

The other services supplied related to the disposal under project Minard of NOS 2 Limited and NOS 3 Limited and in 2013 relate to professional advice received in connection with the strategic review and restructure.

b) Included in administrative expenses are staff costs and directors' remuneration.

The average number of persons employed by the Group was as follows:

The average shown above for 2013 is for the full year. For the period from October 2012 to June 2013, when all the existing employees either left or were transferred to Internos Global Investors Limited, the average was 15. From July 2013 onwards the average has been nil.

The aggregate payroll costs of these people were as follows:

Directors' emoluments are disclosed separately in the Remuneration Report.

c) Share Awards

There were no material share-based payment arrangements during the period.

d) Non-recurring items

IAS 1 (Revised) - "Presentation of financial statements" requires material items of income and expenditure to be disclosed separately. The amounts are items which, in management's opinion, need to be disclosed by virtue of their size or incidence in order for the user to obtain a proper understanding of the financial information.

Included in the administration costs are charges arising from the reconstruction following the strategic review, and are non-recurring:

In administration costs:

4. Net Other Income

5. Net Financing Costs

6. Taxation

Factors that may affect future current and total tax charges

The March 2013 UK Budget announced that the UK corporation tax rate will reduce to 20% by 2015. Reductions in the rate from 23% to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. This would reduce the Company's future tax charge accordingly.

From 11 May 2007, the Group elected to join the UK REIT regime. As a result, the Group will be exempt from corporation tax on the profits and gains from its property investment business from this date, provided it continues to meet certain conditions. Non-qualifying profits and gains of the Group (the residual business) continue to be subject to corporation tax. The directors consider that all the rental income post-11 May 2007 originates from the Group's tax exempt business.

Due to the availability of losses no provision for corporation tax has been made in these accounts. The deferred tax asset not recognised relating to these losses can be carried forward indefinitely. It is not anticipated that sufficient profits from the residual business will be generated in the foreseeable future to utilise the losses carried forward as the current year losses will be adequate to cover foreseeable profits. The unprovided deferred tax asset at 30 September 2014 was £3,224,000 (2013: £2,648,000).

7. Property, Plant and Equipment

8. Investment Properties

The investment properties have all been revalued to their fair value at 30 September 2014.

At the half year and year end, all properties acquired in those six months, together with a sample selected by the valuers of 25% of the portfolio, at the half year and at the year end have been valued by Allsop LLP, a firm of independent Chartered Surveyors. The valuations were undertaken in accordance with the Royal Institution 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.

The disposals balance includes properties at carrying value of £78.2m that were disposed of as part of the NOS 2 and NOS 3 transaction.

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 the property being valued.

All rental income recognised in the Income Statement is generated by the investment properties held and all direct operating expenses incurred resulted from investment properties that generated rental income.

A reconciliation of the portfolio valuation to the total value given in the Balance Sheet for investment properties is as follows:

9. Investments in Jointly Controlled Entities

The Group has the following investments in jointly controlled entities:

On 26 November 2010 an agreement was entered into with Local Parade Investments LLP ("LPI"), a newly incorporated entity. The initial investment made was £20. The principal activity of the entity is the acquisition and management of retail parades. This investment was disposed of as part of the reconstruction following the strategic review, in July 2013. This is now reflected in discontinued operations (note 25).

On 28 September 2011 an agreement was entered into with Gracechurch Commercial Investments Limited ("Gracechurch"), a newly incorporated entity. The initial investment made was £500,000. The principal activity of the entity is to manage properties for investment purposes. During the year the entire portfolio of Gracechurch was disposed of, and since the year end the company has commenced the process of a members' voluntary liquidation.

The summarised financial information in respect of the Group's share of the jointly controlled entities is shown below.

Year ended 30 September 2013:

Year ended 30 September 2014

10. Other investments

On 8 March 2012, the Group entered into a partnership and property advisory agreement with Local Retail Fund GP Limited, a newly incorporated entity. The initial investment made was £45. The principal activity of the entity is the acquisition and management of a diversified portfolio of local retail property in the UK. As part of the restructuring following strategic review, this investment was disposed of in July 2013.

11 Trade and Other Receivables

12. Cash