LSR.L Regulatory News (LSR)

The Local Shopping REIT plc

INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2014

London: 22 May 2014

The Local Shopping REIT plc ("LSR", the "Company" or the "Group") (LSE: LSR), a real estate investment trust focused on investments in UK local shopping assets, is pleased to announce its results for the six months to 31 March 2014.

Financial Highlights

· Recurring profit* for the period of £0.92m or 1.13 pence per share ("pps") (H1 2013 restated: £1.25m or 1.53 pps).

· Profit for the financial period of £1.75m or 2.15 pps (H1 2013 restated: loss of £1.55m or (1.90) pps).

· Directly owned portfolio valued at 31 March 2014 at £167.6m, reflecting an equivalent yield (excluding the residential element) of 9.33% (30 September 2013: £167.3m, with an equivalent yield of 9.48%).

· Net Asset Value (NAV): £35.38m or 43 pps (30 September 2013: £33.63m or 41 pps).

· Adjusted NAV: £46.3m or 56 pps, excluding liabilities arising from derivative financial instruments (30 September 2013: £39.9m, 48 pps).

· Total net debt of £125.8m, reflecting an LTV (net of cash reserves) of 74.7%.

· Debt free properties valued at £6.76m.

· Rental deposits of £0.89m held, representing 23% of the quarterly rent roll.

Operational Highlights

· At 31 March 2014 portfolio comprised 629 properties, with 2,037 letting units, producing an annual rental income of £15.2m (30 September 2013: 640 properties with 2,037 letting units and rental income of £15.45m).

· Property sales totalling £1.821m, a premium of 18.05% to preceding valuation.

· Like-for-like rent down 1.3% since 30 September 2013, with no movement in like-for-like Market Rent.

· Overall void rate 12.47%, equivalent to Market Rent of £2.07m (30 September 2013: 12.38% and £2.11m).

· 55 properties let during the period at an annual rental income of £535,200. At 31 March 2014, 41 commercial units were under offer at Market Rents totalling £393,700.

· Rent reviews completed on 43 units resulting in aggregate rental income of £734,000 (an uplift of 8.74% to Market Rent).

· 15 lease renewals at a net rental decrease of £1,936 (-1.15%), although £3,185 (1.95%) above Market Rent.

· Consents secured for three commercial changes of use and two conversions to residential. Conversion of redundant upper parts storage unit to a residential flat completed. Since 31 March, consents obtained for three further use changes (one to residential).

*Recurring profit is explained in the Results section below.

LSR Chairman Grahame Whateley commented: "Whilst many of our occupiers continue to face challenging circumstances, the local markets in which we operate are showing increasingly positive trends which should support our operations as we continue to execute our investment strategy."

LSR executive director Steve Faber said: "This welcome return to profit reflects the resilience of our occupier base, some positive sentiment in the investment market and the hard work of our team."

Directors' Review

The Company has continued to perform robustly in a challenging environment for the retail sector.

Market Context

Following a stop-start recovery, economic activity is finally gathering pace with growth of 1.9% recorded in 2013, the highest rate since 2007. Private sector output surveys point towards continued expansion with the recovery now starting to filter through to regions and cities where the local economy is primarily driven by private sector.

The unemployment rate fell rapidly over H2 2013 and has reached the Bank of England's previous forward guidance threshold of 7%, at which consideration would be given to raising the base rate. However, low inflation and spare economic capacity appears to be influencing the Monetary Policy Committee to keep interest rates at their present level at least until wages start to increase in real terms. Despite real wages in many parts of the country declining over a prolonged period, much of the recovery has been driven by consumer consumption raising concerns that consumption has been fuelled by debt.

