In early March this year, I published an equity research report on Local Shopping REIT (LSR: 31p), a small-cap property investment company that’s in the process of selling off its properties with a view to returning the cash to shareholders (‘Alpha company research’, 5 Mar 2018). The process is nearing its conclusion.
Borrowings have been wiped out and the company now has £17.6m in cash reserves, a sum that will be boosted by £4.4m of net proceeds from properties on which sales have either been agreed or contracts have exchanged and are awaiting completion. This leaves just 20 properties to sell, of which 11 will go to auction in December and are expected to raise net proceeds of £4.2m. The remaining nine properties should raise a similar sum when liquidated by the first quarter of 2019.
The directors have concluded the optimum route for returning value to shareholders is by way of a Members Voluntary Liquidation. Subject to shareholder approval at a proposed general meeting on 12 December, the shares will be suspended on the same day, and a liquidator appointed. After taking into account all fees, the directors estimate a net realisable value (NRV) per share of between 33p to 34.5p, which includes an initial liquidation distribution of 26.7p a share to be made in February 2019. True, the NRV is below my original estimate of 36p, but it still represents a positive return of between 7 to 12 per cent on my advised buy-in price in an eight-month period during which time the FTSE SmallCap index has fallen by 6 per cent. I would vote in favour of the Members Voluntary Liquidation.
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