REG - ICG-Longbow Senior - Half-year Report
23/09/2022 07:00
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RNS Number : 3685A ICG-Longbow Snr Sec UK Prop DebtInv 23 September 2022
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Interim Report And
Unaudited Condensed Interim Financial Statements
For the six months ended 31 July 2022
ICG-Longbow Senior Secured UK Property Debt Investments Limited ("the
Company") is pleased to announce the released of its Interim Financial
Statements for th e six months ended 31 July 2022 which will shortly be
available on the Company's website at (ww.lbow.co.uk) where further
information on the Company can also be found. The interim financial statements
are also available for viewing on the National Storage Mechanism
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
All capitalised terms are defined in the Glossary of Capitalised Defined Terms
unless separately defined.
Financial Highlights
Key Developments
· Continuation of capital return to shareholders; distribution of
£7.3 million (6.0 pence per ordinary share) made during the period, taking
total capital distributions to £38.8 million (32.0 pence per ordinary share)
since September 2021.
· Dividends paid and declared totalling 2.1 pence per share for
the six-month period to 31 July 2022, reflecting approximately 6% annualised
on the prevailing quarterly NAV, in line with the Board's guidance to date.
· Total loans outstanding of £74.7 million as at 31 July 2022,
as the portfolio continues to reduce through loan repayments.
· No losses incurred or impairment provisions required on any
portfolio investments.
Performance
· NAV of £80.55 million as at 31 July 2022 (31 January 2022:
£87.77 million).
· Profit after tax of £2.73 million for the six months ended 31
July 2022 (31 July 2021: £3.52 million).
· Earnings per share for the period of 2.25 pence (31 July 2021:
2.90 pence).
· Performance in line with expectations and commensurate with the
ongoing reduction in the loan portfolio.
Dividend
· Total dividends paid or declared for the period ended 31 July
2022 of 2.1 pence per share (31 July 2021: 3 pence per share), made up as
follows:
o Interim dividend of 1.1 pence per share paid in respect of quarter ended
30 April 2022; and
o Interim dividend of 1.0 pence per share approved in respect of quarter
ended 31 July 2022.
Investment Portfolio
· As at 31 July 2022, the Company's investment portfolio
comprised five loans with an aggregate principal balance of £74.7 million,
representing 92.8% of the shareholders' equity (31 January 2022: six loans
with an aggregate principal balance of £80.5 million, representing 91.8% of
the shareholders' equity).
· Weighted average portfolio LTV as at 31 July 2022 was 69.3% (31
January 2022: 67.8%).
· As at 22 September 2022, the aggregate drawn balance was £73.7
million.
· The underlying portfolio borrowers continue to pursue business
plans while working towards loan repayments.
Corporate Summary
Investment Objective
In line with the revised Investment Objective and Policy approved by shareholders at the Extraordinary General
Meeting in January 2021, the Company is undertaking an orderly realisation of
its investments.
Structure
The Company is a non-cellular company limited by shares incorporated in Guernsey on 29 November 2012 under the Companies Law. The Company's registration number is 55917, and it has been registered with the GFSC as a registered closed-ended collective investment scheme. The Company's Ordinary Shares were admitted to the premium segment of the FCA's Official List and to trading on the Main Market of the London Stock Exchange as part of its IPO which completed on 5 February 2013. The issued capital comprises the Company's Ordinary Shares denominated in Pounds Sterling. The Company previously made investments in its portfolio through ICG-Longbow Senior Debt S.A., the Company's wholly owned Luxembourg subsidiary. The Board resolved to simplify its corporate structure by collapsing the subsidiary company which has historically acted as the lender for the Company's investments. Following this decision, the subsidiary, ICG Longbow Senior Debt S.A. was dissolved under Luxembourg Law with effect from 18 January 2022. Following the dissolution, the Company has assumed the assets and liabilities of its former subsidiary.
Investment Manager
During the year ended 31 January 2021, the Company's management arrangements were amended and the Company appointed ICG Alternative Investment Limited as external discretionary investment manager, under the Alternative Investment Fund Management Directive (AIFMD) within a remit set by the Board. Previously, the Company was internally managed by the Board, after receiving advice from Intermediate Capital Managers Limited (an affiliate of ICG Alternative Investment Limited) under the terms of a non-discretionary Investment Advisory agreement.
Chairman's Statement
Introduction
On behalf of the Board, I am pleased to present the Interim Financial
Statements for the Company for the six months ended 31 July 2022.
Economic and market conditions during the first half of the year were
dramatically different from 2021, with sharp falls across global equity and
bond markets. In addition to the geopolitical challenges caused by the
Russian invasion of Ukraine, investors saw and continue to be concerned by
high levels of inflation, rising interest rates, increasing volatility and a
slowing economy. In the UK, CPI inflation reached 10.1% in July, a 40-year
high, with rising energy and food prices the key contributors.
Global central banks have belatedly responded to inflationary pressures with
sustained increases in interest rates, albeit it remains uncertain how
effective these will be given the significant time lag between rate movements
and pricing adjustments. It is also worth highlighting that, despite the
increases, the Bank Rate of 1.75% as at the end of August 2022 remains
extremely low by historical standards. Some shareholders may recall that
when inflation reached double digits in 1979 and 1980, Bank Rate was at 14%
and didn't fall to single digit levels on a sustained basis until the early
1990s.
The economic outlook for the coming winter looks to be challenging. The UK
energy price cap rose by 80% in October, with some estimates forecasting that
the average household energy bill could exceed £5,000 in 2023. In response,
the new Prime Minister has announced an unprecedented support package, with a
two year price cap equivalent to £2,500 for the average household, along with
short term support for businesses. Nonetheless, mortgage bills and rents are
rising, and food prices look to continue to trend higher as a second order
effect of input price rises and supply chain disruptions.
The number of full-time employees continues to be close to record highs and
job vacancies remain well above pre-pandemic levels, but showed the first
signs of falling in June 2022. Nominal earnings growth was 5.1% in the three
months to June 2022 although real earnings are falling. As a result
industrial and labour relations have become strained, particularly in the
public sector, with strike ballots and action becoming more widespread.
GDP fell modestly (by 0.1%) in Q2 2022, according to preliminary estimates,
albeit showed growth of 0.2% in July. In August 2022, consensus forecasts
predicted 2022 GDP growth of 3.6%, but growth for 2023 of only 0.5%. The
Bank of England is more conservative, predicting that the UK will fall into
recession in Q4 2022 with five quarters of contraction before a return to
sluggish growth. Illustrating the challenge faced by policymakers, in this
flat growth environment one forecaster (Citi) predicts inflation rates peaking
at 18.6% in early 2023.
The Investment Manager comments further on property market conditions below.
While the Company retains secure first ranking mortgage loans with, in the
most part, significant borrower equity subordinate to our positions, it is not
immune to the challenging macro market conditions. In particular, the
reduced transaction volumes expected in UK markets and the cost and
availability of debt financing may now mean that realisations are delayed
beyond our prior expectations. In that context the repayment of the residual
£6.0 million exposure from the Quattro loan during the period was pleasing
and allowed the Company a full exit.
Portfolio
Full repayment of the remaining £6.0 million Quattro loan was received,
together with interest and fees of £0.5 million. After period end, modest
repayments totalling £1.1 million were received on the Northlands loan,
following the sale of some of the underlying properties.
Several of the Company's remaining investments have commenced sale or
refinancing processes, as detailed further below, as the Sponsors work towards
exit. We are conscious that these processes are taking longer in the current
market with the result that certain of the loans may slip modestly past their
maturity dates. As a responsible lender the Company and Investment Manager
has been tolerant of this where there is confidence this is likely to be a
short term issue and that the Sponsors are actively pursuing an exit in good
faith. The Board will continue to notify shareholders of the likely prospects
for and timing of capital returns as and when these investments repay.
As at the date of these accounts, outstanding loan balances were £73.7
million, with pro forma LTV of 69.3%.
Revenue and Profitability
Income from the loan portfolio for the period totalled £3.61 million (31 July
2021: £4.67 million) as the Company's loan portfolio continued to reduce in
line with its stated investment strategy. Profit for the period after tax
was £2.73 million (31 July 2021: £3.52 million).
In line with expectations, earnings per share for the period were lower at
2.25 pence (31 July 2021: 2.90 pence), reflecting the reduction in the loan
portfolio during the period.
Dividend Performance
The Company paid a first interim dividend of 1.10 pence per share in respect
of the quarter ended 30 April 2022 on 29 July 2022, and on 21 September 2022
declared a second interim dividend in respect of the quarter ended 31 July
2022 of 1.0 pence per share.
The Company's investments generated sufficient income to provide for a covered
dividend during the reporting period. As advised previously, and while it
remains prudent to do so, the Board is targeting continuation of the payment
of an annualised 6% dividend based on the prevailing quarter's net asset
value.
NAV and Share Price Performance
The Company's NAV reduced to £80.55 million as at 31 July 2022 (31 January
2022: £87.77 million), as a result of the repayment of the Quattro loan
during the period, and subsequent distribution of capital. Allowing for the
return of capital in the period of 6.0 pence per ordinary share, the NAV per
share of 66.41 pence grew modestly over the period (31 January 2022: 72.35
pence per share).
