Final Results
Off-Plan Fund Limited (The)
13 March 2008
For Immediate Release 13 March 2008
THE OFF-PLAN FUND LIMITED
Preliminary Results for the year ended 30 September 2007
The Off-plan Fund Limited, which specialises in providing forward finance to UK
housebuilders, is pleased to announce its preliminary results for the year ended
30 September 2007.
Period Highlights
• Two new investments:
- 38 units Tring, Hertfordshire for £5.9m
- 31 units Hayes, Middlesex for £4.6m
• 57% of units at Oldham Place sold
•Audited NAV up 2.0% to 85.1p per share
• Red Book NAV up 7.2% to 94.4p per share
• 20% increase in issued share capital
• Post year end, new investment in 118 units in Wallington, Surrey for £25m
The Fund is managed by Development Capital Management (Jersey) Limited.
Copies of the Financial Statements are currently being printed and will be sent
to shareholders shortly. They may also be obtained free of charge from
Development Capital Management Limited, 36 Dover Street, London, W1S 4NH.
List of Contacts
Development Capital Management
Roger Hornett
Andy Gardiner
020 7355 7600
Numis Securities
Nick Westlake
Charles Farquhar
020 7260 100
Buchanan Communications
Charles Ryland
Isabel Podda
020 7466 5000
THE OFF-PLAN FUND LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2007
Chairman's Statement
The period under review proved to be a challenging one for the Fund. The UK
residential property market remained robust through the end of 2006 and the
first half of 2007, assisting sales and prices on existing projects but
hindering the Manager's focus on new investment opportunities as developers
continued to find traditional lending sources in ample supply and on generous
terms.
As shareholders will be aware the premise of the Fund is that its financing
model is likely to be of equal or greater appeal to developers during periods of
slower growth when lending banks will offer tighter terms and demand more
pre-sales. The fall-out of the sub-prime crisis and associated 'credit-crunch'
in the latter part of the period have, perhaps perversely, improved the
operating environment for the Fund with the Manager in negotiations on a greater
number of potentially attractive deals with reputable developers in recent
months and indeed, post the year end, the Fund entered into its largest deal to
date in Wallington, Surrey.
Portfolio
As reported in the Fund's interim report, investments in developments at Tring
and Hayes were added to the portfolio during the financial year and in December
the Fund announced the Wallington deal - a 118 unit project with a GDV of £31m.
All three developments are expected to appeal to young professional owner
occupiers and the buy-to-let market given their facilities and excellent
transport links into London. The Manager continues to focus its attention on the
London/South-east market (in particular 'inner M25') as it is of the opinion
that the region will continue to show greater resilience than the UK market as a
whole.
Early in the period, the Fund exchanged contracts on onward sales of more than
half of the units at the Oldham Place site in Liverpool. Owing to certain
unanticipated delays in the construction process, the Manager has held back on
full marketing of the remaining units but expects to recommence activity in the
near future.
As I reported last year, in February 2007 the Fund elected to exit its
investment in Nottingham. It continues to let out the 6 units on which it
completed in Leicester until the local market improves.
Performance
The audited net asset value of the Fund increased by 2.0% during the period
under review from 83.4p per share to 85.1p. As shareholders are aware the Fund
also reports an unaudited 'Red Book' net asset value which is intended to
provide investors with an indication of the potential value inherent in the
portfolio from the discounted purchase prices. This Red Book NAV increased 7.2%
during the period from 88.1p per share to 94.4p. Following the Wallington
investment the Red Book NAV increased further to 107.2p per share.
Against these measures of asset performance it is therefore disappointing to
report that the share price during the period fell 11.6% from 84.0p to 74.3p, a
level around which it remains today. The fall occurred in the last 2 months of
the period and the price has not moved in very little trading since the year
end. Lack of liquidity in the stock remains a key driver in this widening
discount.
Your Board remain extremely cognisant of this problem. As I reported last year
we have investigated means with which to address the issue. We were therefore
pleased to report the issue of a further 20 per cent. in issued share capital to
Elsina Limited, a company owned by the trustees for the Tchenguiz family and
advised by the Consensus Business Group (CBG), in April last year at 95p per
share. Disappointingly, and somewhat surprisingly, this had no positive impact
on liquidity or the share price.
Therefore, following an extensive round of shareholder meetings last November
and consultation with the Manager, the Board has decided to put forward a
resolution to this year's AGM to consider an amendment to the Fund's articles of
association which will, if passed, introduce an annual continuation vote at each
AGM with effect from 2009. Shareholders will have an opportunity each year to
decide whether the Fund should continue with its present investment policy or
commence an orderly realisation of the property portfolio. The Board anticipate
that this measure should have a positive impact on liquidity and the share price
discount over time.
Outlook
While it is difficult to be too confident in the current economic environment,
increasing signs of normalisation in the UK credit markets, together with
interest rates down 0.5% from their recent 5.75% peak, provide some optimism for
the on-going health of those areas of the UK residential market in which the
Fund and the Manager are currently focussed. The Board and the Manager hope to
take advantage of the current uncertainty to pursue their intention for the Fund
to be fully invested in the next 12 months via a strong pipeline of potential
opportunities and strategic relationships.
