TOC Prop BackLendTst - Annual Financial Report
30/03/2022 12:35
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RNS Number : 6166G TOC Property Backed Lendng Tst PLC 30 March 2022
To: RNS
From: TOC Property Backed Lending Trust plc
LEI: 213800EXPWANYN3NEV68
Date: 30 March 2022
Subject: Annual Financial Report
Chairman's Statement
Highlights
· Net Asset Value total return of +4.8% (2020: +3.9%).
· Record annual new loan facilities of £13.9m agreed.
· Implementation of revised dividend strategy.
· Dividend increase to 4 pence per share (2020 - 3p).
· Profitable exits of five portfolio projects, further de-risking the
portfolio (2020: 3 exits).
· Continuation Resolution put before investors and approved.
· Portfolio liquidity maintained; funding headroom of £11.0m at the year
end.
· Loan facility with Shawbrook Bank Limited extended to May 2022; renewal
in hand.
OBJECTIVE; MANAGERIAL ARRANGEMENTS
The Company seeks to achieve its investment objective through a diversified
portfolio of fixed rate loans predominantly secured over land and/or property
in the UK and managed by its Investment Adviser, Tier One Capital Ltd ('TOC').
The Investment Adviser's Report may be found below.
INTRODUCTION
I am pleased to present the Company's results for the year ended 30 November
2021, spanning another testing period both for the commercial and residential
real estate sub-sectors and for the wider economy.
During the final month of 2020, as our financial year began, the UK economy
expanded by around 1%, marking a reversal of the trend in which the UK
suffered a record annual slump of 9.9% for 2020 as a whole. These were the
worst figures, said the Office for National Statistics (ONS) since GDP was
first measured after the Second World War. The same ONS report noted that the
severest fall in year 2020 came from the construction sector, which contracted
by 12.5%.
As 2021 progressed, a strong rebound during the first half of the year lost
its impetus, as media reports put it, "amid shortages of workers and materials
and weaker export volumes after Brexit".
All of this is before we even mention the onset of Covid-19, first detected in
the UK in January 2020 but probably present before that and which remains a
factor more than two years later. Notwithstanding the imposition of a third
lockdown in January 2021 and the detection of a new Delta variant in April,
the Coronavirus Job Retention Scheme, better known as Furlough, began to wind
down in July 2021. Delta became the dominant variant in the UK for several
months before Omicron, the latest variant at the time of writing, being first
reported in South Africa in November 2021.
This then, was the backdrop against which the Board, working with the
Investment Adviser, opted to maintain increased levels of liquidity during
2021, requiring a reduction in dividend distributions from the previous
financial years.
The second stage of the process of restructuring and streamlining the company
to match changing conditions came with the major Strategic Review announced
via the London Stock Exchange on 10 March 2021 and approved by shareholders
later the same month. The Company is now well placed to benefit from a
repositioning of the portfolio to lower risk, together with the creation of
headroom to lend to new projects. Further details of the impact of the
Strategic Review are given below.
Increased activity seen in the second half of 2021, together with additional
debt yet to be drawn down on facilities already written, ensures we are
looking forward to growth in higher quality earnings in the year ahead.
PERFORMANCE; NET ASSET VALUE
The Company's net asset value ('NAV') decreased to 83.88 pence at the year-end
(2020: 83.93 pence). The net asset value total return for the financial year
was +4.8%, including the impact of dividends received, during what must be
regarded as a transitional year for the trust.
This figure may be placed into context by the total return figures over the
same period of the Association of Investment Companies' (AIC 's)
'Property-Debt' sector, of which PBLT is a component member, of +6.2% and of
the AIC's 'Debt-Loans' sector of +10.5% (Source: AIC).
The reduction in NAV is a function of the dividends declared (£942,000 in
aggregate) being greater than net profit for the year (£929,000). Profit was
impacted by reduced investment interest received, which fell from £2.3m in
2020 to £1.6m in 2021 (these figures disregard any impairments). The lower
interest figure resulted from a reduction in the capital deployed by borrowers
during 2021, as discussed in the Investment Adviser's Report below.
It should be noted that although a number of new loans were approved during
the year, there is naturally a lag between loan redemptions and the often
phased drawdown and deployment of capital by new borrowers.
STRATEGIC REVIEW
On 29 March 2021 shareholders voted overwhelmingly to support a refreshed
investment policy for the Company, intended to allow for greater flexibility
to allocate capital to sectors that the Board, as advised by the Investment
Adviser, had assessed as potentially more attractive within existing risk
management parameters.
The key changes were to:
· Reduce restrictions on sector caps imposed by the previous
investment policy, so as to give better access to opportunities in, for
example, small and medium-sized enterprise (SME) housebuilding. Commercial
property opportunities will nevertheless continue to be examined on merit.
· Increase the maximum permitted exposure to bridging loans, selected loan
financings and other debt instruments so as to increase the flexibility
available to the Investment Adviser.
· Maintain an attainable and consistent stream of quarterly dividends.
· Reduce operating costs at all levels of the company.
· Improve liquidity, i.e. the ability to buy and sell shares easily, by
introducing discount control mechanisms such as share buy-backs and share
issues.
· remove reference to (though not exclude) profit share agreements in the
investment policy agreements in the investment policy. The evolution of the
portfolio towards less risky and lower Loan-to-Value (LTV) loans is likely to
result in fewer situations where an equity position can reasonably be
achieved.
CONTINUATION VOTE
The Company's Articles of Association (the "Articles") provide that the
Directors are required to propose an ordinary resolution that the Company
continue its business as presently constituted (the "Continuation Resolution")
at the fifth Annual General Meeting (AGM) of the Company and at each third AGM
of the Company thereafter.
The Continuation Resolution was brought forward and approved by shareholders
at the 29 March 2021 General Meeting. As the Continuation Resolution was
proposed early, the Company amended its Articles of Association accordingly so
that the next Continuation Resolution will be proposed at the annual general
meeting to be held in 2024 and at each third AGM thereafter.
REVENUE AND DIVIDENDS
As part of the Strategic Review described above the Board and the Investment
Adviser examined the likely dividend capacity of the Company going forward.
This analysis concluded that anticipated returns from typical development
finance portfolio projects of approximately 5-6% might be achieved, in the
current interest rate environment.
Under this revised policy, the Company expects to pay dividends at a rate of 1
penny per share per quarter, equivalent to 4 pence per share per year in
aggregate. The Company intends to continue to distribute at least 85 per cent.
of its eligible income or such other percentage which may be prescribed by
HMRC in accordance with Chapter 4 of Part 24 Corporation Tax Act 2010.
Accordingly, to the extent required, at the end of each financial year, the
Board will consider whether payment of an additional dividend (to be paid
alongside the final fourth quarter dividend for that year) is appropriate
and/or required for the Company to maintain its investment trust status.
For the financial year to 30 November 2021, revenue decreased to 3.09p per
share (2020: 3.81p). In accordance with the Board's revised dividend policy,
as described above, four quarterly interim dividends have been declared for
the year ended 30 November 2021.
The fourth of these interim dividends, representing a final balancing payment
for the year, has been declared and will be paid on 1 April 2022 to
shareholders on the register at the close of business on 4 March 2022
(ex-dividend date 3 March 2022).
GEARING
Loan facilities during the year consisted of a £6.5 million credit
arrangement with Shawbrook Bank Limited of which nil was drawn down at the
year end. The facility provided by Shawbrook Bank Limited was extended from
May 2021 to May 2022 and it is intended that it will be renewed.
INVESTMENT PORTFOLIO
The Company agreed five new loans during the year, including a £3.8 million,
36 month facility to fund the Horizon Crematorium project in East Renfrewshire
Scotland; a £4.5 million, 30-month facility to finance the construction of 61
residential units at Oak Meadows, near Teeside Airport and a £4.2 million,
42-month loan to fund some 145 residential units near Bishops Auckland, County
Durham. The investment portfolio is described in greater detail below.