The Company's share price ended the period at 57.50 pence per share, down from
71.40 pence as at 31 January 2022. The share price reflected, at period end,
a 15.5% discount to the Company's NAV. The Board continues to believe the
discount is unwarranted, given the equity buffer enjoyed by the Company's loan
investments and the ongoing progress towards loan repayments (and thus capital
distributions) as detailed by the Investment Manager below.
Outlook
We are pleased to have been able to pay a covered dividend during the period,
proportionate to the Company's NAV. As noted above, it is the Board's
intention to continue to pay dividends from our net income and we are
maintaining our guidance of targeting an annualised 6% based on the prevailing
quarter's NAV.
The Board is aware that shareholders remain keen to understand the likely
timing and quantum of future capital distributions. As highlighted
previously, the loan maturity dates set out later in this report provide good
indications, and all the Company's borrowers understand the relevant
dates. Several of the properties securing the Company's loans are either
being marketed for sale or in negotiations for refinancing. However, the
Board is mindful that these are commonly taking longer in the current
market. These protracted processes may lead to delays in repayment, and
consequently the potential for a slower return of capital. The Investment
Manager is taking all necessary steps to procure timely repayment of loans
while protecting shareholders' assets.
The Board will communicate with shareholders on a timely basis with progress
on all future capital distributions.
Jack Perry
Chairman
22 September 2022
Investment Manager's Report
The Investment Manager's Report refers to the performance of the loans and the
portfolio during the 6 months to 31 July 2022 and the general market
conditions prevailing at that date. Any forward-looking statements in this
report reflect the latest information available as at 22 September 2022.
Investment Objective
The investment objective of the Company, as approved by the shareholders of
the Company, was revised in January 2021 and is now to conduct an orderly
realisation of the assets of the Company.
Fund facts
Fund launch: 5 February 2013 Fund type: Closed ended investment company
Investment Manager: ICG-Longbow Domicile: Guernsey
Base currency: GBP Listing: London Stock Exchange
Issued shares: 121.3 million ISIN code: GG00B8C23S81
Investment Management fee: 1.0% LSE code: LBOW
Website: www.lbow.co.uk (http://www.lbow.co.uk)
Share price & NAV at 31 July 2022 Key portfolio statistics at 31 July 2022
Share price (pence per share): 57.50 Number of investments: 5
NAV (pence per share): 66.41 Percentage capital invested((2)): 92.8%
Premium/(Discount): (15.5%) Weighted avg. investment coupon: 7.34%
Approved dividend (pence per share)((1)): 1.0 Weighted avg. LTV: 69.3%
Dividend payment date((1)): 4 November 2022
( )
((1) ) For the Quarter ended 31 July 2022. Ex-Dividend Date is 6 October 2022
((2)) Loans advanced at amortised cost / Total equity attributable to the
owners of the Company.
Ongoing charges
For the period ended 31 July 2022 the ongoing charges ratio of the Company was
1.95% (2021: 1.53%). The ongoing charges ratio has been calculated using AIC
recommended methodology and is made up as follows:
2022 2021
£ £
Ongoing annualised expenses 1,665,337 1,829,667
Weighted average NAV 85,436,151 119,204,001
Ongoing charges ratio 1.95% 1.53%
Ongoing charges are those expenses of a type which are likely to recur in the
foreseeable future, whether charged to capital or revenue, and which relate to
the operation of the Company as a collective fund, excluding the costs of
acquisition/disposal of investments, performance fees, financing charges and
gains/losses arising on investments. Ongoing charges are based on costs
incurred in the year as being the best estimate of future costs. The ongoing
charges ratio is calculated by dividing the annualised ongoing charges by the
average NAV for the period. The Board notes that, whilst it is actively
managing costs and reducing these where possible, the ongoing charges ratio
has increased in line with expectations due to certain fixed costs which may
not reduce proportionate to NAV during the period of realisation of the
Company's investments.
Summary
As at 31 July 2022 the investment portfolio comprised five loans.
No new investments were made in the period and lending activity was limited to
further advances totalling £0.6 million on the Northlands portfolio loan, in
support of the borrower's business plan. The Company received repayment in
full of the £6.0 million Quattro loan, with interest, exit and prepayment
fees of £0.5 million.
As at the period end:
· Reduction in par value of the loan portfolio to £74.7 million
(31 January 2022: £80.5 million)
· Weighted average LTV of 69.3% (31 January 2022: 67.8%)
· WA interest coupon of 7.34% (31 January 2022: 7.39%)
· NAV per share of 66.41 pence (31 January 2022: 72.35 pence)
Following period end, the Company received a series of partial repayments of
the Northlands loan, following sales of certain of the portfolio properties as
the Sponsor works towards full repayment. These payments totalled £1.1
million in aggregate.
Company Performance
During the period the Company received repayment in full of the remaining
£6.0 million balance of the Quattro loan, with interest and fees of £0.5
million. The portfolio LTV stood at 69.3% as at 31 July 2022, and was
substantially stable during the period. The weighted average loan coupon was
also largely unchanged, at 7.34%.
At period end, the Company had £3.1 million of cash, which is sufficient to
cover the announced dividend for the quarter, in addition to its near-term
liabilities and working capital needs.
The weighted average unexpired loan term reduced to approximately 0.6 years,
reflecting the approaching near-term maturity dates of the majority of
loans. As these loans repay, the Company intends to return capital to
shareholders in line with its investment objective.
Portfolio
Portfolio statistics 31 July 2022 31 January 2022
Number of loan investments 5 6
Aggregate principal advanced £74,749,557 £80,543,427
Weighted average LTV 69.3% 67.8%
Weighted average interest coupon p.a. 7.34% 7.39%
Weighted average unexpired loan term 0.60 years 0.97 years
Cash held £3,068,145 £4,801,224
Investment Portfolio as at 31 July 2022
Project Region Sector Term start Unexp. Day 1 Day 1 Balance outstanding ((1)) Current
Term balance LTV (£m) LTV
(years) (£m) (%) (%)
Affinity South West Office Mar-18 0.00 14.20 67.3 17.30 68.4
Southport North West Hotel Feb-19 0.71 12.50 59.5 15.00 96.2
Northlands London Mixed use Aug-19 0.21 9.00 55.3 10.59 59.2
RoyaleLife National Residential Sept-19 1.21 20.27 74.3 25.38 60.9
LBS London Office Oct-19 0.21 4.92 69.3 6.47 58.5
Total / weighted average 0.60 60.89 66.4 74.75 69.3
((1) ) For the RoyaleLife facility, balance outstanding includes
capitalised interest
Economy and Financial Market Update
The economic story of the reporting period has been the rapid and sustained
rise in inflation rates. While the problem is global, the UK has been
particularly hard hit with headline CPI reaching 10.1% in July, a 40-year
high, and forecasters predicting further increases. In the UK there is
increasing alarm at the impact the expected material rises in the energy price
cap will have on households. We are equally alert to the effect on
businesses, where there is no such cap albeit where some Government support is
expected.
Inflation means consumers are also suffering real wage cuts and, in many
sectors, industrial action has become more widespread in the hope of securing
improved pay settlements. With mortgage rates, rents, food and energy costs
all increasing there is a real risk of a significant impact on consumer
confidence. The ONS notes that households already appear to be cutting back
on non-essential spending.
As a result, the latest Bank of England forecasts for the UK economy make for
bleak reading, with five quarters of economic contraction from Q4 2022 before
a period of stagnant to weak growth in the medium term. Rate setters are
thus having to weigh the need to get inflation down with the impact on wider
economic conditions. While the Bank has come under criticism from some
quarters for acting too late on inflation, rates are now rising in a sustained
way with the expectation of significant further rises to come. Markets are
currently implying that Bank Rate will reach 4% in 2023, and the benchmark
5-year swap rate rose 100bp between late July and late August, standing at
around 3.5% at the time of writing.
The new Prime Minister, Liz Truss, faces a challenging in-tray. A
significant package of measures to support consumer and business energy costs
has already been announced. Further measures are expected in an emergency
budget in the coming weeks. It remains to be seen whether this will have a
positive economic impact, but the overall outlook remains gloomy in the near
term.
Occupational Demand/Supply
According to recent data from CoStar, vacancy in London offices has risen by
over 50% since the onset of the Covid pandemic, with 31 million sq ft of
currently available space according to the research, compared to 20 million sq
ft in Q1 2020. This points to weaker market conditions, yet data from
Savills show that first half office take up was 13% above the 10 year average,
at 5.2 million sq ft, and 70% of those occupiers looking for space are seeking
to maintain or expand their footprints, with only 13% looking to downsize.
In the regional markets, Jones Lang LaSalle reports steady leasing activity in
the 'Big Six' markets in H1 2022, slightly ahead of H1 2021 levels. Vacancy
rates declined modestly, to 5.9% from 6.2% in the prior year, with upward
pressure on rents remaining, led by Bristol which saw prime rents reach
£42.50 per sq ft, a 13% increase on the prior year.
