TIDMPBLT
RNS Number : 2049U
TOC Property Backed Lendng Tst PLC
31 March 2021
To: RNS
From: TOC Property Backed Lending Trust
plc
LEI: 213800EXPWANYN3NEV68
Date: 31 March 2021
Subject: Annual Financial Report
Chairman's Statement
Highlights
-- Net Asset Value increase from 83.8 pence per share to 83.9 pence per share.
-- Net Asset Value total return of +3.9%.
-- Dividend distributions totalling 3.0p (2019: 6.0p) for the financial year.
-- Redeployment of funds across the North East and Scotland.
-- Acceleration of phased exit from legacy loans.
-- Strategic Review of the Company completed.
-- Shareholder Circular placed before shareholders, proposing
revised investment policy, continuation of the Company, new
articles of association, and authority to allot shares on a
non-pre-emptive basis; all resolutions passed 29 March 2021.
Objective; Managerial Arrangements
The Company seeks to achieve its investment objective primarily
through a diversified portfolio of fixed rate loans predominantly
secured over land and/or property in the UK and managed by its
Investment Adviser, Tier One Capital Ltd ('TOC'). The Investment
Adviser's Report is set out below.
Introduction
I am pleased to present the Company's results for the financial
year ended 30 November 2020, albeit encompassing a notably
challenging period.
The Company passed the fourth anniversary of its launch on 24
January 2021. The backdrop for this milestone has been a year of
unprecedented economic and societal turmoil following the Covid-19
pandemic and, at the time of writing, despite the rollout of the
new vaccine, this has not yet come to an end.
The actions taken globally by governments in response to the
pandemic have also caused volatility not just in equity markets but
in the functioning of businesses of all sizes. These events, which
in the UK have included periods of lockdown, furloughed workforces
and restrictions on the operation of non-essential activities have
had an effect on the day-to-day operations of virtually every
company involved with the real estate sector. Government
initiatives such as Stamp Duty relief, on the other hand, have
provided a useful stimulus to the house buying market and an
encouraging number of sales have been achieved despite the economic
backdrop.
As to Brexit, the die is cast at last. A seemingly endless saga
that began with the UK Referendum on 23 June 2016 - some eight
months before your Company was launched - reached its conclusion,
or at least the beginning of a new era, at 11pm on 31 December
2020, a few weeks into our new financial year. For financial
markets, full clarity has yet to emerge. A good deal of work needs
to be done to resolve both the regulatory backdrop and the need for
compliance with, for example, the EU's AIFM Directive. We shall
work with our managers and our legal and corporate advisers to
address these matters as and when they arise.
Over its early years, the Company has financed a number of
socially beneficial real estate projects, from the building of
low-cost housing to the conversion of Victorian and Edwardian
buildings such as former council offices and banks into multi-use
office and retail spaces.
The majority of these developments have been successfully
concluded. At the same time, as is likely with any diversified
portfolio of individual higher risk investments, there have been a
small number of cases of loss, which are described in the
Investment Adviser's Report, and to which I will make further
reference below. In addition, given the protracted nature of the
Covid-19 lockdown, including a temporary slowdown in many
construction projects, the Board and the Investment Adviser
considered it appropriate to maintain increased levels of liquidity
within the fund during 2020. The decision was therefore made not to
declare what would have under more normal conditions been the
second and third quarterly dividends for the financial year.
As intimated in the announcement made by the Company on 30
November 2020, it was decided that a final balancing dividend would
be made that would be at least sufficient for the Company to meet
the requirement to distribute at least 85% of its eligible income
in accordance with The Corporation Tax Act 2010, in order to retain
its investment trust status. The said final balancing dividend
payment of 1.5p was declared on 1 March 2021, to be paid on 1 April
2021. This makes a total dividend of 3p paid with respect to the
financial year under report.
This figure represents a reduction in dividend distributions
from the previous financial years, partly as a result of income
shortfalls from certain portfolio holdings as described in the
Investment Adviser's Report and partly because of the Board's
decision to maximise the Company's strength by retaining a
proportion of distributable earnings as the Covid-19 crisis played
out.
While this may be a disappointing outcome for some investors, it
leaves the Company in a more robust position than otherwise. In
addition, following the implementation of the Board's Strategic
Review, which I will turn to in a moment, shareholders have the
prospect of the resumption of quarterly dividend payments going
forward, albeit at a lower rate than before. It is worth noting,
too, that including the 1.5p per share payable on 1 April 2021,
founding investors have been entitled to dividend distributions
totalling 19.5 pence per share since the trust's launch.
Net Asset Value
The Company's net asset value ('NAV') increased marginally to
83.9 pence at the financial year end (2019: 83.8 pence), a
satisfactory outcome given the testing economic environment in
2020. This equates to an NAV total return for the financial year of
approximately +3.9%, including dividends received.
This figure may be placed into context by the total return
figures over the same period of the Association of Investment
Companies' (AIC's) 'Property-Debt' sector, of which PBLT is a
component member, of +2.9% and of the AIC's 'Debt-Loans' sector of
+2.3%. Meanwhile in a much broader context the FTSE 100 and FTSE
All-Share indices (total return) rose respectively by 12.0.% and
10.3% over the same period. (source: AIC) The total value of the
Company's portfolio now stands at GBP22.6 million.
Gearing
Borrowings during the year consisted of a GBP6.5 million credit
facility with Shawbrook Bank Limited of which GBP1.2 million was
drawn down at the year end. Since the year end the loan has been
repaid in full. The facility provided by Shawbrook Bank Limited was
extended from October 2019 to May 2021 and it is intended that it
will be renewed. Taking into account borrowings, net of cash
balances held, the Company ended the year approximately 5.1%
geared.
Investment Portfolio; New Investments; Project Impairments
Turning to the investment portfolio, the most significant new
position is a facility of GBP3.8million, to a project supported by
the private equity firm Maven Capital Partners LLP provided in
December to fund the building of a modern and environmentally
efficient crematorium at East Renfrewshire, Glasgow.
Exits: successful redemptions were concluded with Aquesta Ltd,
Dinosauria Ltd and with Rare Earth Medburn Ltd, the seventh, eighth
and ninth loans to be repaid from the portfolio. These were repaid
in September 2020, December 2020 and January 2021 respectively and
both generated an Internal rate of Return (IRR) of 7.43%, 8.23% and
8.24% respectively.
Impairments: during the 2020 financial year, three projects were
unable to meet their interest requirements in full. These were
Gatsby Homes, Ryka Developments and West Auckland. In accordance
with the relevant International Financial Reporting Standard, IFRS
9, the Company is required to apply an impairment charge when such
interest is not paid by the borrower, and there is not a clear
expectation that this can be recovered subsequently.
Gatsby Homes repaid capital of GBP474,000 during the year, with
further repayments post year-end. The remainder of the houses in
this project are expected to be sold during 2021, with a return of
the residual loan balance held on balance sheet. Ryka Developments,
a student accommodation facility near Durham, was sold in May 2020
at a figure below the level of the outstanding loan and interest,
and the difference was not recovered from Ryka. However, given the
uncertainty in outlook at the time of this sale, at a critical
phase during the Covid-19 outbreak, the decision was made to allow
the sale to proceed, so as to improve the Company's liquidity and
financial headroom.
Finally, the West Auckland portfolio holding, which requires a
more detailed analysis. The West Auckland project is a loan in
relation to the intended construction of circa. 100 two, three and
four bedroom homes near Bishop Auckland, County Durham. This
project is one of a number of loans brought into the Company when
it was created in 2017.
A substantial impairment was taken against the value of the loan
in the previous financial year, as it was apparent that the
proceeds from building the homes and selling them would, net of
costs, be insufficient to pay the interest and recover the full
amount of the loan.
While the original loan predates the Company, the Board and
Investment Adviser nonetheless assessed the reasons behind the
losses on this loan with the assistance of an independent
accounting firm. In essence, though the sales value of the homes
built have largely been achieved, the properties took longer to
sell than had originally been anticipated. In addition, the
building costs were higher than had been originally assumed. This
fundamentally changed the economics of the project, meaning finance
costs built up over a far greater period. The point was reached,
following an independent RICS survey, that the project would not be
able to return all the remaining loan capital and pay the interest
owed. An impairment charge was therefore taken again in 2020 for
interest that is not considered recoverable. We are hopeful that
the remaining carrying value of the loan will be fully realised
during the current financial year ending on 30 November 2021.
Similarly, albeit on a much smaller scale, there is an
impairment to the Gatsby Homes loan, in relation to unpaid
interest. It is anticipated that this loan will close out within
the next few months. The loan is recorded at its estimated
recoverable value, (based on an independent RICS valuation). We do
not anticipate receiving any further interest on this loan.
In each of the above cases, up to 100% of the capital required
(including amounts required to pay interest on the loan) was lent
to the borrower. This type of lending allows an attractive (i.e.
high) rate of interest to be charged, and, in some cases, a profit
share equal to 25% of the upside once the loan and interest has
been repaid.
The decision has been made to move away from this approach. The
risks associated with default, where the borrower has no moral
hazard, with no personal capital commitment to a project, have
resulted in losses, and the Board and Investment Adviser believe
that the risk of further such losses is not outweighed by the
higher returns available.
The Company's revised strategy is one of a stretch senior
lender, in which senior and junior debt is placed in a single
package, and typically to lend only to a maximum proportion of
Gross Development Value ("GDV"), so the borrower has equity in a
project, and the risk of default is substantially lowered. The
trade-off to adopting this more prudent approach is that investment
return expectations are naturally going to be somewhat lower.
Typical returns to investors in Development Finance are between 4%
and 7%, depending on the specifics of a project, similar to the
expected returns on a diversified stock portfolio. The Company
retains the capacity to lend in excess of this maximum GDV
threshold in certain circumstances where it is believed the balance
of risk and return is sufficiently attractive.
Lastly, the Board has completed a full Strategic Review covering
what has been achieved so far, what has gone well and what has gone
less well, as described below.
Strategic Review
In preparation for the next phase of the Company's life, the
Board and Investment Adviser have undertaken a full review of the
Company, during which the following strategic objectives were
identified:
-- Defining a clear investment strategy, while removing certain historic restrictions.
-- Targeting NAV growth.
-- Maintaining an attainable and consistent stream of quarterly dividends.
-- Reducing operating costs at all levels of the Company.
-- Improving liquidity, i.e. the ability to buy and sell shares
easily, by introducing discount control mechanisms such as share
buy-backs and share issues.
-- Bringing forward the Continuation Vote scheduled to take
place at the Company's fifth Annual General Meeting ("AGM").
-- Increasing assets under management via share issuance and via
an active marketing campaign to promote the Company's merits.
Shareholder Circular; General Meeting
Following the above Strategic Review, a General Meeting of the
Company was held on 29 March 2021 (the "2021 GM") at which the
changes listed below were proposed and approved by
shareholders.
