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AICG-Longbow Senior Secured UK Property Debt Investments LimitedAnnual Report And Consolidated Financial Statements
Company Number: 55917
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Interim Report and Unaudited Condensed Consolidated Interim Financial Statements
For the six months ended 31 July 2019
CONTENTS
Overview
01 FinancialHighlights
02 CorporateSummary
03 Chairman’sStatement
05 InvestmentAdviser’sReport
Governance
15 Directors’ResponsibilitiesStatement
Financial Statements
16 CondensedConsolidatedStatementofComprehensiveIncome
17 CondensedConsolidatedStatementofFinancialPosition
18 CondensedConsolidatedStatementofChangesInEquity
19 CondensedConsolidatedStatementofCashFlows
20 NotestotheUnauditedCondensedConsolidatedInterimFinancialStatements
Other Information
26 GlossaryofCapitalisedDefinedTerms
28 DirectorsandGeneralInformation
AllcapitalisedtermsaredefinedintheGlossaryofCapitalisedDefinedTermsonpages26to27unlessseparatelydefined.
Cover picture: Spectrum Building, Bristol
01ICG-Longbow Senior Secured UK Property Debt Investments LimitedInterim Report and Unaudited Condensed Consolidated Interim Financial Statements
Overview
Governance
Financial Statements
Other Inform
ation
FINANCIAL HIGHLIGHTS
KEY DEVELOPMENTS AS AT 26 SEPTEMBER 2019O Fulldividendcoveragerestored.
O Portfoliotransitioncompletewithcirca£59millionofnewinvestmentssince31January2019.
O Strongrisk-adjustedreturnswithaverageIRRonnewinvestmentsof9.4%.
O Significantincreasetounexpiredloanterm,nowat2.1years.
PERFORMANCE
O NAVof£119.38millionasat31July2019(31January2019:£120.28million).
O Profitaftertaxof2.73millionforthesixmonthsended31July2019(31July2018:£2.70million).
O Earningspersharefortheperiodof2.25pence(31July2018:2.25pence).
O TotalNAVreturns(dividendsreinvested)achievedsinceinception,5February2013,5.5%pa..
DIVIDENDO Totaldividendspaidordeclaredfortheperiodended31July2019of3pencepershare(31July2018:3pencepershare),madeupasfollows:
– Interimdividendof1.5pencepersharepaidinrespectofquarterended30April2019.
– Interimdividendof1.5pencepershareapprovedinrespectofquarterended31July2019.
INVESTMENT PORTFOLIO O Asat31July2019,theGroup’sinvestmentportfoliocomprisedeightloanswithanaggregateprincipalbalanceof£92.28million,representing77.30%oftheshareholders’equity(31January2019:nineloanswithaggregateprincipalbalanceof£107.22million,representing89.14%oftheshareholders’equity).
O Asat26September2019,theGroup’sinvestmentportfoliohadincreasedtotenloanswithanaggregateprincipalbalanceof£117.85millionandtotalcapitalcommittedof£129.32million.
O Theportfoliocontinuestoperforminlinewithexpectations.
02 ICG-Longbow Senior Secured UK Property Debt Investments LimitedInterim Report and Unaudited Condensed Consolidated Interim Financial Statements
CORPORATE SUMMARY
INVESTMENT OBJECTIVETheinvestmentobjectiveoftheGroup,asapprovedbytheshareholdersoftheCompany,istoconstructaportfolioofUKrealestatedebtrelatedinvestmentspredominantlycomprisingloanssecuredbyfirstrankingfixedchargesagainstcommercialpropertyinvestments,withtheaimofprovidingshareholderswithattractive,quarterlydividends,capitalpreservationand,overthelongerterm,adegreeofcapitalappreciation.
STRUCTURETheCompanyisanon-cellularcompanylimitedbysharesincorporatedinGuernseyon29November2012undertheCompaniesLaw.TheCompany’sregistrationnumberis55917,andithasbeenregisteredwiththeGFSCasaregisteredclosed-endedcollectiveinvestmentscheme.TheCompany’sordinaryshareswereadmittedtothepremiumsegmentoftheUKListingAuthority’sOfficialListandtotradingontheMainMarketoftheLondonStockExchangeaspartofitsIPO,whichcompletedon5February2013.TheissuedcapitalcomprisestheCompany’sordinarysharesdenominatedinPoundsSterling.TheCompanyisaninternallymanagednon-EUdomiciledalternativeinvestmentfundandmakesinvestmentsinitsportfoliothroughICG-LongbowSeniorDebtS.A.,theCompany’swhollyownedsubsidiary.
INVESTMENT ADVISERTheInvestmentAdviser(IntermediateCapitalManagersLimited),whichtradesunderthenameofICG-Longbow,isauthorisedandregulatedbytheFCA.TheBoardmanagestheassetsoftheGroupafterreceivingadvicefromtheInvestmentAdviserunderthetermsofthenon-discretionaryInvestmentAdvisoryAgreement.
03ICG-Longbow Senior Secured UK Property Debt Investments LimitedInterim Report and Unaudited Condensed Consolidated Interim Financial Statements
Overview
Governance
Financial Statements
Other Inform
ation
CHAIRMAN’S STATEMENT
JACK PERRY CHAIRMAN
INTRODUCTIONOnbehalfoftheBoard,IampleasedtopresenttheInterimFinancialStatementsfortheGroupforthesixmonthsended31July2019.InthemostrecentAnnualReporttheBoardoutlineditsambitionfortheGroup,embracingthetransitionoftheinvestmentportfolio;restorationofdividendcover;andlayingthefoundationsforgrowth.Iampleasedtoadvisethatwehaveachievedallthreeobjectives.Theportfoliotransitionisnowcomplete,withfournewtransactions,totalling£59.3million,completinginAugustandSeptember2019,aftertheendofthereportingperiod.Thesenewtransactions,alongwiththerepaymentoflower-yieldinglegacyloans,meanthat,onceagain,theCompany’sdividendwillbefullycovered.
WidereconomicconditionscontinuetobeaffectedbytheongoingpoliticaluncertaintyarisingfromtheUK’sprospectiveexitfromtheEuropeanUnion.Whilegrowthincertainsectorsmaybeweakening,thereremainsomepositivesignsfortheUK.Inparticular,thelabourmarkethasremainedresilientwiththeresultantstrongincometaxreceiptscontributingtothehealthiestpublicfinancesforoveradecade.ThereremainsampleheadroomforbothfiscalandmonetarypolicyresponsestoanydisruptioncausedbyBrexit.
TheBoardconsidersthattheCompany’sdefensiveinvestmentportfolioremainsresilientinthisperiodofuncertainty,withseniorsecuredloanexposureataweightedaverageLTVof59.4%asat31July2019(26September2019:63.2%)supportedbyadiverseregionalportfolioacrossallkeypropertysectors,butwithlittleweightinginthetroubledretailmarket.
PORTFOLIODuringthereportingperiod,anew£15.0millionloancommitmentwasprovidedtotheBlissHotelGrouptoassistwiththerefinancingofahotelandadjoiningleisureblockinSouthport,Merseyside.ThepropertyprovidesstableincomefortheCompanywiththeopportunityforvaluegrowththroughimplementationofarefurbishment-ledbusinessplan.
Alsoduringtheperiod,a£0.5millionincreasewasprovidedtotheBorroweroftheAffinityloan,insupportoftheongoingbusinessplan,withshort-termloanextensionsonenhancedtermsagreedonthe£22.4millionCommercialRegionalSpaceportfolio(whichwassubsequentlyrepaid)andthe£15.9millionBMOPartnersloan.Theseextensionsgeneratedfurtherreturnsforshareholdersonwhatwerepreviouslylower-yieldingloanassets.
TheperiodsawrepaymentsofthelowyieldingCommercialRegionalportfolio(£22.4million)andtheRamadaGatesheadloan(£8.0million).TheGroup
benefitedfrominterestandexitfeesontheserepaymentstotalling£0.5millioninaggregate.Theserepaymentproceedshavesubsequentlybeeninvestedinthefollowingnewtransactions:
O A£24.6millioncommitmenttoanaffiliateofRoyaleLife,insupportoftherefinancingofaportfolioof10assetsintheresidentialbungalowhomessector.TheloancarriesaninitialLTVratioof78.9%andoffersahighlyaccretiveopportunityfortheGroupwitharobustbusinessplaninplacefromtheborrower;
O A£12.5millioncommitmenttotheNorthlandsgroup,refinancingtheCompany’sexistingloanonrefreshedterms,andfinancingthenextphaseofthebusinessplan.TheloancarriesaninitialLTVratioof55.3%;
O A£6.5millioncommitmenttoafundmanagedbyLBSProperties,insupportofitsacquisitionofanofficepropertyinFarringdon,London.TheloancarriesaninitialLTVratioof69.0%.
InadditiontosubstantiallyutilisingGroupcash,theabovetransactionshavebeenfinancedthroughdrawdownstotalling£10.0millionontheCompany’sworkingcapitalfacility.
Followingcompletionofthesetransactions,proformaLTVatthedateoftheseaccountsis63.2%,ataweightedaveragecouponof7.08%,withtheCompany’sreturnssupplementedbycontractualarrangementandexitfees.Inaggregate,theexpectedgrossIRRoftheportfolioisinexcessof8.25%whichnowlaysthefoundationsforfutureNAVpersharegrowthontopofthefullycovereddividend.Importantly,theweightedaverageloanmaturityhasalsoimprovedto2.1years,withallnewloansbenefitingfromattractivecouponprotectionperiodsorminimumearningsmultiples.ThisremovestheconcentratedmaturityprofileofthelegacyloanportfolioandallowstheBoardandtheInvestmentAdvisertoimplementplansforgrowthoverthecomingtwelvemonths,giventhestrengthofopportunitiestodeployfurthercapitalatattractivereturns.
REVENUE AND PROFITABILITY Incomefromtheloanportfolioforthesix-monthperiodof£3.44million(31July2018:£3.60million),wasinlinewithexpectationsreflectingthebroadstabilityofloanbalancesovertheperiod.Totalexpensesfellintheperiod,largelyowingtoareductioninlegalandprofessionalfeesastheCompanyelectednottoincurthesignificantcostofissuingaplacingprogrammeprospectuswhilstthedividendremaineduncovered.Asaresult,posttaxearningsweremarginallyimprovedat£2.73million(31July2018:£2.70million).
n Fulldividendcovern Portfoliotransaction
completen Stronggrowth
opportunities
04 ICG-Longbow Senior Secured UK Property Debt Investments LimitedInterim Report and Unaudited Condensed Consolidated Interim Financial Statements
CHAIRMAN’S STATEMENT(CONTINUED)
Earningspersharefortheperiodwereconsistentat2.25pence(31July2018:2.25pence).
DIVIDEND PERFORMANCEAsIoutlinedinour31January2019AnnualReport,duringthetransitionperiodofitsloanportfoliotheCompanyhascontinuedtousepriorperiodretainedearnings,andmorerecentlyshareholdercapital,tosupplementincomeandmaintainthedividendatthecurrentlevelof6.0pencepershare.However,followingcompletionofthefournewtransactionsoutlinedabove,theGrouphasreturnedtofulldividendcover,withtheprospectofsomemodestNAVgrowthinthemediumterm,inlinewiththeCompany’sstatedinvestmentobjective.
TheCompanypaidafirstinterimdividendof1.50pencepershareinrespectofthequarterended30April2019on26July2019,andon26September2019declaredasecondinterimdividendinrespectofthequarterended31July2019of1.50pencepershare.