Five exits, plus a further five partial redemptions are also highlighted in
the Investment Adviser's report, creating liquidity for potential investment
in new opportunities.
During the 2021 financial year, three projects were unable to meet their
interest repayments in full, relating primarily to loans predating the
formation of the trust. These impairments have been substantially offset
during 2021 both by uplifts in loan positions generated through profit share
positions and the lessening of previous impairment assessments which have
transpired to be over-prudent.
The directors believe the level of impairments will reduce in financial year
2022 as legacy loans are exited, the loan covenant ratios of the borrowers
improve and as the overall quality of the project portfolio increases.
BOARD OF DIRECTORS
As part of the drive, highlighted in the March 2021 Strategic Review towards
moderating costs, the Remuneration Committee, chaired by Douglas Noble,
completed an assessment of the level of Directors' fees during the year. This
assessment considered a number of factors, including external peer group
analyses, increased regulatory responsibilities and inflationary trends.
The two conclusions reached were that first, a graduated scale of remuneration
should be introduced, depending upon individual responsibilities, replacing
the former flat fee structure. Secondly, having benchmarked the Company
against its peers, new and slightly lower remuneration levels should be set.
This has resulted in a reduction in total fees of £5,000 per annum, with
effect from 1 December 2021.
The new arrangements will be put before shareholders at the 28 April 2022 AGM.
Further details are set out in the Directors' Remuneration Report in the
Annual Report.
There were no changes to the Board of Directors during the year. In accordance
with the UK Corporate Governance Code requirements, all Directors will stand
for re-appointment at the AGM.
CHANGE OF AUDITOR
Following a competitive tender process, again motivated, in the wake of the
Strategic Review, by a desire to control costs, the Company has appointed MHA
MacIntyre Hudson as its auditor. This appointment will be reaffirmed at the
AGM.
OUTLOOK
Over the past year the Company and indeed the economy as a whole has, putting
it mildly, been faced with an uncertain backdrop. Workforces have either been
placed under full lockdown or, at other times, debilitated by Covid-19
absences and/or working from home ("WFH") governmental diktats.
Most recently, we have witnessed geopolitical risk emerging across the globe,
including wars and sharply rising energy costs. In addition the financial
effects of Covid-19 are likely to be felt in the form of increased taxes and
in changes in fiscal policy and increases in interest rates and inflation.
These factors are likely to have significant effects on the property sector
with the related Brexit impacts being of lesser significance.
The UK government's furlough schemes, though undoubtedly successful (if
hideously expensive) in averting full scale recession have also been run down
as the year has progressed. In the background, too, a combination of shipping
lanes devoid of cargo vessels because of Covid-19 issues and post-Brexit
administrative nightmares have led to supply chain blockages - a particular
problem across the building and construction sectors.
Notwithstanding these headwinds the Company's portfolio has broadly held its
value during the financial year under report and produced a positive total
return for investors when dividends are factored in. The decision made
following the Strategic Review, to maintain liquidity, i.e. stay partially in
cash, while these issues are played out, has helped in this regard.
The trade-off, in adopting this relatively defensive policy, has been that the
Company has been under-invested for much of the year, causing revenue receipts
to be lower than they would otherwise have been under a more aggressive
lending stance.
Having listed some of the challenges both past and present, we begin the new
financial year with cautious optimism. On the positive side, the world will
learn (or indeed have to learn) to live with Covid-19. At least recent
scientific evidence suggests the Omicron variant is less lethal than earlier
variants, in addition to which, vaccination levels continue to rise. Supply
chain issues are gradually being dealt with, construction sites are swinging
back into action, road traffic seems if anything to exceed pre-Covid-19 levels
and property buyers have resumed their searches.
Both interest rates and inflation appear to be on firm upward trends. For the
real estate sector, this could be regarded either as a threat or as an
opportunity, with property prices, lending rates and input costs all likely to
increase.
The Company's robust balance sheet, investment headroom and nimbleness should
place it in a strong position to maximise the opportunities that lie ahead.
ANNUAL GENERAL MEETING
The Company's AGM will be held at the Grey Street Hotel, 2-12 Grey Street,
Newcastle upon Tyne on Thursday 28 April 2022 at 12 noon.
The Board encourages all shareholders to exercise their votes in respect of
the meeting in advance, by completing and returning their proxy forms. This
will ensure that the votes are registered.
In addition, shareholders are encouraged to raise any questions in advance of
the AGM, via email to cosec@MaitlandGroup.com or by post to the Company
Secretary at the address set out in the Annual Report. Any questions received
will be replied to by the Company after the AGM.
John Newlands
Chairman
30 March 2022
Investment Adviser's Review
ABOUT THE ADVISER
Tier One Capital Ltd is a Newcastle upon Tyne based wealth management and
property lending specialist providing financial advice services and bespoke
tailored lending to the residential and commercial property development
market.
INVESTMENT ADVISER'S REPORT:
REVIEW OF THE 12 MONTHS TO 30 NOVEMBER 2021
This review covers the fourth full year of performance and fifth audit review
of the Company, since listing in January 2017.
The Company's primary purpose is to provide debt finance to the property
sector. The Company also benefits from a number of equity positions attained
at nil cost in a number of the borrowing entities which it supports.
Investment Adviser's highlights:
The trading period covered by this report has been historically unprecedented
due to the ongoing impact of the Covid-19 pandemic which initially decimated
certain sectors of the economy, most notably travel and hospitality, and
brought about what appear to be seismic shifts in how people work and live.
A second lockdown was entered into at the beginning of 2021 and this slowed
investment decisions until the vaccine roll out gained real momentum towards
the end of Q1 2021. The second half of the year was far more positive with
the economic journey to a new normal well underway driven by a hot property
market and a strong uptick in consumer spending. Interest rate rises, the
recovery from the Omicron variant, high inflation (especially energy prices)
and the war in Ukraine are dampening confidence in quarter one.
Measures introduced by the government, most notably the stamp duty holiday,
together with an increase in household discretionary cash and a lack of supply
saw the residential housing market accelerate to new highs and forecasts
expect these increases to be consolidated into 2022.
The Company used the year to protect shareholder value, rebalance the
portfolio to more conservative loans and reset the Company's investment policy
to ensure it is fit for purpose as we enter the years ahead. We are pleased to
report the investment highlights below:
· NAV Total Return of 3.5%.
· Continued focus on liquidity, creating fund headroom of £11.0m
at the year end.
· Profitable exits of five significant portfolio projects, bringing
the number of exits since inception to twelve.
· Refreshed investment strategy allowing greater flexibility to
deploy in sectors forecasted to grow.
· Redeployment of funds across the North East and Scotland, meaning
the Company is now focussed on regions and market economies to which it is
closest.
· Dividend payments totalling 3p for the first nine months. A
further dividend of 1p was declared in February 2022
Deployment
Despite the ongoing uncertainties faced, we are pleased to report an active
year for new transactions, deployments to existing projects together with full
and partial exits.
The Company agreed five new facilities during the year:
· Horizon, Scotland - £3.8m 36-month facility
· Bridge St, Scotland - £1.05m 27-month facility
· Finnieston, Scotland - £0.32m 12-month facility
· Oak Meadows, North East England - £4.5m 30 month facility
· Four Lane Ends, North East England - £4.2m 42 month facility
During the year a total of £8.266m was deployed into ten projects including
the five new projects mentioned above.
Portfolio Exits
There were five exits during, bringing the number of exits in the portfolio to
twelve since inception. The exits were across £9.8m of loans and generated
an IRR of 10.9% for the Company.
Partial Redemptions Update
During the year there was £4.046m of partial redemptions across six of the
portfolio projects.
