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Interim Results

Tue, 12th May 2015 07:00

RNS Number : 8418M
LXB Retail Properties Plc
12 May 2015

For immediate release 12 May 2015

LXB Retail Properties Plc

INTERIM RESULTS FOR THE PERIOD ENDED 31 MARCH 2015

LXB Retail Properties Plc, a Jersey resident closed-ended real estate investment company focused on edge of town and out of town retail assets, today announces interim results for the period ended 31 March 2015.

Highlights

31 March 30 September

2015 2014

· Cash deposits and liquid investments: £17.2m £7.7m

· NAV per share: 139.87p 134.30p

· EPRA* NAV per share: 140.02p 134.54p

· Earnings per share: 5.57p 18.94p

· October 2014: completed forward funded sale of Banbury Gateway scheme

· November 2014: entered into a £23.35m development facility with Royal Bank of Scotland Plc for the Stafford Kingsmead site

· December 2014: entered into a £28.5m development facility with Royal Bank of Scotland Plc for the Stafford Riverside site

· December 2014: exchanged contracts with Linden Homes for the sale of the residential element of the scheme at Sutton

· January 2015: exchanged contracts with the Lime Property Fund to sell the foodstore element of the scheme at Sutton

· March 2015: obtained a resolution to grant planning consent for the scheme at Willow Green, Truro

· March 2015: entered into a £5m investment facility with Barclays Bank Plc

Post period end:

· April 2015: exchanged contracts with The Crown Estate for the sale of the Rushden Lakes Scheme

· April 2015: exchanged contracts with Aberdeen Property Trust for the sale of the Biggleswade Scheme

· April 2015: completed the sale of the scheme at Biggleswade

* excluding fair values of financial instruments and deferred tax.

For further information please contact:

LXB Adviser LLP Tel: 020 7432 7900

Tim Walton, CEO

Brendan O'Grady, FD

J.P. Morgan Cazenove (NOMAD) Tel: 020 7742 4000

Bronson Albery/Kristof Vashegyi

Buchanan Tel: 020 7466 5000

Charles Ryland/Sophie McNulty

Forward looking statements

This document includes forward looking statements which are subject to risks and uncertainties. You are cautioned that forward looking statements are not guarantees of future performance and that if risks and uncertainties materialise, or if assumptions underlying any of these statements prove incorrect, the actual results of operations and financial condition of the Group may materially differ from those made in, or suggested by, forward looking statements. Other than in accordance with its legal or regulatory obligations, the Company undertakes no obligation to review, update or confirm expectations or estimates or to release publicly any revisions to any forward looking statements to reflect events that occur or circumstances that arise after the date of this document.

Chairman's Statement

I am pleased to present the Group's results for the six months ended 31 March 2015.

The Group has made good progress during this period. The Board has been particularly focused on delivering value, and more certainty of future value, in advance of the Continuation Vote at the Annual General Meeting ('AGM') on 27 May 2015. That delivery of value has been reflected in the results for the period with a further 5.57p added to the Net Asset Value ('NAV') per share. The biggest contributor to this increase in the Group's value has been the £12.1m investment property revaluation surplus, a result of the Group's independent valuer's assessment of the worth of the Group's property portfolio. Since the last reporting date, the Group has also exchanged contracts to sell its investments at Biggleswade and Rushden, and the foodstore and residential elements of its Sutton investment, which has given us more certainty of the inherent value in these schemes. I outline more detail on the delivery of NAV uplifts and the timing of these below. I also explain why the Board remains confident that there is significant further value still to be realised from the Group's portfolio.

Five and a half years after the IPO, we reach an important milestone for the Group with a Continuation Vote scheduled for the forthcoming AGM. The Board has reviewed the Group's strategic options for the short and medium term and I want to provide shareholders with a comprehensive briefing on the investment portfolio, our proposals for the Continuation Vote and details of our proposal, announced today, to return £82.63m (45p per share) of capital to shareholders.

Performance since IPO

We have achieved much since October 2009. Including properties which had been sold or for which contracts for sale were conditionally exchanged prior to the balance sheet date, we have secured over 2.78m sq ft of new planning permissions and signed pre-lets securing annual rents of £27.65m. We have recycled capital too; we raised £257.5m (net of costs) from share issues and, if the proposal announced today is approved at the forthcoming Extraordinary General Meeting ('EGM') and implemented, we will have returned £167.2m either through buying back our own shares or by means of more structured processes. Furthermore, our current intention is to make another substantial return of capital when the Rushden Lakes transaction becomes unconditional, which we currently expect to be in early 2016. These are major achievements, particularly when assessed against the significant changes to the planning and retail environment over the last five years.

The Group's business model is to create valuable investments by obtaining planning consents and securing lettings with tenants whose covenants are highly rated. Following the recent successes at Truro and Ayr, we now have the planning permissions we sought at all of our retail led investment locations, although achieving that has not been without its difficulties. We faced judicial review challenges at Sheppey and Banbury Gateway and a full scale planning inquiry for Rushden Lakes. We are pleased to have met our objectives, but the planning processes and challenge mechanisms are slow and we lost significant time at both Banbury Gateway and Rushden Lakes. I have no doubt that the Group's equity performance would have been even stronger without those delays.

Performance since IPO

We have faced the challenge of letting all that space in a sector which was undergoing profound structural change and uncertainty. We have been asking prospective tenants to enter into long term leases on new stores, whilst they have been challenging the fundamentals of their business to identify the optimum operating model for today's omni-channel retail environment and understand what that means for store numbers, store size and location. To have been able to secure pre-lettings with an annual rent roll of £27.65m during a period when our principal target market was battling with such change is a significant achievement. However, as with our experiences on planning, this has taken longer than expected as prospective tenants have been and remain understandably cautious about new commitments; inevitably, they take far longer than they used to before committing to new leases and, when they do, they expect generous incentive packages. Given this tough environment, our success is as a consequence of our investment in the right locations.

Despite the scale of change in retailing and its disruptive influence, it is worth noting that there is still a very important place for high quality physical stores in the industry and there remains strong appetite for, and intrinsic value in, appropriately-sized, well designed, configured and located assets of the kind that the Group develops.

The quality of the Group's portfolio is demonstrated by the fact that our investments have proved so highly attractive to long term institutional investors. Notwithstanding an investment policy and capital structure designed to allow us to hold our investments for the long term, the Group has always taken the view that an approach to buy one of our investment assets which offers real shareholder value should be considered seriously. The shortage of new prime retail investment opportunities has resulted in us receiving frequent unsolicited interest from institutional investors seeking to acquire investments on a forward funding basis. We have been willing to consider these where it allows an opportunity to de-risk an investment by locking into an attractive investment yield and at the same time release cash.

The investment portfolio

With our large scale investments, whether they are still owned by the Group or have been sold on a forward funding basis, the full value is only established when they reach practical completion and tenants take occupation. We are on-site now at all of our sites except Ayr and Truro, both of which are longer term projects, and in the coming twelve months we expect to:

· achieve practical completion of the forward funded investments at Banbury Gateway and Biggleswade Retail Park;

· reach a final position on the potential transaction with IKEA at Greenwich; and

· reach practical completion at Stafford Kingsmead, Stafford Riverside and at Sheppey.

We will also be close to practical completion of Brocklebank Retail Park at Greenwich and the foodstore at Sutton. In addition, the remaining retail units at Sutton should be well advanced, although practical completion is not scheduled until late 2016.

The investment portfolio

Importantly, in early 2016 we also expect to have satisfied all the conditionality to allow the completion of the sale of the Rushden Lakes investment to The Crown Estate. That would have a major influence on NAV. We expect, conservatively, to receive cash of approximately £70m at completion at which point we would expect to recognise increased NAV of at least £19.5m compared with the 31 March 2015 balance sheet value. The Rushden Lakes announcement on 7 April 2015 referred to potential additional value from the second and third phases of Rushden Lakes. It is still too early to provide a meaningful view on the potential value of that, but we would expect to be able to offer much greater clarity by the time the sale to The Crown Estate completes. We believe there is potential for significant additional returns.

Clearly any formal proposal will be assessed in light of circumstances at the time but our current intention is that the initial proceeds of the Rushden Lakes disposal would be used to fund another significant return of capital similar to that proposed today following completion of the Sutton foodstore and Biggleswade transactions.

The Group has recently received an unsolicited approach to acquire another of our investments which is currently being evaluated. There is no certainty that the proposed transaction will complete but the Board's attitude is that any further releases of cash (from this or other such approaches) will primarily be considered as available for capital returns. Depending on the sums involved, that may be achieved either by use of the general authority to purchase own shares (renewal of which will be requested at the AGM) or through a more structured process.