NAV AND SHARE PRICE PERFORMANCETheGroup’sNAVreducedby£0.90million,to£119.38millionasat31July2019(31January2019:£120.28million).ThereductionwascausedbytheBoard’sdecisiontoutilisecapitaltosupportthequarterlydividend.Basedonthecurrentportfolio,thispositionwillreverseandtheBoardanticipatesconsistent,modestgrowthintheNAVpersharehenceforth.
TheCompany’ssharestradedinarangeof96.5pencepershareto101.0pencepershare,finishingthequartertradingataslightpremiumtotheNAV,reflectingthevalueshareholdersplaceuponthestableandpredictablenatureofourunderlyinghighyieldincomestreaminalowyieldinterestrateenvironment.
PRINCIPAL RISKS AND UNCERTAINTIESTheCompany,throughitssubsidiary,investsprimarilyinUKcommercial
realestateloansofafixedratenature;assuch,itisexposedtotheperformanceoftheborrower,andunderlyingpropertyonwhichitsloansaresecured.TheCompany’skeyrisksarediscussedbelow.Inthisstatement,referencestotheCompanyalsoapplytotheGroupasawhole.
TheDirectorshaveidentifiedthefollowingasthekeyrisksfacedbytheCompany:
O realestateloansmadebytheCompanymay,afterfunding,becomenon-performing;
O valuationsofpropertyareinherentlysubjectiveandassetssecuringtheCompany’sloansmaybeworthlessthananticipated;
O achangeinmarketconditionsaffectingtheperformanceoftheCompanyanditsunderlyinginvestments;and
O achangeinregulatoryortaxlegislation.
TheprincipalrisksanduncertaintiesoftheCompanywereidentifiedinfurtherdetailintheAnnualReportandFinancialStatementsfortheyearended31January2019.TherehavebeennochangestotheCompany’sprincipalrisksanduncertaintiesforthesixmonthsended31July2019,andnochangesareanticipatedinthesecondhalfoftheyear.TheCompany’sprincipalriskfactorsarefullydiscussedintheCompany’sProspectus,availableontheCompany’swebsite(www.lbow.co.uk)andshouldbereviewedbyshareholders.
OUTLOOKIampleasedtoreportthattheencouragingmomentumgeneratedbytherecentnewtransactionsthatIoutlinedaboveiscontinuing.TermshavebeenagreedforanextensionoftheCompany’s£21.5millionMeadowsloan,followingthegrantofplanningpermissionatthepropertyforalarge-scaleresidential-ledredevelopment.Moreimportantly,
however,theInvestmentAdviserisseeingcontinuingdemandfromprospectiveborrowersforcapitalattermsthatareattractivetotheCompany.Thislaysthefoundationsnowforprogressive,consistentgrowthintheCompany.TheBoardandtheInvestmentAdviserarekeentoprogressthisgrowthoverthecomingtwelvemonths,basedonthepositivefeedbackreceivedinrecentmonthsfromawiderangeofcurrentandprospectiveshareholders.Thisgrowthwouldaddtodiversification,enhanceliquidityinthetradingoftheCompany’ssharesandreducetheexpenseratio.
TheBoardanticipatesexecutingthisstrategybydrawingandthenrepayingtheworkingcapitalfacilitywhichwillensurethatfreshequitycapitaldoesnotcauseanycashdragonthewiderCompanyandwillgiveinvestorsconfidenceandvisibilityaroundtheprospectsfortheportfolio.
Ofparamountimportancethoughisthequalityoftheexistingportfolio.Wefaceaperiodofuncertaintyinpoliticsandtheeconomyandtherobust,defensivecharacteristicsoftheexistingloanportfoliomeanthattheBoardissatisfiedthattheCompanyiswellplacedtoweatheranyturbulence.Further,with10-yeargiltyieldsnowyieldinglessthan0.6%perannum,theattractionoftheCompany’sfullycovered6.0penceannualdividendis,intheBoard’sview,evenmorecompelling.
JACK PERRYChairman
26September2019
Bliss Hotel, Southport
05ICG-Longbow Senior Secured UK Property Debt Investments LimitedInterim Report and Unaudited Condensed Consolidated Interim Financial Statements
Overview
Governance
Financial Statements
Other Inform
ation
INVESTMENT ADVISER’SREPORT
Fund facts
Fundlaunch: 5February2013 Fundtype: Closedendedinvestmentcompany
InvestmentAdviser: ICG-Longbow Domicile: Guernsey
Basecurrency: GBP Listing: LondonStockExchange
Issuedshares: 121.3million ISINcode: GG00B8C23S81
Investmentadvisoryfee: 1.0% LSEcode: LBOW
Website: www.lbow.co.uk
Share price & NAV at 31 July 2019 Key portfolio statistics at 31 July 2019
Shareprice(pencepershare): 98.5 Numberofinvestments: 8
NAV(pencepershare): 98.41 Percentagecapitalinvested(2): 77.2%
Premium: 0.09% Weightedavg.investmentcoupon: 6.91%
Approveddividend(pencepershare)(1): 1.50 Weightedavg.LTV: 59.4%
Dividendpaymentdate(1): 8November2019
(1) For the Quarter ended 31 July 2019. Ex-Dividend Date is 10 October 2019.(2) Loans advanced at amortised cost/Total equity attributable to the owners of the Company.
SHARE PRICE TOTAL RETURN V NAV TOTAL RETURN (FROM IPO TO 31 JULY 2019)
Shareholder Total ReturnNAV Total Return
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Mar
-13
Jul-
13
Nov
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Mar
-14
Jul-
14
Nov
-14
Mar
-15
Jul-
15
Nov
-15
Mar
-16
Jul-
16
Nov
-16
Mar
-17
Jul-
17
Nov
-17
Mar
-18
Jul-
18
Nov
-18
Mar
-19
Jul-
19
06 ICG-Longbow Senior Secured UK Property Debt Investments LimitedInterim Report and Unaudited Condensed Consolidated Interim Financial Statements
INVESTMENT ADVISER’SREPORT(CONTINUED)
SUMMARYAt31July2019theinvestmentportfoliocomprisedeightloans,followingadvanceofanew£15.0millionloancommitmentsecuredbyahotelandleisurecomplexinSouthport,Merseyside,andlatterlytherepaymentofthelowyieldingCommercialRegionalSpaceloan(£22.4million)andthematuringRamadaGatesheadloan(£8.0million).
Thesechangestothecompositionoftheloanportfolioimprovedtheweightedaverageinterestcouponto6.91%asat31July2019(31January2019:6.23%),withportfolioLTVnow59.4%(31January2019:62.2%).
Activitysubsequenttotheperiodend,whichisdiscussedbelow,hasfurtherenhancedthesemetrics.
GROUP PERFORMANCETheGroup’sloanportfoliosawafairdegreeofactivityduringtheperiod,butamoremeaningfullevelofchangeaftertheperiodendwhentheGroupconcludedasignificantnumberofnewinvestments.
Inadditiontothenew£15.0millionSouthportloan,a£0.5millionincreasewascommittedtotheborroweroftheAffinityloaninsupportofitsongoingbusinessplan.TheAffinityloanisnowfullydrawnat£16.7millionfollowingthecompletionofrenovationworksattheunderlyingsecurityproperty.InMay2019the£22.4millionCommercialRegionalSpaceloanrepaid,togetherwithinterestandfeesofapproximately£0.3million.InJuly2019the£8.0millionRamadaGatesheadloanrepaid,withinterestandfeesofapproximately£0.2million.
TheGroup’sportfoliosawsomevaluationimprovementsduringtheperiod,notablytheMeadowsloanwhereLTVfellfrom
70.3%to45.9%followingtheLondonMayor’sdecisiontograntplanningpermissionforamajorresidentialdevelopmentonthesite.Followingthispositivecreditmigration,theCompanyhasagreedtermstoextendthematurityoftheloanthroughtoJuly2020astheSponsorcontinuestoprogressitsbusinessplan.
SUBSEQUENT ACTIVITYInAugust2019theCompanyrefinanceditsstrongly-performingNorthlandsloan,providinganew£12.5millioncommitmentsecuredbythediversemixeduse,multi-letportfolio.Theloancarriesaninitial55.3%LTVratio.
InSeptember2019,theGroupprovidedanew£24.6million,four-yearloancommitmenttoanaffiliateofRoyaleLife,torefinanceaportfolioof10assetsintheresidentialbungalowhomessector.AlsoinSeptember2019theGroupcommittedanewthree-year,£6.5millionloantoafundadvisedbyLBSProperties,insupportofitsacquisitionofamulti-letofficepropertyinFarringdon,London.
Followingcommitmentofthesenewtransactions,withtotalnetnewinvestmentof£36.9million,theCompany’sweightedaverageinterestcouponimprovedfurther,to7.08%asatthedateofthisreport.Thetotalcommittedloanportfolionowtotals£129.32million,withaweightedaverageportfolioLTVof63.2%.Allnewinvestmentsbenefitfromcontractualarrangementandexitfees,withtheweightedaverageIRRoftheCompany’snewinvestmentsforecastat9.4%.
Thecashbalanceheldat31July2019hasnowbeenfullyutilisedandtheCompany’srevolvingcreditfacilitypartiallydrawninordertofinancetheaboveinvestmentactivity.
PORTFOLIO
Portfolio statistics 31 July 2019 31 January 2019
Numberofloaninvestments 8 9
Aggregateprincipaladvanced £92,277,958 £107,221,546
WeightedaverageLTV 59.4% 62.2%
Weightedaverageinterestcouponp.a. 6.91% 6.23%
Weightedaverageunexpiredloanterm 1.36years 0.96years
Weightedaverageunexpiredinterestincomeprotection 0.80years 0.42years
Cashheld £27,200,525 £12,370,129
07ICG-Longbow Senior Secured UK Property Debt Investments LimitedInterim Report and Unaudited Condensed Consolidated Interim Financial Statements
Overview
Governance
Financial Statements
Other Inform
ation
INVESTMENT ADVISER’SREPORT(CONTINUED)
INVE
STM
ENT
PO
RTF
OLI
O A
S AT
31
JULY
201
9
Pro
ject
Reg
ion
Sect
orTe
rm s
tart
Une
xpte
rm (yrs
)
Day
1
bala
nce
(£m
)
Day
1
LTV (%
)
Bal
ance
ou
tsta
ndin
g(£
m)(2
)
Curr
ent
LTV
(%)
Mea
dow
Lond
onR
esid
entia
l(1)
Sep-
130.
5118
.07
65.0
21.5
045
.9
Nor
thla
nds
Lond
onM
ixed
use
(3)
Nov
-13
0.00
7.20
61.7
8.50
53.5
Hal
cyon
N
atio
nal
Indu
stri
al/d
istr
ibut
ion
Dec
-13
0.35
8.60
64.8
6.42
65.2
Car
rara
Yo
rks/
Hum
bers
ide
Reg
iona
lOffi
ceD
ec-1
30.
351.
3065
.01.
3065
.0
BM
O
Nat
iona
lM
ixed
use
Ja
n-17
0.21
16.0
055
.415
.79
51.5
Qua
ttro
Sout
hEa
stM
ixed
use
Oct
-17
1.46
9.00
83.7
9.00
80.6
Affin
itySo
uth
Wes
tO
ffice
Mar
-18
2.79
14.2
067
.316
.70
70.8
Sout
hpor
tHot
elN
orth
Wes
tH
otel
Feb-
193.