In addition, pursuant to the Company's articles of association,
the Directors were required to propose an ordinary resolution that
the Company continue its business as presently constituted (the
"Continuation Resolution") at the fifth annual general meeting of
the Company (which would be the 2021 annual general meeting) and at
each third annual general meeting of the Company thereafter. The
Continuation Resolution was brought forward and was put to
shareholders at the 2021 GM and I am pleased to report that this
resolution was also supported and approved by shareholders. As the
Continuation Resolution was proposed early, the Company also
amended its articles of association accordingly so that the next
Continuation Resolution will be proposed at the annual general
meeting to be held in 2024 and at each third annual general meeting
thereafter . I would like to thank shareholders for their
continuing support for the Company.
Changes to Investment Policy
The changes to the investment policy listed below were approved
by shareholders and are intended to allow for greater flexibility
to allocate capital to sectors that the Board, as advised by the
Investment Adviser, has assessed as potentially more attractive
within existing risk management parameters. These changes:
-- reduce restrictions on sector caps imposed by the previous
investment policy. The previous sector caps required a heavier
exposure to lending to the commercial property sector than the
Board, as advised by the Investment Adviser, considered favourable
in the current economic climate. The Board, as advised by the
Investment Adviser, anticipates more attractive opportunities in
small and medium-sized enterprise (SME) housebuilding and has
observed latent demand for the Company's lending in the local
market. Commercial property opportunities will nevertheless
continue to be examined on merit;
-- remove reference to profit share agreements in the investment
policy, including that the Directors, as advised by the Investment
Adviser, anticipate that the Company will have the benefit of
associated profit shares for approximately 80% of its future loan
advances, as the anticipated evolution of the portfolio toward
lower LTV loans is likely to result in fewer situations where an
equity position can reasonably be achieved; and;
-- increase the maximum exposure to bridging loans, selected
loan financings and other debt instruments so as to increase the
flexibility available to the Investment Adviser for adding new
secured loans to the portfolio that meet their risk adjusted return
criteria/objectives.
The Company intends to maintain the existing policies that
provide for risk management through diversification, in particular
maintaining the current maximum exposure level of 20% of the Net
Asset Value in respect of any one borrower or related borrowers or
developer or related developer entities (calculated at the time of
investment).
Articles of association
As a result of the Continuation Resolution being proposed early
at the 2021 GM (see above), shareholder approval was also sought
and obtained to amend the Company's existing articles of
association so that the Directors are not required to propose
another Continuation Resolution at the annual general meeting to be
held later this year in May. The Company also took the opportunity
to update the existing articles of association in order to reflect
changes to market practice since its initial public offering. The
amended articles of association that were approved at the 2021 GM
are now effective.
Dividend Policy
The Board has considered the appropriate dividend policy for the
Company both for the current and for future financial years. Since
June 2019, the Company has had the objective of paying dividends on
a quarterly basis at the rate of 1.5 pence per quarter per share.
In the current environment, however, not only have underlying base
rates and LIBOR dropped, but the Company is reducing the risk of
its loans by requiring a higher equity component from its
borrowers, and this will have the effect of lowering interest
earnings from the loans.
As a consequence, the Board and the Investment Adviser have
considered the likely dividend capacity of the Company. Bearing in
mind that the Company intends to distribute at least 85 per cent.
of its eligible income in accordance with Chapter 4 of Part 24 of
the Corporation Tax Act 2010 in order to retain its investment
trust status, the Board resolved to adopt a new dividend policy for
the Company. It is anticipated that the new policy will first take
effect in respect of the dividend due to be declared in respect of
the first quarter of the current financial year (expected to be
declared in May 2021).
Our analysis indicates that anticipated returns from typical
development finance portfolio projects of approximately 5-6% may be
achieved, going forward, in the current interest rate environment.
We believe this is a suitable benchmark for the Company to at least
achieve and ideally beat, whilst recognising that in the financial
year to 30 November 2021, returns will be lower because of the drag
effect of legacy impairments on net returns.
Under this revised policy, the Company expects to pay dividends
at a rate of 1 penny per share per quarter, equivalent to 4 pence
per share per year in aggregate. The Company intends to continue to
distribute at least 85 per cent. of its eligible income or such
other percentage which may be prescribed by HMRC in accordance with
Chapter 4 of Part 24 Corporation Tax Act 2010. Accordingly, to the
extent required, at the end of each financial year, the Board will
consider whether payment of an additional dividend (to be paid
alongside the final fourth quarter dividend for that year) is
appropriate and/or required for the Company to maintain its
investment trust status.
Interest rates are now at historically low levels in the UK,
with the Bank of England base rate at 0.1% and LIBOR now close to
zero. This has had an impact on the rates we are able to charge
newer borrowers, with a consequent impact on the Company's
profitability and thus its annual dividend capacity. It is
anticipated that interest rates will be slow to rise in the UK. As
and when interest rates do rise in the UK, however, these increases
will be reflected in market rates for the type of commercial
lending the Company offers. These increases would be expected to
pass through to profits, and thus, in due course, to the Company's
ability to pay an increased dividend.
Capital Management
The Board has the discretion to seek to manage, on an ongoing
basis, the premium or discount at which the shares may trade to
their Net Asset Value through further issues and buy-backs, as
appropriate.
When the Company's shares trade at a premium to NAV, it may
issue new shares as long as no shares are issued at a price below
NAV per share. Issue of new shares would enable the Company to seek
to manage the premium to Net Asset Value at which the shares may
trade. Shareholder approval was therefore sought and obtained at
the 2021 GM that the Directors to may allot shares representing up
to approximately 20 per cent. of the issued share capital of the
Company on a non-pre-emptive basis. This means that the Directors
will not be obliged to offer such new shares to shareholders pro
rata to their existing holdings. The reason for this is to allow
flexibility to take advantage of opportunities to issue new shares
to investors and grow the Company. Unless previously authorised by
shareholders, no shares will be issued at a price less than the
prevailing NAV per share at the time of the issue unless they are
offered pro rata to existing shareholders. The authority to issue
shares on a non-pre-emptive basis will expire on 31 May 2021 or, if
earlier, on the conclusion of the annual general meeting to be held
in 2021. Going forward, the Directors intend to seek authority to
issue shares on a non-pre-emptive basis annually at the Company's
annual general meeting, including the annual general meeting to be
held in 2021. The Directors have no present intention to exercise
the authority to issue shares on a non-pre-emptive basis. Investors
should note that the issuance of new shares is entirely at the
discretion of the Board, and no expectation or reliance should be
placed on such discretion being exercised on any one or more
occasions.
At the general meeting of the Company held on 11 August 2020,
the Board obtained a discretionary share buyback authority for the
purposes of managing the discount to NAV per share at which the
shares trade. This authority will expire on the earlier of the
conclusion of the annual general meeting to be held in 2021 and 15
months from the passing of the resolution. It is the intention of
the Directors to renew this authority, to make market purchases of
up to 14.99% of the shares in issue, at the annual general meeting
to be held in 2021. Shareholders should note that the purchase of
shares by the Company is at the absolute discretion of the
Directors and is subject, amongst other things, to the amount of
cash available to the Company to fund such purchases. Accordingly,
no expectation or reliance should be placed on the Directors
exercising such discretion on any one or more occasions.
The Board anticipates utilising the Company's share issuance and
buyback authority as necessary to effectively manage the Company's
share capital.
Outlook
The Company has evolved as experience has been gained and
lessons learned. Early projects, some pre-dating the formation of
the Company, have all either been completed and left the portfolio
or are in the process of doing so. In all cases, for potential new
lending projects, a credit committee of TOC undertakes a rigorous
appraisal of every investment opportunity presented and only
supports those which pass a range of screening checks, including
physical site visits.
The Company and Investment Adviser now have a track record of
project finance that is attracting business pitches not just from
local but from regional enterprises, allowing the best prospects to
be selected for the Company's investment portfolio.
What this means, in summary, is that the investment portfolio
has become less and less dependent upon older, higher risk and
potential return projects. While maintaining a diversified base, it
will ultimately comprise a range of loans that have been arranged
based upon the Company's modified investment criteria in the wake
of the above Strategic Review. The implication for shareholders is
that while the overall investment return targets may be lower, so
will the potential for volatility and downside risk.
With interest rates elsewhere close to zero, and with the
country only on the first steps towards the end of the pandemic and
national lockdown, we believe this cautious approach offers the
best way ahead for the Company.
Board of Directors
In accordance with the AIC Code of Corporate Governance
requirements, all Directors will stand for re-appointment at the
forthcoming AGM.
Annual General Meeting
The Company's Annual General Meeting will be held on Wednesday 5
May 2021 at 12 noon.
In light of the current Covid-19 pandemic and associated
restrictions, the AGM will be run as a closed meeting and
shareholders will not be permitted to attend in person.
As a result, the Board strongly encourages all shareholders to
exercise their votes in respect of the meeting in advance, by
completing and returning their proxy forms. This will ensure that
the votes are registered. In addition, shareholders are encouraged
to raise any questions with the Company Secretary via email to
cosec@maitlandgroup.com or by post to the Company Secretary at the
address set out on in the Annual Report. I would ask shareholders
to submit their questions well in advance of the AGM, and in any
event by no later than Friday, 23 April 2021. Any questions
received will be replied to by the Company after the meeting.
In the event that the situation changes the Company will update
shareholders through an announcement to the London Stock Exchange
and on the Company's website.
John Newlands
Chairman
31 March 2021
Investment Adviser's Review
ABOUT THE ADVISER
Tier One Capital Ltd is a Newcastle upon Tyne based wealth
management and property lending firm providing financial advice
services and bespoke tailored lending to the property development
market.
INVESTMENT ADVISER'S REPORT
REVIEW OF THE 12 MONTHS TO 30 NOVEMBER 2020
This Annual Report and Accounts covers the third full year of
performance and fourth audit review of the Company, following its
Listing in January 2017.
The Company's primary purpose is to provide debt finance to the
property sector. The Company also benefits from a number of equity
positions attained at nil cost in a number of the borrowing
entities which it supports.
Highlights
The trading period covered by this report has been extremely
difficult with arguably two of the greatest challenges the UK
economy has ever seen coming together. Firstly, the Brexit
transition period starting in January 2020 negatively impacted on
investor confidence throughout the period. There remained a No Deal
scenario at the Company's year end, meaning the Company traded
during its full financial year in a period of significant political
and economic Brexit uncertainty. Added to that was the
unprecedented and hugely damaging impact of the Covid-19 pandemic,
which again hit investor confidence, transaction volumes and the
pace of project development within the Company's portfolio (amongst
all other related pandemic issues).
Against this backdrop, the Company acted swiftly to protect
shareholder value and we are pleased to report the investment
highlights below:
-- NAV Total Return of 3.9%.
