Last checked at 
19 Jun 2014 16:30
Unaudited Interim Management Statement
ICG-Longbow Senior Secured UK Property Debt Investments Limited (the "Company") is publishing this Interim Management Statement in accordance with DTR 4.3 of the FCA Handbook.
This Interim Management Statement relates to the period from 1st February 2014 to 19th June 2014 and has been prepared solely to comply with the requirement of the Company to provide additional information to Shareholders in an interim management statement. It should not be relied upon by any other party or for any other purpose.
Unless otherwise noted herein, the financial information provided in this interim management statement, and the asset valuations underlying that financial information, are as at 30th April 2014 and are unaudited.
Background Information:
The Company is a Guernsey closed-ended investment company listed on the Main Market of the London Stock Exchange, and has been registered with the Guernsey Financial Services Commission as a closed-ended collective investment scheme. The Company was admitted to trading on the Main Market of the London Stock Exchange on 5th February 2013. Since that time, and in accordance with the Prospectus, the Company's investment manager, ICG-Longbow (the "Investment Manager"), has been building a pipeline of potential loan transactions which would meet the Investment Objective of the Company, namely:
"…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…"
On 17th April 2014 the Company completed a placing of 3.6million new shares at 102pence per share in order to complete its investment program.
UK Commercial Property Debt Market Update:
The UK Property market has seen a return to capital growth buoyed by a broad spread economic recovery which has improved investor confidence over occupational demand and rental outlooks, particularly given the lack of new supply. This renewed confidence has seen the increase in capital values spread out from London with institutional and private equity buyers now being attracted back to the regions and stock remaining in relatively short supply. The IPD quarterly index showed 13.3% total return over the past year, with capital growth in Q1 2014 at 2.2%.
Since the Company's IPO in February 2013 we have seen the return of a functioning debt market, particularly over the last six months. However it is a multi-facetted one, with the clearing banks willing to support their core clients only, and the German and insurance based lenders aggressively pursuing large loans on central London and prime assets in competition with each other driving margins down to sub 2%. There has also been a noticeable increase in activity amongst the smaller regional lenders. Whilst some gaps in the market remain, particularly to finance non-core borrowers and assets with short income, the return of the banks and emergence of new lenders has resulted in improved access to debt and a modest increase in leverage ratios. Additionally there has been a more marked lowering of margins, with senior debt finance now being available to most borrowers on stabilised assets at rates of 4-6% all in.
Investment Activity:
During the quarter to 30 April 2014, the Company, through its subsidiary, completed two further investments, advancing £18.0 million through the Lanos (York) and Ramada Gateshead loans, the second of which followed the placing of 3.6million shares raising £3.52 million of new capital after costs. The two new investments take the total loan portfolio to £105.2 million representing 99% of the net capital raised., and completes the Company's investment programme. Following the quarter end the Company received a partial repayment of £0.9 million on the LM Real Estate loan.
The Investment Manager believes the Company's loan portfolio to be satisfactorily secured, given the senior secured position with a weighted exposure of 60.4% Loan To Value and a 165% Interest Coverage Ratio. In addition risk is diversified at portfolio level by sector and geography and at loan level through exposure to predominantly multi-property or multi-tenanted security. All of the loans are fully compliant with the parameters set out in the Prospectus.
Following the partial repayment of the LM Real Estate Loan the weighted average coupon receivable by the Fund is 7.39% which, taken together with arrangement fees received, places the Company in a strong position to be able to deliver its stated return objective of paying a divided of c.6.0 pence per annum.