AGM
The annual general meeting of the Fund will be held in Jersey on 23 April 2008,
notice of which can be found on page 24. In addition to the usual resolutions
and proposed introduction of the annual continuation vote, shareholders will be
asked to ratify the appointment of Joni Cline to the Board, as a representative
of CBG. My fellow directors and I welcomed Ms Cline to the Board in December and
look forward to her on-going involvement and input in the future.
Graham Berry, Chairman
March 2008
Manager's Report
Given the continuing relatively low level of investment of the Fund's assets in
the property portfolio, the Manager's focus throughout the year under review has
been firmly set on sourcing new opportunities. Although a significant number of
deals with different developers were identified and considered, it was
disappointing that the Fund only entered into the Tring and Hayes projects
during the period.
The nature and structure of the Fund's investments and associated due diligence
means that a great deal of the Manager's time can be taken up on deals which
come close but do not complete for a variety of reasons. This year has been no
different. In attempting to ensure that the Fund only enters into the right
transactions on the best terms achievable, the Manager and the Board have had to
walk away from a number of potential deals quite some way down the negotiation
process.
However the Manager believes that the current climate will prove more favourable
for the Fund in terms of investment in the right deals with reputable developers
at attractive prices and considers the post year-end Wallington transaction as a
strong indication of the type of deal that might be done.
The somewhat surprising resilience of the UK property market throughout much of
the period under review worked, in some ways, against the Fund as potential
developer counterparties had less need for the benefits which the Fund's
investment model offers (i.e. developers are offered an underwritten value at a
premium to their development costs, the ability to gain favourable development
finance and still share in capital value growth). Only with the fall-out from
the sub-prime crisis, events at Northern Rock and associated 'credit-crunch'
from the summer of 2007 have the relative attractions of the Fund's model come
back into greater focus.
The Fund's exit strategy remains a key factor in appraising any deal and the
Manager continues to monitor the UK residential property market very closely,
resulting in a shift in focus to the South-East, within areas with strong
transport links to London. The requirement for housing remains strong,
investment buyers are attracted by increasing yields and should the Fund be
required to complete on any units a well located letting portfolio may be
created.
Performance
The audited net asset value of the Fund increased by 2% during the period under
review from 83.4p per share to 85.1p, as a result of the positive impact of
exchanges on the sales of units in Liverpool and the premium to NAV on the
further share issuance during the year outweighing operating costs and the
decrease in the valuation of the units in Leicester. As the accounts are
prepared under the historic cost convention, any discounts to market value
achieved by the Fund cannot be recognised in the reported balance sheet with
only the book cost of obtaining the contracts recorded. The Fund therefore also
reports an unaudited 'Red Book' net asset value which is intended to provide
investors with an indication of the potential value inherent in the portfolio
from these discounted purchase prices. This valuation is derived from the latest
Red Book valuations for the property portfolio prepared by independent valuers.
This Red Book NAV increased 7.2% during the period from 88.1p per share to 94.4p
due to the discounts achieved on the Tring and Hayes deals. The impact of the
Wallington investment on this year-end Red Book NAV is a further increase to
107.2p per share.
Portfolio and Activity
At 30 September 2007 the Fund held contracts in respect of 51 apartments in
Liverpool and 69 in the Home Counties, together with 6 completed units in
Leicester. Of the 51 units in Liverpool, 29 contracts had been assigned to end
buyers.
During the year, and as described in last year's Report, the Fund elected to
rescind all 30 contracts in respect of the development in Nottingham rather than
complete, with associated stamp duty, on a scheme which the Manager felt would
not hold sufficient value for the Fund.
Following the year end the Fund exchanged contracts on a further 118 units in
Wallington, Surrey.
Oldham Place, Liverpool
This project comprises 51 apartments, all of which the Fund has contracts to
purchase. It is located just east of the city centre, a short walk from Lime
Street station and the Albert dock area. It is situated between two city centre
regeneration areas - Ropewalks, a newly established residential quarter, and
Mount Pleasant, a residential area with a high student population.
During the year the Fund secured onward sales of 29 of the 51 units for an
aggregate sales value of £4.6m.
Construction commenced in Spring 2007 but has been delayed in recent months with
issues relating to the construction company going into receivership. The Manager
continues to work closely with the developer and expects that any remaining
issues will be resolved and construction underway again by early summer 2008.
This is likely to have some impact on the anticipated completion date which is
now expected to be mid 2009.
As a result of these delays, the Manager and the local sales agent have not
actively marketed the remaining units but will recommence the sales effort as
soon as the aforementioned issues are resolved, as well as keeping existing
buyers informed of progress.
Brook Street, Tring
During the year, the Fund entered into purchase contracts for all 38 units to be
built at the site in Hertfordshire, which is situated a few minutes from the
high street and the station. It will offer a range of two bedroom apartments
with parking in an area that has seen limited development of this nature
recently but where demand is expected to be high from owner occupiers as well as
buy-to-let investors given its proximity and transport links to London.