-- A focus on liquidity, creating fund headroom of GBP6.5m at the period end.
-- The profitable exit of two significant portfolio projects, in
higher risk economic sectors, to minimise the impact of Covid-19
and Brexit.
-- Redeployment of funds across the North East and Scotland,
meaning the Company's now focussed on regions and market economies
that we know best.
-- The collection of 78.12% of contractual Net Interest Income
due, despite exposure to non-performing sectors and assets. This
figure increases to 94.55% when impaired assets are excluded
-- Payment of a total dividend of 3.0p during the year, whilst
at a reduced level was still significantly more than many peers and
FTSE listed entities.
Having addressed the portfolio to deliver those investment
highlights, our geographic focus and lending type is as
follows:
Deployment
Despite the economic challenges faced, we are pleased to report
an active year for new transactions, deployments to existing
projects together with full and partial exits.
The Company agreed three new facilities during the year:
-- Coalsnaughton - GBP2.2m 18-month facility
-- Oswald Street - GBP0.38m 18-month facility
-- Newlands - GBP0.33m 18-month facility
There were further deployments of capital as follows:
Deployments - Live Deals
Project GBPk
Bill Quay 2,550
-----
Chilton Moor 1,602
-----
Springs 575
-----
West Auckland 435
-----
Newgate Street 290
-----
Whitefield Farm 170
-----
Pendower Hall 150
-----
Charlton's Bonds 36
-----
Post year end, we were delighted to announce a GBP3.8m facility
with Horizon Cremation (East Renfrewshire) Ltd. The three year
facility will facilitate the building of a modern and
environmentally efficient crematorium at East Renfrewshire,
Glasgow. The borrower is backed by private equity firm Maven
Capital Partners LLP, and demonstrates the Company's ongoing
commitment to supporting both residential and commercial
developments.
Portfolio Exits
In May 2020 the sixth exit within the loan book occurred with
the repayment of the Ryka project. The GBP2.3m loan was to support
the acquisition of a 34 bed student accommodation building in
Durham. Whilst not all the capital has been repaid, the project
generated a positive internal rate of return ('IRR') of 3.9%.
The Willows became the seventh successful exit in September
having been a project within the portfolio since the Company's
inception. The facility was a trading wedding venue based near
Ilford in Essex that had been unable to operate for much of the
year due to Covid-19 restrictions. We were pleased to report full
capital repayment and with all interest covered by the borrower, a
strong project IRR overall of 7.4%.
Post year end Gateshead Town Hall was the eighth exit from the
portfolio. All capital and interest was paid in full in December
2020 generating an IRR of 8.23% since June 2018.
The ninth exit occurred in January 2021. Rare Earth Medburn,
which has been in the portfolio since listing, repaid all of its
capital and interest, generating an IRR of 8.24%.
Partial Redemptions Update
Project GBPk
Newgate St 1,204
-----
Springs 1,146
-----
Rare Earth Medburn 793
-----
Gatsby Homes 474
-----
IHL 400
-----
Coalsnaughton 200
-----
Charlton's Bonds 104
-----
Chilton Moor 83
-----
Impairments
The Company, in accordance with IFRS 9, recognises the gross
interest receivable on all its loans, and then recognises an
impairment charge when that interest is not paid by the borrower,
and there is not a clear expectation that this can be recovered
subsequently. During 2020 the three projects unable to meet their
interest requirements were Gatsby Homes, Ryka Developments and West
Auckland.
We note that Gatsby Homes have repaid capital of GBP474,000
during the year, with further such repayments subsequent to year
end. We anticipate that the remainder of the houses in this project
will be sold during 2021, with a return of the residual loan
balance held on balance sheet. We anticipate that the residual
interest on this loan will be subject to impairment in 2021.
In May 2020 the year the property owned by Ryka Developments
(student accommodation near Durham) was sold. The proceeds were
below the level of the outstanding loan and interest, and the
difference was not recovered from Ryka. However, given the
uncertainty in outlook at the time of this sale, we agreed to allow
the sale to proceed to lock in the liquidity and headroom this
event created.
IFRS 9 also requires the Company to consider various credit loss
scenarios and assign a risk weighting to these. This calculation
generates a provision which is taken as a further impairment for
the year. This year the Company has recognised GBP74,000 (2019:
GBP187,000) and this provides a provision (GBP261,000, 2019:
GBP187,000) based on look-forward statements to withstand
market-related shocks including those caused by the ongoing
Covid-19 pandemic.
Gearing
In May 2020, the Company refreshed a committed revolving credit
facility with Shawbrook Bank for a further year. Again the key
driver was headroom and liquidity and the increase in the facility
from GBP6.0m to GBP6.5m demonstrates the support that the Company
has from its lender, and the growing confidence in future
deployment given the current strength of pipeline.
Profit Share Projects
There are currently ten Profit Share projects in the portfolio
(2019: nine).
Since the listing of the Company we have recognised an uplift in
the equity value of five of the twelve facilities (2019: three),
The remaining Profit Share holdings are recognised as nil value,
given where we are in the lifecycle of each project. We monitor and
review this on an ongoing basis.
OUTLOOK
Economic Outlook
As at 30 November 2020 details had emerged about a successfully
certified Covid-19 vaccine that saw an uplift in investment markets
such as the 14% rise in the FTSE 250 during November.
UK Economy and the Construction Sector
Lloyds Bank reports a continued improvement in the UK Economic
Growth prospects generally and their periodic temperature check of
clients continues to show an upward curve.
Using the Purchasing Managers Index ('PMI') outputs as a lead
indicator, UK Construction output has returned to growth following
the outbreak of the Pandemic.
The construction sector is also recovering more strongly than
the UK economy generally and forecasting to remain more
positive.
The North East, because of its prevalence to both higher than
average public sector employment and its broad manufacturing base
is in the top 2 regions nationally showing prospects of a strong
"v" shaped recovery.
Economic headwinds from Brexit, the second lockdown and the
resultant impact of unemployment over winter months, particularly
from within the hospitality sector, are still expected.
We were particularly encouraged to see further and substantial
government initiatives to support property and construction in the
medium term, particularly the National Home Building Fund ('NHBF')
unveiled by the Chancellor in the Autumn Spending Review on 25
November 2021.
It is estimated that NHBF will support up to 650,000 additional
jobs and unlock up to 860,000 homes.
Relevant to the Company, NHBF includes funding for:
-- GBP2.2bn of loans for SMEs and innovative housebuilders to
support new housing in areas where it is needed most.
-- Additional GBP100m of grant funding in 2021-22 for unlocking
brownfield sites, support house building on land that may be less
attractive such as ex-industrial sites.
-- Aim to encourage modern methods of construction which, at the
moment, are not being widely used by national housebuilders.
The NHBF is in addition to the GBP12.2bn Affordable Homes
Programme which has previously been announced.
There are also plans to establish a new UK infrastructure bank
to be headquartered in the north of England with the aim to start
financing major new investment projects in spring 2021.
We recognise that significant government initiatives may take
time to mobilise and our sector views in the meantime are
summarised as follows:
Residential
Savills view has historically been closest to our own findings
and is again used as our basis for predictions.
Broadly, a prediction for the North East and Scotland of nil
inflation and a 20% growth in transaction volumes over 2020 is what
we expect to see.
Our view on this is that growing economic output, coupled with
mortgage rates remaining low for the foreseeable future supports
that transaction volume uplift. Tempered though by the prospects of
higher unemployment, albeit partly mitigated by expected
manufacturing growth and clean-energy sector job creation in the
North East and Scotland.
We have a policy of not forecasting house price inflation in
project appraisals and are therefore comfortable with the nil
forecast. Whilst strong growth is predicted from 2022 once again,
all sites in the portfolio at November 2020 are expected to be
fully built and mainly sold within the next 12 months.
Other factors informing our views are:
Average House Prices. The North East and Scotland see
transaction values well beneath UK averages highlighting greater
affordability and value for money. Price growth/decline has less
impact in our target regions.
Availability and affordability of Mortgages. Interest rates are
historically low and are not forecast to increase substantially
over the next 5 years. There is no evidence of a contraction in
bank liquidity or in mortgage lenders seeking to exit the market in
the North. Some reaction to falling house prices was seen during
the course of 2020, with some RICS valuations and the resultant
quantum of mortgage offers downgraded, but there has been less
pressure from Q3 onwards. Our view is that has now stabilised as
evidenced by transactions at Gatsby Homes and West Auckland.
First time buyers and newbuilds. Some sites are more reliant
than others on the Government's Help-to-buy scheme. Should that
scheme ('HTB') be ended, then Housebuilding would see weaker demand
factors. Our view is that the push for new homes would continue to
address the UKs housing shortage and that the Government would
continue this successful scheme to support first time buyers to
achieve a more level playing field. Again the project lifecycle and
exposure to new builds across sites where first time buyers are
seen sees our loan book in a comfortable position. Therefore we
view the risk of HTB withdrawal as low.
UK five-year outlook
Unemployment and interest rate assumptions critical to our
revised forecasts.
Five years
2020 2021 2022 2023 2024 to 2025
GDP* (whole year) -9.7% +8.5% +3.5% +2.0% +1.8% +5.2%
------- ------- ------- ------- ------- -----------
Income* (whole
year) -3.6% +3.5% +3.9% +3.3% +3.2% +10.5%
------- ------- ------- ------- ------- -----------
Unemployment*
(at Q4) 6.5% 5.2% 4.2% 3.7% 3.6% n/a
------- ------- ------- ------- ------- -----------
Base rate* (at
Q4) 0.10% 0.10% 0.10% 0.10% 0.25% n/a
------- ------- ------- ------- ------- -----------
Average mortgage
rate 1.80% 1.73% 1.65% 1.72% 1.92% n/a
------- ------- ------- ------- ------- -----------
New house price
forecast (September) +4.0% 0.0% +4.0% +6.5% +4.5% +20.4%
------- ------- ------- ------- ------- -----------
Previous forecast
(June) -7.5% +5.0% +8.0% +5.0% +4.5% +15.1%
------- ------- ------- ------- ------- -----------
New UK transaction
forecast (September) 1,059k 1,209k 1,187k 1,187k 1,186k n/a
------- ------- ------- ------- ------- -----------
Previous forecast
(June) 775k 1,083k 1,330k 1,187k 1,186k n/a
------- ------- ------- ------- ------- -----------
Sources: *Oxford Economics, Savills Research.
Commercial
The Company's exposure to specific commercial sectors was
deliberately wound down during 2020 whilst major uncertainty was
prevalent. We do remain though focussed on maintaining a
diversified portfolio and will be looking to grow the commercial
book, selectively, during 2021.