Shareholders may find it helpful to understand the likely make-up of the portfolio by the early part of 2016. These views are based on our current investment appraisals, assume no further disposals, and are obviously subject to market fluctuations in investment yields. That said, assuming pre-lets are agreed in line with our appraisals and development timetables are achieved, we expect by early 2016 to have a portfolio of completed investments which will, on expiry of rent free periods, generate annual rents of approximately £6.2m. By the end of 2016 the Greenwich Brocklebank and Sutton investments should be completed and (again, on expiry of rent free periods) the annual rents will then be approximately £9m with a fair value of £165.5m.

I have not commented thus far on the foodstore led investments at Truro and Ayr which are pre-let to Asda and Sainsbury's respectively. We were pleased to secure Planning Committee approvals for both in March 2015. As well as providing more than 166,000 sq ft of foodstore space, the consents include 1,185 houses and other ancillary uses. Inevitably, final confirmation of planning permission for large scale projects like these is subject to satisfaction of a number of detailed conditions, including sizeable contributions to local infrastructure. We are now working through these with the local authorities. Both investments are held at what we consider to be conservative valuations (which reflect very little uplift from cost) until we are satisfied that all the key post Planning Committee agreements needed to support a viable investment project are in place. We expect to have greater clarity on the real value of these investments by early 2016.

Living Villages

The Group's planning application for 155 new homes, a community hub, a restaurant and a cookery school at Higher Newham Farm, Truro received overwhelming public support and a Planning Officer's recommendation for approval. The Planning Committee decided however to refuse the application on highways grounds. The Group has appealed this decision and our legal advice is that we have good grounds for believing the decision will be overturned. In addition, we are in constructive dialogue with Cornwall Council to address any remaining highways concerns locally.

The level of local support received shows that the distinctive, sustainable approach of Living Villages can deliver positive results, even in areas which are resistant to new housing. This is proving very attractive to both landowners and councils in some desirable locations and we are working through a number of early stage opportunities. I am confident that this approach will be successful in delivering new housing in very desirable locations and will, in time, prove to be very valuable to shareholders.

Proposed return of cash

We reported in January 2015 that we had conditionally sold the foodstore at Sutton and in April 2015 that we had disposed of our investments at Biggleswade, both on a forward funded basis. The Biggleswade transaction completed on 27 April 2015 and proceeds of £58.5m have been received. Phase 1 at Biggleswade reached practical completion on 8 May 2015 triggering a further net receipt of £10.2m which is due to be received under the terms of the contract on 15 May 2015.

The site remediation works, which were a key component of the conditionality of the Sutton foodstore disposal, have completed satisfactorily and the other (largely procedural) conditions are well advanced. We expect the contract with The Lime Property Fund, which is managed by Aviva Investors, to become unconditional later this week. At that point, under the terms of the contract, a cash receipt of £20m becomes due within 10 working days.

In light of these actual and imminent cash receipts, the Board has reviewed the Group's requirements and concluded that, on receipt of these monies, the Group will be in a position to return £82.63m (45p per share) to shareholders. Detailed proposals are set out in the circular which will be posted to shareholders today. The proposals are subject to approval at an EGM to be held on 27 May 2015. Assuming the proposals are approved, the final condition to be satisfied before the capital return proposals will be implemented is actual receipt of the cash. The Board intention is that the cash return will be implemented as soon as possible after the later of the EGM and receipt of the cash proceeds.

To allow maximum flexibility in the case of any unforeseen delays, the circular includes a 'longstop date' of 30 June 2015 for declaration of the dividend. Assuming the proposals are approved at the EGM, the Board hopes and expects that the proposals will be implemented well before that time. We will keep shareholders informed as to progress.

The Continuation Vote

The Continuation Vote was built into the Group's constitution to allow shareholders the opportunity to make choices about their investment at a point in time when we were, to a large extent, beyond the development phases when outcomes are inevitably more certain, and had assembled a portfolio of high quality rent producing properties. That would have allowed shareholders to make choices with relative certainty about the true value of our shares. Back in 2009 it was reasonable to anticipate that we would have reached that stage by now, however as a direct result of the challenging market in the last few years, there is unfinished business from which there is still significant potential value to be gained. As I explain below, whilst the Group has already generated substantial NAV growth, the Board expects to be able to provide much greater clarity about the remaining value within the next 12 months.

The Continuation Vote arrangements are set out in the Company's Articles of Association (the 'Articles') and provide that at the forthcoming AGM (using the language from the Articles), "the Directors shall cause an Ordinary Resolution to be proposed to the effect that the Company continues in its current form". In the event that the Resolution is not passed, the Directors must convene an EGM within 120 days and present shareholders with, "detailed proposals for the voluntary liquidation or other reconstruction or reorganisation of the Company (which proposals may include an opportunity to Members to realise their investment in the Company, a continuation of the Company in a revised form, including without limitation, a new investment objective and/or policy)". For the reasons described above, we think it is too early, and potentially value destructive, to ask shareholders to make decisions on such important matters at this year's AGM or potentially within 120 days thereafter. The Board does however, recognise the importance of allowing shareholders to express their views and, as I have explained, we believe that by the time of next year's AGM it will be possible to make a fully informed choice.

Accordingly, the Board's proposal to this year's AGM (as required by its Articles) is that the Company should continue in its present form in order to have the opportunity to achieve further value enhancement for its shareholders through its existing investment schemes. This resolution is proposed with a commitment that next year's AGM will be presented with, "detailed proposals for the voluntary liquidation or other reconstruction or reorganisation of the Company", as described in greater detail above.

The Board recommends that you vote in favour of such resolution, as the Directors intend to do in respect of their own beneficial holdings amounting in aggregate to 3,658,760 ordinary shares, representing approximately 1.99% of the issued share capital of the Company.

Forward funding and the Investment Manager's fee

I have mentioned the attractions for shareholders of accepting offers for investments on a forward funded basis. The primary attraction is that it eliminates exposure to adverse movement in investment yields. To the extent that it also allows an early release of the equity committed to an investment and (as is the case with Sutton and Biggleswade) the Board decides to make a capital return to shareholders, there is a consequence for the Investment Manager's fees which was not foreseen or intended at the time of the Company's IPO. These fees are calculated at 1.75% of NAV. A capital return which results from a forward funding would have the effect of reducing those fees even though we would still need the Investment Manager's commitment until the investment achieves practical completion. It has been a cornerstone of our relationship that the interests of shareholders and the Investment Manager are aligned as closely as possible. The emergence of forward fundings as a source of equity release, together with your Board's obligation to act in the best interests of shareholders, would disrupt that alignment of interests. To avoid that inhibiting what is otherwise the right thing to do for shareholders, the Board has amended the Investment Manager's fee arrangements so that NAV is calculated on a pro-forma basis after an adjustment to add back any future capital returned to the extent that it was derived from forward funding transactions. The adjustment will cease to be made one month after the investment in question achieves practical completion, and to ensure good governance, the revised calculations of the Investment Manager's fees will be reviewed by the Group's auditors before they are paid.

Operating structure

The Board has recently given some thought as to whether the current legal and operating framework continues to offer the best proposition for shareholders. Historically, Jersey has been a preferred location for groups investing in UK commercial property. That remains the case, but the environment is undoubtedly changing. The Group's position is unaffected by recent UK legislative changes and there is no suggestion that the position for overseas investors like LXB will alter. Nevertheless, the trend towards expanding the UK tax net to cover all forms of business with a UK connection has caused the Board to re-assess the position. We have commissioned a review to explore alternatives including the potential to re-establish the Group as a UK REIT. In addition to removing exposure to future changes in legislation, bringing the Group within the UK REIT regime may also present an opportunity to reduce annual operating costs. We will report further to shareholders in due course.

Conclusion

Your Board believes there is material further value to be realised for our shareholders from within the existing portfolio and we expect to be able to offer a much clearer view on that for each of our investments by the time of next year's AGM. That will ensure that shareholders are able to make a fully informed decision on the Board's proposals for the future of the Company which we have committed to present to that AGM.

Phil Wrigley

Chairman

12 May 2015

Report of the Investment Manager, LXB Adviser LLP

LXB Adviser LLP advises LXB Retail Properties Plc ("LXB" or "the Group") and is pleased to report on the operations of the Group during the six months ended 31 March 2015.

As noted in the Chairman's Statement, the Group exchanged on the sale of its Biggleswade and Rushden investments and the foodstore and residential elements of its Sutton investment during the period. The sale of the Biggleswade investment completed in April 2015 and the sale of the Sutton investments is expected to complete in May 2015. Completion of the Rushden sale is subject to the satisfaction of a number of planning and letting related conditions. The Group is confident that these can be delivered, allowing the sale to complete in early 2016. Consequently, except where noted, these investments are excluded from the tables below.

