In early March this year, I produced an in-depth equity research note for our Alpha online subscribers on Local Shopping Reit (LSR: 32p), a small-cap property investment company that’s in the process of selling off its properties and one that aimed to be debt-free by June and in a substantial cash position by September (Alpha company research, 5 Mar 2018).
I felt at the time that after taking into account operating costs incurred during the divestment process, and likely discounts offered to buyers of its remaining properties, which had a carrying value of £42.7m, the deep share price discount to the company’s last reported net asset value (NAV) of 42p a share had scope to narrow.
It’s therefore reassuring to find out that Local Shopping REIT disposed of 46 properties in the six months to end March 2018, realising total proceeds of £17.3m and incurring transaction costs and discounts equating to 5.2 per cent of the book value of the sales. That’s lower than the 6.2 per cent run rate I had allowed for when I suggested that shareholders could end up with 36p of cash from the divestment process back. In addition, the company will realise a further £10.8m (net of all costs incurred) from 29 properties held on the balance sheet for sale which have either completed or exchanged contracts post the half year end.
This means that Local Shopping REIT will be debt free by the end of June, and the company’s net asset value of £32m, or 38.75p a share, will comprise of net cash and receivables of £7m, and 107 properties worth £25m that have been prudently valued on an equivalent yield of 10.67 per cent. The plan is to sell 40 of the remaining 107 properties by the end of September, principally through auction but also through private treaty sales. There quarters of the portfolio value now consists of 42 commercial units worth more than £200,000 each. Residential properties worth £4m in total account for about a sixth of the portfolio value.
So, if you followed my advice to buy the shares at 31.6p in March, I feel you are on track to achieve my 36p cash realisation value estimate and can expect news on the process for for a capital return once debt has been eliminated. The bottom line is that a buy in price of 32p or less, I rate Local Shopping REIT's shares a buy.
■ Simon Thompson's new book Successful Stock Picking Strategies was published on 15 March and can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. It is being sold through no other source and is priced at £16.95 plus £2.95 postage and packaging.
Simon's second book Stock Picking for Profit has now been reprinted and is available to purchase online at www.ypdbooks.com for £16.95, plus £2.95 postage and packaging, or by telephoning YPDBooks on 01904 431 213 to place an order.
