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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  Martin Currie Asia Unconstrand Trust PLC    MCP   GB0005695126

MARTIN CURRIE ASIA UNCONSTRAND TRUST PLC

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Martin Currie Asia Unconstrand Trust : TOC Property Backed Lending Ord

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03/29/2019 | 11:52am EDT

To:

RNS

From:

TOC Property Backed Lending Trust plc

LEI:

213800EXPWANYN3NEV68

Date:

29 March 2019

Subject:

Annual Results

Chairman's Statement

Introduction

The Report and Financial Statements for the year ended 30th November 2018 show the results of a maturing loan portfolio business. Net Asset Value ('NAV') per share at the year end was 94.4 pence (2017: 98.1 pence) and dividends paid in respect of calendar year 2018 totalled 7 pence per share. In February 2019 we announced a dividend of 1.50 pence for the quarter then ended, reflecting a reduction of 0.25 pence per share on prior quarters to take into account a general slowing of the property market and political and economic uncertainty.

Net Asset Value

The fall in NAV from 98.1 pence to 94.4 pence reflects unrealised losses of £546,000 provided against the loans to West Auckland and Gatsby projects. The Board has acted prudently in making such provisions on two projects where execution by the developers has not been in line with the Board's expectations. The Investment Adviser has taken steps to change the management of these projects. The ultimate outcome is necessarily uncertain, but we believe that the provisions are prudent and sufficient. Additionally, an impairment of £200,000 has been made against the loan of £1.7m to the Pendower Hall project; the project is one of the related party projects taken on at launch of the Company. This is, again, an unrealised loss and our adviser is working hard to ensure an early exit from this project at full value.

Dividends

The country is experiencing reduced property transaction volumes and a slowdown in price increases. There are significant regional variations and the North East is well placed to have a level of insulation from these negative forces; however, in the light of ongoing economic and political uncertainty a small reduction in the quarterly dividend from 1.75 pence to 1.50 pence was considered appropriate.

Portfolio and Gearing

The portfolio at today's date totals £24.7m of value representing 14 projects. The proportion of profit shares owned by the Company in the projects has increased from three projects to seven. The Board does not account for any potential profits on such projects until there is strong visibility and certainty around such profits. In due course it is hoped that such profits will provide upside to returns. For the year an unrealised profit of £104,000 has been recognised on the Marley Hill project which is close to completion.

In October 2018 the Company entered into an £8.5m committed revolving facility with Shawbrook Bank Limited. £3.0m was drawn down during the year which was utilised to assist with lending timings. This was repaid subsequent to the year end and remains available to the Company until October 2019.

During the year loans of £3.9m were repaid and since the year end another project, Bylaugh Hall, has been repaid in full (with a value of £3.4m) and investment of £2.3m has been made.

Related Parties

In the May 2018 Interim Report I noted that three loans (Pendower Hall referred to above, Medburn and Charlton Bonds) to parties related to the Investment Adviser or its principals were due for repayment in August 2018 and had been renewed on a short term basis while the Adviser arranges alternative financing for them. Various refinancing options are being explored in relation to Pendower and Medburn (though there is no certainty as to the successful outcome of that refinancing) and the sale of property units in Charlton's Bonds continue to take place with ongoing repayments to the Company.

Conclusion

The Company seeks to provide a regular and significant income stream to investors within a reasonable capital risk framework. As the portfolio matures some losses are inevitable, but hopefully profits will come through. In the meantime active management and staying close to developers is key to a successful outcome.

For personal reasons I will be resigning at the forthcoming Annual General Meeting and John Newlands will be Chairman in my place. The Board has begun the process of recruiting a new independent non-executive Director. I wish John, the rest of the Board and the team at Tier One Capital best wishes for the future.

Stephen Coe

Chairman

29 March 2019

Investment Adviser's Review

About the Company

TOC Property Backed Lending Trust Plc (the 'Company') was launched in January 2017 to provide shareholders with a consistent and stable income and the potential for an attractive total return over the medium to long term while managing downside risk through: (i) a diversified portfolio of fixed rate loans predominantly secured over land and/or property in the UK; and (ii) receiving, in many cases, the benefit of an associated profit share arrangement, usually obtained by acquiring (at nil cost) a minority equity stake in the relevant borrower project development vehicle ('Profit Shares').

These returns are expected to be delivered through the Investment Adviser's focus on high quality and experienced borrowing teams, a robust and tested credit process and the direct origination of deal flow. The Investment Adviser manages downside risk by focusing on secured debt with both collateral and contractual protection, with investments aimed primarily at secured loans on a senior charge basis.

The Investment Adviser sees huge value in only providing loan facilities to strong, experienced property teams who can evidence that they have the ability to deliver on a project. Often, these teams are led by individuals with a wealth of experience and a background working within large corporate property development businesses and have subsequently decided to launch their own regional based property development offering. All loans are directly originated by the Investment Adviser utilising existing networks and relationships, providing further support to the robust credit process.

