11 May 2017 07:00
THE LOCAL SHOPPING REIT PLC
REPORT FOR THE SIX MONTHS TO 31 MARCH 2017
Highlights
· Property disposals programme in line to achieve targets set out in December 2016 statement, with 63 properties sold during the period, at an aggregate price of £9.5m.
· Recurring operating profit* for the period of £0.92m or 1.11 pence per share ("pps") (H1 2016: £0.54m or 0.66 pps).
· IFRS loss for the financial period of £0.02m or 0.03 pps (H1 2016: profit £0.42m or 0.52 pps).
· Net Asset Value (NAV): £35.6m or 43 pps (30 September 2016: £35.6m or 43 pps).
· Total net debt (taking account of cash reserves) reduced to £34.6m, reflecting a Group LTV of 48.8% (30 September 2016 £39.5m, Group LTV 52.5%).
· Debt repayment during the period of £8.5m.
*Recurring profit is explained in the Operating Results section below.
For further information:
The Local Shopping REIT plc +44 20 7355 8800
Bill Heaney, Company Secretary
Rupert Wallman, Fund Manager
www.localshoppingreit.co.uk
Chairman's Statement
Financial Results and Portfolio Performance
The Group made an IFRS loss before tax for the period of £0.02 million (or 0.03 pps). This compares with a profit of £0.42 million (0.52 pps) for the equivalent period of 2015-16 and a profit of £0.63 million (0.76 pps) for the full year to 30 September 2016. The recurring operating profit for the period was £0.92 million (or 1.11 pps), compared with £0.54 million (0.66 pps) for the six months to 31 March 2016 and £1.53 million (1.9 pps) for the year to 30 September 2016.
At 31 March 2017, our investment property portfolio was valued at £65.7 million, reflecting an equivalent yield (excluding the residential element) of 9.48% (30 September 2016: £75.3 million, equivalent yield 9.49%). During the period NAV remained broadly unaltered at £35.6 million or £0.43 per share.
Update on Property Disposal Programme
In December 2016, the Board announced that it had initiated an accelerated property disposal programme focussing initially on smaller, weaker, and geographically non-core assets. This programme committed to sell 125 properties (generating £20 million in sales proceeds) between October 2016 and December 2017, equating to 25 property sales generating £4.0 million per quarter.
During the six months to 31 March 2017 the Company sold 63 properties, at an aggregate price of £9.5m, 0.8% below carrying value. Since the period end a further 16 properties have been sold with gross proceeds of £2.0 million. This brings the aggregate property sales since the Company's revised investment policy was adopted in July 2013 to £106.1 million.
As at the date of this statement our outstanding bank loans total £36.9 million, a reduction of £13.9 million on the outstanding balance as at 30 September 2016. The debt repayments have been financed through the property disposals described above together with the cash repayment when we agreed the extension of our loan facilities in November 2016.
Outlook
The Board has been encouraged by the progress with the sales programme it announced in December 2016, which will be continued for the remainder of the current calendar year. At the end of the year the Board will consider the prospects for portfolio, including the sale of the remaining property assets as a single portfolio and, failing which, an accelerated portfolio liquidation programme.
S J East
Chairman
Directors' Review
During the period the Company continued to focus on its strategy of liquidating its property investments and eliminating its indebtedness with a view to returning surplus cash to shareholders.
Revaluation
At 31 March 2017 the investment property portfolio, excluding those assets held for sale, was revalued at £65.5 million, reflecting an equivalent yield (excluding the residential element) of 9.48% (30 September 2016: £73.7 million, equivalent yield 9.49%). The movement during the period primarily reflected the reduction in the size of the property portfolio, whilst the market values remained relatively stable. On a like-with-like basis, the portfolio value decreased by £0.03 million (0.04%) from the 30 September 2016 equivalent of £65.5m.
As at 31 March 2017, the revalued portfolio (excluding those assets held for sale) comprised 256 properties with an annual headline rent, net of head rents payable, of £6.17 million, compared with 327 properties (£6.99 million) at 30 September 2016. The portfolio included 920 letting units (30 September 2016: 1,014 letting units).
Investment Property Portfolio as at 31 March 2017
Value | £65.45m |
Initial Yield ("IY") | 8.74% |
Reversionary Yield ("RY") | 9.84% |
Equivalent Yield ("EY") | 9.48% |
Rent passing per annum* | £5.78m |
Market Rent per annum* | £6.53m |
*Net of head rents payable
Value Range | No. of Properties | Value £m | EY |
£0 - £100k | 101 | 6.94 | 9.9% |
£101k - £200k | 68 | 9.95 | 8.3% |
£201k - £500k | 64 | 20.62 | 7.8% |
£501k - £1m | 14 | 10.39 | 8.0% |
£1m - £3m | 7 | 11.36 | 7.5% |
£3m + | 2 | 6.20 | 6.4% |
Total | 256 | 65.45 | 9.5% |
All yields quoted exclude the residential element which is valued at a discount to vacant possession value.