7112
.50
59.5
13.0
662
.2
Tota
l/w
eigh
ted
aver
age
1.36
89.5
764
.392
.28
59.4
(1)
The
Mea
dow
s si
te w
as p
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assi
fied
as R
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t dur
ing
the
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ecei
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for
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(2)
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(3)
Follo
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g qu
arte
r en
d, th
e N
orth
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s lo
an w
as r
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on a
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thre
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rm.
Seni
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77%
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Indu
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Mix
ed U
se
Hot
el
Offi
ce14
%
7%
20%
23%
Sect
or D
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ibut
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by L
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Am
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36%
33%
14%
10%
24%
Lond
on
Sout
h Ea
st
Nor
th W
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Nat
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trib
utio
n by
Loa
n A
mou
nt
York
s/H
umbe
rsid
e
18%
Sout
h W
est
1%
08 ICG-Longbow Senior Secured UK Property Debt Investments LimitedInterim Report and Unaudited Condensed Consolidated Interim Financial Statements
INVESTMENT ADVISER’SREPORT(CONTINUED)
ECONOMY AND FINANCIAL MARKET UPDATETheUKeconomyhadastrongerthanexpectedstarttotheperiod,withGDPrisingby0.5%inQ12019,albeitthispartiallyreversedwithafallof0.2%inQ22019,thefirstsuchfallinsixandahalfyears.Whilstservicesectorgrowth(whichcomprisescirca80%oftheeconomy)wasnominallypositiveat0.1%,thiswasinsufficienttooffsetweaknessinproductionandmanufacturing,whichcontractedby1.4%astheBrexitstockpilingseenduringQ1wasessentiallyreversed.WiththenewBorisJohnson-ledGovernmentexplicitlycommittedtoleavingtheEUwithorwithoutadealon31October2019;theprospectofweakergrowthhasbeenreflectedininterestrateswherethebenchmark10-yeargiltfellmarkedlyduringAugust,inparticular,andatonepointstoodbelow0.5%beforerecovering.
Morepositively,thelabourmarketcontinuestogofromstrengthtostrengthwiththeemploymentrateof76.1%asofJune2019atarecordhigh,accordingtotheONS.Wagegrowthat4%incashtermsisatadecadehigh,andrealwagegrowthofover2%isthehighestinfouryears.Thepublicfinancesarealsoenteringthisperiodofuncertaintyfromapositionofrelativehealth,withthebudgetdeficitmodestatcirca1.2%ofGDPandthedebt-to-GDPratiobelowallotheradvancedeconomiessaveforGermany.ThenewChancellor,SajidJavid,haspubliclystatedthatheislookingattakingadvantageoflowborrowingratestofundinvestment,andthatintheeventofano-dealBrexit,aGovernment-led“significanteconomicpackage”wouldbethelikelyresponse.
OCCUPATIONAL DEMAND/SUPPLYTheoccupationalmarketshavefaredrelativelywelldespitetheongoingeconomicuncertainty.InCentralLondon,H1takeupof5.8millionsq.ft.wasdown9%onH12018,accordingtoCBRE.ThiswaslargelyafunctionofaslowQ1,withapick-upinactivityinQ2reducingmarketvacancyratesmodestlyto4.2%.Spaceunderoffer,at4.1millionsq.ft.,isaheadofthe10-yearaveragewhichpointstoarobuststarttoH2.
Take-uphasbeenstrongacrossthe‘BigNine’regionalofficemarkets.Q2activitywas10%uponthelong-termaverage,bringingthehalfyeartotalto4.3millionsq.ft.Activitywasledbyseverallargecitycentredeals,combinedwithrecordlevelsofactivityintheflexibleworkspacesector.Q2alonesawover600,000sq.ft.offlexibleworkspacedeals,whichisalreadyinlinewithannualtotalsfromtheprevioustwoyears.
Onthesupplyside,Bristol,CardiffandEdinburghallhavevacancyratesbelow6%,accordingtoCushman&Wakefield,withrelativelylimitedsupplypipelinessuggestiveofrentalgrowthprospects.BycontrastBirmingham,ManchesterandGlasgoweachhaveover1millionsq.ft.underconstruction,andthelattertwoalreadyhavereasonableavailabilityofsupply,withvacancyratesof8.9%and10.6%respectively.
Industrialtake-uptotalled16.1millionsq.ft.forH12019,up28%onthelong-termaverage.Althoughvacancyrateshaveincreasedslightlyfrom5.3%to6.6%thisisinlinewithasupplyincreasefrom31.4millionsq.ft.to34.1millionsq.ft.,ratherthanareductionindemand,whichishighlydrivenbye-commerce,manufacturingandlogisticscompanies.Overall,themarketremainsresilientwithaverageindustrialrentalvaluesincreasingby3.3%inthe12monthstoJune,accordingtotheMSCIMonthlyIndex.Inourview,thisnewsupplytogetherwithongoinglevelsofspeculativedevelopmentislikelytomoderaterentalgrowthinthemediumterm.
Retail(inwhichtheGrouphasminimalexposure)continuestostruggleasprimerentsinQ22019fellby1.1%compoundingonthefallof1.0%inQ12019.FurtherCVAsduringtheperiod,
mostnotablythecontroversialArcadiagrouparrangement,haveaddedtopressureontowncentres.AccordingtoresearchfromPwCandtheLocalDataCompany,anet1,234storesclosedduringH12019.Despitethis,consumerconfidencehasrisentoaneight-monthhigh,thelabourmarketremainsingoodshapeandrealwagesarerisingstrongly,hencewedonotexpectretailsalestocollapse.Despitethesepositiveindicators,Brexituncertaintycombinedwithstructuralchangesresultingfromtheriseofe-commerce,businessratesandrisingwagesareallcontinuingtonegativelyimpactthesector.
PROPERTY INVESTMENT MARKETWeakeningeconomicsentimentandpoliticaluncertaintycontributedtoaslowdowninrealestatetransactionsduringthelasttwoquarters.Investmentvolumeswerecirca£19billionduringH12019,down32%comparedtoH12018.Thenegativesentimenttowardstheretailinvestmentmarkethasdeepenedwithannualtransactionsdowncirca50%onthefive-yearaverage.
All-propertyequivalentyieldshavebeguntodriftupwards–to5.9%inJune2019,comparedto5.8%ayearago.Averageyieldshaveincreasedthemostintheretailsector,byover0.3%accordingtotheMSCIMonthlyIndex.Annualisedaveragecapitalvaluegrowthforall-propertyalsoturnednegative(-1.2%)intheyeartoJune2019.Thisispredominantlydrivenbythesharpfallsintheretailsector(-9.5%)asgrowthremainspositivefortheindustrialandofficesectorsat5.8%and1%respectively.Lookingforward,thelatestAugust2019IPFconsensusforecastssuggestcapitalvaluefallsof3.6%in2019calendaryear,andafurther1.8%in2020,againlargelydrivenbyretail.
WithBrexitriskslooming,wedonotanticipateanyrecoveryininvestmentvolumesinthesecondhalf,butequallywedonotforeseeanyheavysellingofpropertyinvestmentsfollowingOctober,eveninadisruptiveno-dealscenario,withawait-and-seeapproachmorelikely.Giventhestronglabourmarketfundamentalsunderpinningoccupationalmarkets,arelativelackofsupply,andthestrongyieldpremiumcurrentlyovergilts,thechallengeforrealestatewilllikelybedealingwiththintransactionvolumesandconsequentlyadegreeofvaluationuncertainty.
FINANCE MARKETSInthefinancemarkets,CassBusinessSchoolpublisheditsannualreviewofUKpropertymarketlendingconditionsforY/E2018duringtheperiod,basedonasurveyof74lenderswithloanbookstotallingcirca£195billion.ThedatashowCRElendingvolumesof£49.6billionduringtheyear(a12%increasefrom2017)buttotalloanbooksuponly5%,reflectingwhatCassdescribeasaperiodofextraordinarystabilityinbothloanvolumesandmarketstructuresince2014.Thisreflectsourownexperiencewhere,outsideofretail,thereisreasonableliquidityinthedebtmarketsformostLTVsandassetclasses,butwithoutthedepthofcompetitionseenpriortotheGFCwhichpushedpricingandlendingcovenantstononsensicallevels.Inourview,lendersingeneralarecontinuingtoinvestprudently.
TheperiodwasalsonotableforthefirstUKloanpricedusingtheSONIAreferenceinterestrate,asanalternativetoSterlingLIBOR.IssuedbyNatWesttoNationalExpress,weexpecttoseesimilarloansintroducedintotherealestatelendingmarketinthemediumterm,priortotheeventualphasingoutofLIBORin2021.WhilstthisshouldnotaffectthemarketforornatureofthefixedrateloansofferedbytheCompany,wewillcontinuetomonitordevelopmentsinthisareaforanypotentialopportunitieswhichmayemerge.
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INVESTMENT ADVISER’SREPORT(CONTINUED)
PORTFOLIO PROFILE AND ACTIVITY TheGroup’sinvestmentportfoliohasbeenrelativelyactiveoverthereportingperiod,withonenewadvanceandtherepaymentoftwolegacyloans.Inparticular,theredemptionofthelow-yieldingCommercialRegionalSpaceloan–anditsreplacementafterperiod-endbythehigher-returningRoyaleloan–hasallowedtheCompanytoachieveanimprovementintheweightedaveragecouponrate.
FollowingthenewinvestmentactivityconcludedinAugustandSeptember2019,theCompany’sweightedaverageLTVisnow63.2%,withaweightedaverageunexpiredloantermof2.1years,consistentwithourexpectationsforamatureportfolio.Theweightedaverageinterestcouponof7.08%,supplementedbyarrangementfeespaidatclosingandcontractualexitfees,hasnowrestoredfulldividendcover.
TheGroup’sinvestmentshavecontinuedtoperformtobusinessplan,andtheperiodhasseenthelong-awaitedgrantofresidentialplanningpermissiononthesitesecuringtheMeadowsloan,togetherwithcompletionofrefurbishmentworksattheAffinityloanassetandcommencementofaroomupgradeprogrammeattheSouthporthotel.WecontinuetomonitortheQuattroloanclosely,followingtheabortivesaleofoneofthesecurityproperties,howeverthelargestassetsawamodestincreaseinvalueandhasseenongoingcapitalexpenditureinadditiontoanewplanningpermissionallowingforancillaryretailuse.
TheInvestmentAdvisercontinuestobelievetheGroup’sloanportfolioremainssatisfactorilysecured,withsenior-rankingmortgagesandaweightedaverageLTVof59.4%attheendoftheperiod.Riskremainswelldiversified,withinteresttypicallycoveredthroughmulti-tenantedpropertyandwhereappropriatesupplementedbyfundedcashreserves.
PORTFOLIO OUTLOOKThepositivemomentumgeneratedfollowingthecompletionofkeynewinvestmentshascontinued,andtheGroupiscurrentlydocumentingacirca£15.3millioncommitmentsecuredbyaregionalhotelportfolio.ThetransactionisexpectedtocompleteinthecomingweeksbywhichstagetheCompanywillhavefullycommitteditsavailablecapitalandsubstantiallydrawnitsrevolvingcreditfacility.