It appears that the Government's 'Help to Buy' housing scheme has been fuelling house price inflation, particularity in London and the South East, and arguably laying the foundations for another bubble. Whilst the rise in house prices may improve consumer confidence, it may ultimately stoke inflation leading to interest rate rises coupled with high levels of consumer and mortgage debt

In the retail market, the series of failures amongst high profile chains that grabbed headlines in 2013 (for example, Blockbuster, HMV, Ethel Austin and Comet) appears to have ended. Many such casualties appear to have been significantly more prone to competition from Internet sales and had been unable to modify their business model. The growth in sales of goods over internet sales, particularly of comparison goods, and especially at Christmas, and the success of retailers with effective multi-channel offering, such as Next and John Lewis is a testament to this. There remains a high degree of churn as tenants move in and out of premises.

Both local and national retailers suffered from the severe flooding and other adverse weather conditions that hit many UK regions during the winter of 2013-14 and many local economies are still suffering from the continued economic impact that has resulted.

Despite these challenges, the independent retail sector is showing signs of improving health, with steady demand in convenience, services (in particular health and beauty) and leisure. There is positive investor sentiment for local retailing in London and the South East, alongside major towns. Whilst other regional markets have continued to show signs of weakness, this appears to be abating to some extent. On a relative basis local retailing has not experienced the same compression in yields as other property market sectors.

Results

The profit before tax on an IFRS basis for the six month period was £1.75 million (or 2.15 pps), compared with a loss (re-stated to exclude discontinued operations) of £1.55 million (-1.90 pps) for the six months to 31 March 2013 and a loss of £6.07 million (-7.46 pps) for the full year to 30 September 2013.

The recurring profit on continuing operations was £0.919 million (or 1.13 pps), compared with £1.25 million (1.53 pps) for the six months to 31 March 2013 (restated) and £2.07 million (2.54 pps) for the year to 30 September 2013.

The portfolio achieved gross rental income for the six months to 31 March 2014 of £7.65 million, slightly ahead of the £7.62 million for the half year to 31 March 2013. Within this, rent reviews were highly subject to local and regional factors and increases were also balanced by a reduction in the number of income-producing units as a result of property sales. We also continued our policy of re-gearing leases and offering rent concessions where this is likely to enhance value.

Property operating expenses, at £1.99 million, showed an increase of £0.58 million against the comparable period, due in the main to two significant items. Firstly, as we have previously noted, and in common with other UK property investors, the business is now experiencing the full effects of the immediate imposition of Business Rates on vacant properties and the curtailment of previous mitigation schemes. This accounted for £377k of the increase in operating property expenses and alternative mitigation arrangements are now being implemented. Secondly, a rigorous review of significantly aged bad debts resulted in an increase in the bad debt charge of £249k for the period compared with the same period in 2013. This is considered to be an isolated item and has been excluded from the recurring profit calculation.

Financing costs rose during the period, £346k higher than the six months to 31 March 2013. This reflected the revised banking arrangements, which are described in detail under the section on Financing below.

A major factor in the IFRS result was the movement in fair value of the property portfolio, which was valued at £167.6 million at 31 March 2014, a reduction of £5.4 million on the 31 March 2013 valuation and a reduction of £1.3 million on the 30 September 2013 figure. The movement during the period reflected a combination of improved values on a like-for-like basis and the reduction in portfolio value resulting from property sales. Like for like values are commented on in more detail in the Combined Portfolio section below. In line with the investment policy adopted last year, two of the Group's property holding companies are currently being marketed for sale and the valuations of the properties comprised in these companies are categorised as held for sale in the consolidated balance sheet.

Administrative expenses fell by £273k in comparison with the period to 31 March 2013. This reflects savings in office and staff costs following the appointment of INTERNOS Global Investors Limited ("INTERNOS") as the Company's asset manager, net of the fee payable to INTERNOS.

Other contributory factors included the positive movement in the fair value of interest rate swaps, which showed an improvement of £378k over the comparable period, and the profit on the sale of properties which exceeded the comparable period by £155k.

The table below summarises the adjustments made between the reported IFRS result and this recurring profit.

The calculation remains consistent with previous periods.

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.

