The Local Shopping REIT (LSE:LSR)

Overview

The Local Shopping REIT (LSR) has been on my watch list for some time now as the company has been pursuing an orderly liquidation. I never built a position because the potential upside was never enough to justify the uncertain timing of the returns or the final realisable value.

The situation changed last Wednesday when the largest shareholder, Thalassa Holdings (which I discussed here), announced they were preparing an offer for the remaining shares they do not currently own. Thalassa recently voted down the liquidation proposal at LSR’s AGM.

 

Why is this interesting?

As recently as October last year, the management team estimated that the net realisable value from an orderly liquidation to be in the range of £0.33-0.345 per share. Given the shares currently trade for ~£0.27, this represents a discount of ~18%

While it is unlikely that Thalassa will offer the full value (they want to make a buck…) I think they will have to offer some sort of premium in order to convince the board to recommend their offer. Therefore, we have another unfair coin flip where heads I win, tails I probably don’t lose much.

Thalassa has to release their offer by early Feb and I expect it to be >£0.30 indicating a potential return of >10% in hopefully less than a month. While not a home-run, I think it is an attractive opportunity in volatile markets where I’m still struggling to find new, long-term core investments.

 

As always, this is not investment advice and reflects my personal opinion. I hold a material investment in LSR.

5 thoughts on “The Local Shopping REIT (LSE:LSR)

  1. Thanks for the idea! As of 6/30/18 Thalassa had $21.7m of cash and marketable securities, which translates to ~£16.8m. If they intend to make a cash offer, they can only offer up to 27 pence for the shares they don’t own. Guess they can always raise debt or offer some stock. Seems like a very adversarial relationship between management and Thalassa but doesn’t seem to be any way out other than working together. Interesting situation!

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    1. I think it would be highly unlikely that this would be an un-leveraged deal. Currently, LSR operates with no meaningful debt, despite being able to easily handle ~£15m or more. Therefore, I believe THAL has more than enough cash to offer 30p+ and use debt to make up the difference. The way LSR has currently structured their B/S is very sub-optimal

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  2. Having studied THAL a bit today, I wouldn’t be surprised if they lowball a cash offer (their basis is 29.6p), offer 100% shares, or even attempt to greenmail LSR. That being said, totally agree that it would be hard to lose a lot here and I started a small position. I am completely prepared for THAL to screw other shareholders though…

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    1. I don’t think greenmail is likely as the board would not offer more than their estimated NAV, which THAL believes understates the real value. I wouldn’t be surprised if they try and low-ball initially, but they still have to get the board and other shareholders to accept the offer. It’s pretty difficult to steal a company for an unfair price unless the shareholders accept it. Finally, I don’t think a share offer is likely because THAL is trading below book value and as such would be highly dillutive

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