The table above illustrates the range of property values throughout the portfolio. The average property value was £256,000 and the median was £135,000. The portfolio includes 355 residential units, of which 189 were marketed for rent on Assured Shorthold Tenancies (the reminder being subject to long leases). The residential element of the portfolio has been valued at £10.7 million and the average value of the AST units was £57,000.
During the period like-for-like rental income decreased by 3.1%, and Market Rent decreased by 0.6%.
Net Asset Value ("NAV")
During the period NAV remained broadly unaltered at £35.6 million or £0.43 per share, based on 82.5 million shares in issue, excluding those held in Treasury (30 September 2016: £35.6 million, £0.43 per share).
The Group held £7.4 million of cash at the end of the period.
Operating Results
The Group made an IFRS loss before tax for the period of £0.02 million (or 0.03 pps), compared with a profit of £0.42 million (0.52 pps) for the six months to 31 March 2016 and a profit of £0.63 million (0.76 pps) for the full year to 30 September 2016.
The portfolio achieved gross rental income for the six months to 31 March 2017 of £3.31 million, compared with £3.60 million for the half year to 31 March 2016. This reduction primarily reflected the sale of property assets during the intervening twelve months.
Property operating expenses during the period were £0.91 million (six months to 31 March 2016: £0.90 million). These included bad debts, property repairs and maintenance, void costs, property management and letting fees, as well as non-recoverable VAT on residential and non-VAT opted properties. Some cost areas have reduced in line with the disposal programme. However, asset management activity has resulted in an increase in leasing costs and, in common with other property investment businesses, we have incurred higher local authority charges in respect of void properties. Further detail of property operating expenses are contained in Note 3 to the financial statements.
Administrative expenses were £0.97 million during the period (six months to 31 March 2016: £0.83 million). This increase was primarily due to costs incurred in relation to the General Meeting held in December 2016, which is allocated as non-recurring expenditure in the table below. Further detail of administration expenses is contained in Note 5 to the financial statements.
The IFRS result reflected the realised gains and losses on the sales of properties after execution costs (as shown in Note 4 to the financial statements), together with the movement in fair value of the property portfolio.
In monitoring operational performance, the Board considers recurring operating profit. This measure excludes realised and unrealised gains and losses on investment properties and financial derivatives and expenditure items considered to be of a non-recurring nature. The recurring operating profit for the period was £0.92 million (or 1.11 pps), compared with £0.54 million (0.66 pps) for the six months to 31 March 2016 and £1.53 million (1.9 pps) for the year to 30 September 2016.
The table below summarises the adjustments made between Profit before tax and recurring operating profit.
| 31 March 2017 £000 | 31 March 2016 £000 | 30 Sept 2016 £000 |
Profit/(loss) before tax (IFRS) | (23) | 423 | 631 |
Movement in the fair value of the portfolio | 265 | 439 | 1,073 |
Movement in the fair value of the interest rate swaps held | - | (2,294) | (2,294) |
Loss/(profit) on disposal of investment properties | 552 | 216 | 199 |
Non-recurring expenditure | 125 | - | 162 |
Buy-out of Swap contracts | - | 1,758 | 1,758 |
Recurring profit on continuing operations | 919 | 542 | 1,529 |
The calculation remains consistent with previous periods.
Asset Management
Whilst the timely sell down of the property portfolio continues to be our principle focus, it is critical that this is supported by effective asset management of the portfolio, to maintain rental income and maximise sale values. To this end during the period we carried out:
· 27 new lettings of vacant properties at a combined rent of £210,000 (2.6% above Market Rent);
· 10 lease renewals at a combined rent of £101,000 (3% above Market Rent);
· 6 rent reviews at an aggregate rent broadly equal to previous passing rent (4% below Market Rent).
The overall void rate within the portfolio at 31 March 2017 was 12.4% of portfolio Market Rent (30 September 2016: 10.9%). This increase in part reflects the sale of let properties.
We continue our policy of taking back units for re-letting as early as practicable where we consider that they are likely to be subject to rent defaults. We also seek rent deposits from new tenants and, at 31 March 2017, deposits were held in respect of commercial tenants equating to 30% of our quarterly rent roll (30 September 2016: 26%). Further deposits, typically equating to one month's rent, are held by our managing agents and regulated tenant deposit schemes in respect of residential tenancies.
Financing
During the period, the Group operated using loan facilities provided by HSBC Bank plc ("HSBC"). As at 31 March 2017, the facilities were as set out below.