Planning permission has been granted and 7 of the units have, as expected, been
designated as affordable housing, which will leave the Fund with 31 units after
these 7 are rescinded.
Construction on site has yet to commence and the Manager has held back on full
marketing efforts until it has greater certainty as to the build timetable. The
Manager is in regular contact with the developer and hopes to be in a position
to make a further announcement on progress in the near future.
Yeading Lane, Hayes
At the same time as exchanging on the Tring project, the Fund conditionally
exchanged on 31 units with the same developer in Hayes, Middlesex. This site is
also close to good transport links (road, rail, tube and air) and local
amenities. Demand, investor and owner-occupier alike, is expected to be strong
due to local employers such as Heathrow airport, Nestle, Coca Cola,
Glaxosmithkline, RAF Northolt and the USAF base at Ruislip.
A resolution to grant planning permission has been made and 11 of the units have
been designated as affordable housing, which will leave the Fund with 20 units
after these 11 are rescinded, but the deal remains conditional on the developer
securing the purchase of the balance of the site. Construction and marketing
have therefore yet to commence.
Wimbledon House, Leicester
The Fund owns 6 flats with a market value, as at 30 September 2007, of £911,000
in the city centre district. The properties were completed in 2006.
Leicester continues to be home to weak sales conditions as evidenced by the
reduction of £60,000 in the aggregate market value of the units since March
2007. Therefore the Manager's strategy to hold and let these for the foreseeable
future remains. Currently 5 flats are let and when all six are fully let at
market rate a gross yield of 4% should be achieved.
Canon House, Wallington
Since the year end the Fund has exchanged contracts for the purchase of 118
apartments to be built in a new development in Wallington, Surrey. The purchase
price of £25,000,000 on completion represents a discount of 18% to the
prevailing Red Book valuation of £30,595,000. The Fund has paid a deposit of 5%
of its contracted purchase price but also, given the relative scale of the deal,
ring-fenced a further portion of the Fund's completion reserve for this project.
The development is very well located being adjacent to the railway station with
travel times of 30 minutes into London and easy access to the M25, Heathrow and
Gatwick. The Manager expects strong demand from owner occupiers and investors
given the superior on-site facilities such as a gym, running track and concierge
service.
Full planning permissions are in place and construction is expected to commence
in April. Agents have already been appointed to commence phased sales and early
reports are very encouraging.
Fixed income portfolio
At 30 September 2007, 63% of the Fund's assets were held in this portfolio of
investment grade, foreign issued, sterling denominated debt across a spread of
bank issuers and corporates, pending investment in the property portfolio or as
retention for the completion reserve. The Manager intends to hold at least half
the Fund's assets in the completion reserve but has the flexibility to reduce
this to 30%. The maturity profile of the fixed income component has reduced to
1.1 years from 1.4 years at the end of the last period and the portfolio yield
had decreased from 5.11% to 4.93%.
At the period end £1.8m, representing the cash proceeds of the April share
issue, was held in cash rather than fixed income due to the prevailing
uncertainty of the credit markets.
The ring-fenced portion of the completion reserve in respect of the Wallington
deal will also be retained in cash for the time being until such time as the
additional fees involved in the management of the fixed income portfolio are
exceeded by the higher returns from fixed income over cash on deposit.
Market
The Bank of England's interest rate rise to 5.75% in July marked the peak of the
current cycle with two 0.25% reductions since then in light of the fall-out from
the US sub-prime market on the one hand and the Northern Rock crisis on the
other. Lenders have belatedly become more cautious with significantly tighter
credit checks.
The introduction of Home Information Packs (HIPs), against the advice of the
Royal Institution of Chartered Surveyors, has proved controversial and
Rightmove, the online property group reports that this has led to a number of
potential sellers no longer speculatively advertising, reducing the stock of
available supply and driving prices higher at a time when higher interest rates
and tighter mortgage terms would normally drive them lower. This should prove to
be a temporary phenomenon.
At the year end the Land Registry reported annual house price inflation of 8.7%,
producing an average price across England and Wales of £183,896. Importantly for
the Fund, apartment prices, which have lagged the market for approximately 3
years, outperformed during the last quarter of the period with prices rising by
9.6% over the 12 months to an average of £173,824.
On a regional basis London continued to outperform although monthly house price
growth tailed back from a peak of 3.9% in July to 1.3% in September as the
credit squeeze exerted a similar affect on anticipated City bonuses and in turn
higher value property demand. All 10 regions surveyed by the Land Registry
recorded year on year price growth as at September, with London at the top of
the league with 16.5% and the West Midlands and East Midlands at the bottom with
4.1% and 5.1% respectively. Apart from Wales at 6.6% all other areas recorded
average house price growth in excess of 7.5%.
There was nevertheless evidence in the monthly figures of a price slowdown, with
3 of the 10 regions posting a modest decline in September. Such a slowdown was
also evident in the volume of transactions which fell 6.4% in the 3 months to
July 2007 on a year-on-year like-for-like basis to a monthly average of 102,367.
