Investment Objective

On 25 Jul 2013, LSR’s shareholders resolved to adopt the following new investment policy:

The Company’s investment objective is to maximise value for its Shareholders from its existing portfolio of local real estate assets, comprising local shops in urban and suburban areas, as well as neighbourhood and convenience properties throughout the UK. The Company seeks
to achieve this through:

• Realising its assets progressively in accordance with prevailing market conditions with a view to repaying the Company’s existing debt facilities (where consistent with the protection of
value) and ultimately returning value to Shareholders;

• Exploiting the potential of its remaining property portfolio through active asset management; and

• Making further investments in properties only where such investment is deemed by the Board, in consultation with INTERNOS, to be significant to protect or enhance the realisable value of an existing property asset. In such circumstances the Company may seek to purchase
assets intrinsically linked to existing assets in its core local retail portfolio (such as flats situated above local convenience stores in order to exploit marriage value).

The Company currently has the power under its Articles to borrow up to an amount equal to 75 per cent. of gross assets at the time of the drawdown. The Company intends to reduce its gearing ratio from its current level going forward.

Execution of the new investment policy

The Company will seek to implement the new investment policy as follows:

• All property assets will be sold as expeditiously as is consistent with the protection of value, with an initial focus on those properties already optimised for sale and those in markets where
the Company has relatively few assets, so as to reduce property management costs. The Company is aiming to complete the disposal programme within a period of approximately four years.

• Proceeds from the sales of properties will be used to repay the Company’s existing debt facilities with HSBC and Indus. The amount the Company will have to pay in respect of termination fees (including crystallisation of any mark to market liability) under the its derivative arrangements with HSBC will be significantly increased or reduced depending on the prevailing interest rates at the time of the repayment of the debt. Therefore, rather than imposing on INTERNOS a prescriptive timetable for the sale of the properties, the Company has instead instructed and incentivised INTERNOS to dispose of properties at such a time during the next four years with the intention of aiming to minimise the total break costs payable and
ultimately maximise the monies paid to the Shareholders.

• As the property assets of the Company are sold, the Board will use cash proceeds in excess of the amount that is required to repay allocated loan amounts and related financing costs either for further debt repayment or for return of capital to the Shareholders in accordance with
its assessment at that time of what will deliver the best time and risk adjusted returns to Shareholders.

• The orderly phasing of property sales over a period of time is a key aspect of this proposal and the new investment policy, firstly in order to protect value and not over-supply this specialist property market at any one time, and secondly to mitigate associated friction
costs, and in particular the early repayment of hedging arrangements. Balancing these two factors will be an important part of executing the new investment policy.

• New property assets will not be acquired unless such an acquisition is deemed by the Board, in consultation with INTERNOS, to be essential to protect or enhance the realisable value of an
existing property asset. A corporate transaction, such as the merger or sale of the Company, will be considered, where this offers opportunity to accelerate the realisation of optimal value for Shareholders.  

The Board believes that asset allocation and risk diversification policies will be a product of the liquidity profile of the existing portfolio, and therefore the previous investment restrictions and
limits applicable to the Company will, as from the date of approval of the adoption of the New Investment Policy at the GM, be superseded by the New Investment Policy. The Company does not intend to actively increase its level of borrowing on a loan-to-value basis during the realisation period relative to that which follows from the repayment obligations under its existing credit facilities.

Published : Monday, June 27, 2016 11:27 AM

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