Margin | 2% above 3-month LIBOR | ||
Borrower | NOS 4 Limited | NOS 6 limited | Total |
Amount Outstanding £m | 42.0 | 0.3 | 42.3 |
Default ICR Covenant | 120% | ||
Default LTV Covenant | 70% | ||
Amortisation | 1.0% pq for 2 years from November 2016 0.25% pq thereafter (until the balance falls below £36m) | ||
Expiry Date | 31 December 2019 | ||
The two facilities provided by HSBC Bank plc ("HSBC") were subject to cross-collateralisation of the corresponding property portfolios. On each quarterly interest payment date the loan facilities are subject to actual and forecast interest cover (ICR) tests, and a loan-to value (LTV) test. At each testing date during the period the loans were determined to be compliant.
These facilities were due to expire on 30 April 2018. However, during the period the Company renegotiated its borrowing arrangements to extend the term of the facilities to 31 December 2019, at the previous margin of 2% above 3-month LIBOR.
At 31 March 2017 the debt outstanding was £42.3 million (30 September 2016: £50.8 million). Following repayments made at the April 2017 interest payment date, the outstanding loan balance had fallen to £36.9m by the time of publication of this report.
At 31 March 2017 the Group held £7.4 million of cash (30 September 2016: £11.0 million) and property valued at £1.9 million with no debt secured against it. The cash held relates to sales proceeds to be applied to loan repayment and required for working capital. The Group's overall LTV was 48.8%.
Dividend
In line with the Company's current dividend distribution policy no interim dividend will be paid. The Board will continue to review the dividend policy in line with progress with the investment strategy.
Principal Risks and Uncertainties for the Remaining Six Months of the Financial Year
The directors consider it appropriate to prepare the Half Year Statement on a Going Concern basis given the Group's diverse tenant base, the improving outlook for capital values, the bank facilities available, the uncharged properties owned by the Group, the cash held at the period end and the potential proceeds arising from property sales.
The risks facing the Group for the remaining six months of the financial year remain consistent with those described in detail in the Annual Report for the year ended 30 September 2015 (available on the Company's website: www.localshoppingreit. co.uk). These centre on:
· Changes in the macroeconomic environment
· Higher than anticipated property maintenance costs
· Changes to legal environment, planning law or local planning policy
· Regulatory requirements in connection with property portfolio
· Information technology systems and data security
· Financial market conditions
The Group does not consider financing to be a risk given the long-term nature of the outstanding debt, the Group's cash reserves and the level of debt-free properties in the portfolio.
The Group does not speculate in derivative financial instruments and has used them in the past only to hedge its exposure to fluctuations in interest rates.
The Group is exposed to the risk of non-payment of trade receivables by its tenants. However, the Directors consider that this does not comprise an undue concentration of credit risk, given that the risk is spread across in excess of 900 tenants operating across all retail occupations spread throughout the UK. The level of arrears is monitored continually by the Group's asset managers and subject to monthly review at executive level.
Responsibility Statement
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU: and
(b) the Interim Management Report includes a fair review of the information required by:
DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
Signed on behalf of the Board who approved the interim management report on 10 May 2017.
S J East
Director
Independent Review Report to The Local Shopping REIT plc
Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2017 which comprises the Condensed Consolidated Income Statement, Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Cash Flow Statement, and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2017 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.