Includingthepipelinehoteltransaction,thecirca£70millionofgrossnewinvestmentcompletedsincetheGroup’syearendcarriesaprojectedweightedaverageIRRofover9.0%,withanaverageinitialLTVofapproximately69.3%andaverageloantermofover3.5years.ThisreinforcestheCompany’scapabilitytodeploycapitalatlevelsaccretivetoshareholders,whilstextendingtheaverageloantermofitsportfolio.
WiththeCompanyprogressingaprospectivenewinvestmenttoimmediatelyreplacethematuringBMOPartnersloan,thereisclearlineofsighttoaperiodoffullinvestmentandstability.Assuchwecannowbefullyfocusedongrowth,andcontinuetoseeanattractivepipelineofopportunitiesinsupportofourambitiontoincreasethesizeoftheCompanyandfurtherdiversifytheinvestmentportfolio.
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INVESTMENT ADVISER’SREPORT(CONTINUED)
LOAN PORTFOLIOAssetoutabove,asat31July2019,theGroup’sportfoliocomprisedofeightloanswithanaggregatebalanceoutstandingof£92.28million.
Asummaryofeachoftheindividualloansasat31July2019issetoutbelow:
Meadow
Originallyan£18.07millionseniorloanfacilityusedtoassistfinancinganestablishedandwellsupportedinternationalrealestatefundintheacquisitionofahighlyprominentretailparkinNorthLondon.TheborrowerisanSPVownedbyMeadowRealEstateFundIILPandismanagedbyMeadowPartners,aninternationalrealestateinvestorandassetmanager.
Theestateisnowvacant,saveforsometemporaryoccupancyofpartofthesite,anddebtservicecontinuestobemetfromapre-fundedreserveaccount(toppedupquarterly)whichprovidesinterestcoverthroughtoloanmaturity.Theloanremainscompliantwithallcovenantsandissatisfactorilysecured.
TheloanmaturesinJanuary2020,howeverfollowingperiodendtermshavebeenagreedforanextensionthroughtoJuly2020,followingthesuccessfulexecutionofthekeyelementoftheborrower’sbusinessplanwiththeLondonMayorgrantingplanningconsentforamajorresidential-ledredevelopmentofthesite.
Property profile Debt profile
Numberofproperties 1 Dayonedebt £18,070,000
Propertyvalue(£) £46,850,000 Debtoutstanding £21,500,000
Propertyvalue(£/sq.ft.) £504 Originalterm 4.3years
Propertyarea(sq.ft.) 92,882 Maturity January2020
Numberoftenants n/a CurrentLTV 45.9%
Weightedleaselength n/a Loanexposurepersq.ft. £231.48
Northlands
Originallya£7.20millionseniorloanfacilityusedtorefinanceexistingseniordebtsecuredonamixed-useportfolioofhighstreetretail,officeandtenantedresidentialunitslocatedpredominantlyinLondonandtheSouthEast.TheborrowerisNorthlandsHoldingsandgroupaffiliatesonacross-collateralisedbasis.
Thesecurityportfolioishighlydiverseacrossitspropertyandtenantbase,principallybeinglettoconvenienceretailandresidentialoccupiers.Followingcertainchangestotheunderlyingpropertysecuritypoolandadditionaladvances,theloanbalanceisnow£8.50million,reflecting53.5%LTV.
Giventhestrongperformanceofthisportfoliooveranumberofyears,theCompanyenteredintoafullrefinancingofthefacilityfollowingperiodend,onattractiverisk-adjustedterms.Thenewloancommitmentis£12.5million,includingacapitalexpenditurefacilitytosupportthenextphaseofthesponsor’sbusinessplan.
Asat26SeptemberthematuritydatehasbeenextendedtoOctober2022.
Property profile Debt profile
Numberofproperties 15 Dayonedebt £7,200,000
Propertyvalue(£) £15,877,950 Debtoutstanding £8,500,000
Propertyvalue(£/sq.ft.) £131.91 Originalterm 5.0years
Propertyarea(sq.ft.) 121,285 Maturity February2019
Numberoftenants 122 CurrentLTV 53.5%
Weightedleaselength 1.9years Loanexposurepersq.ft. £70.08
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LOAN PORTFOLIO (CONTINUED)
Halcyon
Originallya£8.60millionseniorloanfacilityutilisedtorefinanceaportfoliooffreeholdgroundrents.
Withtheloanbeingsecuredbyaportfolioofdefensivefreeholdgroundrentinvestments,thesecuritypositionisconsideredstrongdespiteanICRbelowtheaverageoftheGroup’sinvestments.
Arepaymentofthefacilityisexpectedinadvanceofthescheduledloanmaturity.
Property profile Debt profile
Numberofproperties 18 Dayonedebt £8,600,000
Propertyvalue(£) £9,856,000 Debtoutstanding £6,423,280
Propertyvalue(£/sq.ft.) £37.40 Originalterm 5.0years
Propertyarea(sq.ft.) 263,545 Maturity December2019
Numberoftenants 4 CurrentLTV 65.2%
Weightedleaselength 83.5years Loanexposurepersq.ft. £37.40
Carrara
A£1.30millionseniorloanfacilitywasusedtorefinanceanindividualgroundrentinvestment.
TheCarrarasecuritycomprisesasinglevirtualfreeholdgroundrentinvestmentlocatedinLeedswithanunexpiredleasetermof82years,subjecttoagroundrentof25%ofmarketrent.ThepropertyisamodernofficebuildingonanestablishedbusinessparkaccessedfromtheM1motorway.GiventheGroup’sseniorpositioninthecapitalstructureagainstthesuperiorfreeholdinterestintheasset,thesecuritypositionremainsverystrong.
Arepaymentofthefacilityisexpectedinadvanceofthescheduledloanmaturity.
Property profile Debt profile
Numberofproperties 1 Dayonedebt £1,300,000
Propertyvalue(£) £2,000,000 Debtoutstanding £1,300,000
Propertyvalue(£/sq.ft.) £81.73 Originalterm 5.0years
Propertyarea(sq.ft.) 24,470 Maturity December2019
Numberoftenants 1 CurrentLTV 65.0%
Weightedleaselength 81.4years Loanexposurepersq.ft. £53.13
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INVESTMENT ADVISER’SREPORT(CONTINUED)
LOAN PORTFOLIO (CONTINUED)
BMO
TheGroupadvancedanew£16.00millionloantoclientsofBMORealEstatePartners,withaninitialLTVratioof55.4%andamaturitydateinApril2019.Theloanwasoriginallysecuredbyfirstchargesagainstaportfolioof17propertieslocatedacrosstheUK,principallyinthehighstreetretailandindustrialsectors,andprovidesadiversifiedincomestream.
Arepaymentofthefacilityisexpectedinthesecondhalfoftheyear.
Property profile Debt profile
Numberofproperties 15 Dayonedebt £16,000,000
Propertyvalue(£) £30,690,000 Debtoutstanding £15,793,727
Propertyvalue(£/sq.ft.) £96.50 Originalterm 2years
Propertyarea(sq.ft.) 318,036 Maturity October2019
Numberoftenants 52 CurrentLTV 51.5%
Weightedleaselength 9.2years Loanexposurepersq.ft. £49.66
Quattro
On17October2017,theGroupadvancedanew£9.00millionloantoaprivatepropertycompany,securedbythreemixeduseassetsinandaroundtheLondonBoroughofKingston.TheGroupinitiallyfinanceda£6.00millionparticipationintheloansubsequentlyacquiringtheminority£3.00millionpositionfromICGfollowinganequityissuanceunderthe2017PlacingProgramme.
TheloancarriedaninitialLTVratioof83.7%,atthetopendoftheGroup’sinvestmentparameters,howeverowingtoavaluationincreasethecurrentLTVis80.6%.
Theloanisstructuredwithaprofitparticipationcomponent,allowingtheGrouptobenefitfromanyfuturevaluegrowthintheportfoliowhilstretainingthesecurityofaseniorfirstmortgageposition.Novalueiscurrentlyascribedtotheprofitparticipation.
Property profile Debt profile
Numberofproperties 3 Dayonedebt £9,000,000
Propertyvalue(£) £11,170,000 Debtoutstanding £9,000,000
Propertyvalue(£/sq.ft.) £294 Originalterm 3.2years
Propertyarea(sq.ft.) 38,038 Maturity January2021
Numberoftenants 7 CurrentLTV 80.6%
Weightedleaselength 12.6years Loanexposurepersq.ft. £236.61
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INVESTMENT ADVISER’SREPORT(CONTINUED)
LOAN PORTFOLIO (CONTINUED)
Affinity
On28February2018,anew£16.20millioncommitmentwasmade,ofwhich£14.20millionwasadvanced,torefinanceamulti-letofficepropertyinBristol,andtoprovidea£2.00millioncapitalexpenditurefacilitytofundarefurbishmentprogramme.Theloanissecuredbyafive-storeyofficeblockcomprising114,364sq.ft.lettotentenantswithacontractedrentof£1.24millionperannumandaninitialweightedunexpiredleasetermatloanclosingof4.9years.
Duringtheperiod,theloanwasincreasedto£16.70millioninsupportoftheborrower’sbusinessplan,andavaluationincreasewasobservedduringtheperiodasthisbusinessplanprogressedandrefurbishmentworksatthepropertycontinued.
Property profile Debt profile
Numberofproperties 1 Dayonedebt £14,200,000
Propertyvalue(£) £23,600,000 Debtoutstanding £16,700,000
Propertyvalue(£/sq.ft.) £184.50 Originalterm 4.2years
Propertyarea(sq.ft.) 114,364 Maturity May2022
Numberoftenants 21 CurrentLTV 70.8%
Weightedleaselength 5.2years Loanexposurepersq.ft. £146.02
Southport Hotel
A£15.0millionloancommitment,ofwhich£13.06millionhasbeendrawn,securedbyahotelandleisurecomplexinSouthport,Merseyside.Theinitialloantovalueratiois59.5%.
Thehotelhasademonstrabletradinghistorywithabusinessplanfocusedoninvestinginimprovingtheasset,renovatingthebedroomsandthereafterdrivingroomrates.Duringtheperiod,thehotelhasbeenrebrandedas‘Bliss’andaroomsrenovationprogrammeisnowunderway.
Property profile Debt profile
Numberofproperties 1 Dayonedebt £12,500,000
Propertyvalue(£) £21,000,000 Debtoutstanding £13,060,951
Propertyvalue(£/bedroom) £157,895 Originalterm 4years
Propertyvalue(£/sq.ft.) £462.25 Maturity April2023
Bedrooms 133 CurrentLTV 62.2%
Propertyarea(sq.ft.) 45,430 Loanexposureperbedroom £98,203
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INVESTMENT ADVISER’SREPORT(CONTINUED)
LOAN PORTFOLIO (CONTINUED)Followingyearend,thefollowingloanswereaddedtotheportfolio:
Royale
On5September2019theCompanyenteredintoa£24.6millioncommitmentwithanaffiliateofRoyaleLife,theUK’sleadingproviderofbungalowhomes,securedbyaportfolioof10assetsintheresidentialbungalowhomessector.
Thefacilityformspartofalarger£142.7millionloanoriginatedbytheInvestmentAdviser,andtheCompanyisparticipatingalongsidetwootherfundsmanagedbytheInvestmentAdviser.
Theloancarriesafour-yeartermwithaninitialLTVratioof78.9%.Theinitialloandrawndownis£20.3million,withthebalancecomprisingacapitalexpenditurecommitmentinsupportoftheborrower’sbusinessplan.
