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ICG-Longbow Senior Secured UK Property Debt Invest is an Investment Trust

To construct a portfolio of UK real estate debt related investments, predominantly comprising of loans secured against commercial property, with the aim of providing shareholders with attractive, quarterly dividends and capital appreciation.

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Half Yearly Report

24 Sep 2015 07:00

RNS Number : 0196A
ICG-Longbow Snr Sec UK Prop DebtInv
24 September 2015
 

ICG-Longbow Senior Secured UK Property Debt Investments Limited

Interim Report And Unaudited Condensed Consolidated Interim Financial Statements

For the six months ended 31 July 2015

 

ICG-Longbow Senior Secured UK Property Debt Investments Limited (the "Company") is pleased to announce the release of its Interim Financial Statements for the six months ended 31 July 2015 which will shortly be available on the Company's website at (www.lbow.co.uk) where further information on the Company can also be found.

 

Chairman's Statement

 

Introduction

On behalf of the Board, I am pleased to present the Interim Financial Statements for the Company and its wholly owned subsidiary, ICG-Longbow Senior Debt S.A. ("Luxco") (together the "Group") for the six months ended 31 July 2015.

 

This has been a period in which the Group and its investment portfolio have maintained a stable performance and the Company has been able to continue to deliver its target dividend distribution to investors. While the dividend has been stable, the NAV per share of the Group has increased modestly and is now above the par value of the shares.

 

Portfolio

The investment portfolio has remained unchanged in the reporting period reflecting the stability of the underlying borrowers and the benefit of income protection within the portfolio as a deterrent to refinance in a benign interest rate environment, when competition amongst senior lenders continues to increase and lending margins continue to tighten.

 

We continue to see modest positive improvement in the basic credit metrics of the portfolio, reflecting in part the stable domestic economic environment and continuing positive sentiment toward the property sector following the general election in May 2015.

 

While there has been no turnover in the Group's investment portfolio, as expected we are beginning to see some turnover in the underlying property security portfolio as borrowers sell and, with consent, seek to replace properties, thereby adding to the general credit quality of the underlying property portfolio.

 

We do not believe that the recent turmoil in global markets following the slowdown in the Chinese economy will have any material impact on the performance of the investment portfolio or the valuation of the underlying property security.

 

Revenue and Dividend Performance

The Group's revenue performance has stabilised in line with expectations following completion of the initial investment programme in the previous financial year, producing profits after tax of 3.12 pence per share for the six months. Barring unforeseen circumstances, we expect profits to be sustained at this level until the loan portfolio begins to be repaid, enabling the Company to maintain dividends at the current level during that period.

 

The Company paid a first interim dividend of 1.5 pence per share in respect of the quarter ended 30 April 2015 on 22 May 2015 and on 23 September 2015 approved a second interim dividend in respect of the quarter ended 31 July 2015 of 1.5 pence per share, bringing dividends paid and payable for the six months to 3.0 pence per share.

 

NAV and Share Price Performance

Over the six month period the NAV per share has increased modestly to 100.12 pence per share whilst the NAV of the Group increased to £108.34 million.

 

The Company's shares traded in a range of 101.25 pence per share to 106.25 pence per share maintaining a small premium to NAV throughout, reflecting the stable and predictable nature of the underlying high yield income stream in a low interest rate environment.

 

Investment Manager

Following the acquisition of management's residual equity interest in Longbow Real Estate Capital LLP by Intermediate Capital Group PLC ("ICG") the ICG-Longbow team has transferred to ICG and consequently, with effect from 30 April 2015 the Investment Management Agreement was novated to Intermediate Capital Managers Limited, an FCA regulated, ICG group subsidiary. The Investment Manager continues to trade under the name of ICG-Longbow.

 

The ICG-Longbow team continues to monitor and apprise the Board of the performance of the investment portfolio and the underlying property portfolios on which the Group's investments are secured. The ICG-Longbow senior debt team and the Group's investment portfolio continue to be overseen by Martin Wheeler, Joint Head of ICG-Longbow. Trevor Homes will leave ICG-Longbow shortly and the Board would like to thank him for his role in deploying the Company's capital.

 

Outlook

As noted, the stable UK economic environment provides a solid platform for the Group's loan investments and we expect the modest improvement in credit profile (LTV and ICR) to continue in the medium term.

 

The Mansion Group has placed its entire student housing portfolio up for sale and this may lead to an early repayment of the loan. We continue to monitor the situation and should the loan be repaid the Board will work with ICG-Longbow to redeploy the capital and any associated prepayment fees within the investment parameters if it is accretive to shareholders to do so.

 

As at 31 July 2015 the Group's loan portfolio had a weighted average unexpired term of 3.3 years with the first loan maturity in December 2017 and the final maturity in June 2019. As set out in the Highlights section above, the average remaining period of income protection on the portfolio was 2.1 years within a range of between 1.1 and 2.75 years. Consequently the Board is considering other re-investment opportunities for the Company ahead of the continuation vote which is due in 2017.

 

 

Jack Perry

Chairman

23 September 2015

 

Highlights

 

Investment Portfolio

· There have been no changes to the composition of the investment portfolio in the six month period and all loans are performing and covenant compliant.

 

· The Portfolio comprises 11 loans with an aggregate principal balance of £104.00 million (31 January 2015: £104.00 million).

 

· The Portfolio weighted average interest coupon is 7.40% (31 January 2015: 7.40%) with a weighted average gross investment Internal Rate of Return ("IRR") of 8.49% (31 January 2015: 8.49%).

 

· The Portfolio weighted average Loan to Value ("LTV") ratio is 57.1% (31 January 2015: 60.1%) and the weighted average Interest Coverage Ratio ("ICR") is 162% (31 January 2015: 161%).

 

· The Portfolio weighted average residual term was 3.3 years, of which by average 2.1 years remains income protected (31 January 2015 residual term 3.8 years, income protected term 2.6 years).

 

Performance

· Profit after tax of £3.38 million for the six months ended 31 July 2015 (31 July 2014: £3.17 million).

o 3.12 pence per share (31 July 2014: 2.97 pence per share).

 

· Net Asset Value ("NAV") £108.34 million (31 January 2015: £108.21 million).

o 100.12 pence per share (31 January 2015: 99.99 pence per share).

 

Dividend

· First Interim dividend of 1.5 pence per share declared and paid in respect of the quarter ended 30 April 2015.