Mark Flanagan
for and on behalf of KPMG LLP
Chartered Accountants
31 Park Row
Nottingham
NG1 6FQ
10 May 2017
Condensed Consolidated Income Statement |
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for the six months ended 31 March 2017 |
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| Note |
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| Six months ended | Six months ended | Year ended |
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| 31 March 2017 | 31 March 2016 | 30 September 2016 |
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| £000 | £000 | £000 |
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Gross rental income |
| 3,308 | 3,601 | 6,989 |
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Property operating expenses | 3 | (914) | (899) | (1,862) |
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Net rental income |
| 2,394 | 2,702 | 5,127 |
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Loss on disposal of investment properties | 4 | (552) | (216) | (199) |
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Loss on change in fair value of investment properties | 9 | (265) | (439) | (1,073) |
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Administrative expenses | 5 | (966) | (831) | (1,710) |
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Operating profit before net financing costs |
| 611 | 1,216 | 2,145 |
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Financing income* | 6 | 4 | 12 | 25 |
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Financing expenses* | 6 | (638) | (1,341) | (3,833) |
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Movement in fair value of derivatives | 6 | - | 536 | 2,294 |
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(Loss)/Profit before taxation |
| (23) | 423 | 631 |
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Tax | 7 | - | - | - |
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(Loss)/Profit for the financial period from continuing operations |
| (23) | 423 | 631 |
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(Loss)/Profit for the financial period attributable to equity holder of the Company |
| (23) | 423 | 631 |
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Basic and diluted (loss)/profit per share on (loss)/profit for the financial period |
| -0.03p | 0.51p | 0.76p |
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Basic and diluted (loss)/profit per share on continuing operations for the period | 11 | -0.03p | 0.51p | 0.76p |
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* Excluding movements in the fair value of financial derivatives |
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Condensed Consolidated Statement of Comprehensive Income |
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for the six months ended 31 March 2017 |
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| 31 March 2017 | 31 March 2016 | 30 September 2016 |
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| £000 | £000 | £000 |
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(Loss)/Profit for the period |
| (23) | 423 | 631 |
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Share based transactions |
| 49 | - | 66 |
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Total comprehensive income for the period |
| 26 | 423 | 697 |
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Attributable to: |
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Equity holders of the parent Company |
| 26 | 423 | 697 |
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Condensed Consolidated Balance Sheet |
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as at 31 March 2017 |
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| Note | Unaudited | Unaudited | Audited |
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31 March 2017 | 31 March 2016 | 30 September 2016 |
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£000 | £000 | £000 |
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Non-current assets |
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Investment properties | 9 | 65,897 | 76,406 | 74,285 |
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Total non-current assets |
| 65,897 | 76,406 | 74,285 |
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Current assets |
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Trade and other receivables |
| 7,530 | 2,208 | 2,094 |
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Investment properties held for sale |
| 277 | 840 | 1,590 |
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Cash |
| 7,361 | 12,289 | 11,000 |
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Total current assets |
| 15,168 | 15,337 | 14,684 |
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Total assets |
| 81,065 | 91,743 | 88,969 |
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Non current liabilities |
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Interest bearing loans and borrowings | 10 | (40,292) | (52,283) | (49,635) |
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Finance lease liabilities |
| (443) | (572) | (567) |
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Total non-current liabilities |
| (40,735) | (52,855) | (50,202) |
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Current liabilities |
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Interest bearing loans and borrowings | 10 | (1,668) | (956) | (907) |
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Trade and other payables |
| (3,087) | (2,657) | (2,311) |
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Total current liabilities |
| (4,755) | (3,613) | (3,218) |
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Total liabilities |
| (45,490) | (56,468) | (53,420) |
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Net assets |
| 35,575 | 35,275 | 35,549 |
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Equity |
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Issued capital |
| 18,334 | 18,334 | 18,334 |
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Reserves |
| 3,773 | 3,773 | 3,773 |
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Capital redemption reserve |
| 1,764 | 1,764 | 1,764 |
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Retained earnings |
| 11,704 | 11,404 | 11,678 |
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Total attributable to equity holders of the Company |
| 35,575 | 35,275 | 35,549 |
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Condensed Consolidated Statement of Cash Flows |
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for the six months ended 31 March 2017 |
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| Note | Unaudited | Unaudited | Audited |
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Six months ended | Six months ended | Year ended |
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31 March 2017 | 31 March 2016 | 30 September 2016 |
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£000 | £000 | £000 |
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Operating activities |
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Profit for the financial period |
| (23) | 423 | 631 |
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Adjustments for: |