Equally the mortgage approvals for September showed a decline from 108,000 in
August to 102,000, significantly below the previous year level of 127,000. While
some of this can be put down to the effective exit of Northern Rock from the
market, there is clearly evidence of buyer caution.
Since the year end, action by the Bank of England appears to have stabilised
credit markets with gross mortgage lending in January 2008 back up to 2007
levels at £26.5bn. Prices appear relatively stable given the economic back-drop,
with asking prices, according to Rightmove, up 3.2% in February. However, volume
remains under pressure with mortgage approvals down to 74,000 in January 2008
from 119,000 a year ago as many first time buyers find that tighter lending
conditions are making entry to the market that much harder to achieve.
Perversely this has been good for the rental market and is therefore positive
for the Fund in terms of the investor market.
Outlook
Like most observers the Manager expects to see a continued gradual slowdown in
house price growth with falling volumes rather than any real prospect of a
crash. Strong GDP growth, rising employment and falling unemployment support
this view. Wage growth remains mildly positive relative to inflation and demand
for new properties averaging 220,000 per annum against supply of nearer 180,000
mitigate in favour of a rising trend
Such a market backdrop is good for the Fund and as discussed above we have
already noted a pick-up in the number of potential financing opportunities and
expect to see further attractive projects for consideration in the coming
months.
While the Manager acknowledges shareholders' frustration in finalizing
investments in the past year, significant steps have been taken in creating
strategic relationships to access higher volumes of pipeline stock. Providing
these favourable market conditions continue the Manager expects that the
conversion rate of opportunities into investments will markedly improve in the
next 12 months.
Development Capital Management (Jersey) Limited
March 2008
CONSOLIDATED BALANCE SHEET
As at 30 September 2007
2007 2006
Notes £ £
Non-current assets
Quoted investments 8 5,985,007 5,941,738
Property contracts yet to complete 8 446,078 336,602
Investment property 8 911,000 1,025,000
Debtors 9 253,532 -
----------- -----------
7,595,617 7,303,340
Current assets
Debtors 9 437,022 366,419
Cash and cash equivalents 1,828,171 136,200
----------- -----------
2,265,193 502,619
Creditors - amounts falling due within one year
Other payables 10 (366,806) (54,826)
Net current assets 1,898,387 447,793
----------- -----------
Net assets 9,494,004 7,751,133
----------- -----------
Equity
Stated capital 11 10,505,154 8,739,246
Realised capital reserve 13 152,473 (108,348)
Unrealised capital reserve 13 (53,320) (51,719)
Investment property revaluation reserve 13 (78,183) 42,107
Issue costs reserve 13 (679,868) (609,232)
Revenue reserve 13 (352,252) (260,921)
----------- -----------
Total shareholders' funds (all equity) 9,494,004 7,751,133
----------- -----------
Net asset value per share (pence) 85.1 83.4
The financial statements were approved by the Board of Directors on 13 March
2008 and signed on its behalf by:
Graham Berry William Roger King
The accompanying notes are an integral part of the financial statements.
CONSOLIDATED INCOME STATEMENT
For the year ending 30 September 2007
Year ended 30 September 2007 Year ended 30 September 2006
Revenue Capital Total Revenue Capital Total
Notes £ £ £ £ £ £
Realised
gains/
(losses) on
property
contracts
yet - 262,662 262,662 - (109,308) (109,308)
to complete
Unrealised
losses on
investments - (3,442) (3,442) - (65,445) (65,445)
Investment
income 2 333,711 - 333,711 269,039 - 269,039
Rental 2 17,770 - 17,770 - - -
income
Investment
management 3 (156,210) - (156,210) (119,196) - (119,196)
fee
Rental
expenses 4 (14,994) - (14,994) - - -
Other 4 (268,514) - (268,514) (214,064) - (214,064)
expenses
------- ------- ------- ------- ------- -------
Net
(loss)/gain
on
ordinary
activities
before
finance
costs and
taxation (88,237) 259,220 170,983 (64,221) (174,753) (238,974)
------- ------- ------- ------- ------- -------
Taxation 5 (3,094) - (3,094) - - -
------- ------- ------- ------- ------- -------
Net
(loss)/gain
for the
year
after
taxation (91,331) 259,220 167,889 (64,221) (174,753) (238,974)
------- ------- ------- ------- ------- -------
(Loss)/gain
per share
(pence) 6 (0.90) 2.56 1.66 (0.82) (2.23) (3.05)
Notes
(a) All items in the above statement derive from continuing operations.
(b) The Group has no recognised gains or losses other than those disclosed in
the Consolidated Income Statement and Consolidated Statement of Total Recognised
Gains and Losses.
(c) The accompanying notes are an integral part of the financial statements.