The industrial occupational markets continue to show strength. Take up for
the first half of larger (100,000 sq ft+) units was 16.8 million square feet,
25% above the 5-year average, with a further 6.4 million sq ft under offer at
the end of June. By comparison 35.4 million sq ft was leased in FY 2021,
which was the second highest year on record. According to Jones Lang
LaSalle, UK vacancy rates are only 1.6%, and still only 5.3% if speculative
construction is included. Given the ongoing supply/demand dynamics, upward
pressure on rents remains, with prime rents increasing by 19% on average in
the 12 months to June 2022.
While the Company has only negligible exposure to the retail markets, there
have been some signs of market conditions improving. Vacancy rates in both
shopping centres and on high streets fell modestly in Q2 2022, to 18.9% and
14.0% respectively, albeit these are well above the levels in other core
property sectors. The picture is somewhat better in retail warehouse parks,
where demand from discounters and foodstores continues and Allsops report a
vacancy rate of 7.8% (and falling) as at May 2022. These vacancy rates are
critical as, ultimately, until more than one occupier is competing for the
same store, rental growth is unlikely to be realised. In many markets there
is still a meaningful level of absorption required before growth can
return.
Property Investment Market
Industrial market conditions changed dramatically during the period.
Amazon's announcement in late April of a scaling back of its take up in the
sector led to an immediate correction in the share prices of public market
landlords, with SEGRO's share price falling from £13.42 at the end of April
to £10.73 by 9(th) May. This sentiment fed into private markets relatively
quickly, with buyers seeking discounts of 10% - 20% on previous asking
prices. In many cases this has been accepted by vendors, noting that the
buyer pool is also facing rising interest rate costs as well as a more
challenging macro outlook. While substantial, these discounts only
partially reverse the relentless pricing growth seen in the sector over the
past few years. According to Knight Frank, industrial yields in August 2022
have returned to the levels seen in August 2021.
Office transaction volumes softened in Q2, with quarterly trades of £4.4bn
(according to Lambert Smith Hampton) below the £5.2bn in Q1 and 10% below the
five-year average. Market sentiment has softened, according to Knight Frank,
with yields reported to have moved outwards by 25bp in August, although
anecdotally we are hearing that depth of bidding is thinning and pricing
levels are less certain. What is noticeable is that sales processes are
taking longer to conclude, with the traditional summer slowdown contributing
to the relative inertia. The sector does continue to show appeal however,
driven by strong occupational market conditions in many markets. Sunlight
House in Manchester, the Paragon building in Bristol, and the Kaleidoscope
Building in London's Farringdon (leased to Tik-Tok) were notable completions
in the summer months.
What has been remarkable during the period is the slowdown in monthly
volumes. While May 2022 showed all-time high investment sales of £9.0bn
(skewed by Brookfield's £3.3bn acquisition of the Student Roost platform),
June levels fell to £2.2bn, according to Lambert Smith Hampton, the lowest
level since the height of the pandemic. We anticipate that volumes will
remain sluggish while both property and finance markets remain in a period of
price discovery.
Finance Markets
The relatively buoyant financing market conditions seen in Q1 2022 adjusted
significantly towards the end of the period, driven by both geopolitical and
macro concerns. According to Bank of England data, overall lending to
property rose by £2.2bn, to £172.3bn, in the six months to June 2022.
However, this will reflect deals originally agreed in 2021 and Q1 2022, and
likely masks the most recent changes.
In particular, the key challenge has been the significant and sustained
increase in funding costs, with the benchmark 5-year swap rate rising
markedly, from around 1.25% at the end of January to around 3.5% at the time
of writing. Moreover, the rate has shown significant volatility, with
intra-day movements of over 25bp seen on several occasions.
The above leads to uncertainty for borrowers in what their financing costs
(and thus projected equity returns) will look like, as well as challenges for
lenders in forecasting interest coverage ratios. When allied to a 'wait and
see' approach from more cautious lenders, the result is a slowdown in volumes
and processes taking longer (and in some cases becoming abortive).
Notably, we are seeing increasing evidence of finance processes becoming
fractured, particularly for larger transactions. HSBC was reported to have
pulled a potential £380m CMBS issuance in May as a result of market
conditions; the recovery in CMBS seen in 2021 appears largely to have stalled.
The interest rate environment and ongoing price discovery of credit spreads
means large institutions are disincentivised from originating loans to
distribute. Anecdotally we are hearing that many bank balance sheets are
near full for 2022 lending.
Notwithstanding the undoubted challenges in the market, there is by no means a
credit crunch and debt still remains widely available, particularly for
smaller and mid-market transactions. The annual financing property
presentation by Savills, in June 2022, identified over 400 active lenders to
the market, against 240 in 2018, with a continued evolution in the diversity
of funding sources.
Portfolio Profile and Activity
The Company's investment portfolio was largely stable during the reporting
period, with no new investments and the sole repayment being the exit of the
remaining £6.0 million balance of the Quattro loan.
After period end we saw a series of partial repayments of the Northlands loan,
totalling £1.1 million in aggregate, following the sale of certain of the
portfolio properties.
The Company's weighted average LTV is now 69.3%, with a weighted average
unexpired loan term of 0.6 years and longest maturity of 1.2 years. All the
Company's borrowers are aware that their lender is winding down and as such
are all working towards exiting the loans. Certain of these processes are
well advanced although there is no doubt that transactions, whether sales or
refinancings, are taking longer to complete in the current market given the
uncertainties noted above.
The weighted average interest coupon is 7.34%, and this is supplemented by
contractual arrangement fees paid at closing and exit fees upon repayment in
certain instances. In addition, the RoyaleLife loan continues to benefit
from call protection provisions which would provide shareholders with
supplementary fees in the event of early repayment.
While markets remain in a price discovery mode with the pace of transactions
slowing, we are satisfied with the credit profile of the Company's loans and
are encouraged by our Sponsors' efforts to work towards sales and
refinancing.
Portfolio Outlook
As at the date of these accounts, formal sales processes have been launched
for the properties securing the Affinity, LBS and Southport loans, although in
each case there can be no assurance that any sale will complete. We are
aware that certain of our Sponsors have also been pursuing refinancing options
as an alternative exit route. Despite the slowdown in transactional and
finance market activity, the fourth quarter (in particular) tends to be the
busiest in the property calendar and as such we remain optimistic on the
prospects for further repayments in H2 2022, and the resulting opportunity to
return capital to shareholders. We remain in active dialogue with Sponsors
to facilitate timely repayments.
We are nonetheless mindful that the macro position is evolving quickly and are
paying close attention to all our investments for signs of stress.
Loan Portfolio
As set out above, as at 31 July 2022, the Company's portfolio comprised of
five loans with an aggregate balance outstanding of £74.7 million.
A summary of each of the individual loans as at 31 July 2022 is set out below:
Affinity
On 28 February 2018, a new £16.2 million commitment was made, of which £14.2
million was advanced, to refinance a multi-let office property in Bristol, and
to provide a £2.0 million capital expenditure facility to fund a
refurbishment programme. Subsequently, the loan was increased to £16.7
million in support of the borrower's business plan and thereafter a further
£1.0 million loan commitment was made to allow for further upgrade works to
the property.
The property is currently fully leased with a contracted rent of £2.5 million
per annum. The Sponsor has continued to invest in the property, which was
placed on the market for sale towards the end of the reporting period. The
loan's original term expired in April 2022, however the Company has agreed a
short-term loan extension to allow for the sales process to conclude or an
alternative exit to be realised.
Property profile Debt profile
Number of properties 1 Day one debt £14,200,000
Property value £25,300,000 Debt outstanding £17,299,963
Property value per sq. ft. £221 Original term 4.2 years
Property area (sq. ft.) 114,364 Maturity April 2022
Number of tenants 12 LTV as at 31 July 68.4%
Weighted lease length 2.5 years Loan exposure per sq. ft. £151
Southport
Initially a £15.0 million loan commitment, secured by a hotel and leisure
complex in Southport, Merseyside. The initial loan to value ratio was
59.5%.
During the Covid-19 pandemic the Investment Manager agreed to an element of
interest capitalisation to support the loan Sponsor while the asset was closed
for trade. Subsequently, a lease surrender agreement from one of the
property's commercial tenants allowed for the repayment of previously
capitalised interest, with the loan balance of £15.0 million consistent with
the original commitment.
The hotel adjoins the proposed new Southport Events Centre, and with the aim
of capitalising on this proposed regeneration, along with robust summer
trading, the property was placed on the market for sale in July 2022.
Following the period end the Investment Manager has received an updated
valuation which puts the Company's exposure at 96% LTV, in breach of
covenant. However, the Sponsor is progressing an offer for the asset in
excess of this valuation and which would see the loan repaid in full. While
there is no assurance this will complete, the Company has reserved all its
rights in respect of the covenant breach and has taken steps to accelerate
repayment.