Property profile Debt profile
Numberofproperties 10 Dayonedebt £20,267,119
Propertyvalue(£)* £25,695,180 Debtoutstanding £20,267,119
Numberoftenants n/a Originalterm 4years
Weightedleaselength n/a Maturity October2023
CurrentLTV 78.9%*proratabasedonCompany’sshareoftotalloan
LBS Properties
On23September2019,theCompanyenteredintoa£6.5millionloancommitmentwithafundadvisedbyLBSProperties,securedbyamulti-letofficepropertyinFarringdon,London.
TheloancarriesaninitialLTVratioof69.0%,andincludesacapitalexpenditurecommitmentinsupportoftheborrower’sbusinessplan.
Property profile Debt profile
Numberofproperties 1 Dayonedebt £4,922,000
Propertyvalue(£) £7,100,000 Debtoutstanding £4,922,000
Propertyvalue(£/sq.ft.) £726 Originalterm 3years
Propertyarea(sq.ft.) 9,780 Maturity October2022
Numberoftenants 5 CurrentLTV 69.0%
Weightedleaselength 0.5years Loanexposurepersq.ft. £503
SUBSEQUENT EVENTS SignificantsubsequenteventshavebeendisclosedinNote11totheFinancialStatementsonpage25.
ICG-LONGBOW 26September2019
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DIRECTORS’ RESPONSIBILITIESSTATEMENT
TheDirectorsareresponsibleforpreparingthisInterimFinancialReportinaccordancewithapplicablelawandregulations.TheDirectorsconfirmthattothebestoftheirknowledge:
O TheUnauditedCondensedConsolidatedInterimFinancialStatementshavebeenpreparedinaccordancewithIAS34InterimFinancialReportingasadoptedbytheEU;and
O TheChairman’sStatementandInvestmentAdviser’sReportincludeafairreviewoftheinformationrequiredby:
(i) DTR4.2.7RoftheDisclosureGuidanceandTransparencyRules,beinganindicationofimportanteventsthathaveoccurredduringthefirstsixmonthsofthefinancialyearandtheirimpactontheUnauditedCondensedConsolidatedInterimFinancialStatements;andadescriptionoftheprincipalrisksanduncertaintiesfortheremainingsixmonthsoftheyear;and
(ii) DTR4.2.8RoftheDisclosureGuidanceandTransparencyRules,beingrelatedpartytransactionsthathavetakenplaceinthefirstsixmonthsofthefinancialyearandthathavemateriallyaffectedthefinancialpositionandperformanceoftheentityduringthatperiod;andanychangesintherelatedpartytransactionsdescribedinthelastAnnualReportandFinancialStatementsthatcoulddoso.
OnbehalfoftheBoard
JACK PERRYChairman
26September2019
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CONDENSEDCONSOLIDATEDSTATEMENTOFCOMPREHENSIVE INCOMEForthesixmonthperiodto31July2019
Notes
1 February 2019 to 31 July 2019
£ (Unaudited)
1 February 2018 to 31 July 2018
£(Unaudited)
1 February 2018 to 31 January 2019
£ (Audited)
Income
Incomefromloans 3,441,940 3,595,754 7,196,384
Otherfeeincomefromloans 354,301 392,331 439,207
Incomefromcashandcashequivalents 4,551 2,754 6,657
Total income 3,800,792 3,990,839 7,642,248
Expenses
Investmentadvisoryfees 10 597,932 609,293 1,211,925
Administrationfees 94,967 85,000 163,333
Directors’remuneration 10 98,750 98,125 196,875
Luxcooperatingexpenses 69,371 74,398 169,559
FinanceCost 42,670 – –
Brokerfees 24,517 27,501 52,501
AuditfeesfortheCompany 32,500 20,000 40,000
AuditfeesfortheSubsidiary 9,024 9,024 12,953
Regulatoryfees 10,478 9,651 22,679
Listingfees 5,446 4,352 10,325
Legalandprofessionalfees 5 617 306,436 413,221
Otherexpenses 84,506 44,503 87,827
Total expenses 1,070,778 1,288,283 2,381,198
Profit for the period before tax 2,730,014 2,702,556 5,261,050
Taxation(credit)/charge (1,989) – 2,803
Profit for the period after tax 2,732,003 2,702,556 5,258,247
Total comprehensive income for the period 2,732,003 2,702,556 5,258,247
Basic and diluted Earnings per share (pence) 6 2.25 2.25 4.36
Allitemswithintheabovestatementhavebeenderivedfromcontinuingactivities.
TheaccompanyingnotesformanintegralpartoftheseInterimFinancialStatements.
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CONDENSEDCONSOLIDATEDSTATEMENTOF FINANCIAL POSITIONAsat31July2019
TheaccompanyingnotesformanintegralpartoftheseInterimFinancialStatements.
Notes
31 July 2019 £
(Unaudited)
31 January 2019 £
(Audited)
31 July 2018 £
(Unaudited)
Assets
Cashandcashequivalents 27,200,525 12,370,129 8,937,259
Tradeandotherreceivables 691,182 126,654 38,116
Loansadvancedatamortisedcost 4 93,326,731 108,561,477 113,437,717
Total assets 121,218,438 121,058,260 122,413,092
Liabilities
Interestreserve – – 358,387
Otherpayablesandaccruedexpenses 1,841,130 773,871 696,924
Total liabilities 1,841,130 773,871 1,055,311
Net assets 119,377,308 120,284,389 121,357,781
Equity
Sharecapital 119,115,310 119,115,310 119,105,310
Retainedearnings 261,998 1,169,079 2,252,471
Total equity attributable to the owners of the Company 119,377,308 120,284,389 121,357,781
Number of ordinary shares in issue at period/year end 7 121,302,779 121,302,779 121,302,779
Net Asset Value per ordinary share (pence) 6 98.41 99.16 100.05
TheInterimFinancialStatementswereapprovedbytheBoardofDirectorson26September2019andsignedontheirbehalfby:
JACK PERRY PATRICK FIRTHChairman Director
26September2019 26September2019
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CONDENSEDCONSOLIDATEDSTATEMENTOFCHANGES IN EQUITYForthesixmonthperiodto31July2019
TheaccompanyingnotesformanintegralpartoftheseInterimFinancialStatements.
NotesNumber
of shares
Sharecapital
£(Unaudited)
Retainedearnings
£(Unaudited)
Total£
(Unaudited)
As at 1 February 2019 121,302,779 119,115,310 1,169,079 120,284,389
Profitfortheperiod – – 2,732,003 2,732,003
Dividendspaid 8 – – (3,639,084) (3,639,084)
As at 31 July 2019 131,302,779 119,115,310 261,998 119,377,308
Forthesixmonthperiodto31July2018
NotesNumber
of shares
Sharecapital
£(Unaudited)
Retainedearnings
£(Unaudited)
Total£
(Unaudited)
As at 1 February 2018 117,042,779 114,857,090 3,125,099 117,982,189
Sharesissued 4,260,000 4,302,600 – 4,302,600
Shareissuecosts – (54,380) – (54,380)
Profitfortheperiod – – 2,702,556 2,702,556
Dividendspaid 8 – – (3,575,184) (3,575,184)
As at 31 July 2018 121,302,779 119,105,310 2,252,471 121,357,781
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CONDENSEDCONSOLIDATEDSTATEMENTOF CASH FLOWSForthesixmonthperiodto31July2019
TheaccompanyingnotesformanintegralpartoftheseInterimFinancialStatements.
Notes
1 February 2019 to 31 July 2019
£ (Unaudited)
1 February 2018 to 31 July 2018
£ (Unaudited)
1 February 2018 to 31 January 2019
£ (Audited)
Cash flows generated from operating activities
Profitfortheperiod 2,732,003 2,702,556 5,258,247
Adjustmentsfornon-cashitems:
Movementinotherreceivables (564,528) 522,453 75,528
Movementinotherpayablesandaccruedexpenses 1,061,517 (317,278) (242,282)
Movementintaxpayable 5,742 (23,607) (21,656)
Loanamortisation (904,679) (668,450) (750,171)
2,330,055 2,215,674 4,319,666
Loansadvancedlessarrangementfees (14,740,749) (14,985,050) (16,592,089)
Loansrepaid 4 30,880,174 14,547,449 21,112,449
Netloansadvancedlessarrangementfees 16,139,425 (437,601) 4,520,360
Net cash generated from operating activities 18,469,480 1,778,073 8,840,026
Cash flows (used in)/generated from financing activities
Proceedsfromissueofshares – 4,302,600 4,302,600
Issuecostspaid – (54,380) (44,380)
Dividendspaid 8 (3,639,084) (3,575,184) (7,214,267)
Net cash (used in)/generated from financing activities (3,639,084) 673,036 (2,956,047)
Netmovementincashandcashequivalents 14,830,396 2,451,109 5,883,979
Cashandcashequivalentsatthestartoftheperiod 12,370,129 6,486,150 6,486,150
Cash and cash equivalents at the end of the period 27,200,525 8,937,259 12,370,129
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NOTESTOTHEUNAUDITEDCONDENSEDCONSOLIDATEDINTERIMFINANCIAL STATEMENTSFortheyearended31January2019
1. GENERAL INFORMATIONICG-LongbowSeniorSecuredUKPropertyDebtInvestmentsLimitedisanon-cellularcompanylimitedbysharesandwasincorporatedinGuernseyundertheCompaniesLawon29November2012withregisterednumber55917asaclosed-endedinvestmentcompany.TheregisteredofficeandprincipalplaceofbusinessoftheCompanyisPOBox286,Floor2,TrafalgarCourt,LesBanques,StPortPeter,Guernsey,GY14LY,ChannelIslands.
TheCompany’sshareswereadmittedtothePremiumSegmentoftheOfficialListsandtotradingontheMainMarketoftheLondonStockExchangeon5February2013.
TheunauditedcondensedconsolidatedfinancialstatementscomprisethefinancialstatementsoftheGroupasat31July2019.
TheinvestmentobjectiveoftheGroup,asapprovedbytheshareholdersoftheCompany,istoconstructaportfolioofUKrealestatedebtrelatedinvestmentspredominantlycomprisingloanssecuredbyfirstrankingfixedchargesagainstcommercialpropertyinvestments,withtheaimofprovidingshareholderswithattractivequarterlyreturns,capitalpreservationand,overthelongerterm,adegreeofcapitalappreciation.
TheInvestmentAdviser,whichtradesunderthenameofICG-Longbow,isauthorisedandregulatedbytheFCA.TheassetsoftheGrouparemanagedbytheBoardundertheadviceoftheInvestmentAdviserunderthetermsoftheInvestmentAdvisoryAgreement.
2. ACCOUNTING POLICIESa) Basis of preparationTheInterimFinancialStatementsincludedinthisInterimReport,havebeenpreparedinaccordancewithIAS34‘InterimFinancialReporting’,asadoptedbytheEU,andtheDisclosureandTransparencyRulesoftheFCA.
TheInterimFinancialStatementshavenotbeenauditedorreviewedbytheCompany’sAuditor.
TheInterimFinancialStatementsdonotincludealltheinformationanddisclosuresrequiredintheAnnualReportandFinancialStatementsandshouldbereadinconjunctionwiththeCompany’sAnnualReportandFinancialStatementsfortheyearended31January2019,whichareavailableontheCompany’swebsite(www.lbow.co.uk).TheAnnualReportandFinancialStatementshavebeenpreparedinaccordancewithIFRSasadoptedbytheEU.