CONSOLIDATED STATEMENT OF CASHFLOWS
For the year ended 30 September 2007
2007 2006
Notes £ £
Cash flows from operating activities
Investment income received 271,833 96,408
Deposit interest received 63,044 46,185
Rental income 17,772 -
Investment management fees paid (156,210) (119,196)
Secretarial fees paid (5,160) (3,651)
Rental expenses (14,994) -
Other cash payments (251,967) (190,818)
---------- ----------
Net cash outflow from operating activities
before taxation 15 (75,682) (171,072)
Taxation paid (3,094) -
Capital expenditure and investment
activities
Deposits and acquisition costs relating to
property 138,830 (1,258,442)
Purchase of investments (2,086,995) (6,253,664)
Sale of investments 2,023,640 1,510,369
---------- ----------
Net cash inflow/(outflow) from investment
activities 75,475 (6,001,737)
---------- ----------
Net cash outflow before financing (3,301) (6,172,809)
Financing
Issue of shares 1,765,908 6,769,246
Expenses of share issue (70,636) (609,232)
---------- ----------
Net cash inflow from financing 1,695,272 6,160,014
---------- ----------
Increase/(decrease) in cash 1,691,971 (12,795)
---------- ----------
The accompanying notes are an integral part of the financial statements.
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
As at 30 September 2007
2007 2006
£ £
Gain/(loss) for the financial year 167,889 (238,974)
(Loss)/gain on revaluation of investment properties (120,290) 42,107
----------- -----------
Total gains and losses recognised since last annual
report 47,599 (196,867)
----------- -----------
The Group has no other recognised gains or losses that are not shown in the
income statement.
Notes to the consolidated financial statements
1 Accounting policies
The consolidated financial statements have been prepared under the historical
cost convention, as modified to include the revaluation of quoted investments
and investment properties and in accordance with applicable Accounting Standards
and the Statement of Recommended Practice for 'Financial Statements of
Investment Trust Companies' issued in January 2003 and amended in December 2005.
(a) Basis of consolidation
The financial statements incorporate the financial statements of the Company and
entities controlled by the Company (its subsidiaries) made up to 30 September.
Control exists when the Company has the power, directly or indirectly, to govern
the financial and operating policies of an entity so as to obtain benefits from
its activities. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences up to the
date that control ceases.
The Company has only one subsidiary which it acquired during the year ended 30
September 2006. As this subsidiary has not yet commenced trading, the Company's
financial statements are materially similar in all respects to the Group
financial statements, therefore the Company has presented only Group financial
statements for the years ended 30 September 2007 and September 2006. Details of
this subsidiary are contained in note 7.
(b) Income
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life
of the financial asset to that asset's net carrying amount. Interest receivable
on cash and short-term deposits is accrued to the end of the financial year.
(c) Quoted investments
Purchases of investments are recognised on a trade date basis and included in
the balance sheet at fair value. Sales of investments are also recognised on a
trade date basis. Proceeds are measured at fair value, which is regarded as the
proceeds of any sale less any transaction costs. The fair value of the financial
instruments is based on their quoted bid prices at the balance sheet date,
without any deduction for any estimated future selling costs.
Changes in the value of investments and gains and losses on disposal are
recognised in the consolidated income statement as 'gains/losses on investments'
and are allocated to realised/unrealised capital reserves as appropriate.
(d) Property contracts yet to complete
The Company has contractual obligations to purchase property that is currently
being constructed, i.e. it has entered into contracts to purchase the property
'off-plan'. Under these contracts the Company is obliged to purchase these
properties at a contracted price, but has the right to sell or transfer the
contract to a third party. The 'Property contracts yet to complete' are included
in the balance sheet at the lower of cost and net realisable value. Cost
includes legal and other expenses incurred to acquire the contracts. The
Directors are of the opinion that it is inappropriate to account for these
contracts using fair value accounting methods because their fair value cannot be
estimated with sufficient reliability.
Realised gains and losses arising on the disposal of these contracts are
recognised in the Consolidated Income Statement and taken to the realised
capital reserve, after deduction for costs of disposal.
(e) Investment property
Investment properties are measured initially at cost, and subsequently
remeasured to market value, reflecting market conditions at the balance sheet
date. Gains or losses arising from the changes in fair values of investment
properties are included in the consolidated statement of recognised gains and
losses, as movements on the investment property revaluation reserve.
2 Investment income
2007 2006
£ £
Income from investments
Income from fixed interest securities 270,667 222,854
Other income:
Deposit Interest 63,044 46,185
------------ ------------
333,711 269,039
------------ ------------
3 Management fee
2007 2006
£ £
Management fee 156,210 119,196
------------ ------------
The management fee payable to Development Capital Management (Jersey) Limited
(DCM) was 2% per annum of the net asset value of the fixed income portfolio held
by the Company, plus any cash amount of deposits paid and outstanding in respect
of property contracts yet to complete. Prior to 18 January 2006 it was 1.25% per
annum.
The management agreement between the Company and DCM is terminable by either
party on 12 month's notice.