Property profile Debt profile
Number of properties 1 Day one debt £12,500,000
Property value (£) £15,600,000 Debt outstanding £15,000,000
Property value (£/bedroom) £117,293 Original term 4 years
Property value (£/sq. ft.) £343 Maturity April 2023
Bedrooms 133 LTV as at 31 July 96.2%
Property area (sq. ft.) 45,430 Loan exposure per bedroom £112,782
Northlands
In October 2019 the Company provided a £12.5 million commitment to the
Sponsor, secured by a highly diversified portfolio of high street retail,
office and tenanted residential units located predominantly in London and the
South East. The initial loan amount was £9.0 million with a LTV ratio of
55.3%.
The Sponsor's business plan includes implementation of a planning consent to
develop residential apartments on one of the sites in the portfolio, and in
support of this the Company provided a £3.5 million capital expenditure
commitment. This commitment has been steadily drawn during the term.
Progress against business plan has been steady, and the Sponsor has been
marketing certain assets for sale, alongside pursuing a refinancing of the
balance of the portfolio, to work towards a repayment of the loan at its
maturity date. As a result of these efforts, repayments of approximately
£1.1 million were made after period end, using proceeds from property sales,
reducing LTV to approximately 56.5%.
Property profile Debt profile
Number of properties 14 Day one debt £9,000,000
Property value £17,906,500 Debt outstanding £10,593,576
Property value per sq. ft. £147 Original term 3.0 years
Property area (sq. ft.) 121,285 Maturity October 2022
Number of tenants 101 LTV as at 31 July 59.2%
Weighted lease length 3.2 years Loan exposure per sq. ft. £87
RoyaleLife
In September 2019 the Company provided a £24.6 million commitment to an
affiliate of RoyaleLife, the UK's leading provider of bungalow homes, secured
by a portfolio of ten assets in the residential bungalow homes sector. The
facility forms part of a larger four-year, £142.7 million loan originated by
the Investment Manager, with the Company participating alongside two other
funds managed by the Investment Manager.
The initial loan drawn down was £20.3 million, with the balance comprising a
capital expenditure commitment in support of the borrower's business plan.
The Sponsor's home sales were adversely affected by Covid-19 and the
subsequent lockdown restrictions, and as a result the Investment Manager
agreed to capitalise some of the interest due on the loan, with the Sponsor
also committing new equity capital into the business. The total outstanding
loan balance is now £25.4 million, and is above the day 1 commitment owing to
the capitalised interest.
Property profile Debt profile
Number of properties 10 Day one debt £20,267,119
Property value (£) * £41,670,248 Debt outstanding £25,382,017
Number of tenants n/a Original term 4.1 years
Weighted lease length n/a Maturity October 2023
LTV as at 31 July 60.9%
*pro rata based on Company's share of total loan
LBS
In September 2019, the Company entered into a £6.5 million loan commitment
with a fund advised by LBS Properties, and secured by a multi-let office
property in Farringdon, London.
The loan carried an initial LTV ratio of 69.0%, and included a capital
expenditure commitment in support of the borrower's business plan for a full
refurbishment of the property. The refurbishment works were completed ahead
of schedule, a new tenant was secured for the majority of the space and an
improvement in the valuation was recorded, with the LTV now 58.5%.
Loan performance was stable during the period and towards the end of the
period the property was placed on the market for sale.
Property profile Debt profile
Number of properties 1 Day one debt £4,922,000
Property value £11,070,000 Debt outstanding £6,474,586
Property value per sq. ft. £1,049 Original term 3.1 years
Property area (sq. ft.) 10,557 Maturity October 2022
Number of tenants 1 LTV as at 31 July 58.5%
Weighted lease length 8.0 years Loan exposure per sq. ft. £613
Subsequent Events
Significant subsequent events have been disclosed in Note 11 to the Financial
Statements.
ICG Real Estate
22 September 2022
Directors' Responsibilities Statement
The Directors are responsible for preparing this Interim Financial Report in
accordance with applicable law and regulations. The Directors confirm that to
the best of their knowledge:
• The Unaudited Condensed Interim Financial Statements have been
prepared in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU; and
• The Chairman's Statement and Investment Manager's Report include a
fair review of the information required by:
(i) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the Unaudited Condensed Interim
Financial Statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
(ii) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the financial year and that have materially affected the financial position
and performance of the entity during that period; and any changes in the
related party transactions described in the last Annual Report and Financial
Statements that could do so.
On behalf of the Board
Jack Perry
Chairman
22 September 2022
Principal Risks and Uncertainties
The Company invests primarily in UK commercial real estate loans of a fixed
rate nature; as such, it is exposed to the performance of the borrower and the
underlying property on which its loans are secured.
The principal risks and uncertainties of the Company were identified in detail
in the Annual Report and Financial Statements for the year ended 31 January
2022. However, the Ukrainian crisis, rising energy prices and the knock-on
impacts on inflation and interest rates have had a profound impact on economic
and certain market conditions in the six months ended 31 July 2022 and beyond,
as further detailed in the Investment Manager's report.
In addition to regular risk reviews, emerging risks such as those mentioned
above are considered as they arise, to assess any potential impact on the
Company and to determine whether any actions are required.
As a result of such risks emerging, the Audit and Risk Committee has recently
reviewed its assessment of the key risks faced by the Company, which are
currently identified as the following:
· Realisation risk regarding the possibility of deteriorating
market liquidity for certain assets and/or uncertainty over collateral values
and accuracy of valuations which could result in lower amounts of capital
realised than that originally expected.
· A borrower's inability to secure sale or refinancing of an
underlying property as planned could frustrate the timely repayment of
capital;
· Non-payment of interest could affect the ability of the Company
to maintain a covered dividend as the orderly realisation of its investments
progresses;
· Complications with the liquidation process could occur which may
affect timing of the final distribution to shareholders;
· Heightened risk from macro factors and market conditions arising
from current economic and geopolitical conditions.
Condensed Statement of Comprehensive Income
FOR THE SIX-MONTH PERIOD TO 31 JULY 2022
1 February 2022 to 1 February 2021 to 1 February 2021 to
31 July 2022 31 July 2021 31 January 2022
£ £ £
Notes (Unaudited) (Unaudited) (Audited)
Income
Income from loans 3,611,439 4,640,240 9,310,030
Other fee income from loans - 34,000 207,739
Total income 3,611,439 4,674,240 9,517,769
Expenses
Investment Management fees 9 519,039 595,958 1,165,922
Other expenses 10 280,736 262,617 640,503
Reorganisation costs - 156,800 129,941
Directors' remuneration 9 80,000 91,375 171,375
Finance costs - 47,382 63,351
Total expenses 879,775 1,154,132 2,171,092
Profit for the period/year before tax 2,731,664 3,520,108 7,346,677
Taxation charge - 10,912
2,079
Profit for the period/year after tax 2,731,664 3,518,029 7,335,765
Total comprehensive income for the period/year 2,731,664 7,335,765
3,518,029
Basic and diluted Earnings per Share (pence) 5 2.25 6.05
2.90
All items within the above statement have been derived from discontinuing
activities on the basis of the orderly realisation of the Company's assets.
The Company has no recognised gains or losses for either period other than
those included in the results above, therefore, no separate statement of other
comprehensive income has been prepared.
The accompanying notes form an integral part of these Interim Financial
Statements.
Condensed Statement of Financial Position
As at 31 July 2022
31 July 2022 31 January 2022 31 July 2021
£ £ £
Notes (Unaudited)
(Audited) (Unaudited)
Assets
Loans advanced at amortised cost 4 77,976,950
83,257,529 108,468,063
Cash and cash equivalents 3,068,145 4,801,224 10,466,329
Trade and other receivables 529,620
502,485 1,620,797
Total assets 81,574,715 88,561,238 120,555,189
Liabilities
Other payables and accrued expenses 1,021,864
793,223 1,427,105
Total liabilities 1,021,864 793,223 1,427,105
Net assets 80,552,851 87,768,015 119,128,084
Equity
Share capital 6 80,298,422 87,576,589 119,115,310
Retained earnings 254,429 191,426 12,774
Total equity attributable to the owners of the Company 80,552,851
87,768,015 119,128,084
Number of ordinary shares in issue at period/year end 6 121,302,779
121,302,779 121,302,779
Net Asset Value per ordinary share (pence) 5 66.41
72.35 98.21
The Interim Financial Statements were approved by the Board of Directors on 22
September 2022 and signed on their behalf by:
Jack Perry Fiona Le Poidevin
Chairman Director
The accompanying notes form an integral part of these Interim Financial
Statements.
Condensed Statement of Changes in Equity
For the SIX-MONTH period to 31 July 2022
Number Ordinary Share B Share Retained
Notes of shares capital capital earnings Total
£ £ £ £
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
As at 1 February 2022 121,302,779 87,576,589 - 191,426 87,768,015
Profit for the year - - - 2,731,664 2,731,664
Dividends paid 7 - - - (2,668,661) (2,668,661)
B Shares issued May 2022 6 121,302,779 (7,278,167) 7,278,167 - -
B Shares redeemed & cancelled May 2022 6 (121,302,779) - (7,278,167) - (7,278,167)
As at 31 July 2022 121,302,779 80,298,422 - 254,429 80,552,851
For the SIX-MONTH period to 31 July 2021
Number Share Retained
Notes of shares capital earnings Total
£ £ £
(Unaudited) (Unaudited) (Unaudited)
As at 1 February 2021 121,302,779 119,115,310 133,829 119,249,139
Profit for the period - - 3,518,029 3,518,029
Dividends paid 7 - - (3,639,084) (3,639,084)
As at 31 July 2021 121,302,779 119,115,310 12,774 119,128,084
The accompanying notes form an integral part of these Interim Financial
Statements.
