The Local Shopping Reit Share Discussion Threads

[gfrae] 24/2/2015 17:19

I doubt the cash is "available",I think that it is probably offset against an equivalent borrowing from the bank which for some technical reason they cannot repay. They are in no position to buy back shares or pay anything except a derisory dividend.
I presume they are concentrating on selling Renouvier one way or another and liquidating themselves.
It appears not to be straightforward.

[redhill9] 24/2/2015 14:09

Share repurchases in the market isn't the means of returning value to shareholders I'd prefer, and I'm sure most would prefer dividends as and when surplus cash is available, or even periodic share tenders in the style of APT or NRI.

The phrase The directors propose to exercise the authority only when they believe this to be in the best interests of shareholders. presumably means when the directors believe the share price is so low as to unreasonably reflect true value (such as now maybe?).

Even so, at the current offer price of 32p if they were to purchase the full 14.99% it would only cost less than £4m of the available £17m cash (not that they would be able to buy that many shares at the current price of course, such market share purchases are usually done as a trickle).

[envirovision] 23/2/2015 14:00

lol BT.

I see they are asking again the following at the AGM:

Resolution 9 renews the directors’ existing authority to purchase the Company’s Ordinary Shares, up to a maximum of 14.99% of the Company’s issued share
capital (excluding shares held in treasury), for a further year. The directors propose to exercise the authority only when they believe this to be in the best interests of shareholders. In accordance with institutional investor guidelines, Resolution 9 will be proposed as a special resolution.

[redhill9] 23/2/2015 09:59

Repaying debt down to the swaps would save interest, but constrain piecemeal disposals as swaps would then start to break.

Good point, scburbs. As piecemeal disposals is the stated objective if they can't sell the whole portfolio en bloc, this would presumably be the reason they haven't reduced debt with the surplus cash. That makes it even more reasonable to expect some sort of cash distribution, but not having announced that intention with the IMS last week suggests its not on their priority list.

As you say, looking cheap at current share price but the sense the management are "drifting" from the strategy of returning value to shareholders is a worry. I already hold 100k shares so won't be buying more.

[badtime] 23/2/2015 09:55

Well thats it then Enviro is only skiving at UNI so he can go despite not holding any shares :)

[eeza] 23/2/2015 09:35

They've never been forthcoming with voluntary information to s/hlders, whom they seem to treat with barely concealed contempt.

Management are happy to keep to taking their salary for as long as possible.

[scburbs] 23/2/2015 09:25

Starting to look very cheap with cash (£16.5m) and unleveraged properties (£5.8m) just under 90% of market cap.

Clear question being avoided is what are they going to do with the cash.

Repaying debt down to the swaps would save interest, but constrain piecemeal disposals as swaps would then start to break. Distributing all the cash to investors would put gearing too high.

Partial distribution to investors seems the way to go, an initial 8-10p per share (or tender offer at discount to NAV) would seem easily affordable. With the rest of the cash either a partial debt paydown or if they have disposals in the pipeline pay down the debt with disposals and hold a cash reserve and make further cash distributions as LTV comes down.

Either way they need to say something about their plans for all that cash!

[envirovision] 20/2/2015 13:11

Probably only £150 return surely and a day travel? Would be worth finding out if they need the apparent spare cash for other things in the next year or so surely. I do feel there could be something hidden here which they have not alluded to.I would go myself but since I am busy at uni and don't hold yet but still intrigued

[spob] 20/2/2015 12:47

30.5p 25.16m NOS 82.49m

[skyship] 20/2/2015 12:28

I do hope someone can go and appropriately roast the Board. I would have done so and enjoyed it too; however rather too far to travel from down here in SW France!

[skyship] 20/2/2015 12:26

NOTICE IS HEREBY GIVEN that the Annual General Meeting (the “Meeting”;) of the Company will be held at the offices of the Company, c/o Internos Global
Investors, 2nd Floor, 65 Grosvenor Street, London W1K 3JH, on Wednesday 4 March 2015 at 11.00 a.m.

[redhill9] 20/2/2015 11:48

Rohkap, I hadn't seen that in the accounts about the swaps balance being less than the total loans but accept you have checked and are correct, in which case I agree with your comments.

As I said in 999 above, if LSR cannot cost efficiently reduce debt then distributing surplus cash to shareholders seems to me the reasonable alternative. If they can repay some of the loans but haven't, and also show no inclination to distribute surplus cash to shareholders, it implies they intend sitting on the cash until they have disposed of all assets (which seems crazy) or until the loans are repayable in 2018 (which seems unnecessary, unless they seriously doubt being able to sell the assets to repay the loans by then).