 

· Second interim dividend details:

o Approved 23 September 2015

o Amount 1.5 pence per share

o Dividend ex-date 1 October 2015

o Dividend payment date 23 October 2015

 

 

For further information, please contact:

 

Heritage International Fund Managers Limited:

 

Mark Huntley +44 (0)14 8171 6000

 

James Christie

 

 

 Investec Bank plc:

Darren Vickers +44 (0)20 7597 4000

 

 

Maitland Consultancy Limited:

 

Rebecca Mitchell +44 (0)20 7379 5151

 

Corporate Summary

 

Investment Objective

The investment objective of ICG-Longbow Senior Secured UK Property Debt Investments Limited (the "Company") and its wholly owned subsidiary, ICG-Longbow Senior Debt S.A. ("Luxco") (together the "Group"), is to construct a portfolio of good quality, defensive, senior debt investments secured by first ranking fixed charges predominantly against UK commercial property investments, providing target dividends of circa 6% per annum on the Initial Public Offering ("IPO") issue price.

 

Structure

The Company is a non-cellular company limited by shares incorporated in Guernsey on 29 November 2012 under the Companies (Guernsey) Law, 2008, (as amended). The Company's registration number is 55917, and it has been authorised by the Guernsey Financial Services Commission as a registered closed-ended collective investment scheme. The Company's ordinary shares were admitted to the premium segment of the UK Listing Authority's Official List and to trading on the Main Market of the London Stock Exchange as part of its IPO which completed on 5 February 2013. The issued capital during the period comprises the Company's ordinary shares denominated in pounds sterling.

 

Investment Manager

As disclosed further in the Chairman's Statement, the Investment Management Agreement has been novated to Intermediate Capital Managers Limited (the "Investment Manager"). The Investment Manager is authorised and regulated by the Financial Conduct Authority ("FCA").

 

General Information

 

Board of Directors

Jack Perry (Chairman)

Stuart Beevor

Patrick Firth

Mark Huntley

Paul Meader

 

 

Investment Manager

Longbow Real Estate Capital LLP (until 30 April 2015)

42 Wigmore Street

London

W1U 2RY

 

Intermediate Capital Managers Limited (effective 30 April 2015)

Juxon House

100 St Paul's Churchyard

London

EC4M 8BU

 

 

Guernsey Administrator and Company Secretary

Heritage International Fund Managers LimitedHeritage Hall

PO Box 225

Le Marchant StreetSt. Peter PortGuernseyGY1 4HY

 

 

Independent Auditor

Deloitte LLP

Chartered Accountants

PO Box 137

Regency Court

Glategny Esplanade

St. Peter Port

Guernsey

GY1 3HW

 

 

Luxembourg Administrator

MAS International

6c Rue Gabriel Lippmann

Munsbach

Luxembourg

L-5365

 

 

Identifiers

ISIN: GG00B8C23S81

Sedol: B8C23S8

Ticker: LBOW

Website: www.lbow.co.uk

 

Registered Office

Heritage Hall

PO Box 225

Le Marchant StreetSt. Peter PortGuernseyGY1 4HY

 

 

Broker, Sponsor and Placing Agent

Investec Bank plc

2 Gresham Street

London

EC2V 7QP

 

 

English Solicitors to the Company

King & Wood Mallesons SJ Berwin LLP

10 Queen Street Place

London

EC4R 1BE

 

 

Guernsey Advocates to the Company

Carey Olsen

PO Box 98

Carey House

Les Banques

St. Peter Port

Guernsey

GY1 4BZ

 

 

Registrar

Capita Registrars (Guernsey) Limited

Mont Crevelt House

Bulwer Avenue

St. Sampson

Guernsey

GY2 4LH

 

 

Principal Banker

The Royal Bank of Scotland International

Royal Bank Place

1 Glategny Esplanade

St. Peter Port

Guernsey

GY1 4BQ

 

Investment Manager's Report 

 

Investment Objective

The Investment objective of the Group is "…to construct a portfolio of good quality, defensive, senior debt investments secured by first ranking fixed charges predominantly against UK commercial property investments, providing target dividends of circa 6% pa, paid quarterly, with an underlying target portfolio IRR of 8% pa…"

 

Fund facts

Fund launch:

5 February 2013

Fund type:

Closed ended investment company

Fund manager:

Intermediate Capital Managers Limited

Domicile:

Guernsey

Base currency:

GBP

Listing:

London Stock Exchange

Issued shares:

108.2 million

ISIN code:

GG00B8C23S81

Management fee:

1.0%

LSE code:

LBOW

Website:

www.lbow.co.uk

 

Share price & NAV at 31 July 2015

Key portfolio statistics at 31 July 2015

Share price (pence per share)

103.75

Number of investments:

11

NAV (pence per share) (ex div)

100.12

Percentage capital invested(2):

95.73%

Premium

3.6%

Weighted avg. coupon:

7.40%

Market cap.

£112.3 million

Weighted avg. projected total return:

8.49%

Approved dividend (pence per share) (1)

1.5 pence

Weighted avg. LTV:

57.1%

Dividend payment date

23 October 2015

Weighted avg. ICR:

162%

(1) (1) (1)For quarter ended 31 July 2015

(2) Loans advanced at amortised cost / total equity attributable to the owners of the Company

Summary

The investment portfolio of 11 loans has remained unchanged in the period with a par value of £104.0 million.

 

Each investment in the portfolio remains well secured from a capital perspective, with a weighted average risk exposure of 57.1% LTV, reflecting a decrease over the six months from 60.1%, following completion of the annual valuation of the underlying property portfolio. The improvement in risk profile reflects both the delivery of business plans by borrowers and the general market upturn driven by positive investor sentiment toward the commercial real estate sector.

 

At portfolio level, the ICR was substantially unchanged at 162% (31 January 2015: 161%).

 

Group Performance

The Group's portfolio has been stable in the period and as a result the profit after tax for the six months of £3.38 million (3.12 pence per share) was in line with expectations and with the comparative period. The portfolio had 2.1 years weighted average income protection remaining and the loan portfolio continues to be de-risked by rising underlying property prices. Given the stable nature of the investment portfolio and the Group's operations the level of profit and cashflow generation are adequate to cover the Company's target dividend level of 6.0 pence per share per annum.

 

The NAV per share exceeded the par value of the shares for the first time since IPO.

 

Portfolio

 

Portfolio statistics

31 July 2015

31 January 2015

Number of loan investments

11

11

Aggregate balance

£104,002,150

£104,002,150

Weighted average LTV

57.1%

60.1%

Weighted average ICR

162%

161%

Weighted average interest coupon

7.40% pa

7.40% pa

Weighted average projected gross IRR(1)

8.49% pa

8.49% pa

Weighted average unexpired loan term

 3.31 years

 3.87 years

Weighted average unexpired interest income protection

2.1 years

2.6 years

Cash held

£5,024,095

£5,293,805

(1)Weighted average projected gross IRR of the portfolio reflects partial repayments received to date in addition to the remaining investments.

