REG - ICG-Longbow Senior - Interim Report
03/10/2024 14:00
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RNS Number : 8736G ICG-Longbow Snr Sec UK Prop DebtInv 03 October 2024
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Interim Report And
Unaudited Condensed Interim Financial Statements
For the six months ended 31 July 2024
ICG-Longbow Senior Secured UK Property Debt Investments Limited ("the
Company") is pleased to announce the released of its Interim Financial
Statements for the six months ended 31 July 2024 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
· The Company is continuing to progress an orderly realisation of
its assets. As at the date of this report, the assets securing all three of
the remaining Investments have been marketed for sale. One is under offer;
due diligence is ongoing on a second; and a bidding process is underway on
the third.
· All remaining loans are, or have been, subject to formal
enforcement processes. The RoyaleLife ownership and operations have been
restructured and the Investment Manager and lenders are supporting the new
operator, who continues to pursue an organic business plan to drive income and
to enhance the value of the underlying portfolio assets.
· As a consequence of recent bidding evidence on the properties
securing the Company's loans, and the expected time frames for realisation,
the Company has made further adjustments to the ECL provisions across the
portfolio, which has reduced NAV per share by 1.55 pence.
· Total loans outstanding at amortised cost plus interest
receivable, excluding ECL adjustments, amount to £67.46 million as at 31 July
2024.
Performance
· NAV of £34.35 million as at 31 July 2024 after ECL adjustments
of £(35.54 million) (31 January 2024: £36.22 million after ECL adjustments
of £(32.48 million)), (31 July 2023: £55.37 million after ECL adjustments of
£(21.32 million)).
· NAV per share as at 31 July 2024 of 28.32 pence (31 January
2024: 29.86 pence), (31 July 2023: 45.64 pence).
· Loss after tax of £1.87 million for the six months ended 31
July 2024 (31 July 2023: £14.71 million).
· Loss per share for the period of 1.55 pence (31 July 2023:
12.13 pence).
Dividend
· In line with the Board's recent guidance, no dividends were
declared or paid in the six months to 31 July 2024 (six months to 31 July
2023: 0.50 pence per share).
Investment Portfolio
· As at 31 July 2024, the Company's investment portfolio
comprised three loans with an aggregate principal balance of £57.75 million,
and a carrying value after provision for ECL of £31.91 million (31 January
2024: three loans with an aggregate principal balance of £58.01 million, and
a carrying value of £33.64 million).
· The Company is realising the remaining investments, largely
through enforcement processes controlled by administrators or receivers. The
Investment Manager continues to progress asset management initiatives
alongside these parties while working towards sales and realisations.
*Unless stated otherwise, loan balances are stated gross of ECL provisions for
impairment. A comparison to the carrying value of the loans is set out in
Note 4 to the accounts.
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. Following the dissolution of ICG Longbow Senior Debt S.A. on 18 January 2022, the Company assumed the assets and liabilities of its former subsidiary.
Investment Manager
The Company has appointed ICG Alternative Investment Limited as external
discretionary investment manager, under the Alternative Investment Fund
Managers Directive (AIFMD), within a remit set by the Board.
Chairman's Statement
Introduction
On behalf of the Board, I present the Unaudited Interim Financial Statements
for the Company for the six months ended 31 July 2024.
In prior reports over the last two years, I have highlighted the consistently
difficult market conditions for exiting investments, driven by some of the
lowest levels of transaction volumes seen since the financial crisis. During
the reporting period the situation has not materially improved, as the
Investment Manager reports below, albeit a reduction in benchmark interest
rates and a new Government in the UK seems to have provided the foundations
for some emerging liquidity and improving sentiment in the second half of the
financial year. Many of you will have seen evidence of this in the listed
REIT sector, where there has been a significant volume of corporate activity
in recent weeks.
The Company's three remaining investments with a total principal balance
outstanding of £57.75 million (before impairment), are largely being managed
and realised through enforcement processes. At the time of writing the
Southport asset is under offer for sale. Detailed due diligence is
continuing with respect to a potential sale of the RoyaleLife portfolio,
whilst an offer has been received and more are expected in respect of the
Affinity asset.
As the Company's remaining investments are impaired, the only plausible exit
route is through sale of the underlying assets or the loans themselves, rather
than a refinancing. This means the Company is entirely reliant on a liquid
investment market in order to exit with, regrettably, the potential for
protracted realisation processes, or the risk of further impairment if
conditions deteriorate.
Despite this difficult backdrop, the Investment Manager has made some progress
towards exits during the period. The Southport hotel asset has been subject
to competitive bidding and, at the time of writing, is under offer to a
credible counterparty at a level in excess of the carrying value of the
loan.
The portfolio securing the RoyaleLife investment remains subject to a bid from
an institutional buyer, albeit the due diligence process has been protracted.
As a result, the Investment Manager's operating partner continues actively to
manage the portfolio under a new platform and relaunched brand, as set out
further below. Supporting the build out of this platform has formed a key part
of the Investment Manager's efforts during the period and is considered
critical in preventing further value erosion of the investment and laying the
foundations for future growth.
The asset securing the Affinity loan was relaunched for sale during the
reporting period, with an initial bid received and further bids expected
shortly. The Investment Manager continues to pursue low-cost asset management
initiatives around leasing, planning and refurbishment with a view to
enhancing the attractiveness of the investment to potential buyers.
While the Board has been encouraged by some of this progress, we are acutely
aware that no sales were completed in the period, and that many shareholders
remain impatient to see capital returned and the Company wound up.
Shareholders should be assured that the Board is firmly aligned to this, and
continues to apply close scrutiny of the Investment Manager's progress.
Members of the Board now regularly join as observers in meetings with selling
agents and other professionals. Shareholders will also recall that the
reduction in the Investment Manager's fee rate became effective during the
period, which has resulted in significant cost savings.
Speed of realisation nonetheless needs to be balanced against the need to
secure appropriate value from the remaining assets, as many of you have made
clear to me in our discussions over recent months.
Valuation and Impairment
As set out in our annual report and accounts issued in May, the Board and
Investment Manager carefully considered the expected realisable value of its
remaining investments, balancing the range of expected proceeds and also the
target timeframe for returning capital to investors.
The Board has revised its expectations of realisable value and transaction
timing in light of the most recent market evidence and taking into account the
prevailing market conditions, and has revised its ECL provisions accordingly.
The Board has also considered the sensitivity to both price movements and
timings as set out in note 4 to the accounts.