4 Other expenses
2007 2006
£ £
Administration and secretarial services 38,810 37,301
Directors' remuneration 35,000 28,733
Auditors' fees - for audit services 19,847 28,200
Auditors' fees - other services 3,494 6,600
Legal fees 98,939 55,506
Miscellaneous expenses 72,424 57,724
------------ ------------
268,514 214,064
------------ ------------
5 Tax on ordinary activities
2007 2006
£ £
Income tax on rental income 3,094 -
------------ ------------
Income tax is deducted at source on net rental income.
6 Returns per share
The revenue loss per share is based on the net profit for the year of £91,331
(2006: loss of £64,221) and on 10,134,550 shares (2006: 7,829,398 shares), being
the weighted average number of shares in issue.
The capital gain/(loss) per share is based on the net gain for the year of
£259,220 (2006: loss of £174,753) and on 10,134,550 shares (2006: 7,829,398
shares), being the weighted average number of shares in issue.
7 Subsidiary companies
In September 2006, the Company acquired the whole of the share capital of OPF
Investment Properties Limited, a Company registered in Jersey.
8 Non-current assets
Quoted investments 2007 2006
£ £
Opening valuation 5,941,738 1,280,973
Opening unrealised appreciation 51,719 (13,116)
------------ ------------
Opening book cost 5,993,457 1,267,857
Movements during the year:
Purchases 2,086,995 6,253,664
Sales - proceeds (2,023,640) (1,510,369)
Amortisation of fixed income book costs (16,644) (17,085)
Sales - realised losses (1,841) (610)
------------ ------------
Closing book cost 6,038,327 5,993,457
Closing unrealised loss (53,320) (51,719)
------------ ------------
Closing valuation 5,985,007 5,941,738
------------ ------------
Property contracts yet to complete 2007 2006
£ £
Opening book cost 336,602 362,905
Movements during the year:
Purchases 298,649 336,602
Reclassification to Investment Properties - (58,689)
Sales - proceeds (451,835) (194,908)
Sales - realised gains/(losses) 262,662 (109,308)
------------ ------------
Closing book cost 446,078 336,602
Closing unrealized depreciation - -
------------ ------------
Net realisable value 446,078 336,602
------------ ------------
The movement during the year in the table above refers to the disposal of 29
apartments at Oldham Place, Liverpool and the deposits and initial costs payable
on two new developments at Yeading Lane in Hayes and Brook Street in Tring. The
table below summarises the costs associated with these contracts and applies the
'Red Book' valuation, prepared by Venmore Partnership LLP for Oldham Place at 30
September 2007 and Douglas Duff for Yeading Lane and Brook Street at 30
September 2006, of the underlying properties as a basis of valuation for these
contracts. The 'Red Book' value may not represent the 'fair value' of the
contracts as explained in the 'market price risk' section of note 17.
Oldham Waterfront Brook Yeading
Place Plaza Street Lane
£ £ £ £
Deposits paid 336,602 - 292,774 -
Legal and
acquisition
costs - - 2,937 2,938
Proceeds on
disposal (430,043) (21,792) - -
Gain on
disposal 240,870 21,792 - -
--------- --------- --------- ---------
Book cost as
at 30 September 2007 147,429 - 295,711 2,938
--------- --------- --------- ---------
Outstanding
completion
payments 2,948,580 - 5,562,697 4,569,894
--------- --------- --------- ---------
Total historic
cost 3,096,009 - 5,858,408 4,572,832
--------- --------- --------- ---------
'Red Book'
valuation 3,650,000 - 8,030,000 7,100,000
Approximate completion
date Jun 2009 - Dec 2008 Jan 2009
The deposit payable on Brook Street relates to 38 units as the terms of the
rescission of 7 units allocated to affordable housing has not yet been
finalised. The deposit payable on Yeading Lane has not yet been reflected in the
accounts due to the unfulfilled condition of the developer securing the purchase
of the balance of the site.
Investment property 2007 2006
£ £
Opening book cost 982,893 -
Movements during the year:
Reclassification from Property contracts yet to - 58,689
complete
Completion payment 6,290 924,204
------------ ------------
Closing book cost 989,183 982,893
Closing unrealised (loss)/gain (78,183) 42,107
------------ ------------
Closing valuation 911,000 1,025,000
------------ ------------
The investment property was valued at the year end by Savills (L&P) Limited on
the basis of open market value.
9 Debtors
Amounts falling due within one year 2007 2006
£ £
Amounts due on property contracts yet to complete 189,174 173,116
Interest receivable 199,872 183,221
Prepaid expenses 47,976 10,082
------------ ------------
437,022 366,419
------------ ------------
Amounts falling due after one year 2007 2006
£ £
Amounts due on property contracts yet to complete 253,532 -
------------ ------------
The amounts due on property contracts yet to complete relate to the Fund's
profit share on Oldham Place payable on completion of the development expected
to be in 2009.
10 Creditors: Amounts falling due within one year
2007 2006
£ £
Deferred income and accrued expenses 74,032 54,826
Amounts due on property contracts yet to complete 292,774 -
------------ ------------
366,806 54,826
------------ ------------
Accrued expenses includes secretarial and administration fees of £9,425 (2006:
£9,275) due to BNP Paribas Fund Services Jersey Limited.