 

Investment Portfolio as at 31 July 2015

Project

Region

Sector

Term start

Unexp

term

(yrs)

Day 1

balance

(£m)

Day 1

LTV

(%)

Day 1

ICR

(%)

Balance outstanding

(£m)

Current

 LTV

(%)

Current

ICR

(%)

Mansion Student Fund

Midlands/ Scotland

Other (student)

Jun-13

3.85

18.07

54.8

204

18.07

39.4

257

IRAF Portfolio(1)

North West

Industrial/distribution

Jul-13

3.34

14.20

59.3

193

11.94

55.3

186

Meadows RE Fund II

London

Retail

Sep-13

2.42

18.07

65.0

150

18.07

66.7

114

Northlands Portfolio

London

Mixed use

Nov-13

3.32

7.20

61.7

192

6.48

59.7

160

Hulbert Properties

Midlands

Industrial/distribution

Dec-13

3.35

6.57

65.0

168

6.57

56.1

169

Halcyon Ground Rents

National

Industrial/distribution

Dec-13

3.35

8.60

64.8

116

8.60

64.8

116

Cararra Ground Rents

North West

Regional office

Dec-13

3.35

1.30

65.0

113

1.30

65.0

113

Raees International

London

Mixed use

Dec-13

3.36

13.25

65.0

122

13.25

57.5

125

Lanos (York)

North East

Other (hotel)

Mar-14

3.42

10.00

64.9

122

10.00

57.8

106

Ramada Gateshead

North East

Other (hotel)

Apr-14

3.75

7.98

64.4

180

7.98

63.9

193

First Light Portfolio

London

Residential

Dec-14

3.46

1.75

65.0

174

1.75

65.0

179

Total / weighted average

3.32

107.0

61.8

162

104.0

57.1

162

(1) IRAF Portfolio loan is a replacement of the LM Real Estate loan. It is secured on substantially the same portfolio as the previous LM Real Estate loan but with a new borrower and on substanitally the same commercial terms. Day 1 figures represent LM Real Estate loan opening position.

 

Market Update

Economy and Financial Markets

With the pro-business Conservative Party winning an unexpected clear majority in May's General Election, business optimism has improved, although this is tempered by the expected increase in austerity measures over coming years, concerns over the forthcoming EU referendum and broader concerns regarding the Chinese economy.

The rate of growth on the UK economy picked up modestly, with a 0.7% increase in GDP for Q2 2015 and 2.6% growth over the past year. The pace of the UK economy growth remains steady, although unspectacular. Recent economic growth has been driven largely by the service sector and an increase in productivity per head, but with weaker than expected manufacturing output, in part caused by the strength of GBP against the Euro.

Whilst the level of total employment reached new records over the past quarter, passing 31 million, the very latest data has indicated a cooling with a moderate decrease in total employment and a matching increase in the unemployment rate. Consequently, with continuing 0% inflation, an increase in interest rates is only expected around the year end at earliest, according to guidance by the Bank of England, and is reflected in five year GBP interest rate swaps remaining stable at circa 1.5%.

Occupational Markets

Driven by the growth in service employment and continuing low levels of new development, offices continue to lead the other sectors in terms of rental growth expectations. Whilst London rental growth dominates with circa 10% rental growth projected for 2015 by Capital Economics due to stronger demand in a supply constrained marked, growth is now firmly established in the UK regions. In particular, the south east is experiencing strong tenant demand, resulting in vacancy rates falling to 6.4% - more than 1% below the level recorded in 2008, with 6% rental growth projected for 2015. According to a recent report by Jones Lang LaSalle, "The new geography of office demand" growth is now spreading beyond the major cities into smaller centres with strong private sector economies, with strong but not exclusive representation by centres in the south-east such as Brighton and Milton Keynes.

 

According to Royal Institution of Chartered Surveyors ("RICS") survey data, the industrial market has out-stripped all other sectors in terms of increasing occupational demand, which is reflected in a decrease in availability and a 3% annualised rate of rental growth, which is the fastest growth in the industrial sector since 2001.

 

Retail continues to lag the other sectors in terms of rental value growth, recording only 0.6% growth over 2014, with 1.4% projected for 2015 and rental values remaining materially below 2008 market peaks. However, with a strong increase in consumer confidence and retail sales volumes, RICS survey data now confirms that there has been an improvement in occupier demand in many regions across the UK which is in turn feeding through into reported decrease in availability. Therefore, whilst rental values per square foot are not materially increasing, the decrease in availability will be increasing net rental income across the sector. In particular, we continue to see retailer store acquisitions being driven by the absolute affordability of rents and so strongest performance would be expected for locations coming off a lower rental base.

 

Investment Markets

The pace of investment market activity has remained strong in the second quarter of 2015. Although Q2 2015 transaction volumes declined by 12% over the previous quarter, over £36 billion of transactions were recorded in H1 2015 - only a modest decline on H2 2014. Activity in large scale portfolio transactions continued to dominate activity with £5.7 billion of portfolio sales in Q2 2015 representing over one third of overall activity. Additionally, large single assets were a particular focus of international purchasers, both in London and the regions (e.g. the £435 million acquisition on Oxford Street by Ponte Gadea and the £100 million acquisition of No 2 St Peter's Square, Manchester by Deutsche Asset & Wealth).

The strong growth in capital values experienced in 2014 has moderated in 2015 but the strength of demand for UK investment property described above has underpinned a further tightening in yields, resulting in capital growth of 4.1% over the first half of the year according to the CBRE Limited monthly index and a 6.9% total return for the same six months. In line with rental growth trends, offices outperformed other sectors in terms of capital growth over the first half of the year, at 6.6% according to the CBRE Limited monthly index, followed by industrials at 5.7% and retail at 1.7%. However, according to Capital Economics Q2 2015 UK Commercial Property Analyst report, the gap in performance between the sectors will narrow over the period 2016 to 2019, with retail projected to show moderately higher capital growth over the period at 3.5% per annum, against 3.3% per annum for all property.

 

UK Commercial Property Debt Market

Survey data for the end of 2014 was released by De Montfort University in May 2015, showing that UK commercial real estate lending volumes increased by 50% over 2014 to approximately £45 billion of transactions, indicating that the Commercial Real Estate ("CRE") finance market reached full recovery over last year, although UK and European banks have continued to retreat from the market.

 

In part driven by the increase in transaction volumes and in part by the limits of banks' capital pricing models having been reached, we have seen that overall pricing levels in both senior and mezzanine markets has stabilised since the year end at 2.25% to 2.75% margin for senior debt and 8% to 10% for mezzanine debt, each on stabilised assets.