Condensed Statement of Cash Flows
For the SIX-MONTH period to 31 July 2022
1 February 2022 to 1 February 2021 to 1 February 2021 to
31 July 2022 31 July 2021 31 January 2022
£ £ £
Notes (Unaudited) (Unaudited) (Audited)
Cash flows generated from operating activities
Profit for the period/year 2,731,664 3,518,029 7,335,765
Adjustments for non-cash items and working
capital movements:
Movement in other receivables (27,135) (386,963) 731,350
Movement in other payables and accrued expenses 228,641 (45,402) (675,545)
Movement in tax payable - 2,061 (1,679)
Loan amortisation (513,291) (608,726) (1,321,983)
2,419,879 2,478,999 6,067,908
Loans advanced, less arrangement fees (162,434) (3,938,975) (1,643,473)
Loans repaid at par 4 5,956,304 6,791,749 30,420,038
Net loans repaid less arrangement fees 5,793,870 2,852,774 28,776,565
Net cash generated from operating activities 8,213,749 5,331,773 34,844,473
Cash flows used in financing activities
Dividends paid 7 (2,668,661) (3,639,084) (7,278,168)
Return of Capital paid 6 (7,278,167) - (31,538,721)
Net cash used in financing activities (9,946,828) (3,639,084) (38,816,889)
Net movement in cash and cash equivalents (1,733,079) 1,692,689 (3,972,416)
Cash and cash equivalents at the start of the period/year 4,801,224 8,773,640 8,773,640
Cash and cash equivalents at the end of the period/year 3,068,145 10,466,329 4,801,224
The accompanying notes form an integral part of these Interim Financial
Statements.
Notes to the Unaudited Condensed Interim Financial Statements
For the six-month period to 31 July 2022
1. General information
ICG-Longbow Senior Secured UK Property Debt Investments Limited is a
non-cellular company limited by shares and was incorporated in Guernsey under
the Companies Law on 29 November 2012 with registered number 55917 as a
closed-ended investment company. The registered office address is Floor 2, PO
Box 286, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 4LY.
The Company's shares were admitted to the Premium Segment of the Official List
and to trading on the Main Market of the London Stock Exchange on 5 February
2013.
The unaudited condensed financial statements comprise the financial statements
of the Company as at 31 July 2022.
In line with the revised Investment Objective and Policy approved by
shareholders in the Extraordinary General Meeting in January 2021, the Company
is now undertaking an orderly realisation of its investments. As sufficient
funds become available the Board intends to return capital to shareholders,
taking account of the Company's working capital requirements and funding
commitments.
ICG Alternative Investment Limited is the external discretionary investment
manager. The Board resolved to simplify its corporate structure by collapsing
the Luxembourg subsidiary company which has historically acted as the lender
for the Group's investments. The subsidiary was dissolved on 18 January 2022.
Under Luxembourg Law, and as sole shareholder, the Company has taken
responsibility for the remaining assets and liabilities of its subsidiary
following its dissolution.
2. Accounting policies
a) Basis of preparation
The Interim Financial Statements included in this Interim Report, have been
prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted
by the EU, and the Disclosure and Transparency Rules of the FCA.
The Interim Financial Statements have not been audited or reviewed by the
Company's Auditor.
The Interim Financial Statements do not include all the information and
disclosures required in the Annual Report and Financial Statements and should
be read in conjunction with the Company's Annual Report and Financial
Statements for the year ended 31 January 2022, which are available on the
Company's website (www.lbow.co.uk). The Annual Report and Financial Statements
have been prepared in accordance with IFRS as adopted by the EU.
Prior to its dissolution on 18 January 2022, the subsidiary (ICG Longbow
Senior Debt S.A.), was consolidated into the Company's accounts and the
Company's financial statements were prepared on a consolidated basis, as the
Group existed for the majority of the financial year ended 31 January 2022.
The financial statements for the period ended 31 July 2022 have been prepared
for the Company only, with comparative information comprising the results of
the Group. Since the Company has taken responsibility for the remaining assets
and liabilities of its subsidiary following its dissolution, the Directors
consider these comparatives to be appropriate.
Other than as set out above, the same accounting policies and methods of
computation have been followed in the preparation of these Interim Financial
Statements as in the Annual Report and Financial Statements for the year ended
31 January 2022.
The Company applied, for the first time, certain standards and amendments,
which are effective for annual periods beginning on or after 1 January 2022.
The new standards or amendments to existing standards and interpretations,
effective from 1 January 2022, did not have a material impact on the Company's
interim condensed financial statements. It is not anticipated that any
standard which is not yet effective, will have a material impact on the
Company's financial position or on the performance of the Company's
statements.
b) Going concern
The Directors, at the time of approving the Financial Statements, are required
to satisfy themselves that they have a reasonable expectation that the Company
has adequate resources to continue in operational existence for the
foreseeable future. At the EGM of the Company on 14 January 2021, following a
recommendation from the Board published in a circular on 16 December 2020,
shareholders voted by the requisite majority in favour of a change to the
Company's Objectives and Investment Policy which would lead to an orderly
realisation of the Company's assets and a return of capital to shareholders.
It is intended that the investments will be realised as and when the loans
fall due or shortly thereafter, and the Directors expect that the investments
will be held to maturity with the last loan due for repayment by the end of
2023. Whilst the Directors are satisfied that the Company has adequate
resources to continue in operation throughout the realisation period and to
meet all liabilities as they fall due, given the Company is now in a managed
wind down, the Directors consider it appropriate to adopt a basis other than a
going concern in preparing the financial statements. The basis of valuation
for investments is amortised cost, recognising the realisable value of each
investment in the orderly wind down of the Company and in the absence of a
ready secondary market in real estate loans by which to assess market value.
There has been no material change in the carrying value of the investments. No
material adjustments have arisen as a result of ceasing to apply the going
concern basis.
The loans owned by the Company will be held to their maturity.
c) Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Board of
Directors as a whole. The key measure of performance used by the Board to
assess the Company's performance and to allocate resources is the total return
on the Company's Net Asset Value, as calculated under IFRS, and therefore no
reconciliation is required between the measure of profit or loss used by the
Board and that contained in the Financial Statements.
For management purposes, the Company is organised into one main operating
segment, being the provision of a diversified portfolio of UK commercial
property backed senior debt investments.
The majority of the Company's income is derived from loans secured on
commercial and residential property in the United Kingdom.
Due to the Company's nature it has no employees.
The Company's results do not vary significantly during reporting periods as a
result of seasonal activity.
3. Critical accounting judgements and estimates in applying the Company's
accounting policies
The preparation of the Financial Statements under IFRS requires management to
make judgements, estimates and assumptions that affect the application of
policies and reported amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience
and other factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making judgements about carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in the period
of the revision and future periods if the revision affects both current and
future periods.
Critical judgements
In assessing the Expected Credit Loss (ECL), the Board have made critical
judgements in relation to the staging of the loans and assessments which
impact the loss given default. In assessing whether the loans have incurred a
significant increase in credit risk the Investment Manager, on behalf of the
Board, assesses the credit risk attaching to each of the loans. The Company
has adopted the Investment Manager's internal credit rating methodology and
has used its loss experience to benchmark investment performance and potential
impairment for both Stage 1 and Stage 2 loans under IFRS 9 considering both
probability of default and loss given default. The judgement applied in
allocating each investment to Stage 1, 2 or 3 is key in deciding whether
losses are considered for the next 12 months or over the life of the loan. The
Board has estimated that one loan, Southport, has shown evidence of heightened
credit risk. In assessing the ultimate ECL in relation to this loan, the Board
has made assumptions regarding the collateral value and headroom over the
principal loan amounts as well as the residual term of the loan.
Critical accounting estimates
The measurement of both the initial and ongoing ECL allowance for loan
receivables measured at amortised cost is an area that requires the use of
significant assumptions about credit behaviour such as likelihood of borrowers
defaulting and the resulting losses. In assessing the probability of default,
the Board has taken note of the experience and loss history of the Investment
Manager which may not be indicative of future losses. The default
probabilities are based on a number of factors including rental income trends,
interest cover and LTV headroom and sectoral trends which the Investment
Manager believes to be a good predictor of the probability of default, in
accordance with recent market studies of European commercial real estate
loans. Covid-19 impacted valuations in those real estate sectors most impacted
by lockdowns and social restrictions and changes in working habits. As the
restrictions have been lifted and the vaccination programme has been rolled
out, most sectors have recovered somewhat and investors, and tenants, have
returned to the market. Inflation and interest rate pressures remain a concern
and the prospect for growth has deteriorated since the start of the Ukrainian
crisis. However, given the exit plans in place for each remaining loan,
supported by valuation equity headroom, the Directors consider the loss given
default to be close to zero as the loans are the subject of very detailed due
diligence procedures on inception, close monitoring through their life to
provide early warning of a deteriorating credit position and LTV headroom. In
line with the Company's investment strategy at the time, most loans benefited
from significant LTV headroom, and business plans designed to deliver further
value increases over time. This combined with tight covenants have enabled the
Investment Manager to manage risk over the term of the loans. Following the
change in Investment Strategy to one of orderly wind down, the Investment
Manager and the Board have placed greater emphasis on the source and delivery
of repayment over the residual term of each loan when assessing valuation and
the risk of capital loss. As a result of these considerations, no loss
allowance has been recognised based on 12-month expected credit losses for
those loans in stage 1 nor for lifetime losses for those in stage 2, as any
such impairment would be wholly insignificant to the Company.