To further enhance investor returns, the Investment Adviser intends to assist in negotiating profit share arrangements for the benefit of the Company for future loan advances where appropriate. This provides the Company with the opportunity to not only benefit from the interest rate created by the secured loan, but to also benefit from any profit generated by the underlying projects. This will be achieved through an equity holding in the project, or an equivalent level exit fee or revenue share.

The Company typically seeks to originate debt where the effective loan to value ratio of any investment is between 40% and 100% at the time of origination. The Company aims to have a blended LTV across the portfolio of around 75% (based on initial valuations at the time of loan origination) once fully invested.

The Investment Adviser is following the Company's investment policy of allocating funds raised predominantly across three specific areas, with set allocation exposures:

· regional residential housebuilding across the UK with a focus on non-London based property;

· small to medium commercial property development across the UK primarily focusing on small serviced office space, hotel developments and wedding and conference venues; and

· direct sale and leaseback vehicles.

About the Adviser

Tier One Capital Ltd, as Investment Adviser, provides bespoke wealth management, investment management and fund management services to high net worth (HNW) private clients, charities and institutions.

Tier One Capital Ltd currently has a team of 15 individuals with offices in London, Lausanne and its head office in Newcastle upon Tyne.

INVESTMENT ADVISER'S REPORT

Review of the 12 Months to 30 November 2018

In its second year of trading the portfolio continued to perform well, posting a NAV total return of 3.1% and increasing its annual dividend to 6.75p in the second year of trading. We continue to be mindful of the ongoing challenges our borrowers are facing in a climate of rising interest rates, a weakening housing market and the ever-present shadow of Brexit. Where necessary, we intend to increase our monitoring presence of those projects we feel may be most exposed to a slowdown of property prices, and in particular, a slowdown is the time taken to sell a new residential home.

The Company agreed four new facilities during the year:

· £4,525,000 with Thursby Homes (Springs) Ltd in May 2018, of which £1,375,000 has been drawn down. This loan will finance the development of 22 luxury apartments in Low Fell, Gateshead. The loan is at a 10% rate, with security being taken by a senior charge over the freehold of the building, with full planning permission, and the company's bank account. It also has the benefit of a 25.1% profit share for the Company.

· £550,000 with Dinosauria Ltd in June 2018, of which all the funds have been drawn down. This loan was to fund the acquisition of Gateshead Town Hall Old Quarter in Gateshead, Newcastle upon Tyne. This loan is at an 8% rate over five years, with security being taken by a senior charge over the building and the borrower's bank account which will also be required to hold nine months interest cover. The borrower intends to modernise the buildings for use as serviced offices, with a medium-term plan to convert the main town hall into an 'edutainment' attraction to be known as The Unnatural History Museum. The project has the benefit of a profit share for the Company.

· £3,100,000 with Northumberland Ltd in August 2018, of which £1,500,000 has been drawn down. This loan will finance the development of 13 luxury apartments and four bungalows in Morpeth, Northumberland. The loan is at an 8% rate, with security being taken by a senior charge over the freehold of the development, with full planning permission, and the company's bank account. It also has the benefit of a 25.1% profit share for the Company.

· £1,700,000 with Northumberland (Whitefield Farm) Ltd in October 2018, of which £1,000,000 has been drawn down. This loan will finance the development of 4 executive houses in Whitefield Farm, Red Row, Northumberland. The loan is at a 10% rate, with security being taken by a senior charge over the development and the company's bank account. It also has the benefit of an exit fee of £48,458 in lieu of a profit share.

There were further deployments of capital in the Marley Hill, Barley Croft, Bylaugh Hall, The Willows, Pendower Hall and Medburn projects of £1,625,000, £1,120,000, £1,000,000, £800,000, £480,000 and £210,000 respectively.

Following the Watson & Sons exit in October 2017, the second successful exit occurred with the refinance of Quartzec Holdings on 29 January 2018 via traditional finance. The £443,000 loan, at 8%, was provided to support the acquisition of a stable and profitable engineering business with an established track record in October 2015. The facility predated the formation of the Company and was brought into the Company on the date of listing. Since listing £36,023 of interest was generated representing an IRR of 8.3%.

On 29 June 2018 the third successful exit occurred with the refinance of Commerce Chambers. The £1,505,000 loan, at 8%, was provided to support the acquisition and conversion of a commercial property in the centre of Middlesbrough. It comprises small serviced office space, ground floor retail units and a luxury short let apartment. The facility predated the formation of the Company and was brought into the Company on the date of listing. Since listing £168,820 of interest was received, representing an IRR of 8.3%.

Post year end, in February 2018 the fourth successful exit occurred with the repayment of Bylaugh Hall. The £3,379,000 loan, at 8%, was to support the acquisition and development of a grade two listed grand hall in Norfolk. The facility predated the formation of the Company and was brought into the Company on the date of listing. Since listing up to 30 November 2018 £349,984 of interest was received, representing an IRR of 8.3%.

During the year there were a number of partial redemptions of both the Charlton's Bonds project and Inveniam Home Loans, returning £975,520 and £394,790 respectively of capital. Post year end the partial redemptions continued with Marley Hill, Charlton's Bonds and Inveniam Home Loans returning £1,004,785, £270,680, and £118,437 of capital.