Our view of the various commercial sectors will inform future
transactions, which we see as follows:
We expect the commercial property space to offer both challenges
and opportunities in 2021. Initially, following the expected
roll-out of three Covid-19 vaccines, we expect a return of some
significant lost confidence seen this year.
In market trends we are planning for an uptick in demand and
pricing for flexible office rental at the expense of traditional
leased units.
The manufacturing base in the North East has been relatively
resilient to the Covid-19 impact and has supported the regional
economy to be one of the quickest in the UK to-date to recover. We
therefore expect industrial space to continue to see higher
demand.
On the flip side, hospitality and retail property assets will
continue to be hardest hit although good operators will refresh and
likely extend their portfolios.
We also continue to explore sectors that are not necessarily
impacted by Covid-19 and we previously announced we have supported
the development of a new-build crematorium development on the
outskirts of Glasgow.
As a specialist funding partner to the property market our key
objective is to identify and support professional, experienced and
reliable management teams who have a clear vision and robust plans.
We are going into 2021 with a stable platform to deliver, together
with a healthy outlook and pipeline for carefully chosen parts of
the commercial property sector.
PIPELINE
We continue to see strong deal flow, reflective of the lack of
finance options available to developers in the regions. In addition
to the new projects the Company funded, we are currently reviewing
GBP15.9m of potential funding opportunities across seven projects
with 70% in the North East and the remainder across Scotland.
While this is an unprecedented time, with the priority being to
ensure all of our stakeholders continue to remain safe and well, we
remain confident that our robust relationship led approach with our
borrowers will give the Company the best opportunity to minimise
disruption to daily operations. The Company's strategy of focusing
on a smaller volume of higher valued loans allows us to stay close
to the borrowers, and to remain in constant contact with them
throughout this period. By ensuring that we maintain our regular
communication with our borrowers, and by working together and
building on the existing relationships we have with them, we are
well placed to navigate through the coming months.
Ian McElroy,
Tier One Capital Ltd
31 March 2021
THE INVESTMENT PORTFOLIO AS AT 30 NOVEMBER 2020
Project Sector Maturity Profit Security % of LTV* Loan Loan
Date Share Portfolio (Nov 20) Value Value
(Nov 20) (Nov 19)
GBP'000s GBP'000s
----------------------- --------- --------- ------------ --------- --------- --------
Yes -
Bill Quay Residential Feb 2022 25.1% Senior 13.7% 95.90% 3,236 500
----------------------- --------- --------- ------------ --------- --------- -------- --------
Yes -
Springs Residential Nov 2021 25.1% Senior 12.5% 90.23% 2,952 3,567
----------------------- --------- --------- ------------ --------- --------- -------- --------
Exit fee
Chilton Moor Residential Aug 2021 taken Senior 10.4% 63.08% 2,459 891
----------------------- --------- --------- ------------ --------- --------- -------- --------
Yes -
Newgate Street Residential Aug 2020 25.1% Senior 8.2% 98.83% 1,941 2,905
----------------------- --------- --------- ------------ --------- --------- -------- --------
Yes -
Coalsnaughton Commercial Jul 2021 25.1% Senior 7.2% 111.93% 1,688 -
----------------------- --------- --------- ------------ --------- --------- -------- --------
West Auckland Residential Jun 2022 No Senior 7.0% 100.00% 1,649 1,182
----------------------- --------- --------- ------------ --------- --------- -------- --------
Exit fee
Whitefield Farm Residential Jan 2020 taken Senior 6.2% 73.25% 1,450 1,280
----------------------- --------- --------- ------------ --------- --------- -------- --------
Yes -
Gatsby Homes Residential Jun 2020 25.1% Senior 5.7% 100.00% 1,333 1,802
----------------------- --------- --------- ------------ --------- --------- -------- --------
Pendower Hall Commercial Mar 2023 No Senior 4.9% 88.43% 1,150 958
----------------------- --------- --------- ------------ --------- --------- -------- --------
Rare Earth
Medburn Residential Nov 2019 No Senior 4.6% 75.79% 1,072 1,865
----------------------- --------- --------- ------------ --------- --------- -------- --------
IHL Residential Sep 2021 No Subordinate 3.3% 68.04% 776 1,175
----------------------- --------- --------- ------------ --------- --------- -------- --------
Charlton's
Bonds Residential/Commercial Nov 2021 No Senior 2.7% 133.12% 628 697
----------------------- --------- --------- ------------ --------- --------- -------- --------
Fernhill Residential Jul 2019 No Subordinate 2.5% 58.66% 598 598
----------------------- --------- --------- ------------ --------- --------- -------- --------
Gateshead Town Yes -
Hall Commercial Jun 2020 25.1% Senior 2.3% 33.47% 550 550
----------------------- --------- --------- ------------ --------- --------- -------- --------
Yes -
Oswald St Commercial Feb 2022 25.1% Senior 1.6% 65.00% 382 -
----------------------- --------- --------- ------------ --------- --------- -------- --------
Exit fee
Newlands Commercial Mar 2022 taken Senior 1.4% 67.35% 330 -
----------------------- --------- --------- ------------ --------- --------- -------- --------
Glenfarg Residential Oct 2020 No Subordinate 1.3% 23.51% 300 300
----------------------- --------- --------- ------------ --------- --------- -------- --------
Yes -
Marley Hill** Residential Exited 25.1% Senior 0.3% - 60 438
----------------------- --------- --------- ------------ --------- --------- -------- --------
Exits 6,685
--------- --------- -------- --------
General Impairment (261) (187)
--------- --------- -------- --------
Cash 4.2% 1,002 523
--------- --------- -------- --------
Total/Weighted Average 100.0% 23,295 25,729
--------- --------- -------- --------
*LTV has been calculated using the carrying value of the loans
as at the balance sheet date.
**Completed in December 2019; equity share held on balance
sheet.
PRINCIPAL AND EMERGING RISKS
The Board of Directors has overall responsibility for risk
management and internal control within the context of achieving the
Company's objectives.
The Directors confirm that they have carried out a robust
assessment of the principal and emerging risks facing the Company,
including those that would threaten its business model, future
performance, solvency or liquidity, as they operated during the
year and up to the approval of the Annual Report.
The Board agrees the strategy of the Company taking into
consideration the Company's risk appetite. With the assistance of
the Investment Adviser, the Board has drawn up a risk matrix, which
identifies the key risks to the Company, as well as emerging risks.
In assessing the risks and how they can be mitigated, the Board has
given particular attention to those risks that might threaten the
viability of the Company. These key risks fall broadly under the
following categories:
-- Investment and strategy risk
The Company's targeted returns are targets only and are based on
estimates and assumptions about a variety of factors including,
without limitation, yield and performance of the Company's
investments, which are inherently subject to significant business,
economic and market uncertainties and contingencies, all of which
are beyond the Company's control and which may adversely affect the
Company's ability to achieve its targeted returns. Accordingly, the
actual rate of return achieved may be materially lower than the
targeted returns, or may result in a partial or total loss, which
could have a material adverse effect on the Company's
profitability, the Net Asset Value and the price of Ordinary
shares.
Borrowers under the loans in which the Company invests may not
fulfil their payment obligations in full, or at all, and/or may
cause, or fail to rectify, other events of default under the
loans.
The Board is responsible for setting the investment strategy to
achieve the targeted returns and for monitoring the performance of
the Investment Adviser and the implementation of the agreed
strategy.
An inappropriate strategy could lead to poor capital performance
and lower than targeted income yields.
This risk is mitigated through regular reviews and updates with
the Investment Adviser, monitoring of the portfolio sectors against
the investment restrictions on a quarterly basis and tracking of
loan to value ratios of the underlying property projects.
-- Market risk
The Company's investment strategy relies in part upon local
credit and real estate market conditions. Adverse conditions may
prevent the Company from making investments that it might otherwise
have made leading to a reduction in yield and an increase in the
default rate. The Board has considered and continues to keep under
review the political, economic and investment risks to the Company,
associated with the withdrawal from the UK at the beginning of 2021
and the UK's future relations with the EU. This withdrawal might
lead to a reduced or increased demand for the Company's shares as a
result of investor sentiment which may be reflected in a widening
or narrowing of the discount.
The Company holds 100% of its assets in the United Kingdom. The
Board considers that an unforeseeable global event has emerged,
with the COVID-19 pandemic resulting in turmoil in the financial
markets and economies.
The impact of the spread of the virus on the residential
property market is monitored continuously.
To mitigate the market risks, the Board receives quarterly
updates from the Investment Adviser containing information on the
local market conditions and trends. This information is reviewed
alongside the sector split of the portfolio to ensure the portfolio
is aligned to meet future challenges.
-- Financial risk
The Company's activities expose it to a variety of financial
risks that include interest rate risk, liquidity risk and credit
risk. Further details on these risks and the way in which they are
mitigated are disclosed in the notes to the financial
statements.
-- Operational risk
The Company has no employees and relies upon the services
provided by third parties. It is primarily dependent on the control
systems of the Investment Adviser and Administrator who
respectively maintain the assets and accounting records.
Failure by any service provider to carry out its obligation in
accordance with the terms of their appointment could have a
detrimental effect on the Company.
To mitigate these risks, the Board reviews the overall
performance of the Investment Adviser and all other third party
service providers on a regular basis and has the ability to
terminate agreements if necessary. The business continuity plans of
key third parties are subject to Board scrutiny.
-- Legal and Regulatory risk
In order to qualify as an investment trust, the Company must
comply with section 1158 of the Corporation Tax Act 2010. The
Company has been approved by HM Revenue & Customs as an
investment trust. The Company is listed on the London Stock
Exchange. Non-compliance with the taxes act or a breach of listing
rules could lead to financial penalties and reputational loss.
These risks are mitigated by the Board's review of quarterly
financial information and the compliance with the relevant
rules.
Management Report and Directors' Responsibility Statement
Management report
Listed companies are required by the DTRs to include a
management report in their Financial Statements. The information is
included in the Strategic Report on in the Annual Report (together
with the sections of the Annual Report and Accounts incorporated by
reference) and the Directors' Report in the Annual Report.
Therefore, a separate management report has not been included.
Directors' responsibility statement
The Directors are responsible for preparing the Annual Report
and Financial Statements, in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
('EU').
Under Company law the Directors must not approve the financial
statements unless they are satisfied that, taken as a whole, they
are fair, balanced and understandable report and provide the
information necessary for shareholders to assess the Company's
position and performance, business model and strategy and that they
give a true and fair view of the state of affairs of the Company
and of the total return or loss of the Company for that period. In
order to provide these confirmations and in preparing these
financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable International Financial Reporting
Standards, as adopted pursuant to Regulation (EC) No 1606/2002 as
it applies in the EU, have been followed, subject to any material
departures disclosed and explained in the financial statements;
and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business and the Directors confirm that they have done
so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006, where
applicable. They are responsible for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
The financial statements are published on www.
tocpropertybackedlendingtrust.co.uk which is a website maintained
by the Company's Investment Adviser. The Directors are responsible
for the maintenance and integrity of the corporate and financial
information included on the Company's website. Legislation in the
UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Under applicable UK law and regulations, the Directors are also
responsible for preparing a Strategic Report, a Directors' Report,
Statement of Corporate Governance and Directors' Remuneration
Report that complies with that law and those regulations.