Impairments
The Company, in accordance with IFRS 9, recognises the gross interest
receivable on all its loans, and then recognises an impairment charge when
that interest is not paid by the borrower, and there is not a clear
expectation that this can be recovered subsequently. During the year, there
were three projects unable to meet their interest requirements.
IFRS 9 also requires the Company to consider various credit loss scenarios and
assign a risk weighting to these. This calculation generates a provision which
is taken as a further impairment for the year. In this period the Company has
reduced the provision to £33,000 from the £261,000 that was in place at 30
November 2020. This provision is based on look-forward statements to withstand
market-related shocks including those caused by the ongoing Covid-19 pandemic.
Gearing
In May 2021, the Company refreshed a committed revolving credit facility with
Shawbrook Bank for a further year. Again the key driver was headroom and
liquidity and its renewal for a fourth year demonstrates the support that the
Company has from its lender, and the growing confidence in future deployment
given the current strength of pipeline.
Profit Share Projects
There are currently six Profit Share projects in the portfolio (Nov 2020: 10).
Refreshed Investment Strategy
In March 2021 the Company's shareholders voted overwhelmingly to support a
refreshed investment strategy for the Company. The key changes are as follows:
· Reposition the Company as a stretch senior lender which has the
benefit of reducing the risk of default.
· Reduce sector constraints to give the Company greater flexibility
for deployment across residential and commercial.
OUTLOOK
Economic Outlook
Residential
As at 30 November 2021, 59.8% of deployed funds were invested across 12
projects with a residential focus with a further £5.9m committed to live
projects.
The housing market has seen considerable growth over the past 12 months and
the outlook amongst analysts for 2022 and beyond continues to be positive.
Savills five year forecast suggests increases across the UK of 13.1% for the
period with the North East and Scotland forecast to see rises of 17.6% and
15.9% respectively.
Turning to cost pressures, the past twelve months has seen considerable price
inflation on both materials and labour. According to ISH Markit/CIPS UK
Construction PMI, "construction activity expanded at the fastest pace since
June 1997…severe shortages of construction products and materials resulted
in a survey record rise in purchasing prices in June". Specifically in house
building construction, the index increased at its fastest pace since November
2003.
The Builders Merchants Federation and Construction Products Association have
warned that availability issues are expected to worsen before they improve.
The ongoing impact of the Covid-19 pandemic is a significant factor behind the
shortages and price increases. There are other factors including the
imbalance between global demand and supply for timber which is not likely to
be resolved quickly.
The Company's residential exposure is predominantly in the North East
(87.8%). This will continue to be a key focus as this region continues to
offer affordability for house buyers, despite the recent increase in prices.
Projects are appraised using the views of market experts for sales values and
build cost and delivery, with all assumptions stress tested.
Commercial
As at 30 November 2021, 40.2% of deployed funds were invested across five
projects with a commercial focus.
The new investment strategy allows the Company to be more selective in the
level of exposure to commercial developments. We believe that a selective
approach to the Company's deployment in the commercial property sector will
continue to create shareholder value. The sectors within the commercial
property space that the Company currently has exposure to are:
· bereavement (crematorium);
· strategic land; and
· shared office space.
Each of the above sub-sectors offer downside protection in the current
uncertain economic times with the latter two also giving flexibility for the
borrowers as and when trends change. We will continue to identify and support
professional, experienced and reliable management teams who have a clear
vision and robust plan.
Pipeline
There is currently £7.9m at various stages of due diligence across three
projects with 100% in the North East.
The quality and experience of each management team that we are in discussions
with will continue to enhance the Company's portfolio and strengthen its
reputation in the market. This should lead to the creation of shareholder
value that is sustainable in the longer term.
Ian McElroy
Tier One Capital Ltd
30 March 2022
THE INVESTMENT PORTFOLIO AS AT 30 NOVEMBER 2021
Sector % of LTV* Loan Value
Portfolio (Nov 21) (Nov 21)
£'000s
Residential 47.5% 73.7% 10,480
Commercial 31.9% 66.7% 7,043
Cash 20.6% - 4,545
General Impairment - - (33)
Total/Weighted Average 100.0% 70.87% 22,035
*LTV has been calculated using the carrying value of the loans as at the
balance sheet date
PRINCIPAL AND EMERGING RISKS
The Board of Directors has overall responsibility for risk management and
internal control within the context of achieving the Company's objectives.
The Directors confirm that they have carried out a robust assessment of the
principal and emerging risks facing the Company, including those that would
threaten its business model, future performance, solvency or liquidity, as
they operated during the year and up to the approval of the Annual Report.
The Board agrees the strategy of the Company taking into consideration the
Company's risk appetite. With the assistance of the Investment Adviser, the
Board has drawn up a risk matrix, which identifies the key risks to the
Company, as well as emerging risks. In assessing the risks and how they can be
mitigated, the Board has given particular attention to those risks that might
threaten the viability of the Company. These key risks fall broadly under the
following categories:
· Investment and strategy risk
The Company's targeted returns are targets only and are based on estimates and
assumptions about a variety of factors including, without limitation, yield
and performance of the Company's investments, which are inherently subject to
significant business, economic and market uncertainties and contingencies, all
of which are beyond the Company's control and which may adversely affect the
Company's ability to achieve its targeted returns. Accordingly, the actual
rate of return achieved may be materially lower than the targeted returns, or
may result in a partial or total loss, which could have a material adverse
effect on the Company's profitability, the Net Asset Value and the price of
Ordinary shares.
Borrowers under the loans in which the Company invests may not fulfil their
payment obligations in full, or at all, and/or may cause, or fail to rectify,
other events of default under the loans.
The Board is responsible for setting the investment strategy to achieve the
targeted returns and for monitoring the performance of the Investment Adviser
and the implementation of the agreed strategy.
An inappropriate strategy could lead to poor capital performance and lower
than targeted income yields.
This risk is mitigated through regular reviews and updates with the Investment
Adviser, monitoring of the portfolio sectors against the investment
restrictions on a quarterly basis and tracking of loan to value ratios of the
underlying property projects.
· Market risk
The Company's investment strategy relies in part upon local credit and real
estate market conditions. Adverse conditions may prevent the Company from
making investments that it might otherwise have made leading to a reduction in
yield and an increase in the default rate. The Board has considered and
continues to keep under review the political, economic and investment risks to
the Company associated with the UK's withdrawal from the EU at the beginning
of 2021 and the UK's future relations with the EU. This withdrawal might lead
to a reduced or increased demand for the Company's shares as a result of
investor sentiment which may be reflected in a widening or narrowing of the
discount.
The Company holds 100% of its assets in the United Kingdom.
The impact of the spread of Covid-19 on the residential property market is
monitored continuously.
To mitigate the market risks, the Board receives quarterly updates from the
Investment Adviser containing information on the local market conditions and
trends. This information is reviewed alongside the sector split of the
portfolio to ensure the portfolio is aligned to meet future challenges.
· Financial risk
The Company's activities expose it to a variety of financial risks that
include interest rate risk, liquidity risk and credit risk. Further details on
these risks and the way in which they are mitigated are disclosed in the notes
to the financial statements.
· Operational risk
The Company has no employees and relies upon the services provided by third
parties. It is primarily dependent on the control systems of the Investment
Adviser and Administrator who respectively maintain the assets and accounting
records.
Failure by any service provider to carry out its obligation in accordance with
the terms of their appointment could have a detrimental effect on the Company.
To mitigate these risks, the Board reviews the overall performance of the
Investment Adviser and all other third party service providers on a regular
basis and has the ability to terminate agreements if necessary. The business
continuity plans of key third parties are subject to Board scrutiny.
· Legal and Regulatory risk
In order to qualify as an investment trust, the Company must comply with
section 1158 of the Corporation Tax Act 2010. The Company has been approved by
HM Revenue & Customs as an investment trust. The Company is listed on the
London Stock Exchange. Non-compliance with the taxes act or a breach of
listing rules could lead to financial penalties and reputational loss.