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Loss on change in fair value of investment properties | 9 | 265 | 439 | 1,073 |
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Net financing costs | 6 | 634 | 793 | 1,514 |
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Loss\(Profit) on disposal of investment properties |
| 552 | 216 | 199 |
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Employee benefit trust shares vesting |
| 49 | - | 66 |
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| 1,477 | 1,871 | 3,483 |
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Increase in trade and other receivables |
| (5,436) | (268) | (66) |
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Increase /(decrease) in trade and other payables |
| 833 | (74) | (423) |
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| (3,126) | 1,529 | 2,994 |
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Interest paid |
| (616) | (1,739) | (2,353) |
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Bank facility fees paid |
| (12) | - | - |
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Loan arrangement fees paid |
| (257) | (4) | (5) |
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Interest received |
| 4 | 12 | 25 |
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Net cash flows from operating activities |
| (4,007) | (202) | 661 |
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Investing activities |
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Proceeds from sale of investment properties |
| 9,142 | 4,079 | 4,919 |
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Acquisition of and improvements to |
| (257) | (124) | (210) |
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investment properties |
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Cash flows from investing activities |
| 8,885 | 3,955 | 4,709 |
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Net cash flows from operating activities and investing activities |
| 4,878 | 3,753 | 5,370 |
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Financing activities |
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Swap breakage costs (note 13) |
| - | (1,758) | (1,758) |
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Repayment of borrowings |
| (8,517) | (2,446) | (5,352) |
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Cash flows from financing activities |
| (8,517) | (4,204) | (7,110) |
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Net (decrease)/increase in cash |
| (3,639) | (451) | (1,740) |
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Cash at beginning of period |
| 11,000 | 12,740 | 12,740 |
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Cash at end of period |
| 7,361 | 12,289 | 11,000 |
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Condensed Consolidated Statement of Changes in Equity |
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for the six months ended 31 March 2017 |
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| Capital |
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Share |
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capital | Reserves | reserve | earnings | Total |
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£000 | £000 | £000 | £000 | £000 |
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At 30 September 2015 | 18,334 | 3,773 | 1,764 | 10,981 | 34,852 |
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Total comprehensive income |
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for the period |
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Profit for the period | - | - | - | 423 | 423 |
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Transactions with owners, |
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recorded directly in equity |
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Dividends | - | - | - | - | - |
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Share based payments | - | - | - | - | - |
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Total contributions by and |
|
|
|
|
|
| |||
distributions to owners |
| ||||||||
At 31 March 2016 | 18,334 | 3,773 | 1,764 | 11,404 | 35,275 |
| |||
Total comprehensive income |
|
|
|
|
|
| |||
for the period |
| ||||||||
Profit for the period | - | - | - | 208 | 208 |
| |||
Transactions with owners, |
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|
|
|
|
| |||
recorded directly in equity |
| ||||||||
Dividends | - | - | - | - | - |
| |||
Share based payments | - | - | - | 66 | 66 |
| |||
Total contributions by and |
|
|
|
|
|
| |||
distributions to owners |
| ||||||||
At 30 September 2016 | 18,334 | 3,773 | 1,764 | 11,678 | 35,549 |
| |||
Total comprehensive income |
|
|
|
|
|
| |||
for the period |
| ||||||||
Loss for the period | - | - | - | (23) | (23) |
| |||
Transactions with owners, |
|
|
|
|
|
| |||
recorded directly in equity |
| ||||||||
Dividends | - | - | - | - | - |
| |||
Share based payments | - | - | - | 49 | 49 |
| |||
Total contributions by and |
|
|
|
|
|
| |||
distributions to owners |
| ||||||||
At 31 March 2017 | 18,334 | 3,773 | 1,764 | 11,704 | 35,575 |
| |||
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| |||
Notes to the Half Year Report |
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| ||||
for the six months ended 31 March 2017 |
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| ||||
1 Accounting policies |
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| |||
Basis of preparation |
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| |||
The condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the EU. |
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| |||
The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. As required by the Disclosure and Transparency Rules of the Financial Services Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended 30 September 2016 (with which they should be read in conjunction). |
| ||||||||
During the last six months an accelerated sales programme has commenced, primarily via auction, where the economic risk transfers on the auction date. It has been decided to recognise these sales at the auction date instead of the subsequent completion date in order to properly reflect the level of property sales activity. Provision is made for the relevant auction and legal fees arising on the sales in calculating the gain or loss on disposal. The effect of this change on the March 2016 and September 2016 financial statements is not material, and therefore no re-statement of comparative figures has been made. |
| ||||||||
The comparative figures for the financial year ended 30 September 2016 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's Auditors and delivered to the Registrar of Companies. The report of the Auditors was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. |
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2 Segmental reporting |
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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. |
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| |||
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. |
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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. |
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Following the strategic review, the Board consider there to be only one reportable segment.
