Local Shopping REIT’s results for the year ended 30 September 2016 show that it made sales worth £5m over the year while the reminder of its portfolio was valued at £75m at the year end. The fund is in wind up mode and they say that their preferred approach was to dispose of the remainder of the portfolio, or the bulk of it, by way of a portfolio sale. Heads of terms were signed and significant work undertaken on three occasions with interested parties. However, for varying reasons none of these potential sales crystallised. Whilst that process was underway it significantly constrained their ability to dispose of individual assets. Now that they are prepared to sell off individual properties again they plan to:
October 2016 to December 2017:
- Dispose of approximately 90 smaller or management intensive properties for an aggregate sale price of GBP10 million representing an average lot size of GBP110,000. These properties will be sold in regional and London auctions. There are auction cycles every two months, so we will aim to sell approximately 15 properties per auction cycle;
- Market for private treaty sale approximately 25 properties with a combined value of GBP5 million, focussing on those that are geographically difficult to manage;
- Sell 10 low-yielding properties for an estimated GBP5 million, by auction or private treaty.
The three categories above total GBP20 million in 125 lots. This equates to 25 property sales and GBP4 million in aggregate proceeds per quarter. Since implementing the above strategy, the Company has completed or exchanged for sale on a total of 22 properties for an aggregate sale price of GBP2.0 million representing a 1.75% premium to valuation before transaction costs. Furthermore, 25 assets have been scheduled for auctions in February, and agents have now been appointed on the majority of the planned private treaty sales.
Early 2018:
The Company will be left with a ‘core’ portfolio of approximately GBP55 million (based on current valuations), comprising 200 of the larger and better-quality assets in a tighter geographic concentration. Furthermore, time away from the market will allow us to reposition the portfolio and undertake asset management initiatives at the individual property level in order to achieve maximum value.
In early 2018 the portfolio will be marketed as a whole for a limited period, as the Board believes that this will be the optimum disposal route (bearing in mind that the revised nature of the portfolio should make it easier for a purchaser to raise finance against it).
Remainder of 2018- 2019:
In the event the above portfolio sale is unsuccessful, the remaining assets will be liquidated via a mixture of auction, private treaty and possibly small portfolios and/or bespoke auctions. We estimate that it would take a further 18 months to dispose of the remaining assets.
At this stage of the liquidation process it is likely that the Company’s profitability will tighten, as the diminishing asset base will provide less income to cover the fixed costs of running a public company.
Whilst the Board believes this programme is achievable, shareholders should be aware that the programme set out above is reliant on market conditions and other external factors.
LSR : Local Shopping REIT focused on piecemeal portfolio realisation