TOC Prop BackLendTst - Half-year Report
31/08/2018 15:05
RNS Number : 4564Z
TOC Property Backed Lendng Tst PLC
31 August 2018
From: TOC Property Backed Lending Trust plc (the "Company")
LEI: 213800EXPWANYN3NEV68
Date: 31 August 2018
Subject: Interim Report
Unaudited statement of results for the six months ended 31 May 2018
Chairman's Statement
I last wrote to you six months ago and am now pleased to present the Company's Interim Report & Financial Statements for the six months ended 31 May 2018.
Results
The net asset value at 31 May 2018 was 97.57 pence per share, down 0.6% from 98.11 pence at 30th November 2017, giving a net asset value total return for the six month period of 3.0% when dividends are taken into account.
The Company continues to focus on lending against quality projects in the North East and regions with the geography of loans split as follows: North East 73%; Essex 17%; and, Norfolk 10%. With signs that the property market is slowing down in London and the South East and an expectation that this could spread to other parts of the United Kingdom the geographical split becomes increasingly important, as do our close relationships with developers.
Dividends
The quarterly dividend was increased to 1.75 pence per share in March 2018 and the Board continues to target 7.0 pence per annum of dividends. Currently that amount is not fully covered by net operating income, but it is our intention to move to a fully covered 7.0 pence per annum dividend in 2019.
Fund raisings
During the period 2.9 million shares were issued and the loan portfolio increased to £23.9m; since the period end a further 1.3 million shares have been issued. Further fund raisings are expected to take place and it is the Company's intention to borrow at conservative levels up to 30% of net assets.
Investments
Since 30th November 2017 elements of three loans have been repaid, with a total value of £2.7m; this included the repayment of the whole of the Commerce Chambers loan of £1.5m. Two existing loan facilities were added to and two new loans made, with an aggregate value of £3.9m. The number of loans with profit share arrangements has increased from three to five. There are positive signs that value is beginning to be generated from such arrangements.
Two of the Company's existing loans (Pendower Hall and Medburn) are to borrowers owned and controlled by the principals who control Tier One, the Company's Investment Adviser. These loans were due for repayment in August 2018 but the Company has received a request from the borrowers to extend the term of the loans and also to increase the size of one of them, Pendower Hall. The Board is considering this request and a further announcement will be made shortly but it is anticipated that any such amendments will require the approval of shareholders. A third loan facility (Charlton Bonds) is to a borrower in which Tier One has a minority 25.1% interest. This loan was also due for repayment in August 2018. The Company has received a request from the borrower to extend the repayment date to enable the final units in the development to be sold to repay the outstanding facility. Again, the Board is considering this request and a further announcement will be made in due course. These three loans are all up to date with interest payments and remain appropriately secured. All three loans were in place prior to the Company's IPO in 2017.
Conclusion
The Company has been in operation for 19 months and is doing what was set out in the January 2017 prospectus. Careful loan selection and a thorough monitoring process are critical to our progress. Our adviser, Tier One, has increased its staff from 12 to 15 over this period and is working closely with the Board. We look to see further steady progress throughout 2018 and into 2019.
Stephen Coe
Chairman
31 August 2018
Investment Adviser's Report
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.
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 approximately 80% of future loan advances. 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.
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 and fund management services to high net worth (HNW) private clients, charities and institutions.
Tier One Capital Ltd currently has a team of 15 across offices in London, Lausanne and its head office in Newcastle upon Tyne.
REVIEW OF THE 6 MONTHS TO 31 MAY 2018
The portfolio continues to perform well in the first half of the Company's financial year, posting a NAV total return of 3.0% and paying its second quarterly dividend of 1.75p in line with the 7.0p annual dividend target. While the portfolio's default rate since inception remains at zero, 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 in the time taken to sell a new residential home.
The Company agreed one new facility of £4,525,000 with Thursby Homes (Springs) Ltd in May 2018, of which £1,275,000 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.
There were further deployments of capital in the Marley Hill, The Willows, and Bedlington projects of £925,000, £700,000 and £400,000 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 facility 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%. There was a further partial redemption of the Charlton Bonds project, returning £763,800 of capital.
Post period end, on the 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%.
Two projects, Fernhill and Bylaugh Hall were extended for a further six months, to facilitate exits and with the additional benefit of increased security. On 28 June 2018 a new facility of £550,000 was made to Dinosauria Ltd, 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.
At 31 May 2018, the Company had 13 live facilities, four of which are a profit share arrangement for the benefit of the Company, with the deployment level sitting at £23,875,700.
Deployment
The portfolio continues to be deployed across residential 50% (30 November 2017: 47%), commercial 37% (30 November 2017: 41%), sale and leaseback 9% (30 November 2017: 11%) and cash 4% (30 November 2017: 1%).