Two of the projects, Barley Croft and West Auckland have not performed in line with expectations. The decision has been made to recognise a capital impairment of £228,664 on Barley Croft and interest impairments of £179,107 and £138,586 on Barley Croft and West Auckland. The forecast IRR for Barley Croft is -3.7% and 6.9% on West Auckland.

An impairment has also been taken on Pendower Hall as a prudent measure in this year's accounts, although we anticipate that this facility will be repaid shortly. The Investment Adviser is determined, and is making good progress, in removing all related party exposures within the portfolio (of which Pendower Hall is one), and is in advanced discussions with a number of alternative finance providers with a view to refinancing this facility over the coming months. Additionally, while Pendower Hall has recently agreed to enter into a 20 year lease from a company in advanced stages of applying for a banking licence, the Board feels unable to consider this lease towards the property valuation until such a time that the banking licence is granted. It is anticipated that the granting of this licence, and the subsequent formalisation of the lease, would remove any impairment due to the increased property valuation; however, the intention of the Investment Adviser remains to exit this facility from our portfolio as quickly as possible. This remains one of the last few legacy projects created before the inception of the Company, and we are confident in the repayment of the facility over the coming months.

In October 2018, the Company agreed a committed revolving facility with Shawbrook Bank. This facility has already allowed the Company to achieve further growth with £3m of the facility being drawn at year end and deployed into projects.

At 30 November 2018, the Company had 15 live facilities, seven of which are a profit share arrangement for the benefit of the Company, with the deployment level sitting at £27,482,034.

Deployment

The portfolio continues to be deployed across residential 56% (Nov 2017: 47%), commercial 34% (Nov 2017: 41%), sale and leaseback 8% (Nov 2017: 11%) and cash 2% (Nov 2017: 1%).

The current average interest rate being achieved on the combined loan book is 8.38% (30 November 2017:8.29%), with an average loan size having increased from £1.68m at 30 November 2017 to £1.87m at 30 November 2018. This reflects the natural progression of the Company's strategy of providing larger facilities as the AuM of the Company grows, rather than providing a higher volume of lower value loans.

Profit Share Projects

There are currently seven Profit Share projects in the portfolio (Nov 2017: three).

This year we have recognised an uplift of £104,000 in the equity value of Marley Hill one of the seven facilities (Nov 2017: £nil). The rest are recognised as nil, given where we are in the lifecycle of each project. We monitor and review this on an ongoing basis.

Pipeline

The Investment Adviser continues to see strong deal flow, reflective of the lack of finance options available to developers in the regions. There was £25.0m of potential funding opportunities across 9 projects.

Outlook

The Investment Adviser continues to see a greater balance of risk and return by providing loan facilities to high quality and experienced property development teams in the regions, as opposed to central London. The current geographical breakdown of the Company's deployment approach shows approximately 74% (Nov 2017: 72%) of the Company's loans being focused in the North East, reflecting the Investment Adviser's commitment to providing facilities based on a relationship led approach. The North East property market also provides protection against a decline in London property markets, as traditionally the region does not see the boom and bust dynamic created by significantly inflated property prices.

Rightmove house price index for January 2019 shows the average price for a property in the North East at £146,492 which is an annual increase of 3.8% from last year and a rise of 5.0% from December 2016. In comparison, the average price for a property in Greater London now stands at £593,972 in January 2019 which is an annual decrease of 1.2% from the previous year and a fall of 3.7% from December 2016.

The North East had also the highest positive house price growth month to month in England and Wales (+1.8%) after the North West (December 2018 to January 2019).

Generally, Rightmove believes that house prices will increase due to the overall lack of supply of housing, the lack of existing stock coming to the market (especially in the north) and the cheap mortgage rates. They do, however, also see house prices falling due to the stretched levels of affordability in some areas of the country (including London), but buyer affordability and sentiment are in more positive territory in the north than in the south. Savills forecasts a 17.6% increase in North East house prices over the next five years (against 14.8% over the UK and only 4.5% in London) believing that into the second part of the current housing cycle the Midlands and the North of England will outperform London and the South. Again, Zoopla also believes that regional markets will continue to fend off economic uncertainty and provides the most growth in the UK housing sector. London and south-east England are expected to bear the brunt of Brexit in 2019.

The January 2019 RICS UK Residential Market Survey results continue to signal a subdued backdrop, with enquires, sales and new instructions all falling further over the month. In the near term, contributors sense little prospect of a turnaround, as concerns over the potential impact of Brexit continue to cause hesitancy, alongside affordability constraints in parts of the country. That said, while shorter-term sentiment remains downbeat, expectations at the twelve month horizon are modestly positive. Simon Rubinsohn, RICS chief economist, said, 'Sales expectations for the coming three months remain downbeat, both at the national level and across most parts of the UK with expectations negative in 11 of the 12 regions/countries covered. The outlook over the next 12 months is stronger, however, as a headline net balance of +16% of contributors are expecting sales to rise' According to the report, the North East market is performing in line with the other regions, when London and the South East are excluded.