 

However, pricing competition for trophy assets is intense due to the global nature of the market, illustrated by HSBC having won the mandate to refinance MidCity Place at 71 High Holborn in midtown with a £200 million loan, which has been reported by Real Estate Capital magazine as being at a sub 120 basis points per annum margin for a 55% LTV exposure or circa £600 per square foot.

 

The disparity in additional return being available for similar or lower absolute risk per square foot on non-stabilised or undermanaged assets is also in evidence across the small to mid-market funding requirements, which in part will be a function of a lower number of lenders competing for smaller financing opportunities than larger ones, a trend identified in the De Montfort Survey (29 bank lenders would lend above £100 million against 25 in the £21 million to £50 million range and only 18 in the £11 million to £20 million range).

Whilst 2014's record level of CRE loan sales will not be repeated in 2015, as the first half recorded CRE loan sales are running at circa 50% of last year's levels, a continuation of this trend would still make 2015 the second highest year on record for CRE loan sales.

 

Portfolio Profile and Activity

The management activity across the portfolio during the quarter has centred on monitoring all the loans for their performance against agreed business plans and with regard to previous quarters. All investments are compliant with their respective financial covenants, and the investment parameters of the strategy. All of the investments are performing broadly in line with the underwritten business plans.

 

During the period the weighted average Loan to Value Ratio ("LTV") of the portfolio has improved from 60.1% to 57.1% whilst the ICR is materially unchanged at 162% (31 January 2015: 161%). The key portfolio events in the period were:

 

· Lanos (York) - The disruption caused by the renovation building works have had a bigger impact on occupancy than originally anticipated. However with the completion of newly completed bedrooms we are seeing modest improvement in occupancy and revenues per room. We expect this trend to continue over the coming months whilst the refurbishment of the remaining rooms is completed. Advance bookings for August and September support this assumption. The sponsor also completed the disposal of a neighbouring restaurant with proceeds being applied to complete the hotel refurbishment.

 

· Raees International - The ICR has improved only modestly over the term of the loan to date, as the borrower pursues value added initiatives, whilst a number of units remain vacant. The management of arrears and new lettings will continue to be monitored closely.

 

· Northlands Portfolio - ICR improved considerably from the previous period mainly due to lower non-recoverable costs associated with the portfolio. Interest cover is supported by a charged reserve account of £350,000.

 

· Mansion Student Fund - The Mansion Group announced the sale of its entire student housing portfolio including those blocks secured by the Group's loan. The Investment Manager continues to monitor developments, but the underlying properties are performing above expectation with near 100% occupancy. The Group's loan continues to benefit from income protection.

 

The Investment Manager believes the Group's loan portfolio to be satisfactorily secured, given our senior position with a weighted exposure of 57.1% LTV and 162% ICR. In addition risk is diversified at portfolio level by sector and region and at loan level through exposure to predominantly multi-property or multi-tenanted security. All of the loans are fully compliant with the parameters as set out in the Prospectus.

 

Outlook

The outlook for the investment portfolio remains good, underpinned by the favourable economic and property market conditions. Whilst we anticipate some change in the underlying property portfolios of the borrowers as they deliver their business plans and substitute or replace assets we expect this to result in an improvement in the quality of the underlying property. Early repayment remains a possibility as the residual protected term reduces, however at this stage we would expect the resultant prepayment fees will enable the Group to reinvest any such proceeds on a basis that will be accretive to shareholders.

Loan Portfolio

As set out above, as at 31 July 2015, the Group's portfolio comprised of 11 loans with an aggregate balance outstanding of £104.0 million.

 

A summary of each of the individual loans as at 31 July 2015 is set out below:

Loan 1

Mansion Student Fund

 

An £18.07 million senior loan secured on two student accommodation blocks located in Birmingham and Glasgow, providing over 1,000 purpose built student bedrooms. The loan proceeds were used to refinance part of the borrower's equity which funded the cash purchase of the properties.

 

The loan benefits from security against two well located, purpose built and fully refurbished student blocks, which offers conservative gearing against capital and income, whilst the Group's counterparty is managed by a highly experienced sector specialist. Following completion of the refurbishment of the Birmingham property, the valuation of the portfolio increased from £33.00 million to £38.90 million. The properties have been subsequently revalued at £45.87 million reducing the LTV exposure further to 39.4%. The 100% occupancy and the favourable room rates achieved have driven the ICR to 257%.

 

The borrower comprises two Special Purpose Vehicle ("SPV") companies, which are subsidiaries of the Mansion Student Accommodation Fund ("MSAF"). The Group's loan is fully ring fenced from the wider MSAF group and is secured by way of a first ranking charge over the subject properties; consequently the on-going suspension of trading in MSAF units does not have any impact on the performance of the Group's loan.

 

The Mansion Student Fund has announced the intended sale of their entire student accommodation portfolio. This is likely to result in the repayment of the loan unless a sale subject to the novation of the loan is agreed as per the LM Real Estate/IRAF Portfolio transaction. The Group continues to benefit from a period of income protection.

 

 

Property profile

Debt profile

Number of properties

2

Day one debt

£18,070,000

Property value (£)

£45,870,000

Debt outstanding

£18,070,000

Property value (£/bed)

£45,461

Original term

 6.0 years

Bedrooms

1,009

Maturity

June 2019

Occupancy

100%

Current LTV

39.4%

Weighted lease length

n/a

Current ICR

257%

Loan exposure per bed

£17,909

 

Loan 2

IRAF Portfolio

 

Initially a £14.20 million advance was made to LM Real Estate, to refinance a portfolio of five multi-let industrial and distribution warehouse units located in the North West of England, following which the borrower disposed of one of the properties resulting in a £0.90 million prepayment.

LM Real Estate sold the majority of the remaining portfolio in September 2014 to an institutionally backed borrower (IRAF Catch Ltd), managed by Infrared Capital Partners. A new £11.94 million senior loan was made to IRAF Catch Ltd on substantially the same terms secured on the residual portfolio, resulting in a net repayment of £1.365 million to reflect the excluded properties.

InfraRed Capital Partners' improved reporting has highlighted additional non-recoverable costs at property level. There is an historic dispute with one of the tenants where they are withholding their rent until agreed works are completed which should be resolved by the Autumn. However, at 186% ICR and 55.3% LTV the loan remains strongly secured.

 

Property profile

Debt profile

Number of properties

4

Day one debt

£14,200,000

Property value (£)

£21,580,000

Debt outstanding

£11,940,000

Property value (£/sq ft)

£45

Original term

5.4 years

Property area sq ft

483,294

Maturity

December 2018

Number of tenants

30

Current LTV

55.3%

Weighted lease length

4.3 years

Current ICR

186%

Loan exposure per sq ft

£25

 

Loan 3

Meadow Real Estate Fund II

 

An £18.07 million senior loan facility used to assist financing an established and well supported international real estate fund in the acquisition of a highly prominent retail park in north London.