The current average interest rate being achieved on the combined loan book is 8.4% (30 November 2017: 8.3%), with an average loan size having increased from £1.68m at 30 November 2017 to £1.84m at 31 May 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 four Profit Share projects in the portfolio (30 November 2017: three), with a fifth being added post period end.
To date we have not recognised any uplift in the equity value of the four facilities (30 November 2017: £nil), given where we are in the lifecycle of each project. We monitor this as part of our monthly review process and this will be fully reviewed as part of our year end audit.
The first was a £2.3m facility to Ryka Developments Limited (St Hilds), an investment company based in Newcastle upon Tyne. The funds were utilised to acquire a student accommodation building in St Hilds, Durham at a rate of 8% over a 3-year term. The facility has been secured with a first legal charge against the freehold building and the borrower's bank account. The building has full occupancy and the rents are subject to annual review.
The second facility was a £2m facility to Gatsby Homes Limited (Bedlington), a property development company based in Newcastle upon Tyne. The funds are being utilised to develop 14 residential properties to the North of the city, and have been loaned at a rate of 10% by the borrower over a 2-year term. The facility has been secured with a first legal charge against the land, which has full planning permission, and the company's bank account.
The third facility was a £3.265m loan to Bede and Cuthbert Developments Limited (Marley Hill), a company led by two experienced property development consultants. This facility is to be used to develop 20 residential properties 7 miles south west of Newcastle upon Tyne. The facility provides an interest return of 8% over a two-year term, with security being taken by a senior charge over the land, with full planning permission, and the borrower's bank account.
The fourth facility was a £4.525m loan to Thursby Homes Limited (Springs), the second project the Company has supported them on. This facility will be used to develop 22 luxury apartments in Low Fell, Gateshead. The facility provides an interest return of 10% over a two-year term, with security being taken by a senior charge over the freehold of the building, with full planning permission, and the company's bank account.
Pipeline
The Investment Adviser continues to see strong deal flow, reflective of the lack of finance options available to developers in the regions.
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 73% (30 November 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 July 2018 shows the average price for a property in the North East at £151,045 with an annual increase in prices of 0.7% and an average time to sell of 70 days. In comparison, the average price for a property in Greater London now stands at £628,458 which is a -1.7% annual change from 2017. Nationally average asking prices at £309,191 have decreased this month by -0.1% and are up 1.4% on annual basis. Additionally, Zoopla data highlights a wide variation in regional house price movement since the start of the year, with the North East showing an increase of 3.3% between January 2018 and July 2018, compared to a 2.5% fall in the South West during the same period.
We also continue to monitor the impact of slowing sales volumes on our investment strategy, and are seeing a wide variation in the speed and level of property movements around the country.
Generally, Rightmove make the observations that the number of properties coming to market has jumped by 8.6% compared to the same month last year, but with no corresponding increase to buyer numbers to soak up new seller influx. The proportion of sellers already on the market that are reducing their asking prices is at the highest at this time of year since 2011, indicating initial over-optimism on price. With the recent interest rate rise, affordability will come under pressure.
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 Limited
31 August 2018
THE INVESTMENT PORTFOLIO AS AT 31 MAY 2018
| Project | Sector | Region | Maturity Date | Rate % | Profit Share | Security | % NAV | LTV (May 18) % | Loan Value (May 18) £'000s | Loan Value (Nov 17) £'000s |
| The Willows | Commercial | Essex | Dec 2018 | 7 | No | Senior | 15.9 | 76.4 | 3,958 | 3,258 |