Investment portfolio

Planning consents

In the period since 18 December 2014, when the Group announced the results for the year to 30 September 2014, the Group has received planning permission at Threemilestone Truro and at Ayr. Both are subject to a number of conditions which are considered in more detail below. Subject to this conditionality, the Group has now achieved the "core" planning consent it sought at each of its key retail locations. Notwithstanding this, the Group will seek amended planning consents to cater for the particular space requirements of tenants. These are not usually controversial and can often be applied for as a "Non-Material Amendment" to the existing permission. The planning application for the Living Villages residential project at Higher Newham in Truro is considered in more detail below.

This progress on planning consents and resolutions to grant planning consents means that since the IPO in October 2009, including consents for properties which had been sold or for which contracts for sale were conditionally exchanged prior to the balance sheet date, the Group has secured approximately 2.78m sq ft of new planning permissions. The planning consents position for the Group's assets still owned (but excluding assets where contracts have exchanged for sale at the balance sheet date) is as follows:

Retail

Retail

Other

Other

Ground

Mezzanine

Ground

Mezzanine

Total

Site

Sq ft

Sq ft

Sq ft

Sq ft

Sq ft

Ayr foodstore*

111,989

-

31,757

-

143,746

Gloucester

-

-

158,742

-

158,742

Greenwich Brocklebank

76,564

83,792

-

-

160,356

Sheppey

66,776

-

22,500

-

89,276

Stafford Kingsmead

77,702

10,641

-

-

88,343

Stafford Riverside & Leisure

122,669

128,860

18,000

-

269,529

Sutton

6,921

-

20,762

-

27,683

Truro Threemilestone**

111,985

-

31,757

-

143,742

574,606

223,293

283,518

-

1,081,417

* Consent also includes a neighbourhood centre, 750 houses and a 60 bed hotel

** Consent includes 435 houses

Agreements for lease

The Group classifies the space on its schemes as let or pre-let, in solicitors' hands, under offer or to let. The agreements for lease on pre-let space always contain conditions which can include (but are not limited to) signing pre-lets to certain other occupiers or pre-letting a certain amount of space. Where the Group has no reason to believe that it cannot meet those conditions the space is considered pre-let. Where the Group has a credible offer from a prospective tenant and is actively engaged in detailed discussions but has not yet appointed solicitors that unit is regarded as "under offer". Of course, there is no certainty that all of those discussions will result in a pre-let.

Many of the Group's developments include mezzanine space and, although this space is included in the planning consent, it is (for retail space) generally not rentalised; therefore any reference made to pre-let space in the table below is to rentalised space only.

Agreements for lease signed or leases completed (by sq ft) up to the date of this report (excluding properties sold by the balance sheet date and properties where contracts were conditionally exchanged for sale at the balance sheet date) are shown below:

Agreement for

Still to let

lease signed or

In solicitors'

Under

(by expected

lease completed

hands

offer

rent)

Site

Sq ft

Sq ft

Sq ft

%

Ayr foodstore

98,596

-

-

35%

Gloucester*

1,851

-

-

79%

Greenwich Brocklebank

63,150

-

-

16%

Sheppey

46,784

-

21,500

8%

Stafford Kingsmead

86,193

-

-

0%

Stafford Riverside & Leisure

94,639

10,000

-

11%

Sutton

-

-

-

100%

Truro Threemilestone

78,100

-

-

0%

469,313

10,000

21,500

19%

*As noted below, offers have been accepted to purchase two of the remaining four plots which amount to 3.5 acres of the total 5.5 acres.

Following practical completion of the Group's investment properties, based on current lettings, pre-lets and those agreements in solicitors' hands, the prospective Weighted Average Lease Term ("WALT") by investment is shown below:

WALT/

years

Ayr foodstore

25.00

Gloucester

15.00

Greenwich Brocklebank

15.00

Sheppey

9.82

Stafford Riverside & Leisure

12.97

Stafford Kingsmead

18.89

Truro Threemilestone

25.00

Note: The ground floor retail units at Sutton are excluded from this table because, as noted below, they are not scheduled for practical completion until December 2016 and no pre-lets are yet agreed.

Property details

The Group's most significant investments are discussed in greater detail below.

Ayr

The Group has secured consent for the Section 42 planning variation for the Sainsbury's non-food floor space. This planning consent is now in line with the condition in the Sainsbury's agreement for lease. The Section 42 will result in the issue of a new Planning Permission in Principle (outline consent) and negotiations around the Section 75 (the Scottish equivalent of the Section 106) are ongoing.

Detailed applications have been made for the initial infrastructure works, but it is likely that these will be withdrawn and resubmitted under the new consent.

Banbury Gateway

Construction of the Banbury Gateway scheme, which was sold to The Crown Estate under a forward funding agreement in October 2014, is progressing well. The first phase is due to complete in early June 2015, which will allow a number of tenants, including M&S, River Island, Arcadia and Primark, to fit out their stores. This first phase is expected to be open for trade in early October 2015. Construction of the second and third phases has started. These units will be handed over to tenants in September 2015 so all tenants can be open for business by Christmas 2015. The scheme is now just over 90% let and offers have been received on two of the remaining three units.

Biggleswade

In April 2015 the Group completed on the sale of its investments at Biggleswade to Aberdeen Property Trust. Initial proceeds of £58.5m were received and a further cash receipt of approximately £10.2m will be paid, following practical completion of Phase 1, which is expected in May 2015. On practical completion of the second phase, which is expected in March 2016, the Group will receive further cash consideration which is linked to the final investment appraisal and is currently anticipated to be approximately £11.3m. Total receipts from the sale of Biggleswade are therefore expected to be approximately £80m, reflecting an underlying overall yield of 4.75% for the retail elements of the scheme.

Since this is a forward funding transaction, the Group retains responsibility for overseeing the completion of the development and for securing tenants for those units at the A1 Retail Park which are not currently pre-let. 84% of the ground floor space is already pre-let and active discussions are in progress with a number of retailers to pre-let the last four units which comprise 35,500 sq ft of ground floor space. The Group is confident that these units will be fully pre-let by the time that they are ready for occupation in spring 2016.

Gloucester

Following the sale of the Group's foodstore investment in November 2013 and the sale of a further part of the site to Rygor Mercedes in November 2014, four development plots remain. Three of these are designated for employment use and one for A3 restaurant use. The Group has accepted offers for two of these plots. It is expected that contracts will be exchanged on one before the end of May 2015 and solicitors have been instructed on the other. Although there is planning conditionality around both sales, once they complete, total proceeds of approximately £1m will be received. Both sales are expected to complete within the next 12 months.

The Group is considering options for the two remaining plots which total approximately two acres.

Greenwich Brocklebank

Good progress has been made on this 160,000 sq ft (76,150 sq ft on ground floor) retail investment. Vacant possession has now been secured and demolition works are under way. Three of the four units have been pre-let to Primark, Next and Aldi. There is good interest in the remaining 13,000 sq ft unit but in order to maximise the rent achieved and therefore the investment value, the unit may be held back for letting until the development is closer to completion.

Amendments to the existing planning consent to accommodate retailer specifications are in process and a decision is anticipated by early summer 2015. Once the planning has been confirmed and minor adjustments agreed with one of the retailers, the Group can commence the main building programme with a start on site anticipated in summer 2015 and practical completion of the scheme anticipated in summer 2016.

Greenwich old Sainsbury's/IKEA

As part of the agreement to provide Sainsbury's with their new store at the former Maritime site, the Group agreed to acquire their existing store on Greenwich Peninsula. Sainsbury's have now taken access to fit out their new store and the Group expects to acquire the Greenwich Peninsula store in late summer. The Group announced in December 2013 that a conditional offer from IKEA to acquire the old Sainsbury's had been accepted. The Group anticipates the conditions of the sale to be resolved and completion to occur later this year.

Rushden Lakes

In April 2015 the Group exchanged contracts with The Crown Estate for the sale of this investment. Under the terms of the forward funding arrangement The Crown Estate will purchase the whole Rushden Lakes investment when the pre-completion conditions are satisfied and will then fund all future development costs. The principal pre-completion conditions involve securing an amended planning permission to accommodate the requirements of the tenants and achieving a number of further pre-lets.

The planning conditions are expected to be satisfied in early 2016. 45,000 sq ft of ground floor space is pre-let to M&S, H&M and Costa and a pre-let to another major anchor tenant for a store of at least 32,000 sq ft of ground floor space is expected to be signed shortly. A further 75,000 sq ft of ground floor retail space is in solicitors' hands. The Group expects the sale to The Crown Estate to complete in early 2016 at which point an initial cash receipt of at least £70m will be received. This transaction reflects an underlying overall yield of 4.65% for the retail elements of the scheme.