Your suggestion of distributing 10p per share looks safe as it would leave a similar amount in the company for any operational or refurbishment funding that may be required. Maybe something will come out of the AGM although it will require someone attending to ask the right question.

[redhill9] 20/2/2015 10:45

AGM is on 4 March 2015, opportunity to ask relevant questions then eeza.

[rohkap] 20/2/2015 10:44

redhill9-Checked the accounts and the swaps balance was £54mm reducing by £0.8mm a year. I would expect the floating rate loans can be paid back early (they mention they made loan repayments in addition to amortisation in the recent update) and HSBC is encouraging LSR to do so by hiking the margin periodically (starting beginning of the year). If they pay the loan down to £54mm the swap notional and loan balance will match. In the unlikely scenario that they cant pay down debt, why wouldn't management make an initial capital payment to shareholders eg 10p and let shareholders use the cash rather than earn 0% in the company. I dont get it

[badtime] 20/2/2015 09:52

Perhaps give them a buzz Eeza

[eeza] 20/2/2015 09:51

They've had the cash long enough to have been able to make a decision?

[redhill9] 20/2/2015 09:41

If LSR cannot cost efficiently reduce debt then distributing surplus cash to shareholders seems the reasonable alternative.

Why do you say its not a priority, simply because they haven't announced it yet? You have to assume the directors are considering best use of cash for shareholders' benefit - otherwise, don't invest in the company.

[eeza] 20/2/2015 09:33

& returning cash to s/hlders not a priority.

[redhill9] 20/2/2015 09:16

The HSBC loans of £45.7m and £19.4m were reported in the September 2014 full year accounts as follows:

HSBC - Term Loan 1 45.7m 91.5% - NOS 4/6 combined 1.8% pa of outstanding loan 30 April 2018

HSBC - Term Loan 2 19.4m 91.5% - NOS 4/6 combined 1.8% pa of outstanding loan 30 April 2018

Where did you get the information that some of these are repayable without breaking swaps?

Repaying loan finance is the obvious best use of surplus cash in LSR's circumstances, however as they have had this cash at bank for some months and haven't repaid more than the modest amounts scheduled one has to assume additional repayment is not an option at this time, or at least not a cost efficient one.

[rohkap] 19/2/2015 21:30

Loan is £65mm approx. From memory swap notional is £55mm approx therefore they can pay down £10mm without having to break swaps

[rohkap] 19/2/2015 21:27

they should hold onto enough for expenses etc but why not pay down the loan facility with the excess? This will reduce interest costs which are only going higher with the upcoming margin increases and improve the bottom line. Problem with holding onto cash is you are replacing a 9% yielding asset with a 0% yielding asset but your cost of funding remains the same/going higher hence you're moving into a negative carry situation. As I mention above, they dont want to incur swap breakage costs but I think they can pay down some of the facility now without having to do that.

[redhill9] 19/2/2015 18:33

Rohkap, the cash is actually nearer £17.2m allowing for sale proceeds subsequent to 31 January and while "cash earning nothing" may not be ideal it's worth remembering that it equates to approximately 20.8p per share.

Considering the NAV was around 42p and the current share price is around 31p that cash represents a significant underpinning of the market value. For example, if you take the cash element out of both NAV and share price you have a residual NAV of 21.2p for a net share price of 10.2p, a discount of over 50%. That calculation assumes of course that the cash currently held isn't required for any property development or refurbishment and that expenses and scheduled loan repayments are covered by income (which seems a reasonable assumption). From their comments LSR seem disinclined to spend on refurbishing the properties unless perhaps it's to enable a sale (which would further increase the cash held) so its likely the cash will grow as properties are sold, and the recent record indicates LSR are able to sell at carried value. There's always the risk that the quality of the residual portfolio is less than the properties sold to date, but the implied discount would hopefully cover this risk.

[envirovision] 19/2/2015 17:25

I suspect swaps won't allow repayment. Come end of year they may need a fair wedge to tart a lot of the portfolio up for perhaps a better marketing and hopeful sale come summer 2016.

It was strange project renouvier was not mentioned though and I suppose the fear factor that they could renege on this plan and come 2016 suddenly they all decide that actually they quite like their jobs and would quite like to keep them.

[rohkap] 19/2/2015 16:14

Cash of £16.5mm earning nothing is not great and will be a drag on earnings. They should pay down debt with it (to the extent they don't need to break swaps) or start the process of returning to shareholders.

[envirovision] 19/2/2015 14:14

Glad I waited to see what was going on, now on my watch list, but not in any rush.