Directors' confirmation statement
Each of the Directors, whose names and functions appear in the
Annual Report, confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable International Financial Reporting Standards as adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the EU,
give a true and fair view of the assets, liabilities and financial
position and total return or loss of the Company; and
-- The Management Report, referred to herein, which comprises
the Chairman's Statement, the Investment Adviser's Report,
Strategic Report (including risk factors) and note 17 of the
Financial Statements includes a fair review of the development and
performance of the business and position of the Company, together
with the principal risks and uncertainties that it faces.
The Directors consider that the Annual Report and Accounts taken
as a whole, is fair, balanced and understandable and it provides
the information necessary to assess the Company's position and
performance, business model and strategy.
On Behalf of the Board
John Newlands, Chairman
31ST MARCH 2021
Statement of Comprehensive Income
Year ending Year ended
30 November 2020 30 November 2019
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
==================================== ====== ========= ========= ========= ========= ========= =========
Revenue
Investment interest 2 2,346 - 2,346 2,222 - 2,222
------ --------- --------- --------- --------- --------- ---------
Total revenue 2,346 - 2,346 2,222 - 2,222
------ --------- --------- --------- --------- --------- ---------
Losses on investments held at
fair value through profit of
loss 8 (325) (127) (452) - 136 136
------ --------- --------- --------- --------- --------- ---------
Total income 2,021 (127) 1,894 2,222 136 2,358
------ --------- --------- --------- --------- --------- ---------
Expenditure
Investment adviser fee 3 (57) - (57) - - -
------ --------- --------- --------- --------- --------- ---------
Impairments on investments held
at amortised cost 4 (194) (43) (237) (206) (2,651) (2,857)
------ --------- --------- --------- --------- --------- ---------
Other expenses 4 (513) - (513) (567) (30) (597)
------ --------- --------- --------- --------- --------- ---------
Total expenditure (764) (43) (807) (773) (2,681) (3,454)
------ --------- --------- --------- --------- --------- ---------
Profit/(loss) before finance
costs and taxation 1,257 (170) 1,087 1,449 (2,545) (1,096)
------ --------- --------- --------- --------- --------- ---------
Finance costs
------ --------- --------- --------- --------- --------- ---------
Interest payable (231) - (231) (86) - (86)
------ --------- --------- --------- --------- --------- ---------
Profit/(loss) before taxation 1,026 (170) 856 1,363 (2,545) (1,182)
------ --------- --------- --------- --------- --------- ---------
Taxation 5 - - - - - -
------ --------- --------- --------- --------- --------- ---------
Profit/(loss) for the year and
total comprehensive profit/(loss)
for the year 1,026 (170) 856 1,363 (2,545) (1,l82)
------ --------- --------- --------- --------- --------- ---------
Basic earnings per share 7 3.81p (0.63)p 3.18p 5.06p (9.45)p (4.39)p
------ --------- --------- --------- --------- --------- ---------
The total column of this statement represents the Company's
Statement of Comprehensive Income, prepared in accordance with
IFRS. The supplementary revenue return and capital return columns
are both prepared under guidance published by the Association of
Investment Companies.
All revenue and capital items in the above statement derive from
continuing operations.
There is no other comprehensive income as all income is recorded
in the statement above.
Statement of Financial Position
As at As at
30 November 2020 30 November 2019
Notes GBP'000 GBP'000
===================================== ====== ======== ========
Non-current assets
Investments held at fair value 8 3,948 1,441
------ -------- --------
Loans at amortised cost 9 2,799 5,623
------ -------- --------
6,747 7,064
------ -------- --------
Current assets
Investments held at fair value 8 12,861 12,778
------ -------- --------
Loans at amortised cost 9 3,247 5,414
------ -------- --------
Other receivables and prepayments 10 21 618
------ -------- --------
Cash and cash equivalents 1,002 523
------ -------- --------
17,131 19,333
------ -------- --------
Total assets 23,878 26,397
------ -------- --------
Current liabilities
------ -------- --------
Loan facility 11 (1,150) (3,750)
------ -------- --------
Other payables and accrued expenses 12 (131) (98)
------ -------- --------
Total liabilities (1,281) (3,848)
------ -------- --------
Net assets 22,597 22,549
------ -------- --------
Share capital and reserves
------ -------- --------
Share capital 13 269 269
------ -------- --------
Share premium 14 9,094 9,094
------ -------- --------
Special distributable reserve 14 13,497 16,455
------ -------- --------
Revenue reserve 14 - (291)
------ -------- --------
Capital reserve 14 (263) (2,978)
------ -------- --------
Equity shareholders' funds 22,597 22,549
------ -------- --------
Net asset value per ordinary share 83.93p 83.75p
------ -------- --------
The notes below form an integral part of the financial
statements.
The financial statements below were approved by the Board of
Directors of TOC Property Backed Lending Trust plc (a public
limited company incorporated in England and Wales with company
number 10395804) and authorised for issue on 31 March 2021. They
were signed on its behalf by:
John Newlands
Chairman
Statement of Changes in Equity
For the year ending 30 November 2020
Special
Share Share distributable Capital Revenue
capital premium reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================ ========= ========= =============== ========= ========= ========
At beginning of the year 269 9,094 16,455 (2,978) (291) 22,549
--------- --------- --------------- --------- --------- --------
Total comprehensive profit
for the year:
--------- --------- --------------- --------- --------- --------
Profit for the year - - - (170) 1,026 856
--------- --------- --------------- --------- --------- --------
Transfer of realised
loss on loans - - (2,885) 2,885 - -
--------- --------- --------------- --------- --------- --------
Transactions with owners
recognised directly in
equity:
--------- --------- --------------- --------- --------- --------
Dividends paid - - (73) - (735) (808)
============================ ========= ========= =============== ========= ========= ========
At 30 November 2020 269 9,094 13,497 (263) - 22,597
--------- --------- --------------- --------- --------- --------
For the year ending 30 November 2020
Special
Share Share distributable Capital Revenue
capital premium reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================== ========= ========= =============== ========= ========= ========
At beginning of the year 269 9,094 16,455 (433) 29 25,414
--------- --------- --------------- --------- --------- --------
Total comprehensive loss
for the year:
--------- --------- --------------- --------- --------- --------
Loss for the year - - - (2,545) 1,363 (1,182)
--------- --------- --------------- --------- --------- --------
Transactions with owners
recognised directly in
equity:
--------- --------- --------------- --------- --------- --------
Dividends paid - - - - (1,683) (1,683)
========================== ========= ========= =============== ========= ========= ========
At 30 November 2019 269 9,094 16,455 (2,978) (291) 22,549
--------- --------- --------------- --------- --------- --------
Cash Flow Statement
Year ending Year ending
30 November 2020 30 November 2019
Notes GBP'000 GBP'000
================================= ====== ======== ========
Operating activities
------ -------- --------
Profit/(loss) after taxation 856 (1,182)
------ -------- --------
Impairments 121 2,657
------ -------- --------
Fair value uplifts (14) (136)
------ -------- --------
Decrease/(increase) in loan
interest receivable 14 (112)
------ -------- --------
Decrease/(increase) in other
receivables 21 (33)
------ -------- --------
Increase/(decrease) in other
payables 33 (105)
------ -------- --------
Interest paid 227 86
------ -------- --------
Net cash inflow from operating
activities before interest
and after taxation 1,258 1,175
------ -------- --------
Net cash inflow from operating
activities 1,258 1,175
------ -------- --------
Investing activities
------ -------- --------
Loans given (8,455) (7,614)
------ -------- --------
Loans repaid 11,311 7,319
------ -------- --------
Net cash inflow/(outflow) from
investing activities 2,856 (295)
------ -------- --------
Financing
------ -------- --------
Equity dividends paid (808) (1,683)
------ -------- --------
Bank loan drawn down 15 3,050 3,806
------ -------- --------
Repayment of bank loan 15 (5,650) (3,000)
------ -------- --------
Interest paid (227) (86)
------ -------- --------
Net cash outflow from financing (3,635) (963)
------ -------- --------
Increase/(decrease) in cash
and cash equivalents 479 (83)
------ -------- --------
Cash and cash equivalents at
the start of the year 523 606
------ -------- --------
Cash and cash equivalents at
the end of the year 1,002 523
------ -------- --------
Notes to the Financial Statements
Accounting Policies
Significant Accounting Policies
(a) Basis of Preparation
The financial statements are prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and in accordance with
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union.
The financial statements were also prepared in accordance with the
Statement of Recommended Practice ("SORP") for investment trusts
issued by the AIC (as issued in October 2019), where this guidance
is consistent with IFRS.
The financial statements have been prepared on a going concern
basis under the historical cost convention, except for investment
valuations which are measured at fair value.
The notes and financial statements are presented in pounds
sterling (being the functional currency and presentational currency
for the Company) and are rounded to the nearest thousand except
where otherwise indicated.
Going concern
The financial statements have been prepared on a going concern
basis. The disclosures on going concern in the Directors' Report
form part of these financial statements.
Segmental reporting
The decision maker is the Board of Directors. The Directors are
of the opinion that the Company is engaged in a single segment of
business, being the investment of the Company's capital in
financial assets comprising loans. All loan income is derived from
the UK. The Company derived revenue totalling GBP897,000 (2019:
GBP983,000) where the amounts from three (2019: four) individual
borrowers each exceeded more than 10% of the Company's revenue. The
individual amounts were GBP365,000, GBP286,000, GBP246,000 (2019:
GBP305,000, GBP254,000, GBP222,000 and GBP202,000).
Use of Significant Accounting Judgements, Estimates and
Assumptions
The preparation of financial statements requires management to
make estimates and assumptions that affect the amounts reported for
assets and liabilities as at the reporting date and the amounts
reported for revenue and expenses during the year. The nature of
the estimation means that actual outcomes could differ from those
estimates. Estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimates are revised and in any future
periods affected.
The key driver to determine whether loans are classified as fair
value through profit or loss or amortised cost is if the facility
has an exit fee or equity stake attached. Where these are present
the loan is classified as fair value through profit or loss.
The following are areas of particular significance to the
Company's financial statements and include the use of estimates or
the application of judgement:
Critical judgements AND ESTIMATES in applying the Company's
accounting policies - investments at fair value through profit or
loss:
The Company owns profit share holdings or has exit fees
mechanism in relation to 11 of the borrowers in place as at the
year end. The loans held have been designated at fair value through
profit and loss. The determination of the fair value requires the
use of estimates. A sensitivity analysis is included in note 16.