Sheppey

Following the sale of the Group's foodstore investment in May 2013 the Group has retained ownership of the two remaining plots. Building works on Phase 2, a six unit retail investment, completed in October 2014. Four of the units are let and those tenants are either fitting out or trading. The supermarket operator that was set to take one of the two remaining vacant units requested an additional 6,500 sq ft of space taking the store to 21,500 sq ft. This is subject to securing an amended planning permission and once the agreed heads of terms have been approved by the operator's board, solicitors will be instructed and the planning application will be submitted. Several other high street retailers are looking at the remaining 5,000 sq ft unit.

Phase 3 currently has planning permission for mainly employment use. An amended consent is being sought for a combination of A1 and A3 use and a pub/restaurant. This is expected to be determined by the end of May 2015.

Stafford

Construction work on the three elements that make up the Riverside and Kingsmead investments is progressing well in line with the contract programmes.

At the Riverside retail scheme, which is due to complete in spring 2016, further lettings progress has been made with pre-lets confirmed to both JD Sports and Vision Express and a substantial amount of retailer interest in the remaining space. The scheme is 89% pre-let by ground floor sq ft with only four relatively small units remaining.

The multi-storey car park adjacent to Riverside is due for completion in September 2015 and of the four restaurant units at ground floor level, one unit of 4,000 sq ft is now pre-let, with the other three units, totalling 10,000 sq ft, in solicitors' hands. The adjoining site has planning permission for a cinema and negotiations with a cinema operator are ongoing.

At Kingsmead, construction work commenced in January 2015 and the foodstore, which is pre-let to Morrisons, is due to complete at the end of 2015. The two adjacent retail units, which are pre-let to B&M and Just for Pets are due for completion in summer 2016.

The development facilities for these assets have substantial run-off periods to guard against any delays and to allow the Group time to re-finance the loans with investment facilities.

Sutton

In January 2015 and December 2014 respectively, the Group exchanged contracts for the sale of the foodstore and residential elements of the Sutton investment. The Group has retained its interest in the ground floor retail space in the residential towers and is in very early discussions with a number of retailers to pre-let this space.

The foodstore investment is being sold to The Lime Property Fund which is managed by Aviva Investors. The conditionality in the contract is expected to be satisfied in May 2015 with initial cash proceeds of £20m to be received at that time. The new owners will fund the foodstore construction with the Group overseeing the development and the Group will receive a further payment at completion of the foodstore which is scheduled for June 2016.

The residential element of the scheme was sold to Linden Homes, the housebuilding arm of Galliford Try Plc, for a cash consideration of £12.5m. In addition to the cash receipt, Linden Homes will also fund the construction of the ground floor retail units and grant a 999 year lease on these units back to the Group (at nil premium and a peppercorn rent) when the residential towers are completed. This sale is also expected to complete in May 2015 when the demolition works finish and the planning related conditions have been discharged. Cash of £3.6m will be received on completion with the balance payable in instalments during the remainder of 2015 and 2016.

Truro Threemilestone

A resolution to grant planning permission was made by Cornwall Council's strategic Planning Committee in March 2015. This is subject to a referral to the National Planning Casework Unit (NPCU) who will decide whether to call in the planning application for a public inquiry. The Group hopes to have received a decision on this by the end of June 2015. If the scheme is not called in, then once the Section 106 agreement (which is well advanced) is finalised, outline planning permission will be issued. This outline planning permission will impose certain conditions which would need to be acceptable to the Group and occupiers. The 78,000 sq ft foodstore is pre-let to Asda and Marston's has agreed terms to acquire a serviced site adjacent to the foodstore.

"Reserved Matters" consent will still need to be secured for the detailed design for each phase, which can only be applied for after the outline consent is issued. The Group anticipates submitting a Reserved Matters application for the first phases including the foodstore, first phase of housing, pub, community hall and access roads later this year. If all goes well, the Group would envisage a start on site in 2016.

Truro Higher Newham

The Group's planning application at Higher Newham Farm in Truro received overwhelming public support and a Planning Officer's recommendation for approval. However, in December 2014 the Planning Committee decided to refuse the application on highways grounds. The Group has appealed this decision and its advisors consider that there are good grounds for believing the decision will be overturned. Furthermore, the Group is in constructive dialogue with Cornwall Council to address any remaining highways concerns.

Revaluation surplus

As described in note 8 to the Interim Report the investment properties held by the Group at 31 March 2015 were valued by external property valuers, Jones Lang LaSalle Limited. In their opinion the fair value of these investment properties at that date was £249.3m, resulting in a revaluation surplus for the period of £12.1m.

Accounting treatment of forward funded construction activities

Under the terms of the sale of a number of the Group's investments, the buyer funds the development with the Group overseeing the works. The Group recharges the costs associated with the Institutional Funding Agreement plus a 1% fee on the main contractor's costs. As explained previously, following consultation with the Group's auditors, the appropriate accounting treatment for these arrangements is to include the amounts receivable from the buyer (in respect of each reporting period) in gross revenue and to include the costs incurred by the Group (in respect of each reporting period) in direct costs. The relevant amounts for the period are disclosed in note 4 to the Interim Report.

Cash position and future expenditure

During the six months to 31 March 2015, £43.5m of cash has been deployed in the purchase of and capital expenditure on investment properties.

At the balance sheet date the Group had £17.2m of cash and this is all allocated to existing projects or pipeline opportunities.

The Group signed an investment facility for £5m with Barclays in respect of the Sheppey Phase 2 investment property in March 2015. The Group continues to maintain regular dialogue with a range of banks and is confident that it will be able to secure the development funding required during the construction phase of its investments and the subsequent investment financing when they are completed and become income producing.

Return of capital

The Company has today announced proposals to return £82.63m (45p per share) of capital to shareholders. The Company is posting a circular to shareholders today setting out details of the proposals which will be considered at the forthcoming EGM.

Portfolio

The following table shows how the current portfolio is progressing and when the Group expects to complete on the development phase of its retained portfolio as well as details of the sites that are subject to forward funding contracts at 31 March 2015:

Site

Ownership

Construction

Practical Completion

Banbury

Forward funded (sold)

On site

Autumn 2015

Biggleswade

Forward funded

On site

Spring 2016

Greenwich Brocklebank

Owned

On site summer 2015

Summer 2016

Rushden

Forward funded*

On site spring 2016

TBC

Sheppey

Owned

Phase 2 complete

n/a

Stafford Kingsmead

Owned

On site

Summer 2016

Stafford Riverside & Leisure

Owned

On site

Spring 2016

Sutton foodstore

Forward funded*

On site

Summer 2016

Sutton ground floor retail

Owned

n/a**

December 2016

* Subject to conditionality at the date of this report

** Linden Homes will construct the ground floor retail units and will grant the Group a 999 year lease on practical completion

NAV uplift and timings

As the Group has stated previously, the independent valuers are obliged by IFRS to report fair value in line with the RICS' 'Red Book' guidance and the standard approach for investment properties under construction is to apply the Residual Method of Valuation. Under this approach, total costs including construction costs, professional fees, contingency and finance costs together with an allowance for developer's profit are deducted from the valuer's estimate of the investment's value at completion to arrive at a surplus which is called the Residual Land Value, i.e. the amount that a purchaser would be willing to pay for the development in that state and at that time. This approach works well in the early stages of a development however matters can become more complicated as the development progresses towards the date when rents start to accrue. It is important that shareholders understand that these valuations, which are properly recognised for accounting purposes, are different to (and in general lower than) the values which the Board would place on those assets when considering offers for investments. In some cases, there is a significant difference between the carrying value and the price the Group would be prepared to accept. At the current time, this is most notable in the case of Rushden Lakes because, when calculating the Residual Land Value, notwithstanding the recent planning success and the investment's very significant long term potential, the independent valuers are required to reflect, amongst other things, that only a small portion of the space is pre-let.

The Chairman's Statement reports the Board's view that there is still significant potential value to be unlocked in the Group's balance sheet and that the Board expects to be able to provide much greater clarity about the remaining value within the next 12 months. Shareholders may find it helpful to understand that the Group's current internal appraisals are suggesting that over time there is a further £75.8m of potential unrealised NAV in the investment portfolio, including the further phases at Rushden Lakes. This number is not a projection. Inevitably, the Group's models are based on assumptions about many factors which have a bearing on the valuations, including (but not limited to) investment yields, rental levels and other terms of potential leases, construction costs, professional fees, construction timetables, financing and other operating costs. Shareholders are asked to bear in mind that there are many risks to delivery and there is no certainty that all or any of these outcomes will be achieved. This information is provided solely in order to provide shareholders with an insight into the Group's current views on the potential additional NAV that may be achieved from within the existing portfolio over time and is not a forecast of what the actual outcome will be.