Investment Portfolio:
The investment portfolio now comprises ten loans each of which is discussed below. The portfolio as at 30th April 2014 is summarised as follows:
Transaction | Region | Sector | Term start | Unexp term (yrs) | Day 1 Balance (£ms) | Day 1 LTV (%) | Day 1 ICR (%) | Current Balance (£ms) | Current LTV (%) | Current ICR (%) |
Mansion Student Fund | Midlands/ Scotland | Other (Student) | Jun-13 | 5.0 | 18.070 | 54.8 | 204 | 18.070 | 46.5 | 260 |
LM Real Estate | North West | Industrial/ Distribution | Jul-13 | 4.5 | 14.200 | 59.3 | 193 | 14.200(1) | 59.4 | 166 |
Meadows RE Fund II | London | Retail | Sep-13 | 3.5 | 18.070 | 65.0 | 150 | 18.070 | 65.0 | 130 |
Northlands Portfolio | London | Mixed Use | Nov-13 | 4.4 | 7.200 | 61.7 | 192 | 7.200 | 61.8 | 188 |
Hulbert | Midlands | Industrial/ Distribution | Dec-13 | 4.5 | 6.565 | 65.0 | 168 | 6.565 | 65.0 | 168 |
Halcyon Ground Rents | National | Industrial/ Distribution | Dec-13 | 4.5 | 8.600 | 64.8 | 116 | 8.600 | 64.8 | 116 |
Cararra Ground Rents | North West | Regional Office | Dec-13 | 4.5 | 1.300 | 65.0 | 113 | 1.300 | 65.0 | 113 |
Raees | London | Mixed Use | Dec-13 | 4.5 | 13.250 | 65.0 | 122 | 13.250 | 64.6 | 122 |
Lanos(York) | Yorks & Humbs | Other(Hotel) | Mar-14 | 4.5 | 10.000 | 64.9 | 122 | 10.000 | 61.1 | 120 |
Ramada Gateshead | North East | Other (Hotel) | Apr-14 | 4.8 | 7.983 | 64.4 | 180 | 7.983 | 64.4 | 188 |
Total | Maturity | 4.4 | 105.238 | 62.2 | 162 | 105.238 | 60.4 | 165 |
(1) £0.9million repayment received subsequent to period end
The loan portfolio security is spread geographically thus (1):
Greater London 36%
Midlands 19%
North West 14%
Yorks & Humberside 10%
North East 8%
Scotland 5%
East of England 4%
South East 3%
South West 1%
(1) Exposure calculated with reference to aggregate value of underlying properties in each region
The spread by property sector (2) is:
Industrial/Distribution 28%
Mixed Use 20%
Retail 17%
Other (Student) 17%
Other (Hotel) 17%
Regional Office 1%
(2) Sector splits calculated with reference to the predominant sector exposure of each loan on a capital weighted basis
Loan Portfolio:
As set out above, as at 30th April 2014, the Company's portfolio comprised of ten loans with an aggregate balance outstanding of £105.2 million, which decreased to £104.3m following the partial repayment of the LM Real Estate Loan. A summary of each of the individual loans as at 30 April 2014 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 1000 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 now fully refurbished) student blocks, which offers conservative gearing against capital and income, whilst the Company's counterparty is managed by a highly experienced sector specialist. Following completion of the refurbishment of the Birmingham property, the valuation of the portfolio has increased from £33 million to £38.9 million, reducing the LTV ratio from 55% to 46.5%. The Borrower comprises two SPV companies, which are subsidiaries of the Mansion Student Accommodation Fund ("MSAF"). The Company'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 ongoing suspension of trading in MSAF units does not have any impact on the performance of the Company's loan. | |||
Property Profile | Debt Profile | ||
No Properties | 2 | Debt Outstanding | £18,070,000 |
Property Value (£) | £38,900,000 | Original term | 6 years |
Property Value (£/bed) | £38,553 | Maturity | June 2019 |
Bedrooms | 1,009 | Current LTV | 46.5% |
No tenants | 1,009 | Current ICR | 260% |
Weighted lease length | n/a | Loan exposure per bed | £17,909 |
Loan 2 | LM Real Estate | |||
Originally a £20 million senior loan facility, of which £14.2 million was drawn, to refinance a portfolio of five multi-let industrial and distribution warehouse units located in the North West of England. Since the loan was advanced, the availability of the undrawn £5.8 million facility, which had been made available to assist in further property acquisitions, has expired. The Borrower contracted to sell one of the security properties, as identified in the Borrower's initial business plan, resulting in an expected prepayment of £0.9 million following the quarter end which reduced the loan balance to £13.3 million. The Company's exposure represents 60.1% of the open market valuation of the remaining properties as at the date of the loan (£22.1 million). The portfolio comprises good secondary quality, industrial/distribution units located in the North West of England. The portfolio is well managed by the Borrower and benefits from high occupancy levels. The loan benefits from strong interest and capital protection; in particular, interest cover is 166% and is underpinned by a diverse tenant base. | ||||
Property Profile | Debt Profile | |||
No Properties | 5 | Debt Outstanding | £14,200,000 | |
Property Value (£) | £23,915,000 | Original term | 5.4 years | |
Property Value (£/sq ft) | £51 | Maturity | December 2018 | |
Property Area sq ft | 467,151 | Current LTV | 59.4% | |
No tenants | 19 | Current ICR | 166% | |
Weighted lease length | 5.5 years | Loan exposure per sq ft | £30 | |
Loan 3 | Meadow Partners | ||
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. At 65% LTV and 130% ICR, the gearing is at the high end of the Company's investment parameters, especially given the short income profile. However, this remains a strong loan due to the quality and experience of the counterparty and the institutional quality of the property which benefits from a strong location with significant value-add opportunity through re-gearing tenants and maximising site density. | |||
Property Profile | Debt Profile | ||
No Properties | 1 | Debt Outstanding | £18,070,000 |
Property Value (£) | £27,800,000 | Original term | 4.3 years |
Property Value (£/sq ft) | £299 | Maturity | December 2017 |