Revenue recognition is considered a significant accounting judgement and
estimate that the Directors make in the process of applying the Company's
accounting policies.
The Directors also make estimates in determining the fair value of prepayment
options embedded within the contracts for loans advanced. The key factors
considered in the valuation of prepayment options include the exercise price,
the interest rate of the host loan contract, differential to current market
interest rates, the risk-free rate of interest, contractual terms of the
prepayment option, and the expected term of the option. Given the low
probability of exercise and undeterminable exercise date, the value attributed
to these embedded derivatives is considered to be £nil (31 January 2022:
£nil).
4. Loans advanced
(i) Loans advanced
31 July 2022 31 July 2022 31 January 2022 31 January 2022
Principal advanced Fair value (at amortised cost) Principal advanced Fair value (at amortised cost)
£ £ £ £
Northlands 10,593,577 10,800,042 10,431,142 10,548,056
Quattro - - 5,956,304 5,984,263
Affinity 17,299,963 17,728,572 17,299,964 17,706,033
Southport 15,000,000 15,215,550 15,000,000 15,348,830
RoyaleLife 25,382,017 27,683,694 25,382,017 27,145,110
LBS 6,474,000 6,549,092 6,474,000 6,525,237
74,749,557 77,976,950 80,543,427 83,257,529
(ii) Valuation considerations
As noted above the Company is now in the process of an orderly wind down. It
remains the intention of the Investment Manager and Directors to hold loans
through to their repayment date. The Directors consider that the carrying
value amounts of the loans, recorded at amortised cost in the Interim
Financial Statements, are approximately equal to their fair value. For further
information regarding the status of each loan and the associated risks see the
Investment Manager's Report.
Amortised cost is calculated using the effective interest rate method which
takes into account all contractual terms (including arrangement and exit fees)
that are an integral part of the loan agreement. As these fees are taken into
account when determining initial net carrying value, their recognition in
profit or loss is effectively spread over the life of the loan.
The Company's investments are in the form of bilateral loans, and as such are
illiquid investments with no readily available secondary market. Whilst the
terms of each loan includes repayment and prepayment fees, in the absence of a
liquid secondary market, the Directors do not believe a willing buyer would
pay a premium to the par value of the loans to recognise such terms and as
such the amortised cost is considered representative of the fair value of the
loans.
Each property on which investments are secured was subject to an independent,
third-party valuation at the time the investment was entered into. All
investments are made on a hold to maturity basis. Each investment is monitored
on a quarterly basis, in line with the underlying property rental cycle,
including a review of the performance of the underlying property security. No
market or other events have been identified through this review process which
would result in a fair value of the investments significantly different to the
carrying value.
As the UK economy emerges from the impacts of Covid-19 the position of each
underlying property has generally improved, notwithstanding the record levels
of inflation and high interest rates. However as set out above and in the
Investment Manager's report a recession is likely and the outlook is less
certain than at 31 January 2022 although the balance outstanding in each case
remains at sufficient discount to the value of the underlying real estate on
which they are secured. The Investment Manager has reviewed the plans in place
and prospects for repayment of each loan over its residual term and the
Directors do not currently consider any loan to be subject to specific
impairment, or for there to be an immediate risk of not achieving full
repayment, including arears of interest, over the residual term of each loan.
(iii) IFRS 9 - Impairment of Financial Assets
The internal credit rating of each loan as at 31 July 2022 has been reviewed.
Of the two loans identified as Stage 2 assets at 31 January 2022, one has
since repaid in full while the other is still identified as Stage 2. All other
loans showed no deterioration and were considered as Stage 1 assets with no
ECL over a twelve-month period.
As at 31 July 2022
Stage 1 Stage 2 Stage 3 Total
Principal advanced 59,749,557 15,000,000 - 74,749,557
Gross carrying value 62,761,400 15,215,550 - 77,976,950
Less ECL allowance - - - -
62,761,400 15,215,550 - 77,976,950
As at 31 January 2022
Stage 1 Stage 2 Stage 3 Total
Principal advanced 59,587,122 20,956,304 - 80,543,426
Gross carrying value 61,924,436 21,333,093 - 83,257,529
Less ECL allowance - - - -
61,924,436 21,333,093 - 83,257,529
One loan was considered as Stage 2 loan as at 31 July 2022 (31 January 2022:
two loans).
The Quattro loan, identified as Stage 2 as at 31 January 2022, was repaid in
full in April 2022, following the combination of property sales and a
refinance by the borrower.
The second Stage 2 loan, Southport, continues to be recognised as Stage 2 as
at 31 July 2022. Whilst trading at the hotel is improving and a strong summer
has been reported, a new red book valuation received after period end
indicates the Company's exposure has increased to 96% LTV. The Sponsor placed
the property on the market for sale in July 2022 and is now progressing an
offer in excess of this valuation which would see the Company's Loan repaid in
full before maturity, although there can be no assurance that this will
complete. Whilst the sales price and valuation support a repayment of the
loan in full, given the elevated LTV exposure and sector uncertainties, the
Company has taken steps to accelerate repayment.
All other loans have shown no material deterioration since inception or over
the course of the financial period and were considered as Stage 1 assets with
no ECL over a twelve-month period.
A reconciliation of the ECL allowance was not presented as the allowance
recognised at period end was £nil.
(iv) IFRS 9 Impairment - Stress Analysis
As discussed above, the Company's ECL is a function of the probability of
default ("PD") and loss given default ("LGD"), where PD is benchmarked against
ICG Real Estate's internal credit rating model and LGD is based on ICG Real
Estate's track record of over £5.7 billion of senior and whole loans which
would satisfy the Company's investment parameters.
All loans are expected to repay in full within their residual term, or
following short term extensions granted by the Company in its sole discretion.
The Company has performed stress analysis on its expected credit loss by
considering the impact of a one, two and three grade deterioration in the
credit rating of each loan as if they were all Stage 2 assets and considered
the impact of impairment over the life of the loans.
As discussed above, the Covid-19 pandemic impacted the performance of a number
of loans with a resultant reduction in interest cover, and either arrears or
capitalisation of interest leading to higher LTV exposures, the leisure sector
was particularly affected where properties were subject to forced closure and
operating restrictions. Within ICG's benchmark portfolio the Covid-19
pandemic, and its impact on valuation of the retail sector properties in
particular, lowered ICG's recovery expectations for non‑performing loans. As
a result, the application of stress tests in accordance with the Company's
policy results in a significantly higher risk profile than pre Covid-19,
reflecting ICG's loss experience. It should be noted that the Company has very
limited exposure to the retail sector.
With ICG's internal rating model a two-stage deterioration in rating would
migrate the Southport Loan classification from Borderline to Substandard, with
a model ECL of 1.8%, whilst a three-stage deterioration would result in a
model ECL of 15.6%.
The majority of loans still benefit from strong equity value protection and
could withstand a 20% fall in property values before being at risk of loss.
The exception is Southport where the LTV is currently 96%, following receipt
of an updated valuation of the hotel. Notwithstanding the current sales
process which would see the Company's loan repaid in full, a 20% fall in
underlying property values would result in a loss of approximately £2.5
million.
Stress test impact on Expected Credit Loss at 31 July
31 July 2022 31 July 2021
One grade deterioration in credit rating £74,000 £236,000
Two grade deterioration in credit rating £363,000 £857,000
Three grade deterioration in credit rating £2,496,000 £3,026,000
The remaining loan portfolio is set out in 4(i) above and the current
performance of each loan is discussed in the Investment Manager's report.
5. Earnings per share and Net Asset Value per share
Earnings per share
1 February 2022 1 February 2021
to 31 July 2022 to 31 July 2021
Profit for the period after tax (£) 2,731, 664 3,518,029
Weighted average number of ordinary shares in issue 121,302,779 121,302,779
Basic and diluted EPS (pence) 2.25 2.90
Adjusted basic and diluted EPS (pence) 2.25 2.90
The calculation of basic and diluted Earnings per share is based on the profit
for the period and on the weighted average number of ordinary shares in issue
during the period.
The calculation of adjusted basic and diluted Earnings per share is based on
the profit for the period, adjusted for one-off other fee income during the
period totalling £Nil (31 July 2021: £Nil).