Emerging bidding evidence on the assets securing the portfolio loans and the
requirement under accounting standards to provide against unpaid interest has
led to the following adjustments to the ECL (Expected Credit Loss) provisions
on the remaining investments, as follows:
· RoyaleLife - an additional ECL provision of £1.02 million,
driven solely by a change to the projected time frame for full realisation.
· Southport - a reduction in the ECL provision of £0.28 million,
driven by an improved bid for the asset and adjustment to the anticipated time
frame for completion.
· Affinity - an additional ECL provision of £2.32 million,
reflecting market demand for regional offices, initial bidding interest for
the property and an adjustment to the income profile and projected time frame
for realisation.
In aggregate, therefore, ECL provisions totalling net £3.07 million have been
charged in the reporting period - £1.48 million related to loan principal and
£1.59 million in respect of accrued default interest. The net impact on NAV
being £1.48 million.
The net impact of trading and all adjustments to ECLs during this six month
period equates to a diminution of NAV of 1.55p per share.
Revenue and Profitability
Accrued income from the loan portfolio for the period totalled £1.59 million
(31 July 2023: £3.11 million), however this is largely offset by a provision
for ECL in relation to such interest. After accounting for impairments, the
Company realised a loss for the period of £1.87 million (31 July 2023: loss
of £14.71 million).
Losses per share for the period were 1.55 pence (31 July 2023: loss of 12.13
pence), reflecting further provisions of expected credit losses recognised
against the remaining portfolio loans. Details of the ECL provisions are set
out in the notes to the condensed accounts.
Dividend and Return of Capital
As previously reported to shareholders, the Company will only look to declare
dividends when cashflow and profits prudently allow. No dividends were paid in
the period and the Board does not envisage the declaration of any dividends
henceforth.
No capital distribution was made during the period and the level and pace of
capital returns will be dictated by the realisation of the remaining loans.
NAV and Share Price Performance
The Company's NAV decreased to £34.35 million as at 31 July 2024 (31 January
2024: £36.22 million), largely as a result of the increase in ECL provisions
detailed above.
The Company's share price ended the period at 19.65 pence per share, down from
21.30 pence as at 31 January 2024. The share price reflected, at period end, a
30.61% discount to the Company's NAV.
Outlook
The UK Property market has experienced an extremely challenging period with
very limited liquidity in many sectors and significant bid-ask spreads. While
consequent transaction volumes have been low, there are now some signs that a
correction in values, combined with an emerging sense that the worst might be
over, has led to tentative optimism in previously moribund parts of the
market.
The Company has seen some signs of this in its own remaining portfolio.
After a lengthy marketing campaign, the Southport asset has been subject to
competing bids; initial interest has also been received in the Affinity office
asset and further bids are expected shortly. The RoyaleLife portfolio has gone
through an extremely challenging period in administration, and following a
sale and debt restructure the recent relaunch of sales under new branding
should help improve trading and, in time, make the portfolio more attractive
to a wider range of purchasers.
I must be clear with shareholders that exiting the remaining assets will
continue to be challenging. Any improvement in market conditions is unlikely,
in the near term, to lead to material changes to asset valuations and
increased recoveries, but may result in an acceleration of realisation time
frames and greater execution certainty as more buyers emerge. The Board
recognises that shareholders do not expect the loans to be held for the long
term in the hope of pricing recovery but is equally mindful of the need to
avoid being a forced seller.
I would like to thank shareholders for their ongoing patience which I hope
will bear fruit in the coming period. The Board remains focused on
protecting and enhancing shareholder value and delivering returns of capital
in the best manner possible.
Jack Perry
Chairman
03 October 2024
Investment Manager's Report
Summary
As at 31 July 2024 the Company had three investments remaining, which are
largely being managed and realised through enforcement processes. This report
provides a summary update on the realisation process for each investment, and
steps being taken by ICG Real Estate to secure those outcomes.
Portfolio
Portfolio statistics 31 July 2024 31 January 2024 31 July 2023
Number of loan investments 3 3 4
Aggregate principal advanced £57,754,806 £58,007,806 £57,967,370
Aggregate carrying value after ECL £31,913,445 £33,639,051 £44,612,344
Cash held £2,791,562 £2,945,897 £11,348,746
Investment Update
Southport - Hotel
The hotel securing the Company's Southport loan continues to be run by the
administrator, through a specialist hotel operating partner and local
management team.
As previously reported the asset has been on the market for sale for an
extended period, with a previously agreed purchase aborting in 2023 which
necessitated remarketing in 2024.
While the sales process has been protracted, during H1 2024 the level of
interest increased and as a consequence the asset has seen an element of
competitive bidding, at pricing levels in excess of the carrying value of the
loan. In September the administrator placed the property under offer and
entered into a period of exclusivity with a north-west based property company,
with no onerous conditions attached to the bid. While there is no assurance
this transaction will complete, this represents positive progress toward a
potential exit of this investment.
During the reporting period, and following a request from the administrator,
the Company determined to provide a further £0.3 million of funding to
support working capital and allow for continued investment in the asset during
the sales process.
RoyaleLife - Bungalow Parks
In January we concluded, through the administrator, the sale of the sites into
a new structure with a new operator, as reported to shareholders in our Annual
Report and Accounts. The existing loan has thus been restructured and fully
cross-collateralised with another security portfolio, previously financed by
the Company's co-lenders, being private funds advised by the Investment
Manager. This has provided shareholders with a more diversified portfolio,
and the business has now been relaunched under the 'Regency Living' brand,
with the operator in the early stages of implementing a comprehensive organic
plan to rebuild the business and enhance the portfolio.
During the reporting period we have had consistent interest in the portfolio
from an institutional buyer which initially submitted a fully approved,
all-cash bid for 29 of the 35 sites. This party subsequently submitted a
follow-on bid for the remaining six sites.
In recent weeks the due diligence process for the acquisition has become
protracted and, while we have been responsive to enquiries, the Investment
Manager is not prepared to continue with this process indefinitely. As a
consequence, on behalf of the Company and its co-lenders, we are now
accelerating our work with the operators to enhance the business, platform and
portfolio for the longer term.
Affinity - Office
As shareholders will be aware a Law of Property Act (LPA) Receiver was
appointed over this Bristol office property in H2 2023, and the Investment
Manager has worked closely with them on the management and marketing strategy
during the course of H1.
While transactional activity for regional offices has remained subdued, we
launched the asset to market in early July 2024. Initial interest has been
reasonably robust with multiple viewings, albeit many prospective bidders are
considering the asset for future alternative uses rather than as a long-term
office investment, and as such there is a high level of scrutiny on the
appetite of the Council (who are the freeholder) to support a change of use.