The key uncertainties are around the timings and amounts of both
drawdown and repayments as these are determined by construction
progress and the timing of sales.
Critical judgements AND ESTIMATES in applying the Company's
accounting policies - loans amortised cost classification and
impairments:
The Company uses critical judgements to determine whether it
accounts for its loans at either amortised cost using the effective
interest rate method less impairment provisions or at fair value
through profit and loss. The determination of the required
impairment adjustment requires the use of estimates. The key
uncertainties are around the timings and amounts of both drawdown
and repayments as these are determined by construction progress and
the timing of sales. See notes 8 and 9 of Impairment for further
details.
Accounting standards ADOPTED BY THE COMPANY
IFRS 16 - Leases
IFRS 16 introduces a single lessee accounting model and requires
a lessee to recognise assets and liabilities for all leases with a
term of more than 12 months, unless the underlying asset is of low
value. A lessee is required to recognise a right-of-use asset
representing its right to use the underlying leased asset and a
lease liability representing its obligation to make lease payments.
The Company has no leases as lessor or lessee so there has been no
impact to the financial statements.
Interest Income
For financial instruments measured at amortised cost, the
effective interest rate method is used to measure the carrying
value of a financial asset or liability and to allocate associated
interest income or expense over the relevant period. The effective
interest rate is the rate that discounts estimated future cash
payments or receipts over the expected life of the financial
instrument or, when appropriate, a shorter period, to the net
carrying amount of the financial asset or financial liability. In
calculating the effective interest rate, the cash flows are
estimated considering all contractual terms of the financial
instrument but does not consider expected credit losses. The
calculation includes all fees received and paid and costs borne
that are an integral part of the effective interest rate.
On an ongoing basis the Investment Adviser assesses whether
there is evidence that a financial asset is impaired. The basis of
calculating interest income on the three stages of impairment
(detailed below) are as follows:
Stage 1 Interest is calculated on the gross outstanding
principal
Stage 2 Interest is calculated on the gross outstanding
principal
Stage 3 Interest is calculated on the principal amount less
impairment
Expenses
Expenses are accounted for on an accruals basis. The Company's
administration fees, finance costs and all other expenses are
charged through the Statement of Comprehensive Income and are
charged to revenue. Fees incurred in relation to operational costs
of the loan portfolio, such as legal fees, are charged through the
Statement of Comprehensive Income and are charged to capital.
Dividends to Shareholders
Dividends are accounted for in the period in which they are
paid, except for dividends requiring shareholder approval which
will be recognised when approved by shareholders.
Taxation
Taxation on the profit or loss for the period comprises current
and deferred tax. Taxation is recognised in the Statement of
Comprehensive Income except to the extent that it relates to items
recognised as direct movements in equity, in which case it is also
recognised as a direct movement in equity.
Current tax is the expected tax payable on the taxable income
for the period, using tax rates enacted or substantively enacted at
the reporting date.
Deferred income tax is provided using the liability method on
all temporary differences at the reporting date between the tax
bases of assets and liabilities and their carrying amounts for
financial reporting purposes. Deferred income tax assets are
recognised only to the extent that it is probable that taxable
profit will be available against which deductible temporary
differences, carried forward tax credits or tax losses can be
utilised. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount
of assets and liabilities. Deferred income tax relating to items
recognised directly in equity is recognised in equity and not in
profit or loss.
Financial Assets and Financial Liabilities
The financial assets and financial liabilities are classified at
inception into the following categories:
Amortised cost:
Financial assets that are held for collection of contractual
cash flows where those cash flows represent SPPI and that are not
designated at fair value through profit and loss are measured at
amortised cost. The carrying amount of these assets is adjusted by
any expected credit loss allowance as described in the impairment
note below.
The Company's cash and cash equivalents, other receivables and
payables, other payables and accruals, and the company's loan
facility are included within this category.
Fair value through profit and loss:
The Company have a number of borrower facilities in which they
received a minority equity stake or exit fee mechanism in
conjunction with providing those loan facilities. These loans are
recognised at fair value through profit and loss. The fair value of
the contracts is monitored and reviewed quarterly using discounted
cash flow forecasts based on the estimated cash flows that will
flow through from the underlying development project. A sensitivity
analysis is included in note 17.
Impairment
At initial recognition, an impairment allowance is required for
expected credit losses (ECL) resulting from possible default events
within the next 12 months. When an event occurs that increases the
credit risk, an allowance is required for ECL for possible defaults
over the term of the financial instrument.
The key inputs into the measurement of ECL are probability of
default (PD), loss given default (LGD), and exposure at default
(EAD). These inputs are then considered and applied against
residential and commercial facilities in the loan book. ECL are
calculated by multiplying the PD by LGD and EAD.
PD has been determined by considering the local market where the
underlying assets are situated, economic indicators including
inflationary pressures on build costs, government policy, and
market sentiment. For residential loans this has been further
broken down into two scenarios; where only sales risk is still
present, and where both construction risk and sales risk still
exist. LGD is the magnitude of the likely loss if there is a
default. The LGD models consider the structure, collateral,
seniority of the claim, and recovery costs of any collateral that
is integral to the financial asset. LTV ratios are a key parameter
in determining LGD. LGD estimates are recalibrated for different
economic scenarios and, for lending collateralised by property, to
reflect possible changes in property prices. EAD represents the
expected exposure in the event of a default. The company derives
the EAD from the current exposure to the borrower. The EAD of a
financial asset is its gross carrying amount at the time of
default. EAD for residential facilities has been further broken
down into two scenarios; where the build is complete, and where
construction is ongoing.
A financial asset is credit-impaired when one or more events
that have occurred have a significant impact on the expected future
cash flows of the financial asset. It includes observable data that
has come to our attention regarding one or more of the following
events:
-- delinquency in contractual payments of principal and interest;
-- cash flow difficulties experienced by the borrower;
-- initiation of bankruptcy proceedings;
-- the borrower being granted a concession that would otherwise not be considered;
-- observable data indicating that there is a measurable
decrease in the estimated future cash flows from a portfolio of
assets since the initial recognition of those assets, although the
decrease cannot yet be identified with the individual financial
assets in the portfolio; and
-- a significant decrease in assets values held security.
Impairment of financial assets is recognised on a loan-by-loan
basis in stages:
-- Stage 1: A general impairment covering what may happen within
the next 12 months, based on the adoption of BIS standards as
outlined below.
-- Stage 2: Significant increase in credit risk, where the
borrower is in default, potentially in arrears, where full
repayment is expected and the underlying asset value remains
robust. The ECL calculation recognises the lifetime of the
loan.
-- Stage 3: Credit impaired, where the borrower is in default of
their loan contract, in arrears, full loan repayment is uncertain
and there is a shortfall in underlying asset value. The ECL
calculation recognises likely failure of the borrower.
As at 30 November 2020, there were seventeen loans in the
portfolio. Ten of those projects supported included either an
equity stake of 25.1% for Company or an exit fee mechanism. Please
see note 8 for details on these eleven projects.
The Board has deemed that three loans; Gatsby Homes, Pendower
Hall and West Auckland; are currently impaired and specific
additional provisions have been made against these facilities in
these financial statements.
The other fourteen loans have been assessed as not impaired.
The Company's response to IFRS 9 requirements has been based on
the Bank for International Settlements (BIS) Basel Supervisory
Committee liquidity risk tool recommendations.
Fair value hierarchy
Accounting standards recognise a hierarchy of fair value
measurements for financial instruments which gives the highest
priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1) and the lowest priority
to unobservable inputs (Level 3). The classification of financial
instruments depends on the lowest significant applicable input, as
follows:
-- Level 1 - Unadjusted, fully accessible and current quoted
prices in active markets for identical assets or liabilities.
Examples of such instruments would be investments listed or quoted
on any recognised stock exchange.
-- Level 2 - Quoted prices for similar assets or liabilities, or
other directly or indirectly observable inputs which exist for the
duration of the period of investment. Examples of such instruments
would be forward exchange contracts and certain other derivative
instruments.
-- Level 3 - External inputs are unobservable. Value is the
Directors' best estimate, based on advice from relevant
knowledgeable experts, use of recognised valuation techniques and
on assumptions as to what inputs other market participants would
apply in pricing the same or similar instrument.
All loans are considered Level 3.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in hand and short-term
deposits in banks with an original maturity of three months or
less.
Other Receivables
Other receivables do not carry interest and are short-term in
nature. They are initially stated at their nominal value and
reduced by appropriate allowances for estimated irrecoverable
amounts, if deemed appropriate. There were no irrecoverable amounts
accounted for at the year end or the prior period end.
Reserves
Share Premium
The surplus of net proceeds received from the issuance of new
shares over their par value is credited to this account and the
related issue costs are deducted from this account.
Capital Reserve
The following are accounted for in the capital reserve:
-- Capital charges;
-- Increases and decreases in the fair value of and impairments
of loan capital held at the year end
As at year end the Capital Reserve comprises only unrealised
gains and losses and so does not contain distributable
reserves.
Revenue Reserve
The net profit/(loss) arising in the revenue column of the
Statement of Comprehensive Income is added to or deducted from this
reserve which is available for paying dividends.
Special Distributable Reserve
Created from the Court of Session cancellation of the initial
launch share premium account and is available for paying
dividends.
Capital Management
The Company's capital is represented by the Ordinary Shares,
share premium, capital reserves, revenue reserve and special
distributable reserve. The Company is not subject to any externally
imposed capital requirements.
The capital of the Company is managed in accordance with its
investment policy, in pursuit of its investment objective. Capital
management activities may include the allotment of new shares, the
buy back or re-issuance of shares from treasury, the management of
the Company's discount to net asset value and consideration of the
Company's net gearing level.
There have been no changes in the capital management objectives
and policies or the nature of the capital managed during the
year.
2. Income
30 November 30 November
2020 2019
GBP'000 GBP'000
=============== ============ ============
Interest from
loans 2,287 2,212
------------ ------------
Other income 59 10
------------ ------------
Total income 2,346 2,222
------------ ------------
3. Investment Adviser's Fees
Investment Adviser
In its role as the Investment Adviser, Tier One Capital Ltd is
entitled to receive from the Company an investment adviser fee
which is calculated and paid quarterly in arrears at an annual rate
of 0.25 per cent. per annum of the prevailing Net Asset Value if
less than GBP100m; or 0.50 per cent. per annum of the prevailing
Net Asset Value if GBP100m or more.
In previous years the Investment Adviser agreed to waive its fee
until the Net Asset Value was at least GBP50 million. From 24
January 2020, with the agreement of the Board, the Investment
Adviser no longer waives the fee. There is no balance accrued for
the Investment Adviser for the period ended 30 November 2020 (year
to 30 November 2019: GBPnil).