These risks are mitigated by the Board's review of quarterly financial
information and the compliance with the relevant rules.
Management Report and Directors' Responsibility Statement
Management report
Listed companies are required by the DTRs to include a management report in
their Financial Statements. The information is included in the Strategic
Report in the Annual Report (together with the sections of the Annual Report
and Accounts incorporated by reference) and the Directors' Report in the
Annual Report. Therefore, a separate management report has not been included.
Directors' responsibility statement
The Directors are responsible for preparing the Annual Report and Financial
Statements, in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the
financial statements in accordance with UK adopted International Financial
Reporting Standards ("UK adopted IFRS") and with the Companies Act 2006, as
applicable to companies reporting under international accounting standards.
Under Company law the Directors must not approve the financial statements
unless they are satisfied that, taken as a whole, they are fair, balanced and
understandable report and provide the information necessary for shareholders
to assess the Company's position and performance, business model and strategy
and that they give a true and fair view of the state of affairs of the Company
and of the total return or loss of the Company for that period. In order to
provide these confirmations and in preparing these financial statements, the
Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable International Financial Reporting Standards
have been followed, subject to any material departures disclosed and explained
in the financial statements; and
• prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Company will continue in business and the
Directors confirm that they have done so.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006, where applicable. They are responsible for taking such steps as are
reasonably open to them to safeguard the assets of the Company and to prevent
and detect fraud and other irregularities.
The financial statements are published on
www.tocpropertybackedlendingtrust.co.uk which is a website maintained by the
Company's Investment Adviser. The Directors are responsible for the
maintenance and integrity of the corporate and financial information included
on the Company's website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
Under applicable UK law and regulations, the Directors are also responsible
for preparing a Strategic Report, a Directors' Report, Statement of Corporate
Governance and Directors' Remuneration Report that complies with that law and
those regulations.
Directors' confirmation statement
Each of the Directors, whose names and functions appear in the Annual Report,
confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with UK adopted
International Financial Reporting Standards (UK adopted IFRS) and with the
Companies Act 2006, as applicable to companies reporting under international
accounting standards, give a true and fair view of the assets, liabilities and
financial position and total return or loss of the Company; and
• The Management Report, referred to herein, which comprises the
Chairman's Statement, the Investment Adviser's Report, Strategic Report
(including risk factors) and note 17 of the Financial Statements includes a
fair review of the development and performance of the business and position of
the Company, together with the principal risks and uncertainties that it
faces.
The Directors consider that the Annual Report and Accounts taken as a whole,
is fair, balanced and understandable and it provides the information necessary
to assess the Company's position and performance, business model and strategy.
On Behalf of the Board
John Newlands, Chairman
30 March 2022
INCOME STATEMENT
Year ending Year ending
30 November 2021 30 November 2020
Notes Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
REVENUE 2 1,643 - 1,643 2,346 - 2,346
Investment interest
Total revenue 1,643 - 1,643 2,346 - 2,346
Gains/(losses) on investments held at fair value through profit of loss 8 (136) 190 54 (325) (127) (452)
Total net income 1,507 190 1,697 2,021 (127) 1,894
Expenditure 3 (68) - (68) (57) - (57)
Investment adviser fee
Impairments on investments held 4, 9 (139) (69) (208) (194) (43) (237)
at amortised cost
Other expenses 4 (467) (24) (491) (513) - (513)
Total expenditure (674) (93) (767) (764) (43) (807)
Profit/(loss) before finance costs and taxation 833 97 930 1,257 (170) 1,087
Finance costs (1) - (1) (231) - (231)
Interest payable
Profit/(loss) before taxation 832 97 929 1,026 (170) 856
Taxation 5 - - - - - -
Profit/(loss) for the year 832 97 929 1,026 (170) 856
Basic earnings per share 7 3.09p 0.36p 3.45p 3.81p (0.63)p 3.18p
The total column of this statement represents the Company's Income Statement,
prepared in accordance with UK adopted IFRS. The supplementary revenue return
and capital return columns are both prepared under guidance published by the
Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations.
There is no other comprehensive income as all income is recorded in the
statement above.
Statement of Financial Position
As at As at
30 November 2021 30 November 2020
Notes £'000 £'000
Non-current assets 8 - 3,948
Investments held at fair value
Loans at amortised cost 9 7,929 2,799
7,929 6,747
Current assets 8 7,589 12,861
Investments held at fair value
Loans at amortised cost 9 2,629 3,247
Other receivables and prepayments 10 27 21
Cash and cash equivalents 4,545 1,002
14,790 17,131
Total assets 22,719 23,878
Current liabilities
Loan facility 11 - (1,150)
Other payables and accrued expenses 12 (135) (131)
Total liabilities (135) (1,281)
Net assets 22,584 22,597
Share capital and reserves
Share capital 13 269 269
Share premium 9,094 9,094
Special distributable reserve 13,093 13,497
Capital reserve (166) (263)
Revenue reserve 294 -
Equity shareholders' funds 22,584 22,597
Net asset value per ordinary share 83.88p 83.93p
The notes below form an integral part of the financial statements.
These financial statements were approved by the Board of Directors of TOC
Property Backed Lending Trust plc (a public limited company incorporated in
England and Wales with company number 10395804) and authorised for issue on 30
March 2022. They were signed on its behalf by:
John Newlands
Chairman
Statement of Changes in Equity
For the year ending 30 November 2021 Share capital Share premium Special distributable reserve Capital reserve Revenue reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
At beginning of the year 269 9,094 13,497 (263) - 22,597
Total comprehensive profit for the year:
Profit for the year - - - 97 832 929
Transactions with owners recognised directly in equity:
Dividends paid - - (404) - (538) (942)
At 30 November 2021 269 9,094 13,093 (166) 294 22,584
For the year ending 30 November 2020 Share capital Share premium Special distributable reserve Capital reserve Revenue reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
At beginning of the year 269 9,094 16,455 (2,978) (291) 22,549
Total comprehensive profit for the year:
Profit for the year - - - (170) 1,026 856
Transfer of realised loss on loans - - (2,885) 2,885 - -
Transactions with owners recognised directly in equity:
Dividends paid - - (73) - (735) (808)
At 30 November 2020 269 9,094 13,497 (263) - 22,597
Cash Flow Statement
Year ending Year ending
30 November 30 November
2021 2020
Notes £'000 £'000
Operating activities
Profit after taxation 929 856
Impairments 694 121
Uplifts (815) (14)
(Increase)/decrease in loan interest receivable (126) 14
(Increase)/decrease in other receivables (6) 21
Increase in other payables 4 33
Interest paid 1 227
Net cash inflow from operating activities after taxation 681 1,258
Investing activities
Loans given (8,266) (8,455)
Loans repaid 13,221 11,311
Net cash inflow from investing activities 4,955 2,856
Financing
Equity dividends paid (942) (808)
Bank loan drawn down 14 - 3,050
Repayment of bank loan 14 (1,150) (5,650)
Interest paid (1) (227)
Net cash outflow from financing (2,093) (3,635)
Increase in cash and cash equivalents 3,543 479
Cash and cash equivalents at the start of the year 1,002 523
Cash and cash equivalents at the end of the year 4,545 1,002
There are no non-cash changes arising from financial activities.
Notes to the Financial Statements
1. Accounting Policies
Significant Accounting Policies
(a) Basis of Preparation
The financial statements of TOC Property Backed Lending Trust plc have been
prepared in accordance with UK adopted International Financial Reporting
Standards ("UK adopted IFRS") and with the Companies Act 2006, as applicable
to companies reporting under international accounting standards. The financial
statements were also prepared in accordance with the Statement of Recommended
Practice ("SORP") for investment trusts issued by the AIC (as issued in April
2021), where this guidance is consistent with UK adopted IFRS.
The financial statements have been prepared on a going concern basis under the
historical cost convention, except for certain investment valuations which are
measured at fair value.