As reported in the Chairman's Statement, the Board expects to be able to provide much greater clarity about the remaining value and the time period over which it might be realised in the proposals for the Company's future which will be presented to next year's AGM.

Whilst we have discussed the principal risks the Group faces in delivering the future NAV uplift, it is also important to point out that it is difficult to predict exactly when that value will be delivered, when it will be reflected in the independent valuer's portfolio valuation and therefore when it will be reflected in the Group's reported results.

Tim Walton

On behalf of LXB Adviser LLP

12 May 2015

Group income statement

for the period ended 31 March 2015

Unaudited

six months to

31 March

2015

Unaudited

six months to

31 March

2014

Audited

year to

30 September

2014

Note

£

£

£

Gross revenue

4

16,155,272

5,748,039

15,805,259

Direct costs

4

(15,294,089)

(4,968,741)

(14,124,567)

Net revenue and gross profit

861,183

779,298

1,680,692

Administrative expenses:

Corporate administrative expenses

(2,756,536)

(2,698,514)

(5,253,075)

Cost of property activities

(83,668)

-

(41,708)

Total administrative expenses

(2,840,204)

(2,698,514)

(5,294,783)

Investment property revaluation surplus

12,143,396

12,831,192

38,449,077

Profit on sale of investment properties

6,190

742,498

1,217,241

Other income

91,508

146,487

240,181

Operating profit

10,262,073

11,800,961

36,292,408

Finance income

5

283,800

369,193

767,229

Finance costs

5

(315,443)

(384,203)

(834,010)

Profit before tax

10,230,430

11,785,951

36,225,627

Taxation charge

6

-

(143,361)

(98,209)

Profit for the period

10,230,430

11,642,590

36,127,418

Earnings per share

Pence

per

share

Pence

per share

Pence

per share

Basic and diluted

7

5.57

5.88

18.94

All amounts relate to continuing activities.

Group statement of comprehensive income

for the period ended 31 March 2015

Unaudited

six months to

31 March

2015

Unaudited

six months to

31 March

2014

Audited

year to

30 September

2014

£

£

£

Profit for the period

10,230,430

11,642,590

36,127,418

Cash flow hedges:

Market value adjustment of interest rate

derivatives, recognised directly in equity

-

29,216

52,152

Reclassification to profit and loss on

partial cancellation of an effective hedge

-

29,318

29,318

Hedging reserve recycling adjustment

-

(31,704)

(63,582)

Tax effect of interest rate derivative

valuation adjustment

-

5,366

(7,644)

Total comprehensive income for the

period, net of tax

10,230,430

11,674,786

36,137,662

There were no items in the prior year that will never be reclassified to profit or loss.

Group statement of changes in equity

for the period ended 31 March 2015

Period ended 31 March 2015 (unaudited)

Stated

capital

Retained earnings

Total

£

£

£

At 1 October 2014 (audited)

183,606,213

63,004,961

246,611,174

Profit for the period

-

10,230,430

10,230,430

At 31 March 2015 (unaudited)

183,606,213

73,235,391

256,841,604

Period ended 31 March 2014 (unaudited)

Stated

capital

Hedging reserve

Retained earnings

Total

£

£

£

£

At 1 October 2013 (audited)

212,601,278

(10,244)

37,829,297

250,420,331

Profit for the period

-

-

11,642,590

11,642,590

Own shares purchased for

cancellation inclusive of costs

(39,946,819)

-

-

(39,946,819)

Reclassification to profit and loss on partial cancellation

of an effective hedge

-

29,318

-

29,318

Market value adjustment of

interest rate derivatives

-

29,216

-

29,216

Hedging reserve recycling

adjustment

-

(31,704)

-

(31,704)

Tax effect of interest rate

derivative valuation adjustment

-

5,366

-

5,366

At 31 March 2014 (unaudited)

172,654,459

21,952

49,471,887

222,148,298

Group balance sheet

at 31 March 2015

Unaudited

as at

31 March

2015

Unaudited

as at

31 March

2014

Audited

as at

30 September

2014

Note

£

£

£

Non-current assets

Investment properties

8

249,305,000

199,765,000

245,515,000

Deferred tax asset

6

-

23,536

-

249,305,000

199,788,536

245,515,000

Current assets

Business and other receivables

9

18,917,843

19,723,735

12,976,701

Cash and cash equivalents

10

17,181,903

34,482,488

7,702,578

36,099,746

54,206,223

20,679,279

Total assets

285,404,746

253,994,759

266,194,279

Current liabilities

Business and other payables

11

(14,902,718)

(26,657,872)

(14,632,950)

Income tax creditor

-

(5,842)

-

Borrowings

12

(4,856,134)

-

-

Derivative financial liabilities

14

(269,723)

(570,570)

(450,155)

(20,028,575)

(27,234,284)

(15,083,105)

Non-current liabilities

Borrowings

13

(8,534,567)

(4,468,328)

(4,500,000)

Derivative financial liabilities

14

-

(143,849)

-

(8,534,567)

(4,612,177)

(4,500,000)

Total liabilities

(28,563,142)

(31,846,461)

(19,583,105)

Net assets

256,841,604

222,148,298

246,611,174

Equity

Stated capital

15

183,606,213

172,654,459

183,606,213

Hedging reserve

-

21,952

-

Retained earnings

73,235,391

49,471,887

63,004,961

Total equity

256,841,604

222,148,298

246,611,174

Net asset value per share

Pence

per share

Pence

per share

Pence

per share

Basic and diluted

16

139.87

120.98

134.30

Adjusted (EPRA)

16

140.02

121.35

134.54

Group cash flow statement

for the period ended 31 March 2015

Unaudited

six months to

31 March

2015

Unaudited

six months to

31 March

2014

Audited

year to

30 September

2014

£

£

£

Cash flows from operating activities

Profit before tax

10,230,430

11,785,951

36,225,627

Adjustments for non-cash items:

Investment property revaluation surplus

(12,143,396)

(12,831,192)

(38,449,077)

Profit on sale of investment properties

(6,190)

(742,498)

(1,217,241)

Net finance costs

31,643

15,010

66,781

Cash flows from operating activities

before changes in working capital

(1,887,513)

(1,772,729)

(3,373,910)

Change in business and other receivables

(7,243,146)

(2,481,484)

(2,204,269)

Change in business and other payables

370,060

(174,929)

1,020,617

Taxation paid

(27,742)

(298,845)

(301,012)

Cash flows from operating activities

(8,788,341)

(4,727,987)

(4,858,574)

Investing activities:

Interest received

103,368

86,493

281,763

Purchase of and capital expenditure on

investment properties

(43,541,179)

(19,425,200)

(59,093,561)

Proceeds on disposal of investment

properties

53,152,267

94,531,149

107,653,382

Cash flows from investing activities

9,714,456

75,192,442

48,841,584

Financing activities:

Own shares purchased for cancellation

-

(39,797,835)

(39,797,835)

Costs associated with own shares

purchased

-

(148,984)

(148,984)

Bank borrowings drawn

14,509,193

-

-

Loan issue costs paid

(1,302,432)

-

-

Bank borrowings repaid

(4,500,000)

(15,750,000)

(15,750,000)

Collateral repaid from hedging

counterparty

-

283,894

428,044

Finance costs paid

(156,551)

(615,826)

(1,058,441)

Cash flows from financing activities

8,550,210

(56,028,751)

(56,327,216)

Net increase/(decrease) in cash and cash

equivalents

9,476,325

14,435,704

(12,344,206)

Cash and cash equivalents at the

beginning of the period

7,702,578

20,046,784

20,046,784

Cash and cash equivalents at the end of

the period

17,181,903

34,482,488

7,702,578

Notes to the interim report

1. General information about the Group

LXB Retail Properties Plc was listed on the AIM and CISE markets on 23 October 2009. It is a closed-ended real estate investment company that was incorporated in Jersey on 27 August 2009.

This Interim Report includes the results and net assets of the Company and its subsidiaries, together referred to as the Group, on a consolidated basis.

Further general information about the Company and the Group can be found on its website:

www.lxbretailproperties.com.

2. Basis of preparation

The financial information contained in this report has been prepared in accordance with IAS 34, "Interim Financial Reporting", as adopted by the European Union and on a going concern basis.