10 Stated capital
The Company is a no par value company
Authorised: 2007 2006
Founder shares 10 10
99,999,990 participating shares 99,999,990 99,999,990
------------ ------------
100,000,000 100,000,000
------------ ------------
Issued:
Founder shares 2 2
Participating shares 11,153,098 9,294,248
------------ ------------
On 18 April 2007, 1,858,850 participating shares were issued at 95p raising net
proceeds of £1,695,272.
12 Transaction costs
There were no transaction costs charged to the Company during the year. A fee,
including brokerage costs, is charged by the custodian of the fixed income
portfolio to the Manager, Development Capital Management (Jersey) Limited.
13 Reserves
Investment
Capital Capital property Issue
reserve reserve revaluation costs Revenue
realised unrealised reserve reserve reserve Total
£ £ £ £ £ £
At 1 October
2006 (108,348) (51,719) 42,107 (609,232) (260,921) (988,113)
Net losses on
realisation of
investments (1,841) - - - - (1,841)
Profit on
disposal of
property
contract 262,662 - - - - 262,662
Movement in
unrealised
appreciation - (1,601) (120,290) - - (121,891)
Expenses of
share issue - - - (70,636) - (70,636)
Loss on
ordinary
activities for
the year - - - - (91,331) (91,331)
-------- -------- --------- -------- -------- --------
At 30
September 2007 152,473 (53,320) (78,183) (679,868) (352,252) (1,011,150)
-------- -------- --------- -------- -------- --------
13 Net asset value per share
Net asset value attributable per share
2007 2006
p p
Participating shares (note 11) 85.12 83.40
Net asset value
2007 2006
£ £
9,494,004 7,751,133
------------- ------------
14 Reconciliation of net gain/(loss) before finance costs and taxation to net
cash outflow from operating activities
2007 2006
£ £
Net gain/(loss) before finance costs and taxation 170,983 (238,974)
(Gains)/losses on properties (262,662) 109,308
Losses on investments 3,442 65,445
Increase in accruals 13,833 26,451
Increase in prepayments (2,446) (6,856)
Increase in accrued income (15,476) (143,531)
Amortisation of fixed interest securities 16,644 17,085
------------- ------------
Net cash out flow from operating activities (75,682) (171,072)
------------- ------------
15 Analysis of changes in net funds
At At
30 September Cash flows 30 September
2006 2007
£ £ £
Cash and cash equivalents 136,200 1,691,971 1,828,171
----------- ----------- -----------
At At
30 September Cash flows 30 September
2005 2006
£ £ £
Cash and cash equivalents 148,995 (12,795) 136,200
----------- ----------- -----------
17 Financial instruments and property contracts yet to complete
The Company's financial instruments comprise fixed interest securities, cash
balances, property contracts and debtors and creditors that arise directly from
its operations, for example, in respect of sales and purchases awaiting
settlement, and debtors for accrued income.
The main risks the Company faces from its financial instruments are (i) market
price risk, being the risk that the value of investment holdings will fluctuate
as a result of changes in market prices caused by factors other than interest
rate or currency movement, (ii) credit risk, (iii) interest rate risk and (iv)
liquidity risk.
The Board reviews and agrees policies for managing each of these risks. The
Manager's policies for managing these risks are summarized below and have been
applied throughout the period. The numerical disclosures exclude short-term
debtors and creditors.
Market price risk
Market price risk arises mainly from uncertainty about future prices of
financial instruments used in the Company's operations. It represents the
potential loss the Company might suffer through holding market positions as a
consequence of price movements.
It is the Board's policy to hold a broad spread of fixed interest investments in
order to reduce risk arising from factors specific to a particular country or
sector. The Manager monitors market prices throughout the year and reports to
the Board, which meets regularly in order to review investment strategy.
The Red Book valuations of the underlying properties, on which the Company holds
contracts are based primarily upon 'The estimated amount for which a property
should exchange on the date of the valuation, between a willing buyer and a
willing seller in an arm's-length transaction after proper marketing wherein the
parties had each acted knowledgeably, prudently and without compulsion.' This
valuation methodology is designed to encapsulate the fair value of the
properties were they complete and held for investment purposes. The Company
however holds contracts to purchase these properties once complete and therefore
is exposed to additional risks such as the risk that the development fails to
complete or completes in a sub-standard fashion not accounted for in the Red
Book assumptions. The Company is also exposed to changes in the value of the
property caused by other economic factors.
The contracts are highly leveraged such that small changes in the values of the
underlying properties can generate large changes in the unrealised values of the
contracts. By way of an example the change in value of a contract using a 5%
deposit could be affected by approximately twenty times the change in value of
the underlying asset.
It is the Board's policy to value the property contracts yet to complete at the
lower of cost and net realisable value as set out in 1(d). This eliminates to a
significant degree the effect of market movements in the underlying property on
the value of the contracts. The total purchase price including acquisition
costs, of the twenty-two contracts at Oldham Place is £3,096,009 and the Red
Book valuation of the properties as at 30 September 2007 is £3,650,000. The
total purchase price including acquisition costs, of the thirty-eight contracts
at Brook Street is £5,858,408 and the Red Book valuation of the properties is
£8,030,000. The total purchase price, including acquisition costs, of the
thirty-one contracts at Yeading Lane is £4,572,832 and the Red Book valuation of
the properties £7,100,000.