While evidence is starting to emerge of a weakening housing market, driven largely by the headwinds of an uncertain economic future from Brexit, a squeeze on household incomes due to rising consumer prices and increased tax levels, the Investment Adviser has seen no slowdown in investment opportunities and potential deal flow, the quality of which has been maintained. This is largely driven by the continued dearth in lending to small regional housebuilders from traditional lenders, a London-centric credit approach from most major lending institutions and a growing reputation in the market for the Company being a solid finance partner for strong, experienced property teams.

The Investment Adviser remains confident of being able to continue to implement the Company's investment policy, and to deliver the level of consistent quarterly income that many UK investors demand.

Ian McElroy

Tier One Capital Ltd

29 March 2019

Principal Risks and Uncertainties

There are a number of potential risks and uncertainties which could have a material effect on the Company's performance.

The Board of Directors has overall responsibility for risk management and internal control within the context of achieving the Company's objectives. The Board agrees the strategy of the Company taking into consideration the Company's risk appetite. The Company also maintains a risk register to monitor the perceived risks and their mitigation.

The Board has undertaken an assessment of the principal risks facing the Company and has carried out a review of the effectiveness of the internal controls as they operated during the year and up to the approval date of this Annual Report. The Board continues to keep the Company's system of risk management and internal controls under review to ensure these principal risks are appropriately managed. These principal risks are described below together with an explanation of how they are mitigated.

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 full impact of Brexit is still unknown. The Company holds 100% of its assets in the United Kingdom. The Board considers there is a risk of a further downturn in the UK property market due to the consequences of Brexit.

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 review of quarterly financial information and the compliance with the relevant rules.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Report and Financial Statements, in accordance with applicable law and International Financial Reporting Standards ('IFRS') as adopted by the EU.

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 with IFRS as adopted by the EU.

Under Company law the Directors must not approve the financial statements unless they are satisfied that they present a fair, balanced and understandable report and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

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 by the EU, have been followed, subject to any material departures disclosed and explained in the financial statements.

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

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 its 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.

Under applicable UK law and regulations, the Directors are also responsible for preparing a Strategic Report and a Directors' Report that complies with that law and those regulations.

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.

The Directors confirm that to the best of our knowledge:

· the financial statements, prepared in accordance with the applicable International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities and financial position of the Company;

· in the opinion of the Directors, the Report and Financial Statements 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.

· so far as each Director is aware, there is no relevant audit information of which the Company's auditor is unaware; and

· the Directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

On behalf of the Board

Stephen Coe

Chairman

29 March 2019

Statement of Comprehensive Income (Audited)

Year to 30 November 2018

Year to 30 November 2017

Revenue

Capital

Total

Revenue

Capital

Total

£'000

£'000

£'000

£'000

£'000

£'000

Revenue

Investment interest

2,044

-

2,044

1,347

-

1,347

Total revenue

2,044

-

2,044

1,347

-

1,347

Unrealised gain on investments

-

104

104

-

-

-

Total income

2,044

104

2,148

1,347

-

1,347

Expenditure

Investment adviser fee

-

-

-

-

-

-

Impairments

(317)

(429)

(746)

-

-

-

Other expenses

(550)

-

(550)

(326)

(108)

(434)

Total expenditure

(867)

(429)

(1,296)

(326)

(108)

(434)

Profit before finance costs and taxation

1,177

(325)

852

1,021

(108)

913

Net finance costs

Interest payable

(14)

-

(14)

-

-

-

Profit before taxation

1,163

(325)

838

1,021

(108)

913

Taxation

-

-

-

(48)

-

(48)

Profit for the year andtotal comprehensive profit for the year

1,163

(325)

838

973

(108)

865

Basic earnings per share

4.54p

(1.27)p

3.27p

4.68p

(0.48)p

4.16p

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 (Audited)

As at

As at

30 November 2018

30 November 2017

£'000

£'000

Non-current assets

Investments held at fair value

104

-

Loans at amortised cost

8,238

10,783

8,342

10,783

Current assets

Loans at amortised cost

19,140

10,999

Other receivables and prepayments

473

299

Cash and cash equivalents

606

316

20,219

11,614

Total assets

28,561

22,397

Current liabilities

Loan facility

(2,944)

-

Other payables and accrued expenses

(203)

(131)

Total liabilities

(3,147)

(131)

Net assets

25,414

22,266

Share capital and reserves

Share capital

269

227

Share premium

9,094

5,152

Special distributable reserve

16,455

16,455

Revenue reserve

29

540

Capital reserve

(433)

(108)

Equity shareholders' funds

25,414

22,266

Net asset value per ordinary share

94.39p

98.11p

Statement of Changes in Equity (Audited)

For the year ending 30 November 2018

Share

Share

Special

Capital

Revenue

Total

capital

premium

distributable

reserve

reserve

reserve

£'000

£'000

£'000

£'000

£'000

£'000

At beginning of the year

227

5,152

16,455

(108)