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| ||||||||
3 Property operating expenses |
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| ||||||
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| ||||||
|
| Six months ended | Six months ended | Year ended |
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| ||||||
| 31 March 2017 | 31 March 2016 | 30 September 2016 |
|
| |||||||
| £000 | £000 | £000 |
|
| |||||||
Bad debt charge |
| (151) | (148) | (356) |
|
| ||||||
Head rent payments |
| (8) | (16) | (31) |
|
| ||||||
Repairs |
| (158) | (211) | (377) |
|
| ||||||
Business rates and council tax |
| (155) | (133) | (246) |
|
| ||||||
Irrecoverable service charge |
| (53) | (94) | (134) |
|
| ||||||
Utilities |
| (36) | (39) | (70) |
|
| ||||||
Insurance* |
| (26) | 45 | 2 |
|
| ||||||
Managing agent fees |
| (133) | (137) | (279) |
|
| ||||||
Leasing costs |
| (127) | (97) | (211) |
|
| ||||||
Legal & professional |
| (27) | (22) | (72) |
|
| ||||||
EPC amortisation, Abortives, and Miscellaneous |
| (40) | (47) | (88) |
|
| ||||||
|
|
|
|
|
|
| ||||||
Total property operating expenses |
| (914) | (899) | (1,862) |
|
| ||||||
|
|
|
|
|
|
| ||||||
The company's portfolio contains residential elements and commercial properties not opted for VAT. In the above table the applicable VAT which is not recoverable has been included directly in the cost. |
| |||||||||||
\* The insurance credits in March 2016 and September 2016 were the result of an over-provision in 2015. |
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| ||||||
4. Property disposals |
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| ||||||
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| ||||||
|
| Six months ended | Six months ended | Year ended |
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| ||||||
| 31 March 2017 | 31 March 2016 | 30 September 2016 |
|
| |||||||
| Number | Number | Number |
|
| |||||||
|
|
|
|
|
|
| ||||||
Number of sales |
| 63 | 16 | 27 |
|
| ||||||
|
|
|
|
|
|
| ||||||
|
| £000 | £000 | £000 |
|
| ||||||
Average value |
| 151 | 252 | 185 |
|
| ||||||
Sales |
|
|
|
|
|
| ||||||
Total sales |
| 9,496 | 4,032 | 4,997 |
|
| ||||||
Carrying value |
| (9,570) | (4,135) | (5,025) |
|
| ||||||
Loss on disposals before transaction costs |
| (74) | (103) | (28) |
|
| ||||||
|
|
|
|
|
|
| ||||||
Transaction costs |
|
|
|
|
|
| ||||||
Legal fees |
| 139 | 42 | 67 |
|
| ||||||
Agent fees, marketing and brochure costs |
| 284 | 53 | 74 |
|
| ||||||
Disbursements |
| 4 | 8 | 12 |
|
| ||||||
Non-recoverable VAT (on non-opted and residential elements) |
| 51 | 10 | 18 |
|
| ||||||
|
|
|
|
|
|
| ||||||
Total transaction costs |
| 478 | 113 | 171 |
|
| ||||||
|
|
|
|
|
|
| ||||||
Loss on disposals after transaction costs |
| (552) | (216) | (199) |
|
| ||||||
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
| ||||||
Transaction costs as percentage of sales value |
| 5.0% | 2.8% | 3.4% |
|
| ||||||
|
|
|
|
|
|
| ||||||
5 Administrative expenses |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
| ||||||
|
| Six months ended | Six months ended | Year ended |
|
| ||||||
| 31 March 2017 | 31 March 2016 | 30 September 2016 |
|
| |||||||
| £000 | £000 | £000 |
|
| |||||||
Investment manager fees* |
| (513) | (494) | (963) |
|
| ||||||
Legal and professional |
| (98) | (107) | (348) |
|
| ||||||
Tax and audit |
| (56) | (66) | (99) |
|
| ||||||
Remuneration Costs** |
| (93) | (33) | (133) |
|
| ||||||
Other |
| (26) | (62) | (39) |
|
| ||||||
Irrecoverable VAT on Administration expenses *** |
| (55) | (69) | (128) |
|
| ||||||
December 2016 General Meeting costs |
| (125) | - | - |
|
| ||||||
|
|
|
|
|
|
| ||||||
Total administrative expenses |
| (966) | (831) | (1,710) |
|
| ||||||
|
|
|
|
|
|
| ||||||
*Investment management fees have increased primarily due to a higher amount of sales fees payable on the back of the accelerated sales programme. The minimum investment management fee falls away in July 2017, and this will be reflected in the September 2017 financial statements (see note 15). |
|
| ||||||||||
**Remuneration costs include £49,000 (30 September 2016: £ 66,000) in respect of the expensing of employee share options which vest in 2018 onwards or if liquidation targets are met. This amount has a corresponding entry in equity and has no impact on the Company's net assets now or in the future. |
|
| ||||||||||
**\* The company's portfolio contains residential elements and commercial properties not opted for VAT. Accordingly, VAT on administrative expenses is not fully recoverable. |
|
| ||||||||||
|
|
|
|
|
|
| ||||||
6 Net financing costs |
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended | Six months ended | Year ended |
|
| 31 March 2017 | 31 March 2016 | 30 September 2016 |
| |
| £000 | £000 | £000 |
| |
Interest receivable |
| 4 | 12 | 25 |
|
Financing income excluding fair value movements |
| 4 | 12 | 25 |
|
Fair value gains on derivative financial instruments (see note 13) |
| - | 536 | 2,294 |
|
|
| 4 | 548 | 2,319 |
|
|
|
|
|
|
|
Bank loan interest |
| (545) | (1,266) | (1,924) |
|
Amortisation of loan arrangement fees |
| (67) | (58) | (117) |
|
Head rents treated as finance leases |
| (14) | (17) | (34) |
|
Bank facility fees |
| (12) |
|
|
|
Financing expenses excluding fair value movements |
| (638) | (1,341) | (2,075) |
|
Payments to close swaps (see note 13) |
| - | - | (1,758) |
|
|
|
|
|
|
|
Financing expenses |
| (638) | (1,341) | (3,833) |
|
Net financing costs |
| (634) | (793) | (1,514) |
|
|
|
|
|
|
|
7. Taxation |
|
|
|
|
|
From 11 May 2007, the Group elected to join the UK REIT regime. As a result, the Group is exempt from corporation tax on the profits and gains from its investment business from this date, provided it continues to meet certain conditions. Non-qualifying profits and gains of the Group (the residual business) continue to be subject to corporation tax. The directors consider that all the rental income post 11 May 2007 originates from the Group's tax exempt business. | |||||
|
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|
|
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. | |||||
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|
|
|
|
|
8. Dividends |
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|
|
No dividends have been paid since December 2012. | |||||
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|
|
9. Investment properties |
|
|
|
|
| ||
|
|
|
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|
| ||
| Total |
|
|
|
| ||
£000 |
|
|
|
| |||
At 1 October 2016 | 74,285 |
|
|
|
| ||
Additions | 257 |
|
|
|
| ||
Disposals | (9,570) |
|
|
|
| ||
Reduction in head lease value | (124) |
|
|
|
| ||
Fair value adjustments | (265) |
|
|
|
| ||
Movement on investment properties held for sale | 1,314 |
|
|
|
| ||
At 31 March 2017 | 65,897 |
|
|
|
| ||
The investment properties have all been revalued to their fair value at 31 March 2017.