Should the Company complete on all the contracts and subsequent Red Book
valuations fall by more than 28%, the Company would then be exposed to any
further falls in the market, as the net realisable value would then be below
cost.
Credit risk
As part of the fixed interest portfolio the Company places funds with third
parties and is therefore potentially at risk from the failure of any such third
party. The Fund expects to place any such funds on a short-term basis only and
spread these over a number of different providers.
The deposits in respect of the property contracts yet to complete are held in
escrow with the Company's or developer's solicitors. This money is only released
to the developer on satisfactory completion of the property or in certain
instances when the developer meets certain security criteria. Should a developer
default on the contract the deposit and any interest earned would be returned to
the Company.
Interest rate risk
The interest rate risk profile of financial assets at the balance sheet date was
as follows:
Fixed Rate Floating Rate Non-interest Bearing
2007 2006 2007 2006 2007 2006
£ £ £ £ £ £
Financial 5,985,007 5,941,738 1,828,171 136,200 - -
assets
Property
contracts - - - - 446,078 366,602
yet to
complete
Debtors - - - - 253,352 -
-------- -------- -------- ------- ------- -------
All short-term debtors and creditors have been excluded from this disclosure.
The fixed interest assets have a weighted average maturity of 1.1 years (30
September 2006: 1.4 years) and a weighted average yield of 4.9% per annum (30
September 2006: 5.1%).
The floating rate assets consist of cash deposits on call, earning interest at
the prevailing market rates. Changes in interest rates will impact on the value
of fixed interest securities and future cash flows from floating rate holdings.
They will have no impact on the property contracts yet to complete.
Liquidity risk
The Company's assets comprise cash balances and readily realisable securities,
which can be sold to meet funding commitments if necessary. They also comprise
of property contracts yet to complete which are illiquid.
It is the intention of the Board to sell on the property contracts yet to
complete. However should there be insufficient liquidity in the market to enable
this to happen the Company would be liable to pay the remaining commitment set
out in the contracts which is currently £13,081,171.
18 Commitments and contingencies
The Company has twenty-two property contracts in respect of Oldham Place,
Liverpool. Should none of the property contracts be sold prior to completion the
Company would be required to pay a further £2,948,580.
Thirty-eight property contracts were entered into during the year to 30
September 2007 in respect of Brook Street, Tring. Should none of the property
contracts be sold prior to completion the Company would be required to pay a
further £5,562,697.
Thirty-one property contracts were entered into during the year to 30 September
2007 in respect of Yeading Lane, Hayes, subject to the developer completing the
purchase of the balance of the site. Should none of the property contracts be
sold prior to completion the Company would be required to pay a further
£4,569,894.
Should the developers fail to satisfactorily complete, the deposits currently
held in escrow will be returned together with any interest earned.
19 Consolidated reconciliation of shareholders funds
Investment
property Issue
Share Capital revaluation costs Revenue
capital reserves reserve reserve reserve Total
£ £ £ £ £ £
For the year ended 30 September 2007
At 1 October
2006 8,739,246 (160,067) 42,107 (609,232) (260,921) 7,751,133
Issue of
shares 1,765,908 - - - - 1,705,908
Expenses of
share issue - - - (70,636) - (70,636)
Gain/(loss)
for the year - 259,220 (120,290) - (91,331) 47,599
--------- -------- --------- -------- -------- --------
At 30
September 2007 10,505,154 99,153 (78,183) (679,868) (352,252) 9,494,004
--------- -------- --------- -------- -------- --------
For the year ended 30 September 2006
At 1 October
2005 1,970,000 14,686 - - (196,700) 1,787,986
Issue of
shares 6,769,246 - - - - 6,769,246
Expenses of
share issue - - - (609,232) - (609,232)
(Loss)/gain
for the year - (174,753) 42,107 - (64,221) (196,867)
--------- -------- --------- -------- -------- --------
At 30
September 2006 8,739,246 (160,067) 42,107 (609,232) (260,921) 7,751,133
--------- -------- --------- -------- -------- --------
20 Post balance sheet event
On 18 December 2007 the Fund exchanged contracts in respect of the purchase of
118 apartments to be built at a new development in Wallington, Surrey, for an
aggregate total of £25,000,000 on completion, a discount of 18% to the
prevailing Red Book valuation of £30,595,000. A deposit of £1.25m was paid on
exchange and a guarantee of £3m was provided over the Fund's cash reserves.
21 Controlling party
There is no ultimate controlling party.
22 Tax note
Under Article 123A of the Income Tax (Jersey) law 1961, as amended, the Fund has
obtained Jersey exempt company status for the year and is therefore exempt from
Jersey income tax on non Jersey source income and bank interest (by concession).
A £600 annual exempt company fee is payable by the Fund.
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