Revaluation

Our portfolio was revalued at £167.6 million as at 31 March 2013, reflecting an equivalent yield (excluding the residential element) of 9.33% (30 September 2013: £168.9m, 9.48% equivalent yield). As at 31 March 2014, it comprised 629 properties with an annual rental income, net of head rents payable, of £15.2m, compared to 644 properties and £15.9 million at 30 September 2012. Whilst the overall number of letting units remained the same, at 2,037, this was the net result following property sales, the termination of intermediate leases and the sub-division of units to provide more viable letting space. As stated above, two of the Group's property holding companies are currently being marketed for sale. The valuation of the properties held within these companies is identified separately in Note 6 to the financial statements.

Combined Portfolio

*Net of head rents payable

All yields quoted exclude the residential element which is valued at a discount to vacant possession value.

The table above illustrates the range of property values throughout the portfolio. The average property value is£266,376 and the median is £150,000. The residential element of the portfolio has been valued at £18.1m, typically based on 85% of vacant possession value. The average value of the residential units in our portfolio remains low at £57,000.

Existing Portfolio - Like-for-like

All yields quoted exclude the residential element which is valued at a discount to vacant possession value.

*Net of head rents payable

The existing portfolio recorded a 0.1% rise in value on a like-for-like basis during the period, with the equivalent yield (excluding the residential element) moving in by 15 basis points to 9.33% (30 September 2013: 9.48%).

The yield pattern remains highly subject to regional factors. The period saw significant inward yield shifts in London and south-eastern parts of the UK and the east midlands. Elements of the portfolio in the North West reversed their outward yield shift in 2013. Values remained under pressure in Scotland, the North East and Wales where debt availability remains tight.

All yields quoted exclude the residential element which is valued at a discount to vacant possession value.

During the six month period like-for-like rental income declined by 1.3%, with Market Rent remaining static.

Net Asset Value ("NAV")

During the period NAV rose by 5.30% to £35.38 million or £0.43 per share, based on 82.5 million shares in issue, excluding those held in Treasury (30 September 2013: £33.6 million, £0.41 per share).

The adjusted NAV of the Company as at 31 March 2013, excluding liabilities arising from derivative financial instruments, is £40.4 million or £0.49 per share (30 September 2013: £39.9 million, £0.48 per share).

The Group held £7.27 million of cash at the end of the period, details of which are given in Note 14 to the financial statements.

Acquisitions and Sales

Under the new investment strategy adopted by the Company in July 2013, we will not acquire properties other than to support or enhance the value of existing properties within the portfolio. No properties were acquired during the period.

During the period eight entire properties were sold, three of which included residential flats, together with a further two flats. The aggregate gross sale price was £1.821 million, a premium of 18.05% to their preceding valuation.

Further properties were under offer at 31 March 2014 at prices totalling £4.56 million, representing a premium against their preceding aggregate valuations of 15.92%. Of these, two commercial units and two flats have since been sold, at a combined premium to preceding valuation of 20.88%, with contracts exchanged on a further two properties at a premium to preceding valuation of 12.90%.

As mentioned above, we are currently seeking offers for two of the Group's property portfolios.

Asset Management

We continue with our flexible approach to leasing, which has served us well during the well-publicised period of difficulty for the retail sector. We continue to prefer stepped rents to offering lengthy rent-free periods in return for high headline rents. The generation of healthy net cashflow is a key pillar of our business and we closely monitor expenses and take a robust approach to debts.

During the period we completed lettings on 55 units at a combined rent of £535,200 per annum against aggregate Market Rent of £554,193. Of these ten incorporated stepped rent increases whereby the aggregate initial rent of £80,500 per annum will rise to £104,100 per annum over the first three years of their leases, compared with a Market Rent of £106,500 per annum. The other 45 units were let at a 1.74% premium to Market Rent. Our average rent free period on lettings completed during the period remains low at 90 days. Letting activity was robust at the period end, with 41 units under offer at a combined rent of £393,700.