There are no performance fees payable.
30 November 30 November
2020 2019
GBP'000 GBP'000
============= ============ ============
Investment 57 -
Adviser fee
------------ ------------
4. Operating expenses
30 November 2020 30 November 2019
Revenue Capital Revenue Capital
GBP'000 GBP'000 GBP'000 GBP'000
=================================== ======== ======== ======== ========
Legal & professional 28 - 17 30
-------- -------- -------- --------
Directors' fees 90 - 102 -
-------- -------- -------- --------
Audit fees related to the audit
of the financial statements 79 - 85 -
-------- -------- -------- --------
Fund Administration and Company
Secretarial 79 - 82 -
-------- -------- -------- --------
Brokers' fees 30 - 33 -
-------- -------- -------- --------
Marketing fees 42 - 77 -
-------- -------- -------- --------
Valuation fees 9 - (4) -
-------- -------- -------- --------
AIFM fee 15 - (28) -
-------- -------- -------- --------
Impairments on loans amortsied at
cost * 194 43 - 2,496
-------- -------- -------- --------
Other expenses 141 - 203 -
-------- -------- -------- --------
Total other expenses 707 43 567 2,526
-------- -------- -------- --------
* Loan impairments consist of impairments to interest on loans
of GBP194,000 and a capital impairment on the loan of
GBP43,000.
All expenses are inclusive of VAT where applicable. Further
details on Directors' fees can be found in the Directors'
Remuneration Report of the Annual Report .
5. Taxation
As an investment trust the Company is exempt from corporation
tax on capital gains. The Company's revenue income from loans is
subject to tax, but offset by any interest distribution paid, which
has the effect of reducing the corporation tax. The interest
distribution may be taxable in the hands of the Company's
shareholders.
30 November 30 November
2020 2019
GBP'000 GBP'000
========================================== ============ ============
Current corporation tax at 19% (2019:19%) - -
------------ ------------
Deferred taxation - -
------------ ------------
Tax on profit on ordinary activities - -
------------ ------------
Reconciliation of tax charge
------------ ------------
Profit/(loss) on ordinary activities
before taxation 856 (1,182)
------------ ------------
Taxation at standard corporation tax
rate 19% (2019: 19%) 163 (225)
------------ ------------
Effects of:
------------ ------------
Expenses not deductible for tax purposes 32 484
------------ ------------
Interest distributions (195) (259)
------------ ------------
Tax charge for the year - -
------------ ------------
6. Ordinary dividends
30 November 2020 30 November 2019
Pence Pence per
per GBP'000 share GBP'000
share
------- ---------- ---------- ----------
Interim dividend for the quarter
ended February 1.50 404 1.50 404
------- ---------- ---------- ----------
Interim dividend for the quarter
ended May - - 1.50 404
------- ---------- ---------- ----------
Interim dividend for the quarter
ended August - - 1.50 404
------- ---------- ---------- ----------
Total dividends paid during and relating
to the year 404 1,212
------- ---------- ---------- ----------
Interim dividend for the quarter
ended November 1.50 404 1.50 404
------- ---------- ---------- ----------
Total dividend declared in relation
to the year 808 1,616
------- ---------- ---------- ----------
7. Earnings per share
The revenue, capital and total return per ordinary share is
based on each of the profit after tax and on 26,924,063 ordinary
shares, being the weighted average number of ordinary shares in
issue throughout the year. During the year there were no dilutive
instruments held, therefore the basic and diluted earnings per
share are the same.
8. Investments held at fair value through profit or loss
The Company's investment held at fair value through profit or
loss represents its profit share arrangements whereby the Company
owns 25.1% or has an exit fee mechanism for ten companies.
30 November 30 November
2020 2019
GBP'000 GBP'000
========================================= ============ ============
Opening Balance 14,219 104
------------ ------------
IFRS 9 transfer from Amortised cost - 10,812
------------ ------------
Loans deployed 7,805 5,611
------------ ------------
Principal repayments (5,516) (2,520)
------------ ------------
Interest receivable 753 -
------------ ------------
Unrealised losses on investments held
at fair value through profit or loss (452) 212
------------ ------------
Total investments held at fair value
through profit and loss 16,809 14,219
------------ ------------
Split:
------------ ------------
Non-current assets: Investments held
at fair value through profit and loss
due for repayment after one year 3,948 1,441
------------ ------------
Current assets: Investments held at
fair value through profit and loss due
for repayment under one year 12,861 12,778
------------ ------------
Please refer to note 17 for details of the approach to valuation
and sensitivity analysis.
9. Loans at amortised cost
30 November 30 November
2020 2019
GBP'000 GBP'000
======================================== ============ ============
Opening balance 11,037 27,378
------------ ------------
IFRS 9 transfer to fair value through
profit and loss - (10,812)
------------ ------------
Loans deployed 670 1,953
------------ ------------
Principal repayments (5,795) (4,799)
------------ ------------
Interest receivable 371 -
------------ ------------
Movement in impairments (237) (2,683)
------------ ------------
Total loans at amortised cost 6,046 11,037
------------ ------------
Split:
Non-current assets: Loans at amortised
cost due for repayment after one year 2,799 5,623
------------ ------------
Current assets: Loans at amortised
cost due for repayment
under one year 3,247 5,414
------------ ------------
The Company's loans held at amortised cost are accounted for
using the effective interest method. The carrying value of each
loan is determined after taking into consideration any requirement
for impairment provisions during the year, allowances for
impairment losses amounted to GBP237,000 (2019: GBP2,683,000).
Further details on impairment can be found within the accounting
policies note above.
Movements in allowances for impairment losses in the year
Nominal value
GBP'000
======================================= ==============
at 1 December 2019 3,021
--------------
Provisions for impairment losses -
--------------
at 30 November 2020 3,021
--------------
Stage 1 provisions at 1 December 2019 187
--------------
Provisions for impairment losses 74
--------------
Stage 1 provisions at 30 November 2020 261
--------------
Stage 2 provisions at 1 December 2019 -
--------------
Provisions for impairment losses -
--------------
Stage 2 provisions at 30 November 2020 -
--------------
Stage 3 provisions at 1 December 2019 2,834
--------------
Provisions for impairment losses (74)
--------------
Stage 3 provisions at 30 November 2020 2,760
--------------
Stage 1, 2, and 3 are referenced in more detail below.
10. Receivables
30 November 30 November
2020 2019
GBP'000 GBP'000
========================= ============ ============
Prepayments 21 42
========================= ============ ============
Loan interest receivable - 576
------------ ------------
Total receivables 21 618
------------ ------------
Interest receivable is reported within loans held at fair value
and loans held at amortised cost for the current year. This is a
presentational change in 2020; the interest receivable was
previously presented within a separate line item as interest
receivable.
11. loan facility
30 November 30 November
2020 2019
GBP'000 GBP'000
========== ============ ============
Bank loan 1,150 3,750
------------ ------------
On 29 May 2020 the Company entered into a GBP6.5m revolving
borrowing facility with Shawbrook Bank Limited, expiring on 28 May
2021. GBP1.2m was drawn down at the year end, at an interest rate
of 5.04469%. The facility is secured against a debenture over the
assets of the Company. Post year end, the outstanding balance of
the loan was repaid, and the facility remains in place.
12. Other Payables
30 November 30 November
2020 2019
GBP'000 GBP'000
===================== ============ ============
Accruals 131 98
------------ ------------
Total other payables 131 98
------------ ------------
13. Share Capital
Nominal value Number of
GBP'000 Ordinary shares
of 1p
======================================== ============== =================
At 30 November 2019 269 26,924,063
-------------- -----------------
Issued and fully paid as at 30 November
2020 269 26,924,063
-------------- -----------------
The ordinary shares are eligible to vote and have the right to
participate in either an interest distribution or participate in a
capital distribution (on a winding up).
14. Reserves
Share premium Special Capital Revenue Total
distributable reserve reserve
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
===================== ============== =============== ========= ========= ========
At 30 November 2019 9,094 16,455 (2,978) (291) 22,280
-------------- --------------- --------- --------- --------
Profit for the year - - (170) 1,026 856
-------------- --------------- --------- --------- --------
Transfer of realised
loss on loans - (2,885) 2,885 - -
-------------- --------------- --------- --------- --------
Dividend paid - (73) - (735) (808)
-------------- --------------- --------- --------- --------
At 30 November 2020 9,094 13,497 (263) - 22,328
-------------- --------------- --------- --------- --------
Dividends can be paid from the special distributable reserve and
the revenue reserve.
15. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING
ACTIVITIES
At 30 November Cash Non-cash At 30 November
2019 flows flows 2020
GBP'000 GBP'000 GBP'000 GBP'000
================================= =============== ========= ========= ===============
Short term borrowings 3,750 (2,600) - 1,150
--------------- --------- --------- ---------------
Total liabilities from financing
activities 3,750 (2,600) - 1,150
--------------- --------- --------- ---------------
At 30 November Cash Non-cash At 30 November
2018 flows flows 2019
GBP'000 GBP'000 GBP'000 GBP'000
================================= =============== ========= ========= ===============
Short term borrowings 2,944 806 - 3,750
--------------- --------- --------- ---------------
Total liabilities from financing
activities 2,944 806 - 3,750
--------------- --------- --------- ---------------
16. Related Parties
Fees payable during the year to the Directors and their
interests in shares of the Company are considered to be related
party transactions and are disclosed within the Directors'
Remuneration Report in the Annual Report. The balance of fees due
to Directors at the year end was GBPnil (30 November GBPnil).
The Company has an agreement with Tier One Capital Ltd for the
provision of investment advisory services and details of that
agreement are set out in the Directors' Report in the Annual
Report.
Tier One Capital Ltd received GBP57,000 in respect of the
investment advisory contract during the year (30 November 2019:
GBPnil) and GBPnil was payable at the year end (30 November 2019:
GBPnil). Tier One Capital Ltd receives up to a 20% margin and an
arrangement fee for all loans it facilitates as part of its
management of the Company's portfolio and these are paid by the
underlying borrower.
Ian McElroy is chief executive of Tier One Capital Ltd and is a
founding shareholder and director of that company.
There are various related party relationships in place with the
borrowers as below:
Thursby Homes (Charlton's Bonds)
Tier One Capital Ltd sold 25.1% of Thursby Homes Ltd on 20 March
2019. The loan amount outstanding as at 30 November 2020 was
GBP628,000 (30 November 2019: GBP697,000). Transactions in relation
to loans repaid during the year amounted to GBP68,000 (30 November
2019: GBP271,000). Interest due to be received as at 30 November
2020 was GBP8,000 (30 November 2019: GBP9,000). Interest received
during the year amounted to GBP54,000 (30 November 2019:
GBP61,000).