 

The borrower is an SPV owned by Meadow Real Estate Fund II LP and is managed by Meadow Partners, an international real estate investor and asset manager. Meadow Partners' management team has significant real estate investment experience and a proven track record, investing across various transaction structures, geographic locations and property types.

 

The borrower's business plan is to reconfigure the layout of the units to increase rents on expiry of the three main existing leases. The sponsor is pursuing two options to improve the scheme and a planning application has now been submitted to re-configure the existing retail space into six separate units. The borrower reports strong interest from a number of retailers for the completed units.

 

As expected, the ICR decreased from 130% to 114% over the quarter as a result of the expiry of the major leases. However, debt service is primarily derived from a pre-funded interest reserve account (topped up quarterly) which provides 12 months cover. The loan has maintained compliance with all covenants.

 

The updated valuation is on a vacant possession basis which resulted in an increase in the LTV to 66.7%. The valuer confirms that when works are completed within the existing planning permission there would be a considerable increase in the market value of the property.

 

 

Property profile

Debt profile

Number of properties

1

Day one debt

£18,070,000

Property value (£)

£27,100,000

Debt outstanding

£18,070,000

Property value (£/sq ft)

£292

Original term

4.3 years 

Property area sq ft

92,882

Maturity

December 2017

Number of tenants

1

Current LTV

66.7%

Weighted lease length

0.1 year

Current ICR

114%

Loan exposure per sq ft

£195

 

Loan 4

Northlands Portfolio

 

A £7.20 million senior loan facility used to refinance existing senior debt secured on a mixed use portfolio of high street retail and tenanted residential units located predominantly in London and the South East. The borrower is Northlands Holdings and group affiliates on a cross-collateralised basis.

 

The security portfolio comprises 15 properties with a highly diverse income stream from 39 retail and 57 residential tenants, with the largest tenants being Argos Distributors Ltd and Tesco Stores Ltd, accounting for 10.3% and 8.5% of total rent respectively. The borrower completed a small disposal from the property portfolio in July 2014, resulting in a £0.7 million part prepayment of the loan, triggering prepayment and exit fees.

 

The diversified tenant profile provides adequate security of debt service. Whilst moderate concerns exist with the ongoing level of arrears and non-recoverable costs (concerns that are fully mitigated by the £350,000 interest reserve account), the borrower has managed to increase gross rents by 15% since inception (through reletting activities and also conversion of storage space above shops into residential units). These initiatives are peripheral, but in aggregate meaningful. The borrower has also agreed but not completed the lease regears at Stowmarket (so protecting £78,000 of income per annum).

 

Whilst the portfolio is secondary in quality, the loan is satisfactorily secured from both a value and income perspective, with demand for the underlying security from both an occupational and investment perspective. The borrower has recently advised us that it is exploring a refinancing notwithstanding prepayment protection in place.

 

 

Property profile

Debt profile

Number of properties

15

Day one debt

£7,200,000

Property value (£)

£10,842,000

Debt outstanding

£6,477,250

Property value (£/sq ft)

£132.78

Original term

5.0 years

Property area sq ft

81,656

Maturity

November 2018

Number of tenants

129

Current LTV

59.7%

Weighted lease length

1.9 years

Current ICR

160%

Loan exposure per sq ft

£79.32

 

Loan 5

Hulbert Properties

 

A £6.57 million loan to refinance a well let portfolio of industrial units predominantly located in Dudley in the West Midlands, with 80% by value being the 270,000 square foot Grazebrook Industrial Estate.

 

The borrower, Hulbert Properties Ltd, is a West Midlands based private property company. The multi-let portfolio benefits from high occupancy, though a number of vacancies arose this quarter causing ICR to fall to 169%.

 

With the exception of one minor block the borrower has traditionally replaced exiting tenants in short order, underlining the good demand for the properties. The updated valuation (£11.7 million from £10.1 million) has materially reduced the LTV from 65% to 56.1%.

 

 

Property profile

Debt profile

Number of properties

4

Day one debt

£6,565,000

Property value (£)

£11,700,000

Debt outstanding

£6,565,000

Property value (£/sq ft)

£40.84

Original term

 5.0 years

Property area sq ft

286,454

Maturity

December 2018

Number of tenants

10

Current LTV

56.1%

Weighted lease length

3.3 years

Current ICR

169%

Loan exposure per sq ft

£22.92

 

Loan 6

Halcyon Ground Rents

 

A £8.6 million senior loan facility utilised to refinance a portfolio of freehold ground rents.

 

The Halcyon security comprises a diversified portfolio of 21 freehold ground rent investments with a weighted unexpired lease term of 89 years, of which 72% are industrial with leasehold rents receivable geared to 22-25% of open market rentals, with the balance being leisure uses at leasehold gearings of 50%.

 

At 64.8% LTV and with 116% ICR, the gearing is at the top of the Company's investment parameters. However, the defensive nature of the freehold ground rent investments means that the loan benefits from very strong security.

One property has been the subject of a successful planning application so a disposal at well above market value is likely. We are exploring the possibility of a property substitution to avoid the consequent prepayment.

 

 

Property profile

Debt profile

Number of Properties

21

Day one debt

£8,600,000

Property Value (£)

£13,264,000

Debt outstanding

£8,600,000

Property Value (£/sq ft)

£31.94

Original term

5.0 years

Number of tenants

4

Maturity

December 2018

Weighted lease length

87.9 years

Current LTV

64.8%

Current ICR

116%

Loan exposure per sq ft

£20.74

 

Loan 7

Carrara Ground Rents

 

A £1.3 million senior loan facility was used to refinance an individual ground rent investment.

 

The Carrara security comprises a single virtual freehold ground rent investment located in Leeds with an unexpired lease term of 98 years, subject to a 25% rental gearing. The property is a modern office building located on an established business park accessed from the M1 motorway, which is fully let to a strong covenant until 2018.

 

At 65.0% LTV and 113% ICR the gearing is at the top of the Group's investment parameters. However, the defensive nature of the freehold ground rent investments means that the loan benefits from very strong security.

 

No material activity on the loan or security portfolio took place during reporting period.

 

 

Property profile

Debt profile

Number of properties

1

Day one debt

£1,300,000

Property value (£)

£2,000,000

Debt outstanding

£1,300,000

Property value (£/sq ft)

£81.73

Original term

 5.0 years

Property area sq ft

24,470

Maturity

December 2018

Number of tenants

1

Current LTV

65.0%

Weighted lease length

85.4 years

Current ICR

113%

Loan exposure per sq ft

£53

 

 

Loan 8

RAEES International

 

A £13.25 million refinance of a mixed retail and residential portfolio in good locations in North East London.