ThesameaccountingpoliciesandmethodsofcomputationhavebeenfollowedinthepreparationoftheseInterimFinancialStatementsasintheAnnualReportandFinancialStatementsfortheyearended31January2019.
Inthepreviousyear,theGrouphasappliedIFRS9FinancialInstruments(asrevisedinJuly2014)andtherelatedconsequentialamendmentstootherIFRSStandardsthatareeffectiveforanannualperiodthatbeginsonorafter1January2018andwasadoptedbytheGroupfortheyearended31January2019.TheadoptionofIFRS9hasnothadanymaterialimpactontheGroup’sConsolidatedFinancialStatements.
TheCompanyapplied,forthefirsttime,certainstandardsandamendments,whichareeffectiveforannualperiodsbeginningonorafter1January2019.Thenewstandardsoramendmentstoexistingstandardsandinterpretations,effectivefrom1January2019,didnothaveamaterialimpactontheCompany’sinterimcondensedfinancialstatements.Itisnotanticipatedthatanystandardwhichisnotyeteffective,willhaveamaterialimpactontheCompany’sfinancialpositionorontheperformanceoftheCompany’sstatements.
b) Going concernTheGroupissubstantiallyinvestedwithloansadvancedatamortisedcostrepresenting78.18%ofthetotalequityattributabletotheownersoftheCompanyandexpectsthattheloanportfoliowillgenerateenoughcashflowstopayon-goingexpensesandreturnstoshareholders.TheDirectorshaveconsideredthecashposition,performancesofcurrentinvestmentsandactivitysubsequenttotheperiodendbytheGroupandhaveconcludedthatitisappropriatetoadoptthegoingconcernbasisofaccountinginpreparingtheInterimFinancialStatements.
TheDirectorstherefore,atthetimeofapprovingtheInterimFinancialStatements,haveareasonableexpectationthattheGrouphasadequateresourcestocontinueinoperationalexistencefortheforeseeablefutureanddonotconsidertheretobeanythreattothegoingconcernstatusoftheGroup.
Thefirstcontinuationvotewasheldon1March2017andpassedbytheshareholders.Therequirementforsubsequentfollow-oncontinuationresolutionsshallbeputtoshareholderseveryfiveyears.
c) Segmental reportingOperatingsegmentsarereportedinamannerconsistentwiththeinternalreportingprovidedtothechiefoperatingdecision-maker.Thechiefoperatingdecision-maker,whoisresponsibleforallocatingresourcesandassessingperformanceoftheoperatingsegments,hasbeenidentifiedastheBoardofDirectors,asawhole.ThekeymeasureofperformanceusedbytheBoardtoassesstheCompany’sperformanceandtoallocateresourcesisthetotalreturnontheGroup’sNetAssetValue,ascalculatedunderIFRS,andthereforenoreconciliationisrequiredbetweenthemeasureofprofitorlossusedbytheBoardandthatcontainedintheInterimFinancialStatements.
Formanagementpurposes,theGroupisorganisedintoonemainoperatingsegment,beingtheprovisionofadiversifiedportfolioofUKcommercialpropertybackedseniordebtinvestments.
ThemajorityoftheGroup’sincomeisderivedfromloanssecuredoncommercialandresidentialpropertyintheUnitedKingdom.
DuetotheGroup’snature,ithasnoemployees.
TheGroup’sresultsdonotvarysignificantlyduringreportingperiodsasaresultofseasonalactivity.
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3. CRITICAL ACCOUNTING JUDGEMENTS IN APPLYING THE GROUP’S ACCOUNTING POLICIESThepreparationoftheInterimFinancialStatementsunderIFRSrequiresmanagementtomakejudgements,estimatesandassumptionsthataffecttheapplicationofpoliciesandreportedamountsofassetsandliabilities,incomeandexpenses.Theestimatesandassociatedassumptionsarebasedonhistoricalexperienceandotherfactorsthatarebelievedtobereasonableunderthecircumstances,theresultsofwhichformthebasisofmakingjudgementsaboutcarryingvaluesofassetsandliabilitiesthatarenotreadilyapparentfromothersources.Actualresultsmaydifferfromtheseestimates.
Theestimatesandunderlyingassumptionsarereviewedonanon-goingbasis.Revisionstoaccountingestimatesarerecognisedintheperiodinwhichtheestimateisrevisediftherevisionaffectsonlythatperiodorintheperiodoftherevisionandfutureperiodiftherevisionaffectsbothcurrentandfutureperiods.
Critical judgementsInassessingExpectedCreditLosses(ECL),theBoardhavemadecriticaljudgementsinrelationtothestagingoftheloansandassessmentswhichimpactthelossgivendefault.InassessingwhethertheloanshaveincurredasignificantincreaseincreditrisktheInvestmentAdviser,onbehalfoftheBoard,assessesthecreditriskattachingtoeachoftheloans.TheGrouphasadoptedtheInvestmentAdviser’sinternalcreditratingmethodologyandhasuseditslossexperiencetobenchmarkinvestmentperformanceandpotentialimpairmentforbothStage1andStage2loansunderIFRS9consideringbothprobabilityofdefaultandexpectedcreditlosses.ThejudgementappliedinallocatingeachinvestmenttoStage1,2or3iskeyindecidingwhetherlossesareconsideredforthenext12monthsoroverthelifeoftheloan.TheBoardhasestimatedthattwoloanshaveshownevidenceofsignificantcreditriskinrelationtoreductioninLTVandICR.InassessingtheultimateECLinrelationtotheseloans,theBoardhasmadeassumptionsregardingthecollateralvalueandheadroomovertheprincipalloanamounts.
ThemeasurementofboththeinitialandongoingECLallowanceforloanreceivablesmeasuredatamortisedcostisanareathatrequirestheuseofsignificantassumptionsaboutcreditbehavioursuchaslikelihoodofborrowersdefaultingandtheresultinglosses.InassessingtheprobabilityofdefaulttheBoardhastakennoteoftheexperienceandlosshistoryoftheInvestmentAdviserwhichmaynotbeindicativeoffuturelosses.ThedefaultprobabilitiesarebasedonLTVheadroomwhichtheInvestmentAdviserbelievestobeagoodpredictoroftheprobabilityofdefault,inaccordancewithrecentmarketstudiesofEuropeancommercialrealestateloans.TheDirectorsconsiderthelossgivendefaulttobeclosetozeroastheloansarethesubjectofverydetailedduediligenceproceduresoninceptionand,inaddition,thereissignificantLTVheadroom.Asaresult,nolossallowancehasbeenrecognisedbasedon12-monthECLsforthoseinstage1andorlifetimelossesforthoseinstage2,asanysuchimpairmentwouldbewhollyinsignificanttotheGroup.
RevenuerecognitionisconsideredasignificantaccountingjudgementandestimatethattheDirectorsmakeintheprocessofapplyingtheGroup’saccountingpolicies.
TheDirectorsconsiderjudgementsandestimationsindeterminingthefairvalueofprepaymentoptionsembeddedwithinthecontractsforloansadvanced.Thekeyfactorsconsideredinthevaluationofprepaymentoptionsincludetheexerciseprice,theinterestrateofthehostloancontract,differentialtocurrentmarketinterestrates,theriskfreerateofinterest,contractualtermsoftheprepaymentoption,andtheexpectedtermoftheoption.
4. LOANS ADVANCED(i) Loans advanced
31 July 2019Principal advanced
£
31 July 2019 At amortised
cost £
31 January 2019 Principal advanced
£
31 January 2019 At amortised
cost £
Meadow 21,500,000 21,963,330 21,500,000 21,941,471
Northlands 8,500,000 8,725,789 8,500,000 8,692,447
Halcyon 6,423,280 6,567,935 6,423,280 6,570,708
Carrara 1,300,000 1,337,237 1,300,000 1,331,708
Ramada – – 7,982,500 8,151,125
CommercialRegionalSpace – – 22,400,000 22,620,181
BMO 15,793,727 15,758,948 15,793,727 15,807,533
Quattro 9,000,000 9,034,912 9,000,000 9,007,986
Affinity 16,700,000 16,889,668 14,322,039 14,438,318
Bliss 13,060,951 13,048,912 – –
92,277,958 93,326,731 107,221,546 108,561,477
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4. LOANS ADVANCED (CONTINUED)(ii) Valuation considerationsTheDirectorsconsiderthatthecarryingvalueamountsoftheloans,recordedatamortisedcostintheInterimFinancialStatements,areapproximatelyequaltotheirfairvalue.Noelementoftheloansispastdueorimpaired,andallinvestmentsaresecuredbywayofafullyregisteredfirstlegalchargeovertheproperty,andthereisnosubordinateddebtorsecondarychargesregistered.
Amortisedcostiscalculatedusingtheeffectiveinterestratemethod,whichtakesintoaccountallcontractualterms(includingarrangementandexitfees)thatareanintegralpartoftheloanagreement.Asthesefeesaretakenintoaccountwhendetermininginitialnetcarryingvalue,theirrecognitioninprofitorlossiseffectivelyspreadoverthelifeoftheloan.
TheGroup’sinvestmentsareintheformofbilateralloans,andassuchareilliquidinvestmentswithnoreadilyavailablesecondarymarket.Whilstthetermsofeachloanincludesrepaymentandprepaymentfees,intheabsenceofaliquidsecondarymarket,theDirectorsdonotbelieveawillingbuyerwouldpayapremiumtotheparvalueoftheloanstorecognisesuchtermsandassuchtheamortisedcostisconsideredrepresentativeofthefairvalueoftheloans.
Eachpropertyonwhichinvestmentsaresecuredwassubjecttoanindependent,thirdpartyvaluationatthetimetheinvestmentwasenteredinto.Allinvestmentsaremadeonaholdtomaturitybasis.Eachinvestmentismonitoredonaquarterlybasis,inlinewiththeunderlyingpropertyrentalcycle,includingareviewoftheperformanceoftheunderlyingpropertysecurity.Nomarketorothereventshavebeenidentifiedthroughthisreviewprocess,whichwouldresultinafairvalueoftheinvestmentssignificantlydifferenttothecarryingvalue.
Whilsttheloansareperformingandthebalanceoutstandingineachcaseisatasubstantialdiscounttothevalueoftheunderlyingrealestateonwhichtheyaresecured,theDirectorsdonotconsidertheloanstobeimpaired,orfortheretobeariskofnotachievingfullrecovery.
(iii) IFRS 9 – Impairment of Financial Assets Theinternalcreditratingofeachloanasat31July2019hasbeenreviewed.Oneloanshowedasmalldeteriorationincreditratingsince31January2019,followingthedrawdownonacapitalexpenditurefacility.Therelatedrefurbishmentworksarenowcomplete,andtherefurbishedfloorsarebeinglaunchedfornewlettings.GiventheunderlyingcreditratingremainsacceptableanddemandcharacteristicsofthelocalmarkettogetherwithamodestincreaseinpropertyvaluetheDirectors,underadvicefromtheInvestmentAdviser,believethedeteriorationistemporaryandassuchtheloancontinuestobetreatedasastage1loan.
As at 31 July 2019
Stage 1 Stage 2 Stage 3 Total
Principaladvanced 83,277,958 9,000,000 - 92,277,958
Grosscarryingvalue 84,291,819 9,034,912 - 93,326,731
LessECLallowance - - - -
84,291,819 9,034,912 - 93,326,731
As at 31 January 2019
Stage 1 Stage 2 Stage 3 Total
Principaladvanced 76,721,546 30,500,000 - 107,221,546
Grosscarryingvalue 77,612,020 30,949,457 - 108,561,477
LessECLallowance - - -
77,612,020 30,949,457 - 108,561,477
OfthetwoStage2loansat31Januaryone,Meadow,hasseenamaterialimprovementinunderlyingpropertyvalueasaresultofsecuringplanningconsentandshowedanimprovedcreditratingasaresultmovingittoaStage1asset.