The selling agents have received one initial bid for the asset, with further
bids expected shortly. There is, however, no assurance that any final bids
will be at levels acceptable to the Company, or that a sale will conclude.
Nonetheless, in light of the emerging bidding evidence, along with agency
guidance and a change to the expected timeframe for realisation, the Company
has determined to make a further ECL provision of £2.32 million on the
investment.
The receiver continues actively to market the remaining vacant space within
the property and, where possible, seek lease renewals or regears with in-place
tenants. A key lease renewal was completed during the period, albeit another
major tenant downsized their space within the building. The Company received
distributions from the asset totalling £0.6 million during the reporting
period, which have been applied in reduction of the principal balance of the
loan, with the balance of rental income being retained by the LPA Receiver for
working capital purposes. A further £0.4 million distribution was
received after period end.
Reconciliation of Changes in Book Value
31 July 2024 31 January 2024 31 July 2023
Project Balance outstanding (£m)((1)) Book Value after ECL (£m) Book Value per share (p) Book Value after ECL (£m) Book Value per share (p) Book Value after ECL (£m) Book Value per share (p)
Affinity 16.57 8.92 7.4 11.34 9.3 15.99 13.2
Southport 15.80 8.80 7.3 7.91 6.5 9.38 7.7
RoyaleLife 25.38 14.19 11.7 14.39 11.9 18.72 15.4
Northlands - - - - - 0.52 0.4
Total 57.75 31.91 26.4 33.64 27.7 44.61 36.7
Economy and Financial Market Update
Long awaited normalisation of inflation materialised in H1 2024, finally
reaching the target 2.0% level in May. Whilst this offered relief to
consumers, the picture underneath the headline rate showed a number of
continuing challenges, such as stubborn services inflation. Much commentator
discussion in H1 2024 centred around timing expectations of a first interest
rate cut. Whilst hopes of early cuts were dashed by inflation, the continued
(headline) downward trend did lay the foundations for a modest initial cut of
0.25% in August, although only by a slim Monetary Policy Committee majority of
5-4. Expectations for continued cuts in H2 remain uncertain on the basis of
finely balanced economic data.
After 2023's frequent public sector strikes, the incoming Labour government
added c. £10bn to the budget for public sector pay, agreeing above-inflation
pay increases of 5-6%. Private sector pay continued to rise at just above
inflationary levels, causing some to question the sustainability of low
inflation numbers. This was underpinned by continued low and declining
unemployment, lastly at 4.2% in Q2 2024.
H1 2024 also brought with it GDP growth, albeit modest (0.6% and 0.7% for Q1
and Q2 respectively) and the UK economy looked to be well positioned, growing
at twice the rate of the Eurozone. After snap elections in early July,
positive economic bulletins eased the first weeks in office for the UK's new
government, however a tough budget is anticipated which may cause continued
market upheaval in the months ahead.
Occupational Demand/Supply
The office market stood steady at c. 8 million sq ft of take up and 60 million
sq ft of availability in H1 2024. Behind these figures, demand for the best
quality office space within well located, high specification, and sustainable
buildings remains strong. By contrast, second hand supply stands above its
historic average. In total, 9.1 million sq ft of office developments are
expected to complete in 2024, an above average level of completions, albeit
40% of this space is already pre-let or under offer. Acquisitions of offices
for change of use are increasing, with over £400 million acquired for this
purpose in Central London alone over H1 2024.
Within the industrial market, sector wide vacancy stood at 5.75% at end H1
2024, approximately 150 bps higher than in June 2023, and mainly comprised of
second-hand space. Prime rental growth also halved on a trailing twelve-month
basis, to 7.8%, however this remains robust, and most regions are still
showing growth. Completions slowed with space under construction down 45%
against last year, with an expectation that vacancy at year end will remain
below the long-term average, allowing the sector to retain its positive
supply/demand dynamics.
Improving consumer confidence in H1 2024 contributed to a stabilising retail
market, and all-retail vacancy holding at 11.7%. Best in class assets on
retail parks and key London streets have seen vacancy compress further,
creating competition and driving rents. Distress appears limited to a few
high-profile names (e.g. Ted Baker), and e-commerce share of the market
remained stable.
In the hotel sector, London's occupancy has now returned to pre-Covid-19
levels, whilst in the regions, it is only slightly below. According to
HotStats, UK wide TRevPAR (total revenue per available room) was 10% higher in
the year to March 2024 than the prior period, albeit food + beverage revenues
were largely flat and conference and banqueting revenues down. Occupancy has
largely been lower in the major regional markets (down 10% in Manchester and
Glasgow) but average room rate growth has helped the top line. Profit
margins improved over H1 2024, with a fall in utilities expenses and increased
efficiencies through higher occupancy trickling down, but cost pressures
remain, particularly in wages.
Property Investment Market
After a subdued 2023, the UK investment market in H1 2024 brought some relief
in the form of transaction volume growth, albeit from a very low base. A total
of £22.1bn transacted, a 35% increase on a trailing 12-month basis, however
the picture at asset class level differed vastly.
The bifurcation of office assets and markets between prime and secondary stock
remained firmly in place, with no movement in prime yields over the last half
year, but outward pressure remaining in provincial markets, particularly for
secondary stock. Market liquidity has focused on smaller lot sizes.
H1 2024 industrial investment volume totalled £2.6bn, with expectations of
full year volumes on par with 2023. After moving out to 5.25% at end 2023, an
improving market in H1 2024 generated sufficient downward pressure to push
prime yields back to 5.0%. Multi-let transactions dominated, and the South
East accounted for both the highest transaction volumes on a trailing 12 month
and Q2 2024 basis. Given prime industrial yields remain in line with the Bank
of England base rate, no significant change in pricing is expected until
interest rates and debt costs reduce.
Both retail warehousing and food stores remained attractive from an investment
perspective, with prime yields sharpening 50 bps over the last six months to
5.50% and expected to further benefit from interest rate cuts. Total
investment volumes remain low, with a lack of available stock hampering
transactions, however trailing 12-month volume of £1.5bn, in line with
offices (£1.6bn) or hotels (£1.5bn) shows growing confidence in the sector.
The first half of 2024 brought an unusual hotel investment market. Headline
investment volumes stood at their highest since 2018, however these numbers
were bolstered by a handful of large portfolios trading into private equity
hands - Village Hotels to Blackstone, the Edwardian Collection to Starwood,
and Landsec's portfolio to Ares. Under the headline figures, very few single
assets transacted, with market participants still seeking evidence for
prevailing valuation levels.