Rental growth also continued through rent reviews, which were completed on 43 units resulting in aggregate rental income of £734,084 against combined Market Rents of £675,082 (an uplift of 8.74% to Market Rent). We also secured 15 lease renewals with existing tenants. These resulted in a small net rental decrease of £1,936 (-1.15%), although this was £3,185 (1.95%) ahead of Market Rent.

On a like-for-like basis total rental income declined by 1.3% since 30 September 2013, with no movement in like-for-like Market Rent.

We continue to be active in identifying ways of improving income generation from our property assets. During the period consents were secured for three commercial changes of use and two conversions to residential. The conversion of a redundant first floor storage unit to a residential flat was completed during the period. Since 31 March, consents have been obtained for three further use changes (one to residential). We are also progressing ideas for similar value-adding initiatives in situations where recent changes in legislation have done away with the need for planning approval.

Void Rate

The environment for retailers continues to be challenging in many regions. However, our overall void rate remained relatively stable at 12.47% of portfolio Market Rent, equivalent to Market Rent of £2.07 million (30 September 2013: 12.38% and £2.11 million). The void rate comprised 11.31% attributable to commercial properties and 1.16% attributable to residential units (30 September 2013: 11.64% and 0.74%).

We continue to take a robust approach to rent defaults, preferring to take back units for re-letting as soon as practicable. During the period we made a further provision against aged debts which is not expected to be repeated. Despite this the bad debt charge reduced during the period compared with the same period in 2012-13. The aging profile of rental arrears was in line with that of the comparator period.

When we let units to independent tenants, or deal with lease assignments, it is our policy to seek rent deposits wherever appropriate. As at 31 March 2014, we held deposits in respect of commercial tenants totalling £889,000 (31 March 2013: £923,000), or 23.5% of our quarterly rent roll. This provides us with a measure of protection against tenant default which is not generally available when letting units to national retailers. Further deposits, typically equating to one month's rent, are held by our managing agents and the Deposit Protection Service in respect of residential tenancies.

Financing

The Group operates using the loan facilities set out below, which are designed to enable the Group to execute its sales strategy at best value whilst minimising hedge break costs.

At 31 March 2014 the net debt outstanding was £133.5 million (30 September 2013: £135.6m).

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 2013 (available on the Company's website: www.localshoppingreit. co.uk). These centre on:

· Changes in the macroeconomic environment

· Higher than anticipated property maintenance costs

· Changes to legal environment, planning law or local planning policy

· Regulatory requirements in connection with property portfolio

· Information technology systems and data security

· Financial market conditions

· Capital management and liquidity

The Group does not consider financing to be a risk given the long term nature of the outstanding debt, the hedging facilities in place and the level of debt-free properties in the portfolio.

The Group does not speculate in derivative financial instruments and only uses them to hedge its exposure to fluctuations in interest rates. However, movements in the fair value of the derivative financial instruments do affect the income statement and consequently the Net Asset Value recorded on the Consolidated Balance Sheet.

The Group is exposed to the risk of non-payment of trade receivables by its tenants. Despite recent improvements in the domestic economy this risk continues to be significant. With circa 2,000 tenants operating across all retail occupations spread throughout the UK, the Directors consider that there is no significant concentration of credit risk. The level of arrears is monitored continually by the Group's asset managers and subject to monthly review at executive level.

Outlook

The national trend for the retail sector has shown positive signs in recent months, including a notable improvement in the performance of shops selling household goods. There has been a notable decline in the number of household name retailers going into administration since Christmas (although our portfolio has been less exposed than others to this risk). Market commentators appear to agree on the likelihood of this trend continuing into the latter part of 2014, fuelled by continued upward employment trends and low interest rates and a resurgent housing market. The investment market for local shopping assets remains healthy, with auctions and private treaty sales reporting strong volumes and results for well-let assets in better locations.

