The proposed wind up Local Shopping REIT (LSR:27.8p), a small-cap property investment company that’s sold off almost all its properties, was thwarted by 25.48 per cent shareholder Thalassa (THAL:86p), which voted against the proposal at December’s general meeting. Excluding the votes cast by Thalassa, 99.98 per cent of the votes were in favour of the resolution to wind up the company through a voluntary liquidation and return the company’s cash to shareholders.
Thalassa’s main objections appear to be that it was not meaningfully consulted by Local Shopping REIT prior to the board putting in place plans to wind up the company, and that it didn’t have enough time to assess the company’s annual results which were released two days ahead of the general meeting. The wind-up proposals will no longer go ahead and the board of Local Shopping REIT is now “actively considering proposals for enhancing and distributing value through other strategies, and will consult with shareholders and bring forward proposals for this in due course”.
I would strongly advise holding onto your shares if you have been playing this liquidation. That’s because Local Shopping REIT’s annual results revealed that it had net cash of £18.95m on its balance sheet as of Monday 10 December 2018, and held 34 properties valued at £9.3m at various stages of sale. The portfolio breakdown is as follows: 16 properties worth £4.4m are under contract for sale; seven properties are under offer for sale at an aggregate price of £1m; and the remaining 11 properties which have a book value of £3.9m are being marketed for sale.
After accounting for all expenses, the board is guiding shareholders to expect a net cash realisable value at the lower end of its 33p to 34.5p targeted range. The year-end reported net asset value of £27.7m, or 33.6p a share, factored in £400,000 for liquidation and wind-up costs, so these costs have already been accounted for. This means that Local Shopping REIT's shares are trading at a 16 per cent discount to the likely level of the cash return.
It’s clearly in the interests for all shareholders, including Thalassa, for a proposal to be agreed by all parties so that the company’s cash can be returned to shareholders. Indeed, I note from London Stock Exchange filings that Thalassa paid a combined £5.65m for 16.66m Local Shopping REIT shares at average of 33.9p a share in September 2016 to account for almost 80 per cent of the 21m shares it holds.
I advised buying Local Shopping REIT's shares in March around 30.8p to play the liquidation ('Alpha company research', 5 Mar 2018). Although a 33p a share anticipated final cash return is less than I had originally hoped for, in the context of the 10 per cent per cent decline in the FTSE SmallCap index in the same period it’s still a positive result. Hold.
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