Property Area sq ft | 92,882 | Current LTV | 65% |
No tenants | 4 | Current ICR | 130% |
Weighted lease length | 1.0 year | 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 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 is Northlands Holdings and group affiliates on a cross-collateralised basis. Whilst the portfolio is undoubtedly secondary in quality, the loan is satisfactorily secured from both a value and income perspective, reflected in the gearing of 62% LTV and 189% ICR. Security is enhanced by the diversified tenant profile and an interest shortfall reserve of £350,000. | |||
Property Profile | Debt Profile | ||
No Properties | 15 | Debt Outstanding | £7,200,000 |
Property Value (£) | £11,655,000 | Original term | 5.0 years |
Property Value (£/sq ft) | £143 | Maturity | November 2018 |
Property Area sq ft | 81,656 | Current LTV | 61.8% |
No tenants | 96 | Current ICR | 188% |
Weighted lease length | 2.5 years | Loan exposure per sq ft | £88 |
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 270,000sq ft Grazebrook Industrial Estate. The Borrower, Hulbert Properties Ltd, is a West Midlands based private property company. The multi-let portfolio benefits from high occupancy and provides strong interest coverage at 168% and the 65% LTV provides a low (£19) capital exposure per sq ft, materially below vacant possession trading values. | |||
Property Profile | Debt Profile | ||
No Properties | 4 | Debt Outstanding | £6,565,000 |
Property Value (£) | £10,100,000 | Original term | 5.0 years |
Property Value (£/sq ft) | £35 | Maturity | December 2018 |
Property Area sq ft | 286,451 | Current LTV | 65% |
No tenants | 20 | Current ICR | 168% |
Weighted lease length | 3.5 years | Loan exposure per sq ft | £23 |
Loan 6 | Halcyon Ground Rents | ||
An £8.6 million senior loan facility (Halcyon) was used 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 65% 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. | |||
Property Profile | Debt Profile | ||
No Properties | 21 | Debt Outstanding | £8,600,000 |
Property Value (£) | £13,264,000 | Original term | 5.0 years |
Property Value (£/sq ft) | £32 | Maturity | December 2018 |
Property Area sq ft | 415,430 | Current LTV | 64.8% |
No tenants | 21 | Current ICR | 116% |
Weighted lease length | 88.9 years | Loan exposure per sq ft | £21 |
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% LTV and 113% 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. | |||
Property Profile | Debt Profile | ||
No Properties | 1 | Debt Outstanding | £1,300,000 |
Property Value (£) | £2,000,000 | Original term | 5.0 years |
Property Value (£/sq ft) | £82 | Maturity | December 2018 |
Property Area sq ft | 24,470 | Current LTV | 65% |
No tenants | 1 | Current ICR | 113% |
Weighted lease length | 86.7 years | 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 122% but the loan is satisfactorily secured at 65% LTV, due to the liquid nature of the security portfolio. | |||
Property Profile | Debt Profile | ||
No Properties | 22 | Debt Outstanding | £13,250,000 |
Property Value (£) | £20,510,000 | Original term | 5.0 years |
Property Value (£/sq ft) | £249 | Maturity | December 2018 |
Property Area sq ft | 69,133 | Current LTV | 64.6% |
No tenants | 150 | Current ICR | 122% |
Weighted lease length | 4.98 years | 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 £10.0m advance included the funding of a £2.5m capital expenditure reserve, charged to the lender, to meet the costs of the refurbishment programme. The Borrower, part of a specialist hotel development and management group, operates the hotel under a franchise agreement. The Facility is secured by a first and only charge on the Best Western York Monkbar Hotel, which is located close to the city centre of York. The established mid-market 99 bed hotel benefits from a stabilised income profile and offers the potential to grow income and value through a planned refurbishment and 27 bedroom extension, which is to be funded through a ring-fenced element of the Facility. | |||
Property Profile | Debt Profile | ||
No Properties | 1 | Debt Outstanding | £10,000,000 |
Property Value (£) | £12,285,000 | Original term | 4.8 years |
Property Value (£/bed) | 124 | Maturity | December 2018 |
Bedrooms | 99 | Current LTV(*) | 61.1% |
Current ICR | 120% | ||
*net of charged capex reserve | Loan exposure per bed(*) | £75,758 | |
Loan 10 | Ramada Gateshead | |||
A £7.983 million loan to Quay Hotels Limited, which has a maturity date of March 2019. The Investment is secured by a first and only mortgage 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. | ||||
Property Profile | Debt Profile | |||
No Properties | 1 | Debt Outstanding | £7,982,500 | |
Property Value (£) | £12,400,000 | Original term | 5.5 years | |
Property Value (£/bed) | £62,000 | Maturity | April 2019 | |
Bedrooms | 200 | Current LTV | 64.4% | |
Current ICR | 188% | |||
Loan exposure per bed | £39,900 | |||
Financial Information:
The net asset value per share and share price of the Company for the period was as follows:
Shares in issue | 104,619,250 | 104,619,250 | 104,619,250 | 104,619,250 | 104,619,250 | 108,219,250 |
5 February 2013 | 30 April 2013 | 31 July 2013 | 31 October 2013 | 31 January 2014 | 30 April 2014 | |
Estimated NAV per Ordinary Share (pence) | 98.00 | 97.80 | 97.74 | 98.27 |
98.76 |
98.73(1) |
Share price (pence) | 100.00 | 104.00 | 102.00 | 102.00 |
103.75 |
103.50 |
Premium / (discount) | 2.00% | 6.34% | 4.36% | 3.80% |
5.05% |
4.83% |
Market Capitalisation (million) | £104.62 | £108.80 | £106.67 | £106.67 | £108.54 | £112.01 |
(1) Ex. Div. A dividend of 1.25pence per ordinary share was declared on 25th April 2014 payable 23rd May 2014
Outlook:
Property fundamentals continue to improve across the UK, underpinning the security and income flow for the company.