Finance Markets
Net bank lending to commercial property rose at its fastest pace since 2021 in
June 2024, with a net increase of £1.3bn, rounding out three consecutive
rises in the quarter. July's result remained positive at a £540 million
increase; however the focus remains almost entirely on standing assets after a
sluggish start to the year. It is likely that a significant uptick in
development finance may be required to meet the new government's ambitious
housing targets going forward.
The increase in lending was reflected in the Bank of England's Q2 Credit
Conditions Survey. The results showed a sharp upswing in availability of
commercial real estate credit throughout H1 and going forward, pointing to
market stabilisation. The key factor cited was a change in sector specific
risks, which may point to an expectation that the UK CRE market has now
rebased. For prime yields, latest yield tables show at least half of all
sectors have stabilised, with interest rate cuts and cheaper financing being
the only anticipated impetus for change.
In a sign of markets facing up to reality, the first losses on AAA CMBS bonds
since the Global Financial Crisis were felt in June of this year on the
Elizabeth Finance 2018 issuance. Seen more positively, this at least indicated
a bid in the market for the underlying retail assets, being three regional UK
shopping centres. One new CMBS deal priced in May 2024, backed by Blackstone
UK logistics assets, showing continued dominance of the industrial sector and
the resulting financing appetite for the sector and the Blackstone brand as
sponsor.
Portfolio Outlook
In recent weeks there have been clear signs of liquidity emerging in parts of
the property market. The proposed takeovers of Capital & Regional,
Tritax Eurobox and Balanced Commercial Property Trust, by NewRiver Retail,
SEGRO and Starwood respectively, have made headlines in the listed sector, but
private markets activity also appears to be improving, albeit in sectors such
as offices many buyers remain opportunistic.
The assets securing the Company's remaining loans are not in those sectors
experiencing the highest levels of investor demand, however the emerging
bidding activity has been encouraging after an extremely challenging period in
the markets. We are hopeful that this will finally lead to realisations in
the second half of this year.
The RoyaleLife investment remains the most challenging to manage, but also the
one which will be most impactful upon shareholders if a positive outcome can
be delivered from what has latterly been a difficult investment. As a
result, the Investment Manager has not lost sight of the importance to drive
income and value from this portfolio, and enhance its attractiveness to the
market, while also pursuing the ongoing bidding interest.
ICG Alternative Investment Limited
03 October 2024
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
03 October 2024
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
2024.
In addition to regular risk reviews, emerging risks 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 regularly
reviews its assessment of the key risks faced by the Company, which are
currently identified as the following:
· The inability to secure the sale or refinancing of an underlying
property will frustrate the timely repayment of capital;
· Imprecision of valuations will impact the Company's ability to
accurately determine collateral values and to appropriately consider the
potential impairment of any particular investment;
· A further deterioration in property market conditions or
liquidity could likely result in a further reduction in shareholder value;
· Portfolio diversification: the effect on the Company of
challenges experienced on the smaller number of remaining investments is
magnified and could lead to increased volatility in cash flows or net asset
values;
· Some of the Company's costs are fixed and will therefore consume
a greater proportion of the Company's revenues as the Company shrinks, which
will impact the amount of funds available for distribution to shareholders;
· Complications with the liquidation process could affect timing of
the final distribution to shareholders.
Condensed Statement of Comprehensive Income
FOR THE SIX-MONTH PERIOD TO 31 JULY 2024
1 February 2024 to 1 February 2023 to 1 February 2023 to
31 July 2024 31 July 2023 31 January 2024
£ £ £
Note (Unaudited) (Unaudited) (Audited)
Income
Income from loans 1,593,940 3,112,193 4,896,000
Other fee income from loans - - 5,168
Income from cash and cash equivalents 34,641 29,280 53,518
Total income 1,628,581 3,141,473 4,954,686
Expenses
Investment Management fees 9 139,965 369,261 551,167
Directors' remuneration 9 80,000 80,000 160,000
Audit fees for the Company 40,250 40,438 63,013
ECL provision on financial assets 4 3,066,547 17,091,599 28,507,897
Other expenses 10 176,748 270,128 548,860
Total expenses 3,503,510 17,851,426 29,830,937
Loss for the period/year before tax (1,874,929) (14,709,953) (24,876,251)
Taxation - - -
Loss for the period/year after tax (1,874,929) (14,709,953) (24,876,251)
Total comprehensive expense for the period/year (1,874,929) (14,709,953) (24,876,251)
Basic and diluted Loss per Share (pence) 5 (1.55) (12.13) (20.51)
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 2024
31 July 2024 31 January 2024 31 July 2023
£ £ £
Note (Unaudited)
(Audited) (Unaudited)
Assets
Loans advanced at amortised cost 4 31,913,445 33,639,051 44,612,344
Cash and cash equivalents 2,791,562 2,945,829 11,348,746
Trade and other receivables 17,378 30,718 13,193
Total assets 34,722,385 36,615,598 55,974,283
Liabilities
Trade and other payables 373,186 391,470 607,452
Total liabilities 373,186 391,470 607,452
Net assets 34,349,199 36,224,128 55,366,831
Equity
Share capital 6 64,650,361 64,650,361 73,626,766
Retained loss (30,301,162) (28,426,233) (18,259,935)
Total equity attributable to the owners of the Company 34,349,199 55,366,831
36,224,128
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 28.32 45.64
29.86
The Interim Financial Statements were approved by the Board of Directors on 03
October 2024 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 2024
Number Ordinary Share B Share Retained
Note of shares capital capital (loss) Total
£ £ £ £
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
As at 1 February 2024 121,302,779 64,650,361 - (28,426,233) 36,224,128
Loss for the period - - - (1,874,929) (1,874,929)
As at 31 July 2024 121,302,779 64,650,361 - (30,301,162) 34,349,199
For the SIX-MONTH period to 31 July 2023
Number Ordinary Share B Share Retained
Note of shares capital capital (loss) Total
£ £ £ £
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
As at 1 February 2023 121,302,779 80,298,419 - (2,943,468) 77,354,951
Loss for the period - - - (14,709,953) (14,709,953)
Dividends paid 7 - - - (606,514) (606,514)
B Shares issued February 2023 6 121,302,779 (6,671,653) 6,671,653 - -
B Shares redeemed & cancelled February 2023 6 (121,302,779) - (6,671,653) - (6,671,653)
As at 31 July 2023 121,302,779 73,626,766 - (18,259,935) 55,366,831
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 2024
1 February 2024 to 1 February 2023 to 1 February 2023 to
31 July 2024 31 July 2023 31 January 2024
£ £ £
Note (Unaudited) (Unaudited) (Audited)
Cash flows generated from operating activities
Loss for the period/year (1,874,929) (14,709,953) (24,876,251)
Adjustments for non-cash items and working
capital movements:
Movement in other receivables 13,340 30,242 12,718
Movement in other payables and accrued expenses (18,285) (254,201) (296,009)
Loan amortisation and ECL provision 1,472,607 14,875,644 25,889,373
(407,267) (58,268) 729,831
Loans advanced (300,000) (8,400) (308,400)
Loans repaid 4 553,000 9,484,087 9,569,476
Net loans repaid less arrangement fees 253,000 9,475,687 9,261,076
Net cash (used in)/generated from operating activities (154,267) 9,417,419 9,990,907
Cash flows used in financing activities
Dividends paid 7 - (606,514) (606,514)
Return of Capital paid 6 - (6,671,653) (15,648,058)
Net cash used in financing activities - (7,278,167) (16,254,572)
Net movement in cash and cash equivalents (154,267) 2,139,252 (6,263,665)
Cash and cash equivalents at the start of the period/year 2,945,829 9,209,494 9,209,494
Cash and cash equivalents at the end of the period/year 2,791,562 11,348,746 2,945,829
The accompanying notes form an integral part of these Interim Financial
Statements.