540

22,266

Total comprehensive income for the year:

Profit for the year

-

-

-

(325)

1,163

838

Transactions with owners recognised directly in equity:

Ordinary shares issued

42

4,188

-

-

-

4,230

Share issue costs

-

(246)

-

-

-

(246)

Dividends paid

-

-

-

-

(1,674)

(1,674)

At 30 November 2018

269

9,094

16,455

(433)

29

25,414

For the year ending 30 November 2017

Share

Share

Special

Capital

Revenue

Total

capital

premium

distributable

reserve

reserve

reserve

£'000

£'000

£'000

£'000

£'000

£'000

At beginning of the year

50

-

-

-

-

50

Total comprehensive income for the year:

Profit for the year

-

-

-

(108)

973

865

Transactions with owners recognised directly in equity:

Cancellation of launch management shares

(50)

-

-

-

-

(50)

Cancellation of launch share premium

-

(16,455)

16,455

-

-

-

Ordinary shares issued

227

22,467

-

-

-

22,694

Share issue costs

-

(860)

-

-

-

(860)

Dividends paid

-

-

-

-

(433)

(433)

At 30 November 2017

227

5,152

16,455

(108)

540

22,266

Cash Flow Statement (Audited)

For the year ending 30 November 2018

Year ending 30 November 2018

Year ending 30 November 2017

£'000

£'000

Operating activities

Profit after taxation

838

865

Impairments

746

-

Unrealised gain on investments

(104)

-

Increase in other receivables

(174)

(249)

Increase in other payables

72

131

Interest paid

14

-

Net cash inflow from operating activities before interest and after taxation

1,392

747

Net cash inflow from operating activities

1,392

747

Investing activities

Loans given

(10,260)

(11,806)

Loans repaid

3,918

1,625

Net cash outflow from investing activities

(6,342)

(10,181)

Financing

Issue of ordinary shares

3,984

10,233

Equity dividends paid

(1,674)

(433)

Cancellation of management shares

-

(50)

Bank loan drawn down

2,944

-

Interest paid

(14)

-

Net cash inflow from financing

5,240

9,750

Increase in cash and cash equivalents

290

316

Cash and cash equivalents at the start of the year

316

-

Cash and cash equivalents at the end of the year

606

316

There are no non-cash changes arising from financing activities.

Notes to the Audited Financial Statements

1. Investment Manager's and Investment Adviser's Fees

Investment Manager

The Company has appointed R&H Fund Services (Jersey) Limited to act as the Company's alternative investment fund manager (AIFM) for the purposes of AIFMD pursuant to the Investment Management Agreement and accordingly the AIFM is responsible for providing discretionary portfolio management and risk management services to the Company, subject to the overall control and supervision of the Directors. The AIFM is entitled to receive fees from the Company of £15,000 per annum on total assets up to £100 million, or a fee from the Company of £20,000 per annum if total assets are over £100 million. There is a balance of £18,000 accrued for the Investment Manager for the year to 30 November 2018 and a balance of £15,000 for the year to 30 November 2017.

Investment Adviser

The AIFM has appointed Tier One Capital Limited to act as the Company's investment adviser pursuant towhich the AIFM has delegated discretionary portfolio management services to the Investment Adviser, subject to the overall control and supervision of the Directors.

The Investment Adviser 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 £100m; or 0.50 per cent. per annum of the prevailing Net Asset Value if £100m or more. The Investment Adviser has agreed (unless otherwise decided by the Board) to waive its fee until the Net Asset Value is at least £50 million.

There are no performance fees payable.

2. Operating expenses

30 November 2018

30 November 2017

Revenue

Capital

Revenue

Capital

£'000

£'000

£'000

£'000

Legal & professional

44

-

5

108

Directors fees

120

-

79

-

Audit fees

67

-

62

-

Fund Administration and Company Secretarial

74

-

61

-

Brokers fees

27

-

26

-

Marketing fees

59

-

-

-

Valuation fees

40

-

-

-

AIFM fee

18

-

-

-

Loan impairments

317

429

-

-

Other expenses

101

-

93

-

Total other expenses

867

429

326

108

All expenses are inclusive of VAT where applicable.

3. 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 2018

30 November 2017

£'000

£'000

Current corporation tax at 19% (2017: 19.33%)

-

48

Deferred taxation

-

-

Tax on profit on ordinary activities

-

48

Reconciliation of tax charge

Profit on ordinary activities before taxation

838

913

Taxation at standard corporation tax rate 19% (2017: 19.33%)

162

176

Effects of:

Expenses not deductible for tax purposes

142

21

Interest distributions

(304)

(149)

Tax charge for the year

-

48

4. Ordinary dividends

30 November 2018

30 November 2017

Pence per share

£'000

Pence per share

£'000

Interim dividend for the quarter ended 28 February 2018

1.75

415

-

-

Interim dividend for the quarter ended 31 May 2018

1.75

448

1.50

213

Interim dividend for the quarter ended 31 August 2018

1.75

471

1.50

220

Total dividends paid during and relating to the year

1,334

433

Interim dividend for the quarter ended 30 November 2018

1.75

471

1.50

340

Total dividend declared in relation to the year

1,805

773

The Company intends to distribute at least 85% of its distributable income earned in each financial year by way of interest distribution. On 13 December 2018, the Company declared an interim dividend of 1.75 pence per share for the quarter ended 30 November 2018, payable on 4 January 2019. On 21 February 2019 the Company declared an interim dividend of 1.50 pence per share for the quarter ended 28 February 2019, payable on 4 April 2019.