| West Auckland | Residential | North East | Mar 2020 | 8 | No | Senior | 11.5 | 85.9 | 2,847 | 2,847 |
| Bylaugh Hall | Commercial | Norfolk | Nov 2018* | 8 | No | Senior | 9.6 | 42.5* | 2,379 | 2,379 |
| St Hilds | Sale & Leaseback | North East | Feb 2020 | 8 | Yes - 25.1% | Senior | 9.3 | 97.7 | 2,300 | 2,300 |
| Inveniam Home Loans | Residential | North East | Mar 2019 | 8 | No | Subordinate | 7.9 | 74.5 | 1,970 | 1,970 |
| Marley Hill | Residential | North East | Jul 2019 | 8 | Yes - 25.1% | Senior | 7.8 | 96.2 | 1,925 | 1,000 |
| Medburn*** | Residential | North East | Aug 2018 | 8 | No | Senior | 6.6 | 94.6 | 1,630 | 1,630 |
| Commerce Chambers**/*** | Commercial | North East | Dec 2018 | 8 | No | Senior | 6.1 | 86.2 | 1,505 | 1,505 |
| Springs | Residential | North East | May 2020 | 10 | Yes - 25.1% | Senior | 5.1 | 63.1 | 1,275 | N/a |
| Pendower Hall*** | Commercial | North East | Aug 2018 | 10 | No | Senior | 5.0 | 78.9 | 1,233 | 1,233 |
| Charlton Bonds*** | Residential/Commercial | North East | Aug 2018 | 8 | No | Senior | 4.7 | 100.0 | 1,179 | 1,943 |
| Bedlington | Residential | North East | July 2019 | 10 | Yes - 25.1% | Senior | 4.6 | 96.9 | 1,150 | 750 |
| Fernhill | Residential | North East | Nov 2018 | 8 | No | Subordinate | 2.1 | 75.8 | 525 | 525 |
| Quartztec*** | Commercial | Scotland | Jan 2018 | 8 | No | Senior | N/a | N/a | N/a | 443 |
| Cash | 3.9 | 963 | 316 | |||||||
| Total/Weighted Average | 8.4 | 100.0 | 81.4 | 24,838 | 22,099 |
| Six months ended 31 May 2018 (unaudited) | Six months ended 31 May 2017 (unaudited) | Year ended 30 November 2017 (audited) | ||||
| Revenue | Capital | Total | Total | Total | ||
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Revenue | ||||||
| Investment interest | 923 | - | 923 | 495 | 1,347 | |
| Total revenue | 923 | - | 923 | 495 | 1,347 | |
| Unrealised gain on investments | - | - | - | - | - | |
| Total income | 923 | - | 923 | 495 | 1,347 | |
| Expenditure | ||||||
| Investment adviser fee | 2 | - | - | - | - | - |
| Other expenses | (239) | - | (239) | (206) | (434) | |
| Total expenditure | (239) | - | (239) | (206) | (434) | |
| Profit before finance costs and taxation | 684 | - | 684 | 287 | 913 | |
| Net finance costs | ||||||
| Interest receivable | - | - | - | - | - | |
| Profit before taxation | 684 | - | 684 | 287 | 913 | |
| Taxation | - | - | - | - | (48) | |
| Profit for the period/year | 684 | - | 684 | 287 | 865 | |
| Total comprehensive profit for the period/year | ||||||
| Basic earnings per share | 3 | 2.74p | - | 2.74p | 1.41p | 4.16p |
| As at 31 May 2018 (unaudited) | As at 31 May 2017 (unaudited) | As at 30 November 2017 (audited) | ||
| Notes | £'000 | £'000 | £'000 | |
| Non-current assets | ||||
| Investments held at fair value | 5 | - | - | - |
| Loans at amortised cost | 6 | 8,703 | 18,322 | 10,783 |
| 8,703 | 18,322 | 10,783 | ||
| Current assets | ||||
| Loans at amortised cost | 6 | 15,173 | 518 | 10,999 |
| Other receivables and prepayments | 382 | 278 | 299 | |
| Cash and cash equivalents | 963 | 1,973 | 316 | |
| 16,518 | 2,769 | 11,614 | ||
| Total assets | 25,221 | 21,091 | 22,397 | |
| Current liabilities | ||||
| Other payables and accrued expenses | (224) | (253) | (131) | |
| Total liabilities | (224) | (253) | (131) | |
| Net assets | 24,997 | 20,838 | 22,266 | |
| Shared capital and reserves | ||||
| Share capital | 7 | 256 | 213 | 227 |
| Share premium | 7,924 | 3,883 | 5,152 | |
| Special distributable reserve | 16,455 | 16,455 | 16,455 | |
| Revenue reserve | 470 | 287 | 540 | |
| Capital reserve | (108) | - | (108) | |
| Equity shareholders' funds | 24,997 | 20,838 | 22,266 | |
| Net asset value per ordinary share | 8 | 97.57p | 97.62p | 98.11p |
| Special | ||||||
| Share | Share | distributable | Capital | Revenue | ||
| capital | premium | reserve | reserve | reserve | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At beginning of the period | ||||||
| Total comprehensive income for the period: | 227 | 5,152 | 16,455 | (108) | 540 | 22,266 |
| Profit for the period | - | - | - | - | 684 | 684 |
| Transactions with owners recognised directly in equity: | ||||||
| Ordinary shares issued | 29 | 2,896 | - | - | - | 2,925 |
| Shares issue costs | - | (124) | - | - | - | (124) |
| Dividends paid | - | - | - | - | (754) | (754) |
| At 31 May 2018 | 256 | 7,924 | 16,455 | (108) | 470 | 24,997 |