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,
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 2024.
In line with the revised Investment Objective and Policy approved by
shareholders in the Extraordinary General Meeting in January 2021, the Company
is undertaking an orderly realisation of its investments. As sufficient funds
become available the Board returns 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.
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, Guidance 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 2024, 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.
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 2024. In particular the Company has adopted the same approach to
valuation of financial instruments including critical accounting judgements
and estimation of uncertainties as set out in detail in the notes to the
Annual Report and Financial Statements for the year ended 31 January 2024.
There were no new standards or interpretations effective for the first time
for periods beginning on or after 1 January 2024 that had a significant effect
on the Company's financial statements. Furthermore, none of the amendments to
standards that are effective from 1 January 2024, had a significant effect 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 and whether there is any threat to the going concern status
of the Company. 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, following the appointment of receivers or administrators
in respect of the last remaining loans, the investments will be realised as
and when the underlying property assets, or loans upon which they are secured,
can be sold in an orderly manner. The Company may take actions with the
consequence of accelerating or delaying realisation in order to optimise
shareholders' returns in the context of the Company's size.
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 going
concern in preparing the financial statements.
In the absence of a ready secondary market in real estate loans by which to
assess market value, the basis of valuation for investments is amortised cost
net of impairment, recognising the anticipated realisable value of each
property in the orderly wind down of the Company. In accordance with the
Company's IFRS 9 Policy the staging of each loan has been reviewed and all
loans are considered to be at Stage 3. Consequently, valuations reflect the
ECL assuming a twelve month realisation period, as detailed on Note 4. No
material adjustments have arisen solely as a result of ceasing to apply the
going concern basis.
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,
including the Company's timeframe for orderly realisation of investments in
order to return capital to shareholders. These factors help 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.
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 accounting judgements
In assessing the ECL, the Board has 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 and the realisable value of the underlying
property on which the loans are secured.
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 Stage 1, Stage 2 and Stage 3 loans
under IFRS 9 considering both probability of default and loss given default.
It is noted that the Company's remaining loans are past due and that receivers
or administrators have been appointed over the Company's security.
The Investment Manager and the Board will also take into consideration the
likely repayment term of loans that have become past due and the actions to be
taken by the appointed receiver or administrator to repay such loans.
Consequently, a loan which is past due, but otherwise performing, may continue
to be assessed as Stage 1 where there is an active repayment plan in place, or
supporting evidence that the loan can be repaid in full and the Company has
given a period of forbearance whilst reserving its rights to, or charging,
default interest.
Against the backdrop of higher interest rates and liquidity issues, as
discussed in the Investment Manager's Report, the Investment Manager and Board
agree that all remaining investments have a heightened credit risk. At the
reporting date all three loans are subject to enforcement action and, in the
absence of an active and liquid property market, are considered as Stage 3
assets with a material risk of credit loss.
Key sources of estimation uncertainty
The measurement of both the initial and ongoing ECL allowance for loan
receivables measured at amortised cost is an area that has required the use of
significant assumptions about credit behaviour such as likelihood of borrowers
continuing to support their properties through interest payments and equity
injections, or defaulting and the resulting losses.
In line with the Company's investment strategy at the time, most loans
benefited from significant LTV headroom at origination, with business plans
designed to deliver further value increases over time. This combined with
tight covenants generally enabled the Investment Manager to manage risk over
the term of the loans. However, following the change in Investment Strategy to
one of orderly wind down and the reduction of the portfolio to just three
remaining assets, the Investment Manager and the Board have placed greater
emphasis on the source and delivery of repayment of each loan when assessing
valuation and the risk of capital loss.
As discussed above, a material reduction in transactional evidence and higher
funding costs have led to a fall in property values generally, but with those
sectors subject to structural change (e.g. offices) and higher interest rates
(e.g. residential housing for sale) being particularly impacted. As a result
all remaining loans have evidence of heightened credit risk with the equity
buffer having been eroded by falls in property values and the likelihood of
further sponsor support being considered remote, and as such have been
assessed as Stage 3 loans.
The Board's valuation of Stage 3 assets (those loans considered to have a
material risk of credit loss), is first informed by third party property
valuations and supporting comparative transactional evidence, including
marketing processes being undertaken. The Investment Manager and the Board
will then overlay property level cashflows, expected sales costs and other
factors considered necessary to achieve exits within the target timeframes for
returning capital to shareholders.
All of the Company's Stage 3 assets are subject to enforcement action in the
form of administration or receivership at the reporting date. As a result, the
Company has considered the likelihood of achieving sales at the most recent
third-party valuation or at discounts to reflect the current lack of liquidity
in the relevant property sector and the Company's target timeframes and the
probability of such outcomes. These probabilities and discounts are further
informed by prospective purchasers' offers or expressions of interest where
properties have been marketed.
In arriving at the investment valuations, the Investment Manager has overlayed
the expected costs of sale and exit timeframes to determine a weighted average
valuation of each loan under the expected interest rate method and, thereby,
the expected credit loss for each loan that may result.