5. Earnings per share

The revenue, capital and total return per ordinary share is based on each of the profit after tax and on 25,593,773 ordinary shares, being the weighted average number of ordinary shares in issue throughout the year.

6. 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% of the following companies:

· Ryka Developments

As was the case last year, the Company is currently looking to either re-finance or sell the Ryka facility. During the year some progress was made on a refinance but the offer verbally presented by the broker (from Oak North bank) fell away. The Company is likely to maintain a 20% to 30% interest with a second charge. The uncertainty surrounding the future structure of a much reduced facility does not affect the value of the outstanding loan at 30 November, but the uncertainty around the future of the JV leads us to ascribe no value to the JV at 30 November. This will be re-assessed once the re-financing/sale is concluded.

· Thursby Homes (Springs)

At the year-end the demolition had been completed (£167K) and the first valuation was due to be submitted in late December by Able Construction (Total contract of £2.9m). The project remains at a very early stage and no equity value could currently be expected to be recovered should it not complete. There is no threat to the recoverability of the loan, but any fair value that might be ascribed to the JV is currently de minimus.

· Bede & Cuthbert Development

At the year end date, thirteen units of the twenty had been contracted to sell. Post year end there have been seven legal completions, facilitating a capital repayment in December, with another six legal completions scheduled for April. The development is now at a sufficiently complete stage that the Board feels it is appropriate to recognise a fair value of £104,000.

· Gatsby Homes

The Board has determined that an impairment is taken on this loan. Therefore there is no equity value to recognise.

· Newgate Street and Whitefield Farm

At the year end, no monies had been spent on Whitefield Farm and only a small amount of monies had been spent on Newgate Street. The projects remain at a very early stage and no equity value could currently be expected to be recovered should they not complete. This is expected to change over the coming months.

· Gateshead Town Hall

In respect of Gateshead Town Hall, the fair value of the profit share has been determined at nil as the project remains at a very early stage. This will continue to be reviewed over the coming months.

7. Loans at amortised cost

30 November 2018

30 November 2017

£'000

£'000

Opening balance

21,782

-

Loans advanced at launch

-

11,601

Loans deployed

10,260

11,806

Principle repayments

(3,918)

(1,625)

Impairments

(746)

-

Total loans at amortised cost

27,378

21,782

Split:

Non-current assets: Loans due for repayment after one year

8,238

10,783

Current assets: Loans due for repayment under one year

19,140

10,999

The Company's loans 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 £746,000 (2017: nil).

8. Receivables

30 November 2018

30 November 2017

£'000

£'000

Prepayments

8

11

Loan interest receivable

465

288

Total receivables

473

299

9. Loan facility

30 November 2018

30 November 2017

£'000

£'000

Bank loan

2,944

-

On 23 October 2018 the Company entered into an £8.5 million committed revolving facility with Shawbrook Bank Limited. The facility has a one year term and is due to expire on 22 October 2019 after which it is anticipated that the Company will take out a new facility on comparable terms. £3.0 million was drawn down at the year end at an interest rate of 4.479345%. The facility is secured against a debenture over the assets of the Company.

10. Other Payables

30 November 2018

30 November 2017

£'000

£'000

Accruals

203

83

Taxation payable

-

48

Total other payables

203

131

11. Share Capital

Nominal

Value

£'000

Number of

Ordinary shares

of 1p

At 30 November 2017

227

22,693,559

Issue 5 December 2017

10

958,257

Issue 2 March 2018

5

617,216

Issue 5 April 2018

14

1,350,000

Issue 18 June 2018

13

1,305,031

Issued and fully paid as at 30 November 2018

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).

12. Reserves

Share premium

Special distributable reserve

Capital reserve

Revenue reserve

Total

£'000

£'000

£'000

£'000

£'000

At 30 November 2017

5,152

16,455

(108)

540

22,039

Profit for the year

-

-

(325)

1,163

838

Share issues

4,188

-

-

-

4,188

Share issue costs

(246)

-

-

-

(246)

Cancellation of share premium

-

-

-

-

-

Dividend paid

-

-

-

(1,674)

(1,674)

At 30 November 2018

9,094

16,455

(433)

29

25,145

Following the approval of the Court and the subsequent registration of the Court order with the Registrar of Companies on 30 March 2017, the share premium cancellation was effective. Share premium of £16,454,963 (after deduction of initial launch costs amounting to £672,977) was transferred to a special distributable reserve.

13. Related Parties

The Directors are considered to be related parties.