The condensed set of financial statements for the half year are unaudited and do not constitute statutory accounts for the purposes of the Companies (Jersey) Law 1991. They should be read in conjunction with the Group's statutory financial statements for the year ended 30 September 2014, which were prepared under International Financial Reporting Standards adopted for use in the European Union and upon which an unqualified auditors' report was given.

The accounting policies adopted in this report are consistent with those applied in the Group's Annual Report and financial statements for the year ended 30 September 2014 (the 2014 Annual Report) and are expected to be consistently applied in the year ending 30 September 2015.

The 2014 Annual Report is available from the "Investor relations" page of the Company's website, www.lxbretailproperties.com, or by writing to the Company Secretary at Elian Fund Services, 44 Esplanade, St Helier, Jersey, JE4 9WG.

The Group's financial performance is not subject to material seasonal fluctuations.

3. Segmental information

During the current period and prior periods, the Group operated in and was managed as one business segment, being property investment, with all investment properties located in the United Kingdom.

4. Gross revenue and direct costs

Gross revenue:

Unaudited

six months to

31 March

2015

Unaudited

six months to

31 March

2014

Audited

year to

30 September

2014

£

£

£

Gross rental income

989,482

1,247,944

2,182,909

Revenue derived from Institutional Funding

Agreements

15,165,790

4,500,095

13,622,350

16,155,272

5,748,039

15,805,259

Direct costs:

Unaudited

six months to

31 March

2015

Unaudited

six months to

31 March

2014

Audited

year to

30 September

2014

£

£

£

Property outgoings

313,256

485,626

588,661

Costs associated with Institutional Funding

Agreements

14,980,833

4,483,115

13,535,906

15,294,089

4,968,471

14,124,567

Revenue and costs in connection with Institutional Funding Agreements relate to the Group's ongoing contractual obligations in respect of the construction of the Sainsbury's/M&S development in Greenwich, which was disposed of in the prior year, and the Banbury Gateway Retail Park, which was disposed of during the current period.

5. Finance income and costs

Recognised in the income statement:

Unaudited

six months to

31 March

2015

Unaudited

six months to

31 March

2014

Audited

year to

30 September

2014

£

£

£

Finance income:

Interest on cash deposits

117,983

114,054

270,763

Increase in fair value of the ineffective element of derivative financial instruments

165,817

255,139

496,466

Total finance income in the income statement

283,800

369,193

767,229

Finance costs:

Bank interest

(315,443)

(379,148)

(829,162)

Amortisation of capitalised finance costs

-

(7,441)

(39,112)

Reclassification from equity on partial

cancellation of an effective hedge

-

(29,318)

(29,318)

Hedging reserve recycling

-

31,704

63,582

Total finance costs in the income statement

(315,443)

(384,203)

(834,010)

Net finance costs recognised in the income

statement

(31,643)

(15,010)

(66,781)

Recognised in other comprehensive

income:

Unaudited

six months to

31 March

2015

Unaudited

six months to

31 March

2014

Audited

year to

30 September

2014

£

£

£

Changes in fair value of derivative

financial instruments:

Gains and losses recognised on the market

value adjustment of the effective

element of interest rate derivatives

-

29,216

52,152

Reclassification to profit and loss on partial cancellation of an effective hedge

-

29,318

29,318

Hedging reserve recycling

-

(31,704)

(63,582)

Net finance income recognised in other

comprehensive income

-

26,830

17,888

The average interest rate incurred by the Group on its bank borrowings for the period ended 31 March 2015, including the effects of hedging instruments and the lender's margin but excluding amortisation of capitalised finance costs was 3.5% (31 March 2014: 3.4%, 30 September 2014: 3.5%).

Further information about the derivative financial instruments, including details of their valuation at each balance sheet date is included in note 14.

6. Taxation

Unaudited

six months to

31 March

2015

Unaudited

six months to

31 March

2014

Audited

year to

30 September

2014

£

£

£

The tax charge for the period recognised

in the income statement comprises:

Current tax on results for the period

-

117,020

61,342

Change in deferred tax in the period

-

26,341

36,867

-

143,361

98,209

The tax assessed for the period varies from the standard rate of income tax in the UK of 20%. The differences are explained below:

Unaudited

six months to

31 March

2015

Unaudited

six months to

31 March

2014

Audited

year to

30 September

2014

£

£

£

Profit before tax

10,230,430

11,785,951

36,225,627

Profit before tax at the standard rate of

income tax in the UK of 20%

2,046,086

2,357,190

7,245,125

Items not subject to UK income tax:

Expenses

550,599

474,186

1,075,648

Changes in fair value of derivatives

(33,163)

51,509

(123,445)

Investment property revaluation surplus

(2,428,679)

(2,566,238)

(7,689,815)

Capital surplus on disposal of

investment properties

(1,238)

(148,500)

(243,488)

Accrued and other income

(69,085)

(29,863)

(76,544)

Deduction for allowable financing costs

(81,409)

(55,132)

(156,858)

Other items

1,258

-

-

Other amounts:

Capital allowances claimed

(21,553)

(1,845)

(235,000)

Losses carried forward

37,184

62,054

302,586

Tax charge for the period recognised in

the income statement

-

143,361

98,209

The Group has revenue related losses of £3,366,601 (31 March 2014: £1,978,020; 30 September 2014: £3,180,681) available to carry forward to utilise against applicable future revenue profits, for which no deferred tax asset is currently recognised.

Tax status of the Company and its subsidiaries

All group undertakings are either tax resident in Jersey or are tax transparent entities owned by Jersey resident entities. Jersey has a corporate tax rate of zero, so the Company and its subsidiaries have no liability to taxation on their income or gains in Jersey. The Company is not subject to UK Corporation tax on any dividend or interest income it receives.

The Group's investment properties are located in the United Kingdom and therefore the net rental income earned less deductible items is subject to UK income tax, currently at a rate applicable to the relevant group undertakings of 20%.

Deferred tax asset

Unaudited

six months to

31 March

2015

Unaudited

six months to

31 March

2014

Audited

year to

30 September

2014

£

£

£

At the start of the period

-

44,511

44,511

Tax on interest rate derivative market

value adjustment (charged)/credited to other

comprehensive income

-

5,366

(7,644)

Tax on interest rate derivative market

value adjustment charged to

the income statement

-

(26,341)

(36,867)

At the end of the period

-

23,536

-

7. Earnings per share

Earnings per share is calculated on 183,630,374 (31 March 2014: a weighted average of 197,952,219; 30 September 2014: a weighted average of 190,771,677) ordinary shares in issue for the period and is based on earnings attributable to shareholders for the period of £10,230,430 (31 March 2014: earnings of £11,642,590; 30 September 2014: earnings of £36,127,418).

There are no share options or other equity instruments in issue and therefore no adjustments need to be made for dilutive or potentially dilutive equity arrangements.

The European Public Real Estate Association ("EPRA") issues guidelines aimed at providing a measure of earnings per share designed to present underlying earnings from core operating activities only. The adjusted EPRA earnings per share figure is calculated as follows:

Unaudited

six months to

31 March 2015

Unaudited

six months to

31 March 2014

Audited

year to

30 September 2014

£

Pence per share

£

Pence per share

£

Pence per share

Basic earnings

10,230,430

5.57

11,642,590

5.88

36,127,418

18.94

Property adjustments:

Investment property

revaluation movements

(12,143,396)

(6.61)

(12,831,192)

(6.48)

(38,449,077)

(20.15)

Profit on sale of

investment properties

(6,190)

(0.00)

(742,498)

(0.37)

(1,217,241)

(0.64)

Market value adjustments:

- of interest rate derivatives

in the period, net of tax

(165,817)

(0.09)

(260,502)

(0.13)

(523,181)

(0.27)

- of interest rate derivatives

reclassified to profit and

loss

-

-

29,318

0.01

29,318

0.02

EPRA loss

(2,084,973)

(1.13)

(2,162,284)

(1.09)

(4,032,763)

(2.10)

8. Investment properties

£

Carrying value as at 30 September 2014 (audited)

245,515,000

Additions

43,542,144

Disposals

(51,895,540)

Revaluation surplus

12,143,396

Carrying value as at 31 March 2015 (unaudited)

249,305,000

Movements in the prior year were as follows:

Carrying value as at 30 September 2013 (audited)

215,285,000

Additions

65,147,023

Transfers from current assets

306,020

Disposals

(73,672,120)

Revaluation surplus

38,449,077

Carrying value as at 30 September 2014 (audited)

245,515,000

At 31 March 2015, the Group's investment properties were valued by Jones Lang LaSalle Limited, Chartered Surveyors, on a fixed fee basis, in their capacity as independent external valuers. The total external valuation of these properties at 31 March 2015 is 249,305,000 (31 March 2014: £199,765,000; 30 September 2014: £245,515,000).