Whilst the overall picture is increasingly positive, we expect the trading environment for individual local shopping and convenience retailers to remain highly subject to regional and local factors. Many local retailers are still seeking to recover from bouts of heavy discounting and price competition that spilled into their market from the supermarket sector during 2013. Others face increasing challenges arising from technological change, particularly internet shopping, home delivery and "click & collect" although these factors appear less marked in local and convenience shopping. Overall we expect sub-sector to continue to perform with the same resilience and opportunism that it has displayed during the recent period of turbulence.

J.G. Whateley

Chairman

Responsibility Statement

We confirm to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the EU: and

(b) the Half Year Report includes a fair review of the information required by:

DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last Annual Report that could do so.

Signed on behalf of the Board who approved the half yearly financial report on 21 May 2014.

S R Faber

Director

INDEPENDENT REVIEW REPORT TO THE LOCAL SHOPPING REIT PLC

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 2014 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.

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 34Interim 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.

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 2014 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

John Leech

for and on behalf of KPMG LLP

Chartered Accountants

One Snowhill

Snow Hill QueenswayBirminghamB4 6GH

21 May 2014

Condensed Consolidated Income Statement for the six months ended 31 March 2014

* Excluding movements in the fair value of financial derivatives

** Restated to reflect discontinued operations - see Note 15

Condensed Consolidated Statement of Comprehensive Income for the six months ended 31 March 2014

Condensed Consolidated Balance Sheet as at 31 March 2014

Condensed Consolidated Statement of Cash Flows for the six months ended 31 March 2014

Condensed Consolidated Statement of Changes in Equity for the six months ended 31 March 2014

Notes to the Half Year Report for the six months ended 31 March 2014

1 Accounting policies

Basis of preparation

The condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the EU.

The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. As required by the Disclosure and Transparency Rules of the Financial Services Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended 30 September 2013 (with which they should be read in conjunction).

The comparative figures for the financial year ended 30 September 2013 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.

During the previous financial year the Company went through a strategic review which resulted in the discontinuing of some of its activities. Where relevant the figures for March 2013 have been restated to reflect this.

2 Segmental reporting

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

Since the establishment of the jointly controlled entities and other investments the Group has identified two operating and reporting segments which are reported to the Board of directors on a quarterly basis, The Board of directors are considered to be the chief operating decision makers.

The financial information presented quarterly to the Board is the recurring profit achieved by each segment. The segments identified are: the properties directly owned by the Group and the asset management income earned, together with the share of results due to the Group from the joint ventures.

Following the strategic review, the Board consider there to be only one reportable segment. As the results for 2013 have been restated for discontinued activities, segmental analysis for 2013 is not considered to be material.

3 Net financing costs

4. Taxation

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

On entering the UK REIT regime, a conversion charge equal to 2% of the gross market value of properties involved in the property rental business, at that date, became due which was paid in full.

Due to the availability of losses no provision for corporation tax has been made in these accounts. The deferred tax asset not recognised relating to these losses can be carried forward indefinitely. It is not anticipated that these losses will be utilised in the foreseeable future.

5 Dividends

6 Investment properties

The investment properties have all been revalued to their fair value at 31 March 2014.

All properties acquired since the beginning of the financial year, together with a sample selected by the valuers of 25% of the portfolio have been valued by Allsop LLP, a firm of independent Chartered Surveyors. The valuations were undertaken in accordance with the Royal Institute of Chartered Surveyors Valuation Standards 2011 on the basis of Market Value. Market Value is defined as the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction, after proper marketing, wherein the parties had each acted knowledgably, prudently and without compulsion.

The remainder of the portfolio has been valued on the basis of Market Value by the directors who have an appropriate recognised professional qualification and recent experience in the location and category of property being valued.

A reconciliation of the portfolio valuation at 31 March 2014 to the total value for investment properties given in the Consolidated Balance Sheet is as follows:

7 Investments in jointly controlled entities

The Group has the following investments in jointly controlled entities:

The Group is party to two joint venture agreements.