Revenue recognition is considered a significant accounting judgement and
estimate that the Directors make in the process of applying the Company's
accounting policies. In respect of the Company's Stage 3 loans, interest
income will be recognised through in the Statement of Comprehensive Income net
of ECL allowance. In view of the trading conditions of the Southport hotel and
liquidity challenges facing the RoyaleLife loan, the Directors consider it
unlikely that interest payments will be received in the near term. The
Affinity property remains well occupied and able to produce sufficient net
cashflow to meet its standard interest liabilities. However, the receiver has
reserved cashflow for working capital purposes in order to progress the
property sale, releasing surpluses when they feel prudent to do so. Any cash
withheld by the receiver will form part of the final settlement.
4. Loans advanced
(i) Loans advanced
1 February 2024 to 31 July 2024 1 February 2023 to 31 January 2024
£ £
Loans gross carrying value 67,457,768 66,116,828
Less: Expected Credit Losses (35,544,323) (32,477,777)
31,913,445 33,639,051
31 July 2024 31 July 2024 31 January 2024 31 January 2024
Principal advanced Carrying value before ECL allowance Principal advanced Carrying value before ECL allowance
£ £ £ £
Affinity((1)) 16,572,789 17,936,433 17,125,789 18,033,451
Southport((2)) 15,800,000 17,126,387 15,500,000 16,511,470
RoyaleLife 25,382,017 32,394,948 25,382,017 31,571,907
57,754,806 67,457,768 58,007,806 66,116,828
((1) Capital debt repayment of £553,000 during the period.)
((2) There was a £300,000 increase to the Southport loan principal during the
period.)
(ii) Valuation considerations
As noted above, the Company is now in the process of an orderly wind down. It
had been the intention of the Investment Manager and Directors to hold loans
through to their repayment date, and seek a borrower led repayment in order to
maximise value for the shareholders. Economic and property market conditions
have not enabled this, with commercial property transactions in some sectors
at their lowest levels for 15 years.
The carrying value amounts of the loans, recorded at amortised cost in the
Financial Statements have been adjusted for expected credit losses. For
further information regarding the status of each loan and the associated risks
see the Investment Manager's Report.
As loans have fallen past due and enforcement actions have been taken, the
Directors have also reassessed the likelihood and timing of receipt of any
interest and exit fees associated with the loans in the context of the current
underlying property value and weak market conditions.
Each property on which investments are secured was subject to an independent,
third-party valuation at the time the investment was entered into and updated
valuations are obtained as deemed appropriate. All investments are made on a
hold to maturity basis. Each investment is being closely monitored including a
review of the performance of the underlying property security.
Third party property valuations are typically based on the specific
particulars of the property (rent, Weighted Average Unexpired Lease Term
(WAULT), vacancy, condition and location) and assume a normal marketing period
and sales process. Valuers benchmark against comparative evidence from recent
transactions in similar properties in similar locations.
All the remaining Investments are considered to be Stage 3 assets and are
subject to enforcement action. The carrying value of each Stage 3 investment
has been calculated to reflect the net present value of the expected net
proceeds from, and timing of, exit under a range of scenarios reflecting the
latest indicators of realisable value, the cost of disposal (including
enforcement action taken), and potential discount to valuation that a willing
buyer may offer in the current market for a purchase out of administration/
receivership in an accelerated process with limited vendor warranties and
indemnities.
(iii) IFRS 9 - Impairment of Financial Assets
As discussed above, during 2023 and the first half of 2024, the UK commercial
property market has experienced a period of historically low transaction
volumes, as buyers adjust their pricing in order to generate target returns in
a higher interest rate environment with uncertain occupational demand in many
sectors. Conversely, unless forced, sellers are inclined to hold properties
where they can in the expectation of improved liquidity as the economic
outlook stabilises and medium-term interest rates fall. In this context,
valuation and, therefore, the ECL of each investment has been recalculated
based on the underlying property performance and valuations together with any
sales/marketing experience to date and is discussed further below.
The internal credit rating of each loan as at 31 July 2024 has been reviewed.
All three loans which were identified as Stage 3 assets at 31 January 2024,
have remained Stage 3 assets, with an ECL provision of £35,544,323 (31
January 2024: £32,477,777).
As at 31 July 2024
Stage 1 Stage 2 Stage 3 Total
Principal advanced - - 57,754,806 57,754,806
Gross carrying value - - 67,457,768 67,457,768
Less ECL allowance - - (35,544,323) (35,544,323)
- - 31,913,445 31,913,445
As at 31 January 2024
Stage 1 Stage 2 Stage 3 Total
Principal advanced - - 58,007,806 58,007,806
Gross carrying value - - 66,116,828 66,116,828
Less ECL allowance - - (32,477,777) (32,477,777)
- - 33,639,051 33,639,051
The Southport hotel was identified as a Stage 3 asset at 31 January 2023.
Following an aborted sales process and a remarketing exercise the hotel, which
continues to generate positive EBITDA, and is subject to a bid in excess of
book value. In assessing the ECL as at 31 July 2024, the Investment Manager
and the Board have, consistent with prior periods, considered a range of
potential outcomes based on the current bid, other bids received and market
advice and have adopted a probability weighted approach, discounting the
resultant cashflows to the expected completion.
The Investment Manager, on behalf of the Company, appointed a receiver over
the property attached to the Affinity loan in September 2023, with the
Affinity loan being identified as a stage 3 asset at 31 January 2024. Whilst
the majority of the property remains occupied, leasing is challenging and
there are rolling lease events over the coming twelve months. Investor
demand for regional offices is at a low due to uncertainties surrounding
occupational demand and capital expenditure requirements in a post Covid-19,
remote working, environment.
These uncertainties combining with a higher interest rate environment have
materially impacted the valuation of the property, as agency advice suggests,
is down by approximately 40% from over £20 million in April 2023, in line
with the wider market where there are very few if any bidders for regional
office assets. The Investment Manager and the Board have considered the agency
and receiver advice to determine the likely net realisable value of the
property and timeframe in which it might be achieved. As with the other the
Stage 3 loans, a range of outcomes have been considered and probabilities
applied to each in determining the ECL of the loan as at 31 July 2024.