The external valuers' valuations were undertaken in accordance with the Royal Institution of Chartered Surveyors' Valuation Standards Professional Standards (January 2014) on the basis of fair value. Fair value is defined in IFRS 13 as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

The Board determines the Group's valuation policies and procedures and is responsible for appointing the Group's independent external valuer. The Audit Committee considers the valuation process as part of its overall responsibilities.

The fair value of completed investment properties is determined using the 'investment method' whereby capitalisation yields derived from market transactions involving comparable investment properties are applied to the estimated net current and future cash flows expected to be generated by the investment property, which the valuer calculates using comparable market information, to obtain a market rent. The fair value of an investment property undergoing development is derived using the 'residual method' whereby the costs required to complete the development, including a notional cost of finance and an estimated risk factor or "profit on cost", are deducted from the net development value arrived at under the 'investment method'.

As part of each half-yearly valuation exercise, the valuations performed by the external valuers are reviewed by appropriately qualified members of the Investment Manager's team. This includes discussion of the assumptions used and judgements made by the external valuers as well as detailed consideration of the resulting valuations. Discussion of the valuation process and results then takes place at a meeting between the external valuers and the auditors at which the key assumptions and estimates are reviewed together with consideration of the valuers' reasons for significant valuation movements on individual properties. The reasons for significant revaluation movements attributable to individual properties are explained in the auditor's report to the Audit Committee.

The key unobservable inputs used in the valuation of the Group's investment properties at 31 March 2015 are as follows:

ERV per square foot (£)

Initial yield (%)**

Investment property type

Fair

value

Valuation method

Min

Max

Weighted average

Min

Max

Weighted average

Completed

12,450,000

Investment

10.0

20.0

13.1

6.2

6.5

6.3

Development

159,035,000

Residual

10.0

45.0

22.5

4.7

10.0

5.1

Other*

77,820,000

Total

249,305,000

*Comprises £75,320,000 of completed investment properties that were disposed of since the balance sheet date, and £2,500,000 of land assets that are held at their estimated open market value.

**Once fully income producing

All other factors remaining constant, an increase in rental income would increase a valuation whilst increases in nominal equivalent yield and discount rate would result in a fall in value and vice versa. However, there are interrelationships between unobservable inputs as they are determined by market conditions. Corresponding movements in more than one unobservable input may have a complementary effect on a valuation whereas unobservable inputs moving in opposite directions may compensate each other. For example, where market rents and nominal equivalent yields increase simultaneously, the overall impact on a valuation may be minimal.

For investment properties undergoing development, a reduction in the cost and time to complete a scheme will have a positive impact on value, assuming all other factors remain constant. Conversely, if the anticipated cost or time to complete a scheme increased then this would negatively impact value, assuming all other factors remain constant.

All of the Group's investment properties are considered to be 'Level 3' in the fair value hierarchy described by IFRS 13. There have been no transfers of property between hierarchical levels in the year.

The historic cost of the Group's investment properties as at 31 March 2015 was £198,917,133 (31 March 2014: £167,999,812; 30 September 2014 was £186,496,469).

9. Business and other receivables

Unaudited

as at

31 March

2015

Unaudited

as at

31 March

2014

Audited

as at

30 September

2014

£

£

£

Business receivables

1,826,191

317,359

467,339

Property sales receivables

-

9,448,000

1,250,000

Amounts receivable under Institutional

Funding Agreement

5,928,576

3,757,459

2,378,514

Prepayments and accrued income

3,888,032

3,083,017

3,289,555

Other receivables

7,275,044

3,117,900

5,591,293

18,917,843

19,723,735

12,976,701

Property sales receivables comprised amounts receivable in respect of investment property sales that had unconditionally exchanged prior to the relevant balance sheet date.

All of the amounts above are either receivable within one year or will be released to the income statement within one year except for £601,435 included in other receivables at 31 March 2014 which had been advanced to the provider of the Group's £50m swap facility (see note 14) as collateral due to the fair value deficit position of the swap at that balance sheet date.

No business receivables were overdue or impaired at the end of any of the above periods.

10. Cash and cash equivalents

Included within the Group's cash and cash equivalents balance as at 31 March 2015 is £620,339 (31 March 2014: £571,161; 30 September 2014: £218,398) in bank accounts held as security by the providers of the Group's secured bank debt and hedging facilities.

11. Business and other payables

Unaudited

as at

31 March

2015

Unaudited

as at

31 March

2014

Audited

as at

30 September

2014

£

£

£

Business payables

4,610,053

598,421

5,950,680

Rents received in advance

247,049

380,255

377,987

Other creditors

1,672,383

488,830

1,770,010

Accruals and other amounts payable

8,373,233

25,190,366

6,534,273

14,902,718

26,657,872

14,632,950

Accruals and other amounts payable includes £5,393,774 (31 March 2014: £24,603,201; 30 September 2014: £3,928,131) of costs included as additions to the Group's investment properties either in the current period or in a prior period.

All of the above amounts are due within one year and none incur interest.

12. Borrowings: amounts repayable within one year

Unaudited

as at

31 March

2015

Unaudited

as at

31 March

2014

Audited

as at

30 September

2014

£

£

£

Bank loans (secured):

Investment facility

4,856,134

-

-

Investment facility - current period

On 30 March 2015, a group entity entered into an agreement with Barclays Bank Plc for a one year £5,000,000 debt facility. The facility was drawn in full on 31 March 2015 and the balance is shown above, net of unamortised loan issue costs.

The loan is secured against an investment property held within a ring-fenced sub-group, beyond which the loan is non-recourse.

There were no defaults or other breaches of financial covenants under the terms of the loan agreement during the current period.

13. Borrowings: amounts repayable in more than one year

Unaudited

as at

31 March

2015

Unaudited

as at

31 March

2014

Audited

as at

30 September

2014

£

£

£

Bank loans (secured):

Investment facility

-

4,468,328

4,500,000

Development facilities

8,534,567

-

-

8,534,567

4,468,328

4,500,000

Development facilities:

On 6 November 2014 and 5 December 2014, two group entities entered into agreements with the Royal Bank of Scotland Plc for development finance facilities. The loans shown above (net of unamortised loan issue costs) were drawn during the period in several tranches. The amounts are secured against certain of the Group's investment properties held within ring-fenced sub-groups beyond which the loans are non-recourse.

Investment facility - prior period:

In February 2011 a group entity entered into an agreement with Deutsche Hypothekenbank (Actien-Gesellschaft) for a five year debt facility. A loan amounting to £25,950,000 was drawn on 17 February 2011, secured against three investment properties held within a ring-fenced sub-group beyond which the loan was non-recourse.

Two of the secured properties were sold in earlier periods and the loan amounts allocated to those properties were repaid. On 6 November 2014, the remaining balance of the loan was repaid.

There have been no defaults or other breaches of financial covenants under the terms of any of the loan agreements described above during the current or prior periods, or in the period since the balance sheet date.

There was no difference between the book value and the fair value of the borrowings disclosed above.

14. Derivative financial instruments

The Group enters into hedging arrangements to provide protection against interest rate fluctuations in respect of its bank borrowings.

In October 2011, the Group entered into an interest rate swap facility with the Royal Bank of Scotland Plc which became effective on 25 March 2013 in anticipation of hedging needs for future investments. In August 2013, due to a change in the projected future borrowings of the Group, £50m of the instrument was cancelled at a cost of £1.027m. The fair value of this instrument at each balance sheet date is set out below:

Fair value

Fair value

Fair value

Notional

Protected

31 March

31 March

30 September

amount

rate

Expiry

2015

2014

2014

£

%

£

£

£

Non-amortising swap

50m

1.6675

25 Sep 2015

(269,723)

(676,868)

(435,540)

The total increase in the valuation of the swap in the period of £165,817 (period to 31 March 2014: £255,138; period to 30 September 2014: £496,466) has been recognised in the income statement.

Also in 2011, the Group entered into a swap in respect of its borrowings from Deutsche Hypothekenbank (Actien-Gesellschaft). On 28 June 2013, following a part-repayment of those bank borrowings £18.4m of this instrument was cancelled at a cost of £308,900. On 11 December 2013, following a further part-repayment, £3.05m of this instrument was cancelled at a cost of £29,318. On 6 November 2014, following repayment of the balance of the borrowings, the remaining £4.5m of this instrument was cancelled at a cost of £11,500. The fair value of this instrument at each relevant balance sheet date is set out below:

Fair value

Fair value

Fair value

Notional

Protected

31 March

31 March

30 September

amount

rate

Expiry

2015

2014

2014

£

%

£

£

£

Non-amortising swap

4.5m

1.565

31 Jan 2015

-

(37,551)

(14,615)

In December 2014, the Group also entered into two 1.6675% interest rate caps in order to protect itself against interest rate increases on the development facilities referred to in note 13. The caps expire on 31 December 2016 and mirror the projected borrowings under the facilities up to a maximum total of £51.85m. The fair value of these instruments at 31 March 2015 was insignificant.