The borrower is 100% owned and controlled by an offshore investor, with asset management provided by a UK asset manager.

 

Given the low yielding nature of the portfolio, which reflects the London retail and residential uses interest cover is relatively low at 125%. The recent valuation update (up £2.5 million to £23.0 million) has reduced the LTV to 57.5% reflecting the liquid nature of the security portfolio and strong occupational demand.

 

The borrower continues to explore value add initiatives (creating residential units from offices), however income is slightly down due to arrears with a small number of tenants.

 

 

Property profile

Debt profile

Number of properties

24

Day one debt

£13,250,000

Property value (£)

£23,031,000

Debt outstanding

£13,250,000

Property value (£/sq ft)

£279

Original term

5.0 years

Property area sq ft

82,530

Maturity

December 2018

Number of tenants

119

Current LTV

57.5%

Weighted lease length

n\a

Current ICR

125%

Loan exposure per sq ft

£161

 

Loan 9

Lanos (York)

 

A £10.0 million loan to Lanos (York) Limited, which has a maturity date of December 2018. The £10.0 million advance included the funding of a £2.5m capital expenditure reserve, charged to the lender, to meet the costs of construction and extension and a refurbishment.

 

The borrower, part of a specialist hotel development and management group, operates the hotel under a franchise agreement from Best Western.

The Facility is secured by a first and only charge on the 99 room Best Western York Monkbar Hotel, which is located close to the city centre of York. The established, mid-market hotel benefited from a stabilised income profile and offered the potential to grow income and value through a planned refurbishment and 27 bedroom extension, which is being funded through a ring-fenced element of the Facility.

Works on the construction of the extension commenced in August 2014. The 26 bedrooms were handed over to the hotel for letting at the end of February 2015 and are of high quality. The rest of the refurbishment programme is on-going and expected to be fully completed by October 2015. The ICR remained depressed at 106% over last quarter due to occupancy being affected by the on-going works. This is expected to recover in the near term once the common parts works have been substantially completed.

The Borrower has sold the nearby restaurant (not connected to the operation of the hotel, so not included in our updated valuation) to the incumbent tenant for £500,000. The resultant net sales proceeds are being used to fund the refurbishment of the remaining common parts areas and the older bedrooms.

 

 

Property profile

Debt profile

Number of properties

1

Day one debt

£10,000,000

Property value (£)

£17,300,000

Debt outstanding

£10,000,000

Property value (£/bed)

137,300

Original term

 4.8 years

Bedrooms

125

Maturity

December 2018

Current LTV

57.8%

Current ICR

106%

Loan exposure per bed

£79,365

 

Loan 10

Ramada Gateshead

 

A £7.983 million loan to Quay Hotels Limited, which has a maturity date of April 2019.

 

The investment is secured by a first and only charge over the Ramada Encore hotel in Gateshead, a modern 200 bedroom hotel which was constructed in 2012. The secured property, which is operated by Wyndham Hotels Group, is situated in a highly visible location in Gateshead Quays, adjacent to the Baltic Centre for Contemporary Art and within a short walk of the Sage Gateshead concert venue and the Millennium footbridge which links Gateshead and Newcastle quayside areas.

 

The loan was advanced in April 2014 and ICR has improved (like for like) modestly over the intervening period from improved trading as the hotel matures. Otherwise, no material activity on the loan or security portfolio took place during reporting period.

 

 

Property profile

Debt profile

Number of properties

1

Day one debt

£7,982,500

Property value (£)

£12,500,000

Debt outstanding

£7,982,500

Property value (£/bed)

£62,500

Original term

 5.0 years

Bedrooms

200

Maturity

April 2019

Current LTV

63.9%

Current ICR

193%

Loan exposure per bed

£39,900

 

Loan 11

First Light Portfolio

 

A £1.75 million loan to First Light Properties Limited, advanced in December 2014 with a maturity date of January 2019.

 

The investment is secured against 14 flats in three locations in North West London. All flats are now let on Assured Shorthold Tenancy ("AST").

 

There has been no material activity in the period.

 

 

Property profile

Debt profile

Number of properties

3

Day one debt

£1,752,400

Property value (£)

£2,696,000

Debt outstanding

£1,752,400

Property value ( sq ft)

£743.52

Original term

4.0 years

Property area sq ft

3,626

Maturity

January 2019

Number of tenants/occupancy

100%

Current LTV

65.0%

Weighted lease length

n/a

Current ICR

179%

Loan exposure per sq ft

£483

 

 

 

Intermediate Capital Managers Limited

23 September 2015

 

 

Statement of Principal Risks for the Remaining Six Months of the period to

31 January 2016

 

The Company, through its subsidiary, invests primarily in UK commercial real estate loans of a fixed rate nature; as such it is exposed to the performance of the borrower, and underlying property on which its loans are secured. The Company's key risks are discussed below. In this statement references to the Company also apply to the Group as a whole.

 

The Directors have identified the following key risks faced by the Company:

 

· the loan values may exceed the recovery values;

 

· inherently subjective valuations of property and property-related assets;

 

· real estate loans made by the Company may, after funding, become non-performing;

 

· loan principals may be paid earlier than anticipated;

 

· in the event of a repayment, in whole or in part, the Company may not be able to reinvest the surplus cash on terms that are accretive in value to shareholders; and

 

· changes in tax legislation.

 

The principal risks and uncertainties of the Company were identified in further detail in the Annual Financial Statements for the period ended 31 January 2015 ("Annual Financial Statements"). There have been no changes to the Company's principal risks and uncertainties for the six months ended 31 July 2015 and no changes are anticipated in the second half of the year.

 

The Company's principal risk factors are fully discussed in the Company's prospectus, available on the Company's website (www.lbow.co.uk) and should be reviewed by shareholders.

 

Directors' Statement of Responsibilities

 

The Directors are responsible for preparing the interim report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

 

• the Unaudited Condensed Consolidated Interim Financial Statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" and give a true and fair view of the assets, liabilities and financial position and the profit of the Group as required by DTR 4.2.4R; and

 

• the Chairman's Statement, Investment Manager's Report and Statement of Principal Risks meet the requirements of an interim management report, and include a fair review of the information required by:

 

a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the period from 1 February 2015 to 31 July 2015 and their impact on the Unaudited Condensed Consolidated Interim Financial Statements; and a description of the principal risks and uncertainties for the remaining six months of the financial period; and

 

b. DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place from 1 February 2015 to 31 July 2015 and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the audited financial statements that could do so.