On 26 November 2010 an agreement was entered into with Local Parade Investments LLP, a newly incorporated entity. The initial investment made was £20. The principal activity of the entity was the acquisition and management of retail parades. This investment was disposed of in July 2013 as part of the strategic restructuring.

On 28 September 2011 an agreement was entered into with Gracechurch Commercial Investments Limited, a newly incorporated entity. The initial investment made was £500,000. The principal activity of the entity is to acquire properties for investment purposes.

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

8 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. This was disposed of as part of the strategic restructuring in July 2013.

9 Interest-bearing loans and borrowings

All bank borrowings are secured by fixed charges over certain of the Group's property assets and floating charges over the companies which own the assets charged.

The loans are amortised by 0.45% of the balance outstanding on a quarterly basis, and the final balance is repayable in 2018.

10 Disposal group

As part of the ongoing policy of realisation of the group's assets, the shares of two of the subsidiary companies, NOS 2 Limited and NOS 3 Limited are being marketed as a single unit sale which includes their joint financing arrangements.

The following assets and liabilities are deemed to be held for sale as part of this process:

11 Profit\(Loss) per share

Basic profit\(loss) per share

The calculation of basic profit\(loss) per share was based on the loss attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding, calculated as follows:

Profit (loss) attributable to ordinary shares

Weighted average number of shares

Diluted earnings per share

There is no difference between the basic and diluted loss per share.

12 Net asset value (NAV)

The number of shares used to calculate net asset value per share is as follows:

Adjusted net asset value per share

13 Derivative financial instruments

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

The derivative financial instruments included in the above tables are stated at their fair value based on quotations from the Group's bank.

The Group does not speculate in financial instruments, it only uses them to limit its exposure to interest rate fluctuations. The Group's policy is to hedge between 60% and 100% of its interest rate exposure. At 31 March 2014: 92% (30 September 2013: 92% and 31 March 2013: 91%) of the Group's debt was fixed.

14 Cash

Cash held on the substitution accounts is charged to the lenders pending the transfer of assets to the lenders from the uncharged pool. If these balances are not used within certain time periods, they will be used to pre-pay the loans.

The rent accounts shown above were held pending interest payments due in the month following the Balance Sheet date. The accrued interest shown is the amount due on those loans at the Balance Sheet date. Until the interest payments and amortisation have been deducted from those balances the cash is not available for use by the Group.

15 Discontinued Operations

In July 2013 as part of the reconstruction following the strategic review, the company disposed of its interests in Local Parade Investments LLP and LSR Asset Services Limited. In addition it ceased its asset management activities being carried on by LSR Asset Management Limited and LSR Gresham Asset Advisors Limited. The comparative figures for March 2013 have been restated to reflect these changes.

16 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.

17 Significant contracts

With effect from 22 July 2013 the Company entered into a management agreement with Internos Global Investors Limited ("Internos"). Under this agreement the Company pays to Internos:

1. An annual management fee of 0.70% of the gross asset value of the portfolio, subject to a minimum fee of £1m in each of the first two years, £0.95m for the third year and £0.9m for the fourth year.

2. An annual performance fee of 20% of the recurring operating profits above a pre-agreed target recurring profit.

3. Fees for property sales as follows: up to £50m nil; £50m - £150m 0.5% of sales; over £150m 1.5% of sales.

4. A terminal fee of 5.7% of cash returned to the Company's shareholders in excess of 36.1 pence per share per annum from the Effective Date outside of dividend payments (the "Terminal Fee Hurdle"). The Terminal Fee Hurdle rises by 8% per annum after the first year but reduces on a pro-rata daily basis each time equity is returned to shareholders outside of dividend payments from recurring operating profits.

Under the terms of the agreement Internos received a fee of £589,391 (September 2013: £291,967; March 2013: £Nil) during the financial period. In the period to September 2013 Internos received a one off fee of £50,000 for work carried out on renegotiating the HSBC loan facilities.