The notes and financial statements are presented in pounds sterling (being the
functional currency and presentational currency for the Company) and are
rounded to the nearest thousand except where otherwise indicated.
GOING CONCERN
The financial statements have been prepared on a going concern basis. The
disclosures on going concern set out in the Directors' Report within the
Annual Report form part of these financial statements.
INTEREST INCOME
For financial instruments measured at amortised cost, the effective interest
rate method is used to measure the carrying value of a financial asset or
liability and to allocate associated interest income or expense over the
relevant period. The effective interest rate is the rate that discounts
estimated future cash payments or receipts over the expected life of the
financial instrument or, when appropriate, a shorter period, to the net
carrying amount of the financial asset or financial liability. In calculating
the effective interest rate, the cash flows are estimated considering all
contractual terms of the financial instrument but does not consider expected
credit losses. The calculation includes all fees received and paid and costs
borne that are an integral part of the effective interest rate.
On an ongoing basis the Investment Adviser assesses whether there is evidence
that a financial asset is impaired. The basis of calculating interest income
on the three stages of impairment (detailed below) are as follows:
Stage 1 Interest is calculated on the gross outstanding principal
Stage 2 Interest is calculated on the gross outstanding principal
Stage 3 Interest is calculated on the principal amount less impairment
EXPENSES
Expenses are accounted for on an accruals basis. The Company's administration
fees, finance costs and all other expenses are charged through the Income
Statement and are charged to revenue. Fees incurred in relation to operational
costs of the loan portfolio, such as legal fees, are charged through the
Income Statement and are charged to capital.
DIVIDENDS TO SHAREHOLDERS
Interim dividends declared during the year are recognised when they are paid.
Any final dividends declared are recognised when they are approved by the
Shareholders at the Annual general Meeting.
TAXATION
Taxation on the profit or loss for the period comprises current and deferred
tax. Taxation is recognised in profit or loss except to the extent that it
relates to items recognised in other comprehensive income or directly in
equity, in which case it is also recognised in other comprehensive income or
directly in equity respectively.
Current tax is the expected tax payable on the taxable income for the period,
using tax rates and laws enacted or substantively enacted at the reporting
date.
Deferred income taxes are calculated using rates and laws that are enacted or
substantivity are expected to apply as or when the associated temporary
differences reverse. Deferred income tax is provided using the liability
method on all temporary differences at the reporting date between the tax
bases of assets and liabilities and their carrying amounts for financial
reporting purposes. Deferred income tax assets are recognised only to the
extent that it is probable that taxable profit will be available against which
deductible temporary differences, carried forward tax credits or tax losses
can be utilised. The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of assets and
liabilities. Deferred income is recognised in profit or loss unless it relates
to a transaction recorded in other comprehensive income or equity, in which
case it is also recognised in other comprehensive income or directly in equity
respectively.
FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The financial assets and financial liabilities are classified at inception
into the following categories:
Amortised cost:
Financial assets that are held for collection of contractual cash flows where
those cash flows represent SPPI ("solely payment of principal and interest")
and that are not designated at fair value through profit and loss are measured
at amortised cost. The carrying amount of these assets is adjusted by any
expected credit loss allowance as described in the impairment note below.
The Company's cash and cash equivalents, other receivables and payables, other
payables and accruals, and the company's loan facility are included within
this category.
Fair value through profit and loss:
The Company have a number of borrower facilities in which they received a
minority equity stake or exit fee mechanism in conjunction with providing
those loan facilities. These loans are recognised at fair value through profit
and loss. The fair value of the contracts is monitored and reviewed quarterly
using discounted cash flow forecasts based on the estimated cash flows that
will flow through from the underlying development project. A sensitivity
analysis is included in note 16.
IMPAIRMENT
At initial recognition, an impairment allowance is required for expected
credit losses (ECL) resulting from possible default events within the next 12
months. When an event occurs that increases the credit risk, an allowance is
required for ECL for possible defaults over the term of the financial
instrument.
The key inputs into the measurement of ECL are probability of default (PD),
loss given default (LGD), and exposure at default (EAD). These inputs are then
considered and applied against residential and commercial facilities in the
loan book. ECL are calculated by multiplying the PD by LGD and EAD.
PD has been determined by considering the local market where the underlying
assets are situated, economic indicators including inflationary pressures on
build costs, government policy, and market sentiment. For residential loans
this has been further broken down into two scenarios; where only sales risk is
still present, and where both construction risk and sales risk still exist.
LGD is the magnitude of the likely loss if there is a default. The LGD models
consider the structure, collateral, seniority of the claim, and recovery costs
of any collateral that is integral to the financial asset. LTV ratios are a
key parameter in determining LGD. LGD estimates are recalibrated for different
economic scenarios and, for lending collateralised by property, to reflect
possible changes in property prices. EAD represents the expected exposure in
the event of a default. The company derives the EAD from the current exposure
to the borrower. The EAD of a financial asset is its gross carrying amount at
the time of default. EAD for residential facilities has been further broken
down into two scenarios; where the build is complete, and where construction
is ongoing.
A financial asset is credit-impaired when one or more events that have
occurred have a significant impact on the expected future cash flows of the
financial asset. It includes observable data that has come to our attention
regarding one or more of the following events:
· delinquency in contractual payments of principal and interest;
· cash flow difficulties experienced by the borrower;
· initiation of bankruptcy proceedings;
· the borrower being granted a concession that would otherwise not be
considered;
· observable data indicating that there is a measurable decrease in the
estimated future cash flows from a portfolio of assets since the initial
recognition of those assets, although the decrease cannot yet be identified
with the individual financial assets in the portfolio; and
· a significant decrease in assets values held security.
Impairment of financial assets is recognised on a loan-by-loan basis in
stages:
· Stage 1: A general impairment covering what may happen within the next 12
months, based on the adoption of BIS standards as outlined below.
· Stage 2: Significant increase in credit risk, where the borrower is in
default, potentially in arrears, where full repayment is expected and the
underlying asset value remains robust. The ECL calculation recognises the
lifetime of the loan.
· Stage 3: Credit impaired, where the borrower is in default of their loan
contract, in arrears, full loan repayment is uncertain and there is a
shortfall in underlying asset value. The ECL calculation recognises likely
failure of the borrower.
As at 30 November 2021, there were seventeen loans in the portfolio. Six of
those projects supported included either an equity stake of 25.1% for the
Company or an exit fee mechanism. Please see note 8 for details on these six
projects.
The Board has deemed that five projects (2020: three); are currently impaired
and specific additional provisions have been made against these facilities in
these financial statements.
The other twelve loans have been assessed as not impaired.
The Company's response to IFRS 9 requirements has been based on the Bank for
International Settlements (BIS) Basel Supervisory Committee liquidity risk
tool recommendations.
FAIR VALUE HIERARCHY
Accounting standards recognise a hierarchy of fair value measurements for
financial instruments which gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1) and the
lowest priority to unobservable inputs (Level 3). The classification of
financial instruments depends on the lowest significant applicable input, as
follows:
· Level 1 - Unadjusted, fully accessible and current quoted prices in
active markets for identical assets or liabilities. Examples of such
instruments would be investments listed or quoted on any recognised stock
exchange.
· Level 2 - Quoted prices for similar assets or liabilities, or other
directly or indirectly observable inputs which exist for the duration of the
period of investment. Examples of such instruments would be forward exchange
contracts and certain other derivative instruments.
· Level 3 - External inputs are unobservable. Value is the Directors' best
estimate, based on advice from relevant knowledgeable experts, use of
recognized valuation techniques and on assumptions as to what inputs other
market participants would apply in pricing the same or similar instrument.
All loans are considered Level 3.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in hand and short-term deposits in
banks with an original maturity of three months or less from inception.