TheStage2loan,Quattro,wasidentifiedasaStage2assetat31January2019,followingadeteriorationincreditratingasaresultofareductionininterestcoverastheinterestreservewasutilised.Thesponsorcontinuestoprogresshisassetlevelbusinessplansandisnowseekingtoselland/orrefinancetheunderlyingproperties.Theprobabilityofdefaultovertheremainingtermwasconsideredtobelow.TheInvestmentAdvisercontinuestomonitorthisassetcloselyforanyfurtherdeterioration.
AllotherloansshowednodeteriorationandwereconsideredasStage1assetswithnoECLoveratwelvemonthperiod.
AreconciliationoftheECLallowancewasnotpresentedastheallowancerecognisedatperiodendwas£nil.
IFRS 9 Impairment – Sensitivity AnalysisAsdiscussedabove,theGroup’sECLisafunctionoftheprobabilityofdefault(“PD”)andlossgivendefault(“LGD”),wherePDisbenchmarkedagainstICG-Longbow’sinternalcreditratingmodelandLGDisbasedonICG-Longbow’strackrecordofover£3.0billionofseniorandwholeloanswhichwouldsatisfytheCompany’sinvestmentparameters.
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4. LOANS ADVANCED (CONTINUED)(iii) IFRS 9 – Impairment of Financial Assets (continued)IFRS 9 Impairment – Sensitivity Analysis (continued)TheCompanyhasperformedsensitivityanalysisonitsexpectedcreditlossbyconsideringtheimpactofaonegradedeteriorationinthecreditratingofeachloan(PD)andaonegradeincreaseinloss(LGD)asaconsequence.Aonegradedeteriorationincreditrating(e.g.BBBtoBB)isbroadlyequivalenttoa5%increaseinLTVratioor20%reductioninICR.
GiventhelowweightedaverageLTVandrelativelystrongICRoftheportfolioasawholetheone-gradestressapplieddoesnotresultinanincreasetotheexpectedcreditlosswhichremains£nil.AtwogradedecreaseincreditqualityofeachloanwouldresultinatotalportfolioECLof£39,600(0.04%ofthetotalcapitaladvance).
Reasonable possible shift 31 July 2019
LTV +5%£nil
ICR -10%
LTV +10%£39,600
ICR -20%
HavingconsideredbothStage1andStage2loans,theBoardconsiderthattheExpectedCreditLosswithintheportfoliois£nil,andnoprovisionforimpairmentisrequiredunderIFRS9.
(iv) Portfolio movementsOn25February2019,theGrouparrangedanewloancommitmentof£15.0milliontoanaffiliateofBlissHotelsgroup,withaninitialadvanceof£12.5million.TheGroupadvancedfurthera£560,951commitmentonBlissHotelsgroupinthefirsthalfoftheyear.
On11March2019,theGroupadvanced£1,549,877totheborroweroftheAffinityloanandon24July2019afurther£328,084hasbeenadvancedbytheGroup.
On14May2019,theGroupreceivedarepaymentof£22,400,000ontheCommercialRegionalSpaceloan.Aspartofthisrepayment,theGroupreceivedatotalof£322,278ininterestandexitandprepaymentfeesinaccordancewiththetermsoftheloanagreement.
On17June2019theGroupmadeanadditionalloancommitmentof£500,000totheborroweroftheAffinityloan.
On17June2019,theCompanyagreedanextensionofitsfacilitytotheborroweroftheBMOloan,atahigherrateofinterest.
On24July2019,theGroupreceivedarepaymentof£7,982,500ontheRamadaloan.Aspartofthisrepayment,theGroupreceivedatotalof£175,396ininterestandexitandprepaymentfeesinaccordancewiththetermsoftheloanagreement.
5. LEGAL AND PROFESSIONAL FEES
1 February 2019 to 31 July 2019
£
1 February 2018 to 31 July 2018
£
CostsinrespectofCircularandpublicationofProspectus 18,435 301,763
Otherlegalandprofessionalfees (17,818) 4,673
617 306,436
6. EARNINGS PER SHARE AND NET ASSET VALUE PER SHAREEarnings per share
1 February 2019 to 31 July 2019
1 February 2018 to 31 July 2018
Profitfortheperiod(£) 2,732,003 2,702,556
Weightedaveragenumberofordinarysharesinissue 121,302,779 120,008,304
BasicanddilutedEPS(pence) 2.25 2.25
AdjustedbasicanddilutedEPS(pence) 1.96 1.93
ThecalculationofbasicanddilutedEarningspershareisbasedontheprofitfortheperiodandontheweightedaveragenumberofordinarysharesinissueduringtheperiod.
ThecalculationofadjustedbasicanddilutedEarningspershareisbasedontheprofitfortheperiod,adjustedforone-offotherfeeincomeduringtheperiodtotalling£354,301(31July2018:£392,331).
Therearenodilutivesharesat31July2019.
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6. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE (CONTINUED)Net Asset Value per share
31 July 2019 31 January 2019
NAV(£) 119,377,308 120,284,389
Numberofordinarysharesinissue 121,302,779 121,302,779
NAVpershare(pence) 98.41 99.16
ThecalculationofNAVpershareisbasedonNetAssetValueandthenumberofordinarysharesinissueattheperiod/yearend.
7. SHARE CAPITALAsat31July2019,theCompanyhad121,302,779(31January2019:121,302,779)issuedandfullypaidordinarysharesofnoparvalue.
8. DIVIDENDS Dividends paid
1 February 2019 to 31 July 2019
Dividend per share
Pence
Total dividend
£
Interimdividendinrespectofquarterended31January2019 1.50 1,819,542
Interimdividendinrespectofquarterended30April2019 1.50 1,819,542
3.00 3,639,084
1 February 2018 to 31 January 2019
Dividend per share
Pence
Total dividend
£
Interimdividendinrespectofquarterended31January2018 1.50 1,755,641
Interimdividendinrespectofquarterended30April2018 1.50 1,819,542
Interimdividendinrespectofquarterended31July2018 1.50 1,819,542
Interimdividendinrespectofquarterended31October2018 1.50 1,819,542
6.00 7,214,267
9. FINANCIAL RISK MANAGEMENT TheGroupthroughitsinvestmentinseniorloansisexposedtoavarietyoffinancialrisks.ThemainrisksarisingfromtheGroup’sfinancialinstrumentsare:marketrisk(includingcurrencyriskandinterestraterisk),creditriskandliquidityriskandarefullydisclosedonpages58to62oftheAnnualReportandFinancialStatementsfor31January2019.
TheCompany’sprincipalriskfactorsarefullydiscussedintheCompany’sProspectus,availableontheCompany’swebsite(www.lbow.co.uk)andshouldbereviewedbyshareholders.
10. RELATED PARTY TRANSACTIONS AND DIRECTORS’ REMUNERATIONPartiesareconsideredtoberelatedifonepartyhastheabilitytocontroltheotherpartyorexercisesignificantinfluenceoverthepartyinmakingfinancialoroperationaldecisions.
IntheopinionoftheDirectors,onthebasisofshareholdingsadvisedtothem,theCompanyhasnoimmediateorultimatecontrollingparty.
DirectorsTheunpaidconsultancyagreementwhichMrHuntleyhadwiththeAdministratorhasbeenterminatedbymutualconsentduringtheperiod.Noconsultancyserviceshavebeenprovidedsincetheendofthefirstquarter2018.
TheCompanyDirectors’feesfortheperiodamountedto£98,750(31July2018:£98,125)withoutstandingfeesof£49,375(31January2019:£49,375)duetotheDirectorsat31July2019.
Investment AdviserInvestmentadvisoryfeesfortheperiodamountedto£597,932(31July2018:£609,293)ofwhich£900,054(31January2019:£302,122)wasoutstandingattheperiod/yearend.
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11. SUBSEQUENT EVENTSInAugust2019theCompanyarrangedarefinancingofitsNorthlandsloan,providinganew£12.5millioncommitmentsecuredbythediversemixeduse,multi-letportfolio.
InSeptember2019,theGroupprovidedanew£24.6million,four-yearloancommitmenttoanaffiliateofRoyaleLife,torefinanceaportfolioof10assetsintheresidentialbungalowhomessector.
InSeptember2019theGroupcommittedanewthree-year,£6.5millionloantoafundadvisedbyLBSProperties,insupportofitsacquisitionofamulti-letofficepropertyinFarringdon,London.
On26September2019,theCompanydeclaredadividendof1.5penceperordinaryshareinrespectofthequarterended31July2019,payableon8November2019.