As previously reported, the companies holding the sites securing the
RoyaleLife loan were placed into administration during 2023 to protect the
assets from other creditor claims. The sites were sold into a new holding
company structure at the end of the last financial year and the Company's
debt, together with that of its co-lenders was restructured to facilitate the
transaction. Consequently the Company now participates in a fully cross
collateralised loan to the new operating structure whilst retaining a claim
against any proceeds arising from the ongoing administration of the old
operating structure. The administrator ran a sales process prior to the
restructure from which an institutionally backed offer for the entire platform
has come forward, and heads of terms were agreed. Whilst the sales process
continues, the Company's (and its co-lenders') timetable has not been adhered
to and consequently the Investment Manager is supporting the new operator to
rebrand and relaunch the sale of individual bungalow homes in order to retain
optionality and maximise value for the lenders. The prospective purchaser
continues with its due diligence in the meantime. The Investment Manager
continues to work with the administrator to explore all avenues for recovery
of losses against the original borrower platform.
The Board and Investment Manager consider there to be a material risk of loss
and the loan was categorised as Stage 3 in July 2023, with the restructured
loan remaining at Stage 3. In determining the ECL as at 31 July 2024 the Board
and the Investment Manager have considered an offer from an institutional
buyer which has been received and adopted the same probability weighted
approach and considered a range of outcomes linked to sale of the properties
(where negotiations continue), and to the relaunch of the underlying business
with an exit over time. The Company together with its co-lenders retain the
rights, under the original loan, to any recoveries linked to the
administration process and the bankruptcy proceedings against the previous
beneficial owner, albeit no value has been attached to such claims.
A reconciliation of the ECL allowance is presented as follows:
Expected Credit Loss Allowances
At 31 January 2024 Movement in ECL Allowance during period At 31 July 2024
£ £ £
Affinity (6,697,311) (2,323,556) (9,020,867)
Southport (8,597,121) 275,592 (8,321,529)
RoyaleLife (17,183,345) (1,018,582) (18,201,927)
(32,477,777) (3,066,546) (35,544,323)
(iv) IFRS 9 Impairment - Stress Analysis
The carrying values of the remaining investments above contemplate sales in a
difficult market and have been adjusted for expected credit losses, making
allowance for the potential impact of sales out of receivership/administration
on the properties' underlying liquidity and attractiveness to buyers, as well
as the timeframe in which the Company is seeking to realise its investments.
The remaining loans are, or have been, subject to enforcement processes, which
may be an additional factor in the liquidity of and buyer pools for the
subject assets. Two of the loans (Southport and RoyaleLife) are secured
against operating assets which brings additional complexity for buyers when
compared to, say, single tenant investment properties and, in the case of
RoyaleLife, operates in a new and emerging sector.
The Investment Manager and the Board have considered the impact of a further
10%, 20% and 30% reduction in the underlying property values, broadly
reflecting a one, two and three stage credit deterioration as previously
presented, and recalculated its probability weighted valuations on this basis.
The potential negative impact of these further declines in property values on
the portfolio as a whole is set out below.
Stress test impact on Expected Credit Loss at 31 July 2024
31 July 2024 31 January 2024 31 July 2023
10% reduction in property value £2,764,000 £3,279,000 £3,685,000
20% reduction in property value £5,209,000 £6,558,000 £8,124,000
30% reduction in property value £8,069,000 £9,837,000 £12,562,000
All efforts continue to be made by the Investment Manager and the Board to
crystalise the value in the remaining investments in a reasonable time frame
in order to return capital to shareholders and proceed to the liquidation of
the Company. However, as discussed above, in the current market many
properties for sale are not receiving any bids, even where they are considered
distressed, and the limited number of buyers active in the market are seeking
out the maximum distress in order achieve best relative value and maximise
their potential returns. Accordingly, the timing of the final realisation of
the Company's remaining assets cannot be predicted with certainty. The Board
and Investment Manager have considered the impact of a delay in the
realisation of the remaining loans. A 3 month delay would, at 31 July 2024,
reduce the net present value of the cashflows arising by 2.3% (£745,000),
whilst a 6 month delay would result in a 4.6% (£1,468,000) reduction in the
net present value of the cashflows arising.
5. Earnings per share and Net Asset Value per share
Earnings/(Loss) per share
1 February 2024 1 February 2023
to 31 July 2024 to 31 July 2023
Loss for the period after tax (£) (1,874,929) (14,709,953)
Weighted average number of ordinary shares in issue 121,302,779 121,302,779
Basic and diluted loss per share (pence) (1.55) (12.13)
The calculation of basic and diluted loss per share is based on the loss for
the period and on the weighted average number of ordinary shares in issue
during the period.
There are no dilutive shares at 31 July 2024 (31 January 2024: none).
Net Asset Value per share
31 July 2024 31 January 2024
NAV (£) 34,349,199 36,224,128
Number of ordinary shares in issue 121,302,779 121,302,779
NAV per share (pence) 28.32 29.86
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 2024 31 January 2024
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
Issued Ordinary Shares 121,302,779 121,302,779
B Shares
B Shares issued February 2023 - 121,302,779
B Shares redeemed and cancelled February 2023 - (121,302,779)
B Shares issued August 2023 - 121,302,779
B Shares redeemed and cancelled August 2023 - (121,302,779)
- -
£ £
Share capital brought forward 64,650,361 80,298,419
Repaid in the period/year - (15,648,058)
Share capital carried forward 64,650,361 64,650,361
Return of Capital
Return of Capital is recognised by the Company in the quarterly NAV
calculation following the declaration date.
In line with the Board's recent guidance, there was no return of capital made
during the period ended 31 July 2024.
7. Dividends
Dividends are recognised by the Company in the quarterly NAV calculation
following the declaration date. A summary of the dividends declared and paid
during the year to 31 January 2024 is set out below. No dividends were
declared or paid in respect of the period 1 February 2024 to 31 July 2024:
Dividend per share Total dividend
1 February 2023 to 31 January 2024 Pence £
Interim dividend in respect of quarter ended 31 January 2023 0.50 606,514
0.50 606,514
Following shareholder approval of proposed changes to the Company's Investment
Objectives and Investment Policy which allows an orderly realisation of the
Company's assets and return of capital to shareholders, the Board has made it
clear that payment of quarterly dividends would continue only whilst it
remained prudent to do so.
Due to the enforcement actions in place over all three remaining assets,
trading levels have been reduced and accordingly levels of operating cashflow
are projected to be significantly reduced.
The Company has a predictable cost base and the ability to hold capital to
meet costs and preserve working capital. However, it is no longer considered
appropriate to distribute a regular dividend.