For the Group as a whole, Allsop LLP, a firm of independent chartered surveyors valued the group's property portfolio at 31 March 2017 and 30 September 2016, and at 31 March 2016 and 30 September 2015. On each of these dates Allsop LLP performed a full valuation of 25% of the group's properties (including site inspections) and a desktop valuation of the remainder, such that all properties owned by the group have been inspected and valued over the two-year period. All properties acquired to each of these dates were also valued by Allsop. These valuations are reviewed by the Company's management team prior to finalisation. The valuations were undertaken in accordance with the Royal Institute of Chartered Surveyors Appraisal and Valuation Standards on the basis of market value.
Market value is defined as the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction, after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
A reconciliation of the portfolio valuation at 31 March 2017 to the total value for investment properties given in the Consolidated Balance Sheet is as follows:
| |||||||
|
|
|
|
|
| ||
| 31 March 2017 | 31 March 2016 | 30 September 2016 |
| |||
| £000 | £000 | £000 |
| |||
Portfolio valuation |
| 65,731 | 76,674 | 75,308 |
| ||
Investment properties held for sale |
| (277) | (840) | (1,590) |
| ||
Head leases treated as investment properties held under finance leases in accordance with IAS 17 |
| 443 | 572 | 567 |
| ||
|
|
| |||||
Total per Consolidated Balance Sheet |
| 65,897 | 76,406 | 74,285 |
| ||
|
|
|
|
|
| ||
10. Interest-bearing loans and borrowings |
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
| |||||||||||||
| 31 March 2017 | 31 March 2016 | 30 September 2016 |
|
| ||||||||||||||
| £000 | £000 | £000 |
|
| ||||||||||||||
Non-current liabilities |
|
|
|
|
|
| |||||||||||||
Secured bank loans |
| 40,667 | 52,527 | 49,821 |
|
| |||||||||||||
Loan arrangement fees |
| (375) | (244) | (186) |
|
| |||||||||||||
|
| 40,292 | 52,283 | 49,635 |
|
| |||||||||||||
|
|
|
|
|
|
| |||||||||||||
Current liabilities |
|
|
|
|
|
| |||||||||||||
Current portion of secured bank loans |
| 1,668 | 956 | 907 |
|
| |||||||||||||
|
|
|
|
|
|
| |||||||||||||
All bank borrowings are secured by fixed charges over certain of the Group's property assets and floating charges over the companies which own the assets charged. |
| ||||||||||||||||||
|
|
|
|
|
|
| |||||||||||||
The loans are amortised by 1% of the balance outstanding on a quarterly basis, and the final balance is repayable in 2019. |
| ||||||||||||||||||
|
|
|
|
|
|
| |||||||||||||
11. Earnings per share |
|
|
|
|
| ||||||||||||||
Basic earnings per share |
|
|
|
|
| ||||||||||||||
|
|
|
|
|
|
| |||||||||||||
The calculation of basic earnings per share was based on the profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding, calculated as follows: |
| ||||||||||||||||||
|
|
|
|
|
|
| |||||||||||||
(Loss)/Profit attributable to ordinary shares |
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
| |||||||||||||
|
| Six months ended | Six months ended | Year ended |
|
| |||||||||||||
|
| 31 March 2017 | 31 March 2016 | 30 September 2016 |
|
| |||||||||||||
|
| £000 | £000 | £000 |
|
| |||||||||||||
(Loss)/Profit for the financial period |
| (23) | 423 | 631 |
|
| |||||||||||||
|
|
|
|
|
|
| |||||||||||||
Weighted average number of shares |
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
| |||||||||||||
| 31 March 2017 | 31 March 2016 | 30 September 2016 |
|
| ||||||||||||||
|
|
|
|
|
| ||||||||||||||
| Number | Number | Number |
|
| ||||||||||||||
| 000 | 000 | 000 |
|
| ||||||||||||||
Issued ordinary shares |
| 91,670 | 91,670 | 91,670 |
|
| |||||||||||||
Treasury shares |
| (9,164) | (9,164) | (9,164) |
|
| |||||||||||||
Weighted average number of ordinary shares |