The following related parties arise due to the opportunity taken
to advance the 25.1% profit share contracts:
-- Ryka Developments
The Company owned 25.1% of the borrower Ryka Developments Ltd, a
project which was exited during the year. The loan amount
outstanding as at 30 November 2020 was GBPnil (30 November 2019:
GBP2.3m). Transactions in relation to loans made during the year
amounted to a repayment of GBP2.12m (30 November 2019: GBPnil).
Interest due to be received as at 30 November 2020 was GBPnil (30
November 2019: GBP83,000). Interest received during the year
amounted to GBP82,000 (30 November 2019: GBP184,000).
-- Gatsby Homes
The Company owns 25.1% of the borrower Gatsby Homes Ltd. The
loan amount outstanding as at 30 November 2020 was GBP1.3m (30
November 2019: GBP1.8m). Transactions in relation to loans
(repaid)/made during the year amounted to (GBP474,000) (30 November
2019: GBP250,000). Interest due to be received as at 30 November
2020 was GBPnil (30 November 2019: GBPnil). Interest received
during the year amounted to GBPnil (30 November 2019: GBPnil).
-- Bede and Cuthbert Developments
The Company owns 25.1% of the borrower Bede and Cuthbert
Developments Ltd. The loan amount outstanding as at 30 November
2019 was GBP3.2m (30 November 2019: GBP900,000). Transactions in
relation to loans made/(repaid) during the year amounted to GBP2.5m
(30 November 2019: (GBP1.8m)). Interest due to be received as at 30
November 2020 was GBP36,000 (30 November 2019: GBP16,000). Interest
received during the year amounted to GBP100,000 (30 November 2019:
GBP108,000).
-- Thursby Homes (Springs)
The Company owns 25.1% of the borrower Thursby Homes (Springs)
Ltd. The loan amount outstanding as at 30 November 2020 was
GBP2.95m (30 November 2019: GBP3.53m). Transactions in relation to
loans (repaid)/made during the year amounted to (GBP580 ,000 ) (30
November 2019: GBP2.15m). Interest due to be received as at 30
November 2020 was GBP168 ,000 (30 November 2019: GBP81 ,000 ).
Interest received during the year amounted to GBP365 ,000 (30
November 2019: GBP222 ,000 ).
-- Northumberland
TOC Property Backed Lending Trust plc owns 25.1% of the borrower
Northumberland Ltd. The loan amount outstanding as at 30 November
2020 was GBP1.94m (30 November 2019: GBP2.85m). Transactions in
relation to loans (repaid)/made during the year amounted to
(GBP910,000) (30 November 2019: GBP1.35m). Interest due to be
received as at 30 November 2020 was GBP27,000 (30 November 2019:
GBP47,000). Interest received during the year amounted to
GBP209,000 (30 November 2019: GBP166,000).
-- Dinosauria
TOC Property Backed Lending Trust plc owns 25.1% of the borrower
Dinosauria Ltd which was disposed of post year end. The loan amount
outstanding as at 30 November 2020 was GBP550,000 (30 November
2019: GBP550,000). Transactions in relation to loans made during
the year amounted to GBPnil (30 November 2019: GBPnil). Interest
due to be received as at 30 November 2020 was GBP18,000 (30
November 2019: GBP7,000). Interest received during the year
amounted to GBP44,000 (30 November 2019: GBP44,000).
-- Coalsnaughton
TOC Property Backed Lending Trust plc owns 25.1% of the borrower
Kudos Partnership. The loan amount outstanding as at 30 November
2020 was GBP1.69m (30 November 2019: GBPnil). Transactions in
relation to loans made during the year amounted to GBP1.69m (30
November 2019: GBPnil). Interest due to be received as at 30
November 2020 was GBP88,000 (30 November 2019: GBPnil). Interest
received during the year amounted to GBP194,000 (30 November 2019:
GBPnil).
-- Oswald Street
TOC Property Backed Lending Trust plc owns 25.1% of the
Riverfront Property Limited Partnership. The loan amount
outstanding as at 30 November 2020 was GBP382,000 (30 November
2019: GBPnil). Transactions in relation to loans made during the
year amounted to GBP382,000 (30 November 2019: GBPnil). Interest
due to be received as at 30 November 2020 was GBP5,000 (30 November
2019: GBPnil). Interest received during the year amounted to
GBP9,000 (30 November 2019: GBPnil).
17. Financial Instruments
Consistent with its objective, the Company holds a diversified
portfolio of fixed rate loans secured with collateral in the form
of; land or property in the UK, charges held over bank accounts and
personal or corporate guarantees. The benefit of a related profit
share or exit fee mechanism may also be agreed. In addition, the
Company's financial instruments comprise cash and receivables and
payables that arise directly from its operations. The Company does
not have exposure to any derivative instruments.
The Company is exposed to various types of risk that are
associated with financial instruments. The most important types are
credit risk, liquidity risk, interest rate risk and market price
risk. There is no foreign currency risk as all assets and
liabilities of the Company are maintained in pounds sterling.
The Board reviews and agrees policies for managing the Company's
risk exposure. These policies are summarised below:
Credit Risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Company.
In the event of default by a borrower if it is in financial
difficulty or otherwise unable to meet its obligations under the
agreement, the Company will suffer an interest shortfall and
potentially a loss of capital. This potentially will have a
material adverse impact on the financial condition and performance
of the Company and/or the level of dividend cover. The Board
receives regular reports on concentrations of risk and the
performance of the projects underlying the loans, using loan to
value percentages to help monitor the level of risk. The Investment
Adviser monitors such reports in order to anticipate, and minimise
the impact of, default.
There were financial assets which were considered impaired at 30
November 2020, with impairments amounting to GBP237,000 (30
November 2019: GBP2,721,000).
All of the Company's cash is placed with financial institutions
with a long-term credit rating of A or better. Bankruptcy or
insolvency of such financial institutions may cause the Company's
ability to access cash placed on deposit to be delayed or limited.
Should the credit quality or the financial position of the banks
currently employed significantly deteriorate, cash holdings would
be moved to another bank.
as at 30 November 2019
Financial Variable
net assets Fixed rate rate financial
on which no Financial net assets Total
interest is Assets GBP'000 GBP'000
paid GBP'000
GBP'000
=========================== ============= ============= ================ ==========
Other receivables and
prepayments 42 - - 42
------------- ------------- ---------------- ----------
Loan Interest receivable 576 576
------------- ------------- ---------------- ----------
Other payables and accrued
expenses (98) - - (98)
------------- ------------- ---------------- ----------
Cash and cash equivalents - - 523 523
------------- ------------- ---------------- ----------
Loan facility - - (3,750) (3,750)
------------- ------------- ---------------- ----------
Investments held at fair
value - 14,219 - 14,219
------------- ------------- ---------------- ----------
Loans at amortised cost - 11,037 - 11,037
------------- ------------- ---------------- ----------
Total 520 25,256 (3,227) 22,549
------------- ------------- ---------------- ----------
Market Price Risk
The management of market price risk is part of the investment
management process and is typical of an investment company. The
portfolio is managed with an awareness of the effects of adverse
valuation movements through detailed and continuing analysis, with
an objective of maximising overall returns to shareholders.
Investments in property and property-related assets are inherently
difficult to value due to the individual nature of each property.
As a result, valuations are subject to substantial uncertainty.
There is no assurance that the estimates resulting from the
valuation process will reflect the actual sales price even where
such sales occur shortly after the valuation date. Such risk is
minimised through the appointment of external property valuers. The
basis of valuation of the loan portfolio is set out in detail in
the accounting policies. The inputs into the DCF models are the
forecast monthly cashflows including sales values and build costs,
the discount rate which is the inputed interest rate at the time
the facility was entered into adjusted for any movements in the
risk free rate as at current year end, and a 30% discount rate for
the equity element to reflect the higher level of uncertainty. Any
changes in market conditions will directly affect the profit and
loss reported through the Statement of Comprehensive Income.
Details of the Company's investment portfolio held at the balance
sheet date are disclosed in the Investment Adviser's Review above.
A 10% fall in the sales value of the residential development
projects and a 10% reduction in asset value of commercial and
investment property assets for those loans held at fair value would
have resulted in a further impairment to the portfolio of
GBP615,246 as at 30 November 2020 (30 November 2019: GBP839,123).
The calculations are based on the property valuations at the
respective balance sheet date and are not representative of the
year as a whole, nor reflective of future market conditions.
VALUATION OF FINANCIAL INSTRUMENTS
Accounting standards recognise a hierarchy of fair value
measurements for financial instruments which gives the highest
priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1) and the lowest priority
to unobservable inputs (Level 3). The classification of financial
instruments depends on the lowest significant applicable input, as
follows:
-- Level 1 - Unadjusted, fully accessible and current quoted
prices in active markets for identical assets or liabilities.
Examples of such instruments would be investments listed or quoted
on any recognised stock exchange.
-- Level 2 - Quoted prices for similar assets or liabilities, or
other directly or indirectly observable inputs which exist for the
duration of the period of investment. Examples of such instruments
would be forward exchange contracts and certain other derivative
instruments.
-- Level 3 - External inputs are unobservable. Value is the
Directors' best estimate, based on advice from relevant
knowledgeable experts, use of recognised valuation techniques and
on assumptions as to what inputs other market participants would
apply in pricing the same or similar instrument.
30 November 2020
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
---------- ---------- --------- ---------
Investments held at fair
value - - 16,809 16,809
---------- ---------- --------- ---------
Total - - 16,809 16,809
---------- ---------- --------- ---------
30 November 2019
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
---------- ---------- --------- ---------
Investments held at fair
value - - 14,219 14,219
---------- ---------- --------- ---------
Total - - 14,219 14,219
---------- ---------- --------- ---------
18. Post Balance Sheet Events
-- The Shawbrook bank loan of GBP1,150,000 was fully repaid on 4 December 2020.
-- On 18 December 2020, Gateshead Town Hall repaid its loan in full to the amount of GBP550,000.
-- On 2 December 2020, a new facility of GBP3.8m was agreed with
Horizon Cremation with an initial drawdown of GBP286,000.
-- On 15 January 2021, Rare Earth Medburn repaid its loan in full to the amount of GBP1.07m.
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
For further information please contact:
Faith Pengelly
For and on behalf of Maitland Administration Services (Scotland)
Limited, Secretary
31 March 2021
S
Annual Report and Financial Statements
The Annual Report and Financial Statements will be posted to
shareholders and will shortly be available on the Company's website
( www.tocpropertybackedlendingtrust.co.uk ) or in hard copy format
from the Company's Registered Office.
A copy of the annual report will be submitted to the FCA's
National Storage Mechanism and will be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The annual report is also available on the Company's website at
www.tocpropertybackedlendingtrust.co.uk
This information is provided by RNS, the news service of the
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END
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March 31, 2021 12:55 ET (16:55 GMT)
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