 

On behalf of the Board

 

 

Jack Perry

Chairman

23 September 2015

 

Condensed Consolidated Statement of Comprehensive Income

FOR THE SIX MONTH PERIOD TO 31 JULY 2015

 

Six months to

Six months to

31 July 2015

31 July 2014

£

£

Notes

(Unaudited)

(Unaudited)

Income

Income from loans advanced

4,179,953

3,928,398

Other fee income from loans advanced

-

51,861

Income from cash and cash equivalents

3,713

14,794

Total income

4,183,666

3,995,053

Expenses

Investment management fees

10

536,151

519,301

Administration fees

10

82,114

84,140

Directors' remuneration

10

77,500

71,250

Broker fees

21,614

29,992

Listing fees

3,100

20,795

Audit Fees

17,500

17,500

Legal & professional fees

1,675

3,612

Luxco operating expenses

23,173

36,238

Other expenses

39,738

40,474

Total expenses

802,565

823,302

Profit for the period before tax

3,381,101

3,171,751

Taxation

1,138

1,534

Profit for the period after tax

3,379,963

3,170,217

Total comprehensive income for the period

3,379,963

3,170,217

Basic and diluted earnings per share (pence)

6

3.12

2.97

 

 

All items within the above statement have been derived from continuing activities.

 

 

Condensed Consolidated Statement of Financial Position

As at 31 July 2015

 

31 July 2015

31 January 2015

£

£

Notes

(Unaudited)

(Audited)

ASSETS:

Cash and cash equivalents

5,024,095

5,293,805

Trade and other receivables

10,579

14,126

Loans advanced at amortised cost

5

103,713,950

103,334,450

TOTAL ASSETS

108,748,624

108,642,381

LIABILITIES

Other payables and accrued expenses

404,277

431,419

TOTAL LIABILITIES

404,277

431,419

NET ASSETS

108,344,347

108,210,962

EQUITY

Share capital

7

106,038,522

106,038,522

Retained earnings

2,305,825

2,172,440

TOTAL EQUITY ATTRIBUTABLE TO THE OWNERS OF THE COMPANY

108,344,347

108,210,962

Number of ordinary shares in issue at period/year end

108,219,250

108,219,250

Net asset value per ordinary share (pence)

6

100.12

99.99

 

The interim financial statements were approved by the Board of Directors on 23 September 2015 and signed on its behalf by:

 

 

Jack Perry

Patrick Firth

Chairman

Director

23 September 2015

 

Condensed Consolidated Statement of Changes in Equity

For the six month period to 31 July 2015

 

Number

Share

Retained

Notes

of shares

capital

earnings

Total

£

£

£

(Unaudited)

(Unaudited)

(Unaudited)

As at 1 February 2015

108,219,250

106,038,522

2,172,440

108,210,962

Profit for the period

-

-

3,379,963

3,379,963

Dividends paid

8

-

-

(3,246,578)

(3,246,578)

As at 31 July 2015

108,219,250

106,038,522

2,305,825

108,344,347

 

 

Number

Share

Retained

of shares

capital

earnings

Total

£

£

£

(Unaudited)

(Unaudited)

(Unaudited)

As at 1 February 2014

104,619,250

102,526,866

826,649

103,353,515

Shares issued

3,600,000

3,672,000

-

3,672,000

Share issue costs

-

(150,344)

-

(150,344)

Profit for the period

-

-

3,170,217

3,170,217

Dividends paid

-

-

(2,976,030)

(2,976,030)

As at 31 July 2014

108,219,250

106,048,522

1,020,836

107,069,358

 

 

Condensed Consolidated Statement of Cash Flows

For the six month period to 31 July 2015

 

Six months to

Six months to

31 July 2015

31 July 2014

Notes

£

£

(Unaudited)

(Unaudited)

Cash flows from operating activities

Profit for the period

3,379,963

3,170,217

Adjustments for non-cash items:

Movement in other receivables

3,547

65,673

Movement in other payables and accrued expenses

(12,347)

(31,005)

Movement in tax payable

(14,795)

7,751

Loan amortisation

(379,500)

593,957

2,976,868

3,806,593

Loans advanced less arrangement fees

-

(17,623,340)

Net cash generated from/(used in) operating activities

2,976,868

(13,816,747)

Cash flow from financing activities

Proceeds from issue of shares

-

3,672,000

Issue costs paid

-

(150,344)

Dividends paid

8

(3,246,578)

(2,976,030)

Net cash (used in)/generated from financing activities

(3,246,578)

545,626

Net movement in cash and cash equivalents

(269,710)

(13,271,121)

Cash and cash equivalents at the start of the period

5,293,805

17,696,629

Cash and cash equivalents at the end of the period

5,024,095

4,425,508

 

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

For the six month period to 31 July 2015

 

1. General information

ICG-Longbow Senior Secured UK Property Debt Investments Limited is a non-cellular company limited by shares and was incorporated in Guernsey under the Companies (Guernsey) Law, 2008 (as amended) on 29 November 2012 with registered number 55917 as a closed-ended investment company.

 

The Company's shares were admitted to trading on the Main Market of the London Stock Exchange on 5 February 2013.

 

The consolidated financial statements comprise the financial statements of the Company and its wholly owned subsidiary, ICG-Longbow Senior Debt S.A. ("Luxco") (together the "Group") as at 31 July 2015.

 

The investment objective of the Company is to construct a portfolio of good quality, senior debt investments secured by first charges against predominantly UK commercial property investments.

 

Following the acquisition of management's residual equity interest in Longbow Real Estate Capital LLP by ICG, the ICG-Longbow team has transferred to ICG and consequently, with effect from 30 April 2015 the Investment Management Agreement was novated to Intermediate Capital Managers Limited, an FCA regulated ICG group subsidiary. The Investment Manager continues to trade under the name of ICG-Longbow.

 

2. Accounting policies

a) Basis of preparation

The Unaudited Condensed Consolidated Interim Financial Statements ("Interim Financial Statements"), included in this Interim Report, have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union, and the Disclosure and Transparency Rules of the FCA.

 

The Interim Financial Statements have not been audited or reviewed by the Company's Auditor.

 

The Interim Financial Statements do not include all the information and disclosures required in the Annual Financial Statements and should be read in conjunction with the Company's Annual Financial Statements for the year ended 31 January 2015, which are available on the Company's website (www.lbow.co.uk). The Annual Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.

 

The same accounting policies and methods of computation have been followed in the preparation of these Interim Financial Statements as in the Annual Financial Statements for the period ended 31 January 2015.