All interest rate derivative financial instruments have been valued in accordance with IFRS 13 by reference to interbank bid market rates as at the close of business on 31 March 2015 by J.C. Rathbone Associates Limited and include the relevant LIBOR basis spread.

All derivative financial instruments are classed as 'level 2' as defined in IFRS 13 as their fair value measurements derive from inputs that are observable either directly or indirectly, rather than from quoted prices in active markets for identical assets and liabilities.

Derivative financial instruments are analysed as follows:

Unaudited

Unaudited

Audited

as at

as at

as at

31 March

31 March

30 September

2015

2014

2014

Liabilities falling due:

£

£

£

In less than one year

(269,723)

(570,570)

(450,155)

In more than one year

-

(143,849)

-

(269,723)

(714,419)

(450,155)

The market values of hedging instruments change constantly with interest rate fluctuations, but the cash flow exposure of the Group to movements in interest rates is partially protected by way of the hedging products referred to above. These valuations do not necessarily reflect the cost or gain to the Group of cancelling its interest rate protection, which is generally a marginally higher cost or smaller gain than a market valuation.

15. Stated capital

Unaudited

as at

31 March

Unaudited

as at

31 March

Audited

as at

30 September

2015

2014

2014

Number

Number

Number

Authorised

Ordinary shares of no par value - number

Unlimited

Unlimited

Unlimited

Issued and fully paid

Ordinary shares of no par value - number

183,630,374

183,630,374

183,630,374

£

£

£

Ordinary shares of no par value - paid

- total paid on issues to date

266,359,124

266,359,124

266,359,124

Purchased for cancellation:

- at the beginning of the period

(84,593,108)

(44,765,773)

(44,765,773)

- during the period

-

(39,827,335)

(39,827,335)

- reclassification of the attributed retained

earnings element of share buybacks

undertaken to date (see below)

10,951,754

-

10,951,754

Issue and purchase costs deducted to date

(9,111,557)

(9,111,557)

(9,111,557)

Stated capital per the balance sheet

183,606,213

172,654,459

183,606,213

In the current period the Group transferred to retained earnings £nil (period ended 31 March 2014: £nil; year ended 30 September 2014: £10,951,754) in respect of amounts that it considers attributable to that reserve in relation to share buybacks undertaken to date.

Share buybacks undertaken to date:

In December 2013, the Company purchased a total of 32,379,947 of its own shares for cancellation for cash at a price of 123p per share.

In March 2013, the Company purchased a total of 21,050,043 of its own shares for cancellation for cash at an average price of 118.76p per share. In June and July 2013, the Company purchased a further 17,039,121 of its own shares for cancellation for cash at an average price of 116.79 per share.

16. Net asset value per share

Net asset value per share is calculated as the net assets of the Group attributable to shareholders at each balance sheet date, divided by the number of shares in issue at that date (see note 15).

There are no share options or other equity instruments in issue and therefore no adjustments need to be made for dilutive or potentially dilutive equity arrangements.

The European Public Real Estate Association ("EPRA") has issued guidelines aimed at providing a measure of net asset value ("NAV") on the basis of long term fair values. The EPRA measure excludes items that are considered to have no impact in the long term, such as the fair value of derivative financial instruments and deferred tax balances.

The Group's EPRA NAV is calculated as follows:

Unaudited

as at

31 March

2015

Unaudited

as at

31 March

2014

Audited

as at

30 September

2014

£

Pence per share

£

Pence per share

£

Pence per share

Basic NAV

256,841,604

139.87

222,148,298

120.98

246,611,174

134.30

Adjustments:

Fair value of derivative

financial instruments

269,723

0.15

714,419

0.38

450,155

0.24

Deferred tax balances

-

-

(23,536)

(0.01)

-

-

EPRA NAV

257,111,327

140.02

222,839,181

121.35

247,061,329

134.54

17. Related party transactions and balances

Interests in shares

The interests of the Directors and their families in the share capital of the Company are as follows:

Ordinary shares

Unaudited

as at

31 March

2015

Unaudited

as at

31 March

2014

Audited

as at

30 September

2014

Number

Number

Number

Phil Wrigley

447,448

447,448

447,448

Steve Webb

243,385

243,385

243,385

Danny Kitchen

467,927

467,927

467,927

Alastair Irvine

2,500,000

2,500,000

2,500,000

The interests disclosed above include both direct and indirect interests in shares.

The group headed by LXB Partners LLP, which includes LXB Adviser LLP and its wholly owned subsidiaries, is a related party of the Company. LXB Adviser LLP is the Investment Manager to the Group. At 31 March 2015, the members of LXB Partners LLP (and their spouses) held an aggregate total of 12,495,348 (31 March 2014: 12,245,348; 30 September 2014: 12,495,348) shares in the Company.

There have been no changes to any of the above shareholdings between 31 March 2015 and the date of this report.

Fees

Directors' fees payable during the period to 31 March 2015 were £152,500 (period to 31 March 2014: £152,500; year ended 30 September 2014: £305,000). As at 31 March 2015, £76,250 (31 March 2014: £76,250; 30 September 2014: £76,250) of fees remained outstanding and are included within business and other payables (note 11).

Management fees during the period to 31 March 2015 of £2,147,246 (period to 31 March 2014: £2,008,756; year ended 30 September 2014: £3,952,858) were payable to the group headed by LXB Partners LLP. No amounts were outstanding at the respective balance sheet dates.

The Investment Manager, LXB Adviser LLP, is under the terms of the Investment Advisory Agreement, permitted to recharge certain costs and expenses incurred in the discharge of its duties. During the period it has recharged costs totalling £41,261 (31 March 2014: £42,861; 30 September 2014: £82,849) to the Group.

Incentives - carried interest arrangements with LXB Partners LLP

At a future date, when a cumulative hurdle amount has been returned to shareholders, the carried incentive arrangements with LXB Partners LLP are activated. This cumulative hurdle amount is calculated by reference to the net proceeds base amount (net funds raised from the issue of all shares as adjusted for the shares cancelled as a consequence of the share buyback programmes undertaken to date) and a 12% per annum preferred return thereon. Cash returns over and above the cumulative hurdle amount are then shared between shareholders (50%) and LXB Partners LLP (50%) until amounts returned to shareholders are 80% of the total amount. Returns above this level are shared between shareholders (80%) and LXB Partners LLP (20%).

As at 31 March 2015, the net proceeds base amount, to which the 12% per annum preferred return is applied, is £186.0m (31 March 2014: £186.0m; 30 September 2014: £186.0m).

The cumulative hurdle amount as at 31 March 2015 is £315.1m (31 March 2014: £281.4m; 30 September 2014: £297.8m).

As the net assets of the Group are less than the cumulative hurdle amount as at 31 March 2015, no provision for future incentive payments has been recognised.

18. Post balance sheet events

On 7 April 2015, the Group announced that it had exchanged contracts to sell its investments at Biggleswade and Rushden.

The disposal of the Biggleswade investment completed on 27 April 2015 and generated initial cash proceeds of £58.5m with a further £10.2m to be received shortly.

The contract to sell the Rushden investment is subject to the satisfaction of a number of planning and letting related conditions and is expected to complete by early 2016 at which point initial cash receipts of around £70m will be received.

Glossary

AIM

A sub-market of the London Stock Exchange.

CISE

The Daily Official List of the Channel Islands Securities Exchange.

EPRA

European Public Real Estate Association.

EPRA EPS

An adjusted measure of earnings per share designed by EPRA to present underlying earnings from core operating activities only.

EPRA NAV

An adjusted measure of net asset value designed by EPRA to present net asset value excluding the effects of changes in value of financial instruments held for long term benefit and the deferred tax effects of those changes.

EPS

Earnings per share, calculated as earnings after tax divided by the weighted average number of shares in issue in the period or year.

Investment Manager

LXB Adviser LLP.

Investment Advisory Agreement

The agreement between LXBRP GP Limited, the General Partner of LXB Retail Properties Fund LP, and LXB Adviser LLP under which LXB Adviser LLP provides investment advice to the Group.

LIBOR

The London Interbank Offered Rate, being the interest rate charged by one bank to another for lending money.

NAV

Net asset value.

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