OTHER RECEIVABLES
Other receivables do not carry interest and are short-term in nature. There
were no irrecoverable amounts accounted for at the year end or the prior
period end.
RESERVES
SHARE PREMIUM
The surplus of net proceeds received from the issuance of new shares over
their par value is credited to this account and the related issue costs are
deducted from this account.
CAPITAL RESERVE
The following are accounted for in the capital reserve:
· Capital charges;
· Increases and decreases in the fair value of and impairments of loan
capital held at the year end.
As at year end the Capital Reserve comprises only unrealised gains and losses
and so does not contain distributable reserves.
REVENUE RESERVE
The net profit/(loss) arising in the revenue column of the Income Statement is
added to or deducted from this reserve which is available for paying
dividends.
SPECIAL DISTRIBUTABLE RESERVE
Created from the Court of Session cancellation of the initial launch share
premium account and is available for paying dividends.
SEGMENTAL REPORTING
The Chief Operating Decision Maker is the Board of Directors. The Directors
are of the opinion that the Company is engaged in a single segment of
business, being the investment of the Company's capital in financial assets
comprising loans. All loan income is derived from the UK. The Company derived
revenue totalling £488,000 (2020: £897,000) where the amounts from two
(2020: three) individual borrowers each exceeded 10% or more of the Company's
revenue. The individual amounts were £260,000, £228,000, (2020: £365,000,
£286,000, £246,000).
USE OF SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported for assets and liabilities as
at the reporting date and the amounts reported for revenue and expenses during
the year. The nature of the estimation means that actual outcomes could differ
from those estimates. Estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimates are revised and in any future periods affected.
The key driver to determine whether loans are classified as fair value through
profit or loss or amortised cost is if the facility has an exit fee or equity
stake attached. Where these are present the loan is classified as fair value
through profit or loss.
The following are areas of particular significance to the Company's financial
statements and include the use of estimates or the application of judgement:
CRITICAL JUDGEMENTS AND ESTIMATES IN APPLYING THE COMPANY'S ACCOUNTING
POLICIES - INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS:
The Company owns profit share holdings or has exit fees mechanism in relation
to 6 of the borrowers in place as at the year end. The loans held have been
designated at fair value through profit and loss. The determination of the
fair value requires the use of estimates. A sensitivity analysis is included
in note 16. The key uncertainties are around the timings and amounts of both
drawdown and repayments as these are determined by construction progress and
the timing of sales.
CRITICAL JUDGEMENTS AND ESTIMATES IN APPLYING THE COMPANY'S ACCOUNTING
POLICIES - LOANS AMORTISED COST CLASSIFICATION AND IMPAIRMENTS:
The Company uses critical judgements to determine whether it accounts for its
loans at either amortised cost using the effective interest rate method less
impairment provisions or at fair value through profit and loss. The
determination of the required impairment adjustment requires the use of
estimates. The key uncertainties are around the timings and amounts of both
drawdown and repayments as these are determined by construction progress and
the timing of sales. See notes 8 and 9 for further details.
2. REVENUE
30 November 2021 30 November 2020
£'000 £'000
Interest from loans 1,643 2,287
Other income - 59
Total revenue 1,643 2,346
3. Investment Adviser's Fees
Investment Adviser
In its role as the Investment Adviser, Tier One Capital Ltd is entitled to
receive from the Company an investment adviser fee which is calculated and
paid quarterly in arrears at an annual rate of 0.25 per cent. per annum of the
prevailing Net Asset Value if less than £100m; or 0.50 per cent. per annum of
the prevailing Net Asset Value if £100m or more.
There is no balance accrued for the Investment Adviser for the period ended 30
November 2021 (year to 30 November 2020: £nil).
There are no performance fees payable.
30 November 2021 30 November 2020
£'000 £'000
Investment Adviser fee 68 57
4. Operating expenses
30 November 2021 30 November 2020
Revenue Capital Revenue Capital
£'000 £'000 £'000 £'000
Legal & professional 28 24 28 -
Directors' fees 90 - 90 -
Audit fees related to the audit of the financial statements 41 - 79 -
Fund Administration and Company Secretarial 82 - 79 -
Brokers' fees 30 - 30 -
Marketing fees - - 42 -
Valuation fees - - 9 -
AIFM fee (12) - 15 -
Impairments on loans amortised at cost * 275 542 194 43
(Uplifts) on loans amortised at cost* - (473)
Other expenses 208 - 141 -
Total other expenses 742 93 707 43
* Loan impairments consist of impairments to interest on loans of £275,000
and a capital impairment on the loan of £542,000. Loan uplifts consist of a
capital uplift on the loans of £473,000.
All expenses are inclusive of VAT where applicable. Further details on
Directors' fees can be found in the Directors' Remuneration Report within the
Annual Report.
5. Taxation
As an investment trust the Company is exempt from corporation tax on capital
gains. The Company's revenue income from loans is subject to tax, but offset
by any interest distribution paid, which has the effect of reducing the
corporation tax. The interest distribution may be taxable in the hands of the
Company's shareholders.
30 November 2021 30 November 2020
£'000 £'000
Current corporation tax at 19% (2020:19%) - -
Deferred taxation - -
Tax on profit on ordinary activities - -
Reconciliation of tax charge
Profit on ordinary activities before taxation 929 856
Taxation at standard corporation tax rate 19% (2020: 19%) 176 163
Effects of:
Income not subject to tax (18) 32
Interest distributions (153) (195)
Utilisation of losses not recognised for deferred tax purposes (5) -
Tax charge for the year - -
There is an unrecognised deferred tax asset on losses of £135,727 (2020:
£141,980) calculated at the relevant deferred tax rate of 25%.
6. Ordinary dividends
30 November 2021 30 November 2020
Pence per Pence per
share £'000 share £'000
Interim dividend for the quarter ended February 1.00 269 1.50 404
Interim dividend for the quarter ended May 1.00 269 - -
Total dividends paid during and relating to the year 538 404
Interim dividend for the quarter ended August 1.00 269 - -
Interim dividend for the quarter ended November 1.00 269 1.50 404
Total dividend declared in relation to the year 1,076 808
The Company intends to distribute at least 85% of its distributable income
earned in each financial year by way of interest distribution. A third interim
dividend of 1.00 pence per share declared on 10 November 2021, payable on 30
December 2021. On 22 February 2022, the Company declared an interim dividend
of 1.00 pence per share for the quarter ended 30 November 2021, payable on 1
April 2022.
7. Earnings per share
The revenue, capital and total return per ordinary share is based on each of
the profit after tax and on 26,924,063 ordinary shares, being the weighted
average number of ordinary shares in issue throughout the year. During the
year there were no dilutive instruments held, therefore the basic and diluted
earnings per share are the same.
8. Investments held at fair value through profit or loss
The Company's investment held at fair value through profit or loss represents
its profit share arrangements whereby the Company owns 25.1% or has an exit
fee mechanism for six companies.
30 November 30 November
2021 2020
£'000 £'000
Opening Balance 16,809 14,219
Loans deployed 904 7,805
Principal repayments (10,284) (5,516)
Movements in interest receivable 106 753
Unrealised gains/(losses) on investments held at fair value through profit or 54 (452)
loss
Total investments held at fair value through profit and loss 7,589 16,809
Split:
Non-current assets: Investments held at fair value through profit and loss due - 3,948
for repayment after one year
Current assets: Investments held at fair value through profit and loss due for 7,589 12,861
repayment under one year
Please refer to note 16 for details of the approach to valuation and
sensitivity analysis.
9. Loans at amortised cost
30 November 30 November
2021 2020
£'000 £'000
Opening balance 6,046 11,037
Loans deployed 7,362 670
Principal repayments (2,937) (5,795)
Movements in interest receivable 295 371
Movement in impairments (208) (237)
Total loans at amortised cost 10,558 6,046
Split: 7,929
Non-current assets: Loans at amortised cost due for repayment after one year 2,799
Current assets: Loans at amortised cost due for repayment 2,629 3,247
under one year
The Company's loans held at amortised cost are accounted for using the
effective interest method. The carrying value of each loan is determined after
taking into consideration any requirement for impairment provisions during the
year, allowances for impairment losses amounted to £208,000 (2020:
£237,000). Further details on impairment can be found within the accounting
policies note above.