| Special | ||||||
| Share | Share | distributable | Capital | Revenue | ||
| capital | premium | reserve | reserve | reserve | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At beginning of the period | ||||||
| Total comprehensive income for the period: | 50 | - | - | - | - | 50 |
| Profit for the period | - | - | - | (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 |
| Shares issue costs | - | (860) | - | - | - | (860) |
| Dividends paid | - | - | - | - | (433) | (433) |
| At 30 November 2017 | 227 | 5,152 | 16,455 | (108) | 540 | 22,266 |
| Special | ||||||
| Share | Share | distributable | Capital | Revenue | ||
| capital | premium | reserve | reserve | reserve | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At beginning of the period | ||||||
| Total comprehensive income for the period: | 50 | - | - | - | - | 50 |
| Profit for the period | - | - | - | - | 287 | 287 |
| 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 | 213 | 21,133 | - | - | - | 21,346 |
| Shares issue costs | - | (795) | - | - | - | (795) |
| At 31 May 2017 | 213 | 3,883 | 16,455 | - | 287 | 20,838 |
| Six months to 31 May 2018 (unaudited) | Six months to 31 May 2017 (unaudited) | Year ended 30 November 2017 (audited) | |
| £'000 | £'000 | £'000 | |
| Operating activities | |||
| Profit after taxation | 684 | 287 | 865 |
| Increase in other receivables | (84) | (228) | (249) |
| Increase in other payables | 83 | 253 | 131 |
| Net cash inflow from operating activities before interest and after taxation | 683 | 312 | 747 |
| Interest paid | - | - | - |
| Net cash inflow from operating activities | 683 | 312 | 747 |
| Investing activities | |||
| Loans given | (3,300) | (7,240) | (11,806) |
| Loans repaid | 1,206 | - | 1,625 |
| Net cash outflow from investing activities | (2,094) | (7,240) | (10,181) |
| Financing | |||
| Issue of ordinary shares | 2,812 | 8,951 | 10,233 |
| Equity dividends paid | (754) | - | (433) |
| Cancellation of management shares | - | (50) | (50) |
| Net cash inflow from financing | 2,058 | 8,901 | 9,750 |
| Increase in cash and cash equivalents | 647 | 1,973 | 316 |
| Cash and cash equivalents at the start of the period/year | 316 | - | - |
| Cash flow | 963 | 1,973 | 316 |
| Cash and cash equivalents at the end of the period/year | 963 | 1,973 | 316 |
| Six months ended 31 May 2018 | Six months ended 31 May 2017 | Six months ended 30 November 2017 | ||||
| £'000 | Pence per share | £'000 | Pence per share | £'000 | Pence per share | |
| Revenue earnings | 684 | 2.74 | 287 | 1.41 | 973 | 4.68 |
| Capital earnings | - | - | - | - | (108) | (0.48) |
| Total earnings | 684 | 2.74 | 287 | 1.41 | 865 | 4.16 |
| Average number of shares in issue | 24,997,360 | 20,420,933 | 20,784,826 | |||
| Six months ended 31 May 2018 | Six months ended 31 May 2017 | Year ended 30 November 2017 | |
| £'000 | £'000 | £'000 | |
| In respect of the prior year: | |||
| First interim dividend | - | - | 213 |
| Second interim dividend | - | - | 220 |
| Third interim dividend | 340 | - | - |
| In respect of the current year: | |||
| First interim dividend | 414 | - | - |
| Total | 754 | - | 433 |
| 31 May 2018 | 31 May 2017 | 30 November 2017 | |
| £'000 | £'000 | £'000 | |
| Opening balance | 21,782 | - | - |
| Loans advanced at launch | - | 11,601 | 11,601 |
| Loans deployed | 3,300 | 7,239 | 11,806 |
| Principle repayments | (1,207) | - | (1,625) |
| Total loans at amortised cost | 23,876 | 18,840 | 21,782 |
| Split: | |||
| Non-current assets: Loans due for repayment after one year | 8,703 | 18,322 | 10,783 |
| Current assets: Loans due for repayment under one year | 15,173 | 518 | 10,999 |
| Nominal value | Number of ordinary shares | Number of Management shares | |
| £'000 | of 1p | of £1 | |
| At 30 November 2016 | - | 1 | 50,000 |
| Management shares cancelled on listing | (50,000) | ||
| Issue 24 January 2017 | 173 | 17,300,949 | |
| Issue 9 March 2017 | 16 | 1,600,000 | |
| Issue 6 April 2017 | 11 | 1,072,000 | |
| Issue 11 May 2017 | 14 | 1,372,900 | |
| Issue 19 July 2017 | 6 | 616,661 | |
| Issue 17 October 2017 | 7 | 731,048 | |
| Issued and fully paid as at 30 November 2017 | 227 | 22,693,559 | - |
| Issue 11 December 2017 | 9 | 958,257 | |
| Issue 6 March 2018 | 6 | 617,216 | |
| Issue 9 April 2018 | 14 | 1,350,000 | |
| Issued and fully paid as at 31 May 2018 | 256 | 22,619,032 |
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