Stephen Black and Ian McElroy are shareholders and have control of Tier One Capital Limited.

Tier One Capital Limited received no fees during the year (30 November 2017: £nil) and £nil was payable at the year end (30 November 2017: £nil). In its capacity a Security Trustess and Facility Agent for the loan book, the Investment Adviser receives payment from the borrower for the origination and ongoing monitoring of the debt facilities.

There are various related party relationships in place with the borrowers as below:

· Quartztec

Stephen Black and Ian McElroy were directors of Quarztec Holdings Limited. This project was fully repaid in January 2018. Tier One Capital Investments Ltd owned 25.1% of Quartztec Holdings Limited. The loan amount outstanding as at 30 November 2018 was £nil (30 November 2017; £0.44m). Transactions in relation to loans (repaid)/made during the year amounted to (£0.44m) (30 November 2017: £0.44m). Interest due to be received as at 30 November 2018 was £nil (30 November 2017; £0.006m). Interest received during the year amounted to £0.012m (30 November 2017: £0.024m).

· Pendower Hall

Stephen Black and Ian McElroy are directors of Pendower Hall Ltd. Pendower Hall Ltd is 100% owned by Inperpetuity Ltd. Inperpetuity Ltd is 100% owned by Stephen Black, Ian McElroy and their respective spouses. The loan amount outstanding as at 30 November 2018 was £1.713m (30 November 2017; £1.232m). Transactions in relation to loans made during the year amounted to £0.480m (30 November 2017; £1.232m). Interest due to be received as at 30 November 2018 was £0.027m (30 November 2017: £0.021m). Interest received during the year amounted to £0.139m (30 November 2017: £0.081m).

· Commerce Chambers

Stephen Black and Ian McElroy are formerly directors of Commerce Chambers Ltd, having resigned on 15 June 2018. Commerce Chambers Ltd is 100% owned by Inperpetuity Ltd. Inperpetuity Ltd is 100% owned by Stephen Black, Ian McElroy and their respective spouses. This project was fully repaid in June 2018. The loan amount outstanding as at 30 November 2018 was £nil (30 November 2017; £1.505m). Transactions in relation to loans (repaid)/made during the year amounted to (£1.505m) (30 November 2017: £1.505m). Interest due to be received as at 30 November 2018 was £nil (30 November 2017: £0.020m). Interest received during the year amounted to £0.070m (30 November 2017: £0.080m).

· Rare Earth Medburn

Stephen Black and Ian McElroy are former directors of Rare Earth Medburn Ltd, having resigned on 15 June 2018. Rare Earth Medburn Ltd is 100% owned by Stephen Black and his spouse Jill Black, having previously been owned by Inperpetuity Ltd. The loan amount outstanding as at 30 November 2018 was £1.840m (30 November 2017; £1.630m). Transactions in relation to loans made during the year amounted to £0.210m (30 November 2017: £1.630m). Interest due to be received as at 30 November 2018 was £0.025m (30 November 2017: £0.022m). Interest received during the year amounted to £0.141m (30 November 2017: £0.080m).

· Thursby Homes

Tier One Capital Ltd owns 25.1% of Thursby Homes Ltd. T1C Nominees Ltd is a former director of Thursby Homes Ltd, having resigned on 25 September 2018. T1C Nominees Ltd is owned by Stephen Black and Ian McElroy who are directors. The loan amount outstanding as at 30 November 2018 was £0.967m (30 November 2017; £1.943m). Transactions in relation to loans (repaid)/ made during the year amounted to (£0.975m) (30 November 2017: £1.943m). Interest due to be received as at 30 November 2018 was £0.013m (30 November 2017: £0.027m). Interest received during the year amounted to £0.099m (30 November 2017: £0.100m).

The following related parties arise due to the opportunity taken to advance the 25.1% profit share contracts:

· Ryka Developments

TOC Property Backed Lending Trust plc owns 25.1% of the borrower Ryka Developments Ltd. Stephen Black is a former director of Ryka Developments Ltd, having resigned on 21 September 2018. The loan amount outstanding as at 30 November 2018 was £2.300m (30 November 2017; £2.300m). Transactions in relation to loans made during the year amounted to £nil (30 November 2017: £2.300m). Interest due to be received as at 30 November 2018 was £0.031m (30 November 2017: £0.031m). Interest received during the year amounted to £0.184m (30 November 2017: £0.118m).

· Gatsby Homes

TOC Property Backed Lending Trust plc owns 25.1% of the borrower Gatsby Homes Ltd. T1C Nominees Ltd is a former director of Gatsby Homes Ltd, having resigned on 5 October 2018.

The loan amount outstanding as at 30 November 2018 was £1.870m (30 November 2017; £0.750m). Transactions in relation to loans made during the year amounted to £1.120m (30 November 2017: £0.750m). Interest due to be received as at 30 November 2018 was £0.031m (30 November 2017: £0.011m). Interest received during the year amounted to £0.100m (30 November 2017: £0.021m).