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GLOSSARY OFCAPITALISED DEFINED TERMS
“Administrator”meansEsteraInternationalFundManagers(Guernsey)Limited;
“Admission”meanstheadmissionofthesharestothepremium-listingsegmentoftheOfficialListandtotradingontheLondonStockExchange;
“AEOI”meansAutomaticExchangeofInformation;
“Affinity”meansAffinityGlobalRealEstate;
“Annual Report and Financial Statements”meanstheannualpublicationoftheGroupprovidedtotheshareholderstodescribetheiroperationsandfinancialconditions,togetherwiththeirConsolidatedFinancialStatements;
“Audit Committee”meanstheAuditandOperationalRiskManagementCommittee,aformalcommitteeoftheBoardwithdefinedtermsofreference;
“BMO”meansBMORealEstatePartners;
“Board”or“Directors”or“Board of Directors”meansthedirectorsoftheCompanyfromtimetotime;
“Brexit”meansthepotentialdepartureoftheUKfromtheEU;
“Carrara”meansCarraraGroundRents;
“CBI”meanstheConfederationofBritishIndustry;
“Circular”meanstheCircularoftheCompanydated11January2017regardingproposalsforachangeininvestmentobjectiveandpolicy,aplacingprogrammefor40millionsharesandthecontinuationvote;
“Commercial Regional Space”meansCommercialRegionalSpaceLimited;
“Companies Law”meanstheCompanies(Guernsey)Law,2008,(asamended);
“Company”meansICG-LongbowSeniorSecuredUKPropertyDebtInvestmentsLimited;
“CVA”meansCompanyVoluntaryArrangement;
“Disclosure Guidance and Transparency Rules”or“DTRs”meansthedisclosureguidancepublishedbytheFCAandthetransparencyrulesmadebytheFCAundersection73AofFSMA;
“ECL”meansexpectedcreditlosses;
“EGM”meanstheExtraordinaryGeneralMeetingoftheCompanyheldon1March2017;
“EPS”or“Earningspershare”meansEarningsperordinaryshareoftheCompanyandisexpressedinPoundsSterling;
“ERV”meansEstimatedRentalValue;
“EU”meanstheEuropeanUnion;
“Euros”or“€”meansEuros;
“FCA”meanstheUKFinancialConductAuthority;
“Financial Statements”or“Consolidated Financial Statements”meanstheauditedconsolidatedfinancialstatementsoftheGroup,includingtheConsolidatedStatementofComprehensiveIncome,theConsolidatedStatementofFinancialPosition,theConsolidatedStatementofChangesinEquity,theConsolidatedStatementofCashFlows,andassociatednotes;
“GDP”meansgrossdomesticproduct;
“GFSC”meanstheGuernseyFinancialServicesCommission;
“GIIN”meansGlobalIntermediaryIdentificationNumber;
“Group”meanstheCompany,ICGLongbowSeniorSecuredUKPropertyDebtInvestmentsLimitedtogetherwithitswhollyownedsubsidiary,ICGLongbowSeniorDebtS.A(Luxco);
“Halcyon”meansHalcyonGroundRents;
“IAS”meansinternationalaccountingstandardsasissuedbytheBoardoftheInternationalAccountingStandardsCommittee;
“ICG”meansIntermediateCapitalGroupplc;
“ICG Private Funds”meansprivaterealestatedebtfundsmanagedoradvisedbytheInvestmentAdviseroritsassociates;
“IFRS”meanstheInternationalFinancialReportingStandards,beingtheprinciples-basedaccountingstandards,interpretationsandtheframeworkbythatnameissuedbytheInternationalAccountingStandardsBoard,asadoptedbytheEU;
“Interest Cover Ratio”or“ICR”meansthedebt/profitabilityratiousedtodeterminehoweasilyacompanycanpayinterestonoutstandingdebt;
“Interim Financial Statements”meanstheunauditedinterimcondensedconsolidatedfinancialstatementsoftheGroup,includingtheCondensedConsolidatedStatementofComprehensiveIncome,theCondensedConsolidatedStatementofFinancialPosition,theCondensedConsolidatedStatementofChangesinEquity,theCondensedConsolidatedStatementofCashFlows,andassociatednotes;
“Interim Report”meanstheCompany’sinterimreportandunauditedinterimcondensedfinancialstatementsfortheperiodended31July;
“Investment Grade Tenant”meansatenantthatisratedAaatoBaa3byMISand/orAAAtoBBB-byS&P;
“Investment Adviser”or“ICG-Longbow”meansIntermediateCapitalManagersLimitedoritsAssociates;
“Investment Advisory Agreement”meansInvestmentAdvisoryAgreementdated31January2013betweentheCompanyandtheInvestmentAdviser,asamendedandrestatedon27April2017;
“Investment Risk Committee”meanstheInvestmentRiskCommittee,aformalcommitteeoftheBoardwithdefinedtermsofreference;
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GLOSSARYOFCAPITALISED DEFINED TERMS (CONTINUED)
“IPO”meanstheCompany’sinitialpublicofferingofsharestothepublic,whichcompletedon5February2013;
“ISIN”meansanInternationalSecuritiesIdentificationNumber;
“JLL”meansJonesLangLaSalleIncorporated;
“LGD”meanslossgivendefault;
“Listing Rules”meansthelistingrulesmadebytheUKListingAuthorityundersection73AFinancialServicesandMarketsAct2000;
“London Stock Exchange”or“LSE”meansLondonStockExchangeplc;
“LTV”meansLoantoValueratio;
“Luxco”meanstheCompany’swhollyownedsubsidiary,ICG-LongbowSeniorDebtS.A.;
“Luxembourg Administrator”meansOcorianServicesS.àr.l.beingtheadministratorofLuxco;
“Main Market”meansthemainsecuritiesmarketoftheLondonStockExchange;
“Management Engagement Committee”meansaformalcommitteeoftheBoardwithdefinedtermsofreference;
“Meadow”meansMeadowRealEstateFundII;
“MIS”meansMoody’sInvestorsServiceLtd,acreditratingagencyregisteredinaccordancewithRegulation(EC)No1060/2009witheffectfrom31October2011;
“MSCI”meansMorganStanleyCapitalIndex;
“NAV per share”meanstheNetAssetValuedividedbythenumberofSharesinissue(otherthansharesheldintreasury);
“Net Asset Value”or“NAV”meansthevalueoftheassetsoftheGrouplessitsliabilities,calculatedinaccordancewiththevaluationguidelineslaiddownbytheBoard,furtherdetailsofwhicharesetoutintheProspectus;
“Nomination Committee”meansaformalcommitteeoftheBoardwithdefinedtermsofreference;
“Northlands”meansNorthlandsPortfolio;
“NMPIs”meansNon-MainstreamPooledInvestments;
“OECD”meansTheOrganisationforEconomicCo-operationandDevelopment;
“Official List”isthePremiumSegmentoftheUKListingAuthority’sOfficialList;
“ONS”meansOfficeofNationalStatistics;
“IPO Prospectus”meanstheprospectuspublishedon31January2013bytheCompanyinconnectionwiththeIPOofordinaryshares;
“PD”meansprobabilityofdefault;
“Prospectus”meanstheprospectuspublishedinMay2018bytheCompanyinconnectionwiththeplacingprogramme;
“Quattro”meansCNMEstates(NewMalden)Limited,CNMEstates(EwellRoad)Limited,CNMEstates(CoombeRoad)LimitedandCNMEstates(CozLane)Limited;
“Ramada”meansRamadaGateshead;
“Registrar”LinkAssetServicesGuernseyLimited(formerly Capita Registrars (Guernsey) Limited);
“Registrar Agreement”meanstheRegistrarAgreementdated31January2013betweentheCompanyandtheRegistrar;
“RICS”meanstheRoyalInstitutionofCharteredSurveyors;
“S&P”meansStandard&Poor’sCreditMarketServicesEuropeLimited,acreditratingagencyregisteredinaccordancewithRegulation(EC)No1060/2009witheffectfrom31October2011;
“SONIA”meansSterlingOvernightInterbankAverageRate;
“SPV”meansspecialpurposevehicle;
“UK”or“United Kingdom”meanstheUnitedKingdomofGreatBritainandNorthernIreland;
“UK Listing Authority”or“UKLA”meanstheFinancialConductAuthority;
“US”or“United States”meanstheUnitedStatesofAmerica,itterritoriesandpossessions;and
“£”or“Pounds Sterling”or“Sterling”meansBritishpoundsterlingand“pence”meansBritishpence.
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DIRECTORSAND GENERAL INFORMATION
Board of DirectorsJackPerry(Chairman) StuartBeevorPatrickFirthMarkHuntleyPaulMeader
Audit and Operational Risk CommitteePatrickFirth(Chairman)StuartBeevorPaulMeader
Investment Risk CommitteePaulMeader(Chairman)StuartBeevorJamesChristie(Retired7March2019)MarkHuntleyDavidMortimerPatrickFirth(Appointed7March2019)
Management Engagement CommitteeJackPerry(Chairman)PatrickFirthPaulMeader
Nomination CommitteeJackPerry(Chairman)StuartBeevorPatrickFirthMarkHuntleyPaulMeader
Registered officeEffective from 29 April 2019P.O.Box286Floor2TrafalgarCourtLesBanquesStPeterPortGuernseyGY14LY
Prior to 29 April 2019HeritageHallPOBox225LeMarchantStreetStPeterPortGuernseyGY14HY
IdentifiersGIIN: 6IG8VS.99999.SL.831ISIN: GG00B8C23S81Sedol: B8C23S8Ticker: LBOWWebsite: www.lbow.co.uk
Investment AdviserIntermediateCapitalManagersLimitedJuxonHouse100StPaul’sChurchyardLondonEC4M8BU
Independent AuditorDeloitteLLPCharteredAccountantsPOBox137RegencyCourtGlategnyEsplanadeSt.PeterPortGuernseyGY13HW
Guernsey Administrator and Company SecretaryEffective from 29 April 2019EsteraInternationalFundManagers(Guernsey)LimitedFloor2TrafalgarCourtLesBanquesStPeterPortGuernseyGY14LY
Prior to 29 April 2019EsteraInternationalFundManagers(Guernsey)LimitedHeritageHallLeMarchantStreetSt.PeterPortGuernseyGY14HY
Luxembourg AdministratorOcorianServices(Luxembourg)S.àr.l6cRueGabrielLippmannMunsbachLuxembourgL-5365
RegistrarLinkMarketServices(Guernsey)LimitedMontCreveltHouseBulwerAvenueStSampsonsGY24LHGuernsey
Corporate Broker and Financial AdviserCenkosSecuritiesplc6-8TokenhouseYardLondonUnitedKingdomEC2R7AS
English Solicitors to the CompanyGowlingsWLG(UK)LLP4MoreLondonRiversideLondonUnitedKingdomSE12AU
Guernsey Advocates to the CompanyCareyOlsenCareyHousePOBox98LesBanquesStPeterPortGuernseyGY14BZ
BankersButterfieldBank(Guernsey)LimitedPOBox253MartelloCourtAdmiralParkStPeterPortGuernseyGY13QJ
BarclaysBankplc6-8HighStreetStPeterPortGuernseyGY13BE
LloydsBankInternationalLimitedPOBox136SarniaHouseLeTruchotStPeterPortGuernseyGY14EN
TheRoyalBankofScotlandInternationalRoyalBankPlace1GlategnyEsplanadeStPeterPortGuernseyGY14BQ
OakNorthBankplc6thFloorNightingaleHouse3rdFloor57BroadwickStreetSohoLondonW1F9QS
CAUTIONARYSTATEMENT
TheChairman’sStatementandInvestmentAdviser’sReporthavebeenpreparedsolelytoprovideadditionalinformationforshareholderstoassesstheCompany’sstrategiesandthepotentialforthosestrategiestosucceed.Theseshouldnotbereliedonbyanyotherpartyorforanyotherpurpose.
TheChairman’sStatementandInvestmentAdviser’sReportmayincludestatementsthatare,ormaybedeemedtobe,“forward-lookingstatements”.Theseforward-lookingstatementscanbeidentifiedbytheuseofforward-lookingterminology,includingtheterms“believes”,“estimates”,“anticipates”,“expects”,“intends”,“may”,“will”or“should”or,ineachcase,theirnegativeorothervariationsorcomparableterminology.
Theseforward-lookingstatementsincludeallmattersthatarenothistoricalfacts.Theyappearinanumberofplacesthroughoutthisdocumentandincludestatementsregardingtheintentions,beliefsorcurrentexpectationsoftheDirectorsandtheInvestmentAdviser,concerning,amongstotherthings,theinvestmentobjectivesandinvestmentpolicy,financingstrategies,investmentperformance,resultsofoperations,financialcondition,liquidity,prospects,anddistributionpolicyoftheCompanyandthemarketsinwhichitinvests.
Bytheirnature,forward-lookingstatementsinvolverisksanduncertaintiesbecausetheyrelatetoeventsanddependoncircumstancesthatmayormaynotoccurinthefuture.Forward-lookingstatementsarenotguaranteesoffutureperformance.
TheCompany’sactualinvestmentperformance,resultsofoperations,financialcondition,liquidity,distributionpolicyandthedevelopmentofitsfinancingstrategiesmaydiffermateriallyfromtheimpressioncreatedbytheforward-lookingstatementscontainedinthisdocument.
Subjecttotheirlegalandregulatoryobligations,theDirectorsandtheInvestmentAdviserexpresslydisclaimanyobligationstoupdateorreviseanyforward-lookingstatementcontainedhereintoreflectanychangeinexpectationswithregardtheretooranychangeinevents,conditionsorcircumstancesonwhichanystatementisbased.
ICG-Longbow Senior Secured UK Property Debt Investments LimitedP.O.Box286Floor2,TrafalgarCourtLesBanques,StPeterPort,GuernseyGY14LY,ChannelIslands.
T+44(0)1481742742F+44(0)1481742698
Furtherinformationavailableonline:www.lbow.co.uk