The Company has a single class of ordinary shares which are not entitled to a
fixed dividend. 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 53 to 56 of
the Annual Report and Financial Statements for the year ended 31 January 2024
in addition to the principal risks as set out on in this Interim Report.
The Company's principal risk factors were also 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 2023:
£80,000) with outstanding fees at 31 July 2024 of £31,250 due to the
Directors (31 January 2024: £31,250).
Investment Manager
Investment management fees for the period amounted to £139,965 (31 July 2023:
£369,261). Fees to the value of £188,681 were outstanding at the
period/year end (31 January 2024: £236,597).
10. Other expenses
The other expenses shown in the Statement of Comprehensive Income are made up
as shown below.
1 February 2024 to 1 February 2023 to 1 February 2023 to
31 July 2024 31 July 2023 31 January 2024
£ £ £
(Unaudited) (Unaudited) (Audited)
Broker fees 25,000 25,825 50,000
Administration fees 79,583 107,307 239,806
Regulatory fees 9,183 8,246 17,872
Listing fees 5,365 5,175 13,230
Legal & professional fees 8,345 73,148 118,645
Other expenses 49,272 50,427 109,307
Total expenses
176,748 270,128 548,860
11. Subsequent events
On 26 September 2024, the Company received a £400,000 distribution related to
the Affinity loan, which was reflected in the ECL calculations. There were no
other material subsequent events noted after the reporting date.
glossary of capitalised defined terms
"Administrator" means Ocorian Administration (Guernsey) Limited;
"Affinity" means Impact Spectrum Limited;
"AIFMD" means the Alternative Investment Fund Managers Directive;
"Annual Report" or "Annual Report and Financial Statements" means the annual
publication of the Company provided to the shareholders to describe their
operations and financial conditions, together with their Financial Statements;
"Board" or "Directors" or "Board of Directors" means the directors of the
Company from time to time;
"B shares" means a redeemable Ordinary Share of no par value in the capital of
the Company issued and designated as a B Share of such class, and denominated
in such currency, as may be determined by the Directors at the time of
issue. Issued for the purpose of returning capital in accordance with
Article 8;
"CMBS" means commercial mortgage-backed security;
"Companies Law" means the Companies (Guernsey) Law, 2008, (as amended);
"Company" means ICG-Longbow Senior Secured UK Property Debt Investments
Limited;
"Covid-19" means the global coronavirus pandemic;
"ECL" means expected credit losses;
"EPS" or "Earnings per share" means Earnings per Ordinary Share of the Company
and is expressed in Pounds Sterling;
"EU" means the European Union;
"Euro" or "€" means Euro;
"FCA" means the UK Financial Conduct Authority (or its successor bodies);
"Financial Statements" means the audited financial statements of the Company,
including the Statement of Comprehensive Income, the Statement of Financial
Position, the Statement of Changes in Equity, the 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;
"GFSC Code" means the GFSC Finance Sector Code of Corporate Governance;
"IAS" means international accounting standards as issued by the Board of the
International Accounting Standards Committee;
"ICG" means Intermediate Capital Group PLC;
"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;
"Interim Report" means the Company's interim report and unaudited interim
condensed financial statements for the period ended 31 July;
"Investment Manager" or "ICG-Longbow" or "ICG Real Estate" means ICG
Alternative Investment Limited or its associates;
"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;
"London Stock Exchange" or "LSE" means London Stock Exchange plc;
"LTV" means Loan to Value ratio;
"Main Market" means the main securities market of the London Stock Exchange;
"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;
"Northlands" means London & Guildford Properties Limited, London &
Weybridge Properties Limited, Lamborfore Limited, Northlands Holdings Limited,
Peeble Stone Limited, Auldana Limited, Felixstow Limited, Richmond Lodge
Construction Limited, Piperton Finance Limited and Alton & Farnham
Properties Limited;
"Official List" is the Premium Segment of the FCA's Official List;
"Registrar" means Link Asset Services (Guernsey) Limited;
"RoyaleLife" means the Time GB Properties LendCo Limited;
"Southport" means the Waterfront Southport Properties Limited and Waterfront
Hotels (Southport) Limited - now in administration;
"Sq ft" means square feet;
"UK" or "United Kingdom" means the United Kingdom of Great Britain and
Northern Ireland; and
"£" or "Pounds Sterling" means British pound sterling and "p" or "pence"
means British pence.
directors and general information
Board of Directors Independent Auditor English Solicitors to the Company
Jack Perry (Chair) Deloitte LLP Gowling WLG (UK) LLP
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 (Chair) GY1 3HW
Stuart Beevor Guernsey Advocates to the Company
Paul Meader Guernsey Administrator and Company Secretary Carey Olsen
Ocorian Administration (Guernsey) Limited Carey House
Management Engagement Committee P.O. Box 286 PO Box 98
Jack Perry Floor 2 Les Banques
(Chair)
Trafalgar Court St Peter Port
Paul Meader
Les Banques Guernsey
Fiona Le Poidevin
St Peter Port GY1 4BZ
Stuart Beevor
Guernsey
GY1 4LY Bankers
Nomination Committee
Butterfield Bank (Guernsey) Limited
Jack Perry
(Chair) Depositary PO Box 25
Stuart Beevor Ocorian Depositary (UK) Limited Regency Court
Paul Meader 5(th) Floor Glategny Esplanade
Fiona Le Poidevin 20 Fenchurch Street St Peter Port
London Guernsey
Remuneration Committee England GY1 3AP
Paul Meader (Chair) EC3M 3BY
Jack Perry Barclays Bank plc
Stuart Beevor Registrar 6-8 High Street
Fiona Le Poidevin Link Asset Services (Guernsey) Limited St Peter Port
Mont Crevelt House Guernsey
Investment Manager Bulwer Avenue GY1 3BE
ICG Alternative Investment Limited St Sampsons
Procession House Guernsey Lloyds Bank International Limited
55 Ludgate Hill GY2 4LH PO Box 136
London Sarnia House
United Kingdom Corporate Broker and Financial Adviser Le Truchot
EC4M 7JW Cavendish Securities plc St Peter Port
6-8 Tokenhouse Yard Guernsey
Registered office London GY1 4EN
Floor 2 United Kingdom
Trafalgar Court EC2R 7AS The Royal Bank of Scotland International Limited
Les Banques Royal Bank Place
St Peter Port Identifiers 1 Glategny Esplanade
Guernsey GIIN: 6IG8VS.99999.SL.831 St Peter Port
GY1 4LY ISIN: GG00B8C23S81 Guernsey
Sedol: B8C23S8 GY1 4BQ
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
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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