There are no dilutive shares at 31 July 2022 (31 January 2022: £Nil).
Net Asset Value per share
31 July 2022 31 January 2022
NAV (£) 80,552,851 87,768,015
Number of ordinary shares in issue 121,302,779 121,302,779
NAV per share (pence) 66.41 72.35
The calculation of NAV per share is based on Net Asset Value and the number of
ordinary shares in issue at the period/year end.
6. Share Capital
The authorised share capital of the Company is represented by an unlimited
number of ordinary shares with or without a par value which, upon issue, the
Directors may designate as (a) ordinary shares; (b) B shares; and (c) C
shares, in each case of such classes and denominated in such currencies as the
Directors may determine.
31 July 2022 31 January 2022
Number of shares Number of shares
Authorised
Ordinary Shares of no par value Unlimited Unlimited
B Shares of no par value Unlimited Unlimited
Total No Total No
Ordinary Shares 121,302,779 121,302,779
B Shares
B Shares issued September 2021 - 121,302,779
B Shares redeemed and cancelled September 2021 - (121,302,779)
B Shares issued December 2021 - 121,302,779
B Shares redeemed and cancelled December 2021 - (121,302,779)
B Shares issued January 2022 - 121,302,779
B Shares redeemed and cancelled January 2022 - (121,302,779)
B Shares issued May 2022 7,278,167 -
B Shares redeemed and cancelled May 2022 (7,278,167) -
B shares - -
£ £
Share capital brought forward 87,576,589 119,115,310
Repaid in the year (7,278,167) (31,538,721)
Share capital carried forward 80,298,422 87,576,589
Return of Capital
Return of Capital is recognised by the Company in the quarterly NAV
calculation following the declaration date.
The Directors announced one return during the period ended 31 July 2022 and
have returned an amount of 6 pence per Ordinary Share to shareholders, being
£7,278,167 in total based on the current number of Ordinary Shares in issue.
This return of capital was effected by way of an issue of redeemable B Shares
to existing shareholders pro rata to their shareholding on the record date set
out below and the subsequent redemption of those B Shares.
Return of Capital per share Total Return of Capital
1 February 2022 to 31 July 2022 Pence £
Return of Capital May 2022 6.00 7,278,167
6.00 7,278,167
7. Dividends
Dividends are recognised by the Company in the quarterly NAV calculation
following the declaration date. A summary of the dividends declared and/or
paid during the period/year ended 31 July 2022 and 31 January 2022 are set out
below:
Dividend per share Total dividend
1 February 2022 to 31 July 2022 Pence £
Interim dividend in respect of quarter ended 31 January 2022 1.10 1,334,331
Interim dividend in respect of quarter ended 30 April 2022 1.10 1,334,330
2.20 2,668,661
Dividend per share Total dividend
1 February 2021 to 31 January 2022 Pence £
Interim dividend in respect of quarter ended 31 January 2021 1.50 1,819,542
Interim dividend in respect of quarter ended 30 April 2021 1.50 1,819,542
Interim dividend in respect of quarter ended 31 July 2021 1.50 1,819,542
Interim dividend in respect of quarter ended 31 October 2021 1.50 1,819,542
6.00 7,278,168
Following shareholder approval of proposed changes to the Company's Investment
Objectives and Investment Policy which will allow an orderly realisation of
the Company's assets and return of capital to shareholders, the Board expects
the Company to continue the payment of quarterly dividends whilst it remains
prudent to do so. The dividend payable per ordinary share will however
reduce over time as assets are realised and as capital is returned to
shareholders.
Rights attaching to Shares
The Company has a single class of Ordinary Shares which are not entitled to a
fixed dividend. The company had one issue of redeemable B shares which were
redeemed throughout the period ended 31 July 2022 on a Return of Capital
payment to shareholders of the redeemable B shares. At any General Meeting of
the Company each Ordinary Shareholder is entitled to have one vote for each
share held. The Ordinary Shares also have the right to receive all income
attributable to those shares and participate in distributions made and such
income shall be divided pari passu among the holders of Ordinary Shares in
proportion to the number of Ordinary Shares held by them.
The Company's Articles include a B Share mechanism for returning capital to
Shareholders and following Shareholder approval on 14 January 2021, the
Company has and will continue to utilise this mechanism in future. When the
Board determines to return capital to Shareholders, the Company has issued B
Shares, paid up out of the Company's assets, to existing Shareholders pro rata
to their holding of Ordinary Shares at the time of such issue. The amount paid
up on the B Shares will be equal to the cash distribution to be made to
Shareholders via the B Share mechanism. The B Shares shall be redeemable at
the option of the Company following issue and the redemption proceeds (being
equal to the amount paid up on such B Shares) paid to the holders of such B
Shares on such terms and in such manner as the Directors may from time to time
determine. It is therefore expected that the B Shares will only ever be in
issue for a short period of time and will be redeemed for cash shortly after
their issue in order to make the return of capital to Shareholders.
It is intended that following each return of capital the Company will publish
a revised estimated Net Asset Value and Net Asset Value per Ordinary Share
based on the prevailing published amounts adjusted to take into account the
return of capital.
The number of Ordinary shares in issue will remain unchanged.
8. Financial Risk Management
The Company through its investment in senior loans is exposed to a variety of
financial risks. The main risks arising from the Company's financial
instruments are: market risk (including currency risk and interest rate risk),
credit risk and liquidity risk and are fully disclosed on pages 54 to 58 of
the Annual Report and Financial Statements for the year ended 31 January 2022.
The Company's principal risk factors are fully discussed in the Company's
Prospectus, available on the Company's website (www.lbow.co.uk) and should be
reviewed by shareholders.
9. Related party transactions and Directors' remuneration
Parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the party in making
financial or operational decisions.
In the opinion of the Directors, on the basis of shareholdings advised to
them, the Company has no immediate or ultimate controlling party.
Directors
The Company Directors' fees for the period amounted to £80,000 (31 July 2021:
£91,375) with outstanding fees at 31 July 2022 of £31,250 due to the
Directors (31 January 2022: £31,250).
Investment Manager
Investment management fees for the period amounted to £519,039 (31 July 2021:
Investment management/advisory fees £595,958) of which £512,712 was
outstanding at the period/year end (31 January 2022: £289,107).
10. Other expenses
The other expenses shown in the Statement of Comprehensive Income are made up
as shown below.
1 February 2022 to 1 February 2021 to 1 February 2021 to
31 July 2022 31 July 2021 31 January 2022
£ £ £
(Unaudited) (Unaudited) (Audited)
Luxco operating expenses - (3,652) 95,358
Broker fees - 25,275 76,925
Administration fees 125,843 114,896 205,285
Regulatory fees 10,947 14,557 16,524
Listing fees 8,248 6,255 14,573
Legal & professional fees 44,832 44,024 122,555
Audit fees 23,161 26,844 46,454
Other expenses 67,705 34,418 62,829
Total expenses
280,736 262,617 640,503
11. Subsequent events
Following the Ukrainian crisis, the Investment Manager has reviewed the
portfolio and has not identified any direct exposure to either Russian or
Ukrainian companies or individuals. The Company continues to monitor the
situation for potential macro-economic impacts which may affect the
performance or repayment of the remaining loan.
There were no other material subsequent events.