 

b) Going concern

The Directors, at the time of approving these Interim Financial Statements, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and do not consider there to be any threat to the going concern status of the Group. The Group is now fully invested with a total loan portfolio representing 96% of the net capital raised and expects that the loan portfolio will generate enough cash flows to pay on-going expenses and returns to shareholders. The Directors have considered the cash position and performances of current investments made by the Group and have concluded that it is appropriate to adopt the going concern basis of accounting in preparing the Interim Financial Statements.

 

c) Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors, as a whole. The key measure of performance used by the Board to assess the Company's performance and to allocate resources is the total return on the Company's net asset value, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements.

 

For management purposes, the Company is organised into one main operating segment, being the provision of a diversified portfolio of UK commercial property backed senior debt investments.

 

All of the Group's income is from within Luxembourg, the United Kingdom and Guernsey.

 

All of the Group's non-current assets are invested in the United Kingdom.

 

Due to the Group's nature it has no employees.

 

3. Seasonal and cyclical variations

The Group's results do not vary significantly during reporting periods as a result of seasonal activity.

 

4. Critical accounting judgements in applying the Group's accounting policies

The preparation of the financial statements under IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future period if the revision affects both current and future periods.

 

Impairment is considered to be the most critical accounting judgement and estimate that the Directors make in the process of applying the Group's policies and which has the most significant effect on the amounts recognised in the financial statements (see note 5).

 

5. Loans advanced

31 July

2015

31 July

2015

31 January

2015

31 January

2015

Principal advanced

At amortised

cost

Principal advanced

At amortised

cost

£

£

£

£

Loan 1 - Mansion Student Fund

18,070,000

18,037,212

18,070,000

17,982,697

Loan 2 - IRAF Portfolio

11,935,000

12,004,375

11,935,000

11,981,995

Loan 3 - Meadows Retail Estate Fund II

18,070,000

18,035,055

18,070,000

17,959,616

Loan 4 - Northlands Portfolio

6,477,250

6,435,498

6,477,250

6,411,110

Loan 5 - Hulbert Properties

6,565,000

6,530,556

6,565,000

6,506,957

Loan 6 - Halcyon Ground Rents

8,600,000

8,553,117

8,600,000

8,521,935

Loan 7 - Cararra Ground Rents

1,300,000

1,292,913

1,300,000

1,288,199

Loan 8 - Raees International

13,250,000

13,177,422

13,250,000

13,129,570

Loan 9 - Lanos (York)

10,000,000

9,931,461

10,000,000

9,894,551

Loan 10 - Ramada Gateshead

7,982,500

7,983,222

7,982,500

7,928,748

Loan 11 - First Light Portfolio

1,752,400

1,733,119

1,752,400

1,729,472

104,002,150

103,713,950

104,002,150

103,334,450

 

The Directors consider that the carrying value amounts of the loans, recorded at amortised cost in the financial statements, are approximately equal to their fair value. No element of the loans advanced is past due or impaired.

 

Amortised cost is calculated using the effective interest rate method which takes into account all contractual terms (including arrangement and exit fees) that are an integral part of the loan agreement. As these fees are taken into account when determining initial net carrying value, their recognition in profit or loss is effectively spread over the life of the loan.

 

The Company's investments are in the form of bilateral loans, and as such are illiquid investments with no ready secondary market. Whilst the terms of each loan includes repayment and prepayment fees, in the absence of a liquid secondary market, the Directors do not believe a willing buyer would pay a premium to the par value of the loans to recognise such terms and as such the amortised cost represents the fair value of the loans.

 

Each property on which investments are secured was subject to an independent, third party valuation at the time the investment was entered into. All investments are made on a hold to maturity basis. Each investment is monitored on a quarterly basis, in line with the underlying property rental cycle, including a review of the performance of the underlying property security. No market or other events have been identified through this review process which would result in a fair value of the investments significantly different to the carrying value.

 

Whilst the loans are performing and the balance outstanding in each case is at a substantial discount to the value of the underlying real estate on which they are secured, the Directors do not consider the loans to be impaired.

 

6. Earnings per share and net asset value per share

The calculation of basic earnings per ordinary share is based on the profit for the period of £3,379,963 (31 July 2014: profit of £3,170,217) and on the weighted average number of ordinary shares in issue during the period of 108,219,250 (31 July 2014: 106,627,692) ordinary shares.

 

The weighted average number of ordinary shares has been calculated from 1 February 2015 to 31 July 2015. The weighted average number of ordinary shares for the comparative period has been calculated from 1 February 2014 to 31 July 2014 incorporating the share issue on 24 April 2014. There are no potentially dilutive shares in issue.

 

The calculation of net asset value per ordinary share is based on net asset value and the number of ordinary shares in issue the period/year end.

 

7. Share capital

As at 31 July 2015, the Company had 108,219,250 (31 January 2015: 108,219,250) issued and fully paid ordinary shares with a par value of £1 each.

 

8. Dividends paid

On 23 April 2015, the Directors declared a dividend in respect of the quarter ended 31 January 2015 of £1,623,289 equating to 1.5 pence per ordinary share to shareholders on the register as at the close of business on 1 May 2015.

 

On 2 June 2015, the Directors declared a dividend in respect of the quarter ended 30 April 2015 of £1,623,289 equating to 1.5 pence per ordinary share to shareholders on the register as at the close of business on 12 June 2015.

 

9. Financial Risk Management

The Group's activities expose it to a variety of financial risks. The main risks arising from the Group's financial instruments are; market risk, credit risk and liquidity risk and are fully disclosed on pages 55 to 58 of the Annual Financial Statements.

 

10. Related Party Transactions and Directors' Remuneration

In the opinion of the Directors, the Company has no immediate or ultimate controlling party.

 

Mark Huntley, a Director of the Company, is also a Director of the Company's Administrator, Heritage International Fund Managers Limited. During the period, the Company incurred administration fees of £82,114 (31 July 2014: £84,140) of which £40,417 (31 January 2015: £46,458) was outstanding at the period/year end. Mark Huntley also received a Director's fee for the period of £13,750 (31 July 2014: £12,500) of which £6,875 (31 January 2015: £6,875) was outstanding at the period/year end.

 

The total Directors' fees for the period amounted to £77,500 (31 July 2014: £71,250) with outstanding fees of £38,750 (31 January 2015: £38,750) due to the Directors at 31 July 2015.

 

Investment management fees for the period amounted to £536,151 (31 July 2014: £519,301) of which £266,569 (31 January 2015: £270,457) was outstanding at the period/year end.

 

11. Subsequent events

On 23 September 2015, the Company approved a second interim dividend of 1.5 pence per Ordinary Share in respect of the quarter ended 31 July 2015.

 

This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
IR BLGDCGBDBGUX
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