Based on the current outlook and barring unforeseen circumstances, the Directors would anticipate paying a fully covered dividend of 1.5 pence per share for the quarter ending 31st July 2014 and maintaining that level for the full period during which the company is substantially invested.
Dividend
The Company's accounts are prepared under International Financial Reporting Standards with its investments recorded under the Effective Interest Rate method whereby loans are recorded at amortised cost and arrangement fees received at the drawdown of each investment and exit fees receivable by the Fund are amortised and credited to P&L over the term of each respective loan.
As a consequence the amortised cost of the loan portfolio at 30th April 2014 was £103.8million and arrangement fees received of £1.87million remain to be amortised to P&L.
In declaring a dividend, the Board take into consideration the cash profits and working capital requirement of the Company as well as the financial profits and net asset value.
Following completion of its investment programme, and taking these factors into consideration the Board have the pleasure in declaring a dividend for the period of 1.5 pence per ordinary share.
Dividend details:
Distribution period: | 1st February 2014 - 30th April 2014 |
Distribution amount per share: | 1.5 pence |
Ex-dividend date: | 25th June 2014 |
Dividend record date: | 27th June 2014 |
Payment date: | 11th July 2014 |
Dividend Timetable:
Subject to any unforeseen circumstances the Board anticipates that dividends will be paid in accordance with the following timetable whilst the company remains substantially invested:
For the Period Dividend payment
1 February - 30 April July
1 May - 31 July October
1 August - 31 October January
1 November - 31 January May
Payment dates will be subject to the timing of Board meetings and the London Stock Exchange dividend calendar for the applicable period.
.
Disclaimer
This interim management statement has been prepared solely to provide additional information to shareholders as a body to meet the relevant requirements of the UK Listing Authority's Disclosure and Transparency Rules and the interim management statement should not be relied on by any other party or for any other purpose. It does not constitute an invitation to subscribe for or otherwise acquire or dispose of securities in the Company in any jurisdiction. The information contained in this interim management statement is subject to updating and amendment, and does not purport to be full or complete. No reliance may be placed for any purpose on the information contained in this interim management statement in connection with the Company or the purchase of securities in the Company. This interim management statement does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe or purchase any investments nor shall it (or the fact of its distribution) form the basis of, or be relied on in connection with, any contract or commitment whatsoever.
The potential acquisition by the Company of any of the investments referred to in this interim management statement is subject, among other things, to those projects reaching legal completion and to the Company having conducted satisfactory due diligence in relation to such investments. There is therefore no guarantee that any of the investments will be acquired and if they are on what terms.
This IMS contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events; forward-looking statements are not guarantees of future performance. The Company's actual investment performance, results of operations, financial condition, liquidity, distribution policy and the development of its financing strategies may differ materially from the impression created by the forward-looking statements contained in this document. Subject to their legal and regulatory obligations, the Company and its Investment Manager expressly disclaim any obligations to update or revise any forward-looking statement contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
For further information, please contact:
Heritage International Fund Managers Limited: | |
Mark Huntley James Christie | +44 (0)14 8171 6000 |
Investec Bank plc: | |
David Andersen Jeremy Ellis | +44 (0)20 7597 4000 |
Maitland Consultancy Limited: | |
Rebecca Mitchell | +44 (0)20 7379 5151
|
Further information on the Company can be found on its website at http://www.lbow.co.uk