| 82,506 | 82,506 | 82,506 |
|
| |||||||||||||
Diluted earnings per share |
|
|
|
|
|
| ||||||||||
There is no difference between the basic and diluted earnings per share. |
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
| ||||||||||
12. Net asset value (NAV) |
|
|
|
|
|
| ||||||||||
The number of shares used to calculate net asset value per share is as follows: |
|
|
|
|
| |||||||||||
|
|
|
|
|
|
| ||||||||||
|
| 31 March 2017 | 31 March 2016 | 30 September 2016 |
|
| ||||||||||
|
|
|
|
|
| |||||||||||
| Number | Number | Number |
|
| |||||||||||
| 000 | 000 | 000 |
|
| |||||||||||
Number of shares in issue |
| 91,670 | 91,670 | 91,670 |
|
| ||||||||||
Less: shares held in Treasury |
| (9,164) | (9,164) | (9,164) |
|
| ||||||||||
|
| 82,506 | 82,506 | 82,506 |
|
| ||||||||||
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
| ||||||||||
| 31 March 2017 | 31 March 2015 | 30 September 2015 |
|
| |||||||||||
| £000 | £000 | £000 |
|
| |||||||||||
Net assets per Consolidated Balance Sheet |
| 35,575 | 35,275 | 35,549 |
|
| ||||||||||
|
|
|
|
|
|
| ||||||||||
Net asset value per share |
| £0.43 | £0.43 | £0.43 |
|
| ||||||||||
|
|
|
|
|
|
| ||||||||||
13. Derivative financial instruments |
|
|
|
|
|
| ||||||||||
Derivative financial instruments held by the Group were interest rate swaps used to manage the Group's interest rate exposure. These were fully paid down in the year to 30 September 2016. The Company continues to monitor the interest rate environment, and may enter into some hedging arrangements in the future. However, given the currently low and stable rates and the Company's sales programme, this would not be advantageous at present. |
| |||||||||||||||
|
|
|
|
|
|
| ||||||||||
14. Related parties |
|
|
|
|
|
| ||||||||||
There have been no transactions with related parties which have materially affected the financial position or performance of the Group during the current or previous period nor have there been any changes in related party transactions which could have a material effect on the financial position or performance of the Company during the first six months of the current financial year. |
| |||||||||||||||
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|
|
|
|
|
| ||||||||||
15. Significant contracts |
|
|
|
|
|
| ||||||||||
With effect from 22 July 2013 the Company entered into a management agreement with Internos Global Investors Limited ("Internos"). Under this agreement, the Company pays to Internos: |
| |||||||||||||||
|
|
|
|
|
|
| ||||||||||
1. An annual management fee of 0.70% of the gross asset value of the portfolio, subject to a minimum fee of £1m in each of the first two years, £0.95m for the third year and £0.9m for the fourth year. This minimum falls away in July 2017. |
| |||||||||||||||
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|
|
|
|
| ||||||||||
2. An annual performance fee of 20% of the recurring operating profits above a pre-agreed target recurring profit. |
|
|
| |||||||||||||
3. Fees for property sales as follows: |
|
|
|
|
|
| ||||||||||
Up to £50m nil |
|
|
|
|
|
| ||||||||||
£50m - £150m 0.5% of sales |
|
|
|
|
|
| ||||||||||
Over £150m 1% of sales |
|
|
|
|
|
| ||||||||||
4. A terminal fee of 5.7% of cash returned to the Company's shareholders in excess of 36.1 pence per share per annum from the Effective Date outside of dividend payments (the "Terminal Fee Hurdle"). The Terminal Fee Hurdle rises by 8% per annum after the first year but reduces on a pro-rata daily basis each time equity is returned to shareholders outside of dividend payments from recurring operating profits.
|
| |||||||||||||||
Under the terms of the agreement Internos received a fee of £513,000 (September 2016 - £963,000,461 March 2016 - £510,000). |
| |||||||||||||||