Movements in allowances for impairment losses in the year
Nominal value
£'000
at 1 December 2020 3,021
Provisions for impairment losses 69
at 30 November 2021 3,090
Stage 1 provisions at 1 December 2020 261
Provisions for impairment losses (228)
Stage 1 provisions at 30 November 2021 33
Stage 2 provisions at 1 December 2020 -
Provisions for impairment losses -
Stage 2 provisions at 30 November 2021 -
Stage 3 provisions at 1 December 2020 2,760
Provisions for impairment losses 297
Stage 3 provisions at 30 November 2021 3,057
Stage 1, 2, and 3 are referenced in more detail below.
10. Receivables
30 November 30 November
2021 2020
£'000 £'000
Prepayments 27 21
Total receivables 27 21
11. loan facility
30 November 30 November
2021 2020
£'000 £'000
Bank loan - 1,150
On 29 May 2021 the Company entered into a £6.5m committed revolving facility
with Shawbrook Bank Limited, expiring on 28 May 2022. No balance was drawn
down at the year end. The facility is secured against a debenture over the
assets of the Company.
12. Other Payables
30 November 30 November
2021 2020
£'000 £'000
Accruals 135 131
Total other payables 135 131
13. Share Capital
Nominal value Number of
£'000 Ordinary shares
of 1p
At 30 November 2020 269 26,924,063
Issued and fully paid as at 30 November 2021 269 26,924,063
The ordinary shares are eligible to vote and have the right to participate in
either an interest distribution or participate in a capital distribution (on a
winding up).
14. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
At 30 November 2020 Cash Non-cash At 30 November
£'000 flows flows 2021
£'000 £'000 £'000
Short term borrowings 1,150 (1,150) - -
Total liabilities from financing activities 1,150 (1,150) - -
At 30 November 2019 Cash Non-cash At 30 November
£'000 flows flows 2020
£'000 £'000 £'000
Short term borrowings 3,750 (2,600) - 1,150
Total liabilities from financing activities 3,750 (2,600) - 1,150
15. Related Parties
Fees payable during the year to the Directors and their interests in shares of
the Company are considered to be related party transactions and are disclosed
within the Directors' Remuneration Report within the Annual Report. The
balance of fees due to Directors at the year end was £nil (30 November 2020:
£nil).
The Directors are considered to be related parties. No Director has an
interest in any transactions which are, or were, unusual in their nature or
significant to the nature of the Company.
The Directors of the Company received £90,000 fees for their services during
the year to 30 November 2021 (30 November 2020: £90,000). £nil was payable
at the year end (30 November 2020: £nil).
Ian McElroy is Chief Executive of Tier One Capital Ltd and is a founding
shareholder and director of the firm.
Tier One Capital Ltd, the Investment Adviser of the Company, received £68,000
investment adviser's fee during the year (30 November 2020: £57,000) and
£nil was payable at the year end (30 November 2020: £nil). Tier One Capital
Ltd receives up to a 20% margin and arrangement fee for all loans it
facilitates.
There are various related party relationships in place with the borrowers as
below:
The following related parties arise due to the opportunity taken to advance
the 25.1% profit share contracts:
· Gatsby Homes
The Company owns 25.1% of the borrower Gatsby Homes Ltd. The loan amount
outstanding as at 30 November 2021 was £468,000 (30 November 2020: £1.6m).
Transactions in relation to loans repaid during the year amounted to £797,000
(30 November 2020: £474,000). Interest due to be received as at 30 November
2021 was £nil (30 November 2020: £nil). Interest received during the year
amounted to £136,000 (30 November 2020: £nil).
· Bede and Cuthbert Developments
The Company owns 25.1% of the borrower Bede and Cuthbert Developments Ltd. The
loan amount outstanding as at 30 November 2021 was £130,000 (30 November
2020: £3.2m). Transactions in relation to loans (repaid)/made during the year
amounted to (£3.2m) (30 November 2020: £2.5m). Interest due to be received
as at 30 November 2021 was £nil (30 November 2020: £36,000). Interest
received during the year amounted to £154,000 (30 November 2020: £100,000).
· Thursby Homes (Springs)
The Company owns 25.1% of the borrower Thursby Homes (Springs) Ltd. The loan
amount outstanding as at 30 November 2021 was £2.4m (30 November 2020:
£3.0m). Transactions in relation to loans repaid during the year amounted to
£502,000 (30 November 2020: £580,000). Interest due to be received as at 30
November 2021 was £209,000 (30 November 2020: £168,000). Interest received
during the year amounted to £261,000 (30 November 2020: £365,000).
· Northumberland
TOC Property Backed Lending Trust plc owns 25.1% of the borrower
Northumberland Ltd. The loan amount outstanding as at 30 November 2021 was
£1.3m (30 November 2020: £2.0m). Transactions in relation to loans repaid
during the year amounted to £683,000 (30 November 2020: £910,000). Interest
due to be received as at 30 November 2021 was £10,000 (30 November 2020:
£27,000). Interest received during the year amounted to £123,000 (30
November 2020: £209,000).
· Dinosauria
TOC Property Backed Lending Trust plc owns 25.1% of the borrower Dinosauria
Ltd which was disposed of during the year. The loan amount outstanding as at
30 November 2021 was £nil (30 November 2020: £550,000). Transactions in
relation to loans repaid during the year amounted to £550,000 (30 November
2020: £nil). Interest due to be received as at 30 November 2021 was £nil (30
November 2020: £18,000). Interest received during the year amounted to
£2,000 (30 November 2020: £44,000).
· Coalsnaughton
TOC Property Backed Lending Trust plc owns 25.1% of the borrower Kudos
Partnership. The loan amount outstanding as at 30 November 2021 was £2.3m (30
November 2020: £1.7m). Transactions in relation to loans made during the year
amounted to £404,000 (30 November 2020: £1.7m). Interest due to be received
as at 30 November 2021 was £170,000 (30 November 2020: £88,000). Interest
received during the year amounted to £228,000 (30 November 2020: £194,000).
· Oswald Street
TOC Property Backed Lending Trust plc owns 25.1% of the Riverfront Property
Limited Partnership. The loan amount outstanding as at 30 November 2021 was
£408,000 (30 November 2020: £382,000). Transactions in relation to loans
made during the year amounted to £nil (30 November 2020: £382,000). Interest
due to be received as at 30 November 2021 was £5,000 (30 November 2020:
£5,000). Interest received during the year amounted to £31,000 (30 November
2020: £9,000).
16. Financial Instruments
Consistent with its objective, the Company holds a diversified portfolio of
fixed rate loans secured with collateral in the form of; land or property in
the UK, charges held over bank accounts and personal or corporate guarantees.
The benefit of a related profit share or exit fee mechanism may also be
agreed. In addition, the Company's financial instruments comprise cash and
receivables and payables that arise directly from its operations. The Company
does not have exposure to any derivative instruments.
The Company is exposed to various types of risk that are associated with
financial instruments. The most important types are credit risk, liquidity
risk, interest rate risk and market price risk. There is no foreign currency
risk as all assets and liabilities of the Company are maintained in pounds
sterling.
The Board reviews and agrees policies for managing the Company's risk
exposure. These policies are summarised below:
CREDIT RISK
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Company.
In the event of default by a borrower if it is in financial difficulty or
otherwise unable to meet its obligations under the agreement, the Company will
suffer an interest shortfall and potentially a loss of capital. This
potentially will have a material adverse impact on the financial condition and
performance of the Company and/or the level of dividend cover. The Board
receives regular reports on concentrations of risk and the performance of the
projects underlying the loans, using loan to value percentages to help monitor
the level of risk. The Investment Adviser monitors such reports in order to
anticipate, and minimise the impact of, default.