glossary of capitalised defined terms
"Administrator" means Ocorian Administration (Guernsey) Limited;
"Admission" means the admission of the shares to the premium-listing segment
of the Official List and to trading on the London Stock Exchange;
"AEOI" means Automatic Exchange of Information;
"Affinity" means Affinity Global Real Estate;
"Annual Report and Financial Statements" means the annual publication of the
Company or Group provided to the shareholders to describe their operations and
financial conditions, together with their Financial Statements;
"Audit Committee" means the Audit and Risk Management Committee, a formal
committee of the Board with defined terms of reference;
"Board" or "Directors" or "Board of Directors" means the directors of the
Company from time to time;
"CBI" means the Confederation of British Industry;
"Circular" means the Circular of the Company dated 16 December 2020, regarding
proposal for a change to the Company's Objectives and Investment Policy which
would lead to an orderly realisation of the Company's assets and a return of
capital to shareholders;
"Companies Law" means the Companies (Guernsey) Law, 2008, (as amended);
"Company" means ICG-Longbow Senior Secured UK Property Debt Investments
Limited;
"CVA" means Company Voluntary Arrangement;
"Disclosure Guidance and Transparency Rules" or "DTRs" means the disclosure
guidance published by the FCA and the transparency rules made by the FCA under
section 73A of FSMA;
"ECL" means expected credit or losses;
"EGM" means an Extraordinary General Meeting of the Company;
"EPS" or "Earnings per share" means Earnings per ordinary share of the Company
and is expressed in Pounds Sterling;
"ERV" means Estimated Rental Value;
"EU" means the European Union;
"Euros" or "€" means Euros;
"FCA" means the UK Financial Conduct Authority (or its successor bodies);
"Financial Statements" or "Consolidated Financial Statements" means the
audited consolidated financial statements of the Company for the year to 31
January 2022, including the Consolidated Statement of Comprehensive Income,
the Consolidated Statement of Financial Position, the Consolidated Statement
of Changes in Equity, the Consolidated Statement of Cash Flows, and associated
notes;
"GDP" means gross domestic product;
"GFSC" means the Guernsey Financial Services Commission;
"GIIN" means Global Intermediary Identification Number;
"GMG" means GMG Real Estate;
"Group" means the Company, ICG Longbow Senior Secured UK Property Debt
Investments Limited together with its wholly owned subsidiary, ICG Longbow
Senior Debt S.A (Luxco) which was liquidated on 18 January 2022;
"IAS" means international accounting standards as issued by the Board of the
International Accounting Standards Committee;
"ICG" means Intermediate Capital Group plc;
"ICG Private Funds" means private real estate debt funds managed or advised by
the Investment Manager or its associates;
"IFRS" means the International Financial Reporting Standards, being the
principles-based accounting standards, interpretations and the framework by
that name issued by the International Accounting Standards Board, as adopted
by the EU;
"Interest Cover Ratio" or "ICR" means the debt/profitability ratio used to
determine how easily a company can pay interest on outstanding debt;
"Interim Financial Statements" means the unaudited interim condensed financial
statements of the Company, including the Condensed Statement of Comprehensive
Income, the Condensed Statement of Financial Position, the Condensed Statement
of Changes in Equity, the Condensed Statement of Cash Flows, and associated
notes;
"Interim Report" means the Company's interim report and unaudited interim
condensed financial statements for the period ended 31 July;
"Investment Grade Tenant" means a tenant that is rated Aaa to Baa3 by MIS
and/or AAA to BBB- by S&P;
"Investment Manager" or "ICG Real Estate" means ICG Alternative Investment
Limited;
"Investment Management Agreement" means Investment Management Agreement dated
25 November 2020 between the Company and the Investment Manager ICG
Alternative Investment Limited;
"IPO" means the Company's initial public offering of shares to the public,
which completed on 5 February 2013;
"ISIN" means an International Securities Identification Number;
"LBS" means LBS Properties Limited;
"LGD" means loss given default;
"Listing Rules" means the listing rules made by the FCA under section 73A
Financial Services and Markets Act 2000;
"London Stock Exchange" or "LSE" means London Stock Exchange plc;
"LTV" means Loan to Value ratio;
"Luxco" or "Subsidiary" means the Company's wholly owned subsidiary,
ICG-Longbow Senior Debt S.A. which was liquidated on 18 January 2022;
"Main Market" means the main securities market of the London Stock Exchange;
"Management Engagement Committee" means a formal committee of the Board with
defined terms of reference;
"MIS" means Moody's Investors Service;
"MSCI" means Morgan Stanley Capital Index;
"NAV per share" means the Net Asset Value per ordinary share divided by the
number of Shares in issue (other than shares held in treasury);
"Net Asset Value" or "NAV" means the value of the assets of the Company less
its liabilities, calculated in accordance with the valuation guidelines laid
down by the Board, further details of which are set out in the 2017
Prospectus;
"Nomination Committee" means a formal committee of the Board with defined
terms of reference;
"Northlands" means Northlands Portfolio;
"NMPIs" means Non-Mainstream Pooled Investments;
"OECD" means The Organisation for Economic Co-operation and Development;
"Official List" is the Premium Segment of the FCA's Official List;
"ONS" means Office of National Statistics;
"IPO Prospectus" means the prospectus published on 31 January 2013 by the
Company in connection with the IPO of ordinary shares;
"PD" means probability of default;
"post-Covid" means the period after 23 March 2020;
"Prospectus" means the prospectus published in May 2018 by the Company in
connection with the placing programme;
"Quattro" means Quattro Portfolio;
"Registrar" Link Asset Services (Guernsey) Limited (formerly Capita Registrars
(Guernsey) Limited);
"Registrar Agreement" means the Registrar Agreement dated 31 January 2013
between the Company and the Registrar;
"RICS" means the Royal Institution of Chartered Surveyors;
"RoyaleLife" means the RoyaleLife portfolio;
"S&P" means Standard & Poor's Credit Market Services Europe Limited, a
credit rating agency registered in accordance with Regulation (EC) No
1060/2009 with effect from 31 October 2011;
"SONIA" means Sterling Overnight Interbank Average Rate;
"Southport" means the Southport Hotel property;
"SPV" means special purpose vehicle;
"UK" or "United Kingdom" means the United Kingdom of Great Britain and
Northern Ireland;
"UK Listing Authority" or "UKLA" means the Financial Conduct Authority;
"US" or "United States" means the United States of America, its territories
and possessions; and
"£" or "Pounds Sterling" or "Sterling" means British pound sterling and
"pence" means British pence.
directors and general information
Board of Directors Independent Auditor English Solicitors to the Company
Jack Perry Deloitte LLP Gowlings WLG (UK) LLP
(Chairman)
Stuart Beevor PO Box 137 4 More London Riverside
Paul Meader Regency Court London
Fiona Le Poidevin Glategny Esplanade United Kingdom
St. Peter Port SE1 2AU
Audit and Risk Committee Guernsey
Fiona Le Poidevin (Chairman) GY1 3HW Guernsey Advocates to the Company
Stuart Beevor Carey Olsen
Paul Meader Guernsey Administrator and Company Secretary Carey House
Ocorian Administration (Guernsey) Limited PO Box 98
Management Engagement Committee P.O. Box 286 Les Banques
Jack Perry Floor 2 St Peter Port
(Chairman)
Trafalgar Court Guernsey
Paul Meader
Les Banques GY1 4BZ
Fiona Le Poidevin
St Peter Port
Stuart Beevor
Guernsey Bankers
GY1 4LY Butterfield Bank (Guernsey) Limited
Nomination Committee
PO Box 25
Jack Perry
(Chairman) Depositary Regency Court
Stuart Beevor Ocorian Depositary (UK) Limited Glategny Esplanade
Paul Meader 5(th) Floor St Peter Port
Fiona Le Poidevin 20 Fenchurch Street Guernsey
London GY1 3AP
Remuneration Committee England
Paul Meader (Chairman) EC3M 3BY Barclays Bank plc
Jack Perry 6-8 High Street
Stuart Beevor Registrar St Peter Port
Fiona Le Poidevin Link Asset Services (Guernsey) Limited Guernsey
Mont Crevelt House GY1 3BE
Investment Manager Bulwer Avenue
ICG Alternative Investment Limited St Sampsons Lloyds Bank International Limited
Procession House Guernsey PO Box 136
55 Ludgate Hill GY2 4LH Sarnia House
London Le Truchot
United Kingdom Corporate Broker and Financial Adviser St Peter Port
EC4M 7JW Cenkos Securities plc Guernsey
6-8 Tokenhouse Yard GY1 4EN
Registered office London
PO Box 286 United Kingdom The Royal Bank of Scotland International
Floor 2 EC2R 7AS Royal Bank Place
Trafalgar Court 1 Glategny Esplanade
Les Banques Identifiers St Peter Port
St Peter Port GIIN: 6IG8VS.99999.SL.831 Guernsey
Guernsey ISIN: GG00B8C23S81 GY1 4BQ
GY1 4LY Sedol: B8C23S8
Ticker: LBOW
Website: www.lbow.co.uk (http://www.lbow.co.uk)
cautionary statement
The Chairman's Statement and the Investment Manager's Report have been
prepared solely to provide additional information for shareholders to assess
the Company's strategies and the potential for those strategies to succeed.
These should not be relied on by any other party or for any other purpose.
The Chairman's Statement and Investment Manager's Report may include
statements that are, or may be deemed to be, "forward-looking statements".
These forward-looking statements can be identified by the use of
forward-looking terminology, including the terms "believes", "estimates",
"anticipates", "expects", "intends", "may", "will" or "should" or, in each
case, their negative or other variations or comparable terminology.
These forward-looking statements include all matters that are not historical
facts. They appear in a number of places throughout this document and include
statements regarding the intentions, beliefs or current expectations of the
Directors and the Investment Manager, concerning, amongst other things, the
investment objectives and investment policy, financing strategies, investment
performance, results of operations, financial condition, liquidity, prospects,
and distribution policy of the Company and the markets in which it invests.
By their nature, forward-looking statements involve risks and uncertainties
because they relate to events and depend on circumstances that may or may not
occur in the future. Forward-looking statements are not guarantees of future
performance.
The Company's actual investment performance, results of operations, financial
condition, liquidity, distribution policy and the development of its financing
strategies may differ materially from the impression created by the
forward-looking statements contained in this document.
Subject to their legal and regulatory obligations, the Directors and the
Investment Manager expressly disclaim any obligations to update or revise any
forward-looking statement contained herein to reflect any change in
expectations with regard thereto or any change in events, conditions or
circumstances on which any statement is based.
ICG-Longbow Senior Secured UK Property Debt Investments Limited
PO Box 286
Floor 2, Trafalgar Court
Les Banques, St Peter Port, Guernsey
GY1 4LY, Channel Islands.
T +44 (0) 1481 742742
F +44 (0) 1481 742698
Further information available online:
www.lbow.co.uk (http://www.lbow.co.uk)
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