· Bede and Cuthbert Developments

TOC Property Backed Lending Trust plc owns 25.1% of the borrower Bede and Cuthbert Developments Ltd. Stephen Black and Ian McElroy are former directors of Bede and Cuthbert Developments Ltd, having resigned on 24 October 2018. The loan amount outstanding as at 30 November 2018 was £2.625m (30 November 2017; £1.000m). Transactions in relation to loans made during the year amounted to £1.625m (30 November 2017: £1.000m). Interest due to be received as at 30 November 2017 was £0.035m (30 November 2017: £0.009m). Interest received during the year amounted to £0.146m (30 November 2017: £0.011m).

· Thursby Homes (Springs)

TOC Property Backed Lending Trust plc owns 25.1% of the borrower Thursby Homes (Springs) Ltd. The loan amount outstanding as at 30 November 2018 was £1.375m (30 November 2017; £nil). Transactions in relation to loans made during the year amounted to £1.375m (30 November 2017: £1.000m). Interest due to be received as at 30 November 2017 was £0.018m (30 November 2017: £nil). Interest received during the year amounted to £0.054m (30 November 2017: £nil).

· Northumberland

TOC Property Backed Lending Trust plc owns 25.1% of the borrower Northumberland Ltd. The loan amount outstanding as at 30 November 2018 was £1.500m (30 November 2017; £nil). Transactions in relation to loans made during the year amounted to £1.500m (30 November 2017: £nil). Interest due to be received as at 30 November 2018 was £0.030m (30 November 2017: £nil). Interest received during the year amounted to £0.041m (30 November 2017: £nil).

· Dinosauria

TOC Property Backed Lending Trust plc owns 25.1% of the borrower Northumberland Ltd. The loan amount outstanding as at 30 November 2018 was £0.550m (30 November 2017; £nil). Transactions in relation to loans made during the year amounted to £0.550m (30 November 2017: £nil). Interest due to be received as at 30 November 2018 was £0.007m (30 November 2017: £nil). Interest received during the year amounted to £0.019m (30 November 2017: £nil).

12. 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 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 2018, with impairments amounting to £746,000 (30 November 2017: £nil).

All of the Company's cash is be 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.

Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulties in realising assets or otherwise raising funds to meet financial commitments. The Company's investments comprise fixed rate loans. These loans in which the Company invests are not traded in an organised public market and may be illiquid. As a result, the Company may not be able to liquidate quickly its investments at an amount close to their fair value in order to meet its liquidity requirements.

The Company's liquidity risk is managed on an ongoing basis by the Investment Adviser and monitored on a quarterly basis by the Board.

Interest Rate Risk

Some of the Company's financial instruments will be interest-bearing. As a consequence, the Company will be exposed to interest rate risk due to fluctuations in the prevailing market rate.

The fair value of financial assets and liabilities is not materially different from their carrying value in the financial statements.

When the Company retains cash balances, they will ordinarily be held on interest-bearing deposit accounts. The Company's policy is to hold cash in variable rate or short term fixed rate bank accounts. Exposure varies throughout the year as a consequence of changes in the composition of the net assets of the Company arising out of the investment and risk management policies.

Market Price Risk

The management of market price risk is part of the investment management process. The portfolio is managed with an awareness of the effects of adverse valuation movements through loan impairment and continuing analysis, with an objective of maximising overall returns to shareholders. The likelihood of impairment is inherently difficult to value due to the individual nature of each loan and underlying property. As a result, valuations are subject to uncertainty. Such risk is minimised through the appointment of external property valuers.

While the valuations of the Profit Shares will be in compliance with IFRS on the basis of market value in accordance with the International Private Equity and Venture Capital Valuation Guidelines, they will be difficult to value accurately and will rely on information being provided to the Company from the joint venture vehicle. There can be no assurance that the values of the Profit Shares reported by the Company from time to time will in fact be realised.

13. Post Balance Sheet Events

On 4 January 2019, a dividend of 1.75 pence per ordinary share was paid.

On 21 February 2019, a dividend of 1.50p was declared with an xd date of 28 February 2019, record date of 1 March 2019 and a payment date of 4 April 2019.

On 27 February 2019, Bylaugh Hall repaid its loan in full to the amount of £3.4m.

On 1 March 2019, £3.0m was repaid to Shawbrook Bank, leaving the whole of the £8.5m facility available for drawdown.

14. Financial Statements

These are not full statutory accounts. The report and financial statements for the period to 30 November 2018 will be posted to shareholders and made available on the website www.tocpropertybackedlendingtrust.co.uk. Copies may also be obtained from the Company Secretary Maitland Administration Services (Scotland) Limited, 20 Forth Street, Edinburgh, EH1 3LH.

Disclaimer

Martin Currie Asia Unconstrained Trust plc published this content on 29 March 2019 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 29 March 2019 16:51:07 UTC

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NameTitle
Richard Harry Wells Chairman
Gregory Alexander Shenkman Senior Independent Non-Executive Director
Anja Maria Balfour Independent Non-Executive Director
Martin A. Shenfield Non-Executive Director
Craig Cleland Non-Executive Director
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