There were financial assets which were considered impaired at 30 November
2021, with impairments amounting to £208,000 (30 November 2020: £237,000).
Our maximum exposure to credit risk as at 30 November 2021 was £22,719,000
(30 November 2020: £23,878,000).
All of the Company's cash is placed with financial institutions with a
long-term credit rating of A or better. Bankruptcy or insolvency of such
financial institutions may cause the Company's ability to access cash placed
on deposit to be delayed or limited. Should the credit quality or the
financial position of the banks currently employed significantly deteriorate,
cash holdings would be moved to another bank.
Further details on the exposure to, and management of, credit risk by the
Company is included in both the Investment Advisor's Report above and the
Strategic Report in the Annual Report.
Loans held at amortised cost as at 30 November 2021
Total
£'000
Stage 1 9,456
Stage 2 378
Stage 3 724
10,558
Loans held at amortised cost as at 30 November 2020
Total
£'000
Stage 1 3,096
Stage 2 657
Stage 3 2,293
6,046
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 loans.
Property and property-related assets in which the Company invests via loans
are not traded in an organised public market and are relatively illiquid
assets, requiring individual attention to sell in an orderly way. As a result,
the Company may not be able to liquidate quickly its investments in these
loans 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. In order to mitigate
liquidity risk the Company has a comprehensive three-year cash flow forecast
that aims to have sufficient cash balances, taking into account projected
drawdowns on the live facilities to meet its obligations for a period of at
least 12 months. At the reporting date, the maturity of the financial assets
and liabilities was:
Financial assets as at 30 November 2021
In one year In two or more Total
£'000 years £'000
£'000
Cash and cash equivalents 4,545 - 4,545
Loans at amortised cost 2,629 7,929 10,558
Investments held at fair value 7,589 7,589
Total 14,763 7,929 22,692
Financial assets as at 30 November 2020
In one year In two or more Total
£'000 years £'000
£'000
Cash and cash equivalents 1,002 - 1,002
Loans at amortised cost 3,247 2,799 6,046
Investments held at fair value 12,861 3,948 16,809
Total 17,110 6,747 23,857
Financial liabilities as at 30 November 2021
In one year In two or more Total
£'000 years £'000
£'000
Bank loan - - -
Total - - -
Financial liabilities as at 30 November 2020
In one year In two or more Total
£'000 years £'000
£'000
Bank loan 1,150 - 1,150
Total 1,150 - 1,150
INTEREST RATE RISK
The interest rate profile of the Company was as follows:
as at 30 November 2021
Financial net assets on which no interest is paid Variable rate financial net assets
£'000 Fixed rate Financial Assets £'000
£'000 Total
£'000
Other receivables and prepayments 27 - - 27
Loan Interest receivable 657 - - 657
Other payables and accrued expenses (135) - - (135)
Cash and cash equivalents - - 4,545 4,545
Loan facility - - - -
Investments held at fair value - 7,191 - 7,191
Loans at amortised cost - 10,299 - 10,299
Total 549 17,490 4,545 22,584
as at 30 November 2020
Financial net assets on which no interest is paid Variable rate financial net assets
£'000 Fixed rate Financial Assets £'000
£'000 Total
£'000
Other receivables and prepayments 21 - - 21
Loan Interest receivable 562 - - 562
Other payables and accrued expenses (131) - - (131)
Cash and cash equivalents - - 1,002 1,002
Loan facility - - (1,150) (1,150)
Investments held at fair value - 16,381 - 16,381
Loans at amortised cost - 5,912 - 5,912
Total 452 22,293 (148) 22,597
Market Price Risk
The management of market price risk is part of the investment management
process and is typical of an investment company. The portfolio is managed with
an awareness of the effects of adverse valuation movements through detailed
and continuing analysis, with an objective of maximising overall returns to
shareholders. Investments in property and property-related assets are
inherently difficult to value due to the individual nature of each property.
As a result, valuations are subject to substantial uncertainty. There is no
assurance that the estimates resulting from the valuation process will reflect
the actual sales price even where such sales occur shortly after the valuation
date. Such risk is minimised through the appointment of external property
valuers. The basis of valuation of the loan portfolio is set out in detail in
the accounting policies. The inputs into the DCF models are the forecast
monthly cashflows including sales values and build costs, the discount rate
which is the inputted interest rate at the time the facility was entered into
adjusted for any movements in the risk free rate as at current year end, and a
30% discount rate for the equity element to reflect the higher level of
uncertainty. Any changes in market conditions will directly affect the profit
and loss reported through the Income Statement. Details of the Company's
investment portfolio held at the balance sheet date are disclosed in the
Investment Adviser's Reviewabove. A 10% fall in the sales value of the
residential development projects and a 10% reduction in asset value of
commercial and investment property assets for those loans held at fair value
would have resulted in a further impairment to the portfolio of £387,907 as
at 30 November 2021 (30 November 2020: £615,246). The calculations are based
on the property valuations at the respective balance sheet date and are not
representative of the year as a whole, nor reflective of future market
conditions.
VALUATION OF FINANCIAL INSTRUMENTS
Accounting standards recognise a hierarchy of fair value measurements for
financial instruments which gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1) and the
lowest priority to unobservable inputs (Level 3). The classification of
financial instruments depends on the lowest significant applicable input, as
follows:
· Level 1 - Unadjusted, fully accessible and current quoted prices in active
markets for identical assets or liabilities. Examples of such instruments
would be investments listed or quoted on any recognised stock exchange.
· Level 2 - Quoted prices for similar assets or liabilities, or other
directly or indirectly observable inputs which exist for the duration of the
period of investment. Examples of such instruments would be forward exchange
contracts and certain other derivative instruments.
· Level 3 - External inputs are unobservable. Value is the Directors' best
estimate, based on advice from relevant knowledgeable experts, use of
recognised valuation techniques and on assumptions as to what inputs other
market participants would apply in pricing the same or similar instrument.
30 November 2021
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments held at fair value - - 7,589 7,589
Total - - 7,589 7,589
30 November 2020
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments held at fair value - - 16,809 16,809
Total - - 16,809 16,809
17. CAPITAL MANAGEMENT
The Company's capital is represented by the Ordinary Shares, share premium,
capital reserves, revenue reserve and special distributable reserve. The
Company is not subject to any externally imposed capital requirements.
The capital of the Company is managed in accordance with its investment
policy, in pursuit of its investment objective. Capital management activities
may include the allotment of new shares, the buy back or re-issuance of shares
from treasury, the management of the Company's discount to net asset value and
consideration of the Company's net gearing level.
On 29 March 2021, changes were implemented to the investment and dividend
policies. Further details can be found within the Chairman's Statement.
18. Post Balance Sheet Events
On 7 March 2022, a new facility of £2.15m was entered into with Harrow Living
Ltd with an initial drawdown of £1,260,000.
For further information regarding the Company (Ticker: PBLT) (LEI:
213800EXPWANYN3NEV68) please call:
Tier One Capital Ltd (Investment Adviser) +44 (0) 191 222 0099
Ian McElroy/Brendan O'Grady
finnCap Ltd (Financial Adviser and Broker) +44 (0) 207 220 0500
William Marle
Maitland Administration Services Limited (Secretary) +44 (0) 1245 950317
ENDS
Annual Report and Financial Statements
The Annual Report and Financial Statements will be posted to shareholders and
will shortly be available on the Company's website
(www.tocpropertybackedlendingtrust.co.uk
(http://www.tocpropertybackedlendingtrust.co.uk) ) or in hard copy format from
the Company's Registered Office.
A copy of the annual report will be submitted to the FCA's National Storage
Mechanism and will be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
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