Interim Management Statement

RNS Number : 0475A

Local Shopping REIT (The) PLC

13 February 2014

 



The Local Shopping REIT plc

Interim Management Statement

The Local Shopping REIT plc. ("LSR" or the "Company"), the UK real estate investment trust focused on investments in local shopping assets, is pleased to provide the following update on trading for the four months to 31 January 2014.

Highlights

·     Annualised rent roll from the portfolio maintained at £15.308 million (net of rent payments: £15.433 million):

·     31 vacant units* let since 30 September 2013, at a total rent of £373,610 per annum;

·     Strong lettings pipeline with 39 units* under offer as at 31 January 2014, for a combined rental income of £351,090 per annum;

·     Rent reviews completed on 46 units*, increasing rental income by £21,650 per annum, representing an average uplift over passing rent of 4.64% and a 5.73% premium to Market Rent, with 8 further leases renewed;

·     Three properties sold, including one flat, for £0.88 million representing a 20.1% premium to the 30 September 2013 valuation.

·     Overall void rate by rental value of 12.32%, or £2.082 million ERV (30 September 2013: 12.38%, or £2.106 million ERV).

*excluding residential units.

Steve Faber, LSR's executive director, said:

"Our hands-on approach to asset management continues to ensure that the portfolio performs robustly.  A portfolio of over 600 shops and 2000 letting units throws up numerous challenges which we continue to address, whilst seeking to execute the new investment policy of judiciously selling the Company's investment holdings."   

For further information:

The Local Shopping REIT plc

Steve Faber, Director

Bill Heaney, Company Secretary

Telephone: [phone]

Website: www.localshoppingreit.co.uk

Market context and Portfolio Update

The economic backdrop for retailers remains challenging, particularly outside London and the south of England.  However, within this context the local shopping segment continues to hold up well.  Our policy of marketing units and renewing leases at affordable rents continues to be reflected in operational results, with 31 vacant units let between 30 September 2013 and 31 January 2014 at a total rent of £373,610 per annum.  We continue our approach of preferring stepped rent increases over rent-free inducements and 3 lettings were on this basis, with the initial rents rising from £29,000 per annum to £38,000 per annum over the first three years of the leases, compared with a Market Rent of £37,800 per annum. The remaining 28 units were let at 1.77% above market rent.  Our letting pipeline remains strong, with 39 units under offer at 31 January 2014, at a combined rental income of £351,090 per annum.

Wherever economically viable we continue to add value to the portfolio through converting under-used upper parts of buildings to residential use, or taking back and improving residential parts previously let as part of a commercial unit.  As at 31 January 2014 three such projects were approaching completion.  Since 30 September 2013 planning consent was obtained for use changes over properties in Bristol (A2 to A3/D2) and Birkenhead for the merger of three individual units to a convenience store.  One residential long lease was extended for an additional term of 90 years, at a premium of £5,980.

The overall portfolio void rate by rental value at 31 January was 12.32%, or ERV of £2.082 million (30 September 2013: 12.38%, or ERV of £2.106 million).  Within this, the commercial void rate was 11.50% (30 September 2013: 11.64%).  The residential void rate moved from 0.74% to 0.82%, in line with seasonal expectations.  We continue our policy of taking possession early where tenants are in default and the prospects for letting the unit are good.  Tenant defaults and bad debts remained in line with our expectations for the period.

Sales

We are working to execute the investment strategy adopted by shareholders in July 2013, by disposing of assets wherever it is profitable to do so whilst taking account of our banking and interest rate hedging facilities.  During the period three properties (one of which included a residential flat) were sold for £0.88 million, a 20.1% premium to their 30 September 2013 valuation.  A further 34 properties (or part properties), including 8 residential flats, are currently under offer and in solicitors hands at an aggregate sale value of £5.727 million.

At 31 January 2014 the Company's portfolio comprised 633 properties with 2,043 letting units, generating an annualised rental income of £15.43 million.

Financing

The Company's net borrowings declined by £1.2m since 30 September 2013 to a total of £133.7m, as a result of the continuing amortisation of the facilities with Indus (Eclipse 2007-1) plc and HSBC.  All facilities are fully drawn.  The September 2013 valuations provide significant headroom in relation to our banking covenants and the interest cover ratios across all facilities continue to be well above covenant requirements.  The average interest rate of the Company's borrowing is 5.98%.

Outlook

With such a large portfolio individual transactions and circumstances tend to have little material impact on performance.  While opportunities to add value through planning, use changes and development do arise, only a rigorous approach to property and asset management will ensure optimal performance in our key day-to-day metrics of void rate, arrears, new lettings and renewals.  We have made headway in executing the investment strategy through selling to local occupiers but this continues to take time and perseverance.

Certain of our occupier categories; Charity, Hairdressers, Convenience Food retail and, in particular, food take-away shops are performing strongly.  These sectors are not really subject to the negative demand shock that disintermediation through the internet brings; nor are they impacted strongly by out-of-town retail parks or larger centres of comparison shopping.

Other categories, such as cafes, are faring less well from a lack of demand and high failure rates.  Returns from non-retail space are constrained by low demand for ancillary office accommodation and the inability to recover much of the maintenance costs associated with our residential flats.  The recent additional flexibility in planning use changes from office to residential is particularly welcome and will be a useful source of performance improvement where such conversions are economically viable.  We believe the extension of this policy to residential conversion from retail, currently under consideration, would be a positive development and would help reinvigorate the High Street and address specific supply/demand imbalances.

The UK property investment market continues to strengthen with investors looking outside of so-called "safe haven" markets towards sectors and locations offering higher returns.  In particular, demand for portfolios is increasing in markets which offer the prospects of yield hardening and where the occupier markets are anticipated to improve in concert with economic growth.       

-Ends-

About The Local Shopping REIT

The Local Shopping REIT plc ("LSR") is a Real Estate Investment Trust ("REIT") that owns a diversified portfolio principally comprising local shopping assets in urban and suburban centres throughout the UK.  Typical of the portfolio are shops in local shopping parades and neighbourhood venues for convenience or "top-up" shopping.  The Company's strategy is to maximise shareholder value through (inter alia):

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

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

For further information on LSR, please visit www.localshoppingreit.co.uk.

 

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